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
	For the quarterly period ended ~~September 30, 2014~~March 31, 2015
	Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission File No.: 001-16753

____________________

AMN HEALTHCARE SERVICES, INC.

(Exact Name of Registrant as Specified in Its Charter)

____________________



Delaware		06-1500476
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

12400 High Bluff Drive, Suite 100 San Diego, California		92130
(Address of principal executive offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (866) 871-8519

____________________

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer o	Accelerated filer x	Non-accelerated filer o	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o

No x

As of ~~November 3, 2014~~May 6, 2015, there were ~~46,631,739~~47,555,758 shares of common stock, $0.01 par value, outstanding.

TABLE OF CONTENTS


Item		Page		Page

	PART I - FINANCIAL INFORMATION		PART I - FINANCIAL INFORMATION

1.	Condensed Consolidated Financial Statements (unaudited):	1	Condensed Consolidated Financial Statements (unaudited):	1
	Condensed Consolidated Balance Sheets, As of September 30, 2014 and December 31, 2013	1	Condensed Consolidated Balance Sheets, As of March 31, 2015 and December 31, 2014	1
	Condensed Consolidated Statements of Comprehensive Income, For the Three and Nine Months Ended September 30, 2014 and 2013	2	Condensed Consolidated Statements of Comprehensive Income, For the Three Months Ended March 31, 2015 and 2014	2
	Condensed Consolidated Statements of Cash Flows, For the Nine Months Ended September 30, 2014 and 2013	3	Condensed Consolidated Statements of Cash Flows, For the Three Months Ended March 31, 2015 and 2014	3
	Notes to Unaudited Condensed Consolidated Financial Statements	5	Notes to Unaudited Condensed Consolidated Financial Statements	5
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
3.	Quantitative and Qualitative Disclosures about Market Risk	21	Quantitative and Qualitative Disclosures about Market Risk	18
4.	Controls and Procedures	21	Controls and Procedures	18

	PART II - OTHER INFORMATION		PART II - OTHER INFORMATION


1.	Legal Proceedings	22	Legal Proceedings	19
1A.	Risk Factors	22	Risk Factors	19
2.	Unregistered Sales of Equity Securities and Use of Proceeds	22	Unregistered Sales of Equity Securities and Use of Proceeds	19
3.	Defaults Upon Senior Securities	22	Defaults Upon Senior Securities	19
4.	Mine Safety Disclosures	22	Mine Safety Disclosures	19
5.	Other Information	22	Other Information	19
6.	Exhibits	23	Exhibits	20
	Signatures	24	Signatures	21

PART I - FINANCIAL INFORMATION


Item 1.	Condensed Consolidated Financial Statements

AMN HEALTHCARE SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands, except par value)


	September 30, 2014			December 31, 2013			March 31, 2015			December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	9,663		$	15,580		$	11,633		$	13,073
Accounts receivable, net of allowances of $4,529 and $5,118 at September 30, 2014 and December 31, 2013, respectively	164,078			147,477
Accounts receivable, net of allowances of $6,019 and $4,515 at March 31, 2015 and December 31, 2014, respectively							221,001			186,274
Accounts receivable, subcontractor	21,569			18,271			34,191			28,443
Deferred income taxes, net	24,970			24,938			26,466			27,330
Prepaid and other current assets	28,844			26,631			29,065			27,550
Total current assets	249,124			232,897			322,356			282,670
Restricted cash, cash equivalents and investments	21,012			23,115			19,772			19,567
Fixed assets, net of accumulated depreciation of $67,857 and $63,031 at September 30, 2014 and December 31, 2013, respectively	29,202			21,158
Fixed assets, net of accumulated depreciation of $71,019 and $68,814 at March 31, 2015 and December 31, 2014, respectively							36,674			32,880
Other assets	40,045			32,279			44,117			39,895
Goodwill	144,937			144,642			197,254			154,387
Intangible assets, net of accumulated amortization of $40,022 and $42,439 at September 30, 2014 and December 31, 2013, respectively	144,498			150,197
Intangible assets, net of accumulated amortization of $44,822 and $41,963 at March 31, 2015 and December 31, 2014, respectively							179,877			152,517
Total assets	$	628,818		$	604,288		$	800,050		$	681,916
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	66,949		$	71,081		$	92,081		$	78,993
Accrued compensation and benefits	64,574			55,949			72,237			67,995
Revolving credit facility	—			10,000
Current portion of revolving credit facility							30,000			18,000
Current portion of notes payable	7,500			—			7,500			7,500
Deferred revenue							3,137			3,177
Other current liabilities	8,746			6,060			2,662			2,630
Total current liabilities	147,769			143,090			207,617			178,295
Notes payable, net of discount	138,750			148,672
Revolving credit facility							65,500			—
Notes payable							135,000			136,875
Deferred income taxes, net							37,198			32,491
Other long-term liabilities	96,881			94,784			83,972			77,674
Total liabilities	383,400			386,546			529,287			425,335
Commitments and contingencies (Note 9)
Commitments and contingencies and subsequent events
Stockholders’ equity:
Preferred stock, $0.01 par value; 10,000 shares authorized; none issued and outstanding at September 30, 2014 and December 31, 2013	—			—
Common stock, $0.01 par value; 200,000 shares authorized; 46,631 and 46,011 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively	466			460
Preferred stock, $0.01 par value; 10,000 shares authorized; none issued and outstanding at March 31, 2015 and December 31, 2014							—			—
Common stock, $0.01 par value; 200,000 shares authorized; 47,455 and 46,639 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively							475			466
Additional paid-in capital	433,373			429,055			436,425			434,529
Accumulated deficit	(187,953		)	(211,275		)	(165,849		)	(178,058		)
Accumulated other comprehensive loss	(468		)	(498		)	(288		)	(356		)
Total stockholders’ equity	245,418			217,742			270,763			256,581
Total liabilities and stockholders’ equity	$	628,818		$	604,288		$	800,050		$	681,916

See accompanying notes to unaudited condensed consolidated financial statements.

AMN HEALTHCARE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited and in thousands, except per share amounts)


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
	2014		2013			2014		2013			2015		2014
Revenue	$	264,584	$	257,095		$	756,378	$	763,158		$	327,510	$	240,881
Cost of revenue	184,278		181,428			524,957		540,071			226,078		166,925
Gross profit	80,306		75,667			231,421		223,087			101,432		73,956
Operating expenses:
Selling, general and administrative	60,319		55,605			170,553		163,763			71,552		54,667
Depreciation and amortization	4,086		3,317			11,916		9,847			5,095		3,820
Total operating expenses	64,405		58,922			182,469		173,610			76,647		58,487
Income from operations	15,901		16,745			48,952		49,477			24,785		15,469
Interest expense, net (including loss on debt extinguishment of $3,113 and $434 for the nine months ended September 30, 2014 and 2013, respectively), and other	1,433		1,840			7,908		7,829
Interest expense, net, and other											1,807		1,846
Income before income taxes	14,468		14,905			41,044		41,648			22,978		13,623
Income tax expense	5,969		6,290			17,722		17,071			10,769		5,993
Net income	$	8,499	$	8,615		$	23,322	$	24,577		$	12,209	$	7,630

Other comprehensive income (loss) - foreign currency translation	75		(84		)	29		(19		)	68		(9		)
Comprehensive income	$	8,574	$	8,531		$	23,351	$	24,558		$	12,277	$	7,621

Net income per common share:
Basic	$	0.18	$	0.19		$	0.50	$	0.53		$	0.26	$	0.16
Diluted	$	0.18	$	0.18		$	0.49	$	0.51		$	0.25	$	0.16
Weighted average common shares outstanding:
Basic	46,546		45,986			46,460		45,947			47,146		46,354
Diluted	48,122		47,810			47,959		47,776			48,364		47,917

See accompanying notes to unaudited condensed consolidated financial statements.

AMN HEALTHCARE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2014			2013			2015			2014
Cash flows from operating activities:
Net income	$	23,322		$	24,577		$	12,209		$	7,630
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	11,916			9,847			5,095			3,820
Non-cash interest expense and other	1,104			1,050			457			295
Increase in allowances for doubtful accounts and sales credits	2,915			2,679			2,192			443
Provision for deferred income taxes	1,768			1,951			5,359			1,885
Share-based compensation	5,361			4,667			2,377			1,819
Excess tax benefits from share-based compensation	(1,780		)	(1,529		)	(5,029		)	(1,546		)
Holdback settlement in equity from prior acquisition	—			(3,046		)
Loss on disposal or sale of fixed assets	50			13
Loss on debt extinguishment	3,113			434
Changes in assets and liabilities:
(Gain) loss on disposal or sale of fixed assets							(2		)	1
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable	(19,516		)	(5,102		)	(16,443		)	(3,806		)
Accounts receivable, subcontractor	(3,298		)	(402		)	(5,748		)	(409		)
Income taxes receivable							5,171			3,114
Prepaid expenses and other current assets	(2,184		)	5,181			(3,063		)	(4,068		)
Other assets	(188		)	(2,480		)	(2,150		)	(606		)
Accounts payable and accrued expenses	(4,156		)	1,573			3,621			(6,190		)
Accrued compensation and benefits	8,625			4,778			996			1,008
Other liabilities	4,625			3,383			4,382			369
Deferred revenue							(532		)	(20		)
Restricted cash, cash equivalents and investments balance	(9,038		)	(3,225		)	(205		)	(2,875		)
Net cash provided by operating activities	22,639			44,349			8,687			864

Cash flows from investing activities:
Purchase and development of fixed assets	(14,287		)	(6,447		)	(6,370		)	(5,843		)
Proceeds from sales of assets held for sale	—			600
Loan to Pipeline Health Holdings LLC							(667		)	—
Equity method investment	(5,000		)	—			—			(2,000		)
Payments to fund deferred compensation plan	(2,174		)	(1,251		)	(1,203		)	(1,215		)
Cash paid for acquisition, net of cash received							(76,945		)	—
Cash paid for working capital adjustments for prior acquisition							(165		)	—
Change in restricted cash, cash equivalents and investments balance	11,141			48			—			4,349
Net cash used in investing activities	(10,320		)	(7,050		)	(85,350		)	(4,709		)

Cash flows from financing activities:
Capital lease repayments	(472		)	(479		)	(4		)	(156		)
Payments on term loan	(153,370		)	(10,000		)	(1,875		)	—
Proceeds from term loan	150,000			—
Payments on revolving credit facility	(39,500		)	(1,000		)	(7,000		)	(1,000		)
Proceeds from revolving credit facility	29,500			1,000			84,500			1,000
Payment of financing costs	(3,488		)	(935		)
Proceeds from exercise of equity awards	1,792			1,174			3,199			58
Cash paid for shares withheld for taxes	(4,361		)	(2,662		)	(8,694		)	(3,905		)
Excess tax benefits from share-based compensation	1,780			1,529			5,029			1,546
Change in bank overdraft	(146		)	65
Net cash used in financing activities	(18,265		)	(11,308		)
Net cash provided by (used in) financing activities							75,155			(2,457		)
Effect of exchange rate changes on cash	29			(19		)	68			(9		)
Net (decrease) increase in cash and cash equivalents	(5,917		)	25,972
Net decrease in cash and cash equivalents							(1,440		)	(6,311		)
Cash and cash equivalents at beginning of period	15,580			5,681			13,073			15,580
Cash and cash equivalents at end of period	$	9,663		$	31,653		$	11,633		$	9,269

Supplemental disclosures of cash flow information:
Cash paid for interest (net of $43 and $123 capitalized for the three months ended March 31, 2015 and 2014, respectively)							$	1,330		$	1,588


	Nine Months Ended September 30,				Three Months Ended March 31,
	2014		2013		2015			2014
Cash paid for interest (net of $83 and $63 capitalized for the nine months ended September 30, 2014 and 2013, respectively)	$	3,687	$	4,253
Cash paid for income taxes	$	12,732	$	14,708	$	473		$	223
Acquisitions:
Fair value of tangible assets acquired in acquisition, net of cash received					$	25,627		$	—
Goodwill					42,702			—
Intangible assets					30,219			—
Liabilities assumed					(21,603		)	—
Net cash paid for acquisitions					$	76,945		$	—
Supplemental disclosures of non-cash investing and financing activities:
Purchase of fixed assets recorded in accounts payable and accrued expenses	$	3,751	$	1,221	$	3,607		$	3,067

See accompanying notes to unaudited condensed consolidated financial statements.

AMN HEALTHCARE SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

1. BASIS OF PRESENTATION

The condensed consolidated balance sheets and related condensed consolidated statements of comprehensive income and cash flows contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”), which are unaudited, include the accounts of AMN Healthcare Services, Inc. and its wholly-owned subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all entries necessary for a fair presentation of such unaudited condensed consolidated financial statements have been included. These entries consisted of all normal recurring items. The results of operations for the interim period are not necessarily indicative of the results to be expected for any other interim period or for the entire fiscal year or for any future period.

The unaudited condensed 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. Please refer to the Company’s audited consolidated financial statements and the related notes for the fiscal year ended December 31, ~~2013,~~2014, contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2013,~~2014, filed with the Securities and Exchange Commission ~~(“SEC”)~~ on February ~~21, 2014.~~25, 2015 (“2014 Annual Report”).

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, the Company evaluates its estimates, including those related to asset impairments, accruals for self-insurance, compensation and related benefits, accounts receivable, contingencies and litigation ~~valuation and recognition of share-based payments~~ and income taxes. Actual results could differ from those estimates under different assumptions or conditions.

Reclassification

Certain reclassifications that are not material have been made to the prior year’s consolidated financial statements to conform to the current year presentation. ~~Specifically, payments made into~~

2. BUSINESS COMBINATIONS

Onward Healthcare Acquisition

On January 7, 2015, the Company completed its acquisition of Onward Healthcare, including its two wholly-owned subsidiaries, Locum Leaders and Medefis (collectively, “OH”), for approximately $76,945 in cash, funded by cash-on-hand and borrowings under the Company’s revolving credit facility. Onward Healthcare is a national nurse and allied healthcare staffing firm, Locum Leaders is a national locum tenens provider, and Medefis is a provider of a software as a service, or “SaaS,” based vendor management system for healthcare facilities. The acquisition helps the Company to expand its service lines and its supply and placement capabilities of healthcare professionals to its clients.

The Company accounted for the acquisition using the acquisition method of accounting and, accordingly, it recorded the tangible and intangible assets acquired and liabilities assumed at their estimated fair values as of the date of the acquisition. As of the filing date of this Form 10-Q, the Company is still finalizing the allocation of the purchase price, primarily related to tax matters and valuation of intangibles.

The preliminary allocation of the $76,945 purchase price consisted of $25,627 of fair value of tangible assets acquired (including $20,476 of accounts receivable), $21,603of liabilities assumed (including $10,478 of accounts payable and accrued expenses), $30,219 of identified intangible assets, and $42,702 of goodwill, none of which is deductible for tax purposes. The intangible assets include the fair value of tradenames and trademarks, customer relationships, staffing database, acquired technologies and non-compete agreements. The weighted average useful life ~~insurance policies~~of the acquired intangible assets is approximately 11 years. The following table summarizes the fair value and useful life of each intangible asset acquired:



		Fair Value		Useful Life
				(in years)
Identifiable intangible assets
	Tradenames and Trademarks	$	8,100	3 - 15
	Customer Relationships	17,600		10 - 15
	Staffing Database	2,600		5
	Acquired Technologies	1,700		8
	Non-compete agreements	219		2
		$	30,219

Of the $42,702 allocated to ~~assist~~goodwill, $37,233 and $5,469 were allocated to the Company’s nurse and allied healthcare staffing segment and locum tenens staffing segment, respectively.

The results of Onward Healthcare and Medefis are included in ~~funding~~ the ~~deferred compensation plan~~Company’s nurse and allied healthcare staffing segment and the results of Locum Leaders are included in the Company’s locum tenens staffing segment. For the three months ended March 31, 2015, approximately $31,236 of revenue and $2,821 of income before income taxes of the Onward Healthcare entities were ~~reclassified from cash flows from operating activities to cash flows from investing activities~~included in the unaudited condensed consolidated statement of ~~cash flows~~operations since the date of acquisition.

The following summary presents unaudited pro forma consolidated results of operations of the Company for the ~~nine~~three months ended ~~September 30, 2013. In addition,~~March 31, 2015 and 2014 as if the ~~Company reclassified expected insurance recoveries under its professional liability and workers’~~OH acquisition described above had occurred on January 1, 2014. The following unaudited pro forma financial information gives effect to certain adjustments, including the reduction in compensation ~~policies in the condensed consolidated balance sheet for the year ended December 31, 2013~~expense related to conform to the current year presentation. Professional liability and workers’ compensation liability were previously presented net of insurance recoveries. Commencing June 30, 2014, expected insurance recoveries are presented on a gross basis, with the short-term insurance receivable portion included within “Prepaid and other current assets”non-recurring executive salary expense, acquisition-related costs and the ~~long-term portion included within “Other assets” on~~amortization of acquired intangible assets. The pro forma financial information is not necessarily indicative of the ~~condensed consolidated balance sheet.~~operating results that would have occurred had the acquisition been consummated as of the date indicated, nor are they necessarily indicative of future operating results.



	Three Months Ended
	March 31,
	2015		2014
Revenue	$	329,795	$	266,899
Net income	$	12,883	$	7,660

~~2. BUSINESS COMBINATION AND EQUITY INVESTMENT~~

~~ShiftWise~~Avantas Acquisition

On ~~November 20, 2013,~~December 22, 2014, the Company completed its acquisition of ~~ShiftWise,~~Avantas, a leading ~~national~~ provider of ~~web-based healthcare~~clinical labor management services, including workforce ~~solutions, including~~consulting, data analytics, predictive modeling and SaaS-based scheduling technology, for $17,520, which the Company funded through cash-on-hand and borrowings under its ~~vendor management systems, or “VMS,” utilized by hospitals~~revolving credit facility. The total purchase price of $17,520 included $14,470 cash consideration paid, $1,650 cash holdback for potential claims, and ~~other healthcare systems.~~contingent earn-out with a fair value of $1,400. During the three months ended March 31, 2015, the Company paid an additional $165 to the selling equityholders for a working capital adjustment. The acquisition is intended to help enable the Company to provide a level of workforce predictability to clients that can be integrated with its workforce and staffing solutions. The acquisition is not considered a material business combination and, accordingly, pro forma information is not provided. The Company did not incur any material acquisition-related costs.

The Company accounted for the acquisition using the acquisition method of accounting and, accordingly, it recorded the tangible and intangible assets acquired and liabilities assumed at their estimated fair values as of the date of the acquisition. The ~~purchase price~~acquisition agreement provides for a tiered contingent earn-out payment of up to $8,500 to be paid in 2016 based on the ~~acquisition totaled $39,500,~~operating results of ~~which $6,000 was deposited in escrow to satisfy any indemnification claims by~~Avantas for the Company with respect to, among other customary items, breaches of representations, warranties and covenants by ShiftWise and post-closing purchase price adjustments. The $6,000 deposited in escrow will be disbursed to the selling shareholders in three years following the closing date at $2,000 per annum minus any indemnification claims.12 month period ending June 30, 2016. As of the filing date ~~of filing~~ of this Form 10-Q, the Company is still finalizing the allocation of the purchase ~~price. The provisional items pending finalization are~~price, primarily related to tax ~~matters, which the Company expects to complete during 2014.~~matters.

The preliminary allocation of the purchase price consisted of ~~$9,899~~$1,631 of fair value of tangible assets acquired, ~~$11,801~~$3,821 of liabilities and deferred revenue assumed, ~~(including $2,933 of deferred tax liabilities), $21,612 of goodwill and $19,790~~$9,960 of identified intangible ~~assets.~~assets and $9,916 of goodwill, which goodwill is deductible for tax purposes. The intangible assets include the fair value of ~~trade names~~tradenames and trademarks, customer relationships ~~non-compete agreements~~ and acquired technologies. The weighted average useful life of the acquired intangible assets subject to amortization is approximately 814 years. ~~There was no goodwill recognized as part of this acquisition that is deductible for tax purposes.~~

The results of operations of ~~ShiftWise have been~~Avantas are included in the nurse and allied healthcare staffing segment in the Company’s ~~condensed~~ consolidated financial ~~statements since the date of acquisition.~~

~~Pipeline Equity Investment~~

In March 2014, the Company entered into an agreement (the “Pipeline Agreement”) under which it made an initial $2,000 investment in Pipeline Health Holdings LLC (“Pipeline”), a telepharmacy provider. The Company’s ownership percentage in Pipeline at March 31, 2014 was approximately 9%. Under the Pipeline Agreement, the Company committed to invest up to an additional $3,000 contingent upon Pipeline reaching two milestone commitments within a year. In April and September 2014, the Company made the milestone investments of $1,000 and $2,000, respectively, which together with the initial investment represents an ownership percentage in Pipeline of approximately 18% as of September 30, 2014. The investment is accounted for under the equity method of accounting. The Company’s share of Pipeline’s results is included within “Interest expense, net, and other” in the accompanying unaudited condensed consolidated statement of comprehensive income for both the three and nine months ended September 30, 2014.statements.

3. REVENUE RECOGNITION

Revenue consists of fees earned from the permanent and temporary placement of ~~clinicians and physicians.~~healthcare professionals. Revenue is recognized when earned and realizable. The Company has entered into certain contracts with healthcare organizations to provide managed services programs. Under these contract arrangements, the Company uses its ~~clinicians and physicians~~healthcare professionals along with those of third party subcontractors to fulfill client orders. If the Company uses subcontractors, it records revenue net of related subcontractors expense. The resulting net revenue represents the administrative fee the Company charges for its vendor management services. The Company records subcontractor accounts receivable from the client in the consolidated balance sheets. The Company generally pays the subcontractor after it has received payment from the client. Payables to subcontractors of $~~23,613~~41,671 and $~~22,051~~33,474, respectively, were included in accounts payable and accrued expenses in the unaudited condensed consolidated balance sheet as of ~~September 30, 2014~~March 31, 2015 and the audited consolidated balance sheet as of December 31, ~~2013~~2014.

4. NET INCOME PER COMMON SHARE

Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted net income per common share reflects the effects of potentially dilutive share-based equity instruments.

Share-based awards to purchase ~~286~~33 and ~~296~~361 shares of common stock were not included in the calculation of diluted net income per common share for the three months ended ~~September 30,~~March 31, 2015 and 2014, ~~and 2013,~~ respectively, because the effect of these instruments was anti-dilutive. Share-based awards to purchase 344 and 313 shares of common stock were not included in the calculation of diluted net income per common share for the nine months ended September 30, 2014 and 2013, respectively, because the effect of these instruments was anti-dilutive.

The following table sets forth the computation of basic and diluted net income per common share for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013~~2014, respectively:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2014		2013		2014		2013		2015		2014
Net income	$	8,499	$	8,615	$	23,322	$	24,577	$	12,209	$	7,630

Net income per common share - basic	$	0.18	$	0.19	$	0.50	$	0.53	$	0.26	$	0.16
Net income per common share - diluted	$	0.18	$	0.18	$	0.49	$	0.51	$	0.25	$	0.16

Weighted average common shares outstanding - basic	46,546		45,986		46,460		45,947		47,146		46,354
Plus dilutive effect of potential common shares	1,576		1,824		1,499		1,829		1,218		1,563
Weighted average common shares outstanding - diluted	48,122		47,810		47,959		47,776		48,364		47,917

5. SEGMENT INFORMATION

The Company has three reportable segments: nurse and allied healthcare staffing, locum tenens staffing and physician permanent placement services.

The Company’s management relies on internal management reporting processes that provide revenue and operating income by reportable segment for making financial decisions and allocating resources. Segment operating income represents income before income taxes plus depreciation, amortization of intangible assets, share-based compensation expense, interest expense (net) and other, and unallocated corporate overhead. The Company’s management does not evaluate, manage or measure performance of segments using asset information; accordingly, asset information by segment is not prepared or disclosed.

The following table provides a reconciliation of revenue and operating income by reportable segment to consolidated results and was derived from each segment’s internal financial information as used for corporate management purposes:

Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Revenue
Nurse and allied healthcare staffing $ 174,292
$ 170,955
$ 503,636
$ 517,858
Locum tenens staffing 78,816
75,253
219,996
213,417
Physician permanent placement services 11,476
10,887
32,746
31,883
$ 264,584
$ 257,095
$ 756,378
$ 763,158
Segment Operating Income

Nurse and allied healthcare staffing $ 21,279
$ 20,392
$ 63,283
$ 62,994
Locum tenens staffing 8,139
7,547
22,830
17,347
Physician permanent placement services 2,756
2,205
7,074
6,735
32,174
30,144
93,187
87,076
Unallocated corporate overhead 10,396
8,595
26,958
23,085
Depreciation and amortization 4,086
3,317
11,916
9,847
Share-based compensation 1,791
1,487
5,361
4,667
Interest expense, net (including loss on debt extinguishment of $3,113 and $434 for the nine months ended September 30, 2014 and 2013, respectively), and other 1,433
1,840
7,908
7,829
Income before income taxes $ 14,468
$ 14,905
$ 41,044
$ 41,648



	Three Months Ended March 31,
	2015		2014
Revenue
Nurse and allied healthcare staffing	$	229,046	$	163,450
Locum tenens staffing	86,692		66,871
Physician permanent placement services	11,772		10,560
	$	327,510	$	240,881
Segment Operating Income
Nurse and allied healthcare staffing	$	31,901	$	19,972
Locum tenens staffing	9,110		6,873
Physician permanent placement services	3,271		2,131
	44,282		28,976
Unallocated corporate overhead	12,025		7,868
Depreciation and amortization	5,095		3,820
Share-based compensation	2,377		1,819
Interest expense, net, and other	1,807		1,846
Income before income taxes	$	22,978	$	13,623

6. FAIR VALUE MEASUREMENTS

Fair value represents the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which the Company would conduct a transaction, in addition to the assumptions that market participants would use when pricing the related assets or liabilities, including non-performance risk.

~~A three-level hierarchy prioritizes the inputs to~~The Company’s valuation techniques and inputs used to measure fair value and ~~requires an entity to maximize~~ the ~~use~~definition of ~~observable inputs and minimize~~ the ~~use of unobservable inputs when measuring fair value. The~~ three levels (Level 1, Level 2 and Level 3) of the fair value hierarchy are ~~as follows:~~

~~Level 1—Quoted prices~~disclosed in ~~active markets for identical assets or liabilities.~~

~~Level 2~~—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full termPart II, Item 8, “Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 4 - Fair Value Measurement” of the ~~assets~~Company’s 2014 Annual Report. The Company has not changed the valuation techniques or ~~liabilities.~~

~~Level 3—Unobservable~~ inputs ~~that are supported by little or no market activity and that are significant~~it uses to ~~the~~measure fair value ofduring the ~~assets or liabilities.~~three months ended March 31, 2015.

Assets and Liabilities Measured on a Recurring Basis

The Company’s assets that are measured at fair value on a recurring basis include restricted cash equivalents and ~~investments~~investments.

In addition, with the recent acquisition of Avantas, the Company may have an obligation to pay earn-out consideration of up to $8,500 to the selling equity holders if Avantas meets certain future financial metrics for the 12 month period ending June 30, 2016. The earn-out liability was estimated based on estimated cash flows determined using the probability-weighted average of possible outcomes that would occur should certain financial metrics be reached. As there is no market data available to use in valuing the contingent consideration, the Company developed its own assumptions related to the future financial performance of Avantas to estimate the fair value of this liability. As such, the contingent consideration liability is classified within Level 3.

In connection with estimating the fair value of the contingent consideration, the Company estimates the weighted probability of Avantas earning each of the five specified tiered earn-out amounts of $0, $1,500, $3,500, $5,500 and $8,500, which are each tied to the ~~Company’s investments associated with~~financial performance of Avantas for the 12 month period ending June 30, 2016. An increase or decrease in the probability of achievement will result in an increase or decrease to the estimated fair value of the contingent consideration. The Company reassesses the fair value each reporting period and adjusts the liability to its ~~deferred compensation plan.~~ then fair value. There was no change in the fair value of the liability during the three months ended March 31, 2015.

The following tables present information about these assets and liabilities and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:



	Fair Value Measurements as of March 31, 2015
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury securities	$	5,291	$	5,291	$	—	$	—
Money market funds	335		335		—		—
Acquisition contingent consideration earn-out liability	1,400		—		—		1,400
Total financial assets and liabilities measured at fair value	$	7,026	$	5,626	$	—	$	1,400

Fair Value Measurements as of September 30, 2014
Total
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

U.S. Treasury securities $ 6,700
$ 6,700

Money market funds 335
335

Total financial assets measured at fair value $ 7,035
$ 7,035


	Fair Value Measurements as of December 31, 2013				Fair Value Measurements as of December 31, 2014
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury securities	$	17,817	$	17,817	$	5,291	$	5,291	$	—	$	—
Money market funds	359		359		335		335		—		—
Total financial assets measured at fair value	$	18,176	$	18,176
Acquisition contingent consideration earn-out liability					1,400		—		—		1,400
Total financial assets and liabilities measured at fair value					$	7,026	$	5,626	$	—	$	1,400

The Company’s restricted cash equivalents and investments typically consist of U.S. Treasury securities and money market funds on deposit with financial institutions that serve as collateral for the Company’s outstanding letters of credit, and the Company’s investments associated with its deferred compensation plan typically consist of money market funds, which fair values are based on quoted prices in active markets for identical assets.credit.

Assets Measured on a Non-Recurring Basis

The Company applies fair value techniques on a non-recurring basis associated with valuing potential impairment losses related to its goodwill, indefinite-lived intangible assets, long-lived assets and equity method investment.

The Company evaluates goodwill and indefinite-lived intangible assets annually for impairment and whenever circumstances occur indicating that goodwill might be impaired. The Company determines the fair value of its reporting units based on a combination of inputs including the market capitalization of the Company as well as Level 3 inputs such as discounted cash flows, which are not observable from the market, directly or indirectly. The Company determines the fair value of its indefinite-lived intangible assets using the income approach (relief-from-royalty method) based on Level 3 inputs.

There were no triggering events identified and no indication of impairment of the Company’s goodwill, indefinite-lived intangible assets, long-lived assets or equity method investment during the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015 and ~~2013.~~2014.

Fair Value of Financial Instruments

The carrying amount of notes payable ~~approximates its~~and revolving credit facility approximate their fair value as the ~~instrument’s~~instruments’ interest rates are variable and comparable to rates currently offered for similar debt instruments of comparable maturity. The fair value of the Company’s long-term self-insurance accruals cannot be estimated as the Company cannot reasonably determine the timing of future payments.

7. INCOME TAXES

The Company is subject to income taxation in the U.S. and various states and foreign jurisdictions. With few exceptions, as of ~~September 30, 2014,~~March 31, 2015, the Company is no longer subject to U.S. federal, state, local or foreign income tax examinations by tax authorities for years before 2005. ~~During 2013,~~The Company’s tax years 2007, 2008, 2009 and 2010 have been under audit by the Internal Revenue Service (“IRS”) ~~completed its tax audit of~~for several years and in 2014, the IRS issued the Company ~~for the years 2007, 2008, 2009 and 2010. The IRS issued a~~its Revenue Agent Report (“RAR”) ~~to the Company related to its completed tax examination.~~and an Employment Tax Examination Report (“ETER”). The RAR ~~seeks~~proposed adjustments to the Company’s taxable income for 2007-2010 and net operating loss carryforwards ~~for 2005-2006. The adjustments to the Company’s taxable income relate to~~from 2005-2006, resulting from the proposed disallowance of certain per diems paid to ~~our clinicians and locum tenens providers on~~ the Company’s ~~income tax return. Concurrent with~~healthcare professionals, and the ~~RAR, the Company received an Employment Tax Examination Report (“ETER”)~~ETER proposed assessments for ~~2009 and 2010. The ETER adjustments propose~~ additional ~~Company~~ payroll tax liabilities and penalties for 2009 and 2010 related to the Company’s treatment of certain non-taxable per diem allowances and travel benefits. The positions in the RAR and ETER are mutually ~~exclusive. The RAR~~exclusive, and ~~ETER~~ contain multiple tax positions, some of which are contrary to each other. The Company filed a Protest Letter for both the RAR and ETER positions in 2014. The Company

anticipates that the final settlement of the audits will occur in the next twelve months and believes its reserves are adequate to cover any final settlement.

The IRS has also been conducting a separate audit of the Company’s 2011 and 2012 tax years. The income and employment tax issues addressed in the 2011 and 2012 examination are consistent with the issues raised in the 2007 through 2010 examination. During the quarter ended March 31, 2015, the IRS completed its 2011 and 2012 examination and issued its RAR and ETER to the Company. The proposed adjustments to the Company’s taxable income for 2011 and 2012 and net operating loss carryforwards from 2010, and the ETER proposed assessments for additional payroll tax liabilities and penalties for 2011 and 2012 related to the Company’s treatment of certain non-taxable per diem allowances and travel benefits. The positions in the RAR and ETER for the 2011 and 2012 years are mutually exclusive and contain multiple tax positions, some of which are contrary to each other. The Company has filed a Protest Letter for both the RAR and ETER and intends to defend its position. The Company ~~has held three meetings~~believes its reserves are adequate with respect to these open years.

The Company was notified during the quarter ended March 31, 2015 that the IRS ~~Appeals office and~~ will ~~continue to meet with~~also audit the ~~IRS Appeals office throughout the course of the~~Company’s 2013 tax year. The Company cannot predict with certainty the timing of a resolution. The Company believes its reserve for unrecognized tax benefits and contingent tax issues is adequate. Notwithstanding, the Company could adjust its provision for income taxes and contingent tax liability based on future developments.

~~The IRS commenced income and payroll tax audits for the years 2011 and 2012 during November 2013.~~

8. ~~NOTES PAYABLE AND RELATED CREDIT AGREEMENT~~

On April 18, 2014, the Company entered into a Credit Agreement (the “Credit Agreement”) with several lenders to provide for two credit facilities (the “New Credit Facilities”) to replace its prior credit facilities, including (A) a $225,000 secured revolving credit facility (the “Revolver”) that includes a $40,000 sublimit for the issuance of letters of credit and a $20,000 sublimit for swingline loans and (B) a $150,000 secured term loan credit facility (the “Term Loan”). In addition, the Credit Agreement provides that the Company may from time to time obtain an increase in the Revolver or the Term Loan or both in an aggregate principal amount not to exceed $125,000 subject to, among other conditions, the arrangement of additional commitments with financial institutions reasonably acceptable to the Company and the administrative agent. The obligations of the Company under the Credit Agreement and the New Credit Facilities are secured by substantially all of the assets of the Company.

The New Credit Facilities are available for working capital, capital expenditures, permitted acquisitions and general corporate purposes of the Company. The maturity date of the New Credit Facilities is April 18, 2019. At September 30, 2014, the outstanding balance of the Term Loan was $146,250, of which $7,500 is due in the next 12 months, and there was no amount outstanding under the Revolver. At September 30, 2014, with $8,155 of outstanding letters of credit collaterialized by the Revolver, there was $216,845 of available credit under the Revolver.

~~Annual principal maturities of the outstanding Term Loan are as follows:~~

Three months ending December 31, 2014 $ 1,875

Year ending December 31, 2015 7,500

Year ending December 31, 2016 7,500

Year ending December 31, 2017 7,500

Year ending December 31, 2018 7,500

Thereafter 114,375

$ 146,250

The Revolver carries an unused fee of 0.25% to 0.35% per annum and each standby letter of credit issued under the Revolver is subject to a letter of credit fee ranging from 1.50% to 2.25% per annum of the average daily maximum amount available to be drawn under the standby letter of credit, in each case, depending on the Company’s consolidated leverage ratio, as calculated quarterly in accordance with the Credit Agreement. The Term Loan is subject to amortization of principal of 5.00% per year of the original Term Loan amount, which is $7,500 per annum, and payable in equal quarterly installments. Borrowings under the Term Loan and Revolver bear interest at floating rates, at the Company’s option, based upon either LIBOR plus a spread of 1.50% to 2.25% or a base rate plus a spread of 0.50% to 1.25%. The applicable spread is determined quarterly based upon the Company’s consolidated leverage ratio, as calculated quarterly in accordance with the Credit Agreement. The interest rate for the outstanding Term Loan was 1.9% on a LIBOR basis as of September 30, 2014.

The Company used the proceeds from the New Credit Facilities to repay in full all outstanding indebtedness under its prior credit facilities and to pay related transaction costs. In addition, approximately $9,500 of standby letters of credit issued under the prior credit facilities were rolled into and deemed issued under the Revolver.

In connection with obtaining the New Credit Facilities, the Company incurred $3,488 in fees paid to lenders and other third parties, which were capitalized and are amortized to interest expense over the term of the New Credit Facilities. In addition, the Company wrote off $3,113 of unamortized financing fees and original issue discount, which was recorded as loss on debt extinguishment in the accompanying unaudited condensed consolidated statement of comprehensive income for the nine months ended September 30, 2014.

The Credit Agreement contains various customary affirmative and negative covenants, including restrictions on assumption of additional indebtedness, declaration and payment of dividends, dispositions of assets, consolidation into another entity and allowable investments. It also contains financial covenants that require the Company (1) not to exceed a certain maximum consolidated leverage ratio, as calculated in accordance with the Credit Agreement, which is initially set at 4.00 to 1.00 but ultimately steps down to 3.50 to 1.00 beginning with the fiscal quarter ending June 30, 2016, and (2) to maintain a minimum consolidated interest coverage ratio of 2.50 to 1.00, as calculated in accordance with the Credit Agreement.

~~Letters of Credit~~

At ~~September 30, 2014~~, the Company maintained outstanding standby letters of credit totaling $15,190 as collateral in relation to its professional liability insurance agreements, workers’ compensation insurance agreements, and a corporate office lease agreement. Of the $15,190 of outstanding letters of credit, the Company has collateralized $7,035 in cash, cash equivalents and investments and the remaining amounts are collateralized by the Revolver. Outstanding standby letters of credit at December 31, 2013 totaled $27,691.

9. COMMITMENTS AND CONTINGENCIES

(a) Legal

~~The~~From time to time, the Company is ~~subject to~~involved in various lawsuits, claims, investigations, and ~~legal actions~~proceedings that arise in the ordinary course of ~~its~~ business. Some of these matters relate to professional liability, tax, payroll, contract and employee-related matters and include individual and collective lawsuits, as well as inquiries and investigations by governmental agencies regarding the Company’s employment practices. During the first quarter of 2014, the Company completed the settlement of a wage and hour class action (and a related action) for an immaterial amount. Additionally, some of ~~the Company’s~~its clients may also become subject to claims, governmental inquiries and investigations and legal actions relating to services provided by the Company’s ~~clinicians and physicians.~~healthcare professionals. Depending upon the particular facts and circumstances, the Company may also be subject to indemnification obligations under its contracts with ~~certain~~such clients relating to these matters. The Company records a liability when management believes an adverse outcome from a loss contingency is both probable and the amount, or a range, can be reasonably estimated. Significant judgment is required to determine both probability of loss and the estimated amount. The Company reviews its loss contingencies at least quarterly and adjusts its accruals and/or disclosures to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, or other new information, as deemed necessary. With regards to outstanding loss contingencies as of March 31, 2015, the Company believes that such matters will not, either individually or in the aggregate, have a material adverse effect on its business, consolidated financial position, results of operations or cash flows.

(b) Leases

On January 26, 2015, the Company entered into a 10-year operating lease agreement for office space in Dallas, Texas that will replace its current operating lease agreement for its Irving, Texas offices, which expires in August 2015. Base rent payments under the new lease agreement will begin in September 2015 and the total estimated base rent payments will be approximately $23,956 over the life of the lease, which is ten years. The rent payments have been included in the total minimum lease payment table set forth in Part II, Item 8, “Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 12(b) - Commitments and Contingencies - Leases” of the Company’s 2014 Annual Report on Form 10-K.

9. SUBSEQUENT EVENTS

In April 2015, the Company entered into an interest rate swap agreement to minimize its exposure to interest rate fluctuations on $100,000 of its outstanding variable rate debt under its existing credit facility whereby the Company pays a fixed rate of 0.983% and receives a variable rate equal to floating one-month LIBOR. This agreement expires on March 30, 2018, and no initial investment was made to enter into this agreement.

~~(b) Leases~~

During the nine months ended September 30, 2014, the Company entered into a third amendment (the “Third Amendment”) to its office lease (as amended to date, the “Lease”) with Kilroy Realty, L.P. for its corporate headquarters in San Diego. Among other things, the Third Amendment extended the term under the Lease nine additional years from its original termination date of August 1, 2018 through July 31, 2027 and also reduced the rental payment from January 1, 2015 through the original termination date in 2018. The Company recognizes rent expense on a straight-line basis over the lease term. Future minimum lease payments under the Third Amendment as of September 30, 2014 are as follows:

Three months ending December 31, 2014 $ 2,311
Year ending December 31, 2015 6,500
Year ending December 31, 2016 8,073
Year ending December 31, 2017 8,355
Year ending December 31, 2018 8,648
Thereafter 87,892
Total minimum lease payments $ 121,779

Item 2. Management’s Discussion and Analysis of Financial Condition and Results

of Operations

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto and other financial information included elsewhere herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2013,~~2014, filed with the SEC on February ~~21,~~ 25, 2015 (“2014 ~~(“2013~~ Annual Report”). Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are “forward-looking statements.” See “Special Note Regarding Forward-Looking Statements.” We undertake no obligation to update the forward-looking statements in this Quarterly Report. References in this Quarterly Report to “AMN Healthcare,” the “Company,” “we,” “us” and “our” refer to AMN Healthcare Services, Inc. and its wholly owned subsidiaries.

Overview

We are the innovator in healthcare workforce solutions and staffing services to healthcare facilities across the nation. As an innovative workforce solutions partner, our managed services programs, or “MSP,” vendor management ~~solutions,~~systems, or “VMS,” recruitment process outsourcing, or “RPO,” workforce consulting services, predictive modeling, staff scheduling and ~~recruitment and~~the placement of physicians, nurses and allied healthcare professionals into temporary and permanent positions enable our clients to successfully reduce staffing complexity, increase efficiency and improve patient outcomes within the rapidly evolving healthcare environment. Our clients include acute and sub-acute care hospitals, ~~government facilities,~~ community health centers and clinics, physician practice groups, retail and urgent care centers, home health facilities, and several other ~~healthcare-related~~healthcare settings. Our clients utilize our workforce solutions and healthcare staffing services to manage their clinical workforce needs, both temporary and permanent, ~~clinical workforce needs~~ in an economically beneficial manner. Our managed services ~~programs~~program and vendor management ~~solutions~~systems enable healthcare organizations to increase their efficiency by managing all of their ~~clinical~~ supplemental workforce needs through one company or technology.

We conduct business through three reportable segments: nurse and allied healthcare staffing, locum tenens staffing, and physician permanent placement services. For the three months ended ~~September 30, 2014~~March 31, 2015, we recorded revenue of ~~$264.6~~$327.5 million, as compared to ~~$257.1~~$240.9 million for the same period last year. For the three months ended ~~September 30, 2014~~March 31, 2015, we recorded net income of ~~$8.5~~$12.2 million, as compared to $8.6 million for the same period last year. For the nine months ended September 30, 2014, we recorded revenue of $756.4 million, as compared to $763.2 million for the same period last year. For the nine months ended September 30, 2014, we recorded net income of $23.3 million, as compared to $24.6$7.6 million for the same period last year.

On January 7, 2015, we completed the acquisition of Onward Healthcare, including its two wholly-owned subsidiaries, Locum Leaders and Medefis (collectively, “OH”). Onward Healthcare is a national nurse and allied healthcare staffing firm, Locum Leaders is a national locum tenens provider, and Medefis is a leading provider of a software as a service, or “SaaS,” based vendor management system for healthcare facilities. The results of Onward Healthcare and Medefis are included in our nurse and allied healthcare staffing segment and the results of Locum Leaders are included in our locum tenens staffing segment since the date of acquisition. In addition, during the fourth quarter of 2014 we acquired Avantas. The results of Avantas are included in our nurse and allied healthcare staffing segment. For the three months ended March 31, 2015, approximately $33.5 million of OH and Avantas revenue and $2.8 million of OH and Avantas income before income taxes were included in the unaudited condensed consolidated statement of operations.

Nurse and allied healthcare staffing segment revenue comprised ~~67%~~70% and 68% of total consolidated revenue for the ~~nine~~three months ended ~~September 30,~~March 31, 2015 and 2014, ~~and~~ ~~2013~~, respectively. Through our nurse and allied healthcare staffing segment, we provide ~~hospital~~hospitals and other healthcare facilities with a range of clinical workforce solutions, including: (1) a comprehensive managed services solution in which we manage all of the temporary nursing and allied staffing needs of a client; (2) a ~~software as a service, or “SaaS,”~~SaaS VMS through which our clients can manage all of their temporary nursing and allied staffing needs; (3) traditional clinical staffing solutions of variable assignment lengths; ~~and~~ (4) a recruitment process outsourcing program that leverages our expertise and support systems to replace or complement a client’s existing internal recruitment function for permanent placement ~~needs.~~needs; and (5) clinical labor consulting management services.

Locum tenens staffing segment revenue comprised ~~29%~~26% and 28% of total consolidated revenue for the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015 and ~~2013~~2014, respectively. Through our locum tenens staffing segment, we provide (1) ~~provide~~ a comprehensive managed services solution in which we manage all of the locum tenens needs of a client; (2) ~~provide~~ a SaaS VMS through which our clients can manage all of their locum tenens needs; and (3) ~~place~~placement of physicians of all specialties, as well as dentists and other advanced practice providers, with clients on a temporary basis as independent contractors. These locum tenens providers are used by our healthcare facility and physician practice group clients to fill temporary vacancies created by vacation and leave schedules and to bridge the gap while they seek permanent candidates or explore expansion. Our locum tenens clients represent a diverse group of healthcare organizations throughout the United States, including hospitals, health systems, medical groups, occupational medical clinics, psychiatric facilities, government institutions and insurance entities. The professionals we

place are recruited nationwide and are typically placed on multi-week contracts with assignment lengths ranging from a few days up to one year.

Physician permanent placement services segment revenue comprised 4% of total consolidated revenue for both the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015 and ~~2013~~2014. Through our physician permanent placement services segment, we assist hospitals, healthcare facilities and physician practice groups throughout the United States in identifying and recruiting physicians for permanent placement. We perform the vast majority of our services on a retained basis through our Merritt Hawkins^® brand, for which we are generally paid through a blend of retained search fees and variable fees tied to work performed and successful placement. To a smaller degree, we also perform our services on a contingent basis, exclusively

through our Kendall & Davis^® brand, for which fees are paid once physician candidates are ultimately hired by our clients. Our broad specialty offerings include over 70 specialist and sub-specialist opportunities such as internal medicine, family practice and orthopedic surgery.

Management Initiatives

Our growth strategy focuses on providing an innovative and differentiated value and experience to our clients and healthcare professionals. To accomplish this, we have broadened our service offerings beyond our traditional travel nurse and allied temporary staffing, locum tenens staffing, and physician permanent placement services, to include more strategic and recurring revenue sources from innovative workforce solutions offerings such as managed services programs, VMS, RPO and ~~recruitment process outsourcing.~~clinical labor management consulting. Through these differentiated services, we have built strategic relationships with our clients to assist them in improving their financial, operational and patient care results through enhanced productivity, labor optimization and candidate quality ~~candidates.~~enhancement. We continually seek strategic opportunities to expand into ~~complementary service offerings that leverage our core capabilities of recruiting~~new workforce solutions and ~~credentialing~~emerging healthcare ~~professionals, while providing a more recurring stream of revenue that reduces our exposure to economic cycle risk.~~roles. At the same time, we continue to invest in our innovative workforce solutions, new candidate recruitment initiatives and technology infrastructure to ~~ensure we are strategically ready in the long term to~~ capitalize on the demand growth ~~anticipated from~~we are experiencing and expect to continue in the ~~significant healthcare workforce shortages~~future due to the impact of healthcare reform, ~~and~~ the aging ~~population.~~population and shortages within certain regions and disciplines.

Recent Trends

The healthcare staffing environment ~~improved~~has remained strong throughout the ~~third quarter~~first part of ~~2014.~~2015. Demand in all our ~~travel nurse and allied healthcare~~ staffing businesses is significantly above prior-year levels. This demand growth has translated into an increase in the number of healthcare professionals currently on assignment and increased booking ~~levels. Our locum tenens business has also experienced increased demand since the beginning of the year across a majority of the specialties.~~levels for future assignments.

We continue to ~~see clients migrate to managed services program relationships, with particular increased activity in~~experience a high level of demand for our ~~locum tenens division. During~~workforce solution programs. With ShiftWise and the nine months ended September 30, 2014, revenue from these contracts represented approximately 33% of our consolidated revenue as compared to 29% for the same period last year. With the inclusion of ShiftWise VMS revenuenewly acquired Avantas and Medefis entities and continued penetration of ~~managed services programs~~MSP and ~~recruitment process outsourcing,~~RPO, we expect that revenue attributable to our suite of workforce solutions offerings will continue to grow. ~~These relationships~~The growth in revenue from these workforce solution offerings is contributing to our increasing gross margins. While we have experienced recent compression in our pay to bill spread as we have increased pay rates to attract more nursing professionals into our industry to meet the increased demand, the highly competitive market for supply has allowed us to negotiate increased bill rates with our clients to mitigate the overall gross margin impact.

We continue to experience strong demand for our services within our physician permanent placement services segment. We have also seen an increase in our recruiter productivity completing searches, which has translated into improved ~~our ability to fill more of our clients’ needs and create operational efficiencies.~~profitability.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with United States generally accepted accounting

principles requires us to make estimates and judgments that affect our reported amounts of assets and liabilities, revenue and

expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including

those related to asset impairment, accruals for self-insurance and compensation and related benefits, ~~revenue recognition,~~

accounts receivable, contingencies and litigation, ~~valuation and recognition of share-based payments,~~ and income taxes. We

base these estimates on the information that is currently available to us and on various other assumptions that we believe are reasonable under the circumstances. Actual results could vary from these estimates under different assumptions or conditions. If these estimates differ significantly from actual results, our consolidated financial statements and future results of operations may be materially impacted. Under our indefinite-lived intangible asset valuation policy, we intend to perform the annual impairment test during the fourth quarter. Although a triggering event has not occurred during 2014, given the recent lower than expected revenue in the local staffing business, a component of our nurse and allied healthcare staffing segment, it is reasonably possible that we could record an impairment charge on the related indefinite-lived tradename in the fourth quarter when we conduct our annual impairment test. Our critical accounting policies and estimates except for the gross presentation of professional liability reserve and workers’ compensation reserve as described in “Item 1. Condensed Consolidated Financial Statements (unaudited) - Notes to Unaudited Condensed Consolidated Financial Statements - Note 1 - Basis of Presentation,” remain consistent with those reported in our ~~2013~~2014 Annual Report.

Results of Operations

The following table sets forth, for the periods indicated, selected unaudited condensed consolidated statements of operations data as a percentage of revenue. Our results of operations include three reportable segments: (1) nurse and allied

healthcare staffing; (2) locum tenens staffing; and (3) physician permanent placement services. The OH and Avantas acquisitions impact the comparability of the results between the three months ended March 31, 2015 and 2014. Our historical results are not necessarily indicative of our future results of operations.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2014		2013		2014		2013		2015		2014
Unaudited Condensed Consolidated Statements of Operations:
Revenue	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue	69.6		70.6		69.4		70.8		69.0		69.3
Gross profit	30.4		29.4		30.6		29.2		31.0		30.7
Selling, general and administrative	22.8		21.6		22.5		21.5		21.8		22.7
Depreciation and amortization	1.5		1.3		1.6		1.3		1.6		1.6
Income from operations	6.1		6.5		6.5		6.4		7.6		6.4
Interest expense, net, and other	0.5		0.7		1.0		1.0		0.6		0.8
Income before income taxes	5.6		5.8		5.5		5.4		7.0		5.6
Income tax expense	2.3		2.4		2.3		2.2		3.3		2.5
Net income	3.3	%	3.4	%	3.2	%	3.2	%	3.7	%	3.1	%

Comparison of Results for the Three Months Ended ~~September 30, 2014~~March 31, 2015 to the Three Months Ended ~~September 30, 2013~~March 31, 2014

Revenue. Revenue increased 3%36% to ~~$264.6~~$327.5 million for the three months ended ~~September 30, 2014~~March 31, 2015 from ~~$257.1~~$240.9 million for the same period in ~~2013,~~2014, due to ~~higher~~additional revenue ~~in all three~~ of approximately $33.5 million resulting from our ~~reportable segments.~~OH and Avantas acquisitions with the remainder of the increase driven by 22% organic growth.

Nurse and allied healthcare staffing segment revenue increased 2%40% to ~~$174.3~~$229.0 million for the three months ended ~~September 30, 2014~~March 31, 2015 from ~~$171.0~~$163.5 million for the same period in ~~2013. The~~2014. Of the $65.6 million increase, $26.4 million was ~~primarily due~~attributable to the ~~addition of ShiftWise~~additional revenue in connection with the OH and anAvantas acquisitions, with the remainder primarily attributable to a 7% increase in the average bill ~~rates~~rate and a 12% increase in the average number of healthcare professionals on assignment during the three months ended ~~September 30, 2014~~March 31, 2015. ~~The increase was partially offset by a 2% decrease in the average number of clinicians on assignment, which primarily resulted from decreased volume of electronic medical record engagements during the~~ ~~three months ended September 30, 2014~~ ~~as compared to the same period in the prior year.~~

Locum tenens staffing segment revenue increased 5%30% to ~~$78.8~~$86.7 million for the three months ended ~~September 30, 2014~~March 31, 2015 from $~~75.3~~66.9 million for the same period in ~~2013. The~~2014. Of the $19.8 million increase, $7.1 million was attributable to the additional revenue in connection with the OH acquisition with the remainder primarily attributable to a 7%6% increase in revenue per day filled ~~partially offset by~~and a ~~2% decrease~~12% increase in the number of days filled during the three months ended ~~September 30, 2014~~March 31, 2015.

Physician permanent placement services segment revenue increased 5%11% to $~~11.5~~11.8 million for the three months ended ~~September 30, 2014~~March 31, 2015 from $~~10.9~~10.6 million for the same period in ~~2013.~~2014. The increase was primarily due to an increase in billable active searches and placements during the three months ended ~~September 30, 2014~~March 31, 2015.

~~Cost of Revenue~~. ~~Cost of revenue increased 2% to $184.3 million for the~~ ~~three months ended September 30, 2014~~ ~~from $181.4 million for the same period in 2013. The increase was primarily due to higher revenue in all three of our reportable segments during the three months ended September 30, 2014.~~

~~Nurse and allied healthcare staffing segment cost of revenue increased slightly to $124.3 million for the~~ ~~three months ended September 30, 2014~~ from $124.2 million for the same period in 2013. The increase was primarily attributable to a $0.7 million unfavorable actuarial-based increase in workers’ compensation liability reserves recorded during the three months ended September 30, 2014 and partially offset by a 2% decrease in the average number of clinicians on assignment during the period.

Locum tenens staffing segment cost of revenue increased 5% to $56.0 million for the three months ended September 30, 2014 from $53.2 million for the same period in 2013. The increase was primarily attributable to increase in pay rates to the locum tenens providers, partially offset by a decrease in the number of days filled during the ~~three months ended September 30, 2014~~.

~~Physician permanent placement services segment cost of revenue decreased 1% to $4.0 million for the~~ ~~three months ended September 30, 2014~~ ~~from $4.1 million for the same period in 2013 primarily due to a decrease in recruiter compensation during the three months ended September 30, 2014.~~

Gross Profit. Gross profit increased 6%37% to ~~$80.3~~$101.4 million for the three months ended ~~September 30, 2014~~March 31, 2015 from ~~$75.7~~$74.0 million for the same period in ~~2013,~~2014, representing gross margins of ~~30.4%~~31.0% and ~~29.4%~~30.7%, respectively. The increase in consolidated

gross margin was due to an increase in gross margin in both the nurse and allied healthcare staffing ~~segment~~ and physician permanent placement services ~~segment.~~segments. The nurse and allied healthcare staffing segment increase in gross margin was primarily due to the addition of the higher margin Medefis business from the OH acquisition, the Avantas acquisition, and growth in our higher margin RPO and ShiftWise business ~~we acquired in November 2013 and higher bill to pay spreads~~lines during the three months ended ~~September 30, 2014~~March 31, 2015. The physician permanent placement services segment increase was primarily due to lower recruiter compensation as a percentage of revenue during the three months ended March 31, 2015. The locum tenens staffing segment experienced a decrease in gross margin, which was primarily due to lower bill to pay spreads during the three months ended ~~September 30, 2014.~~March 31, 2015. Gross margin by reportable segment for the three months ended ~~September 30,~~March 31, 2015 and 2014 was 29.8% and ~~2013 was 28.7% and 27.4%~~29.0% for nurse and allied healthcare staffing, ~~29.0%~~29.4% and ~~29.3%~~29.9% for locum tenens staffing, and ~~64.9%~~65.7% and ~~62.6%~~63.0% for physician permanent placement services, respectively.

Selling, General and Administrative Expenses. ~~Selling, general and administrative (“~~SG~~&A”)~~&A expenses were ~~$60.3~~$71.6 million, representing ~~22.8%~~21.8% of revenue, for the three months ended ~~September 30, 2014~~March 31, 2015, as compared to ~~$55.6~~$54.7 million, representing ~~21.6%~~22.7% of revenue, for the same period in ~~2013.~~2014. The increase in SG&A expenses was primarily due ~~primarily~~ to $7.0 million of additional SG&A expenses from the ~~addition~~OH and Avantas acquisitions, $1.1 million of ~~our ShiftWise business, higher~~acquisition and integration related expenses, ~~associated with our information technology initiatives,~~ and higher expenses to support our ~~current demand~~growth. SG&A expenses increases in the nurse and ~~future growth initiatives.~~allied healthcare staffing and locum tenens staffing segments were primarily

attributable to $5.3 million and $1.4 million of additional SG&A expenses from the acquisitions and higher expenses to support our growth. The increase in the unallocated corporate overhead was primarily attributable to $1.1 million of acquisition and integration related expenses, and higher employee and other expenses to support our growth. SG&A expenses broken down among the reportable segments, unallocated corporate overhead, and share-based compensation are as follows:


	(In Thousands) Three Months Ended September 30,				(In Thousands) Three Months Ended March 31,
	2014		2013		2015		2014
Nurse and allied healthcare staffing	$	28,749	$	26,395	$	36,290	$	27,365
Locum tenens staffing	14,694		14,519		16,400		13,090
Physician permanent placement services	4,689		4,609		4,460		4,525
Unallocated corporate overhead	10,396		8,595		12,025		7,868
Share-based compensation	1,791		1,487		2,377		1,819
	$	60,319	$	55,605	$	71,552	$	54,667

Depreciation and Amortization Expenses. Amortization expense increased ~~19%~~53% to ~~$1.9~~$2.9 million for the three months ended ~~September 30, 2014~~March 31, 2015 from ~~$1.6~~$1.9 million for the same period in ~~2013,~~2014, primarily attributable to additional amortization expense related to the intangibles assets resulting from the ~~ShiftWise acquisition in November 2013.~~OH and Avantas acquisitions. Depreciation expense increased ~~29%~~16% to $2.2 million for the three months ended ~~September 30, 2014~~March 31, 2015 from ~~$1.7~~$1.9 million for the same period in ~~2013,~~2014, primarily attributable to fixed assets acquired as part of the ~~ShiftWise acquisition~~OH and Avantas acquisitions and an increase in purchased and developed hardware and ~~software.~~software for our front and back office information technology initiatives.

Interest Expense, Net, and Other. Interest expense, net, and other, was ~~$1.4~~$1.8 million ~~for~~during the three months ended ~~September 30, 2014~~March 31, 2015 ~~as compared to $1.8 million for the same period in 2013.~~and 2014. The ~~lower~~consistent interest expense for the three months ended ~~September 30, 2014~~March 31, 2015 as compared to the same period in ~~2013~~2014 was due to ~~lower average~~higher outstanding debt ~~outstanding balance and~~balances offset by lower interest ~~rate.~~rates during the three months ended March 31, 2015 as compared to the three months ended March 31, 2014. In addition, there were $0.2 million and $0.1 million losses on equity method investment for the three months ended March 31, 2015 and 2014, respectively.

Income Tax Expense. Income tax expense was ~~$6.0~~$10.8 million for the three months ended ~~September 30, 2014~~March 31, 2015 as compared to income tax expense of ~~$6.3~~$6.0 million for the same period in ~~2013,~~2014, reflecting effective income tax rates of ~~41.3%~~47% and ~~42.2%~~44% for these periods, respectively. The ~~difference~~increase in ~~the~~our effective income tax rate was primarily attributable to ~~the relationship of pre-tax income to permanent differences related to unrecognized~~an increase in our uncertain tax ~~benefits.~~position reserves. We currently estimate our annual effective income tax rate to be approximately ~~43.2%~~45% for ~~2014.~~

~~Comparison of Results for the Nine Months Ended~~ ~~September 30, 2014~~ ~~to the Nine Months Ended~~ ~~September 30, 2013~~

~~Revenue~~. ~~Revenue decreased 1% to~~ ~~$756.4 million~~ ~~for the nine months ended September 30, 2014 from~~ ~~$763.2 million~~ for the same period in 2013, due to lower revenue in our nurse and allied healthcare staffing segment, partially offset by higher revenue in our locum tenens staffing and physician permanent placement segments.

Nurse and allied healthcare staffing segment revenue decreased 3% to $503.6 million for the nine months ended September 30, 2014 from $517.9 million for the same period in 2013. The decrease was primarily due to a 6% decrease in the average number of clinicians on assignment, which partially resulted from decreased volume of electronic medical record engagements during the nine months ended September 30, 2014 as compared to the same period in the prior year. The decrease was partially offset by the addition of ShiftWise revenue and an increase in bill rates during the nine months ended September 30, 2014.

Locum tenens staffing segment revenue increased 3% to $220.0 million for the nine months ended September 30, 2014 from $213.4 million for the same period in 2013. The increase was primarily attributable to a 5% increase in revenue per day filled, partially offset by a 2% decrease in the number of days filled during the nine months ended September 30, 2014.

Physician permanent placement services segment revenue increased 3% to $32.7 million for the nine months ended September 30, 2014 from $31.9 million for the same period in 2013. The increase was primarily due to an increase in active searches during the nine months ended September 30, 2014.

~~Cost of Revenue~~. ~~Cost of revenue decreased~~ 3% to ~~$525.0 million~~ ~~for the nine months ended September 30, 2014 from~~ ~~$540.1 million~~ for the same period in 2013. The decrease was primarily due to a decrease in the average number of clinicians on assignment in the nurse and allied healthcare staffing segment during the nine months ended September 30, 2014.

Nurse and allied healthcare staffing segment cost of revenue decreased 5% to $358.0 million for the nine months ended September 30, 2014 from $376.2 million for the same period in 2013. The decrease was primarily attributable to a 6% decrease in the average number of clinicians on assignment during the nine months ended September 30, 2014, partially offset by a $0.7 million unfavorable actuarial-based increase in workers’ compensation liability reserves recorded during the nine months ended September 30, 2014 as compared to a $1.6 million favorable actuarial-based workers’ compensation benefit recorded during the same period last year.

Locum tenens staffing segment cost of revenue increased 2% to $155.1 million for the nine months ended September 30, 2014 from $152.0 million for the same period in 2013. The increase was primarily attributable to an increase in pay rates to the locum tenens providers, partially offset by a 2% decrease in the number of days filled during the nine months ended September 30, 2014.

Physician permanent placement services segment cost of revenue decreased 1% to $11.8 million for the nine months ended September 30, 2014 from $11.9 million for the same period in 2013 primarily due to a decrease in recruiter compensation during the nine months ended September 30, 2014.

~~Gross Profit~~. ~~Gross profit increased~~ 4% to ~~$231.4 million~~ ~~for the nine months ended September 30, 2014 from~~ ~~$223.1 million~~ ~~for the same period in 2013, representing gross margins of~~ ~~30.6%~~ ~~and~~ ~~29.2%~~, respectively. The increase in consolidated gross margin was due to an increase in gross margin in all reportable segments. The nurse and allied healthcare staffing segment increase in gross margin was primarily due to higher bill to pay spreads during the nine months ended September 30, 2014 and the addition of the higher margin ShiftWise business we acquired in November 2013. The locum tenens staffing segment improvement was primarily due to higher bill to pay spreads during the nine months ended September 30, 2014. Gross margin by reportable segment for the nine months ended September 30, 2014 and 2013 was 28.9% and 27.4% for nurse and allied healthcare staffing, 29.5% and 28.8% for locum tenens staffing, and 63.8% and 62.6% for physician permanent placement services, respectively.

~~Selling, General and Administrative Expenses~~. ~~SG&A expenses were~~ ~~$170.6 million, representing~~ ~~22.5%~~ ~~of revenue, for the nine months ended September 30, 2014, as compared to~~ ~~$163.8 million, representing~~ ~~21.5%~~ of revenue, for the same period in 2013. The increase in SG&A expenses was due primarily to the addition of our ShiftWise business, which we did not own during the nine months ended September 30, 2013, and a $3.0 million gain on the holdback settlement in connection with the Medfinders acquisition during the nine months ended September 30, 2013, partially offset by a $2.7 million unfavorable actuarial-based increase in our professional liability reserves in our locum tenens staffing segment during the nine months ended September 30, 2013 and a $2.1 million favorable actuarial-based decrease in our professional liability reserves in our nurse and allied healthcare staffing and locum tenens staffing segments during the nine months ended September 30, 2014. SG&A expenses broken down among the reportable segments, unallocated corporate overhead and share-based compensation are as follows:

(In Thousands)
Nine Months Ended
September 30,
2014 2013
Nurse and allied healthcare staffing $ 82,325
$ 78,682
Locum tenens staffing 42,078
44,102
Physician permanent placement services 13,831
13,227
Unallocated corporate overhead 26,958
23,085
Share-based compensation 5,361
4,667
$ 170,553
$ 163,763

~~Depreciation and Amortization Expenses~~. Amortization expense increased 19% to $5.7 million for the nine months ended September 30, 2014 from $4.8 million for the same period in 2013, primarily attributable to additional amortization expense related to the intangibles assets resulting from the ShiftWise acquisition in November 2013. Depreciation expense increased 24% to $6.2 million for the nine months ended September 30, 2014 from $5.0 million for the same period in 2013, primarily attributable to fixed assets acquired as part of the ShiftWise acquisition and an increase in purchased and developed hardware and software.

~~Interest Expense, Net, and Other~~. ~~Interest expense, net, and other, was~~ ~~$7.9 million~~ ~~for the nine months ended September 30, 2014 as compared to~~ ~~$7.8 million~~ for the same period in 2013. Interest expense for the nine months ended September 30, 2014 included a $3.1 million write-off of unamortized deferred financing fees and original issue discount in connection with the refinancing of our credit facilities. Excluding the impact of refinancing, the lower interest expense for the nine months ended September 30, 2014 as compared to the same period in 2013 was due to lower average debt outstanding balance and lower interest rate.

~~Income Tax Expense~~. ~~Income tax expense was~~ ~~$17.7 million~~ ~~for the nine months ended September 30, 2014 as compared to income tax expense of~~ ~~$17.1 million~~ ~~for the same period in 2013, reflecting effective income tax rates of~~ ~~43.2%~~ ~~and~~ ~~41.0%~~ for these periods, respectively. The difference in the effective income tax rate was primarily attributable to the relationship of pre-tax income to permanent differences related to unrecognized tax benefits. We currently estimate our annual effective income tax rate to be approximately 43.2% for 2014. 2015.

Liquidity and Capital Resources

In summary, our cash flows were:


	(In Thousands) Nine Months Ended September 30,						(In Thousands) Three Months Ended March 31,
	2014			2013			2015			2014

Net cash provided by operating activities	$	22,639		$	44,349		$	8,687		$	864
Net cash used in investing activities	(10,320		)	(7,050		)	(85,350		)	(4,709		)
Net cash used in financing activities	(18,265		)	(11,308		)
Net cash provided by (used in) in financing activities							75,155			(2,457		)

Historically, our primary liquidity requirements have been for acquisitions, working capital requirements and debt service under our credit facilities. We have funded these requirements through internally generated cash flow and funds borrowed under our credit facilities. We are an obligor under a term loan and we maintain a revolving credit facility. At ~~September 30, 2014~~March 31, 2015, ~~$146.3~~$142.5 million of our ~~Term Loan (as defined below)~~term loan was outstanding and $95.5 million was drawn under our revolving credit facility, with ~~$216.8~~$120.1 million of available credit under ~~the Revolver (as defined below).~~our revolving credit facility. We describe in further detail our credit agreement under which our term loan and revolving credit facility are governed in “Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note (8), Notes Payable and Related Credit Agreement” of our 2014 Annual Report.

In April 2015, we entered into an interest rate swap agreement to minimize our exposure to interest rate fluctuations on $100 million of our outstanding variable rate debt under our term debt facility for which we pay a fixed rate of 0.983% and

receive a variable rate equal to floating one-month LIBOR. This agreement expires on March 30, 2018, and no initial investment was made to enter into this agreement.

We believe that cash generated from operations and available borrowings under ~~the Revolver~~our revolving credit facility will be sufficient to fund our operations for the next 12 months and beyond. We intend to finance potential future acquisitions either with cash provided from operations, borrowing under ~~the Revolver,~~our revolving credit facility, bank loans, debt or equity offerings, or some combination of the foregoing. The following discussion provides further details of our liquidity and capital resources.

Operating Activities

Net cash provided by operating activities for the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015 was ~~$22.6~~$8.7 million,, compared to $~~44.3~~0.9 million for the same period in ~~2013.~~2014. The ~~decrease~~increase in net cash provided by operating activities was primarily attributable to ~~a variety of factors, including (1)~~better operating results and an increase in ~~accounts receivable and accounts receivable for subcontractors, (2) an unfavorable change in prepaid expenses and other current assets as well as~~ accounts payable and accrued expenses between periods due to timing of ~~payments,~~payments. The increases were partially offset by increases in accounts receivable and ~~(3) an increase in restricted cash, cash equivalents and investments attributable to cash payments made to our captive insurance entity, which are restricted~~accounts receivable for ~~use by the captive for future claim payments and, to a lesser extent, its working capital needs.~~subcontractors. Our Days Sales Outstanding (“DSO”) was 5761 days at both March 31, 2015 and December 31, 2014 and 56 days at ~~September 30,~~March 31, 2014~~, and 55 days and 52~~. Excluding the impact of the OH acquisition, our DSO was 60 days at ~~December~~March 31, ~~2013 and~~ ~~September 30, 2013, respectively.~~2015.

Investing Activities

Net cash used in investing activities for the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015 was ~~$10.3~~$85.4 million,, compared to $~~7.1~~4.7 million for the same period in ~~2013.~~2014. The ~~change~~increase was primarily ~~attributable~~due to our $76.9 million acquisition of OH in January 2015. Capital expenditures were $6.4 million and $5.8 million for the three months ended March 31, 2015 and 2014, respectively. The increase in capital expenditures was primarily to support growth in the business and ~~the $5.0 million equity method investment we made during the~~ ~~nine months ended September 30, 2014, partially offset by the $11.1 million decrease in restricted cash, cash equivalents and investments balance resulting from the reduction of standby letters of credit. For both~~our initiative to enhance our front ~~office~~ and back office ~~operations, we intend to continue our investment in~~ information technology

~~initiatives,~~ platforms, including PeopleSoft and ~~Salesforce. We also intend to continue to develop~~Salesforce, and ~~maintain proprietary technology in areas in which we can differentiate our service offerings for our innovative workforce solutions such as VMS.~~the integration of the OH and Avantas acquisitions.

Financing Activities

Net cash ~~used in~~provided by financing activities during the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015 was ~~$18.3~~$75.2 million,, primarily due to ~~(1) repayments~~borrowing under our revolving credit facility to fund our OH acquisition, partially offset by repayment of $1.9 million under our ~~debt, including both regularly scheduled payments~~term loan and ~~paying off~~$7.0 million under our ~~prior~~revolving credit ~~facilities,~~facility and ~~(2)~~ cash paid for shares withheld for payroll taxes resulting from the ~~exercise~~vesting of employee equity ~~awards, partially offset by the borrowings under the New Credit Facilities (as defined below).~~awards. Net cash used in financing activities during the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 was $~~11.3~~2.5 million, primarily due to ~~payments under our then-existing term loan.~~cash paid for shares withheld for payroll taxes resulting from the vesting of employee equity awards.

At ~~September 30, 2014, there was no amount~~The interest rate for amounts outstanding under ~~the Revolver.~~

~~Refinancing of Credit Facilities~~

~~On April 18, 2014, we entered into a Credit Agreement (the “Credit Agreement”) with several lenders to provide for two credit facilities (the “New Credit Facilities”) to replace~~both our ~~prior credit facilities, including (A) a $225 million secured~~term loan and revolving credit facility ~~(the “Revolver”) that includes~~was 1.93% on a ~~$40 million sublimit for the issuance~~LIBOR basis as of letters of credit and a $20 million sublimit for swingline loans and (B) a $150 million secured term loan credit facility (the “Term Loan”). For more detail regarding the terms of the Credit Agreement, please see “Item 1. Condensed Consolidated Financial Statements (unaudited) - Notes to Unaudited Condensed Consolidated Financial Statements - Note 8, Notes Payable and Related Credit Agreement,” which is incorporated herein by reference.March 31, 2015.

Letters of Credit

At ~~September 30, 2014~~March 31, 2015, we maintained outstanding standby letters of credit totaling ~~$15.2~~$15.0 million as collateral in relation to our professional liability insurance agreements, workers’ compensation insurance agreements, and a corporate office lease agreement. Of the ~~$15.2~~$15.0 million of outstanding letters of credit, we have collateralized ~~$7.0~~$5.6 million in cash, cash equivalents and investments and the remaining amounts are collateralized by our ~~Revolver.~~revolving credit facility. Outstanding standby letters of credit at December 31, ~~2013~~2014 totaled ~~$27.7~~$15.0 million.

Off-Balance Sheet Arrangements

At ~~September 30, 2014~~March 31, 2015, we did not have any off-balance sheet arrangement that has or is reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Contractual Obligations

During the nine months ended September 30, 2014, we entered into the New Credit Agreement. In addition, during such period, we entered into a third amendment (the “Third Amendment”) to our office lease (as amended to date, the “Lease”) with Kilroy Realty, L.P. for our corporate headquarters in San Diego. Among other things, the Third Amendment extended the term under the Lease nine additional years from its original termination date of August 1, 2018 through July 31, 2027 and also reduced the rental payment from January 1, 2015 through the original termination date in 2018.

WeThere have ~~set forth in the table below the applicable revised line items~~been no material changes to the table ~~set forth under the caption~~ entitled “Contractual Obligations” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our 2014 Annual Report that have occurred during the three months ended March 31, 2015 with the exception of an increase of approximately $78 million in the amount outstanding under our revolving credit facility, which resulted from our borrowings used to finance the OH acquisition. As of March 31, 2015, the total amount outstanding under our revolving credit facility was $95.5 million. Of this amount, $30 million was classified as current at March 31, 2015, based on management intentions to repay this amount during the next 12 months. The maturity date of our ~~2013 Annual Report solely to reflect the impact to such line items~~revolving credit facility is in the Contractual Obligations table of (1) the amortization and interest rate changes from our New Credit Facilities, which replaced our prior credit facilities; and (2) our entry into the Third Amendment.

Three Months Ending December 31, 2014 Fiscal Year
2015 2016 2017 2018 Thereafter Total
Notes payable (1) $2,575 $10,189 $10,047 $9,904 $9,762 $115,087 $157,564
Operating lease obligations (2) 3,977 10,542 9,491 9,044 8,667 87,893 129,614
Total contractual obligations $6,552 $20,731 $19,538 $18,948 $18,429 $202,980 $287,178

2019.

1815


~~(1)~~	~~Amounts represent contractual amounts due under the Term Loan and Revolver, including interest calculated based on the rate in effect at~~ ~~September 30, 2014~~.


~~(2)~~	Amounts represent minimum contractual amounts, with initial or remaining lease terms in excess of one year. We have assumed no escalations in rent or changes in variable expenses other than as stipulated in lease contracts.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance related to revenue recognition. This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance provides that the standard will be effective for us beginning January 1, 2017 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In April 2015, the FASB proposed a one-year delay in the effective date of the new standard to 2018. Under this proposal, early adoption will be allowed, but not earlier than the original effective date. We are evaluating the ~~impact of~~effect that adopting this new standard will have on our financial statements and related disclosures.

In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting ~~standard~~principle. The update is effective for fiscal years beginning after December 15, 2015 and early adoption is permitted. The adoption will not have a material effect on our consolidated financial ~~statements.~~statements as it will only result in a reclassification of our capitalized loan costs from other long-term assets to offset our debt balance.

In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This standard provides guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the software license element of the arrangement should be accounted for consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 is effective for fiscal years beginning after December 15, 2015, and interim periods within those years. This standard can be adopted either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. We are currently evaluating the effect that adopting this new standard will have on our financial statements and related disclosures.

There have been no other new accounting pronouncements issued but not yet adopted that are expected to materially affect our consolidated financial condition or results of operations.

Special Note Regarding Forward-Looking Statements

This Quarterly Report 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. We based these forward-looking statements on our expectations, estimates, forecasts and projections about future events and about the industry in which we operate. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “should,” “would,” “project,” “may,” variations of such words and other similar expressions. In addition, any statements that refer to projections of financial items, anticipated growth, future growth and revenues, future economic conditions and performance, plans, objectives and strategies for future operations, expectations, or other characterizations of future events or circumstances are forward-looking statements. All forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Factors that could cause actual results to differ materially from those implied by the forward-looking statements in this Quarterly Report are set forth in our ~~2013~~2014 Annual Report and include but are not limited to:

the effects of economic downturns or slow recoveries, which could result in less demand for our services;

any inability on our part to maintain existing and secure new contracts directly with our clients ~~because we generally do not have long-term~~ or ~~guaranteed contracts;~~through group purchasing organizations;

the level of consolidation and concentration of buyers of healthcare workforce solutions and staffing services, which could affect the pricing of our services and our ability to mitigate risk;

any inability on our part to quickly respond to changing marketplace conditions, such as alternative modes of healthcare delivery, reimbursement or client needs;

the ability of our clients to retain and increase the productivity of their permanent staff, or their ability to increase the efficiency and effectiveness of their internal recruiting efforts, through online recruiting or otherwise, which may negatively affect the demand for our services;

our ability to grow and operate our business profitably in compliance with federal and state healthcare industry regulation including conduct of operations, and costs and payment for services and payment for referrals as well as laws regarding employment ~~laws~~practices and ~~other~~government contracting;

any significant negative effects on our business arising from federal legislation, ~~laws and regulations that may directly or indirectly affect us, such as Medicare certification and reimbursement, professional licensure, government contracting requirements,~~including the Patient Protection and Affordable Care Act of 2010, regarding the current delivery and ~~other state or federal healthcare reform legislation;~~third-party payor system for healthcare;

the challenge to the classification of certain of our healthcare professionals as independent ~~contractors;~~contractors, which could adversely affect our profitability;

the effect of medical malpractice, employment and wage regulation and other claims asserted against us, which could subject us to substantial liabilities;

any inability on our part to safely secure private information, which could subject us to substantial liabilities;

any inability on our part to implement new infrastructure and technology systems effectively, which may adversely affect our operating results and our ability to manage our business effectively;

the effect of technology disruptions and obsolescence, which may negatively affect our business operations;

any inability on our part to recruit and retain sufficient quality ~~clinicians and physicians~~healthcare professionals at reasonable costs;

any inability on our part to properly screen and match ~~clinicians and physicians~~healthcare professionals with suitable placements;

any inability on our part to successfully attract and retain a sufficient number of quality sales and operational personnel;

the loss of our key officers and management personnel;

any inability on our part to maintain ~~at reasonable costs the~~our positive brand ~~identities we have developed~~awareness and ~~acquired;~~identity;

any recognition by us of an impairment to goodwill or ~~indefinite lived~~indefinite-lived intangibles;

the effect of significant adverse adjustments by us to ~~accruals for self-insured retentions~~our tax and ~~unrecognized tax benefits,~~insurance-related accruals, which could decrease our earnings or increase our losses, as the case may be, or negatively affect our cash flow; and

our level of indebtedness and any inability on our part to generate sufficient cash flow to service our debt.

2017


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. During the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015, our primary exposure to market risk was interest rate risk associated with our variable interest debt instruments. In April 2015, we entered into an interest rate swap agreement to minimize our exposure to interest rate fluctuations on $100 million of our outstanding variable rate debt under our term debt facility for which we pay a fixed rate of 0.983% and receive a variable rate equal to floating one-month LIBOR. This agreement expires on March 30, 2018, and no initial investment was made to enter into it. A 100 basis point increase in interest rates on our variable rate debt would not have resulted in a material effect on our unaudited condensed consolidated financial statements for the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015.


Item 4.	Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of ~~September 30, 2014~~March 31, 2015 were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting that occurred during the quarter ended ~~September 30, 2014~~March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2118

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

We do not believe that there have been any material changes to the risk factors disclosed in Part I, Item 1A of our ~~2013~~2014 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

2219

Item 6. Exhibits



Exhibit Number		Description

31.1		Certification by Susan R. Salka pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.*

31.2		Certification by Brian M. Scott pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.*

32.1		Certification by Susan R. Salka pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification by Brian M. Scott pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS		XBRL Instance Document.*

101.SCH		XBRL Taxonomy Extension Schema Document.*

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.*

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.*

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.*

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.*



*		Filed herewith.

2320

SIGNATURES

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 6, 2014~~May 8, 2015



AMN HEALTHCARE SERVICES, INC.

/S/ SUSAN R. SALKA
Susan R. Salka President and Chief Executive Officer (Principal Executive Officer)

Date: ~~November 6, 2014~~May 8, 2015

/S/ BRIAN M. SCOTT

Brian M. Scott

Chief Accounting Officer,

Chief Financial Officer and Treasurer

(Principal Accounting and Financial Officer)

2421



Three months ending December 31, 2014	$	1,875
Year ending December 31, 2015	7,500
Year ending December 31, 2016	7,500
Year ending December 31, 2017	7,500
Year ending December 31, 2018	7,500
Thereafter	114,375
	$	146,250



Three months ending December 31, 2014	$	2,311
Year ending December 31, 2015	6,500
Year ending December 31, 2016	8,073
Year ending December 31, 2017	8,355
Year ending December 31, 2018	8,648
Thereafter	87,892
Total minimum lease payments	$	121,779



	Three Months Ending December 31, 2014			Fiscal Year
	Three Months Ending December 31, 2014	2015	2016	2017	2018	Thereafter	Total
Notes payable (1)	$2,575	$10,189	$10,047	$9,904	$9,762	$115,087	$157,564
Operating lease obligations (2)	3,977	10,542	9,491	9,044	8,667	87,893	129,614
Total contractual obligations	$6,552	$20,731	$19,538	$18,948	$18,429	$202,980	$287,178