UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

OROr

For the period ended March 31,June 30, 2004

Commission File No.: 001-16753

AMN HEALTHCARE SERVICES, INC.

(Exact Name of Registrant as Specified in Its Charter)

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  ¨

Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes  x    No  ¨

As of May 10,August 4, 2004 there were 28,120,34028,284,962 shares of common stock, $0.01 par value, outstanding.

AMN HEALTHCARE SERVICES, INC.

TABLE OF CONTENTS

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)

See accompanying notes to unaudited condensed consolidated financial statements.

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AMN HEALTHCARE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)

See accompanying notes to unaudited condensed consolidated financial statements.

2

AMN HEALTHCARE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME (LOSS)

(Unaudited and in thousands)

See accompanying notes to unaudited condensed consolidated financial statements.

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AMN HEALTHCARE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

See accompanying notes to unaudited condensed consolidated financial statements.

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AMN HEALTHCARE SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    BASIS OF PRESENTATION

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

The 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 of America. Please refer to the Company’s audited consolidated financial statements and the related notes for the year ended December 31, 2003, contained in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

In late 2003 and early 2004, the Company implemented a new payroll and billing system. Due to difficulties encountered with certain processes during the implementation, net income for the three months and the year ended December 31, 2003 was overstated by $179,000, and net income for the three months ended March 31, 2004 was overstated by $261,000. The system implementation has been completed and the correction of the cumulative impact of these overstatements was recorded during the three months ended June 30, 2004. The impact of these adjustments is immaterial to the Company’s consolidated financial statements for the three months and the year ended December 31, 2003, and each of the three months ended March 31, 2004 and June 30, 2004.

2.    STOCK-BASED COMPENSATION

The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board “APB,”(APB) Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations including Financial Accounting Standards Board “FASB,”(FASB) Interpretation No. 44,Accounting for Certain Transactions involving Stock Compensation, an Interpretation of APB Opinion No. 25,and Emerging Issues Task Force “EITF,”(EITF) 00-23,Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44,to account for its stock option plans. Under this method, compensation expense for fixed plans is recognized only if, on the date of grant, the then current market price of the underlying stock exceeds the exercise price, and is recorded on a straight-line basis over the applicable vesting period. Compensation expense for variable plans is measured at the end of each reporting period until the related performance criteria are met and is measured based on the excess of the then current market price of the underlying stock over the exercise price. Statement of Financial Accounting Standards “SFAS,”(SFAS) No. 123,Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 123, as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure.

AMN HEALTHCARE SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table compares net income per share as reported by the Company to the pro forma amounts that would be reported had compensation expense been recognized for the Company’s stock-based compensation plans in accordance with SFAS No. 123 (in thousands, except per share amounts):

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AMN HEALTHCARE SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The fair value of the stock-based employee compensation under SFAS No. 123 was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

3.    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 common stock options.

Options to purchase 655,000 and 669,500 shares of common stock for the three and six month periods ended March 31,June 30, 2004 and March 31,options to purchase 744,000 shares of common stock for the three and six month periods ended June 30, 2003 respectively, were not included in the calculations of diluted net income per common share because the effect of these instruments was anti-dilutive.

AMN HEALTHCARE SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table sets forth the computation of basic and diluted net income per common share for the three and six month periods ended March 31,June 30, 2004 and 2003 (in thousands, except per share amounts):

4.    COMPREHENSIVE INCOME

SFAS No. 130,Reporting Comprehensive Income, establishes rulesstandards for the reporting of comprehensive income and its components. Comprehensive income (loss) includes net income, net gains and losses on derivative contracts and foreign currency translation adjustments. ForThe following table summarizes the components of comprehensive income for the three monthsand six month periods ended March 31,June 30, 2004 comprehensive income was $4,247,000 and included a $305,000 unrealized loss on interest rate swap arrangements, net of tax, and a $7,000 foreign currency translation adjustment loss. For the three months ended March 31, 2003 comprehensive income was $12,339,000 and included a $60,000 foreign currency translation adjustment loss.(in thousands):

5.    GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

As of March 31,June 30, 2004 and December 31, 2003, the Company had the following acquired intangible assets with definitefinite lives (in thousands):

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AMN HEALTHCARE SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—STATEMENTS – (Continued)

Aggregate amortization expense for the intangible assets presented in the above table was $336,000$668,000 and $179,000$367,000 for the threesix months ended March 31,June 30, 2004 and March 31,June 30, 2003, respectively. Amortization of deferred financing costs is included in interest expense. Estimated future aggregate amortization expense of intangible assets as of March 31,June 30, 2004 is as follows (in thousands):

As of March 31,June 30, 2004 and December 31, 2003, the Company had unamortized goodwill of $135.5 million.

76.    SUBSEQUENT EVENT

On July 21, 2004, the Company amended its credit facility. This amendment provided for increased flexibility under the Company’s financial covenants, an increase in the amount available under the letter of credit sub-facility and a 25 basis point increase in the interest rate margin in the event of a downgrade in the Company’s credit rating. Based on the current outstanding indebtedness, a downgrade in the credit rating and the resulting revised pricing would increase interest expense by approximately $320,000 on an annualized basis. Additionally, as a result of the amendment, the Company incurred amendment fees of approximately $250,000. These costs were deferred and are being amortized over the remaining term of the credit facility.

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

The following discussion should be read in conjunction with, and is qualified in its entirety by, 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 year ended December 31, 2003. 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.”

Overview

We are a leading temporary healthcare staffing company and the largest nationwide provider of travel nurse staffing services. We recruit nurses and allied health professionals, our “temporary healthcare professionals,” nationally and internationally and place them on temporary assignments of variable lengths at acute care hospitals and healthcare facilities throughout the United States.

Our services are marketed to two distinct customer bases: (1) temporary healthcare professionals and (2) hospital and healthcare facility clients. We use a multi-brand recruiting strategy to enhance our ability to successfully attract temporary healthcare professionals in the United States and internationally. Our separate recruitment brands, American Mobile Healthcare, Medical Express, NursesRx, Preferred Healthcare Staffing, Thera Tech Staffing and O’Grady-Peyton International, have distinct geographic market strengths and brand reputations. Nurses and allied healthcare professionals join us for a variety of reasons that include: seeking flexible work opportunities, traveling to different areas of the country, building their clinical skills and resume by working at prestigious healthcare facilities, and escaping the demands and political environment of working as a permanent staff nurse. Our large number of hospital and healthcare facility clients allows us to offer traveling positions in all 50 states and in a variety of work environments. In addition, we provide our temporary healthcare professionals with an attractive benefits package, including free or subsidized housing, travel reimbursement, professional development opportunities, a 401(k) plan and health insurance. We believe that we attract temporary healthcare professionals due to our long-standing reputation for providing a high level of service, our numerous job opportunities, our benefit packages, our innovative marketing programs and, our most effective recruiting tool, word-of-mouth referrals from our thousands of current and former temporary healthcare professionals.

We market our services to hospitals and healthcare facilities under one brand, AMN Healthcare, as a single staffing provider with access to temporary healthcare professionals from separate recruitment brands. As of March 31,June 30, 2004, we had over 4,6005,000 hospital and healthcare facility clients. Over 97%96% of our temporary healthcare professional assignments are at acute-care hospitals. Our clients include hospitals and healthcare systems such as Georgetown University Hospital, HCA, NYU Medical Center, Stanford Health Care, UCLA Medical Center and The University of Chicago Hospitals. We also provide services to sub-acute healthcare facilities, dialysis centers, clinics and schools. Our hospital and healthcare facility clients utilize our services to cost-effectively manage shortages in their staff due to a variety of circumstances, such as the Family Medical Leave Act (FMLA), new unit openings, seasonal patient census variations and other short and long-term staffing needs. In addition to providing continuity of care and quality patient care, we believe hospitals and healthcare facilities contract with us due to our high-quality temporary healthcare professionals, our ability to meet their specific staffing needs, our flexible staffing assignment lengths, our reliable and deep infrastructure, our superior customer service and our ability to offer a large national network of temporary healthcare professionals.

We believe that we have organized our operating model to deliver consistent, high-quality sales and service efforts to our two distinct client bases. Processes within our operating model have been developed and are in place with the intent to maximize the quantity and quality of assignment requests, or “orders,” from our hospital and healthcare facility clients and increase the expediency and probability of successfully placing our temporary healthcare professionals. The consistent quality of the benefit and support services which we provide to our temporary healthcare professionals is also critical to our success since the majority of our temporary healthcare professionals stay with us for multiple assignments and we believe our largest source of new candidates is word-of-mouth referrals from satisfied current and former temporary healthcare professionals.

For the three months ended March 31,June 30, 2004, we recorded revenue of $161.3$153.4 million, as compared to revenue of $199.8$183.4 million for the three months ended March 31,June 30, 2003. The number of temporary healthcare professionals on assignment averaged 6,3496,130 and 8,0357,355 in the three months ended March 31,June 30, 2004 and 2003, respectively. We recorded net income of $4.6$4.3 million for the three months ended March 31,June 30, 2004, as compared to net income of $12.4$11.2 million for the three months ended March 31,June 30, 2003. For the six months ended June 30, 2004, we recorded revenue of $314.6 million, as compared to revenue of $383.1 million for the six months ended June 30, 2003. The number of temporary healthcare professionals on assignment averaged 6,239 and 7,695 in the six months ended June 30, 2004 and 2003, respectively. We recorded net income of $8.9 million for the six months ended June 30, 2004, as compared to net income of $23.6 million for the six months ended June 30, 2003. The decrease in revenue and net income from 2003 is due primarily to changes in hospital staffing patterns, which led to a reduction in temporary healthcare professionals on assignment.

We derive substantially all of our revenue from fees paid directly by hospitals and healthcare facilities rather than from payments by government or other third parties. We enter into two types of contracts with our hospital and healthcare facility clients: flat rate contracts and payroll contracts. Under a flat rate contract, the temporary healthcare professional becomes an employee of the hospital or healthcare facility and is placed on their payroll. We bill the hospital or healthcare facility a “flat” weekly rate to

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compensate us for providing recruitment, housing and travel services. Alternatively, under a payroll contract, the temporary healthcare professional is our employee. We then bill our hospital or healthcare facility client at an hourly rate to compensate us for the temporary healthcare professional’s wages and benefits, as well as for recruitment, housing and travel services. Our clients generally prefer payroll contracts because this arrangement eliminates significant employee and payroll administrative burdens for them. Temporary healthcare professional wage and benefits billed under a payroll contract effectively represent a pass-through cost component for us and we are compensated by our clients for our value-added services. While payroll contracts generate more gross profit than flat rate contracts, the gross margin generated is lower due to the pass-through of the temporary healthcare professional’s compensation costs. Over the past five years we, and the industry as a whole, have migrated towards a greater utilization of payroll contracts. During the three months ended March 31, 2004, approximately 93% of our contracts with our hospital and healthcare facility clients were payroll contracts.

Recent Trends

From 1996 through 2000, the temporary healthcare staffing industry grew at a compound annual growth rate of 13%, and this growth accelerated to a compound annual growth rate of approximately 21% from 2000 to 2002. During 2003, the demand for temporary healthcare professionals declined due to a number of factors. In particular, we believe hospitals increased their nurse recruitment efforts, stretched the productivity of permanent staff and maximized the cost-effectiveness of outsourced staffing solutions. In addition, influenced by economic conditions during 2003, we believe permanent staff at our hospital and healthcare facility clients were more likely to work overtime and less likely to leave their positions, creating fewer vacancies and fewer opportunities for us to place our temporary healthcare professionals.

The number of temporary healthcare professionals on assignment with us decreased 21% from an average of 8,035 for the three months ended March 31, 2003 to an average of 6,349 for the three months ended March 31, 2004. Primarily as a result of this decline in the number of temporary healthcare professionals on assignment, our revenue and net income also decreased. Demand for our services stabilized from April 2003 through late 2003, and has since increased throughout many regions.in 2004. We believe that this improvement in demand has been caused by a number of factors, including an increase in hospital admissions, legislation impacting healthcare staffing, such as the California nurse-to-patient staffing ratios that went into effect in January 2004, signs of an improving economy and our increased focus on our hospital and healthcare facility clients. ItWhile this rise in demand is positive and creates opportunities for growth, there has not been a corresponding growth in the supply of new candidates.

The number of temporary healthcare professionals on assignment with us decreased 17% from an average of 7,355 for the three months ended June 30, 2003 to an average of 6,130 for the three months ended June 30, 2004. Primarily as a result of this decline in the number of temporary healthcare professionals on assignment, our revenue and net income also decreased. While demand for our services continued to grow during the second quarter of 2004, the corresponding supply of temporary healthcare professionals has not kept pace with the demand growth. The number of new applicants is still below 2003 levels while the number of orders from our clients has increased over last year. We are uncertain whether the recentcurrent increase in demand will lead to increases in the average number of temporary healthcare professionals on assignment. Historically, we have experienced a time lag between when changes in supply and demand occur and when our operations processes translate into changes in the number of temporary healthcare professionals on assignment and in our financial results.

Critical Accounting Principles and Estimates

We have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements. The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect our reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to asset impairment, accruals for self-insurance and compensation and related benefits, allowance for doubtful accounts and contingencies and litigation. We state these accounting policies in the notes to the audited consolidated financial statements and related notes for the year ended December 31, 2003,

contained in our Annual Report of Form 10-K as filed with the Securities and Exchange Commission, and in relevant sections in this discussion and analysis. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary from these estimates under different assumptions or conditions.

We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements:

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accruals as appropriate. As of March 31,June 30, 2004 and December 31, 2003, we had $3.0$2.7 million and $3.5 million, respectively, accrued for incurred but not reported health insurance claims, which is included in accrued compensation and benefits in our consolidated balance sheets. The decline in the accrual is primarily related to a decrease in the number of temporary healthcare professionals covered by the plan and a corresponding decrease in claims. Historically, our accrual for health insurance has been adequate to provide for incurred claims, and has fluctuated with increases or decreases in the average number of temporary healthcare professionals on assignment and increases in national healthcare costs.

change in the workers compensation rates. As of June 30, 2004 and December 31, 2003, we had $5.1 million and $3.9 million, respectively, accrued for professional liability retention, which is included in accounts payable and accrued expenses in our consolidated balance sheets. The increase in the professional liability accrual is related to expected claims incurred during the six months ended June 30, 2004, offset by an immaterial amount of payments made during the period.

Results of Operations

The following table sets forth, for the periods indicated, certain consolidated statements of operations data as a percentage of our revenue. Our results of operations are reported as a single business segment.

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Comparison of Results for the Three Months Ended March 31,June 30, 2004 to the Three Months Ended March 31,June 30, 2003

Revenue.    Revenue decreased 19%16%, from $199.8$183.4 million for the three months ended March 31,June 30, 2003 to $161.3$153.4 million for the same period in 2004. This decrease is comparable to the decrease in the number of temporary healthcare professionals on assignment, which decreased 21%17% from an average of 8,0357,355 for the three months ended March 31,June 30, 2003 to an average of 6,3496,130 for the same period in 2004. The $38.5$30.0 million decrease in revenue was primarily attributable to athis decline in the average number of temporary healthcare professionals on assignment and aassignment. The shift in the mix from payroll to flat rate contracts. This decrease was offset by improvementscontracts and changes in contract terms with our hospital and healthcare facility clients and one extra dayhad an immaterial impact on the change in the three months ended March 31, 2004 due to 2004 being a leap year. The total number of temporary healthcare professionals on assignment declined by 21% and resulted in approximately $41.9 million to the decrease in revenue, and the shift in the mix from payroll to flat rate contracts contributed approximately $2.8 million. These decreases were partially offset by improvements in contract terms, which included increases in bill rates charged to hospital and healthcare facility clients, of approximately $4.4 million, and the additional day, which contributed approximately $1.8 million.revenue.

Cost of Revenue.    Cost of revenue decreased 19%16%, from $155.0$141.4 million for the three months ended March 31,June 30, 2003 to $125.4$118.4 million for the same period in 2004. Of the $29.6The $23.0 million decrease approximately $32.5 million was primarily attributable to the decline in the average number of temporary healthcare professionals on assignment, offset by an approximately $1.4 million increase attributable to the extra day in the three months ended March 31, 2004 and an approximately $1.5 million increase attributable to net increases in compensation and benefits provided to our temporary healthcare professionals.assignment.

Gross Profit.    Gross profit decreased 20%17%, from $44.8$42.0 million for the three months ended March 31,June 30, 2003 to $35.8$35.0 million for the same period in 2004, representing gross margins of 22.4%22.9% and 22.2%22.8%, respectively. The slight decrease in gross margin was primarily attributable to increased compensation and housing costs, offset by decreased health insurance and pension plan costs as a percentage of revenue.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses, excluding non-cash stock–basedstock-based compensation, increased 8%9%, from $22.8$22.0 million for the three months ended March 31,June 30, 2003 to $24.6$24.0 million for the same period in 2004. The $1.8$2.0 million increase was primarily attributable to increased office, professional servicescorporate facility, international recruiting and professional liability insurance expenses. These increases were partially offset by reductions in the allowance for doubtful accounts due to favorable client collections experience, reductions in employee expenses and reductions in marketing and advertising expenses.experience.

Non-Cash Stock-Based Compensation.    We recorded non-cash stock-based compensation charges of $0.2 million for each of the three months ended March 31,June 30, 2003 and 2004 in connection with our stock option plans to reflect the difference between the fair market value at the measurement date and the exercise prices of previously issued stock options, which are amortized over their respective vesting periods.

Amortization and Depreciation Expense.    Amortization expense of $0.1 million was consistent for each of the three months ended March 31,June 30, 2003 and 2004, as there were no significant changes in the carrying values of intangible assets subject to amortization. Depreciation expense increased from $1.0$1.1 million for the three months ended March 31,June 30, 2003 to $1.4 million for the three months ended March 31,June 30, 2004. This increase was primarily attributable to internally developed software placed in service in 2003 and 2004 and additions of leasehold improvements and assets acquired in connection with the consolidation of several San Diego, California locations into a new corporate headquarters facility during the second half of 2003.

Interest Expense, Net.    Interest expense, net, was $0.1 million for the three months ended March 31,June 30, 2003 as compared to $2.1 million for the same period in 2004, due primarily to interest charges related to borrowings initiated under our credit facility in October 2003 to fund our tender offer and the amortization of deferred financing costs associated with our debt issuance.those borrowings.

Income Tax Expense.    Income tax expense decreased from $8.1$7.3 million for the three months ended March 31,June 30, 2003 to $2.9$2.8 million for the same period in 2004, reflecting effective income tax rates of 39.5% and 38.5%39.0% for these periods, respectively. The reduction in the effective income tax rate was primarily attributable to changes in the state tax provision.

Comparison of Results for the Six Months Ended June 30, 2004 to the Six Months Ended June 30, 2003

Revenue.    Revenue decreased 18%, from $383.1 million for the six months ended June 30, 2003 to $314.6 million for the same period in 2004. This decrease is comparable to the decrease in the number of temporary healthcare professionals on assignment, which decreased 19% from an average of 7,695 for the six months ended June 30, 2003 to an average of 6,239 for the same period in 2004. The $68.5 million decrease in revenue was primarily attributable to a decline in the average number of temporary healthcare professionals on assignment and a shift in the mix from payroll to flat rate contracts. This decrease was offset by improvements in contract terms with our hospital and healthcare facility clients and one extra day in the six months ended June 30, 2004 due to 2004 being a leap year. The total number of temporary healthcare professionals on assignment declined by 19% and contributed approximately $72.5 million to the decrease in revenue, and the shift in the mix from payroll to flat rate contracts contributed approximately $3.1 million. These decreases were partially offset by improvements in contract terms, which included increases in bill rates charged to hospital and healthcare facility clients, of approximately $5.4 million, and the additional day in the period, which contributed approximately $1.7 million.

Cost of Revenue.    Cost of revenue decreased 18%, from $296.4 million for the six months ended June 30, 2003 to $243.8 million for the same period in 2004. Of the $52.6 million decrease, approximately $56.1 million was attributable to the decline in the average number of temporary healthcare professionals on assignment, offset by an approximately $1.3 million increase attributable to the extra day in the six months ended June 30, 2004 and an approximately $2.2 million increase attributable to net increases in compensation and overall benefits provided to our temporary healthcare professionals.

Gross Profit.    Gross profit decreased 18%, from $86.7 million for the six months ended June 30, 2003 to $70.8 million for the same period in 2004, representing gross margins of 22.6% and 22.5%, respectively. The slight decrease in gross margin was primarily attributable to increased compensation and housing costs, offset by decreased health insurance costs as a percentage of revenue.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses, excluding non-cash stock-based compensation, increased 8%, from $44.8 million for the six months ended June 30, 2003 to $48.6 million for the same period in 2004. The $3.8 million increase was primarily attributable to increased corporate facility, professional services, international recruiting and professional liability insurance expenses. These increases were partially offset by reductions in the allowance for doubtful accounts due to favorable client collections experience, reductions in employee expenses and reductions in marketing and advertising expenses.

Non-Cash Stock-Based Compensation.    We recorded non-cash stock-based compensation charges of $0.4 million for each of the six months ended June 30, 2003 and 2004 in connection with our stock option plans to reflect the difference between the fair market value at the measurement date and the exercise prices of previously issued stock options, which are amortized over their respective vesting periods.

Amortization and Depreciation Expense.    Amortization expense of $0.2 million was consistent for each of the six months ended June 30, 2003 and 2004, as there were no significant changes in the carrying values of intangible assets subject to amortization. Depreciation expense increased from $2.1 million for the six months ended June 30, 2003 to $2.8 million for the six months ended June 30, 2004. This increase was primarily attributable to internally developed software placed in service in 2003 and 2004 and additions of leasehold improvements and assets acquired in connection with the consolidation of several San Diego, California locations into a new corporate headquarters facility during the second half of 2003.

Interest Expense, Net.    Interest expense, net, was $0.2 million for the six months ended June 30, 2003 as compared to $4.3 million for the same period in 2004, due primarily to interest charges related to borrowings initiated under our credit facility in October 2003 to fund our tender offer and the amortization of deferred financing costs associated with those borrowings.

Income Tax Expense.    Income tax expense decreased from $15.4 million for the six months ended June 30, 2003 to $5.6 million for the same period in 2004, reflecting effective income tax rates of 39.5% and 38.7% for these periods, respectively. The reduction in the effective income tax rate was primarily attributable to changes in the state tax provision.

Liquidity and Capital Resources

Historically, our primary liquidity requirements have been for acquisitions, working capital requirements and debt service under our credit facility. We have funded these requirements through internally generated cash flow and funds borrowed under our credit facility. At March 31,June 30, 2004, $137.0$128.5 million was outstanding under our credit facility. We believe that cash generated from operations and available borrowings under our revolving credit facility will be sufficient to fund our operations for the next 12 months. We expect to be able to finance future acquisitions either with cash provided from operations, borrowings under our revolving credit facility, bank loans, debt or equity offerings, or some combination of the foregoing. The following discussion provides further details of our liquidity and capital resources.

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Operating Activities:

Historically, our principal working capital need has been for accounts receivable. Our Days Sales Outstanding (“DSO”)(DSO) have generally ranged between approximately 58 and 62 days. At March 31,June 30, 2004, our DSO was 6966 days. At March 31,June 30, 2003, our DSO was 5957 days and at December 31, 2003, our DSO was 68 days. The increase in DSO compared to March 31,June 30, 2003 was primarily related to the temporary delay in client billings associated with the upgradeimplementation of oura new payroll and billing system initiated in November 2003. WeOur DSO has declined since December 31, 2003 and we expect our DSO to decrease in the future. Our principal sources of cash to fund our working capital needs are cash generated from operating activities and borrowings under our revolving credit facility. Net cash provided by operations decreased $16.0$25.8 million from $21.7$46.7 million in the threesix months ended March 31,June 30, 2003 to $5.7$20.9 million in the threesix months ended March 31,June 30, 2004. This decrease in net cash provided by operations was primarily related to the decrease in net income and the increase in our DSO compared to the prior year.

Investing Activities:

We continue to have relatively low capital investment requirements. Capital expenditures were $1.5$2.5 million and $3.3$7.0 million for the threesix months ended March 31,June 30, 2004 and 2003, respectively. For the first threesix months of 2004, our primary capital expenditures were $1.1$2.0 million for purchased and internally developed software and $0.4$0.5 million for computers, furniture and equipment and other expenditures. The higher level of capital expenditures for the first six months ended June 30, 2003 was primarily related to our leasehold improvements for our new corporate headquarters. We expect our capital expenditure requirements to be similar in the future, other than costs related to our new corporate headquarters, in relation to revenue.

Financing Activities:

In November 2002, our board of directors approved a stock repurchase program authorizing a repurchase of up to $100 million of our common stock on the open market from time to time through December 2003. Stock repurchases were subject to prevailing market conditions and other considerations, including limitations under applicable securities laws. Under the terms of the repurchase program, we repurchased 2,429,1002,892,200 shares at an average purchase price of $12.75$12.45 per share, or an aggregate of $31.0$36.0 million, during the threesix months ended March 31,June 30, 2003.

On October 16, 2003, we completed a tender offer for an aggregate of $180 million, or approximately 10 million shares of our common stock and certain employee stock options. In connection with the tender offer, we amended our credit facility. The amended credit facility provides for, among other things, a $75 million secured revolving credit facility, letter of credit sub-facility and swing-line loan sub-facility and a new $130 million secured term loan facility maturing in October 2008. Our amended and restated credit agreement stipulates a minimum fixed charge coverage ratio, a maximum leverage ratio and other customary covenants.

On July 21, 2004, we amended our credit facility. This amendment provides for increased flexibility under our financial covenants, an increase in the amount available under our letter of credit sub-facility and a 25 basis point increase in the interest rate margin in the event of a downgrade in our credit rating. Based on our current outstanding indebtedness, a downgrade in our credit rating and the resulting revised pricing would increase our interest expense by approximately $320,000 on an annualized basis. Additionally, as a result of the amendment, we incurred amendment fees of approximately $250,000. These costs were deferred and are being amortized over the remaining term of our credit facility.

The revolving credit facility carries an unused fee of 0.5% per annum, and there are no mandatory reductions in the revolving commitment under the revolving credit facility. Borrowings under this revolving credit facility bear interest at floating rates based upon either a LIBOR or a prime interest rate option selected by us, plus a spread, to be determined based on our leverage ratio. Amounts available under our revolving credit facility may be used for working capital, acquisitions and general corporate purposes, subject to various limitations.

The five year, $130 million term loan portion of our credit facility is subject to quarterly amortization of principal (in equal installments), with an amount equal to 1.15% of the initial aggregate principal amount of the facility payable quarterly beginning June 30, 2004 until 2008 with any remaining amounts payable in 2008. We paid the initial principal installment of $1.5 million on June 30, 2004. We are required to make mandatory prepayments on the term loan within ninety days after the end of each fiscal year, commencing with the fiscal year ending December 31, 2004. The prepayment is equal to 50% of the Company’s excess cash flow (as defined in the Credit Agreement), less any voluntary prepayments made during the fiscal year. The mandatory prepayment amount, if any, is applied ratably to the remaining quarterly amortization payments.

We are also required to maintain interest rate protection on at least 50% of the term loan portion of our credit facility until January 1, 2006. On October 17, 2003 we entered into interest rate swap arrangements to minimize our exposure to interest rate fluctuations on $110 million of our outstanding variable rate debt under the new credit facility. We have formally documented the hedging relationships and account for these arrangements as cash flow hedges.

Our amended and restated credit agreement stipulates a minimum fixed charge coverage ratio, a maximum leverage ratio and other customary covenants.

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Potential Fluctuations in Quarterly Results and Seasonality

Due to the regional and seasonal fluctuations in the hospital patient census of our hospital and healthcare facility clients and due to the seasonal preferences for destinations by our temporary healthcare professionals, the number of temporary healthcare professionals on assignment, revenue and earnings are subject to moderate seasonal fluctuations. Many of our hospital and healthcare facility clients are located in areas that experience seasonal fluctuations in population during the winter and summer months. These facilities adjust their staffing levels to accommodate the change in this seasonal demand and many of these facilities utilize temporary healthcare professionals to satisfy these seasonal staffing needs.

Historically, with the exception of 2003 in which we experienced a sequential quarterly decline, the number of our temporary healthcare professionals on assignment has increased during January through March, followed by declines or minimal growth during April through August. During September through November, our temporary healthcare professional count has historically increased, followed by a decline in December. This historical seasonality of revenue and earnings may vary due to, among other factors, the recent changes in the demand from our hospital and healthcare facility clients.clients and supply of temporary healthcare professionals. Results of any one quarter are not necessarily indicative of the results to be expected for any other quarter or for any year.

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may” and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The following factors could cause our actual results to differ materially from those implied by the forward-looking statements in this Quarterly Report:

Other factors that could cause actual results to differ from those implied by the forward-looking statements contained in this Quarterly Report are set forth in our Annual Report on Form 10-K for the year ended December 31, 2003. We undertake no obligation to update the forward-looking statements in this filing. References in this filing to “AMN Healthcare,” the “Company,” “we,” “us” and “our” refer to AMN Healthcare Services, Inc. and its subsidiaries.

Additional Information

We maintain a corporate website at www.amnhealthcare.com/investors. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports, are made available, free of charge, through this website as soon as reasonably practicable after being filed with or furnished to the Securities and Exchange Commission.

13On July 28, 2004, we announced that the resignation of Donald Myll, our chief financial officer, will be effective August 11, 2004, and that Susan Nowakowski has been appointed interim Chief Financial Officer and Brent Rivard has been appointed interim Chief Accounting Officer and Treasurer. Please refer to the Company’s Current Report on Form 8-K dated July 28, 2004 as furnished to the Securities and Exchange Commission.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. We do not believe that we have any material market risk exposure with respect to derivative or other financial instruments.

During 2003 and 2004, our primary exposure to market risk was interest rate risk associated with our debt instruments and short-term investments. See “Item 2. Management’s Discussion and Analysis—Liquidity and Capital Resources—Financing Activities” for further description of our debt instruments.” AExcluding the effect of interest rate swap arrangements, a 1% change in interest rates on variable rate debt would have resulted in interest expense fluctuating approximately $392,000$782,000 during the threesix months ended March 31,June 30, 2004.

Our international operations create exposure to foreign currency exchange rate risks. We believe that our foreign currency risk is immaterial.

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 March 31,June 30, 2004 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 Securities and Exchange Commission’s rules and forms.

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31,June 30, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 4.    Submission of Matters to a Vote of Security Holders

We held our Annual Meeting of Stockholders on May 18, 2004. The matters submitted to a vote of our stockholders were (i) the election of seven directors to our Board of Directors (ii) the approval of the Company’s 2001 Stock Option Plan as amended and restated, and (iii) ratification of the selection of KPMG LLP as our independent auditors for the fiscal year ending December 31, 2004.

Our stockholders elected the following seven directors to our Board of Directors, to hold office until the next Annual Meeting of Stockholders or until their successors are duly elected and qualified. The results of the voting were as follows:

Our stockholders approved our 2001 Stock Option Plan as amended and restated. The results of the voting were as follows:

Our stockholders also ratified the selection of KPMG LLP as our independent auditors for the fiscal year ending December 31, 2004. The results of the voting were as follows:

Item 6.    Exhibits and Reports on Form 8-K

(a)List of Exhibits

(b)Reports on Form 8-K:

On March 15, 2004, we filed a Current Report on Form 8-K regarding the retention of a national executive search firm to seek a Chief Financial Officer.

15None

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.

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