UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Or

For the quarterly period ended September 30, 2004March 31, 2005

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)Act).    Yes  x    No  ¨

As of November 5, 2004,May 9, 2005, there were 28,344,16228,744,547 shares of common stock, $0.01 par value, outstanding.

AMN HEALTHCARE SERVICES, INC.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

AMN HEALTHCARE SERVICES, INC.

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 INCOMEOPERATIONS

(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.

3

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)

The condensed consolidated balance sheets and related condensed consolidated statements of income,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.items, except as described below. 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 principlesUnited States generally accepted in the United States of America.accounting principles. Please refer to the Company’s audited consolidated financial statements and the related notes for the year ended December 31, 2003,2004, 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 principlesUnited States generally accepted in the United States of Americaaccounting principles 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 periods.period. Actual results may differ from those estimates.

During the three months ended March 31, 2005, the Company recorded a $0.9 million correcting adjustment to increase its workers’ compensation reserve, resulting in a $0.6 million decrease to net income, in order to expense claim administration fees incurred during fiscal years 2002, 2003 and 2004 that had been previously incorrectly applied against the workers’ compensation reserve. During the same period, the Company recorded a $0.3 million correcting adjustment to decrease accumulated depreciation and depreciation expense, resulting in a $0.2 million increase to net income, for excess depreciation incorrectly recorded during fiscal years 2003 and 2004. The Company recorded the cumulative impact of these two accounting corrections during the first quarter of 2005, as the amounts are not material to fiscal years 2002, 2003 or 2004, and are not expected to be material to fiscal year 2005.

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

AMN HEALTHCARE SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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.

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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):

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:

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 1,810,000 shares of common stock for the three1,512,000 and nine month periods ended September 30, 2004 and options to purchase 655,000 shares of common stock for the three and nine month periods ended September 30, 2003March 31, 2005 and March 31, 2004, respectively, were not included in the calculations of diluted net income per common share because the effect of these instruments was anti-dilutive.

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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 nine month periods ended September 30,March 31, 2005 and 2004 and 2003 (in thousands, except per share amounts):

SFAS No. 130,Reporting Comprehensive Income, establishes standards 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. The following table summarizesFor the components ofthree months ended March 31, 2005 and 2004, comprehensive income for the threewas $4,155,000 and nine month periods ended September 30, 2004$4,247,000 and 2003 (in thousands):included a $152,000 and ($305,000) unrealized gain (loss) on interest rate swap arrangements, net of tax, and a $10,000 and ($7,000) foreign currency translation adjustment gain (loss), respectively.

As of September 30, 2004March 31, 2005 and December 31, 2003,2004, the Company had the following acquired intangible assets with finitedefinite lives (in thousands):

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AMN HEALTHCARE SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Aggregate amortization expense for the intangible assets presented in the above table was $1,416,000$280,000 and $556,000$336,000 for the ninethree months ended September 30,March 31, 2005 and March 31, 2004, and September 30, 2003, respectively. Amortization of deferred financing costs is included in interest expense. Estimated future aggregate amortization expense of intangible assets as of September 30, 2004March 31, 2005 is as follows (in thousands):

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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, 2003.2004. 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.

For the three months ended March 31, 2005, we recorded revenue of $156.8 million, as compared to revenue of $161.3 million for the three months ended March 31, 2004. The number of temporary healthcare professionals on assignment averaged 6,350 and 6,349 in the three months ended March 31, 2005 and 2004, respectively. We recorded net income of $4.0 million for the three months ended March 31, 2005, as compared to net income of $4.6 million for the three months ended March 31, 2004.

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 provides us with the opportunity 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 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 September 30, 2004,March 31, 2005, we had over 5,6006,000 hospital and healthcare facility clients. Over 96%95% 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 sincebecause the majority of our temporary healthcare professionals stay with us for multiple assignments.

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For the three months ended September 30, 2004, we recorded revenue of $156.1 million, as compared to revenue of $171.5 million for the three months ended September 30, 2003. The number of temporary healthcare professionals on assignment averaged 6,123 and 6,723 in the three months ended September 30, 2004 and 2003, respectively. We recorded net income of $3.9 million for the three months ended September 30, 2004, as compared to net income of $9.3 million for the three months ended September 30, 2003. For the nine months ended September 30, 2004, we recorded revenue of $470.7 million, as compared to revenue of $554.6 million for the nine months ended September 30, 2003. The number of temporary healthcare professionals on assignment averaged 6,201 and 7,371 in the nine months ended September 30, 2004 and 2003, respectively. We recorded net income of $12.8 million for the nine months ended September 30, 2004, as compared to net income of $32.9 million for the nine months ended September 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.

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 cost control efforts to eliminate or reduce outsourced staffing solutions. In addition, influenced by economic conditions during 2003, we believe permanent staff at our hospital and healthcare facility clients, influenced by economic conditions during 2003, were more likely to work overtime and less likely to leave their positions, creating fewer vacancies and fewer opportunities for us to recruit and place our temporary healthcare professionals.

Demand for our services stabilized from April 2003 through late 2003, and has increased each quarter in 2004.from the fourth quarter of 2003 through the first quarter of 2005. 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. While this rise in demand is positive and creates opportunities for growth, recent increases in the supply of new temporary healthcare professional candidates has not grown, but at the samea slower pace asthan demand.

We primarily draw our supply of temporary healthcare professionals from national recruitment efforts through our targeted multi-brand recruitment strategy. We believe that sustained growth in hospital and healthcare facility orders will generate increasing interest and new recruiting opportunities in travel nursing. Recently, international supply channels have represented a small but growing supply source; however, our ability to recruit healthcare professionals through these foreign supply channels may be impacted by government legislation limiting the number of permanent immigrant visas.

The number of temporary healthcare professionals on assignment with us decreased 9% from an average of 6,723 for the three months ended September 30, 2003 to an average of 6,123 for the three months ended September 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. However, demand for our servicesvisas that can be issued and the supply of our temporary healthcare professionals has grown during each quarter of 2004. We are uncertain whether the current increases in demand for our services and the supply of our temporary healthcare professionals will generate consistent future growth in the average number of temporary healthcare professionals on assignment.processing times associated with these visas.

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 principlesU.S. generally accepted in the United States of Americaaccounting 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 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 for the year ended December 31, 2003,2004, contained in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission, and in

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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:

11Contingent Liabilities

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Results of Operations

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

Comparison of Results for the Three Months Ended September 30, 2004March 31, 2005 to the Three Months Ended September 30, 2003March 31, 2004

Revenue.    Revenue decreased 9%3%, from $171.5$161.3 million for the three months ended September 30, 2003March 31, 2004 to $156.1$156.8 million for the same period in 2004. This2005. Of the $4.5 million decrease, is comparable$3.1 million was attributable to the decreasedecreases in the number ofrevenue per temporary healthcare professionals on assignment, which decreased 9% from an average of 6,723 forprofessional and $1.7 million was attributable to one less day in the three months ended September 30, 2003 to an average of 6,123 for the same period in 2004. Of the $15.4 million decrease in revenue, $15.3 million was attributable to this decline in the average number of temporary healthcare professionals on assignment, and $0.1 million was attributable toMarch 31, 2005. These decreases were partially offset by a slight reduction in the average hours worked per day by our temporary healthcare professionals. The shift in the mix from flat rate to payroll rate contracts had an immaterial impact on the change inwhich contributed a $0.3 million increase to revenue.

Cost of Revenue.    Cost of revenue decreased 10%3%, from $132.4$125.4 million for the three months ended September 30, 2003March 31, 2004 to $119.4$121.1 million for the same period in 2004.2005. Of the $13.0$4.3 million decrease, approximately $11.8$3.3 million was attributable to the decline in the average number of temporary healthcare professionals on assignment, approximately $0.8 million was attributable to net decreases in the cost of housingcompensation and benefits provided to our temporary healthcare professionals, which is net of a $0.9 million correcting adjustment to increase our workers’ compensation reserve, and approximately $0.4$1.3 million was attributable to an adjustmentone less day in the three months ended March 31, 2005. These decreases were offset by a shift in the mix from flat rate to our workers compensation reserve based on the resultspayroll contracts which contributed a $0.3 million increase to cost of an independent actuarial study.revenue.

Gross Profit.    Gross profit decreased 6%less than 1%, from $39.0$35.8 million for the three months ended September 30, 2003March 31, 2004 to $36.7$35.7 million for the same period in 2004,2005, representing gross margins of 22.8%22.2% and 23.5%22.8%, respectively. The increase in gross margin was primarily attributable to decreased housing health insurance and retirement costs as a percentage of revenue, as well as the actuarial-based adjustment to our workers compensation reserve. Excluding the workers compensation reserve adjustment, gross margin would have been 23.3% for the three months ended September 30, 2004.costs.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses, excluding non-cash stock-basedstock–based compensation, increased 19%7%, from $22.2$24.6 million for the three months ended September 30, 2003March 31, 2004 to $26.4$26.2 million for the same period in 2004.2005. The $4.2$1.6 million increase was primarily attributable to an increaseincreases in employee expenses related to corporate facilities, corporate employees, professional services and an increase in our professional liability insurance reserve.costs.

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Non-Cash Stock-Based Compensation.    We recorded non-cash stock-based compensation charges of $0.2 million for each of the three months ended September 30, 2003March 31, 2004 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 was $95,000less than $0.1 million for the three months ended September 30, 2003 as comparedMarch 31, 2005. The decrease was due to $37,000the cancellation of unvested stock options outstanding during the third quarter of 2004 associated with certain employee terminations.

Depreciation and Amortization.    Amortization expense decreased from $0.1 million for the same period inthree months ended March 31, 2004 as an intangible asset became fully amortized in June 2004. to less than $0.1 million for the three months ended March 31, 2005.Depreciation expense increaseddecreased 21% from $1.4 million for the three months ended March 31, 2004 to $1.1 million for the three months ended September 30, 2003March 31, 2005. This decrease was primarily attributable to $1.4a $0.3 million forreversal of depreciation expense during the three months ended September 30, 2004. This increase was primarily attributableMarch 31, 2005 related to internally developed software placeddepreciation expense incorrectly recorded in service in 2003 and 2004 and additions of leasehold improvements andprevious years on 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.which were fully depreciated.

Interest Expense, Net.    Interest expense, net, was $92,000$2.1 million for the three months ended September 30, 2003March 31, 2004 as compared to $2.4$1.8 million for the same period in 2005. The $0.3 million decrease was attributable to the $44.5 million decrease in debt outstanding from March 31, 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. In addition, interest expense was $0.5 million higher for the three months ended September 30, 2004 due to an acceleration in the amortization of deferred financing costs related to a total of $22.0 million in voluntary prepayments on our long-term debt made during the quarter ended September 30, 2004.March 31, 2005.

Income Tax Expense.    Income tax expense decreased from $6.1$2.9 million for the three months ended September 30, 2003March 31, 2004 to $2.3$2.6 million for the same period in 2004,2005, reflecting effective income tax rates of 39.5%38.5% and 37.2%39.5% for these periods, respectively. The decrease in the effective tax rate was primarily attributable to changes in the state tax provision related to state tax credits claimed for years prior to 2004.

Comparison of Results for the Nine Months Ended September 30, 2004 to the Nine Months Ended September 30, 2003

Revenue. Revenue decreased 15% from $554.6 million for the nine months ended September 30, 2003 to $470.7 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 16% from an average of 7,371 for the nine months ended September 30, 2003 to an average of 6,201 for the same period in 2004. Of the $83.9 million decrease in revenue, $88.0 million was attributable to this decline in the average number of temporary healthcare professionals on assignment and the shift in the mix from payroll to flat rate contracts contributed approximately $3.2 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 $5.6 million, and one additional day in the nine months ended September 30, 2004, which contributed approximately $1.7 million.

Cost of Revenue. Cost of revenue decreased 15% from $428.8 million for the nine months ended September 30, 2003 to $363.2 million for the same period in 2004. Of the $65.6 million decrease, approximately $68.1 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 nine months ended September 30, 2004 and an approximately $1.2 million increase attributable to net increases in compensation provided to our temporary healthcare professionals.

Gross Profit. Gross profit decreased 15% from $125.8 million for the nine months ended September 30, 2003 to $107.5 million for the same period in 2004, representing gross margins of 22.7% and 22.8%, respectively. The slight increase in gross margin was primarily attributable to decreased health insurance costs, partially offset by increased compensation and housing costs as a percentage of revenue.

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Selling, General and Administrative Expenses. Selling, general and administrative expenses, excluding non-cash stock-based compensation, increased 12% from $67.0 million for the nine months ended September 30, 2003 to $75.0 million for the same period in 2004. The $8.0 million increase was primarily attributable to an increase in expenses related to corporate facilities, corporate employees, professional services and an increase in our professional liability insurance reserve.

Non-Cash Stock-Based Compensation. We recorded non-cash stock-based compensation charges of $0.7 million for each of the nine months ended September 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 was $0.3 million for the nine months ended September 30, 2003 as compared to $0.2 million for the same period in 2004, as an intangible asset became fully amortized in June 2004. Depreciation expense increased from $3.2 million for the nine months ended September 30, 2003 to $4.2 million as compared to the same period in 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 $0.3 million for the nine months ended September 30, 2003 as compared to $6.7 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. In addition, interest expense was $0.5 million higher for the nine months ended September 30, 2004 due to an acceleration in the amortization of deferred financing costs related to a total of $22.0 million in voluntary prepayments on our long-term debt made during the quarter ended September 30, 2004.

Income Tax Expense. Income tax expense decreased from $21.5 million for the nine months ended September 30, 2003 to $7.9 million for the same period in 2004, reflecting effective income tax rates of 39.5% and 38.3% for these periods, respectively. The reduction in the effective income tax rate was primarily attributable to changes in the state tax provision related to state tax credits claimed.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 September 30, 2004, $105.2March 31, 2005, $92.5 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.

Operating Activities:

Historically, our principal working capital need has been for accounts receivable. At September 30,March 31, 2005, our days sales outstanding (“DSO”) was 63 days. At March 31, 2004, September 30, 2003 and December 31, 2003, our DSO was 64 days, 6169 days and 68 days, respectively.at December 31, 2004, our DSO was 63 days. The increasedecrease in DSO compared to September 30, 2003March 31, 2004 was primarily related to the return to normal client billing and collection processes during 2004 after a temporary delay in client billings associated with the implementation of a new payroll and billing system initiated in November 2003. Our DSO has declined since December 31, 2003.2003 and the resulting improvement in these processes due to the upgraded system. 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 $23.3increased $11.2 million from $64.1$5.7 million in the ninethree months ended September 30, 2003March 31, 2004 to $40.8$16.9 million in the ninethree months ended September 30, 2004.March 31, 2005. This decreaseincrease in net cash provided by operations was primarily related to the decrease in net income and thean increase in our DSO comparedaccrued compensation due to the prior year.timing of pay dates for both our temporary healthcare professionals and corporate employees.

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Investing Activities:

We continue to have relatively low capital investment requirements. Capital expenditures were $4.0$0.8 million and $11.1$1.5 million for the ninethree months ended September 30,March 31, 2005 and 2004, and 2003, respectively. For the first ninethree months of 2004,2005, our primary capital expenditures were $3.3$0.6 million for purchased and internally developed software and $0.7$0.2 million for computers, leasehold improvements, furniture and equipment and other expenditures. The higher level of capital expenditures for the first nine months ended September 30, 2003 was primarily related to our leasehold improvements for our new corporate headquarters. We expect our future capital expenditure requirements to be similar into the future, other than costs related to our new corporate headquarters, in relation to revenue.three months ended March 31, 2005.

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 3,076,100 shares at an average purchase price of $12.51 per share, or an aggregate of $38.5 million, during the nine months ended September 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 providesfacility to provide 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 at March 31, 2005, a downgrade in our credit rating and the resulting revised pricing would increase our interest expense by approximately $263,000$0.2 million on an annualized basis. To date,Since the amendment of our credit facility in July 2004, we have not had a downgrade in our credit rating. In March 2005, we again amended our credit facility to provide for increased flexibility under our financial covenants.

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. These quarterly payments began on June 30, 2004 and continue until 2008 with any remaining amounts payable in 2008. Voluntary prepayments of the term loan portion of the credit facility are applied ratably to the remaining quarterly amortization payments. We have paid all required principal installments, including the installment of $1.2 million due March 31, 2005. The mandatory installments were reduced after the initial principal installment of $1.5 million on June 30, 2004, and a reduced second mandatory installment of $1.3 million on September 30, 2004 due to $22.0$24.3 million of voluntary prepayments made during 2004 and an additional voluntary prepayment of $10.5 million during the quarterthree months ended September 30, 2004. March 31, 2005.

We are required to make additional mandatory prepayments on the term loan within ninety days after the end of each fiscal year, commencingwhich commenced with the fiscal year endingended December 31, 2004. The prepayment required is equal to 50% of our excess cash flow (as defined in the Credit Agreement)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 believe that the voluntary prepaymentsprepayment made to dateduring the three months ended March 31, 2005 will satisfy this additional prepayment requirement for the year ending December 31, 2004.

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We accelerated an additional $0.5 million of amortization of deferred financing costs, which is included in interest expense, during the three months ended September 30, 2004 related to voluntary prepayments of $22.0 million made on the term loan portion of the credit facility during the quarter.2005.

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. OnIn October 17, 2003, we entered into three interest rate swap arrangements to minimize our exposure to interest rate fluctuations on $110 million of our outstanding variable rate debt under our credit facility, of which $30the first arrangement expired in September 2004. As of March 31, 2005, we have two interest rate swap agreements in place to minimize our exposure to interest rate fluctuations on $80 million of our outstanding variable rate debt under our credit facility. The two interest rate swaps have notional amounts of $50,000,000 and $30,000,000, whereby we pay fixed rates of 2.06% and 2.65%, respectively, and receive a floating three-month LIBOR. These two remaining agreements expire in September 2005 and September 2006, respectively, and no initial investments were made to enter into these agreements. At March 31, 2005 and December 31, 2004, the interest rate protection expired on September 30, 2004.swap agreements had a fair value of $0.9 million and $0.7 million, respectively, which is included in other assets in the accompanying consolidated balance sheets. We have formally documented the hedging relationships and account for these arrangements as cash flow hedges.

As of March 31, 2005 and December 31, 2004, our credit facility also served to collateralize certain letters of credit aggregating $7.2 million, issued by us in the normal course of business.

Potential Fluctuations in Quarterly Results and Seasonality

Due to the regional and seasonal fluctuations in the hospital patient census and nurse staffing needs of our hospital and healthcare facility clients and due to the seasonal preferences for destinations byof our temporary healthcare professionals, revenue, earnings and the number of temporary healthcare professionals on assignment 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. This historical seasonality of revenue and earnings may vary due to a variety of factors and the results of any one quarter are not necessarily indicative of the results to be expected for any other quarter or for any year.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”), issued SFAS No. 123 (Revised), Share-Based Payment, (“SFAS No. 123R”), which amends SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R requires the measurement of compensation cost related to all share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such cost in our consolidated statements of operations. The accounting provisions of SFAS No. 123R were initially effective for the first interim or annual reporting period that begins after June 15, 2005. However, effective April 21, 2005, the Securities and Exchange Commission amended the compliance dates for SFAS No. 123R. Pursuant to Release No. 33-8568, companies are permitted to implement SFAS No. 123R at the beginning of their next fiscal year, instead of the first interim reporting period, that begins after June 15, 2005. Companies with a calendar year end are therefore required to comply beginning with the first quarter 2006 interim financial statements. We have not yet determined our planned method of adoption or the effect of adopting SFAS No. 123R, and therefore we have not determined whether the adoption will result in amounts similar to the pro forma amounts disclosed in “Item 1. Condensed Consolidated Financial Statements—Notes to Condensed Consolidated Financial Statements—Note 2.”

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:

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Other factors that could cause actual results to differ from those implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q are set forth in our Annual Report on Form 10-K for the year ended December 31, 2003.2004 and our Current Reports on Form 8-K. 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 wholly owned 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.

On September 16, 2004, we announced the appointment of David C. Dreyer as Chief Financial Officer

Item 3.    Quantitative and Chief Accounting Officer of the Company. Please refer to the Company’s Current Report on Form 8-K dated September 16, 2004 as furnished to the Securities and Exchange Commission.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 20032005 and 2004, our primary exposure to market risk was interest rate risk associated with our debt instruments and short-term investments.instruments. See “Item 2. Management’s Discussion and Analysis—LiquidityAnalysis of Financial Condition and Capital Resources—Financing Activities”Results of Operations” for further description of our debt instruments.” Excluding the effect of our interest rate swap arrangements, a 1% change in interest rates on variable rate debt would have resulted in interest expense fluctuating approximately $1.2$0.3 million during the ninethree months ended September 30, 2004.March 31, 2005.

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 September 30, 2004March 31, 2005 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 September 30, 2004March 31, 2005 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 5.    Other Information

Registration and Sale of Shares

On April 5, 2005, we filed a registration statement on Form S-3 to register a total of 12,931,303 shares of our common stock beneficially owned by HWH Capital Partners, L.P., HWH Nightingale Partners, L.P., HWP Nightingale Partners II, L.P. and HWP Capital Partners II, L.P. (collectively, the “HWP Stockholders”), in response to a demand registration request made by the HWP Stockholders. We registered the shares to permit the HWP Stockholders and some of their transferees to sell the shares when they deem appropriate. On April 22, 2005, the HWP Stockholders sold 2,300,000 shares of the common stock in a public offering under the registration statement. On May 9, 2005, we announced the public offering of the remaining 10,631,303 shares of our common stock held by the HWP Stockholders (including 1,381,303 shares that may be issued pursuant to an option granted to the underwriters).

Amendment to Our Amended and Restated By-laws

On May 4, 2005, the Board of Directors approved an amendment to our Amended and Restated By-laws which provides for the roles of a non-management Presiding Director and an Executive Chairman. The Board of Directors will annually elect a Presiding Director, if the Chairman of the Board of Directors is an officer of or is employed by the company, or if there is an Executive Chairman. If the Board of Directors forms an Executive Committee or another committee that has the authority, to the extent permitted by law, to exercise all of the powers of the Board during the intervals between the meetings of the Board and a Presiding Director has been designated, then the Presiding Director will serve on the Executive Committee. The Executive Chairman, if one is appointed, will preside at all meetings of the Board of Directors and the stockholders. The Executive Chairman also performs other duties as may be assigned by the Board of Directors.

Appointments by the Board of Directors

On May 4, 2005, the Board of Directors appointed Steven C. Francis as Executive Chairman, and Susan R. Nowakowski, as previously announced, as President and Chief Executive Officer. Mr. Francis, age 50, had been our Chief Executive Officer since June 1990. Our former Chairman, Robert Haas, will continue to serve as a director. In addition, Douglas Wheat was elected as Presiding Director.

Following a recent announcement that the City of San Diego’s mayor will resign, Mr. Francis is seriously considering running for mayor. If Mr. Francis is elected mayor, it is not clear what Mr. Francis’ role, if any, with us would be.

Ms. Nowakowski, age 40, joined us in 1990 and has been a director since September 2003. She has been President since May 2003 and Chief Operating Officer since December 2000. Ms. Nowakowski also served as Secretary from October 2001 through May 2003; as Executive Vice President from January 2002 through May 2003; and as Senior Vice President of Business Development from September 1998 to December 2000. She also served as Chief Financial Officer and Vice President of Business Development from 1990 to 1993 and 1993 to 1998, respectively. Ms. Nowakowski also serves as a director of Playtex Products, Inc., a consumer products company.

Agreements with Management

On May 4, 2005, the Board of Directors approved executive employment agreements for Steven C. Francis and Susan R. Nowakowski.

The employment agreement with Steven C. Francis and AMN Healthcare, Inc. provides that Mr. Francis will serve as our Executive Chairman. The agreement provides that Mr. Francis will receive a base salary of $538,200 per annum to be reviewed annually, a bonus opportunity solely for the period January 1, 2005 to May

4, 2005, subject to meeting certain performance based criteria, eligibility for our employee benefit plans and other benefits provided in the same manner and to the same extent as to our other senior management. The term of Mr. Francis’ employment agreement is through May 4, 2007, or until we terminate his employment or he resigns, if earlier. If not terminated prior to May 4, 2007, the agreement will automatically renew for additional one-year periods unless either party gives 120 days’ prior written notice of its intent not to renew. Mr. Francis’ employment agreement provides that he will receive severance benefits if we terminate his employment for any reason other than “cause” (as defined in the agreement), in the event of his disability or death or if he terminates his employment for “good reason” (as defined in the agreement). In the event of his death or disability, Mr. Francis or his estate, as applicable, will be entitled to any earned but unpaid base salary and a lump sum severance payment of two years of base salary within 30 days of termination. In the event of his termination by us without cause or if resigns for good reason, Mr. Francis will be entitled to severance equal to two years base salary, payable over the 2 years following such termination. If Mr. Francis is terminated within one year following a “change of control” (as defined in the agreement) without cause by us, or if he resigns for good reason, he will be entitled to a lump sum severance payment of two years of base salary payable as soon as reasonably practicable following such termination. In addition, for 24 months following any such termination, Mr. Francis and his eligible dependents will be entitled to continued medical, life, dental and disability insurance benefits. Under some circumstances, amounts payable under Mr. Francis’s employment agreement are subject to a full “gross-up” payment to make Mr. Francis whole in the event that he is deemed to have received “excess parachute payments” under Section 4999 of the Internal Revenue Code. In addition, payment of Mr. Francis’ severance benefit may be delayed 6 months in order to comply with the requirements of Section 409A of the Internal Revenue Code. Mr. Francis’ employment agreement also contains a confidentiality agreement and a covenant not to solicit our employees during its term and for a period of two years thereafter. The agreement requires the parties to enter into a release. The employment agreement with Mr. Francis replaces and supersedes the employment agreement between AMN Healthcare, Inc. and Mr. Francis dated November 19, 1999, as amended on September 25, 2003.

The employment agreement with Susan R. Nowakowski and AMN Healthcare, Inc. provides that Ms. Nowakowski will serve as our President and Chief Executive Officer. The agreement provides that Ms. Nowakowski will receive a base salary of $500,000 per annum (increased annually at the discretion of the Compensation Committee of the Board of Directors), an annual bonus opportunity subject to meeting certain performance based criteria, participation in our stock option plans, eligibility for our employee benefit plans and other benefits provided in the same manner and to the same extent as to our other senior management. Ms. Nowakowski will be awarded no later than May 6, 2005, 200,000 options with a fair market value exercise price. The term of Ms. Nowakowski’s employment agreement is through May 4, 2009, or until we terminate her employment or she resigns, if earlier. If not terminated prior to May 4, 2009, the agreement will automatically renew for additional one-year periods unless either party gives 120 days’ prior written notice of its intent not to renew. Ms. Nowakowski’s employment agreement provides that she will receive severance benefits if we terminate her employment for any reason other than “cause” (as defined in the agreement), in the event of her disability or death or if she terminates her employment for “good reason” (as defined in the agreement). In the event of her death or disability, Ms. Nowakowski or her estate, as applicable, will be entitled to any earned but unpaid base salary, an immediate lump sum severance payment of two years of base salary, plus her bonus for the year of termination. In the event of her termination by us without cause, or if she resigns for good reason, Ms. Nowakowski will be entitled to severance equal to two times the sum of her base salary and bonus (with bonus being determined at 100% of target, for the year of such termination), payable over the 2 years following such termination. If Ms. Nowakowski is terminated within one year following a “change of control” (as defined in the agreement) without cause by us, or if she resigns for good reason, she will be entitled to a lump sum severance payment equal to two times the sum of her base salary and bonus (with bonus being determined at 100% of target, for the year of such termination) payable as soon as reasonably practicable following such termination. In addition, for 24 months following any such termination, Ms. Nowakowski and her eligible dependents will be entitled to continued medical, life, dental and disability insurance benefits. Under some circumstances, amounts payable under Ms. Nowakowski’s employment agreement are subject to a full “gross-up” payment to make Ms. Nowakowski whole in the event that she is deemed to have received “excess parachute payments” under Section

4999 of the Internal Revenue Code. In addition, payment of Ms. Nowakowski’s severance benefit may be delayed 6 months following her termination, if necessary to comply with the requirements of Section 409A of the Internal Revenue Code. The agreement requires the parties to enter into a release. Ms. Nowakowski’s employment agreement also contains a confidentiality agreement and a covenant not to solicit our employees during its term and for a period of two years thereafter. The employment agreement with Ms. Nowakowski replaces and supersedes the executive severance agreement between AMN Healthcare, Inc. and Ms. Nowakowski dated November 19, 1999.

On May 4, 2005, the Board of Directors approved executive severance agreements with David C. Dreyer and Denise L. Jackson. The severance agreements with AMN Healthcare, Inc. provide that these executives will receive severance benefits if we terminate his or her employment without cause (as defined in the agreements). Benefits include cash payments over a 12-month period, or by March 1 of the year following the year of termination. The cash payments will be in an amount equal to the executive’s annual salary at the rate in effect on the date of termination plus reimbursement for the COBRA health coverage for the executive’s health insurance for that 12-month period (or until the executive becomes eligible for comparable coverage under another employer’s health plans, if earlier). Each executive severance agreement requires the executive to execute a general release in our favor as a condition to receiving the severance payments. These executive severance agreements replace the severance agreements that Mr. Dreyer and Ms. Jackson entered into with AMN Healthcare, Inc. dated September 20, 2004 and December 20, 2002, respectively.

On May 4, 2005, we granted Susan R. Nowakowski, David C. Dreyer and Denise L. Jackson stock options to purchase 200,000, 125,000, and 65,000 shares of common stock, respectively, under our Stock Option Plan, pursuant to our form of Stock Option Plan Stock Option Agreement. Each option may be exercised to purchase one share of common stock at a price of $14.86 per share. The options vest in increments of 25% on each of the first four anniversaries on the date of the grant.

Item 6.    Exhibits