AMN Healthcare Services, Inc. (NYSE:AMN) Q4 2022 Earnings Call Transcript
AMN Healthcare Services, Inc. (NYSE:AMN) Q4 2022 Earnings Call Transcript February 16, 2023
Operator: Good day, and welcome to AMN Healthcare Fourth Quarter 2022 Earnings Call. At this all participants are in a listen-only mode. After the speaker presentation there will be a question and answer session. . Please be advice that today's conference is being recording. I would now like to hand the call over to your speaker Mr. Randle Reece, Senior Director of Investor Relations. Please go ahead sir.
Randle Reece: Good afternoon, everyone. Welcome to AMN Healthcare's fourth quarter and full year 2022 earnings call. A replay of this webcast will be available at ir.amnhealthcare.com following the conclusion of this call. Various remarks we make during this call about future expectations, projections, trends, plans, events or circumstances constitute forward-looking statements. These statements reflect the company's current beliefs based upon information currently available to it. Our actual results may differ materially from those indicated by these forward-looking statements, because of various factors and cautionary statements, including those identified in our most recently filed forms 10-K and 10-Q, our earnings release and subsequent filings with the SEC.
The company does not intend to update guidance or any forward-looking statements provided today prior to its next earnings release. This call contains certain non-GAAP financial information. Information regarding and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release and on our financial reports page at ir.amnhealthcare.com. On the call today are Cary Grace. Chief Executive Officer, Jeff Knudson, Chief Financial Officer; Kelly Rakowski, Group President and COO of Strategic Talent Solutions; and Landry Seedig, Group President and COO of Nursing and Allied Solutions. James Taylor, President and Chief Operating Officer of Physician and Leadership Solutions, in unavailable today.
I will now turn the call over to Cary.
Cary Grace: Thank you, Randle, and welcome everyone. I want to begin by expressing my gratitude for the warm welcome I have received by the AMN team, our board of directors, investors and analysts and our clients since my time as CEO began in late November. The past few months have more than confirmed all the reasons why I joined AMN. AMN stands at the nexus of healthcare and talent, where we make an increasingly valuable difference in the quality and timeliness of care. My experience running large client centered service delivery businesses that combine organic growth and acquisitions positions me well to help guide AMN through its next phase of growth. And though everybody says they have a great company culture, AMN truly has something special.
Our entire leadership team is committed to live in the AMN difference every day, and making sure we create great long-term opportunities for everyone in our organization. I'm especially grateful to report good news in my first AMN conference call with outstanding fourth quarter results, and a strong first quarter outlook. Thank you to our healthcare professionals and team members for making a valuable impact for our clients in 2022, with more than 250,000 placements as our country managed through the pandemic. I am proud of how we are partnering with clients to optimize their labor costs, reducing bill rates as the urgency of demand moderated and investing in tech-enabled solutions to help our clients transform care delivery models and manage their workforces over the long-term.
We remain the preferred partner for healthcare clients with our MSP and BMS programs managing more than $12 billion of labor spent in 2022. AMN is a preferred employer for healthcare professionals and corporate team members, as demonstrated by several recent accolades we received, including the Diversity Equity and Inclusion award from the National Association of Corporate Directors and being named to the Bloomberg Gender Equality Index for our commitment to gender equality and equity for a sixth year in a row. Over the past year, as we managed through extremely high demand, we were looking ahead, anticipating a moderation with the wind down of the pandemic, our businesses exceeded the expectations we laid out a year ago. Our high level of performance is apparent in our latest financial results and outlook for the current quarter.
Fourth quarter revenue was $1.13 billion with adjusted EBITDA of $175 million. Every business segment exceeded guidance and what continues to be a fast changing market. Nurse and Allied segment revenue was ahead of expectation since the fourth quarter, nearly flat with the third quarter despite lower labor disruption revenue. The moderation of bill rates was somewhat less than we had anticipated, with a segment average bill rate coming in 23% lower than the first quarter peak. As expected volume in travel nurse was higher than the third quarter offset by the lower average bill rate. Demand for travel nursing remains above 2019 levels, even after the healthcare sector maintained an impressive pace of permanent hiring over the past eight months.
Our Allied business has 6% year-over-year revenue growth with a 3% sequential increase. The team did a phenomenal job pivoting focus from pandemic related specialties, to therapy and other areas. For the first quarter of 2023, we expect revenue in Nurse and Allied Solutions to be stable sequentially, and down 32% to 34% year-over-year against our most difficult comparison of the year. In our Physician and Leadership Solution segment, fourth quarter revenue was slightly better than our guidance. Locum tenens is operating at a consistently high level with four consecutive quarters over $100 million of revenue. Interim Leadership and Search achieved record high revenue for the year. As we expected, demand for Interim Leadership and Search was lower in the fourth quarter at some clients focus on short term cost savings.
In the first quarter, we projected revenue and Physician and Leadership Solutions to be down 10% to 12% year-over-year, excluding pandemic related business revenue would be flat to prior year. Demand is well above pre-pandemic levels for locum tenens and physician permanent placement. In Technology and Workforce Solutions revenue grew 14% year-over-year, better than our guidance of about 10% growth. Our Language Services business was the primary driver of the outperformance Since AMN acquired the company in 2020, Language Services has doubled its revenue, a great example of how we can add value with acquisition. It is further evidence of our commitment to innovation, supporting quality patient care, and making a positive impact to the communities we serve.
In 2022 alone, we enhance the health care experience outcomes for patients in over 15 million interactions. Also in this segment, VMS revenue continued its moderation in line with our expectations. For the first quarter, we expect revenue and Technology and Workforce Solutions to be down 10% to 12% year-over-year due to lower VMS revenue. Now, I'll turn over the call to Jeff for more details about our results and outlook, after which I will return to provide a glimpse at our focus areas for 2023 and beyond.
Jeff Knudson: Thank you, Cary, and good afternoon everyone. Fourth quarter revenue of $1.126 billion was 4% above the high end of our guidance range with all three segments contributing to the outperformance. Consolidated revenue was down 17% year-over-year and 1% sequentially, excluding labor disruption revenue, consolidated revenue was in line with the prior quarter. Gross margin for the quarter was 33.3%, 140 basis points higher than prior year and down 50 basis points sequentially. Year-over-year, the margin was hired due to a revenue mix shift toward higher margin businesses. Sequentially, the margin was lower due to the typical seasonal revenue mix shift towards staffing. Consolidated SG&A expenses were $219 million or 19.5% of revenue, compared with $239 million or 17.5% of revenue in the year ago quarter, and $215 million or 18.9% of revenue in the previous quarter.
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SG&A expenses were lower year-over-year primarily due to lower employee related expenses, given less revenue and more normal operating conditions. Higher allowances for credit losses and legal reserve expenses drove the increase in SG&A compared with the prior quarter. Adjusted SG&A. excluding certain non-recurring expenses and stock-based compensation expense was $202 million this quarter, or 17.9% of revenue compared with $212 million or 15.6% of revenue in the year ago quarter. The increase in adjusted SG&A margin came from less operating leverage on lower revenue. In the fourth quarter, Nurse and Allied revenue was $825 million, 24% lower than prior year and slightly down sequentially. Average bill rate was lower by 2% quarter-over-quarter and average hours down 1%, offsetting 3% higher volume.
Our travel nurse revenue was down 24% versus prior year and flat sequentially. Allied revenue was $195 million growing 6% from the prior year and 3% above prior quarter. Nurse and Allied gross margin of 26.6% was 40 basis points lower than prior year and prior quarter. The year-over-year change was caused by less labor disruption revenue, lower average hours and higher insurance expenses partially offset by improvement in the bill pay spread. Sequentially, the margin decreased stem primarily from the favorable workers compensation adjustments that occurred in Q3, segment operating margin of 12.7% was 370 basis points lower than prior year and 120 basis points lower than prior quarter, reflecting the higher allowances for credit losses. Physician and Leadership Solutions revenue in the fourth quarter was $168 million, 2% higher year-over-year and down 4% sequentially.
Locum tenens revenue was $103 million, 4% higher than prior year or growing by 13%, excluding pandemic related revenue. Interim leadership revenue increased 4% from prior year and was down 5% from prior quarter. Search revenue declined 10% from prior year and was down 13% sequentially. Gross margin for this segment was 35%, 100 basis points higher than prior quarter and down 10 basis points year over year. The sequential margin increase was primarily due to higher gross margin for locum tenens partially offset by mix. Segment operating margin was 16.7%, up 510 basis points from last year and up 310 basis points sequentially. The higher profit margin came primarily from a lower allowance for credit losses and a favorable actuarial adjustment.
Technology and Workforce Solutions revenue was $133 million in the fourth quarter, growing 14% year-over-year and down 1% sequentially. Language Services stood out with revenue of $58 million, which grew 23% year-over-year, and 5% quarter-over-quarter, BMS revenue of $55 million grew 5% year-over-year and was down 9% from prior quarter as we had expected. Segment gross margin was 73.3%, up 130 basis points over prior year and down 230 basis points sequentially. The year-over-year and sequential changes track revenue comparisons for the higher margin BMS business. Segment operating margin of 50.2% was up 280 basis points year-over-year and down 250 basis points sequentially. Consolidated fourth quarter adjusted EBITDA of $175 million was lower by 22% year-over-year and down 4% from the prior quarter.
Adjusted EBITDA margin of 15.5% was 80 basis points lower year-over-year and down 50 basis points sequentially. We reported net income of $82 million and diluted earnings per share of $1.88 in the quarter. Adjusted earnings per share was $2.48 compared with $2.95 in the year ago quarter. Day sales outstanding came in better than expected at 55 days, four days less than the prior quarter and two days higher than prior year. Operating cash flow for the quarter was $115 million and capital expenditures were $25 million. As of December 31st, we had cash equivalents of $65 million, long-term debt of $850 million and a net leverage ratio of one time to one Recapping financial highlights for the full year 2022, we reported revenue of $5.2 4 billion, a 32% year-over-year increase and net income of $444 million, which grew by 36% compared with 2021.
Adjusted EBITDA was $847 million, up 33% from prior year. Full year adjusted EBITDA margin of 16.1% was 20 basis points higher year-over-year. GAAP EPS was $9.90, up 45% year-over-year, adjusted EPS was $11.90 higher than prior year by 48%. EPS benefited from our repurchases of $577 million in stock during the year. Full year cash flow from operations was $654 million, which included a $24 million payment of deferred payroll taxes from the Cares Act, adjusting for the Cares Act repayment. nearly 80% of our adjusted EBITDA was converted into cash flow from operations. Capital expenditures totaled 76 million. Since the end of 2022, two events have bolstered our capital strategy, we obtained an expansion of our revolving line of credit adding $350 million of borrowing capacity to total $750 million with its tenor extended to 2028.
The interest rate for the expanded facility is in line with previous terms. In addition, the Board of Directors expanded our share repurchase authorization by $500 million. Since our last earnings call, we bought back 2.4 million shares of stock for $275 million. The latest authorization gives us a total of $551 million in potential buybacks. Now looking at first quarter 2023 guidance. We project consolidated revenue to be in a range of $1.1 billion to $1.13 billion, down 27% to 29% over prior year. Gross margin is projected to be 32.6% to 33.1%. Reported SG&A expenses are projected to be 18.3% to 18.8% of revenue. Operating margin is expected to be 11% to 11.7%, and adjusted EBITDA margin is expected to be 15.4% to 15.9%. Average diluted shares outstanding are projected to be $42 million, reflecting our recent share repurchase activity.
Other first quarter guidance details can be found in today's earnings release. Last quarter, we talked about 2023 returning to a normal seasonal pattern. Our fourth quarter results and first quarter outlook came in stronger than we had expected, with higher bill rates being a key driver. After the Q1 strength current business trends suggest a decline in Nurse and Allied revenue for Q2 that is greater than normal seasonality. While demand is still above pre pandemic levels, we have seen some clients pursue near term cost savings and reduce utilization of contingent staff. Labor market conditions remain very tight with high vacancies and attrition. And we believe staffing demand will go back up over the summer in line with normal seasonality.
And now, I'd like to hand the call back to Cary.
Cary Grace: Thank you, Jeff. While the healthcare sector hired more than 9 million people in 2022, that hiring spree resulted in a net employment increase of less than 800,000. Competition for talent remains intense, and wage inflation is elevated. Voluntary turnover remains at the highest level in more than 20 years, and conditions are most difficult for our clients in acute care. Recognizing these enduring issues, we are focused on four key areas that we believe will drive long-term value for all our stakeholders. First, we will continue to be the preferred partner for health care organizations, as they optimize their workforce strategy to meet continued long-term increases in utilization. Our solutions that is comprehensive and differentiated and will be more so with our internal investments and acquisition strategy.
We see great opportunity both in better serving current clients and winning new clients. On that path, we will strengthen our ability to go-to-market as one AMN building brand equity and making it easier for clients and healthcare professionals to work with us. We are already gaining traction on initiatives to improve our speed to deliver while maintaining our industry leading quality. As demand has receded from its extreme highs, our MSP strategy better positions us to gain share. Second, we are standing our efforts to ensure AMN is the preferred employer for healthcare professionals and team members. These programs include new initiatives on workplace flexibility, ensuring competitive pay and benefits at all levels, career pathing and mentoring and industry leadership in diversity, equality, equity and inclusion.
Our health care professionals benefit from having the largest selection of job opportunities in the industry, easily accessed through mobile technology. Third, we want to keep building our diversified portfolio that is expanding and improving total talent solutions for healthcare. Our strategies to aggressively increase technology enablement in every aspect of AMN. Our plan will allocate approximately 2% of revenue to capital expenditures with a heavy focus on digital innovation. These investments will improve outcomes for our existing solutions, and add new technology led solutions to keep up with the challenge of delivering care amidst a sustained mismatch of supply and demand. We are continuing to invest in Digital First initiatives such as AMN Passport, are always on connection with more than 170,000 nurses and growing.
And finally, we are committed to being good stewards of capital. Our capital expenditures more than doubled over the past three years, enabling us to lead our industry and technology improvements. We have built a company with high quality of earnings and strong free cash flows that give us strategic options. With a strong balance sheet and expanded borrowing capacity, we have the framework and flexibility to make attractive acquisitions, while also repurchasing stock, which we believe is a great investment opportunity. Now, let's please open the call for questions.
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