AMN Healthcare Services Inc (AMN) 2003 Q1 法說會逐字稿

Ladies and gentlemen. Thank you for standing by and welcome to the AMN Healthcare Services 2003 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session; instructions will be given at that time. If you should require assistance during the call, please to press zero, then star. As a reminder, this conference is being recorded.

Present today at our conference are, Mr. Steven Francis, President and Chief Executive Officer, Ms. Susan Nowakowski, Executive Vice President and Chief Operating Officers, Mr. Donald Myll, our Chief Financial Officer and Mr. Joseph Merino, Director of Investor Relations. I would now like to turn the Conference over to our first speaker, Mr. Joseph Merino, Director of Investor Relations. Please go ahead sir.

Thank you. Good morning. I would like to welcome everyone to the AMN Healthcare Services Conference Call to discuss the company's earning's results for the First Quarter of 2003. A replay of this web cast is available at www.amnhealthcare.com/inverstors and will be replayed until May 14, 2003. Additional information regarding non-GAAP financial measures are also available at the same website. Details for the audio replay of the conference call can be found in our earnings press release.

I would also like to mention our policy regarding forward-looking statements. As we conduct this call, various remarks that we make about future expectations, plans and prospects, constitute forward-looking statements. It is possible that our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those identified in our public filings with the SEC.

Many of the results reported in this call are for a partial year and may not be indicative of results for future quarters or for the year. These statements reflect the company's current beliefs and are based upon information currently available to it. Be advised that developments subsequent to this call are likely to cause these statements to become outdated with the passage of time. The company does not intend however, to update the guidance provided today prior to its next earnings release and conference call. I will now turn the call over Steven Francis, AMN Healthcare President and Chief Executive Officer, who will now review the company's First Quarter 2003 Results and the current market conditions.

Thank you Joe. I would also like to welcome everyone to AMN Healthcare's First Quarter 2003 Earnings Conference Call. We thank you all for your interest in AMN and for your participation in today's call. Last evening we reported our financial results for the First Quarter of 2003 and this morning we will provide you with some highlights and insights regarding these results in the current market conditions.

Let me begin by briefly reviewing highlights of our financial results for the First Quarter. As expected, AMN Healthcare continued to generate solid financial results in the first quarter with revenue of $199.8m and diluted earnings per share up 29 cents. The first quarter of 2003, was a solid quarter for AMN, both operationally and financially, which we will elaborate later on in this call.

AMN continues to be the clear leader within the out source temporary healthcare staffing industry. We believe this is the result of our unique multi-branding and Internet recruitment strategy and our effective and productive operating model. In line with our guidance, we had an average of over 8000 temporary Healthcare professionals working on assignment during the First Quarter of 2003. This represents an increase in travelers on assignment of 10%, when compared to the First Quarter of 2002.

We believe that our leading market position provides AMN with a competitive advantage. AMN continues to have approximately 50% more traveling healthcare professionals working than our closest competitor. We also have contract with over 40% of all acute care hospitals across the country. This large base of healthcare professionals and hospitals clients provides us with a significant referral source to continue to attract new travelers and provides a broad, geographically based -- balanced client base. We continued to be active in our share repurchase program during the first quarter of 2003. The program, which started in the fourth quarter of 2002 end, through March 31, 2003, we have acquired 4.5 million shares. We are very pleased with our overall progress in the share repurchase program and believe that this provides a meaningful benefit to shareholder value.

Now I'd like to address the current market conditions and the fundamental drivers in the temporary healthcare staffing industry. During our last earnings call in February, we talked about changes occurring in hospital demand patterns that have reduced our visibility and our ability to forecast traveler account beyond the current quarter. The changes in hospital staffing dynamics that I mentioned in February continue today, resulting in decreased demand for our services.

There are two specific trends within our industry that have contributed to the decline in demand that I'd like to discuss now. First, over the past year, hospitals have increased their recruitment investments and more importantly increased their effort to retain their permanent nursing staff. Many of our hospital clients have recently told us their attrition rates are falling. Several public hospitals have also reported similar results. With more attrition and stronger recruitment, means there are less vacancies to fill with travelers. Second, in order to address the need to reduce short-term operating costs, Hospitals are aggressively stretching the productivity of their labor pool.

While dealing with reimbursement pressures, hospitals continue to pursue more aggressive ways to lower the cost of staffing every bed. One method they are using to reduce cost is to squeeze more productivity out of their permanent nursing staff. Recent surveys have reported that over half of nurses today are working more overtime as compared to last year. Nurses report that the number of patients they are required to care for has also risen. Many nurses are also being asked or required to float to other hospital units outside their core specialty to cover shifts.

In the short run, working nurses more overtime, increasing patient load and floating, are ways to cut cost but in the long term, they can result in higher attrition. In fact, these are some of the most common complaints by nurses that have lead to higher attrition, incurred by many hospitals during the preceding five years. We believe that most nurses will tell you that these are not favorable trends for the nursing profession and can ultimately result in a higher risk of burnout.

The current economy, coupled with the uncertainty caused by the war in Iraq, has contributed to the willingness of nurses to accept this squeeze for productivity in the short term. Permanent nurses might be more willing to work additional over time and increase their patient loads if their spouse has lost their job, or their spouse's compensation has been decreased in any way. And during times of economic uncertainty, employees are generally less likely to make a job change even if they are dissatisfied with their current working environment. As mentioned in February, the changes in hospital demand trends for travelers have resulted in less visibility in our business and that remains the case today. We believe that many of the current productivity stretching efforts recently being used by hospitals are not sustainable for the long term. So, with all these changes what gives us the confidence in the future prospects for AMN and our industry.

Well, first of all, hospital admissions (Technical Difficulties) and the number of beds, -- are expected to increase over the next few years. New unit openings and new facilities being built will drive the increase in bed count, along with anticipated admission growth. These all contribute to an increased need for nurses in the near future.

And second, the long-term horizon is positive. As we have mentioned on previous calls, our long-term growth opportunities are driven by long-term admission growth in (Inaudible) with increasing levels of required patient care, which is expected to rise through 2020. The nursing shortage is also projected to grow in severity for this foreseeable future. In addition, flexible staffing continues to be a cost-effective alternative for meeting staffing needs and has been and is expected to be, a stable demand driver for our industry.

Finally, state legislation looks to be favorable for our business as state and federal government attempt to limit mandatory overtime and implement safer, patient-to-nurse ratios. While we recognize that recent market conditions have and could continue to reduce our short term prospects, we believe the macro, long term fundamental drivers of our industry are powerful, clear and proven.

Susan Nowakowski, the company's Executive Vice President and Chief Operating officer will now provide insight into our operations and strategic activity. Susan.

Thank you Steve.

First I'll talk briefly about our performance for the first quarter, but then I'll actually spend more time talking about some of our current strategic and operational initiatives. As Steve mentioned, demand has recently declined; obviously a trend that creates challenges for us. However, we are still experiencing other positive operational indicators. For example, new traveler applications received for the quarter increased. Also we continued to sign new healthcare facilities as clients. And overall, pricing was up slightly for the quarter. During the first quarter, we continued to receive a growing number of new traveler candidate applications. We believe this growth and the supply of nurses, validates the success of our multi-brand recruitment strategy and our Internet strategy. During the first quarter, we were right on track with our goal for signing new contracts with hospitals and we expect to continue this trend for the remainder of the year. As I mentioned last quarter, we added some resources in this area and that investment has really been quite successful for us.

And now on to pricing. You will hear from Don later that our pricing was up year-over-year and sequentially. There is certainly more pricing pressure that we have encountered in the market, but, overall, during this first quarter, our average client pricing has increased. This reflects the hospitals' desire to maintain their competitive positions and continue to recruit the travel nurses that they need.

The current market environment that Steve described provides us with challenges, but it also provides AMN with significant opportunity. Today, we believe AMN is the clear leader in our industry. We believe we have earned this position by consistently delivering superior service and quality candidates to our hospital client. As we execute our business model, we are always addressing changes in the current demand and supply environment and proactively adjusting our model to deliver the best service. With the recent shift in hospital demand some investors may feel uncomfortable with this turbulence and we understand that, but we believe this market environment provides AMN with an opportunity to further expand our market share. This is exactly how we catapulted AMN from the number four market player in the early 90's, to the number one market position today. Our management team and our sales and service teams have a proven track record in growing market share in the changing environment.

To that point, I'd like to tell you about three of the growth and market share opportunities that we're pursuing. First, is our expansion into the allied health staffing market, second, is vendor rationalization that is occurring at our hospital clients, and third is our development of a stronger partnering relationship with healthcare facility clients

We've talked in the past about the opportunities to expand our allied health staffing offerings. I am pleased to say that at the beginning of this month, we launched Sarah Tech Staffing (ph), a new brand, focused exclusively on allied health. We have already had very positive indicators in our first month, both from travelers and from our healthcare facility clients. Sarah Tech Staffing was launched to address the unique needs of an allied healthcare traveler. These include, radiology and diagnostic imaging professionals, along with physical therapists, occupational therapists and other types of rehab professionals.

We have not been as competitive within this segment of the industry in the past and as a result, we believe this is the only area of our business where we have probably grown slower than the competition. This new brand offers AMN a significant opportunity to grow market share within a highly fragmented, allied health staffing industry. The shortage of many types of allied health professionals is even greater than in nursing. For example, there is a reported 15% shortage of radiology technologists.

The second opportunity I mentioned earlier is vendor rationalizations. In our core travel nurse business we are seeing more hospitals focusing on vendor rationalization. This means they are narrowing down the number of staffing providers, to select a few providers who can deliver the best quality personnel and service. Clients who reduce their staffing providers are seeking to work with the companies who can consistently deliver the quality staff they need and provide additional value-added services.

Vendor rationalization creates efficiencies for the healthcare facilities; that's why they're doing that. It also creates greater market share opportunities for the remaining staffing providers. We welcome this development, as we believe it will create opportunities for us. As the clear leader in our industry and with the largest toll of experienced healthcare professionals and the most in-depth infrastructure, we believe AMN is well positioned in the industry to deliver these value-added services that our clients require. And we are optimistic that this should ultimately result in additional market share for AMN.

The third opportunity that I mentioned is creating stronger partnering relationships with our hospitals. In the third quarter, we introduced a new partnering program, providing benefits to our hospitals. We believe these partnering relationships will result in incremental market shares to AMN. The program is very flexible and we customized it to meet the unique needs and preferences of each hospital client. The early feedback and response to this new initiative is very positive.

I mentioned these three initiatives as an example of new tactics we are pursuing in growing in this market environment, but I will note, that our primary strategy has not changed. We are the recognized, best-in-the-country, at delivering superior value to our hospital clients and to travel healthcare professionals. We've earned that number one position by staying focused on our clients and by delivering more and better service than any other company, and we will continue to maintain that focus.

Now Don Myll, the company's Chief Financial Officer will discuss our financial results and guidance.

Thank you Susan. As Steve mentioned earlier, AMN generated strong financial results for the first quarter of 2003; in line with our guidance. We had another strong quarter of revenue and earnings growth, increasing significantly on a year-over-year basis. Revenue for the first quarter grew to $199.8m, a 15% increase over the first quarter of last year. Diluted earnings per share was 29 cents, representing a 21% increase over the first quarter of last year. Gross profit increased to $45m in the first quarter of 2003 while gross margin declined to 22.4% that's from 24.3% in the first quarter of last year. Our first quarter gross margin decline was driven primarily by a combination of higher travel compensation, insurance and housing costs. We continue to effectively manage selling, general and administrative expenses during the first quarter, which improved to 11.4% of revenue. SG&A expense also improved sequentially to $22.8m down from $25.5m in the fourth quarter. This represents an improvement of 90 basis points sequentially and 170 basis points over the first quarter of 2002. We believe that our large-scale inflexible operating model will continue to allow us to effectively manage our SG&A expenses. Adjusted EBITDA as defined in the earnings release increased 13% over the first quarter of 2002 to $22m. The adjusted EBITDA margin of 11% for the quarter reflects a slight 20 basis point decline from the first quarter of last year. This adjusted EBITDA margin was driven primarily by a decrease in gross margin offset by our efficient management of SG&A expenses.

Now let's look more deeply at our key revenue drivers in the first quarter. The components of the $25.8m increase in revenue or 15% compare to the first quarter of 2002 was primarily the result of organic drivers. Organic revenue growth for the quarter represented 84%, that'd be total increase in revenue. First, our travel account grew to an average of 8,035 travelers working in the first quarter of 2003, representing an increase of 10% over the first quarter of last year. The pure organic volume increase in the average number of travelers working through our existing brands contributed $12.6m or 49% of our total increase in revenue. Second, first quarter revenue per traveler per day increased 5% over the first quarter of 2002, while remaining relatively flat with the fourth quarter. Revenue for traveler per day contributed $9.1m of organic revenue growth or 35% of our total increase in revenue for the first quarter of 2003 as compared to last year. When I dissect revenue per traveler per day further, we see two components drove this 5% increase for the quarter. An increase in our average bill rate of 6% contributed $10.6m in revenue, which was offset base by a small shift in the mix of payroll versus flat travelers during the quarter. And third, an acquisition completed in April of 2002 contributed $4.1m in revenue during the first quarter as compared to the prior year.

Turning to our financial position, AMN continues to have a very strong balance sheet and remains debt free. We generated $18m in free cash flow during the first quarter of 2003. We defined free cash flow to include net cash provided from operating activities at $21m, less capital expenditures of $3m. At March 31st we had cash and cash equivalents of $28.6m and our DSO's stood at 58 days showing a year-over-year improvement from 64 days at March 31st last year and sequentially from 61 days at year-end. As we have stated in the past we will provide quarterly updates on our share repurchase program. We continue to be aggressive with our share repurchase program during the first quarter of 2003 and our execution illustrates our intension to use the company's resources to deliver value for our shareholders. During the first quarter of 2003 we used $31m in cash to repurchase 2.4m shares. Since the inception of the program we have used $66m in cash to repurchase 4.5 shares.

Let me now address guidance. As we have stated in the past we will provide revenue and earnings guidance for the next quarter to be reported. Overall our revenue and earnings guidance for the second quarter is based on a continuation of recent industry dynamics discussed on our fourth quarter earnings call in February and discussed earlier on this call. For the second quarter of 2003 the company expects to generate revenue ranging from 178m to $182m representing a decline of 5 to 7% on the second quarter of 2002. The company expects net income to be between 9 and $10m for the second quarter of 2003, which will generate net earnings per diluted share between 22 and 24 cents. Net earnings per diluted share for the second quarter of 2003 represents a decline of between 8 to 15% (technical difficulties) compared to the second quarter of 2002. The company expects to have approximately 40.6m average diluted shares outstanding in the second quarter of 2003, reflecting the impact of the company's share repurchase program. We expect the average number of travelers on assignment, for the second quarter of 2003, to be between 7,150 to 7,250 travelers, representing a decline of between 5% and 7%, from the second quarter of 2002. We expect the average revenue per traveler per day, to remain relatively consistent, yet down slightly in the second quarter of 2003, as compared to the first quarter 2003.