AMN Healthcare Earnings: Operating Margin Continues to Suffer Sequential Declines as Customers Reset

Narrow-moat AMN Healthcare’s AMN third-quarter results showed continuous pressure on its profitability as clients continue to adjust their postpandemic labor needs. Despite revenue close to the higher end of previous guidance, we are maintaining our $115 fair value estimate.

In the third quarter, AMN Healthcare continued to struggle with softening demand for temp labor that spiked during the COVID-19 crisis. By segment, nursing and allied’s margin was down 40 basis points, physician and leadership was down 150 basis points, and technology and workforce solutions was down 200 basis points. We think it could take a few more quarters for the segments to fully reset and stabilize its post-COVID operating margin. We like that, in response to clients’ shifting staffing demands, AMN Healthcare has expanded its tech offerings for managing the workforce more efficiently. As the company launches these new products, the mix should shift toward higher-margin tech services, and at the same time deepen client switching costs.

In October, AMN Healthcare announced a $300 million transaction to acquire MSDR, a locum tenens and advanced practices solutions provider. We think this transaction would significantly boost the company’s position in the locum tenens market as MSDR’s projected 2023 revenue of $155 million is roughly 40% of our forecast 2023 revenue for AMN Healthcare’s physician and leadership solutions. The $300 million price translates to 1.9 times price/sales, which is slightly higher than AMN’s previous acquisitions of Advanced Medical (1.57 times) in 2019 and MPLT (1.88 times) in 2018. We believe the mildly higher multiple of the MSDR deal is still reasonable, given the COVID timing as well as the enhanced network effect in locum tenens for existing AMN Healthcare clients. In addition, we are comfortable with the company financing the deal with revolving credit facilities, given the firm’s current leverage ratio of only 1.4 times.