AMN Healthcare Earnings: Demand for Temporary Workforce Is Holding Up Better Than Expected

Narrow-moat AMN Healthcare AMN reported mixed second-quarter results, with the top line on track to exceed our full-year expectations, but this was offset by lower-than-expected margins. As a result, we are leaving our fair value estimate unchanged. AMN’s Nurse and Allied Solutions business fared better than our projections, even as market demand for the temporary workforce softened as the pandemic receded. Nurse and Allied Solutions’ quarterly revenue dropped 37% year over year to $689 million amid clients’ transition to more durable (and less costly) staffing plans. Even as hospitals take a holistic approach to reviewing total labor costs, we believe AMN will still benefit. We think it is unlikely that clients will be able to fully meet all their staffing needs through internal methods alone, and AMN still offers access to a deep network of healthcare professionals. Additionally, AMN’s innovative solutions, such as vendor-neutral managed service provider contracts, should play a crucial role in filling clients’ talent needs.

Not surprisingly, the average bill rate recorded a 19% year-over-year decline. Management expects a 32% to 33% bill rate increase by the end of 2023 compared with prepandemic levels, indicating a 7% annualized growth rate—similar to the historical trend of nurses’ wage inflation. With bill rates continuing to decline in the near term, AMN faced challenges to fill client demands at current prices. It is not clear if these conditions will persist, but if other staffing firms are willing to absorb more of this decline, it could prolong the pain for AMN.

Revenue for Technology and Workforce Solutions dropped 16% year over year to $126 million because of weak demand for vendor management systems. Nonetheless, we are encouraged to see AMN’s steady investment in technology, which benefits the company with higher switching costs. We think more clients will value access to comprehensive analytics as they deal with more uncertainty.