AMN Healthcare Services Inc.

Healthcare Staffing Industry Companies Covered

CCRN had 2Q09 revenue of $149M, representing a 13% YoY decline (37% decline if the 3Q08 acquisition of MDA is excluded). This decline reflects continued weakness in demand for temporary health care professionals. The Nurse and Allied Staffing segment was the hardest hit with revenue of 78M, representing a 41% YoY decline. This decline was a result of multiple factors:  (1) nurses and allied healthcare professionals elected to work more hours directly for hospitals due to concerns over the weak economy and high unemployment rate, leading to lower demand for temporary workers (2) large numbers of patients chose to postpone elective surgeries (3) average revenue per FTE per week fell 2% as the proportion of per diem nurses increased. Physician Staffing revenue was up 7% QoQ to $40M, however, management downplayed the rise, noting that demand for temporary physicians remained constrained as permanent physicians appeared to be delaying retirement in response to the deterioration of their investment portfolios. Clinical Trials Service revenue fell 22% YoY to 19M due to a continued slowdown in clinical trials at biotech firms. On the positive side we are impressed with management’s successful cost control measures in response to top-line pressure. Gross margin for 2Q09 was 27.4%, a 70 bps YoY improvement. Improving margins were a result of an improvement in bill-pay spread resulting from lower housing and insurance expenses. CCRN also generated an impressive $24.8M in cash from operations (nearly half of operating cash flow for all of FY08), which was used to reduce debt by 20%.

Management noted several encouraging signs and went on to say they are cautiously hopeful business has bottomed. Positives include (1) orders for travel nurses have more than doubled since early June (2) relative bookings averaged 108% during July, significantly above the 73% for 2Q09 (3) Clinical Trial revenues are expected to improve as improvements in capital markets should allow biotech companies access to credit to fund R&D. Also, there are several macro forces that will have a positive effect on CCRN: (1) the rapidly aging workforce of healthcare professionals (2) the aging US population as a whole (3) health care reform that we anticipate will provide insurance (thereby generating demand) to a large proportion of the 46M uninsured Americans.

CCRN’s most recent M&A activity was the July 2008 acquisition of MDA Holdings Inc for $112M. MDA provides multi-specialty locum tenens and allied staffing services. This acquisition fulfilled a long held desire of CCRN’s management team to move into the locum tenens space and thereby diversify their revenue stream. We do not anticipate CCRN engaging in further M&A activity in the foreseeable future as their primary focus at this point in time is cutting costs and paying down debt.