AMN Healthcare Services (NYSE:AMN)
Founded in 1985 as a travel nursing company, AMN has become a leading healthcare staffing company that offers temporary placement of healthcare professionalsfor hospitals to fulfill various durations ranging from one day to 2 years. Since 2013, the company spent a total of $360MM on several acquisitions to enter the "solutions" business (outsourced recruiting, permanent staffing, managing personnel, and software scheduling for hospitals) to extend its portfolio. In terms of profit drivers, travelling nurses and allied healthcare workers contribute about 55% of pre-overhead EBITDA, while temporary physicians and the new Solutions segments contribute approximately 20% and 26%, respectively.
In its core business, which is filling staff shortages, AMN providesthe crucial exchange between demand and supply. Hospitalsneed an intermediary such as AMN to find healthcare workers, vet their credentials, handle all administrative tasks, make payments, and provide workers' comp and medical malpractice insurance. Healthcare professionalsneed a source to find work, arrange travelling, and receive weekly or biweekly paychecks.
While it does not command the same level of operational leverage as international networks such as eBay, Facebook, or Uber, AMN's economics do significantly improve as it becomeslarger. As AMN further expands into Solutions and integrates itself into hospitals' staffing functions (MSP or Managed Service Provider), it further enhancesits market position and cements its relationship with its clients.
We think AMN is benefiting both from positive demographic trends, which provide good growth, and margin expansion. Beyond the Affordable Healthcare Act that increased the insured population by about 20 million people, the aging population and the shortage of healthcare professionals will create strong demand for temporary staffing services. Benefiting from operational leverage, management expects operating margins will continue to expand. With the high level and growing free cash flow, we think AMN common shares have 30% potential upside to our NAV target.
From Third Avenue Small-Cap Fund's second quarter 2017 shareholder letter.
