NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021, 2020 and 2019
(in thousands, except per share amounts)
(1) Summary of Significant Accounting Policies
(a) General
AMN Healthcare Services, Inc. was incorporated in Delaware on November 10, 1997. AMN Healthcare Services, Inc. and its subsidiaries (collectively, the “Company”) provide healthcare workforce solutions and staffing services at acute and sub-acute care hospitals and other healthcare facilities throughout the United States.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of AMN Healthcare Services, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
(c) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, the Company evaluates its estimates, including those related to goodwill and indefinite-lived intangible assets, professional liability reserve, contingent liabilities such as legal accruals, and income taxes. The Company bases these estimates on the information that is currently available and on various other assumptions that it believes are reasonable under the circumstances. Actual results could differ from those estimates under different assumptions or conditions. The impact of the novel coronavirus (COVID-19) pandemic did not have a material effect on the Company’s estimates as of December 31, 2021.
(d) Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents include currency on hand, deposits with financial institutions, money market funds, commercial paper and other highly liquid investments. See Note (3), “Fair Value Measurement” for additional information.
(e) Restricted Cash, Cash Equivalents and Investments
Restricted cash and cash equivalents primarily includes cash, corporate bonds and commercial paper that serve as collateral for the Company’s captive insurance subsidiary claim payments. See Note (3), “Fair Value Measurement” for additional information.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying consolidated balance sheets and related notes to the amounts presented in the accompanying consolidated statements of cash flows. | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Cash and cash equivalents | $ | 180,928 | | | $ | 29,213 | |
Restricted cash and cash equivalents (included in other current assets) | 29,262 | | | 18,626 | |
Restricted cash, cash equivalents and investments | 64,482 | | | 61,347 | |
Total cash, cash equivalents and restricted cash and investments | 274,672 | | | 109,186 | |
Less restricted investments | (27,958) | | | (25,196) | |
Total cash, cash equivalents and restricted cash | $ | 246,714 | | | $ | 83,990 | |
(f) Fixed Assets
The Company records furniture, equipment, leasehold improvements and capitalized software at cost less accumulated amortization and depreciation. The Company records equipment acquired under finance leases at the present value of the future minimum lease payments. The Company capitalizes major additions and improvements, and it expenses maintenance and
repairs when incurred. The Company calculates depreciation on furniture, equipment and software using the straight-line method based on the estimated useful lives of the related assets (three to ten years). The Company depreciates leasehold improvements and equipment obtained under finance leases over the shorter of the term of the lease or their estimated useful lives. The Company includes depreciation of equipment obtained under finance leases with depreciation expense in the accompanying consolidated financial statements.
The Company capitalizes costs it incurs to develop software during the application development stage. Application development stage costs generally include costs associated with software configuration, coding, installation and testing. The Company also capitalizes costs of significant upgrades and enhancements that result in additional functionality, whereas it expenses as incurred costs for maintenance and minor upgrades and enhancements. The Company amortizes capitalized costs using the straight-line method over three to ten years once the software is ready for its intended use.
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to the future undiscounted net cash flows that are expected to be generated by the asset group. If such asset group is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. The Company reports assets to be disposed of at the lower of the carrying amount or fair value less costs to sell.
(g) Leases
The Company recognizes operating lease right-of-use assets and liabilities at commencement date based on the present value of the future minimum lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet in accordance with the short-term lease recognition exemption. The Company applies the practical expedient to not separate lease and non-lease components for all leases that qualify and uses its incremental borrowing rate as the discount rate to measure its lease liabilities. The incremental borrowing rate is determined for each operating lease based on the Company’s borrowing capabilities over a similar term of the lease arrangement, which is estimated by utilizing the Company’s credit rating and the effects of full collateralization. Lease expense is recognized on a straight-line basis over the lease term.
(h) Goodwill
The Company records as goodwill the portion of the purchase price that exceeds the fair value of net assets of entities acquired. The Company evaluates goodwill annually for impairment at the reporting unit level and whenever circumstances occur indicating that goodwill may be impaired. The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, the quantitative impairment test is unnecessary. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The amount by which the carrying value of the goodwill exceeds its fair value is recognized as an impairment loss.
(i) Intangible Assets
Intangible assets consist of identifiable intangible assets acquired through acquisitions, which include tradenames and trademarks, customer relationships, staffing databases, developed technology and non-compete agreements. The fair value of identifiable intangible assets are determined using either the income approach (relief-from-royalty method or multi-period excess earnings method) or the cost approach (replacement cost method). The Company amortizes intangible assets, other than those with an indefinite life, using the straight-line method over their useful lives. The Company amortizes non-compete agreements using the straight-line method over the lives of the related agreements. The Company reviews for impairment intangible assets with estimable useful lives whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
The Company does not amortize indefinite-lived intangible assets and instead reviews them for impairment annually. The Company may first perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, the Company determines that it is more likely than not that the indefinite-lived intangible asset is not impaired, no quantitative fair value measurement is necessary. If a quantitative fair value measurement calculation is required for an indefinite-lived intangible asset, the Company compares its fair value with its carrying amount. If the carrying amount exceeds the fair value, the Company records the excess as an impairment loss.
(j) Insurance Reserves
The Company maintains an accrual for professional liability that is included in accounts payable and accrued expenses and other long-term liabilities in the consolidated balance sheets. The expense is included in the selling, general and administrative expenses in the consolidated statement of comprehensive income. The Company determines the adequacy of this accrual by evaluating its historical experience and trends, loss reserves established by the Company’s insurance carriers, management and third-party administrators, and independent actuarial studies. The Company obtains actuarial studies on a semi-annual basis that use the Company’s actual claims data and industry data to assist the Company in determining the adequacy of its reserves each year. For periods between the actuarial studies, the Company records its accruals based on loss rates provided in the most recent actuarial study and management’s review of loss history and trends. In November 2012, the Company established a captive insurance subsidiary, which primarily provides coverage, on an occurrence basis, for professional liability within its nurse and allied solutions segment. Liabilities include provisions for estimated losses incurred but not yet reported (“IBNR”), as well as provisions for known claims. IBNR reserve estimates involve the use of assumptions that are primarily based upon historical loss experience, industry data and other actuarial assumptions. The Company maintains excess insurance coverage through a commercial carrier for losses above the per occurrence retention.
The Company maintains an accrual for workers compensation, which is included in accrued compensation and benefits and other long-term liabilities in the consolidated balance sheets. The expense relating to healthcare professionals is included in cost of revenue, while the expense relating to corporate employees is included in the selling, general and administrative expenses in the consolidated statement of comprehensive income. The Company determines the adequacy of this accrual by evaluating its historical experience and trends, loss reserves established by the Company’s insurance carriers and third-party administrators, and independent actuarial studies. The Company obtains actuarial studies on a semi-annual basis that use the Company’s payroll and historical claims data, as well as industry data, to determine the appropriate reserve for both reported claims and IBNR claims for each policy year. For periods between the actuarial studies, the Company records its accruals based on loss rates provided in the most recent actuarial study.
The Company maintains legacy liabilities related to its self-insured retention portion of both the workers compensation and locum tenens business professional liability in its captive insurance subsidiary. These legacy liabilities follow the same accounting policies as described in the paragraphs above.
(k) Revenue Recognition
Revenue primarily consists of fees earned from the temporary staffing and permanent placement of healthcare professionals, executives, and leaders (clinical and operational). The Company also generates revenue from technology-enabled services, including language interpretation and vendor management systems, and talent planning and acquisition services, including recruitment process outsourcing. The Company recognizes revenue when control of its services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those services. Revenue from temporary staffing services is recognized as the services are rendered by clinical and non-clinical healthcare professionals. Under the Company’s managed services program (“MSP”) arrangements, the Company manages all or a part of a customer’s supplemental workforce needs utilizing its own network of healthcare professionals along with those of third-party subcontractors. Revenue and the related direct costs under MSP arrangements are recorded in accordance with the accounting guidance on reporting revenue gross as a principal versus net as an agent. When the Company uses subcontractors and acts as an agent, revenue is recorded net of the related subcontractor’s expense. Revenue from permanent placement and recruitment process outsourcing services is recognized as the services are rendered. Depending on the arrangement, the Company’s technology-enabled service revenue is recognized either as the services are rendered or ratably over the applicable arrangement’s service period. See additional information below regarding the Company’s revenue disaggregated by service type.
The Company’s customers are primarily billed as services are rendered. Any fees billed in advance of being earned are recorded as deferred revenue. While payment terms vary by the type of customer and the services rendered, the term between invoicing and when payment is due is not significant. During the years ended December 31, 2021 and 2020, previously deferred revenue recognized as revenue was $10,660 and $11,729, respectively.
The Company recognizes assets from incremental costs to obtain a contract with a customer and costs incurred to fulfill a contract with a customer, which are deferred and amortized using the portfolio approach on a straight line basis over the average period of benefit consistent with the timing of transfer of services to the customer.
The Company has elected to apply the following practical expedients and optional exemptions related to contract costs and revenue recognition:
•Recognize incremental costs of obtaining a contract with amortization periods of one year or less as expense when incurred. These costs are recorded within selling, general and administrative expenses.
•Recognize revenue in the amount of consideration that the Company has a right to invoice the customer if that amount corresponds directly with the value to the customer of the Company’s services completed to date.
•Exemptions from disclosing the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts for which revenue is recognized in the amount of consideration that the Company has a right to invoice for services performed and (iii) contracts for which variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.
(l) Accounts Receivable
The Company records accounts receivable at the invoiced amount. Accounts receivable are non-interest bearing. The Company maintains an allowance for expected credit losses based on the Company’s historical write-off experience, an assessment of its customers’ financial conditions and available information that is relevant to assessing the collectability of cash flows, which includes current conditions and forecasts about future economic conditions.
The following table provides a reconciliation of activity in the allowance for credit losses for accounts receivable: | | | | | | | | | | | |
| 2021 | | 2020 |
Balance as of January 1, | $ | 7,043 | | | $ | 3,332 | |
Adoption of the credit loss standard, cumulative-effect adjustment to retained earnings | — | | | 1,334 | |
Provision for expected credit losses | 1,206 | | | 4,428 | |
Amounts written off charged against the allowance | (1,411) | | | (2,051) | |
| | | |
Balance as of December 31, | $ | 6,838 | | | $ | 7,043 | |
(m) Concentration of Credit Risk
The majority of the Company’s business activity is with hospitals located throughout the United States. Credit is extended based on the evaluation of each entity’s financial condition. One customer primarily within the Company’s nurse and allied solutions segment comprised approximately 17%, 14% and 13% of the consolidated revenue of the Company for the fiscal years ended December 31, 2021, 2020 and 2019, respectively.
The Company’s cash and cash equivalents and restricted cash, cash equivalents and investments accounts are financial instruments that are exposed to concentration of credit risk. The Company maintains most of its cash, cash equivalents and investment balances with high-credit quality and federally insured institutions. However, cash equivalents and restricted cash equivalents and investment balances may be invested in non-federally insured money market funds, commercial paper and corporate bonds. As of December 31, 2021 and 2020, there were $274,672 and $109,186, respectively, of cash, cash equivalents and restricted cash, cash equivalents and investments, a portion of which was invested in non-federally insured money market funds, commercial paper and corporate bonds. See Note (3), “Fair Value Measurement,” for additional information.
(n) Income Taxes
The Company records income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period the changes are enacted. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. The Company recognizes the effect of income tax positions only if it is more likely than not that such positions will be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in income tax expense.
(o) Fair Value of Financial Instruments
The carrying amounts of the Company’s cash equivalents and restricted cash equivalents and investments approximate their respective fair values due to the short-term nature and liquidity of these financial instruments. The fair value of the Company’s equity investment is determined by using prices for identical or similar investments of the same issuer, which is more fully described in Note (3), “Fair Value Measurement.” As it relates to the Company’s 2027 Notes and 2029 Notes (as defined in Note (8) and Note (3), respectively, below), fair value disclosure is detailed in Note (3), “Fair Value Measurement.” See Note (8), “Notes Payable and Credit Agreement,” for additional information. The fair value of the long-term portion of the Company’s insurance accruals cannot be estimated because the Company cannot reasonably determine the timing of future payments.
(p) Share-Based Compensation
The Company accounts for its share-based employee compensation plans by expensing the estimated fair value of share-based awards on a straight-line basis over the requisite employee service period, which typically is the vesting period, except for awards granted to retirement-eligible employees, which are expensed on an accelerated basis. Restricted stock units (“RSUs”) typically vest over a three-year period. Share-based compensation cost of RSUs is measured by the market value of the Company’s common stock on the date of grant, and the Company records share-based compensation expense only for those awards that are expected to vest. Performance restricted stock units (“PRSUs”) primarily consist of PRSUs that contain performance conditions dependent on defined targets of the Company’s adjusted EBITDA, with a range of 0% to 200% of the target amount granted to be issued under the award. Share-based compensation cost for these PRSUs is measured by the market value of the Company’s common stock on the date of grant, and the amount recognized is adjusted for estimated achievement of the performance conditions. A limited amount of PRSUs contain a market condition dependent upon the Company’s relative and absolute total stockholder return over a three-year period, with a range of 0% to 175% of the target amount granted to be issued under the award. Share-based compensation cost for these PRSUs is measured using the Monte-Carlo simulation valuation model and is not adjusted for the achievement, or lack thereof, of the market conditions.
(q) Net Income per Common Share
Share-based awards to purchase 33, 41 and 43 shares of common stock for the years ended December 31, 2021, 2020 and 2019, respectively, were not included in the calculation of diluted net income per common share because the effect of these instruments was anti-dilutive.
The following table sets forth the computation of basic and diluted net income per common share for the years ended December 31, 2021, 2020 and 2019, respectively:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Net income | $ | 327,388 | | | $ | 70,665 | | | $ | 113,988 | |
| | | | | |
Net income per common share - basic | $ | 6.87 | | | $ | 1.49 | | | $ | 2.44 | |
Net income per common share - diluted | $ | 6.81 | | | $ | 1.48 | | | $ | 2.40 | |
| | | | | |
Weighted average common shares outstanding - basic | 47,685 | | | 47,424 | | | 46,704 | |
Plus dilutive effect of potential common shares | 360 | | | 266 | | | 889 | |
Weighted average common shares outstanding - diluted | 48,045 | | | 47,690 | | | 47,593 | |
(r) Segment Information
The Company’s operating segments are identified in the same manner as they are reported internally and used by the Company’s chief operating decision maker for the purpose of evaluating performance and allocating resources. Effective March 8, 2020, the Company modified its reportable segments. The Company previously utilized three reportable segments, which it identified as follows: (1) nurse and allied solutions, (2) locum tenens solutions, and (3) other workforce solutions. In light of the Company’s recent acquisitions and organizational changes to better align its organizational structure with its strategy and operations, the Company’s management reorganized its reportable segments to better reflect how the business is evaluated by the chief operating decision maker. Beginning in the first quarter of 2020, the Company has disclosed the following three reportable segments: (1) nurse and allied solutions, (2) physician and leadership solutions, and (3) technology and workforce solutions. The nurse and allied solutions segment includes the Company’s travel nurse staffing, rapid response nurse staffing
and labor disruption, allied staffing, local staffing, and revenue cycle solutions businesses. The physician and leadership solutions segment includes the Company’s locum tenens staffing, healthcare interim leadership staffing, executive search, and physician permanent placement businesses. The technology and workforce solutions segment includes the Company’s language services, vendor management systems, workforce optimization, telehealth, credentialing, and outsourced solutions businesses.
The Company’s chief operating decision maker relies on internal management reporting processes that provide revenue and operating income by reportable segment for making financial decisions and allocating resources. Segment operating income represents income before income taxes plus depreciation, amortization of intangible assets, share-based compensation, interest expense, net, and other, and unallocated corporate overhead. The Company’s management does not evaluate, manage or measure performance of segments using asset information; accordingly, asset information by segment is not prepared or disclosed.
The following table, which includes reclassified amounts for the year ended December 31, 2019 to conform to the new segment reporting structure, provides a reconciliation of revenue and operating income by reportable segment to consolidated results and was derived from each segment’s internal financial information as used for corporate management purposes: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Revenue | | | | | |
Nurse and allied solutions | $ | 2,990,103 | | | $ | 1,699,311 | | | $ | 1,562,588 | |
Physician and leadership solutions | 594,243 | | | 466,622 | | | 562,762 | |
Technology and workforce solutions | 399,889 | | | 227,781 | | | 96,757 | |
| $ | 3,984,235 | | | $ | 2,393,714 | | | $ | 2,222,107 | |
Segment operating income | | | | | |
Nurse and allied solutions | $ | 461,311 | | | $ | 232,005 | | | $ | 219,862 | |
Physician and leadership solutions | 81,439 | | | 62,342 | | | 71,378 | |
Technology and workforce solutions | 187,578 | | | 93,212 | | | 43,899 | |
| 730,328 | | | 387,559 | | | 335,139 | |
Unallocated corporate overhead | 123,416 | | | 123,642 | | | 83,463 | |
Depreciation and amortization | 101,152 | | | 92,766 | | | 58,520 | |
Depreciation (included in cost of revenue) | 2,545 | | | 1,421 | | | — | |
Share-based compensation | 25,217 | | | 20,465 | | | 16,241 | |
Interest expense, net, and other | 34,077 | | | 57,742 | | | 28,427 | |
Income before income taxes | $ | 443,921 | | | $ | 91,523 | | | $ | 148,488 | |
The following tables present the Company’s revenue disaggregated by service type: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2021 |
| | Nurse and Allied Solutions | | Physician and Leadership Solutions | | Technology and Workforce Solutions | | Total |
| Travel nurse staffing | $ | 2,168,507 | | | $ | — | | | $ | — | | | $ | 2,168,507 | |
| Labor disruption services | 110,520 | | | — | | | — | | | 110,520 | |
| Local staffing | 124,977 | | | — | | | — | | | 124,977 | |
| Allied staffing | 586,099 | | | — | | | — | | | 586,099 | |
| Locum tenens staffing | — | | | 352,650 | | | — | | | 352,650 | |
| Interim leadership staffing | — | | | 170,236 | | | — | | | 170,236 | |
Temporary staffing | 2,990,103 | | | 522,886 | | | — | | | 3,512,989 | |
Permanent placement | — | | | 71,357 | | | — | | | 71,357 | |
| Language services | — | | | — | | | 180,891 | | | 180,891 | |
| Vendor management systems | — | | | — | | | 148,532 | | | 148,532 | |
| Other technologies | — | | | — | | | 29,043 | | | 29,043 | |
Technology-enabled services | — | | | — | | | 358,466 | | | 358,466 | |
Talent planning and acquisition | — | | | — | | | 41,423 | | | 41,423 | |
Total revenue | $ | 2,990,103 | | | $ | 594,243 | | | $ | 399,889 | | | $ | 3,984,235 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2020 |
| | Nurse and Allied Solutions | | Physician and Leadership Solutions | | Technology and Workforce Solutions | | Total |
| Travel nurse staffing | $ | 1,230,396 | | | $ | — | | | $ | — | | | $ | 1,230,396 | |
| Labor disruption services | 7,137 | | | — | | | — | | | 7,137 | |
| Local staffing | 53,218 | | | — | | | — | | | 53,218 | |
| Allied staffing | 408,560 | | | — | | | — | | | 408,560 | |
| Locum tenens staffing | — | | | 277,428 | | | — | | | 277,428 | |
| Interim leadership staffing | — | | | 130,800 | | | — | | | 130,800 | |
Temporary staffing | 1,699,311 | | | 408,228 | | | — | | | 2,107,539 | |
Permanent placement | — | | | 58,394 | | | — | | | 58,394 | |
| Language services | — | | | — | | | 116,054 | | | 116,054 | |
| Vendor management systems | — | | | — | | | 69,756 | | | 69,756 | |
| Other technologies | — | | | — | | | 23,557 | | | 23,557 | |
Technology-enabled services | — | | | — | | | 209,367 | | | 209,367 | |
Talent planning and acquisition | — | | | — | | | 18,414 | | | 18,414 | |
Total revenue | $ | 1,699,311 | | | $ | 466,622 | | | $ | 227,781 | | | $ | 2,393,714 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 |
| | Nurse and Allied Solutions | | Physician and Leadership Solutions | | Technology and Workforce Solutions | | Total |
| Travel nurse staffing | $ | 1,011,336 | | | $ | — | | | $ | — | | | $ | 1,011,336 | |
| Labor disruption services | 36,371 | | | — | | | — | | | 36,371 | |
| Local staffing | 49,049 | | | — | | | — | | | 49,049 | |
| Allied staffing | 465,832 | | | — | | | — | | | 465,832 | |
| Locum tenens staffing | — | | | 324,654 | | | — | | | 324,654 | |
| Interim leadership staffing | — | | | 158,330 | | | — | | | 158,330 | |
Temporary staffing | 1,562,588 | | | 482,984 | | | — | | | 2,045,572 | |
Permanent placement | — | | | 79,778 | | | — | | | 79,778 | |
| | | | | | | | |
| Vendor management systems | — | | | — | | | 59,026 | | | 59,026 | |
| Other technologies | — | | | — | | | 21,635 | | | 21,635 | |
Technology-enabled services | — | | | — | | | 80,661 | | | 80,661 | |
Talent planning and acquisition | — | | | — | | | 16,096 | | | 16,096 | |
Total revenue | $ | 1,562,588 | | | $ | 562,762 | | | $ | 96,757 | | | $ | 2,222,107 | |
(s) Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2019-12, “Simplifying the Accounting for Income Taxes.” The standard is expected to reduce cost and complexity related to accounting for income taxes. The new guidance eliminates certain exceptions and clarifies and amends existing guidance to promote consistent application among reporting entities. Depending on the amended guidance within this standard, adoption is to be applied on a retrospective, modified retrospective or prospective basis. The Company adopted this standard effective January 1, 2021, and the adoption did not have a material effect on the Company’s consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, “Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The new guidance clarifies the interactions between accounting standards that apply to equity investments without readily determinable fair values. Specifically, it addresses the accounting for the transition into and out of the equity method. The Company adopted this standard effective January 1, 2021 on a prospective basis, and the adoption did not have a material effect on the Company’s consolidated financial statements.
(2) Acquisitions
As set forth below, the Company completed five acquisitions from January 1, 2019 through December 31, 2021. The Company accounted for each acquisition using the acquisition method of accounting. Accordingly, the Company recorded the tangible and intangible assets acquired and liabilities assumed at their estimated fair values as of the applicable date of acquisition. Since the applicable date of acquisition, the Company has revised the allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed based on analysis of information that has been made available through December 31, 2021. The allocations will continue to be updated through the measurement period, if necessary. The Company recognizes acquisition-related costs in selling, general and administrative expenses in the consolidated statements of comprehensive income.
Synzi and SnapMD Acquisition
On April 7, 2021, the Company completed its acquisition of Synzi Holdings, Inc. (“Synzi”) and its wholly-owned subsidiary, SnapMD, LLC (“SnapMD”). Synzi is a virtual care communication platform that enables organizations to conduct virtual visits and use secure messaging, text, and email for clinician-to-patient and clinician-to-clinician communications. SnapMD is a full-service virtual care management company, specializing in providing software to enable healthcare providers to better engage with their patients. The initial purchase price of $42,240 consisted entirely of cash consideration paid upon acquisition. The acquisition was funded primarily through borrowings under the Senior Credit Facility (as defined below). The results of Synzi and SnapMD have been included in the Company’s technology and workforce solutions segment since the date of acquisition. During the second quarter of 2021, $92 was returned to the Company in respect of the final working capital settlement.
The preliminary allocation of the $42,148 purchase price, which was reduced by the final working capital settlement, consisted of (1) $2,790 of fair value of tangible assets acquired, which included $884 cash received, (2) $275 of liabilities assumed, (3) $12,440 of identified intangible assets, and (4) $27,193 of goodwill, of which $6,044 is deductible for tax purposes. The provisional items pending finalization are income tax related matters and the assessment of additional information related to determining the fair value of certain assets acquired and liabilities assumed. The fair value of intangible assets primarily includes $10,890 of developed technology and $1,220 of trademarks with a weighted average useful life of approximately seven years.
Stratus Video Acquisition
On February 14, 2020, the Company completed its acquisition of Stratus Video, a remote video interpreting company that provides healthcare interpretation via remote video, over the phone, and onsite in-person, all supported by proprietary technology platforms. The initial purchase price of $485,568 consisted entirely of cash consideration paid upon acquisition. The acquisition was funded primarily through (1) borrowings under the Company’s $400,000 secured revolving credit facility (the “Senior Credit Facility”), provided for under a credit agreement (the “New Credit Agreement”), and (2) the Second Amendment (as defined in Note (8) below) to the New Credit Agreement, which provided $250,000 of additional available borrowings to the Company. The Senior Credit Facility, New Credit Agreement and Second Amendment are more fully described in Note (8), “Notes Payable and Credit Agreement.” The results of Stratus Video have been included in the Company’s technology and workforce solutions segment since the date of acquisition. During the second quarter of 2020, an additional $99 of cash consideration was paid to the selling shareholders in respect of the final working capital settlement. The Company incurred $11,467 of acquisition-related costs during the year ended December 31, 2020 as a result of its acquisition of Stratus Video.
The allocation of the $485,667 purchase price, which included the additional cash consideration paid for the final working capital settlement and was finalized during the first quarter of 2021, consisted of (1) $44,092 of fair value of tangible assets acquired, which included $9,176 cash received, (2) $56,059 of liabilities assumed, (3) $228,000 of identified intangible assets, and (4) $269,634 of goodwill, of which $10,182 is deductible for tax purposes. The intangible assets acquired have a weighted average useful life of approximately seventeen years. The following table summarizes the fair value and useful life of each intangible asset acquired as of the acquisition date:
| | | | | | | | | | | | | | | | | |
| | | Fair Value | | Useful Life |
| | | | | (in years) |
Identifiable intangible assets | | | | |
| Customer relationships | | $ | 171,000 | | | 20 |
| Tradenames and trademarks | | 40,000 | | | 5 - 10 |
| Developed technology | | 16,000 | | | 5 |
| Interpreter database | | 1,000 | | | 4 |
| | | $ | 228,000 | | | |
During the third quarter of 2020, the Company revised the estimated useful lives for the tradenames and trademarks intangible assets as a result of its plan to rebrand the language interpretation business. Based on this change in circumstances since the date of acquisition, the Company determined that the remaining useful lives of the assets are five years and is amortizing the remaining value on a straight-line basis over the remaining useful life. The Company will continue to evaluate the remaining useful lives of other intangible assets impacted by its brand consolidation efforts.
Approximately $116,054 of revenue and $20,164 of income before income taxes of Stratus Video were included in the consolidated statement of comprehensive income for the year ended December 31, 2020.
Pro Forma Financial Information (Unaudited)
The following summary presents unaudited pro forma consolidated results of operations of the Company as if the acquisitions of Stratus Video and Advanced (as defined below) had occurred on January 1, 2019, which gives effect to certain adjustments, including acquisition-related costs of $25,311, of which $14,468 was reclassified from the year ended December 31, 2020, amortization of intangible assets of $15,014, and interest expense of $6,722 for the year ended December 31, 2019. The unaudited pro forma financial information is not necessarily indicative of the operating results that would have occurred had the acquisitions been consummated as of the date indicated, nor is it necessarily indicative of the Company’s future
operating results. | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 |
Revenue | $ | 2,407,586 | | | $ | 2,383,405 | |
Income from operations | 165,196 | | | 145,069 | |
Net income | 81,422 | | | 85,154 | |
| | | |
| | | |
| | | |
b4health Acquisition
On December 19, 2019, the Company completed its acquisition of B4Health, LLC (“b4health”), an innovative technology company and a leading provider of a web-based internal float pool management solution and vendor management system for healthcare facilities. The initial purchase price of $23,006 included (1) $19,906 cash consideration paid upon acquisition and (2) contingent consideration (earn-out payment) of up to $12,000 with an estimated fair value of $3,100 as of the acquisition date. The contingent earn-out payment is based on the operating results of b4health for the twelve months ending December 31, 2020, which was settled in full during the first quarter of 2021. The results of b4health have been included in the Company’s technology and workforce solutions segment since the date of acquisition. During the first quarter of 2020, $66 was returned to the Company in respect of the final working capital settlement.
The allocation of the $22,940 purchase price, which was reduced by the final working capital settlement and finalized during the fourth quarter of 2020, consisted of (1) $1,169 of fair value of tangible assets acquired, which included $222 cash received, (2) $823 of liabilities assumed, (3) $9,000 of identified intangible assets, and (4) $13,594 of goodwill, all of which is deductible for tax purposes. The fair value of intangible assets includes $3,000 of developed technology, $4,000 of customer relationships, and $2,000 of trademarks with a weighted average useful life of approximately seven years.
Advanced Acquisition
On June 14, 2019, the Company completed its acquisition of Advanced Medical Personnel Services, Inc. (“Advanced”), a national healthcare staffing company that specializes in placing therapists and nurses across multiple settings. The initial purchase price of $211,743 included (1) $201,121 cash consideration paid upon acquisition and (2) contingent consideration (earn-out payment) of up to $20,000 with an estimated fair value of $10,622 as of the acquisition date. The contingent earn-out payment is based on the operating results of Advanced for the twelve months ending December 31, 2019, which was settled in full during the first quarter of 2020. The acquisition was funded primarily through (1) borrowings under the Senior Credit Facility and (2) the First Amendment (as defined in Note (8) below) to the New Credit Agreement, which provided $150,000 of additional available borrowings to the Company. The results of Advanced have been included in the Company’s nurse and allied solutions segment since the date of acquisition. During the third quarter of 2019, an additional $73 of cash consideration was paid to the selling shareholders in respect of the final working capital settlement.
The allocation of the $211,816 purchase price, which included the additional cash consideration paid for the final working capital settlement and was finalized during the second quarter of 2020, consisted of (1) $29,020 of fair value of tangible assets acquired, which included $2,497 cash and restricted cash received, (2) $28,772 of liabilities assumed, (3) $91,700 of identified intangible assets, and (4) $119,868 of goodwill, of which $57,236 is deductible for tax purposes. The intangible assets acquired have a weighted average useful life of approximately nine years. The following table summarizes the fair value and useful life of each intangible asset acquired:
| | | | | | | | | | | | | | | | | |
| | | Fair Value | | Useful Life |
| | | | | (in years) |
Identifiable intangible assets | | | | |
| Customer relationships | | $ | 68,000 | | | 10 |
| Tradenames and trademarks | | 10,000 | | | 5 |
| Staffing database | | 10,300 | | | 10 |
| Developed technology | | 3,400 | | | 3 |
| | | $ | 91,700 | | | |
Silversheet Acquisition
On January 30, 2019, the Company completed its acquisition of Silversheet, Inc. (“Silversheet”), which provides innovative software and services to reduce the complexities and challenges of the credentialing process for clinicians and healthcare organizations. The initial purchase price of $31,676 included (1) $30,176 cash consideration paid upon acquisition, funded primarily through borrowings under the Senior Credit Facility, and (2) contingent consideration (earn-out payment) of up to $25,000 with an estimated fair value of $1,500 as of the acquisition date. The contingent earn-out payment is based on (A) up to $6,000 based on the operating results of Silversheet for the twelve months ending December 31, 2019, which resulted in no earn-out payment, and (B) up to $19,000 based on the operating results of Silversheet for the twelve months ending December 31, 2020, which resulted in no earn-out payment. The results of Silversheet have been included in the Company’s technology and workforce solutions segment since the date of acquisition.
The allocation of the $31,676 purchase price, which was finalized during the first quarter of 2020, consisted of (1) $2,826 of fair value of tangible assets acquired, which included $651 cash received, (2) $1,567 of liabilities assumed, (3) $6,880 of identified intangible assets, and (4) $23,537 of goodwill, none of which is deductible for tax purposes. The fair value of intangible assets primarily includes $5,300 of developed technology and $1,500 of trademarks with a weighted average useful life of approximately eight years.
(3) Fair Value Measurement
Fair value represents the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which the Company would conduct a transaction, in addition to the assumptions that market participants would use when pricing the related assets or liabilities, including non-performance risk.
A three-level hierarchy prioritizes the inputs to valuation techniques used to measure fair value and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Assets and Liabilities Measured on a Recurring Basis
The Company’s restricted cash equivalents that serve as collateral for the Company’s outstanding letters of credit typically consist of money market funds that are measured at fair value based on quoted prices, which are Level 1 inputs.
The Company’s obligation under its deferred compensation plan is measured at fair value based on quoted market prices of the participants’ elected investments, which are Level 1 inputs. The deferred compensation plan is more fully described in Note (9), “Retirement Plans.”
The Company’s restricted cash equivalents and investments that serve as collateral for the Company’s captive insurance company include commercial paper that is measured at observable market prices for identical securities that are traded in less active markets, which are Level 2 inputs. The Company’s cash equivalents also include commercial paper classified as Level 2 in the fair value hierarchy. Of the $80,596 commercial paper issued and outstanding as of December 31, 2021, none had original maturities greater than three months and were considered available-for-sale securities. As of December 31, 2020, the Company had $58,345 commercial paper issued and outstanding, of which $25,196 had original maturities greater than three months and were considered available-for-sale securities.
The Company’s restricted cash equivalents and investments that serve as collateral for the Company’s captive insurance company also include corporate bonds that are measured using readily available pricing sources that utilize observable market data, including the current interest rate for comparable instruments, which are Level 2 inputs. Of the $29,159 corporate bonds issued and outstanding as of December 31, 2021, $27,958 had original maturities greater than three months, which were considered available-for-sale securities. The Company did not have corporate bonds as of December 31, 2020.
The fair value of our available-for-sale securities as of December 31, 2021, by remaining contractual maturities, are presented in the following table:
| | | | | |
| Fair Value |
Due in one year or less | $ | 5,528 | |
Due after one year through five years | 22,430 | |
| $ | 27,958 | |
The Company’s contingent consideration liabilities are measured at fair value using probability-weighted discounted cash flow analysis or a simulation-based methodology for the acquired companies, which are Level 3 inputs. The Company recognizes changes to the fair value of its contingent consideration liabilities in selling, general and administrative expenses in the consolidated statements of comprehensive income.
The following tables present information about the above-referenced assets and liabilities and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value: | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of December 31, 2021 |
Assets (Liabilities) | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Money market funds | $ | 91,454 | | | $ | 91,454 | | | $ | — | | | $ | — | |
Deferred compensation | (119,617) | | | (119,617) | | | — | | | — | |
Corporate bonds | 29,159 | | | — | | | 29,159 | | | — | |
Commercial paper | 80,596 | | | — | | | 80,596 | | | — | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of December 31, 2020 |
Assets (Liabilities) | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Money market funds | $ | 2,198 | | | $ | 2,198 | | | $ | — | | | $ | — | |
Deferred compensation | (97,184) | | | (97,184) | | | — | | | — | |
Commercial paper | 58,345 | | | — | | | 58,345 | | | — | |
Acquisition contingent consideration liabilities | (8,000) | | | — | | | — | | | (8,000) | |
Level 3 Information
The following table sets forth a reconciliation of changes in the fair value of contingent consideration liabilities classified as Level 3 in the fair value hierarchy: | | | | | | | | | | | |
| 2021 | | 2020 |
Balance as of January 1, | $ | (8,000) | | | $ | (23,100) | |
Settlement of Advanced contingent consideration liability for year ended December 31, 2019 | — | | | 20,000 | |
Settlement of b4health contingent consideration liability for year ended December 31, 2020 | 8,000 | | | — | |
Change in fair value of contingent consideration liability from b4health acquisition | — | | | (4,900) | |
Balance as of December 31, | $ | — | | | $ | (8,000) | |
As of December 31, 2020, the fair value measurement of contingent consideration liability for b4health was based on actual operating results of the acquired company.
Assets Measured on a Non-Recurring Basis
The Company applies fair value techniques on a non-recurring basis associated with valuing potential impairment losses related to its goodwill, indefinite-lived intangible assets, long-lived assets, and equity investments.
The Company evaluates goodwill and indefinite-lived intangible assets annually for impairment and whenever events or changes in circumstances indicate that it is more likely than not that an impairment exists. The Company determines the fair value of its reporting units based on a combination of inputs, including the market capitalization of the Company, as well as Level 3 inputs such as discounted cash flows, which are not observable from the market, directly or indirectly. The Company determines the fair value of indefinite-lived intangible assets using the income approach (relief-from-royalty method) based on Level 3 inputs.
The Company’s equity investment represents an investment in a non-controlled corporation without a readily determinable market value. The Company has elected to measure the investment at cost minus impairment, if any, plus or minus changes resulting from observable price changes. The fair value is determined by using quoted prices for identical or similar investments of the same issuer, which are Level 2 inputs, and other information available to the Company such as the rights and obligations of the securities. The Company recognizes changes to the fair value of its equity investment in interest expense, net, and other in the consolidated statements of comprehensive income. The balance of the equity investment was $22,633 and $15,449 as of December 31, 2021 and 2020, respectively.
There were no triggering events identified, no indication of impairment of the Company’s goodwill, indefinite-lived intangible assets, long-lived assets, or equity investments, and no impairment charges recorded during the three years ended December 31, 2021 requiring such measurements.
Fair Value of Financial Instruments
The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate the value, even though these instruments are not recognized at fair value in the consolidated balance sheets. The fair value of the Company’s 2027 Notes (as defined in Note (8) below) and 4.000% senior notes due 2029 (the “2029 Notes”) was estimated using quoted market prices in active markets for identical liabilities, which are Level 1 inputs. The carrying amounts and estimated fair value of the 2027 Notes and the 2029 Notes, which are more fully described in Note (8), “Notes Payable and Credit Agreement,” are presented in the following table: | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 | | As of December 31, 2020 |
| Carrying Amount | Estimated Fair Value | | Carrying Amount | Estimated Fair Value |
2027 Notes | 500,000 | | 517,500 | | | 500,000 | | 521,250 | |
2029 Notes | 350,000 | | 353,500 | | | 350,000 | | 357,000 | |
The fair value of the Company’s long-term self-insurance accruals cannot be estimated as the Company cannot reasonably determine the timing of future payments.
(4) Goodwill and Identifiable Intangible Assets
As of December 31, 2021 and 2020, the Company had the following acquired intangible assets:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 | | As of December 31, 2020 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Intangible assets subject to amortization: | | | | | | | | | | | |
Staffing databases | $ | 36,836 | | | $ | (19,857) | | | $ | 16,979 | | | $ | 36,836 | | | $ | (16,706) | | | $ | 20,130 | |
Customer relationships | 445,169 | | | (150,255) | | | 294,914 | | | 444,839 | | | (122,105) | | | 322,734 | |
Tradenames and trademarks | 256,889 | | | (81,522) | | | 175,367 | | | 166,269 | | | (58,299) | | | 107,970 | |
Non-compete agreements | 6,495 | | | (4,621) | | | 1,874 | | | 6,371 | | | (3,402) | | | 2,969 | |
Acquired technology | 47,320 | | | (21,994) | | | 25,326 | | | 36,430 | | | (14,722) | | | 21,708 | |
| $ | 792,709 | | | $ | (278,249) | | | $ | 514,460 | | | $ | 690,745 | | | $ | (215,234) | | | $ | 475,511 | |
Intangible assets not subject to amortization: | | | | | | | | | | | |
Tradenames and trademarks | | | | | $ | — | | | | | | | $ | 89,400 | |
| | | | | $ | 514,460 | | | | | | | $ | 564,911 | |
As a result of recent developments in its brand consolidation efforts, the Company reassessed the useful lives of its tradenames and trademarks intangible assets during the fourth quarter of 2021. This assessment included tradenames and trademarks related to the Company's locums tenens, interim leadership, local staffing, physician permanent placement, allied, and VMS businesses. As a result, the Company concluded (a) that the useful lives for $89,400 of tradenames and trademarks that were previously not subject to amortization were no longer considered to be indefinite and (b) to revise the estimated useful lives for $19,766 of tradenames and trademarks. Prior to assigning useful lives to the previously indefinite-lived intangible assets, the Company tested the assets for impairment, concluding that they were not impaired. Effective December 31, 2021, these tradenames and trademarks intangible assets were assigned a weighted average useful life of approximately six years and the Company will amortize their carrying values on a straight-line basis over the remaining useful lives.
Aggregate amortization expense for intangible assets was $63,015 and $63,817 for the years ended December 31, 2021 and 2020, respectively. Based on the current amount of intangibles subject to amortization, the estimated future amortization expense as of December 31, 2021 is as follows:
| | | | | |
| Amount |
Year ending December 31, 2022 | $ | 79,001 | |
Year ending December 31, 2023 | 77,333 | |
Year ending December 31, 2024 | 70,783 | |
Year ending December 31, 2025 | 57,772 | |
Year ending December 31, 2026 | 48,050 | |
Thereafter | 181,521 | |
| $ | 514,460 | |
In connection with the reorganization of its reportable segments effective March 8, 2020, the Company reassigned the goodwill balances to the reporting units, the composition of which changed under the reorganized reportable segments, using the relative fair value reallocation approach. The Company performed a goodwill impairment test at the reporting unit level both immediately before and after the reorganization. The Company determined the fair values of its reporting units using a combination of the income approach (using discounted future cash flows) and the market valuation approach. Based on the results of this testing, the Company determined that the fair values of its reporting units were each greater than their respective carrying values both before and after the reorganization. Therefore, there was no impairment loss recognized during the year ended December 31, 2020.
The following table, which includes reclassified prior period amounts to conform to the new segment reporting structure, summarizes the activity related to the carrying value of goodwill by reportable segment: | | | | | | | | | | | | | | | | | | | | | | | |
| Nurse and Allied Solutions | | Physician and Leadership Solutions | | Technology and Workforce Solutions | | Total |
Balance, January 1, 2020 | $ | 344,316 | | | $ | 163,348 | | | $ | 87,887 | | | $ | 595,551 | |
Goodwill adjustment for Advanced acquisition | 29 | | | — | | | — | | | 29 | |
Goodwill adjustment for b4health acquisition | — | | | — | | | (66) | | | (66) | |
Goodwill from Stratus Video acquisition | — | | | — | | | 268,971 | | | 268,971 | |
Reallocation due to change in segments | (5,330) | | | (10,548) | | | 15,878 | | | — | |
Balance, December 31, 2020 | 339,015 | | | 152,800 | | | 372,670 | | | 864,485 | |
Goodwill adjustment for Stratus Video acquisition | — | | | — | | | 663 | | | 663 | |
Goodwill from Synzi and SnapMD acquisition | — | | | — | | | 27,193 | | | 27,193 | |
Balance, December 31, 2021 | $ | 339,015 | | | $ | 152,800 | | | $ | 400,526 | | | $ | 892,341 | |
Accumulated impairment loss as of December 31, 2020 and 2021 | $ | 154,444 | | | $ | 60,495 | | | $ | — | | | $ | 214,939 | |
(5) Leases
The Company leases certain office facilities, data centers, and equipment under various operating leases. The Company’s short-term leases (with initial lease terms of 12 months or less) are primarily related to housing arrangements for healthcare professionals on assignment. Most leases include one or more options to renew, with renewal terms that can extend the lease term up to 10 years. Certain leases also include options to terminate the leases within 2 years.
During the third quarter of 2021, the Company entered into an arrangement to terminate the lease agreement (as amended to date) for its office space in San Diego. The termination will occur in two phases: the first phase terminates the Company’s right to use certain floors effective February 28, 2022 and the second phase reduces the remaining lease term to December 31, 2024 from its original termination date of July 31, 2027. As a result of the arrangement, which was accounted for as a modification, the Company paid a termination fee of $17,000, remeasured the lease liability using its incremental borrowing rate as the discount rate, and recorded decreases to its operating lease liabilities and right-of-use assets of $27,340 during the third quarter of 2021. Prior to the modification, the total remaining lease payments for this office lease were $62,487. Under the modified lease terms, the total remaining lease payments (excluding the termination fee paid during the third quarter of 2021) were $9,564 as of the modification date.
The components of lease expense were as follows: | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | 2020 | 2019 |
Operating lease cost | $ | 23,495 | | $ | 20,176 | | $ | 18,725 | |
Short-term lease cost | 6,056 | | 8,702 | | 20,112 | |
Variable and other lease cost | 2,485 | | 2,526 | | 2,880 | |
Net lease cost | $ | 32,036 | | $ | 31,404 | | $ | 41,717 | |
The maturities of lease liabilities as of December 31, 2021 were as follows:
| | | | | |
| Operating Leases |
Years ending December 31, | |
2022 | $ | 11,867 | |
2023 | 6,468 | |
2024 | 5,348 | |
2025 | 1,876 | |
2026 | 112 | |
Thereafter | — | |
Total lease payments | 25,671 | |
Less imputed interest | (924) | |
Present value of lease liabilities | $ | 24,747 | |
Supplemental cash flow information related to leases was as follows:
| | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | 2020 | 2019 |
Cash paid for amounts included in the measurement of operating lease liabilities (operating cash flows) | $ | 39,865 | | $ | 20,052 | | $ | 17,817 | |
| | | |
The weighted average remaining lease term and discount rate as of December 31, 2021 and 2020 were as follows: | | | | | | | | |
| December 31, |
| 2021 | 2020 |
Weighted average remaining lease term | 3 years | 6 years |
Weighted average discount rate | 2.6 | % | 4.8 | % |
(6) Balance Sheet Details
The consolidated balance sheets detail is as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Other current assets: | | | |
Restricted cash and cash equivalents | $ | 29,262 | | | $ | 18,626 | |
| | | |
Other | 37,568 | | | 22,183 | |
Other current assets | $ | 66,830 | | | $ | 40,809 | |
| | | |
Prepaid expenses: | | | |
Prepaid payroll deposits | $ | 60,014 | | | $ | — | |
Other | 12,446 | | | 13,629 | |
Current assets | $ | 72,460 | | | $ | 13,629 | |
| | | |
Fixed assets: | | | |
Furniture and equipment | $ | 43,134 | | | $ | 47,355 | |
Software | 265,137 | | | 220,971 | |
Leasehold improvements | 8,797 | | | 9,600 | |
| 317,068 | | | 277,926 | |
Accumulated depreciation | (189,954) | | | (161,752) | |
Fixed assets, net | $ | 127,114 | | | $ | 116,174 | |
| | | |
Accounts payable and accrued expenses: | | | |
Trade accounts payable | $ | 77,325 | | | $ | 28,089 | |
Subcontractor payable | 261,689 | | | 79,364 | |
Accrued expenses | 61,220 | | | 37,849 | |
Loss contingencies | 10,400 | | | 7,613 | |
Professional liability reserve | 7,127 | | | 8,897 | |
Other | 7,496 | | | 6,069 | |
Accounts payable and accrued expenses | $ | 425,257 | | | $ | 167,881 | |
| | | |
Accrued compensation and benefits: | | | |
Accrued payroll | $ | 98,817 | | | $ | 59,721 | |
Accrued bonuses and commissions | 105,155 | | | 34,514 | |
Accrued travel expense | 3,058 | | | 1,998 | |
Health insurance reserve | 6,041 | | | 5,590 | |
Workers compensation reserve | 12,384 | | | 10,244 | |
Deferred compensation | 119,617 | | | 97,184 | |
Other | 9,309 | | | 4,163 | |
Accrued compensation and benefits | $ | 354,381 | | | $ | 213,414 | |
| | | |
Other current liabilities: | | | |
Income taxes payable | $ | 21,162 | | | $ | — | |
Acquisition related liabilities | — | | | 8,000 | |
Client deposits | 141,102 | | | 1,636 | |
Other | 155 | | | 1,302 | |
Other current liabilities | $ | 162,419 | | | $ | 10,938 | |
| | | |
Other long-term liabilities: | | | |
Workers compensation reserve | $ | 24,130 | | | $ | 20,930 | |
Professional liability reserve | 34,544 | | | 31,997 | |
| | | |
Unrecognized tax benefits | 4,633 | | | 5,447 | |
Other | 33,682 | | | 49,533 | |
Other long-term liabilities | $ | 96,989 | | | $ | 107,907 | |
(7) Income Taxes
The provision for income taxes from operations for the years ended December 31, 2021, 2020 and 2019 consists of the following:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Current income taxes: | | | | | |
Federal | $ | 98,795 | | | $ | 32,673 | | | $ | 25,255 | |
State | 34,025 | | | 9,813 | | | 8,332 | |
Total | 132,820 | | | 42,486 | | | 33,587 | |
Deferred income taxes: | | | | | |
Federal | (12,992) | | | (15,092) | | | 625 | |
State | (3,295) | | | (6,536) | | | 288 | |
Total | (16,287) | | | (21,628) | | | 913 | |
Provision for income taxes from operations | $ | 116,533 | | | $ | 20,858 | | | $ | 34,500 | |
The Company’s income tax expense differs from the amount that would have resulted from applying the federal statutory rate of 21% for 2021, 2020 and 2019 to pretax income from operations because of the effect of the following items during the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Tax expense at federal statutory rate | $ | 93,223 | | | $ | 19,220 | | | $ | 31,253 | |
State taxes, net of federal benefit | 23,990 | | | 4,161 | | | 6,810 | |
Non-deductible expenses | — | | | 3,621 | | | 3,840 | |
Share-based compensation | (1,460) | | | (2,311) | | | (4,770) | |
| | | | | |
Unrecognized tax benefit | (680) | | | (78) | | | (207) | |
Other, net | 1,460 | | | (3,755) | | | (2,426) | |
Income tax expense from operations | $ | 116,533 | | | $ | 20,858 | | | $ | 34,500 | |
Certain reclassifications have been made to the prior year’s presentation of deferred tax assets in order to conform to the current year presentation. There is no change to the prior year total deferred tax assets. The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are presented below as of December 31, 2021 and 2020:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Deferred tax assets: | | | |
Stock compensation | $ | 6,954 | | | $ | 6,198 | |
Deferred compensation | 30,513 | | | 24,604 | |
Accrued bonus | 24,636 | | | 7,607 | |
Accrued payroll taxes | 6,427 | | | 12,445 | |
Accrued expenses | 19,899 | | | 13,371 | |
| | | |
Operating lease liabilities | 6,472 | | | 23,826 | |
Net operating losses | 8,815 | | | 9,557 | |
Loss contingencies | 8,528 | | | 6,459 | |
Workers compensation insurance | 6,476 | | | 4,814 | |
Other | 2,731 | | | 989 | |
Total deferred tax assets | $ | 121,451 | | | $ | 109,870 | |
Deferred tax liabilities: | | | |
Intangibles | $ | (126,535) | | | $ | (126,833) | |
Fixed assets | (28,824) | | | (25,252) | |
Operating lease right-of-use assets | (7,269) | | | (19,933) | |
Other | (6,637) | | | (5,057) | |
Total deferred tax liabilities | $ | (169,265) | | | $ | (177,075) | |
| | | |
Net deferred tax liabilities | $ | (47,814) | | | $ | (67,205) | |
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management believes it is more likely than not that the Company will realize the benefits of its deferred tax assets.
The amount of federal net operating losses (“NOL”) carryforward that is available for use in years subsequent to December 31, 2021 is $35,046, primarily related to the Stratus Video acquisition, which begins to expire by 2030. The amount of state NOL carryforward that is available for use in years subsequent to December 31, 2021 is $29,437, primarily related to the Stratus Video and Synzi acquisitions, which begins to expire by 2022. The Stratus Video and Synzi acquisitions are more fully described in Note (2), “Acquisitions.”
A summary of the changes in the amount of unrecognized tax benefits (excluding interest and penalties) for 2021, 2020 and 2019 is as follows:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Beginning balance of unrecognized tax benefits | $ | 4,916 | | | $ | 4,937 | | | $ | 4,393 | |
Additions based on tax positions related to the current year | 504 | | | 667 | | | 588 | |
Additions based on tax positions of prior years | — | | | 255 | | | 990 | |
Reductions for tax positions of prior years | (301) | | | — | | | — | |
Reductions due to lapse of applicable statute of limitation | (1,052) | | | (943) | | | (1,034) | |
| | | | | |
Ending balance of unrecognized tax benefits | $ | 4,067 | | | $ | 4,916 | | | $ | 4,937 | |
At December 31, 2021, if recognized, approximately $3,936 net of $697 of temporary differences would affect the effective tax rate (including interest and penalties).
The Company recognizes interest related to unrecognized tax benefits in income tax expense. The Company had approximately $564, $530 and $493 of accrued interest related to unrecognized tax benefits at December 31, 2021, 2020 and 2019, respectively. The amount of interest expense recognized in 2021, 2020 and 2019 was $34, $37 and $26, respectively.
The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. With few exceptions, as of December 31, 2021, the Company is no longer subject to state, local or foreign examinations by tax authorities for tax years before 2011, and the Company is no longer subject to U.S. federal income or payroll tax examinations for tax years before 2018. Prior to the Company’s acquisition of Advanced, on June 14, 2019, Advanced was under an IRS audit for the years 2011-2013 for various payroll tax matters related to the treatment of certain non-taxable per diem allowances and travel benefits. This audit was completed and an assessment was issued for $8,300 in July 2018. The Company received a final determination from the IRS in November 2019 for $1,300. The Company is indemnified by Advanced for the potential contingent liability for all pre-acquisition open years. The Advanced acquisition is more fully described in Note (2), “Acquisitions.”
The Company believes its reserve for unrecognized tax benefits and contingent tax issues is adequate with respect to all open years. Notwithstanding the foregoing, the Company could adjust its provision for income taxes and contingent tax liability based on future developments.
CARES Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and signed into law in response to the COVID-19 pandemic. Among other things, the CARES Act contains significant business tax provisions, including a deferral of payment of employer payroll taxes and an employer retention credit for employer payroll taxes.
The Company deferred payment of the employer’s share of payroll taxes of $48,452. Approximately half of such taxes was paid during the fourth quarter of 2021, which was included in accrued compensation and benefits in the consolidated balance sheet as of December 31, 2020, and the other half is to be paid by the end of 2022, which is included in accrued compensation and benefits and other long-term liabilities in the consolidated balance sheets as of December 31, 2021 and 2020, respectively. The Company claimed an employee retention employment tax credit of $1,756.
(8) Notes Payable and Credit Agreement
(a) The Company’s Credit Agreement and Related Credit Facilities
On February 9, 2018, the Company entered into the New Credit Agreement with several lenders to provide for the $400,000 Senior Credit Facility to replace its then-existing credit facilities. On June 14, 2019, the Company entered into the first amendment to the New Credit Agreement (the “First Amendment”) to provide for, among other things, a $150,000 secured term loan credit facility (the “Term Loan”). The Company used the proceeds from the Term Loan, together with a drawdown of a portion of the Senior Credit Facility, to complete its acquisition of Advanced, as more fully described in Note (2), “Acquisitions.” The Company fully repaid all amounts under the Term Loan in 2019.
On February 14, 2020, the Company entered into the second amendment to the New Credit Agreement (the “Second Amendment”) to provide for, among other things, a $250,000 secured term loan credit facility (the “Additional Term Loan”). The Second Amendment (together with the New Credit Agreement and the First Amendment, collectively, the “Amended Credit Agreement”) extended the maturity date of the Senior Credit Facility to be coterminous with the Additional Term Loan. The obligations of the Company under the Amended Credit Agreement are secured by substantially all of the assets of the Company. The Company used the proceeds from the Additional Term Loan, together with a drawdown of a portion of the Senior Credit Facility, to complete its acquisition of Stratus Video, as more fully described in Note (2), “Acquisitions.” The Company fully repaid all amounts under the Additional Term Loan in the first quarter of 2021.
In connection with the Second Amendment, the Company incurred $4,144 in fees paid to lenders and other third parties, which were capitalized and are being amortized to interest expense over the term of the Credit Facilities (as defined below). In addition, $1,681 of unamortized financing fees incurred in connection with obtaining the New Credit Agreement and First Amendment will continue to be amortized to interest expense over the term of the Credit Facilities.
Borrowings under the Senior Credit Facility (together with the Additional Term Loan, collectively, the “Credit Facilities”) bears interest at floating rates, at the Company’s option, based upon either LIBOR plus a spread of 1.00% to 1.75% or a base rate plus a spread of 0.00% to 0.75%. The applicable spread is determined quarterly based upon the Company’s consolidated net leverage ratio (as calculated per the Amended Credit Agreement). The Additional Term Loan was subject to amortization of principal of 2.50% per year for the first year of the term and 5.00% per year thereafter, payable in equal quarterly installments. The Senior Credit Facility, which includes a $75,000 sublimit for the issuance of letters of credit and a $75,000 sublimit for swingline loans, is available for working capital, capital expenditures, permitted acquisitions and general corporate purposes. The maturity date of the Credit Facilities is February 14, 2025.
At December 31, 2021, with $21,408 of outstanding letters of credit collateralized by the Senior Credit Facility, there was $378,592 of available credit under the Senior Credit Facility.
(b) The Company’s 4.625% Senior Notes Due 2027
On August 13, 2020, the Company completed the issuance of an additional $200,000 aggregate principal amount of 4.625% senior notes due 2027 (the “New 2027 Notes”), which were issued at a price of 101.000% of the aggregate principal amount. The New 2027 Notes were issued pursuant to the existing indenture, dated as of October 1, 2019, under which the Company previously issued $300,000 aggregate principal amount of 4.625% senior notes due 2027 (the “Existing 2027 Notes” and together with the New 2027 Notes, the “2027 Notes”). The New 2027 Notes will be treated as a single series with the Existing 2027 Notes and will have the same terms (other than issue price, issue date and the date from which interest accrues) as those of the Existing 2027 Notes. The 2027 Notes are unsecured obligations of the Company and the interest is fixed at 4.625% and payable semi-annually in arrears on April 1 and October 1 of each year, commencing October 1, 2020 with respect to the New 2027 Notes. The aggregate principal amount of the 2027 Notes matures on October 1, 2027.
With proceeds from the New 2027 Notes and cash on hand, the Company (1) repaid $200,000 of its indebtedness under the Additional Term Loan and (2) paid $2,620 of fees and expenses related to the issuance of the New 2027 Notes, which were recorded as a reduction of the notes payable balance and are being amortized to interest expense over the remaining term of the 2027 Notes.
(c) The Company’s 4.000% Senior Notes Due 2029
On October 20, 2020, the Company completed the issuance of $350,000 aggregate principal amount of the 2029 Notes, which mature on April 15, 2029. The 2029 Notes are unsecured obligations of the Company and the interest is fixed at 4.000% and payable semi-annually in arrears on April 15 and October 15 of each year, commencing April 15, 2021. With the proceeds from the 2029 Notes and cash generated from operations, the Company (1) redeemed all of its outstanding $325,000 aggregate principal amount of the 5.125% senior notes due 2024 (the “2024 Notes”) on November 4, 2020, (2) paid $9,857 consisting of the associated redemption premium and accrued and unpaid interest on the 2024 Notes, (3) repaid $40,000 under the Senior Credit Facility and (4) incurred $4,744 in fees and expenses related to the issuance and sale of the 2029 Notes, which were recorded as a reduction of the notes payable balance and are being amortized to interest expense over the term of the 2029 Notes. In addition, the Company wrote off $2,992 of unamortized financing fees incurred in connection with the issuance of the 2024 Notes, which was recognized in interest expense, net, and other in the consolidated statements of comprehensive income for the year ended December 31, 2020.
(d) Debt Balances
Outstanding debt balances as of December 31, 2021 and 2020 consisted of the following: | | | | | | | | | | | |
| As of December 31, |
| 2021 | | 2020 |
Additional Term Loan | $ | — | | | $ | 21,875 | |
| | | |
| | | |
2027 Notes | 500,000 | | | 500,000 | |
2029 Notes | 350,000 | | | 350,000 | |
Total debt outstanding | 850,000 | | | 871,875 | |
Less unamortized fees and premium | (7,678) | | | (9,226) | |
Less current portion of notes payable | — | | | (4,688) | |
Long-term portion of notes payable | $ | 842,322 | | | $ | 857,961 | |
(e) Letters of Credit
At December 31, 2021, the Company maintained outstanding standby letters of credit totaling $23,562 as collateral in relation to its workers compensation insurance agreements and a corporate office lease agreement. Of the $23,562 outstanding letters of credit, the Company has collateralized $2,154 in cash and cash equivalents and the remaining $21,408 is collateralized by the Senior Credit Facility. Outstanding standby letters of credit at December 31, 2020 totaled $24,064.
(9) Retirement Plans
The Company maintains the AMN Services 401(k) Retirement Savings Plan (the “AMN Plan”), which the Company believes complies with the IRC Section 401(k) provisions. The AMN Plan covers all employees that meet certain age and other
eligibility requirements. A discretionary matching contribution is determined by the Company each year. Employer contribution expenses incurred under the AMN Plan were $13,157, $4,256 and $5,516 for the years ended December 31, 2021, 2020 and 2019, respectively.
The Company has a deferred compensation plan for certain executives and employees (the “Plan”). The Plan is not intended to be tax qualified and is an unfunded plan. The Plan is composed of deferred compensation and all related income and losses attributable thereto. Discretionary matching contributions to the Plan are made that vest incrementally so that the employee is fully vested in the match following five years of employment with the Company. Under the Plan, participants can defer up to 80% of their base salary, 90% of their bonus and 100% of their vested RSUs or vested PRSUs. A discretionary matching contribution is determined by the Company each year. Employer contributions under the Plan were $8,951, $2,845 and $5,551 for the years ended December 31, 2021, 2020 and 2019, respectively. In connection with the administration of the Plan, the Company has purchased company-owned life insurance policies insuring the lives of certain officers and employees. The cash surrender value of these policies was $115,095 and $98,161 at December 31, 2021 and 2020, respectively. The cash surrender value of these insurance policies is included in other assets in the consolidated balance sheets.
(10) Capital Stock
(a) Preferred Stock
The Company has 10,000 shares of preferred stock authorized for issuance in one or more series (including preferred stock designated as Series A Conditional Convertible Preferred Stock), at a par value of $0.01 per share. At December 31, 2021 and 2020, no shares of preferred stock were outstanding.
(b) Treasury Stock
On November 1, 2016, the Company’s board of directors approved a share repurchase program under which the Company may repurchase up to $150,000 of its outstanding common stock. On November 10, 2021, the Company announced an increase to the share repurchase program of up to an additional $150,000 of repurchases of its outstanding common stock. The amount and timing of the purchases will depend on a number of factors including the price of the Company’s shares, trading volume, Company performance, Company liquidity, general economic and market conditions and other factors that the Company’s management believes are relevant. The share repurchase program does not require the purchase of any minimum number of shares and may be suspended or discontinued at any time.
The Company intends to make all repurchases and to administer the plan in accordance with applicable laws and regulatory guidelines, including Rule 10b-18 of the Exchange Act, and in compliance with its debt instruments. Repurchases
may be made from cash on hand, free cash flow generated from the Company’s business or from the Company’s Senior Credit Facility. Repurchases may be made from time to time through open market purchases or privately negotiated transactions. Repurchases may also be made pursuant to one or more plans established pursuant to Rule 10b5-1 under the Exchange Act that would permit shares to be repurchased when the Company might otherwise be precluded from doing so under the Company’s securities trading policy.
During the year ended December 31, 2021, the Company repurchased 25 shares of its common stock at an average price of $108.97 per share excluding broker’s fees, resulting in an aggregate purchase price of $2,688. During the year ended December 31, 2020, the Company did not repurchase any shares of its common stock. During the year ended December 31, 2019, the Company repurchased 395 shares of its common stock at an average price of $47.30 per share excluding broker’s fees, resulting in an aggregate purchase price of $18,705.
On February 15, 2022, the Company’s board of directors approved an increase to the share repurchase program of up to an additional $300,000 of repurchases of its outstanding common stock. As of February 15, 2022, the Company has repurchased 701 shares of its common stock at an average price of $97.97 per share excluding broker’s fees, resulting in an aggregate purchase price of $68,739, since December 31, 2021.
(11) Share-Based Compensation
(a) Equity Award Plans
Equity Plan
The Company established the AMN Healthcare Equity Plan (as amended or amended and restated from time to time, the “Equity Plan”), which has been approved by the Company’s stockholders. At the time of the Equity Plan’s original adoption in 2006, equity awards, based on the Company’s common stock, could be issued for a maximum of 723 shares plus the number of
shares of common stock underlying any grants under the Stock Option Plan (under which there are no longer any outstanding awards) that were forfeited, canceled or terminated (other than by exercise) from and after the effective date of the Equity Plan. Pursuant to the Equity Plan, stock options and stock appreciation rights (“SARs”) granted have a maximum contractual life of ten years and have exercise prices that will be determined at the time of grant, which will be no less than fair market value of the underlying common stock on the date of grant. Any shares to be issued under the Equity Plan will be issued by the Company from authorized but unissued common stock or shares of common stock reacquired by the Company. On April 18, 2007, April 9, 2009, April 18, 2012 and April 19, 2017, the Company amended the Equity Plan, with stockholder approval, to increase the number of shares authorized under the Equity Plan by 3,000, 1,850, 2,400 and 1,400, respectively. As of December 31, 2021 and 2020, 2,548 and 2,830 shares of common stock were reserved for future grants under the Equity Plan, respectively.
Other Plans
From time to time, the Company grants, and has granted, key employees inducement awards outside of the Equity Plan (collectively, “Other Plans”), which have recently consisted of RSUs. Although these awards are not made under the Equity Plan, the key terms and conditions of the grant are typically the same as equity awards made under the Equity Plan.
Additionally, in February 2014, the Company established the 2014 Employment Inducement Plan, which reserves for issuance 200 shares of common stock for prospective employees of the Company. As of December 31, 2021, 181 shares of common stock remained available for future grants under the 2014 Employment Inducement Plan.
(b) Share-Based Compensation
Restricted Stock Units
RSUs and PRSUs (subject to performance conditions being achieved) granted under the Equity Plan generally entitle the holder to receive, at the end of a vesting period, a specified number of shares of the Company’s common stock. The following table summarizes RSU and PRSU activity for non-vested awards for the years ended December 31, 2021, 2020 and 2019: | | | | | | | | | | | |
| Number of Shares | | Weighted Average Grant Date Fair Value per Share |
Unvested at January 1, 2018 | 818 | | | $ | 43.84 | |
Granted—RSUs | 191 | | | $ | 54.99 | |
Granted—PRSUs (1) | 201 | | | $ | 48.32 | |
Vested | (400) | | | $ | 35.46 | |
Canceled/forfeited | (52) | | | $ | 41.09 | |
Unvested at December 31, 2019 | 758 | | | $ | 52.45 | |
Granted—RSUs | 271 | | | $ | 60.02 | |
Granted—PRSUs (1) | 155 | | | $ | 64.59 | |
Vested | (283) | | | $ | 49.18 | |
Canceled/forfeited | (184) | | | $ | 53.84 | |
Unvested at December 31, 2020 | 717 | | | $ | 58.88 | |
Granted—RSUs | 290 | | | $ | 85.30 | |
Granted—PRSUs (1) | 186 | | | $ | 97.46 | |
Vested | (280) | | | $ | 56.05 | |
Canceled/forfeited | (158) | | | $ | 65.69 | |
Unvested at December 31, 2021 | 755 | | | $ | 78.13 | |
(1) PRSUs granted included both the PRSUs granted during the year at the target amount and the additional shares of prior period granted PRSUs vested during the year in excess of the target shares.
As of December 31, 2021, there was $26,788 unrecognized compensation cost related to unvested RSUs and PRSUs. The Company expects to recognize such cost over a period of 1.7 years. As of December 31, 2021 and 2020, the aggregate intrinsic value of the RSUs and PRSUs outstanding was $92,346 and $48,945, respectively.
Stock Options and SARs
Stock options entitle the holder to purchase, at the end of a vesting period, a specified number of shares of the Company’s common stock at a price per share set at the date of grant. SARs entitle the holder to receive, at the end of a vesting period, shares of the Company’s common stock equal in value to the difference between the exercise price of the SAR, which is set at the date of grant, and the fair market value of the Company’s common stock on the date of exercise.
A summary of stock option and SAR activity under the Equity Plan and Other Plans are as follows: | | | | | | | | | | | | | | | |
| | | |
| | | | | Number Outstanding | | Weighted- Average Exercise Price per Share |
Outstanding at December 31, 2018 | | | | | 227 | | | $ | 8.61 | |
Granted | | | | | — | | | $ | — | |
Exercised | | | | | (215) | | | $ | 8.67 | |
Canceled/forfeited/expired | | | | | — | | | $ | — | |
Outstanding at December 31, 2019 | | | | | 12 | | | $ | 7.51 | |
Granted | | | | | — | | | $ | — | |
Exercised | | | | | (12) | | | $ | 7.51 | |
Canceled/forfeited/expired | | | | | — | | | $ | — | |
Outstanding at December 31, 2020 | | | | | — | | | $ | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Vested and expected to vest at December 31, 2020 and 2021 | | | | | — | | | $ | — | |
Exercisable at December 31, 2020 and 2021 | | | | | — | | | $ | — | |
As of December 31, 2020, there were no stock options or SARs outstanding. The total intrinsic value of stock options and SARs exercised was $828 and $9,177 for 2020 and 2019, respectively.
Share-Based Compensation
Total share-based compensation expense for the years ended December 31, 2021, 2020 and 2019 was as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Share-based employee compensation, before tax | $ | 25,217 | | | $ | 20,465 | | | $ | 16,241 | |
Related income tax benefits | (6,556) | | | (5,321) | | | (4,223) | |
Share-based employee compensation, net of tax | $ | 18,661 | | | $ | 15,144 | | | $ | 12,018 | |
(12) Commitments and Contingencies
From time to time, the Company is involved in various lawsuits, claims, investigations, and proceedings that arise in the ordinary course of business. These matters typically relate to professional liability, tax, compensation, contract, competitor disputes and employee-related matters and include individual and class action lawsuits, as well as inquiries and investigations by governmental agencies regarding the Company’s employment and compensation practices. Additionally, some of the Company’s clients may also become subject to claims, governmental inquiries and investigations, and legal actions relating to services provided by the Company’s healthcare professionals. Depending upon the particular facts and circumstances, the Company may also be subject to indemnification obligations under its contracts with such clients relating to these matters. The Company accrues for contingencies and records a liability when management believes an adverse outcome from a loss contingency is both probable and the amount, or a range, can be reasonably estimated. Significant judgment is required to determine both probability of loss and the estimated amount. The Company reviews its loss contingencies at least quarterly and adjusts its accruals and/or disclosures to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, or other new information, as deemed necessary. The most significant matters for which the Company has established loss contingencies are class actions related to wage and hour claims under California and Federal law. Specifically, among other claims in these lawsuits, it is alleged that certain expense reimbursements should be considered wages and included in the regular rate of pay for purposes of calculating overtime rates.
On May 26, 2016, former travel nurse Verna Maxwell Clarke filed a complaint against AMN Services, LLC, in California Superior Court in Los Angeles County. The Company removed the case to the United States District Court for the Central District of California (Case No. 2:16-cv-04132-DSF-KS) (the “Clarke Matter”). The complaint asserts that, due to the Company’s per diem adjustment practices, traveling nurses’ per diem benefits should be included in their regular rate of pay for the purposes of calculating their overtime compensation. On June 26, 2018, the district court denied the plaintiffs’ Motion for Summary Judgment in its entirety, and granted the Company’s Motion for Summary Judgment with respect to the plaintiffs’ per diem and overtime claims. The plaintiffs filed an appeal of the judgment relating to the per diem claims with the Ninth Circuit Court of Appeals (the “Ninth Circuit”). On February 8, 2021, a three-judge panel of the Ninth Circuit issued an opinion that reversed the district court’s granting of the Company’s Motion for Summary Judgment and remanded the matter to the district court instructing the district to enter partial summary judgment in favor of the plaintiffs. On May 7, 2021, the Ninth Circuit issued an order denying the Company’s petition for rehearing. On August 26, 2021, the Company filed a Petition for Writ of Certiorari in the United States Supreme Court seeking review of the Ninth Circuit’s decision, which was denied on December 13, 2021. The United States District Court lifted the stay on this matter on December 17, 2021, and litigation in the District Court has resumed.
On May 2, 2019, former travel nurse Sara Woehrle filed a complaint against AMN Services, LLC, and Providence Health System – Southern California in California Superior Court in Los Angeles County. The Company removed the case to the United States District Court for the Central District of California (Case No. 2:19-cv-05282 DSF-KS). The complaint asserts that, due to the Company’s per diem adjustment practices, traveling nurses’ per diem benefits should be included in their regular rate of pay for the purposes of calculating their overtime compensation. The Complaint also alleges that the putative class members were denied required meal periods, denied proper overtime compensation, were not compensated for all time worked, including reporting time and training time, and received non-compliant wage statements. The Company has reached a preliminary agreement to settle this matter in its entirety. Final settlement is not expected until the fourth quarter of 2022.
The Company believes that its current wage and hour practices conform with the applicable law in all material respects. Because of the inherent uncertainty of litigation, the Company is not able to reasonably predict if any matter will be resolved in a manner that is materially adverse to the Company. The Company has recorded accruals in connection with the matters described above amounting to $37,225. The Company is currently unable to estimate the possible loss or range of loss beyond amounts already accrued. Loss contingencies accrued as of December 31, 2021 are included in accounts payable and accrued expenses and other long-term liabilities in the consolidated balance sheets.