The following discussion should be read in conjunction with, and is qualified in its entirety by, our consolidated financial statements and the notes thereto and other financial information included elsewhere herein and in our Annual Report on Form 10-K for the year ended December 31, 2008. Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" are "forward-looking statements." See "Special Note Regarding Forward-Looking Statements." We undertake no obligation to update the forward-looking statements in this filing. References in this filing to "AMN Healthcare," the "Company," "we," "us" and "our" refer to AMN Healthcare Services, Inc. and its wholly owned subsidiaries.

Overview

Our Business

We are the largest healthcare staffing company in the United States. As the largest nationwide provider of travel nurse and allied staffing services, locum tenens (temporary physician staffing) and physician permanent placement services, we recruit physicians, nurses, and allied healthcare professionals, our "healthcare professionals", nationally and internationally and place them on assignments of variable lengths and in permanent positions with acute-care hospitals, physician practice groups and other healthcare settings, including rehabilitation centers, radiology imaging facilities, dialysis clinics, pharmacies, home health service providers and ambulatory surgery centers throughout the United States. We also offer a managed services program in which we manage the multiple clinical vendors for clients, as well as recruitment process outsourcing services, where we administer our clients' recruitment for permanent clinical positions.

We conduct business through three reportable segments: nurse and allied healthcare staffing, locum tenens staffing and physician permanent placement services.

For the three months ended March 31, 2009 we recorded revenue of $249.6 million compared to $293.6 million for the same period last year. We recorded a net loss of $(121.8) million for the three months ended March 31, 2009 compared to net income of $8.7 million for the three months ended March 31, 2008.

Nurse and allied healthcare staffing segment revenues comprised 66% and 69% of total consolidated revenues in the first quarters of fiscal 2009 and 2008, respectively. Through our nurse and allied healthcare staffing segment, the Company provides hospital and healthcare facilities with staffing solutions to address anticipated or longer-term staffing requirements. We select from a national (and in some cases, international) skilled labor pool and provide pre-screened candidates to our hospital and healthcare facility clients. We have focused on the travel segment of the temporary healthcare staffing industry for our nurse and allied healthcare professionals, typically providing staff to our clients for assignments of 13 weeks' duration. In the past few years, we have expanded our service offerings to offer a broader range of assignment lengths, from four weeks to 24 months, a broader range of client facility settings, and to offer managed staffing services and staffing for home healthcare services. In 2008, we launched our recruitment process outsourcing program leveraging our expertise and support systems to offer our hospital and healthcare facility clients a means to replace or complement their existing internal recruitment function for permanent staffing needs.

Locum tenens staffing segment revenues comprised 30% and 26% of total consolidated revenues in the first quarters of fiscal 2009 and 2008, respectively. Through our locum tenens staffing segment, the Company places physicians of all specialties, as well as dentists, certified registered nurse anesthetists and nurse practitioners with clients on a temporary basis as independent contractors. Our clients include a wide variety of healthcare organizations throughout the United States, including hospitals, medical groups, occupational medical clinics, individual practitioners, networks, psychiatric facilities, government institutions, and managed care entities. The professionals we place are recruited nationwide and typically placed on multi-week contracts with assignment lengths ranging from a few days up to one year.

Physician permanent placement services segment revenues comprised 4% and 5% of total consolidated revenues in the first quarters of fiscal 2009 and 2008, respectively. Through our physician permanent placement services segment, the Company assists hospitals, healthcare facilities and physician practice groups throughout the United States in identifying and recruiting physicians for permanent placement with the clients. Using a distinctive consultative approach that we believe is more client-oriented than competitor offerings, we are paid for our services through a blend of retained search fees and variable fees tied to work performed and successful placement. Our broad specialty offerings include over 70 specialist and sub-specialist opportunities such as internal medicine, family practice and radiology.

Cost Reduction Initiatives

In 2009, we have taken a number of steps to proactively reduce costs to ensure we are achieving operational synergies and that we are the right size to accommodate the decline in travel nursing orders and volume that we have experienced so far in 2009 and anticipate to continue in subsequent quarters. Beginning with aggressive workforce management toward the end of 2008, the Company planned the closure of our Huntersville, North Carolina office and began implementing our strategic decision to phase out the use of selected nurse brands. We also reduced headcount and other costs in both corporate and operational areas to adjust to our reduced volumes during the first quarter and beginning of the second quarter of 2009.

Recent Trends

In March 2009, Staffing Industry Analyst ("SIA") revised its growth estimates of U.S. temporary healthcare staffing industry revenues, from its previous estimates released in January 2009. SIA's estimates are based on staffing company self-reported estimates. SIA's March 2009 report estimated that for 2008, revenue for the industry (which includes per diem nurse staffing, a segment in which we do not participate) grew by 1.0% over the prior year's $11.3 billion. In the same report, SIA lowered its forecast for overall healthcare staffing revenue growth in 2009 to contraction of 6.0% from its previous estimate of 1.5% growth, made in January 2009. For the segments in which we provide temporary healthcare staffing services, SIA's estimates of 2009 anticipated segment growth/reduction over the prior year are: for travel nursing: a 12% reduction in revenue growth from 2008; for locum tenens: an 11.0% increase over 2008; for allied: a 2.0% increase over 2008; and for per diem nursing, the segment in which we do not participate: an 18.0% decrease over 2008.

Our nurse and allied healthcare staffing segment experienced lower demand throughout 2008 driven by several factors, including hospital admission levels, budget concerns given the economic environment, and hospitals' increased reliance on permanent labor to meet staffing needs both generally and on an incremental basis by reducing hours, shifts and/or assignments available for temporary workers. Toward the end of 2008, and into the first part of 2009, demand decreased considerably in the travel nurse business, we believe due to the widespread and unprecedented economic conditions. These economic conditions may have the following specific effects on our clients, which in turn reduce client demand for our services; lower permanent staff attrition rates due to high general unemployment and related factors; reduced census levels due partially to lower volume of elective surgeries; reduced insurance and Medicare reimbursement levels and anticipated additional future reductions; severely constricted budgets for both private institutions and publicly-supported facilities; and a forbearance or reluctance to contract for future services due to uncertainty regarding future patient admission levels and general anxiety regarding receivables and available credit.

Locum tenens physicians are used by our hospitals, healthcare facility and physician practice group clients to fill temporary vacancies due to vacation and leave schedules, and increasingly, to bridge the gap while these clients seek permanent candidates. While demand remains essentially solid, we have seen high growth particularly in behavioral health and dentistry while we continue to see declines in radiology attributable to reimbursement levels. Generally, we saw a slight softening in the end of 2008 and so far in 2009, and recognize demand may be further affected in the future by general economic conditions.

We believe the physician permanent placement market has solid long-term growth potential due to the limited supply of candidates and the strong client demand for physicians. This demand is generated from the physicians' ability to generate revenue for the hospitals. However, recently we have experienced considerably lower demand for our services as clients respond to general economic conditions and budget pressure by pursuing only critical searches, reducing their overall recruiting efforts. In addition, many clients are attempting to conduct their searches internally or through alternative methods.

Critical Accounting Principles and Estimates

Goodwill and Indefinite-lived Intangible Assets

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, we perform annual impairment analyses to assess the recoverability of the goodwill and indefinite-lived intangible assets. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Valuation techniques consistent with the market approach and income approach are used to measure the fair value of each reporting unit. Significant judgments are required to estimate the fair value of reporting units including estimating future cash flows, and determining appropriate discount rates, growth rates, company control premium and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit. Testing is required between annual tests if events occur or circumstances change that would, more likely than not, reduce the fair value of the reporting unit below its carrying value.

Due to the continued economic downturn and our lower market capitalization, we performed interim impairment testing at our reporting unit level during the first quarter of 2009. Our reporting units are our operating segments. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair value of our reporting units with the reporting unit's carrying amount, including goodwill. We generally determine the fair value of our reporting units using a combination of the income approach (using discounted future cash flows) and the market valuation approach. If the carrying amount of the reporting unit exceeds the reporting unit's fair value, we perform the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of our reporting unit's goodwill with the carrying amount of that goodwill. During the test, a control premium and average stock price close to the testing dates were utilized. This control premium is based on detailed analysis that considers appropriate industry, market, economic and other pertinent factors, including indications of such premium from data on recent acquisition transactions.

We completed the first step of our goodwill impairment testing and have determined that the fair values of certain reporting units were lower than their respective carrying values. The decrease in value was due to the depressed equity market value and lower projected near term growth rates in the healthcare staffing industry that rapidly deteriorated in the first quarter, lowering the anticipated growth trend used for goodwill impairment testing. We are in the process of finalizing the fair value of our identified tangible and intangible assets and liabilities for purposes of determining the implied fair value of our goodwill and any resulting goodwill impairment. As of the date of the filing of this Form 10-Q, we have not completely finalized our review of this impairment analysis due to the limited time period from the first indication of potential impairment to the date of this filing and the complexities involved in estimating the fair value of certain assets and liabilities. SFAS No. 142 provides that in circumstances in which step two of the impairment analysis has not been completed, we should recognize an estimated impairment charge to the extent that we determine that is probable that an impairment loss has occurred and such impairment loss can be reasonably estimated using the guidance provided in SFAS No. 5, Accounting for Contingencies. Based on the foregoing, we have recognized a pre-tax goodwill impairment charge of approximately $173.0 million during the three months ended March 31, 2009, which represents management's best estimate of the goodwill impairment based on the fair value analysis completed to date.

In addition, we recorded a pre-tax impairment charge of $2.7 million related to certain indefinite-lived intangibles in our nurse and allied healthcare staffing segment as of March 31, 2009. This charge was also included in impairment charges on the condensed consolidated statement of operations for the three months ended March 31, 2009.

Our other critical accounting principles and estimates remain consistent with those reported in our Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission.

Results of Operations

The following table sets forth, for the periods indicated, selected condensed
consolidated statements of operations data as a percentage of revenue:



                                                     Three Months Ended
                                                         March 31,
                                                     2009          2008
           Revenue                                    100.0 %       100.0 %
           Cost of revenue                             74.4          73.6

           Gross profit                                25.6          26.4
           Selling, general and administrative         20.1          18.8
           Restructuring charges                        1.2            -
           Impairment charges                          70.4            -
           Depreciation and amortization expense        1.4           1.1

           Income (loss) from operations              (67.5 )         6.5
           Interest expense, net                        0.9           1.0

           Income (loss) before income taxes          (68.4 )         5.5
           Income tax expense (benefit)               (19.5 )         2.5

           Net income (loss)                          (48.9 )%        3.0 %

Comparison of Results for the Three Months Ended March 31, 2009 to the Three Months Ended March 31, 2008

Revenue. Revenue decreased 15%, to $249.6 million for the three months ended March 31, 2009 from $293.6 million for the same period in 2008, primarily due to a decrease in the average number of temporary healthcare professionals on assignment in the nurse and allied healthcare staffing segment.

Nurse and allied healthcare staffing segment revenue decreased 20%, to $163.9 million for the three months ended March 31, 2009 from $204.0 million for the same period in 2008. Of the $40.1 million decrease, $41.4 million was attributable to a decrease in the average number of temporary healthcare professionals on assignment, and $1.8 million was attributable to an extra billing day during the period. These decreases were partially offset by a $2.8 million increase due to an increase in the average bill rates charged to hospital and healthcare facility clients, and a $0.3 million increase due to a shift in the mix of temporary healthcare professionals working on flat rate contracts to hours and days worked contracts.

Locum tenens staffing segment revenue decreased 2%, to $74.8 million for the three months ended March 31, 2009 from $76.3 million for the same period in 2008. Of the $1.5 million decrease, $1.1 million was attributable to a mix shift to our lower bill rate providers and $0.4 million was attributable to a decrease in the number of days filled by healthcare professionals during the three months ended March 31, 2009.

Physician permanent placement services segment revenue decreased 18%, to $10.9 million for the three months ended March 31, 2009 from $13.3 million for the same period in 2008. The decrease was primarily attributable to a decrease in the number of active searches during the three months ended March 31, 2009.

Cost of Revenue. Cost of revenue of $185.6 million represented 74.4% of revenue for the three months ended March 31, 2009, as compared to $216.1 million or 73.6% of revenue for the three months ended March 31, 2008. The decrease was primarily due to a decrease in the average number of temporary healthcare professionals on assignment.

Nurse and allied healthcare staffing segment cost of revenue decreased 19%, to $126.2 million for the three months ended March 31, 2009 from $155.0 million for the same period in 2008. Of the $28.8 million decrease, $31.5 million decrease was attributable to the decrease in the average number of temporary healthcare professionals on assignment and $1.4 million was attributable to one less billing day during the period. These decreases were partially offset by a $3.8 million net increase in compensation, primarily related to wages provided to our temporary healthcare professionals, and a $0.3 million increase attributable to a shift in the mix of temporary healthcare professionals working on flat rate contracts to hours and days worked contracts.

Locum tenens staffing segment cost of revenue decreased 1%, to $55.2 million for the three months ended March 31, 2009 from $56.0 million for the same period in 2008. The decrease was primarily attributable to a mix shift to our lower pay rate specialists and a decrease in the number of days filled by healthcare professionals.

Physician permanent placement services segment cost of revenue decreased 18%, to $4.2 million for the three months ended March 31, 2009 from $5.1 million for the same period in 2008 due to the lower revenue for the segment.

Gross Profit. Gross profit decreased 17%, to $64.0 million for the three months ended March 31, 2009 from $77.5 million for the same period in 2008, representing gross margins of 25.6% and 26.4%, respectively. The decrease in gross margin mainly reflected a lower revenue mix from the relatively high margin business line of international nursing and the more narrow margins in the travel nursing business. Gross margin by reportable segment for the three months ended March 31, 2009 and 2008 was 23.0% and 24.0% for nurse and allied healthcare staffing, 26.2% and 26.7% for locum tenens staffing and 61.6% and 61.6% for physician permanent placement services, respectively.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased 9%, to $50.1 million for the three months ended March 31, 2009 from $55.1 million for the same period in 2008. The decrease was primarily due to lower employee related expenses as a result of cost-reduction actions taken during the three months ended March 31, 2009. Selling, general and administrative expenses by reportable segment for the three months ended March 31, 2009 and 2008, respectively, were $30.3 million and $35.3 million for nurse and allied healthcare staffing, $15.9 million and $14.8 million for locum tenens staffing and $3.9 million and $5.0 million for physician permanent placement services.

Restructuring Charges. During the first quarter of 2009, the Company began implementing cost reduction initiatives related to one time termination benefits and lease liabilities. Restructuring charges of $2.9 million were recorded for the three months ended March 31, 2009, of which $2.0 million was for nurse and allied healthcare staffing, $0.2 million for locum tenens staffing and $0.7 million for physician permanent placement services.

Impairment Charges. Due to the continued economic downturn and our lower market capitalization, we performed interim impairment testing during the first quarter of 2009. We completed the first step of our goodwill impairment testing and have determined that the fair values of certain reporting units were lower than their respective carrying values. The decrease in value was due to the depressed equity market values and lower projected near term growth rates in the healthcare staffing industry that rapidly deteriorated in the first quarter, lowering the anticipated growth trend used for goodwill impairment testing. Estimated impairment charges related to goodwill and indefinite-lived intangibles was $175.7 million for the three months ended March 31, 2009, as compared to $0 for the same period in 2008. Estimated impairment charges by reportable segment for the three months ended March 31, 2009 was $143.5 million for nurse and allied healthcare staffing and

$32.2 million for locum tenens staffing, respectively. We are in the process of finalizing the fair value of our identified tangible and intangible assets and liabilities for purposes of determining the implied fair value of our goodwill and any resulting goodwill impairment. As of the date of the filing of this Form 10-Q, we have not completely finalized our review of this impairment analysis due to the limited time period from the first indication of potential impairment to the date of this filing and the complexities involved in estimating the fair value of certain assets and liabilities.

Depreciation and Amortization Expense. Amortization expense increased 9%, to $1.2 million for the three months ended March 31, 2009 from $1.1 million for the same period in 2008. The increase was attributable to amortization of intangibles acquired from the Platinum Select Staffing acquisition in February 2008. Depreciation expense was $2.3 million for both the three months ended March 31, 2009 and 2008.

Interest Expense, Net. Interest expense, net, was $2.2 million for the three months ended March 31, 2009 as compared to $2.8 million for the same period in 2008. The decrease was primarily attributable to a $26.9 million reduction in debt outstanding from March 31, 2008 to March 31, 2009.

Income Tax Expense (benefit). The Company recorded an income tax benefit of $(48.6) million for the three months ended March 31, 2009 as compared to income tax expense of $7.5 million for the same period in 2008, reflecting effective income tax rates of 28.5% and 46.1% for these periods, respectively. The decrease in the effective income tax rate was primarily attributable to the goodwill impairment charges recorded during the three months ended March 31, 2009, a portion of which is permanently nondeductible for tax purposes.

Liquidity and Capital Resources

Historically, our primary liquidity requirements have been for acquisitions, working capital requirements and debt service under our credit facility. We have funded these requirements through internally generated cash flow and funds borrowed under our credit facility. At March 31, 2009, $119.5 million was outstanding under our credit facility with $50.1 million of remaining available credit under the secured revolver portion of this facility. The recent and unprecedented disruption in the current credit markets has had a significant adverse impact on a number of financial institutions and other companies. Should a member of our credit party experience a material adverse event, our access to borrow additional funds under the secured revolving portion of our credit facility may be limited. At this point in time, our liquidity has not been impacted by the current credit environment, and we do not expect that it will be materially impacted in the near future. We will continue to closely monitor our liquidity and the credit markets. However, we cannot predict with any certainty the impact on the Company of any further disruption in the credit environment.

We believe that cash generated from operations and available borrowings under our revolving credit facility will be sufficient to fund our operations for the next 12 months. We intend to finance future acquisitions either with cash provided from operations, borrowing under our revolving credit facility, bank loans, debt or equity offerings, or some combination of the foregoing, but the significant disruptions in the global financial markets may prevent us from obtaining debt or equity financing on acceptable terms, if at all. The following discussion provides further details of our liquidity and capital resources.

Operating Activities:

Net cash provided by operations during the three months ended March 31, 2009 was $37.6 million, compared to $16.9 million for the three months ended March 31, 2008. The increase in net cash provided by operations was primarily driven by decrease in accounts receivable as a result of strong collection efforts, which was partially offset by a decrease in accrued compensation and benefits during the three months ended March 31, 2009. The number of days sales outstanding ("DSO") decreased 3 days to 54 days from 57 days at December 31, 2008 as a result of strong collection efforts during the quarter. DSO was 60 days at March 31, 2008.

Investing Activities:

We used $1.2 million in cash during the three months ended March 31, 2009 for investing activities, mainly for capital expenditures. During the three months ended March 31, 2008, $33.4 million was used for investing activities, of which $30.8 million was used for the acquisition of Platinum Select, with the balance used for capital expenditures. We continue to have a relatively low capital investment requirement and we expect our future capital expenditure requirements to be similar to those during the three months ended March 31, 2009.

Financing Activities:

Net cash used in financing activities during the three months ended March 31, 2009 was $31.0 million as we paid down our outstanding revolver balance during the quarter. During the three months ended March 31, 2008, cash provided by financing activities was $5.9 million, mainly due to increased borrowing on our revolving credit facility. At March 31, 2009 and December 31, 2008, we had $6.5 million and $31.5 million, respectively, outstanding under the revolving credit facility.

The borrowing capacity under our revolving credit facility is restricted by outstanding standby letters of credit. As of March 31, 2009, we maintained outstanding standby letters of credit totaling $18.4 million as collateral in relation to our professional liability insurance agreements and workers compensation insurance agreements. On April 3, 2009, we established a standby . . .