This post has been excerpted from a letter by Chip Rewey, Lead Portfolio Manager of the Third Avenue Small-Cap Value Fund.

Founded in 1985 as a travel nursing company, AMN has become a leading healthcare staffing company that offers temporary placement of healthcare professionals for hospitals to fulfill various durations ranging from one day to 2 years. Since 2013, the company spent a total of $360MM on several acquisitions to enter the “solutions” business (outsourced recruiting, permanent staffing, managing personnel, and software scheduling for hospitals) to extend its portfolio. In terms of profit drivers, travelling nurses and allied healthcare workers contribute to about 55% of pre-overhead EBITDA, while temporary physicians and the new Solutions segments contribute approximately 20% and 26%, respectively.

In its core business, which is filling staff shortages, AMN provides the crucial exchange between demand and supply. Hospitals need an intermediary such as AMN to find healthcare workers, vet their credentials, handle all administrative tasks, make payments, and provide workers’ comp and medical malpractice insurance. Healthcare professionals need a source to find work, arrange travelling, and receive weekly or biweekly paychecks. While it does not command the same level of operational leverage as international networks such as eBay, Facebook, or Uber, AMN’s economics do significantly improve as it becomes larger. As AMN further expands into Solutions and integrates itself into hospitals’ staffing functions (MSP or Managed Service Provider), it further enhances its market position and cements its relationship with its clients.

We think AMN is benefiting both from positive demographic trends, which provide good growth, and margin expansion. Beyond the Affordable Healthcare Act that increased the insured population by about 20 million people, the aging population and the shortage of healthcare professionals will create strong demand for temporary staffing services. Benefiting from operational leverage, management expects operating margins will continue to expand. With the high level and growing free cash flow, we think AMN common shares have 30% potential upside to our NAV target.


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The information in this portfolio manager letter represents the opinions of the portfolio manager(s) and is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed are those of the portfolio manager(s) and may differ from those of other portfolio managers or of the firm as a whole. Also, please note that any discussion of the Fund’s holdings, the Fund’s performance, and the portfolio manager(s) views are as of June 30, 2017 (except as otherwise stated), and are subject to change without notice. Certain information contained in this letter constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe,” or the negatives thereof (such as “may not,” “should not,” “are not expected to,” etc.) or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of any fund may differ materially from those reflected or contemplated in any such forward-looking statement. Current performance results may be lower or higher than performance numbers quoted in certain letters to shareholders.

Date of first use of portfolio manager commentary: July 17, 2017.

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Current performance results may be lower or higher than performance numbers quoted in certain letters to shareholders.