Company Quick10K Filing
Cross Country Healthcare
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 36 $310
10-Q 2019-11-06 Quarter: 2019-09-30
10-Q 2019-08-01 Quarter: 2019-06-30
10-Q 2019-05-02 Quarter: 2019-03-31
10-K 2019-03-01 Annual: 2018-12-31
10-Q 2018-11-02 Quarter: 2018-09-30
10-Q 2018-08-02 Quarter: 2018-06-30
10-Q 2018-05-04 Quarter: 2018-03-31
10-K 2018-03-02 Annual: 2017-12-31
10-Q 2017-11-03 Quarter: 2017-09-30
10-Q 2017-08-04 Quarter: 2017-06-30
10-Q 2017-05-05 Quarter: 2017-03-31
10-K 2017-03-03 Annual: 2016-12-31
10-Q 2016-11-04 Quarter: 2016-09-30
10-Q 2016-08-05 Quarter: 2016-06-30
10-Q 2016-05-06 Quarter: 2016-03-31
10-K 2016-03-11 Annual: 2015-12-31
10-Q 2015-11-06 Quarter: 2015-09-30
10-Q 2015-08-06 Quarter: 2015-06-30
10-Q 2015-05-07 Quarter: 2015-03-31
10-K 2015-03-06 Annual: 2014-12-31
10-Q 2014-11-06 Quarter: 2014-09-30
10-Q 2014-08-08 Quarter: 2014-06-30
10-Q 2014-05-08 Quarter: 2014-03-31
10-K 2014-03-18 Annual: 2013-12-31
10-Q 2013-11-07 Quarter: 2013-09-30
10-Q 2013-08-07 Quarter: 2013-06-30
10-Q 2013-05-09 Quarter: 2013-03-31
10-K 2013-03-18 Annual: 2012-12-31
10-Q 2012-11-08 Quarter: 2012-09-30
10-Q 2012-08-09 Quarter: 2012-06-30
10-Q 2012-05-10 Quarter: 2012-03-31
10-K 2012-03-12 Annual: 2011-12-31
10-Q 2011-11-04 Quarter: 2011-09-30
10-Q 2011-08-05 Quarter: 2011-06-30
10-Q 2011-05-05 Quarter: 2011-03-31
10-K 2011-03-11 Annual: 2010-12-31
10-Q 2010-11-05 Quarter: 2010-09-30
10-Q 2010-08-05 Quarter: 2010-06-30
10-Q 2010-05-06 Quarter: 2010-03-31
10-K 2010-03-15 Annual: 2009-12-31
8-K 2020-02-14 Other Events, Exhibits
8-K 2020-02-12 Other Events, Exhibits
8-K 2019-11-05 Earnings, Regulation FD, Exhibits
8-K 2019-10-25 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2019-10-16
8-K 2019-10-11 Other Events, Exhibits
8-K 2019-09-30 Enter Agreement, Exhibits
8-K 2019-07-31 Earnings, Regulation FD, Exhibits
8-K 2019-07-11 Other Events, Exhibits
8-K 2019-05-15 Other Events
8-K 2019-05-14 Shareholder Vote
8-K 2019-05-13 Other Events, Exhibits
8-K 2019-05-01 Earnings, Regulation FD, Exhibits
8-K 2019-04-15 Officers, Other Events, Exhibits
8-K 2019-04-03 Other Events, Exhibits
8-K 2019-03-29 Enter Agreement, Other Events, Exhibits
8-K 2019-02-27 Earnings, Regulation FD, Exhibits
8-K 2019-02-15 Other Events, Exhibits
8-K 2019-02-13 Other Events, Exhibits
8-K 2019-01-31 Officers, Exhibits
8-K 2019-01-16 Officers, Other Events, Exhibits
8-K 2018-12-13 Other Events, Exhibits
8-K 2018-12-05 Other Events, Exhibits
8-K 2018-11-15 Other Events, Exhibits
8-K 2018-11-01 Earnings, Regulation FD, Exhibits
8-K 2018-10-19 Other Events, Exhibits
8-K 2018-10-16 Other Events, Exhibits
8-K 2018-10-16 Officers
8-K 2018-10-03 Other Events, Exhibits
8-K 2018-09-10 Earnings, Officers, Regulation FD, Exhibits
8-K 2018-09-06 Other Events, Exhibits
8-K 2018-08-01 Earnings, Regulation FD, Exhibits
8-K 2018-08-01 Earnings
8-K 2018-07-30 Officers, Exhibits
8-K 2018-07-03 Other Events, Exhibits
8-K 2018-05-22 Shareholder Vote
8-K 2018-05-02 Earnings, Regulation FD, Exhibits
8-K 2018-05-01 Other Events, Exhibits
8-K 2018-04-04 Other Events, Exhibits
8-K 2018-02-28 Earnings, Regulation FD, Exhibits
8-K 2018-02-20 Other Events, Exhibits
8-K 2018-01-25 Officers, Other Events, Exhibits
CCRN 2019-09-30
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-10.1 ccrn20190930-10qex10x1.htm
EX-10.2 ccrn20190930-10qex10x2.htm
EX-31.1 ccrn20190930-10qex31x1.htm
EX-31.2 ccrn20190930-10qex31x2.htm
EX-32.1 ccrn20190930-10qex32x1.htm
EX-32.2 ccrn20190930-10qex32x2.htm

Cross Country Healthcare Earnings 2019-09-30

CCRN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
HCKT 544 191 60 278 98 19 32 532 35% 16.8 10%
CCRN 310 397 232 800 51 -72 -27 356 6% -13.2 -18%
SRT 309 681 401 534 83 -20 9 432 16% 47.7 -3%
BGSF 188 104 38 292 79 16 27 188 27% 7.1 16%
AVCO 182 14 5 1 0 -10 -10 179 1% -18.8 -75%
III 122 217 136 268 112 3 17 208 42% 12.5 1%
VISI 97 222 187 1,003 154 -17 -8 107 15% -12.9 -8%
DLHC 86 135 91 139 34 6 11 143 24% 12.9 4%
AINC 85 418 143 219 0 8 29 57 0% 2.0 2%
ARC 64 372 225 395 129 5 49 159 33% 3.3 1%

10-Q 1 ccrn20190930-10q.htm 10-Q Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
———————
FORM 10-Q
———————
þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2019
Or
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period From _________ to _________
cchfinallogorbga01.jpg
———————
CROSS COUNTRY HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
———————
Delaware
0-33169
13-4066229
(State or other jurisdiction of
Incorporation or organization)
Commission
file number
(I.R.S. Employer
Identification Number)
5201 Congress Avenue, Suite 100B
Boca Raton, Florida 33487
(Address of principal executive offices)(Zip Code)
(561) 998-2232
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
———————
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common stock, par value $0.0001 per share
CCRN
The NASDAQ Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ¨ Accelerated filer þ Non-accelerated filer ¨ (Do not check if a smaller reporting company)
Smaller Reporting Company ¨ Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The registrant had outstanding 36,877,022 shares of Common Stock, par value $0.0001 per share, as of October 31, 2019.



INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
 
In addition to historical information, this Form 10-Q contains statements relating to our future results (including certain projections and business trends) that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and are subject to the “safe harbor” created by those sections. Forward-looking statements consist of statements that are predictive in nature, depend upon or refer to future events. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, “suggests”, "appears", “seeks”, “will”, and variations of such words and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. These factors include, but are not limited to, the following: our ability to attract and retain qualified nurses, physicians and other healthcare personnel, costs and availability of short-term housing for our travel healthcare professionals, demand for the healthcare services we provide, both nationally and in the regions in which we operate, the functioning of our information systems, the effect of cyber security risks and cyber incidents on our business, the effect of existing or future government regulation and federal and state legislative and enforcement initiatives on our business, our clients’ ability to pay us for our services, our ability to successfully implement our acquisition and development strategies, including our ability to successfully integrate acquired businesses and realize synergies from such acquisitions, the effect of liabilities and other claims asserted against us, the effect of competition in the markets we serve, our ability to successfully defend the Company, its subsidiaries, and its officers and directors on the merits of any lawsuit or determine its potential liability, if any, and other factors set forth in Item 1.A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed and updated in our Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission.
 
Although we believe that these statements are based upon reasonable assumptions, we cannot guarantee future results and readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date of this filing. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful. The Company undertakes no obligation to update or revise forward-looking statements.
 
All references to "the Company", “we”, “us”, “our”, or “Cross Country” in this Quarterly Report on Form 10-Q mean Cross Country Healthcare, Inc., and its consolidated subsidiaries.



CROSS COUNTRY HEALTHCARE, INC.
 
INDEX
 
FORM 10-Q
 
September 30, 2019
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

i



PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, amounts in thousands)
 
September 30,
2019
 
December 31,
2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
9,458

 
$
16,019

Accounts receivable, net of allowances of $3,375 in 2019 and $3,705 in 2018
170,339

 
166,128

Prepaid expenses
3,764

 
6,208

Insurance recovery receivable
4,631

 
4,186

Other current assets
1,496

 
2,364

Total current assets
189,688

 
194,905

Property and equipment, net of accumulated depreciation of $34,617 in 2019 and $33,476 in 2018
11,953

 
13,628

Operating lease right-of-use assets
17,796

 

Goodwill
101,066

 
101,060

Trade names, indefinite-lived
5,900

 
20,402

Other intangible assets, net
48,725

 
55,182

Non-current deferred tax assets

 
23,750

Other non-current assets
18,863

 
18,076

Total assets
$
393,991

 
$
427,003

 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 

 
 

Accounts payable and accrued expenses
$
50,291

 
$
43,744

Accrued compensation and benefits
34,683

 
33,332

Current portion of long-term debt

 
5,235

Operating lease liabilities - current
4,936

 

Other current liabilities
3,578

 
3,075

Total current liabilities
93,488

 
85,386

Long-term debt, less current portion
70,556

 
77,944

Operating lease liabilities - non-current
20,112

 

Non-current deferred tax liabilities
7,824

 
95

Long-term accrued claims
29,616

 
29,299

Other long-term liabilities
8,748

 
16,081

Total liabilities
230,344

 
208,805

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Stockholders' equity:
 

 
 

Common stock
4

 
4

Additional paid-in capital
304,764

 
303,048

Accumulated other comprehensive loss
(1,244
)
 
(1,462
)
Accumulated deficit
(140,631
)
 
(84,062
)
Total Cross Country Healthcare, Inc. stockholders' equity
162,893

 
217,528

Noncontrolling interest in subsidiary
754

 
670

Total stockholders' equity
163,647

 
218,198

Total liabilities and stockholders' equity
$
393,991

 
$
427,003


See accompanying notes to the condensed consolidated financial statements
1


CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands, except per share data)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Revenue from services
$
209,200

 
$
200,717

 
$
607,128

 
$
615,577

Operating expenses:
 
 
 

 
 
 
 
Direct operating expenses
158,194

 
149,155

 
456,280

 
456,573

Selling, general and administrative expenses
44,407

 
44,086

 
136,387

 
135,004

Bad debt expense
588

 
502

 
1,503

 
1,312

Depreciation and amortization
2,907

 
2,892

 
9,448

 
8,764

Acquisition-related contingent consideration
(426
)
 
16

 
74

 
449

Acquisition and integration costs

 
70

 
311

 
261

Restructuring costs
1,607

 
1,351

 
2,884

 
1,979

Legal settlement charges

 

 
1,600

 

Impairment charges
1,804

 

 
16,306

 

Total operating expenses
209,081

 
198,072

 
624,793

 
604,342

Income (loss) from operations
119

 
2,645

 
(17,665
)
 
11,235

Other expenses (income):
 
 
 

 
 
 
 

Interest expense
1,398

 
1,512

 
4,258

 
4,225

Loss on derivative
1,284

 

 
1,284

 

Loss on early extinguishment of debt
94

 
36

 
508

 
36

Other income, net
(54
)
 
(170
)
 
(212
)
 
(369
)
(Loss) income before income taxes
(2,603
)
 
1,267

 
(23,503
)
 
7,343

Income tax expense
94

 
1,385

 
31,840

 
3,717

Consolidated net (loss) income
(2,697
)
 
(118
)
 
(55,343
)
 
3,626

Less: Net income attributable to noncontrolling interest in subsidiary
431

 
323

 
1,226

 
886

Net (loss) income attributable to common shareholders
$
(3,128
)
 
$
(441
)
 
$
(56,569
)
 
$
2,740

 
 
 
 
 
 
 
 
Net (loss) income per share attributable to common shareholders - Basic
$
(0.09
)
 
$
(0.01
)
 
$
(1.58
)
 
$
0.08

 
 
 
 
 
 
 
 
Net (loss) income per share attributable to common shareholders - Diluted
$
(0.09
)
 
$
(0.01
)
 
$
(1.58
)
 
$
0.08

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 

 
 
 
 
Basic
35,865

 
35,594

 
35,797

 
35,682

Diluted
35,865

 
35,594

 
35,797

 
35,881


See accompanying notes to the condensed consolidated financial statements
2


CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited, amounts in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2019
 
2018
 
2019
 
2018
Consolidated net (loss) income
$
(2,697
)
 
$
(118
)
 
$
(55,343
)
 
$
3,626

 
 
 
 
 
 
 
 
Other comprehensive income, before income tax:
 
 
 

 
 
 
 

Unrealized foreign currency translation (loss) gain
(29
)
 
(94
)
 
44

 
(184
)
Unrealized (loss) gain on interest rate contracts
(104
)
 
203

 
(1,078
)
 
222

Reclassification adjustment to statement of operations
1,284

 
62

 
1,312

 
148


1,151

 
171

 
278

 
186

Taxes on other comprehensive income:
 
 
 
 
 
 
 
Income tax effect related to foreign currency translation adjustments
7

 
(24
)
 
25

 
(41
)
Income tax effect related to unrealized (loss) gain on interest rate contracts
(325
)
 
51

 
(571
)
 
56

Income tax expense related to reclassification adjustment to statement of operations
86

 
16

 
93

 
38

Valuation allowance adjustment
292

 

 
513

 

 
60

 
43

 
60

 
53

Other comprehensive income, net of tax
1,091

 
128

 
218

 
133

 
 
 
 
 
 
 
 
Comprehensive (loss) income
(1,606
)
 
10

 
(55,125
)
 
3,759

Less: Net income attributable to noncontrolling interest in subsidiary
431

 
323

 
1,226

 
886

Comprehensive (loss) income attributable to common shareholders
$
(2,037
)
 
$
(313
)
 
$
(56,351
)
 
$
2,873


See accompanying notes to the condensed consolidated financial statements
3


CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended September 30, 2019 and 2018
(Unaudited, amounts in thousands)
 
Common Stock
 
Additional
Paid-In Capital
 
Accumulated Other
Comprehensive Loss, net
 
(Accumulated Deficit) Retained Earnings
 
Noncontrolling Interest in Subsidiary
 
Stockholders’ Equity
Shares
 
Dollars
Balances at June 30, 2019
35,860

 
$
4

 
$
303,795

 
$
(2,335
)
 
$
(137,503
)
 
$
727

 
$
164,688

Exercise of share options
2

 

 

 

 

 

 

Vesting of restricted stock and performance stock awards
5

 

 
(13
)
 

 

 

 
(13
)
Equity compensation

 

 
982

 

 

 

 
982

Foreign currency translation adjustment, net of taxes

 

 

 
(29
)
 

 

 
(29
)
Net change in hedging transaction, net of taxes

 

 

 
1,120

 

 

 
1,120

Distribution to noncontrolling shareholder

 

 

 

 

 
(404
)
 
(404
)
Net (loss) income

 

 

 

 
(3,128
)
 
431

 
(2,697
)
Balances at September 30, 2019
35,867

 
$
4

 
$
304,764

 
$
(1,244
)
 
$
(140,631
)
 
$
754

 
$
163,647

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-In Capital
 
Accumulated Other
Comprehensive Loss, net
 
(Accumulated Deficit) Retained Earnings
 
Noncontrolling Interest in Subsidiary
 
Stockholders’ Equity
Shares
 
Dollars
Balances at June 30, 2018
35,606

 
$
4

 
$
301,353

 
$
(1,160
)
 
$
(63,930
)
 
$
604

 
$
236,871

Exercise of share options
3

 

 

 

 

 

 

Vesting of restricted stock and performance stock awards
5

 

 
(27
)
 

 

 

 
(27
)
Equity compensation

 

 
981

 

 

 

 
981

Stock repurchase and retirement
(33
)
 

 
(300
)
 

 

 

 
(300
)
Foreign currency translation adjustment, net of taxes

 

 

 
(70
)
 

 

 
(70
)
Net change in hedging transaction, net of taxes

 

 

 
197

 

 

 
197

Distribution to noncontrolling shareholder

 

 

 

 

 
(279
)
 
(279
)
Net (loss) income

 

 

 

 
(441
)
 
323

 
(118
)
Balances at September 30, 2018
35,581

 
$
4

 
$
302,007

 
$
(1,033
)
 
$
(64,371
)
 
$
648

 
$
237,255


See accompanying notes to the condensed consolidated financial statements
4


CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 2019 and 2018
(Unaudited, amounts in thousands)
 
Common Stock
 
Additional
Paid-In Capital
 
Accumulated Other
Comprehensive Loss, net
 
(Accumulated Deficit) Retained Earnings
 
Noncontrolling Interest in Subsidiary
 
Stockholders’ Equity
Shares
 
Dollars
Balances at December 31, 2018
35,626

 
$
4

 
$
303,048

 
$
(1,462
)
 
$
(84,062
)
 
$
670

 
$
218,198

Exercise of share options
10

 

 

 

 

 

 

Vesting of restricted stock and performance stock awards
231

 

 
(801
)
 

 

 

 
(801
)
Equity compensation

 

 
2,517

 

 

 

 
2,517

Foreign currency translation adjustment, net of taxes

 

 

 
43

 

 

 
43

Net change in hedging transaction, net of taxes

 

 

 
175

 

 

 
175

Distribution to noncontrolling shareholder

 

 

 

 

 
(1,142
)
 
(1,142
)
Net (loss) income

 

 

 

 
(56,569
)
 
1,226

 
(55,343
)
Balances at September 30, 2019
35,867

 
$
4

 
$
304,764

 
$
(1,244
)
 
$
(140,631
)
 
$
754

 
$
163,647

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-In Capital
 
Accumulated Other
Comprehensive Loss, net
 
(Accumulated Deficit) Retained Earnings
 
Noncontrolling Interest in Subsidiary
 
Stockholders’ Equity
 
Shares
 
Dollars
Balances at December 31, 2017
35,838

 
$
4

 
$
305,362

 
$
(1,166
)
 
$
(67,111
)
 
$
630

 
$
237,719

Exercise of share options
19

 

 

 

 

 

 

Vesting of restricted stock and performance stock awards
156

 

 
(719
)
 

 

 

 
(719
)
Equity compensation

 

 
2,364

 

 

 

 
2,364

Stock repurchase and retirement
(432
)
 

 
(5,000
)
 

 

 

 
(5,000
)
Foreign currency translation adjustment, net of taxes

 

 

 
(143
)
 

 

 
(143
)
Net change in hedging transaction, net of taxes

 

 

 
276

 

 

 
276

Distribution to noncontrolling shareholder

 

 

 

 

 
(868
)
 
(868
)
Net income

 

 

 

 
2,740

 
886

 
3,626

Balances at September 30, 2018
35,581

 
$
4

 
$
302,007

 
$
(1,033
)
 
$
(64,371
)
 
$
648

 
$
237,255


See accompanying notes to the condensed consolidated financial statements
5


CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
 
Nine Months Ended
 
September 30,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Consolidated net (loss) income
$
(55,343
)
 
$
3,626

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
9,448

 
8,764

Provision for allowances
2,554

 
3,658

Deferred income tax expense
31,456

 
3,046

Non-cash lease expense
3,799

 

Impairment charges
16,306

 

Equity compensation
2,517

 
2,364

Other non-cash costs
962

 
1,454

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(6,766
)
 
2,745

Prepaid expenses and other assets
1,483

 
(1,145
)
Accounts payable and accrued expenses
7,797

 
(1,675
)
Operating lease liabilities
(4,355
)
 

Other
1,035

 
(1,080
)
Net cash provided by operating activities
10,893

 
21,757

 
 
 
 
Cash flows from investing activities
 

 
 

Acquisition-related settlements

 
(149
)
Purchases of property and equipment
(2,042
)
 
(3,405
)
Net cash used in investing activities
(2,042
)
 
(3,554
)
 
 
 
 
Cash flows from financing activities
 

 
 

Principal payments on Term Loan
(12,500
)
 
(8,750
)
Stock repurchase and retirement

 
(5,000
)
Other
(2,913
)
 
(1,841
)
Net cash used in financing activities
(15,413
)
 
(15,591
)
 
 
 
 
Effect of exchange rate changes on cash
1

 
(84
)
 
 
 
 
Change in cash and cash equivalents
(6,561
)
 
2,528

Cash and cash equivalents at beginning of period
16,019

 
25,537

Cash and cash equivalents at end of period
$
9,458

 
$
28,065


See accompanying notes to the condensed consolidated financial statements
6


CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.
ORGANIZATION AND BASIS OF PRESENTATION

Nature of Business

The accompanying condensed consolidated financial statements include the accounts of Cross Country Healthcare, Inc. and its direct and indirect wholly-owned subsidiaries (collectively, the Company). The condensed consolidated financial statements include all assets, liabilities, revenue, and expenses of Cross Country Talent Acquisition Group, LLC, which is controlled by the Company but not wholly-owned. The Company records the ownership interest of the noncontrolling shareholder as noncontrolling interest in subsidiary. All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all entries necessary for a fair presentation of such unaudited condensed consolidated financial statements have been included. These entries consisted of all normal recurring items.

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by United States generally accepted accounting principles (U.S. GAAP) for complete financial statements. These operating results are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission. The December 31, 2018 condensed consolidated balance sheet included herein was derived from the December 31, 2018 audited consolidated balance sheet included in the Company’s Annual Report on Form 10-K.

Certain prior year amounts have been reclassified to conform to the current year presentation on the condensed consolidated balance sheets and statements of cash flows, and as presented in Note 3 - Revenue Recognition and Note 13 - Segment Data.

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Significant estimates and assumptions are used for, but not limited to: (1) the valuation of accounts receivable; (2) goodwill, trade names, and other intangible assets; (3) other long-lived assets; (4) share-based compensation; (5) accruals for health, workers’ compensation, and professional liability claims; (6) valuation of deferred tax assets; (7) purchase price allocation; (8) fair value of the interest rate swap agreement; (9) legal contingencies; (10) contingent considerations; (11) income taxes; and (12) sales and other non-income tax liabilities. Accrued insurance claims and reserves include estimated settlements from known claims and actuarial estimates for claims incurred but not reported. Actual results could differ from those estimates.

Restructuring Costs

The Company considers restructuring activities to be programs whereby it fundamentally changes its operations, such as closing and consolidating facilities, reducing headcount, and realigning operations in response to changing market conditions. As a result, restructuring costs on the consolidated statements of operations primarily include employee termination costs and lease-related exit costs.

Effective January 1, 2019, in conjunction with the adoption of the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), described below, certain office locations that the Company vacated in connection with restructuring activities were included in the measurement of its beginning operating lease liabilities. Previous accruals related to these locations of $0.3 million have been presented as a reduction to the operating lease right-of-use assets on the condensed consolidated balance sheets.



7


Reconciliation of the employee termination costs and lease-related exit costs beginning and ending liability balance is presented below:
 
Employee Termination Costs
 
Lease-Related Exit Costs
 
(amounts in thousands)
Balance at January 1, 2019
$
556

 
$
127

Charged to restructuring costs
1,104

 

Payments
(373
)
 
(62
)
Balance at March 31, 2019
1,287

 
65

Charged to restructuring costs
137

 

Payments
(592
)
 
(22
)
Balance at June 30, 2019
832

 
43

Charged to restructuring costs
238

 
1,310

Payments
(615
)
 
(75
)
Balance at September 30, 2019
$
455

 
$
1,278


Recently Adopted Accounting Pronouncements

As of the beginning of the second quarter of 2019, the Company early adopted ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The Company has adopted this guidance prospectively to all implementation costs incurred after the date of adoption with no material impact on its consolidated financial statements.

Effective January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842), which requires that, as lessee, leases, as defined by the standard, are to be recognized on the balance sheet as right-of-use assets and as lease liabilities. The Company elected not to apply the recognition requirements to short-term leases (leases with terms of twelve months or less), and to apply the transition method, which is applied prospectively, measuring and recognizing the initial right-of-use asset and liability at January 1, 2019, without revising comparative period information or disclosure. In addition, the Company elected the package of transition provisions available for expired or existing contracts, which allowed the Company to forego assessment of: (1) whether contracts are or contain leases; (2) lease classification; and (3) initial direct costs. Consistent with current accounting, all of the Company's existing leases identified under ASC 840 will be treated as operating leases. The Company has also elected the practical expedient to not separate non-lease components from the lease components to which they relate, and instead account for each as a single lease component, for all of its underlying asset classes. Accordingly, all expenses associated with a lease contract are accounted for as lease expenses.

As of the later of January 1, 2019 or each lease’s respective commencement date, the Company recorded lease liabilities equal to the present value of its remaining minimum lease payments and right-of-use assets equal to the corresponding lease liability adjusted for any prepaid or accrued lease payments and the remaining balance of lease incentives received. At the transition date, the right-of-use asset and total lease liabilities were $22.0 million and $28.6 million, respectively. The difference between the right-of-use asset and lease liabilities is due to the derecognition of accrued lease payments of $7.2 million, previously included in other current and non-current liabilities, and prepaid rent of $0.6 million, previously included in prepaid expenses. See Note 10 - Leases.


8


3.    REVENUE RECOGNITION
The Company's revenues, generated from temporary staffing services and other services, are disaggregated by segment in the following table. Sales and usage-based taxes are excluded from revenue.

 
Three Months ended September 30, 2019
 
Nurse
And Allied
Staffing
 
Physician
Staffing
 
Search
 
Total Segments
 
(amounts in thousands)
Temporary Staffing Services
$
181,640

 
$
19,236

 
$

 
$
200,876

Other Services
3,334

 
1,171

 
3,819

 
8,324

Total
$
184,974

 
$
20,407

 
$
3,819

 
$
209,200

 
 
 
 
 
 
 
 
 
Three Months ended September 30, 2018
 
Nurse
And Allied
Staffing
 
Physician
Staffing
 
Search
 
Total Segments
 
(amounts in thousands)
Temporary Staffing Services
$
172,825

 
$
19,643

 
$

 
$
192,468

Other Services
3,120

 
1,515

 
3,614

 
8,249

Total
$
175,945

 
$
21,158

 
$
3,614

 
$
200,717

 
 
 
 
 
 
 
 
 
Nine Months ended September 30, 2019
 
Nurse
And Allied
Staffing
 
Physician
Staffing
 
Search
 
Total Segments
 
(amounts in thousands)
Temporary Staffing Services
$
532,036

 
$
51,217

 
$

 
$
583,253

Other Services
9,362

 
3,377

 
11,136

 
23,875

Total
$
541,398

 
$
54,594

 
$
11,136

 
$
607,128

 
 
 
 
 
 
 
 
 
Nine Months ended September 30, 2018
 
Nurse
And Allied
Staffing
 
Physician
Staffing
 
Search
 
Total Segments
 
(amounts in thousands)
Temporary Staffing Services
$
529,662

 
$
59,816

 
$

 
$
589,478

Other Services
9,826

 
4,236

 
12,037

 
26,099

Total
$
539,488

 
$
64,052

 
$
12,037

 
$
615,577


Accounts receivable includes estimated revenue for the Company's employees', subcontracted employees', and independent contractors’ time worked but not yet invoiced. At September 30, 2019 and December 31, 2018, the Company's estimate of amounts that had been worked but had not been invoiced totaled $45.8 million and $44.1 million, respectively, and are included in accounts receivable on the Company's condensed consolidated balance sheets.



9


4.    ACQUISITIONS

Advantage RN

Effective July 1, 2017, the Company acquired all of the assets of Advantage RN, LLC and its subsidiaries (collectively, Advantage) for cash consideration of $86.6 million, net of cash acquired. The total purchase price of $88.0 million was subject to a net working capital reduction of $0.6 million at the closing and an additional $0.8 million was received during the third quarter of 2017 as the final adjustment for net working capital. Additionally, $0.6 million of the purchase price was deferred as of the closing and was due to the seller within 20 months, less any Cobra and healthcare payments incurred by the Company on behalf of the seller. The Company incurred approximately $0.5 million in COBRA expenses since the Advantage acquisition and, in February 2019, released to the seller the remaining liability of $0.1 million

Included in the amount paid at closing were two escrow accounts, the first was $14.5 million which related to tax liabilities and the second was $7.5 million which was to cover any post-close liabilities. On July 28, 2017, $7.3 million related to the tax liabilities was released from escrow, leaving a balance of $7.2 million. On April 3, 2019, $4.3 million related to the tax liabilities was disbursed to pay taxes and the remaining $2.9 million was released from escrow to the seller. In the first quarter of 2019, $7.0 million related to the post-close liabilities was released from escrow, leaving a balance of $0.5 million to cover pending post-close liabilities.

Mediscan

On October 30, 2015, the Company completed the acquisition of all of the membership interests of New Mediscan II, LLC, Mediscan Diagnostic Services, LLC, and Mediscan Nursing Staffing, LLC (collectively, Mediscan). In connection with the Mediscan acquisition, the Company assumed contingent purchase price liabilities for a previously acquired business that are payable annually based on specific performance criteria for the years 2016 through 2019. Payments related to the years 2016 through 2018 were limited to $0.3 million annually and 2019 is uncapped. During each of the nine months ended September 30, 2019 and 2018, the Company paid $0.3 million related to the years 2018 and 2017. As of September 30, 2019, the fair value of the remaining obligations was estimated at $7.5 million and is included in other current and other long-term liabilities on the condensed consolidated balance sheets. See Note 11 - Fair Value Measurements.

5.
COMPREHENSIVE INCOME
 
Total comprehensive income (loss) includes net income or loss, foreign currency translation adjustments, and net change in derivative transactions, net of any related deferred taxes, if applicable. Certain of the Company’s foreign subsidiaries use their respective local currency as their functional currency. In accordance with the Foreign Currency Matters Topic of the FASB ASC, assets and liabilities of these operations are translated at the exchange rates in effect on the balance sheet date. Income statement items are translated at the average exchange rates for the period. The cumulative impact of currency fluctuations related to the balance sheet translation is included in accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets and was an unrealized loss of $1.2 million at September 30, 2019 and $1.3 million at December 31, 2018. In the third quarter of 2019, as a result of the recognition of an unrealized loss on the termination of the Company's interest rate swap agreement, the balance in other comprehensive loss was reversed. As of December 31, 2018, the cumulative impact of net changes in derivative instruments was a loss of $0.2 million. See Note 9 - Derivative.
 
The income tax impact related to components of other comprehensive (loss) income for the three and nine months ended September 30, 2019 and 2018 is reflected on the condensed consolidated statements of comprehensive (loss) income. During the second quarter of 2019, the Company established a valuation allowance on its deferred tax assets. As a result, the first quarter's tax impact recorded through other comprehensive income was reversed.



10


6.
EARNINGS PER SHARE

The following table sets forth the components of the numerator and denominator for the computation of the basic and diluted earnings per share:
 
Three Months Ended
 
Nine Months Ended
September 30,
 
September 30,
2019
 
2018
 
2019
 
2018
 
(amounts in thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Net (loss) income attributable to common shareholders - Basic and Diluted
$
(3,128
)
 
$
(441
)
 
$
(56,569
)
 
$
2,740

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average common shares - Basic
35,865

 
35,594

 
35,797

 
35,682

Effect of diluted shares:
 
 
 
 
 
 
 
     Share-based awards

 

 

 
199

Weighted average common shares - Diluted
35,865

 
35,594

 
35,797

 
35,881

 
 
 
 
 
 
 
 
Net (loss) income per share attributable to common shareholders - Basic
$
(0.09
)
 
$
(0.01
)
 
$
(1.58
)
 
$
0.08

 
 
 
 
 
 
 
 
Net (loss) income per share attributable to common shareholders - Diluted
$
(0.09
)
 
$
(0.01
)
 
$
(1.58
)
 
$
0.08


For the three and nine months ended September 30, 2019 and 2018, no tax benefits were assumed in the weighted average share calculation due to the Company's net operating loss position.

Due to the net loss for the three and nine months ended September 30, 2019 and the three months ended September 30, 2018, 317,905, 177,449, and 130,965 shares, respectively, were excluded from diluted weighted average shares.



11


7.    GOODWILL, TRADE NAMES, AND OTHER INTANGIBLE ASSETS

The Company had the following acquired intangible assets:
 
September 30, 2019
 
December 31, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
(amounts in thousands)
Intangible assets subject to amortization:
 
 
 
 
 
 
 
 
 
 
 
Databases
$
30,530

 
$
11,506

 
$
19,024

 
$
30,530

 
$
9,216

 
$
21,314

Customer relationships
49,758

 
25,771

 
23,987

 
49,758

 
23,296

 
26,462

Non-compete agreements
320

 
145

 
175

 
320

 
97

 
223

Trade names
7,700

 
2,161

 
5,539

 
8,879

 
1,696

 
7,183

Other intangible assets, net
$
88,308

 
$
39,583

 
$
48,725

 
$
89,487

 
$
34,305

 
$
55,182

Intangible assets not subject to amortization:
 

 
 

 
 

 
 

 
 

 
 

Trade names, indefinite-lived
 

 
 

 
$
5,900

 
 

 
 

 
$
20,402



As of September 30, 2019, estimated annual amortization expense is as follows:

Years Ending December 31:
(amounts in thousands)
2019
$
1,791

2020
7,056

2021
6,848

2022
6,772

2023
6,669

Thereafter
19,589

 
$
48,725


Trade names and other intangible assets
As part of evolving its go-to-market strategy, in the second quarter of 2019, the Company began eliminating certain brands across all of its segments. The Company’s rebranding efforts resulted in a $14.5 million write-off of indefinite-lived trade names related to its Nurse and Allied Staffing business segment, which is presented as impairment charges on the condensed consolidated statements of operations. In addition, certain finite-lived trade names were accelerated, which resulted in additional amortization expense related to the Company's Nurse and Allied Staffing and Physician Staffing business segments of $0.1 million and $0.5 million, respectively, during the quarter ended June 30, 2019, and $0.3 million related to its Physician Staffing business segment during the quarter ended September 30, 2019. There was no additional amortization expense for Nurse and Allied Staffing in the quarter ended September 30, 2019.
Goodwill
As of September 30, 2019, the Company performed a qualitative assessment of each of its reporting units and determined it was not more likely than not that the fair value of its reporting units dropped below their carrying value. As a result, management concluded that no impairment testing was warranted as of September 30, 2019. Although management believes that the Company's current estimates and assumptions are reasonable and supportable, there can be no assurance that the estimates and assumptions made for purposes of the impairment testing will prove to be accurate predictions of future performance.



12


As a result of the Company merging its permanent search recruitment brands into its Search segment in the second quarter of 2019, $2.4 million of goodwill was reassigned to its Search reporting unit from Nurse and Allied Staffing. As of September 30, 2019, goodwill by reporting segment was: $86.4 million for Nurse and Allied Staffing, $2.8 million for Physician Staffing, and $11.9 million for Search, totaling $101.1 million. See Note 13 - Segment Data.

8.    DEBT

The Company's long-term debt consisted of the following:
 
September 30, 2019
 
December 31, 2018
 
Principal
 
Debt Issuance Costs
 
Principal
 
Debt Issuance Costs
 
(amounts in thousands)
Term Loan, interest 5.4% and 4.8% at September 30, 2019 and December 31, 2018, respectively
$
71,376

 
$
(820
)
 
$
83,876

 
$
(697
)
Less current portion

 

 
(5,235
)
 

Long-term debt
$
71,376

 
$
(820
)
 
$
78,641

 
$
(697
)

Amended and Restated Senior Credit Facility

On September 30, 2019, the Company entered into a Third Amendment (Third Amendment) to its Amended and Restated Credit Agreement dated August 1, 2017 that modified the following: (1) reduced the Aggregate Revolving Commitments from $75.0 million to $65.0 million on the effective date, to $55.0 million on October 31, 2019, to $45.0 million on November 30, 2019, and to $35.0 million on December 31, 2019; (2) reduced the Letter of Credit sublimit from $35.0 million to $25.0 million; (3) changed the maximum Consolidated Net Leverage Ratio from 4.25:1:00 to 4.60:1:00 for the period ending September 30, 2019; and (4) changed the minimum Consolidated Fixed Charge Coverage Ratio from 1.50:1.00 to 1.10:1.00 for the period ending September 30, 2019. The Company was in compliance with the covenants contained in the Amended and Restated Credit Agreement as of September 30, 2019.

On March 29, 2019, the Company entered into a Second Amendment (Second Amendment) to its Amended and Restated Credit Agreement that, among other administrative changes, modified the following: (1) changed the financial leverage ratio from Consolidated Total Leverage to Consolidated Net Leverage and permitted a maximum Consolidated Net Leverage Ratio of 4.60:1.00 for the periods of December 31, 2018 through June 30, 2019, 4.25:1:00 for the period ending September 30, 2019, 4.00:1.00 for the period ending December 31, 2019, 3.75:1.00 for the period ending March 31, 2020, 3.50:1.00 for the period ending June 30, 2020, 3.25:1.00 for the period ending September 30, 2020, and maintained 3.00:1:00 for the periods thereafter and as adjusted pursuant to a Specified and Qualified Permitted Acquisition (as defined therein); (2) the Applicable Margin definition was revised to: modify Level V to be greater than or equal to 3.00:1.00 but less than 3.50:1.00; added an additional Level VI if the Consolidated Net Leverage is greater than or equal to 3.50:1.00 but less than 4.00:1.00; and added an additional Level VII if Consolidated Net Leverage Ratio is greater than 4.00:1.00. The added Levels VI and VII resulted in an increase in the Applicable Margin for borrowing from their respective prior Levels by 25 basis points for each and an increase of 5 basis points to the Commitment Fee for each; (3) added an additional financial covenant for the quarters ending March 31, 2019 through and including the quarter ending December 31, 2019, that requires the Consolidated Asset Coverage Ratio to be no less than 1.10:1.00; and (4) lowered the Aggregate Revolving Commitments from $115.0 million to $75.0 million through the exercise of a $40 million Optional Reduction.

Both amendments were treated as modifications. As a result, debt issuance costs were written off and included as loss on early extinguishment of debt on the consolidated condensed statement of operations. In addition, fees paid in connection with the Second Amendment of $0.6 million in the first six months of 2019, as well as $0.1 million paid in fees in the third quarter of 2019 in connection with the Third Amendment, were included as debt issuance costs associated with the revolving credit facility and as a reduction to the carrying amount of the term loan and were expected to be amortized to interest expense over the remaining term of the arrangement.

On March 29, 2019 and June 28, 2019, the Company made optional prepayments of $7.5 million and $5.0 million, respectively, on its Term Loan, which have been allocated to the next consecutive scheduled quarterly payments resulting in the next seven and a portion of the eighth payment being prepaid. The Company had the right at any time and from time to time to prepay any borrowing, in whole or in part, without premium or penalty, by giving written notice (or telephonic notice promptly confirmed in writing). The Company was required to prepay its Term Loan and Revolving Credit Facility under certain circumstances


13


including from net cash proceeds from asset sales or dispositions in excess of certain thresholds, as well as from net cash proceeds from the issuance of certain debt by the Company.

As of September 30, 2019, the aggregate scheduled maturities of the term loan were as follows:
 
Term Loan
 
(amounts in thousands)
Through Years Ending December 31:
 
2019
$

2020

2021
5,386

2022
65,990

2023

Thereafter

Total
$
71,376

Subject to the terms of the Amended and Restated Credit Agreement, the Company paid interest on: (i) each Base Rate Loan at the Base Rate (as defined therein) plus the Applicable Margin in effect from time to time, (ii) each LIBOR Index Rate Loan at the One Month LIBOR Index Rate (as defined therein) plus the Applicable Margin in effect from time to time, and (iii) each Eurodollar Loan at the Adjusted LIBOR for the applicable Interest Period (as defined therein) in effect for such Loan plus the Applicable Margin in effect from time to time. The Applicable Margin, as of any date, was a percentage per annum determined by reference to the applicable Consolidated Net Leverage Ratio (as defined by the agreement) in effect on such date.
 
As of September 30, 2019, the Amended Term Loan and Amended Revolving Credit Facility bore interest at a rate equal to One Month LIBOR plus 3.25%. The interest rate was subject to an increase of 2.00% if an event of default exists under the Amended and Restated Credit Agreement. The Company was required to pay a commitment fee on the average daily unused portion of the Amended Revolving Credit Facility, based on the Applicable Margin which is 0.50% as of September 30, 2019. During the three months ended March 31, 2018, the Company entered into an interest rate swap to reduce its exposure to fluctuations in the interest rates associated with its debt, which was effective April 2, 2018. The Company terminated its interest rate swap agreement on September 26, 2019. See Note 9 - Derivative.

The Amended and Restated Credit Agreement contained customary representations, warranties, and affirmative covenants. The Amended and Restated Credit Agreement also contained customary negative covenants, subject to some exceptions, on: (i) indebtedness and preferred equity; (ii) liens; (iii) fundamental changes; (iv) investments; (v) restricted payments; and (vi) sale of assets and certain other restrictive agreements. The Amended and Restated Credit Agreement also contained customary events of default, such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control and the failure to observe the negative covenants and other covenants related to the operation of the Company’s business.

The obligations under the Amended and Restated Credit Agreement were guaranteed by all of the Company’s domestic wholly-owned subsidiaries and are secured by a first-priority security interest in the Collateral (as defined therein).
As of September 30, 2019, the Company had $20.6 million letters of credit outstanding, which related to the Company’s workers’ compensation and professional liability insurance policies.

ABL Loan Agreement October 2019

On October 25, 2019, the Company entered into a new $120.0 million senior secured asset-based credit facility (the ABL) and terminated its commitments under its Amended and Restated Credit Agreement.

The initial amounts drawn on the new ABL included funds to repay its then outstanding borrowings of $75.4 million under its prior Amended and Restated Credit Agreement and $1.3 million for the payment of fees, expenses, and accrued interest, as well as to backstop $21.2 million for outstanding letters of credit, leaving $21.4 million of borrowing availability. The refinancing is treated as extinguishment of debt, and, as a result, the Company expects to recognize an additional loss on early extinguishment of debt in the fourth quarter of 2019 of approximately $1.4 million, related to the write-off of debt issuance costs.



14


The ABL provides for a five-year revolving credit facility, including a sublimit for swing loans up to $15.0 million and a $35.0 million sublimit for standby letters of credit. Availability of the ABL commitments is subject to a borrowing base of up to 85% of secured eligible accounts receivable, subject to adjustment at certain quality levels, plus an amount of supplemental availability, initially equal to $16.9 million, and reducing over time in accordance with the terms of the definitive loan agreement for the ABL (the Loan Agreement), minus customary reserves, and subject to customary adjustments. As of the closing, the amount of the borrowing base was $119.3 million. Revolving loans and letters of credit issued under the Loan Agreement reduce availability under the ABL on a dollar-for-dollar basis. Availability under the ABL will be used for general corporate purposes. Additionally, the facility contains an uncommitted accordion provision to increase the amount of the facility by an additional $30.0 million.

Borrowings under the ABL generally bear interest at a variable rate based on either LIBOR or Base Rate plus an applicable margin, subject to monthly pricing adjustments, pursuant to a pricing matrix based on the Company’s excess availability under the revolving credit facility. In addition, the facility is subject to an unused fee, letter of credit fees and an administrative fee. The Loan Agreement contains various restrictions and covenants applicable to the Company and its subsidiaries, including a covenant to maintain a minimum fixed charge coverage ratio. Obligations under the ABL are secured by substantially all the assets of the borrowers and guarantors under the ABL, subject to customary exceptions.

The Loan Agreement also contains customary events of default. If an event of default under the Loan Agreement occurs and is continuing, then the administrative agent or the requisite lenders may declare any outstanding obligations under the Loan Agreement to be immediately due and payable. In addition, if the Company or any of its subsidiaries becomes the subject of voluntary or involuntary proceedings under any bankruptcy, insolvency or similar law, than any outstanding obligations under the Loan Agreement will automatically become due and payable.

9.    DERIVATIVE

The Company had an interest rate swap agreement that, at initiation, effectively fixed the interest rate on 50% of the amortizing balance of the Company’s term debt, exclusive of the credit spread on the debt. The interest rate swap agreement required the Company to pay a fixed rate to the respective counterparty of 2.627% per annum on an amortizing notional amount corresponding with the initial term loan payment schedule, and to receive from the respective counterparty, interest payments based on the applicable notional amounts and 1 month USD LIBOR, with no exchanges of notional amounts. As of December 31, 2018, the interest rate swap was treated as a cash flow hedge and its fair value of a $0.2 million liability is included in other current and other long-term liabilities on the consolidated balance sheets.

The Company anticipated entering into the new asset-based credit facility that closed in October 2019 (See Note 8 - Debt). In contemplation of that, the Company terminated its interest rate swap agreement by making a cash payment of $1.3 million on September 26, 2019, which is included in net cash provided by operating activities on the condensed consolidated statement of cash flows. As the forecasted interest payments related to the swap were no longer expected to occur, the unrealized amount of loss that had accumulated in other comprehensive loss was recognized resulting in a $1.3 million loss in the third quarter of 2019, included in loss on derivative on the condensed consolidated statement of operations.

10.
LEASES

The Company has lease contracts related to the rental of office space, housing for its healthcare professionals on assignments, and other equipment rentals. The Company's lease population included in the recognition of its beginning right-of-use asset and lease liabilities under the Leases Topic of the FASB ASC is substantially related to the rental of office space. The Company enters into lease agreements as lessee for the rental of office space for both its corporate and branch locations that may include options to extend or terminate early. Many of these real estate leases require variable payments of property taxes, insurance, and common area maintenance, in addition to base rent. The variable portion of these lease payments is not included in the right-of-use assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred and are included in lease expense in selling, general and administrative expense on the condensed consolidated statement of operations. These leases do not include residual value guarantees, covenants, or other restrictions. Certain of the leases have provisions for free rent months during the lease term and/or escalating rent payments. In addition, particularly for the Company’s longer-term leases for its corporate offices, it has received incentives to enter into the leases such as receiving up to a specified dollar amount to construct tenant improvements. These lease incentives resulted in deferred rent credits. Upon adoption of the Leases Topic of the FASB ASC, these deferred rent credits reduced the beginning operating right-of-use asset recognized and, consistent with the prior guidance will be recognized as a reduction to future rent expense over the expected remaining term of the respective leases.



15


The Company determines whether an arrangement constitutes a lease and records lease liabilities and right-of-use assets on its consolidated balance sheets at lease commencement. Lease liabilities are measured based on the present value of the total lease payments not yet paid discounted based on its incremental borrowing rate, as the rate implicit in the lease is not determinable. Its incremental borrowing rate is estimated based on what it would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. As such, the Company estimates its incremental borrowing rate based on an analysis of publicly traded debt securities of companies with credit and financial profiles similar to its own. Right-of-use assets are measured based on the corresponding lease liability adjusted for: (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs, and (iii) tenant incentives under the lease. Rent expense commences when the lessor makes the underlying asset available to us. The Company does not assume renewals or early terminations unless it is reasonably certain to exercise these options at commencement. For short-term leases, rent expense is recognized in the condensed consolidated statements of operations on a straight-line basis over the lease term.

The table below presents the lease-related assets and liabilities included on the condensed consolidated balance sheets:
Classification on Condensed Consolidated Balance Sheets:
September 30, 2019
 
(amounts in thousands)
Operating lease right-of-use assets
$
17,796

Operating lease liabilities - current
$
4,936

Operating lease liabilities - non-current
$
20,112

Weighted-average remaining lease term
4.9 years

Weighted average discount rate (a)
6.26
%
________________

(a)
Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities (which do not include short-term leases) recorded on the condensed consolidated balance sheets as of September 30, 2019:
Years Ending December 31:
(amounts in thousands)
2019
$
1,254

2020
6,775

2021
5,924

2022
5,042

2023
4,696

Thereafter
5,869

Total minimum lease payments
29,560

Less: amount of lease payments representing interest
(4,512
)
Present value of future minimum lease payments
25,048

Less: current lease obligations
(4,936
)
Non-current lease obligations
$
20,112















16


Future minimum lease payments, as of December 31, 2018, associated with non-cancelable operating lease agreements with terms of one year or more are as follows: 
Years Ending December 31:
(amounts in thousands)
2019
$
7,451

2020
6,287

2021
5,407

2022
4,857

2023
4,700

Thereafter
5,893

Total minimum lease payments
$
34,595


Other Information

The table below provides information regarding supplemental cash flows:

 
Nine Months Ended
 
September 30, 2019
 
(amounts in thousands)
Supplemental Cash Flow Information:
 
Cash paid for amounts included in the measurement of operating lease liabilities
$
5,619

Right-of-use assets obtained in exchange for new operating lease liabilities
$
872


The components of lease expense are as follows:
 
Three Months Ended
Nine Months Ended
 
September 30, 2019
September 30, 2019
 
(amounts in thousands)
Amounts Included in Condensed Consolidated Statements of Operations:
 
 
Operating lease expense
$
1,646

$
5,038

Short-term lease expense
$
2,124

$
6,232

Variable and other lease costs
$
598

$
1,975


Operating lease expense, short-term lease expense, and variable and other lease costs are included in selling, general and administrative expenses and direct operating expenses on the Company's condensed consolidated statements of operations, depending on the nature of the leased asset. In the third quarter of 2019, the Company ceased use of several facilities and is in the process of seeking to sublet some of the space where possible. The decision and change in the use of space resulted in a right-of-use asset impairment charge of $1.2 million, presented as impairment charges on the condensed consolidated statements of operations. See Note 11 - Fair Value Measurements.

As of September 30, 2019, the Company does not have any material operating leases which have not yet commenced.

11.
FAIR VALUE MEASUREMENTS
 
The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value as the exchange 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. This topic also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
 
Level 1—Quoted prices in active markets for identical assets or liabilities.


17


 
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.
 
Items Measured at Fair Value on a Recurring Basis:
 
The Company’s financial assets/liabilities required to be measured on a recurring basis were its: (1) deferred compensation asset included in other non-current assets; (2) deferred compensation liability included in other long-term liabilities; (3) interest rate swap agreement included in other current and other long-term liabilities; and (4) contingent consideration liabilities included in other current and other long-term liabilities.

Deferred compensation—The Company utilizes Level 1 inputs to value its deferred compensation assets and liabilities. The Company’s deferred compensation assets and liabilities are measured using publicly available indices, as per the plan documents.

Interest rate swap agreement—The Company utilized Level 2 inputs to value its interest rate swap agreement through the date of its termination. See Note 8 - Debt and Note 9 - Derivative.

Contingent consideration liabilities—Potential earnout payments related to the acquisition of Mediscan are contingent upon meeting certain performance requirements through 2019. The long-term portion of these liabilities has been included in other long-term liabilities, and the short-term portion is included in other current liabilities on the condensed consolidated balance sheets. The Company utilized Level 3 inputs to value these contingent consideration liabilities as significant unobservable inputs were used in the calculation of their fair value. The Mediscan contingent consideration liability had been measured at fair value through June 30, 2019 using a discounted cash flow model in a Monte Carlo simulation setting, utilizing significant unobservable inputs, including the expected volatility of the acquisitions' gross profits and an estimated discount rate commensurate with the risks of the expected gross profit stream. As of September 30, 2019, due to the end of the earnout period approaching, the Company measured the fair value of the liability based on the expected payout. See Note 4 - Acquisitions.

The fair value of contingent consideration and the associated liabilities will be adjusted to fair value at each reporting date until actual settlement occurs, with the changes in fair value and related accretion reflected as acquisition-related contingent consideration on the condensed consolidated statements of operations. Significant increases (decreases) in the volatility or in any of the probabilities of success, or decreases (increases) in the discount rate would result in a significantly higher (lower) fair value, respectively, and commensurate changes to these liabilities.























18


The table which follows summarizes the estimated fair value of the Company’s financial assets and liabilities measured on a recurring basis:
 
Fair Value Measurements
 
September 30, 2019
 
December 31, 2018
 
(amounts in thousands)
Financial Assets:
 
 
 
(Level 1)
 
 
 
Deferred compensation asset
$
723

 
$

Financial Liabilities:
 
(Level 1)
 

 
 

Deferred compensation liability
$
2,019

 
$
1,725

(Level 2)
 
 
 
Interest rate swaps
$

 
$
234

(Level 3)
 
 
 
Contingent consideration liabilities
$
7,484

 
$
7,689


The opening balances of contingent consideration liabilities are reconciled to the closing balances for fair value measurements of these liabilities categorized within Level 3 of the fair value hierarchy are as follows:
 
Contingent Consideration
 
Liabilities
 
(amounts in thousands)
December 31, 2018
$
7,689

Payments
(100
)
Valuation adjustment
247

March 31, 2019
7,836

Valuation adjustment
253

June 30, 2019
8,089

Payments
(179
)
Valuation adjustment
(426
)
September 30, 2019
$
7,484


Items Measured at Fair Value on a Non-Recurring Basis:

The Company's non-financial assets, such as goodwill, trade names, other intangible assets, right-of-use assets, and property and equipment, are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized.

During an evaluation of goodwill, trade names, and other intangible assets during the fourth quarter of 2018, the carrying value of goodwill and trade names in the Physician Staffing reporting unit exceeded their fair values. As a result, the Company recorded impairment charges that incorporated fair value measurements based on Level 3 inputs.

In the second quarter of 2019, the Company eliminated certain of its brands as part of a rebranding strategy. and as a result, recorded impairment charges of $14.5 million related to its trade names in Nurse and Allied Staffing. See Note 7 - Goodwill, Trade Names, and Other Intangible Assets.

In the third quarter of 2019, the Company ceased use of several facilities and is in the process of seeking to sublet some of the space where possible. The decision and change in the use of space resulted in a right-of-use asset impairment charge of $1.2 million. This loss was determined by comparing the fair value of the impacted right-of-use assets to the carrying value of the


19


assets as of the impairment measurement date, in accordance with the Property, Plant and Equipment Topic of the FASB ASC. The fair value of the right-of-use asset was based on the estimated sublease income for the space taking into consideration the time period it will take to obtain a subtenant, the applicable discount rate, and the sublease rate. Furthermore, the Company wrote-off a total of $0.6 million of leasehold improvements and other property and equipment related to these locations. The measurement of the right-of-use asset impairments, using the assumptions described, is a level 3 measurement.

Impairment charges on the condensed consolidated statement of operations include impairment of the trade names, the right-of-use assets, leasehold improvements, and property and equipment, and totaled $16.3 million for the nine months ended September 30, 2019.

Other Fair Value Disclosures:
 
Financial instruments not measured or recorded at fair value in the accompanying condensed consolidated balance sheets consist of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and short and long-term debt. The estimated fair value of accounts receivable, accounts payable, and accrued expenses approximate their carrying amount due to the short-term nature of these instruments. The estimated fair value of the Company's debt was calculated using a discounted cash flow analysis and appropriate valuation methodologies using Level 2 inputs from available market information.

The carrying amounts and estimated fair value of the Company’s significant financial instruments that were not measured at fair value are as follows:
 
September 30, 2019
 
December 31, 2018
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Financial Liabilities:
 
 
(amounts in thousands)
 
 
(Level 2)
 

 
 

 
 

 
 

Term Loan, net
$
70,556

 
$
71,400

 
$
83,179

 
$
81,800

 
Concentration of Credit Risk:

The Company has invested its excess cash in highly-rated overnight funds and other highly-rated liquid accounts. The Company is exposed to credit risk associated with these investments, as the cash balances typically exceed the current Federal Deposit Insurance Corporation (FDIC) limit of $250,000. The Company minimizes its credit risk relating to these positions by monitoring the financial condition of the financial institutions involved and by primarily conducting business with large, well established financial institutions and diversifying its counterparties.
 
The Company generally does not require collateral and mitigates its credit risk by performing credit evaluations and monitoring at-risk accounts. The allowance for doubtful accounts represents the Company’s estimate of uncollectible receivables based on a review of specific accounts and the Company’s historical collection experience. The Company writes off specific accounts based on an ongoing review of collectability as well as past experience with the customer. The Company’s contract terms typically require payment between 15 to 60 days from the date of invoice and are considered past due based on the particular negotiated contract terms. Overall, based on the large number of customers in differing geographic areas, primarily throughout the United States and its territories, the Company believes the concentration of credit risk is limited.
 
12.    STOCKHOLDERS’ EQUITY
 
Stock Repurchase Program
 
During the nine months ended September 30, 2019, the Company did not repurchase any shares of its Common Stock. During the nine months ended September 30, 2018, the Company repurchased and retired 432,439 shares of its Common Stock for $5.0 million, at an average market price of $11.54 per share, under an authorized share repurchase program.

As of September 30, 2019, the Company has 510,004 shares of Common Stock under the current share repurchase program available to repurchase, subject to certain conditions in the Company's Amended and Restated Credit Agreement.




20


Share-Based Payments

The following table summarizes restricted stock awards and performance stock awards activity issued under the 2017 Plan for the nine months ended September 30, 2019:

 
Restricted Stock Awards
 
Performance Stock Awards
 
Number of
Shares
 
Weighted
Average
Grant Date
Fair Value
 
Number of Target
Shares
 
Weighted
Average
Grant Date
Fair Value
Unvested restricted stock awards, January 1, 2019
589,120

 
$
12.00

 
365,149

 
$
12.35

Granted
837,099

 
$
7.06

 
192,939

 
$
7.06

Vested
(331,395
)
 
$
11.66

 

 
$

Forfeited
(84,515
)
 
$
9.26

 
(189,619
)
 
$
12.25

Unvested restricted stock awards, September 30, 2019
1,010,309

 
$
8.52

 
368,469

 
$
9.64


Restricted stock awards granted under the Company’s 2017 Plan entitle the holder to receive, at the end of a vesting period, a specified number of shares of the Company’s common stock. Share-based compensation expense is measured by the market value of the Company’s stock on the date of grant. The shares vest ratably over a three year period ending on the anniversary date of the grant, and vesting is subject to the employee's continuing employment. There is no partial vesting and any unvested portion is forfeited. Pursuant to the 2017 Plan, the number of target shares that are issued for performance-based stock awards are determined based on the level of attainment of the targets.

During the three and nine months ended September 30, 2019, $1.0 million and $2.5 million, respectively, was included in selling, general and administrative expenses related to share-based payments, and a net of 5,233 and 230,986 shares, respectively, of Common Stock were issued upon the vesting of restricted stock.

During the three and nine months ended September 30, 2018, $1.0 million and $2.4 million, respectively, was included in selling, general and administrative expenses related to share-based payments, and a net of 5,460 and 155,914 shares, respectively, of Common Stock were issued upon the vesting of restricted stock.

13.
SEGMENT DATA

In accordance with the Segment Reporting Topic of the FASB ASC, the Company reports three business segments – Nurse and Allied Staffing, Physician Staffing, and Search. The Company manages and segments its business based on the services it offers to its customers as described below:

Nurse and Allied Staffing – Nurse and Allied Staffing provides traditional staffing, recruiting, and value-added total talent solutions including: temporary and permanent placement of travel and local branch-based nurse and allied professionals, MSP services, education healthcare services, and outsourcing services. Its clients include: public and private acute-care and non-acute care hospitals, government facilities, public schools and charter schools, outpatient clinics, ambulatory care facilities, physician practice groups, retailers, and many other healthcare providers throughout the United States.

Physician Staffing – Physician Staffing provides physicians in many specialties, as well as certified registered nurse anesthetists, nurse practitioners, and physician assistants as independent contractors on temporary assignments throughout the United States at various healthcare facilities, such as acute and non-acute care facilities, medical group practices, government facilities, and managed care organizations.

Search – Search includes retained and contingent search services for physicians, healthcare executives, and other healthcare professionals, as well as recruitment process outsourcing.

The Company’s management evaluates performance of each segment primarily based on revenue and contribution income. The Company defines contribution income as income or loss from operations before depreciation and amortization, acquisition and integration costs, acquisition-related contingent consideration, restructuring costs, legal settlement charges, impairment charges, and corporate overhead. Contribution income is a financial measure used by management when assessing segment performance


21


and is provided in accordance with the Segment Reporting Topic of the FASB ASC. The Company’s management does not evaluate, manage, or measure performance of segments using asset information; accordingly, total asset information by segment is not prepared or disclosed. The information in the following table is derived from the segments’ internal financial information as used for corporate management purposes. Certain corporate expenses are not allocated to and/or among the operating segments.

Information on operating segments and a reconciliation to income from operations for the periods indicated are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2019
 
2018
 
2019
 
2018
 
(amounts in thousands)
Revenue from services:
 

 
 
 
 
 
 
Nurse and Allied Staffing
$
184,974

 
$
175,945

 
$
541,398

 
$
539,488

Physician Staffing
20,407

 
21,158

 
54,594

 
64,052

Search
3,819

 
3,614

 
11,136

 
12,037

 
$
209,200

 
$
200,717

 
$
607,128

 
$
615,577

 
 
 
 
 
 
 
 
Contribution income (loss):
 
 
 
 
 
 
 
Nurse and Allied Staffing
$
16,097

 
$
16,507

 
$
46,504

 
$
50,064

Physician Staffing
811

 
1,307

 
1,724

 
4,190

Search
78

 
97

 
(526
)
 
833

 
16,986

 
17,911

 
47,702

 
55,087

 
 
 
 
 
 
 
 
Corporate overhead
10,975

 
10,937

 
34,744

 
32,399

Depreciation and amortization
2,907

 
2,892

 
9,448

 
8,764

Acquisition-related contingent consideration
(426
)
 
16

 
74

 
449

Acquisition and integration costs

 
70

 
311

 
261

Restructuring costs
1,607

 
1,351

 
2,884

 
1,979

Legal settlement charges

 

 
1,600

 

Impairment charges
1,804

 

 
16,306

 

Income (loss) from operations