Cross ntry Healthcare(CCRN) - 2019 Q3 - Quarterly Report

PART I. – FINANCIAL INFORMATION Presents unaudited condensed consolidated financial statements and management's discussion for the period Item 1. Condensed Consolidated Financial Statements Unaudited financial statements for Q3 and nine months 2019 show decreased assets, equity, and a net loss due to impairment and tax expense Condensed Consolidated Balance Sheets Balance sheets show total assets decreased to $394.0 million and stockholders' equity to $163.6 million by September 30, 2019 Condensed Consolidated Balance Sheet Highlights | Account | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | | :--- | :--- | :--- | | Total Assets | $393,991 | $427,003 | | Cash and cash equivalents | $9,458 | $16,019 | | Goodwill | $101,066 | $101,060 | | Total Liabilities | $230,344 | $208,805 | | Long-term debt, less current portion | $70,556 | $77,944 | | Total Stockholders' Equity | $163,647 | $218,198 | | Accumulated deficit | ($140,631) | ($84,062) | Condensed Consolidated Statements of Operations Q3 2019 revenue grew to $209.2 million, but net loss widened to $3.1 million; nine-month net loss was $56.6 million Key Operating Results (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenue from services | $209,200 | $200,717 | $607,128 | $615,577 | | Income (loss) from operations | $119 | $2,645 | ($17,665) | $11,235 | | Net (loss) income attributable to common shareholders | ($3,128) | ($441) | ($56,569) | $2,740 | | Diluted Net (loss) income per share | ($0.09) | ($0.01) | ($1.58) | $0.08 | - The nine months ended September 30, 2019 included significant expenses not present in the prior year, including $16.3 million in impairment charges and $1.6 million in legal settlement charges[13] Condensed Consolidated Statements of Cash Flows Nine-month operating cash flow decreased to $10.9 million; cash and cash equivalents declined by $6.6 million Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity | 2019 (in thousands) | 2018 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $10,893 | $21,757 | | Net cash used in investing activities | ($2,042) | ($3,554) | | Net cash used in financing activities | ($15,413) | ($15,591) | | Change in cash and cash equivalents | ($6,561) | $2,528 | Notes to Condensed Consolidated Financial Statements Notes detail lease standard adoption, $14.5 million trade name impairment, $36.0 million deferred tax valuation allowance, and subsequent debt refinancing - Effective January 1, 2019, the Company adopted the new lease standard (ASU No. 2016-02, Leases), recognizing right-of-use assets of $22.0 million and lease liabilities of $28.6 million on the balance sheet at the transition date[29][30] - In Q2 2019, a rebranding effort resulted in a $14.5 million write-off of indefinite-lived trade names in the Nurse and Allied Staffing segment, recorded as an impairment charge[47] - In Q2 2019, the company recorded an additional valuation allowance of $36.0 million against its deferred tax assets, concluding it was not more likely than not that they would be realized, resulting in a $35.8 million income tax expense[115] - Subsequent to the quarter end, on October 25, 2019, the company terminated its existing credit agreement and entered into a new $120.0 million senior secured asset-based credit facility (ABL)[62][126] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2019 revenue growth offset by lower profitability, a nine-month revenue decline, and debt refinancing Results of Operations Q3 2019 revenue grew 4.2% to $209.2 million, but operating income declined 95.5%; nine-month revenue fell 1.4% Comparison of Results for the Three Months Ended September 30 | Metric | 2019 | 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue from services | $209.2M | $200.7M | 4.2% | | Direct operating expenses | $158.2M | $149.2M | 6.1% | | Income from operations | $0.1M | $2.6M | (95.5)% | | Net loss attributable to common shareholders | ($3.1M) | ($0.4M) | (609.3)% | Comparison of Results for the Nine Months Ended September 30 | Metric | 2019 | 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue from services | $607.1M | $615.6M | (1.4)% | | (Loss) income from operations | ($17.7M) | $11.2M | (257.2)% | | Net (loss) income attributable to common shareholders | ($56.6M) | $2.7M | NM | Segment Results Q3 2019 Nurse and Allied Staffing revenue grew 5.1% to $185.0 million, while Physician Staffing and Search segments showed mixed results Segment Revenue - Q3 | Segment | Q3 2019 (in thousands) | Q3 2018 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Nurse and Allied Staffing | $184,974 | $175,945 | 5.1% | | Physician Staffing | $20,407 | $21,158 | (3.5)% | | Search | $3,819 | $3,614 | 5.7% | Segment Contribution Income - Q3 | Segment | Q3 2019 (in thousands) | Q3 2018 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Nurse and Allied Staffing | $16,097 | $16,507 | (2.5)% | | Physician Staffing | $811 | $1,307 | (37.9)% | | Search | $78 | $97 | (19.6)% | Liquidity and Capital Resources Cash was $9.5 million as of September 30, 2019; nine-month operating cash flow decreased to $10.9 million, followed by a $120.0 million ABL facility refinancing - Working capital decreased by $13.3 million to $96.2 million as of September 30, 2019, from $109.5 million at year-end 2018[200] - Net cash provided by operating activities decreased to $10.9 million in the first nine months of 2019 from $21.8 million in the same period of 2018, primarily due to lower collections and timing of payments[202] - In October 2019, the company replaced its senior credit facility with a new $120.0 million ABL facility, which had $21.4 million of borrowing availability at closing[208] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate exposure on variable-rate debt, with a swap terminated and continued exposure under the new ABL facility - The company's main market risk exposure is from changes in interest rates on its variable-rate term loan[219] - An interest rate swap agreement, which previously hedged a portion of the term debt, was terminated in September 2019[219] - After refinancing in October 2019, the company continues to be exposed to interest rate risk under the new variable-rate ABL facility[220] Item 4. Controls and Procedures Disclosure controls and procedures were effective, with no material changes to internal controls except for new controls related to ASC 842 lease adoption - The CEO and CFO concluded that the company's disclosure controls and procedures are effective as of September 30, 2019[222] - No material changes were made to internal control over financial reporting during the quarter; the company implemented new controls related to the adoption of the new lease standard, ASC 842[223] PART II. – OTHER INFORMATION Details legal proceedings, risk factors, and exhibits filed with the quarterly report Item 1. Legal Proceedings The company recorded $1.6 million in Q2 2019 legal settlement charges and received a grand jury subpoena in October 2019 - In Q2 2019, the company recorded $1.6 million in legal settlement charges related to a medical malpractice lawsuit and a California wage and hour class action settlement[226] - In October 2019, the company received a grand jury subpoena concerning Advantage On Call, a business acquired in 2017, related to an investigation of healthcare services; the company is cooperating[226] Item 1A. Risk Factors A new risk factor highlights the potential phase-out of LIBOR, which could impact credit agreements and interest rates - A new risk factor has been disclosed regarding the planned phase-out of LIBOR by the end of 2021[227][228] - The company's credit agreements use LIBOR as a reference rate, and its discontinuation will require amending these agreements to use a replacement rate, which may not be as favorable[228] Item 6. Exhibits This section lists exhibits including CEO and CFO certifications and XBRL data files filed with the Form 10-Q - The exhibits include CEO and CFO certifications as required by Sarbanes-Oxley rules[230]