Cross ntry Healthcare(CCRN) - 2021 Q2 - Quarterly Report

FORM 10-Q Cover Page This section provides key administrative details of the quarterly report, including filing type, registrant information, and shares outstanding - Filing Type: Quarterly Report on Form 10-Q for the period ended June 30, 2021[1] - Registrant: CROSS COUNTRY HEALTHCARE, INC.[1] - Stock Symbol: CCRN, listed on The Nasdaq Stock Market[1] - Filer Status: Accelerated filer[1] - Shares Outstanding: 38,003,670 shares of common stock as of July 31, 2021[1] INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS This section outlines forward-looking statements, associated risks, and the Company's policy on updating such information - Statements about future results are forward-looking and subject to 'safe harbor' provisions[3] - Known and unknown risks, uncertainties, and other factors may cause actual results to differ materially from projections[3] - Key risk factors include the potential impacts of COVID-19, ability to attract and retain qualified healthcare personnel, costs and availability of short-term housing, demand for services, cybersecurity risks, government regulation, client payment ability, acquisition and development strategies, liabilities and claims, and competition[3] - The Company undertakes no obligation to update or revise forward-looking statements, which reflect management's opinions only as of the filing date[4] INDEX This section provides an overview of the report's structure, detailing the contents of Part I and Part II - The report is structured into Part I (Financial Information) and Part II (Other Information)[7] - Part I includes Condensed Consolidated Financial Statements, Management's Discussion and Analysis of Financial Condition and Results of Operations, Quantitative and Qualitative Disclosures About Market Risk, and Controls and Procedures[7] - Part II includes Legal Proceedings, Risk Factors, and Exhibits[7] PART I. FINANCIAL INFORMATION This part encompasses unaudited condensed consolidated financial statements, management's discussion, and market risk disclosures ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining the Company's accounting policies, recent acquisition, debt structure, leases, fair value measurements, equity, segment data, contingencies, income taxes, and related party transactions Condensed Consolidated Balance Sheets (Unaudited) This section presents the Company's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------------------ | :------------ | :---------------- | :--------- | :--------- | | Total Assets | $493,638 | $356,973 | $136,665 | 38.3% | | Total Liabilities | $301,507 | $202,064 | $99,443 | 49.2% | | Total Stockholders' Equity | $192,131 | $154,909 | $37,222 | 24.0% | | Cash and cash equivalents | $18,127 | $1,600 | $16,527 | 1032.9% | | Accounts receivable, net | $256,487 | $170,003 | $86,484 | 50.9% | | Goodwill | $127,995 | $90,924 | $37,071 | 40.8% | | Long-term debt, less current portion | $110,777 | $53,408 | $57,369 | 107.4% | | Long-term contingent consideration | $15,000 | — | $15,000 | NM | Condensed Consolidated Statements of Operations (Unaudited) This section details the Company's financial performance, including revenue, operating income, and net income Condensed Consolidated Statements of Operations (Three Months Ended June 30, in thousands) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------------------ | :--------- | :--------- | :--------- | :--------- | | Revenue from services | $331,827 | $216,779 | $115,048 | 53.1% | | Income (loss) from operations | $15,901 | $(13,688) | $29,589 | 216.2% | | Consolidated net income (loss) | $11,548 | $(14,048) | $25,596 | 182.2% | | Net income (loss) attributable to common shareholders | $11,548 | $(14,151) | $25,699 | 181.6% | | Basic EPS | $0.32 | $(0.39) | $0.71 | NM | | Diluted EPS | $0.31 | $(0.39) | $0.70 | NM | Condensed Consolidated Statements of Operations (Six Months Ended June 30, in thousands) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------------------ | :--------- | :--------- | :--------- | :--------- | | Revenue from services | $661,068 | $426,843 | $234,225 | 54.9% | | Income (loss) from operations | $36,895 | $(14,442) | $51,337 | 355.5% | | Consolidated net income (loss) | $30,996 | $(15,816) | $46,812 | 296.0% | | Net income (loss) attributable to common shareholders | $30,996 | $(16,240) | $47,236 | 290.9% | | Basic EPS | $0.85 | $(0.45) | $1.30 | NM | | Diluted EPS | $0.84 | $(0.45) | $1.29 | NM | Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) This section presents comprehensive income, including net income and other comprehensive income items Condensed Consolidated Statements of Comprehensive Income (Loss) (Three Months Ended June 30, in thousands) | Metric | 2021 (in thousands) | 2020 (in thousands) | | :------------------------------------------ | :--------- | :--------- | | Consolidated net income (loss) | $11,548 | $(14,048) | | Unrealized foreign currency translation loss | $(24) | $(9) | | Comprehensive income (loss) attributable to common shareholders | $11,524 | $(14,160) | Condensed Consolidated Statements of Comprehensive Income (Loss) (Six Months Ended June 30, in thousands) | Metric | 2021 (in thousands) | 2020 (in thousands) | | :------------------------------------------ | :--------- | :--------- | | Consolidated net income (loss) | $30,996 | $(15,816) | | Unrealized foreign currency translation loss | $(30) | $(87) | | Comprehensive income (loss) attributable to common shareholders | $30,966 | $(16,327) | Condensed Consolidated Statements of Stockholders' Equity (Unaudited) This section outlines changes in the Company's equity, reflecting net income, share issuances, and other equity transactions - Total stockholders' equity increased from $173.67 million at March 31, 2021, to $192.13 million at June 30, 2021[14] - Key drivers for the increase in Q2 2021 were net income of $11.55 million and $5.0 million from the acquisition of WSG (shares)[14] - For the six months ended June 30, 2021, total stockholders' equity increased from $154.91 million at December 31, 2020, to $192.13 million, primarily due to net income of $30.99 million and the WSG acquisition[18] Condensed Consolidated Statements of Cash Flows (Unaudited) This section details cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30, in thousands) | Activity | 2021 (in thousands) | 2020 (in thousands) | Change ($ in thousands) | | :------------------------------------------ | :--------- | :--------- | :--------- | | Net cash (used in) provided by operating activities | $(9,422) | $33,731 | $(43,153) | | Net cash used in investing activities | $(27,472) | $(2,490) | $(24,982) | | Net cash provided by (used in) financing activities | $53,438 | $(26,001) | $79,439 | | Change in cash and cash equivalents | $16,527 | $5,202 | $11,325 | | Cash and cash equivalents at end of period | $18,127 | $6,234 | $11,893 | - Net cash used in operating activities in H1 2021 was primarily due to a $76.27 million increase in accounts receivable[20] - Net cash used in investing activities in H1 2021 included $24.47 million for the WSG acquisition[20] - Net cash provided by financing activities in H1 2021 was driven by $100.0 million proceeds from a new term loan[20] Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed explanations supporting financial statements, covering accounting policies, acquisitions, and debt 1. ORGANIZATION AND BASIS OF PRESENTATION This note describes the Company's organizational structure and the accounting principles used in financial statements - The condensed consolidated financial statements include Cross Country Healthcare, Inc. and its subsidiaries, and a joint venture (Cross Country Talent Acquisition Group, LLC) expected to dissolve in fiscal 2021 after its sole staffing agreement terminated on December 31, 2020[21] - Statements are prepared in accordance with U.S. GAAP for interim financial information and SEC instructions, and should be read in conjunction with the 2020 Form 10-K[22][23] 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines key accounting policies and estimates applied in financial statements, including revenue and goodwill - Management makes significant estimates for financial reporting, including accounts receivable valuation, goodwill, intangible assets, share-based compensation, insurance claims, deferred tax assets, legal contingencies, and income taxes, with consideration for the impacts of COVID-19[25] - Accounts receivable are presented net of allowances for doubtful accounts and sales allowances; unbilled receivables were $76.3 million at June 30, 2021, up from $48.3 million at December 31, 2020[26] Allowance for Doubtful Accounts Reconciliation (in thousands) | Metric | 2021 (in thousands) | 2020 (in thousands) | | :-------------------------------- | :----- | :----- | | Balance at January 1 | $3,416 | $2,406 | | Bad Debt Expense (Q1) | $504 | $539 | | Write-Offs, net of Recoveries (Q1) | $(699) | $(349) | | Balance at March 31 | $3,221 | $2,596 | | Bad Debt Expense (Q2) | $466 | $898 | | Write-Offs, net of Recoveries (Q2) | $(358) | $(532) | | Balance at June 30 | $3,329 | $2,962 | - Restructuring costs primarily include employee termination costs and lease-related exit costs, totaling $0.8 million for Q2 2021 and $2.3 million for Q2 2020[31][32][144] - The Company prospectively adopted ASU No. 2019-12, Income Taxes (Topic 740), effective January 1, 2021, with no material impact on its consolidated financial statements[35] 3. REVENUE RECOGNITION This note details revenue recognition policies and presents revenue breakdown by reportable segments - In Q1 2021, the Company modified its reportable segments to Nurse and Allied Staffing and Physician Staffing, reclassifying the previously-reported Search segment into Nurse and Allied Staffing[38] Revenue from Services by Segment (Three Months Ended June 30, in thousands) | Segment/Service | 2021 Revenue (in thousands) | 2020 Revenue (in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------ | :--------- | :--------- | :--------- | :--------- | | Nurse And Allied Staffing | $316,188 | $199,907 | $116,281 | 58.2% | | Physician Staffing | $15,639 | $16,872 | $(1,233) | (7.3%) | | Total Revenue | $331,827 | $216,779 | $115,048 | 53.1% | Revenue from Services by Segment (Six Months Ended June 30, in thousands) | Segment/Service | 2021 Revenue (in thousands) | 2020 Revenue (in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------ | :--------- | :--------- | :--------- | :--------- | | Nurse And Allied Staffing | $629,196 | $391,790 | $237,406 | 60.6% | | Physician Staffing | $31,872 | $35,053 | $(3,181) | (9.1%) | | Total Revenue | $661,068 | $426,843 | $234,225 | 54.9% | 4. ACQUISITION This note provides details on the recent acquisition of Workforce Solutions Group, Inc., including purchase price and financing - On June 8, 2021, the Company acquired substantially all assets of Workforce Solutions Group, Inc. (WSG) for a purchase price of $25.0 million in cash and $5.0 million in common stock (307,730 shares)[39] - The acquisition was financed using a portion of a new $100.0 million, six-year term loan[39] - Sellers are eligible for an earnout of up to an additional $15.0 million in cash based on business performance through three years post-acquisition, recorded as a contingent consideration liability[40] - The acquisition resulted in $37.1 million recorded as goodwill and WSG's results are included in the Nurse and Allied Staffing segment[42][43] 5. COMPREHENSIVE INCOME (LOSS) This note explains the components of comprehensive income, including net income and foreign currency adjustments - Total comprehensive income (loss) includes net income or loss and foreign currency translation adjustments, net of any related deferred taxes[45] - The cumulative unrealized foreign currency translation loss was $1.3 million at June 30, 2021, consistent with December 31, 2020[45] 6. EARNINGS PER SHARE This note presents the calculation of basic and diluted earnings per share, including anti-dilutive shares Earnings Per Share (Three Months Ended June 30) | Metric | 2021 | 2020 | | :------------------------------------------ | :----- | :----- | | Net income (loss) attributable to common shareholders | $11,548 | $(14,151) | | Weighted average common shares - Basic | 36,625 | 36,123 | | Weighted average common shares - Diluted | 37,203 | 36,123 | | Basic EPS | $0.32 | $(0.39) | | Diluted EPS | $0.31 | $(0.39) | Earnings Per Share (Six Months Ended June 30) | Metric | 2021 | 2020 | | :------------------------------------------ | :----- | :----- | | Net income (loss) attributable to common shareholders | $30,996 | $(16,240) | | Weighted average common shares - Basic | 36,404 | 35,998 | | Weighted average common shares - Diluted | 37,120 | 35,998 | | Basic EPS | $0.85 | $(0.45) | | Diluted EPS | $0.84 | $(0.45) | - Due to net losses in 2020, 75,688 shares (three months) and 265,304 shares (six months) were excluded from diluted weighted average shares due to their anti-dilutive effect[47] 7. GOODWILL, TRADE NAMES, AND OTHER INTANGIBLE ASSETS This note details goodwill and other intangible assets, including amortization schedules and impairment assessments Intangible Assets Subject to Amortization (June 30, 2021, in thousands) | Category | Gross Carrying Amount (in thousands) | Accumulated Amortization (in thousands) | Net Carrying Amount (in thousands) | | :----------------------- | :-------------------- | :----------------------- | :------------------ | | Databases | $30,530 | $16,849 | $13,681 | | Customer relationships | $33,538 | $15,431 | $18,107 | | Non-compete agreements | $304 | $242 | $62 | | Total | $64,372 | $32,522 | $31,850 | Estimated Annual Amortization Expense (in thousands) | Years Ending December 31 | Amount (in thousands) | | :----------------------- | :----- | | 2021 (remaining) | $2,982 | | 2022 | $5,933 | | 2023 | $5,875 | | 2024 | $5,238 | | 2025 | $4,679 | | Thereafter | $7,143 | | Total | $31,850 | Goodwill, Net of Impairment Loss by Segment (in thousands) | Segment | December 31, 2020 (in thousands) | June 30, 2021 (in thousands) | Change ($ in thousands) | Change (%) | | :------------------------ | :---------------- | :------------ | :--------- | :--------- | | Nurse and Allied Staffing | $88,117 | $125,188 | $37,071 | 42.1% | | Physician Staffing | $2,807 | $2,807 | $0 | 0.0% | | Total | $90,924 | $127,995 | $37,071 | 40.8% | - The increase in goodwill is primarily due to the $37.07 million acquired from the WSG acquisition[53] - A qualitative assessment as of June 30, 2021, determined no impairment indicators for reporting units, contrasting with a $10.2 million goodwill impairment for the Search reporting unit in Q2 2020 due to COVID-19 impacts[56][57] - Accelerated amortization of trade names in Q2 2020 resulted in $1.4 million (three months) and $2.1 million (six months) in expense due to rebranding initiatives[61] 8. DEBT This note describes the Company's debt structure, including term loans, asset-based loans, and compliance with covenants Long-Term Debt Composition (Principal, in thousands) | Debt Type | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | | :-------------------------------- | :------------ | :---------------- | | Term Loan | $100,000 | — | | Senior Secured Asset-Based Loan | $15,989 | $53,408 | | Note Payable | $2,426 | $4,851 | | Total Debt | $118,415 | $58,259 | - On June 8, 2021, the Company entered into a new $100.0 million, six-year second lien subordinated term loan with an interest rate of one-month LIBOR plus 5.75% (0.75% LIBOR floor), used to finance the WSG acquisition and pay down the ABL[64] - The ABL Credit Agreement's committed size was increased to $150.0 million through three amendments; as of June 30, 2021, $16.0 million was drawn, with $115.5 million available for borrowing[65][188][190] - The Company was in compliance with all debt covenants, including the minimum net leverage ratio for the Term Loan and the minimum fixed charge coverage ratio for the ABL, as of June 30, 2021[64][68][187][190] - A note payable of $2.43 million remains, with the final $2.5 million installment (plus 2% interest) due on January 31, 2022[69] 9. LEASES This note provides information on lease arrangements, including right-of-use assets, liabilities, and expenses Lease-Related Assets and Liabilities (in thousands) | Category | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | | :------------------------------------------ | :------------ | :---------------- | | Operating lease right-of-use assets | $8,625 | $10,447 | | Operating lease liabilities - current | $4,381 | $4,509 | | Operating lease liabilities - non-current | $13,467 | $15,234 | | Weighted-average remaining lease term | 3.7 years | 4.1 years | | Weighted average discount rate | 6.37% | 6.32% | - Restructuring efforts due to COVID-19 led to a $1.7 million right-of-use asset impairment charge for the three months ended June 30, 2021, and $3.8 million for the same period in 2020, due to vacated office space[71] - The WSG acquisition added $1.1 million in operating lease right-of-use assets and $1.1 million in operating lease liabilities[74] Components of Lease Expense (Three Months Ended June 30, in thousands) | Expense Type | 2021 (in thousands) | 2020 (in thousands) | | :----------------------- | :----- | :----- | | Operating lease expense | $938 | $1,407 | | Short-term lease expense | $641 | $1,451 | | Variable and other lease costs | $751 | $482 | 10. FAIR VALUE MEASUREMENTS This note explains the fair value hierarchy and the measurement of financial and non-financial instruments - The Company uses a three-level fair value hierarchy (Level 1: quoted prices in active markets; Level 2: observable inputs; Level 3: unobservable inputs)[78][79] - Recurring fair value measurements for deferred compensation assets and liabilities utilize Level 1 inputs[80][81] - Non-recurring fair value measurements for non-financial assets (goodwill, intangibles, right-of-use assets, property and equipment) occur only upon impairment recognition, using Level 3 inputs[82][86] Financial Instruments (Carrying Amount vs. Fair Value, in thousands) | Instrument | June 30, 2021 Carrying Amount (in thousands) | June 30, 2021 Fair Value (in thousands) | December 31, 2020 Carrying Amount (in thousands) | December 31, 2020 Fair Value (in thousands) | | :-------------------------------- | :---------------------------- | :----------------------- | :-------------------------------- | :----------------------- | | Note Payable | $2,426 | $2,426 | $4,851 | $4,851 | | Senior Secured Asset-Based Loan | $15,989 | $15,989 | $53,408 | $53,408 | | Term Loan, net | $100,000 | $100,000 | — | — | | Contingent Consideration | $15,000 | $15,000 | — | — | - The carrying amounts of the note payable, ABL, term loan, and contingent consideration approximate their fair values[88] 11. STOCKHOLDERS' EQUITY This note details changes in stockholders' equity, including share repurchase programs and share-based compensation - The Company did not repurchase any shares of common stock during the six months ended June 30, 2021 or 2020; 510,004 shares remain available under the current repurchase program[91] - The 2020 Omnibus Incentive Plan, approved May 19, 2020, replaced the 2017 Plan and reserves 3,000,000 shares for awards, generally subject to a minimum one-year vesting schedule[92][94] - Share-based compensation expense for the six months ended June 30, 2021, was $3.5 million, with 476,630 shares of common stock issued upon vesting of restricted stock[97] 12. SEGMENT DATA This note provides financial information by the Company's reportable segments, Nurse and Allied Staffing and Physician Staffing - In Q1 2021, the Company modified its reportable segments to Nurse and Allied Staffing and Physician Staffing, consolidating the former Search segment into Nurse and Allied Staffing[99] - Nurse and Allied Staffing represented approximately 95% of total revenue in Q2 2021, providing a wide range of staffing, recruiting, and total talent solutions[99][124] - Physician Staffing represented approximately 5% of total revenue in Q2 2021, providing temporary assignments for physicians and advanced practice providers[100][101][125] Segment Revenue and Contribution Income (Three Months Ended June 30, in thousands) | Segment | 2021 Revenue (in thousands) | 2020 Revenue (in thousands) | 2021 Contribution Income (in thousands) | 2020 Contribution Income (in thousands) | | :------------------------ | :----------- | :----------- | :----------------------- | :----------------------- | | Nurse and Allied Staffing | $316,188 | $199,907 | $35,284 | $19,587 | | Physician Staffing | $15,639 | $16,872 | $562 | $1,219 | | Total | $331,827 | $216,779 | $35,846 | $20,806 | Segment Revenue and Contribution Income (Six Months Ended June 30, in thousands) | Segment | 2021 Revenue (in thousands) | 2020 Revenue (in thousands) | 2021 Contribution Income (in thousands) | 2020 Contribution Income (in thousands) | | :------------------------ | :----------- | :----------- | :----------------------- | :----------------------- | | Nurse and Allied Staffing | $629,196 | $391,790 | $72,701 | $33,409 | | Physician Staffing | $31,872 | $35,053 | $1,990 | $1,850 | | Total | $661,068 | $426,843 | $74,691 | $35,259 | 13. CONTINGENCIES This note discusses the Company's legal proceedings, tax audits, and other potential liabilities - The Company is involved in various legal proceedings, primarily employee-related matters, professional liability, tax, and payroll practices, for which it maintains a liability of $0.8 million as of June 30, 2021[106] - Sales and other state non-income tax filings are subject to routine audits, and the Company accrues liabilities based on its best estimate of probable liability[107] - Management believes the outcome of any outstanding loss contingencies as of June 30, 2021, will not have a material adverse effect on its business, financial condition, results of operations, or cash flows[106] 14. INCOME TAXES This note provides details on income tax expense, effective tax rates, and valuation allowances Effective Tax Rates (Including Discrete Items) | Period | 2021 | 2020 | | :-------------------- | :----- | :----- | | Three months ended June 30 | 22.5% | 2.6% | | Six months ended June 30 | 12.1% | 1.3% | - Income tax expense for H1 2021 was primarily impacted by international and state taxes and an additional valuation allowance required as a result of the WSG acquisition[108] - The valuation allowance decreased by $8.1 million for the six months ended June 30, 2021, due to estimated taxable income, partially offset by a $2.1 million increase from the WSG acquisition[109] - As of June 30, 2021, the Company had approximately $1.0 million of unrecognized tax benefits included in other long-term liabilities[110] 15. RELATED PARTY TRANSACTIONS This note discloses transactions with related parties, including joint ventures, affiliated firms, and individuals - No revenue from the joint venture, Cross Country Talent Acquisition Group, LLC, in H1 2021, as its staffing agreement terminated in 2020 and the JV is expected to dissolve[113] - Incurred immaterial digital marketing fees from a firm related to the Company's CEO[114] - Generated $0.2 million in revenue from a health system affiliated with a Board member in H1 2021[115] - Rents WSG's headquarters from a lessor whose agent is WSG's former CEO (now a business unit president with the Company)[116] - A $2.5 million note payable balance at June 30, 2021, is related to contingent consideration from a prior acquisition, payable to an employee of the sellers[117] 16. RECENT ACCOUNTING PRONOUNCEMENTS This note discusses recently issued accounting standards and their potential impact on financial statements - The Company is assessing ASU No. 2020-04 and ASU No. 2021-01 (Reference Rate Reform) which provide optional expedients for accounting for contracts and hedging relationships affected by the LIBOR phase-out[118] - As of June 30, 2021, no material impact on consolidated financial statements is anticipated, but the Company will continue to assess potential effects on debt contracts and future hedging relationships[118] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the Company's financial condition, operating results, and cash flows, detailing business segments, key operating metrics, and a comprehensive analysis of revenue and expenses. It also discusses liquidity, capital resources, critical accounting policies, and recent accounting pronouncements Business Overview This section provides an overview of the Company's services, market position, and segment structure - Cross Country Healthcare provides total talent management services, including strategic workforce solutions, contingent staffing, permanent placement, and consultative services for healthcare customers[122] - In Q1 2021, reportable segments were modified to Nurse and Allied Staffing (approximately 95% of Q2 2021 revenue) and Physician Staffing (approximately 5% of Q2 2021 revenue), with the former Search segment consolidated into Nurse and Allied Staffing[123][124][125] - Nurse and Allied Staffing offers diverse solutions including travel/local nurse and allied professionals, managed services programs (MSP), internal resource pool (IRP), recruitment process outsourcing (RPO), and consulting services[124] Summary of Operations This section summarizes key financial highlights, including revenue growth, net income, acquisitions, and liquidity - For Q2 2021, revenue from services increased 53% year-over-year to $331.8 million, driven by strong performance in Nurse and Allied Staffing and higher bill rates, resulting in a net income of $11.5 million (compared to a $14.2 million net loss in Q2 2020)[126] - The Company acquired Workforce Solutions Group, Inc. (WSG) on June 8, 2021, for $25.0 million cash and $5.0 million in common stock, with a potential $15.0 million earnout[128] - A new $100.0 million, six-year Term Loan Agreement was entered into to finance the WSG acquisition and pay down a portion of the ABL[128] - As of June 30, 2021, the Company had $18.1 million in cash and cash equivalents, $100.0 million term loan outstanding, and $115.5 million available under its ABL facility[129] - COVID-19 is expected to continue impacting the business, with average bill and pay rates remaining higher than the prior year but declining sequentially for certain assignments[130] Operating Metrics This section identifies key performance indicators used to evaluate operational efficiency and business trends - Key operating metrics for Nurse and Allied Staffing include FTEs (average number of contract personnel on a full-time equivalent basis) and average revenue per FTE per day[132] - Key operating metrics for Physician Staffing include days filled (total hours invoiced divided by eight hours) and revenue per day filled[132] - Other metrics monitored include open orders, candidate applications, contract bookings, length of assignment, bill and pay rates, and renewal and fill rates[132] Results of Operations This section provides a detailed analysis of revenue, direct operating expenses, SG&A, and income taxes - Revenue from services increased 53.1% to $331.8 million for Q2 2021 and 54.9% to $661.1 million for H1 2021, driven by strong Nurse and Allied Staffing performance, increased volume, and higher bill rates due to COVID-19[138][151] - Direct operating expenses increased 56.1% to $259.2 million (Q2 2021) and 58.3% to $517.0 million (H1 2021), primarily due to compensation costs rising at a higher percentage than bill rates[139][152] - Selling, general and administrative expenses increased 19.1% to $50.3 million (Q2 2021) and 9.7% to $96.7 million (H1 2021), but decreased as a percentage of total revenue due to office closures and reduced legal/IT/consulting expenses[140][153] - Impairment charges significantly decreased to $1.9 million (Q2 2021) and $2.1 million (H1 2021), primarily related to real estate restructuring, compared to $15.0 million in the prior year periods which included charges for the Search business[145][158] - Income tax expense was $3.4 million (Q2 2021) and $4.3 million (H1 2021), primarily impacted by international and state taxes and additional valuation allowance from the WSG acquisition[147][160] Segment Results This section analyzes financial performance of Nurse and Allied Staffing and Physician Staffing segments - Nurse and Allied Staffing revenue increased 58.2% to $316.2 million in Q2 2021 and 60.6% to $629.2 million in H1 2021, driven by volume and higher bill rates, leading to significant increases in contribution income and margins[165][166][173][174] - Physician Staffing revenue decreased 7.3% to $15.6 million in Q2 2021 and 9.1% to $31.9 million in H1 2021, primarily due to a mix shift to lower bill-rate specialties and volume declines, impacting contribution income margins[168][169][176][177] - Corporate overhead increased to $14.1 million (Q2 2021) and $28.3 million (H1 2021) due to compensation and benefits, but decreased as a percentage of consolidated revenue[172][179] Nurse and Allied Staffing Statistical Data | Metric | Q2 2021 | Q2 2020 | Change | Percent Change | | :------------------------------------------ | :------ | :------ | :----- | :------------- | | FTEs | 7,578 | 5,801 | 1,777 | 30.6% | | Average Revenue per FTE per day | $454 | $375 | $79 | 21.1% | Physician Staffing Statistical Data | Metric | Q2 2021 | Q2 2020 | Change | Percent Change | | :------------------------------------------ | :------ | :------ | :----- | :------------- | | Days filled | 9,775 | 9,195 | 580 | 6.3% | | Revenue per day filled | $1,600 | $1,835 | $(235) | (12.8%) | Liquidity and Capital Resources This section discusses cash position, working capital, cash flow activities, and available credit facilities - As of June 30, 2021, the Company had $18.1 million in cash and cash equivalents, $100.0 million term loan outstanding, $16.0 million drawn on its ABL, and $115.5 million ABL availability[181] - Working capital increased by $73.6 million to $163.3 million as of June 30, 2021, from $89.7 million at December 31, 2020[181] - Net cash used in operating activities was $9.4 million in H1 2021 (compared to $33.7 million provided in H1 2020), primarily due to a $76.3 million increase in receivables[184] - Net cash used in investing activities was $27.5 million in H1 2021, mainly for the WSG acquisition ($24.5 million)[185] - Net cash provided by financing activities was $53.4 million in H1 2021, primarily from $100.0 million in proceeds from the new term loan[185] - The Company expects to meet future liquidity needs from cash on hand, operating cash flows, and funds available through the ABL[183] Critical Accounting Policies and Estimates This section highlights significant accounting policies and estimates requiring management's judgment - Critical accounting policies and estimates remain consistent with those reported in the 2020 Form 10-K, except for the adoption of ASU No. 2019-12, Income Taxes (Topic 740), as discussed in Note 2[193] Recent Accounting Pronouncements This section refers to disclosures regarding new accounting standards and their potential impact - Refer to Note 16 - Recent Accounting Pronouncements for details on ASU No. 2020-04 and ASU No. 2021-01 regarding Reference Rate Reform[194] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses the Company's exposure to market risks, primarily focusing on interest rate risk associated with its variable-rate debt. It highlights the potential impact of the LIBOR phase-out on interest payments and confirms no material changes to other risk exposures Interest Rate Risk This section details exposure to interest rate fluctuations, particularly concerning variable-rate debt and LIBOR transition - The Company is exposed to variable interest rate risk associated with its Term Loan Agreement and ABL Credit Agreement, which are based on LIBOR or Base Rate[196] - A 1% change in interest rates would have resulted in approximately $0.5 million fluctuation in interest expense for the six months ended June 30, 2021[197] - The phase-out of LIBOR by the end of 2021 poses a risk, as the transition to alternative benchmark rates (like SOFR) may result in less favorable rates and higher interest payments[198][208] Other Risks This section confirms no new material market risk exposures have emerged since the previous annual report - There have been no material changes to the Company's other risk exposures as disclosed in its 2020 Form 10-K[199] ITEM 4. CONTROLS AND PROCEDURES The Company's CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2021. No material changes occurred in internal control over financial reporting during the quarter, and the Company has managed to avoid material impact despite widespread remote work due to COVID-19 - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2021[200] - There were no material changes in internal control over financial reporting during the most recently completed fiscal quarter[201] - The Company has not experienced any material impact to its internal controls over financial reporting despite most employees working remotely due to the COVID-19 pandemic[201] PART II. OTHER INFORMATION This part includes disclosures on legal proceedings, updated risk factors, a list of exhibits, and official signatures ITEM 1. LEGAL PROCEEDINGS This section incorporates legal proceedings information by reference from Note 13 - Contingencies - Information regarding legal proceedings is incorporated by reference from Note 13 - Contingencies - Legal Proceedings in Part I, Item 1 of this Quarterly Report on Form 10-Q[204] ITEM 1A. RISK FACTORS This section updates risk factors, addressing new acquisition-related risks and interest rate risk from LIBOR phase-out - New risks related to the WSG acquisition include potential unknown liabilities, losses, or other exposures for which the Company may not have adequate insurance or indemnification[205] - The sellers' obligations to indemnify the Company for breaches of representations and warranties are limited, potentially leaving the Company without sufficient recourse for post-closing issues[207] - The phase-out of LIBOR by the end of 2021 may impact interest rates under the Term Loan Agreement and ABL Credit Agreement, potentially resulting in less favorable rates and higher interest payments[208] - The Term Loan Agreement and ABL Credit Agreement contain fallback provisions for alternative rate calculations in the event LIBOR is unavailable[208] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including key agreements and certifications - Key exhibits include the Asset Purchase Agreement for Workforce Solutions Group, Inc., the Term Loan Credit Agreement, and Amendment No. 3 to the ABL Credit Agreement[210] - Certifications pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350 by the Co-Founder, Chief Executive Officer, and Executive Vice President, Chief Financial Officer are included[210] - XBRL Instance Document and other XBRL Taxonomy Extension documents are also filed[210] SIGNATURES This section confirms the official signing of the report by the Executive Vice President & Chief Financial Officer - The report was signed on behalf of Cross Country Healthcare, Inc. by William J. Burns, Executive Vice President & Chief Financial Officer (Principal Accounting and Financial Officer)[215] - The signing date was August 5, 2021[215]