SEC Filing | Cross Country Healthcare, Inc.

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ccrn-20200630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

———————

FORM 10-Q

———————

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2020

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From _________ to _________

https://cdn.kscope.io/d647f6189de15c87042588b044119ddc-ccrn-20200630_g1.jpg

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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)

6551 Park of Commerce Boulevard, N.W.

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 ☒ No ☐

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). ☒ Yes ☐ 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 ☒ Non-accelerated filer ☐ (Do not check if a smaller reporting company)

Smaller Reporting Company ☐ Emerging growth company ☐

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. ☐

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had outstanding 37,565,758 shares of Common Stock, par value $0.0001 per share, as of July 31, 2020.

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”, “could”, 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: the potential impacts of the COVID-19 pandemic on our business, financial condition, and results of operations, 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, 2019, 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

June 30, 2020


		PAGE

PART I. – FINANCIAL INFORMATION			1

Item 1.	Condensed Consolidated Financial Statements	1

	Condensed Consolidated Balance Sheets (Unaudited)	1

	Condensed Consolidated Statements of Operations (Unaudited)	2

	Condensed Consolidated Statements of Comprehensive Loss (Unaudited)	3

	Condensed Consolidated Statements of Stockholders' Equity (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows (Unaudited)	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	36

PART II. – OTHER INFORMATION			37

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 6.	Exhibits	39

Signatures			40

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CROSS COUNTRY HEALTHCARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, amounts in thousands)


	June 30, 2020		December 31, 2019

Assets
Current assets:
Cash and cash equivalents	$	6,234	$	1,032
Accounts receivable, net of allowances of $3,617 in 2020 and $3,219 in 2019	156,104		169,528


Prepaid expenses	5,275		6,097
Insurance recovery receivable	4,954		5,011

Other current assets	1,985		1,689
Total current assets	174,552		183,357
Property and equipment, net of accumulated depreciation of $21,416 in 2020 and $23,276 in 2019	11,960		11,832
Operating lease right-of-use assets	11,553		16,964
Goodwill	90,924		101,066
Trade names, indefinite-lived	5,900		5,900

Other intangible assets, net	39,001		44,957



Other non-current assets	18,311		18,298
Total assets	$	352,201	$	382,374

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$	54,183	$	45,726
Accrued compensation and benefits	36,274		31,307







Operating lease liabilities - current	4,883		4,878
Other current liabilities	3,441		3,554
Total current liabilities	98,781		85,465
Revolving credit facility	49,101		70,974

Operating lease liabilities - non-current	16,757		19,070
Non-current deferred tax liabilities	6,860		7,523
Long-term accrued claims	25,042		26,938

Contingent consideration	—		4,867

Other long-term liabilities	6,586		4,037
Total liabilities	203,127		218,874

Commitments and contingencies

Stockholders' equity:
Common stock	4		4
Additional paid-in capital	307,985		305,643
Accumulated other comprehensive loss	(1,327)		(1,240)
Accumulated deficit	(158,015)		(141,775)
Total Cross Country Healthcare, Inc. stockholders' equity	148,647		162,632
Noncontrolling interest in subsidiary	427		868
Total stockholders' equity	149,074		163,500
Total liabilities and stockholders' equity	$	352,201	$	382,374

See accompanying notes to the condensed consolidated financial statements

CROSS COUNTRY HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, amounts in thousands, except per share data)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020		2019		2020		2019

Revenue from services	$	216,779	$	202,757	$	426,843	$	397,928
Operating expenses:
Direct operating expenses	166,045		151,169		326,506		298,086
Selling, general and administrative expenses	42,254		45,944		88,135		91,980
Bad debt expense	898		645		1,437		915
Depreciation and amortization	3,929		3,557		7,225		6,541


Acquisition and integration-related costs	—		299		77		811
Restructuring costs	2,330		137		2,894		1,277
Legal settlement charges	—		1,600		—		1,600
Impairment charges	15,011		14,502		15,011		14,502
Total operating expenses	230,467		217,853		441,285		415,712
Loss from operations	(13,688)		(15,096)		(14,442)		(17,784)
Other expenses (income):

Interest expense	744		1,438		1,611		2,860

Loss on early extinguishment of debt	—		54		—		414
Other income, net	(5)		(76)		(36)		(158)
Loss before income taxes	(14,427)		(16,512)		(16,017)		(20,900)
Income tax (benefit) expense	(379)		34,758		(201)		31,746


Consolidated net loss	(14,048)		(51,270)		(15,816)		(52,646)
Less: Net income attributable to noncontrolling interest in subsidiary	103		404		424		795
Net loss attributable to common shareholders	$	(14,151)	$	(51,674)	$	(16,240)	$	(53,441)




Net loss per share attributable to common shareholders - Basic and Diluted	$	(0.39)	$	(1.44)	$	(0.45)	$	(1.49)






Weighted average common shares outstanding:
Basic and Diluted	36,123		35,824		35,998		35,763

See accompanying notes to the condensed consolidated financial statements

CROSS COUNTRY HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited, amounts in thousands)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020		2019		2020		2019
Consolidated net loss	$	(14,048)	$	(51,270)	$	(15,816)	$	(52,646)

Other comprehensive loss, before income tax:
Unrealized foreign currency translation (loss) gain	(9)		1		(87)		73
Unrealized loss on interest rate contracts	—		(624)		—		(974)
Reclassification adjustment to statement of operations	—		16		—		28
	(9)		(607)		(87)		(873)
Taxes on other comprehensive loss:
Income tax effect related to unrealized foreign currency translation gain	—		—		—		18
Income tax effect related to unrealized loss on interest rate contracts	—		(158)		—		(246)
Income tax effect related to reclassification adjustment to statement of operations	—		4		—		7
Valuation allowance adjustment	—		221		—		221
	—		67		—		—
Other comprehensive loss, net of tax	(9)		(674)		(87)		(873)

Comprehensive loss	(14,057)		(51,944)		(15,903)		(53,519)
Less: Net income attributable to noncontrolling interest in subsidiary	103		404		424		795
Comprehensive loss attributable to common shareholders	$	(14,160)	$	(52,348)	$	(16,327)	$	(54,314)

See accompanying notes to the condensed consolidated financial statements

CROSS COUNTRY HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Three Months Ended June 30, 2020 and 2019

(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 March 31, 2020	36,092		$	4		$	305,935	$	(1,318)	$	(143,864)	$	645	$	161,402

Vesting of restricted stock	83		—			(22)		—		—		—		(22)
Equity compensation	—		—			2,072		—		—		—		2,072
Foreign currency translation adjustment, net of taxes	—		—			—		(9)		—		—		(9)

Distribution to noncontrolling shareholder	—		—			—		—		—		(321)		(321)
Net (loss) income	—		—			—		—		(14,151)		103		(14,048)
Balances at June 30, 2020	36,175		$	4		$	307,985	$	(1,327)	$	(158,015)	$	427	$	149,074

	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 March 31, 2019	35,806		$	4		$	302,802	$	(1,661)	$	(85,829)	$	694	$	216,010
Exercise of share options	5		—			—		—		—		—		—
Vesting of restricted stock	49		—			(11)		—		—		—		(11)
Equity compensation	—		—			1,004		—		—		—		1,004

Foreign currency translation adjustment, net of taxes	—		—			—		19		—		—		19
Net change in hedging transaction, net of taxes	—		—			—		(693)		—		—		(693)
Distribution to noncontrolling shareholder	—		—			—		—		—		(371)		(371)
Net (loss) income	—		—			—		—		(51,674)		404		(51,270)
Balances at June 30, 2019	35,860		$	4		$	303,795	$	(2,335)	$	(137,503)	$	727	$	164,688

See accompanying notes to the condensed consolidated financial statements

CROSS COUNTRY HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Six Months Ended June 30, 2020 and 2019

(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, 2019	35,871		$	4		$	305,643	$	(1,240)	$	(141,775)	$	868	$	163,500

Vesting of restricted stock	304		—			(657)		—		—		—		(657)
Equity compensation	—		—			2,999		—		—		—		2,999
Foreign currency translation adjustment, net of taxes	—		—			—		(87)		—		—		(87)

Distribution to noncontrolling shareholder	—		—			—		—		—		(865)		(865)
Net (loss) income	—		—			—		—		(16,240)		424		(15,816)
Balances at June 30, 2020	36,175		$	4		$	307,985	$	(1,327)	$	(158,015)	$	427	$	149,074

	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	9		—			—		—		—		—		—
Vesting of restricted stock	225		—			(788)		—		—		—		(788)
Equity compensation	—		—			1,535		—		—		—		1,535

Foreign currency translation adjustment, net of taxes	—		—			—		72		—		—		72
Net change in hedging transaction, net of taxes	—		—			—		(945)		—		—		(945)
Distribution to noncontrolling shareholder	—		—			—		—		—		(738)		(738)
Net (loss) income	—		—			—		—		(53,441)		795		(52,646)
Balances at June 30, 2019	35,860		$	4		$	303,795	$	(2,335)	$	(137,503)	$	727	$	164,688

See accompanying notes to the condensed consolidated financial statements

CROSS COUNTRY HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)


	Six Months Ended
	June 30,
	2020		2019
Cash flows from operating activities
Consolidated net loss	$	(15,816)	$	(52,646)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	7,225		6,541

Provision for allowances	2,182		1,962
Deferred income tax (benefit) expense	(664)		31,425
Non-cash lease expense	2,257		2,524



Impairment charges	15,011		14,502


Equity compensation	2,999		1,535

Other non-cash costs	307		1,167
Changes in operating assets and liabilities:
Accounts receivable	11,242		13,651
Prepaid expenses and other assets	(556)		(27)


Accounts payable and accrued expenses	11,907		7,669
Operating lease liabilities	(2,912)		(2,832)
Other	549		(329)
Net cash provided by operating activities	33,731		25,142

Cash flows from investing activities


Acquisition-related settlements	—		(110)



Purchases of property and equipment	(2,490)		(1,564)


Net cash used in investing activities	(2,490)		(1,674)

Cash flows from financing activities


Principal payments on Term Loan	—		(12,500)







Borrowings under revolving credit facility	192,827		—
Repayments on revolving credit facility	(214,700)		—





Principal payments on note payable	(2,426)		—
Cash payments to noncontrolling shareholder	(865)		(738)

Other	(837)		(1,440)
Net cash used in financing activities	(26,001)		(14,678)

Effect of exchange rate changes on cash	(38)		21
Change in cash and cash equivalents	5,202		8,811
Cash and cash equivalents at beginning of period	1,032		16,019
Cash and cash equivalents at end of period	$	6,234	$	24,830

See accompanying notes to the condensed consolidated financial statements

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, 2020.

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, 2019 included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission. The December 31, 2019 condensed consolidated balance sheet included herein was derived from the December 31, 2019 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 statements of operations and statements of cash flows.

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. Management has assessed various accounting estimates and other matters, including those that require consideration of forecasted financial information, in context of the unknown future impacts of the current global outbreak of Coronavirus (COVID-19) using information that is reasonably available to the Company at the time. 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) legal contingencies; (8) income taxes; and (9) 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. As additional information becomes available to the Company, its future assessment of these estimates, including management's expectations at the time regarding the duration, scope and severity of the pandemic, as well as other factors, could materially and adversely impact the Company's consolidated financial statements in future reporting periods. 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.

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, 2020	$	386	$	1,223
Charged to restructuring costs (a)	212		20
Payments	(292)		(76)
Balance at March 31, 2020	306		1,167
Charged to restructuring costs (a)	1,565		535

Payments	(1,096)		(170)
Balance at June 30, 2020	$	775	$	1,532

________________

(a) Aside from what is presented in the table above, restructuring costs in the condensed consolidated statements of operations for the six months ended June 30, 2020 also include $0.2 million of legal entity reorganization costs and $0.3 million of ongoing lease costs related to the Company's strategic reduction in its real estate footprint which are included as operating lease liabilities - current and non-current in our condensed consolidated balance sheets, as well as other costs of $0.1 million.

Recently Adopted Accounting Pronouncements

Effective January 1, 2020, the Company adopted ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The Company has adopted this guidance prospectively with no material impact on its condensed consolidated financial statements.

Effective January 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivable, loans, and other financial instruments. The guidance requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which it is effective. The Company has adopted this guidance using the modified retrospective approach related to its accounts receivable, resulting in no cumulative adjustment to retained earnings and no material impact on its condensed consolidated financial statements. See Note 3 - Customer Contracts.

3. CUSTOMER CONTRACTS

The Company's revenues from customer contracts are generated from temporary staffing services and other services. Historically, no customer has represented more than 10% of the Company's revenue. During the three months ended June 30, 2020, however, one Nurse and Allied Staffing customer concentrated in the Northeast represented approximately 13% of the Company's revenue, which was due to staffing to support the impacts of COVID-19. Revenue is disaggregated by segment in the following table. Sales and usage-based taxes are excluded from revenue.


	Three Months ended June 30, 2020
	Nurse And Allied Staffing		Physician Staffing		Search		Total Segments
	(amounts in thousands)
Temporary Staffing Services	$	193,331	$	16,081	$	—	$	209,412
Other Services	4,767		791		1,809		7,367
Total	$	198,098	$	16,872	$	1,809	$	216,779

	Three Months ended June 30, 2019
	Nurse And Allied Staffing		Physician Staffing		Search		Total Segments
	(amounts in thousands)
Temporary Staffing Services	$	177,733	$	16,827	$	—	$	194,560
Other Services	3,054		1,201		3,942		8,197
Total	$	180,787	$	18,028	$	3,942	$	202,757

	Six Months ended June 30, 2020