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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
Or
 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
———————
CROSS COUNTRY HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
———————
Delaware0-3316913-4066229
(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 classTrading SymbolName of each exchange on which registered
Common stock, par value $0.0001 per shareCCRNThe 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
   
  
   
 
   
 
   
 
   
 
   
 
   
   
   
   
  
   
   
Item 6.

i


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 2019156,104  169,528  
Prepaid expenses5,275  6,097  
Insurance recovery receivable4,954  5,011  
Other current assets1,985  1,689  
Total current assets174,552  183,357  
Property and equipment, net of accumulated depreciation of $21,416 in 2020 and $23,276 in 201911,960  11,832  
Operating lease right-of-use assets11,553  16,964  
Goodwill90,924  101,066  
Trade names, indefinite-lived5,900  5,900  
Other intangible assets, net39,001  44,957  
Other non-current assets18,311  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 benefits36,274  31,307  
Operating lease liabilities - current4,883  4,878  
Other current liabilities3,441  3,554  
Total current liabilities98,781  85,465  
Revolving credit facility49,101  70,974  
Operating lease liabilities - non-current16,757  19,070  
Non-current deferred tax liabilities6,860  7,523  
Long-term accrued claims25,042  26,938  
Contingent consideration  4,867  
Other long-term liabilities6,586  4,037  
Total liabilities203,127  218,874  
Commitments and contingencies
Stockholders' equity:  
Common stock4  4  
Additional paid-in capital307,985  305,643  
Accumulated other comprehensive loss(1,327) (1,240) 
Accumulated deficit(158,015) (141,775) 
Total Cross Country Healthcare, Inc. stockholders' equity148,647  162,632  
Noncontrolling interest in subsidiary427  868  
Total stockholders' equity149,074  163,500  
Total liabilities and stockholders' equity$352,201  $382,374  

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 EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Revenue from services$216,779  $202,757  $426,843  $397,928  
Operating expenses: 
Direct operating expenses166,045  151,169  326,506  298,086  
Selling, general and administrative expenses42,254  45,944  88,135  91,980  
Bad debt expense898  645  1,437  915  
Depreciation and amortization3,929  3,557  7,225  6,541  
Acquisition and integration-related costs  299  77  811  
Restructuring costs2,330  137  2,894  1,277  
Legal settlement charges  1,600    1,600  
Impairment charges15,011  14,502  15,011  14,502  
Total operating expenses230,467  217,853  441,285  415,712  
Loss from operations(13,688) (15,096) (14,442) (17,784) 
Other expenses (income):  
Interest expense744  1,438  1,611  2,860  
Loss on early extinguishment of debt  54    414  
Other income, net(5) (76) (36) (158) 
Loss before income taxes(14,427) (16,512) (16,017) (20,900) 
Income tax (benefit) expense(379) 34,758  (201) 31,746  
Consolidated net loss(14,048) (51,270) (15,816) (52,646) 
Less: Net income attributable to noncontrolling interest in subsidiary
103  404  424  795  
Net loss attributable to common shareholders$(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 Diluted36,123  35,824  35,998  35,763  

See accompanying notes to the condensed consolidated financial statements
2


CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, amounts in thousands)

Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Consolidated net loss$(14,048) $(51,270) $(15,816) $(52,646) 
Other comprehensive loss, before income tax:  
Unrealized foreign currency translation (loss) gain(9) 1  (87) 73  
Unrealized loss on interest rate contracts  (624)   (974) 
Reclassification adjustment to statement of operations  16    28  
(9) (607) (87) (873) 
Taxes on other comprehensive loss:
Income tax effect related to unrealized foreign currency translation gain      18  
Income tax effect related to unrealized loss on interest rate contracts  (158)   (246) 
Income tax effect related to reclassification adjustment to statement of operations  4    7  
Valuation allowance adjustment  221    221  
  67      
Other comprehensive loss, net of tax(9) (674) (87) (873) 
Comprehensive loss(14,057) (51,944) (15,903) (53,519) 
Less: Net income attributable to noncontrolling interest in subsidiary103  404  424  795  
Comprehensive loss attributable to common shareholders$(14,160) $(52,348) $(16,327) $(54,314) 

See accompanying notes to the condensed consolidated financial statements
3


CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended June 30, 2020 and 2019
(Unaudited, amounts in thousands)

 Common StockAdditional
Paid-In Capital
Accumulated Other
Comprehensive Loss, net
(Accumulated Deficit) Retained EarningsNoncontrolling Interest in SubsidiaryStockholders’ Equity
SharesDollars
Balances at March 31, 202036,092  $4  $305,935  $(1,318) $(143,864) $645  $161,402  
Vesting of restricted stock83  —  (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, 202036,175  $4  $307,985  $(1,327) $(158,015) $427  $149,074  
 Common StockAdditional
Paid-In Capital
Accumulated Other
Comprehensive Loss, net
(Accumulated Deficit) Retained EarningsNoncontrolling Interest in SubsidiaryStockholders’ Equity
SharesDollars
Balances at March 31, 201935,806  $4  $302,802  $(1,661) $(85,829) $694  $216,010  
Exercise of share options5  —  —  —  —  —  —  
Vesting of restricted stock49  —  (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, 201935,860  $4  $303,795  $(2,335) $(137,503) $727  $164,688  




















See accompanying notes to the condensed consolidated financial statements
4


CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 2020 and 2019
(Unaudited, amounts in thousands)

Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Loss, net(Accumulated Deficit) Retained EarningsNoncontrolling Interest in SubsidiaryStockholders’ Equity
SharesDollars
Balances at December 31, 201935,871  $4  $305,643  $(1,240) $(141,775) $868  $163,500  
Vesting of restricted stock304  —  (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, 202036,175  $4  $307,985  $(1,327) $(158,015) $427  $149,074  
Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Loss, net(Accumulated Deficit) Retained EarningsNoncontrolling Interest in SubsidiaryStockholders’ Equity
SharesDollars
Balances at December 31, 201835,626  $4  $303,048  $(1,462) $(84,062) $670  $218,198  
Exercise of share options9  —  —  —  —  —  —  
Vesting of restricted stock225  —  (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, 201935,860  $4  $303,795  $(2,335) $(137,503) $727  $164,688  

See accompanying notes to the condensed consolidated financial statements
5


CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
 Six Months Ended
 June 30,
 20202019
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 amortization7,225  6,541  
Provision for allowances2,182  1,962  
Deferred income tax (benefit) expense(664) 31,425  
Non-cash lease expense2,257  2,524  
Impairment charges15,011  14,502  
Equity compensation2,999  1,535  
Other non-cash costs307  1,167  
Changes in operating assets and liabilities:
Accounts receivable11,242  13,651  
Prepaid expenses and other assets(556) (27) 
Accounts payable and accrued expenses11,907  7,669  
Operating lease liabilities(2,912) (2,832) 
Other549  (329) 
Net cash provided by operating activities33,731  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 facility192,827    
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 equivalents5,202  8,811  
Cash and cash equivalents at beginning of period1,032  16,019  
Cash and cash equivalents at end of period$6,234  $24,830  

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, 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.





7


Reconciliation of the employee termination costs and lease-related exit costs beginning and ending liability balance is presented below:

Employee Termination CostsLease-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, 2020306  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.



8


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
SearchTotal Segments
(amounts in thousands)
Temporary Staffing Services$193,331  $16,081  $  $209,412  
Other Services4,767  791  1,809  7,367  
Total$198,098  $