UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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For the Quarterly Period Ended September 30, 2022
Or
For the Transition Period From _________ to _________
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(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of Incorporation or organization) | Commission file number | (I.R.S. Employer Identification Number) | ||||||
(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)
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
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 ☐
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 check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The registrant had outstanding 37,295,465 shares of common stock, par value $0.0001 per share, as of October 20, 2022.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on 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, Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the Private Securities Litigation Reform Act of 1995, 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 overall macroeconomic environment, including increased inflation and interest rates, demand for the healthcare services we provide, both nationally and in the regions in which we operate, the ongoing impacts of the coronavirus pandemic (COVID or COVID-19) 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, 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, including, without limitation, the risk factors set forth in Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (2021 Form 10-K), as filed and updated in our Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission (SEC).
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. Except as may be required by law, the Company undertakes no obligation to update or revise forward-looking statements.
All references to “the Company”, “we”, “us”, “our”, or “Cross Country” in this Quarterly Report on Form 10-Q mean Cross Country Healthcare, Inc. and its consolidated subsidiaries.
CROSS COUNTRY HEALTHCARE, INC.
INDEX
FORM 10-Q
September 30, 2022
| PAGE | ||||||||
Item 6. | ||||||||
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, amounts in thousands)
| September 30, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowances of $ | |||||||||||
| Prepaid expenses | |||||||||||
| Insurance recovery receivable | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
Property and equipment, net of accumulated depreciation of $ | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Trade names, indefinite-lived | |||||||||||
| Other intangible assets, net | |||||||||||
| Non-current deferred tax assets | |||||||||||
| Non-current insurance recovery receivable | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued expenses | $ | $ | |||||||||
| Accrued compensation and benefits | |||||||||||
| Current portion of debt | |||||||||||
| Operating lease liabilities - current | |||||||||||
| Income tax payable | |||||||||||
| Current portion of earnout liability | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, less current portion | |||||||||||
| Operating lease liabilities - non-current | |||||||||||
| Non-current deferred tax liabilities | |||||||||||
| Long-term accrued claims | |||||||||||
| Non-current earnout liability | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders' equity: | |||||||||||
| Common stock | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Retained earnings (accumulated deficit) | ( | ||||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements
1
CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands, except per share data)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Direct operating expenses | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Bad debt expense | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Acquisition and integration-related costs | |||||||||||||||||||||||
| Restructuring costs | |||||||||||||||||||||||
| Impairment charges | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Other expenses (income): | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Loss on early extinguishment of debt | |||||||||||||||||||||||
| Other income, net | ( | ( | ( | ( | |||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net income attributable to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||
| Unrealized foreign currency translation loss, net of tax | ( | ( | ( | ( | |||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share attributable to common stockholders - Basic | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share attributable to common stockholders - Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements
2
CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended September 30, 2022 and 2021
(Unaudited, amounts in thousands)
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss, net | Retained Earnings | Noncontrolling Interest in Subsidiary | Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Dollars | ||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2022 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Equity compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock repurchase and retirement | ( | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment, net of taxes | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2022 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss, net | (Accumulated Deficit) Retained Earnings | Noncontrolling Interest in Subsidiary | Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Dollars | ||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
| Vesting of restricted stock | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Equity compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment, net of taxes | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Dissolution of noncontrolling interest | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Distribution to noncontrolling shareholder | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements
3
CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 2022 and 2021
(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, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
| Vesting of restricted stock | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||
| Equity compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock repurchase and retirement | ( | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment, net of taxes | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2022 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| 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, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
| Vesting of restricted stock | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||
| Equity compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment, net of taxes | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Acquisition of WSG | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Dissolution of noncontrolling interest | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Distribution to noncontrolling shareholder | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements
4
CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
| Nine Months Ended | |||||||||||
| September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Consolidated net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Provision for allowances | |||||||||||
| Deferred income tax expense | |||||||||||
| Non-cash lease expense | |||||||||||
| Impairment charges | |||||||||||
| Loss on early extinguishment of debt | |||||||||||
| Equity compensation | |||||||||||
| Other non-cash costs | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Prepaid expenses and other assets | ( | ||||||||||
| Income taxes | ( | ||||||||||
| Accounts payable and accrued expenses | |||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Other | ( | ( | |||||||||
| Net cash provided by (used in) operating activities | ( | ||||||||||
| Cash flows from investing activities | |||||||||||
| Acquisitions, net of cash acquired | ( | ||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from term loan | |||||||||||
| Principal payments on term loan | ( | ( | |||||||||
| Debt issuance costs | ( | ( | |||||||||
| Borrowings under Senior Secured Asset-Based revolving credit facility | |||||||||||
| Repayments on Senior Secured Asset-Based revolving credit facility | ( | ( | |||||||||
| Cash paid for shares withheld for taxes | ( | ( | |||||||||
| Principal payments on note payable | ( | ( | |||||||||
| Stock repurchase and retirement | ( | ||||||||||
| Payment of contingent consideration | ( | ||||||||||
| Other | ( | ( | |||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash | ( | ( | |||||||||
| Change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements
5
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). In the opinion of management, all adjustments necessary for a fair presentation of such unaudited condensed consolidated financial statements have been included. All such adjustments consisted of all normal recurring items, including the elimination of all intercompany transactions and balances.
Cross Country Talent Acquisition Group, LLC was a joint venture controlled but not wholly-owned by the Company. Effective December 31, 2020, the sole professional staffing services agreement held by this joint venture was terminated and, as a result, the Company dissolved Cross Country Talent Acquisition Group, LLC in the third quarter of 2021.
The accompanying condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) 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 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, 2022.
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, 2021 included in the 2021 Form 10-K. The December 31, 2021 condensed consolidated balance sheet included herein was derived from the December 31, 2021 audited consolidated balance sheet included in the 2021 Form 10-K.
Certain prior year amounts have been reclassified to conform to the current year presentation. See the condensed consolidated balance sheets and statements of cash flows.
6
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Risks and Uncertainties
The Company’s future results of operations and liquidity could be materially adversely affected by macroeconomic factors contributing to delays in payments from clients and inflationary pressure, uncertain or reduced demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its clients.
The Company is also subject to additional risks and uncertainties due to the ongoing COVID pandemic. The extent of the impact on the Company’s business is highly uncertain and difficult to predict.
Accounts Receivable, net
The timing of revenue recognition, billings, and collections results in billed and unbilled accounts receivable from customers, which are classified as accounts receivable on the condensed consolidated balance sheets and are presented net of allowances for doubtful accounts and sales allowances. Estimated revenue for the Company employees', subcontracted employees', and independent contractors’ time worked but not yet billed at September 30, 2022 and December 31, 2021 totaled $161.2 million and $140.0 million, respectively.
The Company generally does not require collateral and mitigates its credit risk by performing credit evaluations and monitoring at-risk accounts. The allowance for doubtful accounts is established for losses expected to be incurred on accounts receivable balances. Accounts receivable are written off against the allowance for doubtful accounts when the Company determines amounts are no longer collectible. Judgment is required in the estimation of the allowance and the Company evaluates the collectability of its accounts receivable and contract assets based on a combination of factors. The Company bases its allowance for doubtful account estimates on its historical write-off experience, current conditions, an analysis of the aging of outstanding receivable and customer payment patterns, and specific reserves for customers in adverse condition adjusted for current expectations for the customers or industry. Based on the information currently available, the Company also considered current expectations of future economic conditions, including the impact of COVID, when estimating its allowance for doubtful accounts.
7
| 2022 | 2021 | ||||||||||
| (amounts in thousands) | |||||||||||
| Balance at January 1 | $ | $ | |||||||||
| Bad Debt Expense | |||||||||||
| Write-Offs, net of Recoveries | ( | ( | |||||||||
| Balance at March 31 | |||||||||||
| Bad Debt Expense | |||||||||||
| Write-Offs, net of Recoveries | ( | ( | |||||||||
| Balance at June 30 | $ | $ | |||||||||
| Bad Debt Expense | |||||||||||
| Write-Offs, net of Recoveries | ( | ( | |||||||||
| Balance at September 30 | $ | $ | |||||||||
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 (benefits) costs on the condensed 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 (benefits) beginning and ending liability balance is presented below:
| Employee Termination | Lease-Related | ||||||||||
| (amounts in thousands) | |||||||||||
| Balance at January 1, 2022 | $ | $ | |||||||||
Charged to restructuring(a) | |||||||||||
| Payments and adjustments | ( | ( | |||||||||
| Balance at March 31, 2022 | |||||||||||
Charged to restructuring(a) | ( | ||||||||||
| Payments | ( | ||||||||||
| Balance at June 30, 2022 | $ | $ | |||||||||
Charged to restructuring(a) | |||||||||||
| Payments | ( | ( | |||||||||
| Balance at September 30, 2022 | $ | $ | |||||||||
________________
(a) Restructuring costs in the condensed consolidated statements of operations for the nine months ended September 30, 2022 include a benefit of $1.4 million in the second quarter of 2022 associated with the early termination of the lease for one of the Company's corporate offices which was previously restructured.
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3. REVENUE RECOGNITION
The Company's revenues from customer contracts are generated from temporary staffing services and other services. Revenue is disaggregated by segment in the following table. Sales and usage-based taxes are excluded from revenue.
| Three Months ended September 30, 2022 | |||||||||||||||||
| Nurse And Allied Staffing | Physician Staffing | Total Segments | |||||||||||||||
| (amounts in thousands) | |||||||||||||||||
| Temporary Staffing Services | $ | $ | $ | ||||||||||||||
| Other Services | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
| Three Months ended September 30, 2021 | |||||||||||||||||
| Nurse And Allied Staffing | Physician Staffing | Total Segments | |||||||||||||||
| (amounts in thousands) | |||||||||||||||||
| Temporary Staffing Services | $ | $ | $ | ||||||||||||||
| Other Services | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
| Nine Months ended September 30, 2022 | |||||||||||||||||
| Nurse And Allied Staffing | Physician Staffing | Total Segments | |||||||||||||||
| (amounts in thousands) | |||||||||||||||||
| Temporary Staffing Services | $ | $ | $ | ||||||||||||||
| Other Services | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
| Nine Months ended September 30, 2021 | |||||||||||||||||
| Nurse And Allied Staffing | Physician Staffing | Total Segments | |||||||||||||||
| (amounts in thousands) | |||||||||||||||||
| Temporary Staffing Services | $ | $ | $ | ||||||||||||||
| Other Services | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
4. ACQUISITIONS
Selected
On December 16, 2021, the Company purchased and acquired substantially all of the assets and assumed certain liabilities of Selected, Inc. (Selected) for a purchase price of $3.5 million in cash, subject to adjustment, and $1.5 million in shares (or 59,429 shares) of the Company's common stock. The transaction was treated as a purchase of assets for income tax purposes.
The sellers were eligible to receive up to an additional $1.5 million in earnout cash consideration, based on Selected's revenues for each of the twelve-month periods ending on the first and second anniversaries of the first day after the closing date. In the
9
second quarter of 2022, the Company determined that the contingent consideration earnout related to the Selected acquisition would not be achieved for 2022 and 2023 and, as a result, the entire liability was reversed. See Note 10 - Fair Value Measurements.
The Company assigned the following values to other identifiable intangible assets: (i) an immaterial amount to trade names with a weighted average estimated useful life of 2 years; (ii) $1.7 million to software with a weighted average estimated useful life of 5 years; and (iii) $2.9 million to a database, consisting of education professionals, with a weighted average estimated useful life of 5 years, for a total of $4.6 million in definite life intangible assets with a weighted average estimated useful life of 5 years.
The remaining excess purchase price over the fair value of net assets acquired of $0.4 million was recorded as goodwill on the Company's condensed consolidated balance sheets. See Note 7 - Goodwill, Trade Names, and Other Intangible Assets.
The acquisition was not significant and has been accounted for using the acquisition method of accounting. Associated immaterial acquisition-related costs incurred have been included in acquisition and integration-related costs on the Company's condensed consolidated statements of operations for the nine months ended September 30, 2022.
Cross Country Workforce Solutions Group (CCWSG)
On June 8, 2021, the Company purchased and acquired substantially all of the assets and assumed certain liabilities of Workforce Solutions Group, Inc. (WSG) for a purchase price of $25.0 million in cash and $5.0 million in shares (or 307,730 shares) of the Company's common stock. The parties agreed to a final net working capital reduction of $1.1 million, which was received in the fourth quarter of 2021. The transaction was treated as a purchase of assets for income tax purposes.
The sellers are also eligible to receive an earnout based on the business' performance through three years after the acquisition date that could provide up to an additional $15.0 million in cash. In the third quarter of 2022, the Company determined that the contingent consideration earnout was achieved for the 2021 through 2022 period and, as a result, the Company made a $7.5 million earnout payment. The remaining earnout liability's carrying amount of $7.5 million is included in current portion of earnout liability on the condensed consolidated balance sheets. See Note 10 - Fair Value Measurements.
The following table summarizes the fair value of the assets acquired and liabilities assumed on June 8, 2021:
| (amounts in thousands) | |||||
| Cash and cash equivalents | $ | ||||
| Accounts receivable | |||||
| Other current assets | |||||
| Property and equipment | |||||
| Right-of-use assets | |||||
| Goodwill | |||||
| Other intangible assets | |||||
| Total assets acquired | |||||
| Accounts payable and accrued expenses | |||||
| Accrued compensation and benefits | |||||
| Lease liability - current | |||||
| Lease liability - non-current | |||||
| Earnout liability | |||||
| Total liabilities assumed | |||||
| Net assets acquired | $ | ||||
The Company assigned a value to other identifiable intangible assets of $14.2 million in customer relationships with a weighted average estimated useful life of 11.5 years.
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5. COMPREHENSIVE INCOME
Total comprehensive income includes net income or loss and foreign currency translation adjustments, net of any related deferred taxes, and is included within the accompanying condensed consolidated statements of operations. Certain of the Company’s foreign subsidiaries use their respective local currency as their functional currency. Assets and liabilities of these operations are translated at the exchange rates in effect on the balance sheet date. Income statement items are translated at the average exchange rates for the period. The cumulative impact of currency fluctuations related to the balance sheet translation is included in accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets and was an unrealized loss of $1.4 million at September 30, 2022 and $1.3 million at December 31, 2021.
6. EARNINGS PER SHARE
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (amounts in thousands, except per share data) | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income attributable to common stockholders - Basic and Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average common shares - Basic | |||||||||||||||||||||||
| Effect of diluted shares: | |||||||||||||||||||||||
| Share-based awards | |||||||||||||||||||||||
| Weighted average common shares - Diluted | |||||||||||||||||||||||
| Net income per share attributable to common stockholders - Basic | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share attributable to common stockholders - Diluted | $ | $ | $ | $ | |||||||||||||||||||
The following table represents the share-based awards that could potentially dilute net income per share attributable to common stockholders in the future that were not included in the computation of diluted net income per share attributable to common stockholders because to do so would have been anti-dilutive for the periods presented.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (amounts in thousands) | |||||||||||||||||||||||
| Share-based awards | $ | $ | |||||||||||||||||||||
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7. GOODWILL, TRADE NAMES, AND OTHER INTANGIBLE ASSETS
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||||||||||
| (amounts in thousands) | |||||||||||||||||||||||||||||||||||
| Intangible assets subject to amortization: | |||||||||||||||||||||||||||||||||||
| Databases | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Customer relationships | |||||||||||||||||||||||||||||||||||
| Non-compete agreements | |||||||||||||||||||||||||||||||||||
| Trade names | |||||||||||||||||||||||||||||||||||
| Software | |||||||||||||||||||||||||||||||||||
| Other intangible assets, net | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Intangible assets not subject to amortization: | |||||||||||||||||||||||||||||||||||
| Trade names, indefinite-lived | $ | $ | |||||||||||||||||||||||||||||||||
As of September 30, 2022, estimated annual amortization expense was as follows:
| (amounts in thousands) | |||||
| Years Ending December 31: | |||||
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| $ | |||||
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The changes in the carrying amount of goodwill by reportable segment are as follows:
| Nurse And Allied Staffing | Physician Staffing | Total | |||||||||||||||
| (amounts in thousands) | |||||||||||||||||
| Balances as of December 31, 2021 | |||||||||||||||||
| Aggregate goodwill acquired | $ | $ | $ | ||||||||||||||
| Sale of business | ( | ( | |||||||||||||||
| Accumulated impairment loss | ( | ( | ( | ||||||||||||||
| Goodwill, net of impairment loss | |||||||||||||||||
| Changes to aggregate goodwill in 2022 | |||||||||||||||||
Goodwill acquisition adjustment - Selected (a) | ( | ( | |||||||||||||||
| Balances as of September 30, 2022 | |||||||||||||||||
| Aggregate goodwill acquired | |||||||||||||||||
| Sale of business | ( | ( | |||||||||||||||
| Accumulated impairment loss | ( | ( | ( | ||||||||||||||
| Goodwill, net of impairment loss | $ | $ | $ | ||||||||||||||
________________
(a) Represents an adjustment to the fair value of the identifiable net assets acquired, with a corresponding offset to goodwill, made during the measurement period related to the acquisition of Selected. See Note 4 - Acquisitions.
Goodwill, Trade Names, and Other Intangible Assets Impairment
The Company tests reporting units’ goodwill and intangible assets with indefinite lives for impairment annually during the fourth quarter and more frequently if impairment indicators exist. The Company performs quarterly qualitative assessments of significant events and circumstances such as reporting units’ historical and current results, assumptions regarding future performance, strategic initiatives and overall economic factors, including COVID, and macro-economic developments, to determine the existence of potential indicators of impairment and assess if it is more likely than not that the fair value of reporting units or intangible assets is less than their carrying value. If indicators of impairments are identified a quantitative impairment test is performed.
As of September 30, 2022 and 2021, the Company performed a qualitative assessment of each of its reporting units and determined it was not more likely than not that the fair value of its reporting units dropped below their carrying value. Although management believes that the Company's current estimates and assumptions utilized in its qualitative testing are reasonable and supportable, including its assumptions on the impact and timing related to COVID, there can be no assurance that the estimates and assumptions management used for purposes of its qualitative assessment as of September 30, 2022 will prove to be accurate predictions of future performance.
For its long-lived assets and definite-lived intangible assets, the Company reviews for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. As of September 30, 2022, the Company performed a qualitative assessment of its trade names and other intangible assets and, as a result, the Company wrote off a discontinued IT project and recorded a $1.9 million impairment charge. During the nine months ended September 30, 2021, the Company wrote off a discontinued software development project, resulting in an immaterial impairment charge.
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8. DEBT
The Company's long-term debt consists of the following:
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Principal | Debt Issuance Costs | Principal | Debt Issuance Costs | ||||||||||||||||||||
| (amounts in thousands) | |||||||||||||||||||||||
Term Loan, interest of | $ | $ | ( | $ | $ | ( | |||||||||||||||||
Senior Secured Asset-Based Loan, interest of | ( | ( | |||||||||||||||||||||
Note Payable, interest of | |||||||||||||||||||||||
| Total debt | ( | ( | |||||||||||||||||||||