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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, 2023
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/fffeafaabe30f96b8ad5192384fbea86-cchfinallogorbga01.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 
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 35,802,575 shares of common stock, par value $0.0001 per share, as of July 20, 2023.



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, 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 customers’ 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, 2022 (2022 Form 10-K), as filed and updated in our subsequent 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
 
June 30, 2023
 PAGE
 
 
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
 
 
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)
 June 30,
2023
December 31,
2022
Assets
Current assets:  
Cash and cash equivalents$673 $3,604 
Accounts receivable, net of allowances of $18,812 in 2023 and $14,696 in 2022
484,885 641,611 
Income taxes receivable4,128 10,915 
Prepaid expenses6,753 11,067 
Insurance recovery receivable7,828 7,434 
Other current assets1,367 1,042 
Total current assets505,634 675,673 
Property and equipment, net of accumulated depreciation of $20,443 in 2023 and $17,682 in 2022
24,844 19,662 
Operating lease right-of-use assets2,306 3,254 
Goodwill137,020 163,268 
Other intangible assets, net60,171 44,723 
Non-current deferred tax assets7,618 7,092 
Non-current insurance recovery receivable21,946 23,058 
Other non-current assets11,591 11,109 
Total assets$771,130 $947,839 
Liabilities and Stockholders' Equity
Current liabilities:  
Accounts payable and accrued expenses$139,555 $185,507 
Accrued compensation and benefits56,021 72,605 
Operating lease liabilities - current3,292 4,132 
Current portion of earnout liability15,800 7,500 
Other current liabilities1,359 1,896 
Total current liabilities216,027 271,640 
Non-current debt31,000 148,735 
Operating lease liabilities - non-current3,150 4,880 
Non-current accrued claims32,235 35,881 
Non-current earnout liability5,200 18,000 
Uncertain tax positions - non-current9,194 7,646 
Other non-current liabilities3,976 3,838 
Total liabilities300,782 490,620 
Commitments and contingencies
Stockholders' equity:  
Common stock4 4 
Additional paid-in capital255,216 292,876 
Accumulated other comprehensive loss(1,379)(1,387)
Retained earnings216,507 165,726 
Total stockholders' equity470,348 457,219 
Total liabilities and stockholders' equity$771,130 $947,839 

See accompanying notes to the condensed consolidated financial statements
1


CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited, amounts in thousands, except per share data)

 Three Months EndedSix Months Ended
 June 30,June 30,
 2023202220232022
Revenue from services $540,695 $753,561 $1,163,402 $1,542,293 
Operating expenses: 
Direct operating expenses417,556 583,156 900,840 1,197,094 
Selling, general and administrative expenses78,938 86,009 163,198 162,862 
Bad debt expense3,134 3,192 8,042 5,561 
Depreciation and amortization4,432 3,481 9,336 6,200 
Restructuring costs (benefits)913 (1,114)1,342 (634)
Legal settlement charges  1,125  
Impairment charges533  533 1,741 
Total operating expenses505,506 674,724 1,084,416 1,372,824 
Income from operations35,189 78,837 78,986 169,469 
Other expenses (income):  
Interest expense3,149 3,857 6,839 7,378 
Loss on early extinguishment of debt1,723 1,912 1,723 1,912 
Other expense (income), net11 (1,084)(1)(1,092)
Income before income taxes30,306 74,152 70,425 161,271 
Income tax expense8,961 21,258 19,644 46,394 
Net income attributable to common stockholders$21,345 $52,894 $50,781 $114,877 
Other comprehensive income:
Unrealized foreign currency translation gain (loss), net of tax1 (31)8 (42)
Comprehensive income$21,346 $52,863 $50,789 $114,835 
Net income per share attributable to common stockholders - Basic$0.60 $1.41 $1.43 $3.08 
Net income per share attributable to common stockholders - Diluted$0.60 $1.40 $1.41 $3.03 
Weighted average common shares outstanding:  
Basic35,351 37,471 35,606 37,251 
Diluted35,524 37,757 36,041 37,866 

See accompanying notes to the condensed consolidated financial statements
2


CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended June 30, 2023 and 2022
(Unaudited, amounts in thousands)

 Common StockAdditional
Paid-In Capital
Accumulated Other
Comprehensive Loss, net
Retained EarningsStockholders’ Equity
SharesDollars
Balances at March 31, 202335,454 $4 $258,144 $(1,380)$195,162 $451,930 
Vesting of restricted stock49 — (373)— — (373)
Equity compensation— — 2,205 — — 2,205 
Stock repurchase and retirement(198)— (4,723)— — (4,723)
Stock repurchase excise tax— — (37)— — (37)
Foreign currency translation adjustment, net of taxes— — — 1 — 1 
Net income— — — — 21,345 21,345 
Balances at June 30, 202335,305 $4 $255,216 $(1,379)$216,507 $470,348 
 Common StockAdditional
Paid-In Capital
Accumulated Other
Comprehensive Loss, net
Retained EarningsStockholders’ Equity
SharesDollars
Balances at March 31, 202237,443 $4 $318,125 $(1,304)$39,248 $356,073 
Vesting of restricted stock80 — (239)— — (239)
Equity compensation— — 2,114 — — 2,114 
Foreign currency translation adjustment, net of taxes— — — (31)— (31)
Net income— — — — 52,894 52,894 
Balances at June 30, 202237,523 $4 $320,000 $(1,335)$92,142 $410,811 



























See accompanying notes to the condensed consolidated financial statements
3



CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 2023 and 2022
(Unaudited, amounts in thousands)

 Common StockAdditional
Paid-In Capital
Accumulated Other
Comprehensive Loss, net
Retained EarningsStockholders’ Equity
SharesDollars
Balances at December 31, 202236,303 $4 $292,876 $(1,387)$165,726 $457,219 
Vesting of restricted stock424 — (4,886)— — (4,886)
Equity compensation— — 3,980 — — 3,980 
Stock repurchase and retirement(1,422)— (36,483)— — (36,483)
Stock repurchase excise tax— — (271)— — (271)
Foreign currency translation adjustment, net of taxes— — — 8 — 8 
Net income— — — — 50,781 50,781 
Balances at June 30, 202335,305 $4 $255,216 $(1,379)$216,507 $470,348 
 Common StockAdditional
Paid-In Capital
Accumulated Other
Comprehensive Loss, net
(Accumulated Deficit) Retained EarningsStockholders’ Equity
SharesDollars
Balances at December 31, 202137,024 $4 $321,552 $(1,293)$(22,735)$297,528 
Vesting of restricted stock499 — (5,267)— — (5,267)
Equity compensation— — 3,715 — — 3,715 
Foreign currency translation adjustment, net of taxes— — — (42)— (42)
Net income— — — — 114,877 114,877 
Balances at June 30, 202237,523 $4 $320,000 $(1,335)$92,142 $410,811 
See accompanying notes to the condensed consolidated financial statements
4


CROSS COUNTRY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
 Six Months Ended
 June 30,
 20232022
Cash flows from operating activities  
Consolidated net income$50,781 $114,877 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization9,336 6,200 
Provision for allowances9,807 7,213 
Deferred income tax (benefit) expense(490)3,476 
Non-cash lease expense535 1,005 
Impairment charges533 1,741 
Loss on early extinguishment of debt1,723 1,912 
Equity compensation3,980 3,715 
Other non-cash costs (benefits)658 (301)
Changes in operating assets and liabilities:
Accounts receivable146,443 (215,230)
Prepaid expenses and other assets3,372 (424)
Income taxes8,337 (9,021)
Accounts payable and accrued expenses(66,548)78,438 
Operating lease liabilities(2,153)(2,674)
Other(201)(1,824)
Net cash provided by (used in) operating activities166,113 (10,897)
Cash flows from investing activities  
Acquisition-related settlements182  
Purchases of property and equipment(7,674)(3,848)
Net cash used in investing activities(7,492)(3,848)
Cash flows from financing activities  
Principal payments on term loan(73,875)(50,438)
Debt issuance costs (3,159)
Borrowings under Senior Secured Asset-Based revolving credit facility553,419 900,112 
Repayments on Senior Secured Asset-Based revolving credit facility(599,219)(824,312)
Cash paid for shares withheld for taxes(4,886)(5,267)
Principal payments on note payable (2,426)
Stock repurchase and retirement(36,483) 
Other(508)(523)
Net cash (used in) provided by financing activities(161,552)13,987 
Effect of exchange rate changes on cash 1 
Change in cash and cash equivalents(2,931)(757)
Cash and cash equivalents at beginning of period3,604 1,036 
Cash and cash equivalents at end of period$673 $279 

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.

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, 2023.

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, 2022 included in the 2022 Form 10-K. The December 31, 2022 condensed consolidated balance sheet included herein was derived from the December 31, 2022 audited consolidated balance sheet included in the 2022 Form 10-K.

Certain prior year amounts have been reclassified to conform to the current year presentation. See the condensed consolidated balance sheets and the condensed consolidated statements of operations and comprehensive income.





6


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, using information that is reasonably available to the Company at the time. Significant estimates and assumptions are used for, but not limited to: (i) the valuation of accounts receivable; (ii) goodwill, trade names, and other intangible assets; (iii) other long-lived assets; (iv) revenue recognition; (v) accruals for health, workers’ compensation, and professional liability claims; (vi) valuation of deferred tax assets; (vii) legal contingencies; and (viii) income taxes. 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 could materially and adversely impact the Company's consolidated financial statements in future reporting periods. Actual results could differ from those estimates.

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 customers 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 customers.

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 June 30, 2023 and December 31, 2022 totaled $116.9 million and $152.4 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 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 expectations of future economic conditions when estimating its allowance for doubtful accounts.

The opening balance of the allowance for doubtful accounts is reconciled to the closing balance for expected credit losses as follows:
20232022
(amounts in thousands)
Balance at January 1$13,058 $6,087 
Bad Debt Expense4,908 2,369 
Write-Offs, net of Recoveries54 (365)
Balance at March 3118,020 8,091 
Bad Debt Expense3,134 3,192 
Write-Offs, net of Recoveries(4,240)(426)
Balance at June 30$16,914 $10,857 

In addition to the allowance for doubtful accounts, the Company maintains a sales allowance for billing-related adjustments which may arise in the ordinary course of business and adjustments to the reserve are recorded as contra-revenue. The sales allowance balance as of June 30, 2023 and December 31, 2022 was $1.9 million and $1.6 million, respectively.

7



The Company’s contract terms typically require payment between 30 to 60 days from the date of invoice and are considered past due based on the particular negotiated contract terms. The majority of the Company's customers are healthcare systems with a significant percentage in acute-care facilities. No single customer accounted for more than 10% of the Company’s revenue for the three and six months ended June 30, 2023 and 2022, or the accounts receivable balance as of June 30, 2023 and December 31, 2022.

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 condensed consolidated statements of operations and comprehensive income primarily include employee termination costs and lease-related exit costs.

Reconciliations 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, 2023$799 $2,196 
Charged (credited) to restructuring527 (98)
Payments and adjustments(539)(298)
Balance at March 31, 2023787 1,800 
Charged to restructuring913  
Payments and adjustments(608)(288)
Balance at June 30, 2023$1,092 $1,512 

Recently Adopted Accounting Pronouncements

On October 28, 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities such as deferred revenue acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. Generally, this amendment will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. Historically such amounts were recognized by the acquirer at fair value in acquisition accounting. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. The Company adopted this standard in the first quarter of 2023 and will apply the guidance as it relates to future acquisitions.


8


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 June 30, 2023
Nurse
And Allied
Staffing
Physician
Staffing
Total Segments
(amounts in thousands)
Temporary Staffing Services$483,560 $43,115 $526,675 
Other Services11,816 2,204 14,020 
Total$495,376 $45,319 $540,695 
Three Months ended June 30, 2022
Nurse
And Allied
Staffing
Physician
Staffing
Total Segments
(amounts in thousands)
Temporary Staffing Services$712,090 $21,207 $733,297 
Other Services19,353 911 20,264 
Total$731,443 $22,118 $753,561 
Six Months ended June 30, 2023
Nurse
And Allied
Staffing
Physician
Staffing
Total Segments
(amounts in thousands)
Temporary Staffing Services$1,051,210 $81,312 $1,132,522 
Other Services26,468 4,412 30,880 
Total$1,077,678 $85,724 $1,163,402 
Six Months ended June 30, 2022
Nurse
And Allied
Staffing
Physician
Staffing
Total Segments
(amounts in thousands)
Temporary Staffing Services$1,461,537 $43,311 $1,504,848 
Other Services35,486 1,959 37,445 
Total$1,497,023 $45,270 $1,542,293 
See Note 12 - Segment Data.

4.    ACQUISITIONS

HireUp

On December 13, 2022, the Company purchased and acquired substantially all of the assets and assumed certain liabilities of HireUp Leadership Inc. (HireUp) for a purchase price of $6.0 million in cash, subject to adjustment, and $0.8 million in shares (or 29,811 shares) of the Company's common stock. The transaction was treated as a purchase of assets for income tax purposes.


9


The sellers were eligible to receive up to an additional $8.0 million total in earnout cash consideration based on HireUp's revenues and Adjusted EBITDA for each of the twelve-month periods ending on the first and second anniversaries of the first day after the closing date. In the second quarter of 2023, the Company performed an analysis using multiple updated forecast scenarios and determined that the earnout would only be partially achieved. As a result, the Company recognized a decrease in the fair value of the related liabilities. The short-term portion of the liability of $3.3 million is included in the current portion of earnout liability and the long-term portion of the liability of $0.2 million is included in non-current earnout liability on the condensed consolidated balance sheets. See Note 10 - Fair Value Measurements.

During the quarter ended March 31, 2023, the Company assigned the following values to other identifiable intangible assets: (i) $0.9 million to trade names with a weighted average estimated useful life of 2 years; (ii) $2.5 million to a customer list with a weighted average estimated useful life of 10 years; and (iii) $3.5 million to a database with a weighted average estimated useful life of 7 years, for a total of $6.9 million in definite life intangible assets with a weighted average estimated useful life of 7 years.

The remaining excess purchase price over the fair value of net assets acquired of $3.1 million was recorded as goodwill on the Company's condensed consolidated balance sheets. The Company may record additional valuation adjustments during the remainder of the measurement period, which is not to exceed one year from the acquisition date. See Note 7 - Goodwill, Trade Names, and Other Intangible Assets.

Mint

On October 3, 2022, the Company purchased and acquired substantially all of the assets and assumed certain liabilities of Mint Medical Physician Staffing, LP and Lotus Medical Staffing LLC (collectively, Mint) for a purchase price of $27.0 million in cash, subject to adjustment, and $3.6 million in shares (or 114,278 shares) of the Company's common stock. The transaction was treated as a purchase of assets for income tax purposes.

The sellers are eligible to receive up to an additional $10.0 million in earnout cash consideration based on Mint's revenues and gross profit for each of the twelve-month periods ending on the first and second anniversaries of the first day of the calendar month following the closing date. The short-term portion of the liability of $5.0 million is included in the current portion of earnout liability and the long-term portion of the liability of $5.0 million is included in non-current earnout liability on the condensed consolidated balance sheets. See Note 10 - Fair Value Measurements.

During the quarter ended March 31, 2023, the Company assigned the following values to other identifiable intangible assets: (i) $0.4 million to trade names with a weighted average estimated useful life of 1 year; (ii) $2.3 million to a customer list with a weighted average estimated useful life of 11 years; and (iii) $12.4 million to a database with a weighted average estimated useful life of 7 years, for a total of $15.1 million in definite life intangible assets with a weighted average estimated useful life of 7 years.

The remaining excess purchase price over the fair value of net assets acquired of $20.1 million was recorded as goodwill on the Company's condensed consolidated balance sheets. The Company may record additional valuation adjustments during the remainder of the measurement period, which is not to exceed one year from the acquisition date. See Note 7 - Goodwill, Trade Names, and Other Intangible Assets.

Local Business

On December 15, 2022, the Company purchased and acquired certain assets and assumed certain liabilities of an Ohio based business for a purchase price of $2.0 million in cash, subject to customary post-closing adjustments. The transaction was treated as a purchase of assets for income tax purposes.

On December 15, 2022, an immaterial amount was recorded as goodwill on the Company's condensed consolidated balance sheets. The Company may record additional valuation adjustments during the remainder of the measurement period, which is not to exceed one year from the acquisition date. See Note 7 - Goodwill, Trade Names, and Other Intangible Assets.

The above acquisitions made in 2022, HireUp, Mint, and a local business, both individually and in the aggregate, were not significant and have been accounted for using the acquisition method of accounting. The pro-forma impact on the Company's consolidated revenue from services and net income, including the pro forma effect of events that are directly attributable to the acquisitions, was not significant.


10


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 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.

During the quarter ended June 30, 2022, 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. The pro-forma impact on the Company's consolidated revenue from services and net income, including the pro forma effect of events that are directly attributable to the acquisition, was not significant.

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. Included in the amount paid at closing and held in an escrow account was $2.0 million related to potential wage and hour indemnification claims. On December 16, 2022, this amount was released from escrow to the seller. The transaction was treated as a purchase of assets for income tax purposes.

The sellers are 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 the current portion of earnout liability on the condensed consolidated balance sheets. See Note 10 - Fair Value Measurements.

During the quarter ended September 30, 2021, 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.

The remaining excess purchase price over the fair value of net assets acquired of $22.1 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. The pro-forma impact on the Company's consolidated revenue from services and net income, including the pro forma effect of events that are directly attributable to the acquisition, was not significant.

Acquisition-related costs

Immaterial acquisition-related costs (benefits) associated with the Company's acquisitions have been included in selling, general and administrative expenses on its condensed consolidated statements of operations and comprehensive income.

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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 and comprehensive income. 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 June 30, 2023 and $1.5 million at December 31, 2022.

The income tax impact related to components of other comprehensive income for the three and six months ended June 30, 2023 and 2022 is included in unrealized foreign currency translation gain (loss), net of tax in the condensed consolidated statements of operations and comprehensive income.

6.    EARNINGS PER SHARE

The following table sets forth the components of the numerator and denominator for the computation of the basic and diluted earnings per share:

Three Months EndedSix Months Ended
June 30,June 30,
2023202220232022
(amounts in thousands, except per share data)
Numerator:
Net income attributable to common stockholders - Basic and Diluted$21,345 $52,894 $50,781 $114,877 
Denominator:
Weighted average common shares - Basic35,351 37,471 35,606 37,251 
Effect of diluted shares:
     Share-based awards173 286 435 615 
Weighted average common shares - Diluted35,524 37,757 36,041 37,866 
Net income per share attributable to common stockholders - Basic$0.60 $1.41 $1.43 $3.08 
Net income per share attributable to common stockholders - Diluted$0.60 $1.40 $1.41 $3.03 

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 EndedSix Months Ended
June 30,June 30,
2023202220232022
(amounts in thousands)
Share-based awards 220  110 

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7.    GOODWILL, TRADE NAMES, AND OTHER INTANGIBLE ASSETS

The Company had the following acquired intangible assets:
 June 30, 2023December 31, 2022
 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$49,330 $25,447 $23,883 $33,430 $22,033 $11,397 
Customer relationships52,538 24,011 28,527 47,738 21,672 26,066 
Non-compete agreements4 4  4 3 1 
Trade names1,330 644 686 30 16 14 
Software1,700 525 1,175 1,700 355 1,345 
Other intangible assets, net$104,902 $50,631 $54,271 $82,902 $44,079 $38,823 
Intangible assets not subject to amortization:
Trade names, indefinite-lived  $5,900   $5,900 

As of June 30, 2023, estimated annual amortization expense was as follows:

(amounts in thousands)
Years Ending December 31:
2023$5,702 
202410,481 
20259,571 
20268,362 
20276,191 
Thereafter13,964 
 $54,271 


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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, 2022  
Aggregate goodwill acquired$395,119 $78,621 $473,740 
Accumulated impairment loss(269,874)(40,598)(310,472)
Goodwill, net of impairment loss125,245 38,023 163,268 
Changes to aggregate goodwill in 2023
Goodwill acquisition adjustments(a)
(11,148)(15,100)(26,248)
Balances as of June 30, 2023
Aggregate goodwill acquired383,971 63,521 447,492 
Accumulated impairment loss(269,874)(40,598)(310,472)
Goodwill, net of impairment loss$114,097 $22,923 $137,020 
________________
(a) Represents adjustments to the fair value of the identifiable net assets acquired, with a corresponding offset to goodwill, made during the measurement period related to the acquisitions of HireUp, Mint, and a local business. The Company may record additional adjustments related to these acquisitions during the remainder of the measurement period, which is not to exceed one year from the acquisition date. Upon conclusion of the measurement period, any subsequent adjustments will be recorded to earnings. 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, 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 June 30, 2023, 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, there can be no assurance that the estimates and assumptions management used for purposes of its assessment as of June 30, 2023 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. During the three months ended June 30, 2023, the Company wrote off an abandoned IT project, resulting in a $0.5 million impairment charge.

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8.    DEBT

The Company's long-term debt consists of the following:
June 30, 2023December 31, 2022
PrincipalDebt Issuance CostsPrincipalDebt Issuance Costs
(amounts in thousands)
Term Loan, interest of 10.14% at December 31, 2022
$ $ $73,875 $(1,940)
Senior Secured Asset-Based Loan, interest of 6.66% and 5.90% at June 30, 2023 and December 31, 2022, respectively
31,000 (3,034)76,800 (3,437)
Long-term debt$31,000 $(3,034)$150,675 $(5,377)

As of June 30, 2023 and December 31, 2022, all debt is included in long-term debt on the condensed consolidated balance sheets. The Company has elected to present the debt issuance costs associated with its revolving line-of-credit as an asset, which is included in other non-current assets on the condensed consolidated balance sheets. As a result, the long-term debt in the above table will not agree to long-term debt on the condensed consolidated balance sheets herein.
In addition to its scheduled payments, the Company made optional prepayments of $50.0 million on its term loan on June 23, 2022 and October 26, 2022, totaling $100.0 million, to reduce interest costs. The Company was entitled to determine the application of the prepayments, which were applied to all future amortization payments, with the balance applied to the remaining balloon payment in 2027. On June 30, 2023, the Company repaid all outstanding obligations under the term loan, and terminated the Term Loan Agreement (as defined below). As of June 30, 2023, the aggregate schedule for maturities of debt was as follows:
Term LoanSenior Secured Asset-Based Loan
(amounts in thousands)
Through Years Ending December 31:
2023$ $ 
2024  
2025  
2026  
2027 31,000 
Thereafter  
Total$ $31,000 
2021 Term Loan Credit Agreement
On June 8, 2021, the Company entered into a Term Loan Credit Agreement (Term Loan Agreement) with certain lenders identified therein (collectively, the Lenders) and Wilmington Trust, National Association as administrative agent and collateral agent, pursuant to which the Lenders extended to the Company a six-year second lien subordinated term loan in the amount of $100.0 million (term loan). The term loan had an interest rate of one-month London Inter-Bank Offered Rate (LIBOR) plus 5.75% per annum, subject to a 0.75% LIBOR floor. The borrowings under the Term Loan Agreement generally bore interest at a variable rate based on either LIBOR or Base Rate (as defined in the Term Loan Agreement) and were subject to mandatory prepayments of principal payable in quarterly installments.

The term loan was secured by a second-priority security interest in the collateral as defined in the Loan Agreement (as defined below). The lien priority, relative rights, and other creditors’ rights issues in respect of the collateral lenders are set forth in the Intercreditor Agreement, dated June 8, 2021 (Intercreditor Agreement).


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On November 18, 2021, the Company amended its Term Loan Agreement (Term Loan First Amendment), which provided the Company an incremental term loan in an aggregate amount equal to $75.0 million. Additionally, the Term Loan First Amendment increased the aggregate amount of all increases (as defined in the Term Loan Agreement) to be no greater than $115.0 million. In conjunction with the Term Loan First Amendment, the Company entered into the Term Loan First Amendment to the Intercreditor Agreement effective as of November 18, 2021.

On April 14, 2023, the Company amended its Term Loan Agreement (Term Loan Second Amendment), which provided the option for all or a portion of the borrowings to bear interest at a rate based on the Secured Overnight Financing Rate (SOFR) or the Base Rate, at the election of the borrowers, plus an applicable margin. With respect to any SOFR loan, the rate per annum was equal to the Term SOFR (as defined in the Term Loan Second Amendment) for the interest period plus an adjustment of 10 basis points due to the credit spread associated with the transition to SOFR.

In the second and fourth quarters of 2022, the Company made early prepayments totaling $100 million, and incurred prepayment premiums of $1.0 million pursuant to the Term Loan Agreement. Debt issuance costs of $1.4 million and $1.3 million were written off in the second and fourth quarters of 2022, respectively.

On June 30, 2023, the Company repaid all outstanding obligations of $73.9 million under the term loan, and terminated the Term Loan Agreement. As a result, debt issuance costs of $1.7 million were written off in the second quarter of 2023. There were no prepayment premiums associated with the payoff and all subsidiary guarantees of the term loan were automatically released.

Any prepayment premiums and write-off of debt issuance costs are included as loss on early extinguishment of debt in the condensed consolidated statements of operations and comprehensive income.

2019 Asset-Based Loan Agreement
Effective October 25, 2019, the Company terminated its prior senior credit facility and entered into an asset-based loan agreement, by and among the Company and certain of its domestic subsidiaries, as borrowers or guarantors, Wells Fargo, PNC Bank N.A., as well as other Lenders (as defined therein) from time to time parties thereto (Loan Agreement). The Loan Agreement provides for a five-year revolving senior secured asset-based credit facility (ABL) in the aggregate principal amount of up to $120.0 million, including a sublimit for swing loans up to $15.0 million and a $35.0 million sublimit for standby letters of credit.
On June 30, 2020, the Company amended its Loan Agreement (First Amendment), which increased the current aggregate committed size of the ABL from $120.0 million to $130.0 million. All other terms, conditions, covenants, and pricing of the Loan Agreement remained the same.
On March 8, 2021, the Company amended its Loan Agreement (Second Amendment), which increased the current aggregate committed size of the ABL from $130.0 million to $150.0 million, increased certain borrowing base sub-limits, and decreased both the cash dominion event and financial reporting triggers.
On June 8, 2021, the Company amended its Loan Agreement (Third Amendment), which permits the incurrence of indebtedness and grant of security as set forth in the Loan Agreement and in accordance with the Intercreditor Agreement, and provides mechanics relating to a transition away from LIBOR as a benchmark interest rate to a replacement alternative benchmark rate or mechanism for loans made in U.S. dollars.
On November 18, 2021, the Company amended its Loan Agreement (Fourth Amendment), whereby the permitted indebtedness (as defined in the Loan Agreement), was increased to $175.0 million.
On March 21, 2022, the Company amended its Loan Agreement (Fifth Amendment), which increased the current aggregate committed size of the ABL from $150.0 million to $300.0 million, extended the credit facility for an additional five years, and increased certain borrowing base sub-limits. In addition, the agreement provides the option for all or a portion of the borrowings to bear interest at a rate based on the SOFR or the Base Rate, at the election of the borrowers, plus an applicable margin. The applicable margin will increase 10 basis points due to the credit spread associated with the transition to SOFR.
These amendments were treated as modifications of debt and, as a result, the associated fees and costs were included in debt issuance costs and will be amortized ratably over the remaining term of the Loan Agreement.
Availability of the ABL commitments is subject to a borrowing base of up to 85% of secured eligible accounts receivable, subject to adjustment at certain quality levels, minus customary reserves and subject to customary adjustments. Revolving loans and letters of credit issued under the Loan Agreement reduce availability under the ABL on a dollar-for-dollar basis. At June 30, 2023, borrowing base availability under the ABL was $289.2 million and the Company had $31.0 million of borrowings drawn, as well as $18.2 million of letters of credit outstanding related to workers' compensation and professional liability

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policies, leaving $240.0 million of excess availability.
As of June 30, 2023, the interest rate spreads and fees under the Loan Agreement were based on SOFR plus 1.60% for the revolving portion of the borrowing base. The Base Rate (as defined by the Loan Agreement) margin would have been 0.50% for the revolving portion. The SOFR and Base Rate margins are subject to monthly pricing adjustments, pursuant to a pricing matrix based on the Company’s excess availability under the revolving credit facility. In addition, the facility is subject to an unused line fee, letter of credit fees, and an administrative fee. The unused line fee is 0.375% of the average daily unused portion of the revolving credit facility.
The Loan Agreement contains various restrictions and covenants applicable to the Company and its subsidiaries, including a covenant to maintain a minimum fixed charge coverage ratio. The Company was in compliance with this covenant as of June 30, 2023. Obligations under the ABL are secured by substantially all the assets of the borrowers and guarantors, subject to customary exceptions.

9.    LEASES

The Company's lease population of its right-of-use assets and lease liabilities is substantially related to the rental of office space. The Company enters into lease agreements as a lessee that may include options to extend or terminate early. Some of these real estate leases require variable payments of property taxes, insurance, and common area maintenance, in addition to base rent. Certain of the leases have provisions for free rent months during the lease term and/or escalating rent payments and, particularly for the Company’s longer-term leases for its corporate offices, it has received incentives to enter into the leases, such as receiving up to a specified dollar amount to construct tenant improvements. These leases do not include residual value guarantees, covenants, or other restrictions.

Beginning in the second quarter of 2020, in connection with the global pandemic, the Company expedited restructuring plans and either reduced or fully vacated leased office space. The decision and change in the use of space resulted in a right-of-use asset impairment charge of $1.5 million for the three months ended March 31, 2022. This loss was determined by comparing the fair value of the impacted right-of-use assets to the carrying value of the assets as of the impairment measurement date. The fair value of the right-of-use assets was based on the estimated sublease income for the space taking into consideration the time period it will take to obtain a subtenant, the applicable discount rate, and the sublease rate. For the three months ended March 31, 2022, the Company wrote off an immaterial amount of leasehold improvements and other property and equipment related to these locations. The Company did not record any lease-related impairment charges for the three and six months ended June 30, 2023 or the three months ended June 30, 2022. The measurement of the right-of-use asset impairments, using the assumptions described, is a Level 3 fair value measurement. See Note 10 - Fair Value Measurements for a description of Level 3 inputs.

The table below presents the lease-related assets and liabilities included on the condensed consolidated balance sheets:

Classification on Condensed Consolidated Balance Sheets:June 30, 2023December 31, 2022
(amounts in thousands)
Operating lease right-of-use assets$2,306 $3,254 
Operating lease liabilities - current$3,292 $4,132 
Operating lease liabilities - non-current$3,150 $4,880 
June 30, 2023December 31, 2022
Weighted average remaining lease term2 years2.3 years
Weighted average discount rate6.35 %6.31 %

The table below reconciles the undiscounted cash flows for each of, and total of, the remaining years to the operating lease liabilities (which do not include short-term leases) recorded on the condensed consolidated balance sheets as of June 30, 2023:

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(amounts in thousands)
Years Ending December 31:
2023$1,989 
20242,860 
20251,913 
202669 
202747 
Total minimum lease payments6,878 
Less: amount of lease payments representing interest(436)
Present value of future minimum lease payments6,442 
Less: operating lease liabilities - current(3,292)
Operating lease liabilities - non-current$3,150 

Other Information

The table below provides information regarding supplemental cash flows:
Six Months Ended
June 30,
20232022
(amounts in thousands)
Supplemental Cash Flow Information:
Cash paid for amounts included in the measurement of operating lease liabilities$2,434 $3,135 
Right-of-use assets acquired under operating lease$88 $60 

The components of lease expense are as follows:
Three Months Ended
June 30,
20232022
(amounts in thousands)
Amounts Included in Condensed Consolidated Statements of Operations and Comprehensive Income:
Operating lease expense$412 $645 
Short-term lease expense$738 $1,241 
Variable and other lease costs$275 $(1,110)
Six Months Ended
June 30,
20232022
(amounts in thousands)
Amounts Included in Condensed Consolidated Statements of Operations and Comprehensive Income:
Operating lease expense$904 $1,447 
Short-term lease expense$1,818 $2,385 
Variable and other lease costs$273 $(353)

Operating lease expense, short-term lease expense, and variable and other lease costs are included in selling, general and administrative expenses, direct operating expenses, and restructuring costs (benefits) in the condensed consolidated statements of operations and comprehensive income, depending on the nature of the leased asset. Operating lease expense is reported net of sublease income, which is not material. Variable and other lease costs for the three and six months ended June 30, 2022

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included a benefit associated with the early termination of one of the Company's leases for corporate offices which was previously restructured.

As of June 30, 2023, the Company did not have any material operating leases that had not yet commenced. The Company does not have any finance lease contracts related to other equipment rentals which are not included in the above disclosures.


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10.    FAIR VALUE MEASUREMENTS
 
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy was established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
 
Level 1—Quoted prices in active markets for identical assets or liabilities.
 
Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
Items Measured at Fair Value on a Recurring Basis:
 
The Company’s financial assets/liabilities required to be measured on a recurring basis were primarily its: (i) deferred compensation asset included in other non-current assets; and (ii) deferred compensation liability included in other non-current liabilities on its condensed consolidated balance sheets.

Deferred compensation—The Company utilizes Level 1 inputs to value its deferred compensation assets and liabilities. The Company’s deferred compensation assets and liabilities are measured using publicly available indices, as per the plan documents.

The estimated fair value of the Company’s financial assets and liabilities measured on a recurring basis is as follows: 

Fair Value Measurements
 June 30, 2023December 31, 2022
(amounts in thousands)
Financial Assets:
(Level 1)
Deferred compensation asset$3,103 $2,477 
Financial Liabilities:
(Level 1)  
Deferred compensation liability$2,932 $2,507 

Items Measured at Fair Value on a Non-Recurring Basis:

The Company's non-financial assets, such as goodwill, trade names, other intangible assets, right-of-use assets, and property and equipment, are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized.

The three months ended June 30, 2023 included the write-off of an abandoned IT project, resulting in a $0.5 million impairment charge. The six months ended June 30, 2022 included impairment charges to right-of-use assets along with related property and equipment in connection with leases that were vacated. Accordingly, as of June 30, 2022, these assets were recorded at fair value using Level 3 inputs. See Note 9 - Leases for more information about these fair value measurements.

Other Fair Value Disclosures:
 
Financial instruments not measured or recorded at fair value in the condensed consolidated balance sheets consist of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses. The estimated fair value of accounts receivable and accounts payable and accrued expenses approximate their carrying amount due to the short-term nature of these

20


instruments. Other financial instruments not measured or recorded at fair value include: (i) ABL, (ii) term loan, and (iii) through (v) earnout liabilities related to the WSG, Mint, and HireUp acquisitions, as discussed below.

(i) The carrying amount of the Company's ABL approximates fair value because the interest rates are variable and reflective of market rates. (ii) On June 30, 2023, the Company repaid all outstanding obligations of $73.9 million under the term loan, and terminated the Term Loan Agreement. See Note 8 - Debt. Prior to termination, the estimated fair value of the Company's term loan was calculated applying an interest rate lattice model using Level 2 inputs from available market information. (iii) Potential earnout payments related to the WSG acquisition are contingent upon meeting certain performance requirements based on 2021 through 2023 performance. The Company performed an analysis using multiple forecast scenarios to determine the fair value of the earnout liability. In the third quarter of 2022, the Company determined that the contingent consideration earnout related to the WSG acquisition was achieved for the 2021 through 2022 period and, as a result, the Company made a $7.5 million earnout payment. The remaining $7.5 million earnout liability's carrying amount approximates fair value and is included in the current portion of earnout liability on the condensed consolidated balance sheets. See Note 4 - Acquisitions. (iv) Potential earnout payments related to the Mint acquisition are contingent upon meeting certain performance requirements based on 2022 through 2024 performance. The Company performed an analysis using multiple forecast scenarios to determine the fair value of the earnout liability. The earnout liability's carrying amount approximates fair value and the short-term portion of the liability of $5.0 million is included in the current portion of earnout liability and the long-term portion of the liability of $5.0 million is included in non-current earnout liability on the condensed consolidated balance sheets. See Note 4 - Acquisitions. (v) Potential earnout payments related to the HireUp acquisition are contingent upon meeting certain performance requirements based on 2022 through 2024 performance. In the second quarter of 2023, the Company performed an analysis using multiple updated forecast scenarios and determined that the earnout would only be partially achieved. As a result, the Company recognized a decrease in the fair value of the related liabilities. The short-term portion of the liability of $3.3 million is included in the current portion of earnout liability and the long-term portion of the liability of $0.2 million is included in non-current earnout liability on the condensed consolidated balance sheets. See Note 4 - Acquisitions.

The carrying amounts and estimated fair value of the Company’s significant financial instruments that were not measured at fair value are as follows:
 June 30, 2023December 31, 2022
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
(amounts in thousands)
Financial Liabilities:
(Level 2)    
Senior Secured Asset-Based Loan$31,000 $31,000 $76,800 $76,800 
Term Loan, net$ $ $73,875 $71,221 
Earnout Liability (WSG)$7,500 $7,500 $7,500 $7,500 
Earnout Liability (Mint)$10,000 $10,000 $10,000 $10,000 
Earnout Liability (HireUp)$3,500 $3,500 $8,000 $8,000 
 
Concentration of Credit Risk:

See discussion of credit losses and allowance for doubtful accounts in Note 2 - Summary of Significant Accounting Policies. Overall, based on the large number of customers in differing geographic areas, primarily throughout the United States and its territories, the Company believes the concentration of credit risk is limited.
 
11.    STOCKHOLDERS’ EQUITY

Stock Repurchase Program
 
On August 16, 2022, the Company's Board of Directors authorized a new stock repurchase program (the New Repurchase Program), whereby the Company may repurchase up to $100.0 million of its shares of common stock, subject to the terms of its current credit agreements. The shares may be repurchased from time-to-time in the open market or in privately negotiated transactions. The New Repurchase Program was effective immediately and may be discontinued at any time at the Board of Directors' discretion. In addition to the repurchase of $100.0 million of its shares of common stock under the New Repurchase Program, the Company was authorized to continue to repurchase any remaining shares available for repurchase under the Company's previous stock repurchase program, which was approved by the Board of Directors on February 28, 2008 (the Prior

21


Repurchase Program). Upon completion of the authorized number of shares available for repurchase under the Prior Repurchase Program, the Company commenced repurchases under the New Repurchase Program during the third quarter of 2022. During the fourth quarter of 2022, the Company entered into a Rule 10b5-1 Repurchase Plan to allow for share repurchases during the Company's blackout periods.

On May 1, 2023, the Company’s Board of Directors authorized approximately $59.0 million in additional share repurchases, such that, effective for trades made after May 3, 2023, the aggregate amount available for stock repurchases under the New Repurchase Program was $100.0 million. The shares can be repurchased from time-to-time in the open market or in privately negotiated transactions. Decisions regarding the amount and the timing of repurchases under the New Repurchase Program will be subject to the Company’s available liquidity and cash on hand, applicable legal requirements, the terms of the Company’s Loan Agreement and Term Loan Agreement, general market conditions, and other factors. The New Repurchase Program does not obligate the Company to repurchase any particular number of shares of common stock and may be discontinued by the Board of Directors at any time.

During the three months ended June 30, 2023, the Company repurchased and retired a total of 198,463 shares of common stock for $4.7 million, at an average price of $23.78 per share. During the six months ended June 30, 2023, the Company repurchased and retired a total of 1,421,867 shares of common stock for $36.5 million, at an average price of $25.64 per share. During the three and six months ended June 30, 2022, the Company did not repurchase any shares of its common stock.

As of June 30, 2023, the Company had $98.4 million remaining for share repurchase under the New Repurchase Program, subject to certain conditions in the Company's Loan Agreement. At June 30, 2023, the Company had 35,305,025 unrestricted shares of common stock outstanding.

Share-Based Payments

On May 19, 2020, the Company's stockholders approved the Cross Country Healthcare, Inc. 2020 Omnibus Incentive Plan (2020 Plan), which replaced the Cross Country Healthcare, Inc. 2017 Omnibus Incentive Plan (2017 Plan), and applies to awards granted after May 19, 2020. The remaining shares available for grant under the 2017 Plan were cancelled and no further awards will be granted under that plan. The 2020 Plan generally mirrors the terms of the 2017 Plan and includes the following provisions: (i) an aggregate share reserve of 3,000,000 shares; (2) annual dollar and share limits of awards granted to employees and consultants, as well as non-employee directors, based on type of award; (3) awards granted generally will be subject to a minimum one-year vesting schedule; and (4) awards may be granted under the 2020 Plan until March 24, 2030.

The following table summarizes restricted stock awards and performance stock awards activity issued under the 2017 Plan and the 2020 Plan (Plans) for the six months ended June 30, 2023:

Restricted Stock AwardsPerformance Stock Awards
 Number of
Shares
Weighted
Average
Grant Date
Fair Value
Number of Target
Shares
Weighted
Average
Grant Date
Fair Value
Unvested restricted stock awards, January 1, 2023674,508 $14.53 476,086 $12.56 
Granted314,503 $22.80 200,487 $19.23 
Vested(402,419)$12.40 (238,253)$6.74 
Forfeited(21,405)$20.93 (4,785)$16.83 
Unvested restricted stock awards, June 30, 2023565,187 $20.40 433,535 $18.80 

Restricted stock awards granted under the Company’s Plans entitle the holder to receive, at the end of a vesting period, a specified number of shares of the Company’s common stock. Share-based compensation expense is measured by the market value of the Company’s stock on the date of grant.

Awards granted to non-employee directors under the 2020 Plan will vest on the first anniversary of such grant date, or earlier subject to retirement eligibility. In addition, effective for the three months ended June 30, 2020, the Company implemented modified guidelines that provide for accelerated vesting of restricted stock grants on the last date of service when a retirement-eligible director retires.


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Pursuant to the Plans, the number of target shares that are issued for performance-based stock awards are determined based on the level of attainment of the targets. During the first quarter of 2023, the Company's Compensation Committee of the Board of Directors approved a 120% level of attainment for the 2020 performance-based share awards, resulting in the issuance of 238,253 performance shares that vested on March 31, 2023.

During the three and six months ended June 30, 2023, $2.2 million and $4.0 million, respectively, was included in selling, general and administrative expenses related to share-based payments, and a net of 49,582 and 424,274 shares, respectively, of common stock were issued upon the vesting of restricted and performance stock.

During the three and six months ended June 30, 2022, $2.1 million and $3.7 million, respectively, was included in selling, general and administrative expenses related to share-based payments, and a net of 80,200 and 499,700 shares, respectively, of common stock were issued upon the vesting of restricted and performance stock.

12.    SEGMENT DATA

The Company’s segments offer services to its customers as described below:

●    Nurse and Allied Staffing – Nurse and Allied Staffing provides traditional staffing, recruiting, and value-added total talent solutions including: temporary and permanent placement of travel and local nurse and allied professionals, and healthcare leaders within nursing, allied, physician, human resources, and finance, MSP services, education healthcare services, in-home care services, and outsourcing services. In addition, Nurse and Allied Staffing provides retained search services for healthcare professionals, as well as contingent search and recruitment process outsourcing services. Its customers include: public and private acute-care and non-acute care hospitals, government facilities, local and national healthcare plans, managed care providers, public schools and charter schools, outpatient clinics, ambulatory care facilities, physician practice groups, and many other healthcare providers throughout the United States.

●    Physician Staffing – Physician Staffing provides physicians in many specialties, as well as certified registered nurse anesthetists, nurse practitioners, and physician assistants as independent contractors on temporary assignments throughout the United States at various healthcare facilities, such as acute and non-acute care facilities, medical group practices, government facilities, and managed care organizations.

The Company evaluates performance of each segment primarily based on revenue and contribution income. The Company defines contribution income as income (loss) from operations before depreciation and amortization, acquisition and integration-related (benefits) costs, restructuring (benefits) costs, legal settlement charges, impairment charges, and corporate overhead. The Company does not evaluate, manage, or measure performance of segments using asset information; accordingly, total asset information by segment is not prepared or disclosed. The information in the following table is derived from the segments’ internal financial information as used for corporate management purposes. Certain corporate expenses are not allocated to and/or among the operating segments.


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Information on operating segments and a reconciliation to income from operations for the periods indicated are as follows:

Three Months EndedSix Months Ended
June 30,June 30,
 2023202220232022
 (amounts in thousands)
Revenue from services:    
Nurse and Allied Staffing$495,376 $731,443 $1,077,678 $1,497,023 
Physician Staffing45,319 22,118 85,724 45,270 
$540,695 $753,561 $1,163,402 $1,542,293 
Contribution income:
Nurse and Allied Staffing$56,481 $97,567 $123,650 $207,668 
Physician Staffing3,541 1,220 5,265 2,985 
60,022 98,787 128,915 210,653 
Corporate overhead(a)
18,891 17,583 37,547 33,837 
Depreciation and amortization4,432 3,481 9,336 6,200 
Restructuring costs (benefits)913 (1,114)1,342 (634)
Legal settlement charges  1,125  
Impairment charges533  533 1,741 
Other costs(b)
64  46 40 
Income from operations$35,189 $78,837 $78,986 $169,469 
_______________
(a) Corporate overhead includes unallocated executive leadership and other centralized corporate functional support costs such as finance, IT, legal, human resources, and marketing, as well as public company expenses and corporate-wide projects (initiatives).
(b) Other costs include acquisition and integration-related (benefits) costs.

13.    CONTINGENCIES
 
Legal Proceedings

From time to time, the Company is involved in various litigation, claims, investigations, and other proceedings that arise in the ordinary course of its business. These proceedings primarily relate to employee-related matters that include individual and collective claims, professional liability, tax, and payroll practices. The Company establishes reserves when available information indicates that a loss is probable and an amount or range of loss can be reasonably estimated. These assessments are performed at least quarterly and are based on the information available to management at the time and involve significant management judgment to determine the probability and estimated amount of potential losses, if any. Based on the available information considered in its reviews, the Company adjusts its loss contingency accruals and its disclosures as may be required. Actual outcomes or losses may differ materially from those estimated by the Company's current assessments, including available insurance recoveries, which would impact the Company's profitability. Adverse developments in existing litigation claims or legal proceedings involving the Company or new claims could require management to establish or increase litigation reserves or enter into unfavorable settlements or satisfy judgments for monetary damages for amounts in excess of current reserves, which could adversely affect the Company's financial results. The Company believes the outcome of any outstanding loss contingencies as of June 30, 2023 will not have a material adverse effect on its business, financial condition, results of operations, or cash flows.

Sales and Other State Non-Income Tax Liabilities

The Company's sales and other state non-income tax filings are subject to routine audits by authorities in the jurisdictions where it conducts business in the United States which may result in assessments of additional taxes. The Company accrues sales and other non-income tax liabilities based on the Company's best estimate of its probable liability utilizing currently available information and interpretation of relevant tax regulations. Given the nature of the Company's business, significant subjectivity

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exists as to both whether sales and other state non-income taxes can be assessed on its activity and how the sales tax will ultimately be measured by the relevant jurisdictions. The Company makes a determination for each reporting period whether the estimates for sales and other non-income taxes in certain states should be revised. The expense is included in selling, general and administrative expenses in the Company's condensed consolidated statements of operations and comprehensive income and the liability is reflected in sales tax payable within other current liabilities in its condensed consolidated balance sheets.

14.    INCOME TAXES
 
For the three and six months ended June 30, 2023 and 2022, the Company calculated the provision for income taxes by applying an annual effective tax rate to ordinary income for the interim reporting period. The Company’s effective tax rate was 29.6% and 27.9%, including the impact of discrete items, and 30.0%, excluding discrete items, for the three and six months ended June 30, 2023, respectively. The Company’s effective tax rate was 28.7% and 28.8%, including the impact of discrete items, and 28.9% and 29.5%, excluding discrete items, for the three and six months ended June 30, 2022, respectively. The effective tax rates for the three and six months ended June 30, 2023 and 2022 were primarily impacted by federal and state taxes.

The tax years 2012 through 2022 remain open to examination by certain taxing jurisdictions to which the Company is subject to tax.


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15.    RELATED PARTY TRANSACTIONS

The Company has entered into an arrangement for digital marketing services provided by a firm that is related to Mr. Kevin C. Clark, the Company's non-executive Chairman of the Board of Directors since April 1, 2022, and the Company's Co-Founder & Chief Executive Officer through March 31, 2022. Mr. Clark is a minority shareholder in the firm's parent company and is a member of the parent company's Board of Directors. Management believes the terms of the arrangement are equivalent to those prevailing in an arm's-length transaction and have been approved by the Company through its related party process. The digital marketing firm manages a limited number of digital publishers covering various Company brands for a monthly management fee. During the three and six months ended June 30, 2023 and 2022, the Company incurred an immaterial amount in expenses. The Company had immaterial payable balances at June 30, 2023 and December 31, 2022.

The Company provides services to entities which are affiliated with certain members of the Company’s Board of Directors. Management believes the services were conducted on terms equivalent to those prevailing in an arm's-length transaction. Revenue related to these transactions was $0.4 million and $0.6 million for the three and six months ended June 30, 2023, respectively, and $0.5 million and $0.9 million for the three and six months ended June 30, 2022, respectively. Accounts receivable due from these entities was an immaterial amount at June 30, 2023 and December 31, 2022.

Following the WSG acquisition on June 8, 2021, the Company continued to rent WSG's headquarters. The Chief Executive Officer and Founder of WSG, who is currently a business unit president with the Company, is an agent of the lessor. The lease for WSG's headquarters was terminated at the end of the first quarter of 2023. Accordingly, the Company paid no rent expense for these premises for the three months ended June 30, 2023 and had no payable balance at June 30, 2023.

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The purpose of the following Management’s Discussion and Analysis (MD&A) is to help facilitate the understanding of significant factors influencing the quarterly operating results, financial condition, and cash flows of the Company. Additionally, MD&A also conveys our current expectations of the potential impact of known trends, events, or uncertainties that may impact future results. MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended December 31, 2022 (2022 Form 10-K) (including Part I, Item 1A. "Risk Factors"), our financial statements and the accompanying notes to our financial statements.
 
Business Overview

We provide total talent management services, including strategic workforce solutions, contingent staffing, permanent placement, and consultative services for healthcare customers across the continuum of care, by recruiting and placing highly qualified healthcare professionals in virtually every specialty and area of expertise. In addition to clinical roles such as school nurses, speech language, and behavioral therapists, we place non-clinical professionals such as teachers, substitute teachers, and other education specialties at educational facilities across the nation. Our diverse customer base includes both public and private acute care and non-acute care hospitals, outpatient clinics, ambulatory care facilities, single- and multi-specialty physician practices, rehabilitation facilities, Program of All-Inclusive Care for the Elderly (PACE) programs, urgent care centers, local and national healthcare systems, managed care providers, public and charter schools, correctional facilities, government facilities, pharmacies, and many other healthcare providers. Through our national staffing teams, we offer our workforce solutions and place clinicians on travel and per diem assignments, local short-term contracts, and permanent positions. In addition, we continually evaluate opportunities to acquire companies that would complement or enhance our business, like WSG and Mint.

Our workforce solutions include managed service programs (MSPs), recruitment process outsourcing (RPO), project management, and other outsourcing and consultative services as described in Item 1. Businessin our 2022 Form 10-K. By utilizing the solutions that we offer, customers are able to better plan their personnel needs, optimize their talent acquisition and management processes, strategically flex and balance their workforce, have access to quality healthcare personnel, and provide continuity of care for improved patient outcomes. We have a history of investing in diversity, equality, and inclusion as a key component of the organization’s overall corporate social responsibility program, which we believe is closely aligned with our core values to create a better future for our people, communities, and our stockholders.

The Company’s two reportable segments offer services to its customers as described below:

●    Nurse and Allied Staffing – Nurse and Allied Staffing represented approximately 92% of total revenue in the second quarter of 2023. The Nurse and Allied Staffing segment provides workforce solutions and traditional staffing,

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including temporary and permanent placement of travel nurses and allied professionals, as well as per diem and contract nurses and allied personnel. We also provide clinical and non-clinical professionals on short-term and long-term assignments to customers such as local and national healthcare plans, managed care providers, public and charter schools, correctional facilities, skilled nursing facilities, and other non-acute settings. In addition, Nurse and Allied Staffing provides retained search services for healthcare professionals, as well as contingent search and recruitment process outsourcing services. We provide flexible workforce solutions to our healthcare customers through diversified offerings designed to meet their unique needs, including MSP, RPO, and consulting services.

●    Physician Staffing – Physician Staffing represented approximately 8% of total revenue in the second quarter of 2023. Physician Staffing provides physicians in many specialties, as well as certified registered nurse anesthetists, nurse practitioners, and physician assistants as independent contractors on temporary assignments throughout the United States.

Summary of Operations

For the quarter ended June 30, 2023, revenue from services decreased 28% year-over-year to $540.7 million, due to anticipated volume and average bill rate declines in the Nurse and Allied Staffing segment, partially offset by volume increases in the Physician Staffing segment. In the Physician Staffing segment, the number of days filled increased across several specialties. Net income attributable to common stockholders in the second quarter of 2023 was $21.3 million, as compared to $52.9 million for the same period in the prior year.

For the three months ended June 30, 2023, cash flow provided by operating activities was $119.2 million, with net repayments of $35.4 million on our senior secured asset-based credit facility (ABL), and a decrease in working capital stemming from a decrease in net receivables, partially offset by the timing of disbursements. As of June 30, 2023, we had $0.7 million of cash and cash equivalents. Borrowing base availability under the ABL was $289.2 million, with $31.0 million of borrowings drawn under the ABL, and $18.2 million of undrawn letters of credit outstanding, leaving $240.0 million of excess availability.

On June 30, 2023, we repaid all outstanding obligations of $73.9 million under the term loan. As a result, debt issuance costs of $1.7 million were written off in the second quarter of 2023.

We remain committed to continued investments in our technology. We are on schedule with our transition of existing clients to Intellify, and are confident that Intellify and our other technology initiatives can open up new opportunities for us as a business-driven technology platform.

See Results of Operations, Segment Results, and Liquidity and Capital Resources sections that follow for further information.

Operating Metrics

We evaluate our financial condition by tracking operating metrics and financial results specific to each of our segments. Key operating metrics include hours worked, days filled, number of contract personnel on a full-time equivalent (FTE) basis, revenue per FTE, and revenue per day filled. Other operating metrics include number of open orders, candidate applications, contract bookings, length of assignment, bill and pay rates, and renewal and fill rates, number of active searches, and number of placements. These operating metrics are representative of trends that assist management in evaluating business performance. Due to the timing of our business process and other factors, certain of these operating metrics may not necessarily correlate to the reported U.S. GAAP results for the periods presented. Some of the segment financial results analyzed include revenue, operating expenses, and contribution income. In addition, we monitor cash flow, as well as operating and leverage ratios, to help us assess our liquidity needs.


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Business SegmentBusiness Measurement
Nurse and Allied Staffing FTEs represent the average number of Nurse and Allied Staffing contract personnel on a full-time equivalent basis.
Average revenue per FTE per day is calculated by dividing the Nurse and Allied Staffing revenue, excluding permanent placement, per FTE by the number of days worked in the respective periods.
Physician StaffingDays filled is calculated by dividing the total hours invoiced during the period, including an estimate for the impact of accrued revenue, by eight hours.
Revenue per day filled is calculated by dividing revenue as reported by days filled for the period presented.

Results of Operations
 
The following table summarizes, for the periods indicated, selected condensed consolidated statements of operations and comprehensive income data expressed as a percentage of revenue. Our historical results of operations are not necessarily indicative of future operating results.

Three Months EndedSix Months Ended
June 30,June 30,
 2023202220232022
Revenue from services100.0 %100.0 %100.0 %100.0 %
Direct operating expenses77.2 77.4 77.5 77.6 
Selling, general and administrative expenses14.6 11.4 14.0 10.5 
Bad debt expense0.6 0.4 0.7 0.4 
Depreciation and amortization0.8 0.5 0.8 0.4 
Restructuring costs (benefits)0.2 (0.2)0.1 — 
Legal settlement charges— — 0.1 — 
Impairment charges0.1 — — 0.1 
Income from operations6.5