A N N U A L R E P O R T
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ONE VISION. ONE BRAND. ONE CROSS COUNTRY.
Dear Fellow Shareholders,
I am pleased to share the many exciting milestones we have achieved since I rejoined
the company one year ago, positioning us to become a leading total talent management
provider in the healthcare staffing marketplace. In this turnaround year, there is much
to be proud of for our colleagues around the country. We consistently grew revenue
over the last year, effectively managed our costs and invested in our future.
Specifically, we’ve made
significant progress in:
• Driving profitability and
accelerated revenue growth
• Reducing SG&A in order
to fund investments
• Consolidating our brands
• Reimagining the delivery
of our solutions in the digital
age and investing in
revenue producers
• Transforming our
corporate culture
• Repositioning the company
as an innovative workforce
solutions partner
On behalf of our approximately
1,700 exceptional team members,
we are eager and energized
as we enter the next chapter
of our evolution, innovation
and growth.
One Vision. One Brand.
One Cross Country.
In 2019, we implemented a
comprehensive strategic plan
across our business units
which began by reigniting our
company culture, leveraging
the considerable experience
and strength of our team
and returning to our roots as
innovators, entrepreneurs and
market leaders. We improved
collaboration and teamwork,
reduced bureaucracy and
sped up decision-making.
As a major milestone in our
vision of One Cross Country,
we moved to a simplified and
cohesive brand voice around
Cross Country, reducing 20
disparate brands to just a few.
We built on the legacy of the
Cross Country brand with a more
modern, distinct, consistent
look and feel. The importance
goes far beyond re-branding
as it solidifies our go-to-market
strategy as a provider of total
talent management solutions.
Our suite of services offers
greater value to our clients while
expanding and deepening our
relationship with them. Today,
our total talent management
model holistically breaks
down the barriers between
permanent and contingent
delivery channels and allows us
to tailor our mix of solutions to
each client in order to address
each client’s specific pain points.
We have simplified the talent
acquisition process so that
health systems can manage
costs and find the best talent
at the right time.
Driving Revenue Growth
& Lowering Costs
Throughout 2019, we
experienced sequential
revenue growth which drove
the company to consolidated
revenue growth for the full
year. Demand from our clients
continues to be robust, and we
are addressing our sales efforts
to deliver solutions. We are
constantly reviewing our
portfolio and working hard to
address margin pressure to
deliver profitable growth in this
supply constrained environment.
We continue to strengthen our
foundation for a sustainable
future by paying down debt,
restructuring our balance sheet,
improving margins and driving
accelerated growth. As we
move forward, we will continue
to invest selectively in line with
our strategy, while maintaining
control over costs and cash.
Embracing Digital
Innovation
Advancements such as
artificial intelligence, automation,
machine learning, big data
and analytics are changing
how people work and how
we deliver solutions to our
healthcare providers, clients
and team members.
With our customer and
candidate experiences at
the core, we’re investing in
innovative digital platforms
and solutions that increase
our operational efficiency,
continually making it easier
and faster for employers and
job seekers to hire and be
hired. Some of our investments
include:
• Replacing our internal
Applicant Tracking System
for our travel nurse and allied
business with a leading
staffing and recruiting software
and streamlining internal
processes, which enables
us to focus on exceptional
candidate and client
experiences.
• Enhancing our recruitment
analytics using job-level data,
consolidating visibility into the
ROI of recruitment advertising,
and using real-time data and
actionable insight to optimize
recruitment.
• Developing and implementing
an innovative mobile staffing
platform, a marketplace,
which provides on-demand
technology for our candidates
that expedites job placements
by matching open shifts with
pre-vetted, credentialed
and qualified healthcare
professionals.
Notwithstanding these initiatives,
there is no technology available
today that is capable of replacing
our experienced, passionate and
professional team. Technology
and online interaction may
facilitate processes, but it is
our staffing professionals that
evaluate a candidate’s attitude,
professionalism and demeanor.
So, while we lead a digital
transformation, we place equal
value on continuing to provide
the high touch, personalized
interaction that is critical to finding
the perfect employment match.
Seizing on
Workforce Megatrends
We also recognize that the
workforce dynamic is changing
rapidly: demographics are
shifting, younger generations
demand work with purpose
and meaning, clients and
candidates need flexibility and
the increasingly rapid adoption
of technology is challenging
our view of the workplace.
As a result, we are making it
easier for our candidates to
interact with Cross Country
Healthcare online and via
mobile applications. We are
combining our digital platforms
with our decades of labor
market knowledge in an
effort to create a world-class
experience.
In addition, our experienced
team is working to stay ahead
of these megatrends and create
significant opportunities for
Cross Country Healthcare.
An Organization
Full of Passionate,
Talented Team Members
I continue to be impressed by
our team members who have
responded with enthusiasm,
dedication and commitment
and have kept up with the
rapid pace of change within
the company over the past
year. Our exceptional team
members continue to challenge
the status quo and be a force
for change.
Team members at Cross
Country Healthcare strive
to meet the needs of
stakeholders and create new
value, demonstrating a passion
for thinking through solutions
to problems all our customers,
candidates and industry face.
I am profoundly grateful.
Looking to the Future
For the past several weeks,
our attention has been heavily
weighted on meeting the needs
of hospital customers, corporate
employees and field personnel
so that we can provide much-
needed care to patients affected
by the coronavirus pandemic.
Notwithstanding this, we remain
very focused on expanding the
reach of our digital initiatives and
creating new solutions and value
for our candidates and clients.
I want to thank our team
members for the unwavering
commitment that drove our
continued improvement
throughout 2019, and the
executive team and Board of
Directors for their leadership.
I also want to express my sincere
appreciation to our shareholders
for joining us on our continuing
journey to be the trusted choice
in total talent management.
We are at an exciting point in our
history, and I am thankful for the
opportunity to lead this amazing
company through the next chapter
of its evolution – a chapter of
transformation and growth.
Kevin C. Clark
Co-Founder and
Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2019
or
□ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-33169
Cross Country Healthcare, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
13-4066229
(I.R.S. Employer Identification No.)
5201 Congress Avenue, Suite 100B
Boca Raton, Florida 33487
(Address of principal executive offices, zip code)
Registrant’s telephone number, including area code: (561) 998-2232
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.0001 per share
Trading symbol
CCRN
Name of each exchange on which registered
The NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes □ No ☑
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes □ No ☑
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 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 and posted on its corporate web site, if any, every Interactive Data File
required to be submitted and posted 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, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ ‘‘smaller reporting company,’’ and ″emerging
growth company″ 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 by Rule 12b-2 of the Act). Yes □ No ☑
The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of Common Stock on June 28, 2019
of $9.38 as reported on the NASDAQ National Market, was $331,097,754. This calculation does not reflect a determination that persons are affiliated
for any other purpose.
As of February 24, 2020, 36,859,669 shares of Common Stock, $0.0001 par value per share, were outstanding.
Portions of the Registrant’s definitive proxy statement, for the 2020 Annual Meeting of Stockholders, which statement will be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered by this Report, are incorporated by reference into Part III hereof.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Item 16.
Form 10-K Summary
SIGNATURES
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All references to “we,” “us,” “our,” "the Company," or “Cross Country” in this Report on Form 10-K means Cross Country
Healthcare, Inc., its subsidiaries and affiliates.
Forward-Looking Statements
In addition to historical information, this Form 10-K contains statements relating to our future results (including certain
projections and business trends) that are “forward-looking statements” within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and are subject
to the “safe harbor” created by those sections. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”,
“estimates”, “suggests”, “appears”, “seeks”, “will” 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. Factors that might cause such differences include, but are not limited to, those
discussed in the section entitled “Item 1A - Risk Factors.” Readers should also carefully review the “Risk Factors” section
contained in other documents we file from time to time with the Securities and Exchange Commission, including the Quarterly
Reports on Form 10-Q to be filed by us in fiscal year 2020.
Although we believe that these statements are based upon reasonable assumptions, we cannot guarantee future results and
readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions
only as of the date of this filing. There can be no assurance that (i) we have correctly measured or identified all of the factors
affecting our business or the extent of these factors’ likely impact; (ii) the available information with respect to these factors on
which such analysis is based is complete or accurate; (iii) such analysis is correct; or (iv) our strategy, which is based in part on
this analysis, will be successful. The Company undertakes no obligation to update or revise forward-looking statements.
Item 1. Business.
Overview of Our Company
PART I
Cross Country Healthcare, Inc. (NASDAQ: CCRN) is a leader in providing total talent management, including strategic
workforce solutions, contingent staffing, permanent placement and other consultative services for healthcare clients. We recruit
and place highly qualified healthcare professionals in virtually every specialty and area of expertise. Our diverse client base
includes both clinical and nonclinical settings, servicing acute care hospitals, physician practice groups, outpatient and
ambulatory-care centers, nursing facilities, both public schools and charter schools, rehabilitation and sports medicine clinics,
government facilities, and homecare. Through our national staffing teams and network of office locations, we are able to place
clinicians on travel and per diem assignments, local short-term contracts and permanent positions. By utilizing our various
solutions, clients are able to better plan their personnel needs, talent acquisition and management processes, strategically flex
and balance their workforce, access quality healthcare personnel, and provide continuity of care for improved patient outcomes.
In 2019, we executed multiple initiatives to enhance our position as a leading, consultative, and strategic partner in the
healthcare industry. Some of our key focus areas included personalizing the candidate experience, delivering a superior client
experience, infusing technology-enablement to drive efficiencies and increased productivity, and continuing our commitment to
clinical excellence.
In 2019, we moved to a more cohesive brand strategy centered around “Cross Country” and we simplified our organizational
structure to streamline our processes and create more efficiencies - all to align our services to better meet the needs of our
clients and healthcare professionals.
Through a combination of our national reach and industry leading local presence in key markets, we are able to place clinical
and non-clinical professionals across a diverse customer base. We continue to assess our in-market presence and strategically
position ourselves locally based upon the needs of our client base, to gain access to quality local talent, and the ability to be
active within the communities our clients serve. We believe a strategic in-market footprint provides a unique value proposition
to clients as we are able to offer them a high-touch, consultative based approach to understanding the market at the local level.
As candidate engagement continues to evolve, including expanding technology capabilities and increased reliance on mobile
use, we continue to strategically assess certain of our branch locations and the value of creating regional hubs. In September
2019, Staffing Industry Analysts reported that Cross Country Healthcare was the second largest per diem staffing company in
the U.S. The acquisitions of New Mediscan II, LLC, Mediscan Diagnostic Services, LLC, and Mediscan Nursing Staffing, LLC
(collectively Mediscan) in 2015, Advantage RN, LLC (Advantage) in 2017, and American Personnel, Inc. (AP Staffing) in
2018 expanded our recruiting capabilities and supply of nursing and allied professionals who desire to be engaged on a travel,
per diem and/or permanent basis throughout the course of their careers.
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Late in 2018, we began a project to replace the applicant tracking system of our Nurse and Allied Staffing business to improve
our candidate experience and be more efficient. In the fourth quarter of 2019 we successfully launched our first iteration in a
smaller business unit of our Nurse and Allied Staffing business, and we are on schedule to launch this product across the
broader division in 2020. This technology is designed to modernize the way we operate and improve the productivity and
effectiveness of our delivery teams while improving the experience of our candidates.
We have made continuous investments in expanding our technology capabilities both on the candidate engagement and client
facing fronts. As part of our growth strategy, we will continue to optimize technologies by developing, evaluating,
implementing, and integrating technologies. We are making investments in enhanced technologies including programmatic
advertising, recruitment and candidate nurturing tools, market analytics, mobile applications and self-serve capabilities, social
media, and other technology which we believe will enhance our recruiting capabilities.
We believe our strategy will allow us to improve shareholder value by deepening our relationship with current customers and
healthcare professionals, expanding the number and types of new customers we serve, growing the supply and types of
specialties of our healthcare professionals, improving our operating leverage through growth and cost containment, and
strengthening and broadening our market presence. This will require our continued focus on: (i) providing our workforce
solutions offerings to new clients; (ii) expanding the services we provide to our current clients; (iii) further diversifying our
customer base; (iv) improving our capture rate at current MSP customers; (v) accessing more candidates; and (vi) continuing to
modernize our technologies and processes to optimize our relationships with our healthcare professionals and clients.
To successfully execute our business strategy, we will rely on our experienced and focused executive and operational teams.
Our executive team has extensive experience in the staffing, workforce solutions, technology services, and healthcare
industries. We also foster a culture of performance, talented leadership and collegiality that promotes the achievement of both
company and personal goals. As a multi-year Best of Staffing® Award winner, the Company is committed to excellence in its
delivery of services and was the first public company to earn The Joint Commission Gold Seal of Approval® for Health Care
Staffing Services Certification with Distinction. Additionally, our President and CEO, as well as our Executive Vice President
of Operations, have been named to the Staffing Industry Analysts’ Staffing 100 List of the most notable leaders in the industry,
and two other executives were recently included on Staffing Industry Analysts’ Global Power 150 - Women in Staffing List that
recognizes the 100 most influential women in the Americas and 50 additional women internationally.
Corporate Social Responsibility
The Company’s growth strategy integrates corporate social responsibility. During 2019, the Company partnered with a local
nursing college and donated funds to this institution to support the education of nurses, a key part of the Company's business.
This investment in a community based institution serves to improve the long-term supply of nurses, and enhances the
Company’s reputational value to healthcare professionals, the community and its customers. During the year, the Company also
engaged in other investments in its community, such as its participation in Light the Night benefiting the Leukemia and
Lymphoma Society, providing sponsorships for various healthcare research and funding initiatives, as well as working as a
team on other fundraising efforts for charities such as March of Dimes, American Red Cross, Humane Society, Make a Wish
Foundation, and Ronald McDonald House. Our employees are at the heart of our success as a business and these investments
allow us to attract and develop an increasingly engaged and diverse workforce. These investments contribute to the
sustainability of our business by enhancing our culture, our brand, and our reputation among our employees, our healthcare
professionals and our customers.
Services
We provide our services on a national level or through any one of our 59 local branches throughout the United States or through
a combination of both.
Our solutions are geared towards assisting our clients in maintaining high quality outcomes by addressing their healthcare
workforce needs. We are increasingly being called upon by our clients to provide more creative and strategic talent sourcing
strategies across their continuum of care. Over the past several years, our workforce solutions have evolved into a total talent
management relationship as our clients continue to focus on improving their total labor management to address complex
financial, compliance, and other challenges in the healthcare industry. As part of the evolution of our services, we continue to
consider the following: (i) solving the immediate and future needs of our customers and expanding our relationships with them;
(ii) enhancing our network of healthcare professionals, improving their experience, and deepening our relationship with them;
(iii) expanding our service offerings to reduce sensitivity to economic cycles; (iv) expanding our expertise with various
healthcare solutions in various geographic areas of the U.S.; (v) continuing to diversify our client base to enhance our long-
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term business prospects; and (vi) enhancing and expanding our technology capabilities to deliver efficient and automated
services to both our customers and healthcare clients. Today, our workforce solutions include:
•
•
•
•
•
Managed Service Programs (MSPs). Healthcare organizations continue to adopt centralized, outsourced
models for managing contingent labor for both clinical and non-clinical needs. We have been a market leader
in this area since launching our first MSP in 2003, an account we continue to serve today. Over the past 16
years, we have grown our relationships, matured the generational models of MSPs, and today service more
than 70 clients across more than 700 facilities, with estimated spend under management of approximately
$450 million annually. The benefits to our clients not only include reduced costs and increased visibility into
their labor needs and usage, but they gain access and insight from our industry expertise on a broad range of
topics.
Optimal Workforce Solutions (OWS). We provide fully outsourced services to large hospital systems
managing healthcare professionals across specific departments and/or divisions on their behalf.
Internal Resource Pool Consulting & Development (IRP). We strategically partner with our clients to
design and deploy, administer and manage an IRP or to optimize an existing IRP to create efficiencies, patient
care, and cost effectiveness by balancing their workforce mix to meet their current needs.
Recruitment Process Outsourcing (RPO). Our RPO services are delivered to healthcare organizations
throughout the country and serve to provide creative, cost and operationally efficient hiring support and labor
optimization, which leads to improvements in quality of care.
Electronic Medical Record Transition Staffing (EMR). As healthcare facilities continue to enhance and
optimize their electronic medical record technology, we provide comprehensive project management, a
deployment of a full staffing plan and ultimately an organized volume of quality healthcare professionals
during the process so that our clients may continue to deliver quality care.
Our business consists of three business segments: (i) Nurse and Allied Staffing; (ii) Physician Staffing; and (iii) Search. Fees
for our services are paid directly by our clients and in certain instances by supplier partners and, as a result, we have no direct
exposure to Medicare or Medicaid reimbursements. For additional financial information concerning our business segments, see
Note 17 - Segment Data to the consolidated financial statements. Through our business segments, we provide our healthcare
clients with a wide range of workforce solutions as described above and staffing services as set forth below.
(1) Nursing and Allied Staffing. The Nurse and Allied Staffing segment provides workforce solutions and traditional
staffing, including temporary and permanent placement of travel nurses and allied professionals, as well as per diem
and contract nurses and allied personnel. We also staff healthcare personnel and substitute teachers in public and
charter schools. We provide flexible workforce solutions to our healthcare clients through diversified offerings
designed to meet their unique needs, including: MSP, OWS, RPO, IRP, EMR and consulting services. We market our
services to hospitals and other customers, as well as reach out to our healthcare professionals through our Cross
Country Nurses®, Cross Country Allied®, Cross Country Medical Staffing Network®, Cross Country Workforce
Solutions®, and Cross Country Education® brands. Our Nurse and Allied Staffing revenue and contribution income is
set forth in Note 18 - Segment Data to the consolidated financial statements.
A majority of our revenue is generated from staffing registered nurses on long-term contract assignments (typically 13
weeks in length) at hospitals and health systems using various brands. Additionally, we offer a short-term staffing
solution of registered nurses, licensed practical nurses, certified nurse assistants, advanced practitioners, pharmacists,
and more than 100 specialties of allied professionals on local per diem and short-term assignments in a variety of
clinical and non-clinical settings through our national network of local branch offices. We also provide travel allied
professionals on long-term contract assignments to hospitals, public and charter schools, and skilled nursing facilities.
(2) Physician Staffing. We provide Physician Staffing service in many specialties, certified registered nurse anesthetists
(CRNAs), nurse practitioners (NPs), and physician assistants (PAs) under our Cross Country Locums® brand 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.
We recruit these professionals nationally and place them on assignments varying in length from several days up to one
year. Our Physician Staffing revenue and contribution income is set forth in Note 17 - Segment Data to the
consolidated financial statements.
(3) Search. We serve as a direct-hire talent acquisition partner to healthcare organizations and academic institutions
throughout the nation providing a full suite of prescriptive talent management solutions, including flexible talent
delivery models such as retained, outsourced, and contingent. The revenue and contribution income of our Search
segment is set forth in Note 18 - Segment Data to the consolidated financial statements. Our Cejka Search by Cross
Country® brand recruits executive leadership talent for healthcare and academic institutions throughout the country
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through its team of experienced recruitment professionals, the advanced use of recruitment technology, and a
commitment to service excellence. Our Cross Country Search® brand delivers tailored and flexible retained,
contingent, and outsourced solutions by employing a team of highly specialized and tenured professionals that
leverage subject matter expertise, leading recruitment technologies, and a consultative approach to talent acquisition.
Our Business Model
The recruitment and retention of a sufficient number of qualified healthcare professionals to work temporary assignments on
our behalf is critical to the success of our business. Healthcare professionals choose temporary assignments for a variety of
reasons that include seeking flexible work opportunities, exploring diverse practice settings, building skills and experience by
working at prestigious healthcare facilities, working through life and career transitions, and as a means of access into a
permanent staff position all while practicing in the most appreciated and highly altruistic trade.
(1) Our Healthcare Professionals. Our company is well positioned to attract candidates, as nurses and allied
professionals routinely seek a wide range of diverse assignments in attractive locations, with competitive
compensation and benefit packages, scheduling options, as well as a high level of service. In addition, we believe
nurses and allied professionals are confident we will have new assignments for them as they complete their current
assignment. Each of our nurse and allied healthcare professionals is employed by us and is typically paid hourly wages
and any other benefits they are entitled to receive during the assignment period. In addition, our competitive benefits
generally include professional liability insurance, a 401(k) plan, health insurance, reimbursed travel, per diem
allowances, and housing.
Recruiters are an essential element of our Nurse and Allied Staffing business, and are responsible for establishing and
maintaining key relationships with candidates for the duration of their assignments with us. Recruiters match the
supply of qualified candidates with the demand for open orders needed by our clients. While word-of-mouth and
referrals continue as our leading channel of access to candidates, we also market our brands through strategic sourcing
initiatives including programmatic strategic sourcing and extensive utilization of social media, which has become an
increasingly important component of our recruitment efforts. We maintain engaging and intuitive websites to allow
potential applicants to obtain information about our Company and assignment opportunities, as well as to apply and
engage online.
Cross Country Locums recruits and contracts with physicians and advanced practice professionals to provide medical
services for its healthcare customers. Each physician or advanced practice professional is an independent contractor
and enters into an agreement with Cross Country Locums to provide medical services at a particular healthcare facility
or physician practice group based on terms and conditions specified by that customer. Physicians and advanced
practice professionals are engaged to provide medical services for a healthcare customer ranging from a few days up
to a year. We believe physicians are attracted to us because we offer a wide variety of assignments, competitive fees,
medical malpractice insurance, and a high level of service to them. Cross Country Locums relies on word-of-mouth
and referrals, but also markets online through programmatic sourcing strategies and through extensive social media
campaigns.
(2) Sales and Marketing. We take an enterprise sales approach in marketing our full capabilities across the continuum of
care to hospitals, healthcare facilities, schools, and other organizations across the United States addressing their total
talent management needs. We provide flexible workforce solutions to the healthcare and school markets customizing
delivery of diversified offerings meeting the special needs of each client.
Our traditional staffing channels include temporary and permanent placement of travel nurses and allied professionals,
local nurses and allied staffing, advanced practitioners, and physicians through the delivery brands including Cross
Country Nurses®, Cross Country Allied®, Cross Country Medical Staffing Network®, Cross Country Search®, Cross
Country Workforce Solutions®, and Cross Country Education®. Our recruiters use our extensive databases of
clinicians and healthcare professionals and their expertise in their given specialties to qualify and place candidates in
satisfying their professional interests.
Cejka Search by Cross Country® markets retained and contingent search services to healthcare clients primarily
through industry professional organizations, direct marketing, its website, and by word-of-mouth.
(3) Credentialing and Quality Management. We screen all of our candidates prior to placement through our
credentialing departments. Our credentialing processes are designed to ensure that our professionals have the requisite
skillsets required by our customers, as well as the aptitude to meet the day-to-day requirements and challenges they
would typically encounter on assignments where they are placed. The credentialing of our nurse and allied healthcare
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professionals is designed to align with the guidelines of The Joint Commission, a national accrediting body, to ensure
quality care. Our Cross Country University division, accredited by the American Nurse Credentialing Center, offers
training, assessment, and professional development to further ensure the quality of the personnel we place on
assignment. Our physician credentialing entity, Credent, is also certified by the National Committee for Quality
Assurance (NCQA).
(4) Payment for Services. We negotiate payment for services with our clients based on market conditions and needs. We
generally bill our nurse and allied employees at an hourly rate which includes all employer costs, including payroll,
withholding taxes, benefits, professional liability insurance, meals and incidentals, and other requirements, as well as
any travel and housing arrangements, where applicable. Our shared service center processes hours worked by field
employees in the time and attendance systems, which in turn generate the billable transactions to our clients. Hours
worked by independent contractor physicians are reported to our Cross Country Locums office. For our Search
businesses, we typically bill our clients a candidate acquisition fee and we are reimbursed for certain marketing
expenses.
(5) Operations. Our Nurse and Allied and Physician Staffing businesses are operated through a relatively centralized
business model servicing all assignment needs of our healthcare professional employees, physicians, and client
healthcare facilities primarily through operation centers located in Boca Raton, Florida; Newtown Square,
Pennsylvania; West Chester, Ohio; Woodland Hills, California; and Berkeley Lake, Georgia. In addition to the key
sales and recruitment activities, certain of these centers also perform support activities such as coordinating housing,
payroll processing, benefits administration, billing and collections, travel reimbursement processing, customer service,
and risk management. Search primarily operates its business from its headquarters locations in Creve Coeur, Missouri
and Boston, Massachusetts, other than support services that are provided from our Boca Raton, Florida headquarters,
such as accounting, payroll, billing, legal, and information systems support. On December 31, 2019, we had 59 office
locations.
(6) Information Systems. Various information systems are utilized to run our customer relationship management,
recruitment, and placement functions based on our different brands. Some of these sophisticated applications are
proprietary and are hosted in Tier 1 hosting facilities while other systems are Software as a Service (SaaS) based and
hosted by our vendor partners. Our systems maintain detailed information about our client required skillsets and status
which assist us in enabling fulfillment and assignment renewals. Our databases contain an extensive pool of existing
and potential customers and all related recruitment and sales activity. Our financial and human resource systems are
managed on leading enterprise resource planning software suites that manage certain aspects of accounts payable,
accounts receivable, general ledger, billing, and human capital management. All of our systems are managed by our
onshore and offshore Information Technology team. We continue to focus on cybersecurity issues and have engaged
two vendors to assist us in monitoring and managing our systems and devices and detecting cyber threats and stopping
breaches.
(7) Risk Management, Insurance, and Benefits. We have developed a risk management program that requires prompt
notification of incidents by clients, clinicians, and independent contractors, educational training to our employees, loss
analysis, and prompt reporting procedures to reduce our risk of exposure. While we cannot predict the future, we
continuously review facts and incidents associated with professional liability and workers’ compensation claims in
order to identify trends and reduce our risk of loss in the future where possible. We consider assessments provided by
our clients and we work with clinicians and experts from our insurance carriers to determine employment eligibility
and potential exposure.
We provide workers’ compensation insurance coverage, professional liability coverage, and healthcare benefits for our
eligible employed temporary professionals. We record our estimate of the ultimate cost of, and reserves for, workers'
compensation and professional liability benefits based on actuarial models prepared or reviewed by an independent
actuary using our loss history as well as industry statistics. In determining our reserves, we include reserves for
estimated claims incurred but not reported. We also estimate on a quarterly basis the healthcare claims that have
occurred but have not been reported based on our historical claim submission patterns. The ultimate cost of workers’
compensation, professional liability, and health insurance claims will depend on actual amounts incurred to settle
those claims and may differ from the amounts reserved for such claims.
The Company maintains a number of insurance policies including general liability, workers’ compensation, fidelity,
employment practices liability, fiduciary, directors and officers, cyber, property, and professional liability policies.
These policies provide coverage subject to their terms, conditions, limits of liability, and deductibles, for certain
liabilities that may arise from our operations. There can be no assurance that any of the above policies will be
adequate for our needs, or that we will maintain all such policies in the future.
5
Our Geographic Markets and Client Base
In 2019, 2018, and 2017, all of our revenue was generated in the United States, and all of our long-lived assets were located in
the United States and India. On a company-wide basis, we have approximately 5,300 active contracts with healthcare and
education clients, and we provide our staffing services and workforce solutions in all 50 states. During 2019, the largest
percentage of our revenue was concentrated in California, New York, and Florida. We provide services to public and private
acute care hospitals, outpatient clinics, ambulatory care facilities, single and multi-specialty physician practices, rehabilitation
facilities, urgent care centers, public and charter schools, correctional facilities, government facilities, retailers, and many other
healthcare providers. In 2019, 2018, and 2017 no client accounted for more than 5% of our revenue.
Our Industry
We compete in the U.S. temporary healthcare staffing and workforce solutions markets. Staffing Industry Analysts September
2019 report estimates the healthcare staffing markets in which we operate had an aggregate market size of $17.5 billion in 2019
of which $5.6 billion was travel nursing, $3.7 billion was per diem nursing, $4.2 billion was allied health, and $4.0 billion was
locum tenens and advanced practitioners. The demand for our services is impacted by many factors, however, we believe the
most significant are the following:
Industry Demand Drivers
Economic Backdrop. The U.S. economy had a strong year in 2019, and according to the U.S. Bureau of Labor
Statistics the job market showed continued signs of continued growth with unemployment at 3.5% as of December
2019. According to the U.S. Bureau of Labor Statistics, employment of registered nurses is projected to grow 12% from
2018 to 2028, much faster than the average for all occupations. This growth is predicated on an anticipated increase in
home health care, outpatient care centers and long-term care facilities due to the financial pressure on hospitals to
discharge patients quickly; increased demand due to the aging population; and the rise of various chronic conditions,
such as diabetes, obesity, arthritis and dementia. A growing U.S. economy coupled with a low unemployment rate
typically results in an increase in demand for our services.
Increased Need for Healthcare and Special Education Services in Schools. The Individuals with Disabilities
Education Act (IDEA), enacted in 1975, mandates that children and youth ages 3-21 with disabilities be provided a free
and appropriate public school education. According to the U.S. Department of Education, National Center for
Education Statistic Report titled “The Condition of Education" (May 2019), in 2017-18, the number of
students ages 3-21 who received special education services under the Individuals with Disabilities Education Act
(IDEA) was 7.0 million, or 14% of all public school students. The IDEA requires that these children and young adults
receive care from speech language pathologists, physical therapists, occupational therapists, nurses and other healthcare
professionals while at school. Based on the foregoing, we believe the demand for consulting and healthcare staffing
services for public schools and charter schools will continue to be strong for agencies that can provide consulting
services, healthcare personnel, technical assistance on policies, implementation, and training related to children and
youth with special needs in school settings.
Creation of Healthcare Jobs Outpacing Other Industries and Occupations. Healthcare represented nearly one in
five jobs created in 2019 (HealthleadersMedia.com, January 10, 2020). According to the most recent Bureau of Labor
Statistics 10-year projections, overall, employment is expected to grow 5.2%, far outpaced by employment in the
healthcare and social assistance industry (17%), with healthcare practitioners and technical occupations projected to
grow 11.9%, physician assistants growing at 31%, and nurse practitioners at 28%. Of the 30 fastest growing
occupations, 18 are healthcare related. We expect the creation of additional jobs in the healthcare market will increase
demand for our services as our temporary staff are typically hired to replace healthcare workers taking vacation and
leaves of absence.
Outpatient/Ambulatory Settings Services Outpace Inpatient Services. According to the U.S. Census Bureau, the
ambulatory healthcare services sector added 17,000 jobs in December 2019, while hospitals added 6,300 jobs in the
same. We believe certain government initiatives previously taken, such as Medicare reimbursement incentives for
reduced readmissions, have had a direct correlation to the shift from inpatient services to outpatient/ambulatory settings
and job growth in that area. We believe this growth will have a positive impact on demand for healthcare staffing
services in outpatient/ambulatory settings.
6
Hospitals Seeking Efficiencies Through Various Workforce Solutions. Hospitals continue to face pressure to keep
costs down. In addition, the national shift away from volume-based pricing to value-based pricing has continued. We
believe these dynamics continue to put pressure on hospitals to find innovative solutions in order to better manage their
workforce, which accounts for a large portion of their expenses. As a result, we believe healthcare facilities and
providers will continue to utilize workforce solutions, such as MSP, RPO, IRP, and other talent management tools to
help them solve these problems and maintain their quality of care.
Macro Drivers of Demand. The Affordable Care Act (ACA) increased the number of insured patients over the past
several years, especially in states that expanded Medicaid. Also, as a result of lower unemployment rates, more
employees have insurance through their employer and are seeking elective and other healthcare services. In addition,
two other long-term macro drivers of our business, a growing and aging U.S. population, should continue to drive
demand for our services. According to the U.S. Census Bureau, the number of persons aged 65 and over is expected to
increase to 98 million in 2060, which is important because the utilization of healthcare services is generally higher
among older people.
Supply of Nurses. According to the Bureau of Labor Statistics’ Employment Projections 2016-2026, Registered
Nursing (RN) is listed among the top occupations in terms of job growth through 2026. The RN workforce is expected
to grow from 2.9 million in 2016 to 3.4 million in 2026, an increase of 438,100 or 15%. The Bureau also projects the
need for an additional 203,700 new RNs each year through 2026 to fill newly created positions and to replace retiring
nurses. While demand for nurses is expected to grow, there are differing views over the projected growth of supply to
support the demand. According to Modern Healthcare, August 17, 2019, certain states are projected to have a shortage
while other states are projected to have a surplus by 2030 highlighting an inequitable distribution of the nursing
workforce across the U.S. There is also a variation in the types of specialty nurses in demand, which is also regional in
nature. Other factors influencing demand are the expected retirement of RNs and the shortage of instructors. It is
projected that a million nurses are expected to retire between 2017 and 2030. According to the American Association of
Colleges of Nursing, more than 75,000 qualified applicants to bachelor and graduate nursing programs were turned
away last year due to factors such as insufficient faculty, clinical sites, or classroom space, and clinical preceptors, as
well as budget constraints. We believe these geographic and specialty related shortages should have a positive effect on
demand for our services as temporary nurse staffing orders typically increase when nurse vacancy rates rise.
Physician Shortage. According to the Association of American Medical Colleges (AAMC) projections from 2017 to
2032, the United States is expected to face a shortage of physicians. The projections show a shortage ranging between
46,900 and 121,900 by 2032 as demand for physicians continues to outpace supply, according to AAMC, with a
significant shortage showing among many surgical specialties. In addition, according to the Association of American
Medical Colleges (AAMC) in 2017, 44.1% of physicians in the U.S. are age 55 or older and nearing retirement and,
while the number of applicants to U.S. medical schools is increasing, it is not expected to keep pace with expected
future demand. This is a significant factor in the demand for locum tenens services.
Industry Competition
The workforce solutions and healthcare staffing industries are highly competitive. We compete on a national, regional, and
local basis in both industries for healthcare clients and healthcare professionals. We are one of the largest providers in the U.S.
of workforce solutions in the healthcare industry and nurse and allied healthcare staffing. In both of these industries, we
compete with a few national competitors together with numerous smaller, regional, and local companies, particularly in the per
diem business.
The principal competitive factors in attracting, retaining, and expanding business with healthcare clients nationally include: (i)
understanding the client’s work environment; (ii) offering a comprehensive suite of services to assist the client in assessing its
personnel needs and partnering with clients to design various customizable alternative solutions; (iii) the timely filling of
clients' needs; (iv) price; (v) customer service; (vi) quality assurance and screening capabilities; (vii) risk management policies;
(viii) insurance coverage; and (ix) general industry reputation.
We believe we benefit competitively from the breadth and expertise of value-added workforce solutions that we offer. We also
have the ability to meet a national shift towards a more integrated delivery of healthcare through our extensive branch network
which allows us to assist hospitals and health systems turning to lower-cost, more accessible alternatives, such as outpatient or
ambulatory care centers. By offering travel, per diem, and permanent placement of a variety of healthcare professionals, we are
able to offer many different types of personnel to hospitals and health systems at their main campuses and their ambulatory and
outpatient facilities. In addition, our joint venture with a large health system's staffing subsidiary provides us with insight into
the challenges facing many of our hospital clients generally and this provides us with the opportunity to better serve all of our
clients by designing and implementing workforce solutions to meet their needs.
7
The principal competitive factors in attracting qualified healthcare professionals for temporary employment include: (i) a large
national pool of desirable assignments; (ii) pay and benefits; (iii) speed of placements; (iv) customer service; (v) quality of
accommodations; and (vi) overall industry reputation. We focus on retaining healthcare professionals by providing high-quality
customer service, long-term benefits (to employees), and medical malpractice insurance.
From a candidate attraction standpoint, we have an extensive client base with hospitals and healthcare facilities, and other
healthcare providers, throughout the U.S. As a result, we have a diverse choice of assignments for our healthcare professionals
to choose from. Healthcare professionals apply with us through our differentiated nursing, locum tenens, and allied healthcare
recruitment brands. Our local branch network also provides us access to local healthcare professionals who are uniquely
qualified to provide care in ambulatory and outpatient settings. We believe our access to such a large and diverse group of
healthcare professionals makes us more attractive to healthcare institutions and facilities seeking healthcare staffing and
workforce solutions in the current dynamic marketplace.
We believe we are one of only two large full-service healthcare staffing providers with a national footprint; one of the top five
providers of physician staffing services in the U.S.; and one of the top providers of retained and contingent physician and
healthcare executive search services in the healthcare marketplace. Some of our competitors in the workforce solutions,
healthcare staffing, and search businesses include: AMN Healthcare Services, Inc., CHG Healthcare Services, Jackson
Healthcare, Aya Healthcare, HealthTrust Workforce Solutions, Medical Solutions, Aureus Medical, and Witt Kiefer.
Certifications
The staffing businesses of our Cross Country Staffing, Medical Staffing Network, Mediscan, Advantage, and AP Staffing
brands are certified by The Joint Commission under its Health Care Staffing Services Certification Program. In addition,
Credent Verification and Licensing Services, a subsidiary of MDA, is certified by the NCQA. These were the brand names we
operated under in 2019 prior to transitioning to each of our new brand names.
Regulations
Our business is subject to regulation by numerous governmental authorities in the jurisdictions in which we operate. Complex
federal and state laws and regulations govern, among other things, the licensure of professionals, the payment of our employees
(e.g., wage and hour laws, employment taxes and income tax withholdings, etc.), and the operations of our business generally.
We conduct business primarily in the U.S. and are subject to federal and state laws and regulations applicable to our business,
which may be amended from time to time. Future federal and state legislation or interpretations thereof may require us to
change our business practices. Compliance with all of these applicable rules and regulations require a significant amount of
resources. We endeavor to be in compliance with all such rules and regulations.
Employees
As of December 31, 2019, we had approximately 1,700 corporate employees. During 2019, we employed an average of 7,113
full-time equivalent field employees in Nurse and Allied Staffing which does not include our Physician Staffing independent
contractors, all of whom are not employees. We are subject to a collective bargaining agreement covering approximately 440 of
our employees at OWS, LLC with Local 1199 of the Service Employees International Union. We consider our relationship with
employees to be good.
Additional Information
Financial reports and filings with the Securities and Exchange Commission (SEC), including this Annual Report on Form 10-K,
are available free of charge as soon as reasonably practicable after filing such material with, or furnishing it to, the SEC, on or
through our corporate website at www.crosscountryhealthcare.com. The information found on our website is not part of this
Annual Report on Form 10-K or any other report we file with or furnish to the SEC.
8
Item 1A. Risk Factors.
The following risk factors could materially and adversely affect our future operating results and could cause actual results to
differ materially from those predicted in the forward-looking statements we make about our business. Our risks are identified
primarily through dialogue with our leaders, including a formal Enterprise Risk assessment, industry trends, our experience,
and consideration of the current external market and financial environment. These risk factors are considered in our overall
strategy and execution of operations. Factors we currently consider immaterial and factors we currently do not know may also
materially adversely affect our business or our consolidated results, financial condition, or cash flows.
Decreases in demand by our clients may adversely affect the profitability of our business.
Among other things, changes in the economy, a decrease or stagnation in the general level of in-patient admissions or out-
patient services at our clients’ facilities, uncertainty regarding or changes to federal healthcare law and the willingness of our
hospital, healthcare facilities and physician group clients to develop their own temporary staffing pools and increase the
productivity of their permanent staff may, individually or in the aggregate, significantly affect demand for our temporary
healthcare staffing services and may hamper our ability to attract, develop and retain clients. When a hospital’s admissions
increase, temporary employees or other healthcare professionals are often added before full-time employees are hired. As
admissions decrease, clients typically reduce their use of temporary employees or other healthcare professionals before
undertaking layoffs of their permanent employees. In addition, if hospitals continue to consolidate in an effort to enhance their
market positions, improve operational efficiency, and create organizations capable of managing population health, demand for
our services could decrease. Decreases in demand for our services may also affect our ability to provide attractive assignments
to our healthcare professionals.
Our clients may terminate or not renew their contracts with us.
Our arrangements with hospitals, healthcare facilities and physician group clients are generally terminable upon 30 to 90 days’
notice. We may have fixed costs, including housing costs, associated with terminated arrangements that we will be obligated to
pay post-termination, thus negatively impacting our profitability. In addition, the loss of one or more of our large clients could
materially affect our profitability.
We may be unable to recruit enough quality healthcare professionals to meet our clients’ demands.
We rely significantly on our ability to attract, develop and retain healthcare professionals who possess the skills, experience
and, as required, licensure necessary to meet the specified requirements of our healthcare clients. We compete for healthcare
staffing personnel with other temporary healthcare staffing companies, as well as actual and potential clients such as healthcare
facilities and physician groups, some of which seek to fill positions with either permanent or temporary employees. We rely on
word-of-mouth referrals, as well as social and digital media to attract qualified healthcare professionals. If our social and digital
media strategy is not successful, our ability to attract qualified healthcare professionals could be negatively impacted.
In addition, with a shortage of certain qualified healthcare professionals in many areas of the United States, competition for
these professionals remains intense. Our ability to recruit and retain healthcare professionals depends on our ability to, among
other things, offer assignments that are attractive to healthcare professionals and offer them competitive wages and benefits or
payments, as applicable. Our competitors might increase hourly wages or the value of benefits to induce healthcare
professionals to take assignments with them. If we do not raise wages or increase the value of benefits in response to such
increases by our competitors, we could face difficulties attracting and retaining qualified healthcare professionals. If we raise
wages or increase benefits in response to our competitors’ increases and are unable to pass such cost increases on to our clients,
our margins could decline. At this time, we still do not have enough nurses, allied professionals and physicians to meet all of
our clients’ demands for these staffing services. This shortage of healthcare professionals generally and the competition for
their services may limit our ability to increase the number of healthcare professionals that we successfully recruit, decreasing
our ability to grow our business.
If our healthcare facility clients increase the use of intermediaries it could impact our profitability.
We continue to see an increase in the use of intermediaries by our clients. These intermediaries typically enter into contracts
with our clients and then subcontract with us and other agencies to provide staffing services, thus interfering to some extent in
our relationship with our clients. Each of these intermediaries charges an administrative fee. In instances where we do not win
new MSP opportunities or where other vendors win this MSP or VMS business with our current customers, the number of
professionals we have on assignment at those clients could decrease. If we are unable to negotiate hourly rates with
intermediaries for the services we provide at these clients which are sufficient to cover administrative fees charged by those
intermediaries, it could impact our profitability. If hospitals fail to pay the intermediaries for our services or those
intermediaries become insolvent or fail to pay us for our services, it could impact our bad debt expense and thus our overall
9
profitability. We also provide comprehensive MSP and other workforce solutions directly to certain of our clients. While such
contracts typically improve our market share at these facilities, they could result in less diversification of our customer base,
increased liability, and reduced margins.
Our costs of providing services may rise faster than we are able to adjust our bill rates and pay rates and, as a result, our
margins could decline.
Costs of providing our services could change more quickly than we are able to renegotiate bill rates in our active contracts and
pay rates with our thousands of healthcare professionals. For example, we offer housing subsidies to our healthcare
professionals or provide actual housing to our healthcare professionals. At any given time, we have over a thousand apartments
on lease throughout the U.S. because we provide housing for certain of our healthcare professionals when they are on an
assignment with us. The cost of subsidizing housing or renting apartments and furniture for these healthcare professionals may
increase faster than we are able to renegotiate our rates with our customers, and this may have a negative impact on our
profitability. In addition, an increase in other incremental costs beyond our control, such as insurance could negatively affect
our financial results. The costs related to obtaining and maintaining professional and general liability insurance, health
insurance and workers’ compensation insurance for healthcare providers has generally been increasing. This could have an
adverse impact on our financial condition unless we are able to pass these costs through to our clients or renegotiate pay rates
with our healthcare providers.
Our labor costs could be adversely affected by a shortage of experienced healthcare professionals and labor union activity.
Our operations are dependent on our ability to recruit and staff quality healthcare professionals. We compete with other
healthcare staffing companies in recruiting and retaining qualified personnel. We may be required to enhance wages and
benefits to our employees, which could negatively impact our profitability. Labor union activity is another factor that could
adversely affect our labor costs or otherwise adversely impact us. To the extent a significant portion of our employee base
unionizes, our labor costs could increase significantly.
If our labor costs increase, we may not be able to raise rates to offset these increased costs. Because a significant percentage of
our revenues consists of fixed, prospective payments, our ability to pass along increased labor costs is constrained. In the event
we are not entirely effective at recruiting and retaining qualified management, nurses and other medical support personnel, or in
controlling labor costs, this could have an adverse effect on our results of operations.
We may face challenges competing in the marketplace if we are unable to anticipate and quickly respond to changing
marketplace conditions, such as alternative modes of healthcare delivery, reimbursement, and client needs.
Patient delivery settings continue to evolve, giving rise to alternative modes of healthcare delivery, such as retail medicine,
telemedicine and home health.
Our success is dependent upon our ability to develop innovative workforce solutions and quickly adapt to changing
marketplace conditions and client needs, including making modifications to our technologies and evolving our technology
platform that may differentiate our services and abilities from those of our competitors. The markets in which we compete are
highly competitive and our competitors may respond more quickly to new or emerging client needs and marketplace
conditions. The development of new service lines and business models using advanced technology solutions requires us to be at
the forefront of emerging trends in the healthcare industry. We may face challenges competing in the marketplace if we are
unable to quickly adapt our business model and successfully implement innovative services and solutions to address these
changes.
We may face difficulties integrating our acquisitions into our operations and our acquisitions may be unsuccessful, involve
significant cash expenditures or expose us to unforeseen liabilities.
We continually evaluate opportunities to acquire companies that would complement or enhance our business. These acquisition
opportunities involve numerous risks, including potential loss of key employees or clients of acquired companies; difficulties
integrating acquired personnel and distinct cultures into our business; difficulties integrating acquired companies into our
operating, financial planning and financial reporting systems; diversion of management attention from existing operations; and
assumptions of liabilities and exposure to unforeseen liabilities of acquired companies, including liabilities for their failure to
comply with healthcare and tax regulations. These acquisitions may also involve significant cash expenditures, debt incurrence
and integration expenses that could have a material adverse effect on our financial condition and results of operations. Any
acquisition may ultimately have a negative impact on our business and financial condition.
If applicable government regulations change, we may face increased costs that reduce our revenue and profitability.
The temporary healthcare staffing industry is regulated in many states. For example, in some states, firms such as our nurse
staffing companies must be registered to establish and advertise as a nurse-staffing agency or must qualify for an exemption
10
from registration in those states. If we were to lose any required state licenses, we could be required to cease operating in those
states. The introduction of new regulatory provisions could also substantially raise the costs associated with hiring temporary
employees. For example, some states could impose sales taxes or increase sales tax rates on temporary healthcare staffing
services. These increased costs may not be able to be passed on to clients. In addition, if government regulations were
implemented that limited the amount we could charge for our services, our profitability could be adversely affected. We
continuously monitor changes in regulations and legislation for potential impacts on our business.
The healthcare industry is highly regulated. Any material changes in the political, economic or regulatory environment that
affect the purchasing policies, practices and operations of healthcare organizations, or that lead to consolidation in the
healthcare industry, could reduce the funds available to purchase our services or otherwise require us to modify our
offerings.
We provide our services to hospitals and health systems which pay us directly. Accordingly, Medicare, Medicaid and insurance
reimbursement policy changes generally do not directly impact us. However, indirectly, our business, financial condition and
results of operations depend upon conditions affecting the healthcare industry generally and hospitals and health systems
particularly. The healthcare industry is highly regulated by federal and state authorities and is subject to changing political,
economic and regulatory influences. Factors such as changes in reimbursement policies for healthcare expenses, consolidation
in the healthcare industry, regulation, litigation and general economic conditions could affect the purchasing practices,
operations and the financial health of our customers which could have a negative impact on our business. In addition, insurance
companies and managed care organizations seek to control costs by requiring healthcare providers, such as hospitals, to
discount their services in exchange for exclusive or preferred participation in their benefit plans. While not affecting us directly,
future federal and state legislation or evolving commercial reimbursement trends may further reduce or change conditions for
our clients’ reimbursement. Such limitations on reimbursement could reduce our clients’ cash flows, hampering the pricing we
can charge clients and their ability to pay us. Reimbursement changes in government programs, particularly Medicare and
Medicaid, can and do indirectly affect the demand and the prices paid for our services. The impact of any other legislation to
repeal or amend or replace the ACA is uncertain and could adversely affect our business and financial condition.
We operate our business in a regulated industry and modifications, inaccurate interpretations or violations of any applicable
statutory or regulatory requirements may result in material costs or penalties as well as litigation and could reduce our
revenue and earnings per share.
Our industry is subject to many complex federal, state, local and international laws and regulations related to, among other
things, the licensure of professionals, the payment of our field employees (e.g., wage and hour laws, employment taxes and
income tax withholdings, etc.) and the operations of our business generally (e.g., federal, state and local tax laws). If we do not
comply with the laws and regulations that are applicable to our business, we could incur civil and/or criminal penalties as well
as litigation or be subject to equitable remedies.
We are subject to litigation, which could result in substantial judgment or settlement costs; significant legal actions could
subject us to substantial uninsured liabilities.
We are party to various litigation, claims, investigations, and other proceedings. These matters primarily relate to employee-
related matters that include individual and collective claims, professional liability, tax, and payroll practices. We evaluate these
litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount
of potential losses. Based on these assessments and estimates, if any, we establish reserves and/or disclose the relevant
litigation claims or legal proceedings, as appropriate. These assessments are performed at least quarterly and are based on the
information available to management at the time and involve a significant amount of management judgment. Based on the new
information considered in our reviews, we adjust our loss contingency accruals and our disclosures. We may not have sufficient
insurance to cover these risks. Actual outcomes or losses may differ materially from those estimated by our current assessments
which would impact our profitability. Adverse developments in existing litigation claims or legal proceedings involving our
Company or new claims could require us 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 our financial
results.
In recent years, healthcare providers have become subject to an increasing number of legal actions alleging malpractice,
vicarious liability, violation of certain consumer protection acts, negligent hiring, negligent credentialing, or related legal
theories. We may be subject to liability in such cases even if our Company's contribution to the alleged injury was minimal or
related to one of our subcontractors or its employees. Many of these actions involve large claims and significant defense costs.
In addition, we may be subject to claims related to torts or crimes committed by our corporate employees or healthcare
professionals that we place on assignment. In most instances, we are required to indemnify clients against some or all of these
risks. A failure of any of our corporate employees or healthcare professional to observe our policies and guidelines, relevant
11
client policies and guidelines or applicable federal, state or local laws, rules and regulations could result in negative publicity,
payment of fines or other damages.
To protect ourselves from the cost of these types of claims, we maintain professional malpractice liability insurance,
employment practices liability insurance, and general liability insurance coverage with terms and in amounts with deductibles
that we believe are appropriate for our operations. We are partially self-insured for our workers' compensation coverage, health
insurance coverage, and professional liability coverage for our locum tenens providers. If we become subject to substantial
uninsured workers' compensation, medical coverage or medical malpractice liabilities, whether directly or indirectly, our
financial results may be adversely affected. In addition, our insurance coverage may not cover all claims against us or continue
to be available to us at a reasonable cost. If we are unable to pay our self-insured retention portion, pay any uninsured portion,
or maintain adequate insurance coverage, we may be exposed to substantial liabilities.
If provisions in our corporate documents and Delaware law delay or prevent a change in control, we may be unable to
consummate a transaction that our stockholders consider favorable.
Our certificate of incorporation and by-laws may discourage, delay or prevent a merger or acquisition involving us that our
stockholders may consider favorable. For example, our certificate of incorporation authorizes our Board of Directors to issue
up to 10,000,000 shares of “blank check” preferred stock. Without stockholder approval, the Board of Directors has the
authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights, preferred
stockholders could make it more difficult for a third party to acquire us. Delaware law may also discourage, delay or prevent
someone from acquiring or merging with us.
Market disruptions may adversely affect our operating results and financial condition.
Economic conditions and volatility in the financial markets may have an adverse impact on the availability of credit to us and
to our customers and businesses generally. To the extent that disruption in the financial markets occurs, it has the potential to
materially affect our and our customers’ ability to tap into debt and/or equity markets to continue ongoing operations, have
access to cash and/or pay debts as they come due. These events could negatively impact our results of operations and financial
conditions. Although we monitor our credit risks to specific clients that we believe may present credit concerns, default risk or
lack of access to liquidity may result from events or circumstances that are difficult to detect or foresee. Conditions in the credit
markets and the economy generally could adversely impact our business and limit or prohibit us from refinancing our credit
agreements on terms favorable to us or at all when they become due.
Stock issuable under our stock incentive plans are presently in effect and sales of this stock could cause our stock price to
decline.
We have registered 6,100,000 shares of common stock for issuance under our 2014 Omnibus Incentive Plan, and 4,398,001
shares of common stock for our predecessor 1999 stock option plan, all of which have been registered. Shares of restricted
stock outstanding as of February 24, 2020 were 989,109. In addition, a target of 364,557 performance stock award grants were
outstanding as of February 24, 2020. Fully vested stock appreciation rights of 8,000 were issued and outstanding as of February
24, 2020. See Note 15 - Stockholders' Equity to our consolidated financial statements. Vested restricted stock and issuance of
common stock related to our awards as well as common stock issued upon exercise of stock options, and stock appreciation
rights under these benefit plans, is eligible for resale in the public market without restriction. We cannot predict what effect, if
any, market sales of shares held by any stockholder or the availability of these shares for future sale will have on the market
price of our common stock.
We are dependent on the proper functioning of our information systems and applications hosted by our vendors.
We are dependent on the proper functioning of information systems used to operate our business, including those applications
hosted by our vendors. Critical information systems used in daily operations identify and match staffing resources and client
assignments and perform billing and accounts receivable functions. Additionally, we rely on our information systems in
managing our accounting and financial reporting. These systems are subject to certain risks, including technological
obsolescence. We are currently evaluating the technology platforms of our businesses, and replacing our legacy nurse and allied
applicant tracking system. If our proprietary systems of Software as a Service applications fail, are not successfully
implemented, or are otherwise unable to function in a manner that properly supports our business operations, or if these
systems require significant costs to repair, maintain or further develop or update, we could experience business interruptions or
delays that could materially and adversely affect our business and financial results.
In addition, our information systems are protected through a secure hosting facility and additional backup remote processing
capabilities also exist in the event our primary systems fail or are not accessible. However, the business is still vulnerable to
fire, storm, flood, power loss, telecommunications failures, physical or software break-ins and similar events which may
prevent personnel from gaining access to systems necessary to perform their tasks in an automated fashion. In the event that
12
critical information systems fail or are otherwise unavailable, these functions would have to be accomplished manually, which
could impact our ability to, among other things, maintain billing and clinical records reliably, to bill for services efficiently and
to maintain our accounting and financial reporting accurately.
We are dependent on third parties for the execution of certain critical functions.
We have outsourced certain critical applications or business processes to external providers, including but not limited to
background screenings of our employees. We exercise care in the selection and oversight of these providers. However, the
failure or inability to perform on the part of one or more of these critical suppliers could cause significant disruptions and
increased costs to our business.
Our collection, use, and retention of personal information and personal health information create risks that may harm our
business.
As part of our business model, we collect, transmit and retain personal information of our employees and contract professionals
and their dependents, including, without limitation, full names, social security numbers, addresses, birth dates, and payroll-
related information. We use commercially available information security technologies to protect such information in digital
format and have security and business controls to limit access to such information. In addition, we periodically perform
penetration tests and respond to those findings. However, employees or third parties may be able to circumvent these measures
and acquire or misuse such information, resulting in breaches of privacy, and errors in the storage, use or transmission of such
information. Privacy breaches may require notification and other remedies, which can be costly, and which may have other
serious adverse consequences for our business, including regulatory penalties and fines, claims for breach of contract, claims
for damages, adverse publicity, reduced demand for our services by clients and/or healthcare professional candidates, harm to
our reputation, and regulatory oversight by state or federal agencies. The possession and use of personal information and data
in conducting our business subjects us to legislative and regulatory burdens. We may be required to incur significant expenses
to comply with mandatory privacy and security standards and protocols imposed by law, regulation, industry standards, or
contractual obligations.
Cyber security risks and cyber incidents could adversely affect our business and disrupt operations.
Cyber incidents can result from deliberate attacks or unintentional events. These incidents can include, but are not limited to,
gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data,
or causing operational disruption. The result of these incidents could include, but are not limited to, disrupted operations,
misstated financial data, liability for stolen assets or information, increased cyber security protection costs, litigation and
reputational damage adversely affecting customer or investor confidence. We have implemented systems and processes to focus
on identification, prevention, mitigation and resolution. However, these measures cannot provide absolute security, and our
systems may be vulnerable to cyber-security breaches such as viruses, hacking, and similar disruptions from unauthorized
intrusions. In addition, we rely on third party service providers to perform certain services, such as payroll and tax services.
Any failure of our systems or third party systems may compromise our sensitive information and/or personally identifiable
information of our employees. While we have secured cyber insurance to potentially cover certain risks associated with cyber
incidents, there can be no assurance the insurance will be sufficient to cover any such liability.
Losses caused by natural disasters, such as hurricanes and fires, could cause us to suffer material financial losses.
Catastrophes can be caused by various events, including, but not limited to, hurricanes, fires, and other severe weather. The
incidence and severity of catastrophes are inherently unpredictable. With our headquarters and shared services located in South
Florida, we are more vulnerable to possible disruptions from hurricanes and the impacts resulting therefrom, such as tornadoes,
flooding, fuel shortages, and disruption of internet, and telecommunications services. The extent of losses from a catastrophe is
a function of both the total amount of insured exposure and the severity of the event. We do not maintain business interruption
insurance for these events. We could suffer material financial losses as a result of disruptions from hurricanes, fires, and other
catastrophes.
13
We have a level of indebtedness which may have an adverse effect on our business or limit our ability to take advantage of
business, strategic or financing opportunities.
As indicated below, we have and will continue to have a significant amount of indebtedness relative to our equity. The
following table sets forth our total principal amount of debt and stockholders’ equity.
Total debt
Total Cross Country Healthcare, Inc. stockholders' equity
December 31, 2019
(amounts in thousands)
$
$
70,974
162,632
Our level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay the principal,
interest or other amounts due on our indebtedness. Subject to certain restrictions under our existing indebtedness, we and our
subsidiaries may also incur significant additional indebtedness in the future. This may have the effect of increasing our total
leverage. As a consequence of our indebtedness; (i) demands on our cash resources may increase; (ii) we are subject to
restrictive covenants that limit our financial and operating flexibility. Our ability to generate profitability and maintain cash
flow from operations could impact our compliance with these covenants; and (iii) we may choose to institute self-imposed
limits on our indebtedness based on certain considerations including market interest rates, our relative leverage and our
strategic plans. For example, as a result of our level of indebtedness and the uncertainties arising in the credit markets and the
U.S. economy:
- we may be more vulnerable to general adverse economic and industry conditions;
- we may have to pay higher interest rates upon refinancing or on our variable rate indebtedness if interest rates rise, thereby
reducing our cash flows;
- we may find it more difficult to obtain additional financing to fund future working capital, capital expenditures, acquisitions,
and other general corporate requirements that would be in our long-term interests;
- we may be required to dedicate a substantial portion of our cash flow from operations to the payment of principal and interest
on our debt, reducing the available cash flow to fund other investments;
- we may have limited flexibility in planning for, or reacting to, changes in our business or in the industry;
- we may have a competitive disadvantage relative to other companies in our industry that are less leveraged;
- we may be required to sell debt or equity securities or sell some of our core assets, possibly on unfavorable terms, in order to
meet payment obligations; and
- we may not be able to successfully raise capital to execute our mergers and acquisitions strategy.
These constraints could have a material adverse effect on our business.
The interest rates under our ABL Credit Agreement may be impacted by the phase-out of the London Interbank Offered
Rate (LIBOR).
LIBOR is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a
reference for setting the interest rates on loans globally. We use LIBOR as a reference rate to calculate interest under our ABL
Credit Agreement. In 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it
intends to phase out LIBOR by the end of 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates
Committee, a steering committee comprised of large U.S. financial institutions, identified the Secured Overnight Financing
Rate (SOFR) as the preferred alternative reference rate to U.S. dollar LIBOR and recommended a paced transition plan that
involves the creation of a reference rate based on SOFR by the end of 2021. SOFR is a more generic measure than LIBOR and
considers the cost of borrowing cash overnight, collateralized by U.S. Treasury securities. Given the inherent differences
between LIBOR and SOFR or any other alternative benchmark rate that may be established, there are many uncertainties
regarding a transition from LIBOR. Our ABL Credit Agreement contains a fallback provision providing for alternative rate
calculations in the event LIBOR is unavailable, prior to any LIBOR rate transition. As a result of any changes in the
benchmarking rate, the new rates we incur may not be as favorable to us as those in effect prior to any LIBOR phase-out, and
we may incur higher interest payments.
14
We could fail to generate sufficient cash to fund our liquidity needs and/or fail to satisfy the financial and other restrictive
covenants to which we are subject under our existing indebtedness.
We currently have sufficient liquidity to operate our business in the normal course. If, however, we were to make an acquisition
or enter into a similar type of transaction, our liquidity needs may exceed our current capacity. In addition, our existing credit
facilities currently contain financial covenants that require us to operate above a minimum fixed charge coverage ratio and
below a consolidated leverage ratio. Deterioration in our operating results could result in our inability to comply with these
covenants and would result in a default under our credit facility. If an event of default exists, our lenders could call the
indebtedness and we may be unable to renegotiate or secure other financing.
We are subject to business risks associated with international operations.
We have international operations in India where our Cross Country Infotech, Pvt Ltd. (Infotech) subsidiary is located. Infotech
provides in-house information systems development and support services as well as some back-office processing services. We
have limited experience in supporting our services outside of North America. Operations in certain markets are subject to risks
inherent in international business activities, including: (i) fluctuations in currency exchange rates; (ii) changes in regulations;
(iii) varying economic and political conditions; (iv) overlapping or differing tax structures; and (v) regulations (pertaining to,
among other things, compensation and benefits, vacation, and the termination of employment). Our inability to effectively
manage our international operations or our violation of a regulation could result in increased costs and adversely affect our
results of operations.
Due to inherent limitations, there can be no assurance that our system of disclosure and internal controls and procedures
will be successful in preventing all errors and fraud, or in making all material information known in a timely manner to
management.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure
controls and internal controls will prevent all errors and all fraud. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can
be circumvented by the acts of an individual, by collusion of two or more people, or by management override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over
time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations, misstatements due to error or fraud may occur and not be
detected.
Impairment in the value of our goodwill, trade names, or other intangible assets could negatively impact our net income and
earnings per share.
We are required to test goodwill and intangible assets with indefinite lives (such as trade names) annually, to determine if
impairment has occurred. Long-lived assets and other identifiable intangible assets are also reviewed for impairment whenever
events or changes in circumstances indicate that amounts may not be recoverable. If the testing performed indicates that
impairment has occurred, we are required to record a non-cash impairment charge for the difference between the carrying
amount of the goodwill or other intangible assets and the implied fair value of the goodwill or the fair value of the indefinite-
lived intangible asset in the period the determination is made. The testing of goodwill and other intangible assets for
impairment requires us to make significant estimates about our future performance and cash flows, as well as other
assumptions. These estimates can be affected by numerous factors, including changes in economic, industry or market
conditions, changes in business operations, changes in competition or changes in our stock price and market capitalization.
Changes in these factors, or changes in actual performance compared with estimates of our future performance, could affect the
fair value of goodwill, trade names, or other intangible assets, which may result in an impairment charge. We cannot accurately
predict the amount and timing of any impairment of assets. Should the value of goodwill or other intangible assets become
impaired, there could be an adverse effect on us. At December 31, 2019, goodwill, trade names not subject to amortization, and
other intangible assets represented 40% of our total assets. In 2019, 2018, and 2017, we recorded impairment charges of $14.5
million, $22.4 million, and $14.4 million, respectively.
15
We could suffer adverse tax and other financial consequences if taxing authorities do not agree with our tax positions, if
there are further legislative tax changes, or if we are unable to utilize our net operating losses.
We are periodically subject to a number of tax examinations by taxing authorities in the states and countries where we do
business. We also have significant deferred tax assets related to our net operating losses (NOLs) in U.S. federal and state taxing
jurisdictions, which, generally, for U.S. federal and state tax purposes, carry forward for up to twenty years. Tax years generally
remain subject to examination until three years after NOLs are used or expire. We expect that we will continue to be subject to
tax examinations in the future. We recognize tax benefits of uncertain tax positions when we believe the positions are more
likely than not of being sustained upon a challenge by the relevant tax authority. We believe our judgments in this area are
reasonable and correct, but there is no guarantee that we will be successful if challenged by a taxing authority. If there are tax
benefits, including, but not limited to, the use of NOLs, expense reimbursements, or other tax attributes, that are challenged
successfully by a taxing authority, we may be required to pay additional taxes, interest, and penalties, or we may seek to enter
into settlements with the taxing authorities, which could require significant payments or otherwise have a material adverse
effect on our business, results of operations, and financial condition.
In addition, U.S. federal, state and local, as well as international, tax laws and regulations are extremely complex and subject to
varying interpretations. Most recently, on December 22, 2017, the President signed the 2017 Tax Act into law. In the long-term,
we anticipate that we will have an overall benefit from the reduction in the tax rate slightly offset by potential deductions
disallowed under the current law. Although we are not aware of any provision in the 2017 Tax Act or any other pending tax
legislation that would have a material adverse impact on our financial performance, the ultimate impact of the 2017 Tax Act
may differ from our current assessment due to changes in interpretations and assumptions made by us as well as the issuance of
any further regulations or guidance regarding the U.S. federal income tax code. At this time, it is unclear how many U.S. states
will incorporate these federal law changes, or portions thereof, into their tax codes. There can be no assurance that the 2017 Tax
Act or any other legislative changes will not negatively impact our operating results, financial condition, and future business
operations.
In addition, we may be limited in our ability to utilize our NOLs to offset future taxable income and thereby reduce our
otherwise payable income taxes. Our ability to utilize our NOLs is also dependent, in part, upon us having sufficient future
earnings to utilize our NOLs before they expire. If market conditions change materially and we determine that we will be
unable to generate sufficient taxable income in the future to utilize our NOLs, we could be required to record an additional
valuation allowance. We review the valuation allowances for our NOLs periodically and make adjustments from time to time,
which can result in an increase or decrease to the net deferred tax asset related to our NOLs. If we are unable to use our NOLs
or use of our NOLs is limited, we may have to make significant payments or reduce our deferred tax assets, which could have a
material adverse effect on our business, results of operations and financial condition.
If certain of our healthcare professionals are reclassified from independent contractors to employees our profitability could
be materially adversely impacted.
Federal or state taxing authorities could re-classify our locum tenens physicians, CRNAs, nurse practitioners, and other
independent contractors as employees, despite both the general industry standard to treat them as independent contractors and
many state laws prohibiting non-physician owned companies from employing physicians (e.g., the “corporate practice of
medicine”). If they were re-classified as employees, we would be subject to, among other things, employment and payroll-
related tax claims, as well as any applicable penalties and interest. Any such reclassification would have a material adverse
impact on our business model for that business segment and would negatively impact our profitability.
If the method for paying locum tenens physicians changes, it could negatively impact our profitability.
The Medicare Access and CHIP Reauthorization Act of 2015 created a new framework for rewarding physicians for providing
higher quality care by establishing two tracks of payment: a merit-based incentive payment system, and Advanced Alternative
Payment Models. If hospitals change the method for paying locum tenens physicians to meet their performance goals or other
criteria for Medicaid or Medicare reimbursements, the profitability of our business could be adversely impacted.
Our financial results could be adversely impacted by the loss of key management.
We believe the successful execution of our business strategy and our ability to build upon significant recent investments and
acquisitions depends on the continued employment of key members of our senior management team. If we were to lose any key
personnel, we may not be able to find an appropriate replacement on a timely basis and our results of operations could be
negatively affected. Further, the loss of a significant number of employees or our inability to hire a sufficient number of
qualified employees could have a material adverse effect on our business.
16
A pandemic, epidemic, or outbreak of an infectious disease in the markets in which we operate or that otherwise impacts our
clients could adversely affect our business.
If a pandemic, epidemic, or outbreak of an infectious disease, including the recent outbreak of respiratory illness caused by the
2019 Novel Coronavirus (COVID-19) or other public health crisis, were to affect our clients or our employees, (including the
supply of healthcare professionals), our business could be adversely affected. Demand from our clients may be reduced as any
such crisis could adversely impact our customers if patients cancel elective procedures or fail to seek needed medical care.
Additionally, our employees and supply of healthcare professionals may be personally affected by an outbreak or limit their
travel which could impact our ability to serve our clients or respond timely to their needs.
Item 1B. Unresolved Staff Comments.
None.
17
Item 2. Properties.
All of our operations are conducted through leased office space. As of December 31, 2019, we leased office space in 59
facilities located in 27 states throughout the United States. We continuously evaluate facility needs based on the extent of our
service offerings, the rate of client growth or decline, the geographic distribution of our client base, changing market
conditions, and our long-term goals. As of December 31, 2019, our material leased properties are described below:
Our corporate headquarters is located in Boca Raton, Florida, with approximately 48,000 square feet of office space under lease
through November 2025. Our corporate executive staff, legal, finance, risk management, internal audit, and information
technology teams occupy approximately 26,000 square feet with the remainder of the space vacant and available for a sublease
which we are currently seeking.
We have additional office space in Boca Raton, Florida, with approximately 70,000 square feet of office space under lease
through December 2025. Our Nurse and Allied executive staff and operations personnel as well as shared support functions of
human resources, payroll and billing, sales, and marketing fully occupy this space.
In Norcross, Georgia we have approximately 42,000 square feet of office space under lease through October 2024. Our
Physician Staffing executive staff and operations personnel occupy approximately 31,000 square feet with the remainder of the
space vacant and available for a sublease which we are currently seeking.
In Creve Coeur, Missouri, we have approximately 27,000 square feet of office space under lease through August 2024. Our
Search executive staff and operations personnel occupy approximately 19,000 square feet with the remainder vacant and
available for a sublease which we are currently seeking.
Item 3. Legal Proceedings.
From time to time, we are involved in various litigation, claims, investigations, and other proceedings that arise in the ordinary
course of our business. These matters primarily relate to employee-related matters that include individual and collective claims,
professional liability, tax, and payroll practices. We establish 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 a significant management judgment to determine
the probability and estimated amount of potential losses, if any. Based on the available information considered in our reviews,
we adjust our loss contingency accruals and our disclosures as may be required. Actual outcomes or losses may differ
materially from those estimated by our current assessments, including available insurance recoveries, which would impact our
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 our financial results. In the
second quarter of 2019, we recorded $1.6 million in legal settlement charges related to the resolution of a medical malpractice
lawsuit, as well as a 2019 California wage and hour class action settlement agreement. We believe the outcome of any
outstanding loss contingencies as of December 31, 2019 will not have a material adverse effect on our business, financial
condition, results of operations, or cash flows. In October 2019, we received a grand jury subpoena directed to Advantage On
Call whose assets were purchased by Cross Country Healthcare, Inc. in 2017. The subpoena appears to relate to an
investigation of home healthcare services and healthcare staffing services. We are cooperating with the investigation.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock currently trades under the symbol “CCRN” on the NASDAQ Global Select Market (NASDAQ). Our
common stock commenced trading on the NASDAQ National Market under the symbol “CCRN” on October 25, 2001.
The graph below compares the Company to the cumulative 5-year total return of holders of the Company's common stock with
the cumulative total returns of the NASDAQ Composite index and the Dow Jones U.S. Business Training & Employment
18
Agencies index. The graph assumes that the value of the investment in the Company's common stock and in each of the indexes
(including reinvestment of dividends) was $100 on December 31, 2014 and tracks it through December 31, 2019.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Cross Country Healthcare, Inc., the NASDAQ Composite Index,
and the Dow Jones US Business Training & Employment Agencies Index
$200.00
$180.00
$160.00
$140.00
$120.00
$100.00
$80.00
$60.00
$40.00
$20.00
$0.00
12/14
DJUSBE
CCRN
NASDAQ
12/31/2014
$100.00
$100.00
$100.00
12/15
12/31/2015
$98.51
$131.33
$105.73
12/16
12/30/2016
$88.68
$125.08
$113.66
12/17
12/29/2017
$116.14
$102.24
$145.76
12/18
12/19
12/31/2018
$85.17
$58.73
$139.03
12/31/2019
$105.82
$93.11
$189.45
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
As of February 24, 2020, there were 122 stockholders of record of our common stock. In addition, there were 3,940 beneficial
owners of our common stock held by brokers or other institutions on behalf of stockholders.
We have never paid or declared cash dividends on our common stock. Covenants in our credit agreement limit our ability to
repurchase our common stock and declare and pay cash dividends on our common stock. On February 28, 2008, our Board of
Directors authorized our most recent stock repurchase program whereby we may purchase up to 1.5 million of our common
shares, subject to the terms of our current credit agreement. The shares may be repurchased from time-to-time in the open
market and the repurchase program may be discontinued at any time at our discretion. During the year ended December 31,
2018, the Company repurchased and retired 432,439 shares of its Common Stock at an average market price of $11.54 per
share. At December 31, 2019, we had 510,004 shares of common stock left remaining to repurchase under this authorization,
subject to the limitations of our credit agreement as described in Note 15 - Stockholders' Equity to our consolidated financial
statements.
Item 6. Selected Financial Data.
The selected consolidated financial data as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018,
and 2017 are derived from the audited consolidated financial statements of Cross Country Healthcare, Inc., included elsewhere
in this Report. The selected consolidated financial data as of December 31, 2017, 2016, and 2015 and for the years ended
December 31, 2016 and 2015 are derived from the consolidated financial statements of Cross Country Healthcare, Inc., that
have been audited but not included in this Report on Form 10-K.
19
The following selected financial data should be read in conjunction with the consolidated financial statements and related notes
of Cross Country Healthcare, Inc., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
and other financial information included elsewhere in this report.
Consolidated Statements of Operations Data:
Revenue from services
(Loss) income from operations
Consolidated net (loss) income
Net (loss) income attributable to common shareholders
Year Ended December 31,
2019
2018
2017
2016
2015
(Amounts in thousands, except per share data)
$
822,224
$
816,484
$
865,048
$
833,537
$
767,421
(15,711)
(55,943)
(57,713)
(12,880)
(15,717)
(16,951)
11,748
38,802
37,513
6,184
8,731
7,967
20,565
4,954
4,418
Per Share Data:
Net (loss) income per share attributable to common shareholders
- Basic
Net (loss) income per share attributable to common shareholders
- Diluted
$
$
Weighted Average Common Shares Outstanding:
Basic
Diluted
Other Operating Data:
Cash and cash equivalents
Total assets
Total debt at par
Total stockholders’ equity
Net cash provided by operating activities
_______________
(1.61) $
(0.48) $
(1.61) $
(0.48) $
1.07
1.01
$
$
0.25
0.15
$
$
0.14
0.14
35,815
35,815
35,657
35,657
35,018
36,166
32,132
36,246
31,514
32,162
$
1,032
$
16,019
$
25,537
$
20,630
$
2,453
382,374
70,974
163,500
5,542
427,003
83,876
218,198
20,997
467,687
100,000
237,719
45,508
388,378
64,523
151,802
30,145
365,595
63,094
141,344
18,235
The following items impact the comparability and presentation of our consolidated data:
• Consolidated net (loss) income for the years ended December 31, 2019, 2018, 2017, 2016, and 2015 includes
amounts attributable to noncontrolling interest of $1.8 million, $1.2 million, $1.3 million, $0.8 million, and $0.5
million, respectively. See Note 1 - Organization and Basis of Presentation to our consolidated financial statements.
• We acquired AP Staffing effective December 1, 2018, all of the assets of Advantage effective July 1, 2017, and all of
the membership interests of Mediscan on October 30, 2015. The results of these acquired companies' operations
have been included in our consolidated statements of operations since their respective effective dates of acquisition.
For the years ended December 31, 2019, 2018, 2017, 2016, and 2015, we recognized $0.3 million, $0.5 million,
$2.0 million, $0.1 million, and $0.9 million, respectively, of acquisition and integration costs. See Note 4 -
Acquisitions to our consolidated financial statements.
• The years ended December 31, 2019, 2018, 2017, and 2016 include a $0.1 million acquisition-related contingent
consideration benefit, and $2.6 million, less than $0.1 million, and $0.8 million, respectively, of acquisition-related
contingent consideration expense primarily due to valuation and accretion adjustments related to the contingent
consideration liabilities of the US Resources Healthcare, LLC (USR) and Mediscan acquisitions. See Note 4 -
Acquisitions and Note 11 - Fair Value Measurements to our consolidated financial statements.
20
• We expensed applicant tracking system costs related to our project to replace our legacy system supporting our
travel nurse staffing business of $2.0 million and $0.7 million, respectively, for the years ended December 31, 2019
and 2018.
• We incurred restructuring costs in the years ended December 31, 2019, 2018, 2017, 2016, and 2015, for $3.6
million, $2.8 million, $1.0 million, $0.8 million, and $1.3 million, respectively. Restructuring costs are primarily
comprised of employee termination costs, lease-related exit costs, and reorganization costs as part of our planned
costs savings initiatives.
• We incurred legal settlement charges of $1.6 million in the year ended December 31, 2019, related to the resolution
of a medical malpractice lawsuit as well as a California wage and hour class action settlement.
•
Pre-tax non-cash impairment charges of $16.3 million, $22.4 million, $14.4 million, $24.3 million, and $2.1 million,
respectively, were incurred in the years ended December 31, 2019, 2018, 2017, 2016, and 2015. See Note 5 -
Goodwill, Trade Names, and Other Intangible Assets and Note 10 - Leases to our consolidated financial statements.
• The year ended December 31, 2019 includes the impact of a loss on derivative of $1.3 million, which represents the
amount paid to terminate an interest rate hedge related to our term loan that was refinanced in October 2019. The
years ended December 31, 2017 and 2016 include the impact of a gain on derivative liability of $1.6 million and
$5.8 million, while the year ended December 31, 2015 includes the impact of a loss on derivative liability of $9.9
million. The derivative liability related to the Convertible Notes issued in conjunction with a 2014 acquisition,
which were paid in full on March 17, 2017. See Note 9 - Derivatives to our consolidated financial statements.
• We incurred a loss on sale of business of $2.2 million (an after-tax gain of $1.3 million), in the year ended
December 31, 2015, related to the sale of our education seminars business, Cross Country Education, LLC on
August 31, 2015.
• The years ended December 31, 2019, 2018, 2017, and 2016, include losses on early extinguishment of debt of $2.0
million, $0.1 million, $5.0 million, and $1.6 million, respectively, related to reductions in borrowing capacity on our
then existing revolver in 2019, optional prepayments on the Amended Term Loan in 2019 and 2018, extinguishment
fees, and the write-off of unamortized loan fees and net debt discount and issuance costs related to the prior credit
agreements. See Note 8 - Debt to our consolidated financial statements.
•
Income tax expense for the year ended December 31, 2019 includes $35.8 million of expense related to the
establishment of valuation allowances on our deferred tax assets. Income tax benefit for the years ended December
31, 2018 and 2017 included benefits of $6.0 million and $12.1 million, respectively, related to the non-cash
impairment charges. The income tax benefit for the year ended December 31, 2017 was primarily the result of
reducing federal and certain state valuation allowances on our deferred tax assets totaling $45.4 million, offset by an
$8.0 million reduction in our net deferred tax assets (relating to the impact from the 2017 Tax Act signed into
legislation on December 22, 2017). For the year ended December 31, 2018, we completed our 2017 federal and state
income tax returns and recorded a discrete tax benefit associated with adjusting our net deferred tax asset. A
valuation allowance was maintained and reflected in the years ended December 31, 2015 through December 31,
2016.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with
Item 1. Business, Item 6. Selected Financial Data, Item 1A. Risk Factors, Forward-Looking Statements and Item 15.
Consolidated Financial Statements and the accompanying notes and other data, all of which appear elsewhere in this Annual
Report on Form 10-K.
Management's Discussion and Analysis below generally discusses 2019 and 2018 items and year-to-year comparisons between
2019 and 2018. Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this
Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results or Operations” in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on March 1, 2019.
21
Business Overview
We provide total talent management services, including strategic workforce solutions, contingent staffing, permanent placement
and other consultative services for healthcare clients. We recruit and place highly qualified healthcare professionals in virtually
every specialty and area of expertise. Our diverse client base includes both clinical and nonclinical settings, servicing acute
care hospitals, physician practice groups, outpatient and ambulatory-care centers, nursing facilities, both public schools and
charter schools, rehabilitation and sports medicine clinics, government facilities, and homecare. Through our national staffing
teams and network of office locations, we offer our workforce solutions and we are able to place clinicians on travel and per
diem assignments, local short-term contracts and permanent positions. Our workforce solutions include MSP, EMR transition
staffing, RPO, IRP, and other outsourcing and consultative services as described in Item 1. Business. By utilizing our various
solutions, clients are able to better plan their personnel needs, talent acquisition and management processes, strategically flex
and balance their workforce, access quality healthcare personnel, and provide continuity of care for improved patient outcomes.
We manage and segment our business based on the nature of our services we offer to our customers. As a result, in accordance
with the Segment Reporting Topic of the FASB ASC, we report three business segments – Nurse and Allied Staffing, Physician
Staffing, and Search.
Nurse and Allied Staffing – For the year ended December 31, 2019, Nurse and Allied Staffing represented
approximately 89% of our total revenue. The Nurse and Allied Staffing segment provides workforce solutions and
traditional staffing, including temporary and permanent placement of travel nurses and allied professionals, as well as
per diem and contract nurses and allied personnel. We also staff healthcare personnel and substitute teachers in public
and charter schools. We provide flexible workforce solutions to our healthcare clients through diversified offerings
designed to meet their unique needs, including: MSP, OWS, EMR, IRP and consulting services.
Physician Staffing – For the year ended December 31, 2019, Physician Staffing represented approximately 9% of our
total revenue. Physician Staffing provides physicians in many specialties, as well as CRNAs, NPs, and PAs as
independent contractors on temporary assignments throughout the U.S.
Search – For the year ended December 31, 2019, Search represented approximately 2% of our total revenue. Search is
comprised of retained and contingent search services for physicians, healthcare executives, and other healthcare
professionals, as well as recruitment process outsourcing, within the U.S.
Summary of Operations
For the year ended December 31, 2019, revenue from services increased 0.7% to $822.2 million, driven by growth in our
largest segment Nurse and Allied Staffing, partly offset by declines in Physician Staffing and Search. The year-over-year
increase in Nurse and Allied Staffing was primarily due to continued strong growth in travel allied and education, while the
decrease in Physician Staffing was primarily due to a decline in the volume of days filled. Direct operating expenses rose faster
than revenue, as we experienced higher compensation costs predominantly in Nurse and Allied Staffing, which drove a lower
bill-pay spread.
In 2019, the following initiatives were reflected in our financial results more fully described in Results of Operations and in the
Notes to the Financial Statements:
• We consolidated and refreshed our brand by consolidating from 20 disparate brands to one core brand: Cross Country
Healthcare to strengthen our go-to-market approach and be better positioned to deliver the full depth and breadth of
our services to clients and professionals. This resulted in the acceleration of amortization of intangible assets related to
trade names as well as impairment charges.
• As part of our efforts to reduce costs, we incurred restructuring charges in 2019 pertaining to severance, rationalization
of our office locations, and other reorganizational costs. We reinvested the majority of these cost savings in revenue
generating positions to drive organic revenue growth.
• We refinanced our debt into a more flexible, cost effective $120.0 million senior secured asset-based credit facility
(ABL) in the fourth quarter of 2019. As a result, we repaid and terminated the prior senior credit facility, as well as
terminated a related interest rate swap.
• We continue to invest in a project to replace the applicant tracking system of our travel nurse and allied operations to
improve candidate experience and be more efficient.
For the year ended December 31, 2019 net loss attributable to common shareholders was $57.7 million, or $1.61 per diluted
share. Also contributing to this net loss were legal settlement charges of $1.6 million related to the resolution of certain matters
and income tax expense of $35.8 million related to the establishment of a valuation allowance on our deferred tax assets.
22
For the year ended December 31, 2019, we generated cash flow from operating activities of $5.5 million impacted by the
previously mentioned initiatives. At December 31, 2019, we had $1.0 million in cash and cash equivalents, with $71.0 million
of borrowings drawn under our ABL, and $19.9 million of undrawn letters of credit outstanding, leaving $29.1 million
available for borrowing. See Note 8 - Debt to our consolidated financial statements.
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 FTEs, 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 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.
Business Segment
Nurse and Allied Staffing
Physician Staffing
Business Measurement
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 per FTE by the number of days
worked in the respective periods. Nurse and Allied Staffing revenue
also includes revenue from the permanent placement of nurses.
Days filled is calculated by dividing the total hours invoiced during
the period, including an estimate for the impact of accrued revenue,
by 8 hours.
Revenue per day filled is calculated by dividing revenue as reported
by days filled for the period presented.
23
Results of Operations
The following table summarizes, for the periods indicated, selected consolidated statements of operations data expressed as
a percentage of revenue. Our historical results of operations are not necessarily indicative of future operating results.
Revenue from services
Direct operating expenses
Selling, general and administrative expenses
Bad debt expense
Depreciation and amortization
Acquisition and integration costs
Acquisition-related contingent consideration
Restructuring costs
Legal settlement charges
Impairment charges
(Loss) income from operations
Interest expense
Loss (gain) on derivatives
Loss on early extinguishment of debt
Other income, net
(Loss) income before income taxes
Income tax expense (benefit)
Consolidated net (loss) income
Less: Net income attributable to noncontrolling interest in
subsidiary
Net (loss) income attributable to common shareholders
Year Ended December 31,
2018
2017
2019
100.0%
75.2
22.1
0.3
1.7
—
—
0.4
0.2
2.0
(1.9)
0.6
0.2
0.2
—
(2.9)
3.9
(6.8)
100.0%
74.3
22.1
0.3
1.4
0.1
0.3
0.3
—
2.8
(1.6)
0.7
—
—
(0.1)
(2.2)
(0.3)
(1.9)
0.2
(7.0)%
0.2
(2.1)%
100.0%
73.6
21.7
0.2
1.2
0.2
—
0.1
—
1.6
1.4
0.5
(0.2)
0.6
—
0.5
(4.0)
4.5
0.2
4.3%
24
Comparison of Results for the Year Ended December 31, 2019 compared to the Year Ended December 31, 2018
Revenue from services
Direct operating expenses
Selling, general and administrative expenses
Bad debt expense
Depreciation and amortization
Acquisition-related contingent consideration
Acquisition and integration costs
Restructuring costs
Legal settlement charges
Impairment charges
Loss from operations
Interest expense
Loss on derivative
Loss on early extinguishment of debt
Other income, net
Loss before income taxes
Income tax expense (benefit)
Consolidated net loss
Year Ended December 31,
Increase
(Decrease)
Increase
(Decrease)
2019
2018
$
%
(Dollars in thousands)
$
822,224
$
816,484
$
618,215
181,959
2,008
14,075
(110)
311
3,571
1,600
16,306
(15,711)
5,306
1,284
1,978
(68)
(24,211)
31,732
(55,943)
606,921
180,230
2,204
11,780
2,557
491
2,758
—
22,423
(12,880)
5,654
—
79
(418)
(18,195)
(2,478)
(15,717)
5,740
11,294
1,729
(196)
2,295
(2,667)
(180)
813
1,600
(6,117)
(2,831)
(348)
1,284
1,899
350
(6,016)
34,210
(40,226)
0.7 %
1.9 %
1.0 %
(8.9)%
19.5 %
(104.3)%
(36.7)%
29.5 %
100.0 %
(27.3)%
(22.0)%
(6.2)%
100.0 %
NM
83.7 %
(33.1)%
NM
(255.9)%
Less: Net income attributable to noncontrolling interest in
subsidiary
1,770
1,234
536
43.4 %
Net loss attributable to common shareholders
$
(57,713) $
(16,951) $
(40,762)
(240.5)%
NM - not meaningful
Revenue from services
Revenue from services increased $5.7 million, or 0.7%, to $822.2 million for the year ended December 31, 2019, as compared
to $816.5 million for the year ended December 31, 2018. The increase was due primarily to growth in our Nurse and Allied
Staffing segment, partially offset by declines in our Physician Staffing and Search segments. See further discussion in Segment
Results.
Direct operating expenses
Direct operating expenses are comprised primarily of field employee compensation and independent contractor expenses,
housing expenses, travel expenses, and related insurance expenses. Direct operating expenses increased $11.3 million, or 1.9%,
to $618.2 million for the year ended December 31, 2019, as compared to $606.9 million for the year ended December 31, 2018.
As a percentage of total revenue, direct operating expenses increased to 75.2% compared to 74.3% in the prior year period,
primarily due to higher compensation in Nurse and Allied Staffing driving a lower bill-pay spread.
Selling, general and administrative expenses
Selling, general and administrative expenses increased $1.7 million, or 1.0%, to $182.0 million for the year ended
December 31, 2019, as compared to $180.2 million for the year ended December 31, 2018, primarily due to higher healthcare
costs, consulting fees related to the replacement of our travel nurse legacy applicant tracking system, and candidate attraction-
25
related expenses, partially offset by our cost savings initiatives. As a percentage of total revenue, selling, general and
administrative expenses were 22.1% for both of the years ended December 31, 2019 and December 31, 2018.
Depreciation and amortization expense
Depreciation and amortization expense in the year ended December 31, 2019 increased to $14.1 million as compared to $11.8
million for the year ended December 31, 2018, primarily due to accelerated amortization of trade names in our Nurse and
Allied and Physician Staffing segments, associated with our rebranding initiatives, partially offset by lower depreciation
expense related to fully amortized assets that have not been replaced. See Note 5 - Goodwill, Trade Names, and Other
Intangible Assets to our consolidated financial statements. As a percentage of revenue, depreciation and amortization expense
was 1.7% for the year ended December 31, 2019 and 1.4% for the year ended December 31, 2018.
Acquisition-related contingent consideration
Acquisition-related contingent consideration for the year ended December 31, 2019 was a benefit of $0.1 million, reflecting
accretion and valuation adjustments on our contingent purchase price liabilities for a previously acquired business in
connection with the Mediscan acquisition. Acquisition-related contingent consideration for the year ended December 31, 2018
was $2.6 million and substantially related to the Mediscan acquisition. In the third quarter of 2018, we determined that the
contingent consideration earnout for USR would not be achieved and the entire liability was reversed. See Note 4 -
Acquisitions to our consolidated financial statements.
Acquisition and integration costs
During the years ended December 31, 2019 and 2018, we incurred acquisition and integration costs of $0.3 million and $0.5
million, respectively, related to prior acquisitions. The 2019 costs also included expenses incurred for potential transactions.
See Note 4 - Acquisitions to our consolidated financial statements.
Restructuring costs
Restructuring costs were primarily comprised of employee termination costs, lease-related exit costs, and reorganization costs
as part of our planned costs savings initiatives. We recorded restructuring costs of $3.6 million for the year ended December 31,
2019 and $2.8 million for the year ended December 31, 2018.
Legal settlement charges
Legal settlement charges totaled $1.6 million for the year ended December 31, 2019 and related to the resolution of a medical
malpractice lawsuit, as well as a California wage and hour class action settlement agreement. There were no similar charges for
the year ended December 31, 2018.
Impairment charges
During the year ended December 31, 2019, in connection with our restructuring activities, we ceased using leased space which
resulted in an evaluation of related long-lived assets pursuant to the Property, Plant, and Equipment Topic of the FASB ASC.
The evaluation resulted in impairment charges related to our right-of-use assets of $1.2 million and $0.6 million of impairment
related to property and equipment. In addition, as part of evolving our go-to-market strategy and subsequent rebranding
initiatives, in the second quarter of 2019, we eliminated certain brands across all of our segments and, as a result, $14.5 million
of indefinite-lived trade names related to Nurse and Allied Staffing were written off as impairment charges. During the year
ended December 31, 2018, we recorded non-cash impairment charges of $22.4 million, relating to the Physician Staffing
reporting unit. We reduced our long-range forecast for the Physician Staffing business segment in the fourth quarter. The lower
than expected revenue was driven by lower booking volumes, partly due to the loss of customers. In addition, margins of the
reporting unit were negatively impacted from investments in the business. As a result, we recorded non-cash impairment
charges of $5.2 million related to trade names and $17.2 million related to goodwill. See Note 5 - Goodwill, Trade Names, and
Other Intangible Assets and Note 11 - Fair Value Measurements to our consolidated financial statements.
Interest expense
Interest expense totaled $5.3 million for the year ended December 31, 2019 and $5.7 million for the year ended December 31,
2018. The effective interest rate on our borrowings was 5.1% for both years ended December 31, 2019 and 2018.
26
Loss on derivative
We incurred a loss on derivative of $1.3 million for the year ended December 31, 2019 which was paid to terminate an interest
rate hedge related to our term loan that was refinanced in October 2019. There were no similar charges for the year ended
December 31, 2018. See Note 8 - Debt and Note 9 - Derivatives to our consolidated financial statements.
Loss on early extinguishment of debt
Loss on early extinguishment of debt of $2.0 million for the year ended December 31, 2019 related to write-off and
extinguishment costs of $1.5 million related to the refinancing of our debt in the fourth quarter of 2019, and the write-off of
debt issuance costs of $0.5 million in the prior quarters related to optional prepayments on our term loan made in the first and
second quarters as well as optional reductions in borrowing capacity under our prior revolving credit facility. Loss on early
extinguishment of debt was not material for the year ended December 31, 2018 and related to the optional prepayments on our
term loan. See Note 8 - Debt to our consolidated financial statements.
Income tax expense (benefit)
Income tax expense totaled $31.7 million for the year ended December 31, 2019, compared to income tax benefit of $2.5
million for the year ended December 31, 2018. The effective tax rate was negative 131.1% and 13.6%, including the impact of
discrete items, for the years ended December 31, 2019 and 2018, respectively. The effective tax rate in 2019 was impacted by
the additional valuation allowance on deferred tax assets, impairment of indefinite-lived intangibles, and international and state
taxes. The effective tax rate in 2018 was impacted by the non-deductibility of certain per diem expenses, the officers'
compensation limitation, and international and state income taxes. Further, during the fourth quarter of 2018, we completed our
2017 federal and state income tax returns and recorded a discrete tax benefit associated with adjusting our net deferred tax
asset. See Note 14 - Income Taxes to our consolidated financial statements.
27
Segment Results
Information on operating segments and a reconciliation to (loss) income from operations for the periods indicated are as
follows:
Revenue from services:
Nurse and Allied Staffing
Physician Staffing
Search
Contribution income (loss):
Nurse and Allied Staffing
Physician Staffing
Search
Corporate overhead
Depreciation and amortization
Acquisition and integration costs
Acquisition-related contingent consideration
Restructuring costs
Legal settlement charges
Impairment charges
(Loss) income from operations
Year Ended December 31,
2018
2017
2019
(amounts in thousands)
$
$
$
732,815
74,605
14,804
822,224
64,353
2,758
(823)
66,288
46,246
14,075
311
(110)
3,571
1,600
16,306
(15,711) $
$
$
$
718,613
82,305
15,566
816,484
66,200
4,755
763
71,718
44,589
11,780
491
2,557
2,758
—
22,423
(12,880) $
756,476
93,610
14,962
865,048
73,825
5,256
(568)
78,513
39,190
10,174
1,975
44
1,026
—
14,356
11,748
$
$
$
$
In 2019, as part of our rebranding efforts, we moved our Recruitment Process Outsourcing (RPO) services to Search. As a
result, for the years ended December 31, 2018 and 2017, $1.7 million and $1.8 million of revenue, respectively, and $0.2
million of contribution income and $0.2 million of contribution loss, respectively, were reclassified from Nurse and Allied
Staffing to Search to conform to the current period presentation. See Note 18 - Segment Data.
Certain statistical data for our business segments for the periods indicated are as follows:
Year Ended December 31,
2018
2019
Change
Percent
Change
Nurse and Allied Staffing statistical data:
FTEs
Average Nurse and Allied Staffing revenue per FTE per day
Physician Staffing statistical data:
Days filled
Revenue per day filled
7,113
282
44,381
1,681
$
$
$
$
7,154
275
53,039
1,552
$
$
(41)
7
(0.6)%
2.5 %
(8,658)
129
(16.3)%
8.3 %
See definition of Business Measurements under the Operating Metrics section of our Management's Discussion and Analysis.
28
Segment Comparison - Year Ended December 31, 2019 compared to the Year Ended December 31, 2018
Nurse and Allied Staffing
Revenue from Nurse and Allied Staffing increased $14.2 million, or 2.0% to $732.8 million for the year ended December 31,
2019, from $718.6 million for the year ended December 31, 2018. The year-over-year increase was primarily due to higher
average bill rates driven primarily by improved mix and favorable pricing, partly offset by lower volume.
Contribution income from Nurse and Allied Staffing for the year ended December 31, 2019, decreased $1.8 million or 2.8%, to
$64.4 million from $66.2 million in year ended December 31, 2018. As a percentage of segment revenue, contribution income
margin decreased to 8.8% for the year ended December 31, 2019 from 9.2% for the year ended December 31, 2018, primarily
due to a lower bill-pay spread.
The average number of Nurse and Allied Staffing FTEs on contract during the year ended December 31, 2019 decreased 0.6%
from the year ended December 31, 2018. Average Nurse and Allied Staffing revenue per FTE per day increased approximately
2.5% in the year ended December 31, 2019 compared to the year ended December 31, 2018, reflecting the higher average bill
rates.
Physician Staffing
Revenue from Physician Staffing decreased $7.7 million, or 9.4% to $74.6 million for the year ended December 31, 2019,
compared to $82.3 million for the year ended December 31, 2018, primarily due to a lower number of days filled, partially
offset by higher bill rates due to mix of business.
Contribution income from Physician Staffing for the year ended December 31, 2019, decreased $2.0 million or 42.0% to $2.8
million compared to $4.8 million in the year ended December 31, 2018. As a percentage of segment revenue, contribution
income was 3.7% for the year ended December 31, 2019 and 5.8% for the year ended December 31, 2018, driven by lower
revenue.
Physician Staffing days filled decreased 16.3% to 44,381 in the year ended December 31, 2019, compared to 53,039 in the year
ended December 31, 2018, across a broad variety of specialties in both physician and advanced practices. Revenue per day
filled was $1,681 for the year ended December 31, 2019 and $1,552 for the year ended December 31, 2018, due to a shift in the
mix of business.
Search
Revenue from Search for the year ended December 31, 2019, decreased $0.8 million, or 4.9%, to $14.8 million from $15.6
million in the year ended December 31, 2018, due to declines in searches, partially offset by an increase in RPO revenue
The segment reported a contribution loss of $0.8 million for the year ended December 31, 2019, as compared with contribution
income of $0.8 million for the year ended December 31, 2018. The decrease was driven by both lower revenue and higher
compensation costs.
Corporate overhead
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). Corporate overhead increased to $46.2 million for the year ended December 31, 2019, from $44.6 million for the
year ended December 31, 2018, primarily due to higher consulting and other professional service fees, partly offset by the
impact of our cost savings initiatives. The higher consulting fees are related to the project to replace our applicant tracking
system for our travel nurse business. As a percentage of consolidated revenue, unallocated corporate overhead was 5.6% for the
year ended December 31, 2019, and 5.5% for the year ended December 31, 2018.
Transactions with Related Parties
See Note 17 - Related Party Transactions to our consolidated financial statements.
29
Liquidity and Capital Resources
At December 31, 2019, we had $1.0 million in cash and cash equivalents, which was lower than prior periods due to
refinancing into an ABL which can be borrowed and repaid on a daily basis. As of December 31, 2019, we had $71.0 million of
outstanding borrowings. Working capital decreased by $11.6 million to $97.9 million as of December 31, 2019, compared to
$109.5 million as of December 31, 2018, primarily due to the lower cash balance at year-end. As of December 31, 2019, our
days' sales outstanding, net of amounts owed to subcontractors, was 58 days representing a 4 day improvement from December
31, 2018.
Our operating cash flow constitutes our primary source of liquidity, and historically, has been sufficient to fund our working
capital, capital expenditures, internal business expansion, and debt service, including our commitments as described in the
Commitments table which follows. We expect to meet our future needs from a combination of cash on hand, operating cash
flows, and funds available through the ABL. See debt discussion which follows.
Cash Flow Comparisons
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Net cash provided by operating activities during the year ended December 31, 2019 was $5.5 million compared to $21.0
million during the year ended December 31, 2018. The primary drivers for the full year decline related to significant
expenditures for items such as the termination of our interest rate swap and legal settlements, as well as higher costs for
restructuring and costs pertaining to the new applicant tracking system, which totaled approximately $4.5 million. In addition,
due to the timing of year end, we prefunded payroll by approximately $5.0 million. Lastly, while days’ sales outstanding
improved for the year, the sequential revenue growth resulted in a net working capital investment of approximately $3.1
million.
Net cash used in investing activities during the year ended December 31, 2019 was $2.9 million compared to $6.7 million in
the year ended December 31, 2018. The primary use for cash pertained to capital expenditures in both periods, and for
acquisition-related settlements in the prior year. Capital expenditures in the year ended December 31, 2019 were primarily
related to the project to replace our applicant tracking system for our travel nurse business. We expect to continue to incur
additional capital expenditures related to this project in 2020.
Net cash used in financing activities during the year ended December 31, 2019 was $17.6 million, compared to $23.8 million
during the year ended December 31, 2018. During the year ended December 31, 2019, we used proceeds from the ABL to repay
our then outstanding borrowings of $75.4 million under our August 2017 Credit Facility and $1.3 million for the payment of
fees, expenses, and accrued interest. In addition, we used cash to make optional debt prepayments on our Amended Term Loan
of $12.5 million and $0.7 million to pay debt issuance costs in connection with the Second and Third Amendments to our
August 2017 Credit Facility. We also used cash to pay $0.8 million for income taxes on share-based compensation, $1.6 million
for noncontrolling shareholder payments, and $0.3 million of contingent consideration. During the year ended December 31,
2018, we repaid $16.1 million on our Amended Term Loan, including $10.0 million of optional prepayments, and paid $0.3
million in debt issuance costs in connection with the First Amendment to our Amended and Restated Credit Facility. We also
repurchased and retired shares of our Common Stock for $5.0 million, and used cash to pay $0.9 million for shares withheld for
taxes, $1.2 million for noncontrolling shareholder payments, and $0.3 million of contingent consideration.
Debt
October 2019 ABL Credit Agreement
As more fully described in Note 8 - Debt to our consolidated financial statements, effective October 25, 2019, our prior senior
credit facility entered into in August 2017 was replaced by a $120.0 million ABL, which provides for a five-year senior secured
revolving credit facility.
Borrowings under the ABL generally bear interest at a variable rate based on either LIBOR or Base Rate plus an applicable
margin, subject to monthly pricing adjustments, pursuant to a pricing matrix based on the Company’s excess availability under
the revolving credit facility. As of December 31, 2019, the interest rate spreads and fees under the Loan Agreement were based
on LIBOR plus 2.00% for the revolving portion of the borrowing base and LIBOR plus 4.00% on the Supplemental
Availability. The Base Rate margins would have been 1.00% and 3.00%, respectively, for the revolving and Supplemental
Availability, respectively. Availability under the ABL is subject to a borrowing base, which was $120.0 million at December 31,
30
2019, with $71.0 million of borrowings drawn as well as $19.9 million of letters of credit outstanding, leaving $29.1 million
available for borrowing.
As mentioned above, we refinanced our debt into a more flexible cost effective asset-based credit facility in the fourth quarter
of 2019. In connection with the refinancing, we terminated the prior senior credit facility as well as a related interest rate swap,
resulting in recognized losses on the early extinguishment of debt. Before the refinancing occurred we made optional early
prepayments and entered into two amendments to our prior senior credit facility to maintain compliance and minimize interest
cost.
See Note 8 - Debt to our consolidated financial statements.
Stockholders' Equity
See Note 15 - Stockholders' Equity to our consolidated financial statements.
Commitments and Off-Balance Sheet Arrangements
As of December 31, 2019, we do not have any off-balance sheet arrangements.
The following table reflects our contractual obligations and other commitments as of December 31, 2019:
Commitments
Total
2020
2021
2022
(Unaudited, amounts in thousands)
2023
2024
Thereafter
ABL Credit Facility (a)
Interest on debt (b)
Contingent consideration (c)
Operating lease obligations (d)
$ 70,974
16,157
7,300
27,883
$ 122,314
$
— $
— $
— $
3,544
2,433
6,235
$ 12,212
3,468
2,433
5,974
$ 11,875
3,265
2,434
5,094
$ 10,793
$
— $ 70,974
2,676
—
3,382
$ 77,032
3,204
—
4,711
7,915
$
$
—
—
—
2,487
2,487
_______________
(a) Under our ABL Credit Facility, we are required to comply with certain financial covenants. Our inability to comply with
the required covenants or other provisions could result in default under our credit facility. In the event of any such default
and our inability to obtain a waiver of the default, all amounts outstanding under the ABL Credit Facility could be declared
immediately due and payable. As of December 31, 2019, we were in compliance with the financial covenants and other
covenants contained in the ABL Credit Agreement.
(b) Interest on debt represents estimated payments due through maturity for our ABL, calculated using the December 31, 2019
applicable LIBOR and margin rate totaling 3.8% on the revolving portion of the borrowing base (76% of the ABL balance)
and 5.8% on the Supplemental Availability (24% of the ABL balance) and assuming the principal balance remains the
same. See Note 8 - Debt to our consolidated financial statements.
(c) The contingent consideration represents the estimated payments due related to the assumed contingent purchase price
liabilities of the Mediscan acquisition, excluding interest. Interest, once determined, will begin to accrue in the first quarter
of 2020 and is payable along with the final payment due on January 31, 2022. See Note 4 - Acquisitions to our
consolidated financial statements.
(d) Represents future minimum lease payments associated with operating lease agreements with original terms of more than
one year. See Note 10 - Leases to our consolidated financial statements.
See Note 13 - Contingencies to our consolidated financial statements.
In addition to the above disclosed contractual obligations, we have accrued uncertain tax positions, pursuant to the Income
Taxes Topic of the FASB ASC, of $5.8 million at December 31, 2019. Based on the uncertainties associated with the settlement
of these items, we are unable to make reasonably reliable estimates of the period of potential settlements, if any, with the taxing
authorities.
Critical Accounting Policies and Estimates
We have identified the following critical accounting policies that affect the more significant judgments and estimates used in
the preparation of our consolidated financial statements. The preparation of our consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that
31
affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and
liabilities. We evaluate our estimates on an on-going basis, including those related to asset impairment, accruals for self-
insurance, allowance for doubtful accounts and sales allowances, taxes and other contingencies, and litigation. We state our
accounting policies in the notes to the audited consolidated financial statements for the year ended December 31, 2019,
contained herein. These estimates are based on information that is currently available to us and on various assumptions that we
believe to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions
or conditions.
We believe that the following critical accounting policies affect the more significant judgments and estimates used in the
preparation of our consolidated financial statements:
Goodwill, trade names, and other intangible assets
Our business acquisitions typically result in the recording of goodwill, trade names, and other intangible assets, and the
recorded values of those assets may become impaired in the future. The determination of the value of such intangible assets
requires management to make estimates and assumptions that affect our consolidated financial statements. For intangible assets
purchased in a business combination, the estimated fair values of the assets received are used to establish their recorded values.
As more fully described in Note 2 - Summary of Significant Accounting Policies, we assess the impairment of goodwill of our
reporting units and indefinite-lived intangible assets annually, or more often if events or changes in circumstances indicate that
the carrying value may not be recoverable.
Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of
assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each
reporting unit. Significant judgments are required to estimate the fair value of reporting units including estimating future cash
flows, and determining appropriate discount rates, growth rates, company control premium, and other assumptions. Changes in
these estimates and assumptions could materially affect the determination of fair value for each reporting unit. For the Search
reporting unit, there was less than 20% of excess fair value over its carrying amount leaving it at risk of impairment in future
periods if forecasted results are not achieved. See Note 5 - Goodwill, Trade Names, and Other Intangible Assets, where
impairment testing in 2019, 2018, and 2017 is more fully described.
Indefinite-lived intangible assets related to our trade names were not amortized but instead tested for impairment at least
annually, or more frequently should an event or circumstances indicate that a reduction in fair value may have occurred. We
perform testing of indefinite-lived intangible assets, other than goodwill, at the asset group level using the relief from royalty
method. If the carrying value exceeds the fair value, an impairment loss is recorded for that excess.
There can be no assurance that the estimates and assumptions made for purposes of the annual impairment test will prove to be
accurate predictions of the future. Although management believes the assumptions and estimates made are reasonable and
appropriate, different assumptions and estimates could materially impact the reported financial results.
In addition, we are required to test the recoverability of long-lived assets, including identifiable intangible assets with definite
lives, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In testing for
potential impairment, if the carrying value of the asset group exceeds the expected undiscounted cash flows, we must then
determine the amount by which the fair value of those assets exceeds the carrying value and determine the amount of
impairment, if any.
See Note 10 - Leases and Note 11 - Fair Value Measurements, where impairment testing in 2019 is more fully described.
Risk and Uncertainties
The calculation of fair value used in these impairment assessments included a number of estimates and assumptions that
required significant judgments, including projections of future income and cash flows, the identification of appropriate market
multiples, royalty rates, and the choice of an appropriate discount rate. See Note 11 - Fair Value Measurements. Specifically,
further deterioration of demand for our services, further deterioration of labor market conditions, reduction of our stock price
for an extended period, or other factors as described in Item 1.A. Risk Factors, may affect our determination of fair value of
goodwill, trade names, or other intangible assets. This evaluation can also be triggered by various indicators of impairment
which could cause the estimated discounted cash flows to be less than the carrying amount of net assets. If we are required to
record an impairment charge in the future, it could have an adverse impact on our results of operations. Under the current credit
32
agreement an impairment charge will not have an impact on our liquidity. As of December 31, 2019, we had total goodwill,
intangible assets not subject to amortization, and other intangible assets of $151.9 million or 39.7% of our total assets.
Health, workers' compensation, and professional liability expense
We maintain accruals for our health, workers’ compensation, and professional liability claims that are partially self-insured and
are classified as accrued compensation and benefits on our consolidated balance sheets. We determine the adequacy of these
accruals by periodically evaluating our historical experience and trends related to health, workers’ compensation, and
professional liability claims and payments, based on actuarial models, as well as industry experience and trends. If such models
indicate that our accruals are overstated or understated, we will adjust accruals as appropriate. Healthcare insurance accruals
have fluctuated with increases or decreases in the average number of temporary healthcare professionals on assignment as well
as actual company experience and increases in national healthcare costs. As of December 31, 2019 and 2018, we had $3.6
million and $5.2 million accrued, respectively, for incurred but not reported health insurance claims. Corporate and field
employees are covered through a partially self-insured health plan. Workers’ compensation insurance accruals can fluctuate
over time due to the number of employees and inflation, as well as additional exposures arising from the current policy year. As
of December 31, 2019, and 2018, we had $11.8 million and $11.9 million accrued for case reserves and for incurred but not
reported workers’ compensation claims, net of insurance receivables, respectively. The accrual for workers’ compensation is
based on an actuarial model which is prepared or reviewed by an independent actuary semi-annually. As of December 31, 2019,
and 2018, we had $6.7 million and $7.3 million accrued, respectively, for case reserves and for incurred but not reported
professional liability claims, net of insurance receivables. The accrual for professional liability is based on actuarial models
which are prepared by an independent actuary semi-annually.
Revenue recognition
We recognize revenue from our services when control of the promised services are transferred to our customers, in an amount
that reflects the consideration we expect to receive in exchange for the service. We have concluded that transfer of control of
our staffing services, which represents the majority of our revenues, occurs over time as the services are provided, which is
consistent with revenue recognition under the prior guidance.
The following is a description of the nature, amount, timing and uncertainty of revenue and cash flows from which we generate
revenue.
Temporary Staffing Revenue
Revenue from temporary staffing is recognized as control of the services is transferred over time, and is based on hours worked
by our field staff. We recognize the majority of our revenue at the contractual amount we have the right to invoice for services
completed to date. Generally, billing to customers occurs weekly, bi-weekly, or monthly and is aligned with the payment of
services to the temporary staff, with payment terms of 30 to 60 days. Accounts receivable includes estimated revenue for
employees’ and independent contractors’ time worked but not yet invoiced. At December 31, 2019 and December 31, 2018, our
estimate of amounts that had been worked but had not been billed totaled $46.1 million and $44.1 million, respectively, and are
included in accounts receivable in the consolidated balance sheets.
Other Services Revenue
We offer other optional services to our customers that are transferred over time including: MSPs providing agency services (as
further described below in Gross Versus Net Policies), RPO, other outsourcing services, and retained search services, as well as
separately billable travel and housing costs, which in total amount to less than 5% of our consolidated revenue for the years
ended December 31, 2019, 2018, and 2017. Generally, billing and payment terms for MSP agency services is consistent with
temporary staffing as the customers are similar or the same. Revenue from these services are recognized based on the
contractual amount for services completed to date which best depicts the transfer of control of services.
For our RPO, other outsourcing, and retained search services, revenue is generally recognized in the amount to which the entity
has a right to invoice which corresponds directly with the value to the customer. We do not, in the ordinary course of business,
offer warranties or refunds.
Gross Versus Net Policies
We record revenue on a gross basis as a principal or on a net basis as an agent depending on the contracted arrangement, as
follows:
33
• We have also entered into certain contracts with acute care facilities to provide comprehensive MSP solutions. Under
these contract arrangements, we use our nurses primarily, along with those of third party subcontractors, to fulfill
customer orders. If a subcontractor is used, we invoice our customer for these services, but revenue is recorded at the
time of billing, net of any related subcontractor liability. The resulting net revenue represents the administrative fee
charged by us for our MSP services.
• Revenue from our Physician Staffing business is recognized on a gross basis as we believe we are the principal in the
arrangements.
Allowances
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make
required payments, which results in a provision for bad debt expense. We determine the adequacy of this allowance by
continually evaluating individual customer receivables, considering the customer’s financial condition, credit history and
current economic conditions. If the financial condition of our customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required. We write off specific accounts based on an ongoing review of
collectability as well as our past experience with the customer. In addition, we maintain a sales allowance for billing-related
adjustments which may arise in the ordinary course and adjustments to the reserve are recorded as contra-revenue. Historically,
losses on uncollectible accounts and sales allowances have not exceeded our allowances. As of December 31, 2019, our total
allowances were $3.2 million.
Contingent liabilities
We are subject to various litigation, claims, investigations, and other proceedings that arise in the ordinary course of our
business. These proceedings primarily relate to employee-related matters that include individual and collective claims,
professional liability, tax, and payroll practices. Our healthcare facility clients may also become subject to claims,
governmental inquiries and investigations, and legal actions to which we may become a party relating to services provided by
our professionals. We record a liability when available information indicates that a loss is probable and an amount, or range of
loss can be reasonably estimated. Significant judgment is required to determine both the probability of loss and the estimated
amount. At least quarterly, we review our accrual and/or disclosures to reflect the impact of negotiations, settlements, rulings,
advice of legal counsel, or new information. However, losses ultimately incurred could materially differ from amounts accrued.
See Note 13 - Contingencies.
Income taxes
We account for income taxes in accordance with the Income Taxes Topic of the FASB ASC. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating loss and other loss carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. As of December 31, 2019, we have deferred tax assets related to certain
federal, state, and foreign net operating loss carryforwards of $19.8 million. The carryforwards will expire as follows: federal
between 2032 and 2039, state between 2020 and 2039, and foreign between 2020 and 2024.
As of December 31, 2019 and 2018, we had valuation allowances on our deferred tax assets of $37.3 million and $1.2 million,
respectively. As of June 30, 2019, management assessed the available positive and negative evidence to estimate whether
sufficient future taxable income will be generated to permit use of its existing deferred tax assets. A significant piece of
objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended June 30, 2019. On the
basis of this evaluation, an additional valuation allowance of $36.0 million was recorded in the second quarter ($35.8 million of
which was recorded as income tax expense and $0.2 million as a reduction of other comprehensive income) to reduce the
portion of the deferred tax asset that is not more likely than not to be realized. The Company intends to maintain a valuation
allowance until sufficient positive evidence exists to support its reversal. The December 31, 2019 valuation allowance applied
to all domestic deferred tax assets other than certain deferred tax assets expected to be realized. The December 31, 2018
valuation allowance applied to the uncertainty of the realization of certain state net operating losses. See Note 14 - Income
Taxes to our consolidated financial statements.
We maintain valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be
realized. In determining whether a valuation allowance is warranted, we evaluate factors such as prior earnings history,
expected future earnings, carryback and carryforward periods, and tax strategies. We consider all positive and negative
evidence to estimate if sufficient future taxable income will be generated to realize the deferred tax asset. We consider
34
cumulative losses in recent years as well as the impact of one-time events in assessing our pre-tax earnings. Assumptions
regarding future taxable income require significant judgment. Our assumptions are consistent with estimates and plans used to
manage our business, which includes restructuring and other initiatives. In the event that actual results differ from these
estimates, or we adjust these estimates in future periods for current trends or changes in our estimating assumptions, we may
modify the level of the valuation allowance which could materially impact our business, financial condition, and results of
operations.
We are subject to income taxes in the U.S. and certain foreign jurisdictions. Significant judgment is required in determining our
consolidated provision for income taxes and recording the related deferred tax assets and liabilities. In the ordinary course of
our business there are many transactions and calculations where the ultimate tax determination is uncertain. Accruals for
unrecognized tax benefits are provided for in accordance with the Income Taxes Topic of the FASB ASC. An unrecognized tax
benefit represents the difference between the recognition of benefits related to exposure items for income tax reporting
purposes and financial reporting purposes. The entire portion of the unrecognized tax benefit is classified as a component of
other long-term liabilities in the consolidated balance sheets. As of December 31, 2019, total unrecognized tax benefits
recorded was $5.8 million. We reserve for interest and penalties on exposure items, if applicable, which is recorded as a
component of the overall income tax provision.
We are regularly under audit by tax authorities. Although the outcome of tax audits is always uncertain, we believe that we
have appropriate support for the positions taken on our tax returns and that our annual tax provision includes amounts sufficient
to pay any assessments. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing
authorities may differ materially from the amounts accrued for each year.
Recent Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements.
Seasonality
The number of healthcare professionals on assignment with us is subject to seasonal fluctuations which may impact our
quarterly revenue and earnings. Hospital patient census and staffing needs of our hospital and healthcare facilities fluctuate,
which impact our number of orders for a particular period. Many of our hospital and healthcare facility clients are located in
areas that experience seasonal fluctuations in population during the winter and summer months. These facilities adjust their
staffing levels to accommodate the change in this seasonal demand and many of these facilities utilize temporary healthcare
professionals to satisfy these seasonal staffing needs. Likewise, the number of nurse and allied professionals on assignment
may fluctuate due to the seasonal preferences for destinations of our temporary nurse and allied professionals. In addition, we
expect our Physician Staffing business to experience higher demand in the summer months as physicians take vacations. We
also expect our education and school business to experience lower demand in the summer months when public and charter
schools are closed. This historical seasonality of revenue and earnings may vary due to a variety of factors and the results of
any one quarter are not necessarily indicative of the results to be expected for any other quarter or for any year. In addition,
typically, our first quarter results are negatively impacted by the reset of payroll taxes.
Inflation
We do not believe that inflation had a significant impact on our results of operations for the periods presented. On an ongoing
basis, we seek to ensure that billing rates reflect increases in costs due to inflation. In addition, we attempt to minimize any
residual impact on our operating results by controlling operating costs.
35
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Interest Rate Risk
We have been exposed to interest rate risk associated with our debt instruments which have had interest based on variable rates.
As of December 31, 2019, we are exposed to the risk of fluctuation in interest rates relating to our ABL Credit Agreement
(ABL) entered into on October 25, 2019. Our ABL charges us interest at a rate based on either LIBOR or Base Rate (as
defined) plus an applicable margin.
In March 2018, we entered into an interest rate swap agreement, which initially fixed the interest rate on 50% of the amortizing
balance on our prior term debt. The interest rate swap qualified as a cash flow hedge in accordance with the Derivatives and
Hedging Topic of the FASB ASC and the resulting changes in fair value of the interest rate swap were recorded to other
comprehensive (loss) income and reclassified to interest expense over the life of the term debt. In September 2019, in
contemplation of entering into the ABL, we terminated this interest rate swap agreement. See Note 8 - Debt and Note 9 -
Derivatives to our consolidated financial statements.
A 1% change in interest rates on our variable rate debt would have resulted in interest expense fluctuating approximately
$0.9 million and $1.0 million, respectively, for the years ended December 31, 2019 and 2018, excluding the impact of the
interest rate swap agreement. Considering the effect of our interest rate swap agreement in a 1% change in interest rates on our
variable rate debt would have resulted in interest expense fluctuating approximately $0.4 million and $0.6 million, respectively,
for the years ended December 31, 2019 and 2018.
See Item 1A, Risk Factors under “The interest rates under our ABL Credit Agreement may be impacted by the phase-out of the
London Interbank Offered Rate (LIBOR)” for a discussion of the interest rate risk related to the potential phase-out of LIBOR
in 2021.
Foreign Currency Risk
We have minor exposure to the impact of foreign currency fluctuations. Approximately 1% of selling, general and
administrative expenses are related to certain software development and information technology support provided by our
employees in Pune, India. Changes in foreign currency exchange rates impact translations of foreign denominated assets and
liabilities into U.S. dollars and future earnings and cash flows from transactions denominated in different currencies. We have
not entered into any foreign currency hedges.
Our international operations transact business in their functional currency. As a result, fluctuations in the value of foreign
currencies against the U.S. dollar have an impact on reported results. Expenses denominated in foreign currencies are translated
into U.S. dollars at monthly average exchange rates prevailing during the period. Consequently, as the value of the U.S. dollar
changes relative to the currencies of our non-U.S. markets, our reported results vary.
Fluctuations in exchange rates also impact the U.S. dollar amount of stockholders’ equity. The assets and liabilities of our non-
U.S. subsidiaries are translated into U.S. dollars at the exchange rate in effect at the end of a reporting period. The resulting
translation adjustments are recorded in stockholders’ equity, as a component of accumulated other comprehensive loss,
included in other stockholders’ equity in our consolidated balance sheets.
Item 8. Financial Statements and Supplementary Data.
See Item 15 – Exhibits, Financial Statement Schedules of Part IV of this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
36
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our "disclosure controls and procedures" (as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the
period covered by this report. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective. Disclosure controls and procedures are designed to ensure that
information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed,
summarized, communicated to management, including the Chief Executive Officer and the Chief Financial Officer, and
reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The disclosure
controls and procedures are designed to ensure that information required to be disclosed by us in reports required under the
Exchange Act of 1934, as amended, is accumulated and communicated to our management, including the Chief Executive
Officer and Chief Financial Officer, in order to allow timely decisions regarding any required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during 2019 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined
in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act). Our internal control system is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject
to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the
policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31,
2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission, or COSO, in the Internal Control-Integrated Framework (2013 framework).
Based on its evaluation, management concluded that, as of December 31, 2019, our internal control over financial reporting is
effective based on the specific criteria.
Attestation Report of Independent Registered Public Accounting Firm
Our independent registered public accounting firm has issued an attestation report on our internal control over financial
reporting. This report appears on page 39.
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Cross Country Healthcare, Inc.
Boca Raton, Florida
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Cross Country Healthcare, Inc. and subsidiaries (the
“Company”) as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on
criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB) the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our
report dated March 5, 2020 expressed an unqualified opinion on those financial statements and schedule and included an
explanatory paragraph regarding the Company's adoption of a new accounting standard.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Boca Raton, Florida
March 5, 2020
38
Item 9B. Other Information.
None.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Information with respect to directors, executive officers and corporate governance is included in our Proxy Statement for the
2020 Annual Meeting of Stockholders (Proxy Statement) to be filed pursuant to Regulation 14A with the SEC not later than
120 days after the close of the fiscal year covered by this Annual Report and such information is incorporated herein by
reference.
Item 11. Executive Compensation.
Information with respect to executive compensation is included in our Proxy Statement to be filed with the SEC not later than
120 days after the close of the fiscal year covered by this Annual Report and such information is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.
Information with respect to beneficial ownership of our common stock is included in our Proxy Statement to be filed with the
SEC not later than 120 days after the close of the fiscal year covered by this Annual Report and such information is
incorporated herein by reference.
With respect to equity compensation plans as of December 31, 2019, see table below:
Number of
securities to
be issued upon
exercise
of outstanding
options,
warrants and
rights (a)
Weighted-average
exercise price of
outstanding
options,
warrants and
rights (b)
Number of
securities
remaining
available for
future issuance
under
equity
compensation
plans (excluding
securities
reflected in
column (a)) (c) (1)
8,000
$
None
8,000
$
5.21
N/A
5.21
1,487,506
N/A
1,487,506
Plan Category
Equity compensation plans approved by
security holders
Equity compensation plans not approved by
security holders
Total
(1) For Performance Stock Awards issued under the 2014 Omnibus Incentive Plan, we consider the expected number of shares that
may be issued under the award to be outstanding. When the number of Performance Stock Awards have been determined, we true
up the actual number of shares that were awarded and return any unawarded shares into shares available for issuance. See Note
15 - Stockholders' Equity to our consolidated financial statements.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information with respect to certain relationships and related transactions, and director independence is included in our Proxy
Statement to be filed with the SEC not later than 120 days after the close of the fiscal year covered by this Annual Report and
such information is incorporated herein by reference.
39
Item 14. Principal Accountant Fees and Services.
Information with respect to the fees and services of our principal accountant is included in our Proxy Statement to be filed with
the SEC not later than 120 days after the close of the fiscal year covered by this Annual Report and such information is
incorporated herein by reference.
40
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) Documents filed as part of the report.
(1) Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations for the Years Ended December 31, 2019, 2018, and 2017
Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2019, 2018,
and 2017
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2019, 2018, and 2017
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018, and 2017
Notes to Consolidated Financial Statements
(2) Financial Statements Schedule
Schedule II – Valuation and Qualifying Accounts for the Years Ended December 31, 2019, 2018, and 2017
(3) Exhibits
41
No.
3.1
3.2
3.3
4.1
4.2 #
4.3 #
EXHIBIT INDEX
Description
Amended and Restated Certificate of Incorporation of the Registrant (Previously filed as an exhibit to the
Company’s Registration Statement on Form S-1/A, Commission File No. 333-64914, and incorporated by reference
herein.)
Certificate of Correction to Amended and Restated Certificate of Incorporation of the Registrant (Previously filed
as an exhibit to the Company's Form 10-K for the year ended December 31, 2017 and incorporated by reference
herein.)
Amended and Restated By-laws of the Registrant (Previously filed as an exhibit to the Company's Form 10-Q for
the quarter ended June 30, 2018 and incorporated by reference herein.)
Form of specimen common stock certificate (Previously filed as an exhibit to the Company’s Registration
Statement on Form S-1/A, Commission File No. 333-64914, and incorporated by reference herein.)
2014 Omnibus Incentive Plan - Restricted Stock Agreement Form (Previously filed as an exhibit to the Company’s
Form 10-Q for the quarter ended June 30, 2014 and incorporated by reference herein.)
2014 Omnibus Incentive Plan - Performance Share and Restricted Stock Agreement Form (Previously filed as an
exhibit to the Company’s Form 10-Q for the quarter ended June 30, 2014 and incorporated by reference herein.)
*4.4
Description of the Company's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
10.1 #
Cross Country, Inc. Deferred Compensation Plan (Previously filed as an exhibit to the Company’s Form 10-K for
the year ended December 31, 2002, and incorporated by reference herein.)
10.2
10.3
10.4
10.5 #
10.6 #
10.7
10.8 #
10.9
10.1
10.11
10.12
10.13
Lease Agreement between Cornerstone Opportunity Ventures, LLC and Cejka Search, Inc., dated February 2, 2007
(Previously filed as an exhibit to the Company’s Form 10-K for the year ended December 31, 2006 and
incorporated by reference herein.)
Second Amendment to Lease Agreement by and between Meridian Commercial Properties Limited Partnership and
Cross Country Healthcare, Inc., dated February 17, 2007 (Previously filed as an exhibit to the Company’s Form 10-
K for the year ended December 31, 2006 and incorporated by reference herein.)
First Amendment to Lease Agreement dated as of September 1, 2007, by and between Cornerstone Opportunity
Ventures, LLC and Cejka Search, Inc. (Previously filed as an exhibit to the Company’s Form 10-Q for the quarter
ended September 30, 2008 and incorporated by reference herein.)
Form of Non-Employee Directors’ Restricted Stock Agreement under Cross Country Healthcare, Inc. 2007 Stock
Incentive Plan (Previously filed as an exhibit to the Company’s 8-K dated May 15, 2007 and incorporated by
reference herein.)
Form of Stock Appreciation Rights Agreement under Cross Country Healthcare, Inc. 2007 Stock Incentive Plan
(Previously filed as an exhibit to the Company’s Form 8-K dated October 15, 2007 and incorporated by reference
herein.)
Lease Agreement, dated July 18, 2013, between Peachtree II and III, LLC and MDA Holdings, Inc. (Previously
filed as an exhibit to the Company’s Form 10-Q for the quarter ended June 30, 2013 and incorporated by reference
herein.)
Amended and Restated Executive Severance Plan of Cross Country Healthcare, Inc. (Previously filed as an exhibit
to the Company’s Form 8-K dated May 28, 2010 and incorporated by reference herein.)
Fourth Amendment to Lease Agreement by and between Granite Meridian LLC and Cross Country Healthcare,
Inc., dated September 29, 2015 (Previously filed as an exhibit to the Company’s Form 8-K dated October 2, 2015
and incorporated by reference herein.)
Ninth Amendment to Lease Agreement by and between Mainstreet CV North 40, LLC and Cross Country
Healthcare, Inc., dated September 29, 2015 (Previously filed as an exhibit to the Company’s Form 8-K dated
October 2, 2015 and incorporated by reference herein.)
Lease Agreement by and between Mainstreet CV North 40, LLC and Cross Country Healthcare, Inc., dated
September 29, 2015 (Previously filed as an exhibit to the Company’s Form 8-K dated October 2, 2015 and
incorporated by reference herein.)
Asset Purchase Agreement between Mediscan, Inc. and Direct Ed Solutions, Inc. and Mihal Spiegel, dated August
19, 2014 (Previously filed as an exhibit to the Company's Form 8-K dated November 3, 2015 and incorporated by
reference herein.)
Third Amendment to Lease Agreement between RNSI City Place Owner, LLC and Cejka Search, Inc., dated
December 2, 2015 (Previously filed as an exhibit to the Company's Form 10-KA for the year ended December 31,
2015 and incorporated by reference herein.)
42
No.
10.14
10.15
10.16
10.17
10.18 #
10.19 #
10.20 #
10.21 #
10.22 #
10.23 #
10.24
*14.1
*21.1
*23.1
*31.1
*31.2
*32.1
*32.2
EXHIBIT INDEX (CONTINUED)
Description
Tenth Amendment to Lease agreement between Mainstreet CV North 40, LLC and Cross Country Healthcare,
Inc., dated September 19, 2016 (Previously filed as an exhibit to the Company’s Form 10-Q for the quarter ended
September 30, 2016 and incorporated by reference herein.)
Amendment to Lease agreement between Mainstreet CV North 40, LLC and Cross Country Healthcare, Inc.,
dated September 19, 2016 (Previously filed as an exhibit to the Company’s Form 10-Q for the quarter ended
September 30, 2016 and incorporated by reference herein.)
Asset Purchase Agreement, dated June 13, 2017, among Cross Country Healthcare, Inc., as Buyer,Advantage RN,
LLC, Advantage On Call, LLC, Advantage Locums, LLC, and Advantage RN LocalStaffing, the Seller Parties,
and Seller Representative (Previously filed as an exhibit to the Company's Form8-K dated June 13, 2017 and
incorporated by reference herein.)
Fourth Amendment to Lease Agreement between RNSI City Place Owner, LLC and Cejka Search, Inc.,dated May
31, 2017 (Previously filed as an exhibit to the Company's Form 10-Q for the quarter ended September 30, 2017
and incorporated by reference herein.)
Cross Country Healthcare, Inc. Executive Nonqualified Excess Plan Adoption Agreement (Previously filed as an
exhibit to the Company's Form 10-K dated December 31, 2017 and incorporated by reference herein.)
Employment Agreement between Cross Country Healthcare, Inc. and Kevin C. Clark, dated January 16, 2019
(Previously filed as an exhibit to the Company's Form 8-K dated January 16, 2019 and incorporated by reference
herein.)
Amendment and Restatement to Employment Agreement, dated January 31, 2019, by and between Cross Country
Healthcare, Inc. and William J. Burns (Previously filed as an exhibit to the Company's Form 8-K dated January
31, 2019 and incorporated by reference herein)
Offer Letter, dated as of March 11, 2019, between Stephen Saville and Cross Country Healthcare, Inc. (Previously
filed as an exhibit to the Company's Form 8-K dated April 16, 2019 and incorporated be reference herein.)
Offer Letter between Cross Country Healthcare, Inc. and Buffy White, dated March 6, 2019 (Previously filed as
an exhibit to the Company's Form 10-Q for the quarter ended September 30, 2019 and incorporated by reference
herein.)
Relocation Agreement between Cross Country Healthcare, Inc. and Buffy White, dated May 21 2019 (Previously
filed as an exhibit to the Company's Form 10-Q for the quarter ended September 30, 2019 and incorporated by
reference herein.)
ABL Credit Agreement, dated October 25, 2019, by and among Cross Country Healthcare, Inc. and certain of its
domestic subsidiaries as borrowers, certain of its domestic subsidiaries as guarantors, the Lenders referenced
therein, and Wells Fargo Bank, as agent (Previously filed as an exhibit to the Company's Form 8-K dated October
28, 2019 and incorporated by reference herein.)
Code of Ethics, revised April 9, 2019
List of subsidiaries of the Registrant
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm
Certification Pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 by Kevin C. Clark, President, Chief Executive Officer (Principal Executive Officer)
Certification Pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 by William J. Burns, Executive Vice President, Chief Financial Officer (Principal Accounting and Financial
Officer)
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, by Kevin C. Clark, President, Chief Executive Officer (Principal Executive Officer)
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, by William J. Burns, Executive Vice President, Chief Financial Officer (Principal Accounting and
Financial Officer)
43
No.
**101.INS
**101.SCH
**101.DEF
**101.LAB
**101.CAL
**101.PRE
EXHIBIT INDEX (CONTINUED)
Description
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Calculation Linkbase Document
PRE XBRL Taxonomy Extension Presentation Linkbase Document
________________
# Represents a management contract or compensatory plan or arrangement
* Filed herewith
** Furnished herewith
44
Item 16. Form 10-K Summary.
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
CROSS COUNTRY HEALTHCARE, INC.
By:
/s/ Kevin C. Clark
Name: Kevin C. Clark
Title: President & Chief Executive Officer
Principal Executive Officer
Date: March 5, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons in
the capacities indicated and on the dates indicated:
Signature
Title
Date
/s/ Kevin C. Clark
Kevin C. Clark
President & Chief Executive Officer
(Principal Executive Officer)
/s/ William J. Burns
William J. Burns
Executive Vice President & Chief Financial Officer
(Principal Accounting and Financial Officer)
/s/ W. Larry Cash
W. Larry Cash
/s/ Thomas C. Dircks
Thomas C. Dircks
/s/ Gale Fitzgerald
Gale Fitzgerald
Director
Director
Director
/s/ Darrell S. Freeman, Sr.
Darrell S. Freeman, Sr.
Director
/s/ Richard M. Mastaler
Richard M. Mastaler
/s/ Mark Perlberg
Mark Perlberg
/s/ Joseph A. Trunfio
Joseph A. Trunfio
Director
Director
Director
45
March 5, 2020
March 5, 2020
March 5, 2020
March 5, 2020
March 5, 2020
March 5, 2020
March 5, 2020
March 5, 2020
March 5, 2020
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Cross Country Healthcare, Inc.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations for the Years Ended December 31, 2019, 2018, and 2017
Page
F- 2
F- 3
F- 4
Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2019, 2018, and 2017
F- 5
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2019, 2018, and 2017
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018, and 2017
Notes to Consolidated Financial Statements
Financial Statement Schedule
F- 6
F- 7
F- 8
Schedule II – Valuation and Qualifying Accounts for the Years Ended December 31, 2019, 2018, and 2017
II- 1
Schedules not filed herewith are either not applicable, the information is not material or the information is set forth in the
consolidated financial statements or notes thereto.
F- 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Cross Country Healthcare, Inc.
Boca Raton, Florida
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cross Country Healthcare, Inc. and subsidiaries (the
"Company") as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive (loss)
income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related
notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and
2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in
conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 5, 2020, expressed an unqualified opinion on the Company's internal control over
financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for leases in the year ended
December 31, 2019 due to the adoption of Accounting Standard Update (ASU) 2016-02, Leases (Topic 842).
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Boca Raton, Florida
March 5, 2020
We have served as the Company's auditor since 2015.
F- 2
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except for share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $3,219 in 2019 and $3,705 in 2018
Prepaid expenses
Insurance recovery receivable
Other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Trade names, indefinite-lived
Other intangible assets, net
Non-current deferred tax assets
Other non-current assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses
Accrued compensation and benefits
Current portion of long-term debt
Operating lease liabilities - current
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
Contingent consideration
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity:
Common stock—$0.0001 par value; 100,000,000 shares authorized; 35,870,560 and 35,625,692
shares issued and outstanding at December 31, 2019 and 2018, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total Cross Country Healthcare, Inc. stockholders' equity
Noncontrolling interest in subsidiary
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying notes.
F- 3
December 31,
2019
2018
$
$
$
1,032
169,528
6,097
5,011
1,689
183,357
11,832
16,964
101,066
5,900
44,957
—
18,298
382,374
45,726
31,307
—
4,878
3,554
85,465
70,974
19,070
7,523
26,938
4,867
4,037
218,874
16,019
166,128
6,208
4,186
2,364
194,905
13,628
—
101,060
20,402
55,182
23,750
18,076
427,003
43,744
33,332
5,235
—
3,075
85,386
77,944
—
95
29,299
7,409
8,672
208,805
4
305,643
(1,240)
(141,775)
162,632
868
163,500
382,374
$
4
303,048
(1,462)
(84,062)
217,528
670
218,198
427,003
$
$
$
$
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
Year Ended December 31,
2018
2017
2019
Revenue from services
Operating expenses:
Direct operating expenses
Selling, general and administrative expenses
Bad debt expense
Depreciation and amortization
Acquisition-related contingent consideration
Acquisition and integration costs
Restructuring costs
Legal settlement charges
Impairment charges
Total operating expenses
(Loss) income from operations
Other expenses (income):
Interest expense
Loss (gain) on derivatives
Loss on early extinguishment of debt
Other income, net
(Loss) income before income taxes
Income tax expense (benefit)
Consolidated net (loss) income
Less: Net income attributable to noncontrolling interest in subsidiary
Net (loss) income attributable to common shareholders
Net (loss) income per share attributable to common shareholders - Basic
Net (loss) income per share attributable to common shareholders - Diluted
Weighted average common shares outstanding:
Basic
Diluted
See accompanying notes.
$
822,224
$
816,484
$
865,048
618,215
181,959
2,008
14,075
(110)
311
3,571
1,600
16,306
837,935
(15,711)
606,921
180,230
2,204
11,780
2,557
491
2,758
—
22,423
829,364
(12,880)
5,306
1,284
1,978
(68)
(24,211)
31,732
(55,943)
1,770
(57,713) $
5,654
—
79
(418)
(18,195)
(2,478)
(15,717)
1,234
(16,951) $
636,462
187,435
1,828
10,174
44
1,975
1,026
—
14,356
853,300
11,748
4,214
(1,581)
4,969
(155)
4,301
(34,501)
38,802
1,289
37,513
(1.61) $
(0.48) $
1.07
(1.61) $
(0.48) $
1.01
35,815
35,815
35,657
35,657
35,018
36,166
$
$
$
F- 4
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(amounts in thousands)
Consolidated net (loss) income
Other comprehensive income (loss), before income tax:
Unrealized foreign currency translation gain (loss)
Unrealized loss on interest rate contracts
Reclassification adjustment to statement of operations
Taxes on other comprehensive income (loss):
Income tax effect related to unrealized foreign currency translation gain (loss)
Income tax effect related to unrealized loss on interest rate contracts
Income tax effect related to reclassification adjustment to statement of
operations
Valuation allowance adjustment
Other comprehensive income (loss), net of tax
Year Ended December 31,
2019
2018
2017
$
(55,943) $
(15,717) $
38,802
47
(1,078)
1,312
281
26
(571)
93
511
59
222
(153)
(420)
186
(387)
(31)
(107)
48
—
(90)
(297)
75
—
—
75
—
—
—
—
—
75
Comprehensive (loss) income
Less: Net income attributable to noncontrolling interest in subsidiary
Comprehensive (loss) income attributable to common shareholders
$
(55,721)
1,770
(57,491) $
(16,014)
1,234
(17,248) $
38,877
1,289
37,588
See accompanying notes.
F- 5
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(amounts in thousands)
Common Stock
Shares
Dollars
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Noncontrolling
Interest in
Subsidiary
Stockholders’
Equity
Balances at December 31, 2016
32,339
$
Exercise of share options
Vesting of restricted stock and
performance stock awards
Shares issued for Convertible
Notes
Equity compensation
Cumulative-effect adjustment -
share-based compensation
Foreign currency translation
adjustment
Distribution to noncontrolling
shareholder
Net income
41
282
3,176
—
—
—
—
—
Balances at December 31, 2017
35,838
Exercise of share options
Vesting of restricted stock and
performance stock awards
Equity compensation
21
199
—
Stock repurchase and retirement
(432)
Foreign currency translation
adjustment, net of taxes
Net change in hedging
transaction, net of taxes
Distribution to noncontrolling
shareholder
Net (loss) income
—
—
—
—
Balances at December 31, 2018
35,626
Exercise of share options
Vesting of restricted stock and
performance stock awards
Equity compensation
Foreign currency translation
adjustment, net of taxes
Net change in hedging
transaction, net of taxes
Distribution to noncontrolling
shareholder
Net (loss) income
14
231
—
—
—
—
—
Balances at December 31, 2019
35,871
$
3
—
—
1
—
—
—
—
—
4
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
4
$ 256,570
$
(1,241) $
—
(1,774)
45,951
4,080
535
—
—
—
305,362
—
(889)
3,575
(5,000)
—
—
—
—
303,048
—
(801)
3,396
—
—
—
—
—
—
—
—
—
75
—
—
(1,166)
—
—
—
—
(121)
(175)
—
—
(1,462)
—
—
—
47
175
—
—
(104,089) $
—
—
—
—
(535)
—
—
37,513
(67,111)
—
—
—
—
—
—
—
(16,951)
(84,062)
—
—
—
—
—
—
(57,713)
559
—
—
—
—
—
—
(1,218)
1,289
630
—
—
—
—
—
—
(1,194)
1,234
670
—
—
—
—
—
$
151,802
—
(1,774)
45,952
4,080
—
75
(1,218)
38,802
237,719
—
(889)
3,575
(5,000)
(121)
(175)
(1,194)
(15,717)
218,198
—
(801)
3,396
47
175
(1,572)
1,770
(1,572)
(55,943)
$ 305,643
$
(1,240) $
(141,775) $
868
$
163,500
See accompanying notes.
F- 6
CROSS COUNTRY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Cash flows from operating activities
Consolidated net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Year Ended December 31,
2018
2017
2019
$
(55,943) $
(15,717) $
38,802
Depreciation and amortization
Amortization of debt discount and debt issuance costs
Provision for allowances
Deferred income tax expense (benefit)
Non-cash lease expense
Non-cash gain on derivative liability
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
Accounts payable and accrued expenses
Operating lease liabilities
Other
Net cash provided by operating activities
Cash flows from investing activities
Acquisitions, net of cash acquired
Acquisition-related settlements
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
Convertible Note cash payment
Borrowings under revolving credit facility
Repayments on revolving credit facility
Debt issuance costs
Extinguishment fees
Proceeds from Senior Secured Asset-Based revolving credit facility
Borrowings under Senior Secured Asset-Based revolving credit facility
Repayments on Senior Secured Asset-Based revolving credit facility
Cash payments to noncontrolling shareholder
Stock repurchase and retirement
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 year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Interest paid
Income taxes paid
$
$
$
See accompanying notes.
F- 7
14,075
461
3,243
31,159
4,989
—
16,306
1,978
3,396
52
(6,642)
(1,574)
(1,308)
(5,820)
1,170
5,542
—
—
(2,940)
(2,940)
—
(83,876)
—
5,000
(5,000)
(2,058)
—
76,640
71,934
(77,600)
(1,573)
—
(1,066)
(17,599)
10
(14,987)
16,019
1,032
4,554
555
$
$
$
11,780
448
5,974
(3,410)
—
—
22,423
79
3,575
3,231
2,820
(2,514)
(7,095)
—
(597)
20,997
(1,930)
(151)
(4,597)
(6,678)
—
(16,124)
—
—
—
(308)
—
—
—
—
(1,194)
(5,000)
(1,141)
(23,767)
(70)
(9,518)
25,537
16,019
6,340
1,043
$
$
$
10,174
651
4,705
(33,812)
—
(1,581)
14,356
4,969
4,080
68
9,708
1,816
(9,275)
—
847
45,508
(85,977)
(292)
(5,111)
(91,380)
62,000
(1,500)
(5,000)
39,000
(39,000)
(901)
(578)
—
—
—
(1,217)
—
(2,048)
50,756
23
4,907
20,630
25,537
3,408
697
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
1. Organization and Basis of Presentation
Nature of Business
Cross Country Healthcare, Inc. (the Company) was incorporated in Delaware on July 29, 1999 as a business providing travel
nurse and allied health staffing services. As of December 31, 2019, the Company provides total talent management services,
including strategic workforce solutions, contingent staffing, permanent placement and other consultative services for healthcare
clients. The Company recruits and places qualified healthcare professionals in virtually every specialty and area of expertise. Its
diverse client base includes both clinical and nonclinical settings, servicing acute care hospitals, physician practice groups,
outpatient and ambulatory-care centers, nursing facilities, both public schools and charter schools, rehabilitation and sports
medicine clinics, government facilities, and homecare.
The consolidated financial statements include the accounts of the Company and its direct and indirect wholly-owned
subsidiaries. The consolidated financial statements include all assets, liabilities, revenue, and expenses of Cross Country Talent
Acquisition Group, LLC, which is controlled by the Company but not wholly owned. The Company records the ownership
interest of the noncontrolling shareholder as noncontrolling interest in subsidiary. All intercompany transactions and balances
have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current year presentation. See consolidated balance sheets,
Note 3 - Revenue Recognition, Note 7 - Balance Sheet Details, and Note 18 - Segment Data.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles
(U.S. GAAP), requires management to make estimates and assumptions that affect the reported amounts in the consolidated
financial statements and accompanying notes. 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) share-
based compensation; (v) accruals for health, workers’ compensation, and professional liability claims; (vi) valuation of deferred tax
assets; (vii) purchase price allocation; (viii) fair value of interest rate swap agreement; (ix) legal contingencies; (x) contingent
considerations; (xi) income taxes; and (xii) sales and other non-income tax liabilities. Accrued insurance claims and reserves
include estimated settlements from known claims and actuarial estimates for claims incurred but not reported. Actual results could
differ from those estimates.
Cash and Cash Equivalents
The Company considers all investments with original maturities of three months or less to be cash and cash equivalents. The
Company invests its excess cash in highly rated overnight funds and other highly rated liquid accounts. The Company is exposed
to credit risk associated with these investments. The Company minimizes its credit risk relating to these positions by monitoring
the financial condition of the financial institutions involved and by primarily conducting business with large, well established
financial institutions, and diversifying its counterparties. The Company does not currently anticipate nonperformance by any of its
significant counterparties.
Interest income on cash and cash equivalents of $0.2 million for the year ended December 31, 2019, $0.4 million for the year
ended December 31, 2018, and $0.1 million for the year ended December 31, 2017 is included in other income, net, in the
consolidated statements of operations.
Accounts Receivable, Allowance for Doubtful Accounts, and Concentration of Credit Risk
Accounts receivable potentially subject the Company to concentrations of credit risk. 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 represents the Company’s estimate of uncollectible receivables resulting from the inability of its customers to make
required payments, which results in a provision for bad debt expense. The adequacy of this allowance is determined by continually
evaluating individual customer receivables, considering the customer's financial condition, credit history, and current economic
conditions. The Company writes off specific accounts based on an ongoing review of collectability as well as past experience with
F- 8
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
2. Summary of Significant Accounting Policies (continued)
the customer. In addition, the Company maintains a sales allowance for billing-related adjustments which may arise in the
ordinary course and adjustments to the reserve are recorded as contra-revenue. Historically, losses on uncollectible accounts
and sales allowances have not exceeded our allowances.
The Company’s contract terms typically require payment between 30 to 60 days from the date of invoice. The majority of the
Company's customers are U.S. based healthcare systems with a significant percentage in acute-care facilities. No single customer
accounted for more than 10% of the Company’s accounts receivable balance as of December 31, 2019 and 2018, or revenue for the
years ended December 31, 2019, 2018, and 2017.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is determined on a straight-line basis over
the estimated useful lives of the assets, which generally range from three to seven years. Leasehold improvements are depreciated
over the shorter of their estimated useful life or the term of the individual lease. On an annual basis, the Company reviews its
property and equipment listings and disposes of assets that are no longer in use.
Certain software development costs have been capitalized in accordance with the provisions of the Intangibles-Goodwill and
Other/Internal-Use Software Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC). Such costs include charges for consulting services and costs for Company personnel associated with programming, coding,
and testing such software. Amortization of capitalized software costs is included in depreciation expense in the consolidated
statements of operations and begins when the software is ready for use. Software development costs are being amortized using the
straight-line method over three to ten years. See Note 6 - Property and Equipment.
Leases
The Company determines whether an arrangement constitutes a lease at commencement. Operating leases are included in
operating lease right-of-use assets, and operating lease liabilities - current and non-current in the consolidated balance sheets.
Finance leases are included in other non-current assets, other current liabilities, and other long-term liabilities in the
consolidated balance sheets. See Note 10 - Leases.
Right-of-use assets are measured based on the corresponding lease liability adjusted for: (i) payments made to the lessor at or
before the commencement date; (ii) initial direct costs; and (iii) tenant incentives under the lease. Rent expense commences
when the lessor makes the underlying asset available to us. Lease liabilities are measured based on the present value of the total
lease payments not yet paid discounted based on its incremental borrowing rate, as the rate implicit in the lease is not
determinable. The Company estimates its incremental borrowing rate based on an analysis of publicly-traded debt securities of
companies with credit and financial profiles similar to its own. The variable portion of the lease payments is not included in the
right-of-use assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed
when the obligation for those payments is incurred and are included in lease expense in selling, general and administrative
expense in the consolidated statements of operations. Rent expense for operating lease payments is recognized on a straight-line
basis over the lease term. The Company does not assume renewals or early terminations unless it is reasonably certain to
exercise these options at commencement.
As of December 31, 2018, deferred rent related to tenant improvement allowances and other leasehold incentives was included in
other current liabilities and other long-term liabilities in the consolidated balance sheets. These leasehold incentives had been
recorded when realizable as deferred rent and were amortized as a reduction of periodic rent expense, over the term of the
applicable lease. Upon adoption of the Leases Topic of the FASB ASC, these deferred rent credits reduced the beginning
operating right-of-use asset recognized and, consistent with the prior guidance will be recognized as a reduction to future rent
expense over the expected remaining term of the respective leases.
The Company leases apartments for eligible field employees under short-term agreements (typically three to six months), which
generally coincide with each employee’s staffing contract. Costs relating to these leases are included in direct operating expenses
in the consolidated statements of operations.
F- 9
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
2. Summary of Significant Accounting Policies (continued)
Business Combinations
The Company applies accounting in accordance with the Business Combinations Topic of the FASB ASC when it acquires control
over a business. Business combinations are accounted for at fair value. The associated acquisition costs are expensed as incurred
and recorded as acquisition and integration costs; noncontrolling interests, if any, are reflected at fair value at the acquisition date;
restructuring costs associated with a business combination are expensed; contingent consideration is measured at fair value at the
acquisition date, with changes in the fair value after the acquisition date affecting earnings; and goodwill is determined as the
excess of the fair value of the consideration conveyed in the acquisition over the fair value of the net assets acquired. The
accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired
business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets
and liabilities acquired. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on
management's estimates and assumptions, including valuations that utilize customary valuation procedures and techniques. If the
actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements
could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of
finite-lived intangible assets. The results of the acquired businesses' operations are included in the consolidated statements of
operations of the combined entity beginning on the date of acquisition. See Note 4 - Acquisitions.
Goodwill, Trade Names, and Other Intangible Assets
Goodwill represents the excess of purchase price and related costs over the fair value assigned to the net tangible and identifiable
intangible assets of businesses acquired. Other identifiable intangible assets with definite lives are being amortized using the
straight-line method over their estimated useful lives which have ranged from 3 to 16 years. Goodwill and certain intangible assets
with indefinite lives are not amortized. Instead, in accordance with the Intangibles-Goodwill and Other Topic of the FASB ASC,
these assets are reviewed for impairment annually at the beginning of the fourth quarter, and whenever circumstances change that
would more likely than not reduce the fair value of a reporting unit below its carrying amount.
When reviewed, the Company has the option to first assess qualitative factors to determine whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount, as a basis for determining whether it is necessary to perform the
quantitative testing. If it is determined that a quantitative test is necessary or more efficient than a qualitative approach, the
Company generally measures the fair value of its reporting units using a combination of income and market approaches.
For the periods prior to the fourth quarter of 2017, the performance of the quantitative impairment test involved a two-step process.
The first step required the Company to determine the fair value of each of its reporting units and compare it to the reporting unit’s
carrying amount. If the reporting unit's fair value was less than its carrying amount, the Company was required to perform a second
step to calculate the implied value of goodwill. The implied value was then compared to the reporting unit's carrying amount to
calculate the impairment charge, if any.
Beginning in the fourth quarter of 2017, for its annual review on October, 1, 2017, the Company early adopted the provisions of
Accounting Standards Update (ASU) 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment. Under ASU 2017-04, the second step of the quantitative assessment is eliminated, and, if the reporting unit’s carrying
value exceeds its fair value, an impairment charge is recognized for the amount by which the carrying amount exceeds the
reporting unit’s fair value not to exceed the total amount of goodwill allocated to that reporting unit. Additionally, income tax
effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment
loss is considered, if applicable.
The Company determines its reporting units by identifying its operating segments and any component businesses and aggregates
the components businesses if they have similar economic characteristics. The Company had the following reporting units that it
reviewed for impairment: (1) Nurse and Allied Staffing; (2) Physician Staffing; and (3) Search.
Management considers historical experience and all available information at the time the fair values of its reporting units are
estimated. However, fair values that could be realized in an actual transaction may have differed from those used to evaluate the
potential impairment of goodwill.
Long-lived assets and identifiable intangible assets with definite lives are evaluated for impairment in accordance with the
Property, Plant, and Equipment Topic of the FASB ASC. In accordance with this Topic, long-lived assets and definite-lived
intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not
be recoverable.
F- 10
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
2. Summary of Significant Accounting Policies (continued)
Recoverability of long-lived assets is measured by a comparison of the carrying amount of the asset group to the future
undiscounted net cash flow that is expected to be generated by those assets. If such assets are considered to be impaired, the
impairment charge recognized is the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Any related impairment losses are recognized in earnings and included in the caption impairment charges in the consolidated
statements of operations. See Note 5 - Goodwill, Trade Names, and Other Intangible Assets.
Debt Discount and Debt Issuance Costs
Stated discounts on proceeds, and other fees reimbursed to lender, as well as the initial value of any embedded derivative features
of the Convertible Notes (as defined in Note 8 - Debt) and term loans were treated as a discount associated with the respective debt
instrument and presented in the balance sheet as an offset to the carrying amount of the debt. Discounts were amortized to interest
expense using the effective interest rate method, or a method that approximates the effective interest rate method, over the
expected life of the debt.
Deferred costs related to the issuance of the term loans were capitalized and presented in the balance sheet as a direct deduction
from the carrying amount of the debt liability. Deferred costs related to the term loans as well as the Convertible Notes were
amortized using the effective interest method and were written off in connection with their repayments.
Deferred costs related to the issuance of the Company’s revolving credit arrangements are capitalized, included in other assets in
the consolidated balance sheets, and amortized using the straight line method. See Note 8 - Debt.
Derivative Financial Instruments
The Company was exposed to interest rate risk due to its outstanding senior secured term loan entered into on August 1, 2017
with a variable interest rate. As a result, the Company had entered into an interest rate swap agreement to effectively convert a
portion of its variable interest payments to a fixed rate. The principal objective of the interest rate swap was to eliminate or
reduce the variability of the cash flows in those interest payments associated with the Company’s long-term debt, thus reducing
the impact of interest rate changes on future interest payment cash flows. The Company had determined that the interest rate
swap qualified as a cash flow hedge in accordance with ASC 815, Derivatives and Hedging. As the critical terms of the hedging
instrument and the hedged forecasted transaction were the same, the Company had concluded that changes in the cash flows
attributable to the risk being hedged were expected to completely offset at inception and on an ongoing basis. Changes in the
fair value of the interest rate swap agreement designated as a cash flow hedge were recorded as a component of accumulated
other comprehensive income (loss), net of deferred taxes, within stockholders’ equity and were amortized to interest expense
over the term of the related debt as the interest payments were made. Interest rate swap payments were included in net cash
provided by operating activities in the consolidated statements of cash flows.
In conjunction with entering into the interest rate swap agreement, the Company early adopted ASU 2017-12, Derivative and
Hedging (Topic 815) to simplify the application of hedge accounting. The Company terminated its interest rate swap agreement
on September 26, 2019. See Note 9 - Derivatives.
The Company evaluated embedded conversion features within its convertible debt in accordance with the Derivatives and
Hedging Topic of the FASB ASC to determine whether the embedded conversion feature should be bifurcated from the host
instrument and accounted for as a derivative at fair value. Changes in the fair value of these derivatives during each reporting
period were reported in other expenses (income) in the consolidated statements of operations. The fair value at inception had
been recorded as debt discount and was being amortized to interest expense over the term of the note using the effective interest
method. On March 17, 2017, the Company paid in full its Convertible Notes and, as a result, derecognized the derivative
liability. See Note 8 - Debt.
Sales and Other State Non-income Tax Liabilities
The Company accrues sales and other state 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 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.
F- 11
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
2. Summary of Significant Accounting Policies (continued)
Insurance Claims
The Company provides workers’ compensation insurance coverage, professional liability coverage, and healthcare benefits for
eligible employees. The Company records its estimate of the ultimate cost of, and reserves for, workers' compensation and
professional liability benefits based on actuarial models prepared or reviewed by an independent actuary using the Company’s loss
history as well as industry statistics. The healthcare insurance accrual is for estimated claims that have occurred but have not been
reported and is based on the Company’s historical claim submission patterns. Furthermore, in determining its reserves, the
Company includes reserves for estimated claims incurred but not reported as well as unfavorable claims development.
Pursuant to the Other Expenses/Insurance Costs Topic of the FASB ASC, under circumstances such as in the Company’s insured
professional liability and workers' compensation policies, since a right of legal offset does not exist due to the fact that there are
three parties to an incurred claim, the insured, the insurer, and the claimant, the related liability to the claimant should be classified
separately on a gross basis with a separate related receivable from the insurer recognized as being due from insurance carriers.
Accordingly, the Company’s consolidated balance sheets as of December 31, 2019 and 2018 reflect the related short-term liabilities
in accrued compensation and benefits and the related long-term liabilities as long-term accrued claims, and the short-term
receivable portion as insurance recovery receivable and the long-term portion as non-current insurance recovery receivable. See
Note 7 - Balance Sheet Details. The ultimate cost of workers’ compensation, professional liability, and health insurance claims will
depend on actual amounts incurred to settle those claims and may differ from the amounts reserved by the Company for those
claims.
Workers’ compensation benefits are provided under a partially self-insured plan. The Company has letters of credit to guarantee
payments of claims. At December 31, 2019 and 2018, the Company had outstanding approximately $18.1 million and $18.8
million, respectively, of standby letters of credit as collateral to secure the self-insured portion of this plan.
The Company has occurrence-based primary professional liability policies that provide the Company and each working
professional in its nurse and allied healthcare business with coverage. Effective January 1, 2016, the Company has a claims-made
professional liability policy for its physicians and advanced practitioners, with a $0.5 million self-insured retention per claim. Prior
to January 1, 2016, the Company had an occurrence-based professional liability policy for its independent contractor physicians
and advanced practitioners. At both December 31, 2019 and 2018, the Company had outstanding $1.8 million of standby letters of
credit as collateral to secure reimbursement of expenses under the existing plan.
Subject to certain limitations, the Company also has umbrella liability coverage for its working nurses and allied healthcare
professionals. While this umbrella coverage does not extend to professional liability claims against its independent contractor
physicians and advanced practitioners, it does cover claims brought against all of the Company’s subsidiaries for non-patient
general liability.
Revenue Recognition
In the first quarter of 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
ASU 2014-09 introduces a new five-step revenue recognition model in which an entity recognizes revenue when its customer
obtains control of promised goods or services, in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. The new standard also requires additional disclosures about the nature,
amount, timing, and uncertainty of revenue and cash flows arising from customer contracts. See Note 3 - Revenue Recognition.
The Company elected to adopt the standard using a modified retrospective method, which only impacts contracts not completed
as of December 31, 2017.
Revenue from the Company’s services is recognized when control of the promised services are transferred to the Company’s
customers, in an amount that reflects the consideration it expects to receive in exchange for the service. The Company has
concluded that transfer of control of its staffing services, which represents the majority of its revenues, occurs over time as the
services are provided, which is consistent with revenue recognition under the prior guidance.
The following is a description of the nature, amount, timing, and uncertainty of revenue and cash flows from which the
Company generates revenue.
F- 12
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
2. Summary of Significant Accounting Policies (continued)
Temporary Staffing Revenue
Revenue from temporary staffing is recognized as control of the services is transferred over time, and is based on hours worked
by the Company’s field staff. The Company recognizes the majority of its revenue at the contractual amount the Company has
the right to invoice for services completed to date. Generally, billing to customers occurs weekly, bi-weekly, or monthly and is
aligned with the payment of services to the temporary staff. Accounts receivable includes estimated revenue for employees’ and
independent contractors’ time worked but not yet invoiced. At December 31, 2019 and December 31, 2018, the Company's
estimate of amounts that had been worked but had not been billed totaled $46.1 million and $44.1 million, respectively, and are
included in accounts receivable in the consolidated balance sheets.
Other Services Revenue
The Company offers other optional services to its customers that are transferred over time including: managed service programs
(MSP) providing agency services (as further described below in Gross Versus Net Policies), recruitment process outsourcing
(RPO), other outsourcing services, and retained search services, as well as separately billable travel and housing costs, which in
total amount to less than 5% of its consolidated revenue for the years ended December 31, 2019, 2018, and 2017. Generally,
billing and payment terms for MSP agency services is consistent with temporary staffing as the customers are similar or the
same. Revenue from these services are recognized based on the contractual amount for services completed to date which best
depicts the transfer of control of services. The Company does not, in the ordinary course of business, offer warranties or
refunds.
Gross Versus Net Policies
The Company records revenue on a gross basis as a principal or on a net basis as an agent depending on the contracted
arrangement, as follows:
Managed Service Programs
The Company has certain contracts with healthcare facilities to provide comprehensive services through its MSPs. Under these
contractual arrangements, the customer’s orders are filled with either one of the Company's healthcare professionals or a third
party's healthcare professionals (subcontractors).
When its healthcare professional is staffed, the Company determined that it acts as a principal in the arrangement, as it is
considered the employer of record. Accordingly, revenue is reported on a gross basis in the consolidated statements of
operations.
Alternatively, the Company determined that it acts as an agent in the arrangement when a subcontracted healthcare professional
is staffed, as the Company does not control the services before they are transferred to the customer. Accordingly, revenue is
reported on a net basis in the consolidated statements of operations. The customer is invoiced for the hours worked by the
subcontracted healthcare professional multiplied by the hourly bill rate. A subcontractor liability, which is recognized as a
reduction of revenue, is established in accrued expenses for the invoiced amount, net of an administrative fee, and is generally
payable after the Company has received payment from its customer. The Company’s administrative fee is calculated as a
percentage of the customer’s invoice and is recognized over time as the services are rendered by the subcontracted healthcare
professional. The Company does not collect or recognize an upfront placement fee.
Physician Staffing
The Physician Staffing business has contracts with its healthcare customers to provide temporary staffing services. The
Company uses independent contractors for these services. The Company determined that it acts as a principal in these
arrangements and, therefore, revenue is reported on a gross basis in the consolidated statements of operations.
See Note 3 - Revenue Recognition for the Company's revenues disaggregated by revenue source. Sales and usage-based taxes
are excluded from revenue.
F- 13
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
2. Summary of Significant Accounting Policies (continued)
Contract Costs
All contract fulfillment costs are expensed as incurred to direct operating expenses. With respect to Revenue from Contracts
with Customers Topic of the FASB ASC, there were no contract assets or material contract liabilities as of December 31, 2019
and 2018.
Practical Expedients and Exemptions
For the Company’s contracts that have an original duration of one year or less, the Company uses the practical expedients and
has elected to recognize any incremental costs of obtaining these contracts as expensed when incurred. Further, the Company
does not disclose the value of unsatisfied performance obligations for: (i) contracts with an original expected length of one year
or less; and (ii) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services
performed.
Share-Based Compensation
For the years ended December 31, 2019, 2018, and 2017, the Company granted performance-based stock awards and restricted
stock for a fixed number of common shares to employees. The Company values its restricted stock awards and the fair value of its
performance-based stock awards by reference to its stock price on the date of grant. The Company has elected to recognize
compensation expense on a straight-line basis over the requisite service period of the entire award.
The Company granted performance-based stock awards to certain key personnel pursuant to its 2014 Omnibus Incentive Plan,
amended and restated on May 23, 2017 (2017 Plan) as described in Note 15 - Stockholders' Equity. Pursuant to the plan, the
number of target shares that vest are determined based on the level of attainment of the targets. If a minimum level of performance
is attained for the awards, restricted stock is issued based on the level of attainment. The Company recognizes performance-based
restricted stock as compensation expense based on the most likely probability of attaining the prescribed performance and over the
requisite service period beginning at its grant date and through the date the restricted stock vests.
Compensation expense related to share-based payments is included in selling, general and administrative expenses in the
consolidated statements of operations, and totaled $3.4 million, $3.6 million, and $4.1 million, during the years ended
December 31, 2019, 2018, and 2017, respectively. See Note 15 - Stockholders’ Equity.
Advertising
The Company’s advertising expense consists primarily of online advertising, internet direct marketing, print media, and
promotional material. Advertising costs are expensed as incurred and totaled $7.9 million, $6.7 million, and $7.6 million, for the
years ended December 31, 2019, 2018, and 2017, respectively.
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 in the consolidated statements of operations primarily include employee termination costs and lease-related exit
costs.
Effective January 1, 2019, in conjunction with the adoption of ASU No. 2016-02, Leases (Topic 842), certain office locations that
the Company vacated in connection with restructuring activities were included in the measurement of its beginning operating lease
liabilities. Previous accruals related to these locations of $0.3 million have been presented as a reduction to the operating lease
right-of-use assets in the consolidated balance sheets.
F- 14
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
2. Summary of Significant Accounting Policies (continued)
Reconciliations of the employee termination costs and lease-related exit costs beginning and ending liability balance is presented
below:
Year Ended December 31,
2019
2018
2017
(amounts in thousands)
Employee
Termination
Costs
Lease-
Related
Exit Costs
Employee
Termination
Costs
Lease-
Related
Exit Costs
Employee
Termination
Costs
Lease-
Related
Exit Costs
$
$
556 $
127
$
87 $
1,870
(2,040)
1,311
(215)
1,600
(1,131)
441
184
(235)
$
325 $
522
(760)
386 $
1,223
$
556 $
390
$
87 $
273
504
(336)
441
Balance at beginning of period
Charged to restructuring costs (a)
Payments
Balance at end of period
________________
(a) The restructuring costs in the consolidated statements of operations for the years ended December 31, 2019 and 2018
include direct write-offs of $0.2 million and $0.4 million, respectively, related to a strategic reduction in the Company's real
estate lease footprint, as well as other costs of $0.1 million and $0.5 million, respectively.
Income Taxes
The Company accounts for income taxes under the Income Taxes Topic of the FASB ASC. Deferred income tax assets and
liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The Company recognizes in its financial statements the impact of a tax position if that position is more likely than not of being
sustained on audit, based on the technical merits of the position. The Company recognizes interest and penalties related to
unrecognized tax benefits in the provision for income taxes.
The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not
be realized. In determining whether a valuation allowance is warranted, the Company evaluates factors such as prior earnings
history, expected future earnings, carryback and carryforward periods, and tax strategies. The Company considers all positive
and negative evidence to estimate if sufficient future taxable income will be generated to realize the deferred tax asset. It
considers cumulative losses in recent years as well as the impact of one-time events in assessing its pre-tax earnings.
Assumptions regarding future taxable income require significant judgment. The Company's assumptions are consistent with
estimates and plans used to manage its business, which includes restructuring and other initiatives.
In the event that actual results differ from these estimates, or the Company adjusts these estimates in future periods for current
trends or changes in its estimating assumptions, it may modify the level of the valuation allowance which could materially
impact its business, financial condition and results of operations. The Company will continue to assess the realizability of its
deferred tax assets. See Note 14 - Income Taxes.
Comprehensive (Loss) Income
Total comprehensive (loss) income includes net income or loss, foreign currency translation adjustments, and net change in
derivative transactions, net of any related deferred taxes and valuation allowance. Certain of the Company’s foreign subsidiaries
use their respective local currency as their functional currency. In accordance with the Foreign Currency Matters Topic of the
FASB ASC, 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 consolidated
balance sheets and was an unrealized loss of $1.3 million at December 31, 2019 and 2018. The cumulative impact of net
changes in derivative instruments included in other comprehensive loss in the consolidated balance sheets was an unrealized
loss of $0.2 million at December 31, 2018. See Note 9 - Derivatives.
F- 15
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
2. Summary of Significant Accounting Policies (continued)
The income tax impact related to components of other comprehensive income (loss) for the years ended December 31, 2019
and 2018 is reflected in the consolidated statements of comprehensive (loss) income. During the year ended December 31,
2017, $0.2 million of income tax expense was included in the consolidated statements of operations due to the impact of a
change in federal tax rate on the deferred tax asset related to foreign currency cumulative translation. See Note 14 - Income
Taxes.
Fair Value Measurements
The Company complies with the provisions of the Fair Value Measurements and Disclosures Topic of the FASB ASC, which
defines fair value, establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value
measurements. The Company’s financial assets and liabilities required to be measured on a recurring basis were its: (i) deferred
compensation asset, as of December 31, 2019; (ii) deferred compensation liability; (iii) interest rate swap agreement, as of
December 31, 2018; and (iv) contingent consideration liabilities. See Note 11 - Fair Value Measurements.
Earnings Per Share
In accordance with the requirements of the Earnings Per Share Topic of the FASB ASC, basic earnings per share is computed
by dividing net income available to common shareholders (numerator) by the weighted average number of vested unrestricted
common shares outstanding during the period (denominator). Diluted earnings per share gives effect to all dilutive potential
common shares outstanding during the period including stock appreciation rights and options and unvested restricted stock, as
calculated utilizing the treasury stock method, and Convertible Notes using the if-converted method prior to their payment in
full in the first quarter of 2017.
Recently Adopted Accounting Pronouncements
As of the beginning of the second quarter of 2019, the Company early adopted ASU No. 2018-15, Intangibles - Goodwill and
Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs
incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred
to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The
Company has adopted this guidance prospectively to all implementation costs incurred after the date of adoption. As of
December 31, 2019, the Company has less than $0.1 million included in prepaid expenses and $0.8 million included in other
non-current assets in the consolidated balance sheets that have been capitalized in conjunction with implementations.
Effective January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842), which requires that leases are to be
recognized on the balance sheet as right-of-use assets and as lease liabilities. The Company elected not to apply the recognition
requirements to short-term leases (leases with terms of twelve months or less), and to apply the transition method, which is
applied prospectively, measuring and recognizing the initial right-of-use asset and liability at January 1, 2019, without revising
comparative period information or disclosure. In addition, the Company elected the package of transition provisions available
for expired or existing contracts, which allowed the Company to forego assessment of: (i) whether contracts are or contain
leases; (ii) lease classification; and (iii) initial direct costs. Consistent with current accounting, all of the Company's existing
leases identified under the prior Leases (Topic 840) of the FASB ASC will be treated as operating leases. The Company has also
elected the practical expedient to not separate non-lease components from the lease components to which they relate, and
instead account for each as a single lease component, for all of its underlying asset classes. Accordingly, all expenses associated
with a lease contract are accounted for as lease expenses.
As of the later of January 1, 2019 or each lease’s respective commencement date, the Company recorded lease liabilities equal
to the present value of its remaining minimum lease payments and right-of-use assets equal to the corresponding lease liability
adjusted for any prepaid or accrued lease payments and the remaining balance of lease incentives received. At the transition
date, the right-of-use asset and total lease liabilities were $22.0 million and $28.6 million, respectively. The difference between
the right-of-use asset and lease liabilities is due to the derecognition of deferred rent and other accrued lease payments of $7.2
million, previously included in other current and non-current liabilities, and prepaid rent of $0.6 million, previously included in
prepaid expenses. See Note 10 - Leases.
F- 16
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
2. Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income
Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general
principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic
740 by clarifying and amending existing guidance. For public business entities, the amendments in this update are effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, and should be applied either on a
prospective, retrospective, or modified retrospective basis depending on the amendment. Early adoption of the amendments is
permitted. The Company is currently in the process of evaluating this standard and expects to adopt the standard in its first
quarter of 2021, with no material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to
the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements
on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including
the consideration of costs and benefits. The amendments in this update are effective for all entities for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2019, and should be applied either prospectively or
retrospectively depending on the nature of the disclosure. An entity is permitted to early adopt any removed or modified
disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The
Company is currently in the process of evaluating this standard and expects to adopt the full provisions in the first quarter of
2020.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit
Losses on Financial Instruments. The amendments in this update require a financial asset (or a group of financial assets)
measured at amortized cost basis to be presented at the net amount expected to be collected based on historical experience,
current conditions, and reasonable supportable forecasts. The amendments in this update are effective for public business
entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption
permitted no sooner than the first quarter of 2019. A modified retrospective approach is required for all investments, except debt
securities for which an other-than-temporary impairment had been recognized prior to the effective date, which will require a
prospective transition approach and should be applied either prospectively or retrospectively depending on the nature of the
disclosure. The adoption of ASU 2016-13 will require expanded quantitative and qualitative disclosures about the Company’s
expected credit losses. The Company plans to adopt this standard in its first quarter of 2020, related primarily to its trade
accounts receivable, and expects no material impact.
F- 17
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
3. Revenue Recognition
The Company's revenues, generated from temporary staffing services and other services, are disaggregated by segment in the
following table. See Note 2 - Summary of Significant Accounting Policies.
Year Ended December 31, 2019
Nurse
And Allied
Staffing
Physician
Staffing
Search
Total Segments
$
$
$
$
720,393
12,422
732,815
Nurse
And Allied
Staffing
705,469
13,144
718,613
$
$
$
$
(amounts in thousands)
70,261
4,344
74,605
$
$
— $
14,804
14,804
$
790,654
31,570
822,224
Year Ended December 31, 2018
Physician
Staffing
Search
Total Segments
(amounts in thousands)
76,979
5,326
82,305
$
$
— $
15,566
15,566
$
782,448
34,036
816,484
Temporary Staffing Services
Other Services
Total
Temporary Staffing Services
Other Services
Total
4. Acquisitions
American Personnel
On December 1, 2018, the Company completed the acquisition of American Personnel, Inc. (AP Staffing) for a total purchase
price of $2.0 million, subject to a net working capital adjustment. The Company assigned a total of $0.4 million to definite life
intangible assets with a weighted average estimated useful life of 10 years. The remaining excess purchase price over the fair
value of net assets acquired of $0.7 million was recorded as goodwill, which is not deductible for tax purposes since this was a
stock acquisition. Associated acquisition-related costs incurred were $0.2 million and have been included in acquisition and
integration costs in the consolidated statements of operations for the year ended December 31, 2018.
The acquisition was deemed immaterial and has been accounted for in accordance with the Business Combinations Topic of the
FASB ASC, using the acquisition method of accounting. AP Staffing's results of operations are included in the consolidated
statements of operations since its date of acquisition.
Advantage
Effective July 1, 2017, the Company acquired all of the assets of Advantage RN, LLC and its subsidiaries (collectively,
Advantage) for cash consideration of $86.6 million, net of cash acquired of $2.8 million. The total purchase price of $88.0
million was subject to a net working capital reduction of $0.6 million at the closing and an additional $0.8 million was received
during the third quarter of 2017 as the final adjustment for net working capital. Additionally, $0.6 million of the purchase price
was deferred as of the closing and was due to the seller within 20 months, less any COBRA and healthcare payments incurred
by the Company on behalf of the seller. The Company incurred approximately $0.5 million in COBRA expenses since the
Advantage acquisition and, in February 2019, released to the seller the remaining liability of $0.1 million.
Included in the amount paid at closing were two escrow accounts, the first was $14.5 million which related to tax liabilities and
the second was $7.5 million which was to cover any post-close liabilities. On July 28, 2017, $7.3 million related to the tax
liabilities was released from escrow, leaving a balance of $7.2 million. On April 3, 2019, $4.3 million related to the tax
F- 18
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
4. Acquisitions (continued)
liabilities was disbursed to pay taxes and the remaining $2.9 million was released from escrow to the seller. In the first quarter
of 2019, $7.0 million related to the post-close liabilities was released from escrow, leaving a balance of $0.5 million to cover
pending post-close liabilities.
The Company financed the purchase using $19.9 million in available cash and $66.9 million in borrowing under its Credit
Facility, including a $40.0 million incremental term loan, which was subsequently refinanced on August 1, 2017. See Note 8 -
Debt. The transaction was treated as a purchase of assets for income tax purposes.
The acquisition has been accounted for in accordance with the Business Combinations Topic of the FASB ASC, using the
acquisition method of accounting. As such, the amounts of revenue and contribution income included in the consolidated
statements of operations from the acquisition date to the period ended December 31, 2017 were $47.0 million and $3.8 million,
respectively. The acquisition results have been substantially aggregated with the Company's Nurse and Allied Staffing business
segment. See Note 18 - Segment Data.
The purchase price was allocated to the assets acquired and the liabilities assumed based on the estimated fair value at the date
of acquisition. The Company used a third-party appraiser to assist with the determination of the fair value and estimated useful
lives of certain acquired assets and liabilities.
The following table is an estimate of the fair value of the assets acquired and liabilities assumed on July 1, 2017.
(amounts in thousands)
Cash and cash equivalents
Accounts receivable
Other current assets
Property and equipment
Goodwill
Other intangible assets
Total assets acquired
Accounts payable and accrued expenses
Accrued employee compensation and benefits
Other current liabilities
Total liabilities assumed
Net assets acquired
$
$
2,833
14,396
392
333
43,596
29,900
91,450
368
1,685
2
2,055
89,395
The Company assigned the following values to other identifiable intangible assets: (i) $4.5 million to trade names with a
weighted average estimated useful life of 10 years; (ii) $13.8 million to customer relationships with a weighted average
estimated useful life of 10 years; (iii) $11.3 million to a database, consisting of healthcare professionals, with a weighted
average estimated useful life of 10 years; and (iv) $0.3 million to non-compete agreements with a weighted average estimated
useful life of 5 years, for a total of $29.9 million in definite life intangible assets with a weighted average estimated useful life
of 10 years.
The remaining excess purchase price over the fair value of net assets acquired of $43.6 million was recorded as goodwill, which
is deductible for tax purposes. Associated acquisition-related costs incurred were $2.0 million and have been included in
acquisition and integration costs in the consolidated statements of operations for the year ended December 31, 2017.
Pro Forma Financial Information
The following unaudited pro forma financial information approximates the consolidated results of operations of the Company
as if the Advantage acquisition had occurred as of January 1, 2017, after giving effect to certain adjustments, including
additional interest expense on the amount the Company borrowed on the date of the transaction, the amortization of acquired
intangible assets, and the elimination of certain expenses that will not be recurring in post-acquisition periods, net of an
F- 19
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
4. Acquisitions (continued)
estimated income tax impact. These adjustments include removing transaction-related expenses of approximately $2.0 million
for the year ended December 31, 2017. These results are not necessarily indicative of future results as they do not include
incremental investments in support functions, elimination of costs for integration or operating synergies, or an estimate of any
impact on interest expense resulting from the operating cash flow of the acquired businesses, among other adjustments that
could be made in the future but are not factually supportable on the date of the transaction.
Year Ended December 31, 2017
(unaudited, amounts in thousands except per share data)
Revenue from services
Net income attributable to common shareholders
Net income per common share attributable to common shareholders - basic
Net income per common share attributable to common shareholders - diluted
US Resources Healthcare
$
$
$
$
916,149
40,255
1.16
1.09
On December 1, 2016, the Company completed the acquisition of US Resources Healthcare, LLC (USR). The agreement
specified that the sellers were eligible to receive additional purchase price consideration based on attainment of specific
performance criteria achieved in the years 2017 through 2019. The earnout for 2017 was not achieved and, as a result, in the
fourth quarter of 2017, the Company recognized a decrease in the fair value of the related liability of $1.3 million included as
acquisition-related contingent consideration in the consolidated statements of operations. The adjustment was driven by the
decrease in the projected USR 2018 and 2019 revenue and EBITDA amounts. In the third quarter of 2018, the Company
determined that the contingent consideration earnout related to the USR acquisition would not be achieved for 2018 and 2019
and, as a result, the remaining liability of $0.2 million was reversed.
Mediscan
On October 30, 2015, the Company completed the acquisition of all of the membership interests of New Mediscan II, LLC,
Mediscan Diagnostic Services, LLC, and Mediscan Nursing Staffing, LLC (collectively Mediscan). An amount of $5.0 million
of the purchase price that was held in escrow to cover any post-closing liabilities, was released to the sellers on May 3, 2017.
The agreement also specified that the sellers were eligible to receive additional purchase price consideration of $7.0 million,
with $3.5 million per year based on attainment of specific performance criteria in 2016 and 2017. As of December 31, 2016, the
Company determined that the first year earnout was not achieved for 2016 and, as of September 30, 2017, the Company
determined that the second year earnout would not be achieved for 2017.
In connection with the Mediscan acquisition, the Company also assumed contingent purchase price liabilities for a previously
acquired business that are payable annually based on specific performance criteria for the years 2016 through 2018, and in three
equal payments for the 2019 year. Payments related to the years 2016 through 2018 were limited to $0.3 million annually and
the 2019 year is uncapped. During the years ended December 31, 2019 and 2018, the Company paid $0.3 million related to the
years 2018 and 2017. The payments related to the 2019 year are to be made as follows: (i) an amount equal to one-third of the
earnout is to be paid immediately upon finalization of the amount, which is expected to be the first quarter of 2020; and (ii) an
amount of one-half of the remaining principal balance is to be paid on January 31, 2021 and the remaining principal balance,
together with all accrued and unpaid interest, is to be paid on January 31, 2022. As of December 31, 2019, the fair value of the
remaining obligations was estimated at $7.3 million and is included in other current liabilities and contingent consideration in
the consolidated balance sheets. See Note 11 - Fair Value Measurements.
F- 20
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
5. Goodwill, Trade Names, and Other Intangible Assets
The Company had the following acquired intangible assets:
December 31, 2019
December 31, 2018
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
(amounts in thousands)
Accumulated
Amortization
Net
Carrying
Amount
$
30,530
$
12,269
$
18,261
$
30,530
$
9,216
$
49,758
320
4,500
26,596
161
1,125
23,162
159
3,375
49,758
320
8,879
23,296
97
1,696
$
85,108
$
40,151
$
44,957
$
89,487
$
34,305
$
21,314
26,462
223
7,183
55,182
$
5,900
$
20,402
Intangible assets subject to
amortization:
Databases
Customer relationships
Non-compete agreements
Trade names
Other intangible assets, net
Intangible assets not subject
to amortization:
Trade names, indefinite-
lived
As of December 31, 2019, estimated annual amortization expense is as follows:
Years Ending December 31:
(amounts in thousands)
2020
2021
2022
2023
2024
Thereafter
$
$
9,688
6,105
6,028
5,926
5,287
11,923
44,957
F- 21
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
5. Goodwill, Trade Names, and Other Intangible Assets (continued)
The changes in the carrying amount of goodwill by segment are as follows:
Nurse and
Allied Staffing
Physician
Staffing
Search
Total
(amounts in thousands)
Balances as of December 31, 2018
Aggregate goodwill acquired
$
348,567
$
43,405
$
Sale of business
Accumulated impairment loss
Goodwill, net of impairment loss
Changes to aggregate goodwill in 2019
Goodwill acquisition adjustment - AP Staffing
Rebranding reassignment (a)
Balances as of December 31, 2019
Aggregate goodwill acquired
Sale of business
Accumulated impairment loss
Goodwill, net of impairment loss
$
_______________
—
(259,732)
88,835
6
(2,443)
346,130
—
(259,732)
86,398
$
—
(40,598)
2,807
—
—
43,405
—
(40,598)
2,807
$
19,307
(9,889)
—
9,418
411,279
(9,889)
(300,330)
101,060
—
2,443
21,750
(9,889)
—
$
11,861
$
6
—
411,285
(9,889)
(300,330)
101,066
(a) As a result of the Company merging its permanent search recruitment brands into its Search segment in the second quarter
of 2019, $2.4 million of goodwill was reassigned from its Nurse and Allied Staffing reporting unit to its Search reporting unit.
2019
Trade Names and Other Intangible Assets
As part of evolving its go-to-market strategy, in the second quarter of 2019, the Company began eliminating certain brands
across all of its segments. The Company’s rebranding efforts resulted in a $14.5 million write-off of indefinite-lived trade
names related to its Nurse and Allied Staffing segment, which is presented as impairment charges in the consolidated statements
of operations. In addition, during the year ended December 31, 2019, the amortization of certain finite-lived trade names was
accelerated, which resulted in additional amortization expense related to the Company's Nurse and Allied Staffing and
Physician Staffing segments of $2.1 million and $0.8 million, respectively, which impacted the net (loss) income per share
attributable to common shareholders of $0.08. If the Company had not accelerated the amortization, it would have been
recognized over a weighted average life of 7.8 years.
In connection with its rebranding efforts, the Company made a decision at the end of 2019 to eliminate an additional brand by
the end of 2020. In connection with this decision, the Company expects accelerated amortization of $2.9 million in 2020, which
would have been recognized over a weighted average life of 7.5 years.
Goodwill
The Company performed its annual quantitative impairment test of goodwill and its indefinite-lived trade name as of October 1,
2019, and determined that the estimated fair value of its reporting units and its indefinite-lived trade name exceeded their
respective carrying values. For the Search reporting unit, there was less than 20% of excess fair value over its carrying amount
leaving it at risk of impairment in future periods if forecasted results are not achieved. The fair value for the other reporting
units was substantially in excess of their carrying values. Although management believes that the Company's current estimates
and assumptions are reasonable and supportable, there can be no assurance that the estimates and assumptions made for
purposes of the impairment testing will prove to be accurate predictions of future performance.
F- 22
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
5. Goodwill, Trade Names, and Other Intangible Assets (continued)
2018 and 2017 Impairment Charges
The Company performed its annual quantitative impairment test of goodwill and other indefinite-lived intangible assets as of
October 1, 2018 and 2017. Upon completion of the impairment testing for both years, it was determined that the estimated fair
value of the Physician Staffing reporting unit’s trade name was less than its carrying amount resulting in impairment. For its
goodwill impairment testing, with the exception of its Physician Staffing reporting unit, the estimated fair value of its reporting
units exceeded their respective carrying values.
Projections of revenue, operating costs, and expected cash flows of each reporting unit are inputs into the quantitative testing
for goodwill and intangible assets. The Company reduced its long-term revenue forecast for the Physician Staffing business
segment in the fourth quarter of 2018 and 2017. The lower than expected revenue was driven by lower booking volumes, partly
due to the loss of customers. In addition, margins of the reporting unit were negatively impacted from continued investments in
the business. As a result, during the fourth quarter of 2018 and 2017 the Company recorded non-cash impairment charges of
$5.2 million and $8.7 million, respectively, related to its trade name and $17.2 million and $5.7 million, respectively, related to
goodwill during the fourth quarter.
During the impairment testing as of October 1, 2018, the Company reassessed the Physician Staffing brand's indefinite-life
classification and determined it had characteristics that indicated a definite-life assignment was more appropriate. Effective
October 1, 2018, the trade name, with a carrying value of $1.1 million after impairment charges, that was previously assigned
an indefinite life was assigned a finite life of 3 years. During the three months ended December 31, 2018, the amortization
expense related to this trade name was approximately $0.1 million.
6. Property and Equipment
The Company's property and equipment consists of the following:
Useful Lives
2019
2018
December 31,
3-5 years
3-10 years
5-7 years
5-7 years
(a) (b)
(b)
(amounts in thousands)
$
6,070
$
16,225
1,065
4,101
1,187
6,460
35,108
(23,276)
11,832
$
$
6,257
25,766
1,514
4,966
885
7,716
47,104
(33,476)
13,628
Computer equipment
Computer software
Office equipment
Furniture and fixtures
Construction in progress
Leasehold improvements
Less accumulated depreciation and amortization
_______________
(a) Primarily related to software development.
(b) See Note 2 – Summary of Significant Accounting Policies.
F- 23
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
7. Balance Sheet Details
Insurance recovery receivable:
Insurance recovery for health claims
Insurance recovery for workers’ compensation claims
Insurance recovery for professional liability claims
Other non-current assets:
Insurance recovery for workers’ compensation claims
Insurance recovery for professional liability claims
Non-current security deposits
Non-current income tax receivable
Deferred compensation assets
Net debt issuance costs
Other
Accrued compensation and benefits:
Salaries and payroll taxes
Accrual for bonuses and commissions
Accrual for workers’ compensation claims
Accrual for professional liability claims
Accrual for healthcare claims
Accrual for vacation
Long-term accrued claims:
Accrual for workers’ compensation claims
Accrual for professional liability claims
Other long-term liabilities: (a)
Deferred compensation
Deferred rent (b)
Long-term unrecognized tax benefits
Other
________________
December 31,
2019
2018
(amounts in thousands)
724
2,513
1,774
5,011
5,317
8,695
969
261
830
1,252
974
18,298
13,270
3,566
7,219
2,660
3,610
982
31,307
12,454
14,484
26,938
2,216
—
701
1,120
4,037
$
$
$
$
$
$
$
$
$
$
—
2,295
1,891
4,186
5,280
9,924
982
522
433
935
—
18,076
15,884
1,476
6,454
2,786
5,158
1,574
33,332
12,997
16,302
29,299
1,725
6,039
590
318
8,672
$
$
$
$
$
$
$
$
$
$
(a) Prior year presentation included non-current deferred tax liabilities, which is presented in the consolidated balance sheets in
the current year.
(b) Upon the Company's adoption of the Leases Topic of the FASB ASC on January 1, 2019, deferred rent has been reclassified
as a reduction of the operating right-of-use asset. See Note 10 - Leases.
F- 24
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
8. Debt
The Company's long-term debt consists of the following:
Senior Secured Asset-Based Loan, interest of 4.23% at December 31, 2019
Term Loan, net of unamortized discount of $697, interest of 4.80% at December
31, 2018
Total debt
Less current portion
Long-term debt
October 2019 ABL Credit Agreement
December 31,
2019
2018
(amounts in thousands)
70,974
$
—
70,974
—
70,974
$
—
83,179
83,179
(5,235)
77,944
$
$
Effective October 25, 2019, the Company terminated its commitments under its prior senior credit facility entered into in
August 2017 (defined below) and entered into an ABL Credit Agreement (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) from time to time parties thereto. 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 (as described below), including a sublimit for
swing loans up to $15.0 million and a $35.0 million sublimit for standby letters of credit.
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, plus an amount of supplemental availability, initially equal to $16.9 million
(Supplemental Availability), and reducing over time in accordance with the terms of the Loan Agreement, 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. Availability under the ABL will be used for general corporate purposes.
Additionally, the facility contains an uncommitted accordion provision to increase the amount of the facility by an additional
$30.0 million. At December 31, 2019, availability under the ABL was $120.0 million and the Company had $71.0 million of
borrowings drawn, as well as $19.9 million of letters of credit outstanding related to workers' compensation and professional
liability policies (see Note 2 - Summary of Significant Accounting Policies), leaving $29.1 million available for borrowing.
The initial amounts drawn on the ABL included funds to repay the Company’s then outstanding borrowings of $75.4 million
under its August 2017 Credit Facility and $1.3 million for the payment of fees, expenses, and accrued interest, as well as to
backstop $21.2 million for outstanding letters of credit. The refinancing was treated as an extinguishment of debt, and, as a
result, the Company wrote-off debt issuance costs of approximately $1.4 million in the fourth quarter of 2019, which is
included with loss on early extinguishment of debt in the consolidated statements of operations.
As of December 31, 2019, the interest rate spreads and fees under the Loan Agreement were based on LIBOR (as defined by
the Loan Agreement) plus 2.00% for the revolving portion of the borrowing base and LIBOR plus 4.00% on the Supplemental
Availability. The Base Rate (as defined by the Loan Agreement) margins would have been 1.00% and 3.00%, respectively, for
the revolving portion and Supplemental Availability, respectively. The LIBOR 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
December 31, 2019. Obligations under the ABL are secured by substantially all the assets of the borrowers and guarantors,
subject to customary exceptions.
F- 25
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
8. Debt (continued)
The Loan Agreement also contains customary events of default. If an event of default under the Loan Agreement occurs and
remains uncured, then the administrative agent or the requisite lenders may declare any outstanding obligations to be
immediately due and payable. In addition, if the Company or any of its subsidiaries becomes the subject of voluntary or
involuntary proceedings under any bankruptcy, insolvency or similar law, than any outstanding obligations under the Loan
Agreement will automatically become due and payable.
August 2017 Credit Facility
On August 1, 2017, the Company entered into an Amendment and Restatement of its Credit Agreement dated June 22, 2016
(August 2017 Credit Facility), to refinance and increase the aggregate committed size of the facility to $215.0 million,
including a term loan of $100.0 million (Amended Term Loan) and a $115.0 million revolving credit facility (Amended
Revolving Credit Facility) (together with the Amended Term Loan, the Amended Credit Facilities). The Amended Revolving
Credit Facility included a subfacility for swingline loans up to an amount not to exceed $15.0 million, and a $35.0 million
sublimit for the issuance of standby letters of credit. The proceeds of $106.5 million from this refinancing included $6.5 million
under the new revolving credit facility and were used to repay borrowings under the Company’s 2016 Senior Credit Facilities
(defined below), as well as to pay related interest, fees, and expenses of the transaction. In addition to increasing the size of the
facilities, the maturity date was extended to August 1, 2022.
Borrowings under the Amended Term Loan were payable in quarterly installments, which commenced January 2, 2018,
provided that, to the extent not previously paid, the aggregate unpaid principal balance would be due and payable on the
maturity date. During the three months ended March 31, 2018, the Company entered into an interest rate swap to reduce its
exposure to fluctuations in the interest rates associated with its debt, which was effective April 2, 2018. See Note 9 -
Derivatives.
Optional Prepayments
The Company had the right at any time and from time to time to prepay any borrowing on its Amended Term Loan, in whole or
in part, without premium or penalty. In addition to its scheduled payments, in both the third and fourth quarters of 2018, the
Company made optional prepayments of $5.0 million each as permitted by the Amended and Restated Credit Agreement. In the
first and second quarters of 2019, the Company made additional optional prepayments of $7.5 million and $5.0 million,
respectively, on its Amended Term Loan.
Covenants and Amendments
The Amended and Restated Credit Agreement included two financial covenants: (i) a maximum Consolidated Total Leverage
ratio (as defined therein); and (ii) a minimum Consolidated Fixed Charge Coverage ratio (as defined therein) as of the end of
each fiscal quarter of 1.50:1.00.
On October 30, 2018, the Company entered into a first amendment to its August 2017 Credit Facility (First Amendment) that,
among other administrative and clarifying changes, modified the following: (i) the definition utilized in its financial covenants
of Consolidated EBITDA to allow for exclusion of charges related to the Company’s initiative to replace its applicant tracking
system supporting its legacy travel nurse operations; (ii) increased the maximum Consolidated Total Leverage Ratio for the
periods from September 30, 2018 through December 31, 2019; and (iii) increased the pro forma Consolidated Total Leverage
Ratio threshold for allowing restricted payments.
On March 29, 2019, the Company entered into a second amendment to its August 2017 Credit Facility (Second Amendment)
that, among other administrative changes, modified the following: (i) lowered the Aggregate Revolving Commitments from
$115.0 million to $75.0 million through the exercise of a $40.0 million Optional Reduction; (ii) changed the financial leverage
ratio from Consolidated Total Leverage to Consolidated Net Leverage and increased the maximum Consolidated Net Leverage
Ratio through the period ending September 30, 2020; (iii) modified and added additional pricing levels to the Applicable
Margin for borrowing; and (iv) added an additional financial covenant for the quarters ending March 31, 2019 through and
including the quarter ending December 31, 2019, that required the Consolidated Asset Coverage Ratio to be no less than
1.10:1.00.
F- 26
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
8. Debt (continued)
On September 30, 2019, the Company entered into a third amendment to its August 2017 Credit Facility (Third Amendment)
that modified the following: (i) reduced the Aggregate Revolving Commitments from $75.0 million to $65.0 million on the
effective date, and additional monthly reductions to $35.0 million on December 31, 2019; (ii) reduced the Letter of Credit
sublimit from $35.0 million to $25.0 million; (iii) changed the maximum Consolidated Net Leverage Ratio from 4.25:1:00 to
4.60:1:00 for the period ending September 30, 2019; and (iv) changed the minimum Consolidated Fixed Charge Coverage Ratio
from 1.50:1.00 to 1.10:1.00 for the period ending September 30, 2019.
Debt Issuance Costs
Fees paid in connection with the First Amendment in the fourth quarter of 2018 were $0.3 million, of which a portion was
included in other noncurrent assets as deferred issuance costs related to the revolving credit facility and a portion was treated as
a deduction to long-term debt related to its Amended Term Loan. In addition, fees paid in 2019 in connection with the Second
Amendment and the Third Amendment totaling $0.7 million had been included as debt issuance costs associated with the
revolving credit facility and as a reduction to the carrying amount of the term loan and were expected to be amortized to interest
expense over the remaining term of the arrangement.
As a result of the early prepayments on the Amended Term Loan, debt issuance costs of $0.1 million were written off in each of
the years ended December 31, 2019 and December 31, 2018. In addition, pursuant to the reduced capacity of the revolver
resulting from the Second Amendment and Third Amendment, debt issuance costs of $0.4 million were written off. The write-
offs of debt issuance costs are included as loss on early extinguishment of debt in the consolidated statements of operations.
2016 Senior Credit Facilities
On June 22, 2016, the Company entered into a senior credit agreement (2016 Credit Agreement), which provided for an initial
term loan of $40.0 million (Term Loan) and a revolving credit facility of up to $100.0 million (Revolving Credit Facility)
(together with the Term Loan, the 2016 Senior Credit Facilities) both of which would have matured on June 22, 2021. Proceeds
of the Senior Credit Facilities were used primarily to refinance the Company’s prior senior secured asset-based credit facility
and $30.0 million Second Lien Term Loan and to pay related transaction fees and expenses, including a redemption premium of
$0.6 million.
On July 5, 2017, the Company entered into a Second Amendment to its 2016 Credit Agreement primarily to allow for the
acquisition of Advantage including a reset of the Applicable Margin to Level III, based on the incremental borrowings and
consistent with the prior pricing grid (or 2.25% for Eurodollar Loans and LIBOR Index Rate Loans, 1.25% for Base Rate Loans
and a 0.30% commitment fee). Also, on July 5, 2017, the Company entered into an Incremental Term Loan Agreement for
$40.0 million with SunTrust as Lender and Administrative Agent (Incremental Term Loan Agreement) to pay for part of the
consideration of the acquisition of Advantage. The Incremental Term Loan maturity date was June 22, 2021 and was prepayable
at any time without penalty. Borrowings under the Incremental Term Loan Agreement were payable in quarterly installments,
commencing September 30, 2017.
Convertible Notes
The Company and certain of its domestic subsidiaries entered into a Convertible Note Purchase Agreement (the Note Purchase
Agreement), with certain note holders (collectively, the Noteholders) on June 30, 2014. Pursuant to the Note Purchase
Agreement, the Company sold to the Noteholders an aggregate of $25.0 million of convertible notes (the Convertible Notes).
On March 17, 2017, the Company paid in full the Convertible Notes. In connection with the repayment, the Company issued to
the Noteholders an aggregate of 3,175,584 shares of Common Stock, par value $0.0001, and cash in the aggregate amount of
$5.6 million (of which $5.0 million is included in repayment of debt and $0.6 million is presented as extinguishment fees, both
within financing activities in the consolidated statements of cash flows). Upon derecognition of the net carrying amounts of the
Convertible Notes (the remaining $20.0 million after the $5.0 million cash payment) and derivative liability ($26.0 million), the
Company recognized a non-cash charge of $5.0 million as loss on early extinguishment and a non-cash addition to additional
paid-in capital of $46.0 million for the fair value of the shares, which is not presented in the consolidated statements of cash
flows. The loss on early extinguishment of debt includes the write off of unamortized loan fees and remaining interest due
through the Forced Conversion date (defined below) of June 30, 2017.
F- 27
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
8. Debt (continued)
The Convertible Notes were convertible at the option of the holders thereof at any time into shares of the Common Stock at a
conversion price of $7.10 per share, or 3,521,126 shares of Common Stock. After three years from the issuance date, the
Company had the right to force a conversion of the Convertible Notes if the volume-weighted average price (VWAP) per share
of its Common Stock exceeded 125% of the then conversion price for 20 days of a 30 day trading period (Forced Conversion
date).
The Convertible Notes bore interest at a rate of 8.00% per annum, payable in quarterly cash installments. The Convertible
Notes would have matured on June 30, 2020, unless earlier repurchased, redeemed or converted. Subject to certain exceptions,
the Company was not permitted to redeem the Convertible Notes until June 30, 2017.
9. Derivatives
Interest Rate Swap
In March 2018, the Company entered into an interest rate swap agreement, with an effective date of April 2, 2018 and
termination date of August 1, 2022. No initial investments were made to enter into the agreement. The interest rate swap
agreement required the Company to pay a fixed rate to the respective counterparty of 2.627% per annum on an amortizing
notional amount beginning at $48.8 million (corresponding with the initial term loan payment schedule), and to receive from
the respective counterparty, interest payments based on the applicable notional amounts and 1 month USD LIBOR, with no
exchanges of notional amounts. At initiation, the interest rate swap effectively fixed the interest rate on 50% of the amortizing
balance of the Company’s term debt, exclusive of the credit spread on the debt. As of December 31, 2018, the interest rate swap
was treated as a cash flow hedge and its fair value of a $0.2 million liability is included in other current and other long-term
liabilities in the consolidated balance sheets.
The Company anticipated entering into the asset-based credit facility that closed in October 2019. In contemplation of that, the
Company terminated its interest rate swap agreement by making a cash payment of $1.3 million on September 26, 2019, which
is included in net cash provided by operating activities in the consolidated statements of cash flows. As the forecasted interest
payments related to the swap were no longer expected to occur, the unrealized amount of loss that had accumulated in other
comprehensive loss was recognized resulting in a $1.3 million loss in the third quarter of 2019, included in loss (gain) on
derivatives in the consolidated statements of operations.
Convertible Notes Derivative Liability
The Company issued Convertible Notes with features that were: (i) not afforded equity classification; (ii) embody risks not
clearly and closely related to host contracts; or (iii) may be net-cash settled by the counterparty. As required by the Accounting
for Derivative Financial Instruments and Hedging Activities Topic of the FASB ASC, in certain instances, these instruments
were required to be carried as derivative liabilities, at fair value, in the financial statements. On March 17, 2017, the Company
paid in full its Convertible Notes and, as a result, derecognized the derivative liability.
The fair value of the derivative liability was primarily determined by fluctuations in the Company's stock price. In addition,
changes in the Company's credit risk profile impacted the fair value determination. These fluctuations resulted in a gain that
was presented in the consolidated statements of operations in loss (gain) on derivatives in 2017 related to its Convertible Notes.
See Note 8 - Debt and Note 11 - Fair Value Measurements.
10. Leases
The Company's lease population included in the recognition of its beginning right-of-use asset and lease liabilities under the
Leases Topic of the FASB ASC is substantially related to the rental of office space. The Company enters into lease agreements
as lessee for the rental of office space for both its corporate and branch locations that may include options to extend or
terminate early. Many 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. Many of
the real estate leases require variable payments of property taxes, insurance, and common area maintenance, in addition to base
F- 28
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
10. Leases (continued)
rent. These leases do not include residual value guarantees, covenants, or other restrictions. See Note 2 - Summary of
Significant Accounting Policies.
The table below presents the lease-related assets and liabilities included in the consolidated balance sheets:
Classification on Consolidated Balance Sheets:
Operating lease right-of-use assets
Operating lease liabilities - current
Operating lease liabilities - non-current
Weighted-average remaining lease term
Weighted average discount rate (a)
________________
December 31, 2019
(amounts in thousands)
$
$
$
16,964
4,878
19,070
4.7 years
6.26%
(a) Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the
operating lease liabilities (which do not include short-term leases) recorded in the consolidated balance sheets as of December
31, 2019:
Years Ending December 31:
(amounts in thousands)
2020
2021
2022
2023
2024
Thereafter
Total minimum lease payments
Less: amount of lease payments representing interest
Present value of future minimum lease payments
Less: operating lease liabilities - current
Operating lease liabilities - non-current
$
$
6,236
5,974
5,094
4,711
3,382
2,487
27,884
(3,936)
23,948
(4,878)
19,070
Future minimum lease payments, as of December 31, 2018, associated with non-cancelable operating lease agreements with
terms of one year or more are as follows:
Years Ending December 31:
(amounts in thousands)
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
$
$
7,451
6,287
5,407
4,857
4,700
5,893
34,595
F- 29
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
10. Leases (continued)
Other Information
The table below provides information regarding supplemental cash flows:
Supplemental Cash Flow Information:
Cash paid for amounts included in the measurement of operating lease liabilities
Right-of-use assets obtained in exchange for new operating lease liabilities
The components of lease expense are as follows:
Amounts Included in Consolidated Statements of Operations:
Operating lease expense
Short-term lease expense
Variable and other lease costs
Year Ended
December 31, 2019
(amounts in thousands)
7,477
1,229
Year Ended
December 31, 2019
(amounts in thousands)
6,592
8,042
2,446
$
$
$
$
$
Operating lease expense, short-term lease expense, and variable and other lease costs are included in selling, general and
administrative expenses and direct operating expenses in the consolidated statements of operations, depending on the nature of
the leased asset. In the third quarter of 2019, the Company ceased use of several facilities and is in the process of seeking to
sublet some of the space where possible. The decision and change in the use of space resulted in a right-of-use asset impairment
charge of $1.2 million, included in impairment charges in the consolidated statements of operations. See Note 11 - Fair Value
Measurements.
As of December 31, 2019, the Company does not have any material operating leases which have not yet commenced. The
Company has an immaterial amount of finance lease contracts related to other equipment rentals which are not included in the
above disclosures.
11. Fair Value Measurements
The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value 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. This topic also establishes a fair value
hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The standard describes 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.
F- 30
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
11. Fair Value Measurements (continued)
Items Measured at Fair Value on a Recurring Basis:
The Company’s financial assets/liabilities required to be measured on a recurring basis were its: (i) deferred compensation asset
included in other non-current assets; (ii) deferred compensation liability included in other long-term liabilities; (iii) interest rate
swap agreement included in other current and other long-term liabilities as of December 31, 2018; and (iv) contingent
consideration liabilities.
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.
Interest rate swap agreement—The Company utilized Level 2 inputs to value its interest rate swap agreement through the date
of its termination. See Note 8 - Debt and Note 9 - Derivatives.
Contingent consideration liabilities—Potential earnout payments related to the acquisition of Mediscan were contingent upon
meeting certain performance requirements through 2019. The long-term portion of $4.9 million and $7.4 million as of
December 31, 2019 and 2018, respectively, is reflected as contingent consideration and the short-term portion of $2.4 million
and $0.3 million as of December 31, 2019 and 2018, respectively, is included in other current liabilities in the consolidated
balance sheets. As of December 31, 2018, the Company utilized Level 3 inputs to value the contingent consideration as
significant unobservable inputs were used in the calculation of their fair value. The liability had been measured at fair value
using a discounted cash flow model in a Monte Carlo simulation setting, utilizing significant unobservable inputs, including the
expected volatility of the acquisitions' gross profits and an estimated discount rate commensurate with the risks of the expected
gross profit stream. As of December 31, 2019, due to the end of the earnout period, the Company measured the fair value of the
liability based on the expected payout. See Note 4 - Acquisitions.
The fair value of contingent consideration is expected to be finalized in the first quarter of 2020 and adjusted when the actual
settlement occurs with any changes reflected as acquisition-related contingent consideration in the consolidated statements of
operations.
The table which follows summarizes the estimated fair value of the Company’s financial assets and liabilities measured on a
recurring basis:
Financial Assets:
(Level 1)
Deferred compensation asset
Financial Liabilities:
(Level 1)
Deferred compensation liability
(Level 2)
Interest rate swap agreement
(Level 3)
Contingent consideration liabilities
Fair Value Measurements
December 31, 2019
December 31, 2018
(amounts in thousands)
$
$
$
$
830
$
—
2,216
$
— $
7,300
$
1,725
234
7,689
F- 31
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
11. Fair Value Measurements (continued)
The opening balances of contingent consideration liabilities are reconciled to the closing balances for fair value measurements
of these liabilities categorized within Level 3 of the fair value hierarchy as follows:
December 31, 2017
Payments
Accretion expense
Valuation adjustment
December 31, 2018
Payments
Accretion expense
Valuation adjustment
December 31, 2019
Contingent Consideration
Liabilities
(amounts in thousands)
$
$
5,368
(280)
903
1,698
7,689
(279)
500
(610)
7,300
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.
During an evaluation of goodwill, trade names, and other intangible assets during the fourth quarter of 2019, the Company
determined that the fair value of its reporting units and indefinite-lived intangible assets exceeded their carrying value and
concluded that no impairment of goodwill or the indefinite-lived trade name was warranted. During the fourth quarter of 2018
and 2017, the carrying value of goodwill and trade names in the Physician Staffing reporting unit exceeded their fair values. As
a result, the Company recorded impairment charges that incorporated fair value measurements based on Level 3 inputs.
In the second quarter of 2019, the Company eliminated certain of its brands as part of a rebranding strategy. and as a result,
recorded impairment charges of $14.5 million related to its trade names in Nurse and Allied Staffing. See Note 5 - Goodwill,
Trade Names, and Other Intangible Assets.
In the third quarter of 2019, the Company ceased use of several facilities and is in the process of seeking to sublet some of the
space where possible. The decision and change in the use of space resulted in a right-of-use asset impairment charge of $1.2
million. 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, in accordance with the Property, Plant and Equipment Topic of the FASB ASC.
The fair value of the right-of-use asset 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. Furthermore, the Company
wrote-off $0.6 million of leasehold improvements and other property and equipment related to these locations. The
measurement of the right-of-use asset impairments, using the assumptions described, is a Level 3 measurement.
Impairment charges in the consolidated statements of operations include impairment of the trade names, the right-of use assets,
leasehold improvements, and property and equipment, and totaled $16.3 million for the year ended December 31, 2019.
Other Fair Value Disclosures:
Financial instruments not measured or recorded at fair value in the 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
F- 32
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
11. Fair Value Measurements (continued)
instruments. The carrying amount of the Company's Senior Secured Asset-Based Loan approximates fair value because the
interest rates are variable and reflective of market rates. The estimated fair value of the Company’s Term Loan was calculated
using a discounted cash flow analysis and appropriate valuation methodologies using Level 2 inputs from available market
information.
The carrying amounts and estimated fair value of the Company’s significant financial instruments that were not measured at fair
value are as follows:
December 31, 2019
December 31, 2018
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
(amounts in thousands)
Financial Liabilities:
(Level 2)
Senior Secured Asset-Based Loan
Term Loan, net
$
$
70,974
$
70,974
$
— $
— $
— $
83,179
$
—
81,800
Concentration of Risk:
The Company has invested its excess cash in highly-rated overnight funds and other highly-rated liquid accounts. The
Company is exposed to credit risk associated with these investments, as the cash balances typically exceed the current Federal
Deposit Insurance Corporation limit of $250,000. The Company minimizes its credit risk relating to these positions by
monitoring the financial condition of the financial institutions involved and by primarily conducting business with large, well
established financial institutions and diversifying its counterparties.
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 represents the Company’s estimate of uncollectible receivables based on
a review of specific accounts and historical collection experience. The Company writes off specific accounts based on an
ongoing review of collectability as well as past experience with the customer. 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. Overall, based on the large number of customers in differing geographic areas, primarily throughout the U.S. and its
territories, the Company believes the concentration of credit risk is limited.
12. Employee Benefit Plans
The Company maintains a voluntary defined contribution 401(k) profit-sharing plan covering all eligible employees as defined
in the plan documents. The plan provides for a discretionary matching contribution, which is equal to a percentage of each
eligible contributing participant’s elective deferral, which the Company, at its sole discretion, determines from year to year.
Contributions by the Company, net of forfeitures, under this plan were $1.1 million, $0.8 million, and $0.7 million for the years
ended December 31, 2019, 2018, and 2017, respectively. Eligible employees who elect to participate in the plan are generally
vested in any existing matching contribution after three years of service with the Company.
The Company maintains a 2003 Deferred Compensation Plan and a 2017 Nonqualified Deferred Compensation Plan, each an
unfunded non-qualified deferred compensation arrangement, intended to comply with Section 409A of the Internal Revenue
Code of 1986, as amended, or the Code. Under the deferred compensation plans, certain designated key employees may elect to
defer the receipt of a portion of their annual base salary, bonus and commission to the deferred compensation plans. Generally,
payments under the deferred compensation plans automatically commence upon a participant’s retirement, termination of
employment or death during employment. Under certain circumstances described in the deferred compensation plans,
participants may receive distributions during employment. In connection with the 2017 Deferred Compensation Plan, the
Company elected to invest in amounts consistent with the participants' choices of allocations to funds. Participants of the
deferred compensation plans are the Company’s unsecured general creditors with respect to the deferred compensation plan
F- 33
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
12. Employee Benefit Plans (continued)
benefits. The liability for the deferred compensation is included in other long-term liabilities in the consolidated balance sheets
and were $2.2 million and $1.7 million at December 31, 2019 and 2018, respectively.
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 matters 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 a 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. In the second quarter of 2019, the Company recorded $1.6 million in legal
settlement charges related to the resolution of a medical malpractice lawsuit, as well as a 2019 California wage and hour class
action settlement agreement. The Company believes the outcome of any outstanding loss contingencies as of December 31,
2019 will not have a material adverse effect on its business, financial condition, results of operations, or cash flows. In October
2019, the Company received a grand jury subpoena directed to Advantage On Call whose assets were purchased by Cross
Country Healthcare, Inc. in 2017. The subpoena appears to relate to an investigation of home healthcare services and healthcare
staffing services. The Company is cooperating with the investigation.
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 U.S. which may result in assessments of additional taxes. The Company accrues sales and other non-
income tax liabilities based on the best estimate of its probable liability utilizing currently available information and
interpretation of relevant tax regulations. Non-income tax expense is included in selling, general and administrative expenses in
the consolidated statements of operations and the liability is reflected in sales tax payable within other current liabilities in the
consolidated balance sheets.
F- 34
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
14. Income Taxes
The components of the Company's (loss) income before income taxes are as follows:
United States
Foreign
(Loss) income before income taxes
Year Ended December 31,
2019
2018
2017
(amounts in thousands)
(18,619) $
424
(18,195) $
(24,783) $
572
(24,211) $
$
$
3,826
475
4,301
The components of the Company’s income tax expense (benefit) are as follows:
Year Ended December 31,
2019
2018
2017
(amounts in thousands)
Current:
Federal
State
Foreign
Total
Deferred:
Federal
State
Foreign
Total
$
(35) $
499
109
573
17,406
13,799
(46)
31,159
Income tax expense (benefit)
$
31,732
$
43
$
620
269
932
(2,137)
(1,277)
4
(3,410)
(2,478) $
(555)
(273)
139
(689)
(23,245)
(10,684)
117
(33,812)
(34,501)
F- 35
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
14. Income Taxes (continued)
Deferred income taxes reflect the Company's net tax effect of temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities are as follows:
Deferred Tax Assets:
Accrued other and prepaid expenses
Allowance for doubtful accounts
Intangible assets (a)
Net operating loss carryforwards
Accrued professional liability claims
Accrued workers’ compensation claims
Share-based compensation
Operating lease liabilities
Credit carryforwards
Other
Gross deferred tax assets
Valuation allowance
Deferred Tax Liabilities:
Depreciation
Indefinite intangibles (a)
Operating lease right-of-use assets
Tax on unrepatriated earnings
Net deferred taxes
________________
December 31,
2019
2018
(amounts in thousands)
$
1,557
$
624
28,889
19,796
1,794
2,839
381
6,108
188
128
62,304
(37,345)
24,959
(224)
(27,609)
(4,312)
(337)
(32,482)
(7,523) $
$
2,734
607
11,300
15,717
1,952
2,729
646
—
188
542
36,415
(1,189)
35,226
(52)
(11,136)
—
(383)
(11,571)
23,655
(a) As a result of the valuation allowance recorded in 2019, the Company changed its presentation of deferred tax assets and
liabilities related to indefinite-lived intangibles to conform with the methodology used in calculating the valuation allowance.
As of June 30, 2019, the Company assessed the available positive and negative evidence to estimate whether sufficient future
taxable income will be generated to permit realization of its existing deferred tax assets. A significant piece of objective
negative evidence evaluated was the cumulative loss incurred over the three-year period ended June 30, 2019. On the basis of
all evidence evaluated as of June 30, 2019, the Company recorded an additional valuation allowance of $36.0 million ($35.8
million of which was recorded as income tax expense and $0.2 million as a reduction of other comprehensive income) to reduce
the portion of the deferred tax asset that is not more likely than not to be realized. As of December 31, 2019, the Company
maintained a valuation allowance of $37.3 million.
For the year ended December 31, 2018, the Company maintained a valuation allowance of $1.2 million on a portion of state net
operating losses not more likely than not realizable.
For the year ended December 31, 2017, predominantly on the basis of a reassessment of the amount of its deferred tax assets
that are more likely than not to be realized, the Company reduced its valuation allowance by $45.4 million (comprised of $15.7
million related to U.S. net operating losses, $4.4 million related to state net operating losses, and $25.3 million related to other
F- 36
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
14. Income Taxes (continued)
net deferred tax assets). The Company maintained a valuation allowance on a portion of state net operating losses not more
likely than not realizable.
On December 22, 2017, the 2017 Tax Act was signed into legislation which, among other changes, reduced the corporate
federal income tax rate from 35% to 21% effective for the Company's year ended December 31, 2018. The Company recorded
income tax expense of $8.0 million, primarily due to a re-measurement of its deferred tax assets and liabilities in the fourth
quarter of 2017. The impact of the Global Intangible Low-Taxed Income provision, the transition tax on the deemed repatriation
of deferred foreign income, and any future tax impact associated with basis differences on foreign subsidiaries were immaterial.
As of December 31, 2019, the Company had approximately $80.7 million and $132.8 million of federal and state net operating
loss carryforwards, respectively, and an immaterial amount of foreign net operating loss carryforwards. The net operating losses
expire as follows: federal between 2032 and 2039, state between 2020 and 2039, and foreign between 2020 and 2024. As a
result of the 2017 Tax Act, federal and certain state net operating losses generated in 2019 and 2018 carry forward indefinitely.
The reconciliation of income tax computed at the U.S. federal statutory rate to income tax expense (benefit) is as follows:
Year Ended December 31,
2018
2017
2019
Tax at U.S. statutory rate
State taxes, net of federal benefit
Noncontrolling interest
Non-deductible items (a)
Foreign tax (benefit) expense
Valuation allowances
Uncertain tax positions
Return to provision
Federal rate change
Other
Income tax expense (benefit)
________________
$
(amounts in thousands)
(3,821) $
(543)
(252)
625
(5,084) $
(554)
(372)
759
(58)
36,224
400
—
—
417
$
31,732
$
180
—
1,629
(458)
—
162
(2,478) $
1,506
(1,374)
(455)
2,676
175
(45,354)
1,145
—
8,011
(831)
(34,501)
(a) Includes non-deductible meals and incidentals, miscellaneous non-deductible items, and beginning in 2018, non-deductible
stock-based compensation.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
Balance at January 1
Additions based on tax positions related to the current year
(Reductions) additions based on tax positions related to prior years
Reductions based on settlements of tax positions related to prior years
Reductions as a result of a lapse of applicable statute of limitations
2017 Tax Act federal tax rate change
Other
Balance at December 31
F- 37
Year Ended December 31,
2019
2018
2017
(amounts in thousands)
$
5,412
$
3,807
$
1,283
(498)
—
(405)
—
—
1,401
204
—
—
—
—
$
5,792
$
5,412
$
5,180
1,145
—
(439)
—
(1,859)
(220)
3,807
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
14. Income Taxes (continued)
Short-term unrecognized tax benefits are included in other current liabilities in the consolidated balance sheets and were $0.1
million as of December 31, 2018 and 2017. There were no short-term unrecognized tax benefits as of December 31, 2019. Long-
term unrecognized tax benefits are included in other long-term liabilities in the consolidated balance sheets and were $0.7 million,
$0.6 million, and $0.5 million as of December 31, 2019, 2018, and 2017, respectively. See Note 7 - Balance Sheet Details. As of
December 31, 2019, 2018, and 2017, the Company had unrecognized tax benefits, which would affect the effective tax rate if
recognized, of $6.0 million, $5.6 million, and $4.0 million, respectively.
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. During
the years ended December 31, 2019 and 2018, interest and penalties were immaterial. During the year ended December 31,
2017, the Company recognized a decrease in interest and penalties of $0.2 million, related to statute expirations. The Company
has accrued $0.3 million for the payment of interest and penalties at December 31, 2019 and 2018, and $0.2 million at
December 31, 2017.
Tax years 2012 through 2018 remain open to examination by certain taxing jurisdictions to which the Company is subject to
tax.
15. Stockholders’ Equity
Stock Repurchase Programs
Under an authorized share repurchase program, during the year ended December 31, 2018, the Company repurchased and
retired 432,439 shares of its Common Stock for $5.0 million, at an average market price of $11.54 per share. During the years
ended December 31, 2019 and 2017, the Company did not repurchase any shares of its Common Stock under this program.
As of December 31, 2019, the Company has 510,004 shares of Common Stock under the current share repurchase program
available to repurchase, subject to certain conditions in the Company's Loan Agreement. The Company may repurchase up to
an aggregate amount not to exceed $5.0 million in any fiscal year, or an unlimited amount if the Company meets certain
conditions as described in its ABL Credit Agreement.
Shares Issued
On March 17, 2017, the Company issued 3,175,584 shares to its prior Convertible Notes noteholders. See Note 8 - Debt.
Share-Based Payments
2017 Plan
The Company's 2014 Omnibus Incentive Plan (2014 Plan) provides for the issuance of stock options, stock appreciation rights,
restricted stock, performance shares, and performance-based cash awards that may be granted with the intent to comply with
the “performance-based compensation” exception under Section 162(m) of the Internal Revenue Code, and other stock-based
awards, all as defined by the 2014 Plan, to eligible employees, consultants and non-employee Directors. On May 23, 2017, the
Company's shareholders approved an amendment and restatement of its 2014 Plan (2017 Plan) which, among others, included
the following modifications: (i) a 2,000,000 share increase of the aggregate share reserve to 6,100,000 shares; (ii) extension of
the 2014 Plan until May 23, 2027; and (iii) re-approval of the Section 162(m) performance goals so that certain incentive
awards granted to certain executive officers of the Company may qualify as exempt performance-based compensation.
Previously, the limitation did not apply to performance-based awards. However, Section 162(m) of the Internal Revenue Code
updated in conjunction with the 2017 Tax Act in November 2018 limits a publicly-held corporation’s federal tax deduction for
compensation paid to “covered employees” to $1.0 million per year, for non-performance and performance shares.
Under the 2017 Plan, the Compensation Committee of the Company’s Board of Directors (the Committee), has the discretion to
determine the terms of the awards at the time of the grant provided, however, that in the case of stock options and stock
appreciation rights (share options): (i) the exercise price per share of the award is not less than 100% (or, in the case of 10% or
more stockholders, the exercise price of the incentive stock options (ISOs) granted may not be less than 110%) of the fair
market value of the common stock at the time of the grant; and (ii) the term of the award will be no more than 10 years after the
F- 38
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
15. Stockholders' Equity (continued)
date the option is granted (or, shall not exceed five years, in the case of a 10% or more stockholder). In the case of restricted
stock, the purchase price may be zero to the extent permitted by applicable law.
Restricted stock awards granted under the Company’s 2017 Plan 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. The shares vest ratably over a three year period ending on the anniversary
date of the grant, and vesting is subject to the employee's continuing employment. There is no partial vesting and any unvested
portion is forfeited. Pursuant to the 2017 Plan, the number of target shares that are issued for performance-based stock awards
are determined based on the level of attainment of the targets.
The following table summarizes restricted stock awards and performance stock awards activity issued under the 2017 Plan for
the year ended December 31, 2019:
Unvested restricted stock awards, January 1, 2019
Granted
Vested
Forfeited
Unvested restricted stock awards, December 31, 2019
Restricted Stock Awards
Performance Stock Awards
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Number of
Target
Shares
Weighted
Average
Grant Date
Fair Value
589,120
$
$
837,099
(331,395) $
(98,030) $
$
996,794
12.00
7.06
11.66
8.95
8.54
365,149
192,939
$
$
— $
(193,531) $
$
364,557
12.35
7.06
—
12.14
9.66
On March 31, 2019, 2018, and 2017, the Company awarded performance stock awards totaling 192,939, 238,328, and 181,067,
respectively. If the minimum level of performance is attained for the 2019, 2018, and 2017 awards, restricted stock will be
issued with a vesting date of March 31, 2022, 2021, and 2020, respectively. The level of attainment will be certified within 30
days of the vest date. During the first quarter of 2017, the Committee approved a 48% level of attainment for the 2016
performance-based share awards, resulting in the issuance of 66,692 performance shares that vested on December 31, 2018.
As of December 31, 2019, the Company had approximately $5.6 million of total unrecognized compensation cost related to
non-vested restricted stock awards which may be adjusted for future changes in forfeitures. The Company expects to recognize
such cost over a weighted average period of 2.00 years. The fair value of shares vested was approximately $2.6 million, $2.5
million, and $3.7 million for the years ended December 31, 2019, 2018, and 2017, respectively.
As of December 31, 2019, the Company had approximately $0.7 million of total unrecognized compensation cost related to
performance stock awards which may be adjusted for future changes in forfeitures. The Company expects to recognize such
cost over a weighted average period of 1.57 years, the remaining service period. The fair value of shares vested was $0.5
million and $1.6 million for the years ended December 31, 2018 and 2017, respectively. No shares vested for the year ended
December 31, 2019.
During the years ended December 31, 2019, 2018, and 2017, the Company did not issue stock options or stock appreciation rights.
The following table represents information about stock options and stock appreciation rights exercised in each year.
Total intrinsic value of options exercised
$
130
$
234
$
516
The stock appreciation rights can only be settled with stock or cash, at the discretion of the Committee. The stock appreciation
rights vested 25% per year over a 4 year period and expire after 7 years. The Company’s policy is to issue new shares from its
Year Ended December 31,
2019
2018
2017
(amounts in thousands)
F- 39
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
15. Stockholders' Equity (continued)
authorized but unissued balance of common stock outstanding or shares of common stock reacquired by the Company if stock
appreciation rights are settled with stock.
The Company recorded compensation expense for stock options based on the estimated fair value of the options on the date of
grant using the Black-Scholes option-pricing model. Due to the adoption of the 2014 Plan (previously titled the 2007 Stock
Incentive Plan), no further grants have been issued under the Company’s 1999 Plans referred to below.
1999 Stock Option Plan and Equity Participation Plan
On December 16, 1999, the Company’s Board of Directors approved the 1999 Stock Option Plan and Equity Participation Plan
(collectively, the 1999 Plans), which was amended and restated on October 25, 2001 and provided for the issuance of ISOs and
non-qualified stock options to eligible employees and non-employee directors for the purchase of up to 4,398,001 shares of
common stock.
The following table summarizes the Company’s activities with respect to all of its share option plans (issued under the 2014
Plan and the 1999 Plan) for the year ended December 31, 2019:
Number of
Shares
Option Price
Share options outstanding, January 1, 2019
51,500
$4.35-$5.21
Granted
Exercised
Forfeited/expired
Share options outstanding and exercisable,
December 31, 2019
—
(32,500)
(11,000)
—
$4.35-$5.21
$4.35
8,000
$5.21
Weighted-
Average
Remaining
Contractual
Life (in
years)
Aggregate
Intrinsic
Value
(amounts
in
thousands)
0.42
$
51
Weighted
Average
Exercise
Price
$4.87
—
$4.96
$4.35
$5.21
As of December 31, 2019, the Company had 8,000 share options outstanding, all of which were vested at a weighted average
exercise price of $5.21, intrinsic value of $0.1 million, and a weighted average contractual life of 0.42 years.
F- 40
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
16. Earnings Per Share
The following table sets forth the components of the numerator and denominator for the Company's computation of basic and
diluted earnings per share:
Numerator:
Net (loss) income attributable to common shareholders - Basic
Interest on Convertible Notes
Gain on derivatives
Net (loss) income attributable to common shareholders - Diluted
Denominator:
Weighted average common shares - Basic
Effective of diluted shares:
Share-based awards
Convertible Notes
Weighted average common shares - Diluted
Net (loss) income per share attributable to common shareholders - Basic
Net (loss) income per share attributable to common shareholders - Diluted
Year Ended December 31,
2019
2018
2017
(amounts in thousands, except per share data)
(57,713) $
—
—
(57,713) $
(16,951) $
—
—
(16,951) $
37,513
694
(1,581)
36,626
35,815
35,657
35,018
—
—
—
—
425
723
35,815
35,657
36,166
(1.61) $
(0.48) $
1.07
(1.61) $
(0.48) $
1.01
$
$
$
$
For the years 2019, 2018, and 2017, no tax benefits were assumed in the weighted average share calculation due to the
Company's net operating loss position.
The following table represents the securities that could potentially dilute net income per share attributable to common
shareholders in the future that were not included in the computation of diluted net income per share attributable to common
shareholders because to do so would have been anti-dilutive for the periods presented.
Year Ended December 31,
2018
2017
2019
Share-based awards
17. Related Party Transactions
(amounts in thousands)
335
373
118
The Company provides services to entities which are affiliated with certain members of the Company’s Board of Directors,
which it believes were conducted on terms equivalent to those prevailing in an arm's-length transaction. Revenue related to
these transactions was $0.1 million in both 2019 and 2018, and $4.9 million in 2017. The Company had no accounts receivable
due from these entities at December 31, 2019 and a balance due of less than $0.1 million at December 31, 2018.
The Company has a 68% ownership interest in Cross Country Talent Acquisition Group, LLC, a joint venture between the
Company and a hospital system. The Company generated revenue providing staffing services to the hospital system of $25.0
million, $19.4 million, and $17.9 million in 2019, 2018, and 2017, respectively. At December 31, 2019 and 2018, the Company
had a receivable balance of $1.7 million and $2.8 million, respectively, and a payable balance of $0.5 million and $0.3 million,
respectively.
F- 41
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
17. Related Party Transactions (continued)
Subsequent to the Company's acquisition of Mediscan on October 30, 2015, Mediscan continued to operate at premises owned,
in part, by the founding members of Mediscan. The Company paid $0.3 million and $0.4 million, respectively, in rent expense
for these premises in 2018 and 2017. In the fourth quarter of 2018, the Company vacated the premises.
18. Segment Data
In accordance with the Segment Reporting Topic of the FASB ASC, the Company reports three business segments – Nurse and
Allied Staffing, Physician Staffing, and Search. The Company manages and segments its business based on the services it offers
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 branch-based nurse and allied
professionals, MSP services, education healthcare services, and outsourcing services. Its clients include: public and
private acute care and non-acute care hospitals, government facilities, public schools and charter schools, outpatient
clinics, ambulatory care facilities, physician practice groups, retailers, and many other healthcare providers throughout
the U.S. Substantially all of the results of the Advantage acquisition has been aggregated with the Company's Nurse
and Allied Staffing business segment. See Note 4 - Acquisitions.
• 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 U.S. at various healthcare facilities, such as acute and non-acute care facilities, medical group practices,
government facilities, and managed care organizations.
•
Search - Search includes retained and contingent search services for physicians, healthcare executives, and other
healthcare professionals, as well as recruitment process outsourcing.
The Company evaluates performance of each segment primarily based on revenue and contribution income. The Company
defines contribution income as income or loss from operations before depreciation and amortization, acquisition and integration
costs, acquisition-related contingent consideration, restructuring costs, legal settlement charges, impairment charges, and
corporate overhead. Contribution income is a financial measure used by the Company when assessing segment performance
and is provided in accordance with the Segment Reporting Topic of the FASB ASC. 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.
F- 42
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
18. Segment Data (continued)
Information on operating segments and a reconciliation to (loss) income from operations for the periods indicated are as
follows:
Revenues from services:
Nurse and Allied Staffing
Physician Staffing
Search
Contribution income (loss):
Nurse and Allied Staffing
Physician Staffing
Search
Corporate overhead (a)
Depreciation and amortization
Acquisition and integration costs
Acquisition-related contingent consideration
Restructuring costs
Legal settlement charges
Impairment charges
(Loss) income from operations
_______________
Year Ended December 31,
2019
2018
2017
(amounts in thousands)
$
$
$
$
732,815
$
718,613
$
$
$
74,605
14,804
822,224
64,353
2,758
(823)
66,288
46,246
14,075
311
(110)
3,571
1,600
$
$
82,305
15,566
816,484
66,200
4,755
763
71,718
44,589
11,780
491
2,557
2,758
—
16,306
(15,711) $
22,423
(12,880) $
756,476
93,610
14,962
865,048
73,825
5,256
(568)
78,513
39,190
10,174
1,975
44
1,026
—
14,356
11,748
(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).
In the second quarter of 2019, the Company merged its permanent search recruitment brands. As a result, for the years ended
December 31, 2018 and 2017, $1.7 million and $1.8 million of revenue, respectively, and $0.2 million of contribution income
and $0.2 million of contribution loss, respectively, were reclassified from Nurse and Allied Staffing to Search to conform to the
current period presentation.
F- 43
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
19. Quarterly Financial Data (Unaudited)
The following tables contain selected unaudited statements of operations information for each quarter of 2019 and 2018. The
following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the
periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.
2019
Revenue from services
Gross profit (a)
Consolidated net loss
Net loss attributable to common shareholders
Net loss per share attributable to common shareholders - Basic (b)
Net loss per share attributable to common shareholders - Diluted (b)
2018
Revenue from services
Gross profit (a)
Consolidated net income (loss)
Net income (loss) attributable to common shareholders
Net income (loss) per share attributable to common shareholders - Basic (b)
Net income (loss) per share attributable to common shareholders - Diluted (b)
________________
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(amounts in thousands, except per share data)
$
195,171
48,254
(1,376)
(1,767)
$
202,757
51,588
(51,270)
(51,674)
209,200
51,006
(2,697)
(3,128)
$
(0.05) $
(0.05) $
(1.44) $
(1.44) $
(0.09) $
(0.09) $
215,096
53,161
(600)
(1,144)
(0.03)
(0.03)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(amounts in thousands, except per share data)
210,288
53,753
1,920
1,642
0.05
0.05
$
$
$
204,572
53,689
1,824
1,539
0.04
0.04
$
$
$
$
200,717
51,562
(118)
(441)
(0.01) $
(0.01) $
200,907
50,559
(19,343)
(19,691)
(0.55)
(0.55)
$
$
$
$
$
$
(a) Excludes depreciation and amortization.
(b) The sum of the quarterly per share amounts may not equal amounts reported for year-to-date due to the effects of rounding
and changes in the number of weighted average shares outstanding used in the calculation.
The following items are the most significant items that impact the comparability and presentation of our consolidated data:
• During the second and third quarter of 2019, the Company recorded non-cash impairment charges of $14.5 million
related to the trade names of Nurse and Allied Staffing, and $1.8 million related to ceasing use of certain leased
properties, respectively. During the fourth quarter of 2018, the Company recorded non-cash impairment charges of
$22.4 million related to the goodwill and trade names of Physician Staffing. See Note 5 - Goodwill, Trade Names,
and Other Intangible Assets.
• During the year ended December 31, 2019, the Company accelerated certain finite-lived trade names as part of a
rebranding strategy. This resulted in additional amortization expense related to the Company's Nurse and Allied
Staffing segment in the second and fourth quarters of $0.1 million and $2.0 million, respectively, and in the second
and third quarters, $0.5 million and $0.3 million, respectively, related to the Physician Staffing segment.
• During the second quarter of 2019, the Company recorded $1.6 million in legal settlement charges related to the
resolution of a medical malpractice lawsuit and settlement of a wage and hour class action lawsuit.
• During the fourth quarter of 2019, the Company wrote off debt issuance costs related to a reduction in borrowing
capacity on its prior revolving credit facility and recognized a loss on early extinguishment of debt related to its
refinancing of $1.5 million. See Note 8 - Debt.
• The Company incurred applicant tracking system expenses related to its project to replace its legacy system
supporting its travel nurse staffing business. In the third and fourth quarters of 2018, the Company recorded
expenses of $0.2 million and $0.5 million, respectively. In the first quarter of 2019, the Company recorded expenses
of $1.1 million, and recorded costs in each of the remaining three quarters of $0.3 million.
F- 44
CROSS COUNTRY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
19. Quarterly Financial Data (Unaudited) (continued)
• On December 1, 2018, the Company acquired AP Staffing, which was accounted for in accordance with the Business
Combinations Topic of the FASB ASC, using the acquisition method. The results of the acquisition's operations have
been included in the consolidated statements of operations from its date of acquisition. See Note 4 - Acquisitions.
Income tax expense recorded in the second quarter of 2019 includes $35.8 million of expense related to the
establishment of valuation allowances on the Company's deferred tax assets. See Note 14 - Income Taxes.
•
• The Company terminated an interest rate hedge related to its Term Loan, recording a loss in the third quarter of 2019
of $1.3 million. See Note 9 - Derivatives.
F- 45
CROSS COUNTRY HEALTHCARE, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018, AND 2017
Schedule II
Balance at
Beginning
of Period
Charged to
Operations
Write-Offs,
Net of
Recoveries
Other
Changes
Balance at
End
of Period
(amounts in thousands)
$
$
$
$
$
$
3,705
3,688
3,245
1,189
1,076
46,454
$
$
$
$
$
$
3,243
5,974
4,705
36,224
113
(3,007)
$
$
$
$
$
$
(3,729) (a) $
(5,957) (a) $
(4,262) (a) $
—
—
—
—
—
$
$
(68)
—
$
$
$
$
$
(43,333) (b) $
962 (c) $
3,219
3,705
3,688
37,345
1,189
1,076
Allowances for Accounts Receivable
Year Ended December 31, 2019
Year Ended December 31, 2018
Year Ended December 31, 2017
Valuation Allowance for Deferred Tax
Assets
Year Ended December 31, 2019
Year Ended December 31, 2018
Year Ended December 31, 2017
________________
(a) Uncollectible accounts written off, net of recoveries.
(b) Release of valuation allowances on the Company’s deferred tax assets.
(c) Valuation allowance on deferred tax asset related to share-based compensation.
II- 1
LIST OF SUBSIDIARIES
Exhibit 21.1
Subsidiary
Assignment America, LLC
Cejka Search, Inc.
Credent Verification and Licensing Services, LLC
Cross Country Holdco (Cyprus) Limited
Cross Country Infotech, Pvt. Ltd.
Cross Country Staffing, Inc.
Cross Country Talent Acquisition Group, LLC*
MDA Holdings, Inc.
Medical Doctor Associates, LLC
New Mediscan II, LLC
OWS, LLC
Travel Staff, LLC
* Majority-owned joint venture
Place of Incorporation
Delaware
Delaware
Delaware
Cyprus
India
Delaware
Delaware
Delaware
Delaware
California
Delaware
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in Registration Statement Nos. 333-145484, 333-188519, 333-196639, and
333-218557 on Form S-8 of our reports dated March 5, 2020, relating to the consolidated financial statements of Cross Country
Healthcare, Inc. and subsidiaries, and the effectiveness of Cross Country Healthcare, Inc. and subsidiaries' internal control over
financial reporting, appearing in this Annual Report on Form 10-K of Cross Country Healthcare, Inc. for the year ended
December 31, 2019.
/s/ Deloitte & Touche LLP
Boca Raton, Florida
March 5, 2020
I, Kevin C. Clark, certify that:
CERTIFICATION
Exhibit 31.1
1.
I have reviewed this annual report on Form 10-K of Cross Country Healthcare, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 5, 2020
/s/ Kevin C. Clark
Kevin C. Clark
President & Chief Executive Officer
(Principal Executive Officer)
I, William J. Burns, certify that:
CERTIFICATION
Exhibit 31.2
1.
I have reviewed this annual report on Form 10-K of Cross Country Healthcare, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 5, 2020
/s/ William J. Burns
William J. Burns
Executive Vice President & Chief Financial Officer
(Principal Accounting and Financial Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Annual Report on Form 10-K of Cross Country Healthcare, Inc. (the Company)
for the year ended December 31, 2019, (the "Periodic Report"), I, Kevin C. Clark, President and Chief Executive Officer of the
Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that the information contained in the Periodic Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Exhibit 32.1
Date: March 5, 2020
/s/ Kevin C. Clark
Kevin C. Clark
President & Chief Executive Officer
(Principal Executive Officer)
The foregoing certification is provided solely for purposes of complying with the provisions of Section 906 of the
Sarbanes-Oxley Act of 2002.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Annual Report on Form 10-K of Cross Country Healthcare, Inc. (the
"Company") for the year ended December 31, 2019, (the "Periodic Report"), I, William J. Burns, Executive Vice President and
Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to my knowledge the Periodic Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Periodic Report fairly
presents, in all material respects, the financial condition and results of operations of the Company.
Exhibit 32.2
Date: March 5, 2020
/s/ William J. Burns
William J. Burns
Executive Vice President & Chief Financial Officer
(Principal Accounting and Financial Officer)
The foregoing certification is provided solely for purposes of complying with the provisions of Section 906 of the
Sarbanes-Oxley Act of 2002.
BOARD OF DIRECTORS
EXECUTIVES
W. Larry Cash (a)(b)(c)
Retired President, Financial Services and Chief Financial Officer
Community Health Systems
Kevin C. Clark
Co-Founder and Chief Executive Officer
Cross Country Healthcare, Inc.
Kevin C. Clark
Co-Founder and Chief Executive Officer
Cross Country Healthcare, Inc.
Thomas C. Dircks (d)
Managing Director
Charterhouse Strategic Partners
Gale Fitzgerald (a)(e)
Retired Principal
TranSpend, Inc.
Darrell S. Freeman, Jr. (a)
Executive Managing Director
Zycron
Richard M. Mastaler (a)(e)
Retired Chairman and Chief Executive Officer
Managed Health Ventures, Inc.
Mark Perlberg (b)
Managing Director
Nautic Partners
Joseph A. Trunfio, PhD (b)(e)
Retired President and Chief Executive Officer
Atlantic Health System
CORPORATE HEADQUARTERS
Cross Country Healthcare, Inc.
5201 Congress Avenue, Suite 100B
Boca Raton, FL 33487
Phone: (561) 998-2232 | crosscountryhealthcare.com
CORPORATE GOVERNANCE
Information concerning our corporate governance practices, including our
Code of Conduct, Code of Ethics, Committee Charters, and Certification
of Financial Statements, is available on our corporate website at
crosscountryhealthcare.com. We also have established a toll-free phone
number and an email address for stockholders to communicate with our
Board of Directors. All such communications will be forwarded directly to the
appropriate party, as applicable.
GOVERNANCE HOTLINE: (800) 354-7197
GOVERNANCE EMAIL: governance@crosscountry.com
FORWARD-LOOKING STATEMENTS
Information concerning forward-looking statements can be found on page 1 of our
Annual Report on Form 10-K for the year ended December 31, 2019, as well as
in quarterly and other reports to be filed by us.
STOCKHOLDER INQUIRIES
News releases, U.S. Securities and Exchange Commission (SEC) filings, annual
reports, corporate governance matters and additional information about Cross
Country Healthcare are available on our corporate investor relations website:
ir.crosscountryhealthcare.com at no cost. Certain exhibits in our Form 10-K for
the year ended December 31, 2019 are not included as part of this Annual Report
but can be obtained by referencing this website or the sec.gov website. Current
and prospective investors can also register to automatically receive our press
releases, SEC filings and other notices by email. Information about the Company
can also be obtained by writing or contacting:
William J. Burns, Executive Vice President and Chief Financial Officer
Phone: (561) 237-2555 / (800) 347-2264 | Email: ir@crosscountry.com
William J. Burns, MBA, CPA
Executive Vice President, Chief Financial Officer
and Principal Accounting Officer
Cross Country Healthcare, Inc.
Daniele Addis
Senior Vice President, Business Services
Cross Country Healthcare, Inc.
Susan E. Ball, JD, MBA, RN
Executive Vice President, General Counsel and Secretary
Cross Country Healthcare, Inc.
Paul Esselman
President, Cejka Search
William G. Halnon
Chief Information Officer
Cross Country Healthcare, Inc.
Colin P. McDonald, MS
Senior Vice President, Human Resources
Cross Country Healthcare, Inc.
Karen Mote
President, Cross Country Locums
David Pantano
President, Cross Country Search
Christopher R. Pizzi, CPA
Senior Vice President and Chief Accounting Officer
Cross Country Healthcare, Inc.
Stephen A. Saville, JD
Executive Vice President, Operations
Cross Country Healthcare, Inc.
Mihal Spiegel
Executive Director, Cross Country Education
Buffy S. White
President, Workforce Solutions and Services
Cross Country Healthcare, Inc.
Marisa Zaharoff, RN
President, Nurse and Allied Operations
Cross Country Healthcare, Inc.
TRANSFER AGENT
Regular Mail:
Computershare
P.O. Box 50500
Louisville, KY 40233
Phone: (877) 219-7066
Overnight Courier Services:
Computershare
462 South 4th Street
Suite 1600
Louisville, KY 40202
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
1800 North Military Trail, Suite 200
Boca Raton, FL 33431
STOCK LISTINGS
Our common stock trades under the symbol “CCRN” on the NASDAQ Global
Select Market, a market tier of the NASDAQ Stock Market®. Our common stock
commenced trading on the NASDAQ National Market on October 25, 2001.
(a) Member of the Audit Committee (b) Member of the Compensation Committee
(c) Lead Director (d) Chairman of the Board (e) Member of the Governance
& Nominating Committee
5201 Congress Avenue, Suite 100B | Boca Raton, FL 33487
(800) 347-2264 | crosscountryhealthcare.com