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CCRN > SEC Filings for CCRN > Form 10-Q on 8-May-2014All Recent SEC Filings

Show all filings for CROSS COUNTRY HEALTHCARE INC

Form 10-Q for CROSS COUNTRY HEALTHCARE INC


8-May-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of the following Management's Discussion and Analysis (MD&A) is to help facilitate the understanding of significant factors influencing the quarterly operating results, financial condition and cash flows of Cross Country Healthcare, Inc. Additionally, the MD&A also conveys our expectations of the potential impact of known trends, events or uncertainties that may impact future results. This discussion supplements the detailed information presented in the condensed consolidated financial statements and notes thereto which should be read in conjunction with the consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K, filed for the year ended December 31, 2013.

Business Overview

Cross Country Healthcare is a national leader in providing healthcare staffing and workforce management solutions. Our traditional staffing includes temporary and permanent placement of travel nurses and allied professionals, branch-based local nurses and allied staffing, and locum tenens physicians. We provide flexible workforce solutions to the healthcare market through diversified offerings meeting the special needs of each client. In addition to traditional staffing, our services include: managed service programs (MSP), workforce assessments, internal resource pool consulting and development, electronic medical record (EMR) transition staffing, and recruitment process outsourcing services. We are a valued partner to a diverse client base including both public and private healthcare organizations as well as government facilities, schools, outpatient clinics, ambulatory care facilities, physician practice groups, retailers, and many other healthcare providers. We also provide physician and executive search services as well as education and training programs for healthcare professionals.

Our results are reported in three business segments: Nurse and Allied Staffing, Physician Staffing, and Other Human Capital Management Services. For the quarter ended March 31, 2014, our nurse and allied staffing business which is comprised of travel and per diem nurse and allied staffing represented approximately 68% of our total revenue. Travel nurse staffing, which is the largest part of the nurse and allied staffing business, represented approximately 48% of our total revenue and 71% of the segment revenue. Other nurse and allied staffing services include the placement of allied healthcare professionals, such as rehabilitation therapists, radiology technicians, and respiratory therapists. Our physician staffing business represented approximately 25% of our first quarter 2014 revenue and consists of temporary physician staffing services (locum tenens) in many specialties, certified registered nurse anesthetists (CRNAs), nurse practitioners (NPs) and physician assistants (PAs). Our other human capital management services business represented approximately 7% of our revenue and consists of healthcare professional education and training, as well as retained search services.

Acquisitions

In December 2013, we acquired the operating assets of On Assignment, Inc.'s Allied Healthcare Staffing division (the acquired allied staffing business) for an aggregate purchase price of $28.7 million, subject to certain post-closing adjustments. Excluded from the transaction were the accounts receivable, accounts payable and accrued compensation of the business being acquired. The Company used $24.7 million in cash on hand and $4.5 million from borrowings under its current revolver facility with Bank of America, N.A. to pay the purchase price and approximately $0.5 million in transaction costs. Subsequent to December 31, 2013, an immaterial post-closing adjustment was made. However, the purchase price is subject to further adjustment downward contingent upon retention of certain contracts as defined in the agreement, which will be resolved by the end of the second quarter of 2014. We do not expect any further adjustment.

We believe this acquisition complements our current operations by: (1) adding new skillsets to our traditional staffing offerings, (2) expanding our local branch network, which will allow us to expand our local market presence and our MSP business, (3) diversifying our customer base into the local ambulatory care and retail market, which provides more balance between our large volume based customers and our small local customers, and (4) better positioning us to take additional market share at our MSP accounts. At the time of the acquisition, the acquired allied staffing business had 84 branch-based employees and made placements in more than 125 specialties from 23 branch offices.

The acquisition has been accounted for in accordance with FASB ASC Topic 805-Business Combination, using the purchase method. The results of the acquisition's operations have been included in the consolidated statements of operations since December 2, 2013, the date of the acquisition. The acquired allied staffing business has been included with our nurse and allied staffing business segment.


Dispositions

The clinical trial services business provided clinical trial, drug safety, and regulatory professionals and services on a contract staffing and outsourced basis to companies in the pharmaceutical, biotechnology and medical device industries, as well as to contract research organizations, primarily in the United States, and also in Canada and Europe. On February 15, 2013, we completed the sale of our clinical trial services business to ICON Clinical Research, Inc. and ICON Clinical Research UK Limited (the "Buyer") for an aggregate $52.0 million in cash, subject to certain adjustments. The business segment has been classified as discontinued operations for all periods presented (see Note 2
- Discontinued Operations and see Note 7 - Fair Value Measurements, to our condensed consolidated financial statements for more information).

Segment Information

In accordance with the Segment Reporting Topic of the FASB ASC, the Company reports three business segments - nurse and allied staffing, physician staffing, and other human capital management services, described below:

? Nurse and allied staffing - The nurse and allied staffing segment provides traditional staffing, including temporary and permanent placement of travel nurses and allied professionals, and branch-based local nurses and allied staffing. Its clients include: public and private acute-care and non-acute care hospitals, government facilities, schools, outpatient clinics, ambulatory care facilities, retailers, and many other healthcare providers throughout the U.S. The Company aggregates various brands that it markets to its customers in this business segment.

? Physician staffing - The physician staffing business segment provides physicians in many specialties, certified registered nurse anesthetists (CRNAs), nurse practitioners (NPs) and physician assistants (PAs) under the Company's Medical Doctor Associates (MDA) brand 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.

? Other human capital management services - The other human capital management services business segment provides education and training programs to the healthcare industry and retained search services for physicians and healthcare executives within the U.S.

Executive Summary of Operations

We continue to execute on the elements of our strategy to grow revenue in our core businesses, expand margins and enhance the operating leverage of our infrastructure. The fundamentals of our strategy are to ensure we offer a full range of services and specialties necessary to meet the needs of our clients, to deliver creative and flexible workforce solutions, build a customer-centric strong sales capability with geographic access to all of our key markets, provide world class client service with a focus on fulfillment and retention, and continuously improve our operational effectiveness.

For the quarter ended March 31, 2014, our revenue was $118.1 million, and we had a loss from continuing operations of $0.8 million, or $0.03 per diluted share. Cash flow used in operations for the three months ended was $9.2 million. We borrowed a net of $10.9 million which was used to fund working capital and for capital expenditures. We ended the first quarter of 2014 with $7.2 million of cash and cash equivalents and total debt of $19.5 million.

Nurse and Allied Staffing

Our nurse and allied staffing business grew year-over year and sequentially primarily as a result of the acquisition of the acquired allied staffing business in December 2013. Travel nursing in particular had strong demand and grew throughout the quarter - in fact, we ended March with the highest number of contract nurses on assignment since 2009. Our ratio of contract bookings (book-to-bill ratio) as a percentage of working nurses in the fourth quarter of 2013 of 102% was followed by 7% sequential revenue growth in this segment (excluding the acquisition). During the first quarter of 2014 our book-to-bill ratio was 104%.


Physician Staffing

Our physician staffing business experienced a decrease in demand throughout the first quarter with revenue down 2% year-over-year and 6% sequentially. During the first quarter of 2014, we experienced less demand from government customers partially offset by an increase in commercial customers. The declines were primarily in the areas of emergency medicine, pediatrics, and primary care specialties, although we experienced strong growth in advanced practices (nurse practitioners and physician assistants).

Other Human Capital Management Services

Revenue in our other human capital management services business segment was down 8% compared to the prior year quarter primarily due to fewer executive search placements. Our education and training business revenue was relatively flat when compared to the prior year quarter, primarily related to weather related cancellations.

Business Metrics

In general, we evaluate our financial condition and operating results by
revenue, contribution income (see Segment Information), and net income (loss).
We also use measurement of our cash flow generation and operating and leverage
ratios to help us assess our financial condition. In addition to the metrics
identified below, we monitor other volume and profitability indicators such as
number of open orders, contract bookings, and price.

Business Segment                   Business Measurement
Nurse and Allied Staffing          FTEs represent the average number of nurse and
                                   allied contract personnel on a full-time
                                   equivalent basis.
                                   Days Worked is calculated by multiplying the
                                   number of FTEs by the number of days during
                                   the respective period.
                                   Average Revenue per FTE per Day is calculated
                                   by dividing the nurse and allied staffing
                                   revenue by the number of days worked in the
                                   respective periods. Nurse and allied staffing
                                   revenue also includes revenue from the
                                   permanant placement of nurses.

Physician Staffing                 Days filled is calculated by dividing the
                                   total hours filled during the period by 8
                                   hours.
                                   Revenue per day filled is calculated by
                                   dividing the applicable revenue generated by
                                   the Company's physician staffing segment by
                                   days filled for the period presented.




                              Other Financial Data
                                  (unaudited)
                                              Three Months Ended
                                          March 31,          March 31,                      Percent
                                             2014               2013          Change        Change

Nurse and allied staffing statistical
data:
FTEs                                         3,107                2,483           624         25.1  %
Days worked                                279,630              223,470        56,160         25.1  %
Average nurse and allied staffing
revenue per FTE per day               $        287         $        318           (31 )       (9.7 )%

Physician staffing statistical data:
Days filled                                 20,801               21,388          (587 )       (2.7 )%
Revenue per day filled                $      1,423         $      1,384            39          2.8  %


Results of Operations

The following table summarizes, for the periods indicated, selected condensed
consolidated statements of operations data expressed as a percentage of revenue:

                                                           Three Months Ended
                                                               March 31,
                                                            2014         2013
Revenue from services                                     100.0  %     100.0  %
Direct operating expenses                                  74.2         73.8
Selling, general and administrative expenses               24.9         24.5
Bad debt expense                                            0.4          0.4
Depreciation and amortization                               1.5          1.5
Acquisition and integration costs                           0.3            -
Loss from operations                                       (1.3 )       (0.2 )
Foreign exchange loss                                         -            -
Interest expense                                            0.2          0.3
Loss on early extinguishment and modification of debt         -          1.3
Other expense (income), net                                 0.1         (0.1 )
Loss from continuing operations before income taxes        (1.6 )       (1.7 )
Income tax benefit                                         (0.9 )       (0.5 )
Loss from continuing operations                            (0.7 )       (1.2 )
Income from discontinued operations, net of income taxes      -          2.3
Net (loss) income                                          (0.7 )%       1.1  %

Segment Information

The Company's management evaluates performance of each segment primarily based on revenue and contribution income. The Company's management does not evaluate, manage or measure performance of segments using asset information; accordingly, 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.


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

                                             Three Months Ended
                                                 March 31,
                                             2014         2013 (a)
                                           (amounts in thousands)
Revenues:
Nurse and allied staffing               $     80,193     $  71,073
Physician staffing                            29,136        29,743
Other human capital management services        8,762         9,500
                                        $    118,091     $ 110,316

Contribution income (b):
Nurse and allied staffing (c)           $      5,969     $   5,174
Physician staffing                               751         2,226
Other human capital management services          166           290
                                               6,886         7,690

Unallocated corporate overhead (c)             6,323         6,301
Depreciation                                     974         1,022
Amortization                                     785           566
Acquisition and integration costs                295             -
Loss from operations                    $     (1,491 )   $    (199 )


(a) Prior year data has been reclassified to conform to the current year's presentation. Effective January 1, 2014, we merged our Allied Health Group, LLC subsidiary with Medical Doctor Associates, LLC subsidiary. The decision to merge these companies was based a number of factors including the consolidation of back office processes and other operational efficiencies. Along with this merger, we evaluated the Allied Health Group trade name and determined that it would be more valuable to use it for our nurse and allied staffing business, and as a result, transferred the trade name effective January 1, 2014.

The allied health staffing business of MDA has primarily consisted of higher-level allied professionals, such as physician assistants and nurse practitioners, whose job functions are becoming increasingly more similar to those of physicians than to other allied health professionals. The 2014 change in legal structure and processes, along with the current market dynamics has changed the our approach/conclusion to aggregate this business with its nurse and allied staffing business segment for 2014. We have revised our segments for 2014 reporting to include this business with its physician staffing business segment.

(b) We define contribution income or loss from operations before depreciation, amortization, restructuring costs, legal settlement charges, impairment charges, and other corporate expenses not specifically identified to a reporting segment. Contribution income is a measure used by management to access operations and is provided in accordance with the Segment Reporting Topic of the FASB ASC.

(c) In 2014, we refined our methodology for allocating certain corporate overhead expenses to our nurse and allied staffing segment expenses to more accurately reflect this segment's profitability. Prior year information has been reclassified to conform to current year presentation.


Comparison of Results for the Three Months Ended March 31, 2014 compared to the Three Months Ended March 31, 2013

Revenue from services

Revenue from services increased 7.0%, to $118.1 million for the three months ended March 31, 2014, as compared to $110.3 million for the three months ended March 31, 2013. The revenue increase was primarily from our nurse and allied staffing business segment. Revenue declined year-over-year in both our physician staffing and other human capital management services business segments.

Nurse and allied staffing

Revenue from our nurse and allied staffing business segment increased 12.8%, to $80.2 million for the three months ended March 31, 2014, as compared to $71.1 million for the three months ended March 31, 2013. The revenue increase was related to the acquired allied staffing business. Excluding the impact of the acquisition, revenue decreased $0.6 million or 0.9%, reflecting lower staffing volume partially offset by higher bill rates in the three months ended March 31, 2014.

The average number of nurse and allied staffing FTEs on contract during the three months ended March 31, 2014 increased 25.1% from the three months ended March 31, 2013, including 660 FTEs from the acquired allied staffing business. The average nurse and allied staffing revenue per FTE per day decreased 9.7% in the three months ended March 31, 2014 compared to the three months ended March 31, 2013, primarily due to lower bill rates in the acquired allied staffing business. Excluding the acquisition, average nurse and allied staffing revenue per FTE per day was up 0.6%.

Physician staffing

Revenue from our physician staffing business decreased 2.0%, to $29.1 million for the three months ended March 31, 2014, as compared to $29.7 million for the three months ended March 31, 2013. The decrease in revenue was due to lower volume partially offset by higher bill rates in the three months ended March 31, 2014 compared to the three months ended March 31, 2013.

Physician staffing days filled decreased 2.7%, to 20,801 days in the three months ended March 31, 2014, as compared to 21,388 days in the three months ended March 31, 2013. Revenue per day filled for the three months ended March 31, 2014 was $1,423, a 2.8% increase from the three months ended March 31, 2013.

Other human capital management services

Revenue from other human capital management services decreased 7.8%, to $8.8 million for the three months ended March 31, 2014, as compared to $9.5 million for the three months ended March 31, 2013. The revenue decline was primarily due to fewer executive search placements in our physician search business.

Direct operating expenses

Direct operating expenses are comprised primarily of field employee compensation and independent contractor expenses, housing expenses, travel expenses and field insurance expenses. Direct operating expenses increased $6.2 million or 7.6%, to $87.6 million for the three months ended March 31, 2014, as compared to $81.4 million for three months ended March 31, 2013. As a percentage of total revenue, direct operating expenses increased to 74.2% in the three months ended March 31, 2014, compared to 73.8% for the three months ended March 31, 2013. This increase as a percentage of revenue is primarily due to an increase in our professional liability reserves related to specific case developments in our physician staffing business.

Selling, general and administrative expenses

Selling, general and administrative expenses increased 8.8%, to $29.5 million for the three months ended March 31, 2014, as compared to $27.1 million for the three months ended March 31, 2013. This increase is primarily due to the acquired allied staffing business. As a percentage of total revenue, selling, general and administrative expenses were 24.9% and 24.5%, for the three months ended March 31, 2014 and 2013, respectively.

Included in selling, general and administrative expenses are unallocated corporate overhead of $6.3 million for the three months ended March 31, 2014 and 2013. As a percentage of consolidated revenue, unallocated corporate overhead was 5.4% for the three months ended March 31, 2014 and 5.7% for the three months ended March 31, 2013. Share-based compensation,


included in unallocated corporate overhead, was $0.5 million and $0.6 million in the three months ended March 31, 2014 and 2013, respectively.

Bad debt expense

Bad debt expense totaled $0.4 million and was 0.4% of consolidated revenue both in the three months ended March 31, 2014 and 2013.

Contribution income

Nurse and allied staffing

Contribution income from our nurse and allied staffing segment increased $0.8 million or 15.4%, to $6.0 million for the three months ended March 31, 2014, as compared to $5.2 million for the three months ended March 31, 2013, primarily due to the contribution income from the acquired allied staffing business. As a percentage of segment revenue, contribution income was 7.4% for the three months ended March 31, 2014, and 7.3% for the three months ended March 31, 2013.

Physician staffing

Contribution income from physician staffing decreased $1.5 million or 66.3%, to $0.8 million for the three months ended March 31, 2014, as compared to $2.2 million for the three months ended March 31, 2013. As a percentage of segment revenue, contribution income was 2.6% for the three months ended March 31, 2014 and 7.5% for the three months ended March 31, 2013. This decrease was primarily due to an increase in our professional liability reserves related to specific case developments in the three months ended March 31, 2014 compared to the three months ended March 31, 2013.

Other human capital management services

Contribution income from other human capital management services was $0.2 million for the three months ended March 31, 2014, as compared to $0.3 million for the three months ended March 31, 2013. Contribution income as a percentage of segment revenue was 1.9% for the three months ended March 31, 2014 and 3.1% for the three months ended March 31, 2013. The decrease in contribution income margin was primarily due to higher direct mail expenses in our education business, partly offset by an improvement in contribution income in our search business.

Depreciation and amortization expense

Depreciation and amortization expense totaled $1.8 million for the three months ended March 31, 2014, as compared to $1.6 million for the three months ended March 31, 2013. As a percentage of consolidated revenue, depreciation and amortization expense was 1.5% for both the three months ended March 31, 2014 and 2013.

Acquisition and Integration Costs

During the three months ended March 31, 2014, we incurred acquisition and integration costs of $0.3 million, pretax. The acquisition and integration costs were primarily related to the integration of the acquired allied staffing business and included transitional services as well as travel and training costs. No similar charges were recorded in the three months ended March 31, 2013.

Interest expense

Interest expense totaled $0.3 million for the three months ended March 31, 2014 and 2013. The effective interest rate on our borrowings was 2.8% for the three month period ended March 31, 2014 compared to 2.1% in the three month period ended March 31, 2013. We had lower average borrowings in the three months ended March 31, 2014 compared to the three months ended March 31, 2013.

Income tax benefit

Income tax benefit from continuing operations totaled $1.1 million for the three months ended March 31, 2014, as compared to a benefit of $0.5 million for the three months ended March 31, 2013. The income tax benefit for the three months ended March 31, 2014 included $1.7 million from discrete items, the most significant of which related to corrections to the December 31, 2013 provision primarily related to its valuation allowance. Excluding discrete items, income tax expense was $0.7 million in


the three months ended March 31, 2014, representing a (37.4%) effective tax rate, which is less than statutory rates primarily due to the impact of the partial non-deductibility of certain per diem expenses and state minimum taxes. The effective tax rate excluding discrete items in the three months ended March 31, 2013, was 12.1%. The lower effective tax rate in the three months ended March 31, 2013 was primarily due to the impact of the non-deductibility of certain per diem expenses, state taxes and foreign taxes. The impact of these items reduced our income tax benefit in the three months ended March 31, 2013.

Income from discontinued operations, net of income taxes

Income from discontinued operations, net of income taxes included a $4.2 million ($1.9 million after taxes) gain on the sale of the clinical trial services business in the three months ended March 31, 2013. The clinical trial services business also had income from operations before income taxes of $0.5 million in . . .

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