CROSS COUNTRY HEALTHCARE INC (CCRN)

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 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 (MD&A) below generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on February 23, 2024 and such information is incorporated herein by reference.

Business Overview

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

Our workforce solutions include MSPs, VMS, in-home care services, education health services, RPO, project management, and other outsourcing and consultative services as described in Item 1. Business in this Annual Report on Form 10-K. By utilizing the solutions that we offer, customers are able to better plan their personnel needs, optimize their talent acquisition and

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management processes, strategically flex and balance their workforce, have access to quality healthcare personnel, and provide continuity of care for improved patient outcomes.

The Company's two reportable segments, Nurse and Allied Staffing and Physician Staffing, represented approximately 85% and 15%, respectively, of total revenue for the year ended December 31, 2024. See further discussion of these segments in Item 1. Business in this Annual Report on Form 10-K.

Summary of Operations

For the year ended December 31, 2024, consolidated revenue declined 33.5% year-over-year to $1.3 billion, as travel

nurse and allied has seen a decline in both billable days and average bill rates. These declines were partly offset by continued growth in Homecare Staffing, which was up 12.4% year-over-year, as well as growth in the Physician Staffing segment, which was up 11.4% over the prior year. In Homecare Staffing, the average number of full-time equivalents (FTEs) on contract during the year increased 13.4%, and in the Physician Staffing segment the number of days filled increased across several specialties. Net loss attributable to common stockholders for the year ended December 31, 2024 was $14.6 million, as compared to net income of $72.6 million for the year ended December 31, 2023.

For the year ended December 31, 2024, cash and cash equivalents totaled $81.6 million, up from $17.1 million in the prior year. During the year, we repurchased shares under our authorized repurchase plan through November 7, 2024, the termination date of our Rule 10b5-1 repurchase plan. Cash flow provided by operating activities for the year ended December 31, 2024 was $120.1 million. As of December 31, 2024, there were no borrowings drawn under the ABL, and borrowing base availability under the ABL was $146.9 million, with $132.0 million of availability net of $14.9 million of letters of credit. See Note 8 - Debt to our consolidated financial statements.

On December 3, 2024, Cross Country entered into the Merger Agreement with Aya Healthcare. The completion of the Aya Merger was expected in the first half of 2025. On February 20, 2025, the Company and Aya each received a request for additional information from the U.S. Federal Trade Commission in connection with their review of the transactions contemplated by the Merger Agreement. The Company now expects that the Aya Merger will close in the second half of 2025, subject to the satisfaction of other customary closing conditions, including regulatory approvals. The Aya Merger was approved by the Company's stockholders at a special meeting held on February 28, 2025. Upon completion of the Aya Merger, it is expected that Cross Country will become a private company and its common stock will no longer trade on Nasdaq. See Note 1 - Organization and Basis of Presentation 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 the Company's financial condition by tracking operating metrics and financial results specific to each segment. Key operating metrics include hours worked, days filled, number of contract personnel on an FTE basis, revenue per FTE, and revenue per day filled. Other operating metrics include number of open orders, candidate applications, contract bookings, length of assignment, bill and pay rates, renewal and fill rates, number of active searches, and number of placements. These operating metrics are representative of trends that assist management in evaluating business performance. Due to the timing of our business process and other factors, certain of these operating metrics may not necessarily correlate to the reported U.S. GAAP results for the periods presented. Some of the segment financial results analyzed include revenue, operating expenses, and contribution income. In addition, we monitor cash flow, as well as operating and leverage ratios, to help us assess our liquidity needs.

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Results of Operations

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

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Comparison of Results for the Year Ended December 31, 2024 and the Year Ended December 31, 2023

NM - Not meaningful

Revenue from services

Revenue from services decreased $0.7 billion, or 33.5%, to $1.3 billion for the year ended December 31, 2024, as compared to $2.0 billion for the year ended December 31, 2023, due to volume and bill rate declines in the Nurse and Allied Staffing segment, partially offset by an increase in both volume and average bill rates in the Physician Staffing segment. See further discussion in Segment Results.

Direct operating expenses

Direct operating expenses consist primarily of field employee compensation and independent contractor expenses, housing expenses, travel expenses, and related insurance expenses. Direct operating expenses decreased $0.5 billion, or 31.8%, to $1.1 billion for the year ended December 31, 2024, as compared to $1.6 billion for the year ended December 31, 2023, as a result of revenue decreases and the tightening of bill/pay spreads. As a percentage of total revenue, direct operating expenses increased to 79.6%, as compared to 77.7% in the prior year.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased $66.9 million, or 22.3%, to $233.4 million for the year ended December 31, 2024, as compared to $300.3 million for the year ended December 31, 2023, primarily due to decreases in compensation and benefit expense, as well as marketing, consulting, and computer hardware and software expense. As a percentage of total revenue, selling, general and administrative expenses increased to 17.4% for the year ended December 31, 2024, as compared to 14.9% for the year ended December 31, 2023.

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Credit Loss Expense

Credit loss expense for the year ended December 31, 2024 was $21.4 million, as compared to $14.6 million for the year ended December 31, 2023. The increase was driven by a bankruptcy filing by a single MSP customer. There was no significant impact on operations from this MSP client as the majority of the business had been wound down in the prior year. As a percentage of revenue, credit loss expense was 1.6% for the year ended December 31, 2024, as compared to 0.7% for the year ended December 31, 2023. See Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements.

Depreciation and amortization expense

Depreciation and amortization expense for the year ended December 31, 2024 was $18.2 million as compared to $18.3 million for the year ended December 31, 2023. As a percentage of revenue, depreciation and amortization expense was 1.4% for the year ended December 31, 2024 and 0.9% for the year ended December 31, 2023.

Acquisition and integration-related costs

Acquisition and integration-related costs relate primarily to fees associated with the pending Aya Merger. See Note 1 - Organization and Basis of Presentation to our consolidated financial statements.

Restructuring costs

Restructuring costs of $4.3 million for the year ended December 31, 2024 were primarily comprised of employee termination costs, ongoing lease exit costs, and immaterial software license costs. Restructuring costs of $2.6 million for the year ended December 31, 2023 were primarily comprised of employee termination costs, partially offset by an immaterial lease-related benefit. See Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements.

Legal and other losses

During the year ended December 31, 2024, the Company recorded legal and other losses of $6.7 million, which included the settlement of several class action lawsuits, as well as costs related to an unrecoverable asset. For the year ended December 31, 2023, the Company incurred legal settlement charges of $1.1 million related to the settlement of a wage and hour class action lawsuit and associated legal fees.

Impairment charges

Non-cash impairment charges totaled $2.9 million for the year ended December 31, 2024 and related to right-of-use assets and related property in connection with vacated leases during 2024, as well as the write-off of goodwill and intangible assets associated with the impairment of the previous asset acquisition Selected. Non-cash impairment charges totaled $0.7 million for the year ended December 31, 2023 and related to the write-off of an abandoned IT project and real estate restructuring activities. See Note 5 - Goodwill, Trade Names, and Other Intangible Assets and Note 9 - Leases to our consolidated financial statements.

Interest expense

Interest expense was $2.2 million for the year ended December 31, 2024 as compared to $8.1 million for the year ended December 31, 2023, due to lower average borrowings, partially offset by a higher effective interest rate.

Loss on early extinguishment of debt

Loss on early extinguishment of debt for the year ended December 31, 2023 consisted of the write-off of debt issuance costs related to the repayment and termination of our term loan in the second quarter of 2023. There were no such charges for the year ended December 31, 2024.

Interest income

Interest income of $2.1 million for the year ended December 31, 2024 related to higher average cash on hand with higher available interest rates during the year. Interest income was an immaterial amount for the year ended December 31, 2023.

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Income tax (benefit) expense

Income tax benefit totaled $1.8 million for the year ended December 31, 2024, as compared to income tax expense of $30.3 million for the year ended December 31, 2023. The decrease in income tax expense was related to a decrease in book income primarily driven by credit loss expense as discussed in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements. The tax amounts in 2024 and 2023 were impacted by federal, international, and state taxes. See Note 13 - Income Taxes to our consolidated financial statements.

Segment Results

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

See Note 17 - Segment Data to our consolidated financial statements.

Certain statistical data for our business segments for the periods indicated are as follows:

See definition of Business Measurements under the Operating Metrics section of the MD&A.

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Segment Comparison - Year Ended December 31, 2024 and Year Ended December 31, 2023

Nurse and Allied Staffing

Revenue decreased $0.7 billion, or 37.8%, to $1.1 billion for the year ended December 31, 2024, as compared to $1.8 billion for the year ended December 31, 2023, driven primarily by a 24.2% decline in professionals on assignment and, to a lesser extent, an 18.2% normalization in bill rates, as many customers seek to reduce their spend on contingent labor and the market continues to show signs of nearing an inflection.

Contribution income for the year ended December 31, 2024 decreased $124.2 million, or 63.1%, to $72.6 million, as compared to $196.8 million for the year ended December 31, 2023. Contribution income for the year ended December 31, 2024 included $19.4 million of credit loss expense driven by a bankruptcy filing by a single MSP customer recognized during the second quarter of 2024. As a percentage of segment revenue, contribution income margin decreased to 6.3% for the year ended December 31, 2024, as compared to 10.7% for the year ended December 31, 2023.

The average number of FTEs on contract during the year ended December 31, 2024 decreased 24.2% from the year ended December 31, 2023, primarily due to declines in the number of professionals on travel or per diem assignments. The average revenue per FTE per day decreased 18.2%, due to the decrease in the average bill rates.

Physician Staffing

Revenue increased $20.3 million, or 11.4%, to $198.6 million for the year ended December 31, 2024, as compared to $178.3 million for the year ended December 31, 2023, primarily due to a 5.8% increase in billable days.

Contribution income for the year ended December 31, 2024 increased $5.5 million, or 56.8%, to $15.3 million, as compared to $9.8 million for the year ended December 31, 2023. As a percentage of segment revenue, contribution income was 7.7% for the year ended December 31, 2024 and 5.5% for the year ended December 31, 2023.

Total days filled increased 5.8%, to 97,888 for the year ended December 31, 2024, as compared to 92,504 for the year ended December 31, 2023. Revenue per day filled was $2,029 for the year ended December 31, 2024 and $1,927 for the year ended December 31, 2023, due to price increases and a favorable mix in business.

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. Corporate overhead decreased to $68.5 million for the year ended December 31, 2024, from $71.0 million for the year ended December 31, 2023, primarily due to decreases in compensation and benefit expense, and professional fees, partially offset by increases in insurance and workers' compensation. As a percentage of consolidated revenue, corporate overhead was 5.1% for the year ended December 31, 2024, and 3.5% for the year ended December 31, 2023.

Liquidity and Capital Resources

At December 31, 2024, we reported $81.6 million in cash and cash equivalents, with no borrowings drawn under the ABL. Working capital decreased by $46.2 million to $214.6 million as of December 31, 2024, as compared to $260.8 million as of December 31, 2023, primarily due to a decrease in net receivables and the timing of disbursements. As of December 31, 2024, our days' sales outstanding, net of amounts owed to subcontractors, was 55 days, down 11 days year-over-year. As of December 31, 2024, we did not have any off-balance sheet arrangements.

Operating cash flow constitutes our primary source of liquidity and, historically, has been sufficient to fund working capital, capital expenditures, internal business expansion, and debt service. This includes commitments, both short-term and long-term, of interest expense on our debt and operating lease commitments, and future principal payments on the ABL. 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.

In the third quarter of 2022, the Board of Directors authorized the New Repurchase Program, whereby we could repurchase up to $100.0 million shares of our common stock. Upon completion of the authorized number of shares available for repurchase under the Prior Repurchase Program, we commenced repurchases under the New Repurchase Program during the third quarter of 2022. In the second quarter of 2023, the Board of Directors authorized the replenishment of the amount available for stock

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repurchases under the New Repurchase Program back to $100 million, effective for trades made after May 3, 2023 (Repurchase Program). During the fourth quarter of 2022, we entered into a Rule 10b5-1 Repurchase Plan to allow for share repurchases during blackout periods, effective through November 2, 2023. In the third quarter of 2023, we entered into a new Rule 10b5-1 Repurchase Plan to allow for share repurchases during the Company's blackout periods, beginning on January 2, 2024 and effective through November 7, 2024. During the year ended December 31, 2024, we repurchased and retired a total of 2,401,924 shares of common stock for $36.8 million, at an average price of $15.31 per share. During the year ended December 31, 2023, we repurchased and retired a total of 2,343,583 shares of common stock for $57.6 million, at an average price of $24.58 per share. As of December 31, 2024, we had $40.5 million remaining for share repurchase under the Repurchase Program, subject to certain conditions in the Loan Agreement (as defined below).

Cash Flow Comparisons

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Net cash provided by operating activities decreased $128.4 million to $120.1 million for the year ended December 31, 2024, as compared to $248.5 million for the year ended December 31, 2023.

Net cash used in investing activities for the year ended December 31, 2024 was $8.7 million, as compared to $13.8 million for the year ended December 31, 2023, primarily for capital expenditures in both years, and a small acquisition in the prior year.

Net cash used in financing activities during the year ended December 31, 2024 was $46.8 million, as compared to $221.2 million during the year ended December 31, 2023. During the year ended December 31, 2024, we used cash to pay $2.9 million for income taxes on share-based compensation, $37.3 million for share repurchases and related excise tax, and $6.6 million for contingent consideration. During the year ended December 31, 2023, we reported net repayments of $150.7 million on debt, and used cash to pay $4.9 million for income taxes on share-based compensation, $57.6 million for share repurchases, $7.5 million for contingent consideration, and an immaterial amount for other financing activities.

Debt

2021 Term Loan Agreement

On June 8, 2021, we entered into the Term Loan Credit Agreement (Term Loan Agreement), which provided for a six-year second lien subordinated term loan in the amount of $100.0 million (term loan). On November 18, 2021, we amended the Term Loan Agreement (Term Loan First Amendment), which provided the Company an incremental term loan in an aggregate amount equal to $75.0 million. On April 14, 2023, we amended the Term Loan Agreement (Term Loan Second Amendment), which provided the option for all or a portion of the borrowings to bear interest at a rate based on the Secured Overnight Financing Rate (SOFR) or the Base Rate (as defined in the Term Loan Agreement), at the election of the borrowers, plus an applicable margin. With respect to any SOFR loan, the rate per annum was equal to the Term SOFR (as defined in the Term Loan Second Amendment) for the interest period plus an adjustment of 10 basis points due to the credit spread associated with the transition to SOFR.

As more fully described in Note 8 - Debt to our consolidated financial statements, on June 30, 2023, we repaid all outstanding obligations under the term loan, and terminated the Term Loan Agreement. As a result, debt issuance costs of $1.7 million were written off in the second quarter of 2023 and are included as loss on early extinguishment of debt in the consolidated statements of operations and comprehensive (loss) income. All subsidiary guarantees of the term loan were automatically released upon the termination of the Term Loan Agreement.

2019 Asset-Based Loan Agreement

Effective October 25, 2019, the prior senior credit facility entered into in August 2017 was replaced by a $120.0 million asset-based loan agreement (Loan Agreement), which provided for a five-year senior secured revolving credit facility. On June 30, 2020, we amended the Loan Agreement (First Amendment), which increased the current aggregate committed size of the ABL from $120.0 million to $130.0 million. All other terms, conditions, covenants, and pricing of the Loan Agreement remained the same. On March 8, 2021, we amended the Loan Agreement (Second Amendment), which increased the current aggregate committed size of the ABL from $130.0 million to $150.0 million, increased certain borrowing base sub-limits, and decreased both the cash dominion event and financial reporting triggers. On June 8, 2021, we amended the Loan Agreement (Third Amendment), which permitted the incurrence of indebtedness and grant of security as set forth in the Loan Agreement and in accordance with the Intercreditor Agreement, and provides mechanics relating to a transition away from LIBOR as a benchmark interest rate to a replacement alternative benchmark rate or mechanism for loans made in U.S. dollars. On

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November 18, 2021, we amended the Loan Agreement (Fourth Amendment), whereby the permitted indebtedness (as defined in the Loan Agreement) was increased to $175.0 million. On March 21, 2022, we amended the Loan Agreement (Fifth Amendment), which increased the current aggregate committed size of the ABL from $150.0 million to $300.0 million, extended the credit facility for an additional five years, increased certain borrowing base sub-limits, and provided the option for all or a portion of the borrowings to bear interest at a rate based on the Secured Overnight Financing Rate (SOFR) or Base Rate (as defined in the Loan Agreement), at the election of the borrowers, plus an applicable margin. On September 29, 2023, we amended the Loan Agreement (Sixth Amendment), which changed the minimum fixed charge coverage ratio from a maintenance covenant to a springing covenant based on excess availability. On July 29, 2024, we amended the Loan Agreement (Seventh Amendment), which allows for all share repurchases paid in cash prior to June 30, 2024 and thereafter to be excluded as restricted payments in the fixed charge coverage ratio calculation if there is no revolving ABL balance.

As of December 31, 2024, the interest rate spreads and fees under the ABL were based on SOFR plus 1.85% for the revolving portion of the borrowing base. The Base Rate margin would have been 0.75% for the revolving portion. The SOFR and Base Rate margins are subject to monthly adjustments, pursuant to a pricing matrix based on our 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. Borrowing base availability under the ABL was $146.9 million as of December 31, 2024, with no borrowings drawn and $132.0 million of availability net of $14.9 million of letters of credit. For the three months ended December 31, 2024, the excess availability did not fall below the stated threshold and, as a result, there was no covenant compliance period.

See Note 8 - Debt to our consolidated financial statements.

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 affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and judgments may also be impacted by the deterioration of demand for our services, deterioration of labor market conditions, reduction of our stock price for an extended period, or other factors as described in Item 1A. Risk Factors. 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, 2024. See Note 2 - Summary of Significant Accounting Policies 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, but come with certain risks and uncertainties, including but not limited to: projections of future income and cash flows, market demand, inflationary pressures, long-term growth rates, the identification of appropriate market multiples, royalty rates, and the choice of an appropriate discount rate. 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. Historically, for intangible assets purchased in a business combination, the estimated fair values of the assets received were used to establish their recorded values. Effective January 1, 2023, related revenue contracts with customers are accounted for as if we had originated the contracts. The acquired contract assets and contract liabilities are recognized and measured consistent with how they were recognized and measured in the acquiree's financial statements. 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. See Note 5 -

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Goodwill, Trade Names, and Other Intangible Assets, where impairment testing in 2024, 2023, and 2022 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.

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 corporate employees and healthcare professionals on assignment as well as actual company experience and increases in national healthcare costs. As of December 31, 2024 and 2023, we had $4.8 million and $6.6 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, 2024, and 2023, we had $12.8 million and $12.6 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, 2024, and 2023, we had $7.1 million and $3.1 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 is 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.

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. Accounts receivable includes estimated revenue for employees’ and independent contractors’ time worked but not yet invoiced. At December 31, 2024 and December 31, 2023, our estimate of amounts that had been worked but had not been billed totaled $60.4 million and $89.9 million, respectively, and are included in accounts receivable in the consolidated balance sheets.

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Other Services Revenue

We offer other 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, 2024. 2023, and 2022. Generally, billing and payment terms for MSP agency services are consistent with temporary staffing as the customers are similar or the same. Revenue from these services is 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:

•We have certain contracts with acute care facilities to provide comprehensive MSP solutions. Under these contract arrangements, we primarily use our nurses, along with 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 are the principal in the arrangements.

Allowances

We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments, which results in a provision for credit loss expense. We determine the adequacy of this allowance based on historical write-off experience, current conditions, an analysis of the aging of outstanding receivables and customer payment patterns, and specific reserves for customers in adverse conditions adjusted for current expectations for the customers or industry. Based on the information currently available, we also consider current expectations of future economic conditions when estimating our allowance for credit losses. 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 rate and hour differences which may arise in the ordinary course of business and adjustments to the reserve are recorded as contra-revenue. As of December 31, 2024 and 2023, our total allowances were $9.3 million and $20.5 million, respectively.

Contingent liabilities

We are subject to 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. Our healthcare facility customers 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 12 - Contingencies.

Income taxes

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, 2024, we have deferred tax assets related to certain federal, state, and foreign NOL carryforwards of $6.6 million. But for those NOL

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carryforwards with an indefinite carryover, the carryforwards will expire as follows: state between 2026 and 2041, and foreign between 2024 and 2028. As of December 31, 2023, we had deferred tax assets related to certain state and foreign NOL carryforwards of $1.1 million.

As of December 31, 2024 and 2023, we had an immaterial amount of valuation allowances on our deferred tax assets.

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. 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. For the years ended December 31, 2024 and 2023, the unrecognized tax benefit is included in uncertain tax positions - non-current in the consolidated balance sheets. As of December 31, 2024, total unrecognized tax benefits recorded was $10.1 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.

On December 14, 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to increase the disclosure requirements around rate reconciliation information and certain types of income taxes companies are required to pay. Companies will be required to provide a breakout of amounts paid for taxes between federal, state, and foreign taxing jurisdictions, rather than a lump sum amount, with additional detail required of those jurisdictions representing greater than five percent of the total by jurisdiction. Further, the rate reconciliation will require disaggregation into eight specific categories, with these categories further disaggregated by jurisdiction for amounts exceeding five percent of their domestic tax rate. The rate reconciliation also will need to disclose both dollar amounts and percentages. This guidance is effective for annual periods beginning after December 15, 2024 and is effective for interim periods beginning with the first quarter of 2026. Early adoption is permitted, including adoption in an interim period. We expect to adopt this standard for our fiscal year ended December 31, 2025.

Effective January 1, 2024, many jurisdictions implemented the Pillar Two rules issued by the Organization for Economic Co-operation and Development. In general, large multinational entity groups with consolidated revenue in excess of EUR 750 in at least two of the preceding four years could be subject to the new rules in jurisdictions with an effective tax rate below fifteen percent. We currently operate in only one country that adopted the Pillar Two rules, but should meet the safe harbor rules. We do not expect the adoption of the Pillar Two rules by any jurisdiction in which we currently operate to have a material impact on our financial statements.

Seasonality

See Item 1. Business.

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.

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 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 (MD&A) below generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 23, 2023 and such information is incorporated herein by reference.

Business Overview

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

Our workforce solutions include MSPs, VMS, in- home care services, education healthcare services, RPO, project management, and other outsourcing and consultative services as described in Item 1. Business in this Annual Report on Form 10-K. By utilizing the solutions that we offer, customers are able to better plan their personnel needs, optimize their talent acquisition and

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management processes, strategically flex and balance their workforce, have access to quality healthcare personnel, and provide continuity of care for improved patient outcomes. We have a history of investing in diversity, equality, and inclusion as a key component of the organization’s overall corporate social responsibility program, which we believe is closely aligned with our core values to create a better future for our people, communities, and our stockholders.

The Company's two reportable segments, Nurse and Allied Staffing and Physician Staffing, represented approximately 91% and 9%, respectively, of total revenue for the year ended December 31, 2023. See further discussion of these segments in Item 1. Business in this Annual Report on Form 10-K.

Summary of Operations

For the year ended December 31, 2023, revenue from services decreased 28% year-over-year to $2.0 billion, due primarily to travel and local volume and average bill rate declines in the Nurse and Allied Staffing segment, partially offset by double-digit year-over-year revenue growth in Cross Country Education (Education) within the Nurse and Allied Staffing segment, and in the Physician Staffing segment. In Education, the average number of FTEs on contract during the year increased 23%, and in the Physician Staffing segment the number of days filled increased across several specialties. Net income attributable to common stockholders for the year ended December 31, 2023 was $72.6 million, as compared to $188.5 million for the year ended December 31, 2022.

On June 30, 2023, we repaid all outstanding obligations of $73.9 million under the term loan and terminated the Term Loan Agreement.

For the year ended December 31, 2023, cash flow provided by operating activities was $248.5 million, with net repayments of $150.7 million on our term loan and senior secured asset-based credit facility (ABL), and a decrease in working capital stemming from a decrease in net receivables, partially offset by the timing of disbursements. As of December 31, 2023, we had $17.1 million in cash and cash equivalents with no borrowings drawn under the ABL. As of December 31, 2023, borrowing base availability under the ABL was $220.6 million with $13.8 million of undrawn letters of credit outstanding, leaving $206.8 million of excess availability. See Note 8 - Debt to our consolidated financial statements.

We continue to invest in our core technologies, and in 2023 launched our IRP and per diem modules on Intellify® and XperienceTM. These are part of our larger technology ecosystem that we believe will continue to drive productivity, thus driving revenue and profitability, and distinguishes us as a leader in healthcare staffing as it continues to open up new opportunities for us as a tech-enabled workforce solutions and advisory firm.

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

Operating Metrics

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

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Results of Operations

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

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Comparison of Results for the Year Ended December 31, 2023 compared to the Year Ended December 31, 2022

Revenue from services

Revenue from services decreased $0.8 billion, or 28.0%, to $2.0 billion for the year ended December 31, 2023, as compared to $2.8 billion for the year ended December 31, 2022, primarily driven by a decline in the number of professionals on assignment in the Nurse and Allied Staffing segment as clients continue to right-size their needs, and travel bill rates that continued to normalize throughout the year, partially offset by an increase in volume in most specialties and an improved mix of higher bill rate specialties in the Physician Staffing segment.See further discussion in Segment Results.

Direct operating expenses

Direct operating expenses consist primarily of field employee compensation and independent contractor expenses, housing expenses, travel expenses, and related insurance expenses. Direct operating expenses decreased $0.6 billion, or 28.0%, to $1.6 billion for the year ended December 31, 2023, as compared to $2.2 billion for the year ended December 31, 2022, as a result of revenue decreases. As a percentage of total revenue, direct operating expenses were 77.7% for the year ended December 31, 2023, consistent with the prior year period.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased $24.5 million, or 7.6%, to $300.4 million for the year ended December 31, 2023, as compared to $324.9 million for the year ended December 31, 2022, primarily due to decreases in compensation and benefit expense, as well as marketing and computer subscription fees, partially offset by increases in legal, insurance, and computer expenses. As a percentage of total revenue, selling, general and administrative expenses increased to 14.9% for the year ended December 31, 2023, as compared to 11.6% for the year ended December 31, 2022.

Bad Debt Expense

Bad debt expense for the year ended December 31, 2023 was $14.6 million as compared to $9.6 million for the year ended December 31, 2022. The increase in bad debt expense for 2023 was primarily driven by a deterioration in our accounts receivable aging stemming from a single MSP customer. Although we expect to recover the remaining balance, further reserves may be required in the event this customer does not continue making payments or experiences a material deterioration in their

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financial condition. As a percentage of revenue, bad debt expense was 0.7% for the year ended December 31, 2023, as compared to and 0.3% for the year ended December 31, 2022.

Depreciation and amortization expense

Depreciation and amortization expense for the year ended December 31, 2023 was $18.3 million as compared to $12.6 million for the year ended December 31, 2022. The increase is primarily due to the additional amortization of other intangible assets from the Mint and HireUp acquisitions, as well as depreciation related to computer hardware and software assets placed in service during the year. 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 0.9% for the year ended December 31, 2023 and 0.5% for the year ended December 31, 2022.

Restructuring costs

Restructuring costs for the years ended December 31, 2023 and 2022 were primarily comprised of employee termination costs and ongoing lease costs related to the Company's strategic reduction of its real estate footprint, and totaled $2.6 million and $1.9 million, respectively. Amounts for the year ended December 31, 2022 include a benefit associated with the early termination of the lease for one of the Company's corporate offices in the second quarter, which was previously restructured. See Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements.

Legal settlement charges

For the year ended December 31, 2023, the Company incurred legal settlement charges of $1.1 million related to the settlement of a wage and hour class action lawsuit and associated legal fees. There were no such charges for the year ended December 31, 2022.

Impairment charges

Non-cash impairment charges totaled $0.7 million for the year ended December 31, 2023 and related to the write-off of an IT project and real estate restructuring activities. Non-cash impairment charges totaled $5.6 million for the year ended December 31, 2022 and related to real estate restructuring activities and the write-off of an IT project. See Note 5 - Goodwill, Trade Names, and Other Intangible Assets and Note 9 - Leases to our consolidated financial statements.

Interest expense

Interest expense was $8.1 million for the year ended December 31, 2023 as compared to $14.4 million for the year ended December 31, 2022, due to lower average borrowings, partially offset by a higher effective interest rate. The effective interest rate on our borrowings was 10.4% and 9.1% for the years ended December 31, 2023 and 2022, respectively.

Loss on early extinguishment of debt

Loss on early extinguishment of debt for the year ended December 31, 2023 consisted of the write-off of debt issuance costs related to the repayment and termination of the term loan in the second quarter of 2023. Loss on early extinguishment of debt for the year ended December 31, 2022 consisted of a prepayment premium and the write-off of debt issuance costs related to the optional prepayments on the term loan made in the second and fourth quarters of 2022.

Other income, net

For the year ended December 31, 2022, other income, net included a $1.1 million gain on lease termination as a result of the early termination of one of our corporate offices.

Income tax expense

Income tax expense totaled $30.3 million for the year ended December 31, 2023, as compared to $67.9 million for the year ended December 31, 2022. The decrease in income tax expense was primarily related to a decrease in book income. The effective tax rates were 29.4% and 26.5%, including the impact of discrete items, for the years ended December 31, 2023 and 2022, respectively, and were impacted by federal, international, and state taxes. See Note 14 - Income Taxes to our consolidated financial statements.

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Segment Results

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

See Note 17 - Segment Data to our consolidated financial statements.

Certain statistical data for our business segments for the periods indicated are as follows:

See definition of Business Measurements under the Operating Metrics section of the MD&A.

Segment Comparison - Year Ended December 31, 2023 compared to the Year Ended December 31, 2022

Nurse and Allied Staffing

Revenue decreased $0.9 billion, or 31.8% to $1.8 billion for the year ended December 31, 2023, as compared to $2.7 billion for the year ended December 31, 2022, primarily driven by a decline in the number of professionals on assignment as clients continued to right-size their needs and travel bill rates continued to normalize throughout the year.

Contribution income for the year ended December 31, 2023, decreased $158.6 million or 44.6%, to $196.8 million as compared to $355.4 million for the year ended December 31, 2022, driven by decreased revenue. As a percentage of segment revenue,

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contribution income margin decreased to 10.7% for the year ended December 31, 2023 as compared to 13.2% for the year ended December 31, 2022.

The average number of FTEs on contract during the year ended December 31, 2023 decreased 16.6% from the year ended December 31, 2022, primarily due to headcount decline in travel nurse and local. Average revenue per FTE per day decreased approximately 18.2% due to the decrease in the average bill rates.

Physician Staffing

Revenue increased $72.1 million, or 67.8% to $178.3 million for the year ended December 31, 2023, as compared to $106.2 million for the year ended December 31, 2022, primarily related to the Mint acquisition as well as an increase in volume in most specialties and an improved mix of higher bill rate specialties.

Contribution income for the year ended December 31, 2023, increased $4.3 million or 77.7% to $9.8 million as compared to $5.5 million in the year ended December 31, 2022, driven by higher revenue primarily related to the Mint acquisition. As a percentage of segment revenue, contribution income was 5.5% for the year ended December 31, 2023 and 5.2% for the year ended December 31, 2022.

Total days filled increased 54.1% to 92,504 in the year ended December 31, 2023, as compared to 60,038 in the year ended December 31, 2022. Revenue per day filled was $1,927 for the year ended December 31, 2023 and $1,769 for the year ended December 31, 2022 due to the improved mix of business.

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. Corporate overhead increased to $71.0 million for the year ended December 31, 2023, from $67.1 million for the year ended December 31, 2022, primarily due to increases in consulting, legal expense, and computer expense. As a percentage of consolidated revenue, corporate overhead was 3.5% for the year ended December 31, 2023, and 2.4% for the year ended December 31, 2022.

Liquidity and Capital Resources

On June 30, 2023, we repaid all $73.9 million in outstanding obligations under the term loan and terminated the debt agreement. At December 31, 2023, we reported $17.1 million in cash and cash equivalents, with no borrowings drawn under the ABL. Working capital decreased by $137.4 million to $266.6 million as of December 31, 2023, as compared to $404.0 million as of December 31, 2022, primarily due to a decrease in net receivables, partially offset by the timing of disbursements. As of December 31, 2023, our days' sales outstanding, net of amounts owed to subcontractors, was 68 days, down 4 days year-over-year, and excluding the impact from one MSP client, would have been 63 days. As of December 31, 2023, we did not have any off-balance sheet arrangements.

Our operating cash flow constitutes our primary source of liquidity and, historically, has been sufficient to fund working capital, capital expenditures, internal business expansion, and debt service. This includes commitments, both short-term and long-term, of interest expense on our debt and operating lease commitments, and future principal payments on the ABL. 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.

In the third quarter of 2022, the Board of Directors authorized the New Repurchase Program, whereby we may repurchase up to $100.0 million shares of common stock. Upon completion of the authorized number of shares available for repurchase under the Prior Repurchase Program, we commenced repurchases under the New Repurchase Program during the third quarter of 2022. During the fourth quarter of 2022, we entered into a Rule 10b5-1 Repurchase Plan to allow for share repurchases during blackout periods, effective through November 2, 2023. In the second quarter of 2023, the Board of Directors authorized the replenishment of the amount available for stock repurchases under the New Repurchase Program back to $100 million, effective for trades made after May 3, 2023. In the third quarter of 2023, we entered into a new Rule 10b5-1 Repurchase Plan to allow for share repurchases during the Company's blackout periods, beginning on January 2, 2024. During the year ended December 31, 2023, we repurchased and retired a total of 2,343,583 shares of common stock for $57.6 million, at an average price of $24.58 per share. During the year ended December 31, 2022, under both programs, we repurchased and retired a total of 1,364,815 shares of common stock for $35.3 million, at an average price of $25.83 per share. As of December 31, 2023, we

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had $77.3 million remaining for share repurchase under the New Repurchase Program, subject to certain conditions in our Loan Agreement.

Cash Flow Comparisons

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Net cash provided by operating activities increased $114.4 million to $248.5 million for the year ended December 31, 2023 as compared to $134.1 million for the year ended December 31, 2022.

Net cash used in investing activities during the year ended December 31, 2023 was $13.8 million as compared to $43.9 million in the year ended December 31, 2022. Net cash used in the year ended December 31, 2023 was primarily for capital expenditures. Net cash used in the year ended December 31, 2022 included $35.1 million primarily related to the acquisitions of Mint and HireUp, as well as capital expenditures primarily related to multiple IT projects.

Net cash used in financing activities for the year ended December 31, 2023 was $221.2 million, as compared to $87.6 million during the year ended December 31, 2022. During the year ended December 31, 2023, we reported net repayments of $150.7 million on debt, and used cash to pay $4.9 million for income taxes on share-based compensation, $57.6 million for share repurchases, $7.5 million for contingent consideration, and an immaterial amount for other financing activities. During the year ended December 31, 2022, we reported $67.6 million of net borrowings on our ABL and used cash to repay borrowings of $100.4 million on our term loan, $2.4 million on our note payable, $5.3 million for income taxes on share-based compensation, $3.2 million in debt issuance costs, $35.3 million for share repurchases, $7.5 million for contingent consideration, and $1.1 million for other financing activities.

Debt

2021 Term Loan Agreement

On June 8, 2021, we entered into a Term Loan Agreement, which provided for a six-year second lien subordinated term loan in the amount of $100.0 million (term loan). On November 18, 2021, we amended the Term Loan Agreement (Term Loan First Amendment), which provided the Company an incremental term loan in an aggregate amount equal to $75.0 million. On April 14, 2023, we amended the Term Loan Agreement (Term Loan Second Amendment), which provided the option for all or a portion of the borrowings to bear interest at a rate based on the Secured Overnight Financing Rate (SOFR) or the Base Rate, at the election of the borrowers, plus an applicable margin. With respect to any SOFR loan, the rate per annum was equal to the Term SOFR (as defined in the Term Loan Second Amendment) for the interest period plus an adjustment of 10 basis points due to the credit spread associated with the transition to SOFR.

As more fully described in Note 8 - Debt to our consolidated financial statements, on June 30, 2023, we repaid all outstanding obligations under the term loan and terminated the Term Loan Agreement. As a result, debt issuance costs of $1.7 million were written off in the second quarter of 2023 and are included as loss on early extinguishment of debt in the consolidated statements of operations and comprehensive income. All subsidiary guarantees of the term loan were automatically released upon the termination of the Term Loan Agreement.

2019 Asset-Based Loan Agreement

Effective October 25, 2019, the prior senior credit facility entered into in August 2017 was replaced by a $120.0 million asset-based loan agreement (Loan Agreement), which provides for a five-year senior secured revolving credit facility. On June 30, 2020, we amended the Loan Agreement (First Amendment), which increased the current aggregate committed size of the ABL from $120.0 million to $130.0 million. All other terms, conditions, covenants, and pricing of the Loan Agreement remained the same. On March 8, 2021, we amended the Loan Agreement (Second Amendment), which increased the current aggregate committed size of the ABL from $130.0 million to $150.0 million, increased certain borrowing base sub-limits, and decreased both the cash dominion event and financial reporting triggers. On June 8, 2021, we amended the Loan Agreement (Third Amendment), which permits the incurrence of indebtedness and grant of security as set forth in the Loan Agreement and in accordance with the Intercreditor Agreement, and provides mechanics relating to a transition away from LIBOR as a benchmark interest rate to a replacement alternative benchmark rate or mechanism for loans made in U.S. dollars. On November 18, 2021, we amended the Loan Agreement (Fourth Amendment), whereby the permitted indebtedness (as defined in the Loan Agreement) was increased to $175.0 million. On March 21, 2022, we amended the Loan Agreement (Fifth Amendment), which increased the current aggregate committed size of the ABL from $150.0 million to $300.0 million,

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extended the credit facility for an additional five years, increased certain borrowing base sub-limits, and provided the option for all or a portion of the borrowings to bear interest at a rate based on the Secured Overnight Financing Rate (SOFR) or Base Rate, at the election of the borrowers, plus an applicable margin. On September 29, 2023, we amended the Loan Agreement (Sixth Amendment), which changed the minimum fixed charge coverage ratio from a maintenance covenant to a springing covenant based on excess availability.

As of December 31, 2023, the interest rate spreads and fees under the Loan Agreement were based on SOFR plus 1.60% for the revolving portion of the borrowing base. The Base Rate (as defined by the Loan Agreement) margin would have been 0.50% for the revolving portion. The SOFR and Base Rate margins are subject to monthly pricing adjustments, pursuant to a pricing matrix based on our 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. Borrowing base availability under the ABL was $220.6 million at December 31, 2023, with no borrowings drawn and $13.8 million of letters of credit outstanding, leaving $206.8 million of excess availability.

Note Payable

The first two installments of $2.4 million each related to the subordinated promissory note payable, made in connection with the Mediscan acquisition, were paid in the second quarter of 2020 and in the first quarter of 2021, respectively. The third and final installment of $2.6 million, including interest of 2% per annum, accruing from April 1, 2020, was paid in the first quarter of 2022. See Note 4 - Acquisitions.

See Note 8 - Debt to our consolidated financial statements.

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 affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and judgments may also be impacted by the deterioration of demand for our services, deterioration of labor market conditions, reduction of our stock price for an extended period, or other factors as described in Item 1A. Risk Factors. 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, 2023. See Note 2 - Summary of Significant Accounting Policies 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, but come with certain risks and uncertainties, including but not limited to: projections of future income and cash flows, market demand, inflationary pressures, long-term growth rates, the identification of appropriate market multiples, royalty rates, and the choice of an appropriate discount rates. 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. Historically, for intangible assets purchased in a business combination, the estimated fair values of the assets received were used to establish their recorded values. Effective January 1, 2023, related revenue contracts with customers are accounted for as if we had originated the contracts. The acquired contract assets and contract liabilities are recognized and measured consistent with how they were recognized and measured in the acquiree's financial statements. 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

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these estimates and assumptions could materially affect the determination of fair value for each reporting unit. See Note 5 - Goodwill, Trade Names, and Other Intangible Assets, where impairment testing in 2023, 2022, and 2021 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.

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 corporate employees and healthcare professionals on assignment as well as actual company experience and increases in national healthcare costs. As of December 31, 2023 and 2022, we had $6.6 million and $6.2 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, 2023, and 2022, we had $12.6 million and $14.9 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, 2023, and 2022, we had $3.1 million and $4.2 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 is 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.

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. Accounts receivable includes estimated revenue for employees’ and independent contractors’ time worked but not yet invoiced. At December 31, 2023 and December 31, 2022, our estimate of amounts that had been worked but had not been billed totaled $89.9 million and $152.4 million, respectively, and are included in accounts receivable in the consolidated balance sheets.

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Other Services Revenue

We offer other 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, 2023. 2022, and 2021. Generally, billing and payment terms for MSP agency services are consistent with temporary staffing as the customers are similar or the same. Revenue from these services is 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:

•We have certain contracts with acute care facilities to provide comprehensive MSP solutions. Under these contract arrangements, we primarily use our nurses, along with 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 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 based on historical write-off experience, current conditions, an analysis of the aging of outstanding receivables and customer payment patterns, and specific reserves for customers in adverse conditions adjusted for current expectations for the customers or industry. Based on the information currently available, we also consider current expectations of future economic conditions when estimating our allowance for doubtful accounts. 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 rate and hour differences which may arise in the ordinary course of business and adjustments to the reserve are recorded as contra-revenue. As of December 31, 2023 and 2022, our total allowances were $20.5 million and $14.7 million, respectively.

Contingent liabilities

We are subject to 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. Our healthcare facility customers 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 12 - Contingencies.

Income taxes

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, 2023, we have

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deferred tax assets related to certain state and foreign NOL carryforwards of $1.1 million. But for those NOL carryforwards with an indefinite carryover, the carryforwards will expire as follows: state between 2024 and 2041, and foreign between 2024 and 2028. As of December 31, 2022, we had deferred tax assets related to certain state and foreign NOL carryforwards of $1.4 million.

As of December 31, 2023 and 2022, we had an immaterial amount of valuation allowances on our deferred tax assets.

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. 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. For the years ended December 31, 2023 and 2022, the unrecognized tax benefit is included in uncertain tax positions - non-current in the consolidated balance sheets. As of December 31, 2023, total unrecognized tax benefits recorded was $10.6 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.

On December 14, 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to increase the disclosure requirements around rate reconciliation information and certain types of income taxes companies are required to pay. Companies will be required to provide a breakout of amounts paid for taxes between federal, state, and foreign taxing jurisdictions, rather than a lump sum amount, with additional detail required of those jurisdictions representing greater than five percent of the total by jurisdiction. Further, the rate reconciliation will require disaggregation into eight specific categories, with these categories further disaggregated by jurisdiction for amounts exceeding five percent of their domestic tax rate. The rate reconciliation also will need to disclose both dollar amounts and percentages. This guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. We expect to adopt this standard for our fiscal year ended December 31, 2025.

Effective January 1, 2024, many jurisdictions implemented the Pillar Two rules issued by the Organization for Economic Co-operation and Development. In general, large multinational entity groups with consolidated revenue in excess of EUR 750 in at least two of the preceding four years could be subject to the new rules in jurisdictions with an effective tax rate below fifteen percent. We currently do not operate in any jurisdictions that have implemented the Pillar Two rules, but jurisdictions may adopt retroactive to January 1, 2024. We do not expect the adoption of the Pillar Two rules by any jurisdiction in which we currently operate to have a material impact on our financial statements.

Seasonality

See Item 1. Business.

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.

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 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 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on February 28, 2022 and such information is incorporated herein by reference.

Business Overview

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

Our workforce solutions include MSPs, RPO, project management, and other outsourcing and consultative services as described in Item 1. Business in this Annual Report on Form 10-K. By utilizing the solutions we offer, customers are able to better plan their personnel needs, optimize their talent acquisition and management processes, strategically flex and balance their workforce, have access to quality healthcare personnel, and provide continuity of care for improved patient outcomes. We have a history of investing in diversity, equality, and inclusion as a key component of the organization’s overall corporate social

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responsibility program, which we believe is closely aligned with our core values to create a better future for our people, communities, and our stockholders.

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

●    Nurse and Allied Staffing – For the year ended December 31, 2022, Nurse and Allied Staffing represented approximately 96% of 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 provide clinical and non-clinical professionals on short-term and long-term assignments to customers such as local and national healthcare plans, managed care providers, public and charter schools, correctional facilities, skilled nursing facilities, and other non-acute settings. In addition, Nurse and Allied Staffing provides retained search services for healthcare professionals, as well as contingent search and recruitment process outsourcing services. We provide flexible workforce solutions to our healthcare customers through diversified offerings designed to meet their unique needs, including: MSP, RPO, and consulting services.

●    Physician Staffing – For the year ended December 31, 2022, Physician Staffing represented approximately 4% of 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.

Summary of Operations

For the year ended December 31, 2022, revenue from services increased 67% year-over-year to $2.8 billion, due to strong performance in both our Nurse and Allied Staffing and Physician Staffing segments, primarily driven by an increase in volume growth and the number of professionals on assignment as a result of our investment in people and technology. Net income attributable to common stockholders for the year ended December 31, 2022 was $188.5 million, as compared to $132.0 million for the year ended December 31, 2021.

In addition to our scheduled payments, on June 23, 2022 and October 26, 2022, we made optional prepayments on our term loan of $50.0 million, totaling $100.0 million, to reduce interest costs, and incurred prepayment premiums of $1.0 million pursuant to the Term Loan Agreement.

On October 3, 2022, we entered into an asset purchase agreement with Mint Medical Physician Staffing, LP and Lotus Medical Staffing LLC, which expanded our locum tenens portfolio. On December 13, 2022, we entered into an asset purchase agreement with HireUp Leadership, Inc., which strengthened our position in the talent management landscape.

For the year ended December 31, 2022, cash flow provided by operating activities was $134.1 million, with net borrowings of $67.6 million on our senior secured asset-based credit facility (ABL), and an increase in working capital stemming from an increase in accounts receivable partly offset by the timing of disbursements. As of December 31, 2022, we had $3.6 million in cash and cash equivalents and a principal balance of $73.9 million outstanding on our term loan. Borrowing base availability under the ABL was $300.0 million, with $76.8 million of borrowings drawn under our ABL, and $18.2 million of undrawn letters of credit outstanding, leaving $205.0 million of excess availability. 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 contract personnel on a full-time equivalent (FTE) basis, revenue per FTE, and revenue per day filled. Other operating metrics include number of open orders, candidate applications, contract bookings, length of assignment, bill and pay rates, and renewal and fill rates, number of active searches, and number of placements. These operating metrics are representative of trends that assist management in evaluating business performance. Due to the timing of our business process and other factors, certain of these operating metrics may not necessarily correlate to the reported U.S. GAAP results for the periods presented. Some of the segment financial results analyzed include revenue, operating expenses, and contribution income. In addition, we monitor cash flow, as well as operating and leverage ratios, to help us assess our liquidity needs.

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Results of Operations

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

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Comparison of Results for the Year Ended December 31, 2022 compared to the Year Ended December 31, 2021

NM - Not meaningful

Revenue from services

Revenue from services increased $1.1 billion, or 67.4%, to $2.8 billion for the year ended December 31, 2022, as compared to $1.7 billion for the year ended December 31, 2021, due to strong performance in both our Nurse and Allied Staffing and Physician Staffing segments, primarily driven by an increase in the number of professionals on assignment, as well as higher bill rates in Nurse and Allied. 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 $877.3 million, or 67.4%, to $2.2 billion for the year ended December 31, 2022, as compared to $1.3 billion for the year ended December 31, 2021, as a result of revenue increases. As a percentage of total revenue, direct operating expenses were 77.6% for the years ended December 31, 2022 and 2021.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $108.9 million, or 50.6%, to $324.2 million for the year ended December 31, 2022, as compared to $215.3 million for the year ended December 31, 2021, primarily due to increases in compensation and benefits, marketing and consulting expense, and computer subscription fees. As a percentage of total revenue, selling, general and administrative expenses decreased to 11.6% for the year ended December 31, 2022 as compared to 12.8% for the year ended December 31, 2021.

Bad Debt Expense

Bad debt expense for the year ended December 31, 2022 was $9.6 million as compared to $4.8 million for the year ended December 31, 2021. The increase is due primarily to higher receivables at year end with a 14 day increase in DSO year over year. As a percentage of revenue, bad debt expense was 0.3% for the years ended December 31, 2022 and 2021.

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Depreciation and amortization expense

Depreciation and amortization expense for the year ended December 31, 2022 was $12.6 million as compared to $9.9 million for the year ended December 31, 2021. The increase is primarily due to the additional amortization of other intangible assets from the WSG and Selected acquisitions. 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 0.5% for the year ended December 31, 2022 and 0.6% for the year ended December 31, 2021.

Acquisition and integration-related costs

Acquisition and integration-related costs for the year ended December 31, 2022 included costs for legal and advisory fees for the Mint and Lotus acquisition that closed in October 2022 and the HireUp acquisition that closed in December 2022. Acquisition and integration-related costs for the year ended December 31, 2021 included costs for legal and advisory fees, as well as integration costs, for the WSG acquisition that closed late in the second quarter of 2021, and legal and professional fees for the Selected acquisition that closed late in the fourth quarter of 2021.

Restructuring costs

Restructuring costs for the years ended December 31, 2022 and 2021 were primarily comprised of employee termination costs and ongoing lease costs related to the Company's strategic reduction of its real estate footprint and totaled $1.9 million and $2.6 million, respectively. Amounts for the year ended December 31, 2022 include a benefit associated with the early termination of the lease for one of the Company's corporate offices in the second quarter, which was previously restructured.

Impairment charges

Non-cash impairment charges totaled $5.6 million for the year ended December 31, 2022 and related to real estate restructuring activities and the write-off of a discontinued IT project. Non-cash impairment charges totaled $2.1 million for the year ended December 31, 2021 and related to real estate restructuring activities and the write-off of a discontinued software development project. See Note 5 - Goodwill, Trade Names, and Other Intangible Assets and Note 9 - Leases to our consolidated financial statements.

Interest expense

Interest expense was $14.4 million for the year ended December 31, 2022 compared to $6.9 million for the year ended December 31, 2021, due to higher average borrowings and a higher effective interest rate. The effective interest rate on our borrowings was 9.1% and 5.7% for the years ended December 31, 2022 and 2021, respectively.

Loss on early extinguishment of debt

Loss on early extinguishment of debt for the year ended December 31, 2022 consisted of a prepayment premium and the write-off of debt issuance costs related to the optional prepayments on our term loan made in the second and fourth quarters of 2022. There were no such expenses for the year ended December 31, 2021.

Other income, net

For the year ended December 31, 2022, other income, net included a $1.1 million gain on lease termination as a result of the early termination of one of our corporate offices.

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Income tax expense

Income tax expense totaled $67.9 million for the year ended December 31, 2022, compared to $1.2 million for the year ended December 31, 2021. The effective tax rate was 26.5% and 1.0%, including the impact of discrete items, for the years ended December 31, 2022 and 2021, respectively. The effective tax rate in 2022 was impacted by federal, international, and state taxes. The effective tax rate in 2021 was impacted by the release of valuation allowance on deferred tax assets and federal, international, and state taxes.

For the year ended December 31, 2021, we recorded a net valuation allowance release of $37.5 million (comprised of $18.4 million related to federal NOLs, $7.5 million related to state NOLs, and $11.6 million related to other net deferred tax assets) on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized. The valuation allowance on an immaterial amount of state NOLs was not released due to the respective expiration periods and specific state taxable income projections. See Note 13 - Income Taxes to our consolidated financial statements.

Segment Results

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

In the first quarter of 2021, the Company modified its reportable segments and, as a result, now discloses the following two reportable segments - Nurse and Allied Staffing and Physician Staffing. See Note 17 - Segment Data.

Certain statistical data for our business segments for the periods indicated are as follows:

See definition of Business Measurements under the Operating Metrics section of our Management's Discussion and Analysis.

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Segment Comparison - Year Ended December 31, 2022 compared to the Year Ended December 31, 2021

Nurse and Allied Staffing

Revenue increased $1.1 billion, or 68.2% to $2.7 billion for the year ended December 31, 2022, from $1.6 billion for the year ended December 31, 2021, through strong performance driven by volume increases and higher bill rates.

Contribution income for the year ended December 31, 2022, increased $149.7 million or 72.8%, to $355.4 million from $205.7 million for the year ended December 31, 2021, driven by increased revenue. As a percentage of segment revenue, contribution income margin increased to 13.2% for the year ended December 31, 2022 from 12.8% for the year ended December 31, 2021.

The average number of FTEs on contract during the year ended December 31, 2022 increased 49.6% from the year ended December 31, 2021, primarily due to headcount growth in travel nurse and allied, as well as additional headcount resulting from the WSG acquisition. Average revenue per FTE per day increased approximately 12.3% in the year ended December 31, 2022 compared to the year ended December 31, 2021, due to the increase in the average travel bill rates.

Physician Staffing

Revenue increased $35.3 million, or 49.9% to $106.2 million for the year ended December 31, 2022, compared to $70.9 million for the year ended December 31, 2021, primarily due to an increase in volume in several specialties.

Contribution income for the year ended December 31, 2022, increased $1.2 million or 27.3% to $5.5 million compared to $4.3 million in the year ended December 31, 2021. As a percentage of segment revenue, contribution income was 5.2% for the year ended December 31, 2022 and 6.1% for the year ended December 31, 2021, driven by higher revenue, partially offset by higher direct costs.

Total days filled increased 35.9% to 60,038 in the year ended December 31, 2022, compared to 44,169 in the year ended December 31, 2021. Revenue per day filled was $1,769 for the year ended December 31, 2022 and $1,605 for the year ended December 31, 2021.

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. Corporate overhead increased to $67.1 million for the year ended December 31, 2022, from $55.1 million for the year ended December 31, 2021, primarily due to increases in compensation and benefit expense, legal expense, and computer expense. As a percentage of consolidated revenue, corporate overhead was 2.4% for the year ended December 31, 2022, and 3.3% for the year ended December 31, 2021.

Liquidity and Capital Resources

At December 31, 2022, we reported $3.6 million in cash and cash equivalents, $73.9 million of term loan outstanding, at par, and $76.8 million of borrowings drawn under our ABL. Working capital increased by $95.5 million to $404.0 million as of December 31, 2022, compared to $308.5 million as of December 31, 2021, primarily due to an increase in accounts receivable, partially offset by the timing of disbursements. As of December 31, 2022, our days' sales outstanding, net of amounts owed to subcontractors, was 72 days, up 14 days year-over-year, primarily due to the timing of collections throughout the year. As of December 31, 2022, we do not have any off-balance sheet arrangements.

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. This includes our commitments, both short-term and long-term, of interest expense on our debt and operating lease commitments, and future principal payments on our term loan and our ABL credit facility. 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.

In the third quarter of 2022, our Board of Directors authorized the New Repurchase Program, whereby we may repurchase up to $100.0 million of our shares of common stock. Upon completion of the authorized number of shares available for repurchase under the Prior Repurchase Program, we commenced repurchases under the New Repurchase Program during the third quarter of 2022. During the third and fourth quarters, we repurchased, under both the Prior Repurchase Program and the New

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Repurchase Program, a total of 1,364,815 shares of common stock for $35.3 million, at an average market price of $25.83 per share. As of December 31, 2022, we had $76.2 million remaining for share repurchase under the New Repurchase Program, subject to certain conditions in our Loan Agreement and Term Loan Agreement. During the fourth quarter of 2022, we entered into a Rule 10b5-1 Repurchase Plan to allow for share repurchases during our blackout periods.

Cash Flow Comparisons

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Net cash provided by operating activities during the year ended December 31, 2022 was $134.1 million compared to net cash used in operating activities of $85.6 million during the year ended December 31, 2021. The year over year improvement in cash flow from operations was primarily due to the investments in net working capital with higher accounts receivables stemming from the rapid growth in the business in late 2021 into early 2022.

Net cash used in investing activities during the year ended December 31, 2022 was $43.9 million compared to $34.0 million in the year ended December 31, 2021. Net cash used in the year ended December 31, 2022 included $35.1 million primarily related to the acquisitions of Mint and HireUp, as well as capital expenditures, primarily related to multiple IT projects. Net cash used for the year ended December 31, 2021 included $26.9 million related to the acquisitions of WSG and Selected, as well as capital expenditures and the build-out of our corporate office.

Net cash used in financing activities for the year ended December 31, 2022 was $87.6 million, compared to net cash provided by financing activities of $119.1 million during the year ended December 31, 2021. During the year ended December 31, 2022, we reported $67.6 million of net borrowings on our ABL and used cash to repay borrowings of $100.4 million on our term loan, $2.4 million on our note payable, $5.3 million for income taxes on share-based compensation, $3.2 million in debt issuance costs, $35.3 million for share repurchases, $7.5 million for contingent consideration, and $1.1 million for other financing activities. During the year ended December 31, 2021, we reported net borrowings of $175.0 million on our term loan, and used cash to repay borrowing on our ABL of $44.2 million, $0.7 million principal payment on our term loan, $2.4 million on our note payable, $6.1 million of debt issuance costs, $2.2 million for income taxes on share-based compensation, and an immaterial amount for other financing activities.

Debt

2021 Term Loan Agreement

As more fully described in Note 8 - Debt to our consolidated financial statements, on June 8, 2021, we entered into a Term Loan Agreement, which provides for a six-year second lien subordinated term loan in the amount of $100.0 million (term loan). The term loan has an interest rate of one-month LIBOR plus 5.75% per annum, subject to a 0.75% LIBOR floor. The term loan was used to pay the cash consideration, as well as any costs, fees, and expenses in connection with the WSG acquisition (see Note 4 - Acquisitions to our consolidated financial statements), with the remainder used to pay down a portion of the asset-based credit facility.

The borrowings under the Term Loan Agreement generally bear interest at a variable rate based on either LIBOR or Base Rate (as defined in the Term Loan Agreement) and are subject to mandatory prepayments of principal payable in quarterly installments, commencing on September 30, 2021, with each installment being in the aggregate principal amount of $0.3 million (subject to adjustment as a result of prepayments) provided that, to the extent not previously paid, the aggregate unpaid principal balance would be due and payable on the maturity date. The Term Loan Agreement contains various restrictions and covenants applicable to the Company and its subsidiaries, including a covenant to maintain a minimum net leverage ratio. The Company was in compliance with this covenant as of December 31, 2022. Obligations under the Term Loan Agreement are secured by substantially all the assets of the borrowers and guarantors under the Term Loan Agreement, subject to customary exceptions.

On November 18, 2021, we amended the Term Loan Agreement (Term Loan First Amendment), which provided the Company an incremental term loan in an aggregate amount equal to $75.0 million. Additionally, the Term Loan First Amendment increased the aggregate amount of all increases (as defined in the Term Loan Agreement) to be no greater than $115.0 million. The borrowings will be used primarily to fund organic growth. Commencing on December 31, 2021, installments of the mandatory prepayments will be in the aggregate principal amount of $0.4 million. All other terms, conditions, covenants, and pricing of the Term Loan Agreement remain the same.

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In addition to our scheduled payments, on June 23, 2022 and October 26, 2022, we made optional prepayments of $50.0 million, totaling $100.0 million, to reduce interest costs, and incurred prepayment premiums of $1.0 million pursuant to the Term Loan Agreement. As a result of the early prepayments, debt issuance costs of $1.4 million and $1.3 million were written off in the second and fourth quarters of 2022, respectively. The prepayment premiums and the write-off of debt issuance costs are included as loss on early extinguishment of debt in the consolidated statements of operations and comprehensive income (loss).

In the first quarter of 2023, we expect to amend our Term Loan Agreement to convert the LIBOR rates to SOFR rates.

2019 Loan Agreement

Effective October 25, 2019, our prior senior credit facility entered into in August 2017 was replaced by a $120.0 million Loan Agreement, which provides for a five-year senior secured revolving credit facility. On June 30, 2020, we amended the Loan Agreement (First Amendment), which increased the current aggregate committed size of the ABL from $120.0 million to $130.0 million. All other terms, conditions, covenants, and pricing of the Loan Agreement remained the same. On March 8, 2021, we amended the Loan Agreement (Second Amendment), which increased the current aggregate committed size of the ABL from $130.0 million to $150.0 million, increased certain borrowing base sub-limits, and decreased both the cash dominion event and financial reporting triggers. On June 8, 2021, we amended the Loan Agreement (Third Amendment), which permits the incurrence of indebtedness and grant of security as set forth in the Loan Agreement and in accordance with the Intercreditor Agreement, and provides mechanics relating to a transition away from LIBOR as a benchmark interest rate to a replacement alternative benchmark rate or mechanism for loans made in U.S. dollars. On November 18, 2021, we amended the Loan Agreement (Fourth Amendment), whereby the permitted indebtedness (as defined in the Loan Agreement) was increased to $175.0 million. On March 21, 2022, we amended the Loan Agreement (Fifth Amendment), which increased the current aggregate committed size of the ABL from $150.0 million to $300.0 million, extended the credit facility for an additional five years, increased certain borrowing base sub-limits, and provided the option for all or a portion of the borrowings to bear interest at a rate based on the Secured Overnight Financing Rate (SOFR) or Base Rate, at the election of the borrowers, plus an applicable margin.

As of December 31, 2022, the interest rate spreads and fees under the Loan Agreement were based on SOFR plus 1.85% for the revolving portion of the borrowing base. The Base Rate (as defined by the Loan Agreement) margin would have been 0.75% for the revolving portion. The SOFR and Base Rate margins are subject to monthly pricing adjustments, pursuant to a pricing matrix based on our 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 Loan Agreement contains various restrictions and covenants, including a covenant to maintain a minimum fixed charge coverage ratio. We were in compliance with the fixed charge coverage ratio covenant as of December 31, 2022. Borrowing base availability under the ABL was $300.0 million at December 31, 2022, with $76.8 million of borrowings drawn as well as $18.2 million of letters of credit outstanding, leaving $205.0 million of excess availability.

Note Payable

The first two installments of $2.4 million each related to the subordinated promissory note payable, made in connection with the New Mediscan II, LLC, Mediscan Diagnostic Services, LLC, and Mediscan Nursing Staffing, LLC (collectively Mediscan) acquisition, were paid in the second quarter of 2020 and in the first quarter of 2021, respectively. The third and final installment of $2.6 million, including interest of 2% per annum, accruing from April 1, 2020, was paid in the first quarter of 2022. See Note 4 - Acquisitions.

See Note 8 - Debt to our consolidated financial statements.

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 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, 2022, contained herein. These estimates are based on information that is currently available to us and on various assumptions that we

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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. See Note 5 - Goodwill, Trade Names, and Other Intangible Assets, where impairment testing in 2022, 2021, and 2020 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.

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, long-term growth rates, the identification of appropriate market multiples, royalty rates, and the choice of an appropriate discount rate. See Note 5 - Goodwill, Trade Names, and Other Intangible Assets. In addition, deterioration of demand for our services, deterioration of labor market conditions, reduction of our stock price for an extended period, or other factors as described in Item 1A. 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 agreements, an impairment charge will not have an impact on our liquidity. As of December 31, 2022, we had total goodwill and other intangible assets of $208.0 million or 21.9% 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

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have fluctuated with increases or decreases in the average number of corporate employees and healthcare professionals on assignment as well as actual company experience and increases in national healthcare costs. As of December 31, 2022 and 2021, we had $6.2 million and $4.1 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, 2022, and 2021, we had $14.9 million and $12.5 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 quarterly. As of December 31, 2022, and 2021, we had $4.2 million and $4.9 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 quarterly.

Revenue recognition

We recognize revenue from our services when control of the promised services is 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.

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. Accounts receivable includes estimated revenue for employees’ and independent contractors’ time worked but not yet invoiced. At December 31, 2022 and December 31, 2021, our estimate of amounts that had been worked but had not been billed totaled $152.4 million and $140.0 million, respectively, and are included in accounts receivable in the consolidated balance sheets.

Other Services Revenue

We offer other 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, 2022, 2021, and 2020. Generally, billing and payment terms for MSP agency services are consistent with temporary staffing as the customers are similar or the same. Revenue from these services is 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:

•We have certain contracts with acute care facilities to provide comprehensive MSP solutions. Under these contract arrangements, we primarily use our nurses, along with 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 are the principal in the arrangements.

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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 based on historical write-off experience, current conditions, an analysis of the aging of outstanding receivable and customer payment patterns, and specific reserves for customers in adverse conditions adjusted for current expectations for the customers or industry. Based on the information currently available, we also considered current expectations of future economic conditions, including the impact of the ongoing COVID pandemic, when estimating our allowance for doubtful accounts. 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 rate and hour differences which may arise in the ordinary course of business and adjustments to the reserve are recorded as contra-revenue. As of December 31, 2022 and 2021, our total allowances were $14.7 million and $6.9 million, respectively.

Contingent liabilities

We are subject to 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. Our healthcare facility customers 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 12 - Contingencies.

Income taxes

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. During 2021, the Company fully utilized its federal NOL carryforward and a significant amount of state NOLs. As of December 31, 2022, we have deferred tax assets related to certain state and foreign NOL carryforwards of $1.4 million. But for those NOL carryforwards with an indefinite carryover, the carryforwards will expire as follows: state between 2023 and 2040, and foreign between 2023 and 2027. As of December 31, 2021, we had deferred tax assets related to certain state and foreign NOL carryforwards of $4.5 million.

As of December 31, 2022 and 2021, we had an immaterial amount of valuation allowances on our deferred tax assets. For the year ended December 31, 2021, we recorded a valuation allowance release of $37.5 million (comprised of $18.4 million related to federal NOLs, $7.5 million related to state NOLs, and $11.6 million related to other net deferred tax assets) on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized. For the year ended December 31, 2021, the valuation allowance on an immaterial amount of state NOLs was not released due to the respective expiration periods and specific state taxable income projections. See Note 13 - Income Taxes to our consolidated financial statements.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of December 31, 2021, in part because for the 12 quarters ended December 31, 2021, the Company had $110.3 million in cumulative pretax income including permanent items. The Company also has a history of utilizing NOLs prior to expiration, most notably the full utilization of the federal net operating loss carryforward in 2021. The Company forecasts positive pretax book income which is expected to exceed the reversal of its future tax deductions, further proving future estimates of taxable income. Management determined that there was sufficient positive evidence to conclude that it is more likely than not that our net deferred tax assets are realizable. Growth estimates are tied to the increasing demand for healthcare solutions for our customers, including an aging U.S. population, and our customers’ need to keep costs down by using our staffing solutions. We therefore reduced the valuation allowance accordingly.

With regard to negative evidence, the Company did not have any material taxable temporary differences to offset deductible temporary differences and did not have any taxable income available for carryback to offset NOLs. As such, the primary focus

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of our analysis emphasized the current and prior two-year cumulative pretax income analysis, the full utilization of the federal net operating loss carryforward, and projections of future taxable income.

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. 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. For the years ended December 31, 2022 and 2021, the unrecognized tax benefit is included in uncertain tax positions - non-current in the consolidated balance sheets. However, for the year ended December 31, 2021, $0.4 million of the unrecognized tax benefit is classified as an offset to certain state NOLs within the deferred tax asset. As of December 31, 2022, total unrecognized tax benefits recorded was $7.6 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.

Seasonality

See Item 1. Business.

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.

Recent Accounting Pronouncements

See Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements.

Stockholders' Equity

See Note 14 - Stockholders' Equity to our consolidated financial statements.

Transactions with Related Parties

See Note 16 - Related Party Transactions to our consolidated financial statements.

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 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 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the

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Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on February 25, 2021 and such information is incorporated herein by reference.

Business Overview

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

In the first quarter of 2021, we modified our reportable segments to reflect the following two business segments: Nurse and Allied Staffing and Physician Staffing. Based on our revised management structure that better aligns with our operations, we aggregated the previously-reported Search segment in Nurse and Allied Staffing to reflect how the business is evaluated, and the operating results are regularly reviewed by the chief operating decision maker. Prior period data in this MD&A has been reclassified to conform to the new segment reporting structure.

●    Nurse and Allied Staffing – For the year ended December 31, 2021, Nurse and Allied Staffing represented approximately 96% of 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 provide clinical and non-clinical professionals on short-term and long-term assignments to clients such as local and national healthcare plans, managed care providers, public and charter schools, correctional facilities, skilled nursing facilities, and other non-acute settings. In addition, Nurse and Allied Staffing provides retained search services for healthcare professionals, as well as contingent search and recruitment process outsourcing services. We provide flexible workforce solutions to our healthcare customers through diversified offerings designed to meet their unique needs, including: MSP, RPO, and consulting services.

●    Physician Staffing – For the year ended December 31, 2021, Physician Staffing represented approximately 4% of 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.

Summary of Operations

For the year ended December 31, 2021, revenue from services increased 100% year-over-year to $1,676.7 million, due to continued solid execution and strong performance in our Nurse and Allied Staffing segment, and growth in our Physician Staffing segment. Given the incredibly tight labor market and extreme risk faced by healthcare professionals throughout the pandemic, direct operating expenses rose by 105% over the prior year. Average bill rates rose during the year as we continued to experience significant demand for our services across virtually every specialty, related to both COVID and non-COVID assignments, such as operating room, emergency, pediatrics, labor and delivery, and medical surgical. As a result, we significantly expanded the number of professionals on assignment over the prior year. Throughout the pandemic, we have acted with integrity, and worked collaboratively with clients on adjusting bill rates in response to rapidly changing market conditions. Ensuring our clients have a continuing supply of clinicians and professionals to meet their needs has remained our top priority, and as a result, we grew our investments in attracting candidates and added significant capacity by growing our workforce. As a result of the rising compensation costs for professionals on assignment, and our commitment to absorb as much of the increases as possible, our consolidated gross profit margin decreased 180 basis points year-over-year. Despite the decline in gross margin and significant investments in our workforce, the rising number of professionals on assignment improved our operating leverage, and as a result net income attributable to common stockholders for the year ended December 31, 2021 was $132.0 million, as compared to a net loss of $13.0 million in the prior year. Net income for 2021 was favorably impacted by the reversal of valuation allowances in connection with net operating losses, which is not expected to recur in the future. Going forward, the Company expects to see a significant increase in cash taxes and have an effective tax rate of approximately 30 percent.

For the year ended December 31, 2021, cash flow used in operating activities was $85.6 million, due to the investment in net working capital associated with the historic growth in our business. As of December 31, 2021, we had $1.0 million in cash and

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cash equivalents and $174.3 million principal balance on our term loan. Availability under the asset-based credit facility (ABL) was $150.0 million, with $9.2 million of borrowings drawn under our ABL, and $18.2 million of undrawn letters of credit outstanding, leaving $122.6 million available for borrowing as of December 31, 2021. See Note 8 - Debt to our consolidated financial statements.

In 2021, we refinanced the Company with a new subordinated $175.0 million term loan and completed two acquisitions. On June 8, 2021, we entered into an asset purchase agreement with Workforce Solutions Group, Inc. (WSG), which allows us to deliver critical support to some of the neediest populations by delivering professionals to the home. On December 16, 2021, we entered into an asset purchase agreement with Selected, a subscription-based SaaS model for schools to recruit permanent educators and special education professionals.

As we progress throughout 2022, we anticipate that bill rates will likely decline as COVID hospitalizations decline. However, demand remains robust amidst a backdrop of tight supply for clinicians and professionals, which will likely continue throughout much of 2022. We anticipate continued volume growth throughout 2022, as we continue to invest in both added capacity and our technologies. Our proprietary tool, Marketplace, continues to evolve, with new features and functionality being deployed to improve the candidate experience across the entire engagement life cycle. In 2021, we spent more than $9.0 million on advancing our digital platforms and given the success of our projects, we anticipate expanding our spend on IT related projects, by more than doubling the level of investments in the coming year.

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

Operating Metrics

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

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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.

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Comparison of Results for the Year Ended December 31, 2021 compared to the Year Ended December 31, 2020

NM - Not meaningful

Revenue from services

Revenue from services increased $840.2 million, or 100.5%, to $1,676.7 million for the year ended December 31, 2021, as compared to $836.4 million for the year ended December 31, 2020, due to strong performance in our Nurse and Allied Staffing segment, resulting from both an increase in volume and higher bill rates. In general, the increase in bill rates related to the spike in COVID needs late in the fourth quarter of 2020, which continued throughout 2021, as well as a continued high level of demand for our services throughout the current year due to the overall tight labor supply for clinicians and professionals. 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 $668.0 million, or 105.4%, to $1,301.7 million for the year ended December 31, 2021, as compared to $633.7 million for the year ended December 31, 2020, as a result of revenue increases. As a percentage of total revenue, direct operating expenses increased to 77.6% compared to 75.8% in the prior year period, as compensation costs rose by a higher percentage than our bill rates.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $41.5 million, or 23.9%, to $215.3 million for the year ended December 31, 2021, as compared to $173.8 million for the year ended December 31, 2020, primarily due to increases in compensation and benefits, as well as equity compensation expense, marketing, and consulting, partially offset by lower rent expense due to the closure of a significant number of offices in 2020 and a decrease in legal expenses. As a percentage of total revenue, selling, general and administrative expenses decreased to 12.8% for the year ended December 31, 2021 as compared to 20.8% for the year ended December 31, 2020.

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Depreciation and amortization expense

Depreciation and amortization expense for the year ended December 31, 2021 decreased to $9.9 million as compared to $12.7 million for the year ended December 31, 2020. The decline was driven by a combination of lower depreciation on certain assets given the closure of offices, as well as accelerated amortization of trade names associated with our rebranding initiatives in the prior year. 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 0.6% for the year ended December 31, 2021 and 1.5% for the year ended December 31, 2020.

Acquisition and integration-related costs

Acquisition and integration-related costs for the year ended December 31, 2021 include costs for legal and advisory fees, as well as integration costs, for the WSG acquisition that closed late in the second quarter of 2021, and legal and professional fees for the Selected acquisition that closed late in the fourth quarter of 2021.

Restructuring costs

Restructuring costs for the years ended December 31, 2021 and 2020 were primarily comprised of employee termination costs and ongoing lease costs related to the Company's strategic reduction of its real estate footprint and totaled $2.6 million and $6.1 million, respectively. Restructuring costs for the year ended December 31, 2020 also included reorganization costs as part of our planned costs savings initiatives.

Impairment charges

Non-cash impairment charges totaled $2.1 million for the year ended December 31, 2021 and related to real estate

restructuring activities and the write-off of a discontinued software development project. Non-cash impairment charges totaled $16.2 million for the year ended December 31, 2020. These were comprised of $10.7 million of impairment related to our Search and Nurse and Allied businesses and $5.5 million related to real estate restructuring activities. See Note 5 - Goodwill, Trade Names, and Other Intangible Assets and Note 10 - Leases to our consolidated financial statements.

Interest expense

Interest expense was $6.9 million for the year ended December 31, 2021 and $2.9 million for the year ended December 31, 2020, due to higher average borrowings and a higher effective interest rate. The effective interest rate on our borrowings was 5.7% and 3.5% for the years ended December 31, 2021 and 2020, respectively.

Income tax expense (benefit)

Income tax expense totaled $1.2 million for the year ended December 31, 2021, compared to income tax benefit of $0.2 million for the year ended December 31, 2020. The effective tax rate was 1.0% and 1.5%, including the impact of discrete items, for the years ended December 31, 2021 and 2020, respectively. The effective tax rate in 2021 was impacted by the $37.5 million release of valuation allowance on deferred tax assets and federal, international, and state taxes. The effective tax rate in 2020 was impacted by the additional valuation allowance on deferred tax assets, impairment of indefinite-lived intangibles, and international and state taxes.

For the year ended December 31, 2021, we recorded a net valuation allowance release of $37.5 million (comprised of $18.4 million related to federal NOLs, $7.5 million related to state NOLs, and $11.6 million related to other net deferred tax assets) on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized. The valuation allowance on an immaterial amount of state NOLs was not released due to the respective expiration periods and specific state taxable income projections. See Note 14 - Income Taxes to our consolidated financial statements.

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Segment Results

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

In the first quarter of 2021, the Company modified its reportable segments and, as a result, now discloses the following two reportable segments - Nurse and Allied Staffing and Physician Staffing. Revenue in the amount of $10.5 million and contribution loss in the amount of $1.1 million included in the previously-reported Search segment have been reclassified to Nurse and Allied Staffing for the year ended December 31, 2020. See Note 18 - Segment Data.

Certain statistical data for our business segments for the periods indicated are as follows:

See definition of Business Measurements under the Operating Metrics section of our Management's Discussion and Analysis.

Segment Comparison - Year Ended December 31, 2021 compared to the Year Ended December 31, 2020

Nurse and Allied Staffing

Revenue increased $837.3 million, or 109.0% to $1,605.8 million for the year ended December 31, 2021, from $768.5 million for the year ended December 31, 2020, driven by volume increases and higher bill rates, due to the continuing impacts from COVID as well as the overall tight labor supply for clinicians and professionals.

Contribution income for the year ended December 31, 2021, increased $131.5 million or 177.4%, to $205.7 million from $74.2 million in year ended December 31, 2020, driven by increased revenue. As a percentage of segment revenue, contribution income margin increased to 12.8% for the year ended December 31, 2021 from 9.7% for the year ended December 31, 2020.

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The average number of FTEs on contract during the year ended December 31, 2021 increased 43.8% from the year ended December 31, 2020, primarily due to headcount growth in travel nurse and allied which grew by more than double over the prior year, as well as additional headcount resulting from the WSG acquisition. Average revenue per FTE per day increased approximately 46.6% in the year ended December 31, 2021 compared to the year ended December 31, 2020, due to the increase in the average travel bill rates as a result of the increases in pay rates required to attract healthcare professionals.

Physician Staffing

Revenue increased $3.0 million, or 4.3% to $70.9 million for the year ended December 31, 2021, compared to $67.9 million for the year ended December 31, 2020, primarily due to an increase in volume in several specialties.

Contribution income for the year ended December 31, 2021, increased $0.7 million or 19.6% to $4.3 million compared to $3.6 million in the year ended December 31, 2020. As a percentage of segment revenue, contribution income was 6.1% for the year ended December 31, 2021 and 5.3% for the year ended December 31, 2020, driven by higher revenue, partially offset by higher direct costs.

Total days filled increased 13.3% to 44,169 in the year ended December 31, 2021, compared to 38,987 in the year ended December 31, 2020. Revenue per day filled was $1,605 for the year ended December 31, 2021 and $1,742 for the year ended December 31, 2020 due to a shift in the mix of business.

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. Corporate overhead increased to $55.1 million for the year ended December 31, 2021, from $51.9 million for the year ended December 31, 2020, primarily due to increases in compensation and benefits, as well as equity compensation expense, and consulting expense, partially offset by decreases in legal expenses. As a percentage of consolidated revenue, unallocated corporate overhead was 3.3% for the year ended December 31, 2021, and 6.2% for the year ended December 31, 2020.

Transactions with Related Parties

See Note 17 - Related Party Transactions to our consolidated financial statements.

Liquidity and Capital Resources

At December 31, 2021, we reported $1.0 million in cash and cash equivalents, $174.3 million of term loan outstanding, at par, and $9.2 million of borrowings drawn under our ABL. Working capital increased by $218.8 million to $308.5 million as of December 31, 2021, compared to $89.7 million as of December 31, 2020, primarily due to strong sequential growth, partially offset by the timing of disbursements. As of December 31, 2021, our days' sales outstanding, net of amounts owed to subcontractors, was 58 days, flat year-over-year. As of December 31, 2021, we do not have any off-balance sheet arrangements.

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. This includes our commitments, both short-term and long-term, of interest expense on our debt, payments on our promissory note payable, and operating lease commitments, as well as any settlements on uncertain tax positions, and future principal payments on our term loan and our Loan Agreement. 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, 2021 Compared to Year Ended December 31, 2020

Net cash used in operating activities during the year ended December 31, 2021 was $85.6 million compared to net cash provided by operating activities of $27.2 million during the year ended December 31, 2020. The use of cash is due primarily to the investment in net working capital associated with the historic growth in our business, with accounts receivable increasing $318.4 million since the start of the year.

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Net cash used in investing activities during the year ended December 31, 2021 was $34.0 million compared to $4.6 million in the year ended December 31, 2020. Net cash used in both periods was for capital expenditures, primarily related to the project to replace our applicant tracking system and various other IT initiatives. The year ended December 31, 2021 also included expenditures related to the development of our on-demand staffing platform and the build-out of our corporate office, and $26.9 million related to the acquisitions of WSG and Selected.

Net cash provided by financing activities during the year ended December 31, 2021 was $119.1 million, compared to net cash used in financing activities of $22.0 million during the year ended December 31, 2020. During the year ended December 31, 2021, we reported net borrowings of $175.0 million on our term loan, and used cash to repay borrowing on our ABL of $44.2 million, $0.7 million principal payment on our term loan, $2.4 million on our note payable, $6.1 million of debt issuance costs, $2.2 million for income taxes on share-based compensation, and an immaterial amount for other financing activities. During the year ended December 31, 2020, we used cash to repay borrowing on our ABL of $17.6 million, $2.4 million to pay our note payable, $0.7 million for income taxes on share-based compensation, and $1.3 million for other financing activities.

Debt

2021 Term Loan Agreement

As more fully described in Note 8 - Debt to our consolidated financial statements, on June 8, 2021, we entered into a Term Loan Agreement, which provides for a six-year second lien subordinated term loan in the amount of $100.0 million (term loan). The term loan has an interest rate of one-month LIBOR plus 5.75% per annum, subject to a 0.75% LIBOR floor. The term loan was used to pay the cash consideration, as well as any costs, fees, and expenses in connection with the WSG acquisition (see Note 4 - Acquisitions to our consolidated financial statements), with the remainder used to pay down a portion of the asset-based credit facility.

The borrowings under the Term Loan Agreement generally bear interest at a variable rate based on either LIBOR or Base Rate (as defined in the Term Loan Agreement) and are subject to mandatory prepayments of principal payable in quarterly installments, commencing on September 30, 2021, with each installment being in the aggregate principal amount of $0.3 million (subject to adjustment as a result of prepayments) provided that, to the extent not previously paid, the aggregate unpaid principal balance would be due and payable on the maturity date. The Term Loan Agreement contains various restrictions and covenants applicable to the Company and its subsidiaries, including a covenant to maintain a minimum net leverage ratio. The Company was in compliance with this covenant as of December 31, 2021. Obligations under the Term Loan Agreement are secured by substantially all the assets of the borrowers and guarantors under the Term Loan Agreement, subject to customary exceptions.

On November 18, 2021, we amended the Term Loan Agreement (Term Loan First Amendment), which provided the Company an incremental term loan in an aggregate amount equal to $75.0 million. Additionally, the Term Loan First Amendment increased the aggregate amount of all increases (as defined in the Term Loan Agreement) to be no greater than $115.0 million. The borrowings will be used primarily to fund organic growth. Commencing on December 31, 2021, installments of the mandatory prepayments will be in the aggregate principal amount of $0.4 million. All other terms, conditions, covenants, and pricing of the Term Loan Agreement remain the same.

2019 Loan Agreement

Effective October 25, 2019, our prior senior credit facility entered into in August 2017 was replaced by a $120.0 million Loan Agreement, which provides for a five-year senior secured revolving credit facility. On June 30, 2020, we amended the Loan Agreement (First Amendment), which increased the current aggregate committed size of the ABL from $120.0 million to $130.0 million. All other terms, conditions, covenants, and pricing of the Loan Agreement remained the same. On March 8, 2021, we amended the Loan Agreement (Second Amendment), which increased the current aggregate committed size of the ABL from $130.0 million to $150.0 million, increased certain borrowing base sub-limits, and decreased both the cash dominion event and financial reporting triggers. On June 8, 2021, we amended the Loan Agreement (Third Amendment), which permits the incurrence of indebtedness and grant of security as set forth in the Loan Agreement and in accordance with the Intercreditor Agreement, and provides mechanics relating to a transition away from LIBOR as a benchmark interest rate to a replacement alternative benchmark rate or mechanism for loans made in U.S. dollars. On November 18, 2021, we amended the Loan Agreement (Fourth Amendment), whereby the permitted indebtedness (as defined in the Loan Agreement) was increased to $175.0 million.

As of December 31, 2021, the interest rate spreads and fees under the Loan Agreement were based on LIBOR plus 1.50% for the revolving portion of the borrowing base and LIBOR plus 4.00% on the Supplemental Availability (as defined in the Loan

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Agreement). The Base Rate (as defined by the Loan Agreement) margins would have been 0.50% and 3.00% 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 our excess availability under the revolving credit facility. In addition, the facility is subject to an unused fee, letter of credit fees, and an administrative fee. The Loan Agreement contains various restrictions and covenants, including a covenant to maintain a minimum fixed charge coverage ratio. We were in compliance with the fixed charge coverage ratio covenant as of December 31, 2021. Availability under the ABL is subject to a borrowing base, which was sufficient to access the full facility size of $150.0 million at December 31, 2021, with $9.2 million of borrowings drawn as well as $18.2 million of letters of credit outstanding, leaving $122.6 million available for borrowing.

Note Payable

As of December 31, 2021, the third and final installment of the subordinated promissory note payable, made in connection with the Mediscan acquisition, in the amount of $2.5 million is included in current portion of debt on the consolidated balance sheets. This installment is to be paid, together with interest at a rate of 2% per annum, accruing from April 1, 2020, on January 31, 2022. See Note 4 - Acquisitions to our consolidated financial statements.

See Note 8 - Debt to our consolidated financial statements.

Stockholders' Equity

See Note 15 - Stockholders' Equity to our consolidated financial statements.

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 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, 2021, 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. See Note 5 - Goodwill, Trade Names, and Other Intangible Assets, where impairment testing in 2021, 2020, and 2019 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

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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.

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, long-term growth rates, the identification of appropriate market multiples, royalty rates, and the choice of an appropriate discount rate. See Note 5 - Goodwill, Trade Names, and Other Intangible Assets. In addition, deterioration of demand for our services, deterioration of labor market conditions, reduction of our stock price for an extended period, or other factors as described in Item 1A. 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 agreements, an impairment charge will not have an impact on our liquidity. As of December 31, 2021, we had total goodwill, intangible assets not subject to amortization, and other intangible assets of $167.7 million or 22.9% 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 corporate employees and healthcare professionals on assignment as well as actual company experience and increases in national healthcare costs. As of December 31, 2021 and 2020, we had $4.1 million and $3.9 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, 2021, and 2020, we had $12.5 million and $12.4 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 quarterly. As of December 31, 2021, and 2020, we had $4.9 million and $5.8 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 quarterly.

Revenue recognition

We recognize revenue from our services when control of the promised services is 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.

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

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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, 2021 and December 31, 2020, our estimate of amounts that had been worked but had not been billed totaled $140.0 million and $48.3 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, 2021, 2020, and 2019. Generally, billing and payment terms for MSP agency services are consistent with temporary staffing as the customers are similar or the same. Revenue from these services is 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:

•We have certain contracts with acute care facilities to provide comprehensive MSP solutions. Under these contract arrangements, we primarily use our nurses, along with 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 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 based on historical write-off experience, current conditions, an analysis of the aging of outstanding receivable and customer payment patterns, and specific reserves for customers in adverse conditions adjusted for current expectations for the customers or industry. Based on the information currently available, we also considered current expectations of future economic conditions, including the impact of COVID, when estimating our allowance for doubtful accounts. 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 rate and hour differences which may arise in the ordinary course of business and adjustments to the reserve are recorded as contra-revenue. As of December 31, 2021 and 2020, our total allowances were $6.9 million and $4.0 million, respectively.

Contingent liabilities

We are subject to 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. 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.

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Income taxes

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. During 2021, the Company utilized 100 percent of its federal NOL carryforward and a significant amount of state NOLs. As of December 31, 2021, we have deferred tax assets related to certain state and foreign NOL carryforwards of $72.4 million. But for those NOL carryforwards with an indefinite carryover, the carryforwards will expire as follows: state between 2022 and 2040, and foreign between 2022 and 2026.

As of December 31, 2021 and 2020, we had valuation allowances on our deferred tax assets of an immaterial amount and $37.5 million, respectively. For the year ended December 31, 2021, we recorded a valuation allowance release of $37.5 million (comprised of $18.4 million related to federal NOLs, $7.5 million related to state NOLs, and $11.6 million related to other net deferred tax assets) on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized. The valuation allowance on an immaterial amount of state NOLs was not released due to the respective expiration periods and specific state taxable income projections. See Note 14 - Income Taxes to our consolidated financial statements.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of December 31, 2021, in part because in the current year we achieved 12 quarters of cumulative pretax income including permanent items in the U.S. federal tax jurisdiction, management determined that there is sufficient positive evidence to conclude that it is more likely than not that our net deferred tax assets are realizable. We therefore reduced the valuation allowance accordingly.

In arriving at our conclusion to reduce the valuation allowance we considered several positive and negative factors. For the 12 quarters ended December 31, 2021, the Company has $110.3 million in cumulative pretax income including permanent items. The Company also has a history of utilizing NOLs prior to expiration, most notably the full utilization of the federal net operating loss carryforward in 2021. The Company is also forecasting positive pretax book income which is expected to exceed the reversal of its future tax deductions, further proving future estimates of taxable income. The growth estimates are tied to the growing demand for healthcare solutions for our customers, including a growing aging U.S. population, and our customers’ pressure to keep costs down by using our staffing solutions. With regard to negative evidence, the Company does not have any material taxable temporary differences to offset deductible temporary differences and does not have any taxable income available for carryback to offset NOLs. As such, the primary focus of our analysis emphasized the current and prior two-year cumulative pretax income analysis, the full utilization of the federal net operating loss carryforward, and projections of future taxable income.

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. 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. For the year ended December 31, 2021, the majority of the unrecognized tax benefit is classified as a component of other long-term liabilities in the consolidated balance sheets, while $0.4 million is classified as an offset to certain state NOLs within the deferred tax asset. As of December 31, 2021, total unrecognized tax benefits recorded was $9.2 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

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See Item 1. Business.

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.