CROSS COUNTRY HEALTHCARE INC (CCRN) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
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.
| Business Segment | Business Measurement |
|---|---|
| Nurse and Allied Staffing | FTEs represent the average number of Nurse and Allied Staffing contract personnel on a full-time equivalent basis. |
| Average revenue per FTE per day is calculated by dividing the Nurse and Allied Staffing revenue, excluding permanent placement, per FTE by the number of days worked in the respective periods. | |
| Physician Staffing | Days filled is calculated by dividing the total hours invoiced during the period, including an estimate for the impact of accrued revenue, by eight hours. |
| Revenue per day filled is calculated by dividing revenue as reported by days filled for the period presented. |
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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.
| Year Ended December 31, | |||||
|---|---|---|---|---|---|
| 2024 | 2023 | ||||
| Revenue from services | 100.0 | % | 100.0 | % | |
| Direct operating expenses | 79.6 | 77.7 | |||
| Selling, general and administrative expenses | 17.4 | 14.9 | |||
| Credit loss expense | 1.6 | 0.7 | |||
| Depreciation and amortization | 1.4 | 0.9 | |||
| Acquisition and integration-related costs | 0.3 | — | |||
| Restructuring costs | 0.3 | 0.1 | |||
| Legal and other losses | 0.5 | 0.1 | |||
| Impairment charges | 0.2 | — | |||
| (Loss) income from operations | (1.3) | 5.6 | |||
| Interest expense | 0.2 | 0.4 | |||
| Loss on early extinguishment of debt | — | 0.1 | |||
| Interest income | (0.2) | — | |||
| Other (income) expense, net | (0.1) | — | |||
| (Loss) income before income taxes | (1.2) | 5.1 | |||
| Income tax (benefit) expense | (0.1) | 1.5 | |||
| Net (loss) income attributable to common stockholders | (1.1) | % | 3.6 | % |
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Comparison of Results for the Year Ended December 31, 2024 and the Year Ended December 31, 2023
| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) | Increase (Decrease) | |||||||||||||
| 2024 | 2023 | $ | % | |||||||||||
| (Amounts in thousands) | ||||||||||||||
| Revenue from services | $ | 1,344,004 | $ | 2,019,728 | $ | (675,724) | (33.5) | % | ||||||
| Direct operating expenses | 1,069,752 | 1,569,318 | (499,566) | (31.8) | % | |||||||||
| Selling, general and administrative expenses | 233,377 | 300,332 | (66,955) | (22.3) | % | |||||||||
| Credit loss expense | 21,432 | 14,562 | 6,870 | 47.2 | % | |||||||||
| Depreciation and amortization | 18,200 | 18,347 | (147) | (0.8) | % | |||||||||
| Acquisition and integration-related costs | 4,219 | 59 | 4,160 | NM | ||||||||||
| Restructuring costs | 4,333 | 2,553 | 1,780 | 69.7 | % | |||||||||
| Legal and other losses | 6,668 | 1,125 | 5,543 | 492.7 | % | |||||||||
| Impairment charges | 2,888 | 719 | 2,169 | 301.7 | % | |||||||||
| (Loss) income from operations | (16,865) | 112,713 | (129,578) | (115.0) | % | |||||||||
| Interest expense | 2,188 | 8,094 | (5,906) | (73.0) | % | |||||||||
| Loss on early extinguishment of debt | — | 1,723 | (1,723) | (100.0) | % | |||||||||
| Interest income | (2,050) | (83) | (1,967) | NM | ||||||||||
| Other (income) expense, net | (605) | 85 | (690) | (811.8) | % | |||||||||
| (Loss) income before income taxes | (16,398) | 102,894 | (119,292) | (115.9) | % | |||||||||
| Income tax (benefit) expense | (1,842) | 30,263 | (32,105) | (106.1) | % | |||||||||
| Net (loss) income attributable to common stockholders | $ | (14,556) | $ | 72,631 | $ | (87,187) | (120.0) | % |
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:
| Year Ended December 31, | ||||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | |||||
| (amounts in thousands) | ||||||
| Revenues from services: | ||||||
| Nurse and Allied Staffing | $ | 1,145,419 | $ | 1,841,428 | ||
| Physician Staffing | 198,585 | 178,300 | ||||
| $ | 1,344,004 | $ | 2,019,728 | |||
| Contribution income: | ||||||
| Nurse and Allied Staffing | $ | 72,601 | $ | 196,777 | ||
| Physician Staffing | 15,349 | 9,788 | ||||
| 87,950 | 206,565 | |||||
| Corporate overhead | 68,507 | 71,049 | ||||
| Depreciation and amortization | 18,200 | 18,347 | ||||
| Restructuring costs | 4,333 | 2,553 | ||||
| Legal and other losses | 6,668 | 1,125 | ||||
| Impairment charges | 2,888 | 719 | ||||
| Acquisition and integration-related costs | 4,219 | 59 | ||||
| (Loss) income from operations | $ | (16,865) | $ | 112,713 |
See Note 17 - Segment Data to our consolidated financial statements.
Certain statistical data for our business segments for the periods indicated are as follows:
| Year Ended December 31, | Percent | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | Change | |||||||||||
| Nurse and Allied Staffing statistical data: | ||||||||||||||
| FTEs | 8,205 | 10,831 | (2,626) | (24.2) | % | |||||||||
| Average Nurse and Allied Staffing revenue per FTE per day | $ | 378 | $ | 462 | $ | (84) | (18.2) | % | ||||||
| Physician Staffing statistical data: | ||||||||||||||
| Days filled | 97,888 | 92,504 | 5,384 | 5.8 | % | |||||||||
| Revenue per day filled | $ | 2,029 | $ | 1,927 | $ | 102 | 5.3 | % |
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.