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Cross Country Healthcare, Inc. has reported revenue of $126.3 million in the second quarter

Cross Country Healthcare, Inc. has reported revenue of $126.3 million in the second quarter ended June 30, 2012, essentially flat compared to both the prior year quarter and sequentially from the first quarter of 2012. The Company incurred a net loss in the second quarter of 2012 of $14.5 million, or $(0.47) per diluted share, which included a non-cash goodwill impairment charge of $12.0 million after-tax, or $(0.39) per diluted share. The goodwill impairment charge pertains entirely to the Company's nurse and allied staffing business segment and results from the interim goodwill impairment test performed during the second quarter of 2012. Excluding the impairment charge, the adjusted net loss (a non-GAAP financial measure defined below) was $2.5 million, or $(0.08) per diluted share. In the same quarter of the prior year, the Company had revenue of $126.0 million and net income of $1.6 million, or $0.05 per diluted share. Cash flow from operations for the second quarter of 2012 was $2.4 million.

For the six months ended June 30, 2012, the Company generated revenue of $252.9 million and had a net loss of $15.1 million, or $(0.49) per diluted share. Excluding the impairment charge, the adjusted net loss for the first six months of 2012 was $3.1 million, or $(0.10) per diluted share. This compares to revenue of $248.1 million and net income of $1.8 million, or $0.06 per diluted share, in the first six months of the prior year. Cash flow from operations for the first six months of 2012 was $3.8 million.

"Second quarter revenue was below expectations due in large part to the delay of a scheduled, large electronic medical record (EMR) implementation project, which had been fully staffed by us. In addition, our earnings performance was below expectations because our cost structure was too high relative to our revenue and we experienced a larger than anticipated increase in direct costs in our nurse and allied staffing business," said Joseph A. Boshart, President and Chief Executive Officer of Cross Country Healthcare, Inc. "Given our financial results, over the coming quarters we will be placing greater emphasis on bringing our cost structure into better alignment with our revenue and we will continue to press for higher bill rates to help offset some of the margin pressure we experienced relative to direct costs," he added.

"While we have seen a very significant increase in demand since February lows, our nurse and allied contract booking activity in the second quarter did not immediately mirror this sharp upturn and we have only just begun to generate meaningful sequential booking momentum in the past two months. Furthermore, while our second quarter results in this segment were disappointing, since the end of the first quarter we have signed up managed service provider (MSP) accounts that we believe utilize more than $60 million annually in temporary nurse and allied labor, which should drive sequential momentum for the next several quarters as these accounts ramp up. Notably, we ended our most recent week with the highest number of open orders we have had since October 2008 and we continue to have a robust pipeline of potential MSP accounts and EMR implementations," Mr. Boshart stated.

"Looking at our other staffing businesses, both the physician staffing and clinical trial services businesses — which combined accounted for 38% of total revenue — achieved year-over-year and sequential growth in the second quarter. Meanwhile, both businesses in our other human capital management services segment — which accounted for 8% of total revenue — were weaker than anticipated," said Mr. Boshart.

Nurse and Allied Staffing

For the second quarter of 2012, the nurse and allied staffing business segment (travel and per diem nurse and allied health staffing) generated revenue of $67.6 million, reflecting a 1% decrease from the prior year quarter and a 3% decrease sequentially from the first quarter of 2012, both due primarily to lower staffing volume. Contribution income (defined as (loss) income from operations before depreciation, amortization, impairment charge and corporate expenses not specifically identified to a reporting segment) was $2.2 million, a decrease of 60% year-over-year and a 44% decrease sequentially. The contribution income margin (defined as a percentage of segment revenue) was 3.3% in the second quarter of 2012, a decrease of 500 basis points year-over-year and 250 basis points sequentially primarily due to higher insurance costs for field staff, higher SG&A expenses as a percent of revenue that included an increase in accruals for estimated state non-income based taxes and a decrease in our bill pay spread year-over-year.

Segment staffing volume decreased 1% from both the prior year quarter and sequentially. Travel staffing volume increased slightly year-over-year, but decreased 1% sequentially while per diem staffing volume decreased 10% year-over-year and 2% sequentially. The average revenue per FTE per day for the second quarter of 2012 was $306, a slight increase year-over-year, but a 2% decrease sequentially. The travel nurse staffing average hourly bill rate increased 1% year-over-year, but decreased 2% sequentially.

For the first six months of 2012, segment revenue increased 1% to $137.2 million from $135.1 million in the same period a year ago, while contribution income decreased 41% to $6.2 million from $10.6 million in the prior year period.

Physician Staffing

For the second quarter of 2012, the physician staffing business segment generated revenue of $30.9 million, an increase of 1% from the prior year quarter and a 6% increase sequentially from the second quarter of 2012. The year-over-year increase was due to higher revenue per day filled and the sequential increase resulted from higher staffing volume, in particular for hospitalists and emergency medicine physicians, along with higher revenue per day filled. Contribution income was $2.7 million, a decrease of 8% year-over-year, but an 11% increase sequentially. The contribution income margin was 8.7% in the second quarter of 2012, a decrease of 80 basis points from the prior year quarter due to higher provider costs and a change in the business mix. Sequentially, the contribution income margin improved 50 basis points due to improved operating leverage. Physician staffing days filled for the second quarter of 2012 was 21,447 days, a 1% decrease from the prior year quarter, but a 4% increase sequentially. Revenue per day filled for the second quarter of 2012 was $1,443, up 2% both year-over-year and sequentially.

For the first six months of 2012, segment revenue increased slightly to $60.2 million from $60.0 million in the same period a year ago, while contribution income decreased 10% to $5.1 million from $5.7 million in the prior year period.

Clinical Trial Services

For the second quarter of 2012, the clinical trial services segment generated revenue of $17.4 million, a 6% increase from the prior year quarter and a 3% increase sequentially from the first quarter of 2012. The year-over-year improvement was due to higher staffing volume and placement fees. The sequential improvement was due to higher staffing volume and placement fees that were partially offset by lower drug safety activity. Staffing services accounted for 94% of segment revenue. Contribution income was $1.6 million, a slight increase year-over-year and an 18% improvement sequentially. The contribution income margin was 9.0% in the second quarter, a decrease of 40 basis points from the prior year quarter primarily due to higher insurance expenses for field staff, partially offset by improved operating leverage. Sequentially, contribution income improved 120 basis points due to a reduced impact of estimated state non-income based tax accruals.

For the first six months of 2012, segment revenue increased 7% to $34.3 million from $32.1 million in the same period a year ago, while contribution income increased 1% to $2.9 million from $2.8 million in the prior year period.

Other Human Capital Management Services

For the second quarter of 2012, the other human capital management services business segment (education and training and retained search) generated revenue of $10.3 million, a 4% decrease from the prior year quarter and a 6% decrease from the prior quarter. The year-over-year decrease was primarily due to lower seminar attendance in the education and training business and lower sales volume in the retained search business. The sequential decrease was primarily related to lower revenue from the retained search business following a strong performance in the first quarter. Contribution income was $0.3 million, a 71% decrease year-over-year and a 75% decrease sequentially. The year-over-year and sequential decreases were primarily due to negative operating leverage, and included increased accruals for estimated state non-income based taxes.

For the first six months of 2012, segment revenue increased 2% to $21.3 million from $20.8 million in the same period a year ago, while contribution income increased slightly to $1.4 million from $1.3 million in the prior year period.

Debt Outstanding and Credit Facility

During the second quarter of 2012, the Company reduced its debt by $3.5 million in total from the end of the prior quarter. At June 30, 2012, the Company had $36.2 million of total debt on its balance sheet, and a debt, net of $6.2 million in cash and cash equivalents, to total capitalization ratio of 11.1%.

On July 10, 2012, the Company entered into a new 5-year $75.0 million credit agreement with Wells Fargo Bank and certain other lenders, which consists of a $50.0 million senior secured revolving credit facility and a $25.0 million term loan due July 10, 2017. The revolving line of credit and term loan each bear interest initially at LIBOR plus 200 basis points, with no LIBOR floor. The new credit facility provides an accordion feature to increase the revolving line of credit by up to $25.0 million. Proceeds were used to repay in full the Company's prior term loan debt of $35.7 million and to pay related transaction costs.

Additional information regarding this new credit agreement can be obtained from the Company's Report on Form 8-K filed with the U.S. Securities and Exchange Commission on July 13, 2012.

Stock Repurchase Program Update

During the second quarter of 2012, the Company did not repurchase any shares of its common stock. As of June 30, 2012, the Company can repurchase up to 942,443 shares of its common stock under its current Board authorization, subject to the terms of its credit agreement. Shares may be repurchased from time-to-time in the open market subject to the constraints of the Company's credit agreement and such repurchases may be discontinued at any time at the discretion of the Company. At June 30, 2012, the Company had approximately 30.9 million shares outstanding.

Guidance for Third Quarter 2012

The following statements are based on current management expectations. Such statements are forward-looking and actual results may differ materially. These statements do not include the potential impact of any future mergers, acquisitions or other business combinations, any impairment charges or valuation allowances, write-off of debt issuance costs or significant legal proceedings. For the third quarter of 2012, the Company expects:

Revenue to be in the $126.0 million to $129.0 million range.

Gross profit margin to be approximately 26.0%.

Adjusted EBITDA margin to be in the 2.5% to 3.0% range. Adjusted EBITDA, a non-GAAP financial measure, is defined in the accompanying financial statement tables.

Earnings per diluted share to be in the range of $0.01 to $0.03.

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