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Cross Country Healthcare Has A Bright Future

Cross Country Healthcare Has A Bright Future

Cross Country Healthcare, Inc. has reported results for the fourth quarter and full year ended December 31, 2012. Current and historical amounts have been adjusted to reflect the previously disclosed sale of the Clinical Trial Services segment in February 2013, which has been reclassified as discontinued operations.

Consolidated revenue from continuing operations for the fourth quarter of 2012 was $111.7 million, an increase of 3% from the prior year quarter, but a slight decrease sequentially from the third quarter of 2012. Including discontinued operations, the Company incurred a net loss in the fourth quarter of 2012 of $9.5 million, or $(0.31) per diluted share, which includes a non-cash goodwill impairment charge of $(0.24) per diluted share related to the clinical trial services business. Loss from continuing operations before income taxes was $1.3 million, including a $0.8 million charge recognized in the fourth quarter for a professional liability indemnity claim in the nurse and allied staffing business. The Company anticipates recovering some, if not all of this expense in a future period however, U.S. GAAP accounting rules preclude the Company from recognizing a gain contingency until it is realized. The Company also incurred a one-time $0.7 million expense for an immaterial correction in calculating deferred rent, which primarily accumulated from 2002 to 2010. Loss from continuing operations after taxes was $3.0 million, or $(0.10) per diluted share. Cash flow from operations for the fourth quarter of 2012 was $4.4 million.

In the same quarter of the prior year, the Company had consolidated revenue from continuing operations of $109.0 million. Loss from continuing operations in the prior year quarter was $0.2 million. Net income including discontinued operations was $0.5 million, or $0.02 per diluted share.

For the full year 2012, consolidated revenue from continuing operations was $442.6 million, an increase of 1% from the prior year. Including discontinued operations, the Company had a net loss of $42.2 million, or $(1.37) per diluted share. The net loss included a non-cash goodwill impairment charge in the second quarter of 2012 of $12.1 million after-tax, or $(0.39) per diluted share related to the nurse and allied staffing business segment, as well as non-cash goodwill and trademark impairment charges in the third and fourth quarters of 2012 totaling $24.2 million after-tax, or $(0.79) per diluted share related to the clinical trial services business segment. Loss from continuing operations before income taxes was $26.9 million. Loss from continuing operations was $20.7 million, or $(0.67) per diluted share. Cash flow from operations for the full year 2012 was $10.1 million.

For the full year 2011, consolidated revenue from continuing operations was $439.4 million. Income from continuing operations was $1.5 million, or $0.05 per diluted share. Net income was $4.1 million, or $0.13 per diluted share, in the prior year.

"While our fourth quarter revenue was in-line with our expectations, our results were affected by a variety of factors that combined to result in a loss from continuing operations. Excluding the impact of the aforementioned professional liability expense, our successful efforts to improve our gross margin sequentially, primarily in our nurse and allied staffing segment, delivered results more rapidly than we had expected," said Joseph A. Boshart, President and Chief Executive Officer of Cross Country Healthcare, Inc. "Currently, open orders for our travel nurse staffing services are significantly above the level of a year ago. Reflecting the stronger demand environment, bill rates increased in the fourth quarter, which aided in the expansion of our bill-pay spread," he stated.

"Our physician staffing business had a strong fourth quarter with revenue up 10% year-over-year. In our other human capital management services segment, revenue in our retained search business improved year-over-year, but it was more than offset by weakness in our education and training business," said Mr. Boshart.

"Lastly, I would like to thank all of our former clinical trial services employees for their contributions to Cross Country over the past dozen years. We wish them every success in the future. Following the sale of this business, the Company has a debt-free balance sheet and more than $25 million in cash. Moving forward, we are sharply focused on our nurse, allied and physician staffing businesses, which we believe have bright futures given the changing healthcare environment and aging U.S. population," added Mr. Boshart.

Nurse and Allied Staffing

For the fourth quarter of 2012, the nurse and allied staffing business segment (travel and per diem nurse and allied health staffing) generated revenue of $70.9 million, a 1% increase from the prior year quarter and a 2% increase sequentially from the third quarter of 2012. The increase in both periods was due entirely to higher bill rates. Contribution income, defined as (loss) income from operations before depreciation, amortization, impairment charges and corporate expenses not specifically identified to a reporting segment, was $4.0 million, a decrease of 27% year-over-year, but a 36% increase sequentially. The contribution income margin (defined as a percentage of segment revenue) was 5.7% in the fourth quarter of 2012, a decrease of 210 basis points year-over-year, but an increase of 140 basis points sequentially. The year-over-year decline was primarily due to the aforementioned professional liability expense along with higher health insurance claims. The sequential increase was due to lower workers' compensation expenses and expansion of the bill-pay spread.

Segment staffing volume was essentially flat both year-over-year and sequentially. Travel staffing volume decreased 1% year-over-year and decreased slightly sequentially while per diem staffing volume increased 7% year-over-year and 3% sequentially. The average revenue per FTE per day for the fourth quarter of 2012 was $314, a 1% increase year-over-year and 2% sequentially. Similarly, the travel nurse staffing average hourly bill rate increased 2% both year-over-year and sequentially.

For the full year of 2012, segment revenue decreased slightly to $277.8 million from $278.8 million in the same period a year ago, while contribution income decreased 41% to $13.2 million from $22.4 million in the prior year period due primarily to higher health insurance costs and a decrease in the bill-pay spread as a result of changes in geographic mix.

Physician Staffing

For the fourth quarter of 2012, the physician staffing business segment generated revenue of $30.7 million, an increase of 10% from the prior year quarter, but a 6% decrease sequentially from the third quarter of 2012. The year-over-year increase was due to higher bill rates for most specialties while the sequential decrease was due to seasonality. Contribution income was $2.5 million, a 10% decrease year-over-year and a 21% decrease sequentially. The contribution income margin was 8.0% in the fourth quarter of 2012, a decrease of 170 basis points from the prior year quarter and 150 basis points sequentially. The year-over-year decrease was primarily due to higher professional liability insurance expenses in the current quarter compared to a favorable professional liability insurance accrual adjustment in the prior year quarter partially offset by lower non-income based state taxes. The sequential decline was due primarily to negative operating leverage. Physician staffing days filled for the fourth quarter of 2012 was 20,290 days, a slight increase from the prior year quarter, but a 10% decrease sequentially. Revenue per day filled for the fourth quarter of 2012 was $1,511, up 9% year-over-year and 5% sequentially.

For the full year of 2012, segment revenue increased 4% to $123.5 million from $118.8 million in the same period a year ago, while contribution income decreased 6% to $10.7 million from $11.3 million in the prior year period due to higher physician compensation and professional liability expense partially offset by favorable operating leverage.

Other Human Capital Management Services

For the fourth quarter of 2012, the other human capital management services business segment (education and training and retained search) generated revenue of $10.2 million, a 5% decrease from the prior year quarter and a 4% increase sequentially from the third quarter of 2012. The year-over-year decrease was primarily due to lower seminar attendance in the education and training business partially offset by higher retainer revenue and placement fees in the physician and healthcare executive search business while the sequential increase was due to top-line improvements in both businesses. Contribution income was $0.5 million, a 37% decrease year-over-year, but a substantial increase sequentially from $25,000 in the prior quarter. The year-over-year decrease was due to higher direct mail expenses in the education and training business offset by a substantial improvement in the retained search business. Sequentially, both businesses in this segment experienced improvements.

For the full year of 2012, segment revenue decreased 1% to $41.3 million from $41.8 million in the same period a year ago, while contribution income declined 39% to $1.9 million from $3.2 million in the prior year period.

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