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Cross Country Healthcare Reports First Quarter 2013 Results

Cross Country Healthcare Reports First Quarter 2013 Results

Cross Country Healthcare, Inc. has reported results for the first quarter ended March 31, 2013. 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 first quarter of 2013 was $110.3 million, a slight increase from the prior year quarter, but a 1% decrease sequentially from the fourth quarter of 2012. Including discontinued operations, the Company had net income in the first quarter of 2013 of $1.2 million, or $0.04 per diluted share. Loss from continuing operations before taxes was $1.8 million, and included the write-off of $1.4 million of debt issuance costs related to the Company's prior credit facility. Loss from continuing operations after taxes was $1.3 million, or $0.04 per diluted share, and included $0.03 per diluted share related to the write-off of debt issuance costs. Income from discontinued operations after taxes was $2.5 million, or $0.08 per diluted share, and included a $1.9 million after-tax gain on the sale of the clinical trial services business. Cash flow used in operating activities for the first quarter of 2013 was $1.5 million.

This compares to consolidated revenue from continuing operations of $109.8 million in the same quarter of prior year. Including discontinued operations, net loss in the prior year quarter was $0.6 million, or $0.02 per diluted share. Income from continuing operations after taxes was $0.4 million, or $0.01 per diluted share. Loss from discontinued operations after taxes was $0.9 million, or $0.03 per diluted share.

"I am pleased with the progress of our nurse and allied staffing business in the first quarter that resulted in year-over-year and sequential increases in segment revenue due to higher travel and per diem staffing volume, as well as higher bill rates. In addition, our efforts to restore margin in this segment continue to be effective. Both housing and health insurance costs per hour declined sequentially, which combined with volume and bill rate increases, resulted in a substantial improvement in segment contribution income. Contribution income from this segment was bolstered by the reversal of an accrued professional liability expense of $0.8 million discussed at year-end. The underlying case moved further through the legal system, which has provided greater clarity on our exposure," said Joseph A. Boshart, Chief Executive Officer of Cross Country Healthcare, Inc. "While our physician staffing business was below expectations in the first quarter, we expect it to grow both year-over-year and sequentially in the second quarter of 2013. Longer term, we believe the Affordable Care Act will enhance growth opportunities for our business beyond those in the current market," he said.

Nurse and Allied Staffing

For the first quarter of 2013, the nurse and allied staffing business segment (travel and per diem nurse and allied health staffing) generated revenue of $72.7 million, a 5% increase from the prior year quarter and a 3% increase sequentially from the fourth quarter of 2012. The increase in both periods was due to higher staffing volume and higher average bill rates. Contribution income, defined as income or loss from operations before depreciation, amortization, impairment charges and corporate expenses not specifically identified to a reporting segment, was $5.3 million, an increase of 49% year-over-year and a 44% increase sequentially. The contribution income margin (defined as a percentage of segment revenue) was 7.3% in the first quarter of 2013, a 210 basis point improvement both year-over-year and sequentially. The year-over-year increase was due to lower professional liability expenses and housing costs, as well as improved operating leverage partially offset by higher bad debt. The sequential increase was due to lower professional liability expenses, housing costs and field health insurance claims partially offset by the reset of payroll taxes.

Segment staffing volume increased 3% both year-over-year and sequentially. Travel staffing volume increased 2% both year-over-year and sequentially while per diem staffing volume increased 10% year-over-year and 8% sequentially. The average revenue per FTE per day for the first quarter of 2013 was $321, a 3% increase year-over-year and 2% sequentially.

Physician Staffing

For the first quarter of 2013, the physician staffing business segment generated revenue of $28.1 million, a decrease of 4% from the prior year quarter and an 8% decrease sequentially from the fourth quarter of 2012. The year-over-year decrease was due to lower staffing volume of certain specialties including anesthesia, primary care and surgery, partially offset by higher bill rates. The sequential decrease was due to lower staffing volume, particularly in emergency medicine and primary care specialties. Contribution income was $2.2 million, a 10% decrease year-over-year and a 12% decrease sequentially. The contribution income margin was 7.7% in the first quarter of 2013, a decrease of 50 basis points from the prior year quarter and 30 basis points sequentially. The year-over-year decrease was primarily due to higher physician compensation expenses and an increase in recruiter headcount partially offset by a recovery of bad debt and lower health insurance costs. The sequential decline was due to the reset of payroll taxes in the first quarter and higher physician compensation expenses partially offset by lower professional liability expenses and recovery of bad debt. Physician staffing days filled for the first quarter of 2013 was 18,802 days, a decrease of 9% from the prior year quarter and 7% sequentially. Revenue per day filled for the first quarter of 2013 was $1,493, up 5% year-over-year, but down 1% sequentially.

Other Human Capital Management Services

For the first quarter of 2013, the other human capital management services business segment (education and training and retained search) generated revenue of $9.5 million, a 14% decrease from the prior year quarter and a 7% decrease sequentially from the fourth quarter of 2012. The year-over-year decrease was due to lower seminar attendance and fewer seminars in the education and training business, as well as fewer physician searches in the retained search business. The sequential decrease was due primarily to lower seminar attendance in the education and training business. Contribution income was $0.3 million, down $0.8 million year-over-year and $0.2 million sequentially. The year-over-year decrease reflected lower revenue and is primarily attributable to negative operating leverage in the retained search business. The sequential decrease was due to lower revenue and negative operating leverage in the retained search business partially offset by an improvement in the education and training business, and reflected a favorable state non-income based tax adjustment in the fourth quarter of 2012 in the retained search business.

Debt Outstanding and Credit Facility

During February 2013, the Company used a portion of the net proceeds from the sales of its clinical trial services business to repay all $29.3 million of its then outstanding bank debt. At March 31, 2013, the Company had $20.9 million in cash and cash equivalents and $0.5 million of debt related primarily to capital lease obligations.

On January 9, 2013, the Company entered into a Loan and Security Agreement, by and among the Company and certain of its subsidiaries, as borrowers, and Bank of America, N.A., as agent. The Loan Agreement provides for a three-year senior secured asset-based revolving credit facility in the aggregate principal amount of up to $65.0 million, which includes a $10.0 million sub-facility for swingline loans and a $20.0 million sub-facility for standby letters of credit. The initial proceeds from the revolving credit facility were used to finance the repayment of the Company's existing indebtedness under its prior Credit Agreement and the payment of fees and expenses. The new revolving credit facility will be used to provide ongoing working capital and for other general corporate purposes of the Company and its subsidiaries.

Guidance for Second Quarter 2013

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, or significant legal proceedings. For the second quarter of 2013, the Company expects:

•              Revenue to be in the $110.0 million to $112.0 million range.

•              Gross profit margin to be approximately 26.0%.

•              Adjusted EBITDA margin from continuing operations to be in the 1% to 2% range. Adjusted EBITDA, a non-GAAP financial measure, is defined in the accompanying financial statement tables.

•              Loss per diluted share from continuing operations to be in the range of $0.01 to $0.03.

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