The purpose of the following Management's Discussion and Analysis (MD&A) is to help facilitate the understanding of significant factors influencing the quarterly operating results, financial condition, and cash flows of the Company. Additionally, MD&A also conveys our current expectations of the potential impact of known trends, events, or uncertainties that may impact future results. MD&A is provided as a supplement to, and should be read in conjunction with, our 2021 Form 10-K (including Part I, Item 1A, "Risk Factors"), our financial statements and the accompanying notes to our financial statements, as well as the Risk Factors contained herein.
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, Program of All-Inclusive Care for the Elderly (PACE) programs,
urgent care centers, local
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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.
Our workforce solutions include managed service programs (MSPs), recruitment
process outsourcing (RPO), project management, and other outsourcing and
consultative services as described in Item 1. "Business" in our 2021 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 responsibility
program, closely aligned with our core values to create a better future for our
people, communities, and our stockholders.
The operating results of our business segments are regularly reviewed by the chief operating decision maker.
? Nurse andAllied Staffing - Nurse andAllied Staffing represented approximately 97% of our total revenue in the first quarter of 2022. The Nurse andAllied 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 andAllied 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.
?
Summary of Operations
For the quarter endedMarch 31, 2022 , revenue from services increased 140% year-over-year to$788.7 million , due to continued growth in both our Nurse andAllied Staffing and ourPhysician Staffing segments. The majority of this growth was driven by an increasing number of professionals on assignment. Revenue increased 23% sequentially, with a relatively small impact coming from bill rates. As a result of our investment in people and technology, we expanded the number of professionals on assignment, with a majority due solely to organic growth, thereby significantly improving our operating leverage. Throughout the pandemic, we worked collaboratively with clients on adjusting bill rates in order to adapt to the rapidly changing market conditions. Net income attributable to common stockholders in the first quarter of 2022 was$62.0 million , as compared to$19.4 million in the prior year. For the second quarter of 2022, average travel bill rates are anticipated to experience a low double-digit decline sequentially. While demand has retreated from the peak of the first quarter, the growing supply and demand imbalance is still supporting higher rates. We expect continued sequential growth in headcount and professionals on assignment across all lines of business. Looking beyond the second quarter, we anticipate further market share gains despite potential headwinds from changing bill rates or demand from certain specialties. We remain committed to investing in our people and our tech enabled digital platform by doubling our IT project budget for 2022, versus 2021. OnMarch 21, 2022 , we amended the ABL Credit Agreement (Loan Agreement) (Fifth Amendment), which increased the current aggregate committed size of the ABL from$150.0 million to$300.0 million and extended the credit facility for an additional five years. For the three months endedMarch 31, 2022 , cash flow used in operating activities was$29.0 million , with net borrowings of$42.3 million on our senior-secured asset-based credit facility (ABL), and an increase in working capital stemming from the strong sequential growth in our business. As ofMarch 31, 2022 , we had$1.2 million of cash and cash equivalents, with a principal balance of$173.9 million outstanding on our term loan. Borrowing base availability under the ABL was$300.0 million , with$51.5 million of borrowings drawn under our ABL, and$17.5 million of undrawn letters of credit outstanding, leaving$231.0 million of excess availability.
See Results of Operations, Segment Results, and Liquidity and Capital Resources sections that follow for further information.
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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 reportedU.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. Results of Operations The following table summarizes, for the periods indicated, selected condensed consolidated statements of operations data expressed as a percentage of revenue. Our historical results of operations are not necessarily indicative of future operating results. Three Months Ended March 31, 2022 2021 Revenue from services 100.0 % 100.0 % Direct operating expenses 77.8 78.3 Selling, general and administrative expenses 9.7 14.1 Bad debt expense 0.3 0.1 Depreciation and amortization 0.4 0.7 Restructuring costs 0.1 0.4 Impairment charges 0.2 - Income from operations 11.5 6.4 Interest expense 0.4 0.2 Income before income taxes 11.1 6.2 Income tax expense 3.2 0.3 Net income attributable to common stockholders 7.9 % 5.9 % 22
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Comparison of Results for the Three Months Ended
Three Months Ended March 31,
Increase Increase
(Decrease) (Decrease)
2022 2021 $ %
(Amounts in thousands)
Revenue from services $ 788,732 $ 329,241 $ 459,491 139.6 %
Direct operating expenses 613,938 257,776 356,162 138.2 %
Selling, general and administrative expenses 76,813 46,327 30,486 65.8 %
Bad debt expense 2,369 504 1,865 370.0 %
Depreciation and amortization 2,719 2,253 466 20.7 %
Acquisition and integration-related costs 40 - 40 100.0 %
Restructuring costs 480 1,238 (758) (61.2) %
Impairment charges 1,741 149 1,592 NM
Income from operations 90,632 20,994 69,638 331.7 %
Interest expense 3,521 671 2,850 424.7 %
Other income, net (8) (37) 29 78.4 %
Income before income taxes 87,119 20,360 66,759 327.9 %
Income tax expense 25,136 912 24,224 NM
Net income attributable to common stockholders
218.7 % NM - Not meaningful Revenue from services Revenue from services increased 139.6% to$788.7 million for the three months endedMarch 31, 2022 , as compared to$329.2 million for the three months endedMarch 31, 2021 , due to strong performance in both our Nurse and Allied andPhysician Staffing segments, both resulting from an increase in volume, and higher bill rates in Nurse and Allied. The increase in bill rates is a result of the continued high level of demand for our services due to the overall tight 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$356.2 million , or 138.2%, to$613.9 million for the three months endedMarch 31, 2022 , as compared to$257.8 million for the three months endedMarch 31, 2021 , as a result of revenue increases. As a percentage of total revenue, direct operating expenses decreased to 77.8% compared to 78.3% in the prior year period.
Selling, general and administrative expenses
Selling, general and administrative expenses increased 65.8% to$76.8 million for the three months endedMarch 31, 2022 , as compared to$46.3 million for the three months endedMarch 31, 2021 , primarily due to increases in compensation and benefit expense, as well as marketing and consulting expense and computer subscription fees, partially offset by decreases in legal expenses. As a percentage of total revenue, selling, general and administrative expenses decreased to 9.7% for the three months endedMarch 31, 2022 , as compared to 14.1% for the three months endedMarch 31, 2021 .
Depreciation and amortization expense
Depreciation and amortization expense for the three months endedMarch 31, 2022 was$2.7 million , as compared to$2.3 million for the three months endedMarch 31, 2021 . The increase is primarily due to the additional amortization of other intangible assets from theWorkforce Solutions Group (WSG) acquisition. See Note 7 -Goodwill ,Trade Names , and Other Intangible Assets to our condensed consolidated financial statements. As a percentage of revenue, depreciation and amortization expense was 0.4% for the three months endedMarch 31, 2022 and 0.7% for the three months endedMarch 31, 2021 . 23 --------------------------------------------------------------------------------
Restructuring costs
Restructuring costs for the three months endedMarch 31, 2022 were primarily comprised of ongoing lease costs related to the Company's strategic reduction of its real estate footprint and totaled$0.5 million . Restructuring costs for the three months endedMarch 31, 2021 were primarily comprised of employee termination costs and ongoing lease costs related to office closures.
Impairment charges
Non-cash impairment charges totaled$1.7 million for the three months endedMarch 31, 2022 and related to real estate restructuring activities. For the three months endedMarch 31, 2021 , non-cash impairment charges related to the write-off of a discontinued software development project. See Note 7 -Goodwill ,Trade Names , and Other Intangible Assets and Note 9 - Leases to our condensed consolidated financial statements.
Interest expense
Interest expense was$3.5 million for the three months endedMarch 31, 2022 , as compared to$0.7 million for the three months endedMarch 31, 2021 , due to higher average borrowings and a higher effective interest rate. The effective interest rate on our borrowings was 6.4% and 2.9% for the three months endedMarch 31, 2022 and 2021, respectively.
Income tax expense
Income tax expense totaled$25.1 million for the three months endedMarch 31, 2022 , compared to$0.9 million for the three months endedMarch 31, 2021 . The effective tax rate for the first quarter of 2022 was primarily impacted by federal and state taxes. Income tax expense for the three months endedMarch 31, 2021 was primarily impacted by international and state taxes as a result of the valuation allowance on substantially all of our domestic deferred tax assets. See Note 14 - Income Taxes to our condensed consolidated financial statements. 24
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Segment Results
Information on operating segments and a reconciliation to income from operations for the periods indicated are as follows:
Three Months Ended
March 31,
2022 2021
(amounts in thousands)
Revenue from services:
Nurse and Allied Staffing $ 765,580 $ 313,008
Physician Staffing 23,152 16,233
$ 788,732 $ 329,241
Contribution income:
Nurse and Allied Staffing $ 110,101 $ 37,417
Physician Staffing 1,765 1,428
111,866 38,845
Corporate overhead 16,254 14,211
Depreciation and amortization 2,719 2,253
Acquisition and integration-related costs 40 -
Restructuring costs 480 1,238
Impairment charges 1,741 149
Income from operations $ 90,632 $ 20,994
See Note 12 – Segment Data to our condensed financial statements.
Certain statistical data for our business segments for the periods indicated are
as follows:
Three Months Ended
March 31, March 31, Percent
2022 2021 Change Change
Nurse and Allied Staffing statistical
data:
FTEs 13,454 6,614 6,840 103.4 %
Average Nurse and Allied Staffing revenue
per FTE per day $ 628 $ 522 106 20.3 %
Physician Staffing statistical data:
Days filled 13,068 9,469 3,599 38.0 %
Revenue per day filled $ 1,772 $ 1,714 58 3.4 %
See definition of Business Measurements under the Operating Metrics section of our MD&A.
Segment Comparison – Three Months Ended
Nurse andAllied Staffing Revenue increased$452.6 million , or 144.6%, to$765.6 million for the three months endedMarch 31, 2022 , compared to$313.0 million for the three months endedMarch 31, 2021 , through strong performance driven by volume increases and higher bill rates. Contribution income increased$72.7 million , or 194.3%, to$110.1 million for the three months endedMarch 31, 2022 , compared to$37.4 million for the three months endedMarch 31, 2021 , driven by increased revenue. As a percentage of segment revenue, contribution income margin was 14.4% for the three months endedMarch 31, 2022 , compared to 12.0% for the three months endedMarch 31, 2021 . 25 -------------------------------------------------------------------------------- The average number of FTEs on contract during the three months endedMarch 31, 2022 increased 103.4% from the three months endedMarch 31, 2021 , primarily due to headcount growth in travel nurse and allied, as well as additional headcount resulting from the WSG acquisition. The average revenue per FTE per day increased 20.3%, due to the increase in the average bill rates.
Revenue increased
Contribution income was
Total days filled for the three months ended
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$16.3 million for the three months endedMarch 31, 2022 , from$14.2 million for the three months endedMarch 31, 2021 , primarily due to increases in compensation and benefit expense, as well as equity compensation expense, and IT and consulting expense, partially offset by decreases in legal and accounting expense. As a percentage of consolidated revenue, corporate overhead was 2.1% for the three months endedMarch 31, 2022 and 4.3% for the three months endedMarch 31, 2021 .
Transactions with Related Parties
See Note 15 – Related Party Transactions to our condensed financial statements.
Liquidity and Capital Resources
AtMarch 31, 2022 , we reported$1.2 million in cash and cash equivalents,$173.9 million of term loan outstanding, at par, and$51.5 million of borrowings drawn under our ABL. Working capital increased by$100.6 million to$409.1 million as ofMarch 31, 2022 , compared to$308.5 million as ofDecember 31, 2021 , primarily due to strong sequential growth, partially offset by the timing of disbursements. As ofMarch 31, 2022 , our days' sales outstanding, net of amounts owed to subcontractors, was 62 days, up 6 days year-over-year and 4 days since the beginning of the current year, primarily due to the timing of revenue recognized throughout the quarter given the monthly sequential growth through the first quarter. As ofMarch 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, as well as any settlements on uncertain tax positions, 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. We have an effective "shelf" registration statement on Form S-3 on file with theSEC that enables us, in one or more offerings, to sell up to an aggregate of 5,000,000 shares of common stock. Although we do not have any current plans to use the shelf registration statement, the proceeds from any offering could be used for working capital and other general corporate purposes, or to fund acquisitions of businesses, products, and technologies.
Net cash used in operating activities was
26 -------------------------------------------------------------------------------- Net cash used in investing activities was$2.1 million in the three months endedMarch 31, 2022 , compared to$1.2 million in the three months endedMarch 31, 2021 . Net cash used in both periods was for capital expenditures, primarily related to multiple IT projects. Expenditures in the three months endedMarch 31, 2022 also included computer replacements, and in the three months endedMarch 31, 2021 also included the build-out of our corporate office. Net cash provided by financing activities during the three months endedMarch 31, 2022 was$31.3 million , compared to$38.0 million during the three months endedMarch 31, 2021 . During the three months endedMarch 31, 2022 , we reported net borrowings of$41.9 million on our debt, and used cash to pay$2.4 million on our note payable,$5.0 million for income taxes on share-based compensation,$3.1 million in debt issuance costs, and an immaterial amount for other financing activities. During the three months endedMarch 31, 2021 , we reported net borrowings of$42.6 million on our ABL, and used cash to pay$2.4 million on our note payable,$2.0 million for income taxes on share-based compensation, and an immaterial amount for other financing activities.
Debt
2021 Term Loan Credit Agreement
As more fully described in Note 8 - Debt to our condensed consolidated financial statements, onJune 8, 2021 , we entered into a Term Loan Credit Agreement (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 condensed 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 onSeptember 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 ofMarch 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. OnNovember 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 onDecember 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 EffectiveOctober 25, 2019 , our prior senior credit facility entered into inAugust 2017 was replaced by a$120.0 million Loan Agreement, which provides for a five-year senior secured revolving credit facility. OnJune 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. OnMarch 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. OnJune 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 inU.S. dollars. OnNovember 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 . OnMarch 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 27 --------------------------------------------------------------------------------
applicable margin.
As ofMarch 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 the Company's 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 ofMarch 31, 2022 . Borrowing base availability under the ABL was was$300.0 million atMarch 31, 2022 , with$51.5 million of borrowings drawn as well as$17.5 million of letters of credit outstanding, leaving$231.0 million of excess availability. Note Payable The third and final installment of the subordinated promissory note payable, made in connection with the Mediscan acquisition, was paid in the amount of$2.6 million , including interest, in the first quarter of 2022. See Note 4 - Acquisitions to our condensed consolidated financial statements.
See Note 8 – Debt to our condensed financial statements.
Stockholders’ Equity
See Note 11 – Stockholders’ Equity to our condensed financial statements.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates remain consistent with those reported in our 2021 Form 10-K.
Recent Accounting Pronouncements
See Note 16 – Recent Accounting Pronouncements to our condensed financial statements.
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