UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

———————

FORM 10-Q

———————

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, ~~2017~~2018

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From _________ to _________

———————

CROSS COUNTRY HEALTHCARE, INC.

(Exact name of registrant as specified in its charter)

———————



Delaware	0-33169	13-4066229
(State or other jurisdiction of Incorporation or organization)	Commission file number	(I.R.S. Employer Identification Number)

5201 Congress Avenue, Suite 100B

Boca Raton, Florida 33487

(Address of principal executive offices)(Zip Code)

(561) 998-2232

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

———————

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ¨Accelerated filer þ

Non-accelerated filer ¨ ~~(Do~~(Do not check if a smaller reporting company)

Smaller Reporting Company ¨Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition

period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

The registrant had outstanding ~~36,494,303~~36,294,714 shares of Common Stock, par value $0.0001 per share, as of July ~~31, 2017~~.27, 2018.

INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

In addition to historical information, this Form 10-Q contains statements relating to our future results (including certain projections and business trends) that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and are subject to the “safe harbor” created by those sections. Forward-looking statements consist of statements that are predictive in nature, depend upon or refer to future events. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, “suggests”, "appears", “seeks”, “will”, and variations of such words and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. These factors include, but are not limited to, the following: our ability to attract and retain qualified nurses, physicians and other healthcare personnel, costs and availability of short-term housing for our travel healthcare professionals, demand for the healthcare services we provide, both nationally and in the regions in which we operate, the functioning of our information systems, the effect of cyber security risks and cyber incidents on our business, the effect of existing or future government regulation and federal and state legislative and enforcement initiatives on our business, our clients’ ability to pay us for our services, our ability to successfully implement our acquisition and development strategies, including our ability to successfully integrate acquired businesses and realize synergies from such acquisitions, the effect of liabilities and other claims asserted against us, the effect of competition in the markets we serve, our ability to successfully defend the Company, its subsidiaries, and its officers and directors on the merits of any lawsuit or determine its potential liability, if any, and other factors set forth in Item 1.A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, as filed and updated in our Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission.

Although we believe that these statements are based upon reasonable assumptions, we cannot guarantee future results and readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date of this filing. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful. The Company undertakes no obligation to update or revise forward-looking statements.

All references to "the Company", “we”, “us”, “our”, or “Cross Country” in this Quarterly Report on Form 10-Q mean Cross Country Healthcare, Inc., and its consolidated subsidiaries.

CROSS COUNTRY HEALTHCARE, INC.

INDEX

FORM 10-Q

June 30, ~~2017~~2018



		PAGE

PART I. – FINANCIAL INFORMATION		1

Item 1.	Condensed Consolidated Financial Statements	1

	Condensed Consolidated Balance Sheets (Unaudited)	1

	Condensed Consolidated Statements of Operations (Unaudited)	2

	Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ (Unaudited)	3

	Condensed Consolidated Statements of Cash Flows (Unaudited)	4

	Notes to Condensed Consolidated Financial Statements (Unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3433

Item 4.	Controls and Procedures	3534

PART II. – OTHER INFORMATION		3635

Item 1.	Legal Proceedings	3635

Item 1A.	Risk Factors	3635

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 6.	Exhibits	35

Exhibit Index		36

Signatures		3736

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CROSS COUNTRY HEALTHCARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, amounts in thousands)


	June 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	33,936		$	20,630		$	32,559		$	25,537
Accounts receivable, net of allowances of $3,280 in 2017 and $3,245 in 2016	155,903			173,620
Accounts receivable, net of allowances of $3,609 in 2018 and $3,688 in 2017							162,424			173,603
Prepaid expenses	6,230			6,126			6,433			5,287
Insurance recovery receivable	3,197			3,037			3,074			3,497
Other current assets	1,249			2,198			1,210			963
Total current assets	200,515			205,611			205,700			208,887
Property and equipment, net of accumulated depreciation of $45,364 in 2017 and $43,141 in 2016	13,862			12,818
Property and equipment, net of accumulated depreciation of $32,958 in 2018 and $30,678 in 2017							14,072			14,086
Goodwill	79,648			79,648			117,589			117,589
Trade names, indefinite-lived	35,402			35,402
Trade names							26,702			26,702
Other intangible assets, net	34,690			36,835			57,392			60,976
Non-current deferred tax assets							18,382			20,219
Other non-current assets	18,373			18,064			19,364			19,228
Total assets	$	382,490		$	388,378		$	459,201		$	467,687

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$	52,435		$	58,837		$	46,772		$	50,597
Accrued compensation and benefits	31,073			33,243			32,559			34,271
Current portion of long-term debt							6,250			6,875
Other current liabilities	6,097			5,012			2,861			2,845
Total current liabilities	89,605			97,092			88,442			94,588
Long-term debt and capital lease obligations, less current portion	35,344			84,760
Non-current deferred tax liabilities	14,353			13,154
Long-term debt, less current portion							90,494			92,259
Long-term accrued claims	29,066			28,870			29,215			28,757
Contingent consideration	4,390			5,301			5,302			5,088
Other long-term liabilities	8,084			7,399			8,877			9,276
Total liabilities	180,842			236,576			222,330			229,968

Commitments and contingencies

Stockholders' equity:
Common stock	4			3			4			4
Additional paid-in capital	303,917			256,570			301,353			305,362
Accumulated other comprehensive loss	(1,183		)	(1,241		)	(1,160		)	(1,166		)
Accumulated deficit	(101,784		)	(104,089		)	(63,930		)	(67,111		)
Total Cross Country Healthcare, Inc. stockholders' equity	200,954			151,243			236,267			237,089
Noncontrolling interest	694			559
Noncontrolling interest in subsidiary							604			630
Total stockholders' equity	201,648			151,802			236,871			237,719
Total liabilities and stockholders' equity	$	382,490		$	388,378		$	459,201		$	467,687

CROSS COUNTRY HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, amounts in thousands, except per share data)


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						June 30,						June 30,
	2017			2016			2017			2016			2018			2017			2018			2017

Revenue from services	$	209,313		$	199,443		$	416,886		$	396,026		$	204,572		$	209,313		$	414,860		$	416,886
Cost of services	152,785			144,597			307,083			290,134
Gross profit	56,528			54,846			109,803			105,892
Operating expenses:
Direct operating expenses													150,883			152,785			307,418			307,083
Selling, general and administrative expenses	46,600			44,675			93,836			87,608			45,284			46,600			90,918			93,836
Bad debt expense	326			228			649			477			611			326			810			649
Depreciation and amortization	2,285			2,465			4,476			4,877			2,963			2,285			5,872			4,476
Acquisition-related contingent consideration	281			183			551			470			220			281			433			551
Acquisition and integration costs	587			—			587			—			76			587			191			587
Impairment charges	—			24,311			—			24,311
Restructuring costs													193			—			628			—
Total operating expenses	50,079			71,862			100,099			117,743			200,230			202,864			406,270			407,182
Income (loss) from operations	6,449			(17,016		)	9,704			(11,851		)
Income from operations													4,342			6,449			8,590			9,704
Other expenses (income):
Interest expense	535			1,608			1,754			3,243			1,447			535			2,713			1,754
Loss (gain) on derivative liability	—			3,571			(1,581		)	(12,865		)
Gain on derivative liability													—			—			—			(1,581		)
Loss on early extinguishment of debt	—			1,568			4,969			1,568			—			—			—			4,969
Other income, net	(59		)	(34		)	(59		)	(51		)	(98		)	(59		)	(199		)	(59		)
Income (loss) before income taxes	5,973			(23,729		)	4,621			(3,746		)
Income tax expense (benefit)	753			(6,634		)	1,119			(5,837		)
Consolidated net income (loss)	5,220			(17,095		)	3,502			2,091
Income before income taxes													2,993			5,973			6,076			4,621
Income tax expense													1,169			753			2,332			1,119
Consolidated net income													1,824			5,220			3,744			3,502
Less: Net income attributable to noncontrolling interest in subsidiary	370			142			662			306			285			370			563			662
Net income (loss) attributable to common shareholders	$	4,850		$	(17,237	)	$	2,840		$	1,785
Net income attributable to common shareholders													$	1,539		$	4,850		$	3,181		$	2,840

Net income (loss) per share attributable to common shareholders - Basic	$	0.14		$	(0.54	)	$	0.08		$	0.06
Net income per share attributable to common shareholders - Basic													$	0.04		$	0.14		$	0.09		$	0.08

Net income (loss) per share attributable to common shareholders - Diluted	$	0.13		$	(0.54	)	$	0.05		$	(0.26	)
Net income per share attributable to common shareholders - Diluted													$	0.04		$	0.13		$	0.09		$	0.05

Weighted average common shares outstanding:
Basic	35,651			32,085			34,269			32,021			35,652			35,651			35,727			34,269
Diluted	36,021			32,085			36,250			36,194			35,832			36,021			35,959			36,250

CROSS COUNTRY HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(Unaudited, amounts in thousands)

Three Months Ended Six Months Ended
June 30, June 30,
2017 2016 2017 2016
Consolidated net income (loss) $ 5,220
$ (17,095 ) $ 3,502
$ 2,091

Other comprehensive income (loss), before income tax:

Unrealized foreign currency translation gain (loss) 24
(20 ) 58
(27 )
Other comprehensive income (loss), net of tax 24
(20 ) 58
(27 )
Comprehensive income (loss) 5,244
(17,115 ) 3,560
2,064
Less: Net income attributable to noncontrolling interest in subsidiary 370
142
662
306
Comprehensive income (loss) attributable to common shareholders $ 4,874
$ (17,257 ) $ 2,898
$ 1,758



	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018			2017		2018			2017
Consolidated net income	$	1,824		$	5,220	$	3,744		$	3,502

Other comprehensive income, before income tax:
Unrealized foreign currency translation (loss) gain	(63		)	24		(90		)	58
Unrealized gain on interest rate contracts	247			—		19			—
Reclassification adjustment to interest expense	86			—		86			—
	270			24		15			58
Taxes on other comprehensive income:
Income tax benefit related to foreign currency translation adjustments	(13		)	—		(17		)	—
Income tax expense related to unrealized gain on interest rate contracts	62			—		5			—
Income tax expense related to reclassification adjustment to interest expense	22			—		22			—
	71			—		10			—
Other comprehensive income, net of tax	199			24		5			58
Comprehensive income	2,023			5,244		3,749			3,560
Less: Net income attributable to noncontrolling interest in subsidiary	285			370		563			662
Comprehensive income attributable to common shareholders	$	1,738		$	4,874	$	3,186		$	2,898

CROSS COUNTRY HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)


	Six Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2018			2017
Cash flows from operating activities
Consolidated net income	$	3,502		$	2,091		$	3,744		$	3,502
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,476			4,877			5,872			4,476
Amortization of debt discount and debt issuance costs	429			902
Provision for allowances	1,935			2,254			2,371			1,935
Deferred income tax expense	1,200			(6,288		)	1,868			1,200
Gain on derivative liability	(1,581		)	(12,865		)	—			(1,581		)
Acquisition-related contingent consideration	551			470
Impairment charges	—			24,311
Loss on early extinguishment of debt	4,969			1,568			—			4,969
Equity compensation	2,015			1,767			1,383			2,015
Other non-cash costs	22			5			651			1,002
Changes in operating assets and liabilities:
Accounts receivable	15,783			9			8,808			15,783
Prepaid expenses and other assets	279			565			(999		)	279
Accounts payable and accrued expenses	(8,449		)	(5,007		)	(4,930		)	(8,449		)
Other liabilities	394			(1,792		)	(829		)	394
Net cash provided by operating activities	25,525			12,867			17,939			25,525

Cash flows from investing activities
Acquisition-related settlements	—			(1,858		)	(26		)	—
Purchases of property and equipment	(3,386		)	(2,616		)	(2,289		)	(3,386		)
Net cash used in investing activities	(3,386		)	(4,474		)	(2,315		)	(3,386		)

Cash flows from financing activities
Debt issuance costs	—			(990		)
Repayments of debt	(6,509		)	(95,247		)
Borrowings on debt	—			97,200
Principal payments on Term Loans							(2,500		)	(1,500		)
Convertible Note cash payment							—			(5,000		)
Extinguishment fees	(578		)	(641		)	—			(578		)
Stock repurchase and retirement							(4,700		)	—
Other	(1,769		)	(914		)	(1,366		)	(1,778		)
Net cash used in financing activities	(8,856		)	(592		)	(8,566		)	(8,856		)

Effect of exchange rate changes on cash	23			(25		)	(36		)	23

Change in cash and cash equivalents	13,306			7,776			7,022			13,306
Cash and cash equivalents at beginning of period	20,630			2,453			25,537			20,630
Cash and cash equivalents at end of period	$	33,936		$	10,229		$	32,559		$	33,936

CROSS COUNTRY HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


1.	ORGANIZATION AND BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements include the accounts of Cross Country Healthcare, Inc. and its direct and indirect wholly-owned subsidiaries (collectively, the Company). The condensed consolidated financial statements include all assets, liabilities, revenue, and expenses of Cross Country Talent Acquisition Group, LLC (formerly InteliStaf of Oklahoma, LLC), which is controlled by the Company but not wholly-owned. The Company records the ownership interest of the noncontrolling shareholder as noncontrolling interest in subsidiary. All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all entries necessary for a fair presentation of such unaudited condensed consolidated financial statements have been included. These entries consisted of all normal recurring items.

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by ~~U.S.~~United States generally accepted accounting principles (U.S. GAAP) for complete financial statements. These operating results are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2018.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, ~~2016~~2017 included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission. The December 31, ~~2016~~2017 condensed consolidated balance sheet included herein was derived from the December 31, ~~2016~~2017 audited consolidated balance sheet included in the Company’s Annual Report on Form 10-K.

Certain prior period amounts have been reclassified to conform to the current year presentation on the condensed consolidated statements of cash flows.


2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Significant estimates and assumptions are used for, but not limited to: (1) the valuation of accounts receivable; (2) goodwill, trade names, and other intangible assets; (3) other long-lived assets; (4) share-based compensation; (5) accruals for health, workers’ compensation, and professional liability claims; (6) valuation of deferred tax assets; (7) purchase price allocation; (8) derivative liability; (9) legal contingencies; (10) contingent considerations; (11) income taxes; and (12) sales and other non-income tax liabilities. Accrued insurance claims and reserves include estimated settlements from known claims and actuarial estimates for claims incurred but not reported. Actual results could differ from those estimates.

Allowances

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments, which results in a provision for bad debt expense. We determine the adequacy of this allowance by continually evaluating individual customer receivables, considering the customer’s financial condition, credit history and current economic conditions. 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 customer disputes which may arise in the ordinary course of business, which is recorded as contra-revenue. Historically, losses on uncollectible accounts and sales allowances have not exceeded our allowances.

Restructuring Costs

The Company considers restructuring activities to be programs whereby it fundamentally changes its operations, such as closing and consolidating facilities, reducing headcount and realigning operations in response to changing market conditions. As a result, restructuring costs on the consolidated statements of operations include on-going benefit costs for its employees and exit costs.

Reconciliations of the beginning and ending total restructuring liability balances are presented below:



	On-Going Benefit Costs			Exit Costs
	(amounts in thousands)
Balance at January 1, 2018	$	87		$	441
Charged to restructuring costs	435			—
Payments	(10		)	(54		)
Balance at March 31, 2018	512			387
Charged to restructuring costs	175			18
Payments	(254		)	(59		)
Balance at June 30, 2018	$	433		$	346

Derivative Financial Instruments

The Company is exposed to interest rate risk due to the outstanding senior secured term loan entered into on August 1, 2017 with a variable interest rate. As a result, the Company has entered into an interest rate swap agreement to effectively convert a portion of its variable interest payments to a fixed rate. The principal objective of the interest rate swap is to eliminate or reduce the variability of the cash flows in those interest payments associated with the Company’s long-term debt, thus reducing the impact of interest rate changes on future interest payment cash flows. The Company has determined that the interest rate swap qualifies as a cash flow hedge in accordance with Accounting Standards Codification (ASC) 815, Derivatives and Hedging. As the critical terms of the hedging instrument and the hedged forecasted transaction are the same, the Company has concluded that changes in the cash flows attributable to the risk being hedged are expected to completely offset at inception and on an ongoing basis. Changes in the fair value of an interest rate swap agreement designated as a cash flow hedge are recorded as a component of accumulated other comprehensive income (loss), net of deferred taxes, within stockholders’ equity and are amortized to interest expense over the term of the related debt as the interest payments are made. Future interest rate swap payments will be included in net cash provided by operating activities on the Company’s consolidated statement of cash flows.

In conjunction with entering into the interest rate swap agreement, the Company early adopted ASU 2017-12, Derivative and Hedging (Topic 815) to simplify the application of hedge accounting. See Note 9 - Derivative.

Recently Adopted Accounting Pronouncements

In ~~August 2016,~~February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. ~~2016-15,~~2018-02, Income Statement ~~of Cash Flows~~- Reporting Comprehensive Income (Topic ~~230), Classification~~220): Reclassification of Certain ~~Cash Receipts~~Tax Effects from Accumulated Other Comprehensive Income, amended by ASU No. 2018-05, Income Taxes (Topic 740):Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendments allow for a reclassification between accumulated other comprehensive income and ~~Cash Payments~~retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (2017 Tax Act), ~~which amends~~and require certain disclosures about stranded tax effects. The guidance that requires that the ~~guidance~~effect of a change in ~~ASC 230 on~~tax laws or rates be included in income is not affected. The amendments would have been effective for the ~~classification of certain cash receipts and payments~~Company in the ~~statement~~first quarter of cash flows. This update intended to reduce the diversity that has resulted from the lack of consistent principles on this topic by adding or clarifying guidance on eight cash flow issues, including: debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, and separately identifiable cash flows and application2019. Adoption of the ~~predominance principle. ASU 2016-15~~standard was to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the United States federal corporate tax rate in the 2017 Tax Act is ~~effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods.~~recognized. Early adoption was permitted. The Company ~~elected to early adopt~~adopted this standard in ~~its first quarter of 2017, applying the guidance retrospectively~~2018, with no material impact on its consolidated financial statements.

In ~~March 2016, the FASB issued ASU No. 2016-09,~~ ~~Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting.~~ ~~The Company adopted this guidance in~~ the first quarter of ~~2017.~~2018, the Company adopted ASU ~~2016-09 eliminates~~No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 introduces a new five-step revenue recognition model in which an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the ~~requirement~~consideration to ~~delay~~which the recognition of excess tax benefits until they reduce current taxes payable. Required method of adoption is modified retrospective transition method. Upon adoption, previously unrecognized excess tax benefits of $1.3 million had no impact on the Company's accumulated deficit balance as the related deferred tax assets were fully offset by a valuation allowance. ASU 2016-09entity expects to be entitled in exchange for those goods or services. The new standard also requires ~~excess tax benefits~~additional disclosures about the nature, amount, timing, and ~~deficiencies to be recognized prospectively in the provision for income taxes rather than additional paid-in capital. As a result~~uncertainty of the adoption, the Company's provision for income taxes was not impacted due to its full valuation allowance. Additionally, as permitted by the ASU, the Company elected to account for forfeitures as they occur rather than estimate expected forfeitures using a modified retrospective transition

~~method. As a result, the Company recorded a cumulative-effect adjustment of $0.5 million to accumulated deficit~~revenue and lower share-based compensation expense of $0.1 million compared to the amount of expense that would have been recorded for its first quarter of 2017. Share-based compensation expense compared to the amount that would have been recorded for the second quarter of 2017 was less than $0.1 million. Under ASU 2016-09, the threshold for awards to qualify for equity treatment permits withholding up to the maximum statutory tax rates in the applicable jurisdictions. Prior to the adoption of ASU 2016-09, the Company did not allow an award to be partially settled in cash in excess of the minimum statutory withholding requirements. Subsequent to the adoption of the standard, the Company will allow awards to be partially settled at the maximum applicable statutory rates. Finally, ASU 2016-09 requires excess tax benefits to be presented as a component of operating cash flows ~~rather than financing cash flows.~~arising from customer contracts. See Note 3 - Revenue Recognition for additional accounting policy and related disclosures. The Company elected to adopt ~~this requirement prospectively~~the standard using a modified retrospective method, which only impacts contracts not completed as of December 31, 2017.

3. REVENUE RECOGNITION

Revenue Recognition

Revenue from the Company’s services is recognized when control of the promised services are transferred to the Company’s customers, in an amount that reflects the consideration it expects to receive in exchange for the service. The Company has concluded that transfer of control of its staffing services, which represents the majority of its revenues, occurs over time as the services are provided, which is consistent with revenue recognition under the prior guidance.

The following is a description of the nature, amount, timing and ~~accordingly, prior periods have~~uncertainty of revenue and cash flows from which the Company generates revenue.

Temporary Staffing Revenue

Revenue from temporary staffing is recognized as control of the services are transferred over time, and is based on hours worked by the Company’s field staff. The Company recognizes the majority of its revenue at the contractual amount the Company has the right to invoice for services completed to date. Generally, billing to customers occurs weekly or bi-weekly and is aligned with the payment of services to the temporary staff, with payment terms of 15 to 60 days. Accounts receivable includes estimated revenue for employees’ and independent contractors’ time worked but not yet invoiced. At June 30, 2018 and December 31, 2017, the Company's estimate of amounts that had been worked but had not been ~~adjusted. Excess tax benefits were~~billed totaled $36.2 million and $41.8 million, respectively, and are included in accounts receivable on the consolidated balance sheets.

Other Service Revenue

The Company offers other optional services to its customers that are transferred over time including: managed service programs (MSP) providing agency services (as further described below in Gross versus Net Policies), recruitment process outsourcing (RPO), other outsourcing services, and retained search services, which is less than 5% of its consolidated revenue for the six months ended June 30, 2018 and June 30, 2017. Generally, billing and payment terms for MSP agency services is consistent with temporary staffing as the customers are similar or the same. Revenue from these services are recognized based on the contractual amount for services completed to date which best depicts the transfer of control of services.

For the Company’s 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. The Company does not, ~~material~~in the ordinary course of business, offer warranties or refunds.

Gross Versus Net Policies

The Company records revenue on a gross basis as a principal or on a net basis as an agent depending on the contracted arrangement, as follows:

Managed Service Programs

The Company has certain contracts with acute care facilities to provide comprehensive services through its MSPs. Under these contract arrangements, the Company fulfills the customer’s order with either one of its healthcare professionals or a third-party's professionals (subcontractors). If the Company's healthcare professional is staffed, it is determined that the Company acts as a principal in the arrangement, as the Company is considered the employer of record. Accordingly, revenue is reported on a gross basis on the consolidated statements of operations.

If a subcontracted healthcare professional is staffed, the customer is invoiced for ~~all periods presented.~~such services and a subcontractor liability is recorded in accrued expenses, but only the resulting administrative fee is recognized as revenue. The subcontractor is generally paid after the Company has received payment from its customer. The Company determined that it acts as an agent in these arrangements as the Company does not control the services before they are transferred. Accordingly, revenue is reported on a net basis on the consolidated statements of operations.

Physician Staffing

The Physician Staffing business enters into contracts with its healthcare customers to provide temporary staffing services. The Company uses independent contractors for these services. The Company determined that it acts as a principal in this arrangement and, therefore, revenue is reported on a gross basis on the consolidated statements of operations.

The following table presents our revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenue.



	Three Months ended June 30, 2018
	Nurse And Allied Staffing Segment		Physician Staffing Segment		Other Human Capital Management Services Segment		Total
	(amounts in thousands)
Temporary Staffing Services	$	175,690	$	19,943	$	—	$	195,633
Other Services	3,649		1,391		3,899		8,939
Total	$	179,339	$	21,334	$	3,899	$	204,572

	Six Months ended June 30, 2018
	Nurse And Allied Staffing Segment		Physician Staffing Segment		Other Human Capital Management Services Segment		Total
	(amounts in thousands)
Temporary Staffing Services	$	356,829	$	40,173	$	—	$	397,002
Other Services	7,615		2,721		7,522		17,858
Total	$	364,444	$	42,894	$	7,522	$	414,860

Contract Costs

~~In March 2016, the~~All contract fulfillment costs are expensed as incurred to direct operating expenses. With respect to FASB ~~issued ASU No. 2016-06,~~ASC 606, ~~Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments~~Revenue from Contracts with Customers, there were no contract assets or material contract liabilities as of June 30, 2018 and December 31, 2017.

Practical Expedients and Exemptions

For the Company’s contracts that have an original duration of one year or less, the Company uses the practical expedients and has elected to ~~clarify~~recognize any incremental costs of obtaining these contracts as expensed when incurred. Further, the ~~steps required~~Company does not disclose the value of unsatisfied performance obligations for: (i) contracts with an original expected length of one year or less, and (ii) contracts for which it recognizes revenue at the amount to ~~assess whether a call or put option meets~~which it has the ~~criteria~~right to invoice for bifurcation as an embedded derivative. ASU 2016-06 is effective for interim and annual periods beginning after December 15, 2016, and requires a modified retrospective approach to adoption. The Company adopted this guidance in the first quarter of 2017. The adoption of this guidance had no impact on the Company's results of operations.services performed.

3.4. ACQUISITIONS

~~US Resources Healthcare~~

~~On December~~Advantage RN

Effective July 1, ~~2016,~~2017, the Company ~~completed~~acquired substantially all of the assets of Advantage RN, LLC and its subsidiaries (collectively, Advantage) for cash consideration of $86.6 million, net of cash acquired. The total purchase price of $88.0 million was subject to a net working capital reduction of $0.6 million at the closing and an additional $0.8 million was received by the Company during the third quarter of 2017 as the final adjustment for net working capital. Additionally, $0.6 million of the purchase price was deferred as of the closing and is due the seller within 20 months, less any Cobra and healthcare payments incurred by the Company on behalf of the seller. As of June 30, 2018, approximately $0.4 million has been paid for claims and the remaining $0.2 million liability is included in other current liabilities on the Company’s balance sheet.

Included in the amount paid at closing were two escrow accounts, the first was $14.5 million which related to tax liabilities and the second was $7.5 million which was to cover any post-close liabilities. On July 28, 2017, $7.3 million related to the tax liabilities was released from escrow, leaving a balance of $7.2 million, with the escrow to cover post-close liabilities remaining unchanged.

The Company financed the purchase using $19.9 million in available cash and $66.9 million in borrowing under its Credit Facility, including a $40.0 million incremental term loan, which was subsequently refinanced on August 1, 2017. See Note 8 - Debt for further information. The transaction is treated as a purchase of assets for income tax purposes.

Advantage is primarily a travel nurse staffing company that deploys many of its nurses through MSPs and Vendor Management Systems, and Advantage maintains direct relationships with many hospitals throughout the United States. This was a strategic acquisition ~~of a recruitment process outsourcing business, US Resources Healthcare, LLC (USR). This acquisition expands~~to help the ~~Company's workforce solutions offerings to deliver financial~~Company fill its recent MSP contract wins, and ~~operating efficiencies through labor optimization services while enhancing the quality of care.~~for revenue growth.

The acquisition ~~was deemed immaterial and~~ has been accounted for in accordance with ~~the~~FASB ASC 805, Business Combinations~~Topic of the FASB ASC~~, using the acquisition

method of accounting. ~~USR's~~As such, the results of ~~operations~~Advantage from July 1, 2017 are included in the Company's consolidated ~~statements~~statement of ~~operations from December 1, 2016 and~~operations. The acquisition results have been ~~included in~~substantially aggregated with the Company's Nurse and Allied Staffing business ~~segment. See Note 6 - Goodwill, Trade Names,~~segment and ~~Other Intangible Assets~~the associated goodwill related to the acquisition of Advantage is fully allocated to Nurse and ~~Note 9 - Fair Value Measurements.~~Allied Staffing.

Pro Forma Financial Information

The following unaudited pro forma financial information approximates the consolidated results of operations of the Company as if the Advantage acquisition had occurred as of January 1, 2017, after giving effect to certain adjustments, including additional interest expense on the amount the Company borrowed on the date of the transaction, the amortization of acquired intangible assets, and the elimination of certain expenses that will not be recurring in post-acquisition periods, net of an estimated income tax impact. These adjustments include removing transaction-related expenses of approximately $0.6 million for the six months ended June 30, 2017. These results are not necessarily indicative of future results as they do not include incremental investments in support functions, elimination of costs for integration or operating synergies, or an estimate of any impact on interest expense resulting from the operating cash flow of the acquired business, among other adjustments that could be made in the future but are not factually supportable on the date of the transaction.



	Six Months Ended
	June 30, 2017
	(unaudited, amounts in thousands except per share data)
Revenue from services	$	467,987

Net income attributable to common shareholders	$	4,418

Net income per common share attributable to common shareholders - basic	$	0.13

Net income per common share attributable to common shareholders - diluted	$	0.10

Mediscan

On October 30, 2015, the Company completed the acquisition of all of the membership interests of New Mediscan II, LLC, Mediscan Diagnostic Services, LLC, and Mediscan Nursing Staffing, LLC (collectively, Mediscan) for a purchase price of $29.9 million in cash ($28.0 million plus working capital estimate) and $4.7 million in shares (or 349,871 shares) of the Company's Common Stock, subject to a net working capital adjustment. The shares of Common Stock issued in connection with the acquisition were subject to a lockup period, which ended April 30, 2016. In the first quarter of 2016, the net working capital adjustment was settled consistent with the receivable balance as of December 31, 2015. An amount of $5.0 million of the purchase price was held in escrow to cover any post-closing liabilities, which was released. Earnouts related to the ~~seller on May 3, 2017.~~

~~The agreement also specified that the sellers were eligible to receive additional purchase price consideration of $7.0 million, with $3.5 million per year based on~~ attainment of specific performance criteria in 2016 and ~~2017. As of December 31, 2016, the Company determined that the first year earnout was~~2017 were not ~~achieved for 2016 and as a result, only $3.5 million remains as a potential earnout for 2017. As of June 30, 2017, the fair value of the remaining obligation was estimated at $0.8 million.~~

achieved. In connection with the Mediscan acquisition, the Company also assumed ~~additional~~ contingent purchase price liabilities for a previously acquired business that are payable annually based on specific performance criteria for the 2016 through 2019 years. ~~Payments~~As of June 30, 2018, payments related to the ~~2016 through~~year 2018 ~~years~~ are limited to $0.3 million ~~per year~~ and 2019 is uncapped. During the six months ended June 30, ~~2017,~~2018, the Company paid $0.1 ~~million.~~million related to the year 2017. As of June 30, ~~2017,~~2018, the fair value of the remaining obligations ~~on an undiscounted basis~~ was estimated at ~~$3.8 million.~~

~~As of June 30, 2017, a total of $4.6~~$5.5 million ~~was estimated as the fair value of these contingent consideration payments~~ and is included in other current liabilities and contingent consideration on the condensed consolidated balance sheets. See Note 910 - Fair Value Measurements.

~~Medical Staffing Network~~

~~On June 30, 2014, the Company acquired substantially all of the assets and certain liabilities of Medical Staffing Network Healthcare, LLC (MSN). Of the purchase price,~~ ~~$2.5 million~~ ~~was deferred and due to the seller~~ ~~21 months~~ from the acquisition date, less any COBRA expenses incurred by the Company on behalf of former MSN employees over that period. The Company incurred $0.4 million in COBRA expenses since the MSN acquisition and, on April 1, 2016, released to the seller the remaining liability of $2.1 million.


4.5.	COMPREHENSIVE INCOME ~~(LOSS)~~

Total comprehensive income ~~(loss)~~ includes net income, ~~or loss and~~ foreign currency translation adjustments, and net change in derivative transactions, net of any related deferred taxes. Certain of the Company’s foreign subsidiaries use their respective local currency as their functional currency. In accordance with the Foreign Currency Matters Topic of the FASB ASC, assets and liabilities of these operations are translated at the exchange rates in effect on the balance sheet date. Income statement items are translated at

the average exchange rates for the period. The cumulative impact of currency fluctuations related to the balance sheet translation is included in accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets and was ~~approximately~~an unrealized loss of $1.2 million at ~~both~~ June 30, ~~2017~~2018 and December 31, ~~2016.~~2017. The cumulative impact of net changes in derivative instruments included in other comprehensive loss in the condensed consolidated balance sheets was not material at June 30, 2018. See Note 9 - Derivative.

There was no income tax impact related to foreign currency translation adjustments for the three and six month ~~periods~~period ended June 30, ~~2017~~2017. The income tax impact related to components of other comprehensive income for the three and six months ended June 30, ~~2016.~~2018 is reflected on the condensed consolidated statements of comprehensive income.


5.6.	EARNINGS PER SHARE

The following table sets forth the components of the numerator and denominator for the computation of the basic and diluted earnings per share:


	Three Months Ended					Six Months Ended						Three Months Ended				Six Months Ended
	June 30,					June 30,						June 30,				June 30,
	2017		2016			2017			2016			2018		2017		2018		2017
	(amounts in thousands, except per share data)											(amounts in thousands, except per share data)
Numerator:
Net income (loss) attributable to common shareholders - Basic	$	4,850	$	(17,237	)	$	2,840		$	1,785
Net income attributable to common shareholders - Basic												$	1,539	$	4,850	$	3,181	$	2,840
Interest on Convertible Notes	—		*			694			1,677			—		—		—		694
Gain on derivative liability	—		*			(1,581		)	(12,865		)	—		—		—		(1,581		)
Net income (loss) attributable to common shareholders - Diluted	$	4,850	$	(17,237	)	$	1,953		$	(9,403	)
Net income attributable to common shareholders - Diluted												$	1,539	$	4,850	$	3,181	$	1,953

Denominator:
Weighted average common shares - Basic	35,651		32,085			34,269			32,021			35,652		35,651		35,727		34,269
Effective of diluted shares:
Share-based awards	370		—			522			652			180		370		232		522
Convertible Notes	—		—			1,459			3,521			—		—		—		1,459
Weighted average common shares - Diluted	36,021		32,085			36,250			36,194			35,832		36,021		35,959		36,250

Net income (loss) per share attributable to common shareholders - Basic	$	0.14	$	(0.54	)	$	0.08		$	0.06
Net income per share attributable to common shareholders - Basic												$	0.04	$	0.14	$	0.09	$	0.08

Net income (loss) per share attributable to common shareholders - Diluted	$	0.13	$	(0.54	)	$	0.05		$	(0.26	)
Net income per share attributable to common shareholders - Diluted												$	0.04	$	0.13	$	0.09	$	0.05

* For the three months and six months ended June 30, ~~2016, the Convertible Notes would have been anti-dilutive if converted at the~~

~~beginning of the period~~2018 and ~~therefore, amounts are not applicable.~~

~~For the periods presented,~~2017, no tax benefits ~~have been~~were assumed in the weighted average share calculation due to ~~a full valuation allowance on~~ the Company's ~~deferred tax assets.~~net operating loss position.

The Convertible Notes were ~~paid~~repaid in full on March 17, 2017. Applying the if-converted method, 1,459,030 shares ~~and 3,521,126~~(the weighted average shares outstanding through June 30, 2017) were included in diluted weighted average shares for the six months ended June 30, 2017 ~~and 2016~~ because their effect was dilutive.

7. GOODWILL, TRADE NAMES, AND OTHER INTANGIBLE ASSETS

~~As of June 30, 2017 and December 31, 2016, the~~The Company had the following acquired intangible assets:


	June 30, 2017						December 31, 2016						June 30, 2018						December 31, 2017
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(amounts in thousands)												(amounts in thousands)
Intangible assets subject to amortization:
Databases	$	31,609	$	17,162	$	14,447	$	31,609	$	16,147	$	15,462	$	42,909	$	20,221	$	22,688	$	42,909	$	18,702	$	24,207
Customer relationships	41,724		24,270		17,454		41,724		23,316		18,408		55,524		27,556		27,968		55,524		25,912		29,612
Non-compete agreements	3,619		3,548		71		3,619		3,527		92		3,919		3,651		268		3,919		3,600		319
Trade names, definite-lived	3,216		498		2,718		3,216		343		2,873
Trade names													7,716		1,248		6,468		7,716		878		6,838
Other intangible assets, net	$	80,168	$	45,478	$	34,690	$	80,168	$	43,333	$	36,835	$	110,068	$	52,676	$	57,392	$	110,068	$	49,092	$	60,976

Intangible assets not subject to amortization:
Trade names					35,402						35,402						26,702						26,702
					$	70,092					$	72,237					$	84,094					$	87,678

As of June 30, ~~2017,~~2018, estimated annual amortization expense is as follows:

Years Ending December 31: (amounts in thousands)
2017 $ 2,103
2018 4,148
2019 4,111
2020 4,007
2021 3,799
Thereafter 16,522
$ 34,690

~~The June 30, 2017 and December 31, 2016 carrying amount of goodwill by segment is as follows:~~

June 30, 2017 December 31, 2016
(amounts in thousands)
Nurse and Allied Staffing $ 44,545
$ 44,545
Physician Staffing 25,685
25,685
Other Human Capital Management Services 9,418
9,418
Goodwill $ 79,648
$ 79,648

~~During the three and six months ended June 30, 2017, the Company noted no indicators at any of its reporting units that warranted impairment testing.~~

~~During an evaluation of goodwill and other identified intangible assets at June 30, 2016, the Company determined that~~

~~indicators were present in the Physician Staffing reporting unit which would suggest the fair value of the reporting unit may~~

have declined below the carrying value. The Physician Staffing reporting unit continued to underperform relative to management's expectations, driven by lower booking volumes partly due to the loss of customers, and margins being impacted

from continued investments in the business all through the first half of 2016. The evaluation resulted in the carrying value of goodwill and other intangible assets for Physician Staffing to exceed the estimated fair value. As a result, the Company recorded pre-tax impairment charges totaling $24.3 million with $17.7 million related to goodwill, $0.6 million related to trade names, and $6.0 million related to customer relationships.

~~7. DEBT~~

At ~~June 30, 2017~~ ~~and December 31, 2016, long-term debt consists of the following:~~

June 30, 2017 December 31, 2016
Principal Unamortized Discount and Debt Issuance Costs Principal Unamortized Discount and Debt Issuance Costs
(amounts in thousands)
Term Loan, interest 2.80% and 2.62% at June 30, 2017 and December 31, 2016, respectively $ 38,000
$ (412 ) $ 39,500
$ (363 )
Convertible Notes, fixed rate interest of 8.00% —
—
25,000
(4,669 )
Convertible Notes derivative liability —
—
27,532
—
Capital lease obligations 14
—
23
—
Total debt 38,014
(412 ) 92,055
(5,032 )
Less current portion (2,258 ) —
(2,263 ) —
Long-term debt $ 35,756
$ (412 ) $ 89,792
$ (5,032 )



Years Ending December 31:	(amounts in thousands)
2018	$	3,582
2019	7,132
2020	7,027
2021	6,819
2022	6,743
Thereafter	26,089
	$	57,392

As of June 30, 2018, the Company performed a qualitative assessment of each of its reporting units and determined it was less-likely-than-not that the fair value of its reporting units dropped below their carrying value. As a result, management concluded that no impairment testing was warranted as of June 30, 2018. Although management believes that the Company's current estimates and assumptions are reasonable and supportable, there can be no assurance that the estimates and assumptions made for purposes of the impairment testing will prove to be accurate predictions of future performance. As of June 30, 2018 and December 31, 2017, goodwill by reporting segment was: $88.2 million for Nurse and Allied Staffing, $20.0 million for Physician Staffing, and $9.4 million for Other Human Capital Management Services, totaling $117.6 million.

8. DEBT

The Company's long-term debt consists of the following:



	June 30, 2018						December 31, 2017
	Principal			Debt Issuance Costs			Principal			Debt Issuance Costs
	(amounts in thousands)
Term Loan, interest 4.23% and 3.61% at June 30, 2018 and December 31, 2017, respectively	$	97,500		$	(756	)	$	100,000		$	(866	)
Less current portion	(6,250		)	—			(6,875		)	—
Long-term debt	$	91,250		$	(756	)	$	93,125		$	(866	)

As of June 30, 2018, the aggregate scheduled maturities of ~~debt~~the term loan are as follows:


	Term Loan		Capital Leases		Term Loan
	(amounts in thousands)				(amounts in thousands)
Through Years Ending December 31:
2017	$	750	$	4
2018	3,750		8		$	4,375
2019	3,500		2		7,500
2020	4,000		—		8,125
2021	26,000		—		10,000
2022					67,500
Thereafter					—
Total	$	38,000	$	14	$	97,500

Amended and Restated Senior Credit Facility

The Company has an Amended and Restated Credit Agreement entered into August 1, 2017 (Amended and Restated Credit Agreement) with a maturity date of August 1, 2022, including a term loan of $100.0 million (Amended Term Loan) and a $115.0 million revolving credit facility (Amended Revolving Credit Facility) (together with the Amended Term Loan, the Amended Credit Facilities). The Amended Revolving Credit Facility includes a subfacility for swingline loans up to an amount not to exceed $15.0 million, and a $35.0 million sublimit for the issuance of standby letters of credit.

The Amended and Restated Credit Agreement includes an accordion feature permitting the Company, subject to certain conditions, to increase the aggregate amount of the commitments under the Amended Revolving Credit Facility or establish one or more additional term loans in an aggregate amount not to exceed $50.0 million with optional additional commitments from existing lenders or new commitments from additional lenders.

Borrowings under the Amended Term Loan are payable in quarterly installments, which commenced January 2, 2018, in an aggregate per annum amount equal to 5% for the first four installments, 7.5% for the next eight installments, and 10% for the remaining installments; provided that, to the extent not previously paid, the aggregate unpaid principal balance would be due and payable on the maturity date.

Subject to the Amended and Restated Credit Agreement, the Company pays interest on: (i) each Base Rate Loan at the Base Rate (as defined therein) plus the Applicable Margin in effect from time to time, (ii) each LIBOR Index Rate Loan at the One Month LIBOR Index Rate (as defined therein) plus the Applicable Margin in effect from time to time, and (iii) each Eurodollar Loan at the Adjusted LIBOR for the applicable Interest Period (as defined therein) in effect for such Loan plus the Applicable Margin in effect from time to time. The Applicable Margin, as of any date, is a percentage per annum determined by reference to the applicable Consolidated Net Leverage Ratio (as defined by the agreement) in effect on such date as set forth in the table below.



Level	Consolidated Net Leverage Ratio	Eurodollar Loans, LIBOR Index Rate Loans and Letter of Credit Fee	Base Rate Loans	Commitment Fee
I	Less than 1.50:1.00	1.75%	0.75%	0.25%
II	Greater than or equal to 1.50:1.00 but less than 2.00:1.00	2.00%	1.00%	0.30%
III	Greater than or equal to 2.00:1.00 but less than 2.50:1.00	2.25%	1.25%	0.30%
IV	Greater than or equal to 2.50:1.00 but less than 3.00:1.00	2.50%	1.50%	0.35%
V	Greater than or equal to 3.00:1.00	2.75%	1.75%	0.40%

As of June 30, 2018, the Amended Term Loan and Amended Revolving Credit Facility bore interest at a rate equal to One Month LIBOR plus 2.25%. The interest rate is subject to an increase of 2.00% if an event of default exists under the Amended and Restated Credit Agreement. The Company is required to pay a commitment fee on the average daily unused portion of the Amended Revolving Credit Facility, based on the Applicable Margin which is 0.30% as of June 30, 2018. During the three months ended March 31, 2018, the Company entered into an interest rate swap to reduce its exposure to fluctuations in the interest rates associated with its debt, which was effective April 2, 2018. See Note 9 - Derivative.

The Company has the right at any time and from time to time to prepay any borrowing, in whole or in part, without premium or penalty, by giving irrevocable written notice (or telephonic notice promptly confirmed in writing) except that such notice shall be revocable if a prepayment is being made in anticipation of concluding a financing arrangement, and the Company is ultimately unable to secure such financing arrangement. The Company is required to prepay the Amended Credit Facilities under certain circumstances including from net cash proceeds from asset sales or dispositions in excess of certain thresholds, as well as from net cash proceeds from the issuance of certain debt by the Company.

The Amended and Restated Credit Agreement contains customary representations, warranties, and affirmative covenants. The Amended and Restated Credit Agreement also contains customary negative covenants, subject to some exceptions, on: (i) indebtedness and preferred equity, (ii) liens, (iii) fundamental changes, (iv) investments, (v) restricted payments, and (vi) sale of assets and certain other restrictive agreements. The Amended and Restated Credit Agreement also contains customary events of default, such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control and the failure to observe the negative covenants and other covenants related to the operation of the Company’s business.

The Amended and Restated Credit Agreement also includes two financial covenants: (i) limiting a maximum Consolidated Total Leverage ratio (as defined therein) to be no greater than 3.50:1.00 for the fiscal quarters ending through June 30, 2018, 3.25:1.00 for the fiscal quarters ending September 30, 2018 through June 30, 2019, and 3.00:1.00 for each fiscal quarter ending thereafter and as adjusted pursuant to a Qualified Permitted Acquisition (as defined therein); and (ii) requiring a minimum Consolidated Fixed Charge Coverage ratio (as defined therein) as of the end of each fiscal quarter of 1.50:1.00. As of June 30, 2018, the Company was in compliance with the financial covenants and other covenants contained in the Amended and Restated Credit Agreement.

The obligations under the Amended and Restated Credit Agreement are guaranteed by all of the Company’s domestic wholly-owned subsidiaries and are secured by a first-priority security interest in the Collateral (as defined therein).

As of June 30, 2018, the Company had $21.6 million letters of credit outstanding and $93.4 million available under the Amended Revolving Credit Facility. The letters of credit relate to the Company’s workers’ compensation and professional liability insurance policies.

Convertible Notes

The Company and certain of its domestic subsidiaries ~~entered into~~had a Convertible Note Purchase Agreement (the Note Purchase Agreement), with certain note holders (collectively, the Noteholders) ~~on June 30, 2014. Pursuant to the Note Purchase Agreement, the Company sold to the Noteholders~~for an aggregate of $25.0 million of ~~convertible senior notes (the~~ Convertible ~~Notes).~~Notes. Subject to certain exceptions, the Company was not permitted to redeem the Convertible Notes until June 30, 2017. On March 17, 2017, the Company paid in full the Convertible Notes. In connection with the repayment, the Company issued to the Noteholders an aggregate of 3,175,584 shares of Common Stock, par value $0.0001, and cash in the aggregate amount of $5.6 million (of which $5.0 million is included in repayment of debt and $0.6 million is presented as extinguishment fees, both

within financing activities on the condensed consolidated statements of cash flows). Upon derecognition of the net carrying amounts of the Convertible Notes (the remaining $20.0 million after the $5.0 million cash payment) and derivative liability ($26.0 million), the Company recognized a non-cash charge of $5.0 million as loss on early extinguishment and a non-cash addition to additional paid-in capital of $46.0 million for the fair value of the shares, which is not presented on the condensed consolidated statements of cash flows. The loss on early extinguishment of debt in the three months ended March 31, 2017 includes the write-off of unamortized loan fees and remaining interest due through the Forced Conversion date (defined below) of June 30, 2017.

The Convertible Notes were convertible at the option of the holders thereof at any time into shares of the Common Stock at a conversion price of $7.10 per share, or 3,521,126 shares of Common Stock. After three years from the issuance date, the Company had the right to force a conversion of the Convertible Notes if the volume-weighted average price (VWAP) per share

of its Common Stock exceeded 125% of the then conversion price for 20 days of a 30 day trading period (Forced Conversion date).

The Convertible Notes bore interest at a rate of 8.00% per annum, payable in quarterly cash installments. The Convertible Notes would have matured on June 30, 2020, unless earlier repurchased, redeemed or converted. ~~Subject to certain exceptions, the Company was not permitted to redeem the Convertible Notes until June 30, 2017.~~

~~Prior Credit Facilities~~

9. DERIVATIVE

At December 31, 2015, the Company had a senior secured asset-based revolving credit facility (First Lien Loan), with a termination date of June 30, 2017, in the aggregate principal amount of up to $85.0 million, which included a subfacility for swingline loans up to an amount equal to 10% of the aggregate Revolver Commitments, as defined in the agreement, and a $35.0 million subfacility for standby letters of credit. The Company also had a five-year second lien term loan facility (Second Lien Term Loan) in an aggregate principal amount of $30.0 million. The Company had the ability, at its option at any time, to prepay the Second Lien Term Loan in whole or in part at the redemption prices set forth therein, which ranged from 103% of the principal amount thereof for prepayments during the period July 1, 2015 through June 30, 2016, 102% of the principal amount thereof for prepayments during the period July 1, 2016 through June 30, 2017, and 100% of the principal amount thereof for prepayments after June 30, 2017.

~~2016 Senior Credit Facilities~~

~~On June 22, 2016,~~In March 2018, the Company entered into an interest rate swap, with an effective date of April 2, 2018 and termination date of August 1, 2022. No initial investments were made to enter into the agreement. The interest rate swap agreement requires the Company to pay a ~~senior credit agreement (Credit Agreement), which provided for~~fixed rate to the respective counterparty of 2.627% per annum on an ~~initial~~amortizing notional amount beginning at $48.8 million (corresponding with its term loan payment schedule), and to receive from the respective counterparty, interest payments based on the applicable notional amounts and 1 month USD LIBOR, with no exchanges of ~~$40.0 million (Term Loan) and a revolving credit facility of up to $100.0 million (Revolving Credit Facility) (together with~~notional amounts. The interest rate swap effectively fixes the ~~Term Loan, the Senior Credit Facilities) both of which would have matured~~interest rate on ~~June 22, 2021. Subsequent to June 30, 2017, this Credit Agreement has been amended and restated. See Note 16 - Subsequent Events.~~

The Revolving Credit Facility included a subfacility for swingline loans up to an amount not to exceed $15.0 million, and a $35.0 million sublimit for the issuance of standby letters of credit. The Credit Agreement also included a provision permitting the Company, subject to certain conditions, to increase the aggregate amount50% of the commitments under the Revolving Credit Facility or establish one or more additional term loans in an aggregate amount of up to $50.0 million with optional additional commitments from existing lenders or new commitments from additional lenders. The Term Loan was payable in quarterly installments, with the first payment made September 30, 2016, and each such installment being in the aggregate annual principal amount (subject to adjustment as a result of prepayments) equal to 1.25%amortizing balance of the ~~principal amount for the first four installments, 1.875% for the next eight installments, and 2.50%~~Company’s term debt, exclusive of the ~~principal amount for~~credit spread on the remaining installments. The Revolving Credit Facility could be used to provide ongoing working capital, fund permitted acquisitions and for other general corporate purposes of the Company and its subsidiaries.

Proceeds of the Senior Credit Facilities were used primarily to refinance the Company’s First Lien Loan and Second Lien Term Loan and to pay related transaction fees and expenses, including a prepayment penalty of $0.6 million. In addition, $23.1 million of standby letters of credit issued under the First Lien Loan were rolled into and deemed issued under the Revolving Credit Facility. The Revolving Credit Facility could be used to provide ongoing working capital, fund permitted acquisitions, and for other general corporate purposes of the Company and its subsidiaries.

The repayment of the Second Lien Term Loan was treated as extinguishment of debt and, as a result, the Company recognized a loss on extinguishment of debt of approximately $1.6 million in the second quarter of 2016, related to the write-off of unamortized net debt discount and issuance costs as well as transaction fees and expenses.

Subject to the Credit Agreement, the Company paid interest on (i) each Base Rate Loan at the Base Rate (as defined therein) plus the Applicable Margin in effect from time to time, (ii) each LIBOR Index Rate Loan at the One Month LIBOR Index Rate (as defined therein) plus the Applicable Margin in effect from time to time and (iii) each Eurodollar Loan at the Adjusted LIBOR for the applicable Interest Period (as defined therein) in effect for such Loan plus the Applicable Margin in effect from time to time. The Applicable Margin, as of any date, was a percentage per annum determined by reference to the applicable Consolidated Net Leverage Ratio (as defined by the agreement) in effect on such date as set forth in the table below.

Level Consolidated Net Leverage Ratio Eurodollar Loans, LIBOR Index Rate Loans and Letter of Credit Fee Base Rate Loans Commitment Fee
I Less than 1.50:1.00 1.75% 0.75% 0.25%
II Greater than or equal to 1.50:1.00
but less than 2.00:1.00 2.00% 1.00% 0.30%
III Greater than or equal to 2.00:1.00
but less than 2.50:1.00 2.25% 1.25% 0.30%
IV Greater than or equal to 2.50:1.00
but less than 3.00:1.00 2.50% 1.50% 0.35%
V Greater than or equal to 3.00:1.00 2.75% 1.75% 0.40%

debt. As of June 30, ~~2017,~~2018, the Term Loan and Revolving Credit Facility bore interest at a rate equal to One Month LIBOR plus 175 basis points. The interest rate was subject to an increase of 200 basis points if an event of default existed under the Credit Agreement. The Company was required to pay a commitment fee on the average daily unused portion of the Revolving Credit Facility, based on the Applicable Margin which was 0.25% as of June 30, 2017.

The Company had the right at any time and from time to time to prepay any borrowing, in whole or in part, without premium or penalty, by giving irrevocable written notice (or telephonic notice promptly confirmed in writing) except that such notice shall be revocable if a prepayment is being made in anticipation of concluding a financing arrangement, and the Company was ultimately unable to secure such financing arrangement. The Company was required to prepay the Senior Credit Facilities under certain circumstances including from net cash proceeds from asset sales or dispositions in excess of certain thresholds, as well as from net cash proceeds from the issuance of certain debt by the Company.

The Credit Agreement contained customary representations, warranties, and affirmative covenants. The Credit Agreement also contained customary negative covenants, subject to some exceptions, on (i) indebtedness and preferred equity, (ii) liens, (iii) fundamental changes, (iv) investments, (v) restricted payments, and (vi) sale of assets and certain other restrictive agreements. The Credit Agreement also contained customary events of default, such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control and the failure to observe the negative covenants and other covenants related to the operation of the Company’s business.

The Credit Agreement also included two financial covenants: (i) limiting a maximum Consolidated Total Leverage ratio (as defined therein) to be no greater than 3.50:1.00 for the fiscal quarters ending September 30, 2016 through June 30, 2017, 3.25:1.00 for the fiscal quarters ending September 30, 2017 through June 30, 2018, and 3.00:1.00 for each fiscal quarter ending thereafter and as adjusted pursuant to a Qualified Permitted Acquisition (as defined therein); and (ii) requiring a minimum Consolidated Fixed Charge Coverage ratio (as defined therein) as of the end of each fiscal quarter of 1.50:1.00. As of June 30, 2017, the Company was in compliance with the financial covenants and other covenants contained in the Credit Agreement.

The obligations under the Credit Agreement were guaranteed by all of the Company’s domestic wholly-owned subsidiaries and were secured by a first-priority security interest in the Collateral (as defined therein).

As of June 30, 2017, the Company had $21.6 million letters of credit outstanding and $78.4 million available under the Revolving Credit Facility. The letters of credit related to the Company’s workers’ compensation and professional liability insurance policies.

~~8. CONVERTIBLE NOTES DERIVATIVE LIABILITY~~

On March 17, 2017, the Company paid in full its Convertible Notes and, as a result, derecognized the derivative liability. See Note 7 - Debt. The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company issued Convertible Notes with features that were either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by the ~~Accounting for Derivative Financial Instruments and Hedging Activities~~ ~~Topic of the FASB ASC, in certain instances, these instruments were required to be carried as derivative liabilities, at fair value, in the financial statements.~~

The Convertible Notes were subject to anti-dilution adjustments that allowed for the reduction in the Conversion Price, as defined in the agreement, in the event the Company subsequently issued equity securities including Common Stock or any

security convertible or exchangeable for shares of Common Stock for a price less than the then current conversion price. In addition, the Convertible Notes allowed the issuer to exercise optional redemption features and the holder to exercise an offer to purchase feature, under certain conditions. The Company accounted for the conversion option in accordance with the ~~Accounting for Derivative Financial Instruments and Hedging Activities~~ Topic. Since this conversion feature is not considered to be solely indexed to the Company’s own stock the derivative was recorded as a liability in the line item long-term debt on the Company's condensed consolidated balance sheets.

The Company’s Convertible Notes derivative liability was measured at fair value using a trinomial lattice model. The optional redemption features, along with the offer to purchase features were incorporated into the valuation model. Inputs into the model required estimates, including such items as estimated volatility of the Company's stock, estimated credit risk of the Company, estimated probabilities of change of control and issuance of additional financing, risk-free interest rate, and the estimated life of the financial instruments being fair valued. In addition, since the conversion price contained an anti-dilution adjustment, the probability that the Conversion Price of the Notes would decrease as the share price decreased was incorporated into the valuation calculation.

~~The~~ fair value of the ~~derivative liability~~interest rate swap agreement was primarily determined by fluctuations in our stock price. In addition, changes in our credit risk profile impacted the fair value determination. These fluctuations resulted in a current period gain or loss that was presented on the condensed consolidated statements of operations as loss (gain) on derivative liability.

not material.


9.10.	FAIR VALUE MEASUREMENTS

The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ~~The~~ ~~Fair Value Measurements and Disclosures~~ ~~Topic~~This topic also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Items Measured at Fair Value on a Recurring Basis:

The Company’s financial assets/liabilities required to be measured on a recurring basis were its: deferred compensation liability included in other long-term liabilities, ~~Convertible Notes derivative liability~~interest rate swap agreements included in other long-term ~~debt~~assets and ~~capital lease obligations,~~other current liabilities, and contingent consideration liabilities.

Deferred compensation—The Company utilizes Level 1 inputs to value its deferred compensation ~~liability.~~liabilities. The Company’s deferred compensation ~~liability is~~liabilities are measured using publicly available indices that define the liability amounts, as per the plan documents.

~~Convertible Notes derivative liability~~Interest rate swap agreement—The Company utilized Level 32 inputs to value its ~~Convertible Notes derivative liability.~~interest rate swap agreement. See Note 78 - Debt and Note 89 - ~~Convertible Notes derivative liability.~~Derivative.

Contingent consideration liabilities—Potential earnout payments related to the acquisition of Mediscan and USR are contingent upon meeting certain performance requirements through 2019. ~~See Note 3 - Acquisitions.~~ The long-term portion of these liabilities is included

in contingent consideration, and the short-term portion is included in other current liabilities on the condensed consolidated balance sheets. The Company utilized Level 3 inputs to value these contingent consideration liabilities as significant unobservable inputs were used in the calculation of their fair value. The Mediscan contingent consideration ~~is recorded as a~~ liability ~~and~~has been measured at fair value using a discounted cash flow model in a Monte Carlo simulation setting, utilizing significant unobservable inputs, including the expected volatility of the acquisitions' gross profits and an estimated discount rate commensurate with the risks of the expected gross profit stream. See Note 4 - Acquisitions. The ~~USR~~ contingent consideration related to the Company's acquisition of US Resources Healthcare, LLC (USR) is recorded as a liability and measured at fair value using a discounted cash flow model utilizing significant unobservable inputs, including

the probability of achieving each of the potential milestones and an estimated discount rate commensurate with the risks of the expected cash flows attributable to the milestones.

The fair value of contingent consideration and the associated liabilities will be adjusted to fair value at each reporting date until actual settlement occurs, with the changes in fair value and related accretion reflected as acquisition-related contingent consideration on the condensed consolidated statements of operations. Significant increases (decreases) in the volatility or in any of the probabilities of success, or decreases (increases) in the discount rate would result in a significantly higher (lower) fair value, respectively, and commensurate changes to these liabilities.

The table which follows summarizes the estimated fair value of the Company’s financial assets and liabilities measured on a recurring ~~basis as of~~ ~~June 30, 2017~~ ~~and December 31, 2016:~~basis:

Fair Value Measurements


	June 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Financial Assets:					(amounts in thousands)
(Level 2)
Interest rate swaps					$	105	$	—
Financial Liabilities:	(amounts in thousands)
(Level 1)
Deferred compensation	$	1,303	$	1,472	$	1,576	$	1,467
(Level 3)
Convertible Notes derivative liability	$	—	$	27,532
Contingent consideration liabilities	$	6,054	$	5,603	$	5,700	$	5,368

The ~~table which follows reconciles~~Mediscan acquisition on October 30, 2015 and the USR acquisition on December 1, 2016 included contingent consideration liabilities. Valuation adjustments and accretion expense is included as acquisition-related contingent consideration on the condensed consolidated statements of operations. The opening balances reconciled to the closing balances for fair value measurements of these liabilities categorized within Level 3 of the fair value ~~hierarchy:~~hierarchy are as follows:

Contingent Consideration Convertible Notes
Liabilities (a) Derivative Liability
(amounts in thousands)
December 31, 2016 $ 5,603
$ 27,532
Settlements (100 ) (25,951 )
Accretion expense 270
—
Valuation gain for the period —
(1,581 )
March 31, 2017 5,773
—
Accretion expense 281
—
June 30, 2017 $ 6,054
$ —

~~_______________~~


~~(a)~~	Related to the Mediscan acquisition on October 30, 2015 and the USR acquisition on December 1, 2016. See Note 3 - Acquisitions. Valuation gain and accretion expense is included as acquisition-related contingent consideration on the condensed consolidated statements of operations.



	Contingent Consideration
	Liabilities
	(amounts in thousands)
December 31, 2017	$	5,368
Payments/Settlements	(100		)
Accretion expense	212
March 31, 2018	5,480
Accretion expense	220
June 30, 2018	$	5,700

Items Measured at Fair Value on a Non-Recurring Basis:

The Company's non-financial assets, such as goodwill, trade names, other intangible assets, and property and equipment, are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized. During an evaluation of goodwill, trade names, and other intangible assets during the fourth quarter of 2017, the carrying value of goodwill and trade names in the Physician Staffing reporting unit exceeded their fair values. As ofa result, the

Company recorded impairment charges that incorporates fair value measurements based on Level 3 inputs. For the three and six months ended June 30, ~~2017 and December 31, 2016,~~2018, no impairment charges were ~~deemed necessary.~~recognized.

Other Fair Value Disclosures:

Financial instruments not measured or recorded at fair value in the accompanying condensed consolidated balance sheets consist of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and short and long-term debt. The estimated fair value of accounts receivable, accounts payable, and accrued expenses approximate their carrying amount due to the short-term nature of these instruments. The estimated fair value of the Company's debt was calculated using a discounted cash flow analysis and appropriate valuation methodologies using Level 2 inputs from available market information.

The ~~following table represents the~~ carrying amounts and estimated fair value of the Company’s significant financial instruments that were not measured at fair ~~value:~~value are as follows:


	June 30, 2017				December 31, 2016				June 30, 2018				December 31, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Liabilities:			(amounts in thousands)								(amounts in thousands)
(Level 2)
Term Loan, net	$	37,588	$	39,500	$	39,137	$	41,500	$	96,744	$	97,000	$	99,134	$	100,500
Convertible Notes, net	$	—	$	—	$	20,331	$	27,250

Concentration of Credit Risk:

The Company has invested its excess cash in highly-rated overnight funds and other highly-rated liquid accounts. The Company ~~has been~~is exposed to credit risk associated with these ~~investments.~~investments, as the cash balances typically exceed the current Federal Deposit Insurance Corporation (FDIC) limit of $250,000. The Company minimizes its credit risk relating to these positions by monitoring the financial condition of the financial institutions involved and by primarily conducting business with large, well established financial institutions and diversifying its counterparties.

The Company generally does not require collateral and mitigates its credit risk by performing credit evaluations and monitoring at-risk accounts. The allowance for doubtful accounts represents the Company’s estimate of uncollectible receivables based on a review of specific accounts and the Company’s historical collection experience. The Company writes off specific accounts based on an ongoing review of collectability as well as past experience with the customer. The Company’s contract terms typically require payment between 15 to 60 days from the date services are provided and are considered past due based on the particular negotiated contract terms. Overall, based on the large number of customers in differing geographic areas, primarily throughout the United States and its territories, the Company believes the concentration of credit risk is limited.


~~10.~~11.	STOCKHOLDERS’ EQUITY

Stock Repurchase Program

Under an authorized share repurchase program, the Company repurchased and retired shares of its Common Stock as follows: 157,056 shares of its Common Stock for $1.8 million, at an average market price of $11.53 per share during the three months ended June 30, 2018; and 399,456 shares of its Common Stock for $4.7 million, at an average market price of $11.75 per share during the six months ended June 30, 2018. During the three and six months ended June 30, 2017, ~~and 2016,~~ the Company did not repurchase any shares of its Common ~~Stock under its February 2008 Board authorization.~~Stock.

As of June 30, ~~2017,~~2018, the Company ~~may purchase up to an additional 942,443~~has 542,987 shares of Common Stock under the ~~February 2008 Board authorization,~~current authorized share repurchase program available to repurchase, subject to certain conditions in the Company's Amended and Restated Credit Agreement. The Company may repurchase up to an aggregate amount not to exceed ~~$2.5~~$5.0 million in any fiscal year, or an unlimited amount if the Company meets certain conditions as described in its Amended and Restated Credit Agreement. At June 30, ~~2017,~~2018, the Company had ~~35,740,394~~35,605,925 unrestricted shares of Common Stock outstanding.

Shares Issued

~~The~~On March 17, 2017, the Company paid in full its Convertible Notes. In connection with the repayment, the Company issued 3,175,584 shares to ~~its prior Convertible Notes~~the noteholders. See Note 78 - Debt.

Share-Based Payments

~~On May 23, 2017,~~Restricted stock awards granted under the ~~Company's shareholders approved an amendment and restatement of its~~Company’s 2014 Omnibus Incentive Plan, ~~(2014~~Amended and Restated effective May 23, 2017 (2017 Plan), ~~which, among others, included~~entitle the ~~following modifications: (i)~~holder to receive, at the end of a ~~2,000,000 share increase~~vesting period, a specified number of shares of the ~~aggregate share reserve to 6,100,000 shares, (2) extension~~Company’s common stock. Share-based compensation expense is measured by the market value of the ~~2014 Plan until May 23, 2027, and (3) re-approval~~Company’s stock on the date of ~~the Section 162(m)~~

~~performance goals so that certain incentive awards granted to certain executive officers of the Company may qualify as exempt performance-based compensation.~~

During the six months ended June 30, 2017, 300,047 of restricted stock awards and 181,067 targeted performance stock awards were granted under the 2014 Plan to the Company's non-employee directors and management team.grant. The ~~restricted stock awards~~shares vest ratably over a three year period ending on the anniversary date of the grant, and vesting is subject to the employee's continuing employment. ~~The~~There is no partial vesting and any unvested portion is forfeited. Pursuant to the 2017 Plan, the number of target shares that are issued for ~~the~~ performance-based stock awards are determined based on the level of attainment of the ~~performance~~ targets. ~~If the minimum level of performance is attained for the 2017 awards, restricted stock will be issued with a vesting date of March 31, 2020, subject to the employee’s continuing employment.~~

During the first quarter of 2017, the Company's Compensation Committee of the Board of Directors approved a 48% level of attainment for the 2016 performance-based share awards, resulting in the issuance of 86,784 performance shares that will vest on December 31, 2018.

The following table summarizes restricted stock awards and performance stock awards activity issued under the ~~2014~~2017 Plan for the six months ended June 30, ~~2017:~~2018:


	Restricted Stock Awards				Performance Stock Awards				Restricted Stock Awards				Performance Stock Awards
	Number of Shares		Weighted Average Grant Date Fair Value		Number of Target Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value		Number of Target Shares		Weighted Average Grant Date Fair Value
Unvested restricted stock awards, January 1, 2017	532,294		$	9.98	332,092		$	11.73
Unvested restricted stock awards, January 1, 2018									515,601		$	13.03	257,575		$	13.49
Granted	300,047		$	13.77	181,067		$	14.36	362,620		$	11.27	238,328		$	11.11
Vested	(287,259	)	$	8.65	—		$	—	(212,061	)	$	12.64	—		$	—
Forfeited	(34,287	)	$	9.56	(118,371	)	$	11.78	(43,003	)	$	13.24	(36,540	)	$	13.51
Unvested restricted stock awards, June 30, 2017	510,795		$	12.98	394,788		$	12.92
Unvested restricted stock awards, June 30, 2018									623,157		$	12.14	459,363		$	12.25

During the three and six months ended June 30, ~~2017~~2018, ~~$1.3~~$0.9 million and $1.4 million, respectively, was included in selling, general and administrative expenses related to share-based payments, and a net of 48,620 and 150,454 shares, respectively, of Common Stock were issued upon the vesting of restricted stock.

During the three and six months ended June 30, 2017, $1.3 million and $2.0 million, respectively, was included in selling, general and administrative expenses related to share-based payments, and a net of 126,798 and 201,676 shares, respectively, of Common Stock were issued upon the vesting of restricted stock.

~~During the~~ ~~three and six~~ ~~months ended June 30, 2016,~~ ~~$1.1 million~~ and $1.8 million, respectively, was included in selling, general and administrative expenses related to share-based payments, and a net of 164,274 and 215,365 shares, respectively, of Common Stock were issued upon the vesting of restricted stock.


~~11.~~12.	SEGMENT DATA

In accordance with the Segment Reporting Topic of the FASB ASC, the Company reports three business segments – Nurse and Allied Staffing, Physician Staffing, and Other Human Capital Management Services. The Company manages and segments its business based on the services it offers to its customers as described below:

●

Nurse and Allied Staffing – Nurse and Allied Staffing provides traditional staffing, recruiting, and value-added workforce solutions including: temporary and permanent placement of travel and local branch-based nurse and allied professionals, MSP services, education healthcare services, and outsourcing services. Its clients include: public and private acute-care and non-acute care hospitals, government facilities, public schools and charter schools, outpatient clinics, ambulatory care facilities, physician practice groups, retailers, and many other healthcare providers throughout the ~~United~~Unites States. Substantially all of the results of the Advantage acquisition have been aggregated with the Company's Nurse and Allied Staffing business segment. See Note 4 - Acquisitions.

●

Physician Staffing – Physician Staffing provides physicians in many specialties, as well as certified registered nurse anesthetists, ~~(CRNAs),~~ nurse practitioners, ~~(NPs),~~ and physician assistants ~~(PAs)~~ as independent contractors on temporary assignments throughout the ~~U.S.~~United States at various healthcare facilities, such as acute and non-acute care facilities, medical group practices, government facilities, and managed care organizations.

1617


●	Other Human Capital Management Services – Other Human Capital Management Services includes retained and contingent search services for physicians, healthcare executives, and other healthcare professionals within the United States.

The Company’s management evaluates performance of each segment primarily based on revenue and contribution income. The Company defines contribution income as income ~~or loss~~ from operations before depreciation and amortization, ~~loss on sale of business,~~ acquisition-related contingent consideration, acquisition and integration costs, restructuring costs, ~~impairment charges,~~ and corporate expenses not specifically identified to a reporting segment. Contribution income is a financial measure used by management when assessing segment performance and is provided in accordance with the Segment Reporting Topic of the FASB ASC. The Company’s management does not evaluate, manage, or measure performance of segments using asset information; accordingly, total asset information by segment is not prepared or disclosed. The information in the following table is derived from the segments’ internal financial information as used for corporate management purposes. Certain corporate expenses are not allocated to and/or among the operating segments.

Information on operating segments and a reconciliation to income ~~(loss)~~ from operations for the periods indicated are as follows:


	Three Months Ended					Six Months Ended						Three Months Ended				Six Months Ended
	June 30,					June 30,						June 30,				June 30,
	2017		2016			2017			2016			2018		2017		2018		2017
	(amounts in thousands)											(amounts in thousands)
Revenues:
Revenue from services:
Nurse and Allied Staffing	$	180,927	$	172,048		$	364,035		$	340,813		$	179,339	$	180,927	$	364,444	$	364,035
Physician Staffing	24,720		23,927			46,184			48,380			21,334		24,720		42,894		46,184
Other Human Capital Management Services	3,666		3,468			6,667			6,833			3,899		3,666		7,522		6,667
	$	209,313	$	199,443		$	416,886		$	396,026		$	204,572	$	209,313	$	414,860	$	416,886

Contribution income:
Nurse and Allied Staffing	$	18,141	$	17,615		$	33,763		$	34,405		$	16,909	$	18,141	$	33,669	$	33,763
Physician Staffing	2,047		2,050			2,867			3,603			1,383		2,047		2,883		2,867
Other Human Capital Management Services	241		69			(199		)	(42		)	312		241		624		(199		)
	20,429		19,734			36,431			37,966			18,604		20,429		37,176		36,431

Unallocated corporate overhead	10,827		9,791			21,113			20,159			10,810		10,827		21,462		21,113
Depreciation and amortization	2,285		2,465			4,476			4,877			2,963		2,285		5,872		4,476
Acquisition-related contingent consideration	281		183			551			470			220		281		433		551
Acquisition and integration costs	587		—			587			—			76		587		191		587
Impairment charges	—		24,311			—			24,311
Income (loss) from operations	$	6,449	$	(17,016	)	$	9,704		$	(11,851	)
Restructuring costs												193		—		628		—
Income from operations												$	4,342	$	6,449	$	8,590	$	9,704

~~12.~~13. COMMITMENTS AND CONTINGENCIES

Commitments:

Operating Leases

The Company has entered into non-cancelable operating lease agreements for the rental of office space and equipment. Certain of these leases include options to renew as well as rent escalation clauses and in certain cases, incentives from the landlord for rent-free months and premises reductions, and allowances for tenant improvements. The rent escalations and incentives have been reflected in the table below.

Future minimum lease payments, as of June 30, 2018, associated with these agreements with terms of one year or more are as follows:



Years Ending December 31:	(amounts in thousands)
2018	$	3,823
2019	6,897
2020	5,725
2021	4,942
2022	4,451
Thereafter	9,419
	$	35,257

Contingencies:

Legal Proceedings

The Company is subject to legal proceedings and claims that arise in the ordinary course of its business. The Company does not believe the outcome of these matters will have a material adverse effect on the Company's business, financial condition, results of operations or cash flows.

Sales and Other State Non-Income Tax Liabilities

The Company's sales and other state non-income tax filings are subject to routine audits by authorities in the jurisdictions where it conducts business in the United States which may result in assessments of additional taxes. The Company accrues sales and other non-income tax liabilities based on the Company's best estimate of its probable liability utilizing currently available information and interpretation of relevant tax regulations. Given the nature of the Company's business, significant subjectivity exists as to both whether sales and other state non-income taxes can be assessed on its activity and how the sales tax will ultimately be measured by the relevant jurisdictions. The Company makes a determination for each reporting period whether the estimates for sales and other non-income taxes in certain states should be revised. ~~The~~Non-income tax expense is included in selling, general and administrative expenses on its condensed consolidated statements of operations and the liability is reflected in sales tax payable within other current liabilities as of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, on its condensed consolidated balance sheets.


~~13.~~14.	INCOME TAXES

For the three and six month periods ended June 30, ~~2017~~2018 ~~and 2016,~~, the Company ~~has calculated~~estimated its effective tax rate on an annual basis, as opposed to calculating it for the three and six month periods ended June 30, 2017 based on year-to-date results, ~~as opposed to estimating its annual effective tax rate.~~in accordance with the Income Taxes Topic of the FASB ASC. The Company’s effective tax rate for the three and six months ended June 30, ~~2017~~2018 was ~~12.6%~~39.1% and ~~24.2%~~38.4%, respectively, including the impact of discrete items. Excluding discrete items, the Company’s effective tax rate for the three and six months ended June 30, ~~2017~~2018 was ~~12.4%~~40.3% and ~~31.7%~~37.8%, respectively. The effective tax ~~rates are different than~~rate for the ~~statutory rates~~second quarter of 2018 was primarily ~~due to~~impacted by the ~~impact from amortization of indefinite-lived intangible assets for tax purposes, the partial~~ non-deductibility of certain per diem expenses, the officers' compensation limitation, and international and state taxes.

~~The~~During the fourth quarter of 2017, the Company ~~records valuation allowances to reduce deferred tax assets when~~concluded that it iswas more likely than not that a benefit from a substantial portion of its United States federal and state deferred tax ~~benefit will not~~assets would be realized. ~~The assessment~~As a result, it released the majority of ~~whether or not a~~its valuation allowance is required often requires significant judgment, including the long-range forecast of future taxable income and the evaluation of tax planning initiatives. Any conclusions made related to the deferred tax valuation allowance are based on a detailed evaluation of all available positive and negative evidence and the weight of such evidence. The Company believes it is necessary to see further positive evidence, such as sustained achievement of cumulative profits, before these valuation allowances can be released. Based on the Company's forecast, it is possible that the Company may release all or a portion of the remaining valuation allowance, within the next twelve months.allowance. The Company will continue to assess the realizability of its deferred tax ~~assets.~~assets and, as of June 30, 2018, has maintained a $1.1 million valuation allowance against certain state net operating losses.

The Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin (SAB) No. 118 (SAB 118), which provides guidance on accounting for the tax effects of the 2017 Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting required under the Income Taxes Topic of the FASB ASC. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the 2017 Tax Act for which the accounting under the Income Taxes Topic of the FASB ASC is complete. To the extent that a company's accounting for certain income tax effects is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. The ultimate impact of the 2017 Tax Act in our financial statements is

provisional with regard to certain foreign tax provisions and may differ from our estimates due to changes in the interpretations and assumptions made by us as well as additional regulatory guidance that may be issued.

As of June 30, ~~2017,~~2018, the Company had approximately ~~$1.0~~$0.6 million of unrecognized tax benefits included in other current liabilities and other long-term liabilities ($~~5.5~~4.6 million, net of deferred taxes, which would affect the effective tax rate if recognized). During the six months ended June 30, ~~2017,~~2018, the Company had gross increases of $0.6 million to its current year unrecognized tax benefits related to federal and state tax ~~issues.~~provisions.

The tax years of ~~2004, 2005,~~ 2008 and 2010 through ~~2016~~2017 remain open to examination by certain taxing jurisdictions to which the Company is subject to tax, other than certain states in which the statute of limitations has been extended.

~~14.~~15. RELATED PARTY TRANSACTIONS

The Company ~~provides~~provided services to ~~hospitals which are~~customers affiliated with certain members of the Company’s Board of Directors. Management believes services with related parties were conducted on terms equivalent to those prevailing in an arm's-length transaction. Revenue related to these transactions was less than $0.1 million for both the three and six months ended June 30, 2018, and $0.9 million and $2.6 million for the three and six months ended June 30, 2017, ~~respectively, and $1.3 million and $2.7 million for the three and six months ended June 30, 2016,~~ respectively. Accounts receivable due from these hospitals at June 30, ~~2017~~2018 and December 31, ~~2016~~2017 were ~~approximately $0.8~~less than $0.1 million and ~~$1.0~~approximately $0.4 million, respectively.

In connection with the acquisition of MSN, the Company acquired a 68% ownership interest in Cross Country Talent Acquisition Group, LLC (formerly InteliStaf of Oklahoma, LLC), a joint venture between the Company and a hospital system. The Company generated revenue providing staffing services to the hospital system of $4.7 million and $9.1 million for the three and six months ended June 30, 2018, respectively, and $4.5 million and $8.7 million for the three and six months ended June 30, 2017, ~~respectively, and $2.9 million and $6.0 million for the three and six months ended June 30, 2016,~~ respectively. At June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company had a receivable balance of ~~$1.0~~$1.8 million and ~~$1.5~~$0.8 million, respectively, and a payable balance of $0.3 million ~~and $0.2 million, respectively.~~at both periods.

Subsequent to the Company's acquisition of Mediscan on October 30, 2015, Mediscan continued to operate at premises owned, in part, by the founding members of Mediscan. The Company paid $0.1 million and $0.2 million, respectively, in rent expense for these premises for the three and six months ended June 30, ~~2017, respectively,~~2018 and ~~$0.1 million and $0.2 million for the three and six months ended~~ June 30, ~~2016, respectively.~~2017.

~~15.~~16. RECENT ACCOUNTING PRONOUNCEMENTS

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features, and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The amendments in Part I of this ~~Update~~update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed

to an entity’s own stock. The amendments in Part II of this ~~Update~~update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this ~~Update~~update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and should be applied retrospectively to outstanding financial instruments with a down round feature by means of either a cumulative-effect adjustment or for each prior reporting period presented. Early adoption is permitted for all entities, including adoption in an interim period. The Company expects to adopt this standard in its first quarter of 2019, and does not expect this guidance to have a material impact on its consolidated financial statements.

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting,~~ to provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Under this guidance, an entity should account for the effects of a modification unless all of the following are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified, (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified, and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. ASU 2017-09 is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 and is to be applied prospectively to an award modified on or after the adoption date. Early adoption is permitted. The Company expects to adopt this standard in its first quarter of 2018, and does not expect this guidance to have a material impact on its consolidated financial statements.

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,~~ to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Under this guidance, an entity would perform its annual, or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity would consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and is to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company expects to early adopt this standard in 2017 in the first quarter in which an impairment test is performed, and does not expect this guidance to have a material impact on its consolidated financial statements.

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~, which clarifies the definition of a business, with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This update provides a framework to assist entities in evaluating whether both an input and a substantive process are present, and narrows the definition of the term output so that the term is consistent with how outputs are described in the new revenue recognition standard. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted depending upon the date of the transaction. Entities should apply the guidance prospectively on or after the effective date. No disclosures are required at transition. The Company expects to adopt this standard in its first quarter of 2018, and does not expect this guidance to have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will require, among other items, lessees to recognize most leases as assets and liabilities on the balance sheet. Qualitative and quantitative disclosures will be enhanced to better understand the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. Entities

are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited. The Company expects the valuation of right of use assets and lease liabilities, previously described as operating leases, to be the present value of our forecasted future lease commitments. The Company is continuing to assess the overall impacts of the new standard, including the discount rate to be applied in these valuations. See Note 12 - Commitments and Contingencies to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K.

~~In May 2014, the FASB and the International Accounting Standards Board jointly issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers(Topic 606)~~, that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. In March 2016, the FASB issued ASU 2016-08 which further clarifies the guidance on the principal versus agent considerations within ASU 2014-09. In April 2016, the FASB issued ASU 2016-10 to expand the guidance on identifying performance obligations and licensing within ASU 2014-09. In May 2016, the FASB issued ASU 2016-12 to improve revenue recognition in the areas of collectability, presentation of sales tax and other similar taxes collected from customers, non-cash consideration, contract modifications and completed contracts at transition. This update also amends the disclosure requirements within ASU 2014-09 for entities that retrospectively apply the guidance. The latest amendments are intended to address implementation issues that were raised by stakeholders and discussed by the Revenue Recognition Transition Resource Group, and provide additional practical expedients. These updates are effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company established a cross-functional implementation team consisting of representatives from across all of its business segments. The initial phase of analyzing and identifying revenue streams and potential impacts of the new guidance is progressing. The Company is currently in the process of performing a thorough review of its existing contracts and business practices with its largest customers within each revenue stream and business segment to assess the impacts of the new standard. Management expects these reviews to continue through the third quarter. Once this phase is complete, if applicable, management intends to evaluate and implement appropriate changes to its business processes, systems, and controls to support the recognition and disclosure requirements under the new standard. The Company is continuing to assess which transition method it will use to adopt this accounting standard and expects a full assessment through the date of adoption.

~~16. SUBSEQUENT EVENTS~~

~~Acquisition~~

On July 5, 2017, the Company completed the acquisition of substantially all of the assets of Advantage RN, LLC and its subsidiaries (collectively, Advantage), which was effective July 1, 2017. Advantage is an independent travel nurse staffing company that deploys many of its nurses through Managed Service Provider and Vendor Management Systems and maintains direct relationships with many hospitals throughout the United States. The founder and CEO of Advantage will remain with the business after the transaction closes.

The Company acquired substantially all of the assets of Advantage for a total purchase price of $88 million, which is subject to a final net working capital adjustment. The Company paid $86.8 million, net of cash acquired, plus related fees and expenses of $0.6 million, using available cash and borrowings of approximately $67.5 million under the existing Credit Facility, including a $40 million Incremental Term Loan. Included in the amount paid at closing were two escrow accounts, the first was $14.5 million which related to tax liabilities and the second was $7.5 million which was to cover any post-close liabilities. On July 28, 2017, $7.3 million related to the tax liabilities was released from escrow, leaving a balance of $7.2 million. The amount paid at closing was subject to an initial net working capital adjustment of $0.6 million, and an additional $0.6 million was deferred and is due to the seller within 20 months, less any COBRA and healthcare expenses incurred by the Company on behalf of the former sellers.

~~The Company expects to include the results of Advantage in its Nurse and Allied Staffing business segment.~~ The Company is in the process of ~~preparing~~implementing a plan to adopt this standard. As a result of its review, the ~~preliminary estimate~~Company intends to elect the practical expedient package to retain its lease classification for any leases that existed prior to the adoption of the ~~fair value of assets acquired and liabilities assumed, which will be included in the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017.~~

~~Effective July 1, 2017,~~standard. In addition, the Company ~~entered into a Second Amendment~~expects to ~~its Credit Agreement dated June 22, 2016 among~~elect not to apply the ~~Company, all of its wholly-owned subsidiaries,~~recognition requirements to short-term leases. While the ~~lenders party thereto and SunTrust Bank, as administrative agent, swingline lender and an issuing bank, to permit the acquisition of Advantage.~~

Also in connection with the acquisition of Advantage, effective July 1, 2017, pursuant to the Credit Agreement, the Company entered into an Incremental Term Loan Agreement, by and among the Company, all of its wholly-owned subsidiaries and

~~SunTrust Bank as lender and administrative agent. The Incremental Term Loan Agreement provided~~Company has not yet determined the ~~Company with an incremental term loan~~impact on its consolidated balance sheets or statements of ~~$40.0 million~~operations, at June 30, 2018, it was contractually obligated to ~~pay for part~~make future payments of ~~the consideration of the acquisition. The maturity date for the Incremental Term Loan was June 22, 2021.~~

Borrowings under the Incremental Term Loan were payable in quarterly installments, commencing September 30, 2017, with each such installment being in the aggregate principal amount (subject to adjustment as a result of prepayments) for the first eight installments equal to 1.875% and 2.5% of the principal amount of the Incremental Term Loan for the remaining installments; provided that, to the extent not previously paid, the aggregate unpaid principal balance would be due and payable on the maturity date. As of July 5, 2017 the Applicable Margin for Eurodollar Loans and LIBOR Index Rate Loans was 2.25% and the Applicable Margin for Base Rate Loans was 1.25%.

~~Credit Renewal~~

On August 1, 2017, the Company entered into an Amendment and Restatement of its Credit Agreement dated June 22, 2016 among the Company, all of its wholly-owned subsidiaries, the lender parties thereto and SunTrust Bank, as administrative agent, swingline lender and an issuing bank (Amended and Restated Credit Agreement), to refinance and increase the current aggregate committed size of the facility to $215 million, including a term loan of $100.0 million (Amended Term Loan) and a $115 million revolving credit facility (Amended Revolving Credit Facility). The proceeds of $106.5 million from this refinancing included $6.5$35.3 million under its operating lease obligations, substantially related to real estate. Under ASU No. 2016-02 these operating leases would potentially be required to be presented on its consolidated balance sheets. The Company has implemented a lease management software application tool and is continuing to assess the ~~new revolving credit facility, and were used to repay borrowings under~~impact that the ~~Company's previously existing credit facilities,~~adoption of ASU 2016-02 will have on its consolidated financial statements as well as changes to ~~pay related interest, fees and expenses.~~

In addition to increasing the size of the facility, the maturity date was extended to July 31, 2022, and the Consolidated Total Leverage Ratio covenant, as defined therein, was amended to be no greater than 3.50:1.00 for the fiscal quarters ended September 30, 2017 through June 30, 2018, 3.25:1.00 for the fiscal quarters ended September 30, 2018 through June 30, 2019, and 3.00:1.00 for each fiscal quarter ended thereafter, and as adjusted pursuant to a Qualified Permitted Acquisition as defined therein. The Amended and Restated Credit Agreement also includes an accordion feature permitting the Company, subject to certain conditions, to increase the aggregate amount of the commitments under the Amended Revolving Credit Facility or establish one or more additional term loans in an aggregate amount not to exceed $50.0 million with optional additional commitments from existing lenders or new commitments from additional lenders. Other terms and pricing are substantially similar to the prior Credit Agreement. The Applicable Margin through September 30, 2017 remains at 2.25% for Eurodollar Loans and LIBOR Index Rate Loans and 1.25% for Base Rate Loans.

Borrowings under the Amended Term Loan are payable in quarterly installments, commencing September 30, 2017, in an aggregate annual amount equal to 5% for the first four installments, 7.5% for the next eight installments, and 10% for the remaining installments; provided that, to the extent not previously paid, the aggregate unpaid principal balance would be due and payable on the maturity date.its processes.


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 ~~Cross Country Healthcare, Inc.~~the Company. Additionally, the MD&A also conveys our expectations of the potential impact of known trends, events or uncertainties that may impact future results. This discussion supplements the detailed information presented in the condensed consolidated financial statements and notes thereto which should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K, filed for the year ended December 31, ~~2016.~~2017.

Business Overview

We provide healthcare staffing, recruiting and workforce solutions to our customers through a network of 8572 office locations throughout the United States. Our services include placing clinicians on travel and per diem assignments, local short-term contracts, and permanent positions. In addition, we offer flexible workforce management solutions to our customers including: managed service programs (MSP), education healthcare, recruitment process outsourcing (RPO), and other outsourcing and value-added services as described in Item 1. Business in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. In addition, we provide both retained and contingent placement services for healthcare executives, physicians, and other healthcare professionals.

We manage and segment our business based on the nature of the services we offer to our customers. As a result, in accordance with the Segment Reporting Topic of the FASB ASC, we report three business segments – Nurse and Allied Staffing, Physician Staffing, and Other Human Capital Management Services.

●

Nurse and Allied Staffing – Nurse and Allied Staffing represented approximately ~~86%~~88% of our total revenue in the second quarter of ~~2017.~~2018. Nurse and Allied Staffing provides traditional staffing, recruiting, and value-added workforce solutions including: temporary and permanent placement of travel and local branch-based nurse and allied professionals, MSP services, education healthcare services, and outsourcing services. Substantially all of the results of the acquisition of Advantage have been aggregated with our Nurse and Allied Staffing business segment. See Note 4 - Acquisitions to our condensed consolidated financial statements.

●

Physician Staffing – Physician Staffing represented approximately ~~12%~~10% of our total revenue in the second quarter of ~~2017.~~2018. Physician Staffing provides physicians in many specialties, as well as certified registered nurse anesthetists, nurse practitioners, and physician assistants under our Medical Doctor Associates (MDA) brand as independent contractors on temporary assignments throughout the United States.


●	Other Human Capital Management Services – Other Human Capital Management Services (OHCMS) represented approximately 2% of our total revenue in the second quarter of ~~2017.~~2018. OHCMS is comprised of retained and contingent search services for physicians, healthcare executives, and other healthcare professionals within the United States.

Summary of Operations

For the quarter ended June 30, ~~2017~~,2018, revenue from services ~~grew 5%~~decreased 2% year-over-year to ~~$209.3~~$204.6 million,~~, predominantly from~~ with declines in both our Nurse and Allied Staffing and our Physician Staffing reporting segments, partially offset by growth in our OHCMS reporting segment. The decrease in our Nurse and Allied Staffing segment was primarily due to lower volume particularly in ~~all~~our legacy travel nurse and branch operations businesses, partially offset by the impact of the Advantage acquisition. The decrease in our Physician Staffing segment was due to lower volume. We continue to manage our selling, general and administrative expenses as we remain committed to improving operating leverage and overall profitability. As part of our ~~business segments.~~cost savings and efficiency initiatives, we incurred $0.2 million in restructuring charges during the second quarter of 2018. Net income attributable to common shareholders was ~~$4.9~~$1.5 million, or ~~$0.13~~$0.04 per diluted share.

For the six months ended June 30, ~~2017,~~2018, we generated cash flow from ~~operations~~operating activities of ~~$25.5~~$17.9 million. In addition, in the first six months of 2018, we repurchased and retired 399,456 shares of Common Stock for $4.7 million, at an average market price of $11.75 per share, pursuant to the current authorized share repurchase program. See Note 11 - Stockholders' Equity to our condensed consolidated financial statements. As of June 30, ~~2017,~~2018, we had ~~$33.9~~$32.6 million of cash and cash equivalents and ~~$37.6~~$97.5 million ~~of total debt.~~outstanding on our Term Loan, at par. There were no borrowings drawn on our ~~$100.0~~$115.0 million revolving credit facility, ~~and~~with $21.6 million of letters of credit outstanding, leaving ~~$78.4~~$93.4 million available for ~~borrowing. On July 5, 2017,~~borrowings under the revolving credit facility. During the first quarter of 2018, we ~~completed~~entered into a fixed interest rate swap with an effective date of April 2, 2018, executed on 50% of the ~~acquisition of Advantage RN, LLC and its subsidiaries (collectively, Advantage) using available cash and an incremental term loan. Subsequently, on August 1, 2017, we renewed and increased the size~~outstanding notional amount of our ~~Credit Agreement to a total of $215 million.~~Amended Term Loan. See Note 78 - Debt and Note 169 - ~~Subsequent Events~~Derivative to our condensed consolidated financial statements.

See Results ~~from~~of Operations, ~~Segments~~Segment Results, and Liquidity and Capital Resources sections that follow for further information.

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 FTEs, 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 reported GAAP results for the periods presented. Some of the segment financial results analyzed include revenue, ~~gross profit margins,~~ 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 per FTE by the number of days worked in the respective periods. Nurse and Allied Staffing revenue also includes revenue from the permanent placement of nurses.

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 8 hours. Prior periods have been recalculated to include the impact of the accrued revenue.
	Revenue per day filled is calculated by dividing revenue ~~invoiced~~as reported by days filled for the period presented. ~~Invoiced~~Prior periods have been recalculated to include the impact of the accrued revenue ~~excludes revenue from permanent placement~~ and ~~accrued revenue.~~days.

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				Six Months Ended				Three Months Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Revenue from services	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of services	73.0		72.5		73.7		73.3
Gross profit	27.0		27.5		26.3		26.7
Direct operating expenses									73.8		73.0		74.1		73.7
Selling, general and administrative expenses	22.3		22.4		22.5		22.1		22.1		22.3		21.9		22.5
Bad debt expense	0.1		0.1		0.2		0.1		0.3		0.1		0.2		0.2
Depreciation and amortization	1.1		1.2		1.1		1.2		1.5		1.1		1.4		1.1
Acquisition-related contingent consideration	0.1		0.1		0.1		0.1		0.1		0.1		0.1		0.1
Acquisition and integration costs	0.3		—		0.1		—		—		0.3		—		0.1
Impairment charges	—		12.2		—		6.1
Income (loss) from operations	3.1		(8.5	)	2.3		(2.9	)
Restructuring costs									0.1		—		0.2		—
Income from operations									2.1		3.1		2.1		2.3
Interest expense	0.2		0.8		0.4		0.8		0.7		0.2		0.6		0.4
Loss (gain) on derivative liability	—		1.8		(0.4	)	(3.2	)
Gain on derivative liability									—		—		—		(0.4	)
Loss on early extinguishment of debt	—		0.8		1.2		0.4		—		—		—		1.2
Income (loss) before income taxes	2.9		(11.9	)	1.1		(0.9	)
Income tax expense (benefit)	0.4		(3.3	)	0.3		(1.5	)
Consolidated net income (loss)	2.5		(8.6	)	0.8		0.6
Other income, net									(0.1	)	—		—		—
Income before income taxes									1.5		2.9		1.5		1.1
Income tax expense									0.6		0.4		0.6		0.3
Consolidated net income									0.9		2.5		0.9		0.8
Less: Net income attributable to noncontrolling interest in subsidiary	0.2		—		0.1		0.1		0.1		0.2		0.1		0.1
Net income (loss) attributable to common shareholders	2.3	%	(8.6	)%	0.7	%	0.5	%
Net income attributable to common shareholders									0.8	%	2.3	%	0.8	%	0.7	%

Comparison of Results for the Three Months Ended June 30, ~~2017~~2018 compared to the Three Months Ended June 30, ~~2016~~2017

Three Months Ended June 30,
Increase (Decrease) Increase (Decrease)
2017 2016 $ %
(Dollars in thousands)
Revenue from services $ 209,313
$ 199,443
$ 9,870
4.9 %
Costs of services 152,785
144,597
8,188
5.7 %
Gross profit 56,528
54,846
1,682
3.1 %
Selling, general and administrative expenses 46,600
44,675
1,925
4.3 %
Bad debt expense 326
228
98
43.0 %
Depreciation and amortization 2,285
2,465
(180 ) (7.3 )%
Acquisition-related contingent consideration 281
183
98
53.6 %
Acquisition and integration costs 587
—
587
100.0 %
Impairment charges —
24,311
(24,311 ) (100.0 )%
Income (loss) from operations 6,449
(17,016 ) 23,465
137.9 %
Interest expense 535
1,608
(1,073 ) (66.7 )%
Loss on derivative liability —
3,571
(3,571 ) (100.0 )%
Loss on early extinguishment of debt —
1,568
(1,568 ) (100.0 )%
Other income, net (59 ) (34 ) (25 ) (73.5 )%
Income (loss) before income taxes 5,973
(23,729 ) 29,702
125.2 %
Income tax expense (benefit) 753
(6,634 ) 7,387
111.4 %
Consolidated net income (loss) 5,220
(17,095 ) 22,315
130.5 %
Less: Net income attributable to noncontrolling interest in subsidiary 370
142
228
160.6 %
Net income (loss) attributable to common shareholders $ 4,850
$ (17,237 ) $ 22,087
128.1 %



	Three Months Ended June 30,
							Increase (Decrease)			Increase (Decrease)
	2018			2017			$			%
	(Amounts in thousands)
Revenue from services	$	204,572		$	209,313		$	(4,741	)	(2.3	)%
Direct operating expenses	150,883			152,785			(1,902		)	(1.2	)%
Selling, general and administrative expenses	45,284			46,600			(1,316		)	(2.8	)%
Bad debt expense	611			326			285			87.4	%
Depreciation and amortization	2,963			2,285			678			29.7	%
Acquisition-related contingent consideration	220			281			(61		)	(21.7	)%
Acquisition and integration costs	76			587			(511		)	(87.1	)%
Restructuring costs	193			—			193			100.0	%
Income from operations	4,342			6,449			(2,107		)	(32.7	)%
Interest expense	1,447			535			912			170.5	%
Other income, net	(98		)	(59		)	(39		)	(66.1	)%
Income before income taxes	2,993			5,973			(2,980		)	(49.9	)%
Income tax expense	1,169			753			416			55.2	%
Consolidated net income	1,824			5,220			(3,396		)	(65.1	)%
Less: Net income attributable to noncontrolling interest in subsidiary	285			370			(85		)	(23.0	)%
Net income attributable to common shareholders	$	1,539		$	4,850		$	(3,311	)	(68.3	)%

Revenue from services

Revenue from services ~~increased 4.9%~~decreased 2.3%, to $204.6 million for the three months ended June 30, 2018, as compared to $209.3 million for the three months ended June 30, 2017, ~~as compared~~due primarily to ~~$199.4~~volume declines mainly in our legacy Nurse and Allied and Physician Staffing businesses, partly offset by the impact of the acquisition of Advantage. Excluding the impact of Advantage, revenue decreased $24.5 million or 11.7%. 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 decreased $1.9 million or 1.2%, to $150.9 million for the three months ended June 30, ~~2016, primarily reflecting increases in volume across all three business segments. See further discussion in Segment Results.~~

~~Gross profit~~

~~Gross profit increased 3.1%~~2018, as compared to ~~$56.5~~$152.8 million for the three months ended

June 30, ~~2017, as~~2017. As a percentage of total revenue, direct operating expenses increased to 73.8% compared to ~~$54.8 million for the three months ended June 30, 2016, albeit a decline in gross margins to 27.0% from 27.5%~~73.0% in the prior ~~year. The decrease in consolidated gross margin was primarily~~year period, partly due to ~~higher total compensation costs in Nurse and Allied Staffing, partly offset by higher gross profit margins in both Physician Staffing and OHCMS.~~the impact of the Advantage acquisition.

Selling, general and administrative expenses

Selling, general and administrative expenses ~~increased 4.3%~~decreased 2.8%, to $45.3 million for the three months ended June 30, 2018, as compared to $46.6 million for the three months ended June 30, 2017, ~~as compared to $44.7 million for~~despite the ~~three months ended June 30, 2016. The increase was primarily due to higher compensation and employee-related costs.~~added expenses from the acquisition of Advantage. As a percentage of total revenue, selling, general and administrative expenses ~~were 22.3% and 22.4%,~~decreased to 22.1% for the three months ended June 30, 2018 as compared to 22.3% for the three months ended June 30, 2017, reflecting the cost savings and ~~June 30, 2016, respectively.~~

efficiency initiatives undertaken over the last several quarters.

Depreciation and amortization expense

Depreciation and amortization expense ~~totaled~~increased to$3.0 million for the three months ended June 30, 2018 from $2.3 million for the three months ended June 30, 2017, ~~and $2.5 million for~~primarily due to the ~~three months ended June 30, 2016.~~additional amortization of other intangible assets of Advantage. As a percentage of revenue, depreciation and amortization expense was ~~1.1%~~1.5% and ~~1.2%~~1.1% for the three months ended June 30, 2018 and 2017, ~~and 2016,~~ respectively.

Acquisition-related contingent consideration

Acquisition-related contingent consideration, comprised of accretion on our contingent consideration liabilities for our Mediscan and USR acquisitions, totaled $0.2 million and $0.3 million for the three months ended June 30, ~~2017~~2018 and ~~$0.2 million for the three months ended~~ June 30, ~~2016 and was related to our acquisitions of Mediscan and USR since their dates of acquisition.~~2017, respectively. See Note 910 - Fair Value Measurements to our condensed consolidated financial statements.

Acquisition and integration costs

~~During~~Acquisition and integration costs during the three months ended June 30, 2018 were $0.1 million, compared to $0.6 million during the three months ended June 30, 2017, ~~we incurred acquisition costs of $0.6 million,~~and related to the ~~acquisition of Advantage.~~Advantage acquisition. See Note 4 - Acquisitions to our condensed consolidated financial statements.

Restructuring costs

Restructuring costs totaled $0.2 million during the three months ended June 30, 2018 and related primarily to severance costs incurred in connection with our cost savings and efficiency initiatives. There were no such severance costs for the three months ended June 30, ~~2016. See Note 16 - Subsequent Events to our condensed consolidated financial statements.~~

~~Impairment charges~~

In the second quarter of 2016, we conducted an assessment of our goodwill and identifiable intangible assets related to Physician Staffing, which resulted in impairment charges of $24.3 million relating to the reporting unit. We did not incur impairment charges during the three months ended June 30, 2017. ~~See Note 6 - Goodwill, Trade Names, and Other Intangible Assets to our condensed consolidated financial statements~~

Interest expense

Interest expense ~~totaled~~was $~~0.5~~1.4 million ~~and $1.6~~for the three months ended June 30, 2018, compared to $0.5 million for the three months ended June 30, 2017, ~~and June 30, 2016, respectively. The decline was~~ primarily due to the ~~refinancing~~incremental debt resulting from the acquisition of our debt structure late in the second quarter of 2016, which resulted in lower overall borrowing costs. In addition, we paid our $25.0 million 8% fixed rate Convertible Notes on March 17, 2017. See Note 7 - Debt.Advantage and a higher effective interest rate. The effective interest rate on our borrowings ~~was 3.7%~~increased to 5.0% for the three month period ended June 30, ~~2017~~2018 compared to ~~9.1%~~3.7% for the three months ended June 30, ~~2016.~~2017, primarily due to an increase in the one month LIBOR rate. See Note 8 - Debt.

~~Loss on derivative liability~~Income tax expense

~~We incurred a loss on derivative liability of $3.6~~Income tax expense totaled $1.2 million for the three months ended June 30, ~~2016, related~~2018, compared to the change in the fair value of embedded features of our Convertible Notes from the end of the prior quarter. There were no such charges for the three months ended June 30, 2017 since we paid off the Convertible Notes in the first quarter of 2017. See Note 7 - Debt and Note 8 - Convertible Notes Derivative Liability to our condensed consolidated financial statements.

~~Loss on early extinguishment of debt~~

Loss on early extinguishment of debt of $1.6 million for the three months ended June 30, 2016 is related to the extinguishment of our Second Lien Term Loan and includes the write-off of unamortized net debt discount and issuance costs as well as a redemption premium of $0.6 million. There were no such costs for the three months ended June 30, 2017. See Note 7 - Debt to our condensed consolidated financial statements.

~~Income tax expense (benefit)~~

~~Income tax expense from continuing operations totaled~~ $0.8 million for the three months ended June 30, 2017. The Company’s effective tax rate for the three months ended June 30, 2018 and June 30, 2017 was 39.1% and 12.6%, respectively, including the impact of discrete items. Excluding discrete items, the Company’s effective tax rate for the three months ended June 30, 2018 and June 30, 2017 was 40.3% and 12.4%, respectively. The effective tax rate for the second quarter of 2018 was primarily related to the ~~impact from~~non-deductibility of certain per diem expenses, the officers’ compensation limitation, and international and state taxes. The effective tax rate for the second quarter of 2017 was primarily related to the amortization of indefinite-lived intangible assets for tax ~~purposes. Income tax benefit from continuing operations totaled $6.6 million for the three months ended June 30, 2016,~~purposes and ~~was primarily related to the impairment charge recorded in the second quarter of 2016.~~international and state taxes.

Comparison of Results for the Six Months Ended June 30, ~~2017~~2018 compared to the Six Months Ended June 30, ~~2016~~2017


	Six Months Ended June 30,											Six Months Ended June 30,
							Increase (Decrease)			Increase (Decrease)								Increase (Decrease)			Increase (Decrease)
	2017			2016			$			%		2018			2017			$			%
	(Dollars in thousands)											(Amounts in thousands)
Revenue from services	$	416,886		$	396,026		$	20,860		5.3	%	$	414,860		$	416,886		$	(2,026	)	(0.5	)%
Costs of services	307,083			290,134			16,949			5.8	%
Gross profit	109,803			105,892			3,911			3.7	%
Direct operating expenses												307,418			307,083			335			0.1	%
Selling, general and administrative expenses	93,836			87,608			6,228			7.1	%	90,918			93,836			(2,918		)	(3.1	)%
Bad debt expense	649			477			172			36.1	%	810			649			161			24.8	%
Depreciation and amortization	4,476			4,877			(401		)	(8.2	)%	5,872			4,476			1,396			31.2	%
Acquisition-related contingent consideration	551			470			81			17.2	%	433			551			(118		)	(21.4	)%
Acquisition and integration costs	587			—			587			100.0	%	191			587			(396		)	(67.5	)%
Impairment charges	—			24,311			(24,311		)	(100.0	)%
Income (loss) from operations	9,704			(11,851		)	21,555			181.9	%
Restructuring costs												628			—			628			100.0	%
Income from operations												8,590			9,704			(1,114		)	(11.5	)%
Interest expense	1,754			3,243			(1,489		)	(45.9	)%	2,713			1,754			959			54.7	%
Gain on derivative liability	(1,581		)	(12,865		)	11,284			87.7	%	—			(1,581		)	1,581			100.0	%
Loss on early extinguishment of debt	4,969			1,568			3,401			216.9	%	—			4,969			(4,969		)	(100.0	)%
Other income, net	(59		)	(51		)	(8		)	(15.7	)%	(199		)	(59		)	(140		)	(237.3	)%
Income (loss) before income taxes	4,621			(3,746		)	8,367			223.4	%
Income tax expense (benefit)	1,119			(5,837		)	6,956			119.2	%
Income before income taxes												6,076			4,621			1,455			31.5	%
Income tax expense												2,332			1,119			1,213			108.4	%
Consolidated net income	3,502			2,091			1,411			67.5	%	3,744			3,502			242			6.9	%
Less: Net income attributable to noncontrolling interest in subsidiary	662			306			356			116.3	%	563			662			(99		)	(15.0	)%
Net income attributable to common shareholders	$	2,840		$	1,785		$	1,055		59.1	%	$	3,181		$	2,840		$	341		12.0	%

Revenue from services

Revenue from services ~~increased 5.3%~~decreased 0.5%, to $414.9 million for the six months ended June 30, 2018, as compared to $416.9 million for the six months ended June 30, 2017, ~~as compared~~due primarily to ~~$396.0~~volume declines mainly in our legacy Nurse and Allied and Physician Staffing businesses, partly offset by the impact of the acquisition of Advantage. Excluding the impact of Advantage, revenue decreased $41.8 million or 10.0%. 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 $0.3 million or 0.1%, to $307.4 million for the six months ended June 30, ~~2016. The increase was entirely from Nurse and Allied Staffing, partially offset by lower revenue from Physician Staffing and OHCMS. See further discussion in Segment Results.~~

~~Gross profit~~

~~Gross profit increased 3.7%~~2018, as compared to ~~$109.8~~$307.1 million for the six months ended

June 30, ~~2017, as~~2017. As a percentage of total revenue, direct operating expenses increased to 74.1% compared to ~~$105.9 million for~~73.7% in the ~~six months ended June 30, 2016, with gross margins of 26.3% and 26.7%, respectively. The decrease in consolidated gross margin was~~prior year period, primarily due to ~~higher total compensation costs for healthcare professionals in Nurse and Allied Staffing at certain large accounts.~~the impact of the Advantage acquisition.

Selling, general and administrative expenses

Selling, general and administrative expenses ~~increased 7.1%~~decreased 3.1%, to $90.9 million for the six months ended June 30, 2018, as compared to $93.8 million for the six months ended June 30, 2017, ~~as compared to $87.6 million for~~despite the six months ended June 30, 2016. The increase was primarily due to investments in revenue- producing headcount, higher marketing costs for candidate attraction, and higher compensation and benefit costs.added expenses from the acquisition of Advantage. As a percentage of total revenue, selling, general and administrative expenses ~~were~~decreased to 21.9% for the six months ended June 30, 2018 as compared to 22.5% ~~and 22.1%,~~ for the six months ended June 30, 2017, reflecting the cost savings and ~~June 30, 2016, respectively.~~efficiency initiatives completed over the last several quarters.

~~Depreciation and amortization expense~~

Depreciation and amortization expense

Depreciation and amortization expense ~~totaled~~increased to$5.9 million for the six months ended June 30, 2018 from $4.5 million for the six months ended June 30, 2017, ~~and $4.9 million for~~primarily due to the ~~six months ended June 30, 2016.~~additional amortization of other intangible assets of Advantage. As a percentage of revenue, depreciation and amortization expense was ~~1.1%~~1.4% and ~~1.2%~~1.1% for the six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, respectively.

Acquisition-related contingent consideration

Acquisition-related contingent consideration, comprised of accretion on our contingent consideration liabilities for our Mediscan and USR acquisitions, totaled $0.4 million and $0.6 million for the six months ended June 30, ~~2017~~2018 and ~~$0.5 million for the six months ended~~ June 30, ~~2016 and was related to our acquisitions of Mediscan and USR, since their dates of acquisition.~~2017, respectively. See Note 910 - Fair Value Measurements to our condensed consolidated financial statements.

Acquisition and integration costs

~~During~~Acquisition and integration costs during the six months ended June 30, 2018 were $0.2 million, compared to $0.6 million during the six months ended June 30, 2017, ~~we incurred acquisition costs of $0.6 million,~~and related to the ~~acquisition of Advantage.~~Advantage acquisition. See Note 4 - Acquisitions to our condensed consolidated financial statements.

Restructuring costs

Restructuring costs totaled $0.6 million during the six months ended June 30, 2018 and related primarily to severance costs incurred in connection with our cost savings and efficiency initiatives. There were no such severance costs for the six months ended June 30, ~~2016. See Note 16 - Subsequent Events to our condensed consolidated financial statements.~~

~~Impairment charges~~

For the six months ended June 30, 2016, we recorded impairment charges of $24.3 million related to our Physician Staffing reporting unit. We did not incur impairment charges during the six months ended June 30, 2017. ~~See Note 6 - Goodwill, Trade Names, and Other Intangible Assets to our condensed consolidated financial statements.~~

Interest expense

Interest expense ~~totaled~~was $2.7 million for the six months ended June 30, 2018, compared to $1.8 ~~million and $3.2~~ million for the six months ended June 30, 2017, ~~and June 30, 2016, respectively. The decline was~~primarily due to the ~~refinancing~~incremental debt resulting from the acquisition of ~~our debt structure late in the second quarter of 2016, which resulted in~~Advantage, partially offset by a lower ~~overall borrowing costs. In addition, we paid off our $25.0 million 8% fixed rate Convertible Notes on March 17, 2017.~~effective interest rate. The effective interest rate on our borrowings ~~was 5.7%~~decreased to 4.7% for the six month period ended June 30, ~~2017~~2018 compared to ~~9.4%~~5.7% for the six months ended June 30, ~~2016.~~2017. The six months ended June 30, 2017 was impacted by the 8.0% fixed rate Convertible Note paid off on March 17, 2017. See Note 8 - Debt.

Gain on derivative liability

We ~~had~~incurred a gain on derivative liability of $1.6 million ~~and $12.9 million~~ for the six months ended June 30, 2017 ~~and June 30, 2016, respectively,~~ related to the change in the fair value of embedded features of our Convertible ~~Notes. The gains in both periods primarily resulted from decreases in our share price~~Notes from the end of the ~~respective~~ prior ~~years~~quarter through the ~~2017~~ payoff date, ~~and through~~primarily resulting from a decrease in our share price. There were no such charges incurred for the six months ended June 30, ~~2016. The gain in 2016 was partially offset by a reduction in credit risk.~~2018. See ~~Note 7 - Debt and~~ Note 8 - ~~Convertible Notes Derivative Liability~~Debt to our condensed consolidated financial statements.

Loss on early extinguishment of debt

Loss on early extinguishment of debt of $5.0 million for the six months ended June 30, 2017 relates to the ~~write-off of original issue discount and debt issuance costs of $4.4 million and a pre-payment fee of $0.6 million due to the~~ early ~~settlement~~repayment of our Convertible Notes. ~~Loss on early extinguishment of debt was $1.6~~See Note 8 - Debt.

Income tax expense

Income tax expense totaled $2.3 million for the six months ended June 30, ~~2016 and related~~2018, compared to ~~the write-off of unamortized net debt discount and issuance costs, including a redemption premium of $0.6 million, related to our Second Lien Term Loan. See Note 7 - Debt.~~

~~Income tax expense (benefit)~~

~~Income tax expense from continuing operations totaled~~ $1.1 million for the six months ended June 30, ~~2017, compared to income~~2017. The Company’s effective tax ~~benefit of $5.8 million~~rate for the six months ended June 30, ~~2016. The~~2018 and June 30, 2017 was 38.4% and 24.2%, respectively, including the impact of discrete items. Excluding discrete items, the Company’s effective tax rate for the six months ended June 30, ~~2016 included an income~~2018 and June 30, 2017 was 37.8% and 31.7%, respectively. The effective tax ~~benefit~~rate for the six months ended June 30, 2018 was primarily related to the ~~impairment charge recorded in~~non-deductibility of certain per diem expenses, the ~~second quarter~~officers’ compensation limitation, and international and state taxes. The effective tax rate for the six months ended June 30, 2017 was primarily related to the amortization of ~~2016.~~

indefinite-lived intangible assets for tax purposes and international and state taxes, partly offset by a discrete tax benefit.

Segment Results

Information on operating segments and a reconciliation to income from operations for the periods indicated are as follows:

Three Months Ended Six Months Ended
June 30, June 30,
2017 2016 2017 2016
(amounts in thousands)
Revenues:

Nurse and Allied Staffing $ 180,927
$ 172,048
$ 364,035
$ 340,813
Physician Staffing 24,720
23,927
46,184
48,380
Other Human Capital Management Services 3,666
3,468
6,667
6,833
$ 209,313
$ 199,443
$ 416,886
$ 396,026

Contribution income:
Nurse and Allied Staffing $ 18,141
$ 17,615
$ 33,763
$ 34,405
Physician Staffing 2,047
2,050
2,867
3,603
Other Human Capital Management Services 241
69
(199 ) (42 )
20,429
19,734
36,431
37,966

Unallocated corporate overhead 10,827
9,791
21,113
20,159
Depreciation and amortization 2,285
2,465
4,476
4,877
Acquisition-related contingent consideration 281
183
551
470
Acquisition and integration costs 587
—
587
—
Impairment charges —
24,311
—
24,311
Income (loss) from operations $ 6,449
$ (17,016 ) $ 9,704
$ (11,851 )



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(amounts in thousands)
Revenue from services:
Nurse and Allied Staffing	$	179,339	$	180,927	$	364,444	$	364,035
Physician Staffing	21,334		24,720		42,894		46,184
Other Human Capital Management Services	3,899		3,666		7,522		6,667
	$	204,572	$	209,313	$	414,860	$	416,886

Contribution income:
Nurse and Allied Staffing	$	16,909	$	18,141	$	33,669	$	33,763
Physician Staffing	1,383		2,047		2,883		2,867
Other Human Capital Management Services	312		241		624		(199		)
	18,604		20,429		37,176		36,431

Unallocated corporate overhead	10,810		10,827		21,462		21,113
Depreciation and amortization	2,963		2,285		5,872		4,476
Acquisition-related contingent consideration	220		281		433		551
Acquisition and integration costs	76		587		191		587
Restructuring costs	193		—		628		—
Income from operations	$	4,342	$	6,449	$	8,590	$	9,704

Certain statistical data for our business segments for the periods indicated are as follows:



	Three Months Ended
	June 30,		June 30,				Percent
	2018		2017		Change		Change

Nurse and Allied Staffing statistical data: (a)
FTEs	7,143		7,155		(12	)	(0.2	)%
Average Nurse and Allied Staffing revenue per FTE per day	$	276	$	278	(2	)	(0.7	)%

Physician Staffing statistical data: (a)
Days filled	13,751		15,690		(1,939	)	(12.4	)%
Revenue per day filled	$	1,551	$	1,576	(25	)	(1.6	)%

	Six Months Ended
	June 30,		June 30,				Percent
	2018		2017		Change		Change

Nurse and Allied Staffing statistical data: (a)
FTEs	7,305		7,180		125		1.7	%
Average Nurse and Allied Staffing revenue per FTE per day	$	276	$	280	(4	)	(1.4	)%

Physician Staffing statistical data: (a)
Days filled	28,001		29,742		(1,741	)	(5.9	)%
Revenue per day filled	$	1,532	$	1,553	(21	)	(1.4	)%

Three Months Ended
June 30, June 30, Percent
2017 2016 Change Change

Nurse and Allied Staffing statistical data: (a)
FTEs 7,155
6,884
271
3.9 %
Average Nurse and Allied Staffing revenue per FTE per day $ 278
$ 275
3
1.1 %

Physician Staffing statistical data: (a)
Days filled 15,220
14,480
740
5.1 %
Revenue per day filled $ 1,557
$ 1,525
32
2.1 %

Six Months Ended
June 30, June 30, Percent
2017 2016 Change Change

Nurse and Allied Staffing statistical data: (a)
FTEs 7,180
6,850
330
4.8 %
Average Nurse and Allied Staffing revenue per FTE per day $ 280
$ 273
7
2.6 %

Physician Staffing statistical data: (a)
Days filled 30,256
31,322
(1,066 ) (3.4 )%
Revenue per day filled $ 1,574
$ 1,523
51
3.3 %


(a)	See definition of Business Measurement under the Operating Metrics section of our Management's Discussion and Analysis.

See Note 1112 - Segment Data.

Segment Comparison - Three Months Ended June 30, ~~2017~~2018 compared to the Three Months Ended June 30, ~~2016~~2017

Nurse and Allied Staffing

Revenue from Nurse and Allied Staffing ~~increased $8.9~~decreased $1.6 million, or ~~5.2%~~0.9%, to $179.3 million for the three months ended June 30, 2018, compared to $180.9 million for the three months ended June 30, 2017, ~~as compared to $172.0 million for the three months ended June 30, 2016,~~ predominantly due to ~~higher~~declines in our legacy travel nurse and branch operations businesses, partially offset by the Advantage acquisition. Excluding the Advantage acquisition, revenue decreased $21.3 million, or 11.8%, primarily driven by volume.

Contribution income from Nurse and Allied Staffing ~~increased $0.5~~decreased $1.2 million or ~~3.0%~~6.8%, to $16.9 million for the three months ended June 30, 2018, compared to $18.1 million for the three months ended June 30, 2017, ~~as compared~~primarily due to ~~$17.6 million for~~lower volumes in our legacy travel nurse and branch operation businesses, partially offset by the ~~three months ended June 30, 2016.~~impact of the Advantage acquisition and lower selling, general, and administrative expense due to our cost savings and efficiency initiatives. As a percentage of segment revenue, contribution income was 9.4% for the three months ended June 30, 2018, compared to 10.0% for the three months ended June 30, ~~2017, compared to 10.2% for the three months ended June 30, 2016.~~2017.

Operating Metrics

The average number of Nurse and Allied Staffing FTEs on contract during the three months ended June 30, ~~2017 increased 3.9%~~2018 decreased slightly from the three months ended June 30, ~~2016.~~2017. The average Nurse and Allied Staffing revenue per FTE per day ~~increased 1.1%, primarily reflecting a change in the mix of business.~~decreased 0.7%.

Physician Staffing

Revenue from Physician Staffing ~~increased $0.8~~decreased $3.4 million, or ~~3.3%~~13.7%, to $21.3 million for the three months ended June 30, 2018, compared to $24.7 million for the three months ended June 30, 2017, ~~as compared~~primarily due to ~~$23.9~~a lower number of days filled, and to a lesser extent, lower average bill rates due to mix.

Contribution income from Physician Staffing decreased $0.6 million, or 32.4%, to $1.4 million for the three months ended June 30, ~~2016. The increase in revenue was primarily due~~2018, compared to ~~higher volume of days filled and improved pricing.~~

~~Contribution income from Physician Staffing~~$2.0 million for the three months ended June 30, 2017, ~~was $2.0 million, consistent with~~primarily due to lower volumes as well as a shift in the ~~three months ended June 30, 2016.~~mix of specialties. As a percentage of segment revenue, contribution income was 6.5% for the three months ended June 30, 2018, compared to 8.3% for the three months ended June 30, ~~2017 and 8.6% for the three months ended June 30, 2016.~~2017.

Operating Metrics

~~Physician Staffing~~Total days filled ~~increased 5.1%, to 15,220 days~~were 13,751 as compared with 15,690 in the ~~three months ended June 30, 2017, as compared to 14,480 days in the three months ended June 30, 2016, primarily due to volume growth in advanced practice professionals.~~prior year. Revenue per day filled ~~for the three months ended June 30, 2017~~ was ~~$1,557, up 2.1% over~~$1,551 as compared with $1,576 in the prior year, down 1.6% due to ~~improved pricing,~~a shift in mix between advanced practice and ~~was impacted by faster growth in lower bill rate specialties.~~physician staffing.

Other Human Capital Management Services

Revenue from OHCMS increased $0.2 million, or ~~5.7%~~6.4%, to $3.9 million for the three months ended June 30, 2018, compared to $3.7 million for the three months ended June 30, 2017, ~~as compared~~primarily due to ~~$3.5 million~~growth in physician placements.

Segment contribution income for the three months ended June 30, ~~2016, primarily due~~2018 increased to ~~a higher level of physician placements made in the second quarter of 2017. Contribution income from OHCMS was~~$0.3 million, compared to $0.2 million for the three months ended June 30, 2017, ~~as compared to $0.1 million for~~driven by revenue growth, coupled with lower expenses resulting in improved operating leverage in the ~~three months ended June 30, 2016.~~business.

Unallocated Corporate Overhead

Included in unallocated corporate overhead is corporate compensation and benefits, and general and administrative expenses including rent and utilities, computer supplies and expenses, insurance, professional expenses, corporate-wide projects (initiatives), and public company expenses. Unallocated corporate overhead was $10.8 million for the three months ended June 30, ~~2017 compared to $9.8 million for the three months ended June 30, 2016, due to an increase in compensation~~2018 and ~~benefits.~~2017. As a percentage of consolidated revenue, unallocated corporate overhead was 5.3% for the three months ended June 30, 2018 and 5.2% for the three months ended June 30, ~~2017 and 4.9% for the three months ended June 30, 2016.~~2017.

Segment Comparison - Six Months Ended June 30, ~~2017~~2018 compared to the Six Months Ended June 30, ~~2016~~2017

Nurse and Allied Staffing

Revenue from Nurse and Allied Staffing increased ~~$23.2~~$0.4 million, or ~~6.8%~~0.1%, to $364.4 million for the six months ended June 30, 2018, compared to $364.0 million for the six months ended June 30, 2017, ~~as compared to $340.8 million for the six months ended June 30, 2016. The year-over-year increase was~~predominantly due to ~~higher volume~~the Advantage acquisition, partially offset by declines in our legacy travel nurse and ~~improved pricing.~~branch operations businesses. Excluding the Advantage acquisition, revenue decreased $39.4 million, or 10.8%, primarily driven by volume.

Contribution income from Nurse and Allied Staffing decreased ~~$0.6~~$0.1 million or ~~1.9%~~0.3%, to $33.7 million for the six months ended June 30, 2018, compared to $33.8 million for the six months ended June 30, 2017, ~~as compared~~primarily due to ~~$34.4 million for the six months ended June 30, 2016.~~lower volumes in our travel nurse and branch operations businesses, partly offset by lower selling, general and administrative expense due to our cost savings and efficiency initiatives. As a percentage of segment revenue, contribution income was 9.2% for the six months ended June 30, 2018, compared to 9.3% for the six months ended June 30, 2017, compared to 10.1% for the six months ended June 30, 2016. The decrease is primarily attributable to higher compensation packages provided to our field staff and increased investments in revenue-producing headcount and marketing spend to support recent contract wins.2017.

Operating Metrics

The average number of Nurse and Allied Staffing FTEs on contract during the six months ended June 30, ~~2017~~2018 increased ~~4.8%~~1.7% from the six months ended June 30, ~~2016.~~2017, primarily due to the added FTEs from the Advantage acquisition. The average Nurse and Allied Staffing revenue per FTE per day ~~increased 2.6%, reflecting higher average bill rates.~~decreased 1.4%.

Physician Staffing

Revenue from Physician Staffing decreased ~~$2.2~~$3.3 million, or ~~4.5%~~7.1%, to $42.9 million for the six months ended June 30, 2018, compared to $46.2 million for the six months ended June 30, 2017, ~~as compared to $48.4 million for the six months ended June 30, 2016,~~ primarily due to a lower ~~volume~~number of days filled, ~~in the first quarter of 2017.~~coupled with lower bill rates due to mix.

Contribution income from Physician Staffing ~~decreased $0.7 million or 20.4%, to~~was $2.9 million for the six months ended June 30, ~~2017, compared to $3.6 million for~~2018, consistent with the six months ended June 30, ~~2016.~~2017. As a percentage of segment revenue, contribution income was 6.7% for the six months ended June 30, 2018, compared to 6.2% for the six months ended June 30, ~~2017 and 7.4% for the six months ended June 30, 2016.~~

2017.

Operating Metrics

~~Physician Staffing~~Total days filled ~~decreased 3.4%, to 30,256 days~~were 28,001 as compared with 29,742 in the ~~six months ended June 30, 2017, as compared to 31,322 days in the six months ended June 30, 2016.~~prior year. Revenue per day filled ~~for the six months ended June 30, 2017~~ was ~~$1,574, up 3.3% over~~$1,532 as compared with $1,553 in the prior ~~year.~~year, down 1.4% due to a shift in mix between advanced practice and physician staffing.

Other Human Capital Management Services

Revenue from OHCMS ~~decreased $0.1~~increased $0.9 million, or ~~2.4%~~12.8%, to $7.5 million for the six months ended June 30, 2018, compared to $6.7 million for the six months ended June 30, 2017, ~~as compared~~primarily due to ~~$6.8 million~~growth in both executive and physician searches.

Segment contribution income for the six months ended June 30, ~~2016. The decrease in revenue was primarily due~~2018 increased to $0.6 million, compared to a ~~decrease in executive searches and placements, partially offset by higher physician placements.~~

~~Contribution~~ loss ~~from OHCMS was~~of $0.2 million for the six months ended June 30, 2017, ~~as compared to a loss of less than $0.1 million for~~reflecting improved operating leverage in the ~~six months ended June 30, 2016.~~business.

Unallocated Corporate Overhead

Included in unallocated corporate overhead is corporate compensation and benefits, and general and administrative expenses including rent and utilities, computer supplies and expenses, insurance, professional expenses, corporate-wide projects (initiatives), and public company expenses. Unallocated corporate overhead was $21.5 million for the six months ended June 30, 2018, compared to $21.1 million for the six months ended June 30, ~~2017 compared to $20.2 million for the six months ended June 30, 2016.~~2017. As a percentage of consolidated revenue, unallocated corporate overhead was 5.2% for the six months ended June 30, 2018 and 5.1% for the six months ended June 30, ~~2017 and 2016.~~2017.

Transactions with Related Parties

See Note 1415 - Related Party Transactions to our condensed consolidated financial statements.

Liquidity and Capital Resources

At June 30, ~~2017~~2018, we had ~~$33.9~~$32.6 million in cash and cash equivalents and ~~$37.6~~$97.5 million of ~~total debt.~~Term Loan outstanding, at par. Working capital increased to $~~110.9~~117.3 million as of June 30, ~~2017~~2018 from $~~108.5~~114.3 million as of December 31, ~~2016.~~2017. Our net days' sales outstanding (DSO), which excludes amounts owed to subcontractors, decreased ~~4 days~~1 day to 5157 days as of June 30, ~~2017,~~2018, compared to 5558 days as of December 31, ~~2016.~~2017.

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, including our commitments as described in the Commitments table which follows. We expect to meet our future needs for working capital, capital expenditures, internal business expansion, and debt service from a combination of cash on hand, operating cash flows, and funds available through the revolving loan portion of our Amended and Restated Credit ~~Agreement, as amended and restated.~~Agreement. See debt discussion which follows. In the third quarter of 2018, we expect to launch a new initiative to replace our front-end system which supports the travel nurse staffing operations. We anticipate the core system replacement to be completed by late 2019 and the total cost to range between $10 million and $12 million, of which we expect approximately three quarters of the costs to be capitalized and/or deferred. Operating cash flows and cash on hand, along with amounts available under our revolving credit facility, should be sufficient to meet these needs during the next twelve months.

Net cash provided by operating activities was $17.9 million in the six months ended June 30, 2018, compared to $25.5 million in the six months ended June 30, 2017, primarily due to a six day increase in DSO to 57 days as of June 30, 2018 from 51 days as of June 30, 2017, and timing of payments. Net cash used in investing activities was $~~25.5~~2.3 million in the six months ended June 30, ~~2017~~ ~~compared to~~ ~~$12.9 million~~ ~~in the~~ ~~six~~ ~~months ended~~ ~~June 30, 2016, primarily due to higher collections of accounts receivable in the six months ended June 30, 2017.~~

~~Net cash used in investing activities was~~ ~~$3.4 million~~ ~~in the~~ ~~six~~ ~~months ended~~ ~~June 30, 2017~~2018, compared to ~~$4.5~~$3.4 million in the six months ended June 30, ~~2016. The primary use for cash in both periods was~~2017, primarily for capital expenditures ~~and acquisition-related settlements of $1.9 million~~ in ~~the six months ended June 30, 2016.~~both periods.

Net cash used in financing activities during the six months ended June 30, ~~2017~~2018 was ~~$8.9~~$8.6 million, compared to ~~$0.6~~$8.9 million during the six months ended June 30, ~~2016.~~2017. During the six months ended June 30, 2018, we used cash to repurchase $4.7 million in shares of Common Stock, repay $2.5 million on our Term Loan, pay $0.7 million for shares withheld for taxes, $0.6 million for noncontrolling shareholder payments, and $0.1 million for contingent consideration. During the six months ended June 30, 2017, we ~~paid off~~repaid our Convertible Notes with a partial cash payment of $5.0 million and paid $0.6 million in related extinguishment fees. We also reduced the principal amount of our term debt by $1.5 million for scheduled repayments. During the six months ended June 30, 2016, we entered into a Senior Credit Facility which provided us with $40.0 million of borrowings under the Term Loan Facility. Part of the proceeds from the borrowings were used to prepay our $30.0 million Second Lien Term Loan including a prepayment penalty of $0.6 million and $1.0 million of debt issuance costs.million. In addition, ~~during the six months ended June 30, 2016,~~ we ~~repaid a net of $8.0 million on our senior secured asset-based credit facility,~~ used ~~$0.6 million~~cash to pay $1.2 million for shares withheld for taxes, $0.5 million for noncontrolling shareholder payments, and ~~used $0.3~~$0.1 million ~~to pay a noncontrolling shareholder.~~for contingent consideration.

Debt

~~2016 Senior~~ Credit Facilities

As more fully described in Note 78 - Debt to our condensed consolidated financial statements, ~~as of June 30, 2017,~~ our ~~debt included a senior credit agreement (Credit Agreement), which provided a term loan of $40.0 million (Term Loan)~~Amended and ~~a revolving credit facility of up to $100.0 million (Revolving~~Restated Credit Facility) (together with the Term Loan, the Senior Credit Facilities) both of which would have matured in five years. As of June 30, 2017, the Term Loan and Revolving Credit Facility bore interest at a rate equal to One Month LIBOR plus 175 basis points and $78.4 million was available under the Revolving Credit Facility.

On July 5, 2017, we completed the acquisition of substantially all of the assets of Advantage RN, LLC and its subsidiaries (collectively, Advantage), which was effective July 1, 2017, for a total purchase price of $88 million, which is subject to a final net working capital adjustment. We paid $86.8 million, net of cash acquired, plus related fees and expenses of $0.6 million, using available cash and $67.5 million in borrowings under our Credit Facility, including a $40 million Incremental Term Loan.

~~Effective July 1, 2017, we~~Agreement, entered into a Second Amendment to our Credit Agreement dated June 22, 2016, to permit the acquisition of Advantage. Also in connection with the acquisition of Advantage, effective July 1, 2017, pursuant to the Credit Agreement, we entered into an Incremental Term Loan Agreement which provided us with an incremental term loan of $40.0 million to pay for part of the consideration of the acquisition.

~~Subsequently,~~ on August 1, 2017, ~~we entered into an Amendment and Restatement to our Credit Agreement (Amended and Restated Credit Agreement) to refinance and increase the current aggregate~~provides us with a $215.0 million committed ~~size of the~~ facility, ~~to $215 million,~~ including a term loan of $100.0 million (Amended Term Loan) and a ~~$115~~$115.0 million revolving credit facility (Amended Revolving Credit Facility) (together with the Amended Term Loan, the Amended Credit Facilities). ~~The proceeds~~As of $106.5 million from this refinancing included $6.5 million under the new revolving credit facility, and were used to repay borrowings under our previously existing credit facilities, as well as to pay related interest, fees and expenses. Effective at closing,June 30, 2018, the Applicable Margin, ~~through September 30, 2017 is~~as defined in the Amended and Restated Credit Agreement, was 2.25% for Eurodollar Loans and LIBOR Index Rate Loans and 1.25% for Base Rate Loans. As of ~~August 1, 2017,~~June 30, 2018, we had ~~a $100.0~~$97.5 million remaining on the Amended Term Loan and $21.6 million in letters of credit outstanding, leaving $93.4 million available under the Amended Revolving Credit Facility. We believe this provides us with the ability to continue to execute our strategy to grow the business. ~~See Note 16 - Subsequent Events.~~

Convertible Notes

On March 17, 2017, we paid in full our fixed rate 8% Convertible Notes. The Convertible Notes, had an aggregate principal amount of $25.0 million, and were convertible into shares of our Common Stock, at a conversion price of $7.10 per share. As a result of the early repayment, we recognized $5.0 million as loss on early extinguishment of debt.

At inception of the ~~notes,~~Convertible Notes, and at the time of the payoff, the conversion price of $7.10 was below the market price. The initial agreement allowed us to force conversion of the Notes only after three years, beginning July 1, 2017, and if the VWAP exceeded 125% of the Conversion Price for 20 days of a 30 day trading period (the threshold was $8.88, which we were well above). As such, we and the Noteholders agreed to an early settlement at fair value based on the stock price. In connection with the repayment, we issued to the Noteholders an aggregate of 3,175,584 shares of Common Stock and cash in the aggregate amount of $5.6 million.

See Note 78 - ~~Debt.~~Debt to our condensed consolidated financial statement for further information.

Stockholders’ Equity

See Note 1011 - Stockholders' Equity to our condensed consolidated financial statements.

Commitments and Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

The following table reflects our contractual obligations and other commitments as of June 30, ~~2017 and does not reflect our subsequent amendment and restatement of our Credit Agreement. See Note 16 - Subsequent Events.~~2018:


Commitments	Total		2017		2018		2019		2020		2021		Thereafter		Total		2018		2019		2020		2021		2022		Thereafter
	(Unaudited, amounts in thousands)														(Unaudited, amounts in thousands)
Term Loan (a)	$	38,000	$	750	$	3,750	$	3,500	$	4,000	$	26,000	$	—	$	97,500	$	4,375	$	7,500	$	8,125	$	10,000	$	67,500	$	—
Interest on debt (b)	6,221		587		1,917		1,569		1,463		685		—		21,259		4,083		5,318		4,960		4,502		2,396		—
Contingent consideration (c)	8,862		179		1,867		1,070		5,746		—		—		7,291		180		399		6,712		—		—		—
Capital lease obligations	14		4		8		2		—		—		—
Operating lease obligations (d)	36,328		3,686		6,444		4,942		4,209		3,854		13,193		35,257		3,823		6,897		5,725		4,942		4,451		9,419
	$	89,425	$	5,206	$	13,986	$	11,083	$	15,418	$	30,539	$	13,193	$	161,307	$	12,461	$	20,114	$	25,522	$	19,444	$	74,347	$	9,419

_______________

(a)

~~This~~Under our Amended Term Loan, we are required to comply with certain financial covenants. Our inability to comply with the required covenants or other provisions could result in default under our ~~senior~~amended credit ~~agreement was subsequently refinanced. See Note 16 - Subsequent Events.~~facilities. In the event of any such default and our inability to obtain a waiver of the default, all amounts outstanding under the Amended Credit Facilities could be declared immediately due and payable. As of June 30, 2018, we are in compliance with the financial covenants and other covenants contained in the Credit Agreement.


(b)	Interest on debt represents payments due through maturity for our Term Loan, calculated using the ~~June 30, 2017~~July 2, 2018 applicable LIBOR and margin rate totaling ~~2.8%.~~4.6% on 50% of the Term Loan balance, and a fixed interest rate of 5.1% on the other 50% of the Term Loan balance, taking into account the interest rate swap. See Note 9 - Derivative.

(c)

The contingent consideration represents the estimated payments due to the sellers related to the Mediscan and USR acquisitions, including accretion. See Note 4 - Acquisitions to our condensed consolidated financial statements. While it is not certain if, or when, ~~these~~the remaining contingent payments will be made, we have included the payments in the table based on our best estimates of the amounts and dates when the contingencies may be resolved.


(d)	Represents future minimum lease payments associated with operating lease agreements with original terms of more than one year.

See Note 1213 - Commitments and Contingencies to our condensed consolidated financial statements.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates remain consistent with those reported in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, filed with the ~~SEC.~~SEC, other than the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) as discussed in Note 2 - Summary of Significant Accounting Policies to our condensed consolidated financial statements.

Recent Accounting Pronouncements

See Note 1516 - Recent Accounting Pronouncements to our condensed consolidated financial statements.

3332


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to interest rate changes, primarily as a result of our revolving loan and term loans under our Credit Agreement, which bears interest based on floating rates. Refer to Liquidity and Capital Resources - Credit Agreement included in Item 2. Management’s Discussion and Analysis above for further discussion about our Credit Agreement and related interest rate swap effective beginning in the ~~risk~~second quarter of ~~fluctuation~~2018. Every 1% change in interest rates ~~relating to our~~on variable rate debt ~~related to our Senior Credit Facilities. During~~would have resulted in interest expense fluctuating approximately $0.5 million in the ~~six months ended June 30, 2017 or 2016, we did not use interest rate swaps or other types~~second quarter of ~~derivative financial instruments to hedge our interest rate risk. Our current credit agreement charges us interest at a rate~~2018 and $0.4 million in the second quarter of ~~LIBOR plus a leverage-based margin. See Note 7 - Debt to our condensed consolidated financial statements for further information.~~2017.

Other Risks

~~Aside from settlement of our Convertible Notes as described in Note 7 - Debt to our condensed consolidated financial statements, there~~There have been no material changes to our other exposures as disclosed in our Annual Report on Form 10-K filed for the year ended December 31, ~~2016.~~2017.

3433


ITEM 4.	CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this report. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, communicated to management, including the Chief Executive Officer and the Chief Financial Officer, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports required under the Exchange Act of 1934, as amended, is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, in order to allow timely decisions regarding any required disclosure.

The evaluation has not identified any changes in our internal controls over financial reporting or in other factors that occurred during the last fiscal quarter that have materially affected, or that are reasonably likely to materially affect, our internal ~~control~~controls over financial reporting.

3534

PART II. – OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

We are subject to legal proceedings and claims that arise in the ordinary course of our business. We do not believe the outcome of these matters will have a material adverse effect on our business, financial condition, results of operations or cash flows.


ITEM 1A.	RISK FACTORS

There are no material changes to our Risk Factors as previously disclosed in our Form 10-K for the year ended December 31,

~~2016.~~2017.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In February 2008, our Board of Directors authorized its most recent stock repurchase program whereby we may purchase up to an additional 1.5 million shares of our common stock, subject to the terms of our current credit agreement. The shares may be repurchased from time-to-time in the open market and the repurchase program may be discontinued at any time at our discretion.

During the three months ended June 30, 2018, we purchased, under this program, a total of 157,056 shares at an average price of $11.53 per share. A summary of the repurchase activity for the period covered by this report follows:



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 - April 30, 2018	—	$	—	—	700,043
May 1 - May 31, 2018	116,173	$	11.46	116,173	583,870
June 1 - June 30, 2018	40,883	$	11.75	40,883	542,987
Total April 1 - June 30, 2018	157,056	$	11.53	157,056	542,987


ITEM 6.	EXHIBITS

See Exhibit Index immediately following signature page.

~~SIGNATURES~~

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.~~



	~~CROSS COUNTRY HEALTHCARE, INC.~~

~~Date: August 4, 2017~~	~~By:~~	~~/s/ William J. Burns~~
		~~William J. Burns~~ ~~EVP & Chief Financial Officer (Principal Accounting and Financial Officer)~~

3735

EXHIBIT INDEX



No.		Description

~~10.1~~*3.1		Asset Purchase Agreement, dated June 13, 2017, among Cross Country Healthcare, Inc., as Buyer, Advantage RN, LLC, Advantage On Call, LLC, Advantage Locums, LLC, and Advantage RN Local Staffing, the Seller Parties, and Seller Representative (Previously filed as an exhibit to the Company's Form 8-K dated June 13, 2017 and incorporated by reference herein.)

~~10.2~~		Incremental Term Loan Agreement, dated July 1, 2017 to Credit Agreement, dated June 22, 2016, by and among Cross Country Healthcare, Inc., as borrower, certain of its domestic subsidiaries, as guarantors, Suntrust Bank, as lender, and Suntrust Bank, as agent (Previously filed as an exhibit to the Company's Form 8-K dated July 6, 2017 and incorporated by reference herein.)

~~10.3~~		Second Amendment to Credit Agreement, dated July 5, 2017 to Credit Agreement, dated June 22, 2016, by and among Cross Country Healthcare, Inc., as borrower, certain of its domestic subsidiaries, as guarantors, the Lenders referenced therein, and Suntrust Bank, as agent (Previously filed as an exhibit to the Company's Form 8-K dated July 6, 2017 and incorporated by reference herein.)

~~10.4~~		Amended and Restated ~~Credit Agreement, dated August 1, 2017 to Credit Agreement, by and among Cross Country Healthcare, Inc., as borrower, certain~~By-laws of ~~its domestic subsidiaries, as guarantors,~~ the Lenders referenced therein, SunTrust Bank, as Administrative Agent, Swingline Lender and an issuing bank; BMO Harris Bank, N.A. as Syndication Agent; and Bank United N.A. and Fifth Third Bank as Co-Documentation Agents (Previously filed as an exhibit to the Company's Form 8-K dated August 2, 2017 and incorporated by reference herein.)Registrant

*31.1		Certification pursuant to Rule 13a-14(a) and Rule 15d-14 (a) by William J. Grubbs, President, Chief Executive Officer, Director (Principal Executive Officer)

*31.2		Certification pursuant to Rule 13a-14(a) and Rule 15d-14 (a) by ~~William J. Burns, EVP~~Christopher R. Pizzi, SVP & Chief Financial Officer (Principal Accounting and Financial Officer)

*32.1		Certification pursuant to 18 U.S.C. Section 1350 by William J. Grubbs, President, Chief Executive Officer, Director (Principal Executive Officer)

*32.2		Certification pursuant to 18 U.S.C. Section 1350 by ~~William J. Burns, EVP~~Christopher R. Pizzi, SVP & Chief Financial Officer (Principal Accounting and Financial Officer)

**101.INS	��	XBRL Instance Document

**101.SCH		XBRL Taxonomy Extension Schema Document

**101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

**101.LAB		XBRL Taxonomy Extension Label Linkbase Document

**101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

**101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

*		Filed herewith

**		Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



	CROSS COUNTRY HEALTHCARE, INC.

Date: August 2, 2018	By:	/s/ Christopher R. Pizzi
		Christopher R. Pizzi SVP & Chief Financial Officer (Principal Accounting and Financial Officer)

3836



	Contingent Consideration			Convertible Notes
	Liabilities (a)			Derivative Liability
	(amounts in thousands)
December 31, 2016	$	5,603		$	27,532
Settlements	(100		)	(25,951		)
Accretion expense	270			—
Valuation gain for the period	—			(1,581		)
March 31, 2017	5,773			—
Accretion expense	281			—
June 30, 2017	$	6,054		$	—