DEF: Cross Country Healthcare Navigates Shifts, Eyes Aya Merger

Cross Country Healthcare reports $1.3 billion revenue in 2024, maintains strong balance sheet, and anticipates Q4 2025 merger close with Aya Healthcare amidst industry challenges.

Summary

• Generated $1.3 billion in revenue across the portfolio in 2024.
• Maintained a strong balance sheet with $82 million of cash on hand and no debt as of year-end 2024.
• Repurchased and retired over 2.4 million shares of common stock for $36.8 million in 2024.
• Physician and Homecare Staffing segments experienced year-over-year revenue growth.
• Advanced technology investments, expanding Intellify across managed service programs (MSP) and elevating the Xperience app.
• Entered into a Merger Agreement with Aya Healthcare, Inc. on December 4, 2024, with the proposed merger expected to close in the fourth quarter of 2025.
• Fiscal 2024 Adjusted EBITDA was $49.1 million, with an Adjusted EBITDA margin of 3.7%.
• Fiscal 2024 Adjusted EPS was $0.46.
• Strong Fiscal 2024 cash flow of $120.1 million.
• The Board reduced its size from eight directors to seven directors following the passing of Mark Perlberg on March 11, 2025.
• Executive compensation for 2024 saw short-term incentive payouts well below target and performance shares below target for the three-year measurement period ending December 31, 2024.
• Named Executive Officers (NEOs) earned 29.0% of the target award opportunity for the Annual Revenue portion of the Objective Bonus component for Fiscal 2024.
• NEOs met or exceeded all individual objectives for Fiscal 2024, earning 119.5% of the target award for this component.
• Total awards for NEOs were 29.7% of total target annual incentive award opportunities for 2024.
• An immaterial financial restatement for prior periods was identified, but a recovery analysis of incentive-based compensation resulted in no change to awarded amounts.

Sentiment

Score: 4

Explanation: While the company highlights strategic advancements and a strong balance sheet, the significant decline in key financial metrics (net loss, reduced Adjusted EBITDA and EPS) for 2024, coupled with below-target executive incentive payouts, indicates operational underperformance. The pending merger with Aya Healthcare offers future potential but is not yet finalized. The outperformance in TSR compared to peers is a positive, but the recent financial results are a concern.

Positives

• Maintained a strong balance sheet with $82 million cash on hand and no debt as of year-end 2024.
• Repurchased and retired over 2.4 million shares of common stock for $36.8 million in 2024, reflecting financial strength and confidence in the company's strategy.
• Physician and Homecare Staffing segments experienced year-over-year revenue growth.
• Advanced technology investments, expanding Intellify and elevating the Xperience app, enhance operational capabilities.
• Entered into a Merger Agreement with Aya Healthcare, Inc. on December 4, 2024, indicating a strategic move for future growth and market positioning.
• Generated strong Fiscal 2024 cash flow of $120.1 million.
• Named Executive Officers (NEOs) met or exceeded all individual objectives for Fiscal 2024, earning 119.5% of the target award for this component.
• The executive compensation program received substantial stockholder support for the thirteenth straight year, with 95.3% of votes cast in favor of the 2023 compensation at the 2024 Annual Meeting.
• Total Shareholder Return (TSR) of $156.28 for 2024 (based on a $100 investment on Dec 31, 2019) outperformed the Peer Group TSR of $91.71.

Negatives

• Fiscal 2024 revenue of $1.3 billion was below the target of $1.475 billion for the Annual Cash Incentive Program.
• Fiscal 2024 Adjusted EBITDA of $49.1 million was significantly below the target of $80 million and even below the adjusted threshold of $50 million for the Annual Cash Incentive Plan.
• Reported a net loss attributable to common stockholders of $(14,556) thousand in 2024, a significant decline from net income of $72,631 thousand in 2023.
• Adjusted EPS decreased significantly to $0.46 in 2024 from $2.23 in 2023.
• Short-term incentive payouts for NEOs were well below target for Fiscal 2024, at 29.7% of total target annual incentive award opportunities.
• Performance shares for NEOs were below target for the three-year measurement period ending December 31, 2024.
• The company did not achieve its minimum performance threshold for Company Annual Adjusted EBITDA under the Annual Incentive Plan for Fiscal 2024.
• The Board reduced its size from eight to seven directors following the passing of Mark Perlberg on March 11, 2025.
• Identified an immaterial error in consolidated financial statements of prior periods, requiring a recovery analysis of incentive-based compensation.

Risks

• Workforce shortages, economic pressures, and evolving client needs challenged the entire healthcare sector in 2024 and 2025.
• Forward-looking statements are inherently uncertain and rely on assumptions, with actual outcomes potentially varying materially from those indicated.
• The proposed merger with Aya Healthcare, Inc. is subject to customary closing conditions and may not occur, or may be delayed beyond the expected fourth quarter of 2025.
• The 2025 Annual Meeting of Stockholders will not occur if the merger with Aya Healthcare, Inc. is completed prior to December 9, 2025.
• The Compensation Committee introduced an additional element to the Annual Cash Incentive Plan during Q2 2024 due to 'extremely challenging market conditions' and the 'probability of attaining the previously approved targets,' indicating significant operational headwinds.
• Healthcare professional burnout is a major industry risk that the company aims to address.
• The Audit Committee oversees risks related to cybersecurity, artificial intelligence, data privacy, environmental, and climate risks.
• The Compensation Committee assesses risks from executive compensation programs, incentive compensation plans, director compensation, perquisites, Sarbanes-Oxley Act compliance, human capital management, and retention.
• The Governance and Nominating Committee evaluates risks related to corporate governance matters, Board structure, succession planning, and director nominee suitability.
• Target total direct compensation opportunities for NEOs were below the 50th percentile of market values for comparable positions and below a competitive range for three of five NEOs, potentially impacting talent attraction and retention.

Future Outlook

The company expects its proposed merger with Aya Healthcare, Inc. to close in the fourth quarter of 2025. Management's focus for 2025 continues to extend beyond operational excellence and technology adoption to strengthen relationships with both clients and the professionals who make its work possible. The company remains committed to delivering consistent, reliable workforce solutions, while balancing operational rigor with ongoing innovation.

Management Comments

• "In 2024 and 2025 thus far, Cross Country navigated changes across the healthcare industry. Workforce shortages, economic pressures, and evolving client needs challenged the entire sector."
• "Through it all, we remain focused on disciplined execution, operational efficiency, and delivering reliable workforce solutions to the clients and professionals who depended on us."
• "Our approach is deliberate – strengthen our operational foundation, advance technology capabilities, and position the company to adapt to the changing needs of healthcare, homecare, and education markets."
• "We believe that these efforts helped us close 2024 with greater resilience and stability, which positioned us well for 2025."
• "Cross Country remains committed to delivering consistent, reliable workforce solutions, while balancing operational rigor with ongoing innovation."
• "We ask for your support in approving the proposals outlined in this proxy statement, as we strive to continue building on our progress and strengthening our ability to deliver value for clients, professionals, and stakeholders alike." (Kevin C. Clark, Chairman of the Board of Directors; John A. Martins, President and Chief Executive Officer)
• "The Compensation Committee determined that for Fiscal 2024, our NEOs met or exceeded all of their respective individual objectives, each earning 119.5% of the target award for this component."
• "In approving these awards, the Compensation Committee took into consideration our NEOs strong contributions to protect and manage the business and seamlessly maintain operations during a time of cost-cutting measures by healthcare facilities, and the overall uncertainty of the economy."

Industry Context

The healthcare industry is currently navigating significant challenges, including widespread workforce shortages, economic pressures, and evolving client demands. Cross Country Healthcare, as a tech-enabled provider of healthcare and educational talent, is directly impacted by these trends. The company's strategic focus on disciplined execution, operational efficiency, technology adoption (e.g., Intellify, Xperience app), and strengthening relationships with clients and professionals aligns with the broader industry need for adaptable and reliable workforce solutions. The proposed merger with Aya Healthcare, Inc. suggests a strategic move towards consolidation or expansion, aiming to enhance market position and operational synergies in response to these dynamic industry conditions. The acknowledgment of healthcare professional burnout highlights a critical industry-wide issue that staffing companies like Cross Country aim to mitigate by offering flexible employment options and support.

Comparison to Industry Standards

• The company's Total Shareholder Return (TSR) for 2024 was $156.28 (based on an initial $100 investment on Dec 31, 2019), significantly outperforming the Peer Group Total Shareholder Return of $91.71 (Dow Jones US Business Training & Employment Agencies Index) for the same period, indicating strong shareholder value creation relative to its industry peers over the five-year period.
• The 2024 Peer Group for executive compensation benchmarking includes companies from both healthcare services and staffing and general staffing industry sectors, such as Addus HomeCare Corporation, Kelly Services, Inc., Paycom Software, Inc., Amedisys, Inc., Kforce, Inc., Pediatrix Medical Group, Inc., AMN Healthcare Services, Inc., Korn/Ferry International, R1 RCM Inc., Heidrick & Struggles Intl Inc., National Healthcare Corporation, and ZipRecruiter, Inc.
• Target total direct compensation opportunities for Named Executive Officers (NEOs) were found to be below the 50th percentile of market values for comparable positions at industry peers, and below a competitive range (85% to 115%) of the 50th percentile for three of the five NEOs. This suggests that the company's executive pay structure might be less competitive than some industry standards, potentially impacting talent attraction and retention.

Management Changes

Corporate Governance

Related Party Transactions

• Mark Fortunato, son-in-law of Kevin C. Clark (former CEO, current Chairman), is employed as Vice President of Corporate Development. His Fiscal 2024 compensation and benefits were comparable to similarly situated employees.
• The company transacts business with Recruitics, a digital marketing services company related to Mr. Clark. Expenses paid to this firm in Fiscal 2024 were $478,000.
• The company provided services in the amount of $561,454 to ChristianaCare, a non-profit hospital network, where Dr. Janice E. Nevin (non-employee director) is President and Chief Executive Officer.
• The company provided services in the amount of $4,327,062 to Beth Israel, a non-profit integrated health system, where Gale Fitzgerald (non-employee director) serves on the Board of Trustees of Beth Israel Deaconess Hospital.
• All related party transactions for Fiscal 2024 were approved in advance by the Audit Committee.

Stakeholder Impact

• Shareholders: Potential for long-term value creation through the Aya Healthcare merger, but recent financial underperformance (net loss, reduced EBITDA/EPS) could be a concern. Share repurchase program in 2024 returned value to shareholders. Executive compensation decisions are subject to shareholder advisory vote.
• Employees: Corporate employees (over 1,400) and field employees (over 8,000) are impacted by the company's focus on operational efficiency, technology, and human capital management. The elimination of Daniel J. White's position due to restructuring indicates potential for further organizational changes.
• Clients: The company's commitment to delivering consistent, reliable workforce solutions and advancing technology (Intellify, Xperience app) aims to meet evolving client needs in healthcare, homecare, and education markets.
• Healthcare Professionals/Educators: The company provides opportunities for various professionals (RNs, LPNs, Physicians, Allied Health, Teachers) and focuses on optimal flexibility, compensation, and support, addressing industry workforce shortages and burnout risks.
• Suppliers/Creditors: The company's strong balance sheet with no debt and robust cash flow indicates a healthy financial position for managing relationships with suppliers and creditors.

Next Steps

• Hold the 2025 Annual Meeting of Stockholders on December 9, 2025, to elect directors, ratify the independent auditor, and conduct a non-binding advisory vote on executive compensation.
• Continue to focus on operational excellence, technology adoption, and strengthening relationships with clients and professionals in 2025.
• Work towards the closing of the proposed merger with Aya Healthcare, Inc. in the fourth quarter of 2025.
• The Board and Audit Committee will consider stockholder input if the appointment of Deloitte & Touche LLP is not ratified.
• The Board will consider stockholder concerns regarding executive compensation if there is a significant vote against the say-on-pay proposal.

Key Dates

Recommendation

The company's 2024 financial performance, marked by a net loss, significantly reduced Adjusted EBITDA and EPS, and below-target executive incentive payouts, indicates operational challenges. While the proposed merger with Aya Healthcare offers strategic upside and the company's TSR has outperformed its peer group, the immediate financial results are concerning. The strong balance sheet and cash flow provide stability, but investors should await further clarity on the merger's completion and the company's ability to reverse the recent financial downturn before considering a 'buy' recommendation. A 'hold' position is warranted to observe the integration process and subsequent financial performance post-merger.

Keywords

Healthcare staffing, Aya Healthcare merger, SEC filing, Proxy statement, Cross Country Healthcare, Financial results 2024, Executive compensation, Corporate governance, Workforce solutions, Healthcare industry, Staffing technology, Share repurchase, Adjusted EBITDA, Adjusted EPS, Risk management, Board of Directors, Annual Meeting, Nasdaq, Human capital management