Cross Country Healthcare, Inc.

Good afternoon, ladies and gentlemen, and welcome to Cross Country Healthcare's fourth quarter and full year 2020 earnings conference call. A replay of this call will also be available through March 11, 2021 and can be accessed either on the company's website or by dialing 800-510-0118 for domestic calls and 203 369-3808 for international calls and by entering the passcode 2021. At the conclusion of the prepared remarks, I will open the lines for questions. I will now turn the call over to Bill Burns, Cross Country Health Care's Chief Financial Officer. Please go ahead, sir.

Good afternoon, everyone, and welcome to Cross Country Healthcare's fourth quarter and full year 2020 earnings call. I'm joined today by our co-founder and chief executive officer, Kevin Clark, as well as Buffy White, group president of Workforce Solutions and Services, and Steve Saville, group president of Locums and Education, as well as our newest member of our executive team, John Martins, group president of Nurse and Allied. Welcome, John. Today's call will include a discussion of our financial results for the fourth quarter and full year of 2020 and our outlook for the first quarter of 2021. A copy of our earnings press release is available on our website at crosscountryhealthcare.com. Before we begin, we need to remind everyone that certain statements made on this call may constitute forward-looking statements. As noted in our press release, forward-looking statements can vary materially from actual results and are subject to known and unknown risks, uncertainties, and other factors, including those contained in the company's 2019 annual report on Form 10-K and quarterly reports on Form 10-Q, as well as in other filings with the SEC. The company undertakes no obligation to update any of its forward-looking statements. Also, comments made during this teleconference reference non-GAAP financial measures such as adjusted EBITDA and adjusted earnings per share. Such non-GAAP financial measures are provided as additional information and should not be considered substitutes for or superior to financial measures calculated in accordance with the U.S. GAAP. More information related to these non-GAAP financial measures is contained in our press release. With that, I will now turn the call over to our co-founder and chief executive officer, Kevin Clark.

Thanks, Bill, and thank you to everyone for joining us this afternoon. I'd like to begin by welcoming John Martins to Cross Country. John brings a wealth of expertise and deep industry knowledge, having served in very senior positions for several large healthcare staffing firms during the course of his successful career. This call marks the second anniversary of my return to this amazing company, and I am incredibly proud of everything we've accomplished in that short time. Having reinvigorated the company culture, embraced technology that is transforming our company, and harnessed the power of the cross-country brand, we've demonstrated our ability to meet our clients' needs and have once again exceeded guidance for revenue and profitability. Our success is made possible by the exceptional cross-country team and our talented professionals who work tirelessly and passionately to deliver on our mission of providing the most clinically excellent healthcare professionals to the bedside while adhering to our core values. Throughout 2020, we moved diligently and purposefully to execute on our turnaround strategy by realigning and optimizing our teams, investing in revenue-producing capacity, reducing overhead by more than $20 million, permanently closing more than 50 offices, implementing and successfully deploying our new applicant tracking software, or ATFs, across all of Travel Nurse and Allied, as well as launching cross-country marketplace for the local staffing market. Together with the actions we completed in 2019 to streamline our go-to-market strategy, aligning around one brand and the concept of one cross-country, I feel confident saying we have successfully completed the turnaround for cross-country. And as we move into 2021, we continue to expand our vision of one, with one purpose to deliver exceptional clinical professionals and serving as one partner to our clients with a flexible, comprehensive suite of solutions. Before I speak to our results, I wanted to highlight that in 2020, we also continue to expand our environmental, social, and governance initiatives. With a 35-year history, we are proud of our commitment to diversity, equality, and inclusion, and in 2020, More than three-quarters of our internal workforce was female, and approximately one-third were from historically underrepresented groups. In addition, our newest board member, Dr. Janice Nevin, was named as one of modern healthcare's most 50 influential clinical executives in the United States and was elected to the Board of Trustees of the American Hospital Association. We are thrilled to have her on our team. During the year, we also made further investments in social initiatives, including the sponsorship of a nursing scholarship program through Florida Atlantic University, and we were the presenting sponsor of the Leukemia and Lymphoma Society Light the Night Walk. Our commitment to improve the environment and support our communities is reflective of our value-based culture and is in direct alignment with our business strategy. So let me spend a few minutes on our fourth quarter performance. With consolidated revenue of $215.6 million and adjusted EBITDA of $11.5 million, we far exceeded our expectations, as our largest segment, nurse and allied, grew sequentially by 12%. The sequential growth was fueled by a continued acceleration in demand, especially for the travel nurse division, where average weekly orders were up more than 30% relative to the third quarter. The rise in demand was seen nationally with states like Massachusetts, California, New York, Florida, and Texas experiencing the biggest increases. From a specialty perspective, the largest increases have been in med-surg, ICU, and emergency room nurses. As a consequence of the rise in demand in an already tight labor market, our average travel bill rates were up nearly 10% relative to the third quarter. The sequential rise in the bill rates is a function of the increases in pay rates required to attract the thousands of healthcare professionals needed by our clients, as the average travel pay rate was up approximately 17%. As we discussed on prior calls, it has been our philosophy throughout the pandemic to be flexible and work collaboratively with our clients, making recommendations on adjusting bill rates both up and down as necessary to deliver the critical healthcare professionals needed. In general, this has resulted in gross margins on COVID-19 assignments to be below our consolidated average. In addition to the strong growth in the travel nurse business, both our local and travel allied businesses were up in the high single to low double digit range, with most of the increase attributable to growth in the number of billable hours. Revenues for physician staffing continue to experience an impact from COVID-19 and were essentially flat sequentially with a modest increase in the number of hours for advanced practice specialties. Within physician staffing, revenue from advanced practices remains up year over year and is offset by the declines in other physician specialties such as anesthesiology and primary care. From an MSP perspective, Spend-under management rose sequentially to a run rate of more than $500 million. Additionally, our capture rate at MSPs increased to 71% as we focused on ensuring we could deliver the critical staff to the clients with the highest needs. Along with solid execution on fulfillment and delivery, we continued on our path of digital innovation with the expansion of our new ATS to our entire travel business for both nurse and allied, as well as the deployment of our proprietary tool cross-country marketplace to all of our local markets. And we are already starting to see positive results. For example, our recruiters with between one and three years of tenure have experienced a 36% increase in the number of travelers on assignment in the fourth quarter alone. And we expect to see continued productivity improvements, especially with the ramp of new employees. As a result of continued strong demand, as well as our proven ability to execute and our new advanced cloud-based ATS platform, we invested throughout the fourth quarter in additional revenue generating capacity. As we look out to 2021 and beyond, our strategic IT roadmap continues to take shape, and we are proceeding with further investments across our enterprise. The next phase of our digital transformation will further enhance the functionality for both our marketplace tool and the ATS, as well as replace our middle office payroll and billing system and ultimately deploy these new tools across our local per diem business. With speed being essential to both our healthcare clients and professionals, we believe these investments will best position the company for growth in both revenue and profitability through better operational execution, enhanced employee productivity, and a world-class client and candidate experience. Looking ahead, we expect that COVID-19 will continue to have a mixed impact on our business, with rapid changes possible in both demand and bill rates. Demand, especially for travel orders, rose steadily throughout the fourth quarter, peaking in mid-December. As hospitalizations for COVID cases have declined following a peak in early 2021, and with vaccinations rolling out in larger numbers, we have seen orders for COVID-related clinicians decline as well. Though it's difficult to predict the timing for the decline for COVID-related assignments throughout 2021, we expect to see ongoing needs related to the pandemic, such as vaccine administration and the resumption of elective and the restart for in-classroom learning for our education business. For the first quarter, we expect revenue to be between $280 and $295 million, representing the single largest revenue quarter in our company's history. And while that is certainly an achievement worth noting, we are cognizant that it is partially driven by sequentially higher bill rates related to COVID assignments that will likely trend down throughout 2021. I am very encouraged by the fact we are also seeing volume increases in billable hours and the number of professionals on assignment, as well as a growing number of first-time professionals further validating that cross-country brand is again resonating as the go-to company in our industry for healthcare professionals who seek a partner they can rely on and trust to find their next job. Our performance and ability to adapt throughout the pandemic in many ways has reinforced our value proposition in the market for offering flexible, rapid, and cost-effective means for delivering critical care to millions of Americans across thousands of facilities. This was confirmed recently with five of our cross-country businesses being recognized with multiple Best of Staffing Awards for superior customer service for both our professionals and our clients. And just before I turn the call over to Bill, I would just like to share how incredibly proud I am of our entire organization as they have worked tirelessly to deliver exceptional results for our clients, candidates, and shareholders. Their ability to innovate and embrace change has made our organization more agile and to operate more smoothly and effectively. I strongly believe that we are on a positive trajectory and we have the right team and the right vision of one purpose, one partner, one cross-country. I am also so appreciative of the unwavering commitment of our healthcare professionals to serve on the front line of the pandemic. Their dedication and that of the thousands of professionals across the nation led to staffing industry analysts recently announcing the person of the year for 2021 is the travel nurse. To our travelers and the thousands of professionals we work with, we thank you. So now let me turn the call over to Bill to walk us through the results in more detail. Bill?

Thanks, Kevin. The fourth quarter and full year results once again demonstrated our ability to execute well across multiple fronts, including expanding our base of clinicians on assignment against the backdrop of rising demand, as well as enhancing the productivity of revenue producers through tighter alignment, process improvements, and embracing technology. These actions allowed us to deliver consolidated revenue for the full year of 2% despite school closures impacting our education business and other impacts from COVID-19 on our local and physician staffing businesses. Turning to the quarterly results, consolidated revenue was $215.6 million, up 11% sequentially and essentially flat with the prior year. The strong sequential improvement was driven primarily by growth in our travel nurse and local business, as well as the impact from the start of the school year for our education business. Revenue for our largest segment, nurse and allied staffing, was $196.4 million, representing a 12% sequential increase and 3% over the prior year. On a sequential basis, the growth was fueled primarily by an increase in the number of billable hours, as well as an increase in the average bill rates. As expected, revenue from education clients remained down approximately 30% over the prior year, due to the continued virtual learning in most school districts. As we start to see more schools reopen in classroom learning, we're optimistic that this business will bounce back quickly and return to double-digit revenue growth we have seen for the last several years. On a year-over-year basis, bill rates for Nurse and Allied were higher across all lines of business due primarily to the premium rates associated with COVID assignments, as well as the labor disruption. In particular, travel nurse staffing rates were up approximately 30% over the prior year and 10% sequentially. Looking ahead, we expect rates to normalize as we move forward, but remain above prior year levels for the next several quarters. As we've called out on prior earnings calls, the company established pricing guidelines for COVID assignments, whereby rates are determined in consultation with clients to ensure our ability to quickly provide the critical staff needed. And with the client's consent, these rates may flex up or down depending on conditions in the respective markets. Our physician staffing segment appears to have stabilized following the initial impact from COVID-19 earlier in the year. Revenue was $16.4 million, essentially flat with the third quarter and down 18% from the prior year. Within physician staffing, we see continued strength in demand for advanced practice specialties, and revenue for that part of the business was up 5% over the prior year. Gross profit for the quarter was $54.3 million, representing a gross margin of 25.2%, which was 50 basis points above the prior quarter and prior year. The improvements in gross margin were driven by favorable insurance costs related to health, workers' compensation, and professional liability, as well as favorable mix between the lines of business. As previously mentioned, though, COVID assignments have higher bill rates. We continue to staff those assignments at lower margins. Total SG&A was $44.9 million for the quarter, down 2% over the prior year and up 10% sequentially. The sequential increase was driven by higher commissions and incentive compensation based on fourth quarter results, investments in revenue-producing headcount, as well as higher health insurance related to a single high-dollar claim. Relative to the prior year, we continued to realize significant savings in salaries and rent from our prior cost actions, which were partially offset by the increased commissions and incentive compensation related to performance. Below adjusted EBITDA, there's a few items to call out. We recognize restructuring costs of $800,000 associated with the severance and other exit costs, as well as $100,000 for the write-off of the right-to-use assets associated with leases exited during the quarter. We encourage $600,000 in legal fees pertaining to a non-operating matter, And finally, interest expense was approximately $700,000, representing a 36% decline over the prior year and a 10% increase over the prior quarter. The year-over-year decline was driven by a lower effective interest rate on the new ABL facility, as well as lower average borrowings during the quarter. From a balance sheet perspective, we ended the quarter with $1.6 million in cash and $53.4 million in outstanding debt under our ABL, excluding letters of credit. From a cash flow perspective, We generated cash from operations of $1.9 million during the quarter, bringing the year-to-date total to $27.2 million, compared with $5.5 million for 2019. Our day of sales outstanding was 58 days, representing a six-day improvement over the prior quarter. Capital expenditures were $1 million for the quarter, bringing our year-to-date total to $4.6 million, and we repaid $18 million of debt under our ABL. This brings me to our outlook. For the first quarter of 2021, we expect consolidated revenue to be between $280 and $295 million, representing a 33 to 40% increase over the prior year. The majority of the increase is expected to come from robust growth in our travel nurse and travel allied staffing businesses, with more professionals on assignment, as well as an increase in the average bill rates. Our local business is continuing to recover and is expected to have modest growth over the prior year. Physician staffing and education are expected to continue to be down year over year due to the impacts from COVID. Though we only provide quarterly guidance, I would just like to comment on the expected trend for bill rates in 2021, especially in our travel nurse business. With the recent step down in COVID orders, we would expect that average bill rates will start to decline in the second quarter and continue to normalize throughout the rest of 2021. As Kevin mentioned earlier, our goal is to be responsive to and flexible for our clients by adjusting bill rates based on the market conditions. We're guiding to a gross margin of between 21.2 and 21.7%, lower than the prior year, predominantly due to the mix of assignments with premium bill and pay rates. Also contributing to the sequential decline is the impact from the annual payroll tax reset. Adjusted EBITDA is expected to be between $16 and $18 million, up from $4.6 million in the first quarter of 2020, reflecting the impact of additional gross profit from significant revenue growth for the quarter. Our adjusted earnings per share range is 32 to 37 cents. Also assumed in the guidance are depreciation amortization of $2.4 million, interest expense of $800,000, stock-based compensation of $1.1 million, tax expense of $400,000, and a fully diluted share count of 36.4 million shares. And this concludes our prepared remarks, and at this point, we'd like to open the lines for questions. Operator?

Thank you. To ask a question, please ensure that your phone is unmuted, press star 1, and record your name clearly when prompted. If you do need to withdraw your question, press star 2. Again, to ask a question, please press star 1. Our first question is from A.J. Rice with Credit Suisse. You may go ahead.

Yes. Hello, everybody. Just trying to understand the dynamics, first of all, in the nurse and allied. Is the benefit that you're seeing from COVID-related assignments pretty much on the travel side only, or is that helping or changing the trajectory on the branch side as well, local side?

Yeah, hey, AJ, it's Kevin. Great to hear from you. Yeah, look, the principal driver is travel nursing. However, with imaging, respiratory lab in our allied areas, we're also seeing impact from COVID. And because, you know, our local staffing business is across the spectrum of registered nurses and LPN and CNA as well as allied, that has also benefited from COVID orders as well. And in addition, you know, we are also expanding, you know, our ability to staff clients like, for example, the federal government and various states around vaccinations, testing, screening. So all of those areas also have had a positive impact. As Bill and I called out in the script just now, we're still seeing a depressed demand in certain specialties or a softer demand in our physician specialties, such as anesthesiology in primary care. But for the most part, on balance, COVID has helped us across these other segments.

I was going to ask you about the vaccines and the testing. Is that... Right now, like in the fourth quarter, is that a significant revenue contributor or is that sort of something that's emerging in the first quarter? And do you have any sense of when you're staffing these various places with the federal government or otherwise, is there a commitment for your staff for a while or is it sort of a week-by-week basis? How does that work?

Yeah, I'll start and then I'll ask Buffy to also weigh in. It's a modest impact right now, AJ. You know, we are certainly supporting our clients where they've asked us. We are, you know, broadening our approach to some of the pharmacy distribution companies and other providers that are providing some of these vaccinations. We think it's going to be a multi-year opportunity for the company. We think it's, you know, we're going to see this environment for the next couple of years. But, Buffy, you might want to add to that.

No, Kevin, thank you. And AJ, I would agree with what Kevin said. I think that we are, we saw some testing starting to see some vaccination activity, but more testing in Q4. I think we definitely are seeing now more dialogue in the marketplace, more requests for proposals and solutions for vaccinations coming from the government side, also direct companies trying to support their workforce. And as Kevin mentioned, the pharmaceutical industry. We, I project that we will be seeing more requests for this and more proposals and start to see some vaccination efforts moving forward.

Okay, maybe one last question around MSPs. What are you seeing there? I'm assuming they get prioritized for fill rates and so forth. Are you able to keep them happy? Is there created opportunities where some of that sort of second tier customer that hasn't gone the MSP route maybe is not being served by the market as well right now. And they're looking at MSPs. What would you say is the underlying dynamic in that market?

Yeah, I mean, that's a great question, AJ. Uh, well for us, it's a good story. I mean, look, we have about 80 MSPs. We certainly pivoted as much as we could to support their requirements during COVID as well as also, you know, try to support direct relationships and even some of our third party network clients. What we've seen in the business is that our capture rate has improved to 74%, which is a good thing. We'll see if we are able to sustain a number well above 60 where we've traditionally been. But for us, it's positive because we've really pivoted our resources to ensure that those customers you know, get filled, you know, in terms of all the requirements. Today, 43% of all of our revenue flows through those MSP contracts, and it's, you know, from a nurse and allied perspective, it's actually a little bit higher. It's 46%. But, Buffy, you might want to talk about the second tier part of that question.

Sure. Yeah, absolutely. I think our team has done an extraordinary job, just a great effort that's really throughout the year supporting our clients, candidates and across our communities, I think, capture rate very high. So we're very proud of our MSP efforts. And as far as second tier, I think that we have continued to hear from customers the need for more support. So we have definitely seen an increase in Q4 and heading into Q1 particularly from second tier customers looking for our support. I would also say in addition, you know, the MSP pipeline, very, very strong ahead. I'm very encouraged about that. And as a matter of fact, we closed and are in implementation of two MSP programs right now in the first quarter. So very encouraged about the pipeline ahead for both MSP and second tier and direct business.

Okay, great. Thanks a lot.

Thank you. Our next question is from Jeff Silber with BMO Capital Markets. You may go ahead.

Thank you so much. You mentioned that you're expecting the current quarter to be the largest in your company's history. I know we're in unique times, and I know you don't give guidance beyond the current quarter, but would it make sense to see year-over-year growth for the rest of the quarters in 2021?

um hi jeff it's a very good question look um you know as we also said tonight um you know we've really completed our turnaround cross country is growing and we expect to see growth each and every quarter going forward having said that um you know what we also said earlier is that our bill rates are you know probably peaking here in q1 and we'll see the trend line for bill rates probably recede as You know, fortunately for our country, vaccinations roll out and hospitalizations hopefully continue to decline. But, you know, I do want to make the point that, you know, we're also encouraged, you know, as that trend line, you know, happens that we see a resumption of our education business, as schools reopen, we can see a resumption and growth in our physician business. but we're also taking steps that we've talked about in the last two years in terms of our digital transformation, improving the tech stack and the ability to have the most productive tools at the hands of our recruiters and account managers and salespeople. So we're a growth company, and we expect to see growth each and every quarter with probably a declining trend line around bill rates. And I don't know, Bill Burns, if you want to add into that.

Yeah, I just would add that it's obviously our stated goal to get to that year-over-year growth, as Kevin pointed out. I think we're seeing nice gains on the productivity front. And just looking into the first quarter, we are seeing volume growth across most of our businesses. For the travel business, for example, it's Estimated that we'll see about a 30% uptick in travelers on assignment for the first quarter. As you look at our local business, it's a little more balanced, probably about half the sequential growth that we're expecting in first quarter. Sorry, the year-over-year growth will come from growth and half from price. So all the businesses are contributing. We need the schools to go back into session, of course, and that'll help our education business. But that is the goal, and I think it's possible.

And just on that education business, can you remind us how large that was maybe in 2019, you know, pre-pandemic?

Steve, do you want to kind of cover the education business? Well, maybe Bill, cover the numbers, and maybe, Steve, you can comment on that as well. Jeff might want to hear in terms of where we are.

Yeah, our education businesses had been running at roughly around about a $50 million run rate prior to COVID. And as we called out on the call just a few minutes ago, it's trended down about 30%. with the bulk of the business being recovered through teleservices? And that's where I'll hand it off to Steve.

Sure. Thank you, Bill. And, Jeff, thanks for the question. With regard to the continuation of this business, you know, the story is very similar to what we told entering COVID. We moved quickly into a virtual environment. We've delivered the overwhelming majority of our services in the education market virtually. That includes education services, mental health services, as well as therapy services, in particular speech. While doing that, we also positioned the operations of the business to accelerate immediately upon the re-entry of students into the school environment. We expect, as Bill called out on the initial comments, that as soon as students are back in the school environment, that we'll see double-digit growth in this business very quickly.

All right, that's great. If I could just sneak one more in. I asked this to your larger competitor, so I feel I need to ask this to you as well. You know, when we've seen these type of bill rate increases in the past, so sizable, afterwards you tend to get a pushback from some of your customer base in terms of trying to, you know, reduce the number of travelers on assignment as one example. I know things are a little bit different this time, but why should we not expect the same kind of pushback once we get past the pandemic? Thanks.

Yeah, good question again, Jeff. Look, I think one of the things that the global pandemic has done is reinforce the value proposition of the healthcare staffing industry, and particularly the travel nurse marketplace. It's far more efficient for these healthcare systems to rely upon temporary staff to fill peak orders and to balance and optimize their staffing and utilize, you know, the least, you know, the most efficient, I will say, labor resource. So from our perspective, you know, I think, you know, this is like a 30-year trend line that continues to expand, you know, the adoption of flex labor, freelance, temp staffing to support an employer enterprise. So, you know, from our perspective, you know, we are hopeful that, you know, hospitalizations decline for a lot of reasons, one of which we want to see the, you know, the pay packages which are driving the nurses to these, you know, with these high bill rates recede for the benefit of our clients. You know, we want to see our clients benefit as, you know, in terms of a resumption and back to kind of a normalization of our marketplace. John Martins, I don't know if you want to add comments to that in terms of what we're seeing out there in the market.

Sure. Hey, Jeff, how are you? What I'd say is we're also seeing and we're hearing from our clients and clinicians the burnout factor and the fatigue they're facing. I think that's a large part of why we're going to continue to see a demand for these services. And, you know, look, it's been an emotional year for everybody, right? And especially our clinicians on the front line of battling the pandemic. And our clients, we're hearing from our clients that they're expecting higher than normal retirements. And they're going to continue to look for cross country to help them backfill their needs and ramp up the core staff in the supply constraint market. We had a supply constraint market prior to COVID. And it's only going to get worse with the number of retirements that we'll be facing in the future.

All right, really appreciate all the callers. Thanks so much.

Thank you. Our next question is from Toby Summer with Truist Securities. You may go ahead.

Thanks. Could I start by asking for an update on your tech overhaul and new systems? What are the key dates of upcoming transitions and which parts of the business and risks as you see things going forward?

sure hey toby uh well first of all it's gone great uh for you know really the past two years we've hit all of our important milestones um this year uh we called out we're going to spend approximately 12 to 15 million dollars in capex a lot of that capital is going towards you know the next phase of some of these projects for example middle office now that we have the bulk of our business our front office on this new ATS. We want to make sure that we're connecting from an infrastructure perspective with payroll billing and make a seamless tech stack. So that's one important objective this year. The other is to onboard our local staffing business onto this ATS as well by the year end. So those are two key projects. They're right on track. We're confident. And then the third is Our proprietary Marketplace app that we have rolled out now nationally to all of our local markets. We're going to continue to invest behind Marketplace. We believe that is the gateway through which all of our healthcare professionals will seek jobs and do business with cross-country, as well as long-term with all of our clients. So it's an important part of our go-to-market strategy, and that's an important investment that we're making as well.

Thanks. Could you talk about cash flow in the quarter? I mean, it was a good year, but the quarter in itself, given the revenue spike, just wondering if you could speak to that and maybe give us some color into your guidance, whether there are any sort of exogenous factors restraining that. Thanks.

Sure, Toby. Yeah, I got it. Yeah, so the fourth quarter cash flow was about $2 million generated from a cash flow from operations perspective. I'd say it was really largely due to the sequential ramp throughout the quarter in business. You just don't have the time on the collection front to collect. You've got the disbursement, so it's an investment in working capital. And I would expect those collections to come in in the first quarter and Similarly, with the sequential growth, I think we'll see an additional investment in the first quarter for working capital, but again, that will work itself out in the second and third quarter. Overall, for the full year, though, to have generated $27 million of cash flow from operations, we were very pleased with that.

Thanks. Could you give us a sense for what you've experienced in your local business in areas where you closed an office, said you had Did he end up, uh, giving up some revenue based on the contracting footprint? Just kind of give us a flavor for how that's gone.

Yes. Yeah. I mean, you know, first of all, it's gone really, really well. Um, we've seen, first of all, the last two quarters sequentially, our local business, uh, has been up each quarter, um, you know, in terms of our revenue and we're seeing growth out of that business. Um, we're very encouraged. We're encouraged, uh, as we enter into 2021. you know, cross country, I think in a lot of ways we had some fortunate good luck in terms of having a silver lining with this global pandemic and that we, you know, like many other companies shifted to a virtual work environment. And although we were, you know, planning to close those branches it was over a longer period of time. So our ability to accelerate and close 50 branches and, you know, from a, uh perspective that we had a you know we we couldn't fail and we had to have our operations run seamlessly and smoothly it was an opportunity for the company to accelerate um and move you know to a leaner more efficient uh you know one single cross country and the other part of that is technology we've had to invest in um the infrastructure and the company to support that and we've done that so from our perspective the local business has been growing the last couple quarters We've also expanded some of our staffing opportunities to include labor disruptions, both in the third quarter and the fourth quarter. And we continue to believe that one of the ways cross-country differentiates itself from our peer group is that we have such a large-scale local staffing business that can support you know, clients such as our MSPs who require more than just staffing in an inner-city acute care hospital. They have community hospitals, outpatient centers, other centers that they have staffing requirements that we can support with that local business.

And lastly, I had a question about your guidance. Is that level of adjusted EBITDA margin, is that allowing you to, or do you have additional investments that you're sort of accelerating in that framework, or is this the kind of margin you would imagine at this revenue level on sort of a normalized basis post-COVID when you can be at this revenue level? I'm just kind of curious. At close to $300 million, I might have thought we'd have a higher flow through to EBITDA.

Yeah, I'll take that question, Toby. We are continuing to make investments, obviously, in the first quarter towards continuing to fuel growth. So there'll be investments in revenue producers across most of our lines of business. So that's factored into this as well. And I would just point out that there's a margin component to it. While the revenue is a bit higher, the gross margin is artificially lower because of the mix of orders. The COVID assignments, the crisis assignments do not tend to have margins as high as the overall consolidated average. And I'll just point out, as we saw rates go up sequentially In the fourth quarter from the third quarter, almost, you know, probably 90-plus percent of the increase in bill rates went back to the healthcare professional, so not really adding much to the gross margin. And you can imagine as we step into Q1, as bill rates surge forward a little further because of the mix of orders and demand, you know, that's going to have a weighting effect on the overall gross margin. Okay. Thank you.

Thank you. The next question is from Kevin Fishbeck with Bank of America. You may go ahead.

Kevin Fishbeck Great. Thanks. I wanted to follow up on the stat you gave about the recruiters, seeing the 36% increase in travelers on assignment in Q4. Was that a sequential number or a year-over-year number?

That is a year-over-year number, I believe, based on our average. Bill, is that correct? Yes, it was a year-over-year number, Kevin.

Okay. And I guess overall placements are down year over year. So I guess what's the delta between those numbers?

I mean, look, we hit a, like most companies in our industry, I mean, we had an unprecedented drop in demand, Kevin, as you recall, in the second quarter. And we've been rebuilding our business Q3, Q4, Q1, three quarters in a row, including the existing current quarter. of growth. So, you know, we're seeing, you know, from a demand perspective, you know, we are seeing a decline in demand from the end of the fourth quarter, but the demand is still very, very strong. It's really at pre-COVID levels. And as a result of having kind of, you know, a significant opportunity, we've been investing in headcount of revenue producing employees. So, you know, from our perspective, we look at this as, you know, continuing to improve and grow our share count, our field count of healthcare professionals. And we continue to believe that the tools that we've rolled out, such as our new ATS and other things that we're doing, will continue to yield a higher book of business per recruiter, per account manager. And, you know, that's the trajectory that we are sustaining at this point.

Okay. Um, I guess maybe if you just take a step back and think about the COVID obviously skewed a lot of the numbers as far as demand, as far as pricing, you know, if you think about where you expect to be today now, um, say at the end of the year, the exit rate at the end of the year versus where you might've thought you would be at the beginning of last year before COVID hit. I mean, do you feel like you're, the company is on the same trajectory that you would have thought, um, ahead or behind and, and again, it, I guess the two factors I guess that might impact that would be just overall industry demand as you exit this year. How is that trending overall? And then on a normalized basis, and then your performance versus kind of what you would have thought you'd be doing exiting the year.

I mean, well, look, that's a, you know, very interesting question. You know, hypothetically, you know, look, I'll tell you what we are. What I can tell you is that we are very, you know, pleased with where we are as a company. We've made the investments. We've hit the milestones. We've taken out significant costs. We're seeing an increase in productivity. As we've just mentioned, we're seeing our headcount grow. We're winning, as Buffy pointed out, you know, MSPs this quarter. Our MSP, you know, labor under management has grown throughout the past year. So, you know, there's a lot of positive trend lines happening with cross-country. You I think the company is back. We're seeing a lot of, you know, uh, growth of new candidates, uh, find cross country. I think our brand is resonating in the marketplace again, uh, at a very high level. So, um, you know, it's hard to say, you know, this pandemic changed a lot of, um, you know, plans for the company in terms of specially some of the businesses like cross country locums, which, uh, in 2019, was having its first year of significant growth in a number of years. And then, you know, we saw this softness in the physician specialties around elective surgery and some of the areas that we've mentioned earlier. So, but you know, we're, we're optimistic. We're excited for the country that we're exiting this hopefully this pandemic this year, we're going to, and we'll see our hospital clients continue to value us in the marketplace.

Okay. And, you know, I guess it looks like you're making improvements on cash flow and EBITDA this year. When do you think you'd be looking to do acquisitions again?

Yeah, that's a great question. You know, soon, we hope, because we started, as you might recall, about 15 months ago, we launched our M&A program. corporate development team under Steve Seville, and I'll ask him to comment in a minute. And we were hard at work building a very robust pipeline, and then COVID hit, you know, 11, you know, a year or so ago. And, you know, the whole M&A market really just was under a suspension for a couple quarters. But since October, September, October timeframe, you know, we're seeing the pipeline really reemerged. It's been actually very active. And as Bill's pointed out, and I have as well, you know, we have made substantial progress on our balance sheet. So for two years, we haven't, two years I've been here, we haven't made any acquisitions. It's been since mid 2017, since the company has made a major acquisition. So we are in great condition. We have the right credit facility. We've got, you know, approximately $50 million of debt. I mean, where we finished in the fourth quarter, the company's growing, our earnings are expanding, and we're in a great position to go after these tuck-in acquisitions in the key areas that we've talked to before, which are principally around areas like locum tenants, education, allied health, technology, looking for opportunities to get scale and to be accretive. But, I don't know, Steve, you might want to provide some additional color.

Well, Kevin, that was pretty full of color. And, Kevin, thanks for the question. I'll just add one item, and that is, you know, as we're evaluating businesses for acquisition, you know, the attractive opportunities that we're looking for that fit our overall strategy to grow the business, create operating efficiencies, and increase profitability are key considerations in all of our evaluations. There is an exuberance amongst the seller market right now, I think some of which has come about as a result of COVID and the performance that some organizations have had as a result, and we continue to weigh that accordingly as we evaluate the businesses.

All right, that's helpful. Thanks.

Thank you. The next question is from Kevin Steinke with Barrington Research. You may go ahead.

Good afternoon. Kevin, I was just curious about your thoughts at the outset of the call talking about the turnaround being successfully completed. Maybe can you just review your thoughts on what gives you that confidence that kind of the turnaround phase is done here for the company as we move forward.

Hey, Kevin. Good to hear you. There's a lot of Kevins on this call. I think it's proof that the Irish are repopulating the planet. But anyway, nice to hear your voice. You know, look, we think the turnaround is successful because we are growing our revenue, growing our profitability. We've hit our milestones in terms of our digital transformation. The company is more agile now. When I joined the company in January of 2019, we had nearly 70 offices. We have a dozen today. We have streamlined the organization in many, many ways. We have a more productive workforce. We have a focus. We collapsed 24 brands into one. We have a enterprise sales organization that I think is best in class. With the addition of John Martins coming aboard, I would argue to anybody that we have the strongest, most experienced management team in the industry. We have, you know, I don't know, 100 plus years of experience in this specific industry. So, you know, to me, the company has a lot of energy. The culture is positive. The results are positive. Our clients, you know, are happy with our results. And I think as we exit the pandemic and some of these other segments come back for us, such as the physician area and education, and we're able to complement this organization with tuck-in acquisitions that we just talked about, I think the future is very bright.

Okay, great. I think when you joined, you had kind of talked about a three-year plan. I think that was more related to the digital transformation, though, so maybe I'm splitting hairs there. But obviously, I guess the digital transformation is still somewhat ongoing with the things you're doing in the middle office and back office, but maybe the bulk of that is pretty much done. Is that a fair way to characterize it?

Yeah, I'd say what I'd say specifically is we felt there was three years of important work to get the technology where we wanted it from a digital transformation perspective from the candidate side to make it easy for candidates to do business with us and seek jobs and also to integrate into one tech stack. But what we also said, Kevin, was that we were writing and putting together with our board a five-year strategic plan that would get the company back on track from a profitability perspective. And, you know, we called out that, you know, by the fourth quarter of 2022, uh, we anticipate exiting that year at an 8%, uh, adjusted EBITDA rate. And we're, and I would reaffirm tonight that, uh, commitment, we are on a steady path, uh, to see that improvement. Hopefully we'll exceed that and get there sooner. You know, we ended this past quarter, you know, over 5% of adjusted EBITDA. For the year, we were over 4% EBITDA. That's up from the prior year of just over 3%. So, you know, we have a marked step towards that 8%, getting the company successfully turned around from a profitability perspective, but also from an infrastructure and a go-to-market strategy and from a tech and a digital transformation perspective as well.

Okay, great. And then can I just ask, too, about how we should think about G&A trending in 2021, the puts and takes there in terms of cost savings versus, I think you talked about higher incentive compensation with a strong revenue performance. So I don't know, Bill, if you had any thoughts on that. I'd love to hear anything that might be helpful.

Sure. Yeah, I think we called out the year-over-year change on SG&A related to the health, sorry, to the incentive compensation principally because the fourth quarter was stronger than we expected. So we had higher commissions and short-term incentives for the annual attainment. So it was a bit of a catch-up in the year just because of the stronger than expected performance. I don't expect that we'll see, you know, a marked increase in that I think it might be more spread out throughout the year as opposed to how we saw it coming in 2020. But what I would say is we definitely realize the savings from the efforts that we undertook in the second quarter and in the third quarter. We can see it in both our salary costs as well as our rent and overhead and facility costs. But we are reinvesting in the business, and that's the important point. We are going to continue. So as long as we continue to see a strong backdrop in the market around demand, we'll keep making investments in revenue-producing headcount. And also as long as the productivity continues to improve as well, we think we can look to see a double impact from that, from adding capacity as well as having our revenue producers have a higher working headcount.

Okay, thanks for the commentary. Appreciate it. Thanks, Kevin.

Thank you. The next question is from Brian Tanquilat with Jefferies. You may go ahead.

Thanks. This is Jack Slevin on for Brian. I guess I just wanted to turn onto the search segment quickly. You know, revenues looked a little stronger, I think, than people had been expecting. You know, lots of people expecting that to kind of lag behind the other areas of the business in terms of recovery, and then a particularly strong number on operating income, anything you can call out there or commentary would be great.

Bill, you want to take that?

Yeah, I think, I mean, I'll start and I can hand it off to Steve. You know, I think that we've continued to see better traction than we anticipated on the number of placements that we had in the quarter. So that was one element that drove that. I think also on the RPO front, which is also part of that segment, our recruitment process outsourcing continues to gain traction with our clients, especially in this marketplace. So those were the key drivers. We had a concerted effort earlier in the year as part of our cost reductions and getting our businesses into the best shape possible for COVID. We had some cost reductions that did impact that segment as well. So some of the profitability you're seeing there is from increased flow through from operating efficiencies from either headcount reductions or realigning compensation structures and the like. So it's a business that's on a better footing than it had been earlier in the year when we were actually losing money prior to COVID. So on down revenue, we're actually now generating profits. So, you know, we think it's in a good place and a good trajectory. But I don't know, Steve or Buffy, if you have any comments on either the RPO or the search.

This is Buffy. I'm happy to jump in. I think this is an area that I'm excited about moving into 2021. You know, as organizations are turning their attention to increasing their core staff. They might not have the infrastructure to support the volume to build back up their core amount. So they need avenues kind of to widen their access to talent. So we are already starting to see a lot of interest and a lot of activity in the areas of search and RPO. And the candidates, the marketplace is rich for it. So I definitely think it's got the right trajectory going. We're going to continue to invest in this area.

Great, thanks. And then one more for me. You know, in terms of alternative sites of service and demand trends you're seeing there, just would love to hear your thoughts, you know, whether it be with larger systems that have a variety of offerings or perhaps MSP clients or, you know, independents.

Yeah, I mean, thanks, Jack. I'll start and then Buffy can add from her perspective as well. But You know, what's happening in the marketplace overall is health systems are continuing to have a land grab and are continuing to grow their regional footprint, you know, and enter new areas, you know, from, you know, ancillary outpatient surgical centers. We're seeing the expansion of these health systems. And so the requirements from cross-country are also scaling to meet those clients' needs, and that's why I think we feel very well-positioned with not just an extremely strong travel nurse and allied business, but also a local staffing business that can support these smaller facilities and outpatient facilities and rural communities where they still have staffing challenges. So the type of customer for us is changing over time. As we mentioned earlier, we're also, you know, working with large pharmaceutical distribution companies, other large partners from state governments and others around, you know, other types of needs like vaccinations and testing, et cetera. But Buffy, you might want to add to that.

Sure, I would agree. I think that we are seeing, you know, requests across the board from all different types of customers and even in the non-traditional customer space from governments to direct companies. And I think with more consolidation in some of the healthcare systems, more of the previous healthcare facilities that may not have used contingent staffing in the past, now looking at it, if this year has taught us anything, it's we need to look at more flexible models up and down. How do we change these models? How do we optimize? the staff that we have, but then complement it so that we could support the peaks and valleys that they're potentially going to need and all of the different specialties at a very efficient method. So I think we're seeing across the board differences in MSP, more complex solutions being required across all of the different sites from their large facilities to long-term care centers, community hospitals, et cetera. But again, the non-traditional business will continue on for some time, we foresee. with governments and this will include kind of your Department of Health location, rural locations. So we anticipate this will continue.

Thanks and congrats again on a great quarter. Thanks Jack.

Thank you. And ladies and gentlemen, this does conclude the Q&A period. I'll now turn it back over to Kevin Clark for closing remarks.

Yeah, thank you, Susie. And thank you, everyone, for joining us this evening. We look forward to updating you on our progress on our first quarter call. We remain encouraged that the trend of new cases seems to be improving. And with vaccines rolling out, our country will continue to return to normal. Please stay safe, everybody. Thank you.

And ladies and gentlemen, this does conclude today's conference call. Thank you for your participation. You may now disconnect.