Cross Country Healthcare, Inc.

Good afternoon, everyone, and welcome to Cross Country Healthcare's second quarter 2021 earnings conference call. Please be advised that this call is being recorded and a replay of this webcast will be available on the company's website. Details for accessing the audio replay can be found in the company earnings release issued this afternoon. At the conclusion of the prepared remarks, I will open the lines for questions. I would now like to turn the call over to Mr. Bill Burns Cross-Country Healthcare's Chief Financial Officer. Thank you, and please go ahead, sir.

Thank you. Good afternoon, everyone, and welcome to Cross-Country Healthcare's second quarter 2021 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 John Martins, Group President of Delivery. Also joining us today is Pamela Young, Division President of our most recent acquisition, Cross-Country Workforce Solutions Group. Welcome, Pamela. Today's call will include a discussion of our financial results for the second quarter of 2021 and our outlook for the third quarter. A copy of our earnings press release is available on our website at crosscountryhealthcare.com. Please note that certain statements made in this call may constitute forward-looking statements. These statements reflect the company's current beliefs based upon information currently available to it. 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 2020 annual report on Form 10-K and quarterly reports on Form 10-Q, as well as in other filings with the SEC. The company does not intend to update guidance or any of its forward-looking statements prior to the next earnings release. Additionally, we reference non-GAAP financial measures, such as adjusted EBITDA or 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 U.S. GAAP. More information related to these non-GAAP financial measures is contained in our press release. Also during this call, we may refer to pro forma or normalized numbers pertaining to our most recent acquisition as though the results were included or excluded from the periods presented. 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. Before I get into the business results, I'd like to start by welcoming Pamela Young to our call this quarter. Pam was the CEO and founder of our most recent acquisition, Workforce Solutions Group, an entrepreneurial woman-led business, and she brings a wealth of industry experience to our company. As our first acquisition since my return, it was important to me that we were very deliberate in identifying a company that not only has a strong track record for growth, but also would be a great cultural fit. We are highly encouraged by the team of talented individuals who join Cross Country, as well as the trajectory of this business. And we believe it will be a platform for continued growth as we enter the home care market in a more meaningful way. This acquisition aligns with our strategy of following the patient and delivering quality clinicians across the entire continuum of care, thereby allowing our clients to deliver on their mission of improving population health and delivering care to disadvantaged or economically challenged communities. Turning to the business, a robust demand environment coupled with Solid execution allowed us to once again exceed expectations for both revenue and profitability. Despite the pressure from declining bill rates receding from their COVID peaks, we again managed to expand the number of healthcare professionals on assignment throughout the quarter with volumes up sequentially in every business. Consolidated revenue for the second quarter of $331.8 million represented another milestone for cross-country. reaching a new all-time high for revenue in a single quarter. Adjusted EBITDA of $24.3 million also exceeded the high end of our guidance, representing an adjusted EBITDA margin of 7.3%. As expected, our adjusted EBITDA margin pulled back from the 8% experienced in the first quarter, as we continued to rapidly invest across most areas of our business. I'll touch in a moment on the nature of these investments, but let me next give you a sense of what we are seeing in the broader market. From a demand perspective, we continue to experience record high levels of orders with continued growth in ER and surgical specialties. Travel nurse orders were up nearly 50% from the start of the quarter, which we believe is driven by both a rise in demand for healthcare services, as well as challenges in building and maintaining core staff levels by many hospital systems. During the second quarter, we have seen declines in orders for intensive care and respiratory therapists, as well as declines in orders for COVID-related positions, such as vaccinators and screeners. Although specific COVID orders have been declining, we are starting to see rising needs in certain markets tied to a rise in hospitalizations stemming from the new COVID variant. Since peaking in the first quarter, we are continuing to see bill rates come down, a trend we expect to continue through the second half of 2021. However, with the persistent shortage of clinicians, we continue to see elevated compensation costs, which may result in bill rates remaining higher than pre-COVID rates for the foreseeable future. As always, it is our goal to remain flexible and competitive while ensuring we can provide the clinicians that our clients need to deliver the highest standard of care. Turning to the segments, revenue for Nurse and Allied rose by 58% over the prior year, fueled by double-digit growth across our major line of business. Throughout the second quarter, we continued to grow the number of healthcare professionals on assignment, and as a result, billable hours were up nearly 9% sequentially on an organic basis for the segment. The majority of our organic growth was in our largest business, Travel Nurse. Despite the 15% sequential decline in bill rates, we grew the number of professionals on travel assignments and experienced a 13% increase in billable hours. We attribute this growth in headcount to solid executions. further investments in revenue producers, as well as continued improvement in productivity. Since the deployment of the applicant tracking system in late Q3 of last year, we have experienced significant growth in the average number of professionals on assignment per recruiter, with the most significant improvement seen with recruiters having one to three years of tenure. As a result, for the second quarter in a row, we have achieved another milestone for the highest number of professionals on assignment in more than 20 years. Also, within the nurse and allied segment, our travel allied business experienced strong sequential growth of more than 25%, almost entirely due to an increase in billable hours as bill rates were essentially flat for that business. Our local business was down approximately 4% entirely due to a decline in bill rates as they had fewer COVID-related orders. Before I move on to physician staffing, let me just give you some color on the performance of our most recent acquisition. Given that the deal closed so late in the quarter, we only recognized $5 million in revenue for Q2. On a pro forma basis, this business has nearly doubled from the prior year and has a strong growth trajectory for the balance of the year and into 2022. WSG is a leader in providing temporary clinical staff in the home care market with an emphasis on caring for the elderly, which expands our client base, thereby providing additional opportunities for our clinicians. We are obviously very encouraged by the performance of this segment, as well as by the progress we have made on developing and deploying technologies. Although we certainly can't predict whether there will be another surge of COVID orders, as cases seem to be on the rise, we do expect this segment will continue to experience sequential volume growth throughout the second half. Our only other segment, physician staffing, was down 4% over the prior quarter, primarily as a result of bill rates and mix. as the number of days filled were up slightly. We continue to see an upward trend in both primary care and anesthesia, as well as strong demand for advanced practices such as CRNAs. With the continued recovery of this business from the pandemic and more physicians projected to take vacations this year, we expect to see sequential growth for the third quarter above the historic seasonal trend of low to mid-single digits. From an MSP perspective, spend under management for the quarter was down approximately 1%, primarily as bill rates continued to decline, though partially offset by higher demand. Our capture rate at MSPs was approximately 74%, a slight decline from the first quarter, though well above our historic levels. As the number of MSP orders continues to rise well above pre-COVID levels, our focus remains on ensuring that we deliver the critical staff to our clients with the highest needs. As a result of the higher spend under management and the increase in our capture rate, staffing revenue from MSPs rose 79% over the prior year and represented nearly 50% of our consolidated revenue. From a technology perspective, we continue to make progress on further enhancements to our applicant tracking system for travel nurse and travel allied, as well as adding functionality to cross-country marketplace, our proprietary mobile application. Other projects, including the replacement of our payroll and billing systems, as well as the rollout of the applicant tracking system to our local business in the first half of 2022, will position the company well for sustained revenue growth and improved profitability. I remain encouraged that the digital transformation we set about two years ago is on track, and we are seeing the benefits from these investments. Looking ahead, we expect to see demand remain at these elevated levels, especially as systems face continued labor shortages. Though COVID rates will likely continue to decline, the exceptionally tight labor market may offer some resistance to declining rates. In partnership with our clients, we continue to collaborate on strategies aimed at managing their temporary labor spend, offering them comprehensive solutions. In recent months, we have seen higher interest in our recruitment process outsourcing services among both existing and new clients. This is a prime example of our one source total talent solution where cross country brings its 35 plus years of deep political experience and full suite of services leveraging our extensive candidate database, as well as what we believe to be best-in-class tools for attracting candidates to assist clients in filling their core staff needs. For the third quarter, we expect revenue to be between $310 and $320 million, representing a 60% to 65% increase over the prior year, and a sequential decline of between 4% and 7%. The primary contributor to the sequential decline remains the trend for normalizing travel nurse bill rates. As I mentioned previously, the scarcity of clinical labor is leading to higher compensation costs and, as a result, lower gross margins. Gross margin for the third quarter is expected to improve modestly over the second quarter as pay rates continue to normalize. Also impacting the sequential comparison is the impact of summer vacations on our higher margin education business. Improving our gross margin remains a focus area for us as we seek to gain efficiencies from our technology investments and continuing to improve the overall mix. From an overall profitability perspective, we are targeting adjusted EBITDA of $18 to $20 million, representing an EBITDA margin of 5.8 to 6.3%. With demand remaining near historic highs and our ability to ramp new producers, we are continuing to invest in additional revenue-generating capacity to fuel faster growth in the coming quarters. In the first half of 2021, more than 90% of our new hires have been in revenue-producing roles, such as recruitment or account management. And we expect to continue investing throughout the third quarter to satisfy the growing needs of our clients. Before I hand the call over to Bill, I just want to add how proud I am of our entire team. We recognize that the milestones achieved were during a time of extraordinary volatility and increased bill rates. but I have no doubt that it is the ability of this great team to execute that has made everything we have accomplished possible. I am excited about our direction and remain personally committed to lead the company and our strategy we set out and achieve our stated goal of reaching an 8% adjusted EBITDA margin by the fourth quarter of 2022. We have a passionate, service-oriented team who work tirelessly every day to deliver the best experience for our clients and the professionals we place. Now, let me turn the call over to Bill to walk us through the results in more detail. Bill?