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spk04: Good afternoon, everyone, and welcome to the Cross-Country Healthcare's third 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's 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.
spk11: Thank you, and good afternoon, everyone. 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. Today's call will include a discussion of our financial results for the third quarter of 2021 and our outlook for the fourth quarter. A copy of our earnings release is available on our website at crosscountryhealthcare.com. Please note that certain statements made on this call may constitute forward-looking statements. These statements reflect the company's current beliefs based on 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 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 periods presented. With that, I'll now turn the call over to our co-founder and chief executive officer, Kevin Clark.
spk07: Thanks, Bill, and thank you to everyone for joining us this afternoon. As we reported today, our third quarter results once again exceeded expectations, achieving yet another milestone for our company. With consolidated revenue of $374.9 million and adjusted EBITDA of more than $30 million. Equally as impressive from a year-to-date perspective, we have surpassed the $1 billion mark for consolidated revenue and achieved more than $80 million in adjusted EBITDA. And our fourth quarter is expected to be even stronger, with year-over-year and sequential growth in all major lines of business. In particular, the number of nurse and allied clinicians on travel assignments is expected to more than double in the fourth quarter over the prior year. This historic performance is being driven by solid execution across departments our entire organization. I do not believe, however, that we are simply riding the COVID wave of higher bill rates. I believe our growth is also being fueled by the many actions we have taken over the past two years to digitally transform our company and improve the operational effectiveness of the entire organization. The changes and improvements we have made have allowed us to quickly respond to the record level of demand that we are continuing to see across a wide range of specialties such as operating room, emergency room, pediatrics, labor and delivery, and medical surgical services, which are not directly related to our clients' COVID needs. It all begins with our people, and it's because of their dedication and willingness to embrace change that we are able to deliver such strong performance. I am so incredibly proud of our entire team for bringing a record number of clinicians to the bedside during this extraordinary time in both our company's and our nation's history. As we moved through the third quarter, it became apparent that the Delta variant would continue to drive both higher demand and bill rates. Bill, we'll get into the numbers in more detail, but as we called out on the last earnings call, we had expected bill rates for our travel division to decline sequentially in the high single to low double digit range. Instead, average bill rates rose slightly over the third quarter and are expected to rise again in the fourth quarter. COVID is certainly playing a role in the rising bill rates with regional spikes in demand related to the Delta variant, as well as the impact from states and healthcare systems enacting vaccination mandates, which is further stressing an already tight supply environment. However, COVID is only part of the story in the higher bill rates. Growing needs in non-COVID assignments coupled with greater numbers of clinicians leaving the bedside due to factors such as burnout or retirement are also contributing to the increase in bill rates. Although the number of new COVID cases and hospitalizations from the Delta variant are on the decline, we continue to see demand near all-time highs with tens of thousands of openings across the nation in all specialties and across all of our divisions. To give you some context, entering the fourth quarter, we have seen the number of unique facilities requesting travelers double since the first quarter, and our total travel orders have nearly tripled over that same timeframe. Given the broader market conditions of the continued high demand and a very tight labor market, we expect rates will trend down in 2022, but more slowly than we had anticipated last quarter, and likely more slowly than the pace at which they increased. Throughout the pandemic, Cross Country has led the way in partnering with our clients to deliver flexible solutions aimed at solving their immediate and long-term challenges. Many have shared their deep appreciation for our support in delivering clinicians and for providing data, industry insights, and market analytics to guide their decision on the appropriate rates necessary to attract clinicians. One of our core values is to act ethically and responsibly in all that we do, and it has been especially important to have the greatest transparency possible with our clients. We are in this for the long term, and while COVID has negatively impacted all of us in so many ways, we have viewed it as an opportunity to build long-lasting relationships with our clients. We will continue to do what is right for our nation, our clients, and the patients they treat, as well as our shareholders by preserving, protecting, and building the value and integrity of our business. In addition, our approach to the market continues to fuel our pipeline for new business with both existing and new clients. Sales activity in the third quarter was the strongest we have seen since the pandemic began securing numerous new direct clients, including several competitor accounts. In addition to new direct staffing contracts, we have also secured a record number of new recruitment process outsourcing arrangements as clients seek to rebuild their permanent staff. Looking ahead, our pipeline for managed service programs remains robust, and I believe that we are well-positioned to continue to win a number of sizable programs which will further grow our spend under management. We have made significant investments in this part of our organization, and I feel we now have one of the most talented, incredible sales teams in the market who are able to clearly articulate Cross Country's value proposition. From a candidate perspective, it is clear that Cross Country presents a unique value proposition driven by competitive compensation packages, attractive opportunities, and a commitment to the highest level of service. Our brand is resonating in the marketplace in a big way. One data point we're sharing is the number of first-time travelers with cross-country has more than doubled and currently makes up more than 40% of new weekly travel assignments. As clinicians, specifically millennials, continue to embrace the flexibility and personal control that come from being on temporary assignments. We believe that cross-country is well-positioned to capitalize on this emerging trend. Our commitment to excellent service, along with ensuring diversity and inclusion, have resulted in cross-country receiving a number of recent awards as one of the top staffing companies for women, an award for best places to work, and five top workplace awards from Energage, including an award for top diversity, equity, and inclusion programs. Turning to the businesses, let me just spend a moment on our segments. Our largest segment of nurse and allied more than doubled over the prior year and was up more than 13% sequentially, both driven primarily by an increase in the number of billable hours and professionals on assignment. Again, I want to reiterate that the continued growth is a direct function of the improved productivity stemming from the changes we've implemented over the past two plus years. the digital transformation of the organization, and the continued investments we have made in incremental revenue producers throughout 2021. We look forward to making continued progress as we continue to execute against our strategic plan. Our local business, which has been reimagined through the introduction of our marketplace candidate app, and restructured with the elimination of redundant organizational infrastructure and its office footprint, is making solid progress and recently has experienced some of the strongest performance weeks since the pandemic started. This business has performed better than expected, with third quarter revenue up 11% over the prior year, and we are expecting continued sequential weekly revenue growth throughout the fourth quarter. As expected, the education business declined sequentially due to the impact from summer holidays. However, similar to our other lines of business, outperformed relative to our guidance and the prior year. With the start of the new school year, we are excited at the prospect for this business to continue its return to pre-COVID growth rates. Also contributing to the third quarter were the results from our most recent acquisition of Workforce Solutions, group which closed in June of this year. As a reminder, WSG expands our footprint in the home care market and aligns with our strategy of following the patient by delivering quality clinicians across the entire continuum of care. In addition to traditional staffing, WSG offers managed service outsourcing arrangements, or MSOs, which function similarly to our managed service programs except that they provide clinical support in home health. On a pro forma basis, WSG continues to experience significant growth with revenue up more than 75 percent and a gross margin several hundred basis points above the segment average. Looking ahead, we continue to expect above average growth, having recently implemented two new MSO programs and with an active pipeline for future opportunities. With respect to our integration, we are taking steps to ensure we maximize the cross-selling and fulfillment opportunities across the organization by leveraging the full complement of resources at cross-country, including tapping into our extensive database. This acquisition also expands our go-to-market strategy and expands service offerings to our clients. From an operational perspective, integration efforts remain on track to be largely completed by the end of this year. We are also encouraged by the turnaround and trajectory of the locum tenants business as it continues to recover from the impact of COVID. Locum's revenue was up 20% sequentially and 14% over the prior year, with the majority of the growth coming from an increase in volume from primary care physicians and nurse practitioners. Our managed service programs, or MSPs, continues to represent a significant portion of our business, representing 48% of consolidated revenue for the quarter. Total spend under management was nearly a billion dollars, up 6% of the prior quarter, and our capture rate was approximately 69%. Given the combination of strong demand and a proven ability to execute, we have continued to make significant investments in our business, both in additional resources as well as in technology. From a resource perspective, we have grown our organization's headcount by nearly 30% in 2021, with more than 90% in revenue-producing roles. The majority of these resources are ramping quickly, and I believe we now have a deeper bench of revenue producers than at any time in the company's history. From a technology perspective, we continue to make solid progress with enhancing and further deploying our applicant tracking system, or ATS, with further deployment scheduled over the coming quarters. In addition to the ATS, we continue to make significant investments in both client and candidate-facing tools. From the candidate perspective, we are continuing to build out a complete self-service portal that candidates can use across the entire engagement lifecycle. Overall, I'm highly encouraged by the progress we have made in just a couple of years to digitally transform this company, positioning this company as the innovative leader. Looking ahead, our fourth quarter guidance points to another record quarter in the company's history. We expect consolidated revenue between $580 and $590 million, representing sequential growth of 55 to 57%. While practically all lines within nurse and allied are anticipated to grow sequentially, most of the growth is expected across travel nurse and allied. And although average bill rates for the travel business are projected to be up 25 to 30%, the majority of the sequential growth is expected from a continued rise in hours worked as we continue to take market share and expand the headcount on assignment. From a profitability perspective, we anticipate adjusted EBITDA to be between $63 and $68 million, representing an adjusted EBITDA margin of between 11 and 11.5%, well above the 8% achieved this quarter. As we look beyond the fourth quarter, we expect headwinds from declining rates in 2022 and the pullback in demand for certain specialties, such as respiratory therapists. However, we also expect to see continued volume growth across our portfolio as we continue to grow our market share. Although we don't provide guidance beyond the next quarter, I believe that given our current level of production, our revenue run rate, for the first two quarters in 2022 should remain higher than our third quarter. Finally, we across country recognize the disparities certain communities face in health outcomes due to their racial makeup and ethnicity. The pandemic has certainly highlighted these challenges in marginalized communities. We are especially proud that our recent acquisition of Workforce Solutions Group specifically targets these underserved communities and is making a positive impact by providing an opportunity for patients across every spectrum to live a healthy life. I want to thank our thousands of healthcare professionals and our corporate employees who promote health equity every day. I couldn't be more proud of the work they are doing. Now, let me turn the call over to Bill to walk us through the results in more detail.
spk11: Bill? Thanks, Kevin. As Kevin mentioned, we once again exceeded expectations for both revenue and adjusted EBITDA as the company continues on its trajectory of solid execution across multiple fronts. Our ability to attract and place candidates, coupled with favorable bill rates, is leading to our fourth quarter not just being the strongest quarter of the year, but in our history. I'll speak to the guidance in just a moment, but first let me review our results for the third quarter. Consolidated revenue was $374.9 million, up 93% over the prior year and 13% sequentially. While average bill rates have increased over the prior year and sequentially, the majority of the growth has come from an increase in billable hours across our entire portfolio. Looking at the segments, revenue for Nurse and Allied was $356.1 million, representing an increase of 101% over the prior year and 13% sequentially. Within the segment, the travel nurse and allied businesses were the primary drivers for the growth. On a sequential basis, the hours for these two businesses were up approximately 10%, while the increase in average bill rates was in the low single digits. As we came into the quarter, bill rates looked to continue the downward trend we had seen throughout much of the first half. But as we progressed through August and into September, we saw continued spikes in urgent needs related to the Delta variant and later to the needs to back bills pertaining to the vaccination mandates. This upward trend is expected to continue into the fourth quarter before peaking late in November or early December. At this point, demand related specifically to the Delta variant or the vaccination mandates has declined, but our overall travel demand remains well above the pre-pandemic levels and near our historic highs. Though we have limited visibility into when or how quickly rates may start to retreat, we expect that they may come down more slowly than they increased and to hold well above pre-pandemic levels for the foreseeable future. Our local business continues to recover from the impact of the pandemic and was up 11% over the prior year, with both rates and volume contributing to the growth. Average bill rates remained relatively flat for this business compared to the second quarter, though still 8% above the prior year. Also, part of this segment, our education business performed better than expected, despite the anticipated sequential decline from the summer school break. This business grew 77% over the prior year, entirely due to an increase in billable hours as rates remained relatively flat. We're off to a strong start and expect to see double-digit year-over-year growth in the fourth quarter once again. Our only other segment, physician staffing, saw double-digit growth both sequentially and over the prior year. The growth was broad-based across a wide range of specialties, including primary care and hospitalists, as well as advanced practice specialties such as nurse practitioners. Gross profit for the quarter was $83.8 million, representing a gross margin of 22.4%, which was up 50 basis points sequentially and down 230 basis points versus the prior year. As we've called out previously, gross margin continues to be impacted by the mix of rapid response assignments related to the pandemic, as well as the higher than normal compensation costs due to the extremely tight labor market. The sequential improvements was driven by both higher margin for our travel business, as well as the favorable impact from the WSG acquisition, which has a margin well above the average for the segment. In general, we believe the gross margin will continue to improve, especially for the travel business as COVID continues to subside. Despite the year-over-year decline in gross margin, the gross profit dollars were up 75% over the prior year, further improving our operating leverage. Total SG&A was $52.8 million for the quarter, up 5% sequentially and 30% over the prior year. Excluding the impact from WSG, SG&A was flat sequentially and up approximately 21% over the prior year. The primary driver of the year-over-year increase is related to investment in revenue producers from higher salaries and commissions earned on the record performance of the company. With demand remaining strong, we expect to continue making investments in revenue producers to fuel continued organic revenue growth in the coming quarters. There are several other items worth calling out in the income statement. We increased our allowance for doubtful accounts by $1.4 million in connection with the growth in our receivable portfolio, and we incurred approximately $300,000 in continued restructuring costs related to the lease's exit over the last two years. Below operating income, interest expense was $2.2 million, primarily attributable to the carrying costs of our new $100 million subordinated term loan entered in connection with the acquisition of WSG. From a balance sheet perspective, we ended the quarter with $800,000 in cash and $104 million in outstanding debt, excluding letters of credit, including the subordinated term loan and $4 million in borrowings under our ABL facility. As of September 30th, the company was able to access the full line under the ABL. From a cashflow perspective, we had a use of cash from operations of $3 million due to the investments in networking capital associated with the strong sequential growth of our business. Our day sales outstanding was 61 days up three days since the start of the year. The increase in DSO is largely due to the timing of revenue recognized throughout the quarter, given the strong sequential monthly growth throughout the third quarter. Capital expenditures were $1.9 million for the quarter, principally related to the continued investments in our digital transformation. This brings me to our outlook. We expect consolidated revenue to be between $580 and $590 million, representing a 169 to 174% increase over the prior year, and between 55% and 57% sequentially. The majority of the sequential growth is expected to come from an increase in the number of professionals on assignment, as well as a sequential increase in the bill rates for our travel nurse and allied businesses. Billable hours for travel nurse and allied are expected to grow by more than 40% over the third quarter, as our investments and revenue producers continue to ramp and we continue to experience improved productivity. We're guiding to a gross margin of between 22.2% and 22.7%, which represents a 20 basis point decline to a 30 basis point improvement on a sequential basis. Overall, gross margins continue to remain lower than the prior year, primarily as a result of margins realized on rapid response orders related to COVID and an incredibly tight labor market. As a result of the historic organic growth, our adjusted EBITDA for the quarter is expected to be between $63 and $68 million, representing an adjusted EBITDA margin of 10.9 to 11.5%. and our adjusted earnings per share range is $1.01 to $1.11. Also assumed in this guidance are depreciation and amortization of $2.7 million, interest expense of $2.6 million, stock-based compensation expense of $1.6 million, and 37.7 million shares outstanding. And finally, given our fourth quarter and full-year performance, we now expect to fully utilize our federal net operating losses in the current year, nearly two years ahead of our projections. Also, as a result of the profitability, we expect to reverse the related $24 million valuation allowance as a credit to our income tax expense line. Our adjusted EPS guidance excludes this credit and reflects an effective tax rate of between 30 and 31%. And this concludes our prepared remarks. At this point, we'd like to open the lines for questions. Operator?
spk04: Thank you. We will now begin our question and answer session. If you would like to ask a question over the phone lines, please press star 1 from your phone, unmute your line, and speak your name and affiliation clearly when prompted. If you would like to withdraw your question, press star 2. One moment as I cue the first question. Our first question comes from Kevin Fishbeck from Bank of America Securities. Your line is open.
spk06: Great. Thanks. You know, I guess it's been a while since you guys have done any kind of meaningful deals. We'd love to see if you could kind of maybe break out the revenue growth this quarter and maybe in the Q4 guidance between kind of what is organic and what is coming from acquisitions.
spk11: Yeah, sure, Kevin. This is Bill Burns. Hopefully you can hear me. As we talked about last fall, we had about $5 million of revenue in the second quarter given how late in the quarter the deal had closed. And in the current quarter, it was a run rate of about $20 million.
spk06: Okay, and it should be in that $20 million range in Q4 as well?
spk11: Yeah, we haven't given specific guidance to that, but yes, we are looking forward for some sequential growth, but that's a reasonable range.
spk06: Okay, and is there any reason to believe that that business will act any differently? I guess when we think about home health, there clearly seems to be an acute problem. staffing issue there as well. You should have to have the same kind of trends around bill rates and demand, or should that act any differently versus the core nurse and allied business?
spk07: Yeah, I mean, in terms of, you know, bill rates, I mean, we're not seeing the higher bill rates in that business that we're seeing, for example, in the travel business or in some of our other segments. And the story with WSG is it's the market leader in providing home health care staff to seniors, specifically around federally qualified health care centers and pay centers. And it's growing its footprint of customers rapidly. And it's a wonderful story because it's providing both diversified staffing services to these healthcare clinics, and then through this MSO contract, which we pointed out in our comments earlier, we provide home health caregivers that follow the patient into the home and manage the care plan. Now, in that segment, Kevin, as you know, throughout this pandemic, if any part of the labor pool is it's the hourly worker. And there's a lot of patient care techs and CNAs that work by the hour. And so the challenge in that business is to keep up with growth and find the supply, which does parallel, of course, all the other segments as well. Extremely tight labor pool.
spk06: Yeah, definitely. And I guess maybe last question. I appreciate you're going a little bit beyond what you normally do as far as guidance with that commentary about the first half. run rate. I guess, though, when we think about 2022 overall, do you think that 2022 will be a top-line growth year, or do you think it would still be down year over year?
spk07: You know, what we don't know, of course, is what's going to take place in terms of bill rates, right? And what we did call out is in the first half of the year, we think performance will be you know, above where our Q3 numbers came in, you know, on a relative basis. You know, we are seeing, you know, the Delta variant cycle, you know, with hospitalizations decreasing, but at the same time, you know, we're dealing with vaccination mandates. We're a little, you know, we're careful about the flu season. It looks at the moment like it's not going to be, you know, a severe flu season. But, you know, all of those things are the puts and takes that go into, you know, our guidance there. What I will tell you is, you know, look, Kevin, our strategy is working. The blueprint that we put in place in 2019, our strategic plan is working well. And we're surging as the market leader again. And we, you know, we are, you know, a market leader in a large and growing market. As you know, it's 20 billion this year going to 25 billion next year. And, you know, we have a very focused strategy as we talked about following the patient in this continuum of care from wellness to acute care to outpatient to home health. And we are the only company that can make that statement, that we provide that whole continuum of care. And so with a soaring demand, tight labor supply, and a very focused strategy, and I wanted to just point out quantitatively, We continue to see huge gains with our employee productivity. All of these things are the new cross-country. Cross-country, as we guided to, is growing 100% in Q4 in terms of healthcare clinicians working for the company versus a year ago. We are emerging from this pandemic a much different company, a company that's focused, has digitally transformed itself, has powered up top-graded the management team, expanded our revenue producers significantly. We're very excited about our future. So, you know, we think there's plenty of demand for us to have a very successful year. And, you know, based on the guidance we gave, cross-country health care will be on an annual run rate of between $2 and $2.5 billion in the fourth quarter. So lots of momentum here.
spk06: All right, great. Thank you.
spk04: Our next question comes from AJ rice from credit Swiss. Your line is open.
spk02: Um, I guess I'm just trying to figure out, uh, how everybody, first of all, um, um, is the COVID, um, I understand the surge and that was, uh, what that drove, but I guess, um, we're surprised a little bit, obviously at the strength that's continuing, even as that surge dynamic comes down. Um, Is there a way to talk about how many of your placements that you're getting are going to COVID sort of hotspot, COVID-specific assignments versus non-COVID, and how that will trend going into the fourth quarter and even as you maybe early think about first half of next year? Is there assignments that people took when they were under the gun and the peak of the surge in September and October that just are going to extend into the fourth quarter because they're three-month-plus assignments, and then they'll roll off. I guess we're just trying to figure out how the placements are staying so strong, even as the surge looks like it's abating pretty quickly.
spk07: Well, hi, AJ. You know, I'll start that, and then I'll ask the team to add some comments. It's a key question, of course. First of all, we're seeing demand across, you know, a lot of specialties due to deferred health that are coming back. So the broad market, so to speak, is, you know, booming in terms of open jobs, you know, elective surgery, OR, PEDS, L&D, you know, a lot of emergency medicine. We're seeing, you know, 200% increase in job orders, for example, in our locums division. So we're seeing this broad demand um demand come back and there's a shortage across all of these specialties right so um you know that's that's one backdrop the second backdrop is you know in addition to covid um you know this quarter we are you know as we called out there are these vaccination mandates um and that's leading to an even tighter supply for pockets in the country um not every not every state is um And every health care system is requiring a vaccination, but many are. So we've got, you know, the mandates which are affecting the business in Q4. And interestingly enough, some of those vaccination mandates also now include flu shot mandates. So and in some pockets, we're seeing them actually be delayed or pushed back. And then one other comment, and then I'll throw it over to Buffy and she can talk about what she's hearing from some of our clients. But for example, in the pediatric area, children's hospitals have a triple threat right now. Between COVID, between winter respiratory, and all this deferred health care, needs are up a staggering 300% in these facilities. So we're seeing all that. And then just briefly before I turn it to Buffy, our school business is back. Every kid is back in school. It bodes well that the CDC has approved vaccinations for children because I don't think schools will ever go out again. And, you know, you look at this issue about stress and burnout and, you know, how much pent-up demand there is, you know, for PTO with a lot of our clients, permanent employees, you know, we're going to be very, very busy. But, Buffy, maybe you can fill in some of that.
spk03: Sure. Thank you, Kevin, and hope you're well, A.J., A couple of things. We are still seeing some pockets of COVID and census given to COVID, but it's much smaller. It's much more isolated than it has been. So really we see a few areas that driving staffing at this point, primarily staffing vacancies within core staff. So healthcare facilities, obviously they're seeing burnout and attrition, but they're also trying to give their core staff the PTO that they weren't allowed to have for some time because they were caring for it. And so they are trying to offset that in some of the vacancies due to their deferred services. And in addition, the hospitals are starting business resumption. So where they can, they are starting to offer out the elective services, preventative services. Interestingly enough, if folks have not necessarily met their deductibles, they may defer those over into Q1, which speaks to the second question you had is what might you see in January. So they're also becoming concerned about coverage over winter, and obviously we have not seen a significant amount of flu activity. We potentially can anticipate seeing that in January as normal, so that could peak up in Q1. The vaccine mandates are probably one of the largest impacts, and they are driving a lot of, not all, but a lot of the healthcare facilities are driving the vaccine mandates, and those dates we're seeing October, November, December for core staff as well as contingent staff. Some are allowing some exemptions, whether it be religious or medical exemptions, not all. And if they are allowing those exemptions, they will require weekly testing. So we're seeing some variability across all of that. But what that says to us is low supply at this point because even the contingent workers are fatigued, but still high bill rates out there because there is such high demand. And so as we start to go into the holidays, the needs are even more critical. We are starting to see that assignment length go back to kind of the 11 plus weeks. Some are even looking for longer to carry them into the Q1 activity. And again, once we hit January, potentially we'll see flu. You'll start to see some of those what was to be preventative services now becoming more in need and acute. And you'll start to see people working down their deductibles and going back for those deferred services. So I agree with everything else Kevin said. Hopefully that added some color.
spk02: Sure. Maybe if I could just follow up on that. Can you just comment on how you're doing on fill rates and maybe how that's trended over the last few quarters? It sounds like you're getting a number of more clinicians willing to take these assignments. So I'm wondering, is that keeping up with the demand or are you able to fill more of the orders that you fill, a higher percentage of the orders that you get right now versus what you could do a quarter two ago.
spk07: John, you want to take that?
spk01: Sure. So, yeah, the demand, especially going into quarter three, has been at historic levels. And this is something where we were, if you look at what our demand was on this surge compared to the surge of Q4 of last year, the amount of jobs were nearly double. And so while fill rates are a hard indication to show what we're doing, because there's just between the vaccine mandates, between the COVID needs, there are literally thousands of openings at certain hospitals and certainly hundreds. And so we've seen more volume and more clinicians going to these accounts. but the jobs are unprecedentedly high. So fill rates are a hard indicator just to see going up just because of the sheer volume of jobs.
spk02: All right. Maybe the only last question would be on the bill pay spread. It sounds like at times in this surge, you guys have been willing to try to help your clients out a little bit to take a little bit of a pressure on the bill pay spread. What's happening with respect to that Now, are you able to hold that, or is the dynamics of the market such that you're having to give a little concession, admittedly, at much elevated rates? But what's the trend with bill pay spread? Yeah, AJ.
spk11: Kevin, sorry.
spk07: Yeah, no, I was just going to say, look, you know, from the very beginning, AJ, you know, we're the one company, the market leader that, you know, put out price guidelines. We wanted to make sure that we stood by our partners, our clients, you know, during this unprecedented pandemic and made sure that we were attracting the supply they need. And we were passing on the majority of the bill rate to the healthcare professional to make sure that we could fill those orders. As the pandemic eases, as Delta variant eases, as bill rates ease, you know, this kind of artificial suppression, so to speak, of, you know, approximately 200 to 300 basis points, we think can bounce back, you know, with the broader market. So, you know, we think on a, you know, I mean, it's a tight supply. It's a good place. We've done the right thing in terms of standing by our customers. They appreciate it. Our customers appreciate We have tremendous retention. I was just at one of our largest clients about a week ago. You know, one of the largest healthcare systems in the country. They were so appreciative of our core values and the ethical stance we took. And I think we'll be rewarded for many years to come because we did the right thing. And Bill, did you want to make a comment?
spk11: Yeah, I mean, you covered, I was just going to say to your point, Kevin, that, you know, throughout the pandemic, when we were sending people into the hotspots, specifically around the spikes for COVID, we were certainly looking at ensuring that we were paying what we needed to to get the supply where they had to go, regardless of what the bill rates were. As we're seeing the mix of demand kind of normalize, I'll call it, to a more normal mix, it's still elevated to one of your earlier questions. I mean, even as we come into this quarter now, demand still Even though the COVID spikes from Delta are starting to retreat and the mask mandate, the vaccination mandates, excuse me, are not playing as big a role, our demand still is, you know, at least 2x where it was a year ago coming into the quarter. So there's plenty of opportunity there. And I think as that plays itself out, we should start to see the margins normalize. And, you know, pay rates certainly went up faster and by a higher percentage than bill rates. You know, I don't know that they'll play out exactly in the reverse order that way, but over the longer term, we would expect periods and bill rates to more normalize.
spk02: All right. Great. Thanks a lot.
spk04: Our next question comes from Brian from Jefferies. Your line is open.
spk05: Hey, good afternoon, guys, and congrats on the quarter. This is Jack for Brian. Just quickly wanted to touch on what you're seeing in terms of staffers that are, or nurses that are going on multiple assignments with you or repeat assignments. I think we're seeing some industry studies out there showing that nurses that are newer to temp staffing or travel staffing are having kind of a better experience or generally more satisfied than nurses in perm roles. And so just kind of looking for a way to triangulate and track. Obviously, some of that's related to bill rate, but trying to see if sort of, you know, hear what you're seeing on that side of things. So anything in terms of repeat staffers or stickiness of people that are, you know, newly jumping on with cross country would be helpful.
spk07: Yeah, Jack, it's a great question. A couple different answers. First of all, our renewal rate is, you know, very strong and, you know, it's been strong throughout the pandemic. We have a lot of our healthcare clinicians work with us assignment after assignment. But, you know, I'd say there's two points. One, you know, most of the travel nurse or travel therapists today are millennials. Millennials are part of this gig economy, and they are embracing the concept of having a flexible contract work assignment versus being a permanent employee for all the reasons. They can go when and where they want. They get paid well. and they call the shots. So that's point number one, and that is a megatrend, and that's going to continue for, I think, many, many years, especially in the healthcare realm. And, you know, we're seeing that. The other point is, as we called out in our comments earlier, 40% of our new travel assignments or our locks, so to speak, are first-time travelers with cross-country healthcare. And these are experienced, tenured nurses that are coming to work at Cross Country Healthcare. They're folks that have already been in the travel industry. And it's a really important point because the point I'd want to make to you is Cross Country Healthcare is the company to work for again. It is the number one company that women want to work for. We called out one of the awards we recently ran. But what we're seeing is we're seeing the market come to us. Why? Because we put the strategic plan in almost three years ago. We've turned around the business. We've top graded it. We've restructured it. The candidate experience for our healthcare clinicians is night and day different than it was three years ago. It's extremely easy for a job seeker to find a job in minutes or hours versus days. We've compressed the ability to find a job and accelerated the process. Um, so, you know, so many things go into, I know, you know, we, we call that great guidance for fourth quarter, but you know, we're still warming up the engines here across country healthcare. Um, this company doesn't want to be second, third, we want to be number one again, and that's our mission. And our mission is to keep, you know, we have a lot of competitors that are looking in their rear view mirror a lot lately because we're coming on strong. And I can also reflect on the great sales quarter we had from our sales organization. We had probably the largest quarter in our company's history. We had hundreds of contract wins. So it's broad-based. It's across all segments. And the one cross-country brand is really resonating. John, I don't know if you want to add anything from your perspective on that.
spk01: Thank you, Kevin. Your response was point on and spot on. The only thing I'd add for you, Jack, is that clinicians are looking for three main things still, right? And this is why they're continuing to renew with us. They're looking for competitive pay. They're looking for the quickest process from the door to the floor of their assignments. And they're looking for the flexibility in assignment lengths, whether it's a shorter-term assignment or longer-term assignments. And, of course, they're still looking for making sure that they have the right location and the right facility where they want to work at. But I think it's key is being able to get the clinicians and create that incredible experience for them is getting them to renew with us more and stay with us as a company. And it's all about really having a frictionless process and an easy button to get the questions to stay on board. And as Kevin mentioned, it really is a lot of these millennials that are working now in the industry and they've really been baptized in their careers during this pandemic. As you mentioned, they came in here, first-time travelers, and they're really enjoying this gig economy, this experience of being able to go and be on demand where they want to work, when they want to work, and being able to really call their career and really make inroads on how they want to develop their career.
spk05: Okay, got it. Really, really helpful. And then one quick follow-up for me just on the volume assumptions for 22 and the commentary there. Just so I understand it right, is that 9,000 average providers on assignment that you put up in Q3 a decent base to think about being able to sustain through 22? And then second, it looks like, with my kind of back of the napkin math, somewhere between 20% and 30% productivity gains on your Salesforce relative to the prior year, depending on how much you attribute to WSG. Is that sticky or are you going to have to bring more staff on what's kind of the viewpoint there in order to maintain those volume levels? Thank you.
spk07: Bill, you want to comment?
spk11: Yeah, sure. Great question. So the goal, obviously, as we look into 2022 is to maintain and grow our headcount. So really what we're looking at is we expect, even in the first half, rates will start to trend down. But to Kevin's point, as we exit the fourth quarter, with the level of staffing that we'll have at our clients, we expect that to continue and to grow from that point forward. So we're still gaining productivity, and we're still having our revenue producers ramp from the significant investments we've made throughout the years. Like you heard in Kevin's script, we've grown our workforce by 30% on an organic basis, and 90% of those were revenue producers. So we've been hiring all throughout the year, and folks are in all stages of tenure. So We'll continue to see productivity gains from that, coupled with the productivity side of just continuing to roll out and deploy new technologies.
spk05: Got it. Thanks, and congrats again on the quarter, guys. Thank you. Thanks, Jack.
spk04: Our next question comes from Toby Sommer from Truist Securities. Your line is open.
spk08: Thank you. I was wondering if you could give us a little bit more granularity into the increase within the sales force itself. Because you did say 90% of a 30% increase of overall employees. And I understand why you might not want to give us the hard numbers specifically, but if you could be more specific on the growth rate as well as maybe give us your perspective for how much productivity enhancements you could get over time as they get tenure.
spk07: Yeah, you're right.
spk11: Go ahead, Kevin.
spk07: Okay, yeah, I'll start, Bill, and you can comment. Toby, another good question. Look, you know, productivity, you know, is up massively compared to where we were before digital transformation. And we've called that out, and we continue to get gains from the technology that we've brought to the organization from our cloud-based ATS system to many, many other things, a lot of the things that we don't really, you know, candidly want to talk about, you know, publicly. but that we do that's part of our secret sauce in our algorithm. So we are investing $12 to $15 million a year in capital expenditures. We are improving not just the employee productivity tools, but we've called out making it simpler, easier, faster to find a job. Our marketplace technology, for example, I'm sure contributed to the great results that we saw in our per diem MSN division, for example, this quarter. So, you know, we're never finished. We're investing significant dollars, and we think there's a lot more productivity to gain. And then in terms of your question around, you know, the mix of people, look, we have grown substantially, our cross-country nurses division, recruiter base, you know, as well as cross-country allied, but really every single division we have scaled with more recruiters, better training, more account managers, better training, bigger sales organization, you know, all of the above. So I'll throw it back over to Bill.
spk11: Thanks, Kevin. Yeah, so it's hard to give you percentage growth in each of the functions, but I can just kind of give you some sense of It spans all types of revenue producers, right? So recruiters, chief among them have been the area where we've been investing, obviously account managers as well, as well as additional salespeople and some other revenue-producing support roles in credentialing and onboarders. But the vast majority of it has been in the first two. I mentioned the recruiters and account managers. But it's been pretty broad-based, and it's not in one particular business. We are investing across the entire portfolio. So we are adding capacity to all lines of business, I would say.
spk08: Based on typical headcount mix that, you know, pre-pandemic at least, it's 90% of an overall 30% increase. It sounds like it's something in the 70%, 80% range. Is that a reasonable estimate on my behalf?
spk11: I mean, just for the growth factor alone, yeah.
spk08: For the sales-related roles? Yes.
spk11: Yeah, I think so. I think that's a reason. From the perspective of a high-level discussion of where the mix of employment is, it's clearly different than it was pre-pandemic. When we went through the restructuring in early 2020 and we were looking at our cost reduction, a lot of the cost reduction is not in the revenue producer role. So we've scaled that down. And simultaneously, as we've seen, the market remains robust, et cetera. We've made the investment. So it's certainly part of the growth story here is the capacity of the company has just completely changed as we look forward.
spk08: So my follow-up question would be margins are great. The revenue growth is very strong. The balance sheet is under levered. What is your appetite and preference as far as acquisitions or is this market just make it difficult to assess the durability of potential acquisitions and their kind of revenue and profit streams?
spk07: Yeah, I mean, Toby, that's a good question. And you're kind of right in what you're asking in terms of, first of all, our pipeline is strong. We are looking at a lot of potential targets in education, in the home care marketplace, in locums, some technology. So it is a strong pipeline. But to your point, valuations are high. And, you know, we've called out this on the floor, but It took us, you know, a couple of years or so to make our first acquisition. We want to do more, but we're very value-based investors. We don't want to overpay for things. You know, so we have a wonderful corporate development team and a finance team, you know, to be able to really dig in on things. So, you know, look, I'm with you. We have a fantastic balance sheet situation right now. We have wonderful partners. Blackstone and Wells Fargo. We have a lot of dry powder, so stay tuned. Thank you.
spk04: Our next question comes from Kevin Steinke from Barrington Research. Your line is open.
spk09: Good afternoon. Just wondering if you've seen any data on how significantly the vaccine mandates are constricting the supply of clinical labor.
spk07: Buffy, you want to tackle that?
spk03: Certainly. So there are, hi, Kevin, hopefully you're doing well. There are a lot of hospitals, as I mentioned, and a lot of facilities that are applying the vaccine mandates across their core staff, but also any kind of indirect staff coming into the facilities. Many are trying to apply the exemptions, whether it be religious or medical exemptions, and then offering weekly testing so that they can continue to bring that supply in. This really is impacting not just the clinical side, but the non-clinical. So across the board, we are seeing impacts. Some of the dates that some of the healthcare systems have established for those vaccine mandates have pushed out. So that's giving the staff a little more time to make the decision, go through with the vaccines if they choose. And we're seeing the numbers go up as they start to push out those dates. So they're anticipating a higher impact. And as the date emerges, that impact from the COVID vaccine mandates declines. But we're also seeing pockets of either healthcare systems or even by state where they're not mandating that. So I do think that it is, a short-term impact on the supply, and in particular where some of the demand is much higher, as Kevin was mentioning in some of the L&D, pediatrics, there's still high demand for ICU, endoscopy, etc., that that's where we're going to see most of the supply compression. And, you know, bill rates and continued nurturing of candidates is going to play a very big key in us being able to support those healthcare facilities, and we'll help support them through contingent staffing as well as our direct hiring RPO services.
spk07: Yeah, and I would just add to Kevin, you know, I mean, overtime hours were up 52% over pre-pandemic levels, so that's a symptom of this, and we're seeing, you know, a lot more overtime than we could typically see as well.
spk09: Okay, great. Thank you. And I just wanted to ask about your 8% adjusted EBITDA margin goal. You've obviously achieved that in two of the last three quarters here, and you're targeting a higher than 8% margin in the fourth quarter. You know, at what point do you say, well, we've reached that goal and we've reached it a little earlier than expected and, you know, kind of think about what the next – potential margin level or potential target could be.
spk07: Yeah. Maybe Bill and I will tackle that. Yeah. Look, first of all, you know, we did reach, you know, kind of a 8% or better type of result over a year earlier. So we're very proud of the fact that we accelerated, you know, our trajectory in terms of earnings to, you know, we are, on a sustained growth path, we will continue to make investments quarter to quarter to keep this company in the forefront as the most innovative company in the industry. So sometimes we'll invest against profitability and we'll not necessarily flow in some perfect line going forward. But we're bullish. We're very bullish on our capability. We have, you know, if you step back and look at what we've accomplished, we're two times the size that we were a year ago. And we've got, you know, 30% more revenue producers. We've got productivity tools that, you know, are, you know, improving our results in high double digits, you know, across our enterprise. And there's still projects you have you know, that we are extremely excited about, some that we'll be, you know, bringing to market over the next couple quarters. We're very excited about where we're going directionally. So, you know, we get that, you know, our job is to grow shareholder value, but this is no longer, you know, a company that, you know, doesn't have a blueprint on its future. And, you know, we're very excited. We don't want to see the company drift back from us. you know, two to two and a half billion dollar run rate business, you know, achieving, you know, these type of numbers. So we're going to work really hard to grow that profitability, you know, over time, you know, above these targets.
spk11: Yeah, Kevin, just a couple of other points. As you think about, you know, Kevin's earlier comments about the first half kind of maintaining above, The Q3 run rate, I certainly think that certainly implies the company can operate at 8% if our revenue levels are going to be north of the third quarter run rate that we've talked about. I think as the bill pay spreads start to normalize into the future, it really becomes a story of twofold, right? The continued volume growth and expansion. It's obviously the substantial increase in volume that we're seeing into the fourth quarter that's allowing us to target double digits. Historically, we've said roughly about a third of our gross profit. This is implying nearly 50% of the gross profit is flowing through to the bottom line in the fourth quarter. It's possible to start targeting a higher margin, but I guess more will need to be borne out as to how fast we can keep pushing the volume side of things. As we talked about, as long as the demand remains where it is, we're going to continue to invest. We're going to continue to implement new technologies, gain productivity, and continue to see the level of folks on assignment grow across the revenue producers.
spk09: Okay, thank you. That's helpful. Thanks for taking the questions. Thanks, Kev.
spk04: Our next question comes from Bill Sutherland from Benchmark Company. Your line is open.
spk10: Thanks for keeping the lines open for me, guys. Good evening. I was wondering if we could just spend a minute on the supply side. Really just mostly curious what you're seeing firsthand, maybe anything that you've gathered industry-wide as far as the future of the graduation rates, the future of immigration. Is there gonna be a supply catch up and in our lifetimes? No, you know, you know, in a, in some, you know, what, what kind of window do you see there? Nice.
spk07: Yeah. Hey Bill. You know, it's a good question. First of all, we're, you know, very encouraged that enrollment in bachelor's masters and doctoral nursing programs has increased nearly 6% from 2019 to 2020 and, And that data is a little bit old. I think, you know, it's probably risen more than that this year. I think there is a lot of interest in, you know, people looking at these heroes that have been on the front line and, you know, candidly, you know, the flexibility in their work environments, compensation, a lot of things go into that. But we're very encouraged that enrollments, you know, are stronger. you know, we have seen a fair amount of interest in terms of foreign-trained nurses by some of our clients. There's, you know, more of an appetite, so to speak, to look at foreign-trained nurses as an additional part of the supply. I will say that I also would say that, you know, what we're seeing through this pandemic, I think we're going to look back and, you know, pardon me to use this phrase, but I think nursing is at a paradigm-shifting moment. And, you know, it's a profession that there are some exciting new opportunities, such as telehealth, for example, that weren't here a couple years ago that are becoming mainstay. So, you know, a lot of those things are attracting, we think, longer-term supply, which will be good to ease some of this. But, you know, I'll open it up to John or Buffy. If you have some comments, you'd also like to make the bill.
spk01: Hey, this is John Bill. Thank you for the question. And I'd just add something briefly is where there is definitely, as Kevin mentioned, some silver linings and some opportunity ahead of us in different segments to bring in more supply and What we're looking at, if we look at the August BLS employment data, we're still seeing overall healthcare employment is down 3.1% from pre-pandemic. Hospitals are still down 1.6% from pre-pandemic. And a recent study that took place over the summer showed that 62% of hospitals are in vacancies of 7.5%. So I think we do have a long way to go to bring back the supply, and it's going to take, as an industry, for us to partner with our hospitals, with schools, to really create more supply to meet this need and this demand, especially as we're seeing the nurses that are burnt out, fatigued, and leaving industry.
spk03: Yeah, and I'll weigh in from a client perspective. You know, they're really looking to us to say, help us with innovation, help us with core staff retention. So if we can just retain more of who we have, if we can look at how to upskill for those that you can move into more acute positions, if we can reskill those who may have been out of the bedside for some period of time because they've been fatigued and bring them back. So we're also looking at not just supply creation, but how we recreate the supply that is potentially right in front of us. So, you know, shorter-term opportunity there, we definitely need to focus on the longer term.
spk10: On that skilling, Buffy, in terms of re-skilling, would you all have some – would you be providing support for – I'm sorry about that – for a certain group of, you know, tenured people that you would, you know, want to invest in?
spk03: That's right. That is the intent. So we have a clinical quality council made up within cross country that is in partnership with a lot of our healthcare facilities, a lot of external organizations, as well as a lot of these school opportunities. And looking at just that is how can we help come in and reskill through education, through precepts, through partnering, different types of innovation in order to, again, retain and grow the supply that's already there.
spk10: Right. One last one, if I can. This is over to the bill rates again. I don't know if you've had a way to do this, but have you been able to kind of segment the bill rates associated either with the COVID work itself or with the impact of the mandates, you know, currently having a big impact versus the, you know, the business that, you know, serves the traditional, uh, roles related to supporting departments and procedures and so forth.
spk07: Uh, you know, that, uh, you know, the answer is we do have, you know, separate bill rates, right. For, you know, um, rapid response COVID business, for example, for, you know, we may have a project that a client, you know, gives us in terms of vaccination mandates and that could have pricing. But I think the point is the broad market still has high bill rates. You know, to find a cardiac cath RN right now, it's a very, very high bill rate to find that registered nurse. to find certain pediatric positions, it's still a high bill rate. So the supply is constrained across all specialties, and we're seeing higher bill rates across all specialties. So it has somewhat of a network effect across all these different specialties that we recruit for.
spk10: Right. I mean, I certainly agree that it's not going to settle back down to where it was. I'm just trying to get some idea of it's such a, such a Delta here now, given where the rates have ended up.
spk07: You know, one of, one other point I would just make is, you know, the healthcare system is being dramatically disrupted by new entrants as well, such as Amazon care, Apple, Google, who have an eye for change and, you know, technology. Also things like nomad, right? Yeah. Well, I mean, Nomad is really, you know, they're a direct competitor. You know, they're, you know, a staffing agency. But what, you know, what they offer is mostly commoditized at this point. But what I'm saying is the big companies like Amazon, Apple, Google are changing healthcare as being delivered. You know, AmazonCare is a national business that provides a telehealth model to bring healthcare to your home. So that is a disruptor, and that's having impact as well.
spk10: Right. Okay, guys. Thanks so much. Sure. Thank you, Bill.
spk04: And our final question comes from Ryan Griffin from BMO Capital Markets. Your line is open.
spk12: Hey, good evening. Just following the lines of the prior question, I was curious to what extent, if any, have the nursing strikes impacted your business? Thank you.
spk07: Buffy, you want to talk about labor disruption?
spk03: Oh, sure, Ryan. Thank you. We certainly have seen some activity over this past year, and through our Crew 48 organization, that is one that we heavily lean into any kind of real true crisis staffing around labor disruptions, any kind of significant crisis staffing like vacancies, etc. So, The labor disruptions, there has been some activity over this last year. We do anticipate through some of the union contracting and some of the dates coming up that we would see this probably in the first half of the year. So we are tracking those. Fortunately for us, we're uniquely positioned to support them as we have a division that can quickly mobilize and we deploy dedicated resources around it, manage the end-to-end program around it, including the logistics. So we feel very ready for what's to come first half of the year.
spk00: Great. Thank you.
spk04: Ladies and gentlemen, this does conclude the Q&A period. I'll now turn it back over to Kevin Clark for closing remarks.
spk07: Thank you, Jordan. And we look forward to continuing to build shareholder value. And we want to thank everyone for joining us this evening. And we look forward to updating you again on our fourth quarter call. Stay safe, everyone, and please get your vaccination. Thank you.
spk04: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation. You may now disconnect.
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