Cross Country Healthcare, Inc.

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.

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.

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.