Cross Country Healthcare, Inc.

Good afternoon, everyone. Welcome to the Cross Country Healthcare's Earnings Conference Call for the fourth quarter and full year 2021. 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. A replay of this call will also be available through March 9th, 2022 and can be accessed either on the company's website or by calling 800-391-9853 in the United States, or 203-369-3269 outside the United States, and by entering the passcode 2022. 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 Health Care'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 our incoming CEO, John Martins, currently serving as Group President of Delivery and Buffy White, Group President of Workforce Solutions. Today's call will include a discussion of our financial results for the fourth quarter and full year of 2021, as well as our outlook for the first quarter of 2022. 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 acquisitions as though the results were included or excluded from 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. As we reported today, our fourth quarter and full year results represented yet another historic milestone for both revenue and profitability. Fourth quarter revenue was nearly triple the prior year, and the full year was more than double. This performance was made possible by our amazing team of individuals and their unwavering commitment to our customers, clinicians, and professionals. For me, 2021 marks the end of three years since my return to this great company, and I am so incredibly proud of all that we have accomplished. It is clear to me that we are fundamentally a stronger, more financially sound company with a proven ability to execute and deliver across many fronts. And before I discuss the business, I'd like to just spend a moment on some of the ways we have transformed Cross Country into a growth company and with a double-digit adjusted EBITDA margin. When reimagining our go-to-market strategy, we truly left no stone unturned, from consolidating more than 20 disparate brands to significantly investing in hiring and training more than 1,000 employees to making significant investments in technologies. Our digital transformation has been bold, significantly improving our productivity and magnifying the return on investment from expanding our workforce. Throughout everything, I am especially proud that we have remained committed to our core values for integrity, quality, and clinical excellence. Turning to the market, we continue to see heightened demand for our services, driven by growing needs across virtually every specialty, including operating room, emergency, pediatrics, labor and delivery, and med-surg, which are not necessarily related to COVID. In addition to the nationwide patient demand for healthcare services, our order volume is also the result of turnover and shortages in core staff at many of our clients. As the results of our recent nursing survey completed in partnership with Florida Atlantic University's Christine E. Lynn College of Nursing revealed, 37% of nurses identified as being burned out and overworked. Since the outset of the pandemic, we have taken actions to assist clinicians to cope with these stresses, including providing access to a clinical social worker and establishing a hotline, which has received more than 20,000 calls since the start of the pandemic. Our compassionate approach to our professionals has strengthened our ability to attract and retain professionals, which has in turn helped fuel our historic growth. In the fourth quarter alone, we expanded the number of professionals on assignment by nearly 100% over the prior year, with more than two-thirds due solely to organic growth, thereby significantly improving our operating leverage. As we've discussed on previous calls, The historic demand combined with an incredibly tight labor market has resulted in rising wages and bill rates. Throughout the pandemic, though, cross-country has acted ethically and responsibly by being as transparent as possible and by being sensitive to the pressures placed on our clients. One of the ways we have sought to help our clients is by staffing the most critical position at lower margins, absorbing as much of the cost increase as possible. And as a result, our consolidated gross margin remains more than 200 basis points below pre-pandemic levels. Many of our clients have shared their deep appreciation for CrossCountry's ability to deliver clinicians and for providing industry insights and market analytics to guide their decisions on the rates necessary to attract clinicians. In a recent note from an executive at one of our largest MSPs, He highlighted that CrossCountry has been a true partner, helping them navigate complex challenges over the last several years. They especially appreciate our real-time market intelligence to facilitate critical decisions. I've said this before, but CrossCountry is committed to doing what is right for our nation, our clients, and the patients they treat, which we believe ultimately benefits our shareholders. We believe strongly that our partnership will be remembered long after the pandemic is over. By leading with a data-driven approach, our team of client-facing professionals are able to credibly provide market insights and develop solutions that address each client's unique needs and challenges. As a result, health systems are increasingly turning to cross-country as their trusted partner, and our pipeline for new business is growing rapidly. Throughout 2021, we continued to expand our services with existing clients as well as winning a significant number of new direct staff and customers. In addition, we also signed a record number of recruitment process outsourcing, or RPO, contracts this year, which augments our clients' hiring capabilities and helps them build up their core staff. And I'm thrilled to see our momentum continue to accelerate, having already won a couple managed service programs in just the first few weeks of the new year. Managed service programs, or MSPs, remain a significant part of our business, representing nearly 50% of our consolidated revenue. As of the fourth quarter, annualized spend under management was more than $1.5 billion, and our capture rate was over 70%, remaining well above pre-COVID levels. Let me next touch on our technology initiatives. Over the last three years, we have significantly ratcheted up tech investments as we work to build one of the most innovative talent platforms in our industry. Our projects have been extensive and far-reaching, impacting not only our employees but our candidates and our clients as well. The applicant tracking system that we deployed late last year across the travel business continues to deliver incremental productivity gains with a growing headcount on assignment per producer. We are making solid progress on deploying this technology to our other businesses. From a candidate-facing perspective, our proprietary tool marketplace continues to evolve with new features and functionality being deployed to improve the candidate experience across the entire engagement lifecycle. I am excited about our tech roadmap for the coming year and look forward to announcing even more robust tools for use by both clients and candidates. And given the success of our technology investments, we are doubling our CapEx budget for 2022. Another exciting technology development for cross-country has been the acquisition of Selected, completed in mid-December. Selected is a subscription-based SaaS model for schools to recruit permanent educators and special ed professionals. As teachers retire or leave the classroom in record numbers amidst the pandemic, schools face a severe shortage and millions of students lack certified teachers in the classroom. We believe this acquisition complements our ability to solve the workforce challenges faced by school systems across the country and will accelerate the growth potential for our education business. Turning to the businesses, our largest segment of nurse and allied again saw strong sequential and year-over-year revenue growth, with all lines of business reporting an increase in billable hours. The biggest driver was once again travel nurse and allied, with billable hours rising 46% sequentially. As expected, average bill rates rose approximately 30% from the third quarter, driven by the continued high demand for clinical positions, as well as the spike in cases from the Omicron variant. With tens of thousands of openings continuing into the new year, we anticipate average bill rates will rise modestly in the first quarter, though we believe rates will likely moderate throughout 2022. As we've called out before, Compensation costs are the primary determinant in bill rates, and with persistent industry-wide shortages, those costs are not expected to decline rapidly in the near term. We were also very pleased with the stronger-than-expected results from our recent acquisition of Cross-Country Workforce Solutions Group, reporting 15% sequential growth and on a pro-pharma basis, growing by 59% over the prior year. This business allows us to deliver critical support to some of the neediest populations by delivering professionals to the home, working with some of the nation's largest PACE providers, and contributing to nationwide health equity. That brings me to our outlook. Our first quarter guidance points to another record quarter in the company's history, with both sequential and year-over-year growth driven by our ability to attract, recruit, and place professionals on assignments. We expect consolidated revenue between $740 and $750 million, representing sequential growth of 16% to 17%. With minimal changes expected in bill rates, the growth is principally driven by continued strong execution and growing the number of professionals on assignment. The biggest driver of the volume growth continues to be travel nurse and allied. where we expect to reach yet another historic milestone for the number of travelers on assignment. From a profitability perspective, we anticipate adjusted EBITDA to be between $80 and $85 million, which represents an adjusted EBITDA margin of 11%. As we look beyond the first quarter, we expect to continue growing our market share by increasing the number of professionals on assignment. despite potential headwinds from changing bill rates or demand from certain specialties such as respiratory therapists. Though we don't give full-year guidance, we are operating at a much higher level, and we believe that our investments in people and technology are providing the foundation for full-year revenue growth. Looking ahead, we believe we will exit the year at a run rate that exceeds $2 billion in annualized revenues. and can expect adjusted EBITDA margins to remain in the high single to low double digit range, well above the 3% margin experienced in the fourth quarter of 2018 when I rejoined the company. Just before handing the call over to Bill to take us through the numbers in more detail, I'd like to say a few words. As this will be my last earnings call as CEO, I wanted to thank our shareholders for believing in cross country And I especially wanted to thank the talented team of leaders and professionals across country who have supported and embraced the changes we have made. It has been the honor of my lifetime to return as a CEO of the company I co-founded. And as I transitioned to the chairman of the board, I am thrilled to be leaving the company in John's very capable hands as the next CEO. As many of you know, I've worked with John for many years in my career, and I am confident that under his leadership, we will continue our path of sustained profitable growth. Though I won't be as heavily involved in the day-to-day activities of running Cross Country, I plan to be a very active chairman. Along with the rest of the board, we will continue to be focused on ensuring the strategic direction for this company and giving John the support that he needs to execute on our strategic vision. With that, let me turn the call over to Bill.