Cross Country Healthcare, Inc.

Good afternoon, everyone. Welcome to the Cross-Country Healthcare's earnings conference call for the third quarter 2022. 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 on 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 Josh Vogel, Cross-Country Healthcare's Vice President of Investor Relations. Thank you, and please go ahead, sir.

Thank you, and good afternoon, everyone. I'm joined today by our President and Chief Executive Officer, John Martins, as well as Bill Burns, our Chief Financial Officer, Dan White, Chief Commercial Officer, and Mark Krug, Group President of Delivery. Today's call will include a discussion of our financial results for the third quarter of 2022, as well as our outlook for the fourth quarter. A copy of our earnings press 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 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 2021 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 those 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 when normalized numbers pertain to our most recent acquisitions as though the results were included or excluded from the periods presented. With that, I will now turn the call over to our Chief Executive Officer, John Martins.

Thanks, Josh, and thank you to everyone for joining us this afternoon. Before I get started, I'd just like to take a moment to welcome the newest members of the cross-country family that joined us this past month through our recent acquisitions of Mint and Modus. Two physician staffing companies that we believe not only expands our market presence, but brings us a talented team of professionals to join the ranks of cross-country locums and sets the stage for accelerated organic growth. Welcome, Minted Lotus. The third quarter marks six months for me as CEO of Cross Country, and I am amazed and excited by what we have achieved during this time, as well as what lies ahead. As an organization, we continue to execute well across so many fronts, from sales to delivery and across our technology initiatives. Our unwavering commitment to always act ethically and to deliver best-in-class service has positioned us as an integral partner to the thousands of clients and tens of thousands of clinicians and professionals we serve. Our success is rooted in the dedication of our employees and their commitment to maintaining a vibrant workplace culture that stresses the importance of diversity, equity, and inclusion. and the culture across country has never been stronger, as evidenced by our recent recognition with the Best Companies for Happiness Award from Comparable. We take great pride in becoming the employer of choice for so many, and we will continue to elevate and evolve our organization by investing in our people and culture. As noted in our press release today, we posted another strong quarter for both revenue and adjusted EBITDA, exceeding the upper end of the guidance ranges we shared at our Investor Day event in mid-September. In addition to highlighting our outstanding leadership team, we announced full-year 2023 minimum guidance and had the opportunity to share more insight into cross-country's innovative technology and impact it is having on our business. The shift from being almost exclusively internally focused to heavy investments in externally facing technology was evidenced in the launch of Intellify, our proprietary cloud-based vendor management system. And this represents a significant milestone for the company in our evolution as a tech-enabled workforce solutions company. I'll go more into details on Intellify later in the call, but first, let me provide some comments on our third quarter results. With consolidated revenue of $636 million, we grew by nearly 70% year over year with all lines of business reporting growth. The strong revenue performance, coupled with stable gross margins and cost management, drove adjusted EBITDA of $64 million, representing a 10% adjusted EBITDA margin. Increasingly, our revenue growth is coming from volume, as bill rates have trended down throughout the year. In fact, travel bill rates for the third quarter were down 12% sequentially and down nearly 20% since the first quarter, though still 10% higher than a year ago. With a backdrop of continued strong demand amidst the tight labor market, travel rates have stabilized over the last several months, and we believe they are settling into a new normal for the market as anticipated. Bill will step through the guidance a little bit later, but it's important to note that the sequential decline in travel bill rates expected for the fourth quarter is primarily attributable to the wind down of higher rate assignments and not necessarily due to the continued decline in the bill rates. As a partner to dozens of healthcare systems, we are sensitive to their need to reduce costs for contingent labor and will continue to do all that we can to help them achieve their goals, leveraging our full complement of services, including helping them build up their core staff and offering them technology solutions such as IntelliFi that will help them better manage their spend. Today, our largest source of revenue comes from our managed service programs, or MSPs, representing 55% of our consolidated revenue for the third quarter. Third quarter spend under management from our MSPs was nearly $2 billion in annualized contingent labor spend, which is four times the size of the programs we managed at the end of 2019. Generally, we fill all of our clients' needs through a combination of direct fill and through a partner network of subcontractors. For the third quarter, cross-country's capture rate on the $2 billion spend was 71%, which was up 200 basis points over Q2. Increasingly, our MSP clients will be able to benefit from the adoption of our proprietary vendor management system, Intellify, which enhances their visibility into their program spend. As of September, we had 10 programs live on the platform, with five more scheduled for deployment in the fourth quarter. As we called out on Investor Day, IntelliFi also lowers our cost of fulfillment and will save millions of dollars annually once it is fully deployed. We currently anticipate the majority of our clients will be converted in the next 12 to 18 months, depending on our success in winning new accounts, as they would naturally be launched on IntelliFi at program go live. The anticipated benefits of IntelliFly go well beyond cost savings, as the technology also allows us to be more competitive in the market, giving us access to capture significant incremental client spend through vendor-neutral offerings, as well as technology extensions for direct licensing by clients for their internal use. Our tech roadmap is far from complete, but we are making terrific progress. Year-to-date, we have spent more than $12 million on technology-related investments, more than half which is focused on externally facing technologies such as Intellify and our candidate portal known as Gateway. Gateway provides candidates a superior experience with real-time matching to open positions and the ability to self-select interests and schedules. Through this self-service model, we believe Gateway will also significantly improve operational productivity once fully deployed. As I like to say, you were never really done creating technology. But our tech transformation over the last few years is impressive. We have completely redesigned our entire ecosystem from the ground up, using a data-centric model that interconnects all components within the ecosystem, Having a single tech stack enables us to provide the highest level of analytics while ensuring speed to market, as well as best-in-class experience for candidates, clients, and our teams. It also provides us the foundation to build additional capabilities. On the strength of our performance, we continue to not only invest in growth through capacity and technology, as well as acquisitions such as Mint and Lotus, but we are also able to deploy capital in a more meaningful way through paying down expensive debt and repurchasing our shares of common stock. As we announced in August, our board authorized an additional $100 million repurchase program, and we quickly put that to work. Through a combination of exhausting our prior authorized plan and leveraging the new plan, we repurchased more than 1 million shares of stock before our mandatory blackout in mid-September. The average cost of shares repurchased was $24, and we have $87 million remaining under the new program. We will continue to be opportunistic with share repurchases, balancing investments in our technology initiatives, strategic personnel, and token acquisitions that further bolster and diversify our portfolio. Looking to the fourth quarter, overall demand remains robust and well above pre-pandemic levels. It is interesting to note that despite the relatively high demand and the recent surge of pediatric respiratory cases, we are not yet seeing significant spikes in demand for seasonal needs, which could be a further tailwind as we head into the end of the year. Specific to our travel business, orders remain steady across most specialties with growing demand for emergency room, ICU, labor and delivery, and pediatrics. Supply constraint continues to be the biggest challenge faced by our clients, with clinicians looking to retire early or leave the bedside due to fatigue and burnout. In fact, a recent survey by Bain showed that 25% of U.S. clinicians are considering switching careers outright, mostly due to burnout. Additionally, data from the Bureau of Labor Statistics continues to indicate a widespread between healthcare job openings and hires. For the fourth quarter, we expect revenue to be between $590 and $600 million, well above the $550 million exit run rate we shared at our investor day. While Mint and Lotus will contribute to our performance, the majority of the increase comes from higher volumes as well as a slightly higher projected bill rates. Our adjusted EBIT guidance implies a margin of 9%. in line with our goal to maintain adjusted EBITDA margins in the high single to low double digits. I've called this out before, but it's worth repeating. Though we strive for continued margin expansion every quarter, we will continue to make investments that may interrupt the trend, but we believe will ultimately drive greater shareholder value. And though we are encouraged that bill rates have stabilized, We recognize the potential for future volatility. That said, we are well positioned to continue driving organic growth thanks to the investments we have made in revenue producers, the development of market-leading technologies, and by counting and continuing to win new clients. We therefore reiterate our targets for 2023 announced in mid-September. to deliver full-year 2023 revenue of at least $2.2 billion in adjusted EBITDA in excess of $200 million. In closing, I am very encouraged by our clients, our business, and our prospects as we approach 2023. As bill rates continue to normalize and demand remains strong, it sets up an exciting runway for long-term, sustained, profitable growth across all lines of business. I want to thank all of our dedicated professionals who make cross-country healthcare fair employer of choice. I'd also like to thank our shareholders for believing in the company, and of course, our talented team who have supported our transformation into a high-performance, tech-enabled, total workforce management solutions firm. With that, let me turn the call over to Bill.