Cross Country Healthcare, Inc.

Good afternoon, everyone. Welcome to the Cross-Country Healthcare's earnings conference call for the fourth 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 fourth quarter and full year of 2022, as well as our outlook for the first quarter of 2023. A copy of our earnings press release is available on our website at crosscountry.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. As we reported today, our fourth quarter results met or exceeded our revenue and profitability expectations, closing the full year with the highest revenue and profitability in our history. As a digitally innovative enterprise with comprehensive workforce solutions and an unwavering commitment to clinical excellence, we were able to maintain our momentum even as COVID hospitalizations and demand softened. And entering 2023, we are a fundamentally stronger organization with greater financial health and a record of superior execution. Over the last year, we have been relentlessly focused on continuing to build out our sales and delivery capabilities, as well as furthering our digital transformation. In addition, I've been working closely with our board on furthering our environmental, social, and governance initiatives with particular emphasis on governance. We continue to be thoughtful in our approach to succession planning for all key roles within the company and with respect to our board composition. We recently added two new board members to our board, Venkat Bhattadamati and Dwayne Allen, both exceptional leaders bringing new skill sets, ideas, diversity, and broad expertise across verticals such as technology and healthcare. We believe these appointments will serve cross-country well as we continue to advance our technology strategy of creating a world-class digital platform for professionals and clients, offering exceptional, frictionless, and seamless experiences with increased efficiencies. From many perspectives, 2022 was an unprecedented year And I'd like to take a moment to highlight just a few of our achievements. Starting with technology, we have been redesigning our entire ecosystem from the ground up, using a data-centric model that enables us to provide the highest levels of analytics while ensuring speed to market, as well as best-in-class experiences for our candidates, clients, and our teams. Last year, we launched two very significant technologies, including IntelliFi as our proprietary vendor management system and Gateway, our career portal. We believe IntelliFi will be a game-changer for a cross-country and potentially the market as a whole. Our philosophy in building IntelliFi was to start with a client and work backwards. designing it to help our clients more effectively manage and solve their most challenging people needs through data and analytics, advice, and insights. Our roadmap calls for further investments that are underway, and we believe Intellify will continue to be highly differentiated in the industry, opening up a new addressable market for cross-country, giving us access to billions of dollars of potential spend under management in the vendor-neutral space. And Gateway offers healthcare professionals the ability to find the right job through real-time, frictionless experiences on their terms. We have thousands of daily active users, and we expect that number to grow as we continue to deploy new features and functionality. In addition to our key technology initiatives, we continue to invest in our people, growing our headcount by more than 15% across virtually all lines of business. with the vast majority being revenue producers. We also brought aboard many industry leaders like our newest hire, Eric Christensen, who joined us last month as the Senior Vice President for Intellify Solutions. Eric is a pioneer in the vendor neutral space with a proven track record delivering innovative tech-based solutions We are confident that he and his team will help accelerate cross-country's growth trajectory by leveraging our SaaS-based, higher-margin, vendor-neutral platform. From an operations perspective, every line of business experiences robust growth, driven primarily by the number of professionals on assignment, with only a modest impact coming from the rise in rates. With strong execution and continued productivity gains, our consolidated revenue was up 67% over 2021, to a record $2.8 billion. Adjusted EBITDA surged to $302 million, from last year's record of $162 million, and our adjusted EBITDA margin rose 110 basis points to 10.8% from 2017. 9.7% in 2021. Also in 2022, we generated a company record $134 million in annual cash flow from operations, and we completed three targeted acquisitions that built scale in the locum space, as well as diversified our offerings with interim leadership. Higher Up, which closed late in the fourth quarter, brings us a talented team with deep expertise in leadership staffing and strong relationships that are a perfect complement to our robust network. Welcome to the family, higher up. In August, we announced a $100 million share repurchase program, and through the end of the year, we repurchased 1.4 million shares, or roughly 4% of the outstanding shares. We also prepaid $100 million on our term loan during the year to reduce our total leverage as well as our interest costs. We will continue to balance investments in our technology initiatives, strategic personnel, sharing purchases, and tuck-in acquisitions that further bolster and diversify our portfolio. 30 to the fourth quarter, consolidated revenue was $628 million, approximately 5% above the upper end of our guidance, while adjusted EBITDA of $57 million was at the upper end of our guidance range, representing a 9.1% margin. Bill will get into more detail on the bill rates, but as expected, travel bill rates declined sequentially, although at a slower pace than we previously called out. the slower decline was driven in part by steady demand throughout most of the quarter amidst the continued labor shortage. As expected, we began to see demand for travelers begin to come down, exiting the fourth quarter and going into the start of the new year. With COVID retreating and systems increasingly seeking to lower their contingent labor spend, we expect to see continued pressure on orders and bill rates though both continue to be above pre-COVID levels. The persistent labor shortage remains, and we do not see anything changing the backdrop in the near term. That said, if there is a continued softening in the market, we are prepared to act swiftly to right-size our infrastructure while ensuring our ability to grow. Following a similar trend coming off COVID highs, our local business experienced a slight sequential decline in part due to the impact from the holidays, as well as the continued normalization of bill rates. And looking at our other lines of business, we continue to see improved traction in locums, education, and home care, which all posted an increase in hours and revenue on a sequential basis. Locums in particular was up nearly 8% sequentially on an organic basis, which goes against the normal seasonal trend for that business. It also reinforces our belief that this space will continue to see strong demand and further supports the rationale for acquiring Mint and Lotus in the fourth quarter. Looking at the market today, Health systems that experience major cost pressures throughout the pandemic are assessing their unique situations and seeking alternatives on ways to lower costs and ultimately their reliance on contingent labor. Though some of our existing MSTs will understandably want to explore options, Cross Country remains a trusted partner to thousands of healthcare clients. We believe that our full complement of tech-enabled offerings coupled with our commitment to deliver the highest quality of clinical care, will ultimately result in the growth of our market share. And though we have recently experienced a higher than normal level of client attrition, our pipeline for new opportunities has never been stronger. I believe that we have an incredible value proposition for clients and that with the investments in both people and technology, we are well positioned to win a significant amount of new business in the coming quarters. Today, more than 50% of our revenue comes from our MSPs. And as of December, roughly 15% of total spend under management has been migrated to our Intellify platform. As we continue to migrate other clients to the Intellify platform, it will save us millions of dollars annually in license fees paid to third parties. We anticipate the majority of our MSP clients will be converted in the next 12 months depending on our success in winning new accounts, since they would naturally launch on IntelliFi at the line. IntelliFi also opens a significant market opportunity in the vendor-neutral space, giving us the ability to capture significant incremental client spend, as well as technology extensions for direct license by clients for their internal use to help manage their contingency and their core staff labors. Looking ahead to 2023, critical staffing shortages continue to be widespread. Specifically, nurse-to-patient ratios remain high, and we believe to be a driver of the labor disruptions that the industry has seen in recent months. Supply constraint is still the biggest challenge faced by our clients, and whether we look at the 2022 McKinsey study that cited a shortage of 10% to 20% of the nurses needed to care for all patients in the system by 2025 or track the monthly data from the Bureau of Labor Statistics that indicates a persistent wide gap between healthcare job openings and hires, it seems that supply and demand imbalance will persist for the foreseeable future. Looking at the first quarter, we expect revenue to be between $590 and $600 million, which remains well above the level needed for us to achieve our minimal full-year revenue target in 2023. We remain optimistic that we can deliver on our commitments and generate significant shareholder value. We have a proven ability to execute across many fronts And with the rollout of IntelliFi in particular, we find ourselves in a great position to build upon recent successes, but also continuing to capture share. We therefore reiterate our full year targets announced at our investor day in mid-September to deliver full year 2023 revenue of at least $2.2 billion and adjusted EBITDA in excess of $200 million. In closing, 2022 was a tremendous year, and we will build on this progress by making strategic investments that we believe will best position cross-country for long-term, sustained, profitable growth across all lines of business. I want to thank all of our professionals who make cross-country healthcare their employer of choice. I'd also like to thank our shareholders for believing in the company and, of course, our talented team, who I am so proud of. I'm pleased to report that for the third year in a row, we were recognized by Energage with the 2023 Top Workplaces USA Award. We also recently received multiple 2023 Best of Staffing Awards for Excellence from ClearlyRated. Achievements like these are a testament to our corporate culture, and focus on supporting and growing our employees from within while consistently attracting and retaining top talent. With that, let me turn the call over to Bill.