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 in the company's earnings release issued this afternoon. At the conclusion of this prepared remarks, I will open the lines for questions. I would now like to turn the call over to Josh Vogel, Cross-Country Healthcare 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 first quarter of 2023, as well as our outlook for the second quarter. 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 2022 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 gap financial measures, such as adjusted EBITDA or adjusted earnings per share. Such non gap financial measures are provided as additional information and should not be considered substitutes for or superior to those calculated in accordance with US GAAP. More information related to these non gap 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. Our results for the first quarter once again have exceeded the top end of our revenue and adjusted even the guidance ranges. Our performance is a testament to the dedication by our employees and clinicians to deliver best-in-class service, and it is a reflection of our investments and digital transformation that has allowed us to be more efficient and productive as an organization while delivering the highest quality of clinical care. Bill will get into more details on the numbers, but our better-than-expected performance was fueled by strong execution across many of our businesses, as well as a higher-than-expected average bill rate in our travel business. Education, for example, reported its strongest revenue quarter in our history, with a 25% increase in volume over the fourth quarter. Physician staffing also contributed to the overperformance, with an increase in the number of days filled across most specialties and an improved mix of higher bill rate specialties. Organically, physician staffing revenue grew 19% year-over-year and 7% sequentially, supported by the backdrop of robust demand we saw building last year. When we include the successful fourth quarter acquisitions and integrations of Mint and Lotus, which are performing ahead of expectations, our position business was up 75% year-over-year and now is on an annual revenue run rate of well over $150 million. Lastly, home care staffing and our recent acquisition in the interim leadership space were ahead of our expectations as well. Let me spend a few moments on our largest business, travel. Average bill rates were expected to decline in the low single-digit range but were flat sequentially due to factors such as mix of specialties, timing of new starts, and renewals of existing assignments. Based on the rates for the new starts and recent locks, we are projecting a sequential decline of between 8% and 9% for the second quarter, in line with where we anticipate rates to be for the second quarter when we reported year-end results. Though the decline in bill rates has been a little slower than we anticipated, we continue to expect a low to mid-single-digit sequential decline for both the third and fourth quarters, placing travel rates on track to settle in roughly 30 to 35 percent above pre-COVID levels as we enter 2024. Turning to demand for travel assignments, orders have continued to soften throughout the first quarter and into the second quarter. I want to stress that this is an industry-wide trend that is not specific to cross-country. It's also worth noting that although new travel orders have slowed, our candidate renewal rates remain near historic levels, indicating that while clients struggle to reduce contingent labor, there remains a critical shortage and an ongoing need for these clinicians. While we certainly understand and support health systems right-sizing their costs, it does feel as if the market has overcorrected. Demand has leveled off, and we believe it to be nearing the point where it should start to rebound as we move through the back half of the year. Regardless, we continue to operate at a very high level with approximately two and a half times the number of travelers on assignment relative to our 2019 performance. At a high level, it appears that health systems face severe staffing shortages that are projected to worsen in the years ahead. Take, for example, the April Nursing Workforce Study conducted by the NCSBN and the National Forum of State Nursing Workforce Centers. In addition to the estimated 100,000 RNs that left the workforce during the pandemic, the study indicated that another 800,000 nurses have an intent to leave the workforce by 2027, citing stress and burnout, as well as plans to retire. Included in this group is a surprising 189,000 RNs younger than 40 years old. Altogether, roughly one-fifth of RNs nationally are projected to exit the healthcare workforce in coming years. Another study by McKinsey projects a gap of 200,000 to 450,000 nurses in the United States by 2025. The results of these studies are staggering and imply that the challenges hospitals face in getting enough clinicians to the bedside will only intensify in coming years. Now, let me spend a moment on our technology initiatives. As previously highlighted, we have been successfully redesigning our entire technology landscape using a data-centric model that provides analytics and insights in real time. At the center of our ecosystem is Intellify. our proprietary vendor management system. We introduced IntelliFi at our Investor Day event last September, and since then, we have successfully migrated 25% of our current managed service program clients onto this platform, with plans to migrate the majority over the next 12 months, which will save us millions of dollars annually in tech fees paid to third parties. When we meet prospective clients today, our conversations go beyond just contingent labor and focus on comprehensive talent management strategies that include sourcing, retention, redeployment, upskilling, and reskilling. Intellify helps address these challenges while aiding our expansion as a tech-enabled workforce solution platform. We believe Intellify to be highly differentiated in the industry. and are very excited by the multi-billion dollar opportunity it opens up within the vendor neutral space. Speaking of which, I am thrilled to announce that we signed our first vendor neutral contract in March, and we have a robust pipeline of clients interested in our technology. As we discussed on our last earnings call, clients are understandably evaluating their needs and looking for alternatives that can save them money. And though this may result in a higher level of churn, we believe it presents a unique opportunity for cross-country to expand its share of spend under management through our managed service programs and vendor-neutral offerings. As I like to say, you're never done investing in technology, and that is certainly true for Intellify. In the first quarter, we launched the Per diem and internal resource pool, or IRP. modules within Intellify that we believe will fuel even greater client interest as they struggle to lower contingent labor costs. In addition to our other core technology projects, which now includes the replacement of our ERP system, we anticipate investing nearly $30 million this year on technology-related initiatives that we believe will further improve our go-to-market strategy as well as our efficiency. Turning quickly to our investments in headcount, by leveraging our capacity models, we continuously seek to balance near-term profitability while ensuring we have the resources to drive medium and long-term growth. Given the relative softness in travel demand and the increasing productivity from hires made last year, we have moderately scaled down the level of our investments, primarily through attrition and performance management. Coming into the second quarter, our total headcount is down about 7% since the start of the year. At this point, we believe the infrastructure is appropriate for the current marketing conditions, and we are proactively evaluating other areas of spend to ensure we maintain the highest level of profitability while also ensuring we continue to deliver the highest level of service. That brings me to our outlook. For the second quarter, we expect revenue to be between $530 million to $540 million. The sequential decline is primarily driven by the travel volume we discussed, as well as an anticipated high single-digit decline in travel rates, due in part to the wind-down of higher rate assignments. Our adjusted EBITDA is expected to be between $40 and $45 million, reflecting a margin north of 8% at the midpoint. Looking beyond the second quarter, we are adjusting our expectations for the full year based on the lens we have on the business today. Accordingly, we now expect to deliver full year 2023 revenue of at least $2.1 billion and adjusted EBITDA in excess of $170 million, which implies a margin above 8%. Overall, we are confident that we can achieve organic long-term growth and we remain focused on increasing shareholder value through our deployment of capital. Since we announced a $100 million share repurchase program in August of last year, we have repurchased 2.7 million shares for approximately $70 million by exhausting the prior authorized plan as well as under the new plan. With the strength of our balance sheet and given we continue to believe our shares remain undervalued, I am pleased to announce that we are restoring the authorization under the share repurchase plan back to $100 million with the intention to be opportunistic in repurchasing more stock. In closing, we remain excited about our prospects and ability to build upon the early momentum from Intellify, which we truly believe is a game changer for cross-country. And our employees are sharing in this excitement as evidenced by our recent recognition as a 2023 winner of the Best Company Outlook from Comparably, which is an award that measures how confident employees are about the future success of their company. Our workplace culture stresses the importance of diversity, equity, and inclusion. And it is the heartbeat of cross-country and a key catalyst to fueling our growth and value. Thank you to all of our employees for your tireless work and dedication. And thank you to all of our professionals who make Cross Country their employer of choice, as well as our shareholders for believing in the company. And just before handing the call over to Bill, on behalf of myself, management, and the rest of the board, we would like to thank Tom Dirks, who has more than 20 years of service to Cross Country. Tom has been involved within the company since before going public in 2001, serving as the chairman of the board for nearly a decade. With that, let me turn the call over to Bill.