Cross Country Healthcare, Inc.

Good afternoon, everyone. Welcome to Cross Country Healthcare's earnings conference call for the second quarter 2023. 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 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 Hoop, President of Delivery. Today's call will include a discussion of our financial results for the second quarter of 2023, as well as our outlook for the third 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 noticed 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-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. For the second quarter, consolidated revenue of $541 million and adjusted EBITDA of $44 million were above or near the high end of our guidance ranges. Our results reflected strong execution in an environment where clients remain focused on controlling their labor costs. It is evident to me that our ongoing investments in technology are driving efficiency and productivity gains, enabling our dedicated employees and healthcare professionals to deliver best-in-class service. Bill will get into more detail on the numbers, but I wanted to spend a few moments discussing our second quarter performance. I'll start with our largest business, travel. Revenue is down approximately 16% in the first quarter, driven by a mix of lower rates and billable hours. As expected, average bill rates declined approximately 7% sequentially and are expected to decline by mid to high single digits in both the third and fourth quarters. This would place travel rates on track to settle in roughly 35% above pre-COVID levels as we enter 2024, in line with our prior expectations. As we reported last quarter, demand troughed in April and has been slowly rebounded. In particular, we saw notable pickups in med-surg, ER, labor and delivery, and pediatrics. And in allied, we saw strength in imaging and lab specialties. Though demand has rebounded, the corresponding growth in the number of travelers for the third quarter has been slower than anticipated. as there appears to be a gap in open order rates relative to the compensation that nurses are seeking. Accordingly, we still expect revenue for the third quarter to be the trough, though a little softer than we previously envisioned. For the fourth quarter, we continue to expect sequential volume growth in the business, in part due to the improving outlook for orders, as well as the likely seasonal needs we expect to see ramping in coming months. Turning to our other businesses, I'd like to highlight physician staffing revenue, which was up 32% year-over-year organically and 12% sequentially in the second quarter, driven by an increase in the number of days filled across most specialties and revenue per day filled. When we include our most recent acquisitions of Mint and Lotus, which continue to operate above expectations, Our physician business was up 105% year-over-year and now is on an annual revenue run rate of more than $180 million. Education also performed very well in the second quarter, up 42% year-over-year. This division is now close to an annual revenue run rate of $100 million. Now, let me spend a moment on our technology initiatives. As you know, we have been successfully redesigning our entire technology landscape using a data-centric model that provides analytics and insights in real time with Intellify, our proprietary vendor management system, at the center of our ecosystem. Since introducing Intellify at our Investor Day event last year, we have successfully migrated nearly half of our managed service programs onto this platform with plans to convert the balance over the coming months. As a reminder, this will save us millions of dollars annually in tech fees paid to third parties. However, the real driver for long-term revenue growth and margin expansion, in my opinion, is the multi-billion dollar opportunity IntelliFi opens within the vendor-neutral space. When meeting with prospective clients, conversations go beyond just contingent labor by offering a comprehensive, technology-enabled platform that empowers the user with intuitive data and analytics, as well as greater levels of efficiency and transparency. We believe IntelliFi to be highly differentiated in the industry, and the feedback we've received thus far from clients, prospects, and our subcontract partners has been extremely positive. For example, one of our partners recently noted that the data IntelliFi introduces helps staffing agencies track their efficiency within the marketplace. which is a very useful tool. As I mentioned on the last call, we signed our first vendor-neutral contract in March, which went live on May 1st. Today, I am thrilled to announce that we are actively implementing IntelliFi Talent Solutions at another new customer. We have a very robust pipeline of clients interested in this technology, evident in the numerous live demos we have done so far, and we look forward to updating you on our new business opportunities on future calls. An equally exciting technology initiative underway is on the candidate-facing side. In mid-May, we released the latest version of our Experience app, which allows travel nurse and allied professionals to utilize a self-service model, easily searching and applying for jobs with convenience, functionality, and pay transparency. Since the launch, there have been thousands of downloads with KPIs showing positive daily active user retention and job view trends. This app is a crucial piece of cross-country's ongoing digital transformation. As we pivot to a tech-enabled platform, our mobile-first ecosystem will assist in optimizing candidate and client experiences, rationalizing business operations, and streamlining our delivery models. In the full year, we continue to target an investment of nearly $30 million on technology-related initiatives that we believe will further improve our go-to-market strategy. as well as our efficiency. This brings me to our outlook. Given the market backdrop and the seasonality in parts of our business like education, we anticipate that the third quarter revenue will be between $440 and $450 million. Beyond the third quarter, our expectations for continued improvement in travel demand, as well as potential growth in many of our businesses like education, physician staffing, and home care, point to a full-year revenue that will be above $2.05 billion and an adjusted EBITDA margin of approximately 8%. I remain confident in our ability to drive long-term, sustainable, profitable growth, and we are focused on increasing shareholder value through our deployment of capital. As you can see in today's press release, our cash generation was very strong in the second quarter. allowing us to fully repay the remaining $74 million on our term loan in June. You will also recall that we announced the restoration of our $100 million share repurchase plan in May. With the term loan now gone, and given we believe our shares are undervalued, share repurchases remain an attractive use of capital. We will also look to leverage our technology investments and robust balance sheet to further diversify our platform by following the patient across the continuum of care, as well as by entering new markets like we did with interim leadership through the higher-up acquisition late in 2022. In closing, we are confident about our prospects and ability to build upon the early momentum from IntelliBuy, which we believe is a game changer for cross-country and the industry. All of our success would not be achievable without our dedicated employees And I want to thank each of them for their hard work and contributions. We have such an incredible team. We recently won a 2023 Top Workplace Healthcare Industry Award from Energage. And I'm also humbled to highlight our recent award of Newsweek Magazine's Most Loved Workplace Certification, which recognizes organizations where employees are the happiest and most satisfied. Our workplace culture is second to none, in my opinion. And this award is reflective of that as it surveys employees on various elements such as respect, collaboration, support, and a sense of belonging inside the company. Lastly, I want to thank all of our professionals who made Cross Country their employer of choice, as well as our shareholders for believing in the company. With that, let me turn the call over to Bill.