Cross Country Healthcare, Inc.

Good afternoon, everyone. Welcome to the Cross-Country Healthcare's earnings conference call for the third 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 Krug, President of Delivery. Today's call will include a discussion of our financial results for the third quarter of 2023, as well as our outlook for the fourth 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 today, 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 10Q, 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. Overall, I was pleased with our continued ability to execute in what remains a challenging market. For the third quarter, consolidated revenue was $442 million. with adjusted EBITDA of $27 million, primarily reflecting a tightening in bill pay spreads within our travel business. I'll touch on some of the market dynamics in a moment, but I want to stress that we continue to manage the business for long-term success and strategically position ourselves for future growth opportunities as we see in the market. As expected, travel revenue was down 22% from the second quarter, driven by both lower rates and fewer travelers on assignments. Average travel bill rates declined approximately 8% sequentially, in line with our estimates for a mid-to-high single-digit decline in both the third and fourth quarters. Demand for travelers remained fairly stable throughout the third quarter after having rebounded from the lows we experienced in the second quarter. Diesel needs remained below expectations, but we do still anticipate that will pick up as we progress through the fourth quarter. Regardless, the relative softness in demand will likely impact the number of travelers we have on assignment over the near term. As we have pulled out previously, bill rates for open orders have largely stabilized, but in many cases remain too low to attract candidates needed to fill them. As a result of the pullback in bill rates this year, amidst elevated compensation expectations for nurses, we are seeing some margin depression due to a tightening in the bill pay spreads. Though this appears to be a broader issue across the industry that may persist for the next several quarters, we will strive to remain competitive in order to preserve our market share while protecting our profitability. Our local or per diem business has also felt the impacts from the softness in demand as clients continue to seek to reduce reliance on contingent clinical staff. Turning to our other business lines, physician staffing continued its strong performance with reported revenue of more than 90% year-over-year, putting us quickly on pace to hit an annual run rate of $200 million. And on an organic basis, physician staffing was up 21% from the prior year, continuing to outpace the low double-digit growth projected by the staffing industry analysts. Driving this was a combination of higher billable days and an improved mix of higher bill rate specialties. As one of our fastest growing businesses, we continue to make investments that will fuel organic growth. And though the contribution income from the business remains below our target, we believe the continued ramp in production combined with targeting higher margin specialties will ultimately lead to improved profitability in 2024. Within Nurse and Ally, our education business returned from summer break and started off the new school year strong, continuing its trend of double-digit year-over-year growth in the third quarter. Our home care business also performed well in the third quarter, up mid-single digits both sequentially and over the prior year. On the back of five home care MST wins since our last call, this business is poised to reaccelerate entering 2024. Now, let me spend a moment on Intellify, our proprietary vendor management system that we believe is a market-leading platform for clients that provides data analytics and real-time insights. As we've previously shared, Intellify not only saves billions of dollars with our MSP account, but it opens up a multi-billion dollar opportunity in the vendor neutral space. Since launch, we have not only converted more than half of our MSPs onto Intellify, we have won five new vendor-neutral programs, two of which that are live today. This showcases our ability to implement programs in rapid succession. Our most recent win is also our largest to date, with annual spend expected to be in excess of $100 million once fully implemented. On the back of this win, we are continuing to expand the functionality of Intellify by introducing predictive analytics and time and attendance, building on our robust baseline feature set that already includes industry-leading dashboards and reporting, internal resource pools, internal travel programs, MSPs for nurse and allied, per diem, locums, non-clinical, and RPO. These new add-ons will greatly enhance the value proposition for our clients. Shifting gears, We know that pay transparency has been important to the industry in recent years. Today, I'm excited to announce that we have created a new company called Cross Country DAS, which introduces bill rate transparency by utilizing data analytics to provide healthcare systems with independent, objective, real-time insights. We believe the data analytics tool offered by DAS is the first such solution in the market. This new offering can be embedded within Intellify or a license on a standalone basis. In fact, we recently licensed DAS to a large national healthcare system, which is utilizing the tool to price check providers on a local, regional, and national basis. This client has credited DAS with helping save them millions of dollars from their current staffing provider. Though not yet mature in dollars to cross-country, it is significant in terms of the value we bring to healthcare systems. This further showcases our ability to develop and deploy innovative technologies to advance healthcare and help hospitals rationalize their costs. This brings me to our outlook. Given my earlier comments on the current market backdrop, including recent demand trends and industry-wide market pressure, we anticipate that fourth quarter revenue will be between $400 and $410 million, with adjusted EBITDA coming in For the full year, the guidance implies we'll generate between $143 and $148 million in adjusted EBITDA, representing a margin above 7%. As previously noted, we will continue to balance investments with cost savings to preserve profitability while ensuring we maintain sufficient capacity to fuel long-term growth. Though we are not providing guidance for 2024 at this time, we have seen stability in the broader market and believe we can achieve similar margins for the full year in the high single digits, given the expected tailwinds from recent wins, continued growth from higher margin businesses like education and home care staffing, as well as enhanced productivity driven by our technology investments and leveraging our low cost center of excellence in India. I am confident in our ability to drive long-term, sustainable, profitable growth and we remain focused on increasing shareholder value through our deployment of capital. As noted in today's press release, our cash generation was solid in the third quarter, allowing us to continue repurchasing our shares as well as paying down all of our debt. We will look to leverage our technology investments and healthy balance sheet to further enhance our platform as well as diversify our offerings as we follow the patient across the continuum of care. In closing, we are confident about our prospects exiting the year, specifically our ability to build upon the early momentum from Intellify, which we believe will be a meaningful driver of long-term revenue growth and margin expansion. I want to thank our devoted employees for their ongoing hard work and contributions. We were recently named to the top most 100 loved workplaces by Newsweek. as well as the 2024 Best Companies to Work For by U.S. News & World Report. These recognitions validate our efforts to foster a culture of growth, inclusion, and well-being. Lastly, thank you to 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.