Cross Country Healthcare, Inc.

Good afternoon, everyone. Welcome to Cross Country Healthcare's earnings conference call for the third quarter 2024. 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, and Mark Krug, Group President of Delivery. Today's call will include a discussion of our financial results for the third quarter of 2024, 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, 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 2023 annual report on Form 10-K and quarterly reports on Form 10-Q, as well as 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. With that, I will now turn the call over to our Chief Executive Officer, John Martin.

Thanks, Josh, and thank you, everyone, for joining us this afternoon. As you can see in today's press release, our third quarter 2024 revenue and adjusted EBITDA were within our guidance ranges, with revenue at the high end and virtually all lines of business performing in line or better than we anticipated. We are operating in a highly competitive market for both clients and canopies, especially within Travel Nurse and ALA. Competitors both large and small continue to offer relatively high compensation packages to attract canopies, which pressures our bill pay spread and is limiting our ability to normalize our gross margin in the near term. Nonetheless, we remain very well positioned for sustained long-term profitable growth given the strength of our current relationships and the momentum we are seeing across the rest of our portfolio, notably in home care, physician staffing, and education. Overall, I believe the market is growing closer to an inflection point for our travel nurse and allied business. even with the challenges around bill and pay rates. Throughout the third quarter, travel demand was fairly steady and stable bill rates across all core specialties. Coming into the fourth quarter, orders are up roughly 20% over the third quarter. And though order count does not necessarily correlate with production for a variety of reasons, it is encouraging nonetheless. As the market continues to firm up, and with our recent MSP wins, I am increasingly confident that we are approaching an inflection point in regrowing professionals on assignments. I'd like to highlight some positive trends and recent events across our other business. Of note, home care staffing has continued its steady growth of 13% year-over-year in the third quarter. As highlighted on our last poll, we acquired the business in 2021 and have since doubled the number of PACE programs nationwide while more than tripling the number of locations we serve. In the back half of this year alone, we have approximately two dozen contracts in various stages of the sales cycle. We expect this business to be up again in the mid-teens year-over-year in the fourth quarter. Overall, there is a robust pipeline of opportunity for home care staffing as more and more individuals want to age in places home. We will continue to invest here as we foresee this business remaining one of our strongest performers in 2025 and longer term. Shifting gears, our physician staffing, or local businesses, has continued to grow of 4% sequentially and 10% year over year. If you recall, we made two acquisitions in late 2022, which quickly increased our scale. Including those deals, our physician staffing business has gone from approximately $100 million in full year 2022 to an annual run rate of more than $200 million in the most recent quarter. Macro conditions for locums remain strong. In fact, we are expecting to see low to mid-single-digit sequential revenue growth for the business in the fourth quarter, which bucks the seasonal trend we typically see coming out of the shorter summer months. For 2024, our physician staffing business is forecasted to be up in the low double digits year over year, driven by continued growth in billable days and higher revenue per day sales. this segment's contribution income also continues to improve, up 15% sequentially and 80% year-over-year due to improved operating leverage from the volume growth as well as proactive cost management. With our focus on expanding higher-margin specialties, we expect these trends will continue in 2025. Lastly, our education business is performing well, approaching $100 million on an annualized run rate. we expect continued mid to high single-digit growth for the foreseeable future in this line of business. This market is another top area of focus for us as we look to expand the business both organically and through potential M&A. The overall momentum we are experiencing in home care, physician staffing, and education showcases our growing portfolio outside of travel. On an annualized basis, these three businesses now represent approximately 30% of our total revenue, up from roughly 10% at the end of 2021. Even when the traditional nurse and allied market resumes a growth trajectory, we expect to continue seeing improved diversification as these assets become larger pieces of the revenue pie. Turning to our technology, we continue to believe IntelliFi is a differentiator in the market. that will propel our spend under management with new MSP and vendor-neutral clients. During the third quarter, we renewed our largest MSP customer under a multi-year agreement and have since gone live on Intellify with that customer. Our ability to secure this renewal is a testament to our team and their commitment to fostering strong, long-term partnerships and delivering exceptional value. By the end of this year, we expect 100% of our clients will be fully converted and running on our IntelliFi platform. With the client wins we called out in the previous quarters and a strong pipeline of opportunity exiting this year, we anticipate the spend under management running through IntelliFi will continue to climb in 2025. Now turning to our outlook. We anticipate what quarter revenue will be between $300 and $310 million. which is largely consistent with the third quarter performance, excluding a small labor disruption. Our forecast reflects signs of increased stability in travel, steady bill rates, and ongoing traction in the other lines of business that I highlighted moments ago. Adjusted EBITDA is expected to come in at $11 to $13 million, largely reflecting the gross margin pressures I cited, partly offset by expected savings from further cost actions we undertook at the start of the quarter. As stated on prior calls, our goal remains to achieve a high single-digit adjusted fee to the margin, but we still expect mid-single digits in the near term as we ensure we have sufficient capacity in place to grow once the travel market reflects. We expect to close out 2024 on a high note with the company positioned for sequential revenue growth and sustained margin improvement in 2025. Additionally, we are focused on creating greater shareholder value by leveraging our strong balance sheet and putting capital to work. As you saw in today's press release, we bought back 800,000 shares in the third quarter for about $12 million. We also continue to invest in technology, notably on our client and candidate-facing tools, as well as our ERP system. Lastly, we are being very diligent when exploring M&A opportunities. especially for assets that could expand our portfolio and reach within markets where we see the strongest runways for growth. With our debt-free balance sheet, the strategic deployment of capital remains a primary focus, and I look forward to sharing with you our progress of future goals. In closing, I am increasingly confident that we are nearing a reflection point in travel. Coupled with the momentum in our other lines of business, We have a solid foundation in place for growth and improved profitability as we head into 2025. Of course, none of this is possible without our hardworking employees. I want to thank you for your steadfast commitment to making cross-country one of the best places to work. In fact, last quarter, we won several Most Loved Workplace awards, and it always humbles me that you have such a deep pool of talent that has made cross-country their employer destination of choice. I also want to thank all of our healthcare professionals for your continued dedication and contributions, as well as our shareholders for believing in the company. With that, let me turn the call over to Bill.