Q2 2020 Cross Country Healthcare Inc Earnings Call
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Good evening, ladies and gentlemen, and welcome to the cross country Healthcare earnings conference call for the second quarter of 2020.
This call is being simultaneously webcast lives a replay of this call will also be available until August twentyth 2020, and can be accessed either on the company's website or by dialing 86648 sticks.
For 654 for domestic calls and 203369.
164 to for international calls.
And by entering the passcode Twentytwenty.
We'll now turn the call over to Bill Burns Cross country Healthcares Chief Financial Officer. Please go ahead Sir.
Thank you and good afternoon, everyone I'm joined today by our co founder and Chief Executive Officer, Kevin Clarke as well as Buffy White President of workforce solutions and services and Steve Seville Executive Vice President of operations.
Today's call will include a discussion of financial results for the second quarter of 2020, and our outlook for the third quarter.
A copy of our press releases available on our web site at cross country healthcare Dotcom before we begin we need to remind everyone that certain statements made on this call may constitute forward looking statements 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 2019.
Annual report on form 10-K, and quarterly reports on form 10-Q, as well as in other filings with the SEC. The company undertakes no obligation to update any of its forward looking statements.
Also comments made during this teleconference reference non-GAAP financial measures such as adjusted EBITDA or adjusted earnings per share such non-GAAP financial measures are providing us additional information and should not be considered substitutes for or superior to financial measures 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'll now turn the call over to our co founder and CEO Kevin Clark.
Thanks, Phil and thank you to everyone for joining us this afternoon.
As we discussed on our last earnings call. We believe that cross country has been leading the way in responding to the pandemic by supporting our clients and ensuring that health and safety up our employees.
Following initial surge in demand in the early part of the second quarter. We were successful in staffing nearly a thousand health care professionals on called at 19 related assignments throughout the United States.
As to the tremendous efforts of our staff, who work tirelessly, we were able to deliver mission critical health care professionals to the bed side of many of our calls citizens. The all in by this terrible virus I want to personally. Thank all of the health care euros, who risk their personal safety and data their families to serve on that.
Line of the pandemic.
Their dedication bravery demonstrate what is great about America and serve as an inspiration to all of us.
Since the start of the pandemic, we've seen an unprecedented level of volatility and demand with orders first rising more than 20%.
The pandemic on both it and then falling sharply by more than 80% as hospitals nationwide experienced lower senses and mandatory deferrals of elective procedures, starting in June and continuing into the third quarter. We have seen borders rise significantly with California, Texas, Florida, Georgia.
Tennessee, and the Carolinas seeing the biggest increases.
From a specialty perspective, the most significant growth has been and I see do which appears to be largely covance related but we also are seeing increases in some of the hardest hit specialties, such a surgical an operating room nurses.
[noise] driven by strong execution throughout the second quarter, our nurse and Allied segment reported year over year revenue growth of 10% as a result of the company's response to cope with 19, we recognize more than $30 million incremental revenue primarily due to the nearly 1000 health care.
Our professionals, we placed on cobot 19 related assignments at our advantage service programs or Msps.
Due to the sudden surge in demand cobot 19, MSP spend increased sequentially by approximately 14% and our capture rate increased more than 500 basis points to approximately 65%.
Our physician staffing business was also impacted by cobot 19 with declines in most specialties, including anesthesia and primary care as a result, following two quarters of double digit year over year growth. Our revenue was down approximately 6% for the second quarter normally we experience a sequential.
We'll increase that this business in the third quarter, but given the lower demand we are expecting it to be flat to down low single digits.
Oh, it's likely that this pandemic will cause disruption in the industry for several quarters. It has provided us with an opportunity to accelerate our plans to integrate and optimize our operations by streamlining our business and moving to a unified platform of connected technologies, we will drive improved performance.
Productivity and efficiency.
We announced last quarter, a plan to save more than $10 million driven by the closure of a significant number up offices and reductions in headcount over the course of the second quarter. We continue to expand this plan and have identified additional opportunities to drive even greater savings, we now expect to realize annual.
As cost reductions of more than $20 million driven by further operational efficiencies in non revenue producing areas as well as the rightsizing of teams in response to current market conditions.
As our commitment to cross country, and our shareholders, our senior leadership team and board of directors all participated in a reduction to their compensation for the balance of the.
With such uncertainty in so many displaced employees. We felt it is important to demonstrate that we are in this together for the long term.
In part these cost reductions have been enabled by our demonstrated ability to work remotely as well as the continued deployment of technology, such as cross country marketplace, our proprietary on demand stopping platform and the planned deployment of our new applicant tracking system later in the third quarter.
While these reductions are significant I believe we have sufficient capacity to continue delivering the highest quality of service and we will continue to make targeted investments in revenue producers as we see the market improves.
I also want to add that our local staffing business, which still thousands of ships per diem nurses CNH and Allied health professionals remain a vital part of our enterprise solution for health systems, we filling the gaps with key shortages locally and regionally.
Let me spend just a minute on our technology initiatives. Despite these disruptions caused by Copel 19, we continue to make progress across all of our key technology initiatives.
Cross country marketplace, which is a one stop self service portal for health care professionals that will greatly improve the candidate experience was further rolled out across additional markets.
We have continued to refine the roadmap roadmap for enhanced functionality to be released over the next 18 months.
With respect to our new applicant tracking system, we remain on target for full implementation across our travel nurse business in the third quarter.
This new applicant tracking system is just one component of our larger technology ecosystem that we expect will drive growth in both revenue and profitability as well as greater productivity across our business. Once implemented we will continue to a new phase for upgrading and integrating the middle and back office pot.
Arms to bring the Companys IP infrastructure and business processes into a single cohesive platform.
Looking ahead, there remains a significant level of volatility in the market with unprecedented rapid swings in demand both up and down following a strong revenue quarter. We are expecting a sequential decline for the third quarter driven by the timing for changes in demand.
As well as shorter assignment length pertaining to cope with 19.
As a result of the uncertainty we have widened our normal guidance ranges and expect third quarter revenue to be down sequentially between 17 and 22%.
This reflects the wind down of premium rate cobot assignments from the start of the pandemic continued lower demand for our physician business and the impact from summer break and anticipated challenges with school restarts for our education business.
As a result of the expected decline in revenue. We are also guiding to us sequential decline in adjusted EBITDA.
While we do not get full year guidance given the current market conditions. We are optimistic that we will see sequential improvement in both revenue and profitability for the fourth quarter as we work to increase the number of professionals on assignment.
And finally before turning the call back over to Bill I'd like to make a comment about our longer term outlook cross country has been a market leader for nearly 35 years and we are well positioned to return the company to growth at the pandemic visas and the hospital market recovers, we were making great strides prior to the pandemic with several quarters.
Consolidated growth and improved profitability and while the pandemic has interrupted our path. We nevertheless, fully this company can still achieve greater levels of profitability.
Therefore, reaffirming our stated goal of achieving 8% adjusted EBITDA margins by the fourth quarter of 2022.
Now, let me turn the call over to build to walk us through the results in more detail Bill.
Thanks, Kevin.
Our results for the second quarter reflected strong execution across many fronts consolidated revenue was $216.8 million, representing a 7% increase over the prior year and a 3% increase sequentially generated primarily from the nearly 1000 nurses on cobot related assignments. The combination of the higher gross profit with an estimated 2 million.
$1 in realized cost savings generated adjusted EBITDA of $11.6 million for the quarter.
Turning to nurse and Allied revenue was $198.1 million up 5% sequentially and 10% over the prior year.
The most significant driver of the increase was cobot related assignments for travelers, which generated more than $30 million, an incremental revenue principally due to the higher bill rates. This was partly offset by declines in other specialties as clients look to reduce travelers on assignment to respond to their declines in sensors.
Our local branch based business experienced approximately 12% to 13% declined both sequentially and over the prior year on lower demand throughout the quarter, partly offsetting the declines was incremental revenue from both cobot 19 crisis orders as well as demand for position such as screeners testers and contact tracers, which can further serve to diversify our.
Client base.
As expected education was down roughly 50% compared with the prior year due to the mandatory school closures. However, we were able to offset a significant portion of the revenue through our new tell us service model.
While we do not yet no for certain which schools will reopen for in class instruction. We expect the tell a service model local typical continued to grow.
Bill rates for the nurse and Allied segment were considerably higher during the quarter due primarily to the mix of business.
As we called out on our first quarter earnings call, we established corporate pricing guidelines for covert assignments, whereby the higher rates were determined in consultation with clients to ensure our ability to quickly provide the critical staff needed excluding the impacts from covert bill rates were up sequentially in the low to mid single digit range.
Now physician staffing segment, which had been growing for the last two quarters prior to covert reported revenue of $16.9 million, representing a 7% sequential decline.
The specialty is most impacted by corporate were anesthesiologists and certified registered nurse anesthetist due to the nationwide reduction and elective procedures.
Compared to the prior year, the business was down roughly 6%, though advanced practice specialties experienced modest growth of 1%.
Gross profit for the quarter was $50.7 million, driven primarily by higher revenue and travel nurse from the cobot related assignments.
Gross margin was 23.4%, which was down 20 basis points sequentially due primarily to the mix of business from cobot assignments and declines in other higher margin businesses, such as education local allied.
Ordinarily we experience a 50 to 60 basis points sequential increase in gross margin for the second quarter as a result of the annual payroll tax reset that happens in our first quarter.
However, despite the higher bill rates margins on our corporate assignments were generally lower than our normal business due to the increased compensation for the healthcare professionals working on the front lines.
Again, we believe strongly that competitive rates for both the client and healthcare professional protect not only the health of the patients they treat but the long term value of the thousands of relationships, we've established with clients and health care professionals.
Total SNA was $42.3 million for the quarter down 8%, both sequentially and over the prior year as part of the cost savings program, we realized approximately $2 million a benefit during the quarter.
Additional SGN a savings were related to lower healthcare related expenses and travel expenses.
Our cost action plan is now estimated to drive gross savings of between 20 and $22 million annually, and we expect to realize $10 million to $12 million. This year.
As the market recovers, we expect to make incremental investments in revenue producers or other revenue generating activities, which will offset some of these savings.
Below adjusted EBIT other a few items to call out.
We recognize restructuring costs of $2.3 million associated with severance and other exit costs.
We incurred $1.6 million and legal fees pertaining to ongoing non operating legal matter.
We also recognized $15 million, a noncash impairment charges 10.5 million or which related to the impairment of indefinite lived assets for our search business and 4.5 million related to the right off the right to use assets associated with leases exited during the quarter.
And finally interest expense was approximately $700000.
Representing a 14% sequential decline and a 48% decline over the prior year to year over year decline was driven by a lower effective interest rate on the new ABL facility as well as lower average borrowings during the quarter.
From a balance sheet perspective, we ended the quarter with $6.2 million in cash and $49.1 million, an outstanding debt under our ABL, excluding letters of credit from a cash flow perspective, we again experienced strong collections, which drove a net sales days sales outstanding of 49 days, representing a seven day improvement the strong collections were fueled by higher.
Our sales in the early part of the quarter primarily related to covert.
Cash flow from operations was $16.6 million, bringing the year to date totaled $33.7 million, representing an $8.6 million increase over the prior year.
Capex for the quarter was $1.5 million, which was up $500000 over the first quarter due in part to the purchase of laptops to enable our entire workforce to work remotely.
As a result of the significant free cash flow, we further reduced our net debt by $12 million, bringing the year to date reduction to $27 million.
Brings me to our guidance.
As Kevin mentioned due to the uncertainty of the impact Cobot 19 may have on our business, we've decided to widen our normal guidance ranges, we expect consolidated revenue to be between 170 and $180 million, representing a 17% to 22% sequential decline.
The primary drivers for the decline or the timing for changes in demand throughout the quarter as well, there's the shorter assignment length pertaining to covert 19.
As the initial covert 19 assignment staffed in the second quarter have begun to wind down we entered the third quarter with fewer heads healthcare professionals on assignment.
Demand bounce back late in the second quarter has continued to grow into the start of the third quarter and as a result, we expect a number of active assignments for the third quarter to continue to grow.
In in our travel nurse business for example, we've already seen a 5% increase and the number of professionals on assignment since the start of the third quarter.
We also expect to staff urgent needs in the hardest hit states, though at this point, we're not projecting the same level of needs as we saw in the second quarter.
We are guiding to a gross margin of between 23.75, and 24 point, 20.25%, which represents a sequential increase of between 35 and 85 basis points, primarily due to the shift in mix as we stated previously the cobot related crisis sort of generally have lower gross margins that are normal business.
Adjusted EBITDA is expected to be between four and $6 million, reflecting a sequential decline in volume, partially offset by additional savings of between one and $2 million.
Our adjusted earnings per share range is a loss of two to six cents.
Also assumed our depreciation amortization of $3.1 million interest expense of $700000 stock based compensation expense of $1.3 million and tax expense of $200000 as well as a fully diluted share count of 36.5 million shares.
This concludes our prepared remarks and at this point I'd like to open the line for questions operator.
Thank you in order to ask a question. Please ensure that your phone is and you did press star one and record your name clearly when prompted if you need to withdraw your question press star to again to ask a question. Please press star one when moment for our first question.
And our first question is from AJ Rice with credit Suisse. You May go ahead.
Thanks, Hi, everybody.
A couple of questions if I could.
In your prepared remarks year Red rocks Marriott some markets that have strength. It sounds like most of those markets where are you probably getting cobot assignments and.
Hot spots I guess I'm interested.
Can you speak to the markets that have sort of been through this cycle.
I'm not sure how much exposure to have to those but say some of the northeast markets, maybe upper Midwest, where maybe the worst is behind at this point and do you sort of see the market returning to normal or is it still low.
Systems are so shellshock from what they've been through that.
Been slow to recover any any thoughts about that.
Yeah, Hey, Jay it's Kevin I. Appreciate the question I mean look we're operating in a highly volatile market and its experiencing.
Precedented fluctuation right now the strong markets in terms of demand or in the south in the web and even in the Midwest. We are seeing more orders in the northeast to your question, we're seeing more orders in the northwest where the pandemic really began for US those were the two kind of epicenters.
That we focused on a with our initial cope with response.
So.
It's shifting around it's.
It's a bit of a roller coaster, but as we indicated in our comments demand is up sharply from this historic low back in May.
Okay and I.
I guess you know as you have.
Discussions with your customer base.
There was speculation that coming out the other end of this we might see an uptick and low gold nurse turnover as nurses would say.
I rolled up modestly limit the crisis, but down sort of burned out in the need to take time off so.
I wonder if you're seeing that alternatively, when soft economy you might.
We expect there might be some nurses wanting to work extra shifts and and that'd be an offset I guess from your perspective.
Is that what are your customers, telling you as to what's happening turnover rates and things like that relative to their own.
Nurse employees.
Yeah, I'll start that question AJ, and then I'll ask Buffy Weiss also joining in.
There is as I mentioned, we've seen a substantial uptick in demand a lot of that demand is coming.
Coming.
And reinforcing that very very tight supply that we have I mean, if you look adjusted state of California.
There's a shortage of 45000 nurses.
Our local business.
It's very important to our total talent management solution and we're seeing a lot of local needs, especially to some of your.
To your point vacation.
And just renewal for permanent staff that are over worked and tired, we're seeing a filling the gaps.
And that's pretty broad basis.
No not just our end, but it's also LPN CNN. So it's an important part of our overall solution and we're seeing a lot of demand.
But it's also spotty it depends on the region of the country.
Bumpy.
Yes, I completely agree with that I think we are hearing from the health care facility. They may have made some core adjustments to their core staff. During the course of October 19, given the weather census, with low also as you can imagine with Covidien team. Their course that they are trying to really dumb due to.
Fatigue or offer them from P.T. O. Since they were supporting Durbin during the course of 19 surge in some regions.
So I do believe that they are trying to make some accommodations there that is driving commercial engine.
Or some other facilities in some of the regions. We are seeing increase request due to that especially on the pretty inside and local nursing side to supplement so that they can offer that and I think also with health care facilities ramp back up their core staff ever after making some headcount changes, we can support that as well for contingent staffing.
Yeah. It just made add on the our inside 76%.
Orders that we've received or either critical care you know I see you telemetry and Medsurg. So that's you know to very much of a focus on totally unites you.
Interesting, Okay, and maybe one last question just.
The dynamics I mean, Theres cross currency as it relates to your applicant pool, obviously, a lot of people stepped up it seem like early days they wanted to help out with the crisis.
So that maybe resulted in more Apple is than you would normally see or people that wouldn't traditionally be an app. Good coming in is that sort of settled out what are you seeing I hear your orders are up but what what are you seeing in terms of.
Applicants and people willing to take on for example to travel assignment and so forth.
Yeah as I mentioned it is a very tight labor pool.
I mean, we are using.
As you know our peers would be using a multifaceted way too you know broaden our or candidate supply.
Example, you know where we spend a lot on page search with programmatic media.
We have a very ambitious outreach from things like a word of mouth referral referral programs social media you know, it's really a very highly integrated comprehensive marketing approach to kind of reach.
The sources and you know Fortunately for cross country as a market leader, we have a large footprint of clients.
We have a large number of open orders and that's an attractive part of our overall offering. So you know our candidate pool is large to begin with but it's it's tight and.
No I think.
There.
So if you want to work have lots of choices lots of good choices out there right now.
Okay. Thanks, a lot.
Thank you said next question is from Tobey Sommer with Truest Securities You May go ahead.
Thank you I was wondering if you could.
Give us a little bit of color on your guidance and in what the contribution is from sort of crisis related orders that I understand from your remarks or are down relative to twoq.
Probably still substantial and then.
What is the at this point for regular way business, particularly in travel nurse.
What do a orders look like.
On a year over year basis.
I don't know if you have sort of the month of July or something like that thank you.
Yeah, Hey, Toby how are you and congratulations on the name change your firm.
Maybe I'll start with the latter question and then I'll, let bill also respond but you know the simple answer year over year, our orders are up.
From where they where this time last year fairly substantially now you know obviously cobot is driving a lot of that and as I just mentioned before the lions share of those orders are around critical care and telemetry med surge.
Orders were definitely up and they've been rising each and every week since really the low point in may and build you want to comment on the guidance question.
Yeah, so be sure how are you by the way.
It's predominantly the chain firms from Q2 to Q3 as you as you see in our guidance is that.
Different decline in revenue and that's really coming predominantly from our travel business Theres some contribution coming out of education and just in the summer break and Locums is kind of.
So running flat quarter over quarter, but travel nurse seems to be indicating that the big where the biggest decline would be and thats, where the biggest benefit came from with cobot when Kevin in his prepared remarks called out about $30 million.
Incremental revenue due to the premium differential in the bill rates on cobot assignments, and we still have a good chance to offset up a good share of that as we go into the second quarter, but that is the biggest driver of the sequential decline is just the wind down in those covert assignments, they're not they're not completely wound down of course, there's still plenty of healthcare professionals in the northeast and.
A harder hit states that are still on assignment, but it is significantly lower and also there is a function as we move now into the pandemic into that sort of later stages.
We're seeing a little bit of differing in rates and how the given markets are being affected and where the bill rates are so it's not as much that the mix will be down. So much. It's also a function of the bill rates.
That makes sense thanks for the color.
You didn't comment that the.
Fourth quarter sequentially, you would expect to be up but is that driven by a particular segment and.
If you could comment on your your visibility into that are you getting orders farther out future or orders getting extended so you're you're sort of travel done assignments volumes building, what what informs your comment to be able to make something farther out than you typically do.
Well you know Toby as you know there's.
A lag there can be a lag in this industry because of the assignment length and orders are up 10 fold from the low point in the second quarter, but we did experience that decline in orders and those declines work.
Broad based around a elective surgery pediatrics, all the different specialties people refrained from going into Q fair.
For.
For the patient care so no.
Bill This pointed out you know as the initial covert orders have come to an end or clay burned off and this new surgeon orders has.
Built.
Just quick.
The average length of the other travel assignment as an example for 13 weeks. There's just a timeline. So we're optimistic about you know, finishing the year on a very positive note as we indicated in the remarks.
Because you know it's as we called out we've already we're already seeing our head count up five plus percent just in the first month, the new quarter orders have rebounded and we have loved confidence in our ability of the large successful recruiting organization to fill those job orders on but we have to.
To manage through this transition period.
And Toby just in addition to the demand that we've seen come back in travel and as Kevin pointed out we're growing back the head count. There. We also have the sequential improvement just from our education business as well in schools return, even though we don't know the yet the mix of schools that will be in person. We would expect to continue to generate revenue from the telco service model.
At that often quite a bit of the the these other revenue generation activity that we had going on that business.
Okay and.
Could you comment on the the companies.
Focus on MSP customers in maybe not filling his many.
Orders with smaller customer sort of but one of my call the spot market.
And in what you're seeing in pricing in particular, because hospitals have been hurt and we're just curious if their go to their vendors are looking for concessions.
Yeah. So question Tobey I mean, as we indicated or MSP book of business is at an all time high we posted 139 million.
Spend under management in the quarter.
You know our capture rate improved 500 basis points to 65%, which was a positive.
However, you know thats really highly dependent upon you know the order flow the order the orders have been all over the the map.
Our overall orders were down as we mentioned a historic basis.
That may but so our MSP order so they bounced back we have.
Very consultative with our large clients really all of our clients, who sat down with them their partner, we're sensitive to the financial strain that hospitals are under and we've been very careful two quick thoughtful programs around you know in terms of attracting the candidates they need to operate.
Their facilities and it seamless way.
In terms of our suppliers, we have a very robust supply chain.
We work with the best companies in the industry, it's a better supply chain and.
You know those suppliers you know.
You know receive orders based on where you know the overall lowest so for example today.
Mentioned with many more orders.
Our affiliate vendors.
Significantly more jobs filled and they did you know as we as we were impacted as well.
Thank you very much.
[noise] [noise]. Thank you next question comes from Kevin. Thank you from Barrington Research group.
Hey, good afternoon.
You mentioned, a expanding the branch closure program.
As you roll out cross country marketplace.
Is there more to go beyond this next.
Trying to closure. So you think in that progression or you know what is ultimately your branch footprint look like down the road do you think.
Yes, good question Hi, Kevin.
Look when I joined the company rejoined the company 18 months ago I think we had so we had approximately 65 offices nationwide today, we have 19 offices, we've closed a substantial number of small to midsize branches are especially over the last three to four months and we've you know taken aback.
Good job. This you know crisis that we're into accelerates are becoming more efficient moving our employees to a virtual you know work from home with very high productivity.
And as you mentioned the other component that's driving the closures are those offices is our new proprietary technology CCH markets, a cross country marketplace, which is our our app that we've rolled out to a numerous markets.
Our local per diem business and you know will continue to roll that marketplace technology, all those markets I'm over the next six to 12 months. So you know that you know the the technology initiatives is helping.
No.
You know ship.
Hey, a candidate experiences there interaction with cross country their ability to use the mobile device to look for ship.
Submit their there.
Their credentials and in real time, when we think overtime that will make us even more efficient around that business in terms of your last question you know where do we go from here in terms of a footprint you know I think we're probably going to settle around 15 offices for the company.
In kind of steady state basis and within those.
You know offices up 15, or so offices and we have reorganized our medical staffing network local business into eight regions.
So were driven out of regional hubs in terms of how we're growing that business.
Okay. That's very good color. Thanks, and you mentioned that once I believe you mentioned once the at both can tracking system is fully implemented you expect to undertake an upgrade of the technology for the middle and back office can you.
Kinda talk about how significant an undertaking that is.
And you know maybe a timeline for that and the cost savings that could come out of that.
Yeah, well I'll start startups and answer and then I'll throw it over to build as we kind of.
Think about how we're estimating sizing that project.
First let me to take you back I mean, you know my journey started again here 18 months ago and over the first call. It 15 months, we established a ton of momentum across country has been winning again, we had four great quarters of growth revenue and.
In the adjusted EBIT da and you know, we set ourselves up on really a three year path to digitally transform the entire enterprise and we're halfway through you know that seems a marathon, it's not a sprint and for me and my management team, we're about halfway through that transition from you know.
You know into a kind of in modern innovative unified single, one cross country enterprise platform for our technology and you're right to ask the question because you know this quarter on schedule on track, we will be rolling out our new applicant tracking software system to the balance of our travel nurse the bill.
And then later this year, we won't be adding or travel allied decisions and over the next 12 to 15 months, we'll be moving or local business as well to that platforms and so do you think about having kind of a unified.
ER applicant tracking software system.
Which will also integrate with our sales CRM. The next step in that Roadmaps for our technology is the middle office and we anticipate that 2021 will be the here.
In which you know so called over the next 18 months that we are able to migrate a substantial part of our middle office onto this unified platform and the benefits are numerous we get operating leverage.
Improved productivity and efficiency and we can operate.
Greater automation and employee productivity in that environment. So Phil I don't know if you want to comment.
In terms of kind of how we're thinking about the capital expenditure around that but I'll, let you.
Sure, Thanks, Kevin and high Kevin sort of the original phase of the applicant tracking system was was slated to cost between 12 or 14 million. It's on track and on budget. So we're as we move through the different phases of this it's obviously going to cost too much.
Much less than that reach incremental phase because we'll be able to build upon the core engine, that's already there and in place so.
As we look at just the Middle Office for example, a high level estimate and we're still refining. This we've got our scoping exercises, but our expectation is that will undertake this initiative.
Almost immediately after we complete the deployment of.
Our do applicant tracking system. It will move right into this next phase. So the early indications are probably looking at between $3 million to $5 million just for that middle office kind of integration.
And then of course, our Heikki roadmap is much broader than that.
You know cover spans multiple years, so we haven't been able to give that guidance yet we're still the funding some of the details there.
Okay. That's really helpful. And then one last question for me a you mentioned the.
A person adjusted EBITDA margin targets by the fourth quarter 2022.
Do you have any assumptions in terms of the cadence of how you get there you know maybe the market environment, you're assuming for that or any other color about you know, how we get sort of targeted at that point.
Kevin One question I mean, if it's really the it's getting a multi faceted answer look we expect our business to grow and see significant increases in terms of the volume.
In the market share that you know we have in this industry, we think with the enhancements, we're making the transformation with our technology that we should have a lift in margin from employee productivity as bill and I've talked about in the past you know.
Improving the average number of health care professionals on assignment for example per recruiter per account manager has a significant oh algorithmic effect in terms of being a multiplier for the business.
So you know we expect.
Greater volume, we expect greater.
Productivity, we're taking a lot of costs out and we're accelerating that cost reduction that's another significant part of that and keep in mind, you know, though we've been a little bit thrown off course here with the pandemic as we've talked about before we believe and you know a accretive M&A approach.
Adding especially to the segments that we believe strongly in our physician business, our education and our allied business with accretive tuck in acquisitions, we have a pipeline that pipelines going a little bit suspended as companies have been kind of reeling with this you know to dip roller coaster up demand, but we.
Well that that will also contribute to our success in getting to that.
8% or so.
By the fourth quarter.
In a couple of years from now.
Well.
Thank you.
Thank you and that was actually I were last question.
Well. Thank you well. Thank you for joining us. This evening, we look forward to updating you on our on on our progress throughout the rest of the year. Please stay safe and we'll talk to you in three months, thanks very much everybody.
Thank you for doing you may now disconnect.
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