Q4 2020 Cross Country Healthcare Inc Earnings Call
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Thank you all for standing by please continue to hold we will begin momentarily again. Please continue to hold thank you.
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Good afternoon, ladies and gentlemen, and welcome to cross country Healthcare's fourth quarter and full year 2020 earnings conference call.
A replay of this call will also be available through March 11, 2021, and can be accessed either on the company's website or by day.
805, one 001 and one eight for domestic calls.
And Tuesday wrote 3369, and three 808 for international calls and by entering the pass code to the zero to one.
At the conclusion of the prepared remarks, I will open the lines for questions I will now turn the call over to Bill Burns Cross country Healthcare's, Chief Financial Officer. Please go ahead Sir.
Good afternoon, everyone and welcome to cross country Healthcare's fourth quarter, and full year 2000, and 'twenty earnings call I'm joined today by our co founder and Chief Executive Officer, Kevin Clark as well as Buffy White group President of workforce solutions and services and Steve Saville Group President of Locums and education as well as our newest member of our executive team John Martin's Group.
And of nurse and Allied welcome John.
This call will include a discussion of our financial results for the fourth quarter and full year of 2000, and 'twenty and our outlook for the first quarter of 2021 day.
A copy of our earnings press release is available on our website at cross country healthcare Dot com.
Before we begin we need to remind everyone that certain statements made on this call may constitute forward looking statements and.
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 and the company's 2019 annual report on form 10-K, and quarterly reports on form 10-Q, as well as and other filings with the SEC. The company undertakes no obligation to update any of its forward looking statements.
And also comments made during this teleconference reference non-GAAP financial measures such as other adjusted EBITDA and adjusted earnings per share such non-GAAP financial measures are provided as 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 will now turn the call over to our co founder and Chief Executive Officer, Kevin Clark.
Thanks, Bill and thank you to everyone for joining us this afternoon.
I'd like to begin by welcoming John Martin's to cross country, John brings a wealth of expertise and deep industry knowledge, having served in various senior positions for several large healthcare staffing firms during the course of his successful career.
This call marks the second anniversary of my return to this amazing company and I am incredibly proud of everything we've accomplished and net short time, having reinvigorated the company culture embraced technology that is transforming our company and harness the power of the cross country brand we demonstrated our.
To meet our clients' needs and have once again exceeded guidance for revenue and profitability are.
Our success is made possible by the exceptional cross country team and our talented professionals, who worked tirelessly and passionately to deliver on our mission of providing the most clinically excellent healthcare professionals to the bedside, while adhering to our core values.
Throughout 2020, we move diligently and purposefully to execute on our turnaround strategy by realigning and optimizing our teams investing and revenue producing capacity, reducing overhead by more than $20 million permanently closing more than 50 offices implementing and successfully deploying our.
New applicant tracking software or Etfs across all of travel nurse and allied as well as launching cross country marketplace for the local staffing market.
Together with the actions we completed in 2019 to streamline our go to market strategy aligning around one brand and the concept of one cross country I felt confident saying we have successfully completed the turnaround for cross country.
And as we move into 2021, we continue to expand our vision of what with one purpose to deliver exceptional clinical professionals and serving as one partner to our clients with flexible comprehensive suite of solutions.
Before I speak to our results I wanted to highlight that in 2020, we also continued to expand our environmental social and governance initiatives.
With a 35 year history, we are proud of our commitment to diversity equality and inclusion.
We ended 2020 more than three quarters of our internal workforce was female and approximately one third were from historically under represented groups. In addition, our newest board member Dr. Janice and Evan was named as one on modern Healthcare's, most 50 influential clinical executives and the United.
States and was elected to the board of Trustees of the American Hospital Association, we are thrilled to have her on our team.
During the year, we also made further investments and social initiatives, including the sponsorship of a nursing scholarship program through Florida Atlantic University, and we were the presenting sponsor of the leukemia and lymphoma Society Light day night work, our commitment to improve the environment and support our communities is.
Selective of our value based culture and is in direct alignment with our business strategy.
So let me spend a few minutes on our fourth quarter performance with consolidated revenue of $215 $6 million and adjusted EBITDA of $11 $5 million, we far exceeded our expectations as our largest segment nurse and allied grew sequentially by 12%.
The sequential growth was fueled by our continued acceleration and demand, especially for the travel nurse Division, where average weekly orders were up more than 30% relative to the third quarter.
The rising demand, we're seeing nationally with states like Massachusetts, and California, New York, Florida, and Texas experiencing the biggest increases from a specialty perspective, the largest increases have been and med surge ICU and emergency room nurses.
As a consequence of the rising demand and and already tight labor market. Our average travel bill rates were up nearly 10% relative to the third quarter, the sequential rise and the bill rates and as a function of the increases and pay rates required to attract the thousands of healthcare professionals needed by our clients.
As the average travel pay rate was up approximately 17%.
As we've discussed on prior calls it has been our philosophy throughout the pandemic to be flexible and work collaboratively with our clients, making recommendations on adjusting bill rates, both up and down as necessary to deliver the critical healthcare professionals needed.
In General this has resulted in gross margins on COVID-19 assignments to be below our consolidated average in addition to the strong growth and the travel nurse business, both our local and travel Allied businesses were up in the high single to low double digit range with most of the increase attributable to growth and the number.
A billable hours.
Revenues for physician staffing continued to experience and impact from COVID-19, and we're essentially flat sequentially with a modest increase in the number of hours for advanced practice specialties within physician staffing revenue from advanced practices remains up year over year and is offset by the declines in.
Other physician specialties, such as anesthesiology and primary care.
From an MSP perspective spend under management growth sequentially to a run rate of more than $500 million.
Additionally, our capture rate and Msp's increased to 71% as we focused on ensuring we could deliver the critical staff to the clients with the highest needs.
Along with solid execution on fulfillment and delivery. We continued on our path of digital innovation with the expansion of our new Ats to our entire travel business for both nurse and allied as well as the deployment of our proprietary tool cross country marketplace to all of our local markets.
And we are already starting to see positive results for example, our recruiters with between one and three years of tenure have experienced a 36% increase and the number of travelers on assignment and the fourth quarter alone.
And we expect to see continued productivity improvements, especially with the ramp of new employees.
As a result of continued strong demand as well as our proven ability to execute and our new advanced cloud based Etfs platform, we invested throughout the fourth quarter and additional revenue generating capacity.
As we look out to 2021 and beyond our strategic roadmap continues to take shape and we are proceeding with further investments across our enterprise. The next phase of our digital transformation will further enhance the functionality for both our marketplace tool and the Acs.
As well as replace our middle office payroll and billing system and ultimately deploy these new tools across our local per diem business with speed being essential to both our healthcare clients and professionals. We believe these investments will best position the company for growth and both revenue and profitability.
Through better operational execution enhanced employee productivity and a world class client and candidate experience.
Looking ahead, we expect that COVID-19 will continue to have a mixed impact on our business with rapid change as possible and both demand and bill rates demand, especially for travel orders rose steadily throughout the fourth quarter, peaking and mid December as.
And as hospitalizations per Covid cases have declined following a peak in early 2021, and with vaccination is rolling out and larger numbers.
We have seen orders for Covid related clinicians decline as well, though it's difficult to predict the timing for the decline for Covid related assignments throughout 2021, we expect to see ongoing needs related to the pandemic such as vaccine administration and the resumption of elective procedures and the restart.
For in classroom learning for our education business.
For the first and for the first quarter, we expect revenue to be between 280 and $295 million.
Representing the single largest revenue quarter in our company's history and while that is certainly an achievement worth noting we are cognizant that it is partially driven by sequentially higher bill rates related to Covid assignments.
That will likely trend down throughout 2021, I am very encouraged by the fact, we are also seeing volume increases and billable hours and the number of professionals on assignment as well as a growing number of first time professionals further validating that cross country brand is again resonating as the <unk>.
<unk> company and our industry for healthcare professionals, who seek a partner they can rely on and trust to find their next job.
Our performance and ability to adapt throughout the pandemic in many ways has reinforced our reinforce our value proposition in the market for offering flexible rapid and cost effective means for delivering critical care to millions of Americans across thousands of facilities.
This was confirmed recently with five of our cross country business is being recognized with multiple best of staffing awards for superior customer service for both our professionals and our clients and.
And just before I turn the call over to Bill I would just like to share how incredibly proud I am of our entire organization as they have worked tirelessly to deliver exceptional results for our clients candidates and shareholders their ability to innovate and embrace change has made our organization more agile.
And to operate more smoothly and effectively.
And I strongly believe that we are on a positive trajectory and we have the right team and the right vision of one purpose one partner one cross country I.
I am also so appreciative of the unwavering commitment of our healthcare professionals to serve on the front line of the pandemic.
Their dedication and out of the thousands of professionals across the nation led to staffing industry analysts recently announcing the person of the year for 'twenty and 'twenty. One is the travel nurse to our travelers and the thousands of professionals. We work with we thank you. So now let me turn the call over to Bill to walk.
US through the results and more detail Bill.
Thanks, Kevin.
The fourth quarter and full year results once again demonstrated our ability to execute well across multiple fronts, including expanding our base of clinicians on assignment against the backdrop of rising demand as well as enhancing the productivity of revenue producers through tighter alignment process improvements and embracing technology.
These actions allowed us to deliver consolidated revenue for the full year of 2%. Despite school closures impacting your education business and other impacts from COVID-19 on our local and physician staffing businesses.
Turning to the quarterly results consolidated revenue was $215 $6 million up 11% sequentially and essentially flat with the prior year.
The strong sequential improvement was driven primarily by growth and our travel nurse and local business as well as the impact from the start of the school year for our education business revenue.
Revenue for our largest segment nurse and Allied staffing was $196 $4 million, representing a 12% sequential increase and 3% over the prior year.
On a sequential basis the growth was fueled primarily by an increase and the number of billable hours as well as an increase and the average bill rates.
As expected revenue from education clients remained down approximately 30% over the prior year due to the continued virtual learning and most school districts as we start to see more schools reopen and four in classroom learning. We're optimistic that this business will bounce back quickly and return to double digit revenue growth, we have seen for the last several years.
On a year over year basis, bill rates for nurse and Allied were higher across all lines of business due primarily to the premium rates associated with COVID-19 assignments as well as the labor disruption and particular travel nurse staffing rates were up approximately 30% over the prior year and 10% sequentially. Looking ahead, we expect rates to normalize as we move forward, but remain above.
Prior year levels for the next several quarters.
As we've called out on prior earnings calls the company established pricing guidelines for Covid assignments, whereby rates are determined in consultation with clients to ensure our ability to quickly provide the critical staff needed and with the clients consent. These rates may flex up or down depending on conditions and the respective markets our.
Our physician staffing segment appears to have stabilized following the initial impact from COVID-19 earlier and the year.
Revenue was $16 $4 million, essentially flat with the third quarter and down 18% from the prior year within physician staffing, we see continued strength and demand for advanced practice specialties and revenue for that part of the business was up 5% over the prior year.
Gross profit for the quarter was $54 $3 million, representing a gross margin of 25, 2%, which was 50 basis points above the prior quarter and prior year.
The improvements in gross margin was driven by favorable insurance costs related to health and workers' compensation and professional liability as well as favorable mix between the lines of business.
As previously mentioned, though COVID-19 assignments have higher bill rates, we continue to staff those assignments at lower margins.
Total SG&A was $44 9 million for the quarter down 2% over the prior year and up 10% sequentially.
The sequential increase was driven by higher commissions and incentive compensation based on fourth quarter results investments and revenue producing head count as well as higher health insurance related to a single high dollar claims.
Related relative to the prior year, we continued to realize significant savings and salaries and rent from our prior cost actions, which were partially offset by the increased commissions and incentive compensation related to performance.
The low adjusted EBITDA, there's a few items to call out we recognized restructuring costs of $800000 associated with the severance and other exit costs as well as $100000 for the write off of the right to use assets associated with leases exited during the quarter.
We incurred $600000 on legal fees pertaining to a non operating matter and finally interest expense was approximately $700000, representing a 36 per cent decline over the prior year and a 10% increase over the prior quarter year on.
For 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 $1 6 billion and cash and $53 $4 million and outstanding debt under our ABL, excluding letters of credit.
From a cash flow perspective, we generated cash from operations of $1 9 million during the quarter, bringing the year to date total to $27 $2 million compared with $5 $5 million for 2019.
Our days sales outstanding was 58 days, representing a six day improvement over the prior quarter.
Capital expenditures were $1 million for the quarter, bringing our year to date total to $4 $6 million.
And we repaid.
$18 million of debt under our ABL.
This brings me to our outlook.
For the first quarter of 'twenty and 'twenty, one we expect consolidated revenue to be between 280 and $295 million, representing a 33% to 40% increase over the prior year.
The majority of the increase is expected to come from robust growth and our travel nurse and travel Allied staffing businesses with more professionals on assignment as well as an increase and the average bill rates on our local business is continuing to recover and is expected to have modest growth over the prior year.
Physician staffing and education are expected to continue to be down year over year due to the impact from Covid.
Though we only provide quarterly guidance I would just like to comment on the expected trend per bill rates in 'twenty and 'twenty, one, especially on our travel nurse business with.
With the recent step down and Covid orders, we would expect that average bill rates will start to decline and the second quarter and continues to normalize throughout the rest of 2021.
As Kevin mentioned earlier, our goal is to be responsive to and flexible for our clients by adjusting bill rates based on the market conditions were.
Guiding to a gross margin of between 21.2% and 21, 7% lower than the prior year predominantly due to the mix of assignments with premium Bill and pay rates also contributing to the sequential decline is the impact from the annual payroll tax reset.
Adjusted EBITDA is expected to be between 16 and $18 million up from $4.6 billion and the first quarter of 2020, reflecting the impact of additional gross profit from significant revenue growth for the quarter.
Our adjusted earnings per share range is 32 to 37 cents.
Also assumed and the guidance are depreciation and amortization of $2 $4 million interest expense of $800000 stock based compensation of $1 1 million tax expense of $400000 and a fully diluted share count of $36 4 million shares and.
And this concludes our prepared remarks and at this point, we'd like to open the lines for questions operator.
Thank you to ask a question. Please ensure that your phone is unmerited press star one and record your name clearly when prompted.
You do need to withdraw your question Press Star two again to ask a question. Please press star one.
Our first question is from a J rice with credit Suisse. You May go ahead.
Yes, Hello, everybody.
Just trying to understand the dynamics first of all in the.
Nurse and Allied.
Is the benefit that you're seeing from COVID-19 related assignments pretty much on the travel side only or does that is that helping or changing the trajectory on the branch side as well local side.
Yeah, Hey, a J, it's Kevin and great to hear from you yeah.
Look the principal driver is travel nursing, however, with imaging respiratory lab and our allied areas. We're also seeing impact from Covid and.
And because you know our local staffing business is across the spectrum of our registered nurses and L. P and C N a as well as allied that has also benefited.
From Covid orders as well and in addition.
We are also expanding our ability to staff clients.
Clients like for example, other federal governments.
And various states around.
Vaccinations testing screening so all of those areas also have had a positive impact.
And as Bill.
Phil and I called out and the script just now we're still seeing.
A depressed demand and certain specialties or a softer demand and our physician specialties such as anesthesiology.
And primary care, so but for the most part on balance Covid has helped us.
Across these other segments.
I was.
And I was going to ask you about the vaccines and the testing is that right.
Right now and like in the fourth quarter was that a significant revenue contributor or is that sort of something that's emerging and the first quarter and do you have any sense of when you're staffing. These various places with the federal government or otherwise is.
Is there a commitment for your staff for a while or is it sort of a week by week basis, how does that work.
Yeah, I'll start and then I'll ask Buffy to also weigh in.
It's a modest impact right now a J.
We are certainly supporting our clients, where they've asked US we are you know.
<unk> our approach to some of the farm you just pharmacy distribution companies and other <unk>.
Providers that are providing some of these facts vaccination.
We think it's going to be a multi year opportunity for the company and we think it's you know we're going to see this environment for the next couple of years, but Buffy you might want to add to that.
No Kevin and thank you and a J I would agree with what Kevin said I think that we are and we saw some testing are starting to see some vaccination activity, but more testing and Q4 I think we definitely are seeing now more dialog and the marketplace more request for proposals and solutions for vaccinations.
And from the government side also direct companies trying to support.
Their workforce and and as Kevin mentioned, the pharmaceutical industry. So we I project that we will be seeing more requests per there's some more proposals and start to see some vaccination efforts moving forward.
Okay, and maybe one last question around MSP is what are you seeing there are you I'm, assuming they get prioritized and for fill rates and so forth or are you able to keep them happy is there created on opportunities where some of that sort of second tier customer that hasnt gone on the MSP route maybe.
Being served by the market as well right now and Theyre looking at MSP is what would you say the underlying dynamic and that market.
Yeah, I mean, that's a great question, a J well for us. It's a good story I mean look we have about 80 M. S. Ts, we certainly pivoted as much as we could to support their requirements during COVID-19 as well as also you know try to support direct relationships and even some of our third party network clients.
What we've seen and the business is that our capture rate has improved.
Improved to 74%.
And which is a good thing we will see if we are able to sustain.
A number well above 60, where we've traditionally been.
And but for us and it's been a.
Positive because we really pivoted our resources to ensure that you know those customers.
Get sales you know.
In terms of all the requirements today.
43% of all of our revenue flow through those MSP contracts and it's from a nurse and Allied perspective, it's actually a local hires and 46 per cent.
But Buffy you might want to talk about the second tier part of that question.
Sure Yeah, absolutely I think our team has done an extraordinary job just a great effort, that's really throughout the year supporting.
Ryan's candidates and and across our communities I think and capture rate very high and we're very proud of our MSP efforts.
And as far as second tier I think that we have continued to hear from customers and the need for more support so we have definitely seen and increase.
In Q4, and heading into Q1, particularly from second tier customers looking for our support I would also say and and in addition, you know the MSP pipeline very very strong ahead, I'm very encouraged about that and as a matter of fact, we closed and our and the implementation of two MSP programs right now and.
The first quarter, but very encouraged about the pipeline ahead for both MSP and second tier and direct business.
Okay, great. Thanks, a lot.
Thank you. Our next question is from Jeff Silber with BMO capital markets. You May go ahead.
Thank you so much.
Mentioned that you're expecting the current quarter to be the largest and your company's history, I know, where and unique times and I know you don't give guidance beyond the current quarter, but.
Would it make sense to see year over year growth for the rest of the quarters in 'twenty and 'twenty one.
Hey, Jeff It's a very good question look as well.
We also said Tonight.
No we've really completed our turnaround.
And cross country is growing and we expect to see growth each and every quarter going forward, having said that.
What we also said earlier is that our bill rates are probably peaking here in Q1, and we will see the trend line for bill rates, probably recede as you know.
Fortunately for our country vaccinations rollout and hospitalizations hopefully continue to decline.
But I do want to make the point that you know we're also encouraged as that.
Trend line happens that we see a resumption of our education business and schools reopen and we can see a resumption in growth and our physician business.
But we're also taking steps that we've talked about and the last two years in terms of our digital transformation.
And proving that tech stack and the.
Our ability to have the most product and.
Product tools.
And at the hands of our recruiters and account managers and salespeople. So we're a growth company and we expect to see growth each and every quarter.
And with probably a declining trend line around build rates and I don't know bill. Okay. That'll turns if you want to add to that yeah. I just would add debt. It's obviously our state of goal to get to that year over year growth as Kevin pointed out I think we are seeing nice gains on the productivity front and just looking into the first quarter, we are seeing volume growth across most of our businesses.
For the travel business. For example, it's estimated that we will see about a 30% uptick and travelers on assignment for the first quarter as you look at our local business, it's a little more balanced probably about half the sequential growth that we're expecting and first quarter sorry, the year over year growth will come from growth and half from price.
Theyre all the businesses are contributing and we need the schools go back into session of course, and that'll that'll help our education business, but.
That is the that is the goal and I think it's possible.
And just on that education business can you remind us how large that was maybe in 2019 pre pandemic.
Yes, Steve do you want to kind of cover the education business and what maybe they will cover the numbers and maybe Steve you can comment on on on that as well just like one here in terms of where we are.
Our education businesses had been running at roughly around about $50 million run rate prior to Covid and as we called out on the call just a few minutes ago, it's trended down about 30% with the bulk of the business being recovered through Tele services, and that's where I'll hand, it off to Steve.
Sure. Thank you Bill and and.
Jeff Thanks for the question with regard to the continuation of this business.
The story is very similar to what we told our entry and Covid, we moved quickly into a virtual environment. We've delivered the overwhelming majority of our services in the education market virtually.
It includes education services.
Mental health services as well as therapy services and particular speech. So we are and while we while doing that we also position the operations of the business to accelerate immediately upon excuse me the reentry of students into the schools and school environment, We expect.
And as Bill called out on the initial comments that as soon as students are back and the in the school environment that we will see double digit growth from this business very quickly.
Alright, that's great if I could just sneak one more in and I ask this to your larger competitor. So I feel I need to ask this to you as well.
And we've seen these type of bill rate increases in the past sales. So sizable afterwards, you tend to get a pushback from some of your customer base in terms of trying to reduce the number of travelers on assignment. As one example, I know things are a little bit different this time, but why should we not expect the same kind of pushed back once we get.
Past the pandemic.
Yeah. Good question again, Jeff.
Look I think one other things that the global pandemic has done is reinforced the value proposition of the healthcare staffing industry and particularly the travel nurse.
Marketplace.
It's far more efficient for these healthcare systems to rely upon temporary staff to fill peak orders and to balance and optimize their staffing and utilize the.
The leased and the most efficient and I will say labor resource so from our perspective I think.
This is like a 30 year trend line that continues to expand the adoption of flex labor freelance attempts.
Temp staffing to support.
And employer enterprise.
From our perspective, we.
We are hopeful that you know hospitalizations decline.
For a lot of reasons, one of which we want to see the you know the pay packages, which are driving the nurses to these you know with these high bill rates a receipt for the benefit of our clients and we want to see our clients benefit as you know in terms of a resumption and back to kind of a normalization of our marketplace.
And I, you know John Martin and I don't know if you want to add comments to that and in terms of what we're seeing out there on the market.
Sure.
Hey, Jeff how are you.
What I'd say is we're also seeing and we're hearing from our clients and conditions, the burnout factor and the team they're facing and that's a large part of why would they continue to see demand for these services.
And look it's been and emotional year for everybody right and especially on commissions on the frontline pandemic.
And our clients were hearing from our clients.
We're expecting higher than normal retirements and did they continue to look for cross country to help them backfill their needs and ramp up the core staff and a supply constrained market we had a.
The supply constraint market prior to Covid and it's only get worse with the number of retirements debt will be Stacy and the future.
And I really appreciate all the color. Thanks, so much.
Thank you. Our next question Tobey Sommer with Truest Securities You May go ahead.
Thanks.
I'll start by asking for an update on your.
Tech overhaul and new systems, what are the key dates of upcoming transmissions and which parts of the business and.
Risks as you see things going forward.
Sure, Hey, Toby well first of all it's gone great.
For really the past two years, we've hit all of our important milestones. This.
And this year, we called out we're going to spend approximately $12 million to $15 million and capex.
Lot of that capital is going towards the next phase of some of these projects are for example, middle office now that we have the bulk of our business our front office.
On this new Ats, we want to make sure that we're connecting.
From an infrastructure perspective, with payroll billing and make you know a seamless tech stack. So that's one important objective this year or the other is to on board our local staffing business.
On to this a T S as well by the year and so those are two key projects are they're right on track, we're confident and then the third is a.
Our proprietary marketplace App that we have rolled out now nationally to all of our local markets and we're.
And we're going to continue to invest behind marketplace. We believe that is the gateway through which all of our healthcare professionals.
We will seek jobs and do business with cross country as well as long term with all of our clients. So it's an important part of our go.
Go to market strategy, and that's an important investment that we're making as well.
Thanks.
You.
Talk about cash flow in in the quarter I mean, it was a good year, but the quarter and itself, but given the revenue Spike I'm. Just wondering if you could speak to that and and maybe give us some color into your guidance.
And on whether there are any.
Sort of exogenous factors restraining that thanks.
Sure Tobey.
Yeah, I got it yes.
So the fourth quarter cash flow was about $2 million generated from our cash flow from operations perspective, I'd say it was really largely due to the sequential ramp throughout the quarter and business. You. Just don't have the time on the collection front to collect you've got the disbursement. So it's an investment and working capital and I would expect those collections to come in and the first quarter and similarly with the <unk>.
<unk> growth I think we'll see and additional investment and the first quarter for working capital, but again that will that will work itself out and the second and third quarter. So.
Overall for the full year that would have generated $27 million.
Our free cash flow from operations, we're very pleased with that.
Could you give us a sense for what.
You've experienced in your local business and areas, where you closed an office and yet did you end up.
Giving up some revenue based on the contracting footprint, just kind of give us a flavor for how that's gone.
Yes, Yeah, I mean first of all it's gone really really well and we've seen and first of all the last two quarters sequentially. Our local business has been up each quarter I'm you know in terms of our revenue and we're seeing growth out of that business. We're very encouraged we're encouraged.
As we enter into 'twenty and 'twenty one.
You know cross country, I think and a lot of ways, we had some fortunate and good luck.
In terms of having a silver lining with this global pandemic and that we.
Like many other companies shifted to a virtual work environment and although we were.
Planning to close those branches are it was over a longer period of time, so our ability to accelerate and close 50 branches and from our perspective that we had to we couldnt fail and we had to have our operations run seamlessly and smoothly. It was an opportunity for the company to accelerate.
And moving to a leaner more efficient.
One single cross country and the other part of that is technology, we've had to invest and the infrastructure and the company to support that and we've done that so from our perspective on the local businesses and growing the last couple of quarters. We've also expanded some of our staffing opportunities to include labor.
Disruptions, both and the third quarter and the fourth quarter.
And we continue to believe that one of the ways Cross country differentiates itself from our peer group is that we have such a.
You know large scale local staffing business that can support and you know.
Clients, such as our MSP, who require more than just staffing and inner city acute care hospital, they have community hospitals outpatient centers other centers.
That they have staffing requirements that we can support with that local business.
And lastly, I had a question about your guidance is that.
And that level of adjusted EBITDA margin.
Is that allowing you to or do you have additional investments that you're sort of accelerating in that framework or is this.
And the kind of margin you would imagine at this revenue level on sort of a normalized basis post COVID-19.
And when you can be at this revenue level and I'm just kind of curious at close to 300 million I might've thought we'd have a higher flow through to EBITDA.
Yes, I'll take that question Tobey.
We are continuing to make investments, obviously and in the first quarter towards continuing to fuel growth. So it will be investments and revenue producers across most of our lines of business. So that's factored into this as well and I would just point out that there's a margin component to it while the revenues a bit higher the gross margin is artificially lower because of the mix of orders the COVID-19 assignments.
The crisis assignments do not tend to have margins as high as the overall consolidated average and.
And I'll just point out because we saw rates go up sequentially.
In the fourth quarter from the third quarter.
Almost.
Probably 90 plus percent of the increase and bill rates went back to the healthcare professionals, so not really adding much to the gross margin and you can imagine as we step into Q1 as bill rates surge forward, a little further because of the mix of orders and demand.
Gonna have a weighting effect on the overall gross margin.
Okay. Thank you.
Thank you. The next question is from Kevin Fischbeck with Bank of America. You May go ahead.
Great. Thanks, I wanted to follow up on and if that you gave about the recruiters.
<unk> seen a 36% increase and travelers on assignment and Q4 was that a sequential number or year over year number.
Uh huh.
The year over year number I believe based on our average Bill is that correct. Yes. It was a year over year number Kevin.
Okay. Okay.
And I guess I guess overall placements are down year over year. So I guess, what's the delta between those numbers.
Sorry could you I mean look we yeah, we we hit a like most companies and our industry I mean, we had and unprecedented drop and demand Kevin as you recall on the second quarter and.
And we've been rebuilding our business our Q.
Q3, Q4, Q1, you know three quarters in a row, including the existing current quarter of growth. So you know we're seeing you know.
From a demand perspective, we are seeing a decline in demand from the end of the fourth quarter, but the demand is still very very strong it's really at pre COVID-19 levels.
And as a result of having kind of you know a significant opportunity we've been investing and head count are revenue producing employees.
So from our perspective, we look at this as you know continuing to improve and grow our share count our field count of healthcare professionals and we continue to believe that the tools that we've rolled out such as our new Ats and other things that we're doing will continue to yield a higher.
Book of business per recruiter per account manager and.
And that's the trajectory that we we are sustaining at this point and.
Okay.
I guess, maybe if you stick and step back and think about the Covid, obviously skewed a lot of the numbers as far as demand as far as pricing.
If you think about where you expect to be today now.
At the end of the year the exit rate at the end of the year versus where you might have thought you would be at the beginning of last year before Covid hit I mean.
Do you feel like the company is on the same trajectory that you would have thought.
Ahead or behind and and.
And again and get the two factories and I get that might impact that would be just overall industry demand as you exit this year.
How is that trending overall, and then and on normalized basis, and then your performance versus kind of what you would have thought you'd be doing exiting the year.
I mean, well look that's a very interesting question you know hypothetically a you know.
Look I'll tell you what we are and what I can tell you is that we are very.
I'm pleased with where we are as a company. We've made the investments we've hit the milestones we've taken out significant costs, we're seeing an increase in productivity as we just mentioned we're seeing our head count grow we're winning as Buffy pointed out you know MSP is this quarter.
MSP labor under management has grown throughout the past year or so you know there's a lot of positive trend lines happening with cross country. You know I'm very very excited about our future I think the company is back we're seeing a lot of you know.
On growth of new candidates.
Find cross country, and I think our brand is resonating in the marketplace again.
At a very high level. So you.
And it's hard to say.
And this pandemic changed a lot of.
<unk> for the company in terms of specially some of the businesses like cross country, Locums, which in 2019.
And it was having its first year of significant growth and a number of years and then we saw this softness and the physician specialties around the surgery and some of the areas that we've mentioned earlier, so but we're optimistic we're excited for the country debt. We're exiting this hopefully this pandemic.
This year, we're going on and we'll see our hospital clients continue to value us in.
In the marketplace.
Okay, and I guess, it looks like you're obviously, making improvements on our cash flow and EBITDA this year.
When do you think you'd be looking to do acquisitions again.
Yeah, that's a great question.
Soon we hope because we we started as you might recall about 15 months ago, We launched our M&A corporate development team under Steve Seville, and I'll ask him to comment in a minute and we were hard at work building, a very robust pipeline and then COVID-19 hit and <unk>.
11, you know a year or so ago and.
And the whole M&A market really just was under a suspension for a couple of quarters, but since our October.
September October time frame.
Seeing the pipeline really reemerge, it's been actually very active and as bill pointed out and I have as well.
We have made substantial progress on our balance sheet. So for two years, but we haven't.
Two years I've been here, we haven't made any acquisitions it's been since.
Mid 2017 since the company has made a major acquisition. So we are in great condition, we have the right credit facility. We've got you know.
Approximately $50 million and Scott you know between where and we finished and in the fourth quarter other companies growing our earnings are expanding.
And we're in a great position to go after these tuck in acquisitions in the key areas that we've talked to before which are principally around areas like locum locum tenants education Allied health technology are looking for opportunities to get scale and to be accretive.
I don't know, Steve you might want to provide some additional color.
Kevin and I that was a and that was pretty full of color and.
Kevin and thanks for the question and I'll, just add one item and that is now as we're as we're evaluating businesses where acquisition.
And the attractive opportunities that we're looking for.
And that fit our overall strategy to grow the business to create operating efficiencies and increased profitability are key considerations and all of our evaluations there is and exuberance amongst the solar market right now I think some of which has.
Come about as a result of the Covid.
And the performance of some organizations have had as a result, and we continue to weigh that accordingly, as we evaluate the businesses.
Alright thats helpful. Thanks.
Thank you. The next question is from Kevin Steinke with Barrington Research you May go ahead.
Good afternoon, Kevin and I was just curious about.
Your thoughts.
At the outset of the call talking about the turnaround being successfully completed and maybe can you just.
Review your thoughts on what gives you that.
Confidence that the kind of the turnaround.
<unk> has done here for the company as we move forward.
Yes.
And Kevin.
Good to hear you, there's a lot of Kevin's on this.
I think it's proof that the Irish or a R.
Our Ah Repopulating the planet, but.
Anyway nice to hear your voice you know look we think are the turnaround is successful because we are growing and our revenue growing our profitability.
And we've hit our milestones in terms of our digital transformation of the company is more agile now we would.
And when I when I joined the company in January of 2019, we had nearly 70 offices, we have a dozen today.
We have streamlined the organization and many many ways we have a more productive workforce, we have a focus we collapsed 24 brands into one.
And we have a enterprise sales organization and I think as best in class a with the addition of John Martin's coming aboard.
Would argue to anybody that we have the strongest most experienced management team and the industry.
You know I don't know 100, plus years of experience and this.
Specific industry, So you know to.
To me that the company has a lot of energy the culture is positive the results are positive.
Clients are.
We're happy with our with our results and I think as we exit the pandemic and some of these other segments come back for us.
Such as the physician area and education, and we're able to complement this organization with tuck in acquisitions and we just talked about I think the future is very bright.
Okay great.
I think when you joined you kind of talked about a three year.
Plan.
I think that was more related to the digital transformation, though so maybe I'm splitting hairs there, but it's obviously I guess the digital transformation is still somewhat ongoing with the things you're doing.
And the Middle office and back office, but maybe the bulk of that is pretty much done is it fair way to characterize it.
Yeah, I'd say no.
Specifically as we felt there was three years of important work to get the technology, where we wanted it from a digital transfer transformation perspective from the candidate side to make it easy for candidates and do business with us and seek jobs and also to integrate into one tech stack, but what we also said Kevin was that.
And we were riding and putting together with our board and a five year strategic plan that would get the company back on track from a profitability perspective, and we called out debt.
By the fourth quarter of 2022.
And we anticipate exiting that year and 8% our.
Adjusted EBITDA rate and.
And I would reaffirm tonight that commitment we are on a steady path.
To see that improvement hopefully, we'll exceed that and get there sooner. We ended this past quarter.
Over 5% of adjusted EBITDA for the year, we were over 4% EBITDA that's up from the prior year of just over 3%. So we have a marked step towards that 8% getting the company successfully turned around from a profitability perspective.
But also from an infrastructure and a go to market strategy and from a tech and digital transformation perspective as well.
Okay, Great and then can I just ask to about Hum.
And how should we should think about G&A trending in 'twenty and 'twenty, one that the puts and takes there in terms of.
Cost savings versus and I think you talked about higher incentive compensation with the strong revenue performance. So I don't know Bill if you and.
And then any thoughts on that.
Loved it loved to hear anything that might be helpful.
Sure, Yes, I think we called out the year over year change and on SG&A related related to the health of the AR.
Sorry to the incentive compensation, principally because the fourth quarter was stronger than we expected. So we had higher commissions and short term incentives for.
For the annual attainment, but so it was it was a bit of a catch up and the year just because of the strong stronger than expected performance.
I don't expect that we'll see a marked increase in debt component going forward I think it might be more spread.
It's spread out throughout the year as opposed to how we saw it coming in 2020, but I wish, but I would say is we definitely realize the savings from the efforts that we undertook in the second quarter and and the third quarter. We can see it and both are salary cost as well as our rent and overhead from facility costs.
But we are reinvesting in the business and that's the important point, we are going to continue as soon as long as we continue to see a strong backdrop and the market around demand will keep making investments and revenue producing head count and.
And also as long as the productivity continues to improve as well, where we think we can look to just get a double impact from that from adding capacity as well as having our revenue producers have a higher working head count.
Okay. Thanks, Thanks for the commentary I appreciate it.
Thanks, Kevin.
Thank you. The next question is from Brian <unk> with Jefferies. You May go ahead.
Thanks, This is Jack slab and on for Brian.
I guess I just wanted to turn on to the.
Search segment quickly.
Revenue has looked a little stronger I think than people had been expecting.
You know lots of people are expecting that to kind of lag behind the other areas of the business in terms of recovery and then a particularly strong number on operating income anything you can call out there or commentary would be great.
Bill do you want to take that.
Yeah, I think I'll start and I can hand, it off to Steve.
We've continued to see.
Better traction and we anticipate on the number of placements that we had in the quarter. So that was one element that drove that I think also on the <unk> front, which is also part of that segment on our recruitment process outsourcing continues to gain traction with our clients, especially in this marketplace. So those were the key drivers and we had a concerted effort earlier and the year as part of our cost reductions.
And getting our businesses into into the best shape possible for Covid and we had some cost reductions that did impact that segment as well. So some of the profitability Youre seeing there is from increased flow through from from operating efficiencies from either head count reductions or realigning compensation structures and the like so it's a business that's on a better.
Footing than it had been and earlier in the year, when we were actually losing money prior to Covid and so on on on down revenue, we're actually now generating profit so.
It's in a good place and a good trajectory, but I don't know if Steve or Buffy if you have any comments on on either the RPM with the search.
This is about the I'm happy to jump in I think and this is an area that I'm excited about moving into 2021 with organizations are turning their attention to increasing their core staff they might not have the infrastructure to support the volume to build back up their core amount so they need avenues to widen their app.
Access to talent. So we are already starting to see a lot of interest and a lot of activity and the areas of search and RP O and.
And the candidates, which the marketplaces rich for it so I definitely think that there's it's got the right trajectory going we're going to continue to invest in this area.
Great. Thanks, and then one more from me you know in terms of alternative sites of service and demand trends Youre seeing there.
Just would love to hear your thoughts you know whether it would be with larger systems that have a variety of offerings or perhaps MSP clients or independents.
Yeah, I mean, thanks, Jack I'll start and and puppy can add from her perspective.
<unk> as well, but you know what's happening in the marketplace overall as health systems are.
Our continuing to have a land grab and are continuing to grow their regional footprint and.
And enter new areas from ancillary outpatient surgical centers, we're seeing the expansion of these health systems and so the requirements from cross country.
Are also scaling to meet those needs and and that's fine I think we feel very well positioned with not just a extremely strong travel nurse and allied business, but also our local staffing business that can support these smaller facilities and.
Outpatient facilities and rural communities, where there you know.
And still have staffing challenges.
Were they the type of customer for us is changing over time.
And as I mentioned earlier, we're also you know.
Working with a large pharmaceutical distribution companies other large partners from state governments and others around you know other types of needs like vaccinations, and testing et cetera, but Buffy you might want to add to that.
Sure I would agree I think that we are seeing.
Requests across the board from all different types of customers and even in the non traditional customer space from governments to direct companies.
And I think with more consolidation in some of the healthcare systems more of the previous healthcare facilities that may not have used contingent staffing and the path now looking at it is if this year has taught US anything it's we need to look at more flexible models up and down how do we change. These models how do we optimize the staff that we have.
But then complement it so that we could support that debt peaks and valleys that they were potentially going to need and all of the different specialties and a very and <unk>.
I Shan't method. So I think we're seeing across the board and differences and MSP more complex solutions being required a cross all of the different sites from their large facility to long term care centers community hospitals et cetera, but again the non traditional business will continue on and for some time, we foresee with government on this.
We'll include kind of your department of health location relocation.
So we anticipate that will continue.
Thanks, and congrats again on a great quarter.
Thanks Jack.
Thank you and ladies and gentlemen, this does conclude the Q&A period, I'll now turn it back over to Kevin Clark for closing remarks.
Yeah. Thank you Suzy and thank you everyone for joining us. This evening, we look forward to updating you on our progress on our first quarter call we remain.
Courage that the trend of new cases seems to be improving and with vaccines rolling out our country will continue to return to normal. Please stay safe everybody. Thank you.
And ladies and gentlemen, this does conclude today's conference call. Thank you for your participation you may now disconnect.