Q1 2021 Cross Country Healthcare Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the cross country Healthcare's earnings Conference call for the first quarter of 2021, a replay of this call will also be available through May 19, 2021, and can be accessed either on the company's website or by dialing 805 one.
00118 for domestic calls.
In 2033693808 for international calls and by entering the pass code 2021.
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 Chief.
Chief Financial Officer. Please go ahead Sir.
Good afternoon, everyone and welcome to cross country Healthcare's first quarter 2021 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 John Martin's Group President of nurse and Allied today.
This call will include a discussion of our financial results for the first quarter of 2021, and our outlook for the second quarter a copy of our earnings press release is available on our website at cross country healthcare Dot com.
Please note that certain statements made on this call may constitute forward looking statements. These statements reflect the company's current beliefs based upon information currently available to it as noted in our press release forward looking statements can vary materially from actual results and are subject to known and unknown risks uncertainties and other factors, including those contained in the company's 2020 annual report on form 10-K.
Quarterly reports on form 10-Q, as well as in other filings with the SEC. The company does not intend to update guidance or any of its forward looking statements. Prior to the next earnings release. Additionally, we reference non-GAAP financial measures such as adjusted EBITDA or adjusted earnings per share such non-GAAP financial measures are provided as additional information and should not be considered substitutes.
Or or superior to financial measures calculated in accordance with U S. GAAP more information related to these non-GAAP measures is contained in our press release and just before I turn the call over to Kevin It's worth noting that effective with the first quarter, we have changed our reportable segments and going forward, we'll be reporting only two segments nurse and allied staffing and physician staffing the prior segment known as search has.
Been consolidated with the nurse and Allied and all prior period results have been reclassified to conform with current period presentation with that I'll 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.
Before I get into the business results I'd like to start by wishing all of the nurses out there are very happy nurses months as many of you know normally we celebrate nurse's week. This time of year, but in honor of the dedication and contributions by nurses throughout the pandemic. The American Nurses Association has extended our recognition.
By declaring that May is officially nurses month for all that you do to deliver quality care to millions of Americans, especially over the past year during the pandemic, we celebrate and thank you.
Turning to the business, we entered 2021 on a very positive trajectory with solid execution higher productivity and exceptional performance, especially within our nurse and Allied segment.
<unk> revenue and profitability far exceeded our expectations as we continued to grow our number of healthcare professionals on assignment throughout the quarter.
First quarter consolidated revenue of $329 million was up 57% over the prior year and represented a milestone for the company as it was the single highest revenue quarter in our 35 plus year history.
Fueled by increases in both average bill rates and hours worked the strong topline performance also allowed us to reach another milestone reporting an adjusted EBITDA margin of eight 1% well above our guidance and more than a year earlier than our stated goal to reach 8% by the fourth quarter of 2022.
We recognize that these milestones were achieved during an extraordinary time of elevated bill rates and adjusted EBITDA margin is expected to retreat in Q2 and for the second half regardless I firmly believe that the first quarter results were made possible due to the impressive execution by our team.
As well as the benefits from the actions taken during the last two years I also believe that we will continue to make progress on achieving sustained adjusted EBITDA margin of 8% with continued growth I am so proud and appreciative of our entire organization not only for embracing change.
But for their dedication and tireless commitment to our healthcare professionals and the clients we serve.
Our focus and ethical approach as one cross country as well as solid execution, while maintaining the highest commitment to quality clearly demonstrates the value cross country brings to the market.
Since the start of the pandemic cross country has led the way in providing the critical staff needed across the nation by partnering with our clients flexing bill rates accordingly, and by offering shorter length of assignments as we noted on our prior calls the.
The pandemic has resulted in higher average compensation costs associated with the significant personal risk each of our frontline workers faces.
Our philosophy has been and continues to be debt. We will do all that we can to mitigate the rising cost to our clients. As a result average pay rates have risen by a significantly higher percentage that our bill rates driving down the gross margin of our business by 190 basis points over the prior year.
As the number of folks vaccinated rises and new cases continued to fall, we expect to see both bill and pay rates moderate throughout the balance of the year, though not necessarily at the same pace.
Turning to the segments revenue for nurse and Allied rose by 57% on a sequential basis, driven predominantly by strong growth from our travel nurse business, which was up nearly 95% as.
As expected average bill rates for travel nurses were up more than 40 per cent stemming from the regional spikes in COVID-19 orders, which started late in the fourth quarter of last year.
Average bill rates for travel nurses peaked in February and has since declined approximately 10% and are projected to continue to decline as we work with clients to normalized rates as COVID-19 subsides.
In addition to the higher average bill rates, we continue to grow the number of professionals on assignment and as a result billable hours were up more than 36%, reaching the highest total of professionals on travel assignment in nearly 20 years. Those some of the increase was driven by urgent COVID-19 needs a significant driver for the <unk>.
<unk> from travel professionals on assignment was a further improvement in recruiter productivity. Following the deployment of the applicant tracking system in Q3 last year.
Since going live recruiters with between one and three years of tenure have experienced a double digit increase in the average number of professionals on assignment per recruiter.
We are obviously very encouraged by the progress we are making on deploying technologies.
And expect to see continued gains in productivity. Despite the anticipated decline in bill rates during the second quarter.
Also within the nurse and Allied segment, our travel Allied local and school businesses also experienced sequential growth, albeit at a slower rate than travel all of these businesses continued to recover from the earlier impacts from COVID-19 and are expected to grow throughout the remainder of the year.
Our only other segment physician staffing was down roughly 1% over the fourth quarter. Despite the relatively flat revenue I was encouraged to see a sequential increase in billable days per hospitalists and primary care physicians.
From an MSP perspective spend under management for the quarter rose nearly 73% over the prior quarter fueled by continued rise in demand as well as higher average bill rates related to their urgent needs.
Additionally, our capture rate as at MSP is increased to 76%.
As we continued our focus of ensuring we deliver the critical staff the clients with the highest needs.
As a result of the growth in spend under management and the increase in our capture staffing revenue from Msp's rose, 88% and represented nearly 53% of our consolidated revenues.
Looking ahead, we expect to see a diminishing impact from COVID-19 on our business as hospitalizations for COVID-19 cases have declined and with nearly a third of the country fully vaccinated. We are seeing steady declines in COVID-19 related orders, especially for ICU physicians.
As a result of heightened demand driven in part by an exhausted labor force and the return of patients in larger numbers for non COVID-19 related care, we are seeing orders per specialties, such as med surge and all our nurses at pre COVID-19 levels.
As I mentioned earlier, we fully anticipate that bill rates will continue to decline through the second quarter and throughout the second half of the year that they may remain elevated relative to pre COVID-19 rates throughout 2021, we expect to see recovery in those areas hardest hit by COVID-19, such as local tenants and education.
For the second quarter, we expect revenue to be between 303 hundred $10 million, representing a 38% to 43% increase over the prior year.
The sequential decline of between six and 9% is driven almost exclusively by a decline in the average bill rate for nurse and Allied as we expect to see a mid single digit increase in the number of billable hours for that segment.
This growth in the number of hours is not only a result of the improved productivity from our revenue producers, but also a result of the ability to attract a growing number of experienced professionals looking to work their first assignment with cross country.
From a technology perspective, we continued to realize the benefits from the investments we have already made and we are continuing to make significant progress with several other key projects, including.
The expansion of our applicant tracking system to our local business enhancements and our proprietary marketplace application.
And the replacement of our middle office payroll and billing system.
With speed being essential to both our healthcare clients and professionals. We believe these investments will best position. The company for continued growth in both revenue and profitability through better operational execution enhanced employee productivity and a world class client and candidate experience.
Our performance and our ability to execute during the pandemic and through the recovery reinforces our value proposition in the market for offering flexible rapid in a cost effective means for delivering critical care for millions of Americans across thousands of facilities and while our guidance.
Thanks to a slightly lower adjusted EBITDA margin versus the first quarter.
It remains well above the prior year. Despite the continued impact from the mix of lower margin COVID-19 assignments and the lower revenue from some of our higher margin business like education and search.
I'm confident that we have the right team the right strategy and the proper level of investments to continue on our path of accelerated growth, especially given the favorable tailwind.
We continue to have a robust pipeline for new business for MSP and other workforce solutions, such as recruitment processing outsourcing I believe that our passion to deliver great service resonates not only with clients and candidates, but with employees, who seek to join a growing company with the <unk>.
That's the goal standards.
Now, let me turn the call over to Bill to walk us through the results in more detail Bill.
Thanks, Kevin our results for the first quarter reflected the combined impact from higher bill rates, particularly due to COVID-19 related travel assignments as well as solid execution to increase both the number of healthcare professionals on assignment and the total billable hours consolidated revenue was $329 $2 million, representing a 57% increase over the prior year.
53% sequential increase.
Turning to nurse and Allied revenue was $313 million up 57% sequentially and 63% over the prior year with the majority of the growth experienced by our travel nurse business on a sequential basis average bill rates for travel nurse were up more than 40%, while billable hours were up more than 36%.
We also saw year over year and sequential growth across both our local business and travel Allied business driven predominantly by an increase in average bill rates with schools reopening our education business also experienced sequential growth of 18%, though still down 16% over the prior year.
Looking ahead, we expect bill rates to continue to normalize as we move forward, but remain above prior year levels for the next several quarters due primarily to the overall level of demand the labor shortages experienced nationally following the pandemic as well as some continued demand for COVID-19 positions in certain geographies.
Specific to travel we are projecting average bill rates to step down throughout the quarter by more than 20% with an average decline for the quarter of nearly 15%.
Our physician staffing segment has stabilized following the initial declines from COVID-19, though not yet returning to pre COVID-19 run rates revenue of $16 $2 million was down 11% over the prior year and 1% sequentially as Kevin mentioned, we are encouraged by some of the trends we're seeing in the business with a sequential increase in the day sold for Hospitalists and primary care specialists, which.
Two of our larger specialties.
Gross profit for the quarter was $71.5 million, representing a gross margin of 21, 7%, which was 190 basis points lower than the prior year and 350 basis points lower than the fourth quarter of last year.
The primary driver for the decline in gross margin was due to the higher compensation costs, resulting from the pandemic, which rose faster than the bill rates average compensation cross costs across nurse and Allied were up 47%, while the average bill rates increased 37% throughout the pandemic, we expected and planned for a lower gross margin, especially for COVID-19 assignments.
As we worked to mitigate the cost for our clients to the greatest extent possible.
Total SG&A was $46 $3 million for the quarter up 1% over the prior year and 3% sequentially as a percent of revenue SG&A was 14, 1% as compared with 21, 8% in the prior year and 28% in the fourth quarter, reflecting the improved operating leverage.
The primary driver for the increase related to the variable related to the higher variable compensation costs associated with strong performance in the quarter.
Contributing to the sequential increase were higher payroll taxes due to the annual reset.
Relative to the prior year total salaries remained lower despite significant investments in incremental revenue producers.
As Kevin mentioned demand remains strong and given the improved productivity across our travel business. We are confident that these investments will fuel continued organic revenue growth in the coming quarters.
There are several items worth calling out on the income statement, we recognize restructuring costs of $1 $2 million associated with severance and other exit costs Inc.
Interest expense was approximately $700000, representing a 22% decline over the prior year and essentially flat relative to the fourth quarter a.
The year over year decline was driven by a lower effective interest rate, partially offset by an increase in average borrowings during the quarter.
From a balance sheet perspective, we ended the quarter with $13 $5 million in cash higher than in the prior quarters, principally due to the timing of funding for weekly payroll.
From a debt perspective, we had $96 million in outstanding debt under our ABL, excluding letters of credit, which was an increase of $43 million.
The sequential increase was entirely due to the investment in working capital driven by the significant sequential growth in our business as our receivables increased by more than $75 million.
At the end of the quarter, we exercised the remaining according feet accordion feature under our asset base line to expand the total facility to $150 million and as of March 31st we were able to access the entire line.
As a result of the revenue growth and related investment to working capital we had a use of cash from operations of $25 million.
Though receivables were up more than $75 million over the prior year and our days sales outstanding of 56 days was actually down two days since the start of the year.
Capital expenditures were $1 $2 million for the quarter principally related to continued investments in our digital transformation.
This brings me to our outlook, we expect consolidated revenue to be between 303 hundred $10 million, representing a 38% to 43% increase over the prior year as.
As we discussed domain demand remained strong across nurse and Allied staffing and we continue to make progress on growing our head count on assignment across nurse and Allied.
Our guidance assumes a sequential decline in bill rates, especially within our travel business as we strive to continue to normalize rates for our clients.
Offsetting the decline in bill rates, we anticipate sequential volume increase driven by the continued execution and improved productivity of our team.
Physician staffing.
Physician staffing.
Is it to be relatively flat on a sequential basis as COVID-19 continues to impact that segment.
We are guiding to a gross margin of between 22% and 22, 5% up sequentially as a result of the impact from the annual payroll tax reset in the first quarter.
Gross margin is expected to continue to be lower than the prior year as a result of the lower margin related to COVID-19 assignments.
Justice EBITDA is expected to be between 19 and $21 million, reflecting an EBITDA margin of 6.3 to six 8% the sequential decline.
Klein is primarily related to the lower operating leverage from lower revenue.
Our adjusted earnings per share range is 37 to 42 cents.
Also assumed in our guidance is depreciation and amortization of $2 $3 million interest expense of $800000 stock based compensation expense of $2 million and a tax expense of $500000 with a fully diluted share count of 37 million shares and.
And this concludes our prepared remarks at this point, we'd like to open the lines for questions operator.
Thank you Sir at this time, if you do you have any questions or comments you May press star one please mute your phones from state your name when prompted.
Our first question comes from a J Rice with credit Suisse. You May go ahead Sir.
Oh, hi, everybody. Thanks, obviously, a good quarter.
I'm just trying to understand this is big picture I know, there's a lot of pieces that are moving around but.
Your bill rates, you're forecasting to come down, but your placements youre still assuming they grow if I heard you right I guess, it's interesting to me that with the demand for actual place was still very strong.
Uh huh.
Why are they just more nurses available why does the bill rate start to come down ahead of placements are starting to moderate.
Yeah, Hey, a J, it's Kevin Thanks for the question.
Look you know demand is strong right now in fact, just a you know from the last week demand is up probably about 10% we've seen the demand grow since then.
<unk> of the you know the first quarter, but bill rates are normalizing hostel as hospitalizations are down as you know vaccinations are rolling out I mean over 200 million people have been vaccinated at this point at least with one shot and you know our placements are growing because.
Number one I think we're becoming the you know we are becoming the choice of healthcare professionals are to do business with.
You know there is.
From our perspective, the broad market is also coming back with that increasing demand. So we're seeing.
More opportunities in or PACU surgery surgical centers LNG.
Peds.
And so.
So you know and we're seeing that show up right with the larger hospital systems, who are reporting revenue numbers in the first quarter that are up and in some cases like tenant admission rates are up.
6% to 10% so the demand is coming back into the market.
Cross country is becoming the agency of choice for healthcare professionals.
We are you know.
Very proud about that.
The changes that we've made and the company, especially over the last two years and a lot of ways coming out of this pandemic.
We're certainly stronger as the country is.
And in a lot of ways. The pandemic has helped accelerate our digital transformation and that's important because part of that ecosystem that we're creating is making it easier for candidates to do business with us. We're innovating again, we're launching technologies such as marketplace, our app for our local staffing for <unk>.
Damn marketplace, so lots of reasons why.
Demand is coming back and final comment is just that we one of the things that we're very excited about them. We're seeing a significant number of first time travelers are on the travel division.
Come to cross country, and we think that's against with some of the reasons I mentioned.
Okay.
It's interesting to me when the business is getting stronger the pay rates are going up your bill pay spread.
We used a little bit.
Some of Thats, probably you are from the absolute dollars are still going up pretty dramatically.
And it starts to come back down do you hold on or does the bill pay spread do you think do you expand there what are what's the dynamics now that the rates are starting to moderate a bit.
Yeah, that's a good question too.
We took the position in the pandemic that we wanted to partner with our clients and we made sure as bill rates Rose that we pass through as much of that bill rate as possible to the healthcare professional to support these heroes who are working at the frontline and you know we have report.
But it all along that that compressed our gross margin percentage.
In that segment of our business as rates normalize and we and we are returning to pre COVID-19 levels in terms of demand.
We think there'll be a gradual return.
Our gross margin profitability to the pre COVID-19.
<unk> levels, and hopefully better than that.
As time passes but you know maybe Buffy you want to add a little bit in terms of what youre seeing in the marketplace are on the call.
Science side.
Yes, certainly I think you've covered a lot of it Kevin and thank you a J.
We are looking at normalizing rates as quickly as possible for our customers and of course, I'm getting them consultation on making sure that that isn't sacrifice by being able to get supply to the bedside. The specialties are certainly widening across the nation more diversified book class size and.
Overall demand is coming up deferred services elective procedures are coming back in line.
I would say as the bill rates start to subside and go down we're seeing this demand, which is going to offset that our teams are primed and ready to fill more volume get those travelers and local professionals on assignment.
And we have to Kevin's point.
Side by side with our clients to be able to make some concessions sensor we can support the needs. There having obviously this lost share with very trying for them their balance sheets are they're struggling with those and they're trying to certainly manage their cost and so as a provider with our staffing divisions from staffing division, we're able to make some of that.
Session.
Well that's great.
Maybe one last one on your.
It's encouraging to hear that you're getting.
New people signing up for travel assignments, we read a lot about burn out among nurses et cetera et cetera are you seeing.
Any movement in the percentage of nurses to choose to re up after they complete one assignment jar can you expand a little bit on what you're seeing in terms of applicants a rollout.
Positions to fill and so forth just a little bit of a sense of.
Of what's happening in the underlying supply out there.
Yeah. It's a good question John do you want to add some color to that sure I'll take that one Kevin Hi, a J.
What percentage of travelers extending at the same facilities at our travelers renewing with us and moving to the new facilities has remained pretty steady.
Steady.
As Kevin mentioned, we've seen increased inquiries from first time travelers and our team has done a tremendous job of Onboarding. These new travelers and moving them onto their assignment now a lot of first time travelers, we're seeing at cross country travel with other companies before and this increase of these new travelers is a direct result of our investments in our digital marketing efforts.
Over the past year.
But the pandemic has also opened up a new world right, where we've seen many healthcare professionals, who have never traveled with us before from now experienced the benefit of travel staffing.
And we think that these these benefits that we're hearing from our travelers. They love. The fact, they have flexibility choice and control of their career and while some of these travelers going to return to their permanent positions. We're thinking a lot of them will embrace the travel lifestyle and continued traveling with us.
Seeing our.
<unk>.
Really becoming in robust and seeing a lot of the new travelers coming in still into the industry.
Okay, great. Thanks, a lot.
Thank you. Our next question comes from Kevin Steinke with Barrington Research you May go ahead Sir.
Good afternoon.
You spoke about recruiter productivity and seeing double digit gains there in terms of our professionals on assignment.
Clearly you're still.
Early on in the process with the new applicant tracking system. You said you expect to see further productivity gains, but did you have any sense as to how much room. There is to run in terms of.
Productivity gains and maybe how that balances out your need to.
New recruiters or hire more.
Yeah, Kevin Great question, we are seeing significantly.
Significantly better productivity from our revenue producers into the specifically our recruiters we called out on the last earnings call that we saw improvement we've seen even you know more double digit increasing.
In terms of our productivity so in a way I think cross country as you know kind of catching up to our potential based.
Based on the investment that we have made where we're very excited about the opportunity to bring our local business onto this a T. S. As we've called out later in the year and you know.
For US you know we're looking at the market. The market is growing it's an $18 billion market. We're growing we think faster than the overall market right now.
We're investing we're adding revenue producers at all levels recruiters account managers et cetera, as John pointed out you know the investments that we've made in digital advertising.
Advertising data mining proprietary technology that cross country now has that allows us to use artificial intelligence and machine learning to do.
Candidate matching to open jobs all of those things are leading to a significantly more productive company and so I think we're going to continue to see.
Gains each and every quarter I don't know, where we're going to tap out so to speak but we're very excited about the potential here at cross country.
Okay great.
You mentioned the.
Capture rate on MSP is increasing the 76%.
Would you kind of view that as a function of the current environment and something that we should expect a pullback a bit going forward.
Or is that you know higher level, a little more sustainable.
Yes. That's also a good question and you know look I would say the market that we are in right now favors a large players like cross country healthcare the model that we have our total talent solution being able to go to market and provide not just contingent staffing, but direct higher ARPA.
Locum Tenens.
The physician side nurse Allied et cetera.
As a total solution to the marketplace. So the market we believe favors.
Any like cross country, we're seeing you know and we have seen a steady increase in adoption of M. S. Ts N.
And the MFS.
From these large healthcare systems and and you know the other thing that I would just note Kevin as you know we've seen a pickup in M&A activity with our clients right. These these hospital systems are getting larger you know I'll note for example, humana and their announcements there, they're requiring kindred as in.
Example of that the large systems are getting bigger and they're going to need bigger staffing partners, such as cross country to bring our workforce solutions to.
I Dunno, Buffy if you have any additional point.
Point requirement there.
No Kevin I think you've covered all of it the only thing I was going to add is that you know these are premier customer. So this last year in particular, we really had to lean in and make sure that we were caring for their supply needs.
And then we are seeing a lot more adoption across even within our MSP, but happy pipeline on on newcomers to be but an expansion of services. So where we may have historically played predominantly in the travel nurse and Allied space now, we're seeing more request for local more requests for our advanced practice.
<unk> and Logan said, we're starting to see an expansion in activity there, which of course is going to help us with our capture.
Okay, that's great.
Last question from me you mentioned, a robust pipeline not only for MSP, but our Apio I believe our appeal was still a.
Pretty small piece of your business, but can you speak to the our appeal pipe when I and I also believe it's you know a higher margin business for you. So maybe can you talk about the opportunity to grow that.
Business going forward.
Absolutely look our clients are looking for more consultative and creative solutions coming out of this pandemic.
They want more cost effective.
Solutions coming from cross country, So RP O for us is relatively small, but it's growing and to your point it is high margin.
We think there's a important place with our total talent solution to have that as part of our offering.
Had very very very big success with clients.
Hiring 50 to 100 per 150.
Permanent positions to augment their contingent labor spend.
Buffy you want to add to that.
Yes, I think as as we saw coming out of COVID-19, you know hospitals core staff, they're fatigued many of them are leaving the bedside there retiring and.
And at the same time companies are really seeking cost controls and lessening their reliance on core staff. They reflect back this year and say we cannot potentially be in the same position should something happen again, but because of the loss of an attrition of their course that they are trying to rebuild in a very cost effective way. So we can drop in and.
Supplement their staff and trying to to fill these core physician. So we're seeing high demand for this right now.
We're working on with several of our Premier customers right now as well as new customers coming in.
I think this is only going to be a significant request moving forward. We're in a strong position to support that I'm not only on the contingent inside that through our search and our P O groups.
Great. Thank you and congratulations on the.
Strong performance.
Thanks, Kevin.
Thank you. Our next question comes from Kevin Fischbeck from Bank of America. You May go ahead Sir.
Okay, great. Thanks.
Obviously COVID-19.
Yeah.
Impacting a lot of the metrics that you're reporting today.
Helped Q1, it looks like it's helping Q2 come in a lot better as well I guess the question is.
Has your view on Q4 or 2020, I guess changed at all it sounds like you're doing some things operationally underneath all of this.
But wasn't sure if that's really just executing on track and we should be thinking differently about the long term or is this really more kind of you know a little bit of a COVID-19 booths.
Skewing what was the long term trajectory and that's unchanged.
Yeah, maybe I'll start there and then I'll throw it over to Bill you know look I I think we as I said earlier I think we're coming out of the pandemic stronger.
We have been able to accelerate a lot of our digital transformation. We've hit a lot of the milestones that we've talked about in terms of our strategic plan that map us to 8% EBITDA by the end of next year and a consistent level, we're seeing you know.
On our travel business right now, we're seeing double digit volume growth.
Mid to upper single digit growth overall.
We see some of our segments like education a.
Come back with now schools reopening our physician business as we noted.
We're bullish as you know surgeries.
Surgeries start occurring et cetera. So you know, we're we're excited about our future.
We've been at this now for two and a half years, turning around the company and which we called out on the last call and we think we are positioned for sustained.
Growth, we're back to being a growth company.
And we think we're best in class, but Bill you may want to talk a little bit more about what you're seeing from the financial side in our horizon sure, Thanks, and hi, Kevin.
Look I mean, I think we're very thrilled to have 58% this quarter. It shows that obviously with the right level of revenue the operating leverage in the business. We can we can certainly put the 8% on the bottom line I would say the quarter was muted by the fact that the margins on a lot of these assignments were lower than the consolidated average so.
At this level of revenue in a normal time, we would've expected even better than the eight 1% debt we saw.
But without a crystal ball, we've modeled this out and look at how we think the rest of the year and going into 2022 could play out and if rates continue to follow the trajectory that we're seeing for Q2 and have a sequential step down in the third quarter and the fourth quarter of this year.
But we continue to see kind of volume expansion, which is what we've continued to experience while the market is where it is and that the orders have been robust we're continuing to put more focus on assignment even as bill rates are coming down. So when you model that kind of all the way out through 2000 and through the end of this year and into 2022, the bill rates, we do expect will level off somewhere.
North of where they were pre COVID-19 it puts us right on track to to come back into the 8% range. Obviously, our goal is to get there faster than the fourth quarter of 'twenty, two and that's what we're going to continue to do.
We're going to continue to invest though so it may not be a straight line, we're going to continue to add the revenue capacity.
From a all lines, whether it's recruiters or account managers just because the market is is there and we're able to continue to show volume growth and one thing we didn't really talk about it with the technology and we called out the one to three year bucket, which is for the tenure that's the most important bucket because as we've said historically, that's where we expected to see most of the productivity gains.
We are seeing productivity improvements and the other 10 year buckets and I would say that there's the opportunity is for us as we bring on folks when we make these investments that they come up the curve faster than they historically had so we're looking at hopefully seeing productivity enhancements not just in that bucket, but as with the new hires and we will continue to make those investments as long as the return is.
There so.
We're encouraged we think that we've got the right trajectory and we are.
We're doing all the right things to get back to an 8% on a sustained basis.
Okay. That's helpful and I guess you.
You made the comment in the prepared remarks, I guess that that bill and pay raises are expected to moderate as the year goes on but not necessarily at the same rate out I don't know if you were trying to directionally point to margin.
Contracting.
We're expanding our in the short term I would love to have as much it there or you're just saying, it's an uncertain inherently any color. There, yes, I think I think it is it's a bit of uncertainty right because the.
Youre dealing with two different parties on the on your dealing with the healthcare professional on the compensation side and the client on the bill rate and they're just competing forces. So it's always been a challenge to perfectly time that what I would say is that as I look at <unk>.
Early indications coming into Q2, the bill and pay rates are kind of moderating at about the same rate, but that is so early it's not really indicative of a trend just yet, but we're looking towards the bill rates coming down and the pay rates coming down and returning the margins back to.
To where they were pre COVID-19. So obviously that would imply bill rates need to decline more substantially than the bill than the pay rates do but thus far we're not exactly seeing that but we're just encouraged that there are at least moving somewhat in parity.
Okay, and then maybe just last question.
I don't know whether it's.
Dissidents or maybe maybe actually these comments or a lot more in line with maybe how that would be on the face, but you know the staffing companies seem to be saying.
We expect.
There could be a sustained nurse shortage that is has that if not worse than it was coming into COVID-19 because of fatigue et cetera.
Whereas at least the publicly traded hospitals can you talk about dramatic improvement in temporary labor and labor costs.
Being difficult to manage but largely improving from here. So I guess I'd love to hear your thoughts about or we're just hearing it from a slice of the hospital industry and it is not necessary representative or is there or is it in fact, you know exactly in line with your comment that the lethal will improve.
But.
Just not not to where they were pre COVID-19.
Sir.
Yeah, I mean look we are certainly in a supply constrained marketplace as we called out earlier Buffy was talking about it there is a lot of fatigue and burn out.
But what we also mentioned is we're seeing a lot of first time travelers and I think John was talking through that answer.
What's interesting is that I think these high bill rates have encouraged permanent staff.
To give for example, travel nursing or try and I think more and more of our healthcare professionals are millennials and I think they are adopting this kind of freelance gig work work style that is really the mega trend that's going on with America's workforce. So from the perspective of where are we encouraged.
With a severely supply constrained marketplace, it's greater adoption by candidates to choose when and where they want to work and the type of healthcare facility and be able to kind of look at our compensation and benefits.
John I don't know if you want to add to that at all what Kevin I think he covered pretty well, but I would say from from the high flow perspective, I think a lot of the hospitals are looking for the flexibility.
Of these.
Our contingent labor and I think what may continue to see that so well the hotwire, where there is a tremendous amount of burnout and fatigue with clinicians and as Kevin mentioned, we're still going to see a lot of comparisons come into the travel World I do think our clients are also going to respond very well with the flexibility to bring in staff when they need them.
And that could burn out their core staff as well.
Yeah actually that that answer.
Just for one more question.
You mentioned that a lot of first time.
People coming in.
Brought in by the pay raises and appreciating the lifestyle I guess as you think about bill rates moderating going forward.
How comfortable are you that you're going to be able to keep those first timers.
Beyond the next quarter or two.
When rates do actually normalized.
Well I think you know bill called out that you know.
I don't think we expect pre COVID-19 bill rates.
For the remainder of this year I mean, it's you know, it's I think rates are going to come down gradually.
But there because of the supply I think theyre going to remain elevated from where they are where they were in terms of pre COVID-19, but you know we don't have the crystal ball, we don't know exactly where.
This is going to fall once we get to some steady state.
So I just think from the perspective.
I think bill rates pay rates are very important to the market, but you know I.
Think of.
Adoption is growing.
Cross country is becoming has an enhanced brand reputation and the way we partnered with our clients due to the pandemic.
Making it simple are easier for a job secret to find a job all the things that we've been working on.
We are going to pay dividends for this company as we continue to grow.
Alright, great. Thanks.
Our next question comes from Tobey Sommer with two Securities you May go ahead.
Thanks could you discuss changes to the per diem spaces, we're hearing that the clients no longer really require brick and mortar branch nearby.
Yeah, Hey, Tobey.
Certainly our case I mean look last year in 2020 during the pandemic it really expedited our transformation as a company. We closed 50 offices and a lot of those 50 offices, where small brick and mortar branches that we have we really don't even use the word ranch anymore. Our company has adopted.
A virtual model our clients have adopted the virtual model people are working very productively.
From their homes.
Having said that you know what is unique about cross country versus some of our competitors as we have boots on the ground. So to speak are in almost all 50 markets.
When we go to market you know.
It's important for us to provide not just a travel contingent solutions, but also that per diem.
Local offering as well and we're just you know modernizing the way our corporate workforce handles that business.
Yes.
Thank you.
Could you discuss changes in assignment link.
And maybe juxtapose, what youre seeing now indoor expect with what would be considered normal as well as the the kind of shorter and more variable links that you were seeing just two or three quarters ago.
Yeah. It's a good question look assignment, it's definitely got shorter and for example in the Midwest, where we're seeing COVID-19 surges occur with.
With these variance these COVID-19 hotspots right now we have you know.
Three week types of assignments for.
A small segment of our business, but the traditional model that cross.
Our country and in this industry for the travel nurse or travel Allied worker is 13 weeks, we think we're going to revert back to that three months I mean, there's a reason for that 13 weeks. It's about the amount of time, a healthcare professional can take care of patients through a season for example in.
You know the Sunbelt, where you know the patient census, fluctuates higher during the winter 13 weeks allows for greater continuity of care at the bedside lets a nurse get comfortable with their you know administered.
Administrative staffs per head nurse et cetera, so for all those reasons and it certainly functions well moving yourself.
With short term leases and all the other things that are associated with travel.
But it's you know the the average length of assignment definitely shrunk, but it's on the way back and we think as rates normalize and hospitalizations decline, we're going to revert back to the.
The traditional model.
Thanks.
How would you say the distribution.
Bill pay spread compression compares when you look at your MSP customer base and your non MSP book.
Bill you want to take that.
Yeah that may be data I don't have at my fingertips, but.
I would say that the majority of the compression would've been experienced in our Msp's just for all the reasons Buffy mentioned about where we were really leaning in we felt as are from your clients. We really had to make sure that they had to care needed.
And so that was our partnership with them. So I think we would mostly have experienced the higher pay packages in those locations, but obviously, we don't we can't.
Tell every nurse where to go so with the nurse wants to be in a particular market or geography.
Always looking at making sure that the rig rates are competitive and Theres just have a lot of visibility on that front to see what a competitive rate is so I think we have been competitive across whether it's msp's or or director or.
Other third party accounts.
Thank you.
What's the.
From a longer term perspective, if you were able to hit that 8% EBITDA margin, what kind of general gross margin percentage would be required to do so because just kind of.
If you were endorsing the fourth quarter of next year then.
Wanted to get a sense for how much gross margins need to normalize for you to hit that target.
Oh, Yeah, I mean, it's obviously.
Yes.
It's the kind of thing Tobey as you can imagine.
You can play a lot of different scenarios out, but I'd say that.
We certainly would look for gross margin to be call. It.
It went from 150 to 200 basis points higher than they are right now excluding payroll tax of course, so by the fourth quarter I think that that's that your expectation, but a lot of things can factor into that mix of business of course, as we talk about our higher margin businesses haven't really had the opportunity to grow, particularly in our education space Theyre still down doing.
Better fairing better than they were in the fourth quarter, but.
<unk> come back later this year or for the fall.
I think we will see a that'll be an uplift to margins as well as the bill pay spread kind of normalizing on on our other core businesses. So.
That that'd be our expectation but.
It could be higher.
It also can be higher level of productivity in the business. So it's a it's.
It's really more of just a normalization of return to our pre COVID-19 margins, where I would like to see us.
So the 22019 was approximately 25% so that's not unreasonable.
Just wanted to drive drill down on one question, that's been discussed but wanted to get sort of a.
And sorry, if I could on the where do you think travel nurse bill rates may settle compared to pre COVID-19 levels.
Whether you're talking about.
A material change of 15, 20% higher or or just something kind of slightly better.
Yes, Tobey I mean hard to say you know I mean, this is unchartered territory for all of us.
But you know I think it's it's going to there's going to be a gradual.
You know a retrenchment back to kind of pre COVID-19 levels I don't know if that will take you know six months or.
18 months or.
24 months, it's pretty hard pretty.
Pretty hard to say, because we can't really forecast.
What happens to population health and.
Where COVID-19 goes in.
And how deeply impacted the supply is from.
From some of the progress we've already made around strategic and burnout.
Folks that have left the industry.
Who knows where we also read lots of reports that enrollments.
Are moving up in terms of nursing as a profession.
Given the importance of these heroes. So it's really hard for us to tell I mean, whats the Sun chartered I'm, sorry, I cannot give you a better answer on that no no. That's okay I understand.
Last question from me.
The FEMA contract out of the.
The proposal in RFP submitted.
Is that something that you think could still translate into a significant opportunity for the industry because of the vaccine progress has been pretty significant.
It's an interesting question you know I.
I think just for the folks listening I mean, the federal government has solicited the industry and put out an RFP.
And folks have been you know.
Preparing for.
The <unk>.
Tick in.
Hiring around vaccinations and testing et cetera.
But what's also interesting is.
The deadlines that they have given the industry to kind of come back with a program keep getting moved and at the same time you know as we.
Followed the data.
There's vaccine there's vaccination centers that don't have people to vaccinate and now it seems like you know the CDC the government is moving into a.
Campaign to convince folks that haven't gotten vaccinated to go get one rate and present right and I think <unk> laid out a case of 70% by July is the goal.
So I'm not sure how that impacts what the federal government wants to do with this bid them I don't know Buffy if you have any other insights you can share.
No I mean, I think that where we have been engaged in various testing as well as vaccine activity.
Across the nation, and we're certainly but but it's not just staffing organizations that are supporting that.
Been involved with discussions it's it really is hard to say because you are starting to see a lot of folks going and get their vaccine.
So we've been in discussion, but no no word yet specifically for that opportunity we are involved with.
Local and regional and then state organizations as well as direct providers are offering doxxing. So is expanding as far as the the outlets that we have for supporting the vaccinations no word yet on Argentina.
Thank you very much.
Thank you and our final question comes from Brian <unk> from Jefferies. You May go ahead Sir.
Hey, good afternoon, and congrats for the quarter I'll be quick it's almost six o'clock live myself to two questions here.
Just as.
We think about bill rates, you talk about how they'll still remain elevated obviously demand remains strong and you sound really confident on recruitment so without going into guidance for the back half of the year. I mean is it a good way to think that there shouldn't be that much change from your Q2 guide as we think about earnings power for the back half of the year.
Yeah, well I mean, I think again, if you if you take out the kind of stepped down you're seeing from Q1 to Q2 I think I just mentioned this a little bit ago. If you kind of play out that same scenario, where bill rates are down in the in the I'll call them low double digits somewhere in the teens on an average basis net both from mix as well.
Is normalizing with clients and again no crystal ball here it could happen faster cabin slower, but if you model that out over the second over the third and fourth quarter in a similar fashion with this kind of bill rates stepping down in the teens and we are still targeting a kind of sequential volume growth in the business for all the reasons. We already went through so I think that will give you some indication it will.
0.2.
Similar year over year growth number in the third quarter on a percentage basis right, but again were comparing to a softer quarter Q3 last year was by far our weakest quarter of the year.
And then it starts to get a little closer as we get into the fourth quarter on a year over year growth perspective, the numbers aren't quite as significant but it's still indicates growth through the back half but I'd.
I would say I guess at a at a diminishing run rate from where it is right now.
Got it no that makes sense and then my last question.
Just a follow up to Kevin Fischbeck Adobe's questions on kind of like what Youre seeing in terms of duration and the flexibility of day.
Demands from your hospital clients are you seeing any interest or.
Openness from the hospitals or want from the hospitals to come up with quicker.
Quicker placement shorter solutions that are more much more flexible versus traditional.
Four weeks six weeks lag.
Yeah. That's a good question look I think I'm one of the things that we talk about our company in 2021 is speed and acceleration everything is about being able to fill the order with the best most clinically.
Qualified healthcare professionals and really minutes, you know from the time, a job seeker chooses a an assignment.
That he or she wants to look at to the to the time. It takes to interview that candidate and go through the whole process of Credentialing and Onboarding, we wanted it to be as fast as possible.
And that's you know kind of on the recruitment side. Your question I think is.
Largely around the duration of the assignment.
You know we think we're going we think you know travel nursing is a bit around for you know in our company for over 35 years.
Assignment length isn't attractive work period, we get.
Excess of 60% or more than that in terms of our renewal rate with our travel healthcare professionals and we think that's going to you know.
Revert back to.
The history in this industry and that was it.
For day inside we also cover that too.
We are a full total talent solutions provider and being able to fill a shift or a two week or four week or one week type of work order, we can do that as well. So we feel we're well positioned for whatever the work length of time. It is and then just one other comment I'll make is we are seeing you know as we've talked about.
Clients seeking innovative solutions.
We're also working with those clients to help them on what we call referred to IRR P, which is helping develop flow pools and the technology to deliver their own internal.
Staff as well to augment their needs in this supply constrained marketplace.
Awesome. Thank you.
Ladies so thank you. Okay go ahead Michelle.
Ladies and gentlemen, this does conclude the Q&A period, I'll now turn the call back over to Kevin Clark for closing comments.
Great.
Thank you Michelle and thank you everyone for joining us. This evening, we look forward to updating you on our progress.
On our progress in the second quarter stay safe I'm happy nurses week and happy nurses month to all of those are you know heroes out there on the front lines I appreciate it good evening.
Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation you may now disconnect.