Q2 2021 Cross Country Healthcare Inc Earnings Call
Yeah.
[music].
Uh huh.
The only thing.
Okay.
Uh huh.
Uh huh.
Okay.
Uh huh.
Thanks.
Good afternoon, everyone and welcome to cross country healthcare second quarter 2021earnings conference call. Please be advised that this call is being recorded and a replay of this webcast will be available on the company's website details for accessing the audio replay can be found on the company.
Our earnings release issued this afternoon at the conclusion of the prepared remarks I will open the lines for questions I would now like to turn the call over to Mr. Bill Burns Cross country Healthcare's, Chief Financial Officer. Thank you and please go ahead Sir.
Thank you good afternoon, everyone and welcome to cross country Healthcare second quarter of 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 delivery also joining us today as Pamela Young Division President of our most recent acquisition Cross country work Force solutions group.
Welcome Pamela.
Today's call will include a discussion of our financial results for the second quarter of 2020, 1 and our outlook for the third quarter. The copy of our earnings press release is available on our website of 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 and the company's 2020 annual report on form 10-K, and quarterly reports on form 10-Q, as well as and 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 the 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 also during this call we may refer to pro.
Former or normalized numbers pertaining to our most recent acquisition and so the results were included or excluded from the periods presented 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 before I get into the business results I'd like to start by welcoming Pamela young to our call this quarter and with the CEO and founder of our most recent acquisition workforce solutions group and entrepreneurial women led business and she brings a wealth of industry.
Experience to our company.
Our first acquisition since my return it was important to me that we were very deliberate and identifying with the.
The company debt not only has a strong track record for growth, but also would be of great cultural fit we are highly encouraged by the team of talented individuals who joined cross country as well as the trajectory of this business and we believe it will be of platform for continued growth as we enter the home care market and a more meaningful way.
This acquisition aligns with our strategy of following the patient and delivering quality clinicians across the entire continuum of care, thereby allowing our clients to deliver on their mission of improving population health and delivering care to disadvantaged or economically challenged and communities.
Turning to the business a robust demand environment, coupled with solid execution allowed us to once again exceed expectations for both revenue and profitability. Despite the pressure from declining build rates receding from the Covid peaks, we again managed to expand the number of healthcare professionals on assignment.
And throughout the quarter with volumes up sequentially in every business.
Consolidated revenue for the second quarter of $331.8 million represented another milestone for cross country, reaching a new all time high for revenue and a single quarter adjusted EBITDA of $24.3 million also exceeded the high end of our guidance representing an adjusted <unk>.
EBITDA margin of 7.3%.
As expected our adjusted EBITDA margin pulled back from the 8% experienced and the first quarter as we continued to rapidly invest across most of most areas of our business on.
Touch on a moment on the nature of these investments, but let me next give you a sense of what we're seeing and the broader market.
From a demand perspective, we continue to experience record high levels of orders with continued growth and E. R and surgical specialties travel nurse orders were up nearly 50% from the start of the quarter, which we believe is driven by both the horizon the demand for healthcare services as well as challenges.
And building and maintaining core staff levels by many hospital systems. During the second quarter, we have seen declines and orders for intensive care and respiratory therapist as well as declines in orders for COVID-19 related positions, such as Vaccinators and screeners.
Of those specific Covid orders have been declining we are starting to see rising needs and certain markets tied to arise and hospitalizations stemming from the new Covid variance.
Since peaking in the first quarter, we are continuing to see bill rates come down a trend we expect to continue through the second half of 2021, however, with the persistent shortage of clinicians we continue to see elevated compensation costs, which may result in bill rates remaining higher than pre COVID-19 rates for the foreseeable future.
And as always it is our goal to remain flexible and competitive while ensuring we can provide the clinicians that our clients need to deliver the highest standard of care.
Turning to the segments revenue for nurse and Allied rose by 58% over the prior year fueled by double digit growth across our major line of business throughout the second quarter. We continued to grow the number of healthcare professionals on assignment and as a result billable hours were up nearly 9% sequentially on and off.
Organic basis for the segment.
And the majority of our organic growth was in our largest business travel nurse. Despite the 15% sequential decline and bill rates. We grew the number of professionals on travel assignments and experienced a 13% increase and billable hours and we.
The attribute this growth and head count the solid execution.
Further investments and revenue producers as well as continued improvement and productivity.
Since the deployment of the applicant tracking system in late Q3 of last year, we have experienced significant growth and the average number of professionals on assignment per recruiter with the most significant improvement seen with recruiters, having 1 to 3 year years of tenure.
As a result for the second quarter and a row, we have achieved another milestone for the highest number of professionals on assignment and more than 20 years.
And also within the nurse and Allied segment, our travel Allied business experienced strong sequential growth of more than 25% almost entirely due to an increase and billable hours as bill rates were essentially flat for that business.
Our local business was down approximately 4% entirely due to a decline and bill rates as they had fewer Cobra COVID-19 related orders.
Before I move on to physician staffing, let me just give you some color on the performance of our most recent acquisition <unk>.
And that the deal closed so late in the quarter, we only recognized $5 million and revenue for Q2.
On a pro forma basis. This business has nearly doubled from the prior year and had the strong growth trajectory for the balance of the year and into 2022.
Now the USG is a leader and providing temporary clinical staff and the homecare market with an emphasis on caring for the elderly, which expands our client base, thereby providing additional opportunities for our clinicians.
We are obviously very encouraged by the performance of the segment as well as by the progress we've made on developing and deploying technologies, although we certainly can't predict whether there will be another surge of COVID-19 orders as cases seem to be on the rise. We do expect this segment will continue to experience sequential volume growth throughout the second half.
Half.
Our only other segments physician staffing was down 4% over the prior quarter, primarily as a result of bill rates and mix as the number of days filled.
And we're up slightly we continued to see an upward trend and both primary care and anesthesia as well as strong demand for advanced practices, such as CRM as with the continued recovery of this business from the pandemic and more physicians projected to take vacations. This year, we expect to see sequential growth for the third quarter.
<unk> above the historic seasonal trend of low to mid single digits.
From an MSP perspective spend under management for the quarter was down approximately 1% primarily as bill rates continue to decline, though partially offset by higher demand our capture rate of MSP was approximately the approximately 74% a slight decline from the first quarter, the well above our hit.
Stork levels and.
The number of MSP orders continues to rise well above pre COVID-19 levels. Our focus remains on ensuring that we deliver the critical staff to our clients with the highest needs as the result of the higher spend under management and the increase and our capture rate staffing revenue from Msp's rose, 79% over the prior year.
And represented nearly 50% of our consolidated revenue.
From a technology perspective, we continue to make progress on further enhancements to our applicant tracking system for travel nurse and travel allied as well as adding functionality to cross country marketplace, our proprietary mobile application.
Other projects, including the replacement of our payroll and billing systems as well as the rollout of the applicant tracking system to a local business and the first half of 2022 will position the company well for sustained revenue growth and improved profitability.
I remain encouraged that the digital transformation, we set about 2 years ago is on track and we are seeing the benefits from these investments.
Looking ahead, we expect to see demand remain at these elevated levels, especially of system space continued labor shortages.
Covid rates will likely continue to decline the exceptionally tight labor market may offer some resistance to declining rates and.
And partnership with our clients, we continue to collaborate on strategies aimed at managing their temporary labor spend offering them comprehensive solutions in recent months, we have seen higher interest in our recruitment process outsourcing services.
And both existing and new clients. This is a prime example of our 1 source of total talent solution, where cross country brings its 35 plus years of deep and political experience and full suite of services leveraging our extensive candidate database as well as what we believe to be best.
And class tools for attracting candidates to assist clients and filling their core staff needs.
For the third quarter, we expect revenue to be between 310, and $320 million, representing a 60% to 65% increase over the prior year and a sequential decline of between 4% and 7%. The primary contributor to the sequential decline the remains of the trend for norm.
<unk> travel nurse Bill rates.
As I mentioned previously the scarcity of clinical labor is leading to higher compensation costs and as a result, lower gross margins gross margin for the third quarter is expected to improve modestly over the second quarter as pay rates continued to normalize.
Also impacting the sequential comparison is the impact of summer vacations on our higher margin education business.
From an overall profitability perspective, we are targeting adjusted EBITDA of $18 million to $20 million, representing and EBITDA margin of 5.8 to 6.3%.
With demand remaining near historic highs and our ability to ramp new producers, we are continuing to invest and additional revenue generating capacity to fuel faster growth in the coming quarters and the first half of 2021 more than 90% of our new hires have been and revenue producing roles such as recruitment or.
Management.
And we expect to continue investing throughout the third quarter to satisfy the growing needs of our clients.
Before I hand, the call over to Bill I, just wanted to add how proud I am of our entire team. We recognize that the milestones achieved were during a time of extraordinary volatility and increased bill rates, but I have no doubt that it is the ability of this great team to execute that has made everything we have accomplished Pos.
<unk>.
I am excited about our direction and remain personally committed to lead the company and our strategy, we set out and achieve our stated goal of reaching and 8% adjusted EBITDA margin by the fourth quarter of 2022, we.
We have of passionate service oriented team, who work tirelessly everyday to deliver the best experience for our clients and the professionals. We place now let me turn the call over to Bill to walk us through the results and more detail Bill.
Thanks, Kevin.
For the second quarter Cross country continued on its trajectory of improved performance with both revenue and profitability significantly higher than the prior year and well above our guidance ranges and <unk>.
Addition to the strong performance, we consummated our first acquisition and several years and secured attractive terms for new subordinated financing, we believe the new $100 million term loan not only brings a strong partner and to our financing structure, but also create some additional firepower for future investments.
Consolidated revenue was $331.8 million up 50% over the prior year and 1% sequentially.
Kevin mentioned revenue was driven by a combination of both higher bill rates as well as an increase and professionals on assignment across most of our business.
Turning to nurse and Allied revenue was $316.2 million, representing 95% of our consolidated revenue.
And as compared to the prior year revenue for the segment was up 58% with approximately 63 per cent of the increase attributable to an increase and billable hours.
Sequentially. The segment was up 1% due to an increase and the billable hours as well as the impact from the acquisition of WSJ.
Average bill rates were up roughly 16% over the prior year, though down more than 12% sequentially, primarily due to the impact from rapid response orders related to the pandemic.
Fill rates within our travel nurse business were down 15% sequentially, primarily due to the decline and rapid response orders for Covid and the continued efforts to normalize our rates for clients.
Throughout the pandemic, we've worked closely with our clients flex and bill rates up and down as appropriate to ensure that we can provide the clinical staff they need while COVID-19 cases seem to be on the rise driven by the new variant. We continue to expect a further sequential decline and bill rates for the third quarter and.
As Kevin mentioned, a rising demand environment, coupled with the needs for rapid response clinician stemming from the new variant could impact the bill rates as we go through the second half.
Our local business continues to recover from the impact of the pandemic and was up 26% over the prior year with roughly half of that growth coming from and increase in billable hours and.
Similar to travel nurse, we've seen higher bill rates over the prior year, which had been trending down since reaching a peak earlier this year.
Also within the nurse and Allied segment travel Allied continues to see robust growth having doubled over the prior year, placing that business on an annual run rate of well over $100 million roughly.
The 2 thirds of the growth and this business has come from and increase of professionals on assignment, primarily and the areas of respiratory therapy and imaging.
Lastly revenue for education business was up 132% over the prior year entirely attributable to volume as the business recovered from the Covid related school closures last year.
We are ready for the start of the New school year, when many of our education clients will resume and personal learning, though we expect to continue providing virtual services wherever necessary to ensure that every student receives the services they need.
Turning to physician staffing revenue was down 4% sequentially and 7% over the prior year.
The number of days filled rose slightly on a sequential basis as the business continues to recover from the impact of Covid.
We remain encouraged with the underlying trends and expect to see double digit sequential revenue growth and the third quarter.
Gross profit for the quarter was $72.6 million, representing a gross margin of 21, 9%, which was up 20 basis points sequentially and 150 basis points lower than the prior year.
Our gross margin continues to be impacted by the mix of rapid response assignments related to the pandemic as well as the higher the normal compensation costs due to the extremely tight labor market.
As anticipated pay rates, especially on the travel nurse business have declined slightly faster and the bill rates and we're working with clients to return to more normal bill rates and the restore gross margins.
Despite the year over year declines and gross margin. The gross profit dollars were up 43% of the prior year further improving our operating leverage.
Total SG&A was $50.3 million for the quarter up 19% of the prior year and 9% sequentially. The primary drivers of the increase our costs related to the investment and revenue producers and higher healthcare costs as the individuals' resume more normal use of care as well as the addition of WSJ.
Relative to the prior year and another strong driver relates to higher incentive compensation costs driven by the strong performance in the current year.
As Kevin mentioned demand remains strong and given the improved productivity across our travel business. We expect to continue making investments and revenue producers to fuel continued organic revenue growth and the coming quarters.
There were several other items worth calling out on the income statement, we recognized restructuring costs of $900000 associated with severance and other costs and $1.9 million noncash impairment charges in connection with the exit of certain leases.
We also incurred approximately $900000 of acquisition related costs pertaining to the recent transaction.
Interest expense was approximately $1.2 million, representing an increase of $500000 both sequentially and over the prior year.
The increase was driven by the interest cost associated with our new $100 million subordinated term loan secured in conjunction with the acquisition of WSJ.
The proceeds from the $100 billion subordinated term loan were used to pay the $25 million cash consideration and fees related to the acquisition and to pay down our ABL, which kind of of course the rebar.
From a balance sheet perspective, we ended the quarter with $18.
$1 million, and cash and $116 million and outstanding debt, excluding letters of credit and.
As of June 30 of the company was able to access the full line under the ABL.
From a cash flow perspective, we generated $15.5 million.
And cash from operations following the use of cash and the first quarter driven by the sequential growth from the business ex.
Excluding the impact from the acquisition of our day sales outstanding was 56 days flat to the first quarter and down 2 days since the start of the year.
Capital expenditures were $1.8 million for the quarter, principally related to continued investments and our digital transformation and <unk>.
And speak to our outlook.
We expect consolidated revenue to be between 310, and $320 million, representing a 60% to 65% increase over the prior year.
Demand remains strong across the nurse and Allied and we continue to make progress on growing our head count on assignment of cross nurse and Allied our guidance assumes a sequential decline and bill rates for our travel nurse business with most other businesses of remaining fairly consistent we expect to see of mid single digit sequential increase and volumes as we continue to ramp new producers and capitalize.
On the enhanced productivity from our technology investments as always there will be of seasonal impact on our education business with the summer vacation, which was partly offset by stronger demand for physician staffing.
We're getting to a gross margin of between $21.8 and 22, 3%, which represents a 10 basis point decline 2 of 40 basis point improvement on a sequential basis.
Gross margins continued to remain lower than the prior year, primarily as a result of the lower margins realized on the rapid response orders related to Covid and the entire incredibly tight labor market, we mentioned earlier.
Adjusted EBITDA is expected to be between 18, and $20 million, reflecting and EBITDA margin of 5.8 to 6.3% the.
The combination of lower operating leverage from a decline in revenue coupled with continued investments and revenue producers are the primary drivers for the sequential decline.
Our adjusted earnings per share range is 30% to 35.
Also assumed and this guidance are depreciation and amortization of $2.6 million.
Interest expense of $1.9 million stock based compensation expense of $1.6 million.
<unk> expense of $800000 and the fully diluted share count of $37.1 million shares.
And this concludes our prepared remarks and at this point, we'd like to open the lines up for questions operator.
Thank you and if you would like to ask a question. Please press the star 1 if you wish to withdraw your question Press Star 2 again to ask a question. Please press star 1 and it will take a few moments for questions to come through so please standby.
Alright, and our first question comes from Brian <unk> with Jefferies and your line is now open.
Hey, good morning, guys congrats on the strong quarter.
And I guess my question is on the comment you made about your expectation for rates going forward I mean, it sounds like.
And with Delta of picking up hospitalizations picking up and just broader demand from the hospitals remaining high.
And even the publicly traded hospitals, saying that they are still using a lot of contract labor.
Is this just conservatism or.
Is there something you're seeing quarter to date as it relates to the bill rates.
Yes, Hi, Brian Good question.
Look the 1 thing that's been interesting about.
And the this summer as we've seen the market change and shift almost on a daily basis, and we've seen the demand go up.
Most of our to our so.
It is a very fluid situation as we all know through the country. What we're seeing right now are regional spikes, especially in states like Florida, and Texas and <unk>.
Throughout the southeast and in those markets, we're seeing bill rates again began to spike.
The broad market.
And it has also come back of course since the decline in Covid.
From the first quarter and those bill rates, obviously have declined as we've called out as we I would reaffirm that we think that the overall bill rates are going to remain higher than pre COVID-19.
And I think theres going to be some noises, perhaps the delta variant spikes through the next few months.
Got it and then I guess my follow up on the flip side of the recruitment side right. I mean, it's obvious that we got some nurse has to come out of the woodwork and.
Travel nursing during the pandemic are you seeing a reversal of that yet as it relates to your ability to recruit.
Nurses.
Yeah, not not all start that and maybe I'll throw it over to John as well.
The cross country and over the past 2 and a half years I mean, we are coming out of.
The pandemic with I think and flying.
And flying colors, 2.5 years in terms of our digital transformation I think we've become the number 1 company per talent attraction.
Instituted a lot of different technology to be really good at acquiring the candidates that we need for our clients.
As you pointed out first time travelers are up significantly this year.
And that trend continued through the second quarter I think cross country has clearly become the company that healthcare professionals are turning to <unk> as well as large hospital systems to partner through this pandemic and now the delta variance so I.
I don't think so, but John do you want to add to that.
Sure Kevin I think you covered it pretty thoroughly but I would say 1 of the things we're seeing Brian is that our renewal rates have been held steady all throughout the pandemic and still have been and so that's the indication that we are still keeping those.
Those clinicians as well as Kevin said, we've had.
And the increase in the first time of travelers at cross country.
And so we've definitely done that and and also as kind of also mentioned and coal.
Just on marketing team has done an incredible job of creating more leads for us and and that's really helped us to help our producers of bringing more clinicians to help the supply to our hospitals.
That's awesome. Thank you guys. Congrats again thanks.
Thanks, Brian.
Thank you and our next question comes from Kevin Fischbeck with Bank of America and your line is now open.
Okay. Thanks.
Yes.
And the labor constraints and something that and put a bunch of the companies have complained about.
And youre seeing pressure on it the varying degrees I guess the companies who are more optimistic about this.
The better and the back half point to the.
The supplemental benefits unemployment expiring in September and do you.
Guys think that that's going to be a.
And the impact of supply and potentially hurt.
The demand for your services and any of your service lines, and if so which ones maybe most of the risk.
Yeah, I'll start that and I'll ask Buffy to comment as well look we have Kevin.
We have seen exploding demand right.
And we've just seen demand increase and.
Every specialty.
On the.
The impact of.
The subsidy from the federal government on CNS and the <unk>.
<unk> down professional areas.
Is an area that does concern us because.
Orders are so high right now.
So I think.
It would be viewed as the big positive.
And that supply comes back into the healthcare marketplace.
And we have thousands and thousands of unfilled jobs, but both of you might want to add to that.
Yes, certainly so I think at this point of clients see the criticality to have a sound workforce solution strategy and the.
And the need for contingent staffing really is not going to go away they need the ability to flex.
Albeit a lot of facilities and systems are trying to rebuild our core staff and we mentioned that the benefit. There is we do have an integrated solution, where they can help them with their contingent search on their rps low.
The recruitment process outsourcing theres always going to need to be a level of contingent staffing. So we've really taken a position to consult on what is that optimal contingent staffing what's the percentage of contingent staffing against their FTE and salary cost.
As it pertains to their patient care revenue. So I think those insights along with the business intelligence and analytics. We can provide we help establish what is the right level of contingent staffing. So again it gives them that nimble workforce moving forward to manage to the seasonality of the flu.
And the different cycles that they're seeing but I do think that heading into the next.
On a couple of quarters, we're seeing some of that mix. They are still going to the high demands because of COVID-19 their loans and because of some of the indirect result of Covid and we are uniquely positioned to fill them.
Okay, Great and then I guess.
Thanks, a couple of times that the Covid starting to come back and in certain markets I guess, what does your guidance assume for Covid and the back half of the year and is it right to assume that of Covid does spike again that it would be upside to the guidance or is there any mitigating factor or anything that would make another spike that act the same way debt.
It drove the upside last year.
Well good.
Good question I mean, we don't have a crystal ball of course.
We've done the best possible job with the data that we have to forecast our guidance we feel we.
We have the right guidance range, but bill maybe you want to add some thinking to there.
Yeah sure Kevin how are you and this also goes to some of the question that Brian was asking as well about rates. So what we are expecting is that as we start this quarter bill rates will decline sequentially as they did throughout the entire second quarter month over month, we saw at the travel nurse Bill rates coming down what we've got modeled and is that they level off coming in from the.
A month of July so not a further continued decline off of where we start the quarter, but obviously of decline over the second quarter. So there. So thats factoring into a degree that there is some leveling off and there and that some of these COVID-19 assignments will create a likely uplift and some of the bill rates as we go towards the latter part of the quarter, but we are obviously a month and so it.
It really comes down to I think the mix and and how many orders we're able to fill of these COVID-19 spike from the variant that could drive a different outcome for the bill rate and for revenue, but for now from what we've modeled and as kind of of stable bill rate throughout the throughout the third quarter.
Okay. Thanks, and I know you just last question.
And you mentioned that the local.
Business was down 4% I think that was the revenue and our recent mostly due to pricing.
What was the volume number there I guess why isn't the local seeing the same kind of.
Strong broad based demand at the other services and Youre seeing and I guess, we always kind of wondering.
And any impact there between the sites and areas, where you have closed or consolidated the site versus the areas, where you didn't consolidate effect.
Yes, maybe I'll start there and bill can weigh in as well I mean look we were.
We are seeing big demand on the local marketplace, but 2 things 1 interestingly you asked the question about CNA and patient care assistance and the step down professional areas debt.
And that has been and impact on our local business and the sense that the labor supply there is even more constrained right and.
And the second piece I would say there. Kevin is also that division was doing especially in the first quarter of lot of business.
Providing vaccinators on screeners to testing facilities and that business is really wound down so those 2 factors.
And the decline and fill rates, which you noted.
What are contributing to kind of.
It was relatively a flat quarter.
If you take the fill rate.
Into considerations of 1 bill you might want to add to the.
Alright, Thank you answered it perfectly I would just add some color on the year over year. So if you if you remember back to what we saw last year during COVID-19, our local business really with the hardest hit is kind of hospitals, where we're shutting down and furloughing workers. So when you look at the year over year on a local basis. The volumes were up double digits. So while sequentially. They are up about 1% on a year over year basis on a local business.
It was up about 13% so despite the fact that we've seen pullbacks and difficulties and filling some others. We are obviously still inching forward on growing the head count on assignment there.
Okay. Thank you that's helpful.
Thank you and our next question comes from a J Rice with credit Suisse and your line is now open.
Thanks, Hi, everybody.
Couple of quick questions here, I know, you've given us sort of the aggregate trend and.
And would you expect on what Youre seeing and bill rates.
When you zero in on those Delta hotspots and seeing some marginal.
The demand coming in there are those having the same premium rates and those situations that you saw and the other.
Areas of Covid hotspots previously or are those more normalized rates.
Yeah.
Okay.
Good question.
We're seeing in those specific areas spikes up and the bill rate, which.
Our club.
Closer to what we saw in Q1.
And what we've seen over the course of Q2, so we are seeing some.
Higher bill rates.
Above where kind of the.
The the median fill rate has been.
Because of those areas are been severely impacted in terms of supply.
But.
And maybe it would be good to book to provide a little color around some of the markets that you know.
In addition to what I said earlier, Texas, Florida, the southeast, but there are some some interesting insights we can provide.
Certainly so.
Definitely we are seeing it and Florida. The southeast is 1 of the highest the areas, we're starting to see more on the central region and Texas.
<unk> and <unk>.
Some of the states, Jeff North and also starting to see it and California and prior it was maybe Q2 you saw a lot of ICU Med search Charley we are seeing increase in the <unk> and just given the timing of Covid, we're still seeing LNG activity. There are hospitals still continuing on with their own services and elective services.
So we're still seeing that demand but.
And we're really facing upcoming and what we typically see is the flu season, and so now we are back to facing the twin delinquent you got potential flu have winter season, you of holidays coming and so there's a need to secure staff through that period of time, plus the unknown of Covid and where we're seeing that we're monitoring all of the infection.
Rates of hospitalizations that just in the last 2 weeks of increased by 79% across the nation. So I do suspect that we're going to see some more demand there and.
And we're continuing to monitor Senate, where.
Working on our sourcing pipeline.
Okay, and then if you parse out the.
And the same and the other way.
So it seems like Theres still a in fact, increasing and fairly robust demand for the non COVID-19 placements youre seeing out there I'd be interested to know if you have.
A sense of what's driving that and you think the nurses coming out of the pandemic are taken time off to start or expand families are you seeing an increase and retirees with those types of nurses are there other things that are causing that I know, we've got some pick back up and deferred procedures, but on.
Just curious.
What youre hearing with regard to that and then given how tight that non COVID-19 demand.
It seems to be on how robust.
Are you seeing rates on that side of it increase at a faster than traditional inflationary rate of increase when you parse that out of the COVID-19 aspect of it.
And let me tackle the first part of the last part first.
The the non Covid bill rates.
The bills earlier comment had been steadily <expletive>.
Declining and we don't see we see them at a premium to where.
From a pre Covid perspective is but we don't see.
A meaningful spike in those non Covid bill rates.
And to answer your question the the issue with supply as the fatigue and the turnover and the burn out.
That the pandemic are laid on the whole supply.
And now with Delta worsening and these are big strange on the marketplace.
But we're also seeing from the pandemic a substantial pent up demand.
For example.
Some of our children's hospitals.
We think about as triple headwinds there.
And there is the typical of acute acute needs and trauma and injuries, but then theres preventive care on them a lot of kids were not.
Provided care during the pandemic and now the.
And the third factor and Thats really kind of.
Creating a lot of shortages.
For.
The HCP is and the demand side is this respiratory sinus and flu like symptoms debt.
The young people are getting in a period of time, where most of aren't vaccinated.
Okay that sounds great. Thanks, a lot.
Thanks, a J.
Thank you and our next question comes from Tobey Sommer with true of Securities. Your line is now open.
Hello, Mr. Summer, we cannot hear you do you'll have us on mute. Thanks.
Could you bridge a couple of variables that we see as key to hitting that 8% EBITDA margin.
Namely I'm kind of thinking of retracing some of the gross margin compression during this pandemic and then getting.
The SG&A leverage out of the revamp and real estate investments and tech and other areas.
Yes, Thanks Tobey.
Look I mean in terms of.
On our 8%.
And as we said and.
Our earnings script.
We are reaffirming we think we have.
The path to get the 8% by the end of next year and that's on the back of the substantial digital transformation that we have underway.
We're spending on an annual of investing and an annual basis $12 million to $15 million and Capex, we substantially upgraded the tools.
Throughout the enterprise, which our employees use as we called out we're seeing tenured recruiters with substantially high double digit.
Improvement in terms of their book of business as a result of.
<unk> and of modern innovative and.
Infrastructure.
So we feel really confident about that.
The other dollars that we're spending you know aside from infrastructure are about the whole candidate experience right we are creating.
Creating an experienced per candidates so that any healthcare professional over the course of our digital transformation will be able to if they can already look for a job with their iPhone and and very few of few swipes find the job that they're interested and submit their credentials and interview and minutes if not.
The same day.
And all of that.
The acceleration of our algorithm and compressing the business process.
And speeding up the the <unk>.
Hiring process for our customers.
We think dramatically improves our operating leverage as a company and the efficiency that we can bring to the marketplace.
Couple that with we just closed.
Our first major transaction.
Since 2017 of the first under my watch this wonderful company workforce solutions group. It has a higher gross margin profile and our overall business.
And as we called out the business has doubled over the last 12 months, it's an and exciting marketplace Cross country healthcare today is the only major company that offers.
<unk> Allied and physician workforce solutions.
Focus.
Offering through our 1 source of total talent solution that tracks.
Our patients.
And are getting their care. So we want to be the company that provides clinicians to what it wherever that continuum of care is so when you break that continuum of care into 3 pieces, the pre acute care piece, where we're talking about the wellness.
And care clinics ambulatory centers cross.
The country Locums, we could provide physicians cross country Allied we can provide allied therapist medical staffing network, our local business. We can provide those local clinical and even in some cases non clinical and acute care, that's our core business travel nursing travel Allied.
And we've got that covered and a meaningful way of nearly a $1 billion of labor under management and our MSP is 50% of our revenue now comes from our 80 to 85 MSP is.
And then now with workforce solutions group and <unk>.
And then I'll I'll introduce Pamela.
We have the substantial offering in the post acute care arena and we're the only major company that can provide care to seniors and elder and skilled nursing facilities home healthcare and hospice right to the home we have now with workforce solutions group over 2000 caregivers.
And care to patients in their home.
So we have a substantially focused approach to the marketplace.
There's other companies that are larger they are more diversified, but we go to market with our 1 source strategy total channel solution. So we're excited to bring higher margin businesses into that path to 8% more productivity amongst our talented professionals that work at the company.
Our ability to bundle of services and provide a mix of businesses.
The services, including as Buffy called out earlier, RVO Division and other <unk>.
Services that can grow our margins across enterprise.
But maybe I'll just for a moment if you don't mind Toby introduced a family of young because she's our the founder and the president of our workforce solutions group, but maybe Pamela you can introduce a little bit about your business and that's on a terrific growth path and we have these wonderful msos, which are very similar to our MSP is now part of the cross country family.
Sure. Thank you Kevin can you provide the clinical and non clinical temporary staffing RP O and direct hire search 2 I dive versus client base that includes the elderly and others that are and economically challenged and underserved communities. We also support markets like health systems.
Initially targeted specific population and business sector and California. However, we have successfully expand of that model throughout the last Midwest and the northeast and our partnership now with cross country and has enabled us to support clients from coast to coast.
And we're very excited about that.
And the sell model is the first and the industry and.
And we essentially assumed the responsibility for delivering the clinical and non clinical and temporary staffing of large systems across the wide range of specialties.
And with 1 key differentiator between our MSL model and the MSP model is that there are fewer suppliers and and additionally, we do offer a broader range of services within that model.
Similar to locals versus travelers.
First of all of the piano.
Of the patients.
And thank you very much.
What are you hearing from customers about nurse retirements earlier on the call.
It was kind of mentioned that clinic.
Clinicians came out of the woodwork to contribute.
Contribute to fighting the pandemic, we saw some pretty significant data I think about excess retirements above what would be of normal trend and the first quarter. So wondering what hospitals are saying.
Sorry about the background.
Yeah. That's a great question I think 1 of the Mega trends that we're seeing the though which counterbalances some of the.
The supply constraint the turnover of the burn out people, leaving.
Is a greater adoption of.
Temporary staffing as a career choice and the evidence there is the first time of travelers that we've seen all year.
As part of our workforce. So we think that that's an important.
<unk> and I think.
And the flexibility of.
Being able to work and states for example, the state of California.
Is the highest.
And salary average and the United States. It's also the largest state of $120000 of the average nurse makes on a per year basis.
And their states like New York, which are about $90000 a year of etcetera. So these are attractive.
Compensation and benefits and having the flexibility to work when and where you want.
In the the environment that you Werent, we think of bodes well for.
Cross country healthcare, what we provide I'd also say that we have we created a much stronger value proposition to healthcare systems through the pandemic and now the spike where they recognize they need a partner like cross country.
And to stand with them to help supply the labor and redistribute distributed from 1 part of the country to where it's needed most.
It's our journey is becoming.
On the.
The best in class around talent attraction and talent acquisition.
Being able to nurture talent and tools for our customers being able to have just in time staffing or direct hire.
<unk> <unk> and all of those services, we think will be attractive.
And especially to what is now mostly millennial healthcare professionals, especially and the nursing Roe.
I don't know John if you have anything you would not want to add the toby's question on that.
Hi.
He covered it pretty well there again, Kevin but the other thing I would say just there'll be debt definitely correct that there's definitely been a burn out and fatigue and which clinicians.
And that has caused hospitals to be really short on core staff and I think that was the jolts report, you're referring to and the first quarter. They came out with higher clicks and average and that is something that has definitely affected hospitals and has 1 of the.
The weakness we've seen such an increase in demand.
For orders and the and Lisa last previous several months and so as we continue.
The attractive versus what we're giving you is our clients are looking for us to fill those voids of the core staffing and as Kevin mentioned, it's a very attractive lifestyle to be a traveler and these nurses that are leading the of core staffing and the industry to get out of bed side full time day, coming and being able to enjoy of more.
The flexible lifestyle and maybe not to work of 12 months out of your bedside, but to work several of assignments of year and be able to that and not have to work those assignments. The rest of the year. So I do think that we are seeing a uptick and these first time travelers which of the benefit the hospitals to have that flexible supply from us.
Thank you very much.
Thank you and our final question comes from Kevin Steinke with Barrington Research and your line is now open.
Good afternoon. Thank you.
I wanted to follow up with the question on WSJ Bill I.
Thank you mentioned the.
$5 million contribution.
And the quarter from the acquisition so.
Is that kind of the run rate we should.
Think about.
As we move forward and our modeling.
I guess, it's also a rapidly growing business, but just kind of any framework.
Framework you can provide for the revenue contribution we should be thinking about from the acquisition going forward.
Thanks, Kevin Yeah. That's that's a really good question I think if you you're right. If you take the $5 million in revenue that we called out for the call. It 3 ish weeks that we owned WSJ and you.
Turn that into a quarterly number you'd come up with ballpark around $20 million. So I think if you use that as a placeholder and our Q3 guidance. That's a that's a good starting point, but it is a rapidly growing business and as Kevin pointed out its been doubling over the prior year and even during COVID-19.
This business managed to continue to grow and double digit territory and that was not.
Some of Covid bump that was continued expansion of the programs and putting people to work so.
They did not have the WCS and not have the kind of same impact that we might've seen on per se on on travel business. So it's quite it's really quite impressive that they were actually able to.
And I continue to see that kind of growth even during the pandemic and obviously now that kind of things are stabilized and there's been a resumption of healthcare and we've managed to stand up more programs.
We're on a really solid trajectory. So just going 1 quarter out I think 20 millions of good placement of holder for now.
Okay. Thanks, that's helpful.
And can you just.
Give us a little bit more of a status update on the education staffing business in terms of just the.
The mix of what you see clients are doing in terms of.
Fully and classroom versus virtual versus some hybrid.
Sort of model.
Sure Kevin.
First of all we are.
Cross country education, or education business has exceeded our expectations and a very tough market.
You know, it's our highest gross margin staffing business.
We've been investing in and the business as it's coming out of the pandemic.
Whats interesting is that school systems are receiving unprecedented levels of funding.
And the key modalities.
We provide.
Including speech, which is our number 1.
Segment, as well as healthcare professionals and.
And special education providers.
All can be delivered either in person.
<unk> worked through a virtual offering which powered us through the pandemic with many of our clients in terms of their key orders and so we're very bullish on the segment, but John you might want to provide some additional insight for Kevin on.
And how the business is performing.
Sure so definitely Kevin, especially on the on that mix of where we're seeing in person versus virtual and.
And what we're seeing right now and the beginning of the school years in person and increasing into the new school year and.
And there is continued demand as well for virtual surface and this is not all of the students.
And we're going to be able to return to in person.
<unk>.
There is definitely still staffing constraints of that will continue to pressure schools to think about alternative ways to.
And be able to provide for the students as a lot of we've seen a lot of teachers have resigned also and the last year due to the pandemic and the COVID-19 concerns and so there'll be still Inc.
And what that will have virtual that theres going to be very key part of the school season and the other thing we have to consider is now that we're seeing the surge of the Delta area.
Some schools may change, how they operate and the next couple of weeks. So as the surge has just started coming in and the last couple of weeks.
Can it be paying very close attention and it being kind of constant contact with our schools to see how thats going to affect them and how that will change their options of moving from the.
In person and learning to virtual line.
Okay. Thank you and then just 1 last question from me.
You've obviously talked a.
What about the.
Shortages of clinical labor, but as you are.
Out there recruiting for new revenue producing head count on in terms of recruiters and account management.
Are you seeing any constraints to the labor supply and there you know kind of hot.
And how hard or.
Is there any difficulty and.
Finding those people.
Yeah, Kevin it's of Great question.
It is a real challenge the fine.
Employees no matter, if you're a hospital system or your workforce solutions company or I'm sure Amazon and feels the same way.
Having said that we've hired hundreds of new employees. This year, our turnover rate has never been lower and what I'm. Most excited about are a lot of the revenue producers that we've attracted as well as mid and senior management have come from some of our peers Cross country is clearly the company.
That employees want to work out.
We are a company.
The company that prides itself on strong core values and ethical stance throughout the pandemic and.
All of those things are important and the fact that we have the SaaS, becoming the most innovative company and the marketplace that we're investing our capital and our employees tools and and all of this technology to the marketplace.
And makes cross country.
The company to be at so.
Although it's a struggle we've been very successful and we're having a terrific success as our employer brand.
Gross substantially and the marketplace.
Great. Thank you very much.
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.
Yes. Thank you everyone for joining us. This evening, we look forward to updating you again on our third call. Please stay safe everyone.
Thank you and ladies and gentlemen, this does conclude today's conference call. Thank you for your participation you may now disconnect.