Q1 2022 Cross Country Healthcare Inc Earnings Call
Good afternoon, everyone and welcome to the cross country Healthcare's, earning conference call for the first quarter 2022. Please be advised that this call is being recorded and a replay of the webcast will be available on the company's website details for accessing the audio replay can be found in the Companys earnings release.
Issued this afternoon at the conclusion of the prepared remarks, I will open the lines for questions I would now like to turn the call over to Josh Vogel Cross country Healthcare's, Vice President Investor Relations. Thank you and please go ahead Sir.
Thank you and good afternoon, everyone.
I'm joined today by our President and Chief Executive Officer, John Martin as well as Bill Burns, Our Chief Financial Officer, Dan White, Chief Commercial Officer, Buffy White, President of workforce solutions and Mark through group President of delivery.
Today's call will include a discussion of our financial results for the first quarter of 2022 as well as our outlook for the second quarter.
B 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 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 2021 annual report on Form 10-K, and 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 for or superior to those calculated in accordance with U S. GAAP more information related to these non-GAAP financial measures is contained in our press release also during this call we may refer to pro forma when normalized numbers for <unk>.
<unk> of our most recent acquisition and the results were included or excluded from the periods presented with that I will now turn the call over to our Chief Executive Officer, John Martin's.
Thanks, Josh and thank you to everyone for joining us this afternoon I'd like to take a moment to welcome several new individuals' Nicole first welcome Josh as our new Vice President of Investor Relations.
We're looking forward to the value you can bring to cross country shareholders leveraging your nearly 20 years as a sell side analyst covering health care and business services.
I'd also like to welcome our newest member of the executive leadership team Dan White data is someone that is well known across our industry and I have had the privilege to work with him at a prior company.
As we shared in a recent press release dermal serve as Chief commercial officer, a newly created role for cross country that we can expect will enhance our go to market strategy with our proven ability to deliver clinicians we are investing heavily in driving even more new business.
And then we will look to augment our current sales team by adding even more experienced professionals from our industry towards talented bench as well as ensure that the entire sales cycle is as efficient as possible offering a best in class experience for prospective customers.
Another individuals joining us for the first time, though certainly not new to cross country as more crude <unk>.
Mark was recently promoted to the role I previously held as group president of delivery.
Since joining cross country more than five years ago, Mark has been at the heart of overhauling and refining our delivery capabilities, having nearly triple the number of travelers on assignment in the last three years.
Truly believe that we have the best leadership team in the industry and that the company is still well positioned for sustained long term profitable growth.
With the culture, we have established as a company committed to excellence and ethical practices. It is clear to me that we are quickly becoming the employer of choice for staffing professionals.
Just since the start of the year, we have hired more than 300 professionals, 95% of whom are revenue producing ore and operational support roles to fuel. The continued strong performance we have demonstrated.
I would especially like to thank Kevin Clark for his leadership over the last few years at CEO and since April one as our chairman of the board.
As a result cross countries emerging for the pandemic a digitally transformed financially stronger company with a continued commitment to clinical excellence quality and service.
Our ability to deliver in these tough times has solidified our brand reputation as a trusted partner.
<unk> of clients and tens of thousands of clinicians and professionals.
I am thrilled to be assuming the role of CEO at this pivotal time with.
With my years of industry experience and background as a software engineer.
I see a clear path to build upon the accomplishments of the last three years and expect to establish cross country as a digital leader in health care staff.
With an emphasis on self service for both candidates and clients I will touch on some of the exciting aspects of our digital roadmap in a few minutes, but first let me briefly discuss our performance I.
I am pleased to share that we delivered yet another historic milestone in the first quarter for both revenue and profitability.
Consolidated revenue was up 140% from the prior year to an all time high of $789 million.
Growth was broad based with all lines reporting year over year increases in the majority of that growth coming from a more than 100% increase the number of professionals on assignment.
Sequentially revenue was up 23% driven predominantly by an increase in billable hours and only a relatively minor impact coming from higher bill rates relative to the same period in 2020 prior to the onset of the pandemic first quarter 2022 revenue was up about fourfold again with the majority.
Coming from growth in the number of professionals on assignment.
Bill will discuss gross margin in more detail shortly.
But as I talked about previously we've experienced significantly higher bill rates as a result of rising compensation costs across most specialties.
The initial spike at the onset of the pandemic was clearly related to significant risks faced by our professionals on assignment, which continues to a degree today.
However, we believe the continued pressure on labor cost is as much a function of the extremely tight labor market with demand remaining fairly strong amidst a low to mid single digit increase in patient census at many of our clients as well as health systems struggling to maintain their level of core staff due to burn out.
And Rick highlights.
We also believe that the shortage in core staff is at least partially being driven by health care professionals of all ages embracing the gig economy, where they can be empowered to choose when and where they want to work as a lifestyle.
As a result of this historic revenue growth in our business as well as the operational efficiencies, we have realized including deploying new technologies like the applicant tracking system for our travel business.
We have significantly improved our operating leverage.
Our continued strong execution had allowed us to report another record quarter for adjusted EBITDA of $97 million.
Representing the second consecutive quarter for adjusted EBITDA margins above 12%.
This historic performance was made possible by our dedicated team and their unwavering commitment to the highest quality of service to our customers clinicians and professionals.
Turning to the market overall demand remains well ahead of the prior year, though down from the peak seen during the pandemic with diminishing COVID-19 needs travel orders declining during the first quarter and have stabilized at a level that supports our ability to continue to grow the number of travelers on assignment.
Also noteworthy is the robust demand we continue to see across our other lines of business, including local staffing Locums education home health RPM and search.
With health systems, providing increased labor cost and a desire to see contingent usage normalize we are proactively working with clients to assist them in building up their core staff through a recruitment processing outsourcing solution.
Given the competing challenges of a tight labor force the desire by professionals for flexibility in the rigors of delivering bedside care, leading to more conditions, leading the workforce is unclear how or when the trend towards higher utilization of contingent staff will normalize.
As large health systems work to lower the cost.
We continue to see a shift from acute care settings to outpatient ambulatory care centers and working with our breadth of coverage across the healthcare continuum.
We are well positioned to capitalize on this trend.
With demand moderating, particularly for the travel business, we are actively working with clients to normalize bill rates wherever possible.
However, as I mentioned, a moment ago, the persistent labor shortages are fueling higher labor costs and as a result higher bill rates.
The market dynamics, we will likely be some resistance to the speed at which rates come down or how far the moderate.
Just on the bill rates for open orders and our mix of business. We are anticipating modest sequential declines in the high single to low double digit range throughout the year ending the year down approximately 35% as compared with the first quarter.
Regardless of how rates may evolve, we expect to grow the number of professionals on assignment with our second quarter guidance, assuming a mid single digit sequential increase in travelers on our site.
Though the pandemic appears to be winding down or at least settling into a new normal we're extremely proud of our approach and our partnership we have with our clients, especially across our many managed service program clients, we have thoughtfully and proactively engaged with these clients on their needs and challenges and as a result spend under management for the first quarter was.
$2 billion on an annualized basis with a capture rate of approximately 70% our.
Our success at MSP has been driven by our proven ability to execute and rapidly deliver clinicians to the bed side as well as building them and keeping tight relationships with our broad supplier network to assist in filling the excess demand and with the strength of our team and talented sales professionals, we are well positioned to accelerate the pipeline of opportunities.
With new large scale MSP programs with speeds the market being paramount to our growth, we're continuing to make significant investments in both people and technology, while we celebrate the more than 1000, new employees to cross country hired in the last year the investment goes much further.
Imaging predicted indices, we are improving our ability to target the best talent for specific roles.
We're also giving them the tools and training they need to be effective in their jobs. So they can hit the ground running.
Most important we continuously reinforce core values, such as innovation and accountability.
I'm incredibly proud of how quickly we have been able to scale, our company, which is a testament to the strength and reputation across country brand in the market.
On the technology front, we've continued to make considerable investments advancing our digital roadmap for the first quarter of 2020, we spent nearly $4 million on technology related projects, which was more than double the prior year.
To date, the majority of our tech spend has been internally focused but we are increasingly shifting investments to be more client and candidate facing tools in fact more than half the spend in the first quarter was unacceptably facing solutions scheduled for release later this year.
Whether it's internal or outward facing we are leveraging our tech investments to drive further efficiencies with our producers as well as engagement and enablement capabilities on our client and candidate side.
So our focus is increasingly on externally facing technologies, we still have opportunities to improve the efficiency and productivity across our business.
Since deploying our market, leading applicant tracking system, we have seen double digit productivity gains for travel nurse and Allied recruiters, we were seeing productivity gains in the number of clinicians per recruiter across the entire team, including new hires the biggest increases had been among recruiters with more than one year of experience who delivered yet another double.
Digit increase over the fourth quarter plans to deploy this technology to other business are underway.
An example of externally facing technology as our marketplace, App, which connects local professionals to daily shifts.
So it was only deployed last year and continues to gain wider adoption new features and functionalities continue to evolve that further enhance the candidate experience across the entire engagement lifecycle.
Lastly, our digital marketing approach has led to an increase in lead generation, while lowering the cost for higher.
We anticipate making similar investments through the rest of the year as we continue to develop the tools that we believe will not only make us more efficient, but also capture more market opportunities.
Looking at the second quarter, our revenue guidance of $735 million to $745 million implies.
Implies another quarter of year over year growth in excess of 100% in all major lines of business run by more than double digits.
The single biggest driver is the increase in the number of professionals on assignment.
Beyond the second quarter, we are expecting continued volume growth in all lines of business fueled by continued strong execution.
<unk> investments in capacity gains to be realized from the adoption of technology and the expansion of our client base as Kevin mentioned last quarter, we expect to exit the year on a run rate that exceeds $2 billion in annualized revenue.
Justice EBITDA margins in the high single to low double digit rate.
The likely contributor to the margin will be an improved mix of higher margin business as well as the normalization of the bill pay spread.
It seems clear that we are fundamentally a different company emerging from pandemic and I'm excited about the future prospects for cross country.
See a clearer one or one way for sustained growth in all lines of business and we believe that our investments in people and technology are providing the foundation for the next steps in our evolution as a tech enabled total mountain instrument and workforce solutions company.
In closing I want to thank all of our dedicated professionals, who may cross country healthcare their employer of choice I would also like to thank our stockholders for believing in the company and of course, our talented team who supported embraced the changes we have made.
With that let me turn the call over to Bill.
Thanks, John and good afternoon, everyone.
Our historic performance for the first quarter was fueled by strong execution across multiple fronts that allowed us to once again exceed our expectations and to be above the top end of our guidance both revenue and profitability.
And every line of business contributed to the historic performance with significant growth and professionals on assignment and an increase in billable hours across the entire organization.
All data revenue for the quarter was $789 million up 140% over the prior year and more than 20% sequentially gross.
Gross margin was 22, 2%, which was 20 basis points higher than our guidance and was up 50 basis points over the prior year on an improved mix of higher margin business, such as education and home care as well as a modest improvement in the bill pay spread for our travel business.
Gross margin is expected to gradually improve as we progress throughout the year as compensation costs normalized in relation with the downward trend in bill rates.
Gross profit was $175 million, representing an increase of 145% over the prior year driven in large part by the more than doubling of our ftes in the nurse and Allied segment.
Turning to the segments nurse and Allied reported revenue of $766 million.
Representing an increase of 145% over the prior year and 23% sequentially, our largest business travel nurse and allied experienced yet another record quarter with the highest number of travelers on assignment in the company's history.
Sequentially billable travel hours rose by nearly 22% with average bill rates up in the low to mid single digits let.
Let me spend just a moment on the travel bill rates.
As expected throughout the first quarter, we've seen rates on a downward trend exited in the first quarter down roughly 2% as compared to the start of the quarter.
And coming into the second quarter Bill rates on new assignments continued to normalize and as a result, we are now projecting average true travel bill rates will be down in the high single to low double digits relative to the first quarter.
Despite the decline in bill rates, our guidance assumes that we'll see a mid single digit increase in the number of travelers on assignment.
Our local business continues to perform well with a growing weekly revenue trend and higher number of professionals on assignment.
The sequential growth was driven in large part by higher average bill rates due to a shift in the mix of assignments from individual shifts to a greater number of local contract assignments.
Also within nurse and Allied our homecare business rose, 7% sequentially as we continue to ramp our managed service outsourcing arrangements with several large payers providers.
As a reminder, we acquired our homecare business in June of last year and on a pro forma basis. It was up nearly 45% over the prior year.
Lastly, our education business also performed better than expected as we've discussed on prior earnings calls our education business was significantly impacted by Covid due to school closures and the move to virtual learning we.
We have successfully recovered the majority of that business by shifting to a tele service model.
But with the resumption of <unk> class learning, we've not only returned to pre COVID-19 growth rates, but we reported the highest single revenue quarter in the company's history for this business.
Finally for the physician staffing segment, we delivered $23 million in revenue, representing the highest revenue in a single quarter and more than five years.
The 43% growth over the prior year was fueled by a 38% increase in the number of billable days experienced across a wide range of specialties.
Also favorably impacting the quarter was an increase in the average daily revenue per day filled driven by modest rate increases and an improved mix of physicians relative to advanced practice specialties.
Going down the income statement total selling general and administrative expense was $76 8 million up 66% over the prior year and 17% sequentially.
As a percent of revenue our SG&A was 10% down nearly 400 basis points over the prior year as we've continued to improve the operating leverage of our business.
Majority of the increase both sequentially and over the prior year was driven by continued investment in people and higher compensation on the continued strong performance of the company.
As John mentioned, we've continued to invest heavily in the growth of our company, adding more than 1000, new employees in the last 12 months just since the start of the year with continued to expand the capacity of our organization by adding more than 300, new employees, 95% of whom are revenue producers and operational support roles.
It's important to note that we are investing across our entire portfolio, adding capacity to all major lines of business. We believe the market backdrop continues to support future investments and our capacity planning models are continuously being updated to target those investments that can accelerate growth.
Specific to the travel business, although demand has come down from Covid peaks it as well.
Leveled off at a point that we believe sustains our continued investment and the ability to grow our share of the market.
During the quarter, we realized $2 2 million in noncash restructuring and impairment charges related to previously closed office space.
Interest expense was $3 $5 million driven by the interest associated with our $175 million term loan and to a lesser degree increased borrowings under our asset baseline.
And finally on the income statement income tax expense was $25 million, representing an effective tax rate of 29%.
As a reminder, we reversed the valuation allowance on deferred tax assets in the fourth quarter of 2021, and our ongoing future tax rate is expected to be approximately 30%.
Turning to the balance sheet, we ended the quarter with $1 million in cash and $225 million in outstanding debt, including $174 million of the subordinated term loan and $52 million in borrowings under the ABL facility.
The increase in borrowings under the ABL was entirely due to the growth in the business and the investment in net working capital as our outstanding receivables grew to more than $677 million.
As a reminder, in late March we doubled the size of our ABL to $300 million and as of March 31, we were able to access the entire facility from.
From a cash flow perspective, we had a net use of cash from operations in the first quarter of $29 million.
Primarily driven by the sequential growth in the business.
Days sales outstanding were 62 days, representing a four day increase due solely to the timing of collections that.
Though we don't give guidance on cash flows we expect to generate significant cash from operations for the full year.
Timing throughout the year will be dependent on the run rate of our business as well as the timing for estimated cash tax payments.
For the second quarter, we anticipate making estimated tax payments with more than $40 million based on our level of profitability, we anticipate for the full year.
This brings me to our outlook for the second quarter.
Adding to the second quarter revenue of between 735, and $745 million, representing a sequential decline of 6% to 7% almost entirely due to the anticipated decline in travel bill rates.
So we don't typically give guidance on individual lines of business. We are anticipating a low to mid singles sequential increase in volume across most businesses.
In fact, the only line not expect to see a volume increase as our education business, which typically slows down in the latter part of the quarter with the start of summer vacations.
Gross margins are expected to be between 22, 3% and 22, 8%, representing a 10% to 60 basis point improvement.
With demand related to the pandemic eroding we are working to restore our margin, especially within the travel business, but this will take time as pay rates may not decline as quickly as bill rates.
Overall, the second quarter guidance assumes that gross margin will improve 40 to 90 basis points over the prior year with the primary driver being an improved bill pay spreads for our travel business.
Based on our estimated revenue and gross profit were expecting adjusted EBITDA to between 78 and $83 million.
Representing an adjusted EBITDA margin of approximately 11%.
The sequential decline in margin is entirely due to the impact of declining rates in travel as well as the continued investments in our workforce adjusted.
Adjusted earnings per share is expected to be between $1 30, and $1 40 per share based on an average share count of $37 8 million shares.
Also assumed in the guidance as an interest expense of $3 $7 million.
Depreciation and amortization of $2 7 million stock based compensation of $2 $2 million and again effective tax rate of 30%.
That concludes our prepared remarks, and we would now like to open the lines for questions operator.
If you would like to ask a question. Please dial star one Amit your phone and record your name clearly if you need to withdraw your question. Please dial star to again to ask a question. Please dial star one.
Our first question comes from Kevin Fischbeck from Bank of America, Kevin Your line is open.
Okay, great. Thanks, guys.
Couple of questions here so.
It sounds like.
You expect total sales to.
Continued to increase.
Is there any way we've kind of heard this concept from phone number.
So as the payers about.
Kind of like ancillary Covid, if you will.
Where the.
The main diagnosis is not COVID-19 for their entry into the hospital, but they end up having covered as well like is there any way to do it staffing side like do you know how much of your demand is because someone is out not so much.
Because theyre treating they've treated covered patient, but because they are in the surgery department or the ER or whatever and they have nurses out for that reason I'm just trying to understand if some of this demand is not going to be a sticky as it has been if COVID-19 continues to improve.
Yeah, no. It's really it's really that related where we're seeing any type of.
We can't discern I should say, where COVID-19 is and it's not COVID-19 once theyre in the hospital.
And so obviously, we are seeing some hotspots of COVID-19 pickup in Covid is picking up a little bit I think last week, we saw a 25% increase in COVID-19 cases over the prior week I believe 18% increase in hospitalizations.
But we do not have any more insight into the COVID-19 within the hospital.
Yes, I think thats more of a.
The nurses being out because they have covered there in quarantine and the surgery department or something like that so like theyre guiding C that we didn't see that requests come in.
It's not a it's not a COVID-19 fill because it's not a respiratory therapist, but its a COVID-19 related fill because it's a quarantine ask or what have you.
Yes, Kevin we're seeing very little of that type of impact on the business and I would say even from our clinicians on assignment.
We're in the hospitals are obviously being exposed to potential COVID-19, we've seen a tremendous decline in the number of cases, where it's very minimal at this point with even our own conditions out in the field.
Okay and then.
When you think about that that bill rate kind of.
Youre declining 35% is still a pretty good bill rate over time since 2019, what do you think are the kind of the main factors that are kind of propping up that.
That rate, maybe a little bit higher because it seems like.
Both you and the providers say that things will get better as the year goes on maybe the difference is that the staffing companies seem to think that that run rate that you mentioned might be the pace to grow off of whereas the providers seem to think that there could be additional improvement in 2023. So just to understand why the why the bill rates.
The stock kind of by Q4 and don't see any additional pressure next year.
Yes, Kevin this is bill.
Thanks for the question. So I guess, what I'd say is we don't have a great lens on 2023, but for what we can see in the market with where demand is and the supply constraint, it's sort of leveling off of the rates in the fourth quarter. As we go into 2023, that's just the best lens that we have at this point there is obviously room that the rates could drift down a little bit from the arrow. They could also go up a little bit from there it's hard to tell.
At this point in time, so we just kind of see that as kind of the new normal and it's a blend of skills that the blend of where the demand is so if theres more ICU needs versus med surge youll see an higher average bill rate for cross country. So a little bit of it is play out plays out in the mix as well.
Okay, and then maybe just last question I mean, obviously you guys have been making all these investments you talked about about improving efficiency on the salesforce et cetera. Obviously this has been happening at a time when overall demand has been increasing for your services are you able to kind of parse out that those efficiency gains.
Versus maybe what might've just happened if you had the same person there, but a lot more incoming requests.
I'm trying to figure out.
Is that all is that efficiency somehow adjusted in that way or is there.
<unk>.
Still counting in there.
Well again, it's bill I'll start and maybe market help clean it up a bit but I think we've been investing on both fronts right. So we've added the capacity and that kind of gives us additional runway to deliver clinicians, but we have seen as we as we called out in prepared remarks, a dramatic improvement in the productivity of the recruiters not just the speed at which they come up the curve when they enter the <unk>.
But certainly as they reach a maturity stage that we're seeing the level of production from folks with over a year Mark would you say roughly double from yes more than doubled.
And we're seeing our new recruiters.
Get their first placement closer to one to four weeks as opposed to 90 days in the seat first year of total production has doubled compared to 18 months ago.
Okay, but that's not in your view a reflection as your volumes overall doubled over that time period too. So just trying to figure out how much of that is kind of the industry backdrop versus.
Clearly the benefit of those systems.
And this is John what I would say Kevin is look.
We know that we're actually picking up that productivity. That's just not related to the market share is because even as we've had this technology now in for 18 months and we've continuously being that that pickup and we've seen including recruiter increased with that productivity and it's more than just technology with in place we've actually changed our processes.
She had shown this increase and again.
Part of it is with my nearly 20 years in this industry.
Can tell that we're picking up based upon the processes and technology. We put in place that we are really seeing the scheme, where we had over 100% increase in productivity from we launched our initiatives with this technology to today.
Alright, great. Thanks.
Our next question comes from Brian <unk> from Jefferies. Brian Your line is open.
Thanks, Good afternoon, congratulations guys.
To follow up on some of the questions under discussion as we think about nurse dynamics with bill rates starting to come down just curious what youre seeing I know.
You're investing a lot of <unk>.
Resources and efforts to ramp up recruiting, but just broadly speaking how are you thinking about the supply side of things.
Our nurses going back to Perm placement any color you can share with us in that front.
Sure. Thank you Brian .
A question and really what we're seeing is even as pricing is coming down we're having a heavy heavy amount of leads coming in a matter of fact.
Year to date, we've seen our leads double compared to last year. So clinicians are clearly wanting to still travel and what we feel is conditions still want to be part of the gig economy, they've got exposed the gig economy and being able to work where they want to work and when they want to work at.
The onset of Covid and we're still we're still seeing that demand that they want to continue to work to work here and it's not surprising right that clinicians want to be able to enjoy that lifestyle that many other people in different in different parts of different sectors and industries utilized and so we are seeing.
Of course, we'll see some conditions go back to the Perm workforce, but the majority of <unk>, we're seeing right now the ones, we're talking to want to remain in the travel the world.
Got it and then I guess just to follow up on Kevins question. I know you said that it's hard to really get a look into 2023 bill rates, but as we think about the revenue sort of guidance that you've given in the margin guidance I mean, what gives you that confidence to two things that we can still hit $2 billion.
Despite the fact that we don't know exactly where the where the bottom is or maybe another way of asking it is where do you think do you think that bottom is still where you thought it was when you gave that guidance last quarter.
What we do and I'll tell you why why we are confident in where we're seeing US exit 2022 is we look at demand and when you start looking at demand and where demand is right now.
Demand right now is still up over 30% from the pre pandemic level and if we look back to where we were in first quarter before the pandemic hit in 2020 that was and Youre almost the all time high. So if we're 35% above that there is a lot of demand across all our lines of business and so that alone gives us.
<unk> a good insight into where we think we can grow the business and on top of that we just brought in Dan White as our Chief commercial officer, and we fully expect to accelerate our MSP wins, which will give us more exclusive orders, which will help us again.
You'll get to a minimum of that $2 billion exit rate that we're talking about and so we're very confident and then the other reason we also believe that we can also.
Exceed that $2 billion floor is that we have diversified our business when we look at our non travel business. So as travel Bill rates go down yes, we will see the travel they told US how the revenue go down a little bit, but when we look at our non travel business, which also happens to be at higher gross margin those businesses are all growing at double.
Year over year in addition to growing double digit.
Year over year, we're investing heavily into those businesses to help us diversify our business and to really grow our business.
In lockstep with travel.
Got it and then last one other maybe one other point. So go ahead Sir.
No sorry. This is bill I was just going to add one other point.
If I applied the fourth quarter bill rates to the volume and mix that we have today and even without that the sequential growth that John's calling out we're kind of at or above the target run rate that we're calling out at the exit run rate of $500 million. So.
The investments, we're making in the growth in the other lines of businesses, what kind of gives us the comfort that we are on the trajectory to exit this year north of $500 million.
No that makes a lot of stuff and then last question for me as I think about your physician side of the business PCP since he rnase were strong in Q1.
Is that something that youre seeing carrying over or is this because of the.
Hospitals are saying that they saw a strong rebound post January and seven March but.
Is that carrying over into Q2 and any color you can share with us there.
It definitely is carrying over into Q2 and the other the other color I'd give you is <unk>.
Not just in the Locums, but in all our businesses, we're seeing a lot of demand for cardiac care in cardiac units as deferred healthcare has happened over the past two years one of the areas that was really under served was the cardiac care units and B. We're seeing a lot of cardiac cases and were seeing a high high demand and not only in cardiac cases, but that actually extend.
<unk> to all of the ancillary disciplines and special pieces that help out on cardiac so while cardiac cardiologists are up and we have the nurses ICU nurses up we have all those ancillary. We also have the allied portion thats up with labs and all the imaging that all takes place when you have cardiac patients.
Gotcha, Alright, guys, thanks, and congrats again thank.
Thank you. Thank you.
Our next question comes from AJ Rice from credit Suisse.
Your line is open.
Thanks, a lot.
Body.
First question was related to.
Your updated thoughts on bill rates versus <unk>.
Placements on the travel nurse side, it sounds like bill rates, you're still assuming.
From the beginning of the year, we ended the year, 35% decline, maybe the second quarter and the end of the first quarter.
Rachel will decline as much as you thought that'd be the last quarter, but it sounds like you still think youll end up in the same place.
Sounds like to me you might be a little more optimistic on your overall placements.
Now thinking it'll be positive versus sort of flat before.
I hear that right and would you say, that's mainly because what youre seeing with respect to patient volumes with respect to the nurse's retiring a nurse is trying to move away from.
The acute setting what would be the driver of that if that is true.
Well I think what we're saying is we're actually going to see volume growth.
Quarter over quarter in the second quarter.
<unk>.
In Asia I think if your question is about the rates. So youre right I think that the rates, we called out what we're seeing and expecting for Q2 and that kind of mid single digit high single digit I'll call. It.
Range and as the rates are coming down it does take time, especially in travel with longer term assignments right. These are 13 week assignments. So the impact is not as significant in the second quarter, but we're still projecting them to come down. So I would say if you were to seasonal is that throughout the year, probably the third quarters, where we'll see the larger sequential drop and then a smaller drop in the fourth quarter, but all.
Within the range, we called out that low single double low double digit kind of sequential declines into the balance of the year.
So it's really about the sequencing and the timing of when the rates come down and it's a function of whether the assignments that are have the higher bill rates are canceling and are being replaced with new bill rates. So the order that we'll open the bill rate on open orders is down we have seen that already begin, but the rate at which it's bleeding into the revenue stream because of it.
Trends off it takes a little bit more time for that to be seen.
Okay.
And to the extent that Youre, a little more positive on the play.
And then going into the second quarter or is that being driven by.
Patient volumes or.
<unk> at the facility level stepping back or what.
No look it is demand that is when we look at it.
Mentioned, it's truly the deferred health care, it's it's.
Surgeries coming back online it is.
Fundamental shortages of clinicians.
There was a study at the end of last year were 83% of health care executives. So they expect long term shortages for our clinicians and so it is really the fundamental shortages is what's driving this demand is driving replacements.
I hope that question I'll also add to that.
Give us.
A little bit of an update on where bill rates are versus what you saw exiting the year versus now.
Yeah.
Sorry, Jay could you could you repeat that question there.
Yes, sorry.
Any update on where you're at with respect to fill rates.
Exited the first quarter compared to where you were in the fourth quarter, perhaps or.
Some other metric are you.
Filling a greater percentage of your open orders or is it about the same which saw in the fourth quarter.
I would say there is so many orders in the fourth quarter. When you. When you look at fill rates, it's really not about fill rates is about filling the orders we need to fill to keep have growth. So we look at fill rates. When we look at our MSP and our exclusive or exclusive orders that we need to fill because we have an obligation to our clients but in.
Travel nurse because of the number of orders we have in travel nurse and Allied it's hard to look at the overall fill rate because there's just too. Many orders. We can we can have high sequential growth in exponential growth on on less orders.
You would think we would need we don't need 40000, 50000 orders too to grow exponentially and a J I think I'll just give one more piece of data that might help to understand the sequential growth. We grew sequentially throughout the quarter. So our travelers on assignment continued to grow each and every month of the quarter. So we exit the quarter higher than we came into the first.
Quarter, so that that helps give the uplift into the second quarter, we are coming in stronger just because of the level of production that we had through the first quarter.
Okay, and just a final question.
Any updated thoughts on capital deployment deal pipeline areas you might be interested in.
Hum.
Pursuing M&A.
Yes.
We're sticking very closely to our strategic plans on M&A.
Before we were looking at.
Again, logan's types companies Allied type companies or local staffing type companies technology type companies, but we really take a very disciplined approach to M&A, making sure that it just reached the strategic fit and that it would be accretive to our business.
There's plenty of opportunities out there and we'll be looking at those opportunities to really reinforce our cross country in our offerings.
Okay, great. Thanks, a lot.
Our next question comes from Tobey Sommer from <unk> Securities Tobey Your line is open.
Hey, good afternoon. This is Jasper bibb on for Tobey I wanted to follow up on MSP fill rates as the market starts to level off from an order perspective are you seeing a recruiter to favorable to capture more of that wallet share internally.
Jasper This is John .
We can.
It's incremental but really what we do is and what the what the beauty about the MSP as we can go up or down to have a higher capture rate as we need as we need but right now what we do is with our partner network that we use our supplier network, we actually have them fill part of the needs and what we do with our excess capacity as we're able to utilize that to bring in new <unk>.
A new MSP so at a certain point, yes, if we needed to ratchet up our fill rate for our capture rate, but at this point, we want to keep it at that 70% that we're at so that the excess capacity, we could utilize to bring in more clients.
Thanks, and then I was just hoping you could speak to how you are managing customer relationships as the hospitals are saying.
Reducing the usage of contract labor from a mix perspective is going to be a priority for them in the second half of the year.
Sure that seems to be a great opportunity to have Dan White, our new Chief commercial officer will give a little color on that.
Well, thanks, John I really appreciate it and Josh Thanks for the question.
Before I get into the answer let me just first start by saying.
Now is a really exciting time to be here at cross country as we've talked about in our prepared remarks, we've had.
Beautiful transformation of our delivery capability, which shows and all of these terrific results that we're achieving.
And anybody who knows me very well realizes that my word is really everything to me so that when I give my word to a client or a prospect about how we're going to perform I have 100% confidence that we have best in class delivery and that's truly table Stakes for us now.
But when I think about.
My expertise here it really starts with transforming our client facing teams.
And our focus on customer obsession. So one of the reasons I chose to join John and the team here is because of the way we serve our customers and our clinicians and sort of how we help them through all of these very difficult times.
I've known John for a long time I'm getting to know these team members here really well and all of us share a focus on the customer and the very same way. So for example, partially answering your question some of the things we heard at the Beckers Conference last week were and our customers are.
Looking for partners that are digital first transparent analytics and performance driven focused on culture and other aspects that are going to help them with their whole workforce challenge and for me that company today is cross country.
So when I think about our client needs and the diversity of solutions that we have.
I believe that we are ready to help them solve those problems.
No that's great.
Last question for me I was hoping you can provide a bit more color on cash flow dynamics as revenue starts to come off that <unk> peak.
I mean by my math receivables are more than 70% of your enterprise value, which should give you some options from a capital deployment perspective.
Yes, Jasper is a good point I mean look as our working capital model is obviously, we have we're a payroll driven company. So it really all is on the receivable side. So as as as revenue starts to level off and start to see sequential declines. We will we do anticipate seeing some significant revenue and cash flow generation with cash.
Operations.
Second quarter being the hardest one to predict right now simply because we go into the quarter.
With revenue down somewhat but we also start making some pretty large estimated tax payments for the first time, so I called out in my prepared remarks, we have a $40 million estimated tax payments. So that's that's the that'll be the first quarter, we've ever had a cash tax payment of that magnitude given the success of the company over the last two years, we've burned through our Nols.
So thats going to hit us in Q2, but but as we move through the back half of the year. As we also said in the prepared remarks, we do expect very positive cash flows to become an office as the receivables start to wind their way down.
And that will be largely off of the rate decline that we're talking about because we do anticipate the volume will still be there, but if rates don't decline as we anticipate then the cash flow generation may not be as significant as what we call out, but but the opportunity is if we if you just a simple math and said, Okay 60 day DSO you had $789 million of revenue in the first quarter and we're seeing.
<unk> something north of $500 you can pick your number but that delta from those two numbers and you kind of do the math and you say, okay. What's roughly two thirds of that going to come in as cash flow. So it's a substantial amount of cash to be collected I will say that I don't have any concerns around our portfolio. We're very active with our clients. We are working very closely with them so from that perspective.
It all seems like it's going to come in.
As expected.
Thanks for taking the questions guys I'll take the rest offline.
Alright.
Just as a reminder, if you would like to ask a question. Please dial star one Amit your phone and record your name clearly our last question in queue comes from Bill Sutherland with benchmark company.
Your line is open.
Thank you.
Everybody.
Maybe give the mic back to Dan for a second because I just like to hear a little bit about <unk>.
The.
The size of your MSP operation at this point and.
And kind of what the marketplace looks like as far as gaining new deals.
Can it be mostly.
Having to take share or is there a fair amount of greenfield still out there.
Well first of all I appreciate the question and nice to hear your voice again Bill.
I think in general I'll go back to the opening remarks around.
The business run rate right now is a little north of $2 billion in terms of our spend under management run rate and so what's what's nice.
About that is that the number of customers. We have that don't have some of the services that we already deliver is a fairly significant percentage. So we can sell into the base that we already have that know and love and trust our brands and grow simply from there.
On top of that I would say there.
At least 20% 25% of the market that doesn't use any sort of MSP or vms today, maybe more.
And so there are certainly areas of opportunity for us to grow and help customers learn that they need to use programs like this I think the pandemic really help them understand that efficiencies of technology process improvement.
AG mounting their internal teams with expertise outside their organization really can help speed.
And value to the health system.
Of course, there's opportunity all ways to gain share.
And grow from other People's share, but I don't think thats necessary here for us to achieve the kind of numbers that we're really trying to achieve which really makes us a growth company at the end of the day, that's why I'm here.
Understood.
Thanks for that and then.
Yes.
The rough size of education business, right, now and kind of where are you focusing the growth.
And that in that sector.
So is that a question too.
Bill.
I mean look the business is because of the summer break its hard to give you can't just take the first quarter and annualize. It you have to recognize that there is a couple of months in there where they don't have the revenue, but theyre doing probably between 15% and $20 million during.
Quarters when schools are in session, probably a little bit north towards the north end of that so rapidly growing I would say the growth in that area has really been predominantly in charter schools, although increasingly servicing public school districts and increasingly serving schools outside of the state of California as well So California was the first market, we really were in.
And again it goes back to the acquisition, we did in 2015, but we've steadily expanded the school based outside of that state and we offer a full range of services everything from the clinical side to helping with the non clinical special education and the like so.
And Bill this is John Martin's what I'd add to that is we're seeing tremendous demand in this education business and we're making heavy investments in there because when we look at what's happening in education. It runs at a very similar parallel to what happened in healthcare over the last two years with a nursing shortage and the clinician.
Depletion shortage.
These educators.
It's been fatigue and burned out and Youre seeing a high level of <unk> and the reason why as they had online learning then they had to go into schools had to have PPE to really a lot of teachers decided to leave the field and right now there is a crisis.
Prices of shortages of teachers, and we are which is.
You were saying.
Which will be around for the next several years. So we think it's an opportunity for us to really help schools ramp up with their staffing and we're making heavy investments to capture that that market and it was one of the reasons behind the acquisition. We completed in December for the cloud based search tool that allows educators and clinicians to find the jobs and for schools to be able to add.
Access a large candidate database for direct hire is it really going to youre really going to kind of push on the <unk>.
<unk> placements as well as the.
Healthcare.
Yes.
I'm, sorry to hear about as we diversify our business, yes education and healthcare.
Main places that we'll be investing in and then and then just one last one just get back to the core business.
So as the demand for contractors and ethically.
Eases.
Do you think one offset will be increasing celebrate because right now.
The demand is so far and excess of supply right.
So will that will that be part of the equalizer for you guys.
Yeah.
Every part of the equalizer to increase <unk> increase.
Increased bill rates.
But what also I think what's going to help us really is we're investing we talked a lot about how we invested internally about producer productivity, but what we haven't spoken about a lot is how were externally we're investing externally in technologies to help our clinicians and our clients in a matter of fact, we just launched in.
January or self service job portal for clinicians and what this self service portal does is it helps professionals are able to view transparent pay packages. They are able to submit interest in specific assignments, they're able to self onboard to a submission rate, they're able to view their pay rates youre able to update their credentials.
And we see that Theres a lot of promise that we'll be able to add the supply, bringing it became easier for us to have fill rates and have higher fill rates and the success. We've seen from this self service portal in this soft launch that we had.
From the first quarter to today, we have.
Several thousand daily active users who are logging in each day and those daily users are looking at over 50000, having 50000 job searches per week and those daily users are having job interest submit of over 1000 per day. So when we look at how we're going to increase the fill rate.
Julian.
Self service technology, and we are just any early innings of this technology and we're so excited to be able to continue to invest in this technology, which will really changed fundamentally how cross country does business.
The other major firms have the self service portal.
Some do and some don't and I'll tell you what how we're investing in what we're doing or whatever.
Whatevers out there will be leapfrogging them.
In the next couple of quarters.
For sure for sure.
Okay.
Alright.
Thanks, a lot through the continent.
And nice job on the quarter.
Thank you Bill.
Okay.
Ladies and gentlemen, this does conclude the Q&A period, I will now turn it back over to John Martin for closing remarks.
Thank you Madison, it's clear that we are a very different company from three years ago, and it's clear that we are very different company than from just 18 months ago as we look to the future. We're excited about our market opportunity and I believe we are well positioned for sustained and profitable growth lastly, I want to recognize and celebrate national nurses module and I.
Personally I want to thank every nurse out there for your hard work and dedication. Thank you everyone and I look forward to our next earnings call.
Ladies and gentlemen, this does conclude.
Today's conference call. Thank you for your participation you may now disconnect.
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