Q2 2022 Cross Country Healthcare Inc Earnings Call

August 3, 2022

Good afternoon, everyone welcome to cross country Healthcare's earnings conference call for the second quarter 2022. 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 in the company's earnings release issued this afternoon at.

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 of 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, and Mark <unk> group President of delivery.

Today's call will include a discussion of our financial results for the second quarter of 2022 as well as our outlook for the third quarter a.

A copy of our earnings press release is available on our website at cross country healthcare Dot com.

Please note that certain statements made on this call may constitute forward looking statements. These statements reflect the company's 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.

Additionally, we referenced non-GAAP financial measures, such as adjusted EBITDA or adjusted earnings per share.

Such non-GAAP financial measures are provided 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.

During this call we may refer to pro forma when normalized numbers pertaining to our most recent acquisitions as though the results were included or excluded from the prior periods presented.

With that I will now turn the call over to our Chief Executive Officer, John Martin.

Thanks, Josh and thank you to everyone for joining us this afternoon.

At the end of the second quarter marks my first full quarter as CEO and I continue to be amazed by the capability of this organization to execute across so many fronts with an unwavering commitment to deliver best in class service to thousands of clients, we support and the tens of thousands of clinicians and professionals we place.

The cultural cross country has never been stronger as evidenced by the recent certification we received some great place to work for.

For those that May not know this award is based entirely on what our current employees have to say spanning workplace culture.

<unk> experience and leadership.

I believe that our commitment to core values and thirst for innovation has become a beacon 2000.

Thousands of employees, who have joined cross country and delivering on its mission.

The company committed to clinical excellence ethical practices and health equity, which has positioned us as the partner of choice for thousands of clients.

Beyond the continued strong performance for both revenue and adjusted EBITDA, We have once again exceeded the high end of our guidance ranges. Our second quarter also marks a new chapter for cross country. As we continue to evolve our tech enabled workforce solutions with the launch of our newest products and telephone.

<unk> is our very first proprietary cloud based multi tenant vendor management system that will not only be used across our managed service programs and will also serve as the backbone for a vendor neutral solution that will further diversify our business.

Get into more detail on our technology investments in a few minutes. So let me first share some comments on our results.

Consolidated revenue of $754 million exceeded our expectations and was up more than double over the prior year.

Fueling this impressive performance was the achievement of yet another historic milestone with the highest number of professionals on assignment across our business.

Growth was once again broad based with all lines reporting at least double digit year over year increases.

As expected <unk>.

Within our travel nurse business declined by 7% from the first quarter, which was partly offset by a 3% increase in billable hours.

Interesting to note that the sequential increase in billable hours was primarily driven by an increase in the number of professionals on our site.

Which was muted somewhat by a reduction in the average hours per assignment as hospitals increasingly return to the normal 36 hour contracts for health care professionals.

Based on discussions with our clients as well as what has been reported.

Covid cases are rising once again.

Hospitals are not seeing the same increase in COVID-19 related hospitalizations.

And the number of positive cases.

Is it likely far higher than what is reported due to the number of positive hold test. They are not included in those figures.

The takeaway is that the rising demand we are experiencing is only partly being fueled by coke needs today versus what we have seen during prior surges.

According to a recent study by Yale Covid seems poised to transition into an endemic.

One contributing factor is that 78% of the U S population have received at least one dose of the vaccine and.

And 67% are fully vaccinated.

As COVID-19 transitions that you're more of an endemic we would expect to see more of a seasonal trend and similar to the flu with spikes in demand for west 23rd This ICU nurses.

An emergency room nurses.

The COVID-19 demand will ebb and flow effects of the pandemic on the healthcare workforce will likely persist.

The continued cost pressure faced by healthcare providers is a function of the extremely tight labor market and the ongoing struggle that system space as they try to maintain core staff levels amidst burnout.

And retire.

The labor shortages and core staff do not appear.

Despite reports of decreasing patient census, and acute settings. We also think the growing supply demand imbalance at the core level is being exasperated as health care professionals. All ages continue to embrace the gig economy and the lifestyle that comes with it.

This is evident in our travelers population, where 65% are millennials or younger.

As discussed on our last earnings call. We are in a violent where bill rates remained elevated relative to pre pandemic levels as a result of a higher compensation costs across most specialties with.

With health system sighting increased labor cost and a desire to see contingent usage normalize we continue to work collaboratively and proactively with our clients on adjusting rates to lower their costs, while ensuring that they have the clinicians at the bedside to deliver the highest standard of care.

However, as I mentioned, a moment ago, the persistent labor shortage continues to fuel higher labor costs and as a result, we will likely be some resistance to the speed at which rates come down or how low they can go.

Based on the Bill rates for open orders and our mix of business, we expect travel ability to see a mid teens sequential decline for both the third and fourth quarters. This trajectory with police rates roughly 30% to 40% higher.

Pre pandemic levels as we move into 2020.

Overall demand remains well ahead of pre COVID-19 levels.

As expected down from a peak seen in prior quarters.

Throughout the second quarter and continuing into the third quarter, we have seen a rising trend for travel orders most of which predated the recent spike in Covid cases.

Travel orders rose by more than 50% from the start of the quarter to the end and are up another 10% as of today.

The increase was seen across most specialties with the greatest rising need for med search emergency room and operating room nurses also noteworthy is that demand remains robust across our diversified lines of business, including local staffing Locums education home health.

And search.

From accounting perspective, we continued to see strong interest with thousands of new leads generated each week.

With the deployment of our Kennedy facing portal earlier. This year, we have seen thousands of Kennedy's certain jobs and a rising number of candidates who are self selecting opportunities interest.

From a compensation perspective, I'm encouraged to see that the compensation costs have come down slightly faster with the second quarter.

And travel delays driving a modest increase in our gross margin.

And as we look to return to normal gross margins one area that could be a short term headwind for us is that <unk> could decline faster than compensation on specific assignments.

Let me elaborate on this for a moment.

Operate in a competitive market for talent and we believe it is in the long term interest of our clients and clinicians to ensure continuity of service and to insulate clinicians from unexpected changes in compensation one at the site.

Therefore should we work with a client on a mid assignment leach, we could see a temporary margin impact until those assignments pointed out.

I continue to be impressed by the traction we have with our managed service program or MSP clients.

Through all phases of the pandemic, we are thoughtfully and proactively engage with these clients on their needs and challenges.

As a result spend under management for the second quarter was again over $2 billion on an annualized basis.

Capture rate of just under 70%.

Our success with MSP has been driven by our proven ability to execute and rapidly deliver completions to the bed side as well as building and maintaining close relationships with our broad third party networks to assist with killing the excess demand.

Despite the market volatility at rapid swings in demand, we continue to deliver the highest levels with a clinical on time start rate of nearly 95% and a clinical cancellation rate below a half of 1%.

This performance not only to the technology, we have deployed and tell US you have hired.

The clinical focus we have always been fee.

We have more than 50 clinicians on stay at that regularly engage with clients and candidates to ensure we're delivering.

First clinical care possible to our clients and the patients they treat.

Health systems need an accountable part one.

I wanted to understand your challenges one quarter to create unique solutions and deliver consistently highest levels and as a result, we are well positioned to accelerate our pipeline of opportunities with new large scale MSP programs.

Over the last 18 months, we have built one of the most tenured and talented sales organizations that have the credibility and the capability to bring a significant number of new programs into our portfolio.

We recently just closed three new MSP that will add approximately $85 million incremental spend under management.

Two of which were takeaways from competitors and looking ahead, our pipeline for new programs is robust.

Next let me spend a few minutes discussing our technology investments.

I opened the call with the announcement of a new vendor management tool that we believe will ultimately leapfrog capabilities of tools currently available in the market offering clients insights and analytics that will help them make better decisions around managing their contingent staff.

The development effort was led by design to ensure superior usability.

Making the product simple and intuitive.

We had a team of more than 40 developers writing more than a million lines of code.

Dozens of business participants working through QA user acceptance testing.

Feedback thus far has been extremely positive and client interest is growing rapidly and so over the next 12 to 18 months, we will continue to deploy our vms to new and existing clients, reducing our cost of fulfillment for the line on third party technologies.

All while we continue to add features and functionality.

And <unk> is just the latest technology we have.

Comprehensive multiyear digital roadmap transformed the company and our industry.

Coupled with our other initiatives such as the applicant tracking system deployed in late 2022, our travel business and the lease of marketplace in 2021 for a local conditions to sell select schedule shifts and our Kennedy portal at least earlier this year to ensure a smooth Kennedy experience, we have a full complement.

Technologies that ensure speed to market as well as a best in class experience for Kennedy clients and team members.

Over the last three years, we have invested heavily and digitally transforming our company starting from the inside out.

We called out previously a doubling of our investment in technology and we are on track to do that this year.

Year to date, we have spent more than $8 million, which is approximately double the prior year.

It is evident to me that we are a more efficient agile and tech enabled business, just two or three years ago.

Our tenured revenue producers have more than doubled their productivity and new hires we're able to become productive much earlier in their career.

When it comes to technology, you'll never really got at this point.

Expect a fairly balanced level.

Investments to both internally facing and client facing.

Ladies and technologies as we strive to become the most efficient organization.

Delivering the highest level of clinical excellence and solidifying ourselves as the partner of choice by clients.

As we look to the third quarter, we expect revenue to be between $605 million to $615 million trending with our expectations.

The sequential decline is primarily driven by a mid teens decline in travel beliefs and to a lesser extent seasonal fluctuations in demand in states like Florida as well as the softness in agitation you have December vacation.

Our adjusted EBIT margin is expected to be between 9% and 10% in line with expectations as rates normalize.

Beyond the third quarter and as we begin to set our sights on 2023, we are expecting continued volume growth in most lines of business fueled by our strong execution.

<unk> investment in capacity gains to be realized from the adoption of technology and the expansion of our client base.

Our outlook is unchanged as we expect to exit the year on a run rate that exceeds $2 billion annualized revenue.

In closing I am very encouraged by our business and prospects heading into the back half of the year as strong demand is setting up an exciting one wafer growth.

I believe in the street seems to be taking more notice as well in recent weeks that we are not just the COVID-19 driven story.

Fundamentally a different company emerges from the pandemic.

That service is the entire continuum of care as a tech enabled.

Workforce solutions provider.

I believe we are positioned for long term sustained growth across all lines of business, which we believe will continue to drive shareholder value.

Finally, I want to thank all of our dedicated professionals, who make cross country healthcare their employer of choice.

I'd also like to thank our stockholders for leading the company.

Of course, our talented team who have supported and embraced the changes we have made with that let me turn the call over to bill.

Thanks, John and good afternoon, everyone, our stronger than expected second quarter performance for revenue and adjusted EBITDA was once again driven by strong execution across multiple fronts with at least double digit year over year growth in every line of business.

While higher Bill rate played a role the primary driver for the growth came from an increase in billable hours across all lines of business within nurse and allied as well as higher days billed for our physician staffing segment.

<unk> revenue for the quarter was $754 million up 120% over the prior year and down sequentially approximately 4% on the normalization of bill rates for our travel business.

Our solid topline performance fueled another quarter of strong earnings with adjusted EBITDA of nearly $84 million with a double digit adjusted EBITDA margin of 11%.

Gross margin was 22, 6%, which was up 70 basis points over the prior year.

Merrily on an improved bill pay spreads related to our travel business sequentially gross margin improved approximately 40 basis points, primarily related to the annual payroll tax reset in the first quarter.

Margin should gradually improve over time as the bill pay spreads continue to normalize those John mentioned that near term pressures could distort the trajectory.

Profit was $107 million, representing an increase of 135% over the prior year driven primarily by the record number of professionals on assignment.

Turning to the segments nurse and Allied reported revenue of $731 million representing.

Representing an increase of 131% over the prior year and a 4% decline sequentially.

Our largest business travel nurse and allied experienced yet another record quarter with the highest number of travelers on assignment in the Companys history.

Sequentially billable travel hours rose by 3%, while average bill rates fell by 7%.

Tom already touched on this but let me just spend a moment on the travel bill rates as expected travel rates have been declining throughout the first half of 2022 and are projected to continue that trend through the back half of the year.

It is important to note that with demand for travel assignments rising we've seen a leveling off of bill rates for new assignments and on open orders in fact over the last several weeks, we've seen a slight uptick in travel bill rates, indicating that we may be seeing a floor for the near term as the labor shortages persist amidst continued strong demand.

As a result, we anticipate a sequential decline for the third and fourth quarters is primarily related to the wind down of assignments with higher average bill rates.

Our local business was up more than 20% from the prior year, though down sequentially as the pandemic recedes, we're seeing local contract or block booked assignments returning to a more normal level for our local business driving down the average hourly rate.

Also within nurse and Allied our homecare business rose, 3% 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 and was up 23% over the prior year.

Lastly, our education business reported a 22% increase over the prior year and was down 20% sequentially due entirely to the impact from the start of summer vacation.

We are expecting this business to continue to see double digit growth as the new school year starts in the fall.

Finally for the physician staffing segment, we delivered $22 million in revenue, which was up 41% over the prior year and down just 4% from the prior year core prior quarter.

The growth over the prior year was fueled by a 27% increase in the number of billable days experienced across a wide range of specialties.

Also favorably impacting the quarter was an increase in average daily revenue per day filled.

Driven by modest rate increases and an improved mix of physicians relative to advanced practice specialties.

The sequential decline was driven by fewer billable days for physicians as our advanced practice specialties were up nearly 13% over the prior quarter.

Moving down the income statement total selling general and administrative expense was $86 million up 71% over the prior year and 12% sequentially.

As a percent of revenue our SG&A was 11% down nearly 400 basis points over the prior year as operating leverage has improved from the growth in our business as well as improved productivity.

<unk> of the increase both sequentially and over the prior year was driven by our continued investments in people and higher compensation on the continued strong performance of the company.

Our investments in people have been broad based across all lines of business to fuel our organic growth.

We continue to believe that the market supports further investments in resources, and we will leverage our capacity planning tools to ensure that they are targeted to the areas with the greatest opportunity.

In addition to the investments in people. We're also investing heavily in technology with additional resources and developers to facilitate the rapid deployment of candidate and client facing technology like our new Vms and telephone.

As a reminder, our target spent on technology projects for 2022 is approximately $20 million, which represents a doubling from the prior year.

And given the nature of some of the work performed not all of it will qualify for capitalization.

During the quarter, we realized $1 million benefit noncash restructuring and impairment charges as we were able to exercise an early termination option for one of our larger closed facilities.

Interest expense of $3 9 million, representing an increase of 10% over the first quarter was principally driven by the rise in interest rates as well as the additional fees associated with the increase in our asset based credit facility completed in March of this year.

Just prior to the end of the quarter, we opted to makeup.

Principal payment on the subordinated term loan of $50 million in order to lower our effective interest cost going forward.

And finally on the income statement income tax was $21 million, representing an effective tax rate of 29%.

Based on our latest projections, we now believe our full year effective tax rate will be approximately 29% excluding discrete items.

Strong performance for the quarter has resulted in adjusted earnings per share of $1 40, which was nearly triple that of the prior year.

Turning to the balance sheet, we ended the quarter with $300000 in cash and $209 million in outstanding debt, including $124 million under our subordinated term loan and $85 million in borrowings under our ABL facility.

From a cash flow perspective, we generated $18 million in cash from operations, which was net of the $40 million estimated income tax payment, we called out last quarter.

Days sales outstanding was 66 days, representing a four day increase over the first quarter, primarily due to the timing of collections throughout the quarter.

Activity remains strong as average weekly collections were up 17% from the second quarter and that trend has continued to improve.

As of today, we have paid down more than $50 million under our ABL and maintained full access to the line.

So we do not give guidance on cash flows we expect to generate significant cash from operations in the second half and expect to report positive cash from operations for the full year.

This brings me to our outlook for the third quarter.

Guiding to the third quarter revenue of between 605 and $615 million, representing a sequential decline of 18% to 20%.

Driven predominantly by the anticipated decline in travel bill rates as well as the impact from summer break on our education business.

Gross margins are expected to be between $22, three and 22, 8%, which reflects the anticipated mix for the quarter.

As bill rates and pay rates continued normalize we expect to see continued margin improvement, which will also be impacted by the continued growth in our higher margin businesses.

Based on our estimated revenue and gross profit were expecting adjusted EBITDA to be between $55 and $60 million, representing an EBITDA margin of approximately 9% to 10%.

The sequential decline in adjusted EBITDA margin is primarily due to the impact of declining <unk> and travel as well as the continued investments in our workforce.

Adjusted earnings per share is expected to be between 85 and <unk> 95.

Based on an average share count of $37 9 million shares.

Also assumed in this guidance is an interest expense of $3 5 million.

Depreciation and amortization of $3 2 million stock based compensation of $2 million and again, an effective tax rate of 29%.

This concludes our prepared remarks, and we'd now like to open the lines for questions operator.

Thank you to ask a question. Please ensure your phone is on muted press star one and record your name clearly when prompted if you would need to withdraw your question Press Star two.

To ask a question please press star one.

Our first question is from Kevin Fischbeck with Bank of America, You May go ahead.

Great. Thanks.

So I guess everyone's trying to figure out how how to think about the bill rates.

A bit hard to talk about 2023 at this point, but I guess just in general when you think about that Q4 kind of run rate number that you plan to exit the year would you expect to grow off of that.

Run rate.

The number and is there.

Should we still be thinking about that 97% margin in 2023 and beyond.

Yes, I'll start and I'll have bill weigh in but yes, we anticipate we'd still be able to grow at those bill rates and I think what we're looking at.

First of all I'd like to just start off by saying, we're really pleased with where we are right now in our results that we've had and we feel real good about the future.

When we look at that launching our <unk> business and what thats going to mean to help us to be able to win more MSP deals, we think thats going to be really a key into helping us drive more growth into the fourth quarter and beyond.

And so when we look even when we talk about our MSP.

We've added.

A lot of firepower over the last 12 months in our sales organization.

Really reorganized that organization and as we mentioned prepared remarks, we landed three deals MSP deals recently worth over $85 million and we have a pretty robust pipeline of more deals coming in.

A matter of fact, we have two verbal award commitments that were contracting through right now, which will put another $70 million additional to the $85 million in the win column. Shortly so we feel that there is a lot of room for growth.

In the future I'll have bill speak to the yes, Kevin I think I think the.

Question is really on the bill rates in the trajectory after that as we get into 2023 I would say at this point, we're not modeling a significant rise of course in 2023, I think we think it levels off as we go into the start of the year longer term of course rates will start to see inching forward their normal kind of mid single digit percentage increase low mid single digits that we normally have.

Experienced but I think 23 will be a level year for the most part for US as we go into it we don't really have a better lens at this point.

Okay.

That's helpful and I guess it was interesting the color about the the orders throughout the quarter.

And then again.

Q3 up again I guess.

Yes.

I don't know off top my head what that should normally looked like seasonally.

Can you just maybe give us a frame of reference of what up 50% for the quarter. The end of the quarter and up in our attempts in July what would that normally look like in a normal year.

Yes, it's Kevin again. This is bill we would not have seen this kind of level of movement in a normal year pre pandemic. We did not have this kind of order volatility there where they were.

Normal fluctuations in demand, but it was in.

Low single high single double digit kind of movements. It wasn't this kind of 50% swings within one quarter and I think what we really experienced was we're coming out of the first quarter as the pandemic kind of step downs net last surge demand pullback as was expected hit that trough point as we got into the early days of Q2 and then.

Sort of unexpectedly the demand has been inching forward every single week and is carried on into the third quarter to the point now where to John's point in the prepared remarks, we're up even into the third quarter up another 11% Theres really no corollary on a historic pre pandemic basis that I can point to it's been more wild swings ever since the pandemic has been out there yeah I would add Kevin.

As we're moving and transitioning from the pandemic to the endemic we don't really have a good feel of what that looks like in terms of seasonality needs right, we'd be anticipating right now to see flu season orders starting to come in and that preparing for the flu season, but we're also looking at seeing a higher number of Covid cases that popped up over the last six weeks and so on.

Hospitalizations are down we're still seeing that portion of some need still being COVID-19 related. So it's a little hard to say <unk> had a place that but look at the end of the day.

The number of orders we have now for the rest of our lines of business are up double than where they were pre pandemic and we anticipate that to continuing to see that the needs in the future and just wanted to come and I think what we saw early in Q2 was probably a bit artificial as systems were trying to get contingent labor under under control delaying giving out orders.

And the likes so what we're seeing is really a pendulum swinging back to the more normal level for the market given the shortages and I'd say, what specialties youre seeing up or we're seeing respiratory we're seeing ICU, but we're also seeing pediatrics and we're also seeing or which kind of shows you were getting back into a more normal cycle, but I think theres again still.

Not having that now.

Not having a crystal ball in front of us, it's really really hard to predict really how the demand ebbs and flows in the next the next coming six months.

Alright, great. Thank you.

Yes.

Thank you. The next question is from Brian <unk> with Jefferies. You May go ahead.

Good afternoon, everyone I'm actually on for Brian . This is tashi and thank you for taking my question. So first my first question is.

Can you provide some insight on the recruiting environment for nurses.

Are you seeing a lot of new applicants come to the table.

What does that look like and also initiatives that you've taken to boost recruitment and retention and then this is a follow up to I am thinking about your fill rates. So looking at the percentage of orders that you've received versus those that you can complete can you provide some color on how that's progressed throughout the quarter and how youre thinking about that moving.

Forward for the rest of the year.

Sure. Thanks for the question <unk> and in terms of applicants we have seen a record number of applicants over the last six months and to continue to heavily invest in our program at advertising as well as our digital marketing strategy.

We have we're seeing a lot more of 65% of all of our travelers are now millennials or younger defined as people age 41 or younger and so we're seeing a heavy swing to a lot of our applicants coming into the workforce and wanting to become and enjoying this gig economy. We've been speaking about for a while.

And so we're very pleased still seeing a large number of supply being attracted to travel nursing.

As we move forward and in terms of our fill rates when we look at the rates. We look at fill rates really from our MSP and the orders that we can actually control and we have the exclusivity on and in those we look at our capture rate. So our fill rates on our MSP in the high 90%.

And really what we focus on next is our capture rate in our capture rate remains as we said in prepared remarks.

Just a little up about 70% well south of 70%.

And does that conclude your question.

Yes. Thank you.

Thank you.

Next question is from Tobey Sommer with true with Securities You May go ahead.

Thank you based on your commentary.

Would you forecast.

Nurse and Allied revenue too.

Two.

Sort of plateau, and then inflect higher.

Higher.

Yes. So tobey this is bill I guess I would say.

Based on where how we're looking at bill rates, we would think that with the most significant declines coming into Q3 and Q4 for the year that our fourth quarter, we'd expect it to be the trough on that point of it and volumes are expected to continue to inch forward. They won't outstrip the bill rate reductions into the fourth quarter, but as we get into early 2023 of the expect.

Patient is volume begins to.

Overtake those those rate changes.

And.

I wanted to ask a question about your MSP capture.

You said low <unk> or high <unk>, sorry could you give us a little bit of context for how that has ebbed and flowed.

From pre pandemic through the pandemic.

And maybe give us some context about.

Whether.

You would have.

Room to increase that should demand.

Sort of moderate at some point thank you.

Sure. Thanks, Debbie for the question this is John <unk>.

Pre pandemic, we were in the high <unk>, we inch that up to the high <unk>.

We have the capability and ability to bring that up even higher from the 70 S. But.

As we stated before we really keep it around the <unk> and we really don't want to be too much higher than that because what we do is we take our excess supply and bring it to potential new clients to actually feed our pipeline of MSP, but if we needed to it's always a lever we could pull but right now with our pipeline of MSP that we have.

There is really no reason, we believe that will continue to really accelerate our wins in MSP.

Other exciting thing is as we mentioned with the launch of <unk>. We're also going to be able now to enter into the Vms vendor neutral space, which we have never participated before.

And with that that is a multibillion dollar space, where we offer clients currently or prior to <unk>, just an MSP accountable model, which many clients do want that service, but there is a segment of clients out there again in a multibillion dollar segment that want a vendor choice program or vendor.

Actual program and.

But also allowing to now have that offering we feel that it will help continue to diversify our business and those of course are on a higher margin business. So we're very excited about that new offering and really being able to take some market share that vendor neutral space.

That makes sense. Thank you with respect to that.

<unk> in terms of just transferring your own book from third party vendor to your.

To your own platform.

What is the.

Could you quantify the cost savings associated with that in the time period over which the transition might take place.

Yes, Tobey its bill I guess I'll, just give you the context on the cost I mean for us.

Can imagine that the spend under management for today attracts a fee for us right because almost all the technology. That's used there is third party. So that that cost is anywhere from 75 to a 1%. So round numbers youre talking north of $10 million in annualized savings on a normalized basis, and I think the deployment or the <unk>.

<unk> schedule I don't know, Dan if you want to speak to that a little bit Yeah, Hi, Tobey how are you.

We currently have 10 clients and implementation that are expected.

Go live throughout Q3, and a similar number already scheduled for Q4, which includes some of these new signings.

And so we feel really good about the ability to not only convert some but add some new ones.

And build the capacity to actually grow faster than that as we get into next year.

Building, some new muscles in that regard and so I feel really good about where we are right now I mean.

Some of that has to do with the fact that we've been able to continue to add really strong experienced talent to our already energized team.

And for me that goes all the way from sort of sales through.

Management implementation ongoing optimization of our accounts, so I'm just feeling really good about.

Our ability to continue to deliver value to our customers until they are probably are going to just throw a couple of factors that dictate the speed at which we could convert active msp's. One has to do with the level of wins and the number of new accounts that we have coming on obviously those accounts will want to make sure that they get deployed on the technology.

Rapidly then we convert some of the old ones. So there's not as much disruption, but we are moving with haste to move our programs over to this technology, but some will also be dependent on the clients they're mixing their needs. Yes. This is John W. I think realistically over 12 to 18 months period Youll see us.

Go and wean off other technologies, but again, we're not where we want to be thoughtful about how we go and do this we want to make sure we take care of the clients first and foremost in the patients to make sure that you have the staff, there so and and.

As we develop and build a swap where it's very iterative process and so some conflict. Some hospitals more complex will go on a little slower in some complex some hospitals easier that will go a little faster. So it will be over time over time periods that we continue to do and.

As we keep as Bill noted I think it is important as we keep winning new MSP and accelerate that.

Well as moving into the vendor neutral space and winning.

<unk>.

Clients there those clients will also move on a quicker, which will slow us down a little bit to bring on those other the older clients.

Okay last question for me and I'll get back in the queue.

The multiple of the stock has come under pressure.

Results have surged.

And we're hearing that.

Private company M&A transaction.

Relative Cheryl Mike likes there.

They'll be.

Pretty good pretty respectful and in some cases higher.

Are you receiving any sort of outreach.

And any inquiries into.

Interested parties in acquiring the company in the business.

No no.

We think we're good.

Well undervalued.

People out there and I think if you look where the analyst thing you guys have us at our trucking prices were well below where those are.

But we're continuing to focus on showing people what we're doing we're making the right moves and really continuing to look forward to keeping growing the business and if we look at where we were pre COVID-19 as an organization, we were $30 million EBITDA company.

Our trailing 12 months is nearly $300 million and as we've stated as we look to exit the year at north of $500 million.

Revenue run rate in that high single low double digit EBITDA you look at 2023 that puts us north of $2 billion and pick your number between $160 million to $240 million of EBITDA.

We think the stories out there and our stock will get lifted fairly quickly as people see that we've moved from the pandemic to be endemic and that this company has been turned around from every aspect of that business when Kevin Clark came back three five years ago, we started taking and looking at cross country, which had a <unk>.

Good foundation, but we needed to shore up those foundations and we found at least shored up those foundations, starting with people processes technology and culture and we hit every one of those marks and if you look at what we've done over the last three years, we came through when we've proven that we've delivered that we've turned the.

Inside out of this company, we've turned it around and shored up the foundation now as we've launched <unk> accelerates.

Accelerated dynamic MSP sales team and we're Fortunately just team that are winning deals and we'll continue to win deals.

Couple that with our external facing technologies of <unk> for our clients and our internal portal, which we launched this year for a greater more efficient candidate experience.

We see there is there is no reason to be talking to anybody other than us.

The shareholders will have greater value as we keep continuously deliver shareholder value.

And does that conclude your questions.

It does yes.

Thank you and just a reminder, if you would like to ask a question. Please press star followed by one.

Our next question is from Bill Sutherland with Benchmark Company you May go ahead.

Hello, everybody.

John .

No.

<unk>.

Discuss your capital priorities going forward, particularly given the fact that the.

Cash has turned positive and probably a very strongly.

Foreseeable future.

Yes.

We both we both can answer here I think first of all it's a topic of conversation.

Cross country more so than it ever has been predominantly because we have more options I think youll look back across country.

The turnaround and we were generating.

<unk> $30 million of cash in the year.

Whole of the ballgame when Youre looking at north of $100 million in positive cash flows on a continuing basis. So options are more available to US now I think we've always been opportunistic at looking at what returns the most value, but I think a more.

Dedicated strategy around that is what we're working on right. This minute I'd say that the predominant use of cash will continue to be funded growth. So thats, both organic investments in products like <unk> I wouldn't be surprised if in the future. We continue to ramp our spend on technology that we've already announced for this year and then of course the opportunity for M&A tuck in.

To build scale in some of our other businesses that have higher margins is certainly a play for us.

Servicing that we did just pay down $50 million optional on our term loan because the interest cost on that is pretty significant I would not say that the.

The next best thing is to continue to pay down debt. There's some amount of debt that is healthy for a company like cross country to have on its books and so share repurchases is certainly something that's in our in our line of sight that were evaluating internally and I think that that'll be something that we'll look to do in the second half if I fast forward the clock and we were sitting on all the cash collections that we know are coming in I think you would see more <unk>.

<unk> effort on the share repurchase side.

Great.

The.

I just wanted a little clarification John .

When you were discussing the puts and takes on.

Bill rates and pay rates.

Looking out six months and how that could move.

<unk> gross margin, a little up or down.

Just wanted to understand a little more clearly what youre thinking.

In terms of those.

Leading lags I guess is better put the puts and takes.

Sure. So as we as we start looking to go from the crisis.

Late assignments that we had where we were working on a little bit lower margin on some of those rates on some of those assignments to the more normal travel assignments, we anticipate that we'll be able to pick up some more.

Now what we said in our prepared remarks is during the third quarter. We've had some mid <unk> mid assignment rate changes were eight assignment had changed over from a price of assignment to the hustle didn't need the crisis clinician and really need to Amy had a normal travel right assignment and in that case when those clinicians turned over.

And agreed to take the travel right assignment, we try to keep those clinicians as whole as as we can and and take even a lower margins. So we would anticipate a little bit of a lower margin hit have margin hit in the third quarter, because we want to retain that clinicians and keep the hospitals hold making sure that we have care at the bedside in the hospitals and then as we go into.

Fourth quarter NPS those mid assignment.

We have a newest assignment we are able to then increase.

Martin the other opportunity we have.

And our margin is as we look at the whole portfolio of our businesses. So as we start drilling and rolling out our vendor neutral platform Thats a much higher margin business that will also increase margins overall for the business and then as we look at our home health business, that's a higher margin business and that's growing at a double digit growth rate, our education business, which was interesting in Q.

Two we were up over 20% in revenue for education business, and that's up against 2018 and 19 pre COVID-19 numbers. So not only are we back to the revenue of pre Covid and education, but we're actually growing fairly rapidly.

The education segment in this country has experienced the same severe shortages in prices that we saw in healthcare as during the pandemic many of the health care professionals in.

Education professionals and teachers had the same fatigue and burn out because they had distance learning and had to go into schools with not enough PPE as we had in healthcare. So we're seeing a great prices.

Education federal shortage.

It is not anticipated to be alleviated for the next several years. So we have invested heavily in that business to also help grow that business, but that will also help us.

To increase our margins, which will help our overall portfolio margins, but to answer your question. Yes. We do we do expect in fourth quarter to see normalized increased margins for the normalized travel assignments.

And then remind me was.

Precisely education platform now I would think that would be one where.

All times would be a very attractive given the dynamics you just discussed.

Youre spot on Bill.

The education business for us aside from the summer months, where you lose that revenue stream, but it's on track for a $60 million run rate business for us on an annual basis and thats. Excluding the summer months. So it is definitely a place that we are looking at intensely for opportunities to find the right place to have the.

Tuck ins.

It is a heavily diversified market so.

Some of the companies are a bit smaller out there that we're looking at but.

There's opportunities there.

Okay. Thanks, everybody.

Thank you.

Thank you and again as a reminder, if you'd like to ask a question. Please press star followed by one.

Our next question is from Tobey Sommer with true with Securities You May go ahead.

Thanks, I was wondering if you could describe the complexion of.

New.

Nurse travel nurse applicant.

Just kind of earning your database and do you think are new to the market, we do get quit from the BLS Lib.

Kind of emphasizing directional and your data would be perhaps a little bit more time to it.

Yeah.

Yes, Tobey I mean are you asking when you say the <unk>.

Demographics like the age brackets I mean, two thirds are millennials or younger we have seen an eight fold increase in gen Z applicant so.

But we've had increases across all age.

The entire age spectrum, but I'm not sure if that answers the question Youre looking for.

And.

I missed part of the.

A few minutes ago, but.

I heard you talk about the <unk>.

<unk> sheet and cash flow.

Do you intend to stick with the current kind of capital structure or are there ways that that can be optimized given the improved margins and cash flow outlook.

Yes, absolutely Tobey I think we are evaluating the debt structure right now.

We are in an ABL and we have.

Subordinated term loan were of a size and scale now.

Oppens up more options for us whether that is looking at the pro rata market or looking at term loan BS.

There is opportunities to put into more permanent flexible scalable piece of debt on the business. So that's something that's on the line of sight I do think the ABL for us has fit historically given the.

The peaks and valleys that we've seen in our business and it scales with the <unk>.

As of the receivables, but at some point and ABL gets outstripped by your ability to borrow if you are a multiple of your EBITDA your profitability. So.

It's definitely on the table right now the markets.

Im sure Youre aware of the markets have not been the most open from the debt capital markets debt perspective seems to be that things are easing a bit so as we enter into the back half I think that will be something we'll be evaluating more closely.

Okay. Thank you very much for entertaining the additional questions Youre welcome. Thanks Tobey.

Thank you.

And again as a reminder, if you'd like to ask a question. Please press star followed by one one moment to see if theres any.

Further questions.

And there are no further questions, ladies and gentlemen this.

It does conclude the Q&A period, I'll now turn it back over to John Martin for closing remarks.

Before signing off I'd like to take a moment to recognize the life and achievement of one of our board members Darrell Friedman, who sadly passed in late June .

<unk> had been a director and audit Committee members since 2018 as well as the compensation Committee member since mid 2020.

He was a unique and inspiring soul.

A highly recognized entrepreneur and executive as well as an accomplished triathlete he will be greatly missed and our thoughts and prayers are with his family during this difficult time.

In closing I'd like to thank everyone for participating in today's call. We look forward to updating you on our progress on the next call.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation you may now disconnect.

[music].

Good afternoon, everyone welcome to cross country Healthcare's earnings conference call for the second quarter 2022.

Please be advised that this call is being recorded and a replay of this webcast will be available on the company's website.