Q3 2022 Cross Country Healthcare Inc Earnings Call
[noise] good afternoon, everyone welcome to the cross country Healthcare's earnings Conference call.
The third quarter 20 twenty-two please be advised that this call is being recorded in a week.
This webcast will be available on the company's web site.
Elsewhere accessing the audio replay it can be found in the company's earnings recently.
This afternoon at the conclusion of the prepared remarks, how open the lines for questions.
I would now like to turn the call over to Josh Vogel Cross country Healthcare is 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's as well as Bill Burns, our Chief Financial Officer, Dan White, Cheap commercial officer, and Mark Group Group President of delivery.
Today's call will include a discussion of our financial results for the third quarter of 2022 as well as our outlook for the fourth quarter.
A copy of our earnings press releases available on our website at cross country healthcare dotcom.
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.
As noted in our press release forward looking statements can bury 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 referenced 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 gap.
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 pertain to our most recent acquisitions as though 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.
Thanks, Josh Thank you to everyone for joining us this afternoon before I get started I just need to take a moment to welcome. The newest members of the cost could be family joined US This past month.
Acquisitions of make a notice to.
Two physicians debit companies that we believe that only expand our market presence.
What brings us a talented team of professionals to join the ranks of cross country logos. It sets the stage for accelerated organic growth welcome Mr notice.
The third quarter, Mark six months for me as CEO across country.
Amazed and excited by what we have.
Have achieved during this time as well as what lies ahead.
As an organization, we continue to execute well cause so many funds from sales to delivery and across our technology initiatives.
Unwavering commitment to always act ethically and to deliver best in class service has positioned us as an integral partner thousands of clients and tens of thousands of permissions and professionals be served.
Our success is rooted.
<unk> of our employees.
<unk> to maintaining a thyroid workplace culture that stresses the importance of diversity.
City and inclusion.
And the cultural cross country has never been stronger.
Evidenced by our recent recognition with the best companies for Happiness Award from comparable.
We take great pride, becoming the employer of choice for so many and we will continue to elevate and evolve our organization.
And our people and culture.
As noted in our press release today, we posted another strong quarter for both revenue and adjusted EBITDA.
Feeling the upper end of the guidance ranges, we shared at our Investor day event.
Timber.
In addition to highlighting are outstanding leadership team, we announced full year 2023 minimum guidance and heavy opportunity to share more insight into cross countries in the date of the technology.
It is heavy on our business.
Shifts from being almost exclusively and truly focus heavier investment it externally <unk> technology was evidence and the launch of be televised.
Proprietary cloud based vendor management system.
And this represents a significant milestone for the company at our evolution at a tech enabled workforce solutions company.
More details on and tell us by it later in the call, but first let me provide some comments about third quarter results.
Consolidated revenues of $636 million, we grew by nearly 70% year over year with all lines of business reporting growth.
Destroying revenue performance, coupled with stable gross margins and cost management drove adjusted EBITDA of $64 million, representing a 10% adjusted EBITDA Mark.
Increasingly or revenue growth is coming from volume is bill rates are trying to down throughout the year.
In fact traveled to wait for the third quarter were down 12% sequentially.
Nearly 20 per cent since the first quarter.
<unk>, 10% higher than a year ago.
With a backdrop of continued strong demand.
Tight labor market travel.
Travel rates are stabilized over the last several months and we believe they were settling into a new normal for the market is anticipated.
Bill will step through the guidance and a little bit later.
At the sequential decline to travel Bill is expected for the fourth quarter.
Is primarily attributable the wind down of higher weight assignments and not necessarily due to the continued decline in the buildings.
Is important to dozens of health care systems were sensitive to their need to reduce costs for can can get labor.
We will continue to do all that we can help them achieve their goals.
Our full compliment services, including helping them build up their core staff and offering them technology solutions, such as in televised that will help them better manage their extent.
Today, our largest source of revenue comes from our managed service programs or Msp's rubber.
Representing 55 per cent of our consolidated revenue for the third quarter.
Third or send under management from our Msp's with nearly $2 billion, an annualized can can get labor.
Which is four times the size of the programs we managed at the end of 2019.
Generally we filled all of our client fees to accommodation of direct skill and three network of subcontractors for the <unk>.
Third quarter cost countries catch right on the $2 billion.
With 71%.
Which was 200 basis points over to you too.
Increasingly are MSP clients will be able to benefit from the adoption of our proprietary Denver management system, and televised which enhances their visibility into their program extent.
As of September at 10 program slide on the platform with five more scheduled for an appointment in the fourth quarter.
As we pulled out an investor day until like also lowers our cost of until it it will save millions of dollars annually. Once it is forward deployed.
We currently anticipate the majority of our clients will be converted in the next 12 to 18 months, depending on our success and when a new account.
Actually be launched on televised program at a line.
The anticipated benefits with <unk>, so that'll be on cost savings at the technology also allows us to be more competitive in the market, giving us access to capture significant incremental clients tend to value neutral offers as well as technology extensions for direct license.
Clients for their control us.
Our tech roadmap is far from complete we're making terrific progress.
We have spent more than $12 million on technology <unk>.
More than half, which is focused on externally facing technologies, such as in <unk> and our Kennedy portal notice Paisley.
Gateway provides kennedy a superior experience with grilled time matching to open physicians and the ability to self select interest and schedules.
Judith self service model, we believed gateway will also significantly improve operational productivity, what's going to Florida.
So I'd like to say you would never really done creating technology.
Alright, <unk> transformation over the last few years is impressive we.
We have a completely redesigned our entire ecosystem from the ground up.
Using a data centric model.
Will components with any ecosystem.
Having a single text that enables us to avoid the highest level of analytics, while ensuring speed to market as well as best in class experience for Kennedy clients and our teams.
It also provides us a foundation to build additional capabilities.
On the strength of our performance, we continue to not only desk and wrote capacity and technology.
As well as acquisitions such as <unk>.
Who we are also able to sleep capital and a more meaningful way to paying down extensive desk.
Purchasing or shares of common stock.
As we announced it August or board authorized an additional 100.
Purchase program and we quickly put that to work.
Rick combination of exhausting, our prior authorized plan and leveraging the new plan, we were purchased more than 1 million shares of stock before or mandatory blackout.
September .
The average cost of share repurchase was $24 and we have $87 billion per meeting under the new program.
Will continue to be opportunistic with share repurchases galaxy investments and our technology initiatives strategic personnel and how can I ask a physician.
Bolster and diversified portfolio.
Looking to the fourth quarter overall demand remains robust and well above pre pandemic levels.
It is interesting to note that despite the relatively high demand and the recent surge of pediatrics respiratory cases.
You're not yet seen significant spikes in demand for seasonal needs, which could be it further tailwind as we head into the end of the year.
Specific to a travel business orders remain steady costelloe specialties with growing demand for emergency room, I C U labor and delivery and pediatrics.
Supply constraints continues to be the biggest challenge faced by our clients.
<unk> looking to retire early.
Bad side due to fatigue and burnout.
Is that a recent survey by being so the 25 per cent of you as conditions are considering switching careers outweigh mostly due to burn out.
Additionally, data from the Bureau of Labor Statistics continues to indicate a widespread between health care job openings and hires.
For the fourth quarter, we expect revenue to be between 590 $600 million well above the 550 million dollar exit one way, we shared at our Investor day.
While making a notice will contribute to a performance.
The majority of the increase comes from higher volumes as well as a slightly higher congested doorways.
Alright, Justin EBIT audience implies a margin of 9% in.
In line with our goal to pertain adjusted EBITDA margins in the high single too low double digits.
A call this out before but it's worth repeating.
We strive for continued mortgage expansion every quarter.
Continue to make investments that may interrupt the trend.
We believe will ultimately drive later shareholder value.
And so we are encouraged to reach have stabilized we recognize the potential for future volatility that said, we're well positioned nicotine driving organic growth. Thanks to the investments we have made and revenue producers the development of market leading technologies.
17th and continue to win new clients, we therefore reiterate our targets for 2023 announced in mid September .
To deliver a full year 2023 revenue for at least $2.2 billion and adjusted EBITDA in excess of $200 million.
In closing I am.
They're encouraged by our clients are business prospects as we approach 2023.
Good way to continue to normalize and demand remains strong.
It sets up an exciting one wafer longterm sustain possible growth across all lines of business.
I want to thank all of our dedicated professionals, who may cross country healthcare fair employer of choice.
I'd also like to thank our shareholders for believing the company and of course, our talented team.
<unk> transformation into a high performance Tech enabled total workforce management solutions for.
With that let me turn the call over the Bill.
Thanks, John Good afternoon, everyone. Once again, we have delivered results that I've exceeded our expectations with both revenue and adjusted EBITDA above the high end of the revised guidance issued during our Investor day in mid September .
Overachievement relative to the updated guidance was driven by better than expected performance across several lines of business, including education physician, Stefan and search as long as the impact from a small labour disruption we supported in the final weeks of the quarter.
Continue to execute well across multiple phones and experienced robust year over year growth across all of our lines of business and as a result consolidated revenue for the quarter was $636 million up 70 per cent over the prior year and down 16% sequentially.
Primary driver of growth continues to be the number of professionals on assignment until much lesser extent the impact from race.
Gross profit was $144 million, which was up 71 per cent of in the prior year and down 16% sequentially.
Gross margin of 22.6 per cent was flat sequentially, but up 20 basis points over the prior year as we continue to see a decline in COVID-19 related crisis orders at a normalization and don't pay spreads across our travel business.
Are solid top line performance combined with improved productivity and operational efficiencies killed another quarter of strong earnings with adjusted EBITDA of nearly $64 million, representing a margin of 10 per cent.
The fourth quarter in a row of delivering double digits adjusted EBITDA margins.
Turning to the segments nursing Allied reported revenue of $612 million, representing an increase of 72 per cent over the prior year and a 16 per cent declines sequentially.
Business travel nurse now I was up nearly 90 per cent over the prior year fueled by an increase in the number of billable hours of more than 73 per cent.
The sequential decline in travel was predominately driven by the expected decline until right, which one down 12%.
Looking to the fourth quarter, we anticipate average voice will decline once again.
Modest pace likely in the high single digits.
Travel the man has remained very strong with orders continuing to be more than 10 per cent above the start of the third quarter and well ahead of pre pandemic levels.
From a <unk> perspective, bill right, some leveled off and remain stable for the last four plus months.
Having declined throughout most of the first half of the year.
I'm looking into 2023.
We will likely see that <unk>, a little bit higher than we anticipated last quarter.
<unk> could step down in the future of clients the lower needs for continued labor.
At the moment, it's hard to predict when that might happen or how it might affect our bill right concerning incredibly tight labor market.
Our local business was up 9% in the prior year, though down 14% sequentially with a sequential drivers fairly evenly split between race and volume.
A majority of the volume decline has come from a drop in local contract or bostwick assignments, returning to more normal levels for a local business following the pandemic.
Also with a nurse now I'd, our home care business rose, 23% over the prior year as we continue to ramp are managed service outsourcing arrangements with several large pays providers.
Lastly, our education does this reported a 38 per cent increase over the prior year and was down 11% sequentially due entirely to the impact from summer vacation.
We remain excited at the prospects for this business to continue growing organically in the high double digits into the future. In fact, we expect the fourth or it'll be the single highest revenue quarter for this business and its history.
Finally, the physician stopping segment delivered nearly $24 million in revenue, which was up 27% over the prior year and eight per cent over the prior quarter.
<unk> days were up 8% over the prior year and 6% sequentially with growth across a wide range of specialties.
<unk> on a year over year basis, excuse me average revenue per day filled increased across virtually all specialties as needs continue to rise.
Moving down the income statement total selling general and administrative expense was $80 million up 52 per cent over the prior year and down 7% sequentially.
As a per cent of revenue R. S. G and I was 12.6 per cent down nearly 150 basis points over the prior year on the improved operating leverage stomach from the growth in our business as well as greater productivity from a revenue producers.
The majority of the increase in SG&A over the prior year was driven by continued investments in people and higher compensation on continued strong performance of the company as well as investments in our technology initiatives that are not capitalized.
On a sequential basis, the decline was primarily driven by lower incentive compensation associated with the sequential trend in the business, which was partly offset by continued investments in our workforce, which grew by four per cent over the prior quarter.
We continue to believe the market supports further investments and resources.
We will leverage our capacity planning models to ensure that they are target to the areas with the greatest opportunities.
In addition to the investments and people. We're also investing heavily in our technology with additional resources and developers.
To facilitate the rapid deployment candidate and client facing technology like our new G M S and <unk>.
Yeah. The date, we spent more than $12 million on technology.
Given the nature of some of the projects roughly 60 to 70 per cent of it qualifies for capitalization for deferral.
During the quarter, we recognize $2.5 million in restructuring charges and $3.8 million and asking them parents, primarily related to the closure of additional office space during the quarter.
Interest expense of three and a half million dollars, representing the decline of 9% over the second quarter on lower average borrowings across the corner.
With the majority of the remaining debt outstanding related to our subordinated Sherman.
Are effective interest rate was nine per cent.
As a result in significant cash generated during the quarter and the level of availability on our <expletive> boring line, we chose to make an optional prepayment of $50 million just after the end of the third quarter to reduce our interest costs further.
I'll go into more detail on the capital allocation in just a moment.
And finally on the income statement income tax expense was $14 million, representing an effective tax rate of 28.5%.
Based on our latest projections. We now believe are full your effective tax rate will be between approximately 28.5% to 29% excluding discrete items.
Our profitability for the quarter resulted in adjusted earnings per share of one dollar seven which was 75 per cent higher than the prior year.
Turning to the balance sheet, we ended the quarter with $30 million in cash in $133 million in outstanding debt, including 124 million under our subordinated terminal at 9 million borrowings under our ABL facility.
Cash on hand was intentionally high as we were preparing to fund the closing of our two locum tenens companies <unk> <unk>.
From a cash flow perspective, we generated more than $140 million in cash from operations during the quarter.
Presenting the single highest quarter in the company's history.
<unk> standing or 67 days, representing you one day increase over the second quarter, primarily due to the sequential decline in revenue relative to the timing for collections we.
We expect D. S. L will start to normalize as we progress through the fourth quarter and into the start of 2023.
With a significant cash was regenerated, we not only reduce the overall indebtedness that accompanied by $76 million refunded. The acquisitions I mentioned, a moment ago repurchased more than 1 million shares of our stock in an average price of $24 as well as paid the first earnout payment on our acquisitions of Ws G for having achieved the targeted results.
Looking ahead, we expect to continue to generate a significant amount of cash in the fourth quarter and as I mentioned, a moment ago have already repaid an additional $50 million from a subordinate determine in the fourth quarter, bringing a year to date prepayments to $100 million.
With regards to future share repurchases, we will continue to be opportunistic that was we shared with our recent investor day. We believe the best used for cash continues to be to fund future growth.
And this brings me to our outlet for the fourth quarter.
Adding to fourth quarter revenue of between 590, and $600 million, representing sequential decline of 6% to 7%.
<unk> only by the anticipate the decline in travel stories.
Lee offset by growth in our education and the impact of a recent acquisitions from into motives.
Gross margins are expected to be between 22, three and 22.8 per cent largely consistent with the current quarter.
And based on our estimated revenue gross profit, we're expecting adjusted EBITDA to be between 52 and $57 million, representing an adjusted EBITDA margin of approximately 9%.
The sequential decline in just to even the margin is primarily due to the impact of lower average billington travel as well as continued investments in our technology initiatives and not workforce.
Earnings per share is expected to be between 85, and 95 cents based on an average to your account of 37.1 million shares.
Also assuming this guidance as an interest expense of $3.2 million depreciation and amortization of $3.4 million stock based compensation of $2.1 million and an effective tax rate of 29%.
This concludes our prepared remarks, and we would not like to open the lines for questions operator.
Thank you we will now begin our question and answer session. If you would like to ask a question over the phone May I. Please press star one from your phone or meet your line to speak your name clearly what prompted your name and affiliation are required.
Would like to withdraw your question.
Again to ask the question over the phone line.
Our first question comes from Kevin Fishback with Bank of America. Your line is open.
Great. Thanks, I guess, maybe the first question because the quarter came out better the guidance with Q forthcoming and better but you haven't really changed <unk> yeah. It looks for next year and are you still thinking then that ultimately the bill rates stabilized at the same rate yourself before you know starting to think that.
The the starting point for next year's is probably going to be higher than that there could be some upside to the to the next year outlook.
Sure Hi, Kevin. Thank you for the first question of the evening. This is John I'll I'll start and have bill add some more color, but yeah. We we when we're looking at in terms of our guidance or what our targets were for 2023 that was really the minimum target. We're looking at about 2.2 billion and that $200 million in EBITDA.
And we at this point again.
Not having that perfect a crystal ball in front of US, we're looking at where rates have levelled off and if we look at what happened with the rates. We saw the rates going on a decline as we got we just went through the year.
And and right now what's happening is some of the higher rates that were in the beginning of the year and through second quarter. Those people are coming up assignments now and that was leveled off those bill right and so.
We see in the future. We're thinking abilities are will remain stable at currently at their at but what I would say is there's a lot of different twins from b macroeconomic trends that could have impact on those rates and of course.
Right I'd be.
<unk> not to talk about the supply and demand that really causes the rates to flex to fluctuate and so because there's such a widespread between the demand demand and supply imbalance. There's a lot of volatility that could happen in next year, but as of now this two <unk> $2.2 billion of revenue.
Is the floor, we see and we do think that there is potential upsides to this but we're also cautious to say that there could be some headwinds of macroeconomic trends that could impact that and so when you look at this 2.2 billion dollar minimum floor. We have you know cause I need to think about about hitting that blow right down the center of the fairway, Bill, which I guess, yeah, that's right. Thanks.
John made the point I was gonna make which is it was minimum guidance as we called out and like there's a lot of unknowns as we look at 2023, you know the potential for further economic disruption.
The zip the potential pullback in some demand for contingent labor, although again not seeing that today is it possible rates could could go down a little bit further of course, I mean at the viewer called earlier. This year, we had thought it would be a sequential double digit decline. We're now calling for high single so there's a little bit more room, we would anticipate that is there potentially is on the right side, but after.
Four months of kind of seeing the stability in the rates. It's it's hard to see when that might play out that way, but so did Johns point. There. There is some potential upside there I remind you you know the other lines of business are growing well, we're seeing phenomenal growth in our home care out of our education. Our search businesses. So that is why why why not change the 2.2 billion, but I think as we get through the fourth quarter.
Well, obviously look to give you a little bit better lens on 2023.
Okay. That's that's helpful. I guess, so that some of the variability bill races due to the changes in the crisis orders of resetting. Your total is there is there a way to kind of give us that that number where was that as a percentage of total orders in Q3, and what what what does that normally like in 2019 pre pandemic.
Kevin we've stopped actually tracking things as crisis orders I'd say that in the third quarter, even even if I look at the labour disruption rates that we saw they were not like remarkably different than what we're seeing in the broader market place. So the market is settling into a a more of a of a premium rate relative to pre pandemic I wouldn't call them necessarily premium rates today, it's really just.
The market is demanding so you know as far as splitting it down it'd be an arbitrary split to tell you how the percentages or shaking out relative to pre pandemic. Because we just we simply are not flagging orders as <unk> as premium rate orders are prices orders.
Maybe just last person you mentioned and that the the pediatric respiratory cases aren't coming in the seasonally the way to you.
I hear a lot about it I guess in the news about the triple.
They're calling it now.
Is that because our the hospital just waiting to actually kind of see it fully come through before they ask for that staff is there a reason why they wouldn't be stepping up in front of that any any color then.
Sure I'll start and then maybe Mark you want to add or down, but we as we said what we're seeing cases come up and obviously you watch the news and the media right, what you're seeing is tons of patients being diverted and it will be 70 miles to get to a hospital and so we are seeing an uptick in paediatric specialties, but not at the surge that we would ask.
<unk> with a triple threat of RSV of of of the flu and a little bit of Covid in there and and so what what we're anticipating that could happen to be a scenario as the these children are getting through this triple threat and now is we're heading towards the holidays you have Thanksgiving in the December holidays coming up.
And most of the country's going to become a little colder and more people will be inside we think the vegetable threat has the potential to really cause an increase in demand towards the end of the your new year now when we look at our numbers of the $2.2 billion for next year. The fees these potential tailwinds or not baked into those numbers at all.
Of course it was.
Hoping that this doesn't come to fruition, but we are very well prepared with a capacity of our recruitment team with our sales folks.
Folks going out to potential new clients to make sure that we can help serve the committees and the hospitals and patients, but bad side. If it comes to fruition that we have this triple triple threat searched a move into the adult population as well Barker to and you want to add anything to that.
Sure John I mean, we have seen most recently a sharp increase in the pediatric respiratory orders, probably not as strong or as high as we would've expected at this point, but overall pediatric order volume has increased almost 20% since the start of Q4. So that's more in line with what we expect.
And this is Dan what I, what I will add is that we have a decent number of children's facilities that are in our pipeline for sales and one of the things that we like to do is to have capacity to help those customers that are in in our.
Pipeline and so we're getting reached out to kind of in a real time basis right now for assistance on some of those specialties specifically.
Okay, great. Thank you.
You bet.
Our next question comes from a J race with credit Suisse. Your line is open.
Thanks, Hi, everybody.
Maybe just trying to get my arms around the market dynamics again.
I think you guys may have been the ones that et cetera earlier in the year that maybe in the early part of the summer the rates had gotten to a level, where some travel nurses were saying hey at that level I'm just gonna go back.
Into my permanent.
Job.
Is that how much of a constraint is that on seeing declining rates. The fact that it hasn't declined are we at a point now where if it were to continue to decline it would.
Start to drive some nurses back in another dynamic, we sometimes see or we saw many years ago at this point.
Is nurses get nervous about whether their permanent job is still available to them and began to think that maybe they should go back and I'm wondering if the economic backdrop.
Is unsettled enough or not really that that might be part of the equation on what you're seeing on nurses that are out on travel, but wondering whether they should go back is that entered into the equation at all.
Sure Hey, a J it's John .
So I would say that when we look at where we are with that core nurses that moved out of their core physicians to moving travel sure. Some of them definitely went back after Q2 and into Q3 went back to their core core jobs, but we don't believe that vs. The nurses are thinking.
<unk>, it's like musical chairs that I don't go back into their job into a court job at the opening of chairs left we look at the macroeconomic trends you know unemployment is still at a historic low and.
And when we look at the the jolts BLS data.
If we look at from the Affordable Care Act in 2014 to today open positions of increased by 233 per cent.
When we look at the ratio of open jobs to hires from beat the BLS jolts data Uhm historically that number has been a ratio of less than two.
And probably somewhere between 1.5 to 1.7 it hit a high in March of about 2.94 and currently in September It stands at about 2.8. So the conditions that we're speaking to they realize there's a lot of jobs out there hospitals of course under.
I understand that there need to hire for the core Stephan at cross country. What we're really doing is we're looking at how we can help hospitals really solve the challenges of the core staff.
Because if.
If you look at the studies that have been out there I think it was Mckenzie I believe let a study a couple of months ago that said, there's a 400000 nurse shortage today and I'd states.
And then if we look at.
You know every studying me talk about this all the time right. If we look at all the different studies out there over the last year or two in the next 10 years, there's going to be a millionaire shortage.
So the demand as they are the demand will continue to be there, but for us it's working with hospitals to say how can we upskill clinicians to get to acute care, how can we create more preceptors and educators to create more supply into the hospitals.
But what we're looking at is for the foreseeable future. There is going to be this incredible chasm other supply demand imbalance. That's just not the way to go away and even if we were to have a a macro economic downturn. It would take a lot for it to turn from this historic high day.
Man, where unemployment rates would have to <unk> Lehigh.
For politicians to say, Hey, I'm I'm gonna return to to a permanent job Dan Yeah, Uhm a J. This is Dan <unk> I would like to sort of add to what John said I think everybody realizes that we have on our P. O on search division, which does in fact help people our customer.
<unk> with filling their permanent positions.
Business itself is.
Somewhere between 25 $30 million now up over 60% year over here. So we have a huge opportunity to to help our customers with what these problems and so it it's it's beneficial to us to do that about I would say about 80 per cent of that.
R. R. P O business, which is more consistent and a recurring revenue.
So for US, it's kind of a little bit of both sides of the equation and a J, but this is bill if I could just put a point on that how it we're seeing it in relative to our numbers that we don't guide at the business level for us sequentially in the fourth quarter were expecting volumes to essentially be flat. So we're not seeing a falloff in hcp's or health care professionals.
Willing to take assignments and so that's how we see the fourth quarter shaping up yeah N. A J just to add to all of that we did see renewal rates dropping Q too, which means a portion we're going back to their core jobs, but at this point, we are seeing them back up which for me means it's probably leveled off at this point is Rachel.
Stabilized.
Okay, and then maybe just.
Looking at the other side of the coin we're reading so much about hospitals facing downgrades swinging to operating losses.
You said that you know hospitals are hurting out there, but they obviously need nurses to service to patients or it's just a vicious spiral what.
Interesting aspects to that discussion ways, they're leaning on you that may be different in history to try to figure out ways to address the current environment in which they find themselves.
Yeah H a this is Dan I'll I'll, maybe start out and see if anyone else wants to add in some color. Just this past quarter. We started a team that does workforce optimization for our clients. So we'll go in and do an assessment of kind of how they are.
[noise] utilization is working on a unifying unit basis across the system and then give them advice for how exactly.
To fill those gaps a few well we're building technology that helps us take that currently very manual process and make it a deeper part of our <unk> platform and so automatically what we Wanna have for.
Our customers is.
Manage your core staff better supplement that with <unk>.
Regional or local flow pool resources, and then bring on your travelers to augment that and so far the reception on on that.
Process. If you will is really high both from existing customers and prospective customers.
Okay, great. Thank you so much.
You bet.
Our next question comes from Brian .
Jeffries Your line is open.
Hey, good morning, Good afternoon, you guys and congrats on a corner I guess just a question again the bill rates is there a seasonality factor that we should be thinking about me I appreciate that it's been flattish for the past few weeks, but any thoughts and seasonality and pricing that we should we should consider.
Hey, Brian is bill thanks.
No I don't think there's a real seasonality to our bill right certainly not across the travel business. We don't typically see that at any point in our history and I know that.
In the last couple of years, it's hard to point to history, and say that that's a good predictor, but we do not normally see a seasonal fluctuation in bell right. There may be a specialty needs and then maybe geographic needs that very throughout the year, but not on the bill right. Yeah, I would just add to that Brian . This is John that I think with Bill said is.
Rapid on a regional rates have changed I think when we looked at COVID-19. During most of that two year period with a national rate because everyone had the same search and demand now even with pediatrics, we're seeing pocket of areas that get hit with the triple threat now, it's spreading more and more so it may become a national price, but I think regionalization pricing is really.
What we're seeing world.
Got it Okay, and then a nice thing about the logos business any feedback so far that you've heard from your clients in terms of cross sell opportunities as you're trying to get the bigger and deeper than that look on space.
I'll take that one Brian . This is Dan we absolutely are getting tons of interest from from customers for physicians, obviously that help some on the revenue side of their equation and and so on and so forth.
So the other thing that I would say is that from across selling opportunity. We we don't have low comes and most of our Msp's. In fact, that's one of the best areas in one of the reasons why we wanted to to add this capability.
What I might add two is just from integration perspective, we're already seeing those teams.
Fill each other's orders if you follow me. So you know the existing low comes team here at cross country is filling orders that were with both Lotus and meant and vice versa and so the the the kind of integration leverage we're getting out of this is incredibly high which again gives us.
More confidence to go onto our customer base and this is John I would just add that also with the acquisitions at Vinton Lotus, that's really helped us create more capacity than we've had before and that business. If we look at where that business is trending Bryan it's.
It's gonna be roughly 140 150 million dollar business, giving us more capacity to help us be able to bring that offering to our clients in a larger scale that we could have ever done before.
Awesome that guys.
Yeah.
Alright next question comes from Toby Summer, we truly securities. Your line is open.
Okay. Thank you wanted to start on gross margins.
When do you expect.
Expect gross margin compression.
And and what kind of strategies do.
Do you have in mind to sort of course, some of that gross margin back.
Hey, Toby this is bill well look I think part of it is it's always a competitive dynamic you're you're in competition for the health care professional so we're always going to have to make sure that we have a market pay rate that moves along with it we can see that the pay rates have come down slightly faster than the bill rates. The stubborn piece has been the housing costs and as you can imagine what the.
Inflation backdrop, that's the piece that.
Is going to be a little bit harder to call back because you call. It I think the opportunity is really lie around other efficiencies within our gross profit and so if you think about <unk>. For example, that's set to save us millions of dollars in in the last in the part.
Part of the third quarter and going into the fourth quarter we've.
Already begun the conversion of a number of accounts and have gotten north of $100 million spend actually migrated onto the platform. That's gonna drive annual savings just from what we've already migrated up over $1 million annually. Obviously, we've got a roadmap to do that throughout the fourth quarter. It into the first half of 2023.
And then of course, there's other efficiencies, we look at everything up and down the line or cross whether it's a professional liability insurances are workers comp insurance is the credentialing cost that we have so a lot of it's going to be looking across those opportunities and then of course.
The broader comps consolidated impact will come from improving continuing to improve the mix but.
Any other comments on yeah, Hey, Toby this is John .
Yeah, I would just say as as I said, we're going to keep the keep increasing our diversification. If we look at or W. S G or four solutions group that.
That works in the pace centers and home health. That's a business that is also going to be north of $100 million and it has a higher margin business as we continue to invest in those other peripheral businesses of ours <unk>.
<unk>.
Getting them to grow at a faster rate that will help drive gross margins and I think really what's going to propel us to drive gross margins, even faster is up our movement and entry into the vendor neutral space within <unk> now we announced at our Investor day that we're moving into this vendor neutral space, it's somewhere between 10 to 20 billion dollar Mark.
Where we have a zero.
This is your penetration in and as we build and we're building a pretty big pipeline, right now and Msp's and our vendor neutral business and <unk>.
That's going to help us increase our gross margins and our EBITDA margins because those are the vendor neutral businesses are very highly profitable and the GM gross margin side as well as the <unk>.
That's helpful from a mix standpoint, if I think about the travel at Allied business as it's currently formulated is.
How does the gross margins of either in the quarter or implied in your guidance compare to what you think.
Twenty-three looks like in that business, just trying to get a sense for whether there.
Is it rebound in the offing or or is there for their compression that you expect.
I don't think this further compression Toby I think.
Today, and then remember intentionally we've opted to give the majority of the compensation through to the nurse will have our margins have been depressed a little bit that business. We've seen it in the low twenties kind of range for our gross margin across travel I think that while we're still down a couple of hundred basis points I don't anticipate getting all that back in 2023, I do think that there is room for let's call it somewhere in that.
100 basis point improvement over the next 12 months, but mark anything you.
No.
We're gonna, it's gonna be slow and gradual I don't expect it to be overnight, but I think you know I.
<unk> I don't expect any further compression, but to John's point earlier, our other businesses. The education Division is a high high margin business and it's actually a great story, it's up almost 70% Q3 2022 verse Q3 20.
19 Q.
Q for shaping up to be our best quarter ever we're seeing diversification there as well power professionals are our fastest growing segment within the education business demand has shifted a little bit traditionally we saw.
Strong demand for speech language pathologists in special Ed professionals, but we're also seeing today very strong demand in mainstream teachers and power professionals, where we enjoy great margins.
Thank you.
How did the volume of travelers in three Q, which looks like it's down about 7% quarter over quarter.
Compared to your expectations when you gave guidance for the third quarter.
Yeah.
It's a good question Toby I'd say it was probably a little bit deeper decline then we anticipated fight if I go back to when we first gave our guidance.
Down just a little bit more significantly, but as we look across where that came from it was the wind down of higher bill right assignments.
But we've seen good production and across the weeks throughout the talent of the third quarter of going into the fourth quarter.
I think it was really just a step down from the crisis needs from the Covid pandemic I think it was anything more significant than that yeah.
Add probably from towards the end of the second quarter to the middle of the third quarter is probably what we throw a little a little bit of a dip in our volume production, which we didn't anticipate as depose a volume production and then we had the steady incline increase in demand and now our production is catching up to that.
Perfect last one for me could you comment John about what you're thinking about in terms of the timing of <unk>.
Deploying some of this cash you you did buy some stock and then put it on call.
Kind of went on a tear right right when you <unk>.
Right. After you bought some so that's understandable.
Annabelle, but are are are multiples coming down from private companies sufficiently such that you could continue to do acquisitions that are accretive like the the Bolton's you didn't physician.
Without a doubt yes, but also on the buyback program and yes are selected haven't run, but we also we're in a mandatory blackout period. So let one of the reasons why we hold it or the reason why you hold a dying, but yes, we did have a nice from the start yet look when we look at where we're going to be in 2023 and beyond.
Acquisitions or a large part of what we'll be doing with our capital deployment and.
Slowly seeing multiple is coming down.
And I anticipate will see multiples continued to come down, especially.
If the broader economic conditions.
Fall unfavourable, but yeah, we're still very very active in the M&A of market.
Thank you.
Our final question comes from Kevin's.
To your line is open.
Good afternoon.
Just wanted to ask about your plans for.
Tutor read through their hiring.
Over the next several quarters.
<unk> you think you have to add there and.
Any challenges in finding staff any pressure on upward pressure on compensation costs et cetera.
Hey, Kevin This is John I will start in hand over to more crude.
But to start.
Always looking on our capacity model that we have that kind of shows.
Peter productivity or producer productivity with how much demand there is kind of a formula that we have an algorithm that shows what we need but we're a growth company and will continue to invest in people and we can continue to invest where demand is as long as demand stays as strong and continues to increase we're going to be.
Hiring producers not only in our nurse unalloyed business, but in education, and Locums WSJ business in our <unk> in search business.
We will continue to invest in those Mark did you have any sure hey, Kevin at this point, we really don't have challenges finding staff because they're virtual now so it's a much bigger pool to select from we're finding a great talent.
And.
Compensation costs are steady they haven't changed a whole lot recruiter productivity is still very strong almost double what it was pre pandemic and as long as that's the case, we're gonna continue to to upgrade higher and make sure we have enough capacity.
This is bill just just two quick points when I did mentioned that prepared remarks that we did grow our staff, 4% in the third quarter. So that's just one quarter of sequential chain. That's that was quite an investment. We made of course most of those were in revenue producers and then just a dovetail into Mark's comment when you look at our comp structure I think were among the most competitive in the marketplace, we give our folks the ability to.
To earn more as they grow their books of business. So I think that's part of what helps us be very attractive for folks to join cross country.
Alright, Yeah. That's helpful and you mentioned, there recruiter productivity and I believe you mentioned that as a contributing factor to the.
Margin improvement in the quarter.
Just wondering how much for room there is the run in terms of <unk>.
Improving roof recruiter productivity.
I know newer people can ramp up faster, but just as you look at the.
The staff overall is there more room to on their on productivity improvement.
This is John again, I'll start in the handoff to Bill and Mark, but I think with our continuing investments in technology, especially with our gateway portal, which we get.
Pulled out and the last <unk> in April last year wait till of this year, rather than we talked a lot more about an investor day, there's a lot of room in one way for us to have more productivity as we start really becoming a more self service model for clinicians are are producers will be able to have larger capacity gains which will slow.
Right through the bottom line to our EBITDA lowering SG&A, increasing higher EBITDA.
<unk> I was just going to say the same thing John I think when you look at the initial driver of the big gains we've hadn't productivity you would tie it back to the applicant tracking system, we put in for travel, but that's just one piece of the puzzle and there's obviously other levers that we're looking to Paul Yeah and in addition to what they said what John and Belle said, we're also doing enhancements to the <unk>.
And tracking system right now and that's really helping drive productivity and we're tweaking the organization to fuel growth and making sure revenue producers focused on revenue produced a activity.
Alright, thanks for taking the questions I appreciate it.
Thank you.
Ladies and gentlemen, this does conclude the Q&A period, I will now turn it back over to John Martin's for closing.
Thank you 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 on February see then.
Ladies and gentlemen, this does conclude today's conference. Thank you for your participation you may now disconnect.