Cross Country Healthcare Inc. Q1 2023 Earnings Call
It is also worth noting that although new travel orders have slowed our Kennedy renewal rates remain near historic levels, indicating that while clients struggle to reduce contingent labor.
Means a critical shortage and an ongoing need for these conditions.
We certainly understand and support health systems right sizing their cost it does feel as if the market has overcorrected.
Management will go off and we believe it to be nearing the point, which would start to rebound as we move through the back half of the year.
Regardless, we continue to operate at the very high level. The approximately two five times the number of travelers on assignment relative to our 2019 performance.
At a high level. It appears that health systems face severe staffing shortages that are projected to worsen in the years ahead.
Take for example, the April nursing workforce study conducted by the NSE SDN and the National Forum of seat nursing workforce centers.
In addition to the estimated 100000 <unk> that left the workforce during the pandemic.
The study indicated that another 800000 nurses have and intend to lead the workforce by 2027, cutting stress and burnout as well as plans to retire.
Included in this group is a surprising 189000 <unk> younger than 40 years old.
Altogether, roughly one fifth of Rins nationally are projected to exit the health care workforce in coming years.
Another study by Mckinsey projected gap of 200 to 450000 nurses in the United States by 2025.
The results of these studies are staggering and imply that the challenges hospital space and getting escalations to the debt side will only intensify in coming years.
Now, let me spend a moment on our technology initiatives.
As previously highlighted we have been successfully redesigning our entire technology landscape using a data centric model that provide analytics and insights in real time.
At the center of our ecosystem is <unk>.
Our proprietary vendor management system.
We introduced <unk> at our Investor Day event last September and since then we have successfully migrated 25% of our current managed service program clients onto this platform with plans to migrate the majority over the next 12 months, which will save us millions of dollars annually in tech fees paid to third parties.
When we meet prospective clients today, our conversations go beyond just contingent leader and focused on comprehensive talent management strategies that include sourcing.
Retention redeployment Upskilling and Reskilling and.
<unk> helps address these challenges while aiding our expansion as a tech enabled worth solution platform.
We believe intelligent <unk> to be highly differentiated in the industry.
And we're very excited by the multibillion dollar opportunity it opens up within the vendor neutral space.
Speaking of which I am thrilled to announce that we signed our first venue neutral contracted March and we have a robust pipeline of clients interested in our technology.
As we discussed on our last earnings call clients are understandably evaluating their needs and looking for alternatives that can save them money.
And though this may result in a higher level of churn. We believe it presents a unique opportunity for cross country to expand its share of spend under management through our managed service programs and vendor neutral offerings.
As I like to say you would never done investing in technology and that is certainly true for <unk> in the first quarter, we launched the protium and internal resource pool for ERP.
Modules with <unk> that we believe will fuel even greater client interest as they struggle to lower contingent labor cost.
In addition to our other core technology projects, which now includes the replacement of our ERP system.
We anticipate investing nearly $30 million this year on technology related initiatives that we believe will further improve our go to market strategy as well as our efficiency.
Turning quickly to our investments in head count by leveraging our capacity models, we continuously seek to balance near term profitability, while ensuring we have the resources to drive medium and long term growth.
Given the relative softness in travel demand and the increasing productivity from hires made last year, we have moderately scaled down the level of our investments primarily through attrition and performance management.
Going into the second quarter, our total head count is down about 7% since the start of the year.
At this point, we believe the infrastructure is appropriate for the current market conditions and we are proactively evaluating other areas of spend to ensure we maintain the highest level of profitability. While also ensuring we continue to deliver the highest level of service.
That brings me to our outlook for.
For the second quarter, we expect revenue to be between $530 million to $540 million. The sequential decline is primarily driven by the travel volume, we discussed as well as an anticipated high single digit decline in travel rates due in part to the wind down of higher rate assignments.
Our adjusted EBITDA is expected to be between 40 and $45 million.
Reflecting a margin north of 8% at the midpoint.
Looking beyond the second quarter, we are adjusting our expectations for the full year based on the lens, we have on the business today. Accordingly, we now expect to deliver full year 2023 revenue of at least $2 1 billion.
And adjusted EBITDA in excess of $170 million.
Which implies a margin above 8%.
Overall, we are confident that we can achieve organic long term growth and we remain focused on increasing shareholder value through our deployment of capital.
Since we announced a $100 million share repurchase program in August of last year, we have repurchased two 7 million shares for approximately $70 million by exhausting. The prior authorized plan as well as under the new plan.
With the strength of our balance sheet and given we continue to believe our shares remain undervalued I am pleased to announce that we are restoring the authorization under the share repurchase plan back to $100 million with.
With the intention to be opportunistic in repurchasing more stock.
In closing, we remain excited about our prospects and ability to build upon the early momentum from <unk>, which we truly believe is a game changer for cross country.
And our employees are sharing in this excitement as evidenced by our recent recognition as a 2023 winner of the best Company outlook broke apparently which is an award that measures how company employees are about the future success of their company.
Our workplace culture stresses the importance of diversity equity and inclusion.
And he is the heartbeat of cross country, and a key catalyst to fueling our growth and value.
Thank you to all of our employees for their tireless work and dedication and thank you to all of our professionals may cross country their employer of choice as well as our shareholders for believing in the company.
And just before handing the call over to Bill on behalf of myself management and the rest of the board we'd like to thank Tom Jerks, whereas more than 20 years of service to cross country partners involved within the company since before going public in 2001, serving as the chairman of the board for nearly a decade with that let me turn the call over to Bill.
Yeah.
Thanks, John and good afternoon, everyone, continuing our trend of solid execution. We were pleased to once again exceeded the high end of our guidance ranges for both revenue and profitability consolidated revenue for the quarter was $623 million down.
<unk> down less than 1% sequentially and down 21% over the prior year with the year over year decline, primarily driven by the normalization of travel bill rates.
Get into more details on the segments in just a few minutes gross profit for the quarter was $139 million, which represented a gross margin of 22, 4% gross margin improved approximately 30 basis points, both sequentially and over the prior year due primarily to an improvement in the bill pay spreads, especially within travel.
Sequential improvement in gross margin would have been even higher were it not for the 40 basis point impact from the annual payroll tax reset at the start of the year.
Moving down the income statement total selling general and administrative expense was $84 million.
Up 3% sequentially and 10% over the prior year.
The majority of the increase in SG&A over the prior year was driven by higher salary and benefit related costs associated with the investments in resources made throughout 2022 as well as acquisitions completed last year.
On a sequential basis, the increase was primarily attributable to the impact from the annual payroll tax reset as well as a ramp in technology spending for 2023.
As a percent of revenue SG&A was 13, 5% up from 12, 9% last quarter and nine 7% in 2022.
As we called out last quarter, we manage the level of investment and resources to match the current market conditions by leveraging our capacity model.
Our goal is always to be proactive in flexing up and down in order to ensure we can continue to grow while protecting our overall profitability.
With the softness for new travel assignments, we identified that we were a little over investment in certain areas and as a result, we've managed to reduce our annual salary cost by roughly 5% primarily through performance management and attrition.
He brought a supply and demand imbalance remains and we are well positioned to continue delivering clinicians across the continuum of care.
Also worth calling out that though demand for travelers and softened we see continued growth potential in other parts of the business such as education, homecare staffing and locum tenants that will likely support further investments in those areas.
Based on the cost actions to date as well as lower payroll taxes and compensation associated with the sequential decline in revenue, we anticipate our SG&A will decline in the high single to low double digits for the second quarter.
On a technology perspective, we're continuing to make substantial investments in advancing our tech roadmap for products like <unk> and gateways, which is now known as experience.
For the first quarter technology project related spend was $6 million nearly double the fourth quarter and on track with the $30 million John mentioned, a moment ago, approximately 25% understand was expense in the quarter since it did not qualify for capitalization or deferral under U S. GAAP.
The better than expected top line performance and higher gross margin fueled another quarter of strong earnings with adjusted EBITDA of $52 million.
Representing an adjusted EBITDA margin of eight 4% consistent with our goal to maintain margins in the high single to low double digit range.
Interest expense for the quarter was $3 $7 million, which was up 5% sequentially and over the prior year.
Increase was entirely driven by higher interest rates and was partly offset by lower average borrowings during the quarter, our effective interest rate for the quarter was nine 9%.
Additionally, we reported $1 million related to the settlement of the nonrecurring legal matter and incurred a $5 million in restructuring charges principally related to severance costs and.
And finally on the income statement income tax expense was $11 million, representing an effective tax rate of 26, 7% excluding discrete items, we anticipate a full year effective tax rate of between 29% and 30%.
Our performance resulted in adjusted earnings per share of <unk> 84.
Down 25 sequentially and above the upper end of our guidance range.
Turning to the segments nurse and Allied reported revenue of $582 million down, 1% sequentially and 24% from the prior year, our largest business travel nurse and Allied was down 2% sequentially and down 27% from the prior year.
The sequential decline was almost entirely due to a decline in the number of travelers on assignment as systems continue to seek to normalize their contingent labor usage, while the decline from the prior year, we do with 22% decline in average bill rates.
Looking to the second quarter, we anticipate a further sequential decline in both normal hours and average bill rates in the high single digit range.
While visibility beyond the second quarter limited, we continue to expect a further decline in <unk> for the third and fourth quarters in the mid single digit range.
And as John mentioned, a few moments ago demand remained soft as clients continue to rightsize their contingent labor usage, though it's leveled off in recent weeks and we anticipate a seasonal pickup as we progressed into the third quarter.
Our local or per diem business also felt the impact from a softness in demand with revenue down approximately 10% from the prior year.
Predominantly due to a decline in billable hours.
Also within the nurse and Allied segment, our education business continued its trend of high double digit revenue growth both sequentially and over the prior year reporting its strongest quarter in its history.
We also saw growth in home care staffing services in the mid single digit range over the prior year places both of these businesses businesses on an annual run rate of approximately $100 million.
Finally physician staffing delivered another strong quarter of organic growth with reported revenue of $40 million, an increase of 9% sequentially and 75% over the prior year.
Excluding the impact from the acquisitions completed last year physician staffing was up 19% on an increasing number of days filled as well as improved bill rates and mix.
Turning to the balance sheet, we ended the quarter with $300000 in cash and $140 million in outstanding debt, including $74 million under our subordinated term loan and $66 million in borrowings under our ABL facility.
Given our continued strong performance and positive cash flow, we were able to maintain a total leverage ratio of approximately <unk> five times.
With the health of our balance sheet, we remain well positioned to make further investments in technology or through acquisitions as well as to continue repurchasing shares.
From a cash flow perspective, we generated $47 million in cash from operations during the quarter as compared with just $4 million last quarter.
The first quarter is generally our lightest quarter for cash from operations due to the impact from the payoff of our annual incentive compensation as well as higher payroll taxes, but we saw an improvement from overall collections that reduce our DSO by roughly two days since the end of the year.
Although our DSO of 70 days remains higher than normal we've come into the second quarter on a very positive trajectory for collections and we expect to see continued improvements in DSO.
Cash used in investing activities was $3 5 million representing an.
The increase of more than 75% over the prior year as we continue to ramp technology investments.
From financing activity perspective, we repurchased an additional $1 2 million shares during the quarter at an aggregate cost of $32 million, bringing.
Bringing the cumulative repurchases in the last three quarters to two 6 million shares or nearly 7% of the shares outstanding during that time.
Since the start of the second quarter, we repurchased an additional 140000 shares at an aggregate cost of $3 million pursuant to our <unk> one trading plan.
As we reported in the earnings release, the board authorized the refresh of our share repurchase program to $100 million, which we intend to utilize both under the <unk> one trading plan as well as the opportunistic purchases depending on factors such as available cash the share price and alternative uses for excess cash such as debt payments for acquisitions.
And this brings me to our outlook for the second quarter.
We are guiding to revenue of between $530 and $540 million, representing a sequential decline of 13% to 15% driven predominantly by the anticipated decline in travel bill rates as well as a modest sequential decline in the number of travelers on assignment.
We're expecting adjusted EBITDA to be between 40% and $45 million, representing an adjusted EBITDA margin of approximately 8% the.
A sequential decline in adjusted EBITDA margin is primarily due to the impact of the lower gross profit on a sequential decline in revenue.
Adjusted earnings per share is expected to be between 55 and 65 based on an average share count of $35 5 million shares.
Also assuming in this guidance is a gross margin of between $22 five and 23% interest expense of $3 5 million.
Appreciation and amortization of $5 million stock based compensation of $2 $5 million and an effective tax rate of 30%.
And that concludes our prepared remarks, and we'd now 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 lines. Please press star one from your phone on mute your line with speak your name clearly when prompted your name is required to introduce your question to withdraw your question Press Star two.
First question comes from Kevin Fischbeck with Bank of America. Your line is open.
Great. Thanks.
I had a couple of questions I guess about the guidance when we look at the numbers you reported Q1, and I guess, what youre guiding to in Q2, just trying to figure out the cadence into the back half of the year it looks like you're going to be ending the year.
Somewhere in that $4 70, or less kind of run rate from a revenue perspective, I guess bill rates drop might be a little bit less than that is that the right way to think about the exit rate from this year and is this is that a number that you think you would be growing off of or is that a number where.
It's still TBD as to where that normalizes.
Hi, Kevin Thanks for the question. This is bill Burns.
Yes, I guess, if you just did a straight line math of the full year <unk> guidance to what we put up in the first quarter and the midpoint of the second quarter, that's kind of the math to get to but I don't think its seasonal lies is quite that way I think the third quarter is pointing to being the trough based on what we see now.
And.
As I look at the at what's changed from the last time, we talked to you about <unk> guidance, where we were at the $2 2 billion. The main thing is just the continued softness in demand from the travel side that really kind of continued since we released earnings.
Interesting point on that is that it really has leveled off and in fact, the last three weeks is up six or 7%. So it seems to be starting to make a turn that said.
The impact of the softer demand is going to impact our third quarter a bit more than we anticipated, but that we believe starts to wind its way out so third quarter is expected to be the trough.
Though not guidance I would say our expectation is we looked at that the year north of $500 million in revenue and holding on to that high single digit EBITDA margin Hey, Kevin. This is John I would just add as Bill said and I'll just restate that these really are minimum is when you talk about that $2 $1 billion of revenue and that $170 million of EBITDA and that's what the lenses.
Now and just expand a little bit on the demand we're seeing over the last several weeks, we've seen our travel nursing orders up 7% and our travel Allied orders up nearly 16% so.
We are cautiously optimistic that we're seeing basis over correction that has happened in the travel world. We think we could see those orders starting to pick up.
Sooner than later.
Yes, I guess, maybe to that point can you just kind of help me think about the seasonality of the business because I think that usually you would start to.
See some orders pick up I mean, how does that 6% to 7%, 16% compare to kind of what you would normally expect to be seeing at this time of the year.
What should we be seeing orders continue to go down because we get the high and the flu season, which is the January through March April period, then we would see orders starting to come down through the June period of time, and then as we start to experience the fall orders, which start coming in late June into July we would exceed the number of orders go up the traditional.
Okay. So this rebound is happening normally then you would seasonally expect it too.
Yes. This rebound is happening normally but also the level of which the demand had fallen was also unexpected. So the rebound is happening earlier to get it because as we believe that hospitals, who are under immense financial pressures Overcorrected and now we're seeing that over correction.
Normalized and even if we look at what one of the publicly traded hospitals reported last week.
That.
They believe the price rates now come to a level that they can strategically start adding contingency labor to increase the revenue.
We think there is a place where we think that we will start seeing these orders start to pick up.
Okay and then maybe just last question, if that's kind of how youre thinking about it.
If we kind of trough in Q3 why are the bill rates still dropping into Q4.
It's just it's Kevin it's a lot of it still burns again lot of it is the tail right. So the assignments are 13 week assignments. So they haven't fully well on their way through our portfolio. So Q2 is a sequential decline mostly on the bill rates that we locked in in Q1 Q3 will be what we're seeing as we leave Q1 and into Q2, so there's a little bit of a tail there is.
Some degree of renewals that don't necessarily attracted a new bill rates. So that's just the reason why we suspect there'll be some continued drag on bill rates into Q3, and Q4 and this is John one more time just to add a little more detail update for your question. Kevin also Q3 is where we have our schools traditionally were at their lowest point because of all the schools are.
Out of school and don't start until September so we anticipate to see a softer softer revenue on Q3.
Alright, great. Thank you.
Our next question comes from AJ Rice with credit Suisse. Your line is open.
Good Hello, everybody a couple of questions.
I guess first of all just making sure so basically we're talking about.
$30 million for less than $170 million versus the $200 million before for the 2023.
<unk> EBITDA, but just wanted to confirm it sounds like Thats, a 100% coming from an adjustment to your expectations around travel nursing is that correct or is there anything else that you are adjusting for.
Hi, a J. This is bill no you are correct the change in men guidance for the full year is entirely driven by the softness on the travel side.
Okay.
And I know Youre talking about how the discussions are going and how the order flows going.
Giving expectations around Q3, Q4 as well as obviously Q2 can you just remind us how much.
Where are you actually having firm orders do you have visibility on.
Q.
Q3 at this point or you still is there.
That sort of just the feel for the thing with what you've got.
With.
With your discussions with hospitals, how much of a firm visibility do you have on what you're seeing for Q3 and I assume you don't really have orders yet for Q4, but just give us a flavor for that.
Hey, Jay This is bill again, maybe I'll start and then mark or John can help to clean it up but.
The orders we have today are first starts anytime in the next four to five weeks generally speaking so theyre not theyre not what I would call necessarily third quarter orders, but obviously theres always some orders that will always kind of refresh as you are filling the fill in orders. This weekend the orders come in the following week so.
Looking at where the trends are and we track. This very closely every single week. So that's kind of what we're saying is you've seen the rebound we're seeing it kind of tick up the last few weeks and Thats whats given us kind of a comfort on how we envision what we call. Our locks are net weeks booked as we look at it on a weekly metric basis.
Rolling into the third quarter, but Mark I mean, I don't want to give a little more flavor on that Im sure and we look for the trends we cover weakened over the last four weeks, we are trending up we've seen our allied bounce back to the same levels of demand as early January which is a good indicator of where we are specifically.
Specifically in the imaging area.
There is strong demand following the path of surgeries pre and post.
And that continues to trend up as well as in the physical therapy area.
For nursing, we are seeing certain specialties with increased demand such as med surge and Kelly.
Our local business excuse me at our local business similar to the travel business and some acute care settings. We are seeing increased demand for led surge in tele.
Hey, Jay this is John I'm going to add just a little color to that as well.
When we look at orders now we're seeing as Bill said orders are really 90% of our starts on the orders that we book today will happen in the next six weeks of starts and so we're not seeing orders out into the third quarter and a large volume, but the other note. I think is important is that we're seeing is hospitals again as we think of over correct.
But they need these clinicians were seeing our renewal rates as I said in our prepared remarks at historic levels, indicating that again, it's more closer term of where they need to clinicians for now once we get in queue.
Late June and July that's when we'll start seeing the floors come and then Thats, where you see orders go a little further out from third to fourth quarter. There is one part of the seasonality portion of travel nursing, where you will see orders go out maybe even four or five months, but that's not until we see those fall flu orders coming.
Alright, Gotcha and just one last question on the <unk> rollout are you.
Hospitals and health systems, just naturally say on what the same vendor doing my MSP.
Providing.
Tech solution or do you have to provide a financial incentive for them.
To make that transition or any other.
Incentives.
And does that reflect if so is that reflected in guidance in anyway.
No.
When you look at taking out an incumbent provider, whether its MSP or vms and bringing in the <unk> technology <unk> technology is built to help to.
To help clients save money and in several different ways. So one of it is within our IRB, our internal resource pool, when we put that into a client the client bank and utilize their own staff and internal resources to fill needs lowering their cost and then <unk> also helps clients understand where theyre overstaff that understaffed in units.
To make sure that they right size of units not overstaffed and they may not need as many travels or certain unit and they can flip the other units.
Yes, there is.
Not really.
Certain incentives to move them out we really have to show them, how it <unk> it will be more operational efficiency, given greater insights into data into their spend and then create savings for them or Dan do you have anything to add on that I do.
Hey, Jay it's Dan one of the things that is a very positive early sign is that as we migrate our existing clients over to <unk>, we're seeing them add additional capabilities and service lines. So that they didn't originally have.
Not only is it the great capability and insights that John just talked about but they are trying to capture all over their whole house of spend if you will so.
Very recently, we just had our full first full service client where its non clinical locums Allied nursing.
All of which are online.
At the same time getting the same visibility so.
I feel.
Both the expansion and.
And the capability as John's talking about are attracting new customers to <unk> by now.
Okay, great. Thanks, so much.
Sure.
Our next question comes from Tobey Sommer with true Securities. Your line is open.
Thanks.
I was just wondering if you could discuss the.
Pricing framework and bill rates within travel versus what does the pricing look like.
For new orders today, and how does that compare to the average bill rate that youre reporting I'm trying to understand the gap.
Because we're hearing from private companies that renewals are.
Being renewed at prior rates and wondering how the spot rate for new orders in.
The renewal rates kind of converge up or down.
Hey, Tobey its bill.
Yes, great question and to be honest there is always a gap in the new order open bill rate right.
It doesn't always mirror, what we will lock out because there's always a mix component I'm sure you understand that so we may look higher bill rate specialties. So when we talk about a rate that we're seeing it's a blended rate. It's an average right. So there's always a mix component but no.
The spot rate on open orders is certainly down I will say that I don't not necessarily all those orders will get filled but it's definitely directionally down I would say, it's consistently down with the rates that we're locking at so in other words the delta between open order rates and what we're locking at is moving in tandem so yes, our lock rate what we're locking assignments.
<unk> is moving down the only other point I'll make is that it's moving down in line with our expectations. We haven't seen a real significant deviation from what we expected on that front.
Biggest change to what we thought is really around the demand falloff that we saw coming into through the rest of the first quarter.
Thanks.
Could you talk about.
What it would take to sort of.
Rebuild.
Sufficient supply so as to generate more volume growth from this level, which is already pretty healthy for the company in the industry.
And sort of how much of an improvement in.
The lock rate or kind of current pricing out in the market to lure in that sort of sufficiently higher supply.
Well I'll take I'll start with that and ill pass over to Mark or Bill. This is John Toby.
What I'd say is.
Now there's always a premium.
On the travel bill rate to where the core staff makes so theres always that incentive.
Supply.
And as orders had fallen what happens as supply is a little tighter because theres less job offerings now as we're starting to see more the demand pick up we will see supply pick up as well.
When we.
Six months ago, or a year ago, when we had double triple electrically.
Jobs or if that number is.
Didn't have quadrupled the number of supply so.
So theres still plenty of supply out there for us to continue to have an opportunity to grow but it really is the more demand as demand picks up we will see at supply pick up.
Bill or Mark you want to add anything to that yes, Toby I just.
I would say even as demand has softened and again thats. The number one driver to the volume decline we've seen the conversions are still there and we're still locking at a fairly high rate relative to the orders that we have in our pipeline and what we noticed coming out of Q1 was a bill pay spreads actually improved and that was part of the margin improvement you saw for Q1. So we were.
Sequentially sorry.
Were it not for the payroll tax the payroll tax drove a 40 bps decline, but there was actually about an 80 basis point improvement in the bill pay spread and that's the bill pay housing spread for the company. So we were successful in.
Locking a fair amount of kind of candidates and we're seeing the margins start to rebound there in the bill pay spread and this is John Toby I think I have one more.
The fact that would kind of put some more perspective.
The number of unique submissions that we have.
Actually he has not fallen very far off from where we were even three or four months ago as demand as one so the supply is still there and these are unique clinicians that want to submit themselves to job between and those numbers have not fallen off off the cliffs actually they are probably down less than less than 10%, probably down eight seven or 8% and so.
And obviously demand orders down much much much further and so the clinicians are still looking for work. It's that hospitals right. Now are slow to go where we used to be able to what we call lock or a clinician would get an offer from a hospital it used to be less than 24 hours during COVID-19.
Last year and definitely market.
To be honest here at something between $24 48 hours in most cases now we're seeing it go to five or six days and that's really the slowdown.
On the hospital side, but in terms of supply we are seeing the same unique subs just off very slightly so we believe as demand picks up we will actually see more unique subs come up and we'll get back to that same threshold.
Okay and last question for me can you talk about your capture rate in your MSP book of business.
How has that progressed as it provided sort of the shock absorber.
Might envision during periods of declining demand and are you at sort of.
Relative high that you would be comfortable in terms of capture rate or do you have more flexibility to take it higher.
We have more flexibility, taking a higher amount of them that were down.
Two to four percentage points.
From from where we normally are.
Look we as we said on these calls we are consistently going to be great partners to our partner network.
They are true partners with us and we're not going to close that gap because we want to make sure that as we go out there and go after new accounts that we have we are locked arm in arm with our supply we know that some of our competitors don't do that and we don't really think that is the right way to conduct business as youre trying to really build a true partner network.
And really this is Dan also totally it really does help our new client as we're pursuing them for us to have that excess capacity to deliver something right when they need it and prove ourselves. So it's something that helps us across the board here at cross country.
Last question for me if I could.
With your guidance out for the back half of the year does.
Does that assume your MSP book of business is trending in line with the overall revenue or is it.
Increasing or decreasing as a proportion of total revenue as you look into the back half of the year versus the first quarter you just reported.
It's a good question Tobey I don't think I've modeled it out exactly on the mix you are asking for I would say Directionally I think MSP will make up a smaller portion I think vendor neutral we will start to make up.
A larger portion of course, we're coming off a very small number so it's easy to get there.
But as John mentioned, even though you see accounts that have moved to more of a in house model or to a vendor neutral model.
Even if they're not with us our fill and capture those accounts kind of remains consistent even even as accounts move over so I think MSP revenue will decline as we move through the back half more than likely Jonathan would you agree with that or I agree with Ed. This is John Toby I agree with that.
Look as we've lost some clients to this self managed model.
We look back.
The past decade or longer there've been three predominant models and healthcare staffing.
No just right there was the.
The direct model for hospitals, you had your vendor neutral Vms model and you had your MSP managed service provider model.
Whats re emerging as the fourth model, which is a self managed or captive model, where the hospitals are managing the travelport themselves. But in addition, they are creating their own travel nursing recruiting teams to recruit travelers directly to the hospitals.
And there also.
Creating these internal resource pools to help reduce the amount of contingency labor and when these clients move over to these models with our relationships that we've had with them sometimes for over a decade.
We have a strong relationships and we remained a primary vendor for these clients and in many cases, we actually where we may have had just part of the MSP and a large hospital system, we actually gain access as a primary vendor to the whole system and so far what we've seen on these ones that have moved to this managed model we've actually seen.
Our expected <unk> to be where we thought it would be as if we had the MSP.
And so the other thing that we're also seeing as some of these clients have moved and some of these clients and we've always managed model, we're actually seeing gross margins pick up.
Because as an MSP, we have an obligation to fill every need to make sure that we have that patient care at the bedside. Once we're in this primary model that obligation goes away and we pick and choose the orders that we actually can fill it at better rates and so the other the other I think real key point for US here is with the emergence of <unk>.
To be honest I cannot say this three months ago.
We built <unk> and it was we launched officially in January we talked about it in the Investor day in September that we hired Eric Christiansen.
To be the president of that Division and started up in January .
And it was it could run the travel nursing side, we launched and televised per diem module in the first quarter and just last month, when we put more clients on the <unk>.
<unk> modules and this month, we just released the IOP or the internal resource pool now with that technology. We can play in this self managed.
And the self managed captive world and help hospitals and be part of that as their technologies solution.
I mean, we look at <unk>.
We believe <unk> is the best.
Program out there and the best technology out there and of course, we're going to say that because it's our technology, but.
If you can speak to.
Many of our 4000 users who are on <unk> are over 250 vendors that are participating on the <unk> platform and over dozens of clients that are on the platform. They will tell you that <unk> is the easiest to use most comprehensive technology solution out in the market today.
Thank you.
As a reminder, if you would like to ask a question over the phone lines. Please press star one from your phone. Our next question comes from Bill Sutherland with Benchmark Company. Your line is open.
Thanks, Hey, everybody.
John just to just look at until it by one more time.
Yeah.
Help us understand.
Kind of the impact.
You're kind of looking for it to have this year.
What is what's the name.
Use case and then because.
Obviously, it is going to be able to do a number of things and even more than I even realized.
Sure Bill.
So.
The main use case when we first.
When we first thought about doing <unk> and creating our own video management system several years ago.
It was at first to replace the rental technologies oriented technologies.
To be Frank some of our competitor zone.
Habits, bringing it in house, so we would save the money on these rented rented technology. So that was the first use case scenario and check the box, we've got 25% of our clients on that and we will migrate the rest over the next the next 12 months and then secondarily, what's the and what's the impact.
Impact Youre looking forward to next year as you get.
Nearly.
All the clients on board.
I think bill this is bill Burns. So just I think youre asking like what's the savings we anticipate in.
In the millions of dollars I wouldn't call it in the tens of millions, but it's predicated on what the spend under management looks like for the MSP program. So if you look at the first quarter, we were still running operating north of 1 billion five in spend under management. The vast majority of which is on a rent to technology.
Except for the 25% that we've already converted so if you say the cost of that technology is anywhere from 75 basis points up to 100 basis points, depending on the platform. So somewhere in that magnitude is what we're talking about but more importantly, it's like I said, it's about it's millions of dollars annually.
For the first quarter I think it was on a run rate to save us probably a little over 1 million almost $2 million annualized so.
It's not we don't have the majority of the platform converted yet and as those go live that's the cost savings.
As a CFO .
To see that this thing had an immediate payback to it that it was something that we knew we were going to be able to get our hands around and be able to see that the technology would deliver immediate value, but the longer term vision to what it means for 2023, I'll hand, it back to John and Dan, Yes, Yes, sure. Thanks for that appreciate it.
Sure and I'll, just go a little bit longer because that is one aspect and that was the first aspect is when we built it was to be the vendor management system for our MSP.
It is really the emergence of this multibillion dollar vendor neutral market that we didn't play in and of course. This now self managed market that is emerging right now and that was the second case use and of course that is one where it's a new business for us. It is one where we started from zero.
Within our first three months, we landed our first client we have a very robust pipeline. So maybe expectations really for the year. We I think we called out before we didn't really think we have our first client up and running until the back half of the year and our first client, which is and we landed in March is actually up and running as of today. So we're a little bit ahead of schedule.
And with a robust pipeline, we think we're going to have.
Some impact in this year I don't want to put a number on it yet because it's such a nascent business.
Again this is a very long term play and moving into this market and of course, the last part of that which I really do feel is a game changer for cross country is the internal resource pool technology.
Internal resource pool really helps hospitals help manage their internal core staff and fill their open needs and we also released an adult hold it out a little bit on his prepared remarks, we released a new technology into the App store called experience. That's experience that begins with an X and what experience does it does.
Two things.
First thing. It does is it is our mobile app for travel professionals, where they can self submit to jobs on the fly wherever they're at and they can also upload all the French documents, but it also is integrated within our internal resource pool and it allows us from this App hospital core employees will be <unk>.
To pick up.
<unk> within their internal resource pull out their hospitals.
Got it.
That's very helpful.
Just had one little model question Bill the bad debt jumped up anything to comment there.
Now.
Not really I mean, it's formulaic.
<unk> move you've got certain buckets you have to.
Have a higher reserve.
Yes.
In my prepared remarks, I did comment that we're coming into this quarter on a positive note with regards to collections. So I think the opportunities there for robust cash collection year as we close out the year in the next couple of quarters.
$46 million in the first quarter I would posit that there is an excess of $100 million of opportunity remaining if nothing else just from the DSO normalization, but of course, the normal conversion of EBITDA for cash flow.
Sounds good thanks again guys appreciate it.
Ladies and gentlemen, this does conclude the Q&A period, I'll now turn it back over to John Martin for closing remarks.
Thank you operator before signing off I want to recognize and celebrate national nurses month and personally. Thank every nurse out there for your hard work and dedication I also want to take a moment to recognize one of our long standing skilled nurses, who work continuously for cross country since 1988 and recently just retire.
Thank you Victoria you are a testament to the service we provide and the lives we assert enjoy your much deserved retirement in closing I'd like to thank everyone for participating participating in today's call and we look forward to updating you on the progress of the company on our next call in August have a great evening.
Yes.
Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation you may now disconnect.
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