Q2 2023 Cross Country Healthcare Inc Earnings Call
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Good afternoon, everyone welcome to cross country Healthcare's earnings conference call for the second quarter 2023. Please be advised that this call is being recorded and a replay of this webcast will be available on the company's website.
Details for accessing the audio replay can be found in the company's earnings release issued this afternoon.
At the conclusion of the prepared remarks, it will open the lines for questions.
I like to turn the call over to Josh Vogel Cross country healthcare as a vice president of Investor Relations. Thank you and please go ahead Sir.
Thank you and good afternoon, everyone I'm joined today by our President and Chief Executive Officer, John Martin as well as Bill Burns, Our Chief Financial Officer, Dan White Peep commercial officer embark fruit group President of delivery. Today's call will include a discussion of our financial results for the second quarter of 2023 as well as their outlook for the third quarter.
A copy of our earnings press releases available on our website that cross country Dot Com. Please note that certain statements made on this call may constitute forward looking statements. These statements reflect the company's beliefs based upon information currently available to it.
Just in our press release forward looking statements can bury materially from actual results, you're subject to known and unknown risks uncertainties and other factors, including those contained in the company's 2022 annual report on Form 10-K 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 his phone.
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 us additional information and should not be considered substitutes for or superior to those calculated in accordance with U S gap.
Information related to these non-GAAP financial measures is contained in our press release also during this call. We we may refer to pro forma normalized numbers parties, where 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 markets.
Thanks, Josh and thank you to everyone for joining us this afternoon.
Second order consolidated revenue of $541 billion, and adjusted EBITDA $44 million, we're above 40, <unk> or Gladys ranges.
Our results reflected strong execution in an environment, where clients remain focused on controlling your labor costs.
<unk> that are ongoing investments in technology, Ah driving efficiency and productivity gains.
<unk>, our dedicated employees and health care professionals.
Best in classrooms.
You'll get into more detail on the numbers, but I wanted to spend a few moments discussing our second quarter performance.
Start with our largest business travel.
Revenue was down approximately 16% in the first quarter.
Given by it mixed up lower rates and billable hours.
<unk> average the least decline approximately 7% sequentially and are expected to decline.
High single digits in both the third and fourth quarters.
This was placed travel weight on track to settle in roughly 35% above pre COVID-19 levels as we enter 2024 in line with our prior expectations.
As we reported last quarter demand trough in April .
Slowly rebuilt.
In particular, we sort of local pickups embed Serge.
Our labor and delivery and pediatrics.
And Allied we switched strength and imaging and lapsed specialties.
The demand has rebounded the corresponding growth and a number of travelers.
<unk> has been slower than anticipated.
There appears to be a gap in open order weight relative to the compensation that nurses receipt.
Accordingly, we still expect revenue for the third quarter.
The trough.
Little softer W. Previously conditions.
For the fourth quarter, we continue to expect sequential volume growth.
In part due to the improving outlook for orders as well as the likely seasonal needs, we expect to see ramping how many months.
Turning to our other businesses.
Would like to highlight physician staffing ready.
Which was up 32% a year organics and.
And 12% sequentially in the second quarter.
Driven by an increase in the number of days spilled across most specialties and revenue per day. So.
When we include our most recent acquisitions.
Which continue to operate above expectations are physician business was 105%.
Here and now is on an annual revenue run rate of more than 100 is Amy know your balance.
Education also performed very well.
A 42 per cent you over here.
This division is now close to an annual revenue one way of $100 million.
Now, let me spend a moment on our technology initiatives.
As you know we have been successfully he designing our entire technology landscape.
A data centric model.
<unk> analytics and insight in real time within televised or proprietary vendor management system at the center of our ecosystem.
Since introducing <unk> or Investor day, you'd that last year, we have successfully migrated.
Yeah, a a madej service programs onto this platform with plans to convert the balance over the coming months.
As a reminder, this will save us millions of dollars annually and tech fees paid to third carts.
However, the wheel driver for long term revenue growth and expansion in my opinion is the multi billion dollar opportunity and <unk> within the vendor neutral space.
When meeting with prospective clients conversations go beyond just contingent labor like offering a comprehensive technology enabled platform that empowers you the user with intuitive data and analytics as well as quaver levels of efficiency and transparency.
We believe <unk> to be highly differentiated in the industry.
And the feedback we've received thus far I'm clients prospects in our subconscious partners has been extremely positive.
Example, one of our partners recently noted that the data is helophyte introduces hope staffing agencies track their efficiency within the workplace, which is a very useful tool.
As I mentioned, a blast cool we signed our first gender neutral contract in March which went live on may 1st today.
Today I am thrilled to announce that we are actively implementing televised town solutions at another new customer.
We have the W. A burst pipe while your clients interested in this technology.
And the numerous <unk>, we've done so far and we look forward to updating you alright, new business opportunities future calls.
And equally exciting technology initiatives underway.
The Kennedy <unk> at midday, we released the latest version of our experienced staff, which allows travel nurse and allied professionals to utilize the self service model.
Lee searching and applying for jobs with convenience functionality and pay transparency.
Since the launch.
Thousands of downloads K T is showing positive daily active user retention and <unk>.
This.
Is a crucial piece of course countries ongoing digital transformation.
Let me put it to a tech enabled platform mobile first ecosystem will assist in optimizing Kennedy and client experiences rationalizing business operations and streamlining our delivery models.
The full year, we continue to target investment of nearly $30 million on technology related initiatives that we believe will further improve our go to market strategy as.
As well as our efficiency.
This brings me sure outlook.
Given the market backdrop seasonality and parts of our business like education, we anticipate.
The third quarter revenue will be between 440 and $450 million.
Beyond the third quarter, our expectations for continued improvement travel demand as well as potential quote many of our businesses like education physician staffing and home-care quaint to a full year revenue that will be above $2.05 billion in an adjusted EBITDA margin of approximately eight per cent.
I remain confident in our ability to drive long term sustainable.
Growth and we are focused on a piece of shareholder value.
Deployment of capital.
As you can see in today's press release or cash generation was very strong in the second quarter allow.
Allowing us to fully repay remaining $74 million on a <unk>.
You will also recall that we announced the restoration of our 100 million dollar share repurchase plan in may.
With a terminal now and God.
Given we believe our shares are undervalued.
Jerry purchases remain an attractive use of capital.
We will also look to leverage our technology assessments and robust balanced.
[noise] diversify our platform.
Following the patient across the <unk>.
As well as like entering new markets like we did with interim leadership to the higher up acquisition late in 2022.
In closing, we accompany about our prospects and ability to build upon me for all your momentum from the televised which we believe is a game changer for cross country and.
In the industry.
All of our success would not be achievable without our dedicated employees and I want to thank each of them for their hard work and contributions we have such an incredible cheap.
We recently 182023 chop workplace health care industry word <unk>.
I'm also humble.
Highlight are reasonable word of Newsweek magazines, most love with workplace certification.
Recognizes organizations, we employees are the happiest and most satisfied.
Workplace culture is second to none in my opinion and.
This award is reflective of that.
That is it surveys employees at various elements such as <unk> <unk>.
Collaboration support.
Sense of belonging inside the company.
Lastly, I want to thank all of our professionals, who may cross country their employer of choice as well as our shareholders for believing the company with that let.
Let me turn the call over to Bill.
Thanks, John a good afternoon everyone.
John highlighted consolidated revenue for the second quarter of.
$541 million was above the high end of our guidance range.
By Overperformance across both physician staffing and education.
To the prior year and prior quarter revenue was down 28, and 13% respectively driven in large part by the expected normalization you travel <unk> and to a lesser extent to decline a number of professionals on assignment.
I'll get into more details on the segments in just a few minutes.
Gross profit for the quarter was $123 million, which represented the gross margin of 22.8 per cent.
Gross margin was at 40 basis points sequentially due primarily to the impact my annual payroll tax reset at the start of the year moving.
Moving down the income statement, selling general and administrative expense was $79 million down 6% sequentially and 8% over the prior year.
The majority of the decrease related to lower variable compensation. Following the historic performance throughout the pandemic as well as the reductions in salary and benefit costs, you mentioned last quarter.
Our goal remains to proactively balance investments with current market conditions to maintain our profitability, while ensuring we have sufficient capacity for future growth include.
Including actions taken throughout the second quarter it into the start of the third quarter.
Used our internal head count on more than 10 per cent since the start of the year, while continuing to invest in areas of the business with the highest growth potential as well as in our technology initiatives.
Based on the cost of actions taken to date as well as lower compensation associated with the sequential decline in revenue.
Pay the rest of your day will decline in the mid to high single digits for the third quarter.
Per cent of revenue SG&A was 14.6 per cent upfront, 13.5% last quarter as a decline in revenue outpaced the reductions in SG&A.
The better than expected top line performance, coupled with tight cost management drove another quarter of strong earnings with adjusted EBITDA $44 million.
Adjusted EBITDA margin of 8.2 per cent consistent with our goal to maintain margins in the high single solo double digit range.
Just expense was $3.1 million, which was down 15% sequentially and 18 per cent from the prior year.
[noise] was entirely driven by lower average borrowings during the quarter, partly offset by higher interest rates are.
Effective are effective interest rate for the quarter was 12 per cent.
Checking the reduction in borrowings under our ABL.
At the end of the quarter, we prepaid the remaining balance on the subordinated term loan and therefore expect to see interest expense materially lower for the third quarter.
And as a result of the prepayment of our term loan we incurred $1.7 million.
The extinguishment for the right off of the debt issuance costs.
Also on the income statement, we recorded $900000 and restructuring costs, primarily related to the severance associated with the reduction in my account I mentioned a moment ago.
And finally on the income statement income tax expense was $9 million, representing an effective tax rate of $29 six per cent in line with expectations hopefully your effective tax rate of between 29 and 30 per cent.
Outperformance resulted in your adjusted earnings per share of 69 cents above the high end of guidance driven by the overall strong performance and lower interest expense.
Turning to the segments nurse now I've reported revenue of $495 million down, 15% sequentially and 32% from the prior year, our largest business travel nurse now it was down 16% sequentially and down 36% in the prior year.
Bill raised for travel went down 7% sequentially in line with expectations billable hours went down almost 10 per cent. Following the softness we experienced in orders throughout the first half of the year.
The decline relative to the prior year was fairly evenly split between <unk> and fewer billable hours.
Looking to the third quarter, we continued to expect to raise the decline in the mid to high single digits billable hours are expected to decline in the low double digits let.
Let me just spend a moment on that as we called out demand softened considerably coming into the start of the year before talking in the second quarter.
<unk> total orders of gradually improving average breweries continued to soften which is creating a gap and pay expectations by conditions as.
As a result, you're not you're seeing an improvement in weekly production slightly softer third quarter, and we anticipate a few months ago. When we saw orders rebounding.
That said, we remain optimistic seize on these pick up you'll start to see our travel with an assignment grow once again.
It's worth noting that we continue to have more than double the number of travelers as we did prior to the pandemic.
Our local or premium business continues to feel the impact on the softness in demand with revenue down approximately 9% from the fire quarter predominantly do a decline in billable hours.
Also with a nurse and Alex segment, our education business continue this trend that robust growth swelling more than 40 per cent over the prior year.
Home care of staffing services performed within our expectations note down two per cent over the prior year that what we do to lower needs from a single client.
Both of these businesses remain on track to achieve an annual run rate of approximately $100 million each.
Finally physician staffing once again exceed our expectations delivering $45 million in revenue, which was a 12% sequentially and more than double the prior year. Thanks to the impact of our acquisitions completed late last year.
The balance sheet, we ended the quarter with $673000 in cash and $31 million in outstanding debt under our Aviall facility.
Given a continued strong performance in positive cash flow are total leverage fell to less than two times.
With the help of our balance sheet and incredibly will leverage we remain well positioned to make further investments in technology and acquisitions as well as you can see repurchasing shares under $100 million share repurchase plan.
From a cash flow perspective, we generate $119 million in cash from operations are second highest quarter on record as compared with $18 million last year and $46 million last quarter.
$866 million in cash generated from operations on a year to date basis represent 172 per cent conversion on the $97 million in year to date adjusted EBITDA.
Doing this performance was strong collections that drove a further reduction in D. S L, which now stands at 63 days.
Our goal remains to bring DSL below 60 days, which is more in line with our historic performance and we believe that we can continue to make progress towards that in the second half of the year.
Cashews in investing activities was $4 million, reflecting our continue ramp and technology investments.
Financing activity perspective, we pay down $110 million in debt and repurchase almost 200000 shares under 10 B five one trading plan during the blackout windows.
Having retired are expensive subordinated debt and paying down a considerable considerable portion of the ABL.
<unk> being opportunistic and make any additional share repurchases when possible in the third quarter.
This brings me to our outlet for the third quarter.
Adding to revenue between 440 and $450 million, representing sequential decline 17 to 19 per cent.
Nominally by the softness and traveled village and volumes as well as the impact for summer vacation on our education business.
We're expecting adjusted EBITDA to be between 27 and $32 million.
Presenting an adjusted EBITDA margin of approximately 6% to 7%.
As Jonathan mentioned previously managing this business of a longer term success and not to a single quarter. We continue to believe this business cannot you and maintain high single solo double digit adjusted EBITDA margins.
Adjusted earnings per share is expected to be between 35, and 45 cents based on an average to your account of 35 and a half million shares.
Also assumed that our guidance is it gross margin of between 22, and a half and 23 per cent.
Interest expense of $1.5 million, depreciation and amortization expense, a four and a half million dollars stock based compensation of $2.5 million and effective tax rate of 30 per cent.
And that concludes our prepared remarks, and we'd now like to open the lines for questions operator.
Thank you.
Now begin the question and answer session.
If you would like to ask a question. Please press.
<unk>.
Your name clearly if you need to withdraw your question press start to.
The question please press.
Our first question comes from Brian .
Jeffrey Your line is open.
Hi, this is more into Brian Congrats on a quarter I guess I just wanted to take a step back and get you did your opinion on where you think your.
Relationship with M. S. P's will be moving forward would love to get some clarity on that side.
Sure an order this is John .
M. S. P's are still a vital part of cross country strategy, but what we've seen since probably last summer that the sentiment has changed in the marketplace.
Hospitals are moving more towards the end of neutral space.
And.
That is an issue that has been cyclical throughout the years, it changes, which flavor of the day going back from prominent predominantly vendor neutral to predominantly MSP and we're gonna market right now, where it's moving towards that gender neutral B M. S and cross country. We feel very we're very excited about our prospects in the vendor neutral space.
Right now and you'll be able to compete in that that mural space.
When we want you to <unk> at our Investor Day in September that was showing it was originally we invested in it and it it <unk> it was to be a replacement for the third party via message that we had for mosquitoes, but as we saw b sentiment in the market change to the Vms gender neutral space, we were able to quickly Tibetan <unk>.
Into a vendor neutral platform.
And we then in January officially launched or I tell if I count solutions business, Laura vendor neutral business, we hired Eric Christiansen, who has been a pioneer ended then a neutral space to come on board in within as we mentioned my prepared remarks in the first quarter. We won our first send a neutral bill and they may be in.
Implemented that deal and we are implementing our second deal Internet Angel. So we're very excited about the prospects of that what the gender neutral business and it <unk> brings to the market because from what we're hearing from our prospects our clients that are on it and our vendor partners is it is a totally <unk>.
French ate it.
Model than the other Denver Denver manager.
Programs out there.
<unk> on the market. So we're really excited about that aspect, but we also at cross country or still working and have a full sales team selling M. S. P's, but it's really making sure that we delivered to the client what is the model that they want is the most effective for them.
This is Dan I'm Gonna add just a little bit as John said.
Our our pipeline remains really strong and I would say just thinking about the mix between the vendor neutral N. M. S. P. There's probably close to 60, 65% that are more neutral sorta desired state and maybe 35 ish Ford.
[noise] per cent and and the M. S P category.
Alright, thank you.
Thank you.
William Blair you May proceed.
Hi, good afternoon. Thanks, Thanks, a lot for taking the questions.
First I kinda just wanted to ask you about your confidence in demand trends and visibility I'm, just kind of given the step-down in revenue you're getting two for two three and a reduction to the minimum pull your guide. So just a couple of questions on that front I guess, one have you built any extra conservatism into the guy had kind of given the environment and then specifically can we dive a bit more into that comment.
About you know the.
The gap and order rates and the compensation nurses are seeking uhm cause maybe flesh that out a bit more.
Yeah traveller. This is bill thanks for the question I guess I'd I'd start with your first question, which is you know do we build and conservativism I I mean, I think we try our darnedest to give you. The numbers we have most confidence that we can continue to exceed you know it wasn't it was not something we took lightly to reduce the main guy to 2.0.
5 billion from the 2.1, but in the context of the market and.
This kind of gets into the second part of the question where demand has rebounded D D. Netflix booked or how we look at you know a production or weekly production haven't bounced up as high as we'd like them. So we were just being a little bit of a softness in that third quarter going into into the fourth quarter, we still anticipate the third quarters the trough now that.
Men guide that we have a few squeezed out the numbers to what does that apply for the fourth quarter, you would say it doesn't show a big bounce off of the third quarter. In fact, it's you know virtually flat. If you took the midpoint of the guidance range.
I would not read into that I still think that the fourth quarter. At this point is an upward trend off of the third quarter that said you know, there's there's still some headwinds in the marketplace. We still have bill right pressures, if there's one little silver lining although demand has turned it up oh since the trough and kind of mid April we've not seen a continued deterioration in the.
Open order Bill right. So those bill right. So it's been remained pretty stable over the last you know call. It three plus months, we're still winding those through our entire book of business and that's what really gives us the right pressure going into Q3, and Q4 and I would add Trevor This is John Martin that what we're seeing in it for the second part of your question.
Is that the nurse pay expectation.
There's a disparity between what the bill rates for the hospitals are right now.
And.
It will come to an equilibrium, we believe upcoming months and part of that will be as we start seeing the flu orders coming in and demand a.
Essentially spiking higher we'll see you know the bill pay rate equal to where it will be where both sides will come together.
So he'd be adequate you'll wait and the appropriate pay rate and that's what we'll we'll start seeing really.
The volumes to start picking up and.
In the back half of the year.
Okay. Thanks, John until that was helpful color I guess it. It was my follow up just kind of on the levels of contingent or contract labor at the hospitals right now I think some of the public you know facility operators to report in the last week. It sounds like summer kind of comfortable with a levels that they have now that might be expecting further moderation just kind of wondering if you.
Could give us your view of kind of broadly how your clients or you know thinking about the level of contingent staff. They have now and where they are and that normalization process.
Yeah, I think most majority of the place right now feel that it's gotten to the appropriate levels Uhm, where bill rates are trending down, especially the buildings that were opening up our training more down towards that 30 to 35 per cent of bulbs COVID-19 levels and in terms of volumes I think that we're still hearing that there is still the.
<unk> on the floor for more nurses.
And so I think as we get to that right Bill right. The hospitals are more willing now to see if it has a strategic key to bring in travelers to help them grow their their revenue and values.
Okay. Thank you that was helpful. I appreciate it.
Next question will come from.
Securities.
Okay.
Thanks, I wanted to ask you about the shizzle orders, but typically come in or over the winter.
Perhaps oh for a slightly higher rate, what's your anticipation of how that will play out in L. Do you have any visibility into that at this point or is it.
Forthcoming.
So this is John till the so it's still forthcoming what we're seeing right now we're seeing our clients.
Looking toward to bringing on 26, we contract that will get them through the early part of the flu season and get them through the new year and so we're seeing a trickle of some of the flu or winter needs and we're seeing but we're seeing more of the 26 week needs and the sentiment we're getting from our clients are that there.
Still bleeding and there'll be a little bit more just in time, if you will rather than preparing and planning out further as we've seen previews pre COVID-19 of looking really trying to get ahead of winter needs.
And just to.
That'd be clearer as we head into 2024 is it is analyzing that kind of slightly hour higher fourth quarter revenue number in sustaining an eight per cent EBITDA margin is that how we think of that or is that an influx at this point.
Hey, Toby it's bell Yeah, I think that's a good run right to assume going into 2024, I think you know there there's potential of course for some continued delray pressure, but not not expecting we've been pretty close on on how we modeled out the bill right. So far so if that plays out that way I think that.
A good jump off point, if there is a little headwind and it really comes down to the ability for volumes to offset or the other lines of business that had been having pretty robust growth like low companions in education and so forth.
Could you talk about.
M S. P <unk> something we've heard about in the industry a lot of people are describing it to move to.
Vendor neutral, even noni staffing, let M S p's kind of.
Looking in seeming like vendor neutral at this stage I'd love to get your perspective.
And what do you think we're kind of more than half the way through the post.
Pandemic churn that is likely or.
Still have a lot to come home.
Sure. This is John Toby I I, I think there's probably not halfway through the churn going through out there in the market. The sentiment has turned over the last year towards the vendor neutral moving towards your gender neutral platform.
And.
We've been pretty transparent that we've had a higher churn that we've historically seen as well and those losses have come to for the most part to the vendor neutral players.
And that's one of the reasons that they mentioned earlier why it was important for us to launch an <unk> to be able to play in that space and having our first two wins of the year in implementing both of those this is key for us to gain market share in that space and it's very cyclical I'll tell ya back right. After the great recession in 2008 nine weeks.
Move to vendor neutral at that point as well and then once the affordable Care Act came into play in 2014 15, we saw M. S. P has become the flavor of the day for about a five year period, well actually actually probably through the to the pandemic was Oh, yeah. A 50 50 split between M. S. P. B M S and now it's moving to.
Towards that Vms and to your point, yes, even strategically let M. S. P's are now looking at a lot like vendor neutral now I'll tell you why that's not bad for us and even in some of the churn that we've had ourselves we'd have developed such great longterm relationships and because how we've acted ethically with our client.
And how we recover our clients over the years, what do we do lose a client of church with the M. S. In in most cases.
Cases, we actually become a preferred vendor and or even a cheer zero, which means we actually still received the letters first and the other thing that we've seen when we do go N and have this Chinese clients is that many times, we're only a portion of a large health systems M. S T and there'll be a.
Another of M. S T vendor in there I'm going to consolidate under one platform will then be able to be cheers zero in the whole system. We had one last year that we had lost and now we actually have more travels on assignment.
Former M. S. P. Because we have that just out of the whole system. So yeah to answer your question. Yeah, We're definitely seeing it more towards go to then a neutral we think we position cross country very well with <unk> rollout, we believe our technology and testify with art.
Resource pool or technology or apps that all support clients to white label. This technology for themselves to create and utilize and <unk> for their own internal travel pools, as well positions us well to capture market share and that the neutral space. A Dan did you have something yeah, Toby I just wanted to add a little bit more color.
<unk> to this idea of churn, it's it's really important to remember that these contracts whether their vendor neutral or not are typically three years and when you take into consideration that no. One was doing anything through the pandemic.
Makes sense right that a lot of this activity is happening because it's just sort of supply chain hygiene nephew will right to get back on track with that with that activity. So.
We expect there to be a lot of activity, we see lots of rfps and and lots of activities coming from all kinds of sources and this is John again, Toby I would just add the other thing is.
This is probably the biggest pipeline we've had between vendor neutral and M. S. P. The cross country has ever seen so there is a lot of churn in the market and it seems like health care systems are all reevaluating, what they're going to do and which bottle, they're moving forward with it.
Thanks for all that that context.
As a follow up or are you are you winning or losing share amid all of those all that pipeline and activity in the marketplace.
Right now I think we probably lost a little bit of share, but if you have a couple of factors right. So you have bill rates coming down volumes coming down.
Still.
Well over a billion dollars a stand under management in our M. S. P's and now we're adding onto the vendor neutral. So as I think we will get a little bit I think you know this is a longterm does it longterm game for us and as we're just getting into the that interest basis, I think will quickly make that up.
And Toby you spell you know like I mean, you you ask the question of where we are in the process I'd say, it's it's still early innings for <unk>, we we John called out the 50 per cent converted on the M. S. P program. So we've got that much of our spend already live. We've obviously got a roadmap to convert more by the end of the third quarter I think that number will be north of 75 per cent and we've got one vendor niche.
Alive, one being implemented so it's it's early innings for and telephone, but it's it's making great strides.
Thank you.
Oh.
Question.
Our next question comes from.
Put the benchmark company.
Pain.
Thank you.
Nice work guys from the quarter Bill can you go through the four Q seasonality just reminds us whenever education rebound strongly.
What else do you see usually.
I I can say that the businesses that usually see some seasonality in the fourth quarter Locum Tenens and this is historical not what we expect to play out because there's such tailwinds, there, but historically locums would see a small low single digit sequential decline going into fourth quarter, we're not anticipating that I would actually say, we'll probably see sequential growth going into the fourth quarter and that <unk>.
<unk> education, you mentioned, they they come off of a fair their lowest point of the year in fact, there'll be down about 25% sequentially, but the growth going into the fourth quarter because of the new school year.
Could be 30 35 per cent sequential growth. So they usually bounce up even higher than they were in the quarter before that so I think we'll see really good wrote there the travel business. We don't tend to see a lot of seasonality in the fourth quarter for us believe it or not that's actually a little bit of a slower start to the first quarter and then in our local business I'd say the holidays tend to impact us a little bit more as you go through you know the.
Thanksgiving and the urine holidays Christmas new years et cetera. So those those are the the general impacts that we see end of the fourth quarter.
They they tend to commute it out I mean, so you have education come back you have a little bit of headwinds on the local side and I think you know in this case slocum tenants will be a tailwind. So I I don't anticipate a big seasonal change any other businesses, that's gonna drive the revenue numbers.
Okay.
Hey, John is yours physician staffing business all low comes now or do you still have recruiting replacement.
It's 99.
Per cent welcomes I think there's a very very very little.
<unk>, it's a 99.5 per cent, probably very higher bill can give that number it's majority of it is locums and.
That's one of the areas.
That we're excited with one with education home care, where we're growing those businesses and it's it's a very good market for Locums Bill and.
Bill Burns mentioned that business is up 32 per cent, you'll be organically, 105% with Iraq Whizzing submitted Lotus, we're gonna make that business will be 180 million dollar business and it's interesting when you start looking at the diversification of cross country and as we as we start to grow so vividly into <unk>.
Some a much more major pleasure to welcome space or education business.
As a business that we acquired in 2015 and has done well he's stroke before us but.
Higher revenue <unk>, you'll be your 42 per cent and that's a business that will be 100 million dollar business as well or home care business required a little over two years ago that is a business that it will be over 100 million dollar businesses. So I just start looking at cross country and how we've really execute it it's such a different level over the past four years.
It's it's really been an amazing turnaround of what's happened as we look at our nurse now like business travelers now had business and yes. We've had these COVID-19 tailwind, but we believe we'd executed.
At market or above market during the whole pandemic and still currently today.
And as the market is the market.
Travel nursing right now and it's it's obviously, it's a it's a bill right to come down and values would come down and we anticipate those take a walk through the end of the year Cross country continues to actually get a very high level.
And if we look at our nursing alright, right, I'm, sorry, or Locums, our education and our home care business. Those are all executing it at a high level. So we're very excited about the prospects.
Dan Hey, Bill I, just figured I would add some color since you were asking a little bit about sort of her placement if you will.
I think it's important to know that in addition to whatever new sales were making we've had really great success cross selling in so the accounts that we already have so you know we've had 18 different services added into our client base.
Six of those are and that are P. O search kind of business, but as John mentioned, you know interim leadership low comes or all all really doing nicely and our our base account and then I figure also add we had our first home care you know.
<unk> program go live also on <unk>. So it's really you know getting hitting across all other businesses locums or pay centers et cetera are all now on that same tech platform.
Okay does that does.
<unk> for a pay centers that a your second vendor neutral.
No that is that is not a new customer that is implemented in an existing paste customer and this is John Doe that is actually a M. S. O N M. S. P. It's checking up getting MSP that one alright, okay.
Allied is.
I don't think I got mentioned I'm, just kind of curious kind of how that's.
Doing and sides of it inside nursing Allied.
Yeah, I mean, the travel allied side of the business is actually ferring quite well when you look at it that.
That relative to travel our ends I'd say that the the rate reductions hasn't been a steep the volume declines haven't been as steep it's on track I would say you know to be north of a 400 million dollar business <unk> well north of that it depends on how the your trajectory plays out but it's a it's a good size of the travel business.
This is mark just add a little more imaging continues to see robust demand Cath lab X Ray MRI, we we terminate the path of the surgery. You know pre post continues to see very heavy demand anything related to cardiovascular services all.
Also very high demand and the allied space.
Alright, and then just wrap up with just revisiting this situations here with the nurses and their pay expectation. So it's you're <unk>, you're you're just figuring that.
As in the Rex go on field hospitals.
Spindles get frustrated.
Start to.
Put out.
You know put put it gives you the pay rates. So you can actually.
You know fill the wreck.
That's kind of just the natural progression you're expecting.
I think it's more of a combination I think nurses and rightfully throat through the pandemic right going into the burning building as as we needed them their their pay had increased during these prices needs quite high and now the expectations as he's still rates are coming down as the pay rates are coming down. So I think there's a natural natural.
All three of them that we will hit where they'll reach was still settling where we we think they will 30% to 35%.
Above pre COVID-19 levels and the nurses will understand that that's where the market is now all the pay rate and we think that will happen as demand continues to please so maybe hospitals will bring somebody there and I would say about half or orders that we have an open demand half of them are probably below the.
Market of where we need to fill in half Moon will probably adderall at the market what we need to fill so those are the ones that are below the market. Yeah. We do anticipate some of those rates will come up but we also <unk> also anticipate that the nurses pay space exploration on the higher than the market will come down and worked with a market rates are.
Does that make sense.
Yeah, So what happens with the Spreadtrum in that case.
This this spreadsheet have very little impact us on a gross margin spread because the nurses pay will come down as in line with the with the <unk> with the the pace with a bill I'm, sorry, but with that said.
Hi to market you know you you can see a little bit more pressure on margins, but up to this point, we have not seen a tremendous amount of pressure on margins Avila, yes. It.
<unk> I would just add that for the second quarter. We saw bill pay housing spreads. It's important to include that as well because that was part of what was holding down gross margin on a year over year is up over 40 basis points. So we're seeing that the bill pay spread is holding up his bill rates are coming down, but it is slowing down some of the production for folks making a decision.
To take an assignment so you've got those two pieces need just need to settle into that equilibrium John mentioned, okay. Thanks again.
Sure.
[noise] America.
Okay Uhm Alright, maybe go back to another question about the visibility that you have I guess this is the second time, you've got guidance. This year and when you think about kind of weird that shortfall has has materialized versus your initial expectations.
Where has that been and I guess.
You feel like you know that you have better visibility today mm that driver or is that still kind of Ah influx moving target. That's it's hard to fully came down.
Hey, Kevin It's Bill look I think the expectation was a few months ago that we would see that curve bending on the number of travel is on assignment starting to regrow earlier in the third quarter, we've seen it level off and we're seeing some modest improvement throughout the quarter, but not to the degree. We wanted so that's really what it is it's it's coming back to saying the third <unk>.
There seems to be still be the trough.
Look improving we have bill right bill rates that have stabilized in the market and create improving still improving demand and the backdrop. So it it points to that fourth quarter and as you get the seasonal needs that we expect it's something we've seen for every year [laughter]. So it is it is expected to come through that'll that'll give that a X.
A little bit of uplift that we're expecting to make the fourth quarter the that turning.
Turning point on the volume side.
And I guess, maybe that earlier 0.6 at John me until about the.
That some of these orders the 26 week orders are.
People are waiting on it and that you would expect them to be more just in time I mean is there a reason why people would be.
Waiting on it or is that an increase the risk that you won't see that seasonal increase that you would normally be expecting.
It says it was two parts to prices, we're seeing the 26 week orders come in now as hospitals.
Want to lock in the clinicians longer but for the flu for the flu season, but what we're what we're seeing is historically pre COVID-19, we would see bees flew a winter orders start coming in in July and certainly by now entering August 5th start seeing them come in a much more higher volume.
That's what I'm happy now and the sentiment we're hearing from our clients is that they were just bleeding cause. These orders while we received them now the clinicians will start in the fourth quarter and then into the first quarter, they're just waiting a little closer to see where their needs are going to be and how they want to manage that contingent labor. The other thing. We're also hearing.
Is that there is for the RSV, which hit hard last year. There is now a vaccine that is going to come out on the market.
<unk> <unk>.
It depends what age group that will be approved for when we when the when the pediatric hospitals find out what each would that'd be approved for that will also depend how many clinicians you'll need because it was a free for a infant they'll need less contingency labor. It is only improve for a five year old the older They will need more so.
There's a couple of factors why they're waiting.
Okay. Thanks.
Thank you.
Question will come from.
Credit Suisse.
<unk>.
High body bags and I missed at the beginning of a little bit so I'm, sorry, if I do duplicate this but it sounds like you were down about 9% and travelers on assignment in Q2 from Q1, if I got that right, but it sounds like you're.
Say in orders were there is just that the.
People became unwilling to bill, though to fill those orders because they they were had higher expectation on pricing is that is that right or is this more of go forward vanilla Eminem, if you're mainly trying to call out today.
It's not a perfect correlation to be clear. So I think orders had fell so sharply that the declining teal way was was going to happen. We had signaled that last quarter. The rebound and orders is there, but we said that we're just not seeing the product weekly production ramp as quickly following the order trends.
So it's it's a timing issue of building back the travel is on assignment rather than whether there's enough orders. There's <unk>. There's the orders of there I think to to be able to put the travel is back on assignment, but it's it's it's a little bit of what you Wanna talk about about the pay expectations relative to the open orders that are there today. So we have a.
Free expectation that we're gonna see the T O eight grow as we move through the quarter and as we get into the start of the fourth quarter.
Okay.
There's a couple of things and maybe these dumb questions, but I'm Gonna ask you know we hear this anecdotal stuff with people of other travelers and they're making so much money for nine months if they take the summer off is any of this a phenomenon in your mind that travelers have an engaged for the summer and when they come back in.
Bald and you'll you'll see more plentiful supply to fill in some of these orders.
Hey, it's mark.
We see a little of that I think that's a.
A little overblown most of our travelers you know, we'll do two or three assignments and take time off the sauce.
Seasonal, but you know I I think the notion that they made all this money and they're taking the time off is actually not true.
Okay. Okay. Another thing we are hearing from the hospital side is that they're fun, they're accelerating their hiring a permanent labor as you run through the people that you've been recruiting for travel assignments are you finding the a percentage of them are just choosing to go back in this environment.
<unk> back to their <unk> traditional permanent assignment is that part of what's going on.
That's not a large part of course, there's always a portion of nurses who came into the marketplace. During the pandemic, who were not travelers, who now are going back to their permanent jobs, but there's I would say there's more nurses that we've gained into the travel nurse pool because of the pandemic than than we've been <unk>.
Going back and so yes.
Yes, so there's a small portion of gone back, but most travel nurses still want to stay in the market and remain to have that flexible workforce and be part of that gave economy.
Hey, Jay This is Dan I would add though so while it has you know I I'm not disagreeing with anything that's been said I would also mentioned that our our P O customers and our our our existing client base, absolutely are ramping up their own internal.
T a functions and getting better at this and and that's an area. So.
[laughter] you might be mixing the two and you don't necessarily have to Oh. This is Johnny J, yes hospitals have done a tremendous job.
Do you see any contingency spend and bringing on.
Permanent nurses.
With that said there is still such as his stomach issue in the shortage Escalations nurses in particular that this is a issue that's not going to be solved by bringing in some of these nurses the hospitals that have or breathing down their contingency labour spin there's still in most cases.
They'll double of where they were pre COVID-19.
So there's still a lot of them need for contingency labor and.
Frankly.
She is damage to repeal business, there's still a lot of need for more nurses to go back permanently into the Perm jobs. So yeah I think.
This is why we're very excited and very bullish upon our industry, while traveling nursing has normalized moving back to normal <unk> during COVID-19 and now we're seeing where the bill rates will in the next couple of quarters will will come in plateau level leaf 30 to 35 per.
<unk> above pre COVID-19 levels were seen demand start to take up and we'll get that equilibrium for the pay and the bill balance.
And and we'll start to see those sequential drove throughout the back during the back half of the year, what excites us and why we're bullish is because this is stomach issues aren't going away at whether it's the the BLS data or the report.
Surveys are coming out there's just not a solution that will solve this problem.
In the near future.
Okay. Let me just ask one other one on the.
Comment about C. A more hospitals would be willing to consider better neutral alternatives to M. S p's and so forth and you're getting called into debate on that I Wonder did you have perfect view before before you had an <unk> because it seems like to me it televised.
Made you competitive there and really up to your game on the Venerable neutrals side. So I'm wondering are you just seeing more of what may have in some ways already been out there or is it really indeed, a big shift in the way people are thinking about whether they wanna try vendor neutral or not.
This is Johnny J, and we have more visibility now to all the programs that hospitals are wanting that we had before because prior to having <unk> <unk>, we didn't have it any way to offering and so when our sales teams and we have multiple cells seems going in for a better neutral perspective and from a M. S. P perspective.
When we we didn't have the vendor neutral sales team when we were calling in with the MSP. If a client didn't want an M. S. T. We were essentially shut down now.
Now that we have.
Two different offerings were able to go and have visibility onto which of the clients that are <unk>.
Focusing on having a vendor neutral the M S and we're getting a seat at that table.
But yeah did you want to add something to that sure. So a J you might also think about it this way.
Many customers who went into the pandemic with a vendor neutral solution are now coming to us, saying gosh I wish I had more support and more services.
And whether you know that's a traditional staffing let M. S. P or just you know some additional set of services.
They're coming to us with I wanted something different than you know what I had going in so I think a lot of this is just custom.
Customers number one <unk>, having to go to market and number two seeing alternatives out there that they might not have had before.
I'll I'll use. The example of an internal resource pool that really the technology for that really wasn't that available prior to the pandemic and a lot of us have built some pretty sophisticated tools now that allow them to do that so you know coupling on though.
Those and you know internal travel agency capability and I'll I'll, just a lot more sophistication you know, it's very hard for me to.
To just tell you that Oh. This one is purely vendor neutral on this other one is purely a traditional M. S. P is just not like that anymore, we have a much more sophisticated and <unk> and needy and in the proper sense Ah client.
Mmk, great, though that's helpful. Thanks, so much.
Uh huh.
Ladies and gentlemen.
Q and a period.
Turn it back over.
Thank you Sheila in closing I'd like to thank everyone for participating in today's call and we look forward to updating you on the progress of the company on our next fall.
Okay.
Thank you for your participation you may now disconnect.