Q4 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 fourth 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.
For accessing the audio replay can be found in the company's earnings release issued this afternoon.
At the conclusion of the prepared remarks.
The lines for questions.
I'd now like to turn the call over to Josh Vogel Cross country Healthcare's, Vice President of Investor Relations. Thank you and please go ahead Sir.
Thank you and good afternoon, everyone I'm joined today by our President and Chief Executive Officer, John Martin as well as Bill Burns, Our Chief Financial Officer, and Mark Group, who president of delivery.
Today's call will include a discussion of our financial results for the fourth quarter and full year of 2023 as well as our outlook for the first quarter of 2020 for.
A copy of our earnings press release is available on our website at 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.
Noted in our press release forward looking statements can vary materially from actual results and are subject to known and unknown risks uncertainties and other factors, including those contained in the company's 2022 annual report on Form 10-K, and quarterly reports on forms 10-Q as well as in other filings with the SEC. The company does not intend to update guidance or any of its forward.
Looking statements prior to the next earnings release <unk>.
Additionally, we referenced non-GAAP financial measures such as adjusted EBITDA or adjusted earnings per share such non-GAAP financial measures are provided as additional information and should not be considered substitutes for or superior to those calculated in accordance with U S. GAAP more information related to these non-GAAP financial measures is contained in our press release.
During this call we may refer to pro forma when normalized numbers per teams who are most recent acquisitions as though the results were included or excluded from the periods presented.
With that I will now turn the call over to our Chief Executive Officer, John Martin's.
Thanks, Josh and thank you everyone for joining us this afternoon.
Overall I was pleased with our fourth quarter and full year 2023 results and particularly in how we have responded to the challenging market conditions in our nurse and Allied segment.
Health systems seek ways to reduce their reliance on contingent labor.
After declining in the first half of 2023 travel demand remains fairly stable. However.
However, coming into the new year, we were seeing another pullback in orders, which appears to be industry wide across most specialties and geographies.
Many systems are nonetheless see increases in values, which we believe will ultimately translate into a rising demand for our services.
With our focus on innovation and operational excellence as well as the health of our balance sheet.
Cross country is well positioned to weather these near term headwinds and we believe we are poised to see sequential growth in the back half of the coming year.
Now I'd like to take a moment to reflect on our full year performance we.
We generated $144 million of adjusted EBITDA.
Our second best year in company history, following the record year in 2022.
We also had a record year for cash flow from operations generating $249 million, which enabled us to end the year with a strong debt free balance sheet.
In addition, we invested more than $20 million on technology initiatives, and we purchased two 3 million shares of stock representing approximately 6% of our outstanding shares this year.
Perhaps the most noteworthy accomplishments in 2023 was the rollout of our vendor management system and Telefonica.
This BMS technology amplifies and enhances productivity.
Effectively managing deploying and anticipating workforce needs for our clients.
Throughout the year, we witnessed the level of interest in this technology grow.
Leading to a series of wins that exceeded internal targets in fact, two fairly sizeable deals that we closed early in the fourth quarter were fully implemented before you read demonstrating.
Demonstrating the speed at which we can deploy this technology.
In addition to our client facing and tell us what ring, we rebranded our experienced last year, which is the kind of your basic tool that enables clinicians with the power to manage their careers any time any place they want.
Equally exciting experience is on our roadmap.
Fully integrated insulin telephone.
Unlike conventional job matching.
Experienced ensures a precise alignment of collisions with rules that uniquely matched their skills and aspirations.
In 2023, we had more than 8000, app downloads and over 100000 unique viewers, who access experience who are mobile app and website.
And finally, we launched data aggregation services, where das which offers unique insights on bill rate trends that help hospitals validate their costs by providing real time benchmarking and visibility.
From an MSP and vendor neutral sales perspective, 2023 was a very active.
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And so we experienced the higher level of attrition in the earlier part of the year, we left 2023.
The positive trajectory from both a retention and new client perspective.
As well as having a robust pipeline.
I can always spend under management from our recent wins is estimated to be over $125 million when fully ramped.
And since late December we've had two more wins, including one verbal with.
With total estimated annual spend of more than $75 million.
We believe that fees and other wins, we expect to close throughout the year, who will provide some tailwind in the second half of the coming years.
It's also interesting to note.
We've seen more balanced interest from hospital systems between MSP and vendor neutral programs and we are strategically positioned to capitalize and grow share on both these fronts.
Our focus for 2024 is on continuing to expand our client base and growing our relationships with existing clients through.
Through an expansion of services.
And though we are always focused on driving efficiency.
Our plans for the coming year include leveraging both our offshore operations as well as continuing to invest in cutting edge technologies, such as AI agents and robotic process automation.
These efforts will allow us to lower costs enhanced predictive job matching.
Improved talent sourcing and assess candidates suitability.
I look forward to sharing our progress on these and many other initiatives on future calls.
Turning to the quarter consolidated revenue was $414 million, which was above the high end of our guidance range.
And so adjusted EBITDA of $21 million was within our guidance range. It would have been even higher had it not been for a charge to allowance for doubtful accounts, which bill will cover in more detail.
Yeah.
As expected travel revenue in the fourth quarter was down 12% sequentially on track with our expectations for both rates and volumes.
Looking ahead.
The rates continued to stabilize and are trending in line with expectations.
As we've called out previously the remains of gap and expectations around bill rates with clients and pay rates with clinicians on many orders impacting both our fill rates as well as our margins.
As we navigate this dynamic will remain competitive in order to preserve our market share while balancing overall profitability.
Turning to our other business lines physician staffing continued its strong performance with reported fourth quarter revenue up 26% year over year quickly approaching an annual run rate of $200 million.
Driving this was a combination of higher billable days.
The improved mix of higher bill rate specialties.
The segment's contribution to income reflects the ongoing investments, we're making in the business that we believe will drive organic growth and margin expansion throughout 2024.
Our education business continued to perform well.
9% from the prior year and more than 50% from the third quarter. Following the start of the New school year.
Our home care business was flat sequentially and year over year, but we exited the year on a solid trajectory.
As we reported last quarter, we get Spice homecare, MSP wins, and presently have nine programs in implementation.
On the backs of these wins I believe this business will experience strong organic growth in 2024.
Now turning to our outlook for the first quarter given.
Given my earlier comments on the current market backdrop, including recent travel demand trends and industry wide margin pressure.
We anticipate that first quarter revenue will be between 370 $380 million with adjusted EBITDA.
Being in at $13 million to $18 million as a reminder, the annual reset in payroll taxes compressor.
Compresses margins at the beginning of the calendar year.
I went to distress.
Work through the current market climate.
We are taking actions to drive organic growth and margin expansion.
In addition to ramping recent tender neutral in MSP wins across acute care settings.
We will continue to diversify physician staffing is a higher margin modalities as well as seek to capitalize on our growth in education. So geographic expansion is even more markets.
Additionally, we will remain diligent on the M&A front with a goal to close on several accretive acquisitions that can further enhance our value proposition and diversify our platform into margin higher margin offerings.
Looking ahead, we will continue to balance investments that serve to further diversify and differentiate west country with necessary cost savings to preserve profitability such as levering leveraging our operations in India. In fact, I just came back from India, but we hold our 'twenty to me for company wide kick off.
Coupled with the enhanced productivity and efficiency gains we are seeing through technology investments.
I remain confident in our ability to drive long term sustainable.
Profitable growth.
We intend to remain focused on increasing shareholder value by leveraging our balance sheet and through the deployment of capital, including additional share repurchases ongoing technology investments and potential M&A opportunities.
In closing we are confident about our prospects for 2024.
Outside of the broader pressures in travel we are seeing strong momentum within telephonics, Locums education, and our homecare business.
The team continues to execute.
High level and none of this is possible without our devoted employees.
We were recently named a 2023 winter a best company culture, and best company for diversity by comparably.
These recognitions see something about our tapestry of culture that we work so hard to uphold making cross country.
<unk> employer destination of choice.
I'll just thank all of our employees and our health care professionals, who your continued hard work and contributions as well as our shareholders who are leading the company.
With that let me turn the call over to Bill.
Thanks, John and good afternoon, everyone as John highlighted our fourth quarter performance was largely in line with expectations with revenue slightly exceeding the high end of our guidance range.
The EBITDA within a range the.
The outperformance on revenue was mainly attributed to better than expected performance across both education and physician staffing as well as several million dollars from a labor disruption.
Consolidated revenue for the fourth quarter of $414 million was down 6% sequentially and 34% over the prior year driven by the continued normalization in both travel demand and bill rates I'll get into more details on the segments in just a couple of minutes.
Gross profit for the quarter was $91 million, which represented a gross margin of 21, 9% gross margin was down 10 basis points sequentially and 20 basis points over the prior year due primarily to the tightening of the bill pay spreads for travel assignments and was partly offset by certain burdens like workers' comp and health insurance move.
Moving down the income statement, selling general and administrative expense was $68 million down 3% sequentially and 17% over the prior year.
Majority of the decrease relates to lower salaries and benefit costs associated with our reductions in head count as well as lower variable compensation following a historic performance throughout the pandemic.
In 2023, three we reduced our U S head count by approximately 22%, while continuing to invest in technology in areas of the business with the highest growth potential.
Since the start of 2024, we have reduced our head count by an additional 8% with plans for further reductions as we proceed throughout the coming year.
As we called out to the extent, we are unable to automate processes in the near term they are seeking to leverage our center of excellence in India to support our shared service teams.
For the last several quarters, we've grown our head count in India by nearly 30% and we expect to double that investment in 2024.
So just give you some context for every hundred physician staff in India, we save approximately $3 million annually.
As bill pay spreads remain compressed amid softer demand we continue to emphasize the importance of continuous productivity and efficiency gains we're looking across the entire organization to identify opportunities to drive margins higher and to reduce our overhead while balancing investments in capacity for future growth.
Based on cost actions taken to date as well as lower compensation associated with the sequential decline in revenue. We anticipate total SG&A will decline in the mid single digits for the first quarter.
As a percent of revenue SG&A was 16% in the fourth quarter flat sequentially and up from 13% in the prior year.
Our goal is to exit the year with an SG&A of 15% through a combination of organic topline growth as well as by leveraging our offshore operations executing targeted cost savings and the further deployment of technology for instance, the first phase of our ERP project is set to launch in Q2 and as phases are completed we should have more opportunities to drive.
NCS.
We reported adjusted EBITDA of $21 million, representing an adjusted EBITDA margin of 5%.
So revenue was above the high end of our expectations. Our adjusted EBITDA was impacted by an increase in our bad debt expense.
One of our MSP clients has fallen behind on payments for services rendered throughout the pandemic.
Leading to deterioration in the aging that requires to take an additional reserve of $2 million for that specific account.
We continue to have ongoing dialogue with the client and we've negotiated a payer plan that we believe will recover the remainder of the balance in the coming quarters.
As revenue with this client has wound down throughout 2023, we do not anticipate a drag on top line performance in 2024.
We will continue to monitor the situation closely and look forward to provide updates on future calls.
Excluding the bad debt charge, we would have reported approximately $23 million and adjusted EBITDA, representing a 6% adjusted EBITDA margin for the quarter.
Our goal remains achieving a high single to low double digit adjusted EBITDA margin and we continue to believe we can attain it overtime.
Since we're managing this business towards long term sustainable profitability profitability, we must continue to make certain investments in our digital platforms as well as to ensure we have the capacity to be ready to capitalize when the travel market turns.
Interest expense in the fourth quarter was $600000, which was down 12% sequentially and 83% from the prior year.
The decline was entirely driven by lower average borrowings throughout the quarter.
The majority of the interest expense reported for the fourth quarter was related to the carrying costs for the ABL and fees on our outstanding letters of credit.
The interest rate on amounts drawn under our ABL was 7% as of December 31.
And finally on the income statement income tax expense was $4 million net of some discrete items, representing an effective tax rate of 30% essentially in line with expectations are.
Our overall performance resulted in adjusted earnings per share of <unk> 29, near the midpoint of our guidance.
Turning to the segments nurse and Allied reported revenue of $367 million down, 7% sequentially and 38% from the prior year, our largest business travel nurse and Allied was down 12% sequentially and 44% over the prior year.
Bill rates for travel were down 4% sequentially, while billable hours were down 8%.
Looking to the first quarter, we expect travel to decline sequentially in the low double digit range driven primarily by continued softness in travel demand with fill rates declining in the low single digits.
After seeing travel orders rise modestly throughout the second half of last year, we've seen another pullback coming into the start of 2024.
This seems to be an industry wide issue across most specialties and geographies.
All orders from existing clients may rebound, we believe that our recent wins will continue to ramp providing a catalyst to re grow our travelers on assignment.
On a local or per diem visits continued to feel the impact from the softness in demand as well as the timing of the holidays fourth quarter revenue was down 29% from the prior year, so up about 1% sequentially due in part to the labor disruption I mentioned earlier.
The majority of the year over year decline comes from a reduction in billable hours as rates were down about 2% over the prior year.
Also within the nurse and Allied segment, our education business reported 9% year over year growth and was up 50% sequentially. Following the startup of the new school year.
Finally positioning staffing once again delivered a strong top line reporting $47 million in revenue, which was up 26% over the prior year and 3% sequentially.
The primary driver for the growth was a rise in the number of days filled across specialties, such as anesthesiologists CRM as a nurse practitioners and to a lesser extent an increase in the average revenue per day filled.
Turning to the balance sheet, we ended the year with $70 million in cash and no outstanding debt.
With the help of our balance sheet and strong cash flow, we remain well positioned to make further investments in technology and accretive acquisitions as well as to continue repurchasing shares under our $100 million share repurchase plan.
From a cash flow perspective, we generated $12 million in cash from operations in the fourth quarter, bringing the full year cash from operations to $249 million, our strongest year in company history, and driven in large part by collections and reductions in net working capital.
DSO was 68 days down four days since the start of the year and excluding the impact from the single MSP client I mentioned earlier, our DSO would have been 62 days much closer to our target.
Our goal remains to bring DSO below 60 days, which is more in line with our historic performance before the pandemic and believe we can get there and make progress to that throughout the coming quarters.
Cash used in investing activities was $3 million.
Primarily reflecting investments in our tech initiatives, such as <unk> experienced in our new ERP system.
From a financing activity perspective, we repurchased an additional 300000 shares during the quarter under both our <unk> and our <unk> trading plans and this brings me to our outlook for the first quarter, we're guiding to revenue of between 370 and $380 million, representing a sequential decline of 8% to 11% driven predominantly by the expected.
Klein and bulk billable hours and rates for travel.
Adding to an adjusted EBITDA range of between 13 and $18 million, representing an adjusted EBIT margin of approximately 4% at the midpoint of guidance.
Adjusted earnings per share is expected to be between 15 and 25.
Based on an average share count of 34 million shares.
Also assumed in this guidance is a gross margin of between 21% and 21, 5% interest expense of $500000 depreciation and amortization of $5 million stock comp of $2 million and an effective tax rate of between 32% and 33%.
And that concludes our prepared remarks, and we'd now like to open lines for questions operator.
Thank you we will now begin the question and answer session. If you will.
I'd like to ask a question. Please press star one on mute your phones and record your name clearly.
To withdraw your question press Star two.
Again to ask a question please press star one.
Our first question will come from Kevin Fischbeck with Bank of America. Your line is open.
Great. Thanks, So I guess just wanted to follow up on some of the comments you made about <unk>.
Things will will trend throughout the year I guess, you talked about sequential growth in Q2, and second half of the year, which I guess means you would think that Q2 will be down sequentially versus Q are separate let's think about it.
Hey, Kevin its bill I don't we're not giving guidance for Q2 at this point, but.
Based on how we come into the year with demand.
It's a possibility that we could see a sequential decline going into the second quarter, but it all it all depends on how much of that is travel because we are still seeing great growth across other parts of the business. So we're not going to call out Q2, just yet as to whether it is sequentially down or up but as we look at the back half as we expect our wins to ramp or that's kind of our lens looking at when we think the trap.
Who is on our side that will start to re grow.
Yeah, Kevin This is John I would just add yes.
You're going to get a sense now that we're getting back to that cyclical nature of this industry back to pre COVID-19, where youre going to see traditionally a little bit of a dip in Q2 from Q1.
But I do think with the recent wins that we've had on the MSP and Vms side.
The diversification of our business as Bill mentioned and the growth there is an opportunity to buck that trend in Q2.
Then when you say the second half is going to ramp then are you assuming in that from an industry perspective things are going to be flattish and that's your wins that gets you the growth or is it. The cap is it a combination of industry starting to pick up again in the back half.
Yes, I think the way to look at it is as we start looking at the <unk>.
Macro data right and looking at.
You have census in hospitals are still remaining high and increasing.
Looking at the.
The Affordable Care Act and seeing that we had in 2010, there was 16% of the nation, who didn't have insurance and now it's <unk>.
7% seven 2% number is.
You still have this this fundamental shortage of nurses.
And we're seeing that demand, we think demand will start to pick up.
At one point in the year.
I wish I had that crystal ball, saying does demand from a market standpoint start picking up.
Sometime in the second quarter was at the end of the second quarter is in the third quarter.
It's hard to forecast when that happens, but we're confident about is how we.
We're executing on our business winning more deals and so part to answer. Your question is part of it is yes. We think we can outperform the market based upon the deals we're winning.
We're really looking at executing above the market and in many of our segments and and then add that to hopefully some market.
<unk> and then we're you know we're we're in a great place, but we do think that we can buck the market trend just on our wins on our MSP and Vms and Kevin just to add a little more color to that as you look at the <unk>.
The macro conditions in the market the demand today as a snapshot remains below the pre pandemic get contingent usage by our clients is still higher. So there is some misalignment out there right now that we do think that the demand will rebound and I will just give you a little retrospective on 2023, we saw a sharp.
Drop in the first quarter and it kind of bounce back as we got through the second quarter, and then remained steady probably ticking up throughout the second third and fourth quarters and so this is a pretty significant step down it doesn't seem to be something that is.
That there is a structural change in the market that would have led to that kind of a demand falloff. So it does feel a little bit.
Caps or an overcorrection, our timing issue that we think can work its way back.
Okay, and then just statistically make sure I understand how you guys talk about deals you talked about the spend under management of 125, and then another a couple of wins with 75.
Are those MSP. So we should think about those who like revenue numbers or is that a mix of that must be a basket. So it's not necessarily.
Any way to think about it.
Yes, it's a mix of VNS, then that a neutral and MSP.
The vendor neutral side, we're going to capture somewhere in that 30% range to be a little bit higher and on the MSP side, you're going to capture traditional recapture somewhere between 65 and 70%.
Okay, great. Thank you.
Thank you. Our next question comes from Brian <unk> with Jefferies. Your line is open.
Hey, good afternoon guys.
Jonathan.
Some of your comments you talked about.
Kind of like keeping market share and so just curious how are you weighing that balancing market share maintenance and maybe gains.
First is maintaining the margins and maybe a follow up to that bill.
Or do you think margins eventually shake out assuming that we return to kind of like.
Normalized level.
Demand.
Hey, Brian This is John.
Yes, the market is going to do what the market is going to do right now and so that does put margin pressures honest as there is a as demand softens right more people are going after the same jobs. So it does create some bit of a margin pressure.
And so of course, that's how we want to balance making sure that we're competitive in the market, but we also want to maintain our profitability and so that's when we talk about the balance and we think we're doing a good job right now with that and I think that's evidenced by the wins we've had.
And we're not and its not and we are definitely not buying the business. We are working on good margins. It's just as an industry. The margins are moving down as a whole.
Yeah, Brian I'll, just I'll add I mentioned about how demand has stabilized and then it kind of dropped off the one interesting note underneath that is that when you look at the open order rates. The bill rates. They have remained fairly steady for quite some time.
And this is looking at a subset of where we have some critical mass across ICU in med surge that the majority of the of our demand.
Large blocks and you look at what's your what's happened to the lock rate the rate of the orders that you're closing on and what's happening is you're seeing we're starting to see now.
Narrowing in the spreads so in other words, we're having to lock at lower rates, which you are not going to necessarily be able to pay below market on the nurse compensation of the clinicians compensation.
Particularly because meals incentives and lodging are dictated by the markets Theyre going to so you you'd naturally will have some margin compression now does that foreshadow a longer tail to the margin compression I think theres things that the company can certainly do to mitigate that number one is we're still migrating and telephonic across our managed service programs stack, we're about <unk>.
80% converted I think theres, another $1 million of savings roughly to be garnered from that and then I think we're growing where we are growing is in higher margin businesses like in the home care and in our education business lines. So I think we've got the opportunity to see consolidated margins grow I don't have a lens as to what happens to the pay bill spreads overtime I would.
That at some point in the future, we would be able to see some bill rate improvement, but for now that's certainly not the market conditions, we find ourselves in.
I appreciate it and then my follow up is I think about LOE comes right. It seems like you're seeing pretty healthy growth there.
What would it take to continue driving that growth or maybe even expand it.
Does it have to be acquisition, driven or is it contract or does it take more investment to grow that locals segment.
Yes, well.
We do love the space of Locums and of course M&A.
M&A is definitely a part of where we look at our strategy.
But we've invested quite a bit of money over the past couple of years to build the team where it is today. So when you look at contribution income it's not it's a little lower than we want it to be right now because that's because we've made the investments. So we feel that there is lots of lots of the patheon ability to ramp this business currently.
And improve that bottom line margin and <unk>.
It's a business, but when we look at we're approaching a $200 million company in Locums for us to get to that next level of becoming a $1 billion I think that's going to require acquisitions to get to that level.
Got it thank you.
Thank you next we'll hear from Trevor Romeo with William Blair You May proceed.
Hi, good evening, Thanks for taking the questions first one is just kind of on client sentiment regarding contract labor I think maybe it seems like individual hospitals might be in a variety of different spots in terms of how far they've reduced contract labor spend.
Maybe all the way back to pre pandemic, maybe some arent I guess, if you could maybe just generalize your client base more broadly I guess does it seems like it's kind of tilted one way or the other in terms of being content with current spend rates are wanting to reduce further.
Any kind of way you could summarize where your clients are are at more broadly.
Yeah, let's take a breath because every client a little bit different but lets take a broad view of broadview is clients for the most part what we're seeing there.
Looking for ways for us to continue to help them save money, but sometimes its not through travel it's through maybe helping them with their core staff, it's helping them with their internal resource pool. So we can maximize.
Their internal people, which will take a little bit off the travel side, but in general in the broad strokes I think well.
What we're seeing from our clients is they're fairly content with the number of travelers. They have now I think everyone would like to.
Save a little bit of money it little bit more but they also come to the realization of come to the realization that you can only go so far down and that if you want to make sure you have the number of beds opened if you want to make sure you have the right patient.
Patients who knows ratio if you want to make sure that you have.
The nurses at the bedside taken care of the patients in the community you need a certain level of travelers and I think we've kind of hit that that point and I think that's where when we look at saying when do we see the bottom of this and we're saying hey, again, not having a crystal ball, which I wish I had it coming.
Sometime in from now to the back half of the year and then we started seeing that sequential growth. So I think we're almost there at that point.
Okay. Thanks. Thanks, that's helpful. And then you know as you look into Q1, I think the sequential revenue dropped you're guiding to.
Is quite a bit below what you typically would see Q1 over Q4 I think it's also below what maybe some of your competitors might be expecting in Q1 in terms of the sequential change. There. So I was just wondering if you could maybe try to square those differences at all I can speak to maybe your level of conservatism in the guidance.
Yeah, Brian, let Trevor I'll try to give it a shot.
When you look at the trial the sequential decline that's implied in the guidance, it's almost exclusively on the travel side right. So we've talked about the falloff in demand and so we're looking at that to say.
Our net weeks booked is progressing and that's our internal metric for how we see the production one of the things. That's interesting is even though the demand is down we're still we're still booking at a fairly consistent rate overall for the start of the first quarter I would not say there is an air of conservatism I think traveled the one line of business, where we have a pretty good lens because of the length of the assignments and so I think it really is.
Not something that I'm anticipating to see a huge variance to what we've got it on the travel side. There is opportunity now of course, you know that it's the start of the restart of the school year as we come into the winter session or the fall. The spring session, we sometimes see a little bit of an uptick on the education side of the business, but I don't know John if you have anything else who want to throw in there.
Trevor is that I think when you look at you said, hey, how we compare to our competitors I think when you look at the growth we had over the last several years.
'twenty, one and 'twenty two.
In 2021.
Staffing industry analysts, who just kind of how we kind of judge the market rate and our growth.
The market grew at 105% and we grew at 100, 100% you've got to remember we're going through.
Our digital transformation, we were really re forming the company in.
But really creating a new roadmap and vision for the company and that happened in 19 and 20 and then in 'twenty one we go from.
Neely.
Being at market and then in 2022, the market grew at 45% and cross country grew at 67% clearly be in the market and if you actually look in at the travel nurse and travel Allied in particular, those numbers actually a higher percentage of growth in 'twenty, two and 23, we're not going to be able to see what staffing industry analysts has.
The market has come down to you because they report that in sometime in the summer and while we do see that I'm confident that we're going to show that we once again have outpaced the market even as the market is going down so I think thats one area and the other thing when you look who are our competitors, sometimes we grew so fast.
And the pandemic and nurse and Allied and they may have been a little bit more diversified so you're going to see a little bit of difference in that and the other thing is I think when you look at those numbers you have to also look at acquisitions that happened in that time period to make sure you're comparing apples to apples.
Okay. Thanks, John and then maybe if I could sneak one just one more in I just wanted to follow up on a comment I think you had in the prepared remarks about.
Maybe having a goal to close on some acquisitions. This year just wondering if you could kind of double click on that and maybe give us an update on what youre seeing in terms of targets coming to market in the pipeline in your area or areas of interest.
This is I think a buyers market right now we're seeing multiples come down.
There's companies that.
Don't want to go through another cycle of what of this downturn that we've seen in the market over the last 18 months and so I think it is a buyers market right now and.
There is opportunities for us and as we've said before and I said just earlier, we really.
The level of the space of niche opportunities in lupus space.
The Allied space is something that we like in our education business, which is just doing phenomenally is on fire, we love that space and that is a it's a very fragmented space, but we've done a great job of.
Rolling that into a fairly sizeable business, it's nearly $100 million.
And I think theres lots of opportunity in the education space to continue.
Roll up companies into that space, and green and gain some scale in the education space.
Alright, Thank you very much.
Thank you. Our next question comes from Tobey Sommer with <unk> Securities. Your line is open.
Thanks.
You made some comments about customer retention or market share, but I wanted to explore that a little bit more if you could.
Because it's a little bit of a challenge externally to take the comment about gross new and telephonic sales and think about our ramp to maturity.
And know how to use that as a modeling input.
Or are you trying to message that.
The market share you have within existing customers is stable in your income statement is just kind of transmitting trends and.
Demand and pricing.
Yes, that's correct.
Well I think I can kind of give you a little bit of flavor on where we're at on that spend under management. When you look at our spend under management that includes be Intel a phy business.
Pre COVID-19, we were somewhere between 4% to $500 million and as of December we were at somewhere between $8 million to $900 million.
And now of course, they are bill rates have gone up.
But the rates are up Bill what would you say bill rates are up from that period at 15%, 25% that okay. So that that period. So you have a 25% to 30% increase in that but we clearly have nearly double the amount of spend under management. So we are we are gaining and that's why we think we're gaining we feel confident we're gaining market share because of those numbers.
The volumes volumes are definitely up a little bit to the market size the bigger but on the other side demand as bill called out earlier on the call demand is actually lower than pre COVID-19 right now.
And so and so as we get in there and that that is.
Spend of between $8 million to $900 million doesn't account to the ramp ups of most of that $200 million plus spend under management that is still being ramped up now.
Okay do you feel like the G&A is right sized and appropriate for the <unk> guidance levels or is it is it built for a different level of volume in the business.
Good question Tobey Theres, probably two pieces to that number one we do have I mentioned in my prepared remarks, we've had about an 8% reduction in head count since the start of the year.
Get the full quarter of benefit of that so it does just bearing that in mind that there is some also some impact on the G&A in the first quarter from the payroll tax reset that we usually bear it's sort of a half million dollars on that and then kind of picking up on some of the remarks, John made we do maintain extra capacity in the business. If we were to just simply run the numbers you would say.
You could do with fewer head count.
But that's not the place we want to be and we don't want to have to start from ground zero to rebuild the revenue producers that we've brought onboard and trained.
And there is still opportunity the reality as I mentioned, the offshoring of labor to India, but.
As important we are still working through a lot of different opportunities for automating a lot of our complex processes. The ERP system that we're putting in that goes the first phase goes live but most of the benefits of that'll be really.
Realized when we get to the second phase, which is in early 2025. So we're not done getting out the cost in the G&A, but for Q1, that's that's kind of the messaging.
Okay. That's helpful.
Let me see.
When you look at the industry the travel nurse industry as a whole.
We're now two years in change of sort of.
Trying to guess when the business they bought them and then finding new lows. How do you think of the industry at this point in capacity within it for the demand that exist today.
Is there too much and in what may need to happen to rein that capacity.
Yeah.
Well I guess, you know Tobey I'd say that a lot of companies definitely ramped up pretty big and I think the companies that are <unk>.
Support from a third party perspective, the vendors that are that don't have the direct client relationships are certainly going to have more capacity I would imagine then companies like cross country, where we are.
Still winning new direct relationships and MSP relationships, Yeah, I think that's fair to say Bill. This is John So I think that's right where the third.
These are relying on third party are definitely going to.
<unk> a bigger decline in their businesses.
And as Mark companies.
Companies like cross country win more market share.
As important to know like our partner network. Since it's interesting I mentioned earlier, we have a capture rate of 65% to 70%.
And why that's important to US is we could actually kind of goes to Travers question, we could actually increase our capture rate even higher.
And ink and we'd actually would offset maybe.
The decline in our revenue, but that's not our long term plan.
One of the things that's really important to understand about why our capture is between that 65% and 70% is first and foremost.
We have these clients that we're accountable to we want to make sure that we're providing the highest quality equation. The bedside to serve the patients the communities and unfortunately, if you want to increase that capture rate higher than somebody like 65, or 70, you'd actually have to hold orders potentially and that could affect that pace.
<unk> delivery and Thats, something we would never do across country.
And then secondly.
I've called this out on calls before is we want to make sure that we have excess capacity to win deals and I think you know over the last six months, we have certainly proven that in the wins that we've had is because we had the excess capacity. We are able to win these deals and then the third part of why we want to keep that capture rate.
And that 65% to 70% is we want to make sure.
We're allowing our partner networks may sub vendors.
The companies that rely on the third party business, we want them to think of cross country as their first choice and we want to make sure that that but as we're starting to win more deals they're there to support our deals so that we're keeping our clients very satisfied and happy.
Last thing from me if I can sneak one in could you talk about.
The market trend in MSP and Vms fees on the sub contractors now that you know not only who have you been to an MSP in the marketplace for a long time, but now that you've got an <unk> out there.
Our our fees to subcontractors are changing at all.
We've seen over the years I think you know.
From 2009 to who have been an industry wait too long.
Periodically fees go up and as cost pressures happen.
In competitive bids what happens is we're seeing a lot more companies go out there and offer more.
More services and offerings to clients to win their business and those costs have to come at you pass along to the sub vendors. So we are seeing an increase across the industry of Av.
Those fees going up but like I said I think I started this industry in 2005 and.
Every several years, you'll see this isn't just roll up I think when I first started the average rate I think the average fee was I think 3% in 2004, and so you know overtime inflation you have more more services going to clients they end up causing fees and when you get as I mentioned, when you are getting more and more competitors and you're seeing more and more.
He is trying to get into the MSP and Vms space, they're offering more and more.
What's the right way it services and offerings that make it more competitive that.
Increase the cost of running and managing an MSP and Vms service.
Thank you very much.
Thank you. Our next question will come from constant team Davita with citizens JMP. Your line is open.
Hey, Bill.
Just.
On the labor disruption you've called that out I think you said a few million just wondering if you can put a finer point on that and then do you have any visibility into anything.
Disruption related that can impact the first quarter.
Sure.
It was it was between three and $4 million that we got within the quarter from labor disruption. So it really wasn't.
That significant and as far as having a line of sight to Q1 labor disruptions no I mean, mark here I don't I don't think who really have any demand right now mark is that correct. That's correct.
Great and then.
John I think you mentioned.
2023 tech spend of about $20 million I, just want to clarify is that both expense and capitalized and I was wondering if you guys could give us some sense for what that.
And that spend is going to look like in 'twenty four on the technology front and where it's being directed.
Sure It's bill again.
That's correct that number that John referenced as the combined spend across the projects. So that's capitalized and what's been run through operating expense as well as what gets deferred so that you know when cloud computing. It doesn't all go on the investing activities on your on your statement of cash flow. Some of it is hung up in Prepays and we'll come back and then amortization once the projects alive.
By and large the 20 odd million is what we spent across all those projects and for 2024, we're anticipating spending a very similar amount.
Great.
<unk>.
And then last one for me where are you guys in the migration of the MSP is over two and telephone.
If I remember you sort of part of that at some point last year. Just wondering if you can give us an update there.
Absolutely Yeah, I mentioned, a little earlier in the Q&A that we've seen about 80% of our programs are now on <unk>. We've got a handful left that will go over the first the first or second quarter I think we've got two or three in Q1 and two or three in Q2. So we're nearly there yeah and it's interesting on that is that a lot of times, it's not it's not because of <unk>.
Don't want to put it there, it's really competing priorities at hospitals and so.
As Bill mentioned, we did we would've been there earlier, it's just matching up sometimes at the hospital and getting them set but right now we have the roadmap to get there to get it pretty complete pretty soon the fourth 0.1st yes.
But as Bill said before the half of it before the end of the first half we should be at a 100%.
Great. Thank you.
Thank you.
Again, if you would like to ask a question at this time you can press star one and record your name when prompted our next question comes from Kevin Spanky with Barrington Research you May go ahead.
Hey, good afternoon.
I believe you made a comment in your prepared remarks about.
Margin expansion as you move through 2024.
Is that correct and if so is that tied to just the.
The ramp up of.
Your <unk> business.
Also anticipating.
Maybe some improvement in market conditions essentially contributing.
Hey, Kevin This is bill I guess I would say.
We're looking at Q1, obviously being the softest quarter, we've got a number of reasons for that.
Not realizing the full cost savings the fact that there's a payroll tax reset.
As we progress throughout the year, we're going to continue to expect to see growth across the higher margin businesses like education home care in particular has a number of programs high single digit number of new programs that are ramping and we will go live in the next few months. So there's there's opportunities to see the top line growth I think is the.
Those businesses kind of recover we will see gross profit and gross margin start to rebound I'm not making any calls right now on the bill pay spread for travel I think we're still in a very tough market, but that's an opportunity I think as we move ahead. The <unk> conversions once we complete those that's going to add.
We will over seven figures of opportunity of savings annualized.
For us to see that will contribute to our bottom line and then finally just can.
<unk> to look at the opportunities for cost savings right. So we've got the work that we're moving overseas and we've got a very concerted effort a very large program effort right now going across all of our teams to look and see what efforts. We have that can we first automate and John made some comments about some of the things we're doing there in the prepared remarks, but if we are unable to automate and it's going to be.
Stable process, we'd like to look at moving that to where we can do it for the most cost effective way.
So I think that's a piece of it and then we're still working through all the things that will give us the opportunities to be more efficient even from our back office. We've had projects that we've been working on over the last year, many of which have been going live throughout the fourth quarter and into the first quarter. So I anticipate that will still compete even improvements across the shared services teams.
Okay.
You referenced.
Revenue could ramp sequentially.
Sequentially in the second half of 2024.
And with all those various actions and initiatives <unk> discussed do you think.
Kind of the high single digit adjusted EBITDA margin would be.
Reasonable as we move towards the back half of the year.
Yeah, I mean, I think look that's certainly our goal and I made the remark in my prepared remarks that we're targeting to exit the year with SG&A at 15% on revenue. So if you if you look and see where does that where do you think gross profit our gross margin can be by the fourth quarter. You can start to back into what that could look like but yes, something something in that high single would be.
Our goal to exit the year.
Okay, well, thanks for taking the questions.
Sure.
Yeah.
Thank you and our last question will come from Bill Sutherland with Benchmark Company LLC you May proceed.
Hey, guys Sean.
John I was thinking about the.
One one artifact.
Colby I think was a lot of the typical contracting cycles for MSP, It's got pushed out so there's been like a bunch up.
<unk>.
This year or last year, maybe this year.
That I've heard is occurring in the industry and I'm, just wondering kind of what your contract cycle looks like right now as you look at your book.
In both MSP and Vms.
Hey, Bill, Yes, we are.
Our cycle was heavier in 'twenty, two 'twenty, three where we had more contracts up and I think as we've all called out that was because of COVID-19 that people kind of held back and waiting to go out to market. After COVID-19 what was perceived epitope into 'twenty two.
So we saw a higher number of clubs.
All of our clients go out 22 and 23 this year.
It's definitely lower and less than last year, I think we see more of the typical cycle of somewhere between 20%, 25% go out this year.
And.
It varies right there's ones that are competitive bids that we have that our competitors are going in.
Getting involved in a competitive bake off if you will and there's other ones that are renewals that are that are evergreen contracts that come up every year that we're that the client is really not looking to go out to market and those are the rules that just come automatically and of course, you still have to make sure you're doing a great job for clients given the service that they need in filling there and providing the needs that.
You have until the needs they have.
There's a couple of different categories, but to answer your question. This should be a of this will be a lower year in the total number of renewals we have in the last two years.
Got it.
And I'm going to wrap up with a real quick number question Bill just curious what is the head count in India, because you talked about increasing it this quarter I think.
First half.
Yeah, we haven't to my knowledge, given the specific India head count out, but it's a couple of few hundred so it's between two and 300 and ramping quickly now we've got about.
Today, probably half of the head count is supporting our I T operation in half of the head count is supporting our shared services may be a little bit more like 60 40 operations versus <unk>.
But we've been doing a lot of development work out of R&D office and so that's part of what we're going to continue to invest in but the main driver of the growth is going to be on the on the operational side of the business.
It's where we're going to be more than what I say doubling the head count the doubling is the total head count, but it's going to be predominantly on the operation side. Some more of the investments for the operations and I think it is important to note on the.
On that India office that we have overseas that office has been around.
This country for 18 years.
Long standing company that we've had there.
<unk> partnership right leadership, there as I mentioned in my prepared remarks, I was just there two weeks ago to do our companywide kick off from India to all of our offices and I can tell you is the talent that we have over there is just incredible and they are ready to take on more and more of these.
Services coming over and we're really excited about this.
Great culture that we've created between the U S and India and truly this real partnership we have with our organization over there.
Perfect. Thanks, guys.
Thank you 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 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 call in May.
Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation you may now disconnect.