Q3 2024 Cross Country Healthcare Inc Earnings Call
www.mytrendyphone.co.uk
[music]
Music
Speaker Change: Good afternoon, everyone. Welcome to Cross-Country Healthcare's Earnings Conference Call for the 3rd Quarter 2024.
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, I will open the lines for questions. I would now like to turn the call over to Josh Vogel, Cross-Country Healthcare's Vice President of Investor Relations. Thank you and please go ahead, sir.
Josh Vogel: Thank you and good afternoon everyone. I'm joined today by our President and Chief Executive Officer John Martins, as well as Bill Burns, our Chief Financial Officer, and Mark Kroon, Group President of Delivery.
Josh Vogel: Today's call will include a discussion of our financial results for the third quarter of 2024, as well as our outlook for the fourth quarter.
A copy of our earnings press release is available on our website at CrossCountry.com
Josh Vogel: Please note that certain statements made on this call may constitute forward-looking statements.
Josh Vogel: These statements reflect the company's beliefs based upon information currently available to it.
Josh Vogel: As noted in our press release, forward-looking statements can vary materially from actual results and are subject to known and unknown risks, uncertainties, and other factors, including those contained in the company's 2023 annual report on Form 10-K and quarterly reports on Form 10-Q, as well as other filings with the SEC.
Josh Vogel: The company does not intend to update guidance or any of its forward-looking statements prior to the next earnings release.
Additionally, we reference 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.
Josh Vogel: More information related to these non-GAAP financial measures is contained in our press release. With that, I will now turn the call over to our Chief Executive Officer, John Martins.
John Martins: Thanks Josh and thank you everyone for joining us this afternoon. As you can see in today's press release, our third quarter 2024 revenue and adjusted EBITDA were within our guidance ranges, with revenue at the high end and virtually all lines of business performing in line or better than we anticipated.
Josh Vogel: We are operating in a highly competitive market for both clients and canopies.
Josh Vogel: especially within travel nurse and our
Josh Vogel: Competitors both large and small continue to offer relatively high compensation packages to attract candidates which pressures our bill pay spread and is limiting our ability to normalize our gross margin in the near term.
Josh Vogel: Nonetheless, we remain very well positioned for sustained, long-term profitable growth given the strength of our current relationships and the momentum we are seeing across the rest of our portfolio, notably in home care, physician staffing, and education.
Josh Vogel: Overall, I believe the market is growing closer to an inflection point for our travel nurse and allied business, even with the challenges around bill and pay rates.
Josh Vogel: Throughout the third quarter, travel demand was fairly steady, and stable bill rates across all core specialties.
Josh Vogel: Coming into the fourth quarter, orders are up roughly 20% over the third quarter. And though order count does not necessarily correlate with production for a variety of reasons, it is encouraging nonetheless.
Josh Vogel: As the market continues to firm up, and with our recent MSP wins, I am increasingly confident that we are approaching an inflection point in regrowing professionals on assignments.
Josh Vogel: I'd like to highlight some positive trends and recent events across our other businesses.
Josh Vogel: Of note, home care staffing has continued its steady growth, up 13% year-over-year in the third quarter.
Josh Vogel: As highlighted on our last poll, we acquired the business in 2021 and have since doubled the number of PACE programs nationwide while more than tripling the number of locations we serve.
Josh Vogel: In the back half of this year alone, we have approximately two dozen contracts in various stages of the sales cycle. We expect this business to be up again in the mid-teens year-over-year in the fourth quarter.
Josh Vogel: Overall, there is a robust pipeline of opportunity for home care staffing as more and more individuals want to age in place at home. We will continue to invest here as we foresee this business remaining one of our strongest performers in 2025 and longer term.
Josh Vogel: Shifting gears, our physician staffing, or Wilkins business, has continued to grow up 4% sequentially and 10% year-over-year.
Josh Vogel: If you recall, we made two acquisitions in late 2022, which swiftly increased our scale.
Josh Vogel: Including those deals, our physician staffing business has gone from approximately $100 million dollars in full year 2022 to an annual run rate of more than $200 million dollars in the most recent quarter.
Josh Vogel: Macro conditions for locums remain strong. In fact, we are expecting to see low to mid single-digit sequential revenue growth for the business in the fourth quarter, which bucks the seasonal trend we typically see coming out of the stronger summer months.
Josh Vogel: For 2024, our physician staffing business is forecasted to be up in the low double digits year over year, driven by continued growth in billable days and higher revenue per day filled.
Josh Vogel: This segment's contribution income also continues to improve.
Josh Vogel: up 15% sequentially and 80% year-over-year due to improved operating leverage from the volume growth, as well as proactive cost management. With our focus on expanding higher margin specialties, we expect these trends will continue in 2025.
Josh Vogel: Lastly, our education business is performing well, approaching $100 million on an annualized runway. We expect continued mid to high single-digit growth for the foreseeable future in this line of business.
Josh Vogel: This market is another top area of focus for us as we look to expand the business both organically and through potential M&A.
Josh Vogel: On an annualized basis, these three businesses now represent approximately 30% of our total revenue, up from roughly 10% at the end of 2021.
Josh Vogel: Even when the traditional nurse and allied market resumes a growth trajectory, we expect to continue seeing improved diversification as these assets become larger pieces of the revenue pie.
Josh Vogel: Turning to our technology, we continue to believe IntelliFi is a differentiator in the market that will propel our spend under management with new MSP and vendor-neutral clients.
Josh Vogel: During the third quarter, we renewed our largest MSD customer under a multi-year agreement and have since gone live on Intellify with that customer.
Josh Vogel: Our ability to secure this renewal is a testament to our team and their commitment to fostering strong long-term partnerships and delivering exceptional value.
Josh Vogel: By the end of this year, we expect 100% of our clients will be fully converted and running on our IntelliPi platform.
Josh Vogel: With the client wins we called out in the previous quarters and a strong pipeline of opportunity exiting this year, we anticipate the spend under management running through IntelliFi will continue to climb in 2025.
Josh Vogel: Now, turning to our outlook, we anticipate work quarter revenue will be between $300 and $310 million, which is largely consistent with the third quarter performance, excluding a small labor disruption.
Josh Vogel: Our forecast reflects signs of increased stability in travel, steady bill rates, and ongoing traction in the other lines of business that I highlighted moments ago.
Josh Vogel: Adjusted EBITDA is expected to come in at $11 to $13 million, largely reflecting the gross margin pressures I cited, partly offset by expected savings for further cost actions we undertook at the start of the quarter.
Josh Vogel: As stated on prior calls, our goal remains to achieve a high single-digit adjusted EBITDA margin, but we still expect mid-single digits in the near term as we ensure we have sufficient capacity in place to grow once the travel market inflects.
Josh Vogel: We expect to close out 2024 on a high note, with the company positioned for sequential revenue growth and sustained margin improvement in 2025. Additionally, we are focused on creating greater shareholder value by leveraging our strong balance sheet and putting capital to work.
Josh Vogel: As you saw in today's press release, we bought back 800,000 shares in the third quarter for about $12 million.
Josh Vogel: We also continue to invest in technology, notably on our client and candidate facing tools, as well as our ERP system.
Josh Vogel: Lastly, we are being very diligent when exploring eminent opportunities, especially for assets that could expand our portfolio and reach within markets where we see the strongest runways for growth.
Josh Vogel: With our debt-free balance sheet, the Strategic Appointment of Capital remains a primary focus, and I look forward to sharing with you our progress on future goals.
Josh Vogel: In closing, I am increasingly confident that we are nearing an inflection point in travel. Coupled with the momentum in our other lines of business, we have a solid foundation in place for growth and improved profitability as we head into 2025.
Josh Vogel: Of course, none of this is possible without our hard-working employees. I want to thank you for your steadfast commitment to making this country one of the best places to work.
Josh Vogel: In fact, last quarter we won several Most Loved Workplace Awards, and it always humbles me that you have such a deep pool of talent that has made Crest Country their employer destination of choice.
Josh Vogel: I also want to thank all of our health care professionals for your continued dedication and contributions, as well as our shareholders for believing in the company. With that, let me turn the call over to Bill.
Bill Burns: Thanks, John, and good afternoon everyone. As highlighted in our press release, performance for the third quarter was in line with expectations, with revenue near the high end of our guidance range, including a small contribution from a labor disruption.
Bill Burns: Consolidated revenue for the third quarter of 315 million dollars was down 7% sequentially and 29% over the prior year, driven primarily by the expected declines in travel nurse and ally. I'll get into more details on the segment in just a few minutes.
Josh Vogel: Gross profit for the quarter was $64 million, which represented a gross margin of 20.4%. Gross margin was down 40 basis points sequentially and 160 basis points over the prior year, primarily as a result of bill pay spread compression in our travel business.
Josh Vogel: The year-over-year margin compression also reflects the impact from higher burdens such as health and workers' comp within nursing allies.
Josh Vogel: Specific to the bill pay spread and travel, it's worth noting that overall pay rates continue to decline faster than bill rates, but the cost of housing and benefits continues to mask that trend.
Josh Vogel: Moving down the income statement, selling general and administrative expense was $54 million, down 10% sequentially and 22% over the prior year.
Josh Vogel: The majority of the decrease relates to lower salary and benefit costs associated with the reductions in headcount taken since early 2023, as well as deficiencies realized from the ongoing leverage of certain operational and middle office processes in our offshore location.
Josh Vogel: As previously mentioned, we've been proactive in managing our costs in order to align with the broader market while preserving capacity and funding investments in parts of the business where we're seeing opportunities for organic growth. Coming into the fourth quarter, we reduced our investment in headcount by another 4%, which will drive approximately $2 million per quarter in savings.
Josh Vogel: As a percent of revenue, SG&A was 17% for the quarter, down approximately 50 basis points sequentially. Adjusted EBITDA of $10 million for the quarter represented a margin of 3.3%, reflecting the decline in operating leverage from lower revenue and the gross margin pressure.
Josh Vogel: Heading into the fourth quarter, we believe that our adjusted even to margin will be closer to 4% as we continue to manage costs and as our higher margin education business benefits from the return to school.
Josh Vogel: Interest expense was $550,000 related primarily to the carrying costs for our AVL and fees related to outstanding letters of credit.
Josh Vogel: Given our significant cash position, we recognize nearly a million dollars in interest income in the quarter and expect similar interest income again for the fourth quarter depending on capital allocation decisions. I'll go into more detail in just a few minutes.
Josh Vogel: And finally, on the income statement, income tax expense was $800,000 net of industry items recognized in the quarter, representing an effective tax rate of 24.6%.
Josh Vogel: Our overall performance resulted in adjusted earnings per share of 12 cents, which was at the high end of the guidance range, primarily as a result of several factors including lower stock compensation, the impact from discrete tax benefits, as well as fewer shares outstanding.
Josh Vogel: Turning to the segments, Nurse Now has reported revenue of 265 million dollars, down 9% sequentially and 33% from the prior year.
Josh Vogel: Travel, our largest business for the nurse and allied, was down 11% sequentially and 41% from the prior year, driven primarily by a decline in professionals on assignment and, to a lesser extent, a normalization in bill rates.
Speaker Change: As John highlighted, the travel staffing market continues to show signs of nearing an inflection, with orders rising again as we enter the fourth quarter and open order rates remaining stable.
Josh Vogel: Our local or per diem business reported better than expected results as a result of the labor disruption that we mentioned a moment ago.
Josh Vogel: Similar to travel, our local business has been impacted by the broader market softness, though it continues to stabilize with billable hours declining at a slower pace than we've experienced in prior quarters.
Josh Vogel: Also with the nursing allied, our home care staffing business was up 4% sequentially and 13% over the prior year. Fueled by a number of recent PACE program wins, we believe this business is poised for continued organic growth.
Josh Vogel: Education was down 6% from the prior year and 37% sequentially due solely to the timing of school calendars.
Josh Vogel: Finally, physician staffing reported 50 million dollars in revenue, which was up 10% over the prior year and 4% sequentially.
Josh Vogel: billable days were up 1% sequentially and 6% over the prior year with price in favorable links accounting for the rest of the increases.
Josh Vogel: Turning to the balance sheet, we ended the third quarter with $64 million in cash and no outstanding debt. With the help of our balance sheet and strong cash flow, we remain well positioned to fund growth initiatives and execute on our capital allocation strategy.
Josh Vogel: Before turning to cash flows, I just want to note that you'll see a small non-cash correction to the 2023 balance sheet contained in the press release.
Josh Vogel: During the quarter, we discovered that a revenue elimination entry was not recorded in prior years, prior to 2023, and as a result, a liability was understated. As I said, this was a non-cash event and had no effect on clients, contractors, or clinicians.
Josh Vogel: From a cash flow perspective, we generated $7.5 million in cash from operations during the quarter and $96 million for the nine months.
Josh Vogel: Our DSO this quarter was 61 days in line with our stated goal of 60 days.
Josh Vogel: One other comment on cash flow from operations I'd like to make is that given the new ERP system we are implementing is cloud-based, the majority of the capitalized costs are treated as an outflow on cash from operations. Excluding the ERP project, cash flow from operations would have been approximately $10 million for this quarter.
Josh Vogel: Cash used in investing activities was 1 million dollars.
Josh Vogel: primarily reflecting capitalized technology investments to expand functionalities and features for IntelliFi.
Josh Vogel: Cash used in financing activities included the repurchase of more than 800,000 shares at an aggregate cost of $12 million.
Josh Vogel: With the decline in our receivables, we have a borrowing base of approximately $150 million under our $300 million ABL. And though we will purchase some shares under our 10B51 plan in the fourth quarter, we'll likely seek to preserve the bulk of our available cash to fund strategic investments.
Josh Vogel: And this brings me to our outlook for the fourth quarter. We're guiding to revenue of between $300 million and $310 million, representing a sequential decline of 2% to 5%.
Josh Vogel: This range reflects the labor disruption in the third quarter that is not expected to recur as well as the return to school impact from our education business. The travel and local businesses are expected to see low to mid-single-digit declines in billable hours and a modest improvement in bill rates.
Josh Vogel: We're diving to an adjusted EBITDA range of between $11 and $13 million, representing an adjusted EBITDA margin of approximately 4%.
Josh Vogel: Adjusted earnings per share is expected to be between 10 and 14 cents based on an average share count of approximately 32.4 million shares.
Josh Vogel: Also assumed in our guidance is a gross margin of 21%, net interest income of $300,000, depreciation and amortization of $5 million, stock-based compensation of $1.4 million, and a tax provision of approximately $2 million.
Josh Vogel: And that concludes our prepared remarks and we'd now like to open the lines for questions. Operator?
Speaker Change: Yes, the phone lines are now open for questions. If you would like to ask a question over the phone, please press star 1 and record your name. To withdraw your question, press star 2.
Speaker Change: The first question in the queue is from Trevor Romeo with William Blair. Your line is now open.
Trevor Romeo: Hi, good afternoon. Thanks so much for taking the questions. First one, I just kind of wanted to unpack the Q4 revenue guidance a little bit. I think, Bill, you had a few comments a minute ago, but they were a little fast, so I just wanted to make sure we heard everything there. It sounds like you'll have a pickup in the education business coming out of the summer break.
Trevor Romeo: You also expect the strong non-travel businesses to, you know, those trends to continue. It sounds like there was also a small labor disruption. I'm not sure if you called out the dollar amount.
Trevor Romeo: But could we kind of just drill down, I guess, on the sequential trend you're expecting in sort of the core travel business, and then any thoughts that you kind of have on what Q1 could maybe look like based on the current demand would be super helpful as well.
Trevor Romeo: Yeah, sure, Trevor. This is Bill. Thanks for the question. Look, with regards to the fourth quarter, I guess...
Trevor Romeo: impact. So when you when you strip that out, you know, the revenue for the fourth quarter would be going down sequentially.
Trevor Romeo: Implicit in the guidance when you take out the labor disruption is that our travel business goes down low, mid, single digits, sequentially, almost entirely on volume.
Trevor Romeo: But that's going to be almost entirely offset by the return to the school business, which will be up nearly 70% sequentially. So it's a pretty big step up, as you might imagine, as they go back into session.
Trevor Romeo: The other businesses are expected to do fairly well as well, with home care up in the low to mid-single digits sequentially and local tenants similarly up low-mid-single digits sequentially.
Trevor Romeo: And I really am not going to give any kind of comment to the first quarter at this point. It's a little too far out to say.
Trevor Romeo: You know, I think you heard in the prepared remarks that we are encouraged, you know, that that demand continues to inch forward. It's not off to the races, but it is certainly in a better place than even at the start of the quarter. It's still moving in the right direction. Bill rates have remained stable.
Trevor Romeo: It so much depends on the quality of the orders, so even though orders are up, it doesn't always translate to production, as you can imagine. There's usually a basket of orders that just don't have the market rates to attract the clinicians.
Speaker Change: Yep, yep. Okay, thanks Bill. That was really helpful.
Speaker Change: And then I guess a follow-up on on gross margins, I guess, you know again, I think this quarter was a bit below your guidance coming in and you talked about
Speaker Change: several comments I think in the prepared remarks about competitive behaviors and such but I guess what what do you think at this point the Industry needs to see for some of that pressure to you know abate going forward Do you think a demand inflection would be enough? Do you think the industry kind of needs to consolidate or or something else any thoughts there would be really helpful. Thanks
Trevor Romeo: Sure, Trevor. It's Bill again. I'll start and I'm sure John will have some comments. Look, I mean, almost the entire margin pressure that we experienced sequentially in Q3 versus Q4 was in the pay bill housing spread, and it was predominantly in our travel business.
Trevor Romeo: As I said, the market's hyper-competitive, the bill rates are stable.
Trevor Romeo: So what we're seeing now is just pressure on the compensation side, so that's put a little bit more pressure on the gross margin for us. As to, you know, how that evens out over time, I mean, maybe, John, you've got some color. Sure, Trevor. It's John.
John Martins: and really I think what we're seeing, and we've been talking about this for several quarters, but
Trevor Romeo: There is this
Trevor Romeo: where the hospitals are looking at a certain bill rate and sometimes that bill rate is not the market rate we need.
Trevor Romeo: to where the clinician is looking at what their pay expectation is, which is a little bit higher, right? So there's this little chasm in between, or this gap.
Trevor Romeo: that is closing right but it's still not there so when that gap closes and the pay expectations of the clinicians come down a little bit and potentially we're seeing you know the bill rates come up on some of those orders that are
Trevor Romeo: Harder to fill because they're not at market. We'll see that and I think we'll see that as we see Census increase as we see the flu season hitting a little bit now. We'll start to see that chasm close
Speaker Change: All right, thank you both very much.
Speaker Change: The next question in the queue is from Toby Summer with Truist Securities. Your line is open.
Speaker Change: Hey guys, this is Jasper Vibon for Tobii. Thanks for taking our questions. I just want to ask there was a comment about orders up 20% Supposedly in the fourth quarter. I think it was I mean do you think
Speaker Change: that's coming in at bill rates sufficient to attract supply at this point or just any overall comments on the quality of orders because I know there's a bit of a lag there but it sounds like FTEs are going to be down sequentially in 4Q so maybe not translating into a big bump in volumes near-term it seems like.
Speaker Change: That's the way to look at it, and when you look at the orders that we're receiving.
Speaker Change: Over 50% of our orders are directionally over 50%.
Speaker Change: are not at that right market bill rate. And so while we're still getting some more orders, it's not really translating on a one-to-one that you're seeing that go. But it is an encouraging sign because what we've seen happen before is these step-up orders since actually April when we were at our low.
Speaker Change: It takes a little while for the orders to step up, and then once the orders step up and even though the bill rates aren't at the market rate, eventually the bill rate will step up or the clinician's expectation will go down a little bit. So we do anticipate...
Speaker Change: These two, again, come to an inflection point between the acceptable pay rate for the clinician and the bill rate coming together.
Speaker Change: over the next, you know, over the next, say, month or two.
Speaker Change: Thank you.
Speaker Change: Got it. And then just to clarify, what did you say Bill Ritzer doing sequentially into the fourth quarter that was captured in the guide? Maybe I missed that. And do you have a pair of remarks there to answer for Trevor's first question?
Speaker Change: Sure, Josh, this is Bill. I think the travel rates are about flat, maybe down plus or minus 1%. There's not a lot of movement going on on the bill rate side.
Speaker Change: Thank you for taking the questions.
Speaker Change: Sure.
Speaker Change: The next question in the queue is from A.J. Rice with UBS. Your line is open.
A.J. Rice: Thank you.
A.J. Rice: Hi everybody, maybe just a few questions here. The pickup and order is 20% and what you're guiding for, you know, we're always wondering in the fourth and first quarter
A.J. Rice: Are there seasonal orders that are impacting that or is that pretty much behind us at this point? And this is really sort of the underlying trend that we could base off of as we project out for where the industry's at and where it's likely to grow.
A.J. Rice: Well, you know what, AJ, this is John. I would say, you know, when we talk about seasonal needs, I think
A.J. Rice: It's going to change over time.
A.J. Rice: When we used to discuss seasonal needs, those were orders that were out three to six months.
Speaker Change: months and they'd go out there. I think now we're becoming more just in time.
Speaker Change: Seasonal needs because we've seen flu the flu cases rise across the country
Speaker Change: but we're also seeing a broad base of increases in all modalities. I'll have Mark Ruth give a little bit more color on the different modalities we're seeing but right now I would say
Speaker Change: To answer your question, is this the base?
Speaker Change: It's close to where we think we're going, but there is some seasonal flu
Speaker Change: specialties that are built in here. But Mark, want to get a little closer to that? Sure. Hi, it's Mark AJ. To John's point, in Allied, we have seen respiratory perk up a little bit, but imaging and rehab have also grown over these last few months.
Speaker Change: indicating it's a little broader, for travel, nursing.
Speaker Change: What's really worth noting is, and I don't remember seeing this, we are seeing an increase.
Speaker Change: in almost every specialty from med-surg, tele, ICU, OR, ER, L&D, and PEDS. So, it's not really seasonal demand which is driving the increase, it's pretty broad-based.
Speaker Change: Okay, and I think in the prayer remarks you said going into the fourth quarter you probably step back a little bit from sharing purses and look to deploy capital strategically. Is that
Speaker Change: Do you think you've got some deals front burner? Is that what we should take those comments to imply or is there More strategic investments in the business that you're doing internal internally
Speaker Change: Yeah, it's a combination, I would say, of...
Speaker Change: looking where the market's at. We believe there'll be a little fourth year M&A market moving forward. We want to make sure we're prepared.
Speaker Change: to be ready and to have that dry powder, if you will, to go out and look at those deals.
Speaker Change: Of course, we'll always be opportunistic on shared purchases out there. And then, of course, just continuing investment in our technologies. We always talk about technology for us is so important from our clinician side to our client side and, of course, our ERP project that we have underway as well. And that really creates a lot of operational efficiencies for our organization, which at the end of the day will help us become more optimized and really help lower our SG&A. So to answer your question, yes, it's all three of those, but we'll be opportunistic with share repurchases. We think M&A will get throughout the year as we move forward, and we'll invest in ourselves, especially on the technology side.
Speaker Change: Okay if I could squeeze one more in on the
Speaker Change: Thank you. Thank you.
Speaker Change: home health care staffing.
Speaker Change: Hi AJ, this is Bill. Well, I think we've said it before, the home health staffing business for us is run rating over a hundred million dollars and in fact, you know, it's making progress.
Speaker Change: with each passing quarter so as we look at like where we closed out for the third quarter and implied guidance for the fourth quarter it'll start to get closer to being you know 110 to 120 kind of million hundred million dollar run rate
Speaker Change: And as far as margin profile goes, the gross margins are a little bit above our, certainly above the consolidated average and, you know, probably one of our better businesses, maybe a little bit below our education businesses, but still a very healthy margin for us.
Speaker Change: Okay, thanks, interesting.
Speaker Change: And the next question in the queue comes from Bill Sutterland with the Benchmark Company. Your line is open.
Bill Sutterland: Hey everybody. I wanted to just get a little more color on MSPs if we could, kind of where you stand with the dollar value under management, the net growth that you saw in contracts, and where your capture rate's coming in. Thanks.
Bill Sutterland: Sure, so on the MSP front Bill, oh this is John by the way, for spender and management
Bill Sutterland: between $650 to $700 million. In fact, we just this week signed another small Intelify vendor management system that will be going live in the next 30 days, actually. We'll have a quick implementation on that one. But we're definitely seeing a
Bill Sutterland: Good, good traction from a pipeline for MSPs and the BMS side. And what we're also seeing, though, it's a little bit of a slower cycle. We've seen, as you recall, when we got through the end of the pandemic,
Bill Sutterland: What we saw was a lot of turnover with hospitals, with VMS and MSPs. Now we're seeing a lot slower down from us. We just announced, in my prepared remarks, that we just signed our largest MSP to a new multi-year deal.
Bill Sutterland: and and what we're seeing now is less
Bill Sutterland: less churn. We have very minimal churn right now and we're seeing deals happen but the deals are taking a little bit longer on the MSP and VMS side and part of that is because the hospitals now are bringing in more stakeholders to make decisions on changing over to new platforms.
Bill Sutterland: and that takes a little bit longer. It used to be one or two stakeholders would be able to make a decision and now a lot of hospitals are seeing four or five or even six stakeholders from different departments within an organization. So the cycle is a little bit longer, but with that said, we have a really big pipeline which we're really excited about.
Speaker Change: Did I miss some of the part of your question?
Speaker Change: Oh, I'm just curious if the capture rate's gone up.
Speaker Change: Actually, the capture rate has gone up. Bill, do you want to cover that? Sure. Hey, Bill. It's Bill. Capture has moved up a little bit as we see the mix of the accounts continue to change. And remember, our spend under management includes...
Bill: our PACE programs, our home care staffing programs where we staffed the PACE programs. So the capture rate there is a bit higher than the overall average, and so as that becomes a bigger part of the mix, we're seeing capture inch forward. I'd say for Q3, our capture was about 73% on that spend that John mentioned.
A.J. Rice: Okay, got it. Hey Bill, on education, did you say that...
Bill Sutterland: The revenue was down year over year.
Bill Sutterland: Yes.
Speaker Change: It's all about the timing of when schools break and when they go back, so it depends how many school days you actually pick up in the third quarter, and that's really all it comes down to. It's a minor difference in the school calendars year over year. It's not a business condition, in fact, I think year over year they'll be up considerably as we move into the fourth quarter.
Speaker Change: Yeah, okay. Just have to look out on a daily basis. Great. Thanks, guys. Appreciate it.
Speaker Change: The next question in the queue is from Konstantin Davidez with Citizens JMP. Your line is open.
Konstantin Davidez: Yeah, thanks for taking the questions. Can you guys just comment a bit? We've had some conflicting industry data points on locums,
Speaker Change: Just wondering if you can expand a bit on what's really underpinning your growth. I think, John, you called out sort of some unusual seasonal strength in the fourth quarter. Just wondering if you can kind of elaborate on that, too.
Speaker Change: Sure, this is John and we're seeing
Speaker Change: A lot of needs.
Speaker Change: Well census is up. We're seeing still a lot of surgeries. We're seeing a lot of anesthesiology needs and CRNA needs a lot of our advanced practice nurse practitioners
Speaker Change: are in high demand and so we're just seeing overall demand pretty high still going into the into the fourth quarter and typically we would have seen
Speaker Change: a really strong summer months.
Speaker Change: especially covering for vacations and time off.
Speaker Change: Again, with locums, they are revenue generators for the hospitals and health care systems. And so there is still that demand that still has not been caught up, and that's really primarily what's driving this demand moving forward. And Constantine, I'll just give you some more color on that. I think as you look at the third quarter performance,
Speaker Change: We were up roughly 10% year-over-year in locums and about 60% of that growth was on volume and the other 40% was a mix of bill rates and mix of business because as you grow in the physician's specialties, they have a higher average bill rate than say, you know, the advanced practitioners like a nurse practitioner might.
Speaker Change: Great, that's good color, and I guess, what's a reasonable kind of margin target, contribution margin target for that?
Speaker Change: segment just sounds like you're expecting the strength to continue in the fourth quarter and I know you're benefiting from some of the offshoring initiatives but is that pretty scalable or do you think you have to sort of add additional resources to continue to drive growth there next year?
Speaker Change: I think there might be two questions in there I'll try to take the first one the margin profile is it's higher than our consolidated average but not by a lot maybe a couple hundred basis points you know John I don't know if you want to comment about the capacity in the business for growth. We have the capacity in the business for growth and really what you're looking at
Speaker Change: your capacity.
Speaker Change: How how much?
Speaker Change: How much capacity each person has? How many orders do we have? Our producers, how much can they handle? And then what we'll do is
Speaker Change: We'll look at that formula and then hire based upon that.
Speaker Change: But what we want to do is we don't want to leave anything on the table. So what we'll do is we'll look, we'll see where capacity could potentially max out, and then start hiring proactively, which we consistently do.
Speaker Change: Thank you for watching!
Speaker Change: Thank you.
Speaker Change: And the final question in the queue is from Jack Flevin with Jefferies. Your line is open.
Jack Flevin: Hey, thanks guys for taking the question. Most of mine already asked, just want to throw one in. It's sort of similar to some prior stuff, but maybe just picking up on...
Speaker Change: the strength and orders that you've seen this quarter and that was their last quarter, but sort of that dissonance between that strength and where volumes are ending up. I guess if you look out a little more broadly,
Jack Flevin: and the order strength continues.
Speaker Change: Do you feel like...
Speaker Change: it's something possible where we would see a persistence in that gap between where orders are and where volumes are, or like those would have to sort of.
Speaker Change: come together eventually if we see order growth continue over time, just trying to get a sense of if this is something that can wash out or if it's if it's a sort of a signal to the to look at on a little bit of a longer-term basis.
Speaker Change: Eventually, they have to come together because when the healthcare systems are putting out their needs, they have a need for this clinician.
Speaker Change: Over time, they have to make sure that those two meet because they need the bodies in there. Otherwise, if they don't have those bodies, what that will lead to is burnout and fatigue of their core staff.
Speaker Change: or even you know diverting patients that don't have the number of clinicians they need. So over time this really has to come closer together between the open orders and the volumes.
Speaker Change: Okay got it that's helpful and then maybe if I can just squeeze one more in just just looking at it like the buyback ticking up I know the commentary that that would probably
Speaker Change: come down and that you're trying to hold some dry powder for M&A, I guess maybe more from an academic standpoint, how are you thinking about
Speaker Change: you know, stocks off a little bit, buybacks maybe look a little bit more attractive. How are you thinking about the balance of those two things going forward? Or sort of, how much further do we need to see multiples come down in the industry for M&A to sort of be the primary target?
Bill: Sure, this is Bill again. So I would say a couple things. First, on the share repurchase, we've got authorization for a little over $40 million, I believe, as of September on the share buyback side. So we've got some room to go there, you know, without having to go back to the board for any approvals. The 10B51 that we mentioned will trade, you know, on its own in certain conditions in the market I'm at. And I guess the main reason I was highlighting that we would see, you know, hold on to cash in the fourth quarter is
Bill: We did do a bit more of a buyback in the third quarter and so wanted to make sure that, you know, it wasn't signaling that we'll see a repeat of that in the fourth quarter, but also, as you can imagine, as our receivables get converted, it means there's a little bit less availability on the ABL. So we want to make sure that we have the firepower to do all the things that John mentioned earlier.
Bill: But it still means, it doesn't mean we won't be opportunistic. It's just, you know, we want to balance that and have optionality.
Speaker Change: Okay, got it. That's helpful. Appreciate it guys.
Speaker Change: Ladies and gentlemen, this does conclude the Q and A period. I'll now turn it back over to John Martins for closing remarks.
John Martins: Thank you operator. 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 the next call.
Speaker Change: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation. You may now disconnect.
