Good evening, ladies and gentlemen, and welcome to the Cross Country Healthcare Earnings Conference Call for the First Quarter of 2019. This call is being simultaneously webcast live. A replay of this call will also be available until May 15, 2019 and can be accessed either on the company's website or by dialing 800-839-5574 for domestic calls and 203-369-3669 for international calls and by entering the passcode 2019. I will now turn the call over to Bill Burns, Cross Country Healthcare's Chief Financial Officer. Please go ahead, sir.

Thank you, and good afternoon, everyone. I'm joined today by our Chief Executive Officer, Kevin Clark. After our prepared remarks, we will open the lines for questions. Today's call will include a discussion of our financial results for the first quarter of 2019 and our outlook for the second quarter of 2019 as contained in our press release, a copy of which is available at www.crosscountryhealthcare.com. Before we begin, we need to remind you that certain statements made on this call may constitute forward-looking statements. 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 2018 annual report on Form 10-K and quarterly reports on Form 10-Q, as well as in other filings with the SEC. The company undertakes no obligation to update any of its forward-looking statements. Also, comments made during this teleconference reference non-GAAP financial measures such as adjusted EBITDA and adjusted earnings per share. Such non-GAAP financial measures are provided as additional information and should not be considered substitutes for or superior to financial measures calculated in accordance with U.S. GAAP. More information related to these non-GAAP financial measures is contained in our press release. Lastly, in order to facilitate a better understanding of underlying trends, we may refer to pro forma information on this call, giving effect to acquisitions and divestitures as though the transactions had occurred at the start of the periods impacted. With that, I will now turn the call over to our Chief Executive Officer, Kevin Clark.

Thank you, Bill, and thank you to everyone for joining us this afternoon. Let me first start by giving you an update on my first 100 days since rejoining Cross Country in January as I've spent a great deal of time meeting with many of our customers and with our teams. The feedback has been both insightful and inspiring, which has not only helped to continue to evolve our longer-term vision for the company, but has reinforced our market leadership position with both breadth and depth of services, as well as the strength of our clinical reputation for excellence. It is also apparent that our market position as the number one solutions provider for per diem services with the largest branch network in the industry is a compelling value proposition to health systems as they appreciate our local market presence and responsiveness. As I mentioned on the last call, I would also be spending my first 100 days working with the leadership and our board to lay out a strategic framework for the company over the next 5 years. For obvious competitive reasons, I can't share all the details, but the major tenets include evolving our go-to-market approach and our culture and the infusion of technology throughout the organization. Changing the go-to-market approach is really about becoming a technology driven total talent management solutions provider. Today, Cross Country has an excellent foundation as a full-service healthcare staffing company and leading provider of managed services programs and we plan to build on that by expanding our solutions offerings to deliver even more value to our clients. Evolving our culture is critical to our success and has required a reset at Cross Country. By emphasizing core values, such as being innovative, being accountable and focusing on execution, I am already seeing progress…

Thanks, Kevin. Let's start with revenue. Our consolidated revenue of $195.2 million was at the lower end of our guidance range and represented a 7% decline over the prior year, due primarily to lower volumes across most of our businesses. Nurse and allied revenue was $176.1 million, representing a 5% decline over the prior year, which was slightly below our expectations. The primary reason for the year-over-year decline was due to fewer billable hours in both travel and local staffing, which was partially offset by continued double digit growth in our travel, allied and education businesses. Our local branch business was impacted by several office closures in February and March due to weather related events. And given the nature of the branch business, there should be no continuing impact on our second quarter performance. Overall, pricing remained stable with bill rates up just slightly due to mix. Physician staffing revenue was $16.2 million, down $5.4 million versus the prior year, due predominantly to fewer days filled in the quarter. As we work on stabilizing this business, we continue to make investments in additional revenue producers and we are working on a number of initiatives to regain momentum and market share. Gross profit margin for the quarter was 24.7%, just above the high end of our guidance range as healthcare costs were slightly below our forecast. Sequentially, gross margin declined 50 basis points predominantly due to the annual payroll tax reset. And on a year-over-year basis, gross margin was down 70 basis points, due predominantly to lower bill pay spreads. Total SG&A was $46 million, up 1% over the prior year and 2% sequentially. The main driver for the increase was the impact from costs related to the replacement of our legacy applicant tracking system for our travel nurse business. Excluding…

Thank you. [Operator Instructions] Our first question is coming from the line of A.J. Rice from Credit Suisse. Your line is now open.

Thanks. Hi, everybody. Maybe just a couple of quick questions. First of all, the locum tenens business continues to be challenging. It's not just challenging for you, but for others as well. I guess, Kevin, I'd be interested to know what your sort of assessment of that business is. Are there some obvious fixes? Is it just in a challenging period that's going to persist for a while? Do you think it's strategic to what you guys are all about?

Yes, thanks, A.J. You know, Q1, the results in Q1 really reflect a drag from 2018. In 2018, the business lost revenue producing employees and it takes time to kind of replace that talent on the bench. Since I’ve got here, we promoted a new President, I have a lot of confidence in Karen Mote. She's got a lot of experience and I've been up there a fair amount of times and we're working on a much stronger sales strategy than I think was in place. We're improving our lead conversion. It comes down to, from my perspective, management execution. Because look, the segment is growing. It's growing 3% or 4% a year. We have orders. It's really more about management leadership and execution. So, as I mentioned in my comments earlier, I expect just about all lines of our business to improve sequentially. So, hopefully what we're going to see from here is a march forward.

Okay. And then just in the traditional nurse and allied space, it sounds like you guys are saying the underlying tone of market is pretty solid. I just wanted to maybe try to flesh that out a little bit. I know some of the hospital companies are reporting and labor is doing a little better frankly than maybe it has been for a while, which would suggest maybe not so much pressure there. But I wonder, from your perspective, can you just comment on the underlying strength of the market, the demand and the supply side, and what you're seeing?

Yes, we continue to see rising demand. As reported in the first quarter, demand is up year-over-year. The major drivers in the market aren't changing. Aging demographics, technology, innovation, which is causing disruption. The move to fee for value versus fee for service and really the growth towards ambulatory settings out of the acute care environment. So, kind of the major drivers are all in place. We see a rising demand in our business. From a supply side, I think it's a great story here. We have probably over a million candidates in our database and one of the things that I've worked hard on since I got here was improving our algorithm, which I talked about last quarter as well. And getting those lead conversions moving faster to applicants, to submitted candidates and to hires. And I'm happy to report we're seeing a lot of progress there. So, I'm bullish on the nurse side of the business, expecting to see growth this quarter over Q1. And on the Allied side, the business grew in the first quarter 20%, double digits, continues to have a lot of upside. So, the one thing we can't control right now is these hospital systems are trying to control their costs, they're pushing down. Bill rates are relatively flat, but I do think that there is a lot of opportunity for our company to convert more of what we have and grow this line of business, these lines of businesses.

Okay, one last one and then I'll yield to the next party. Now that you've been there a little while, any thought about potential long-term margin target for the business? I know your predecessor management team talked about 8% target. Any thoughts about where you think the business could go?

Good question. Look, we believe we can expand margins and grow adjusted EBITDA, but I'm not ready to call out a specific target or timing. As I said previously and on this call in our comments, this is a turnaround. We have costs that we can go after. We need to get the consolidated company back to growth and we're working had to get that done. And if so, we think we're going to grow the adjusted EBITDA targets and start marching them up.

Okay, alright. Thanks a lot.

Thank you. The next question is coming from the line of Jason Plagman from Jefferies. Your line is now open.

Hi, guys, good afternoon. Just wondered if there's any early signs of the benefits from your investments in the recruiter headcount and if you're seeing the productivity ramping at the pace you'd expect. And then just also, what is a typical timeframe for a new recruiter to get up to full productivity?

Great question. Look, as I mentioned earlier when I rejoined Cross Country, priority number one is turning around our travel nurse division. Part of that is a continuation of what we were doing in the fourth quarter, which is expanding our revenue producers. And we ratcheted up our talent acquisition around new recruiters, we grew our headcount by 10%, and we're seeing early, very positive signs from our revenue producers, especially going after our MSP contracts and some of our hard to find specialties. So, I'm very encouraged by what I'm seeing and I think that we'll continue to invest in the front end of the business, while still getting some costs out of the model and improving the overall fulfillment capability. That's where our opportunity is greatest. In addition, we have our sales pipeline moving, so very bullish on our ability to get these candidates that we've hired into recruiter positions up and running. It usually, to answer your question, takes between 12 and 24 months to have real, incremental, additive results. But we do a great job training here at Cross Country. We do a great job in our HR department in terms of finding talent. We'll go after folks that are experienced in the market that can help us sooner than later. So, we've got it moving on all cylinders.

That makes sense. Then I know there was some seasonality in the education business for your Q2 outlook. But just an update on how that business has been growing on kind of the annual basis and then your outlook for the longer term, two to three-year growth outlook, for the education business.

It's a wonderful segment for Cross Country. The business is growing 25% to 30% year-over-year. We called out the spring break, the calendar just kind of impacted our results in Q1. But that was just kind of a seasonal hiccup in terms of the way the days fell. But the business is growing double digits. We do business across the country in schools throughout many states. The business that we have in California, Direct Ed, has got a terrific president running it, a real entrepreneur, and we're very excited about it. Just today, our peer AMN announced an acquisition that in some way validates our interest in not just education, but also in the allied services area. We continue to think both education and allied are strong adjacent marketplaces for Cross Country to grow our gross margin and our business over the years to come.

Okay. Thanks for the questions.

Thank you. The next question is coming from the line of Tobey Sommer from SunTrust. Your line is now open.

Thank you. If I look at your near-term margin, how much might the boost in recruiters and kind of revenue generating headcount be dampening today's margin? Because if you're not really growing your revs and you've got to subsidize these people while they ramp, I'm just trying to get a sense for once they are ramped, what kind of margin relief we could have in 12 or 18 months from this kickstart in revenue growth?

Sure, thanks, Tobey, appreciate the question. It's interesting, we've been adding revenue producers since the fourth quarter and into Q1 obviously. The savings actions that we really went after started to kick in late in the quarter. So, we did add some incremental costs to the first quarter beyond what we were able to take out of the business. Those two should start to offset as we get into the second quarter. But I would expect that there's probably $1 million ballpark of investments per quarter in revenue producers that are baked into, part of it baked in Q1 and certainly as we get fully baked into Q2.

Thanks. And then from a strategic plan perspective, Kevin, when might you be in a position to kind of lay out some financial goals for the firm, beyond quarterly guidance. Some sort of goalpost that we can judge, use to measure the performance over time. Understanding you might not want to give us all of the levers or tools you're going to use to achieve it for competitive reasons, but you may be able to reveal more than you have on this call.

Yes, that's a great question, Tobey. The back half of 2019, I think Bill and I will be prepared to kind of speak about the kind of future results and where we see the investments in terms of capital and how that fits within the strategic plan. We continue to work on this cohesive plan that we have around three pillars. Strategic advisory solutions, which is an area I mentioned, to answer your question, because we'd like to diversify more of a revenue into these higher margin segments. I mean margins in Strategic Solutions can be as high as 50% gross margin. So, when you're providing additional offerings around predictive analytics and diagnostics and consultative services, it's a good area of growth. The second pillar is, in terms of our strategic plan, is the search business, which we would also like to diversify more of our revenue into. We have a terrific retained search business in Cejka and we provide other permanent placement and recruitment processing, outsource services, but these are also traditionally higher gross margin services. And so, we would like to diversify more of our revenue towards those type of offerings. The third pillar of course is our contingent staffing solutions and we want to continue to make investments in building out our MSP, VMS and our IRP solutions there around our direct staffing businesses in terms of travel per diem, locums, and other segments like we've talked about on this call such as education. So, as we kind of refine that and we think about the plan and how it rolls out in the marketplace towards the back half of this year, we can be more explicit with where we think we're going in terms of marching up our earnings.

Thanks. This might be, this is my last question. Are you hearing anything from your customers about Medicare for All and what that could mean for your business serving hospital customers? Thanks.

Not really. I think that's the issue of the day. I know that there's been a lot of pressure on publicly traded healthcare stocks as a result of the kind of Bernie Effect. But we notionally have not heard anything around that in terms of our clients and customers.

Thank you very much. I’ll get back in the queue.

Thank you. The next question is coming from the line of Jacob Johnson from Stephens. Your line is now open.

Hi, thanks. Maybe first, just a follow-up on Tobey's question. Kevin, I heard you just talk about diversifying into some different business lines. You've built some companies in your past. Are these things you could build or are they things you probably need to go buy?

Look, one of the things that has been absent at Cross Country in the 25 years I haven't been here is the investment in IP and IT and a lot of infrastructure and things that could be leverageable around building out a more robust technology platform. So, to answer your question, yes, we will definitely be investing in technology. We'll take more of that entrepreneurial viewpoint that all companies are technology companies at the end of the day and we need to own our own source code and so forth. Having said that, the great thing about having a cohesive strategic plan in place, which we spend time with the management team and our board and talking to our customers and so forth, is we feel like we'll have a map and we'll have the roadmap that will give us the arc of the business over the next 5 to 10 years. What we want to do differently going forward is, to look at acquisitions that map into the strategic plan, that bring us something that we need as a company to round out our offering as opposed to just acquire more market share. So, I think M&A is going to be an important part of our future and important part of our strategic plan, but we'll continue to have a kind of steady diet of both investing in our own technology, as well as looking outside the box.

Then, Kevin, in your opening comments, I heard cross selling come up a couple of times. It seems like it's a bit of a focus. Could you just talk about maybe what was lacking on that front previously and then what is the opportunity?

Yes, it's a very good question. A couple of thoughts. One, when I got here at Cross Country, I felt the company was very siloed. So, there was divisions, they'd didn't necessarily relate well to each other, they were separately managed. And that's something I changed right up front. I had revenue report to me, so we kind of changed the organizational structure. So that was kind of point number one. Point number two, I'm very, very excited to bring Steve Seville aboard. Steve and I worked together for I don't know, over 10 years. He's a veteran in the industry, he's a task master, and he's already taken charge in terms of assisting the company in terms of moving our cross-selling opportunities moving forward. And there's a bunch. Because we've got great businesses. These are businesses that are 20, 30 years old that have hundreds and hundreds of customers and contacts, and our ability to leverage the divisions to help cross sell is a big part of our opportunity. Then also, just as we think about the company, what we're doing here on the infrastructure side is we're creating a single unified end-to-end platform to manage our business. And the ability to kind of see through the divisions into the data, to share information is going to be very valuable to that cross selling and Steve will also be running point on that. So, it's a good story for us and we think it's going to be an important one that we'll update investors on as we move forward.

Okay. Then maybe last question for me, as I look at 2Q guidance, it was sort of in line with expectations, but maybe profitability just a bit below where the street was. And I hear you talking about investing in recruiters to drive growth. I mean as we kind of look at the near-term financial results, should we assume that the focus is going to be on getting the topline growing first and then profitability should come?

I think that's a fair assessment to say that. We can't do one without the other. Just cutting costs to drive the bottom line doesn't really help us grow the top line. So, to the earlier question that we received, we are investing quite heavily. Kevin mentioned the 10% recruiters, I mentioned 5% revenue producers across the company. So, we are absolutely going to keep widening the pipe in order to get the volumes going and to get growth on that side of the business. And we'll keep looking after the costs. We increased the cost savings plan from $6 million to $7 million to $7 million to $8 million now, and we keep adding to that list of actions and items that we're able to identify for further efficiencies. So, this year we're still slating to recognize about $5 million of the savings in the calendar year. That could change if we can accelerate some of the actions we've already got teed up, but we're going to keep pushing on that front to offset those investments.

Great. Thanks for taking the questions.

Thank you. The next question is coming from the line of Kevin Steinke from Barrington Research Group. Your line is now open.

Good afternoon. Just following up on the discussion about recruiter headcount, just trying to get a sense as to how much more significantly you feel like you have to invest in growing the recruiter headcount base and how you maybe balance that versus improving the productivity of recruiters. What's the balance here that you're trying to achieve there adding new heads versus increasing productivity?

Yes, Kevin, great question. Really, we want to focus on both. In terms of adding additional recruiters or revenue producers, at this point it will be more of backfilling, turnover, and incrementally top grading the teams that we have. So that would be kind of the way I would view where do we go from here. Unless of course our results are wildly better than they have been, and then we will be more aggressive of course in adding headcount. I think that was one of the fundamental mistakes that Cross Country made in the last couple of years is they cut the team or they didn't backfill when there was natural attrition. And then to your second question in terms of productivity tools, I'm very excited about the applicant tracking software system that we kicked off. We chose the best-in-class ATS system. It's an open platform, it has the largest ecosystem of plugin technologies in the marketplace. It's a system that I've used for 11 years previously, I have a lot of confidence in, it leverages kind of the strength of our organization in terms of being able to bring all this data under one roof together for all of our revenue producers. So, very excited about the tools. We've added tools this year and we've added tools to for instance automating job posting. As jobs get posted within our company, we have that automated technology that posts these positions now in real time. We've added tools around the candidate experience, creating artificially intelligent ways to communicate with our travel nurses and therapists, to stay in touch with them about their next assignment, about their credentials. These are things that we've added. We are also very excited about implementing this quarter, programmatic advertising, technology platform that will help us better manage every dollar we spend as we look to attract a more ready to work supply. So, there is – we are full out – this is an area that we know how to do really well and that's where some of our investment is going right now is making sure that we are not just a modern workforce, but we want to transform Cross Country that by next year, people regard Cross Country as the market innovator. The company that they are looking up to, that has the most current technology, that has the best candidate experience for our nurses and our doctors and the simplest way to do business with us. And that's the vision I have for the company and our management team has and we're very, very excited about that.

Okay. Great, that's helpful. The last call there was some discussion about the headwinds from premium rate business. I don't think you mentioned it on this call, so does that imply that we're starting to move past that? Or it wasn't significant in the quarter? Just any thoughts on that?

Yes, Kevin, I think it's the latter. It wasn't as significant to the quarter in terms of we've been calling that out since the back half of 2017 and we had seen sequential declines on premium rate relative to the mix of orders. So, that's now beginning to wane as a driver for the results. There was some still continued impact from the falloff in premium rates on a year-over-year basis relative to the travel nurse bill rates. When you exclude that, they were kind of flat. So, it should be something that we've now passed at this point and hopefully if demand continues to remain where it is, we'll start to see some price increases. We have not modeled that into our guidance for Q2 in terms of significant price increase or recovery of that premium rate business, we're not seeing it just yet. But again, the environment still remains fairly strong for that demand.

Okay, good. And also, you had talked last quarter about healthcare costs just impacting margins. I mean was that a meaningful factor in the quarter? And what might be the trend in those costs that you're thinking about going forward?

You may have heard me say, we're over the top end of our guidance on gross profit margin largely because healthcare did come in a little bit more favorable to where we were expecting it or the way we had forecasted it to be. We're obviously going to keep monitoring that very carefully. There is seasonality to the way healthcare costs come through, so we're looking to make sure that we're seeing those things in advance and we're not going to hopefully continue to see surprises as we saw in the third and fourth quarters of 2018.

Okay. And then just lastly, did you add any new MSPs in the quarter?

We have our MSP under management ticked up slightly in the first quarter and we have about $70 million that's ramping right now and coming onstream.

Great. Thank you.

Thank you. The last question is coming from the line of Jeff Silber from BMO Capital Markets. Your line is now open.

Hi, guys, good afternoon, or good evening. It's Henry Chien calling for Jeff. I just wanted to follow-up and I think you touched on this briefly, Kevin and Bill, as you took a fresh look at the business, I mean it sounds like the main issue was underinvestment in recruiters and technology. Is that the right way to think about it? I just want to make sure that I guess the issues in the past are kind of clear in terms of what was maybe not done optimally?

Yes. I mean it's broader than that. I would say, what's different today than versus prior years is, I think there's more experienced leadership managing the business. We, as I mentioned earlier on the call, we as a philosophy want to invest in our infrastructure and our technology, including the way we go to market and we want to own that technology. That's going to be central to kind of our strategic plan over the next five years. But I will also tell you that there have been major improvements around the culture of the company. Morale is much stronger than it was previously. We are making significant changes around our brand. We are consolidating from 21 different brands to eight core brands. We're starting the launch of that brand unification in just a few weeks. And then, I would just say getting back to the first comment around experience, we talk about it all the time and it's about understanding the equation or the calculus of the algorithm, how the business works. Managing that lead flow, improving conversions and submitting great candidates. This company has a 33-year track record of clinical excellence. We've built the company on the back of clinicians. We have more clinicians working at Cross Country than any other company and that plays an important role too with all the other changes we're making around adding headcount and culture and brand and technology. But good question, thank you for it.

Got it. That's helpful, thank you. And I guess just in terms of the investments in IT, is your current liquidity sufficient enough to – or I guess how do you plan to – I guess will you plan to raise capital or is the current liquidity sufficient?

Great question as well. So, we obviously did amend our debt facility coming out of Q1, so we have a little bit more headroom now. We had about a full turn of EBITDA left in availability against our revolver which was untapped. So, for now we've got the liquidity that we need in order to run the business, to invest in the IT infrastructure. But of course, as you start to look down the road at the whole myriad of things that you'd like to do from a tech perspective, there will be some that maybe will be a little bit more costs that aren't built in just yet. So, we'll evaluate the cap structure as we go throughout the rest of 2019, but for the time being, we're satisfied where we are.

Okay. Thank you so much.

At this time, speakers, we don't have …

I just wanted to say, that was our last question, Maxine. So, thank you very much. In closing, I want to thank everybody for your time. Bill and I look forward to updating you on the next earnings call on our progress. And I want to just give a shout out to the 4 million nurses as they celebrate National Nurses Week starting May 6 through 12. Thank you for all you do to care for all of us. Thank you, everybody.

Thank you, ladies and gentlemen, for your participation in today's conference. You may now disconnect.