Good afternoon, everyone. Welcome to Cross Country Healthcare's Earnings Conference Call for the Third 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.

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 Marc Krug, Group President of Delivery. 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. 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. 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 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. 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. More information related to these non-GAAP financial measures is contained in our press release. With that, I would now like to turn the call over to our Chief Executive Officer, 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. We are operating in a highly competitive market for both clients and Country, especially within Travel, Nurse and Allied. 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. 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. 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 throughout the third quarter, travel demand was fairly steady and stable bill rates across all core specialists 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. As the market continues to firm up and with our recent MSP wins, I'm increasingly confident that we are approaching an inflection point in regrowing professionals on asylum. I'd like to highlight some positive trends and recent events across our other businesses. Of note, home care staffing has continued its steady growth, up 13% year-over-year in the third quarter. As highlighted on our last call, we acquired the business in 2021 and has since doubled the number…

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. Consolidated revenue for the third quarter of $315 million was down 7% sequentially and 29% over the prior year, driven primarily by the expected declines in Travel, Nurse and Allied. I'll get into more details on the segments in just a few minutes. 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. Year-over-year, margin compression also reflects the impact from higher burdens such as health and workers comp within nurse and ally. 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. Moving down the income statement selling general and administrative expense was $54 million, down 10% sequentially and 22% over the prior year. 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 efficiencies realized from the ongoing leverage of certain operational and middle office processes in our offshore location. 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…

[Operator Instructions] The first question in the queue is from Trevor Romeo with William Blair. Your line is now open.

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 just wanted to make sure we heard everything there. Sounds like you'll have a pickup in the education business coming out of the summer break. You also expect the strong non-travel businesses, those trends to continue. It sounds like there was also a small labor disruption. I'm not sure if you call that the dollar amount, but could we just drill down I guess on the sequential trend you're expecting in the core travel business. And then any thoughts that you have on what Q1, could maybe look like based on the current demand would be super helpful as well?

Yes, sure. Trevor, this is Bill. Thanks for the question. Look, with regards to the fourth quarter, I guess the main reason for the sequential step down is the labor disruption that we mentioned. We didn't give out a specific number, but it's in the single millions. I'll say it's ranging between $5 million and $10 million. It's probably closer to $5 million or $6 million in terms of revenue impact. So when you, when you strip that out, the revenue for the fourth quarter would be going down sequentially. 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, 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. The other businesses are expected to do fairly well, as well as well with home care up in the low to mid-single-digits sequentially and low contendants similarly the up low mid-single-digits sequentially.

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. But I think you heard in the prepared remarks that we are encouraged about that demand continues to inch forward. It's not off to the races, but it's 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 but 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 a. There's usually a basket of orders that just don't have the market rates, to attract the clinicians.

Yes, yes. Okay, thanks Bill. That was really helpful. And then I guess a follow-up on gross margins. I guess again I think this quarter was a bit below your guidance coming in. You talked about several comments I think in the prepared remarks about competitive behaviors and such. But I guess what do you think at this point the industry needs to see for some of that pressure, to abate going forward? Do you think a demand inflection would be enough? Do you think the industry kind of needs to consolidate, or something else? Any thoughts there would be really helpful? Thanks.

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. As I said, the market's hyper competitive, the bill rates are stable. 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 how that evens out over time. I mean maybe John, you got some color.

Sure, Trevor, it's John. And really I think what we're seeing, and we've been talking about this for several quarters, but there is this where the hospitals are looking at a certain bill rate and sometimes that bill rate is not the market rate we need, to where the clinician is looking at what their expectation pay expectation is, which is a little bit higher, right. So there's this little chasm in between or this gap 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 the bill rates come up on some of those orders that are 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.

All right, thank you both very much.

The next question in the queue is from Tobey Sommer with Truist Securities. Your line is open.

Hi guys, this is Jasper Bibb on for Tobey. Thanks for taking our questions. I just want to ask, there was a comment about orders up 20% sequentially in the fourth quarter. I think it was. I mean, do you think 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?

Yes, that's the way to look at it. And when you look at the orders that we're receiving, over 50% of our orders, directionally over 50% are not at that rate, 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. But it is an encouraging sign because what we've seen happen before is the step up of orders since actually April when we were at our low. 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 these two again come to an inflection point between the acceptable pay rate for the clinician and the bill rate coming together over the next, you know, over the next month or two.

Got it. And then just to clarify, what do you say bill rates are doing sequentially into the fourth quarter? That was faster than the guide. Maybe I missed that in the prepared remarks or about answer to Trevor's first question?

Sure. Josh, it's 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 in the bill rate side.

Got it. Thank you for taking the questions.

Sure.

The next question in the queue is from A.J. Rice with UBS. Your line is open.

Hi, everybody. Maybe just a few questions here. The pickup in orders 20% and what you're guiding for. You know, we're always wondering in the fourth and first quarter, 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 is at and where it's likely to grow?

Well, you know, A.J. This is John. I would say when we talk about seasonal needs, I think it's going to change over time. When we used to discuss seasonal needs, those were orders that were out three to six months. We started getting them in the summer months and they'd go out there. I think now we're becoming more just in time. And so some of this is partly seasonal needs because we've seen the flu cases rise across the country. But we're also seeing a broad base of increases in all modalities. I'll have Marc Krug give a little bit more color on the different modalities we're seeing. But right now I would say, to answer your question, is this the base? It's close to where we think we're going, but there is some seasonal flu specialties that are built in here. But Marc, want to add a little color to that?

Sure. Hi, it's Marc. A.J. 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, indicating it's a little broader for travel nursing. What's really worth noting is, and I don't remember seeing this, we are seeing an increase 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.

Okay. And I think in the prepared remarks you said going into the fourth quarter, you probably step back a little bit from share repurchases and look to deploy capital strategically. Is that 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 internally?

Yes, it's a combination, I would say, of looking where the market's at. We believe there'll Be a little frothier M&A market moving forward. We want to make sure we're prepared to be ready and to have that dry powder if you will, to go out and look at those deals. Of course we'll always be opportunistic on share 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 fluffier as we move forward, and we'll invest in ourselves, especially on the technology side.

Okay. If I can squeeze one more in on the home health care staffing. I don't know if I've heard you size that. It sounds like that's an area of growth. Can you just give us a little more of a perspective on how big that is, what the underlying growth for home care staffing is and the economic profile of that business? Is it similar to Nursing Allied or does it have other economic dynamics to it?

Hi A.J. this is Bill. Well, I think we've said it before. The home health staffing business for us is run rating over $100 million and in fact it's making progress, with each passing quarter. So as we look at where we closed out for the third quarter, and implied guidance for the fourth quarter, it will start to get closer to being $110 million to $120 million kind of million. $100 million run rate. And as far as margin profile goes, the gross margins are a little bit above our certainly above the consolidated average and probably one of our better businesses. Maybe a little bit below our education businesses, but still a very healthy margin for us.

Okay, thanks. Interesting.

And the next question in the queue comes from Bill Sutherland with The Benchmark Company. Your line is open.

Thanks and hi everybody. I wanted to just get a little more color on MSPs if we could, where you stand with the dollar value under management, the net growth that you saw in contracts and where your capture rates coming in? Thanks.

Sure. So on the MSP front, Bill, this is John. By the way. Our spending management is between $650 million to $700 million. In fact, we just this week signed another small Intellify 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 good traction from our pipeline for MSPs and the VMS side. And 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, what we saw was a lot of turnover with hospitals with VMS MSPs. And now we're seeing a lot slower down from us. We just announced in my prepared remarks that we just resigned our largest MSP to a new multiyear deal. And what we're seeing now is 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. 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 in 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. Did I miss another part of your question?

I was curious if the capture rate has gone up?

Actually, the capture rate has gone up. Bill, you want to cover that?

Sure. Hi, 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 our PACE programs, our home care staffing programs, where we staff 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.

Okay, got it. Hi, Bill, on education, did you say that the revenue was down year over year?

Yes, we did. 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.

Yes, okay. Just have to look at on a daily basis. Great. Thanks, guys. Appreciate it.

The next question in the queue is from Constantine Davidez with Citizens JMP. Your line is open.

Yes, thanks for taking the questions. Can you guys just comment a bit? We've had some conflicting industry data points on locums and just wondering if you can expand a bit on what's really underpinning growth. And I think, John, you called out sort of some unusual seasonal strength and the fourth quarter. Just wondering if you can kind of elaborate on that, too?

Sure. This is John. And we're seeing a lot of needs. 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 are in high demand. And so, we're just seeing overall demand pretty high still going into the fourth quarter. And typically we would have seen a really strong summer months, especially covering for vacations and time off. And then we would see that dip. But we're not seeing a dip in partly is again with locums. They are revenue generators for the hospitals and healthcare systems. And so. And there is that 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 dispel. I'll just give you some more color on that. I think as you look at the third quarter performance, 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 the advanced practitioners, like a practitioner might.

Great. That's good color. And I guess what's a reasonable kind of margin target contribution margin target for that segment? Just it 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?

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. 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, when you're looking at your capacity, you're measuring it really on a daily basis to see 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 we'll look at that formula and then hire based upon that. But right now we have capacity to continue to grow. 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.

Great, thank you.

And the final question in the queue is from [Jack Flavin] with Jefferies. Your line is open.

Hi, thanks guys for taking the question most of mine already asked. Just want to throw one in. Sort of similar to some prior stuff, but maybe just picking up on the strength in orders that you've seen this quarter and that was there last quarter. But sort of that dissonance between that strength and. And where volumes are ending up. I guess if you look out a little more broadly and the order strength continues, do you feel like, you know, 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 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 sort of a signal to look at on a little bit of a longer term basis?

Eventually they have to come together, because when the healthcare systems are putting out their needs, they have a need for this clinician. And over time, they have to make sure that the 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 or even 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.

Okay, got it. That's helpful. And then maybe if I can just squeeze one more in. Just looking at it like the buyback ticking up, I know the commentary that that would probably come down and that you're trying to hold some dry powder for maximum, I guess, maybe more from an academic standpoint. How are you thinking about stock's 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?

Sure. This is Bill again, so I would say a couple things. First, on the share repurchase, we've got authorization for 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 10B5-1, one that we mentioned will trade on its own in certain conditions in the market are met. And I guess the main reason I was highlighting that we would see hold on to cash in the fourth quarter is we did do a bit more of a buyback in the third quarter and so want to make sure that 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. 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.

Okay, got it. That's helpful. Appreciate it, guys.

Ladies and gentlemen, this does conclude the Q&A period. I'll now turn it back over to John Martins for closing remarks.

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.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation. You may now disconnect.