CROSS COUNTRY HEALTHCARE INC Q2 FY2023 earnings call

Management Statement and Operational Highlights

• Financial Performance: Consolidated revenue of $541 million and adjusted EBITDA of $44 million in Q2, above the high end of guidance ranges.
• Technology Initiatives: Successfully redesigning technology landscape with Intellify, migrated nearly half of managed service program to Intellify; launched Xperience app for travel nurses/allied professionals; $30 million investment in technology initiatives planned for the year.
• Segment Growth: Physician staffing up 32% YOY organically, education up 42% YOY; physician business up 105% YOY including acquisitions, education on track to $100M annual run rate.

Segment Performance

• Travel: Revenue down ~16% in Q2, average bill rates declined ~7% sequentially and expected to decline mid to high single-digits in Q3 and Q4; rates on track to settle ~35% above pre-COVID levels by 2024.
• Physician Staffing: Up 32% year-over-year organically and 12% sequentially in Q2, 105% YOY including recent acquisitions, with an annual revenue run rate of over $180 million.
• Education: Up 42% year-over-year, with an annual revenue run rate of ~$100 million.

Guidance

• Third Quarter: Revenue expected between $440 million and $450 million; adjusted EBITDA expected between $27 million and $32 million, margin ~6%-7%.
• Full Year: Revenue above $2.05 billion, adjusted EBITDA margin approximately 8%; SG&A expected to decline mid to high single-digits in Q3.

Risks

• Market Dynamics: Bill rate pressures and gaps in open order rates vs nurse compensation expectations.
• Churn: MSP to vendor neutral churn impacting market share.
• Seasonality: Uncertainties in travel demand recovery and seasonality impacts on business segments.

Question and Answer

Q: Opinion on relationship with MSPs moving forward?

A: MSPs are still vital, but market is moving towards vendor neutral; Cross Country's Intellify positions well in the vendor neutral space, with first vendor neutral contract launched and second in implementation.

Q: Confidence in demand trend visibility?

A: Third quarter expected to be the trough, fourth quarter expected to turn around; bill rates stabilized, and seasonal needs expected to pick up.

Q: Seasonal orders and 4Q outlook?

A: Education rebounds strongly, locums may see sequential growth in 4Q, travel seasonality muted.

Q: MSP churn to vendor neutral?

A: Churn ongoing, Intellify is in early innings but making strides; Cross Country well-positioned with Intellify rollout.

Q: Nurses pay expectation and spread?

A: Bill rates to settle 30%-35% above pre-COVID levels, natural progression with nurses' pay expectations aligning; margin impact minimal but monitored.

Q: Visibility and shortfall in guidance?

A: Third quarter trough, fourth quarter expected to turn around on volume; bill rates stabilized, demand improving.

Q: Travelers on assignment and seasonal influx?

A: 26-week orders coming in, just in time due to factors like RSV vaccine approval; some travelers take time off but most stay in travel market.

Q: Vendor-neutral shift and Intellify?

A: More visibility with Intellify, customers seeking alternatives; Intellify differentiates Cross Country in the vendor neutral space, with sophisticated tools and customer demand for alternatives.