CCRN - NASDAQ

Good afternoon, everyone and welcome to the Cross Country Healthcare's Earnings Conference Call for the First Quarter 2022. Please be advised that this call is being recorded and a replay of the 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 Vice President, 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 A. Martins, as well as William J. Burns, our Chief Financial Officer. Daniel J. White, Chief Commercial Officer. Buffy Stultz White, Group President of Workforce Solutions, and Marc Krug, Group President of Delivery. Today's call will include a discussion of our financial results for the First Quarter of 2022, as well as our outlook for the second quarter. A copy of our earnings press release is available on our website at crosscountryhealthcare.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 2021 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 referenced non-GAAP financial measures such as adjusted EBITDA or adjusted earnings per share. Such non-GAAP financial measures are provided as additional information and should not be considered substitutes for, or superior to those calculated in accordance with US GAAP. More information related to these non-GAAP financial measures is contained in our press release. Also during this call, we may refer to proforma when normalized numbers pertain to our most recent acquisitions as though the results were included or excluded from the periods presented. With that, I will now turn the call over to our Chief Executive Officer, John A. Martins.

Thanks, Josh. And thank you to everyone for joining us this afternoon. I'd like to take a moment to welcome several new individuals to the call. First, welcome Josh, as our new Vice President of Investor Relations. We're looking forward to the value you can bring to Cross Country shareholders, leveraging your nearly 20 years as a sell side analyst covering healthcare and business services. I'd also like to welcome our newest member of the executive leadership team, Daniel White. Daniel is someone that is well-known across our industry. And I've had the privilege to work with him at a prior company. As we shared in a recent press release, Daniel will serve as Chief Commercial Officer, a newly created role for Cross Country that we can expect that will enhance our go-to-market strategy with our proven ability to deliver clinicians, we're investing heavily in driving even more new business. To that end, Daniel will look to augment our current sales team by adding even more experienced professionals from our industry to our talented bench, as well as insure that the entire sales cycle is as efficient as possible, offering a best-in-class experience for prospective customers. Another individual joining us for the first time, though certainly not new to Cross Country is Marc Krug. Marc was recently promoted to the role I previously held as Group President of Delivery. Since joining Cross Country more than five years ago, Mark has been at the heart of overhauling and refining our delivery capabilities having nearly tripled the number of travelers on assignment in the last three years. I truly believe that we had the best leadership team in the industry and that the company is still well-positioned for sustained long-term profitable growth. With the culture we've established as a company committed to excellence and ethical practices, it is clear to me that we're quickly becoming the employer of choice for staffing professionals. Just since the start of the year, we have hired more than 300 professionals. 95% of whom are revenue producing or on operational support roles to fuel the continued strong performance we have demonstrated. I would especially like to thank Kevin Clark for his leadership over the last few years as CEO and since April 1st as our Chairman of the board. As a result, Cross Country is emerging from the pandemic a digitally transformed, financially stronger company with a continued commitment to clinical excellence, quality, and service. Our ability to deliver in these tough times has solidified our brand reputation as a trusted partner to thousands of clients and tens of thousands of clinicians and professionals. I'm thrilled to be assuming the role of CEO at this pivotal time. With my years of industry experience and background as a software engineer, I see a clear path to fill upon the accomplishments for the last three years and expect to establish Cross Country as a digital leader in healthcare staffing, with an emphasis on self-service for both candidates and clients. I'll touch on some of the exciting aspects of our digital road map in a few minutes. But first, let me briefly discuss our performance. I'm pleased to share that we've delivered yet another historic milestone in the first quarter for both revenue and profitability. Consolidated revenue was up 140% from the prior year to an all-time high of $789 million. Growth was broad-based with all lines reporting year-over-year increases. And the majority of that growth coming from a more than 100% increase on the number of professionals on assignment. Sequentially, revenue was up 23% driven predominantly by an increase in billable hours and only a relatively minor impact coming from higher bill rates. Relative to the same period in 2020, prior to the onset of the pandemic, first-quarter 2022 revenue was up about four - fold. Again, with the majority coming from growth in the number of professionals on assignment. William will discuss gross margin in more detail shortly. But as I called out previously, we've experienced significantly higher bill rates as a result of rising compensation costs across most specialties. The initial spike at the onset of the pandemic was clearly related to significant risks faced by our professionals on assignment, which continues to a degree today. However, we believe that continued pressure on labor costs is as much a function of the extremely tight labor market, with demand remaining fairly strong amidst a low to mid-single-digit increase in patient census as many of our clients, as well as health systems struggling to maintain a level of core staff due to burnout, fatigue, and retirements. We also believe that the shortage in core staff is at least the partially being driven by healthcare professionals of all ages embracing the gig economy where they can be empowered to choose when and where they want to work as a lifestyle. As a result of this historic revenue growth in our business, as well as the operational efficiencies we have realized, including deploying new technologies like the applicant tracking system for our travel business, we have significantly improved our operating leverage. Our continued strong execution had allowed us to report another record quarter for adjusted EBITDA of $97 million representing the second consecutive quarter for adjusted EBITDA margins above 12%. This historic performance was made possible by our dedicated team and their unwavering commitment to the highest quality of service to our customers, clinicians and professionals. Turning to the market, overall demand remains well ahead of the prior year, though down from the peak seen during the pandemic with diminishing COVID needs, travel orders declining during the first quarter and have stabilized at the level that supports our ability to continue to grow the number of travelers on assignments. Also noteworthy, is the robust demand we continue to see across our other lines of business. Including local staffing, , education, home-health, RPO, and search. With health systems citing increased labor costs and a desire to see contingent usage normalized, we are proactively working with clients to assist them in building up their core staff through our recruitment processing outsourcing solution. Given the competing challenges of a tight labor force, the desire by professionals for flexibility and the rigors of delivering bedside care, leading to more clinicians to lead in the workforce, is unclear how or when the trend towards higher utilization of contingent staff will normalize. As large health systems work to lower the cost, we continue to see a shift from acute care settings to outpatient, ambulatory care centers, and walk-ins. With our breadth of coverage across the healthcare continue, we are well-positioned to capitalize on this trend. With demand moderating, particularly for the travel business, we're actively working with clients to normalize bill rates wherever possible. However, as I mentioned a moment ago, the persistent labor shortages are fueling higher labor costs and as a result, higher bill rates. Given the market dynamics, there will likely be some resistance to the speed at which rates come down or to how far they moderate. Based on the bill rates for open orders in our mix of business, we're anticipating modest sequential declines in the high-single to low-double-digit range throughout the year ending the year down approximately 35% as compared with the first quarter. Regardless of how rates may evolve, we expect to grow the number of professional on assignments with our second-quarter guidance assuming a mid-single-digit sequential increase in travelers on a site. Though the pandemic appears to be winding down or at least settling into new normal, we're extremely proud of our approach in our partnership we have with our clients, especially across our many managed service program clients. We have thoughtfully and proactively engaged with these clients on their needs and challenges. And as a result, spending our management for the first quarter was over $2 billion on an annualized basis for the capture rate of approximately 70%. Our success in MSP has been driven by our proven ability to execute and rapidly deliver clinicians to the bed side, as well as building and maintaining high relationships with our broad supplier network to assist in billing the excess demand. And with a strength of our team and talented sales professionals, we are well-positioned to accelerate the pipeline of opportunities with new large-scale MSP programs. With speed-to-market being paramount to our growth, we're continuing to make significant investments in both people and technology. While we celebrate the more than 1,000 new employees to Cross Country hired in the last year, the investment goes much further. Leveraging predicted indices, we are improving our ability to target the best talent for specific roles. We are also giving them the tools and training they need to be affected in their jobs, so they can hit the ground running. Perhaps most important, we continuously reinforce core values such as innovation and accountability. I'm incredibly proud of how quickly we have been able to scale our company, which is a testament to the strength and reputation for the Cross Country brand in the market. On the technology front, we have continued to make considerable investments advancing our digital road map. For the first quarter of 2020, we spent nearly $4 million on technology-related projects, which was more than double the prior year. To date, majority of our tech spend has been internally focused that we are increasingly shipping investments to be client and candidate facing tools. In fact, more than half the spend in the first quarter was on externally facing solutions scheduled for lease later this year. Whether its internal or outward-facing, we are leveraging our tech investments to drive further efficiencies with our producers, as well as engagement and enablement capabilities on the client and candidate side. Though our focus is increasingly on externally facing technologies, we still have opportunities to improve the efficiency and productivity across our business. Since deploying our market-leading applicant tracking system, we have seen double-digit productivity gains for travel nurse and allied recruiters. While we're seeing productivity gains in the number of clinicians per recruiter across the entire team, including new hires, the biggest increases have been among recruiters with more than one year of experience who delivered yet another double-digit increase over the fourth quarter. Plans to deploy this technology to our other businesses are underway. An example of externally facing technology is our marketplace app, which connects local professionals to daily shifts. Though it was only deployed last year, it continues to gain wider adoption. New features and functionalities continue to evolve that further enhance the candidate experience across the entire engagement life cycle. Lastly, our digital marketing approach has led to an increase of lead generation, while lowering the cost for hire. We anticipate making similar investments to the rest of the year as we continue to develop the tools that we believe will not only make us more efficient, but also capture more market opportunities. Looking at the second quarter, our revenue guidance of $735 million to $745 million implies another quarter of year-over-year growth in excess of 100%, and all major lines of business run by more than double-digits. The single biggest driver is the increase in the number of professionals on assignments. Beyond the second quarter, we're expecting continued volume growth in all lines of business fueled by continued strong execution, organic investments in capacity, gains to be realized from the adoption of technology and the expansion of our client base. As Kevin mentioned last quarter, we expect to exit the year on a run-rate that exceeds $2 billion in annualized revenue with adjusted EBITDA margins in the high-single to low double-digit range. A likely contributor to the margin will be an improved mix of higher-margin business, as well as a normalization of the bill pay spread. It seems clear that we're fundamentally a different company emerging from the pandemic and I am excited about the future prospects for Cross Country. We see a clear one way for sustained growth in all lines of businesses and we believe that our investments in people and technology are providing this foundation for the next steps in our evolution as a tech-enabled, total management, and workforce solutions company. In closing, I want to thank all of our dedicated professionals who make Cross Country Healthcare their employer of choice. And I'd also like to thank our stockholders for believing in the company and of course, our talented team who supported and embraced the changes we have made. With that, let me turn the call over to William.

Thanks, John. And good afternoon, everyone. Our historic performance for the first quarter was fueled by strong execution across multiple fronts that allowed us to once again exceed our expectations, and to be above the top end of our guidance moved revenue and profitability. And every line of business contributed to this start performance with significant growth in professionals on assignment and an increase in billable hours across the entire organization. Consolidated revenue for the quarter was $789 million up a 140% over the prior year, and more than 20% sequentially. Gross margin was 22.2%, which was 20 basis points higher than our guidance, and was up 50 basis points over the prior year on an improved mix of higher-margin business, such as education and home care, as well as a modest improvement in the bill pay spread for our travel business. Gross margin is expected to gradually improve as we progress throughout the year, as compensation costs normalize in relation with the downward trend in bill rates. Gross profit was a $175 million representing an increase of 145% over the prior year, driven in large part by the more than doubling of our FTEs in the Nurse and Allied segment. Turning to the segments, Nurse and Allied reported revenue of $766 million, representing an increase of a 145% over the prior-year and 23% sequentially. Our largest business travel Nurse and Allied experienced yet another record quarter with the highest number of travelers on assignment in the company's history. Sequentially, billable travel hours rose by nearly 22%, with average bill rates up in the low to mid-single-digits. Let me spend just a moment on the travel bill rates. As expected throughout the first quarter, we've seen rates on a downward trend exiting the first quarter down roughly 2% as compared to the start of the quarter. And coming into the second quarter, bill rates on new assignments continued to normalize. And as a result, we're now projecting average troop travel bill rates will be down in the high-single to low double-digits relative to first quarter. Despite the decline in bill rates, our guidance assumes that we'll see a mid-single-digit increase in the number of travelers on assignment. Our local business continues to perform well with a growing weekly revenue trend and higher number of professionals on assignment. The sequential growth was driven in large part by higher average bill rates due to a shift in the mix of assignments from individual shifts to a greater number of local contract assignments. Also with a nurse now at our homecare business rose 7% sequentially as we continue to ramp our managed service outsourcing arrangements with several large pace providers. As a reminder, we acquired our homecare business in June of last year, and on a proforma basis, it was up nearly 45% over the prior year. Lastly, our education business also performed better than expected. As we've discussed on prior earnings calls, our education business was significantly impacted by COVID due to school closures and the move to virtual learning. We had successfully recovered the majority of that business by shifting to a tele -service model. But with resumption of in-class learning, we've not only returned to pre - COVID, growth rates, but we reported the highest single revenue quarter in the company's history for this business. Finally, for the physician staffing segment, we delivered $23 million in revenue, representing the highest revenue in a single quarter in more than five years. The 43% growth over the prior year was fueled by a 38% increase in the number of billable days experienced across a wide range of specialties. Also favorably impacting the quarter was an increase in the average daily revenue per day filled, driven by modest rate increases and an improved mix of physicians relative to advanced practice specialties. Moving down the income statement, total selling general administrative expense was $76.8 million, up 66% over the prior-year and 17% sequentially. As a percent of revenue, our SG&A was 10%, down nearly 400 basis points over the prior year. As we've continued to improve the operating leverage of the business. The majority of the increase both sequentially and over the prior year was driven by continued investment in people and higher compensation on the continued strong performance of the company. As John mentioned, we've continued to invest heavily in the growth of our company, adding more than a thousand new employees in the last 12 months. Just since the start of the year, we've continued to expand the capacity of our organization by adding more than 300 new employees, 95% of whom are revenue producers and operational support roles. It's important to note that we're investing across our entire portfolio, adding capacity to all major lines of business. We believe the market backdrop continues to support future investments and our capacity planning models are continuously being updated to target those investments that can accelerate growth. Specific to the travel business, although demand has come down from COVID peaks, it has leveled off at a point that we believe sustains our continued investment and ability to grow our share of the market. During the quarter, we realized $2.2 million in non-cash restructuring and impairment charges related to previously closed office space, interest expense was $3.5 million driven by the interest associated with our $175 million term loan, and to a lesser degree in increase borrowings under our asset baseline. And finally on the Income Statement, income tax expense was $25 million, representing the effective tax rate of 29%. As a reminder, we reversed evaluation allowance on deferred tax assets in the fourth quarter of 2021, and our ongoing future tax rate is expected to be approximately 30%. Turning to the Balance Sheet. We ended the quarter with $1 million in cash, and $225 million in outstanding debt, including a $174 million of the subordinated term loan, and $52 million in borrowings under the ABL facility. The increase in borrowings under the ABL was entirely due to its growth in the business and the investment in network and capital as our outstanding receivables grew to more than $677 million. As a reminder, in late March, we doubled the size of our ABL to $300 million and as of March 31st, we were able to access the entire facility. From a cash flow perspective, we had a net use of cash from operations in the first quarter of $29 million, primarily driven by the sequential growth in the business. Day sales outstanding were 62 days representing a four-day increase due solely to the timing of collections. Though we don't give guidance on cash flows, we expect to generate a significant cash from operations for the full-year. Timing throughout the year will be dependent on the run rate of our business, as well as the timing for estimated cash tax payments. For the second quarter, we anticipate making estimated tax payments or more than $40 million based on the level of profitability we anticipate for the full-year. This brings me to our outlook for the second quarter. Regarding to the second quarter revenue of between $735 million and $745 million representing a sequential decline of 6% to 7% almost entirely due to the anticipated decline in travel bill rates. Though we don't typically give guidance on individual lines of business, we are anticipating a low to mid-single sequential increase in volume across most businesses. In fact, the only line not expect to see a volume increase is our education business, which typically slows down in the latter part of the quarter with the start of summer vacations. Gross margins are expected to be between 22.3% and 22.8%, representing a 10 to 60 basis point improvement. With demand related to the pandemic eroding, we are working to restore our margin, especially within the travel business but this will take time as pay rates may not decline as quickly as bill rates. Overall, the second quarter guidance assumes that gross margin will improve 40 to 90 basis points over the prior year with the primary driver being an improved bill pay spreads for our travel business. Based on our estimated revenue on gross profit, we're expecting adjusted EBITDA to between $78 million and $83 million representing an adjusted EBITDA margin of approximately 11%. The sequential decline in margin is entirely due to the impact of declining rates in travel, as well as the continued investments in our workforce. Adjusted earnings per share is expected to be between $1.30 and $1.40 per share based on an average share count of $37.8 million shares. Also assumed in the guidance is an interest expense of $3.7 million, depreciation and amortization of $2.7 million, stock-based compensation of $2.2 million and again, effective tax rate of 30%. That concludes our prepared remarks. And we would now like to open the lines for questions. Operator?

Our first question comes from Kevin Fischbeck from Bank of America Merrill Lynch International Limited. Kevin, your line is open.

Okay, great. Thanks. Just a couple of questions here. It sounds like you expect total fills to continue to increase. Is there any way -- we've heard this concept from a number of the payers about ancillary COVID, if you will, where the main diagnosis is not COVID for their entry into the hospital, but they end up having COVID as well? Is there any way to do that on a staffing side, do you know how much of your demand is because someone is out, not so much because they're treating -- they may have treated a COVID patient, but because they're in the surgery department or the ER or whatever and they have nurses out for that reason? Just trying to understand if some of this demand is not going to be as sticky as it has been if COVID continues to improve.

It's really about related we're seeing any type of -- we can't discern I should say where COVID is and it's not COVID once they're in the hospital. And so obviously we are seeing some hotspots of COVID pick up and COVID is picking up a little bit. I think last week, we saw a 25% increase in COVID cases over the prior week, and I believe 18% increase in hospitalizations, but we do not have any more insight into the COVID within the hospital.

Yeah, I think about it more from the nurses being out because they have COVID, and they're in quarantine in the surgery department or something like that. So like they're just -- do you see that -- would you see that request come in, do you -- it's not a COVID fill because it's not a respiratory therapist, but it's a COVID -related fill because it's a quarantine ask or what have you.

Yeah, Kevin, we're seeing very little of that type of impact on the business. And I would say even from our clinicians on assignment who are in the hospitals and obviously being exposed to potential COVID, we've seen a tremendous decline in the number of cases to where it's very minimal at this point with even our own clinicians out in the field.

Okay. And then when you think about that bill rate declining 35%, it's still is a pretty good bill rate over time since 2019. What do you think are the main factors to -- that are propping up that rate maybe a little bit higher? Because it seems like both you and providers say that things will get better as the year goes on, maybe the difference is that the staffing companies seem to think that that run rate that you mentioned might be the pace to grow off of, whereas the providers seem to think that there could be additional improvement in 2023. So just trying understand why the bill rates stop by Q4 and don't see the additional pressure next year.

Kevin, this is William. Thanks for the question. So I guess what I'd say is, we don't have a great lens on 2023, but for what we can see in the market with where demand is and the supply constraint, it's sort of that leveling off of the rates in the fourth quarter as we go into 2023, that's just the best lens that we have at this point. There's obviously room that the rates could drift down a little bit from there, or they could also go up a little bit from there. It's hard to tell at this point in time. So we just see that as kind of the new normal. And it's a blend of skills, it's a blend of where the demand is. So if there's more ICU needs versus med-surg, you'll see a higher average bill rate for Cross Country. So a little bit of it plays out in the mix as well.

Okay, maybe as last question. I mean, obviously you guys have been making all these investments you've talked about improving efficiency on the sales force, etc. Obviously this has been happening at a time when overall demands are increasing for your services. Are you able to parse out that those efficiency gains versus maybe what might have just happened? You had the same person there, but a lot more incoming requests. Just trying to figure out. Is that all efficiency somehow adjusted in that way? Or is there potentially some bill accounting in there?

Well, again, it's a Bill. I'll start and maybe Mark can help clean it up a bit. But I mean, I think we've been investing on both fronts. So we've added the capacity and that gives us additional runway to deliver clinicians. But we have seen, as we call out in the prepared remarks, a dramatic improvement in the productivity of the recruiters. Not just the speed in which they come up the curve when they enter the company. But certainly as they reach maturity stage, we're seeing the level of production from folks with over a year, Marc, would you say roughly doubled from --

Yes, more than doubled. And we're seeing our new recruiters get their first placement closer to one to four weeks as opposed to 90 days in the seat. First year of total production has doubled compared to 18 months ago.

Okay, but that's not in your view. A reflection is your volumes overall doubled over that time period too. So just trying to figure out how much of that is the industry backdrop versus clearly the benefit of the new systems?

Yeah -- and this is John. What I'd say Kevin is, look, how we know that we're actually picking up that productivity that's just not related to the market share, is because even as we -- we've had this technology now in -- for 18 months and we've continuously seen that pick up. And we've seen recruiter increase with that productivity. And it's more than just the technology we've put in place. We've actually changed our processes to have shown this increase. And again, part of it is, with my nearly 20 years in this industry, I can tell that we're picking up based upon the processes and technology we put in place. That we are really seeing this gain where we had over a 100% increase in productivity from we launched our initiatives with this technology to today.

Okay, great. Thanks.

Our next question comes from Brian Tanquilut, from Jefferies Financial Group Inc. Brian, your line is open.

Hey, thanks. Good afternoon. Congratulations, guys. Just to follow up on some of the questions in the discussion. As we think about nurse dynamics with bill rates, starting to come down, just curious what you're seeing. I know you're investing a lot of resources and efforts to ramp up recruiting, but just broadly speaking, how are you thinking about the supply side of things? Just -- are nurses going back to perm placements? Any color you can share with us in that front.

Sure. Thank you, Brian. Great question. And really what we're seeing is even as pricing is coming down, we're having a heavy, heavy amount of leads coming in. Matter of fact, in year-to-date we've seen our leads double compared to last year. So clinicians are clearly wanting to still travel. And what we feel is clinicians still want to be part of the gig economy. They got exposed to the gig economy and being able to work where they want to work and when they want to work at -- on the onset of COVID, and we're stealing -- we're still seeing that demand that they want to continue to work here. And it's not surprising that clinicians want to be able to enjoy that lifestyle that many other people in different parts of -- different sectors and industries utilize. And so we are seeing -- of course, we'll see some clinicians go back to the perm workforce, but the majority of clinicians we're seeing right now and the ones we're talking to want to remain in the travel world.

Got it. And then I guess just to follow-up on Kevin's question. I know you said that it's hard to really get a look into 2023 bill rates, but as we think about the revenue guidance that you've given and the margin guidance, what gives you that confidence to think that we can still hit $2 billion despite the fact that we don't know exactly where the bottom is, or maybe another way of asking it is, where do you think -- do you think the bottom is still where you thought it was when you gave that guidance last quarter?

We do and I will tell you why we are confident in where we're seeing us exit in 2022 is we look at demand. And when you start looking at demand and where demand is right now. Demand right now is still up over 30% from the pre -pandemic level. And if we look back to where we were in first quarter before the pandemic hit in 2020, that was near almost the all-time high. So if we're 35% above that, there is a lot of demand across all our lines of business. And so that alone gives us a good insight into where we think we can grow the business. And on top of that, we just brought in Daniel J. White as our Chief Commercial Officer. And we -- and fully expect to accelerate our MSP wins, which will give us more exclusive orders, which will help us again, get to a minimum of that $2 billion exit rate that we're talking about. And so we're very confident. And then the other reason we also believe that we can also exceed that $2 billion floor, is that we've diversified our business when we look at our non-travel business. So as travel bill rates go down, yes we'll see the travel -- the total travel revenue go down a little bit. But when we look at our non-travel business, which also happens to be a higher gross margin, those businesses are all growing at double-digit year-over-year. And addition to growing double-digit year-over-year, we're investing heavily into those businesses to help us diversify our business and to really grow our business in lock step with travel.

No, sorry, this is Bill. I was just going to add one other point. If I applied the fourth-quarter bill rates to the volume and mix that we have today, and even without the sequential growth that John's calling out, we're at or above the target run rate that we were calling out at the exit run rate of $500 million. So the investments we're making and the growth and the other lines of business is what gives us the comfort that we are on the trajectory to exit this year north of $500 million.

Yeah, that makes a lot of sense. Then last question for me, as I think about your physician side of the business, PCPs and CRNAs were strong in Q1. Is that something that you're seeing carrying over, or is this -- because the hospitals are saying that they saw strong rebound post-January and Feb and March, but is that carrying over into Q2, and any color you can share with us there?

Yeah, it definitely is carrying over into Q2, and the other color I'd give you is, not just in the Locums, but in all our businesses we're seeing a lot of demand for cardiac care on cardiac units. As deferred healthcare has happened over the past two years, one of the areas that was really underserved was the cardiac care units. And we're seeing a lot of cardiac cases and we're seeing a high, high demand. And not only in cardiac cases, but that actually extends to all of the ancillary disciplines and specialties that help out on cardiac. So while cardiac -- the cardiologists are up, and we have nurses -- ICU nurses up, we have all those ancillary, we also have the allied portion that's up with labs and all the imaging that all takes place when you have cardiac patients.

Got you. All right, guys. Thanks and congrats, again.

Thank you.

Thank you.

Our next question comes from A.J. Rice. from Credit Suisse Group. A.J., your line is open.

Thanks. First question was related to your updated thoughts on bill rates versus placements on the travel nurse side. It sounds like bill rates you're still assuming from beginning of the year to the end of the year, 35% decline, maybe the second quarter and the end of the first quarter, the bill rates will decline as much as you thought maybe last quarter, but it sounds like you still think you'll end up in the same place. It sounds like to me you might be a little more optimistic on your overall placements. Now, thinking it will be positive versus sort of flat before, am I hearing that right? And would you say that's mainly because what you are seeing with respect to patient volumes, with respect to nurses retiring, nurses trying to move away from the acute setting? What will be the driver of that if that is true?

I think that we're seeing is we're actually going to see volume growth quarter-over-quarter into second just quarter. All right.

And A.J., I think if your question is about the rates, so you're right. I think that the rates we called out, what we're seeing -- expecting for Q2 and that kind of mid-single-digit -- high-single-digit I'll call it range. And as the rates are coming down, it does take time, especially in travel with longer-term assignments. These are 13-week assignments, so the impact is not as significant in the second quarter, but we're still projecting them to come down. So I'd say if you were to seasonalize this throughout the year, probably the third quarter is where we'll see the larger sequential drop and then a smaller drop in the fourth quarter. But all within the range, we called out that low single, low double-digit sequential declines into the balance of the year. So it's really about the sequencing and timing of when the rates come down. And it's a function of whether the assignments that are have the higher bill rates are cancelling and are being replaced at new bill rates. So the bill rate on open orders is down. We have seen that already begin, but the rate at which it's bleeding into the revenue stream because of how it trends off, it takes a little bit more time for that to be seen.

Okay. And to the extent that you are a little more positive on the placements going into the second quarter. Is that being driven by patient volumes or nurses at the facility level stepping back or what?

It is demand that is --when we look at it, those that are just mentioned. It's truly the deferred healthcare, it's -- it's -- surgeries coming back online, it is the fundamental shortages of clinicians. There's a study -- again, the last year, where 83% of healthcare executives said they expect long-term shortages for clinicians. And so it's really the fundamental shortages. That's what's driving this demand, driving our placements.

Our next question --

I also want to ask; can you give us a little bit of an update on where fill rates are versus what you saw exiting the year versus now?

Sorry, A.J., could you repeat that question there?

Yeah, sorry. Any update on where you're at with respect to fill rates as you exited the first quarter compared to where you were in the fourth quarter perhaps, or some other metric. Are you filling a greater percentage of your open orders or is it about the same which you saw in the fourth quarter?

I would say there's so many orders in the fourth quarter, when you when you look at fill rates, it's really not about fill rates as is about filling the orders we need to fill to keep -- have growth. So we look at fill rates when we look at our MSPs and our exclusive orders that we need to fill because we have an obligation to our clients. But in travel nurse, because of the number of orders we have in travel nurse and allied, it's hard to look at the overall fill rate because there's just too many orders. We can have high sequential growth and exponential growth on less orders than you would think we would need; we don't need 40,000 to 50,000 orders to grow exponentially. And A.J. I think I'd just give one more computed data that might help you understand the sequential growth. We grew sequentially throughout the quarter. So our travel is on assignment, continued to grow each and every month of the quarter. So we exit the quarter higher than we came into the first quarter. So that helps give the uplift into the second quarter. We have coming in stronger, just because of the level of production that we had to the first quarter.

Okay. And just a final question. Any updated thoughts on capital deployment, deal pipeline, areas you might be interested in pursuing M&A?

Yeah. We're sticking very closely to our strategic plans on M&A. We've said before, we're looking at again, Locums types companies, allied type companies, local staffing type companies, technology type companies. But we really take a very disciplined approach to M&A, making sure that it's a strategic fit, and that it will be accretive to our business. But there's plenty of opportunities out there and we'll be looking at those opportunities to really reinforce Cross Country and our offerings.

Okay, great. Thanks a lot.

Our next question comes from Tobey Sommer, from Truist Securities. Tobey, your line is open.

Hey, good afternoon. This is Jasper Bibb on for Tobey. I want to follow-up on MSP fill rates. As the market starts to level off from an order perspective, are you seeing a recruiter is able capture more of that wallet share internally?

Hey, Jasper, this is John. We can, but we -- it's incremental. But really what we do is, and what the -- what the beauty about the MSP is we can go up or down to have higher capture rate as we need but right now what we do is, with our partner network that we use, our supplier network, we actually have them fill part of the need and what we do with our excess capacity is we're able to use -- utilize that to bring in new clients in new MSP s. So, at a certain point, yes, we needed to -- we could retch it up, our fill rate, or our capture rate. But at this point, we want to keep it at that 70% that we're at so that the excess capacity we could utilize to bring in more clients.

Thanks. And then I was just hoping you'd speak to how you're managing customer relationships because the hospitals are saying reducing the usage of contract labor from a mix perspective is going to be a priority for them in the second half of the year.

Sure, that seems to be a great opportunity to have Daniel J. White, our new Chief Commercial Officer, give a little color on that.

Well, thanks, John. I really appreciate it and Josh, thanks for the question. Before I get into the answer, let me just first start by saying that now is a really exciting time to be here at Cross Country. As we talked about in our prepared remarks, we've had a beautiful transformation of our Delivery capability, which shows and all of these terrific results that we're achieving. And anybody who knows me very well realizes that my word is really everything to me so that when I give my word to a client, our prospect about how we're going to perform. I have a 100% confidence that we have best-in-class delivery, and that's truly table stakes for us now. But when I think about my expertise here, it really starts with transforming our client-facing teams and a focus on customer obsession. So one of the reasons I chose to join John and the team here is because of the way we serve our customers and our clinicians and how we help them through all of these very difficult times. I've known John for a long time, I'm getting to know these team members here really well, and all of us share a focus on the customer in the very same way. So for example, partially answering your question, some of the things we heard at the Becker's Conference last week were customers are looking for partners that are digital first, transparent, analytics, and performance-driven, focused on culture and other aspects that are going to help them with their whole workforce challenge, and for me that company today is Cross Country. So when I think about our client needs and diversity of solutions that we have, I believe that we're ready to help them solve those problems.

That's great. Last question for me, I was hoping you drive a bit more color on cash flow dynamics as revenue starts to come off at 1Q peak. I mean by my math, receivables are more than 70% of your enterprise value, which should give you some options from a capital deployment perspective.

Yeah, Jasper, it's a good point, I mean, as you know our working capital model is obviously we have -- we're a payroll driven company, so it really always on the receivable side. So as revenue starts to level off and to start to see sequential decline, we will and we do anticipate seeing some significant revenue cash flow generation to cash our operations. The second-quarter being the hardest one to predict right now, simply because we go into the quarter with revenue down somewhat, but we also start making some pretty large estimated tax payments for the first time. So I called out in my prepared remarks, we have a $40 million estimated tax payment. So that'll be the first quarter we've ever had a cash tax payment of that magnitude, given the success of the company over the last two years, we've burned through our NOL. And so that's going to hit us in Q2. But as we move through the back half of the year, as we also said in the prepared remarks, we do expect very positive cash flows to become in as receivables start to wine their way down. And that will be largely off of the rate decline that we're talking about because we do anticipate the volume will still be there. But if rates don't decline as we anticipate then the cash flow-generation may not be as significant as what we call out, but the opportunity as is if you just did simple math and said, okay, 60 days, you had $789 million of revenue in the first quarter and we're saying something north of 500, you can pick your number. But that delta from those two numbers and you do the math and you say, okay, what's roughly two-thirds of that is going to come in as cash-flow. So it's a substantial amount of cash to be collected. I will say that I don't have any concerns around our portfolio. We're very active with our clients, were working very closely with them, so from that perspective, it all seems like it's going to come in as expected.

Thanks for taking the questions, guys. I'll take the rest offline.

Alright.

Our last question in queue comes from William Sutherland from The Benchmark Company. William, your line is open.

Thank you. Hey, everybody. Maybe give the mic back to Daniel for a second because I'd just like to hear a little bit about the size of your MSP operation at this point, and what the marketplace looks like as far as gaining new deals, is it going to be mostly having to take share or is there a fair amount of green fields still out there?

Well, first of all, I appreciate the question and nice to hear your voice again, Bill. I think in general I'll go back to the opening remarks around the business run rate right now is a little north of $2 billion in terms of our spend under management run rate. And so, what's nice about that is that the number of customers we have that don't have some of the services that we already deliver is a fairly significant percentage, so we can sell into the base that we already have that know, and love, and trust our brand, and grow simply from there. On top of that, I would say there's least 20%, 25% of the market that doesn't use any sort of MSP or VMS today, maybe more. And so there are certainly areas of opportunity for us to grow and help customers learn that they need to use programs like this. I think the pandemic really helped them understand that efficiencies of technology process improvement, augmenting their internal teams with expertise outside their organization really can help speed and value to the health system. Of course, there's opportunity always to gain share and grow from other people's share, but I don't think that's necessary here for us to achieve the kind of numbers that we're really trying to achieve, which really makes us a growth company. And at the end of the day, that's why I'm here.

Understood. Thanks for that. And then what's the rough size of education business right now and where are you focusing the growth in that sector?

So is that a question to myself? Oh this is Bill. I mean, the business is -- because of the summer break, it's hard to give you -- I can't just take the first quarter and annualize, you have to recognize that there's a couple of months in there where they don't have the revenue, but they're doing probably between $15 million and $20 million during the quarters when schools are in session, probably a little bit north, towards the north end of that, so rapidly growing. I'd say the growth in that area is really been predominantly in charter schools, although increasingly servicing public school districts and increasingly serving schools outside of the state of California as well. California was the first market we really were in, and again, it goes back to the acquisition we did in 2015, but we've steadily expanded the school base outside of that state. And we offer a full range of services, everything from the clinical side to helping with the non-clinical, special education, and the like.

And William, this is John A. Martins. What I'd add to that is we're seeing tremendous demand in this education business, and we're making heavy investments in there because when we look at what's happening in education, it runs a very similar parallel to what happened in healthcare over the last two years with the nursing shortage and the clinician shortage. These educators have been fatigued and burned out and are seeing a high level of quits. And the reason why is they had online learning, then they had to go into schools, had to have PPE, had to really -- and a lot of teachers decided to leave the field. And right now there is a crisis of shortages of teachers, and we're -- which is -- they're saying -- which will be around for the next several years. So we think it's an opportunity for us to really help schools ramp up with their staffing, and we're making heavy investments to capture that market.

And it was one of the reasons behind the acquisition we completed in December for the cloud-based search tool that allows educators and clinicians to find the jobs and for schools to be able to access a large candidate database for direct hire.

So you're really going to push on the educator placements as well as the Healthcare?

Yeah. As we get -- I'm sorry to cut you off, as we diversify our business, yes. Education and healthcare are the two main places that we'll be investing in.

And then just one last one, to get back to the core business. So as the demand for contractors inevitably eases, do you think one offset will be increasing fill rate? Because right now, the demand is so far in excess of supply, right? Will that be part of the equalizer for you guys?

Yes, it would be part of the equalizer to increase the rate. But what also I think is going to help us really is we're investing. We talked a lot about how we invested internally, about producer productivity. But what we haven't spoken about a lot is how we're investing externally in technologies to help our clinicians and our clients. And a matter of fact, we just launched in January our self-service job portal for clinicians. And what this self-service portal does is it helps professionals are able to view transparent pay packages, they are able to submit interest in specific assignments. They're able to self-onboard to a submission rate, they're able to view their pay rates, they're able to update their credentials. And we see that there's a lot of promise that we'll be able to add the supply, bringing making it easier for us to have fill rates and have higher fill rates. And the success that we've seen from this self-service portal, in this slough launch that we had in -- from the first quarter to today, we have several thousand daily active users who are logging in each day, and those daily users are looking at over 50,000 then having 50,000 jobs searches per week. And those daily users, or having job interest submits of over a thousand per day. So when we look at how we're going to increase the fill rate we'll be getting through the self-service technology. And we are just in the early innings of this technology and we're so excited to be able to continue to invest in this technology, which really changed fundamentally how Cross Country does business.

Do the other major firms have this self-service kind of portal?

Some do and some don't. And I'll tell you what we'll -- how we're investing and what we're doing, whatever is out there, we'll be leapfrogging them in the next couple of quarters for sure.

Okay. Thanks a lot for the comment. And nice job on the quarter.

Thank you, Bill.

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

Thank you, Madison. It's clear that we are a very different company from three years ago, and it's clear that we are a very different company than -- from just 18 months ago. As we look to the future, we're excited about our market opportunity, and I believe we are well-positioned for sustained and profitable growth. Lastly, I want to recognize and celebrate National Nurses month. And I personally want to thank every nurse out there for your hard work and dedication. Thank you, everyone, I look forward to our next earnings call.