CCRN - NASDAQ

Good afternoon, everyone. Welcome to the Cross Country Healthcare’s Earnings Conference Call for the First Quarter 2023. 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. [Operator Instructions] 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 am joined today by our President and Chief Executive Officer, John Martins as well as Bill Burns, our Chief Financial Officer; Dan White, Chief Commercial Officer; and Marc Krug, Group President of Delivery. Today’s call will include a discussion of our financial results for the first quarter of 2023 as well as our outlook for the second 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 2022 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. Also during this call, we may refer to pro forma 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 Martins.

Thanks, Josh and thank you to everyone for joining us this afternoon. Our results for the first quarter once again have exceeded the top end of our revenue and adjusted EBITDA guidance ranges. Our performance is a testament to the dedication by our employees and clinicians to deliver best-in-class service and it is a reflection of our investments in digital transformation that has allowed us to be more efficient and productive as an organization while delivering the highest quality of clinical care. Bill will get into more details on the numbers, but our better-than-expected performance was fueled by strong execution across many of our businesses as well as a higher-than-expected average bill rate in our travel business. Education, for example, reported its strongest revenue quarter in our history with a 25% increase in volume over the fourth quarter. Physician staffing also contributed to the over performance with an increase in the number of days filled across most specialties and an improved mix of higher bill rate specialties. Organically, physician staffing revenue grew 19% year-over-year and 7% sequentially supported by the backdrop of robust demand we saw building last year. When we include the successful fourth quarter acquisitions and integrations of Mint and Lotus, which are performing ahead of expectations, our position business was up 75% year-over-year and now is on an annual revenue run-rate of well over $150 million. Lastly, home care staffing and our recent acquisition in the interim leadership space were ahead of our expectations as well. Let me spend a few moments on our largest business, travel. Average bill rates were expected to decline in the low single-digit range, but were flat sequentially due to factors such as mix of specialties, timing of new starts and renewals of existing assignments. Based on the rates for the new stores and recent locks, we are projecting a sequential decline of between 8% and 9% for the second quarter, in line with where we anticipate rates to be for the second quarter when we reported year end results. Though the decline in deliveries has been a little slower than we anticipated, we continue to expect a low to mid single-digit sequential decline for both the third and fourth quarters, placing travel rates on track to settle in roughly 30% to 35% above pre-COVID levels as we entered 2024. Turning to demand for travel assignments, orders have continued to soften throughout the first quarter and into the second quarter. I will just stress that this is an industry-wide trend that is not specific to Cross Country. It’s also worth noting that although new travel orders have slowed, our candidate renewal rates remain near historic levels indicating that while clients struggle to reduce contingent labor, there remains a critical shortage and an ongoing need for these clinicians. While we certainly understand and support health systems rightsizing their costs, it does feel as if the market has overcorrected. Demand has almost lost and we believe it to be nearing the point which should start to rebound as we move through the back half of the year. Regardless, we continue to operate at a very high level with approximately 2.5x the number of travelers on assignment relative to our 2019 performance. At a high level, it appears that health systems face severe staffing shortages that are projected to worsen in the years ahead. Take for example, the April nursing workforce study conducted by the NCSBN and the National Forum of State Nursing Workforce Centers. In addition to the estimated 100,000 RNs that left the workforce during the pandemic, the study indicated that another 800,000 nurses have an intent to lead the workforce by 2027, setting stress and burnout as well as plans to retire. Included in this group is a surprising 189,000 RNs younger than 40 years old. Altogether, roughly one-fifth of our RNs nationally are projected to exit the health care workforce in coming years. Another study by Mackenzie projects a gap of 200,000 to 450,000 nurses in the United States by 2025. The results of these studies are staggering, and imply that the challenges hospital space in getting enough clinicians to the bed side will only intensify in coming years. Now let me spend a moment on our technology initiatives. As previously highlighted, we have been successfully redesigning our entire technology landscape using a data-centric model that provides analytics and insights in real time. At the center of our ecosystem is Intellify, our proprietary vendor management system. We introduced Intellify at our Investor Day event last September. And since then, we have successfully migrated 25% of our current managed service program clients onto this platform with plans to migrate the majority over the next 12 months which will save us millions of dollars annually in tech fees paid to third parties. When we meet prospective clients today, our conversations go beyond just contingent labor and focus on comprehensive talent management strategies that include sourcing, retention, redeployment, upskilling and reskilling. Intellify helps address these challenges while aiding our expansion as a tech-enabled workforce solution platform. We believe Intellify to be highly differentiated in the industry and are very excited by the multibillion-dollar opportunity it opens up within the vendor neutral space. Speaking of which, I am thrilled to announce that we signed our first vendor-neutral contract in March, and we have a robust pipeline of clients interested in our technology. As we discussed on our last earnings call, clients are understandably evaluating their needs and looking for alternatives that can save them money. And though this may result in a higher level of churn, we believe it presents a unique opportunity for Cross Country to expand its share of spend under management through our managed service programs and vendor-neutral offerings. As I’d like to say, you are never done investing in technology, and that is certainly true for Intellify. In the first quarter, we launched the per diem and internal resource pool or IRP. Modules within Intellify that we believe will fuel even greater client interest as they struggle to lower contingent labor cost. In addition to our other core technology projects, which now includes the replacement of our ERP system, we anticipate investing nearly $30 million this year on technology-related initiatives that we believe will further improve our go-to-market strategy as well as our efficiency. Turning quickly to our investments in headcount. By leveraging our capacity models, we continuously seek to balance near-term profitability while ensuring we have the resources to drive medium and long-term growth. Given the relative softness in travel demand and the increasing productivity from hires made last year, we have moderately scaled down the level of our investments, primarily through attrition and performance management. Coming into the second quarter, our total headcount is down about 7% since the start of the year. At this point, we believe the infrastructure is appropriate for the current market conditions, and we are proactively evaluating other areas of spend to ensure we maintain the highest level of profitability while also ensuring we continue to deliver the highest level of service. That brings me to our outlook. For the second quarter, we expect revenue to be between $530 million to $540 million. The sequential decline is primarily driven by the travel volume we discussed, as well as an anticipated high single-digit decline in travel rates due in part to the wind down of higher reassignments. Our adjusted EBITDA is expected to be between $40 million and $45 million, reflecting a margin north of 8% at the midpoint. Looking beyond the second quarter, we are adjusting our expectations for the full year based on the – we have on the business today. Accordingly, we now expect to deliver full year 2023 revenue of at least $2.1 billion and adjusted EBITDA in excess of $170 million, which implies a margin above 8%. Overall, we are confident that we can achieve organic long-term growth and we remain focused on increasing shareholder value through our deployment of capital. Since we announced a $100 million share repurchase program in August of last year, we have repurchased 2.7 million shares for approximately $70 million by exhausting the prior authorized plan as well as under the new plan. With the strength of our balance sheet and given we continue to believe our shares remain undervalued, I am pleased to announce that we are restoring the authorization under the share repurchase plan back to $100 million, with the intention to be opportunistic in repurchasing more stock. In closing, we remain excited about our prospects and ability to build upon the early momentum from Intellify, which we truly believe is a game changer for Cross Country. And our employees are sharing in this excitement, as evidenced by our recent recognition as a 2023 Winner of the Best Company outlook from comparable, which is an award that measures how confident employees are about the future success of their company. Our workplace culture stresses the importance of diversity, equity and inclusion, and it is the heartbeat of Cross Country and a key catalyst to fueling our growth and value. Thank you to all of our employees for your tireless work and dedication, and thank you to all of our professionals make Cross Country their employer of choice as well as our shareholders for believing in the company. And just before handing the call over to Bill, on behalf of myself, management and the rest of the board, we would like to thank Tom Dircks, who has more than 20 years of service to Cross Country. Tom has been involved within the company since before going public in 2001, serving as the Chairman of the Board for nearly a decade. With that, let me turn the call over to Bill.

Thanks, John and good afternoon everyone. Continuing our trend of solid execution, we were pleased to have once again exceeded the high end of our guidance ranges for both revenue and profitability. Consolidated revenue for the quarter was $623 million, down less than 1% sequentially and down 21% over the prior year, with the year-over-year decline primarily driven by the normalization of travel bill rates. I’ll get into more details on the segments in just a few minutes. Gross profit for the quarter was $139 million, which represented a gross margin of 22.4%. Gross margin improved approximately 30 basis points, both sequentially and over the prior year due primarily to an improvement in the bill pay spreads especially within travel. The sequential improvement in gross margin would have been even higher were it not for the 40 basis point impact from the annual payroll tax reset at the start of the year. Moving down the income statement, total selling, general and administrative expense was $84 million, up 3% sequentially and 10% over the prior year. The majority of the increase in SG&A over the prior year was driven by higher salary and benefit-related costs associated with the investments and resources made throughout 2022 as well as acquisitions completed last year. On a sequential basis, the increase was primarily attributable to the impact from the annual payroll tax reset as well as a ramp in technology spending for 2023. As a percent of revenue, SG&A was 13.5%, up from 12.9% last quarter and 9.7% in 2022. As we called out last quarter, we managed the level of investment in resources to match the current market conditions by leveraging our capacity models. Our goal is always to be proactive in flexing up and down in order to ensure we can continue to grow while protecting our overall profitability. With the softness for new travel assignments, we identified that we were a little overinvested in certain areas. And as a result, we’ve managed to reduce our annual salary cost by roughly 5%, primarily through performance management and attrition. The broader supply and demand imbalance remains, and we are well positioned to continue delivering clinicians across the continuum of care. It’s also worth calling out that though demand for travelers has softened, we see continued growth potential in other parts of the business such as Education, home care staffing and that will likely support further investments in those areas. Based on the cost actions to date as well as lower payroll taxes and compensation associated with the sequential decline in revenue, we anticipate our SG&A will decline in the high single to low double digits for the second quarter. From a technology perspective, we are continuing to make substantial investments in advancing our tech roadmap for products like Intellify and Gateway, which is now known as experience. For the first quarter, technology project-related spend was $6 million, nearly double the fourth quarter and on track with the $30 million John mentioned a moment ago. Approximately 25% of the spend was expensed in the quarter since it did not qualify for capitalization or deferral under U.S. GAAP. The better-than-expected top line performance and higher gross margin fueled another quarter of strong earnings with adjusted EBITDA of $52 million, representing an adjusted EBITDA margin of 8.4%, consistent with our goal to maintain margins in the high single to low double-digit range. Interest expense for the quarter was $3.7 million, which was up 5% sequentially and over the prior year. The increase was entirely driven by higher interest rates and was partly offset by lower average borrowings during the quarter. Our effective interest rate for the quarter was 9.9%. Additionally, we reported $1 million related to the settlement of a nonrecurring legal matter and incurred $0.5 million in restructuring charges principally related to severance costs. And finally, on the income statement, income tax expense was $11 million, representing an effective tax rate of 26.7%. Excluding discrete items, we anticipate a full year effective tax rate of between 29% and 30%. Our performance resulted in an adjusted earnings per share of $0.84, down $0.25 sequentially and above the upper end of our guidance range. Turning to the segments, nursing reported revenue of $582 million, down 1% sequentially and 24% from the prior year. Our largest business, Travel Nurse and Allied was down 2% sequentially and down 27% from the prior year. The sequential decline was almost entirely due to a decline in the number of travelers on assignment as systems continue to seek to normalize their contingent labor usage. Mobile decline from the prior year was due to a 22% decline in average bill rates. Looking to the second quarter, we anticipate a further sequential decline in both billable hours and average bill rates in the high single-digit range. While visibility beyond the second quarter is limited, we continue to expect a further decline in bill rates for the third and fourth quarters in the mid-single-digit range. And as John mentioned a few moments ago, demand remains soft as clients continue to rightsize their contingent labor usage, though it’s leveled off in recent weeks, and we anticipate a seasonal pickup as we progress into the third quarter. Our local or per diem business also felt the impact from a softness in demand with revenue down approximately 10% from the prior year, predominantly due to a decline in billable hours. Also within the Nurse and Allied segment, our Education business continued its trend of high double-digit revenue growth, both sequentially and over the prior year, reporting the strongest quarter in its history. We also saw growth in home care staffing services in the mid-single-digit range with the prior year, placing both of these businesses on an annual run rate of approximately $100 million. Finally, Physician Staffing delivered another strong quarter of organic growth with reported revenue of $40 million, an increase of 9% sequentially and 75% over the prior year. Excluding the impact from the acquisitions completed last year, Physician Staffing was up 19% on an increase in the number of days filled as well as improved bill rates Turning to the balance sheet. We ended the quarter with $300,000 in cash and $140 million in outstanding debt, including $74 million under our subordinated term loan and $66 million in borrowings under our ABL facility. Given our continued strong performance and positive cash flow, we were able to maintain a total leverage ratio of approximately 0.5x. With the health of our balance sheet, we remain well positioned to make further investments in technology or through acquisitions as well as to continue repurchasing shares. From a cash flow perspective, we generated $47 million in cash from operations during the quarter, as compared with just $4 million last quarter. The first quarter is generally our lightest quarter for cash from operations due to the impact from the payoff for annual incentive compensation as well as higher payroll taxes, but we saw an improvement from overall collections that reduced our DSO by roughly 2 days since the end of the year. The DSO of 70 days remains higher than normal. We’ve come into the second quarter on a very positive trajectory for collection, and we expect to see continued improvements in DSO. Cash used in investing activities was $3.5 million, representing an increase of more than 75% over the prior year as we continue to ramp technology investments. From a financing activity perspective, we repurchased an additional 1.2 million shares during the quarter at an aggregate cost of $32 million, bringing the cumulative repurchases in the last three quarters to 2.6 million shares or nearly 7% of the shares outstanding during that time. Since the start of the second quarter, we repurchased an additional 140,000 shares at an aggregate cost of $3 million pursuant to our 10b5-1 trading plan. As we reported in the earnings release, the Board authorized the refresh of our share repurchase program to $100 million, which we intend to utilize both under the 10b5-1 trading as well as the opportunistic purchases depending on factors such as available cash, the share price and alternative uses for excess cash, such as debt payments or acquisitions. And this brings me to our outlook for the second quarter. We are guiding to revenue of between $530 million and $540 million, representing a sequential decline of 13% to 15%, driven predominantly by the anticipated decline in travel bill rates as well as a modest sequential decline in the number of travelers on assignment. We are expecting adjusted EBITDA to be between $40 million and $45 million, representing an adjusted EBITDA margin of approximately 8%. The sequential decline in adjusted EBITDA margin is primarily due to the impact of the lower gross profit on the sequential decline in revenue. Adjusted earnings per share is expected to be between $0.55 and $0.65 based on an average share count of 35.5 million shares. Also assumed in this guidance is a gross margin of between 22.5% and 23%, interest expense of $3.5 million, depreciation and amortization of $5 million, stock-based compensation of $2.5 million and an effective tax rate of 30%. And that concludes our prepared remarks, and we’d now like to open the lines for questions. Operator?

Thank you. [Operator Instructions] Our first question comes from Kevin Fischbeck with Bank of America. Your line is open.

Great. Thanks. I had a couple of questions, I guess, about the guidance. When we look at the numbers you reported in Q1, I don’t guess what you’re guiding to in Q2. Just trying to figure out the cadence into the back half of the year, it looks like it’s going to be ending the year somewhere in that $470 million or less kind of run rate from a revenue perspective. I guess as bill rates drop, might be a little bit less than that. Is that the right way to think about the exit rate from this year? And is that a number that you think you would be growing off of? Or is that a number where it’s still TBD as to where it normalizes?

Hi, Kevin, thanks for the question. This is Bill Burns. Yes, I guess if you just did a straight-line math of the full year min guidance to what we put up in the first quarter and the midpoint of the second quarter, that’s kind of the math you’d get to. But I don’t think it’s seasonalized quite that way. I think the third quarter is pointing to being the trough based on what we see now. And look, as I look at what’s changed from the last time we talked to you about min guidance where we went at the $2.2 billion. The main thing is just the continued softness in demand from the travel side that really kind of continued since we released earnings. Interesting point on that is that it really has leveled off. And in fact, for the last 3 weeks is up 6% or 7%. So it seems to be starting to make a turn. That said, the impact of the softer demand is going to impact our third quarter a bit more than we anticipated. But that, we believe, starts to wind its way out. So third quarter is expected to be the trough. Though not guidance, I would say our expectation is we look to exit the year north of $500 million in revenue and holding on to that high single-digit EBITDA margin.

Kevin, this is John. I would add as Bill said and just restate that these really are minimum when we talk about that $2.1 billion of revenue and that $170 million of EBITDA. And that’s what the lens that we have now. And just to just expand a little bit on the demand we’re seeing. Over the last several weeks, we’ve seen our travel nursing orders up 7% and our travel allied orders up nearly 16%. So we’re cautiously optimistic that we’re seeing this overcorrection that has happened in the travel world, we think we could see those orders starting to pick up sooner than later.

And I guess maybe to that point, can you just kind of help me think about the seasonality of the business because I think that usually you would start to see some orders pick up. I mean, how does that 6% to 7% and the 16% compared to kind of what you would normally expect to be seeing at this time of the year?

We’d be seeing orders continue to go down as – because we get the high in the flu season, which is the January through April period, then we would see our orders starting to come down through the June period of time. And then as we start to experience the flow orders, which start coming late June into July, we would see the number of orders go up traditionally.

Okay. So this rebound is happening normally than you would seasonally expected to?

Yes, this rebound is happening, normally, but also with the level of which the demand had fallen was also unexpected. So the rebound is happening earlier to get us because we believe that hospitals who are under immense pressures overcorrected, and now we’re seeing that overcorrection normalize. And even if we look at what one of the hospitals reported last week that they believe the price rates now have come to a level that they can strategically start adding contingency labor to increase the revenue. So we think there is a place where we think that we will start seeing these orders start to pick up.

Okay. And then maybe just last question. If that’s kind of how you’re thinking about it, why if we kind of trough in Q3, why are the bill rates still dropping into Q4?

It’s just – it’s – Kevin, it’s a lot – it’s Bill Burns again. A lot of it is the tail, right? So the assignments of 13-week assignment, so they haven’t fully wound their way through our portfolio. So Q2 is a sequential decline mostly on the bill rates that we locked in, in Q1. Q3 will be what we’re seeing as we leave Q1 and enter Q2. So there is a little bit of a tail there. There is always some degree of renewals that don’t necessarily attract the new bill rate. So that’s just the reason why we suspect there’ll be some continued drag on bill rates into Q3 and Q4.

And this is John one more time just to add a little more to Bill update for you question, Kevin. Also Q3 is where we have our schools traditionally are at their lowest point because of all the schools are out of school and don’t start until September. So we anticipate to see a softer revenue on Q3.

Okay. Thank you.

Our next question comes from A.J. Rice of Credit Suisse. Your line is open.

Good. Hello, everybody. A couple of questions. I guess, first of all, just making sure. So basically, we’re talking about $30 million as a floor less at $170 million versus the $200 million before for the 2023 EBITDA. I just want to confirm, that sounds like that’s 100% coming from an adjustment to your expectations around travel nursing. Is that correct? Or is there anything else that you’re adjusting for?

Hi. A.J., this is Bill. No, you are correct. The change in min guidance for the full year is entirely driven by the softness on the travel side.

Okay. And I know you’re talking about how the discussions are going, how the order flow is going, and you’re giving expectations around Q3 and Q4 as well as obviously Q2. Can you just remind us how much – where are you actually having firm orders? Do you have visibility on Q3 at this point? Or are you still – is that sort of just a feel for the thing with what you’ve got with your discussions with hospitals, how much of a firm visibility do you have on what you’re seeing for Q3? And I assume you don’t really have orders yet for Q4, but just give us a flavor for that.

Yes, A.J., this is Bill again. Maybe I’ll start and then Marc or John can help me clean it up. But the orders we have today are first starts anytime in the next 4 to 5 weeks, generally speaking. So they are not what I would call necessarily third quarter orders. But obviously, there is always some orders that will always kind of refresh as you’re filling the – you fill in orders this week and the orders come in the following week. So looking at where the trends are, and we track this virtually every single week. So that’s kind of what we were saying is. You’ve seen the rebound. We’re seeing it kind of tick up the last few weeks, and that’s what’s given us kind of the comfort on how we envision what we call our locks or our net weeks booked as we look at on a weekly metric basis rolling into the third quarter. But Marc, I mean you want to give a little more flavor on that.

Sure. And we look for the trends week over week and over the last 4 weeks, we are trending up. We’ve seen our Allied bounce back to the same levels of demand as early January, which is a good indicator where we are, specifically in the imaging area. There is strong demand following the path of surgeries, pre and post, and that continues to trend up as well as in the physical therapy area. For nursing, we are seeing certain specialties with increased demand, such as MedSurg and Telly. And in our local business – excuse me, and in our local business similar to the travel business in some acute care settings, we are seeing increased demand for MedSurg and Telly.

A.J., this is John. I’m going to add just a little bit of color to that as well. When we look at orders now we’re seeing – as Bill said, orders are really – 90% of our starts on the orders that we will book today happen in the next 6 weeks of starts. And so we’re not seeing orders out in the third quarter in a large volume. But the other note I think is important is that we’re seeing – as hospitals, again, as we think of overcorrected but they lead these clinicians, we’re seeing our renewal rates, as I said in our prepared remarks, at historic levels. Indicating that, again, it’s more a closer term of where they need the clinicians for. Now once we get into late June and July, that’s when we’re seeing the flow orders come. And then actually see orders go a little further out from third to fourth quarter. There is one part of the seasonality portion travel nursing, where you will see orders go out maybe even 4 or 5 months, but that’s not until we see those fall flu orders coming.

I got it. And just one last question on the Intellify rollout. Are you give the hospitals or health systems just naturally say I’m with the same vendor doing my MSP as providing the tech solution? Or do you have to provide a financial incentive for them to make that transition or any other incentives? And is that reflected – if so, is that reflected in guidance in any way?

No. Really, when you look at taking out an incumbent provider, whether it’s MSP or VMS and bringing in the Intellify technology, the Intellify technology is built to help clients save money in several different ways. So one of it is within our IRP or internal resource pool. When we put that into a client, the client then can utilize their own staff and internal resources to fill needs, lowering their costs. And then Intellify also helps clients understand where they are overstaffed and understaffed in units to make sure that they rightsize the units not be overstaffed, and they may not need as many travels in a certain unit and they can flow to other units. So yes, there is not really – a certain incentive to move them out, we really have to show them how Intellify will be more operational efficiency, even greater insights into data into their spend and then create savings for them. Dan, do you have anything to add on that?

I do. Hey, A.J., it’s Dan. One of the things that is a very positive early sign is that as we migrate our existing clients over to Intellify, we’re seeing them add additional capabilities and service lines that they didn’t originally have. So not only is it the great capability and insights that John just talked about, but they are trying to capture all of their whole house of spend, if you will. So very recently, we just had our full – first full service client where it’s nonclinical Locums, Allied, Nursing, all of which are online at the same time, getting the same visibility. So I feel both the expansion and the capabilities John is talking about are attracting new customers to Intellify now.

Okay. Great. Thanks so much.

Sure.

Our next question comes from Tobey Sommer with Truist Securities. Your line is open.

Thanks. I was wondering if you could discuss the pricing framework in bill rates within Travel verse. What does the pricing look like for new orders today? And how does that compare to the average bill rate that you’re reporting? I’m trying to understand the gap because we’re hearing from private companies that renewals are being renewed at prior rates and wondering how the spot rate for new orders in the renewal rates kind of converge up or down?

Hey, Tobey, it’s Bill. Yes, great question. And to be honest, there is always a gap in the new order open bill rate, right? It doesn’t always mirror what we will lock at because there is always a mix component. I’m sure you understand that. So we may lock higher bill rate specialties. So when we talk about a rate that we’re seeing, it’s a blended rates and average rate. So there is always a mix component. But no, the spot rate on open orders is certainly down. I will say that I don’t – not necessarily all of those orders will get filled, but it’s definitely directionally down. I would say it’s consistently down with rates that we’re locking at. So in other words, the delta between open order rates and what we’re locking at is moving in tandem. So yes, our lock rate, what we are locking assignments on is moving down. The only other point I will make is that it’s moving down in line with our expectations. We haven’t seen a real significant deviation from what we expected on that front. The biggest change to what we thought is really around the demand fall up that we saw coming into – through the rest of the first quarter.

Thanks. And could you talk about the – what it would take to sort of rebuild sufficient supply so as to generate more volume growth from this level, which is already pretty healthy for the company and the industry and sort of how much of an improvement in the lock rate or kind of current pricing out in the market to lower in that sort of sufficiently higher supply?

Well, I will take – I will start with that, and I will pass it over to Marc or Bill. This is John, Tobey. What I would say is, right now, we are – there is always a premium on the travel bill rate to where the core staff makes. So, there is always that incentive to attract supply. And as orders had fallen, what happens is supply is a little tighter because there is less job offerings. Now, as we are starting to see more the demand pick up, we will see supply pick up as well. And when we – six months ago or a year ago, when we had double, triple, quadruple, not a job serve that number is, we didn’t have quadrupled the number of supply. So, there is still plenty of supply out there for us to continue to have an opportunity to grow, but it really is the more demand as demand picks up, we will see that supply pick up. Bill and Marc, do you want to add anything to that?

Yes. Tobey, I just guess, I would say even as demand has softened and again, that’s the number one driver to the volume decline we have seen, the conversions are still there. And we are still locking at a fairly high rate relative to the orders that we have in our pipeline. And what we noticed coming out of Q1 was that the bill pay spreads actually improved, and that was part of the margin improvement you saw for Q1. So, we were up sequentially – sorry, we were – it was not for the payroll tax. The payroll tax drove a 40 bps decline, but there was actually about an 80 basis point improvement in the bill pay spread, and that’s the bill pay housing spread for the company. So, we were successful in locking a fair amount of candidates and we are seeing the margins start to rebound there on the bill pay spread.

And this is John, Tobey. I think I have one more fact that we will kind of put this some more perspective. The number of unique submissions that we have actually has not fallen very far off from where we were even three months or four months ago as demand has won. So, the supply is still there, and these are unique clinicians that want to submit themselves to a job each week. And those numbers have not fallen off the cliff and actually, they are probably down less than 10%, probably down 7% or 8%. And so – and obviously, demand order is down much further. And so the clinicians are still looking for work. It’s that hospitals right now are slow to go – where we used to be able to, what we call lock a clinician would get an offer from a hospital. It used to be less than 24 hours during COVID in the last year. And definitely, Marc, keeping honest here, it’s something between 24 hours and 48 hours in most cases. Now, we are seeing it go to five days or six days. And that’s really the slowdown on the hospital side. But in terms of supply, we are seeing the same unique subs just off very slightly. So, we believe as demand picks up, we will actually see more unique subs come up and we will get back to that same threshold.

Okay. And last question for me. Can you talk about your capture rate in your MSP book of business? How has that progressed? Has it provided sort of the shock absorber that you might envision during periods of declining demand? And are you at sort of a relative high that you would be comfortable in terms of capture rate, or do you have more flexibility to take it higher?

We have more flexibility, take a higher a matter of fact, we are down 2 full percentage points from where we normally are. Look, we – as we have said on these calls, we are consistently going to be great partners to our partner network. They are true partners with us, and we are not going to close that gap because we want to make sure that as we go out there and go after new accounts that we have, we are locked arm in arm with our supply. We know that some of our competitors don’t do that, and we don’t really think that is the right way to conduct the business as you are trying to really build a true partner network.

It really – this is Dan also, Tobey. It really does help a new client as we are pursuing them for us to have that excess capacity to deliver something right when they need it and prove ourselves. So, it’s something that helps us across the board here at Cross Country.

Last question for me, if I could. With your guidance out for the back half of the year, does that assume your MSP book of business is trending in line with the overall revenue, or is it increasing or decreasing as a proportion of total revenue as you look into the back half of the year versus the first quarter you just reported?

It’s a good question, Tobey. I don’t think I have modeled it out exactly on the mix you are asking for. I would say directionally, I think MSP will make up a smaller portion. I think then a neutral will start to make up a larger portion costs are coming off a very small number, so it’s easy to get there. But as John mentioned, even as you see accounts that have moved to more of an in-house model or to a vendor-neutral model, even if they are not with us, our fill and capture those accounts kind of remains consistent even as accounts move over. So, I think MSP revenue will decline as we move to the back half, more than likely, John, I mean would you agree with that or?

I agree with that. This is John, Tobey. I agree with that. And look, as we have lost some clients to the self-managed model, if we look back for the past decade or longer, there have been three predominant models in healthcare staffing. And everyone knows this, right. There was the direct model for hospitals, you had your vendor-neutral VMS model, and you had your MSP, managed service provider model. And what’s reemerging as a fourth model, which is a self-managed or captive model where the hospitals are managing the travel profile sales [ph]. But in addition, they are creating their own travel nursing recruiting teams to recruit travelers directly to the hospitals. And they are also creating these internal resource pools to help reduce the amount of contingency labor. And when these clients move over to these models, with our relationships that we have had with them sometimes for over a decade, we have these strong relationships, and we remain a primary vendor for these clients. And in many cases, we actually – where we may have had just part of the MSP in a large hospital system, we actually gain access as a primary vendor to the whole system. And so far, what we have seen on these ones that have moved to this managed model, we have actually seen our expected TA to be where we thought it would be as if we had the MSP. And so the other thing that we are also seeing as some of these clients have moved and some of these kinds of majority this managed model, we are actually seeing gross margins pick up because as an MSP, we have an obligation to fill every need to make sure that we have that patient care at the bed side. Once we are in this primary model, that obligation goes away and we pick and choose the orders that we actually can fill it at better rates. And so the other I think real key point for us here is with the emergence of Intellify, and to be honest, I cannot say this three months ago. We built Intellify and it was – we launched it officially in January. We talked about it in the Investor Day in September that we hired Eric Christianson to be the President of that division and start up in January. And it was – it could run the travel nursing side. We launched Intellify’s per DM module in the first quarter. And just last month from one, we put four more clients on the Intellify per DM modules. And this month, we just released the IRP or the internal resource pool. Now, with that technology, we can play in the self-managed captive world and help hospitals and be part of that as their technology solution. And we look at Intellify, we believe Intellify is the best program out there and the best technology out there. And of course, we are going to say that because it’s our technology. But if you speak to many of our 4,000 users who were on Intellify, over 250 vendors that are participating on the Intellify platform, and over dozens of clients that are the platform, they will tell you that Intellify is the easiest to use, most comprehensive technology solution out in the market today.

Thank you.

[Operator Instructions] Our next question comes from Bill Sutherland with The Benchmark Company. Your line is open.

Thanks everybody. John, just to look at Intellify one more time, help us understand kind of the impact you are kind of looking forward to have this year, what’s the main use case? And then – because you – obviously, it’s going to be able to do a number of things and even more than I even realized?

Sure, Bill. So, the main use case, when we first thought about doing Intellify and creating our own vendor management system several years ago, it was a first to replace the rental technologies or rented technologies that find some of our competitors on and have it bring it in-house. So, we would save the money on this rented technology, that was the first use case scenario and check the box, we have got 25% of our clients on that and we will migrate the rest over the next 12 months. And then…

Excuse me, and what’s the upside impact you are looking for next year as you get nearly all the clients onboard?

I think, Bill, this is Bill Burns. So, just – I think you are asking like what’s the savings we anticipate. It’s in the millions of dollars. I wouldn’t call it in the tens of millions, but it’s predicated on what the spend under management looks like for the MSP program. So, if you look at the first quarter, we were still operating north of $1.5 billion in spend under management, the vast majority of which is on a rented technology except for the 25%-odd that we have already converted. So, if you say the cost of that technology is anywhere from 75 basis points up to 100 basis points depending on the platform. So, somewhere in that magnitude is what we are talking about. But – more importantly, it’s like I said, it’s about – it’s millions of dollars annually. For the first quarter, I think it was on a run rate to save us probably a little over $1 million – almost $2 million annualized. So, it’s not – we don’t have the majority of the platform converted yet. And as those go live, that’s the cost savings. And as a CFO, it was great to see that this thing had an immediate payback to it, but it was something that we knew we were going to be able to get our hands around and be able to see that the technology would deliver immediate value. But the longer term vision to what it means for 2023, I will hand it back to John and Dan.

Yes. Sure. Thanks for that. Appreciate it.

Sure. And I will just go a little bit longer because that is one aspect, and that was the first aspect is when we built it was that – to be the vendor management system for MSPs. Secondly, it is really the emergence of this multibillion dollar vendor-neutral market that we didn’t play in. And of course, this now self-managed market that is emerging right now. And that was the second case use. And of course, that is one where it’s a new business for us. It is one where – we started from zero. We had within our first three months, landed our first client. We have a very robust pipeline. So, the expectations really for the year, we – I think we called out before, we didn’t really think we have our first client up and running until the back half of the year. And our first client, which is in – we land in March is actually up and running as of today. So, we are a little bit ahead of schedule. And with our robust pipeline, we think we are going to have some impact in this year. I don’t want to put a number on it yet because it’s such a nascent business. And again, this is a very long-term play in moving into this market. And the last part of that, which I really do feel is a game changer for Cross Country is the internal resource pool technology. The internal resource really helps hospitals help manage their internal core staff and fill their open needs. And we also released and Bill called it out a little bit on his prepared remarks, we released a new technology into the app store called Xperience, and that’s Xperience that begins with an X. And what Xperience does is those two things. The first thing it does is it is our mobile app for travel professionals where they can self submit to jobs on the fly wherever they are at. And they can also upload all their documents. But it also is integrated within our internal resource pool, and it allows from this app, hospital core employees will be able to pick up shifts within their internal resource pool at their hospitals.

Got it. That’s very helpful. I just had one little model question, Bill. The bad debt jumped up, anything to comment there?

No. Not really. I mean it’s formulaic. As your agings move, you have got certain buckets you have to have a higher reserve on. In my prepared remarks, I did comment that we are coming into this quarter on a positive note with regards to collections. So, I think the opportunity is there for a robust cash collection year as we close out the year in the next couple of quarters. The $46 million in the first quarter, I would posit that there is in excess of $100 million of opportunity remaining if nothing else, just from the DSO normalization, but of course, the normal conversion of EBITDA for cash flow.

It sounds good. Thanks again guys. Appreciate it.

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

Thank you, operator. Before signing off, I want to recognize and celebrate National Nurses Month, and personally thank every nurse out there for your hard work and dedication. I also want to take a moment to recognize one of our long-standing field nurses who work continuously for Cross Country since 1988, and recently just retired. Thank you, Victoria. You are a testament to the service we provide and the lives we affect. Enjoy your much deserved retirement. In closing, I would like to thank everyone for participating in today’s call, and we look forward to updating you on the progress of the company on our next call in August. Have a great evening.