Good afternoon, everyone, and welcome to the Cross Country Healthcare's Third Quarter 2021 Earnings conference call. Please be advised that this call is being recorded, and a replay of this webcast will be available on the company's website. Details for accessing the audio replay can be found in the company's earnings release issued this afternoon.

At the conclusion of the prepared remarks, I will open the lines for questions. I would now like to turn the call over to Mr. Bill Burns, Cross Country Healthcare's Chief Financial Officer. Thank you, and please go ahead, sir..

Thank you, and good afternoon, everyone. I'm joined today by our Co-Founder and Chief Executive Officer, Kevin Clark as well as Buffy White, Group President of Workforce Solutions and Services; and John Martins Group, President of Delivery.

Today's call will include a discussion of our financial results for the third quarter of 2021 and our outlook for the fourth quarter. A copy of our earnings 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 current beliefs based on 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 2020 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 measures 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 or normalized numbers pertaining to our most recent acquisition as though the results were included or excluded from periods presented. With that, I'll now turn the call over to our Co-Founder and Chief Executive Officer, Kevin Clark..

Thanks, Bill, and thank you to everyone for joining us this afternoon. As we reported today, our third quarter results once again exceeded expectations, achieving yet another milestone for our company, with consolidated revenue of $374.9 million and adjusted EBITDA of more than $30 million.

Equally as impressive from a year-to-date perspective, we have surpassed the $1 billion mark for consolidated revenue and achieved more than $80 million in adjusted EBITDA, and our fourth quarter is expected to be even stronger, with year-over-year and sequential growth in all major lines of business.

In particular, the number of Nurse and Allied clinicians on travel assignments is expected to more than double in the fourth quarter over the prior year. This historic performance is being driven by solid execution across our entire organization. I do not believe, however, that we are simply riding the COVID wave of higher bill rates.

I believe our growth is also being fueled by the many actions we have taken over the past two years to digitally transform our company and improve the operational effectiveness of the entire organization.

The changes and improvements we have made have allowed us to quickly respond to the record level of demand that we are continuing to see across a wide range of specialties, such as operating room, emergency room, pediatrics, labor and delivery and medical-surgical services which are not directly related to our clients? COVID needs.

It all begins with our people. And it's because of their dedication and willingness to embrace change that we are able to deliver such strong performance. I am so incredibly proud of our entire team for bringing a record number of clinicians to the bedside during this extraordinary time in both our companies and our nation's history.

As we move through the third quarter, it became apparent that the Delta variant would continue to drive both higher demand and bill rates.

Bill will get into the numbers in more detail, but as we called out on the last earnings call, we had expected bill rates for our travel division to decline sequentially in the high single to low double-digit range. Instead, average bill rates rose slightly over the third quarter and are expected to rise again in the fourth quarter.

COVID is certainly playing a role in the rising bill rates with regional spikes in demand related to the Delta variant as well as the impact from states and health care systems enacting vaccination mandates, which is further stressing an already tight supply environment.

However, COVID is only part of the story in the higher bill rates, growing need in non COVID assignments, coupled with greater numbers of clinicians leaving the bedside due to factors such as burnout or retirement are also contributing to the increase in-bill rates.

Although the number of new covet cases and hospitalizations from the delta variant are on the decline, we continue to see demand near all-time highs with tens of thousands of openings across the nation in all specialties and across all of our divisions.

To give you some context, entering the fourth quarter, we have seen the number of unique facilities requesting travelers double since the first quarter, and our total travel orders have nearly tripled over that same time frame.

Given the broader market conditions of the continued high demand and a very tight labor market, we expect rates will trend down in 2022, but more slowly than we had anticipated last quarter and likely more slowly than the pace at which they increased.

Throughout the pandemic, Cross Country has led the way in partnering with our clients to deliver flexible solutions aimed at solving their immediate and long-term challenges.

Many have shared their deep appreciation for our support in delivering clinicians and for providing data, industry insights and market analytics to guide their decision on the appropriate rates necessary to attract clinicians.

One of our core values is to act ethically and responsibly in all that we do, and it has been especially important to have the greatest transparency possible with our clients. We are in this for the long term.

And while COVID has negatively impacted all of us in so many ways, we have viewed it as an opportunity to build long-lasting relationships with our clients.

We will continue to do what is right for our nation, our clients and the patients they treat as well as our shareholders by preserving, protecting and building the value and integrity of our business. In addition, our approach to the market continues to fuel our pipeline for new business with both existing and new clients.

Sales activity in the third quarter was the strongest we have seen since the pandemic began securing numerous new direct clients, including several competitor accounts.

In addition to new direct staffing contracts, we have also secured a record number of new recruitment process outsourcing arrangements as clients seek to rebuild their permanent staff.

Looking ahead, our pipeline for managed service programs remains robust, and I believe that we are well positioned to continue to win a number of sizable programs, which will further grow our spend under management.

We have made significant investments in this part of our organization, and I feel we now have one of the most talented and credible sales teams in the market who are able to clearly articulate Cross Country's value proposition.

From a candidate perspective, it is clear that Cross Country presents a unique value proposition driven by competitive compensation packages, attractive opportunities and a commitment to the highest level of service. Our brand is resonating in the marketplace in a big way.

One data point we're sharing is the number of first-time travelers with Cross Country has more than doubled and currently makes up more than 40% of new weekly travel assignments as clinicians, specifically millennial's, continue to embrace the flexibility and personal control that come from being on temporary assignments.

We believe that Cross Country is well positioned to capitalize on this emerging trend.

Our commitment to excellent service, along with ensuring diversity and inclusion have resulted in Cross Country receiving a number of recent awards as one of the top staffing companies for women, an award for best places to work and five top workplace awards from Energage, including an award for top diversity, equity and inclusion program.

Turning to the businesses. Let me just spend a moment on our segments. Our largest segment of Nurse and Allied more than doubled over the prior year and was up more than 13% sequentially. Both driven primarily by an increase in the number of billable hours and professionals on assignment.

Again, I want to reiterate that the continued growth is a direct function of the improved productivity stemming from the changes we have implemented over the past two-plus years. The digital transformation of the organization and the continued investments we have made in incremental revenue producers throughout 2021.

We look forward to making continued progress as we continue to execute against our strategic plan.

Our local business, which has been re-imagined through the introduction of our marketplace candidate app and restructured with the elimination of redundant organizational infrastructure and its office footprint, is making solid progress and recently has experienced some of the strongest performance weeks since the pandemic started.

This business has performed better than expected, with third quarter revenue up 11% over the prior year, and we are expecting continued sequential weekly revenue growth throughout the fourth quarter. As expected, the education business declined sequentially due to the impact from summer holidays.

However, similar to our other lines of business, outperformed relative to our guidance and the prior year. With the start of the new school year, we are excited at the prospects for this business to continue its return to pre-COVID growth rates.

Also contributing to the third quarter were the results from our most recent acquisition of Workforce Solutions Group which closed in June of this year. As a reminder, WSG expands our footprint in the home care market and aligns with our strategy of following the patient by delivering quality clinicians across the entire continuum of care.

In addition to traditional staffing, WSG offers managed service outsourcing arrangements or MSOs, which function similarly to our managed service programs, except that they provide clinical support in home health.

On a pro forma basis, WSG continues to experience significant growth, with revenue up more than 75% and a gross margin several hundred basis points above the segment average. Looking ahead, we continue to expect above average growth, having recently implemented two new MSO programs and with an active pipeline for future opportunities.

With respect to our integration, we are taking steps to ensure we maximize the cross-selling and fulfillment opportunities across the organization by leveraging the full complement of resources at Cross Country, including tapping into our extensive database.

This acquisition also expands our go-to-market strategy and expand service offerings to our clients. From an operational perspective, integration efforts remain on track to be largely completed by the end of this year.

We are also encouraged by the turnaround and trajectory of the local tenants business as it continues to recover from the impact of COVID. Locum's revenue was up 20% sequentially and 14% over the prior year, with the majority of the growth coming from an increase in volume from primary care physicians and nurse practitioners.

Our managed service programs, or MSPs, continues to represent a significant portion of our business, representing 48% of consolidated revenue for the quarter. Total spend under management was nearly $1 billion, up 6% over the prior quarter our capture rate was approximately 69%.

Given the combination of strong demand and a proven ability to execute, we have continued to make significant investments in our business, both in additional resources as well as in technology. From a resource perspective, we have grown our organization's headcount by nearly 30% in 2021, with more than 90% in revenue-producing roles.

The majority of these resources are ramping quickly, and I believe we now have a deeper bench of revenue producers than at any time in the company's history.

From a technology perspective, we continue to make solid progress with enhancing and further deploying our applicant tracking system, or ATS, with further deployments scheduled over the coming quarters. In addition to the ATS, we continue to make significant investments in both client and candidate facing tools.

From the candidate perspective, we are continuing to build out a complete self-service portal that candidates can use across the entire engagement life cycle. Overall, I'm highly encouraged by the progress we have made in just a couple of years to digitally transform this company, positioning this company as the innovative leader.

Looking ahead, our fourth quarter guidance to another -- points to another record quarter in the company's history.

We expect consolidated revenue between $580 million and $590 million representing sequential growth of 55% to 57%, while practically all lines within nurse and allied are anticipated to grow sequentially, most of the growth is expected across travel nurse and allied.

And although average bill rates for the travel business are projected to be up 25% to 30%, the majority of the sequential growth is expected from a continued rise in hours worked as we continue to take market share and expand the headcount on assignment.

From a profitability perspective, we anticipate adjusted EBITDA to be between $63 million and $68 million, representing an adjusted EBITDA margin of between 11% and 11.5%, well above the 8% achieved this quarter.

As we look beyond the fourth quarter, we expect headwinds from declining rates in 2022 and the pullback in demand for certain specialties such as respiratory therapists. However, we also expect to see continued volume growth across our portfolio as we continue to grow our market share.

Although we don't provide guidance beyond the next quarter, I believe that given our current level of production, our revenue run rate for the first two quarters in 2022 should remain higher than our third quarter.

Finally, we at Cross Country, recognize the disparities certain communities face in health outcomes due to their racial makeup and ethnicity.

The pandemic has certainly highlighted these challenges in marginalized communities, we are especially proud that our recent acquisition of Workforce Solutions Group specifically targets these underserved communities and is making a positive impact by providing an opportunity for patients across every spectrum to live a healthy life.

I want to thank our thousands of health care professionals and our corporate employees who promote health equity every day. I couldn't be more proud of the work they are doing. Now let me turn the call over to Bill to walk us through the results in more detail.

Bill?.

Thanks, Kevin. As Kevin mentioned, we once again exceeded expectations for both revenue and adjusted EBITDA as the company continues on its trajectory of solid execution across multiple fronts.

Our ability to attract and place candidates, coupled with favorable bill rates is leading to our fourth quarter, not just being the strongest quarter of the year, but in our history. I'll speak to the guidance in just a moment, but first, let me review our results for the third quarter.

Consolidated revenue was $374.9 million, up 93% over the prior year and 13% sequentially. While average bill rates have increased over the prior year and sequentially, the majority of the growth has come from an increase in billable hours across our entire portfolio. Looking at the segments.

Revenue for Nurse and Allied was $356.1 million, representing an increase of 101% over the prior year and 13% sequentially. Within the segment, the travel Nurse and Allied businesses were the primary drivers for the growth.

On a sequential basis, the hours for these two businesses were up approximately 10%, while the increase in average bill rates was in the low single digits. As we came into the quarter, bill rates look to continue the downward trend we have seen throughout much of the first half.

But as we progressed through August and into September, we saw continued spikes in urgent needs related to the Delta variant and later to the needs to backfill pertaining to the vaccination mandates. This upward trend is expected to continue into the fourth quarter before peaking late in November or early December.

At this point, demand related specifically to the Delta variant for the vacation of mandates has declined, but our overall travel demand remains well above the pre pandemic levels and near our historic highs.

Though we have limited visibility into when or how quickly rates may start to retreat, we expect that they may come down more slowly than they increased and to hold well above pre-pandemic levels for the foreseeable future.

Our local business continues to recover from the impact of the pandemic and was up 11% over the prior year, with both rates and volume contributing to the growth. Average bill rates remained relatively flat for this business compared to the second quarter, though still 8% above the prior year.

Also, part of this segment, our education business performed better-than-expected despite the anticipated sequential decline from the summer school break. This business grew 77% over the prior year, entirely due to an increase in billable hours as rates remained relatively flat.

We're off to a strong start and expect to see double-digit year-over-year growth in the fourth quarter once again. Our only other segment physician staffing saw a double-digit growth, both sequentially and over the prior year.

The growth was broad-based across a wide range of specialties, including primary care and hospitalists as well as advanced practice specialties such as nurse practitioners. Gross profit for the quarter was $83.8 million, representing a gross margin of 22.4%, which was up 50 basis points sequentially and down 230 basis points versus the prior year.

As we've called out previously, gross margin continues to be impacted by the mix of rapid response assignments related to the pandemic as well as the higher than normal compensation costs due to the extremely tight labor market.

The sequential improvement was driven by both higher-margin for our travel business as well as the favorable impact from the WSG acquisition, which has a margin well above the average for the segment. In general, we believe the gross margin will continue to improve, especially for the travel business as COVID continues to subside.

Despite the year-over-year decline in gross margin, the gross profit dollars were up 75% over the prior year, further improving our operating leverage. Total SG&A was $52.8 million for the quarter, up 5% sequentially and 30% over the prior year. Excluding the impact from WSG, SG&A was flat sequentially and up approximately 21% over the prior year.

The primary driver of the year-over-year increase is related to the investment in revenue producers from higher salaries and commissions earned on the record performance of the company. With demand remaining strong, we expect to continue making investments in revenue producers to fuel continued organic revenue growth in the coming quarters.

There are several other items worth calling out in the income statement. We increased our allowance for doubtful accounts by $1.4 million in connection with the growth in our receivable portfolio, and we incurred approximately $300,000 in continued restructuring costs related to the leases exit over the last two years.

Below operating income, interest expense was $2.2 million, primarily attributable to the carrying cost of our new $100 million subordinated term loan entered in connection with the acquisition of WSG.

From a balance sheet perspective, we ended the quarter with $800,000 in cash and $104 million in outstanding debt, excluding letters of credit, including subordinated term loan and $4 million in borrowings under our ABL facility. As of September 30, the company was able to access the full line under the ABL.

From a cash flow perspective, we had a use of cash from operations of $3 million due to the investments in net working capital associated with the strong sequential growth of our business. Our days sales outstanding was 61 days, up three days since the start of the year.

The increase in DSO was largely due to the timing of revenue recognized throughout the quarter given the strong sequential monthly growth throughout the third quarter. Capital expenditures were $1.9 million for the quarter, principally related to the continued investments in our digital transformation. This brings me to our outlook.

We expect consolidated revenue to be between $580 million and $590 million, representing a 169% to 174% increase over the prior year and between 55% and 57% sequentially.

The majority of the sequential growth is expected to come from an increase in the number of professionals on assignment as well as a sequential increase in the bill rates for our travel Nurse and Allied businesses.

Billable hours for travel Nurse and Allot are expected to grow by more than 40% over the third quarter as our investments in revenue producers continue to ramp, and we continue to experience improved productivity.

We're guiding to a gross margin of between 22.2% and 22.7%, which represents a 20 basis point decline to a 30 basis point improvement on a sequential basis. Overall, gross margins continue to remain lower than the prior year, primarily as a result of margins realized on rapid response orders related to COVID and an incredibly tight labor market.

As a result of the historic organic growth, our adjusted EBITDA for the quarter is expected to be between $63 million and $68 million, representing an adjusted EBITDA margin of 10.9% to 11.5%, and our adjusted earnings per share range is $1.01 to $1.11.

Also assumed in this guidance are depreciation and amortization of $2.7 million, interest expense of $2.6 million, stock-based compensation expense of $1.6 million and 37.7 million shares outstanding.

And finally, given our fourth quarter and full year performance, we now expect to fully utilize our federal net operating losses in the current year, nearly two years ahead of our projections. Also, as a result of the profitability, we expect to reverse the related $24 million valuation allowance as a credit to our income tax expense line.

Our adjusted EPS guidance excludes this credit and reflects an effective tax rate of between 30% and 31%. And this concludes our prepared remarks. At this point, we'd like to open lines for questions.

Operator?.

[Operator Instructions]. Our first question comes from Kevin Fischbeck from Bank of America Securities..

I guess it's been a while since you guys have done any kind of meaningful deal.

So I would love to see if you could kind of maybe break out the revenue growth this quarter and maybe in the Q4 guidance between kind of what is organic and what is coming from acquisitions?.

Yes. Sure, Kevin. This is Bill Burns. Hopefully, you can hear me. As we talked about on last call, we had about $5 million of revenue in the second quarter, given how late in the quarter the deal had closed. And the current quarter was a run rate of about $20 million..

Okay.

And it should be in that $20 million range in Q4 as well?.

Yes. We haven't given specific guidance to that, but yes, we are looking towards forward for some sequential growth, but that's a reasonable range..

Okay. And is there any reason to believe that, that business will act any differently? I guess, when we think about home health, is clearly seems to be an acute staffing issue there as well. Do you sort of have the same kind of trends around bill rates and demand? Or should that act any differently versus the core Nurse and Allied business..

Yes. I mean, in terms of bill rates, I mean, we're not seeing the higher bill rates in that business that we're seeing, for example, in the travel business or in some of our other segments.

And the story with WSG is it's the market leader in providing home health care staff to seniors, specifically around federally qualified health care centers and pay centers. And it's growing its footprint of customers rapidly, and it's a wonderful story because it's providing both diversified staffing services to these health care clinics.

And then through this MSO contract, which we pointed out in our comments earlier, we provide home health caregivers that follow the patient into the home and manage the care plan. Now in that segment, Kevin, as you know, throughout this pandemic, if any part of the labor pool is challenged, it's the hourly worker.

And there's a lot of patient care techs and CMAs that work by the hour. And so the challenge in that business is to keep up with growth and find the supply, which does parallel, of course, all the other segments as well, extremely tight labor pool..

Yes. Definitely. And I guess maybe last question, I appreciate you're going a little bit beyond what you normally do as far as guidance with that commentary about the first half run rate.

I guess, so when we think about 2022, overall, do you think that 2022 will be a top line growth year? Or do you think it would still be down year-over-year?.

What we don't know, of course, is what's going to take place in terms of bill rates, right? And what we did call out is in the first half of the year, we think performance will be above where our Q3 numbers came in on a relative basis.

We are seeing the Delta variant cycle with hospitalizations decreasing, but at the same time, we're dealing with vaccination mandates. We're a little -- we're careful about the flu season. It looks at the moment, like it's not going to be a severe flu season. But all of those things are the puts and takes that go into our guidance there.

What I will tell you is, look, Kevin, our strategy is working. The blueprint that we put in place in 2019, our strategic plan is working well. And we're surging as the market leader again. And we are a market leader in a large and growing market, as you know, it's $20 billion this year going to $25 billion next year.

And we have a very focused strategy, as we talked about following the patient in this continuum of care from wellness to acute care to outpatient to home health. And we are the only company that can make that statement that we provide that whole continuum of care. And so with the soaring demand, tight labor supply and a very focused strategy.

And I wanted to just point out, quantitatively we continue to see huge gains with our employee productivity. All of these things are the new Cross Country. Cross Country, as we guided to, is growing 100% in Q4 in terms of health care clinicians working for the company versus a year ago.

We are emerging from this pandemic, a much different company, a company that's focused, has digitally transformed itself, has powered up top graded the management team expanded our revenue producers significantly. We're very excited about our future. So we think there's plenty of demand for us to have a very successful year.

And based on the guidance we gave Cross Country Healthcare, we'll be on an annual run rate of between $2 billion and $2.5 billion in the fourth quarter. So lots of momentum here..

Our next question comes from A.J. Rice from Credit Suisse..

I guess I'm just trying to figure out, if the COVID -- I understand the surge and that was what that drove. But I guess we're surprised a little bit, obviously, at the strength that's continuing even as that surge dynamic comes down.

Is there a way to talk about how many of your placements that you're getting are going to COVID sort of hotspot, COVID specific assignments, versus non-COVID and how that will trend going into the fourth quarter. And even as you maybe early think about first half of next year.

Is there assignments that people token when they were under the gun and the peak of the surge in September and October, they just are going to extend into the fourth quarter because they're three-month plus assignments, and then they'll roll off.

I guess, just trying to figure out how the placements are staying so strong even as the surge looks like it's abating pretty quickly..

Well, A.J., I'll start that, and I'll ask the team to add some comments because it's a key question, of course. First of all, we're seeing demand across a lot of specialties due to deferred host that are coming back.

So the broad market, so to speak, is booming in terms of open jobs, electric surgery, OR, peds, LNG, a lot of emergency medicine, we're seeing a 200% increase in job orders, for example, in our Locum's division. So we're seeing this broad demand come back and there's a shortage across all of these specialties, right? So that's one backdrop.

The second backdrop in addition to COVID, this quarter, we are, as we called out, there are these vaccination mandates, and that's leading to an even tighter supply for pockets in the country. Not every state is -- and every health care system is requiring a vaccination, but many are. So we've got the mandates which are affecting the business in Q4.

And interestingly enough, some of those vaccination mandates also now include flu shot mandates. So -- and in some pockets, we're seeing them actually be delayed or pushed back. And then one other comment, and then I'll throw it over to Buffy, and she can talk about what she's hearing from some of our clients.

But for example, in the pediatric area, children's hospitals have a triple threat right now between COVID, between winter respiratory and all this deferred health care needs are up a staggering 300% in these facilities. So we're seeing all that. And then just briefly, before I turn it to Buffy, our school business is back. Every kid is back in school.

It bodes well that the CDC has approved vaccinations for children because I don't think schools will ever go out again. And you look at this issue about stress and burnout and how much pent-up demand there is for PTO with a lot of our clients? permanent employees, we're going to be very, very busy.

But Buffy, maybe you can fill in some of that?.

Sure. Thank you, Kevin, and hope you're well, AJ. A couple of things. We are still seeing some pockets of COVID and census given to COVID, but it's much smaller. It's much more isolated than it has been. So really, we see a few areas driving staffing at this point, primarily staffing vacancies within core staff.

So health care facilities, obviously, they're seeing burn out in attrition, but they're also trying to give their core staff, the PTO that they weren't allowed to have for some time because they were caring for it. And so they are trying to offset that and some of the vacancies due to their deferred services.

And in addition, the hospitals are starting business resumption. So where they can, they are starting to offer out the elective services, preventative services. Interestingly enough, if folks have not necessarily met their deductibles, they may defer those over into Q1, which speaks to the second question you had is what might you see in January.

So they're also becoming concerned about coverage over winter. And obviously, we have not seen a significant amount of flu activity. We potentially can anticipate seeing that in January as normal, so that could pick up in Q1.

The vaccine mandates are probably one of the largest impacts, and they are driving a lot of -- not all, but a lot of the health care facilities are driving the vaccine mandates. And those dates we're seeing October, November, December, for core staff as well as contingent staff.

Some are allowing some exemptions, whether it be religious or medical exemption. Not all. And if they are allowing those exemptions, they will require weekly testing. So we're seeing some variability across all of that.

But what that says to us is low supply at this point because even the contingent workers are fatigued, but still high bill rates out there because there is such high demand.

And so as we start to go into the holidays, the needs are even more critical, we are starting to see that assignment length go back to kind of the 11-plus weeks, some are even looking for longer to carry them into the Q1 activity.

And again, once we hit January, potentially we'll see flu, you'll start to see some of those, what was to be preventative services now becoming more in need and acute, and you'll start to see people working down their deductibles and going back for their deferred services. So I agree with everything else, Kevin said. Hopefully, that added some color..

Sure. Maybe if I could just follow-up on that. Can you just comment on how you're doing on fill rates and maybe how that's trended over the last few quarters? It sounds like you're getting a number of more clinicians willing to take these assignments.

So I'm wondering, is that keeping up with the demand? Or are you able to fill more of the orders that you fill a higher percentage of the orders that you get right now versus what you could do a quarter or two ago?.

John, you want to take that?.

Sure. So yes, the demand, especially going into Quarter 3 has been at historic levels. And this is something where we were -- if you look at what our demand was on this surge compared to the surge of Q4 of last year, where the amount of jobs were nearly double.

And so while bill rates, fill rates are a hard indication to show what we're doing because there's just between the vaccine mandates, between the COVID needs, there are literally, there are thousands of openings in certain hospitals and certainly hundreds.

And so we've seen more volume and more clinicians going to these accounts, but the jobs are unprecedentedly high. So fill rates are a hard indicator just to see going up just because of sheer volume of jobs..

All right. Maybe the one last question would be on the bill pay spread, it sounds like at times in this surge. You guys have been willing to try to help your clients out a little bit to take a little bit of a pressure on the bill pay spread.

What's happening with respect to that now? Are you able to hold that? Or is the dynamics of the market such that you're having to give a little concession admittedly at much elevated rates.

But what's the trend with bill pay spread?.

Kevin?.

Yes. No, I was just going to say, look, from the very beginning, A.J., we're the one company, the market leader that put out price guidelines.

We wanted to make sure that we stood by our partners, our clients during this unprecedented pandemic and made sure that we were attracting the supply they need, and we were passing on the majority of the bill rate to the health care professional to make sure that we could fill those orders.

As the pandemic eases, this Delta variant eases as bill rates ease, this kind of artificial suppression, so to speak, of approximately 200 to 300 basis points, we think, can bounce back with the broader market. So we think on a -- it's a tight supply, it's good place. We've done the right thing in terms of standing by our customers. They appreciate it.

Our customers. We have tremendous retention. I was just at one of our largest clients about a week ago. One of the largest health care systems in the country. They were so appreciative of our core values and the ethical stance we took, and I think we'll be rewarded for many years to come because we did the right thing.

And Bill, did you want to make a comment?.

Yes. I mean, covered, I was just going to say, to your point, Kevin, that throughout the pandemic, when we were sending people into the hotspot, specifically around the spikes for COVID, we were certainly looking at ensuring that we were paying what we needed to get the supply where they had to go regardless of what the bill rates were.

As we're seeing the mix of demand kind of normalized, I'll call it, to a more normal mix. It's still elevated, to one of your earlier questions. I mean, even as we come into this quarter now, demand still -- even though the COVID spikes from Delta are starting to retreat and the mass mandate, the [inaudible], excuse me, are not playing as big a role.

Our demand still is at least 2x where it was a year ago coming into the quarter. So there's plenty of opportunity there. And I think as that plays itself out, we should start to see the margins normalize. And pay rates certainly went up faster and by a higher percentage than bill rates.

I don't know that they'll play out exactly in the reverse order that way. But over the longer term, we would expect periods and bill rates to more normalize..

Our next question comes from Brian Tanquilut from Jefferies..

Congrats on the quarter. This is Jack Slevin on for Brian. Just quickly wanted to touch on what you're seeing in terms of staffers that are -- or nurses that are -- are going on multiple assignments with you or repeat assignments.

I think we're seeing some industry studies out there showing that nurses that are newer to ten staffing or travel staffing are having kind of a better experience or generally more satisfied than nurses in perm roles. And so just kind of looking for a way to triangulate and track.

Obviously, some of that's related to bill rate, but trying to see -- hear what you're seeing on that side of things. So anything in terms of repeat staffers or stickiness of people that are newly jumping on with Cross Country would be helpful..

Yes, Jack, it's a great question. A couple of different answers. First of all, our renewal rate is very strong, and it's been strong throughout the pandemic. We have a lot of our health care clinicians work with us assignment after assignment. But I'd say there's two points. One, most of the travel nurse or travel therapists today are millennial's.

Millennial's are part of this gig economy and they are embracing the concept of having a flexible contract work assignment versus being a permanent employee for all the reasons; they can go, when and where they want, they get paid well, and they call the shots. So that's point number one.

And that is a mega trend, and that's going to continue for, I think, many, many years, especially in the health care realm. And we're seeing that. The other point is, as we called out in our comments earlier, 40% of our new travel assignments, or our locks, so to speak, are first-time travelers with Cross Country Healthcare.

And these are experienced tenured nurses that are coming to work at Cross Country Healthcare. They're folks that have already been in the travel industry.

And it's a really important point because the point I'd want to make to you is Cross Country Healthcare is the company to work for, again, okay? It is the Number 1 company that women want to work for -- we called out one of the awards we are rent. But what we're seeing is we're seeing the market come to us.

Why? Because we put the strategic plan in almost three years ago, we turned around the business. We top-graded it. We've restructured it. The candidate experience for our health care clinicians is night and day different than it was three years ago. It's extremely easy for a job seeker to find a job in minutes or hours versus days.

We've compressed the ability to find a job and accelerated the process. So many things go into -- I know we call that great guidance for fourth quarter, but we're still warming up the engines here at Cross Country Healthcare. This company doesn't want to be second, third, we want to be Number 1 again. And that's our mission.

And our mission is to keep -- we have a lot of competitors that are looking in the rearview mirror a lot lately because we're coming on strong. And I can also reflect on the great sales quarter we had with our -- from our sales organization.

We had probably the largest quarter in our company's history of hundreds of contract wins, okay? So it's broad-based. It's across all segments. And the one Cross Country brand is really resonating.

John, I don't know if you want to add anything from your perspective on that?.

Thank you, Kevin. Your response was point on and spot on. The only thing I'd add for you, Jack, is that clinicians are looking for three main things, still right, and this is why they're continuing to renew with us looking for competitors pay.

They're looking for the quickest process from the door to the floor of their assignments, and they're looking for the flexibility in assignment lengths, whether it's a shorter-term assignment or longer-term assignments.

And of course, they're still looking for making sure that they have the right location and the right facility we're they want to work at. But I think it's key is being able to get the clinicians and create that incredible experience for them. Is getting them to renew with us more and stay with us as a company.

And it's all about really having a frictionless process and an easy button to get the clinicians to stay onboard. And as Kevin mentioned, it really is a lot of these millennial's that are working now in the industry, and they've really been baptized in their careers during this pandemic.

As you mentioned, they came in there first time travelers, and they're really enjoying this gig economy, this experience of being able to go and be on demand where they want to work, when they want to work and being able to really call their career and really make inroads on how they want to develop their career..

Okay. Got it. Really, really helpful. And then one quick follow-up for me, just on the volume assumptions for 2022 and the commentary there.

Just so I understand it right, is that 9,000 average providers on assignment that you put up in Q3, a decent base to think about being able to sustain through 2022? And then second, it looks like, with my kind of back of a napkin math, somewhere between 20% and 30% productivity gains on your sales force relative to the prior year, depending on how much you attribute at WSG.

Is that sticky? Or are you going to have to bring more staff on? What's kind of the viewpoint there in order to maintain those volume levels?.

Bill, do you want to comment?.

Yes, sure. Great question. So the goal, obviously, as we look into 2022 is to maintain and grow our headcount.

So really, what we're looking at is we expect, even in the first half, rates will start to trend down, okay? And so -- but to Kevin's point, as we exit the fourth quarter with the level of staffing that we'll have at our clients, we expect that to continue and to grow from that point forward.

So because we're still gaining productivity, and we're still having our revenue producers ramp from the significant investments we've made throughout the year. It's like you heard in Kevin's script. We've grown our workforce by 30% on an organic basis, and 90% of those were revenue producers.

So we've been hiring all throughout the year, and folks are in all stages of tenure. So we'll continue to see productivity gains from that, coupled with the productivity side of just continuing to roll out and deploy new technologies..

Our next question comes from Tobey Sommer from Truist Securities..

I was wondering if you could give us a little bit more granularity into the increase within the sales force itself because you did say 90% of a 30% increase of overall employees.

And I understand why you might not want to give us the hard numbers specifically, but if you could be more specific on the growth rate as well as maybe can give us your perspective for how much productivity enhancements you could get over time as they get tenure?.

Yes, you're right. Go ahead, Kevin..

Okay. Yes, I'll start, Bill, and you can --. Tobey, another good question. Look, productivity is up massively compared to where we were before our digital transformation.

And we've called that out in, and we continue to get gains from the technology that we've brought to the organization from our cloud-based ATS system to many, many other things, lots of the things that we don't really candidly want to talk about publicly, but that we do that's part of our secret sauce and our algorithms.

So we are investing $12 million to $15 million a year in capital expenditures. We are improving not just the employee productivity tools, but we've called out earning making it simpler, easy, that easier, faster, to find a job.

Our marketplace technology, for example, I'm sure contributed to the great results that we saw in our per diem MSN division, for example, this quarter. So we're never finished. We're investing significant dollars, and we think there's a lot more productivity to gain.

And then in terms of your question around the mix of people, look, we have grown substantially our Cross Country nurses division recruiter base as well as Cross Country Allied. But really, every single division, we have scaled with more recruiters, better training, more account managers, better training, bigger sales organization, all of the about.

So I'll go back over to Bill..

Thanks, Kevin. Yes.

So it's hard to give you percentage growth in each of the functions, but I can just kind of give us some sense of it spans all types of revenue producers, right? So recruiter's cheap among them in the area where we've been investing, obviously, account managers as well as well as additional salespeople and some other revenue-producing support roles in credentialing and on-boarders.

But that majority of it has been in the first two I mentioned, the recruiters and account managers. But it's been pretty broad-based. And it's not in one particular business. We are investing across the entire portfolio. And so we are adding capacity to all lines of business, I would say..

Yes. Based on typical headcount mix that pre-pandemic, at least, it's 90% of overall 30% increase. It sounds like it's something in the 70%, 80% range.

Is that a reasonable estimate on my behalf?.

I mean for the just sort of growth factor alone, yet you pro for the sales related roles? Yes, I think so.

I think that's a reason -- From the perspective of a high-level discussion of what the mix of employment is, it's clearly different than it was pre-pandemic, right? When we went through the restructuring in early 2020, and we were looking at our cost reduction, a lot of the cost reduction -- in revenue -- So we've scaled that down.

And simultaneously, as we've seen the market remains robust, etc., we've made the investment. So it's certainly part of the growth story here is the capacity of the company has just completely changed as we look forward..

So my follow-up question would be margins are great. The revenue growth is very strong. The balance sheet is under levered. What is your appetite and preference as far as acquisitions? Or is this market just make it difficult to assess the durability of potential acquisitions in their kind of revenue and profit streams..

Yes. Tobey, that's a good question. And you're kind of right in what you're asking. In terms of -- first of all, our pipeline is strong. We are looking at a lot of potential targets in education, in the home care marketplace, in Locums, some technology. So it is a strong pipeline. But to your point, valuations are high.

And we've called out this on the call before, but it took us a couple of years or so to make our first acquisition. We want to do more, but we're very value-based investors. We don't want to overpay for things. So we have a wonderful corporate development team and a finance team to be able to really dig in on things.

So look, I'm with you, we have a fantastic balance sheet situation right now. We have a wonderful partner Blackstone and Wells Fargo. We have a lot of dry powder. So stay tuned..

Our next question comes from Kevin Steinke from Barrington Research..

Good afternoon. Just wondering if you've seen any data on how significantly the vaccine mandates are constricting the supply of clinical labor..

Buffy, you want to tackle that?.

Certainly. So there are -- Hi, Kevin, hopefully, you're doing well. There are a lot of hospitals, as I mentioned, and a lot of facilities that are applying the vaccine mandates across their core staff but also any kind of indirect staff coming into the facilities.

Many are trying to apply the exemptions, whether it be religious or medical exemptions and then offering weekly testing so that they can continue to bring that supply in. This really is impacting not just the clinical side, but the nonclinical. So across the board, we are seeing impact.

Some of the dates that some of the health care systems have established for those vaccine mandates have pushed out. So that's giving the staff a little more time to make the decision, go through with the vaccines if they choose. And we're seeing the numbers go up as they start to push out those dates. So they're anticipating a higher impact.

And as the data emerges, that impact from the vaccine mandates declines. But we're also seeing pockets of either health care systems or even by state where they're not mandating that. So I do think that it is a short-term impact on the supply.

And in particular, where some of the demand is much higher, as Kevin was mentioning in some of the L&D, pediatrics, there's still high demand for ICU, endoscopy, etc., that that's where we're going to see most of the supply compression and bill rates and continued nurturing of candidates is going to play a very big key in us being able to support those health care facilities.

And we'll help support them through contingent staffing as well as our direct hiring RPO services..

Yes. And I would just add, too, Kevin. I mean, overtime hours were up 52% over pre-pandemic levels. So that's a symptom of this, and we're seeing a lot more overtime than we would typically see as well..

Okay. Great. And I just wanted to ask about your 8% adjusted EBITDA margin goal. You've obviously achieved that in two of the last three quarters here, and you're targeting a higher than 8% margin in the fourth quarter.

At what point do you say, well, we've reached that goal, and we've reached it a little earlier than expected and kind of think about what the next potential margin level or potential target could be?.

Yes. Maybe Bill and I will tackle that. Look, first of all, we did reach kind of a 8% or better type of result over a year earlier. So we're very proud of the fact that we accelerated our trajectory in terms of earnings. Two, we are on a sustained growth path.

We will continue to make investments quarter-to-quarter to keep this company in the forefront as the most innovative company in the industry. So sometimes we'll invest against profitability and we'll not necessarily flow in some perfect line going forward. But we're bullish. We're very bullish on our capability.

We have -- if you step back and look at what we've accomplished, we're 2x the size that we were a year ago. And we've got 30% more revenue producers. We've got productivity tools that are improving our results in high double digits across our enterprise.

And there's still projects yet that we are extremely excited about, some that will be bringing to market over the next couple of quarters. We're very excited about where we're going directionally. So we get that our job is to grow shareholder value, but this is no longer a company that doesn't have a blueprint on its future. And we're very excited.

We don't want to see the company drift back from a $2 billion to $2.5 billion run rate business, achieving these type of numbers. So we're going to work really hard to grow that profitability over time above these targets..

So yes, Kevin, just a couple of other points. As you think about Kevin's earlier comments about the first half kind of maintaining above the Q3 run rate, I certainly think that certainly implies the company can operate at 8%. If our revenue levels are going to be north of the third quarter run rate that we've talked about.

I think as the bill-pay spreads start to normalize in the future, it really becomes a story of twofold, right? The continued volume growth and expansion. It's obviously the substantial increase in volume that we're seeing into the fourth quarter that's allowing us to target double digits.

Historically, we've said roughly about a third of our gross profit. This is implying nearly 50% of the gross profit is flowing through to the bottom line in the fourth quarter. So it's possible to start targeting a higher margin, but I guess, more will need to be borne out as to how much -- how fast we can be push in the volume side of things.

And as we talked about, as long as the demand remains where it is, we're going to continue to invest. We're going to continue to implement new technologies, gain productivity and continue to see the level of books on assignment grow across the revenue producers..

Our next question comes from Bill Sutherland from Benchmark Company..

Thanks for keeping the lines open for me guys.

I was wondering if we could just spend a minute on the supply side, really just mostly curious what your what you're seeing first hand, maybe what you've -- anything that you've gathered industry-wide as far as the future of the graduation rates, the future of immigration, just -- is there going to be a supply catch up in our lifetime? No, in a -- what kind of window do you see there?.

Yes, it's a good question. First of all, we're very encouraged that enrollment in bachelors, masters and Doctorial Nursing programs has increased nearly 6% from 2019 to 2020. And that data is a little bit old. I think it's probably risen more than that this year.

I think there is a lot of interest in people looking at these heroes that have been on the front line. And candidly, the flexibility in their work environments, compensation, a lot of things go into that, but we're very encouraged that enrollments are stronger.

We have seen a fair amount of interest in terms of foreign trained nurses by some of our clients. There's more of an appetite, so to speak, to look at foreign trained nurses as an additional part of the supply.

I will say that I also would say that what we're seeing through this pandemic, I think we're going to look back and, pardon me using this phrase, but I think nursing is at a paradigm shift in moment.

And there -- it's a profession that there are some exciting new opportunities such as telehealth, for example, that weren't here even a couple of years ago that were becoming mainstay. So a lot of those things are attracting, we think, longer-term of supply, which will be good to ease some of this.

But I'll open it up to John or Buffy, if you have some comments you'd also like to make a go..

This is John, Bill. Thank you for the question. And I'd just add something briefly is, where there is definitely, as Kevin mentioned, some silver linings and some opportunity ahead of us in different segments to bring in more supply.

What we're looking at, if we look at the oldest BLS employment data, that we're still seeing overall health care employment is down 3.1% from pre-pandemic. Hospitals are still down 1.6% from pre-pandemic. In a recent study that took place over the summer showed that 62% of hospitals have vacancies of 7.5%.

So I think we do have a long way to go on bringing back the supply, and it's going to take as an industry for us to partner with our hospitals with schools to really create more supply to meet this need and this demand, especially as we're seeing the nurses that are burnt out, fatigued and leaving the industry..

Yes. And I'll weigh-in from a client perspective, they're really looking to us to say, help us with innovation, help us with core staff retention. So if we can just retain more of who we have, if we can look at how to up-skill or those that we can move into more acute positions.

If we can re-skill those who may have been out of the bedside for some period of time because they've been fatigued and bring them back. So we're also looking at not just supply creation but how we recreate the supply that is potentially right in front of us. So shorter-term opportunity there, we definitely need to focus on the longer term..

On that skilling, Buffy, in terms of re-skilling, would you all have some -- would you be providing support? Or sorry about that for a certain group of tenured people that you would want to invest in?.

That's right. That is the intent.

So we have a clinical quality council made up within Cross Country that is in partnership with a lot of our health care facilities, a lot of external organizations as well as a lot of these school opportunities and looking at just that is how can we help come in and re-skill through education, through preset, through partnering, different types of innovation in order to, again, retain and grow the supply that's already there..

Right. One last one, if I can. This is over to the bill rates again. I don't know if you had a way to do this.

But have you been able to kind of segment bill rates associated even with the COVID work itself or with the impact of the mandates currently having a big impact versus the business that serves the traditional roles related to supporting departments and procedures and so forth..

The answer is we do have separate bill rates, right, for rapid response COVID business, for example, for -- we may have a project that a client gives us in terms of vaccination mandates and that could have pricing. But I think the point is the broad market still has high bill rates.

To find a cardiac cath RN right now, it's a very, very high bill rate to find that registered nurse, to find certain pediatric positions. It's still a high bill rate. So the supply is constrained across all specialties, and we're seeing higher bill rates across all specialties.

So it has somewhat kind of a network effect across all these different specialties that we recruite for..

Right. I mean, I certainly agree that it's not going to settle back down to where it was. Just trying to get some idea of such delta here now given where the --.

One other point I would just make is the health care system is being dramatically disrupted by new entrants as well, such as Amazon Care, Apple, Google, who have an eye for change. And technology --.

Also things like Nomad, right?.

Yes. Well, I mean, Nomad is really -- they're a direct competitor. They're a staffing agency, but what they offer is mostly commoditized at this point. But what I'm saying is the big companies like Amazon, Apple, Google, are changing the way healthcare is being delivered.

They -- Amazon Care is a national business that provides a telehealth model to bring health care to your home. So that is a disruptor, and that's having impact as well..

And our final question comes from Ryan Griffin from BMO Capital Markets..

Just following the lines of the prior question, I was curious to what extent, if any, have the nursing strikes impacted your business?.

Buffy, do you want to talk about labor disruption?.

Sure, Ryan. Thank you. It's -- we certainly have seen some activity over this past year. And through our Crew 48 organization, that is one that we heavily lean into any kind of real true crisis staffing around labor disruptions, any kind of significant crisis staffing, like vacancies, etc.

So the labor disruptions, there has been some activity over this last year. We do anticipate through some of the union contracting and some of the dates coming out that we would see this probably in the first half of the year. So we are tracking this. Fortunately, for us, we're uniquely positioned to support them.

As we have a division that can quickly mobilize and we deploy dedicated resources around it, manage the end-to-end program around it, including the logistics. So we feel very ready for what's to come first half of the year..

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

Thank you, Jordan. And we look forward to continuing to build shareholder value, and we want to thank everyone for joining us this evening, and we look forward to updating you again on our fourth quarter call. Stay safe, everyone, and please get your vaccination. Thank you..

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