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Operator: Good afternoon, everyone. Welcome to the Cross Country Healthcare’s Earnings Conference Call for the Fourth Quarter 2022. 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 on the company earnings release issued this afternoon. At the conclusion of the prepared remarks, I will open the lines for questions. I would now like to turn the call over to Josh Vogel, Cross Country Healthcare’s Vice President of Investor Relations. Thank you, and please go ahead, sir.

Josh Vogel: Thank you, and good afternoon, everyone. I’m joined today by our President and Chief Executive Officer, John Martins; as well as Bill Burns, our Chief Financial Officer; 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 fourth quarter and full year of 2022 as well as our outlook for the first quarter of 2023. 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 2021 annual report on Form 10-K and quarterly reports on Form 10-Q, as well as in other filings with the SEC.

The company does not intend to update guidance or any of its forward-looking statements prior to the next earnings release. Additionally, we 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.

John Martins: Thanks, Josh. And thank you everyone for joining us this afternoon. As we reported today, our fourth quarter results met or exceeded our revenue and profitability expectations, closing the full year with the highest revenue and profitability in our history. As a digitally innovative enterprise, with comprehensive Workforce Solutions, and an unwavering commitment to clinical excellence, we were able to maintain our momentum, even as COVID hospitalizations and demand softened, and entering 2023, we are a fundamentally stronger organization with greater financial health and a record of superior execution. Over the last year, we have been relentlessly focused on continuing to build out our sales and delivery capabilities, as well as furthering our digital transformation.

In addition, I’ve been working closely with our board on furthering our environmental, social, and governance initiatives, with particular emphasis on governance. We continue to be thoughtful in our approach to succession planning for all key roles within the company. And with respect to our board composition. We recently added two new board members to our board, Venkat Bhamidipati, and Dwayne Allen, both exceptional leaders bringing new skill sets, ideas, diversity, and broad expertise across verticals, such as technology and healthcare. We believe these appointments will serve Cross Country well as we continue to advance our technology strategy of creating a world class digital platform for professionals and clients. What made exceptional, frictionless and seamless experiences with increased efficiencies.

For many perspectives, 2022 was an unprecedented year. And I’d like to take a moment to highlight just a few of our achievements. Starting with technology, we have been redesigning our entire ecosystem from the ground up using a data centric model that enables us to provide the highest levels of analytics, while ensuring speed to market as well as best-in-class experiences for our candidates, clients and our teams. Last year, we launched two very significant technologies, including Intellify, as our proprietary vendor management system, and Gateway, our career portal. We believe that Intellify will be a game changer for Cross Country and potentially the market as a whole. Our philosophy in building Intellify was to start with a client and work backwards, designing it to help our clients more effectively manage and solve their most challenging key believes through data and analytics, advice and insights.

Our roadmap calls for further investments that are underway. And we believe that Intellify will continue to be highly differentiated in the industry. Opening up a new addressable market for Cross Country, giving us access to billions of dollars of potential spend over management in the vendor- neutral states. And Gateway offers healthcare professionals the ability to find the right job to real time, frictionless experiences on their terms. We have 1000s of daily active users. And we expect that number to grow as we continue to deploy new features and functionality. In addition to our key technology initiatives, we continued to invest in our people growing our headcount by more than 15% across virtually all lines of business, with the vast majority being revenue producers.

We also brought aboard many industry leaders like our newest hire, Eric Christianson, who joined us last month as the Senior Vice President for Intellify Solutions. Eric is a pioneer in the vendor- neutral space with a proven track record of delivering innovative tech based solutions. We are confident that he and his team will help accelerate Cross Country ‘s growth trajectory by leveraging or SaaS based higher margin vendor- neutral platform. From an operations perspective, everyone in business experience robust growth, driven primarily by the number of professionals on assignment, with only a modest impact coming from the rise in rates. With strong execution and continued productivity gains, our consolidated revenue was up 67% over 2021 to a record $2.8 billion.

Adjusted EBITDA surge to $302 million from last year’s record of $162 million. And our adjusted EBITDA margin rose 110 basis points to 10.8% from 9.7% in 2021. Also in 2022, we generated a company record $134 million in annual cash flow from operations. And we completed three targeted acquisitions that build scale in the local space, as well as diversified our offerings with interim leadership. HireUp which closed late in the fourth quarter, brings us a talented team with deep expertise in leadership staffing, and strong relationships that are a perfect complement to a robust network. Welcome to the family HireUp. In August, we announced a $100 million share repurchase program. And through the end of the year, we repurchased 1.4 million shares, or roughly 4% of the outstanding shares.

We also prepaid $100 million on our term loan during the year to reduce our total leverage as well as our interest costs. We will continue to balance investments in our technology initiatives, strategic personnel, share repurchases and tuck-in acquisitions that further bolster and diversify our portfolio. Turning to the fourth quarter, consolidated revenue was $620 million approximately 5% above the upper end of our guidance, while adjusted EBITDA of $57 million was at the upper end of our guidance range representing a 9.1% margin. Bill will get into more detail on the bill rates. But as expected travel bill rates declined sequentially, although at a slower pace than we previously called out. The slower decline was driven in part by steady demand throughout most of the quarter amidst the continued labor shortage.

As expected, we began to see demand for travelers begin to come down existing the fourth quarter and going into the start of the new year. With COVID retreating and systems increasingly seeking to lower their contingent labor standards. We expect to see continued pressure on orders and bill rates though both continue to be above pre- COVID levels. The persistent labor shortage remains and we cannot see anything changing the backdrop in the near term. That said, if there is a continued softening in the market, we are prepared to act swiftly to right size our infrastructure while ensuring our ability to grow. Following a similar trend coming off COVID highs, our local business experienced a slight sequential decline in part due to the impact from holidays, as well as the continued normalization of bill rates.

And looking at our other lines of business, we continue to see improved traction in locums, education, and homecare, which all coasted an increase in hours, and revenue on a sequential basis. locums in particular was up nearly 8% sequentially on an organic basis, which goes against the normal seasonal trend for that business. It also reinforces our belief that this space will continue to see strong demand and further supports the rationale for acquiring Mint and Lotus in the fourth quarter. Looking at the market today, health systems that experienced major cost pressures throughout the pandemic, are assessing their unique situations and seeking alternatives on ways to lower costs and ultimately, their reliance on contingent labor. So some of our existing MSPs will understandably want to explore options.

Cross Country remains a trusted partner to 1000s of health care clients. We believe that our full complement of technical offerings, coupled with our commitment to deliver the highest volume of care will ultimately result in the growth of our market share. And though we have recently experienced a higher than normal level of client attrition, our pipeline for new opportunities has never been stronger. I believe that we have an incredible value proposition for clients. And that with the investments in both people and technology, we are well positioned to win a significant amount of new business in the coming quarters. Today, more than 50% of our revenue comes from our MSPs and as of December, roughly 15% of total spend under management has been migrated to our Intellify platform.

As we continue to migrate other clients to the Intellify platform, it will save us millions of dollars annually in license fees paid to third parties. We anticipate the majority of our MSP clients will be converted in the next 12 months, depending on our success in winning new accounts since they would naturally want to join Intellify . Intellify also opens a significant market opportunity in the vendor-neutral space, giving us the ability to capture significant incremental client spend, as well as technology extensions for direct license by clients for their internal use to help manage their contingency and their core step lever. Looking ahead to 2023, critical staffing shortages continues to be widespread, specifically nurse to patient ratios remain high, and we believe to be a driver of the labor disruptions that industry has seen in recent months.

Supply constraint is still the biggest challenge faced by our clients. And when we look at the 2022 McKenzie study that cited a shortage of 10% to 20% of the nurses needed to care for all patients in the system by 2025 are tracked the monthly data for the Bureau of Labor Statistics that indicates a persistent wide gap between healthcare job openings and hires. It seems that supply and demand imbalance will persist for the foreseeable future. Looking at the first quarter, we expect revenue to be between $590 million and $600 million, which remains well above the level needed for us to achieve our minimal full year revenue target in 2023. We remain optimistic that we can deliver on our commitments and generate significant shareholder value. We have a proven ability to execute across many fronts and with the rollout of Intellify in particular, we find ourselves in a great position to build upon recent successes while also continuing to capture share.

We, therefore we believe our full year targets announced at our Investor Day in mid-September, to deliver a full year 2022 revenue of at least $2.2 billion and adjusted EBITDA in excess of $200 million. In closing, 2022 was a tremendous year. And we will build on this progress by making strategic investments that we believe will best position Cross Country for long term, sustained profitable growth across all lines of business. I want to thank all of our professionals who make Cross Country health care their employer of choice. I’d also like to thank our shareholders for believing in the company. And of course, our talented team who I am so proud of. I’m pleased to report that for the third year in a row, we were recognized by Energage with a 2023 Top Workplaces USA award.

We also recently received multiple 2023 Best of Staffing Awards for Excellence from ClearlyRated. Achievements like these are a testament to our corporate culture and focus on supporting and growing our employees from within while consistently attracting and retaining top talent. With that, let me turn the call over to Bill.

Bill Burns: Thanks John and good afternoon, everyone. I’m pleased to share that with the full year now complete 2022 was the strongest year of performance in the company’s history. And for the quarter we once again met or exceeded our expectations for both revenue and adjusted EBITDA. Our strong results were fueled by solid execution across most lines of business, as well as higher than expected travel bill rates. I’ll dive into the rates in just a moment. Consolidated revenue for the fourth quarter was $628 million, down 1% sequentially and 2% over the prior year. As a reminder, we completed the acquisitions of two locum tenens businesses, as well as our most recent acquisition of an interim leadership company during the quarter.

Excluding the impact of those acquisitions consolidated revenue was down approximately 4% over the prior year, and 3% sequentially. Gross profit was $139 million which represented gross margin of 22.1%. The sequential decline in gross margin of approximately 50 basis points was primarily driven by higher health insurance costs acted in the year, an increase in professional liability insurance rates, as well as an actuarial adjustment for workers compensation. As expected, we did experience a slightly stronger bill pay spread with pay rates continuing to normalize within the travel business, though it was mostly offset by the relatively high cost of housing for our travelers. Moving down the income statement, total selling, general and administrative expense was $81 million, up 1% sequentially and 23% over the prior year.

The majority of the increase in SG&A over the prior year was driven by continued investments in people and higher compensation on the strong performance in 2022, as well as investments in our technology initiatives that are not capitalizable. On a sequential basis, the increase was primarily attributable to the impact from our recent acquisitions. As a percentage of revenue, SG&A was 12.9%, representing an increase of more than 250 basis points over the prior year, given the decline in fill rates as well as the increased investments necessary to support the volume growth in our business. Throughout 2022, we continue to invest in people adding revenue producing resources across all of our lines of business, but with the majority focus on meeting demand in our travel business.

And the demand for travel is certainly softened coming into the new year, we still see continued growth in other parts of the business such as education, home care, and locum tenens that will likely support further investments in those areas. That said, we manage our business very tightly through capacity metrics. And we’re prepared to adjust course in the event that demand does continue to soften. So the broader supply and demand imbalance remains we obviously can’t predict whether travel demand will rebound or soften further, but we’re well positioned to manage our costs over the near term to protect our level of profitability. In addition to the investments in people, we’re also investing heavily in our technology with additional resources, and developers to facilitate the rapid deployment of candidate and client facing technology, like Gateway and Intellify.

In 2022, we spent an estimated $16 million on IT projects, an increase of more than 30% over the prior year. Of that investment roughly 30% was recognized as expense during the year given the nature of some of the projects. And our solid top line performance fueled another quarter of strong earnings with adjusted EBITDA $57 million, representing a margin of 9%, consistent with our goal to maintain margins in the high single to low double digit range. Interest expense was $3.5 million, which was up 25% over the prior year, driven entirely by rising interest rates on outstanding debt. Our effective interest rate for the quarter was 8.8%, which would have been higher had we not opted to make the $50 million prepayment on our subordinated term loan at the start of the fourth quarter, bringing the full year optional prepayments to $100 million.

I’ll go into more detail on cash flows and our capital allocations in just a moment. And finally, on the income statement, income tax expense was $7.6 million, representing an effective tax rate of 16.3% bringing the full year effective tax rate to 26.5%. The decline in tax expense was driven by the finalization of the full year tax provision, as well as the release of an uncertain tax position pertaining to the deductibility of certain items. The combination of our strong performance and triple tax adjustments resulted in an adjusted earnings per share of $1.09, up slightly over the third quarter and well above the upper end of our guidance range. Turning to the segments, Nurse and Allied reported revenue of $591 million, representing a decline of 5% over the prior year and 3% sequentially.

Our largest business travel Nurse and Allied was down 5% both sequentially, and over the prior year. The sequential decline was primarily driven by a 3% drop in average bill rates and 2% from volume. As John mentioned a moment ago, bill rates were expected to decline in the mid-single, mid to high single digit range, but as demand remains strong throughout most of the quarter, we experienced slightly higher bill rates on assignments, as well as a favorable mix. With respect to the comparison to the prior year the decline was entirely due to lower average bill rates as volumes were up more than 15%. As we’ve previously called out, we have long expected travel bill rates to decline, but with continued high needs by clients and persistent labor shortage rates decline more slowly than we had expected.

Now as clients are starting to right size their contingent labor more effectively, we see demand for travel physicians decline. And as a result, so the bill rates. We are seeing new orders bill at a rate that is roughly 5% to 7% below the rates we experienced in the fourth quarter. If rates stabilized at these levels, the impact will mostly be seen in the second quarter, with a more modest impact in the first quarter given the length of assignments. As we’ve said previously, the decline in bill rates was and is expected, and that we don’t have a perfect lens of where they will settle. We believe rates could decline another 5% to 10% implied they would be roughly 40% higher than pre pandemic rates. Our local business was in line with our expectations, with revenue down roughly 4% sequentially, primarily due to the impact from holidays.

Average bill rates were up 3% sequentially, principally on the mix of the business. And our other lines of business, the nurse and allied all reported strong results for the quarter with double digit growth. Education and research both grew by more than 30% and our homecare business rose 11% over the prior year. We continue to expect these businesses will experience robust growth based on the market and the needs of our clients. Finally, physician staffing delivered another strong quarter with $37 million in revenue, representing an 84% increase over the prior year and 56% sequentially. Excluding the impact in the recent acquisitions, physician staffing grew by 28% on an organic basis as billable days up 9% and revenue per day filled up nearly 18%.

The increase in rates was extremely broad based across virtually every specialty. With the continued growth we’ve experienced in this business, we anticipate further investments in capacity, as well as targeting tuck-in that can further grow our presence in the market. Turning to the balance sheet, we ended the quarter with $4 million in cash and $151 million in outstanding debt, including $74 million on the subordinated term loan and $77 million in borrowings on our ABL facility. Currently, the sub debt is based on LIBOR, but we anticipate will be converted to SOFR in the first half of the year. It’s also worth noting that given the strong performance and positive cash flow as of the end of the fourth quarter, we have an incredibly low level of leverage with a total leverage ratio of less than 0.5x.

We remained well positioned to make further investments as well as repurchase more of our stock since we believe the company continues to be undervalued. From a cash flow perspective, we generated $4 million in cash from operations during the quarter bringing the full year to $134 million as compared with the use of cash of $85 million in the prior year, representing a swing of more than $200 million. Our day sales outstanding increased to 72 days, due primarily to slower collections from several large clients. We continue to expect receivables and net of reserves to be fully collectible and believe DSO will return to more normal levels as we progress through 2023. So that may take a couple of quarters to achieve. Also in the fourth quarter, we’ve prepaid an additional $50 million on the term loan bringing the cumulative pre payments for the year to $100 million or roughly 60% of the principal balance for that instrument.

And we repurchased another 350,000 shares for a total cost of $11 million, bringing our cumulative share repurchases in 2022 to 1.4 million shares at a total cost of $35 million. Looking ahead, we expect to continue to generate a significant amount of cash and we’ll continue to see growth investments such as tuck-in acquisitions across our higher margin businesses. During the fourth quarter, we established a 10b5-1 trading plan to continue making share repurchases during the blackout trading windows, depending on certain conditions. And since January 1st, we repurchased an additional 200,000 shares at an aggregate cost of roughly $5 million. We expect to continue to be opportunistic with future share repurchases outside of the 10b5-1trading plan, depending on factors such as available cash, the share price, and alternative uses for that cash, such as debt repayments or acquisitions.

And this brings me to outlook for the first quarter, we’re guiding to the first quarter revenue to be between $590 million and $600 million, representing the sequential decline of 4% to 6% driven predominantly by the anticipated decline in travel bill rates, partly offset by growth in education and the impact from recent acquisitions. We are expecting adjusted EBITDA to be between $44 million and $49 million representing an adjusted EBITDA margin of approximately 8%. The sequential decline in adjusted EBITDA margin is primarily due to the impact of lower gross profit on a sequential decline in revenue, as well as the impact of the annual payroll tax reset in most of our businesses. Adjusted earnings per share is expected to be between $0.70 and $0.80, based on an average share count of 36.5 million shares.

Also assumed in this guidance is a gross margin of between 21.5% and 22%. Interest expense of $3.2 million, depreciation and amortization of $3.4 million, stock-based compensation of $2 million and an effective tax rate of 29%. And before we open the line for questions, I just like to congratulate John on being named to Staffing Industry Analysts Top 100 Most Influential Leaders, recognition, I feel certainly well deserved. Congrats, John. And that concludes our prepared remarks. And would like to open the lines for questions. Operator?

Operator: Operator Instructions] Our first question comes from Brian Tanquilut with Jefferies.

Brian Tanquilut: Hey, good afternoon. I guess my question just on the orders and bill rates kind of like normalizing here. In your prepared remarks you talked about how you can right size the infrastructure, if needed. So maybe just some thoughts on number one your bill rate, going cadence expectation for the remainder of the year. And then second, what those levers would be that you can pull to offset that because obviously, you’re maintaining guidance here for the year.

John Martins: Sure, Brian, good afternoon. This is John. I will talk a little about the levers we can pull. And then I’ll hand it over to Bill to talk more about the bill rates. But what we utilize, we use pretty sophisticated capacity modeling I think we’ve spoken about before, where we look at each part of the business. And what we can do is we can look up or down and when we use capacity model, we actually use it as we’re growing, to see the number of resources that we need to continue on the path to grow. We look at where our future business is and how we’re growing the business and where we anticipate and model out to grow the business and also on conversely, we see the business that is slowing down, we’ll pull those same levers to take away the resources that we no longer need to continue to have that growth.

And so really, it’s just based on a lot of capacity model and factors of the number of open positions we have based upon the number of velocities that we’re seeing a placement happening. And of course, it’s all tied to the end of the day to revenue and even EBITDA.

Bill Burns: Yes, Brian, I’ll just, I’ll throw in on the cost levers as well just ordinarily, as you would expect the business scales up and down, there are certain items that you’re going to see rise and fall, whether that’s variable compensation, or even some other marketing spend that may be going along lead generation activity. So there’s natural levers or hedges as the market — as the business moves up or down, that will just happen naturally. But to John’s point on the cost side of things, obviously, we are constantly looking across the organization to rebalance those investments we’ve made make sure we’re getting the best return we can. With respect to bill rates, look, no perfect lenses here, right. But the market with the demand is we’ve seen it starting to pull back coming into the first quarter, bill rates are down certainly on open orders is what I look at as a leading indicator relative, that’s where I kind of made the comment in the prepared remarks that on the open orders, we’re seeing bill rates starting to soften in that 5% to 10% neighborhood.

But it’s not, that hasn’t fully baked its way through our business yet. So you look out and you say, okay, so for the first quarter rates will be down kind of consistent with what we saw in the fourth quarter, modest low mid-single digits, the impact will more likely be seen in the second quarter. And then after that is where it gets a little bit fuzzy as to how where the rates trend after that. We did say that rates could fall a little bit further. But I think at some point the market will obviously I think correct itself from a demand perspective, because we’ve seen this play out a couple of times where demand has ebbed and flowed. And we’ve seen it where kind of comes down little sharply little quickly, and then starts to rebound. So we’re just looking out in the back half.

But I would just leave you with, we look at the full year we reiterated the full year minimum guidance and that $2.2 billion number that we throw, out there we’re well on pace for that certainly coming through the first quarter. And so I think if you look at that relative to our other comments about rates, you can kind of see where the back half might come out.

Brian Tanquilut: Now appreciate those comments, Bill. And then I guess as they think about your comment and margins for Q1, right, so I get the payroll tax and just the lower volume lower bill rate, but how should we be thinking about margin trend post Q1? And then maybe factoring in as well the business mix with locums becoming a bigger portion of your business with the last two acquisitions?

Bill Burns: Yes, I’ll start and then John or Marc or Dan want to jump in. But when you look at the margin for the first quarter, payroll tax for us hits us in the gross margin line, usually about 40 to 50 basis point. And just given the size and scale of our SG&A, the impact to SG&A is about a $1 million as well from an additional payroll tax, as we’ll see in the first quarter. So that’s a pretty sizable bite when you look at our overall seasonality and the impact of the first quarter. I think your question really is about the gross margin the business and obviously, I called out in travel what we’re seeing the pay those spreads are normalizing as the bill rates come down the payroll has been coming down. The piece that hasn’t moved as fast as the pay rates has really been the housing costs.

So that element that we have the travelers on assignment has been kind of stubbornly high. So that’s kind of eaten into that pay bill improvement, couple with that, with a couple of other items that we called out. The professional liability insurance rates are rising. That’s now factored in after the fourth quarter. And you’ll see that roll into there shouldn’t be an incremental increase in the first quarter off of that. Health insurance for us was sort of a yearend anomaly. We saw a spike in the number of clinicians, we are self-insurance of spiking the number of clinicians using health care. So that was a bit of a rise that should return to normal as we go into the first quarter.

John Martins: This is John, I’d add that when we look at the business and our gross margin. We really look at it from a portfolio basis as you were saying, Brian, we’re looking at locums and from the nurse and allied travel standpoint on the transactional the day to day deals that we’re doing, we’re not anticipating to see a large uptick in gross margin, there’s a bit of some obviously room for improvement over the next several quarters of this year that will pick up. But really when we look at how we’re going to improve our overall gross margins in the portfolio, it’s going to be like growing the higher margin businesses, such as locums, such as our education business, our HireUp which is our new interim executive business, and also our Workforce Solutions Group, which is our home health business, those will have higher margin profile businesses, they’ll help us overall grow.

And then the other part, which is really key to seeing our portfolio gross margins increase is, as we enter into the vendor-neutral space with Intellify, that’s where we’re looking at gross margins. Those are the gross margins that are at 90% gross margins with EBITDA margins between 60% and 80%. And so in the future, what we’ll see is we’ll see the balance of our business as it grows in the other non- nurse traveler and allied businesses help improve the overall portfolio margins.

Operator: Our next question comes from A.J. Rice with Credit Suisse.

A.J. Rice: Hi, everybody, maybe a couple questions, if I could. I think it sounds like what you’re suggesting when you lay out the quarters from €˜23 relates, mostly to sort of the post pandemic continued moderation in, especially bill rates. Can us remind us; do you think normal seasonality will come back as you lay out the quarters? And how would you lay out? It’s been a while since we’ve had a normal seasonal year? How would you lay out the quarters generally from a seasonal perspective and a normal year?

John Martins: Hi, AJ, this is John. And then I’m going to hand it over to Bill on this one. But I think it’s too early to say if seasonality is back yet. And so right now, yes, we are seeing from the triple threat that we saw in the fourth quarter that came in the fall of RSV, COVID and the flu, we’re obviously seeing some of that wane now is getting out. So you can say oh, it indicates that maybe it’s starting to get more seasonal. But if we recall, for the last two seasons, we’ve also seen the COVID summer happen. And so I don’t think we’re ready to say that we’re getting into a normal cyclical, traditional travelers, seasonal business. Bill, do you want to add to that?

Bill Burns: Yes, I just throw out, when you look across the rest of our business, AJ, local locum tenens generally, again, this is historical, right, normally has its strongest quarter in the third quarter. And so you would anticipate to see a sequential change in that business. It usually steps back in the fourth quarter, that did not happen. And we actually surged ahead that 8%, we called out and that is on an organic basis. So I think locum tenens has a lot of runways for us right now to continue to see sequential growth quarter-over-quarter, despite the seasonal trends that we would normally experience. What I’ll just say is I think if we look at Q2, and again, we’re not guiding here. But if I was going to look at Q2, I’d say that the bill rate headwinds coming out of the travel business probably points to a sequential decline over the first quarter.

And you couple that with the fact that in the education business, you get the start of the summer break plus the spring break this year falls into the second quarter as well. So just those two factors alone would point to a sequential step down to the second quarter, but then I think the seasonality of locums plays into the third quarter and of course, when schools resumed in the fourth quarter, so it’s hard to say but much will be depended on what really happens in the travel business.

A.J. Rice: Okay. That’s great. Thanks for the commentary about the MSPs and 50% of your revenues coming from that. I know in the pandemic, there was difficulty filling orders and a lot of orders got subcontracted maybe even some MSPs got opened to third parties coming in on the margin. Can you comment on where you’re at today? Is your fill rate as things are normalizing stepped up meaningfully or a lot or percent of orders going completely unfilled. Is that come down a lot? How would you describe it?

John Martins: Yes, that’s come down a lot. We’re in the high 90% of fill rate and as we were still in our capture rate of around 70%. And so we’re filling the needs of the clients out right now.

Bill Burns: AJ, this is Bill, we didn’t call it out in the prepared remarks but the capture rates decline about 1%. So we were a little over 70% in the third quarter, we were at 69% in the fourth quarter. So holding steady, and it’s kind of moved bounced in and out of that 69% to 70% range.

John Martins: Yes, and I just add on that, AJ, one of the things, reasons why we keep that the capturing at that 69% or 70%, is because we want to have the excess supply and capacity. Because what we do is, this is a market where we’re seeing a lot of and we called out we had a higher than normal attrition of our clients. Typically, we have one or two clients leave in a year, and we had higher than that, but the whole industry as a whole is having that issue. And part of that reason is, is because usually a typical BMS or MSP contract is three years. And during COVID, people in hospitals deferred going out to bid for that COVID period. And so now we’re seeing a lot of contracts all coming up, the extended contracts, all the contracts are coming up.

And so in some hospitals, actually quite a few hospitals, they were actually required to go out to bid. So right now we’re seeing more hospitals going out to bid and there creates a larger opportunity for us to win new deals. Now, across country, we are probably out of the larger companies, we’re on the smaller side of the MSP standard management. So what we’re losing some clients, we have more opportunity to win. And as we call that in prepared remarks, we’ve never had a larger pipeline in MSP in Cross Country’s history. And so when we have this excess supply, what we do with this is we take this excess supply, and have auditions at clients to go and show that we can still better than their incumbents and win the business over. So that’s why it’s really important for us to keep that capturing at 70% or even lower, so we have that supply to win more deals.

A.J. Rice: Okay, that’s interesting. Maybe just a final question on your prepared comments you talked about being prepared to win, if necessary, make adjustments to infrastructure. I guess, a, that begs the question, what would I mean, I’m assume you’re sort of tweaking things on an ongoing basis. But what would prompt you to make a bigger adjustment? And then what types of things are you talking about doing if you had to?

Bill Burns: AJ, this is Bill, again, so I mentioned some of the things that will happen organically, I’ll say it that way. But I think it’s really just about when you look across the entire landscape of all the resources we have, and all the different roles that we have every single role, whether you’re looking at from the recruitment function, the supporting functions, the onboarding, everything, all of our functions, we’ve got capacity metrics that help us understand exactly how many resources we need. So, yes, we don’t want to overreact. I think the important thing here is demand we know will ebb and flow. And we’ve seen this a couple times over the throughout the pandemic, nothing’s fixed the long term issues in the marketplace, so we don’t want to overreact and start reducing costs too fast, because, again, we want to have that organic capacity to grow.

And so I think it’s really just want about right sizing your cost structure across your headcount, as well as some of those other third party expenses that you have.

John Martins: Yes, and this is John, I would just add that, as we’ve said, consistently, for the last nine months or a year, that we’re going to maintain a high single digit t low double digit EBITDA. And that’s really what drives where we’re looking into resource planning.

Bill Burns: And one last comment, AJ, before I turn it back to you if you have another question, just, if you think about it there’s a natural level of attrition in any business. And so the capacity metrics allow us to also think be thoughtful about when to backfill and not to backfill. So attrition through those avenues will be another way in which we’ll see costs self-correct themselves, naturally without us taking action, but we won’t backfill if we’ve got the, if we don’t have the need for those roles.

Operator: Our next question comes from Kevin Fischbeck with Bank of America.

Unidentified Analyst : Hey, this is on for Kevin. Can you give us an update on the deal pipeline? What areas are you focusing on? And how are you thinking about multiples?

John Martins: Sure. Hey, this is John. I’ll start with that. So yes, we look at the continuum of health care and what is on the continuum health care for our deal. So we look at any type of organizations and businesses that are in the pre-acute to acute to post-acute care. And with our recent acquisitions over the last couple of years of the home health space and the pace centers. The pace centers are still very attractive to us. And we had the two welcome acquisitions in the fourth quarter and we believe that locums are continuing to be a great place to be in as well as any some ancillary businesses that can help service our clients just like the acquisition of HireUp. So really, our strategy comes down to really two different points.

One is can we add, expand or share of a market by acquiring a company in a certain space, number one, and then number two, can we add additional services to enhance our service to our clients to become and create more services become more sticky with our clients.

Operator: Our next question comes from Tobey Sommer with Truist Securities.

Tobey Sommer: Thank you. I was hoping that you could describe what you’re hearing from customers, hospitals, hospital systems, as they tried to sort of regain control with that, they feel like they lost during the pandemic, and in particular, two areas, vendor-neutral, MSP VMS and if maybe comment about if any of your client losses were because of sort of a philosophical change and a change, not necessarily to nurse and staffing company, but to vendor-neutral? And what sort of energy investment innovation are you seeing on the local side that customers are trying to do to satisfy more of their contract needs? Thanks.

John Martins: Sure, Tobey. This is John, I’ll start and Dan and Marc will probably go in. And yes, so we definitely saw some client attrition that went over to the . But we’ve, what I would say is, if we look at the market, the addressable market in the staffing industry, I think SIA has 2023 at $50 billion. And of course, that may go down if the rates go down, right. I don’t know exactly the calculation of that. But in that market, about 40% is MSP, roughly we believe 40% is vendor-neutral and about 20% is direct clients. And as we mentioned earlier, all these MSPs, which are typically in VMS contracts are typically three year contracts, as a lot of them are coming up right now and going out to bid. A lot of clients are looking to say, hey, was the grass greener on the other side?

And really, there’s really four categories, hey, do I do it direct? It’s, do I go to VMS? Or do I change over an MSP and which we’re seeing clients change from VMS to MSP because they want to try a different model. And then the other model that they’re going to is, can I take it in house and use technology only. And so we’re definitely seeing a bit of that mix happen now. We feel very fortunate, because we launched Intellify, our vendor-neutral VMS system late last year. And as mentioned in our prepared remarks, we hired Eric Christianson, who is a pioneer in the vendor-neutral space. And as we start building out our vendor-neutral business, we think that there’s a lot of upsides for us to capture that market. And so I’ll hand it over to Dan.

Dan White : Thanks John. And, Tobey, it’s Dan. I just add a couple of things you were asking specifically about the local business. One of the key sets of features inside of Intellify is our ability to manage internal resource pools for them that would allow for them to manage their own resources clearly, but add incremental local resources to supplement those that staff as well, even before they go to a travel, kind of a resource. In addition to that, we’re adding capabilities. We just, for example, at the beginning of the quarter added locums to one of our clients on that Intellify platform as well, which as you can imagine, is a huge upside for us, for the rest of our customer base as well. I think, lastly, when we think about the capabilities that are really important to customers, for these technology platforms, whether they run them themselves or have us do that for them, is having a kind of a pre integrated set of suppliers that they can just turn on with a switch.

I’m super grateful today, we had a whole house full of suppliers here talking about their support for this platform for our programs. And just a little bit of a shout out to them first, but for their ability to turn this on gives, again, that local flavor and the more broad flavor, really strike great strength in terms of turning it on quickly and managing it fast.

Unidentified Company Representative: And, Tobey, this is Johnny. And I also add to Dan’s comments that what we’re seeing in the local market and the hospitals that and the clients that we’re in front of is that they are looking to expand their internal resource pool. And that’s part of what Dan was saying, and utilizing our Intellify product to do that. But also, to help them build those internal resource pools. How can we help them move quicker to get the local resources in play? And that’s what we’re hearing from many of our clients right now.

Tobey Sommer: And then I wanted to ask about bill rates in comparison to full time comp and I know that’s sometimes a difficult analysis because you have to try to make it an all-in number for full time comp. How much could bill rates fall before sort of the, what I’ve always perceived as a natural, at least hourly premium for a nurse to go to another city and sleep in a strange bed for three months, before we sort of get there and get to sort of a natural arbor — differential between the two categories. Thank you.

John Martins: Yes, you know what, I don’t think we don’t necessarily track that side of it, specifically, but what I’d say is, what we’ve seen always is always going to be a little bit of a premium paid for your travel, the travel nurse. But when you look at the total compensation package for a travel nurse compared to the total, all-in package of a core staff nurse, including all their benefits, all of their long term and short term benefits, a lot of times, hospitals will look at it and see it’s actually a cost savings. And because you have the flexibility to bring on talent, bring off talent, it ends up being a cheaper version of that. So we think, that’s one point, I think the other point on that where rates go down where it doesn’t make a difference for that nurse to sleep in a different bed.

Well, what’s interesting is 65% of our clinicians, actually that number drops to 64% of our clinicians are millennials or less. And that means they’re aged 41 or younger. And we’re still hearing from those clinicians. They want to sleep in that bed in a different town, and they want to experience different experiences, and they want to be part of that gig economy. So there’s still a very much attraction to being a travel nurse and exploring and experiencing that having our travel nurse experience.

Tobey Sommer: Thanks, last question for me. What is the M&A opportunities like in the market? And would you feel comfortable buying properties for valuations in excess of the company stock?

John Martins: Yes, well, definitely valuations we’re seeing are trending down a little bit. And of course, as interest rates have spiked up, we’ve seen valuations come down a little bit. And in terms of what’s our appetite for that, what we look at it is it a strategic fit for the organization? Will it help us be accretive to our gross margins and our EBITDA? And how it fits in to the organization? I don’t, Bill, if you want to add anything else to that?

Bill Burns: I think you said it, the multiples are certainly are trending to a more favorable level. But I think your inherent question was would we be willing to pay a multiple higher than the current multiple at Cross Country trades? And I think the short answer is yes, depending on the property, if it’s a strategic fit goes along with what we’re trying to accomplish in terms of the continuum of care and fits our profile for higher margin businesses and the like. So yes, I think if especially if it’s going to be a competitive process where you’re looking to acquire a good property that fits well, you’re going to have to pay a fair market price.

Operator: Our final question comes from Bill Sutherland with The Benchmark Company.

Bill Sutherland: Wow. It’s last question, guys. So, clarification, Bill, if you don’t mind on the 5% to 10%, I think it’s the range that you used on the travel on the open travel orders. You would normally see some seasonality, 2Q over 1Q, wouldn’t you in terms of those orders.

Bill Burns: Not necessarily from a bill rate perspective, Bill. So I mean, like we, the bill rates don’t normally ebb and flow. I mean, there’s demand that spikes in certain parts of the country through the winter months, you’ll see the snowbird states like Florida will see a spike in demand. As that starts to wind down, you’ll see less need there. But I don’t generally see bill rates moving a whole heck of a lot. And Marc, you could certainly speak to this as well. But I don’t generally see a lot of rate movement throughout the year sans the pandemic, of course.

Marc Krug: Yes, typically, we don’t see the bill rate fluctuations, we do see the demand fluctuation seasonally. But the last few years, especially we have not seen that.

Bill Sutherland: So if you have the 5% to 10% that’s just bill rates that you’re referring to. And so there might be some seasonal volume on top of that, and I’m thinking about 2Q.

Marc Krug: Yes, well, again, I’m saying what I what, we’re seeing right now is looking at open orders, right, so we track, what’s our current book of business? What are we locking orders at? And what are the open orders, what’s the average bill rate across open orders? So we look at that across time to see how things are trending. And so what we’re seeing now is that the open order average rate is starting to move downward about 5% to 10%, week to week it moves of course. And there’s always a mixed component. So I want to be clear about this, the open order bill rate is not necessarily indicative of what we’ll experience because we may have orders that we won’t fill. And there’s others that we’re going to certainly strive for the higher bill rate orders.

So I think that doesn’t always play out that way. So it’s a little bit of a guesswork to say, look, the bill rates of what we’ve locked are down about 5%. That won’t impact Q1 all that much. As I’ve said, it’s probably a similar play out to Q4, which is a down low mid-single, and then that the rest of that rate decline plus the impact from the broader market is more likely to be seen in Q2, all things being equal, I don’t, that, if rates do continue to decline, we don’t anticipate them to have steep declines after our second quarter, I think they start to really, start to be at the near the bottom, there might be a little bit of pressure into the back half. But I just think it starts to get to a point to the earlier question that Tobey asked about what the market bears and what it takes to get a clinician to the bedside.

Bill Sutherland: Right. And so not to pound this to death. But so on the volume side, you might see some seasonal softness into 2Q and then normally, it would level into the back half or €“

Bill Burns: Yes, so if you’re speaking to the volume side of things, I think there’s a couple of couple of things, number one, in the fourth quarter, going into the first quarter, we did have some rapid response and a little bit of labor disruptions that you can never count on. So that’s going to be a little bit of a volume headwind going into Q1. From Q1 to Q2, we don’t generally have a tremendous softness. In fact, our travelers on assignment ramps throughout the first quarter may be dissimilar to some other companies out there. But in general, we start the year off a little softer, and then that headcount gradually ramps all throughout January and into February. So we’re building that headcount up as we’re moving through the quarter right now.

Bill Sutherland: Okay, good. That’s good clarification. The, I guess, the bundle that you’re kind of classifying is workforce solution, and maybe that’s not your words, but something on that order with education, in room, et cetera. What does that aggregate to now on a run rate — on revenue run rate basis.

Bill Burns: Yes, we don’t put education in there. I mean, Workforce Solutions for us.

John Martins: I think, we said Workforce Solutions Group.

Bill Burns: Our Workforce Solutions Group. I’m sorry. Yes, well, our internal acronym is WSG. So I mean, they’re on track over a $100 — lows of $100 million kind of run right now.

John Martins: So the homecare is $100 million run rate. The education is a $75 million, $80 million run rate. Search and RPO is probably on the 25 to plus higher up. So about $30 million run rate. And then of course locums, we have it at somewhere at about $150 million to $180 million run rate. We don’t segment that into one group.

Bill Burns: Locums did.

John Martins: Locums did, not the other ones we’d actually have to add them up.

Bill Sutherland: So when you look at physician staffing, is that including all this or is that just locums?

Bill Burns: Physician staffing is only locums and advanced practitioners. There’s no perm placement in there. There’s no interim leadership in there. That’s all part of nurse and allied. So within physician staffing, the growth, you saw, the $37 million that we reported in revenue for the fourth quarter was a combination of organic, as well as the acquisitions of Mint and Lotus that were closed at the beginning of the fourth quarter.

Bill Sutherland: Okay. And then the last one, Bill, if you are successful in migrating Intellify to essentially all your MSPs by the end of this year. What’s kind of the dollar impact of that?

Bill Burns: It’s a great question. And what I would just say is, let me put it into percentages. So whatever our spend on a management is today, we’re spending somewhere between on average, 85 to 120 basis points, so call it 1%. I think if you just use that as a placeholder 1% of spend on a management generally runs through a vendor management system, and that today is a fee we’re paying to someone else that we will avoid. Ladies and gentlemen, this does include the Q&A period. I will now turn it over to John Martins for closing remarks.

John Martins: Thank you, operator. Before wrapping up, Cross Country is proud to join and celebrating Black History month. Our company has a long standing commitment to diversity, equity and inclusion. Including our continued financial support of the National Black Nurses Association. In closing, I’d like to thank everyone for participating in today’s call. And we’ll look forward to updating you on the progress of the company in the next call in May.

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