Cross Country Healthcare Inc (CCRN) 2014 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Cross Country Healthcare conference call for the second quarter of 2014. This call is being simultaneously webcast live. A replay of this call will also be available until August 21, 2014, and can be accessed either on the Company's website or by dialing 800-262-4966 for domestic calls and 402-220-9709 for international calls and by entering the passcode 2014.

This call is being recorded. If you have any objections, you may disconnect at this time.

I will now turn the call over to Bill Burns, Cross Country Healthcare's Chief Financial Officer. Please go ahead, sir.

Thank you, and good morning, everyone. With me today is our Chief Executive Officer, Bill Grubbs. This call will include a discussion of our Q2 results as disclosed in our press release and will also include a discussion of our financial outlook for the third quarter of 2014. After our prepared remarks, you will have an opportunity to ask questions. I'd like to remind everyone that the press release is also available on our website at www.crosscountryhealthcare.com.

Before we begin, we need to remind you that certain statements made on this call may constitute forward-looking statements. 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 2013 annual report on Form 10-K and quarterly reports on Form 10-Q, as well as in filings with the SEC.

I would encourage all of you to view the risk factors listed in these documents. The Company undertakes no obligation to update any of its forward-looking statements.

Also, our remarks during this teleconference reference non-GAAP financial measures. Such non-GAAP financial measures are provided as additional information and should not be considered substitutes for or superior to financial measures calculated in accordance with US GAAP. More information related to these non-GAAP financial measures is contained in our press release.

And now I will turn to call over to Bill.

Great. Thanks, Bill. Thank you to everyone for joining us this morning. Overall we had good results for the quarter that were within the guidance we previously set.

This was predominantly due to strong performance from our nurse and allied segments, which was offset by relatively weak performance from our physician staffing and other human capital segments. Let me remind you as we go through this that our second-quarter results do not reflect any impact of our acquisition of Medical Staffing Network.

Throughout the quarter in our nurse and allied business -- which is our largest segment, now representing about 67% of our total revenue -- we saw increasing demand for our services as well as growth in the number of healthcare professionals on assignment. Early in the quarter demand was driven by travel nursing, but as the quarter progressed we began to see year-over-year increases in per diem nursing in May, and then in allied towards the end of June. And I'm pleased to say that those trends have continued through July.

Nurse and allied had year-over-year growth driven by strong organic growth at 11%, supplemented by the Allied Health acquisition we made last December. Organic growth, which accelerated each month throughout the quarter, was driven by four things: staffing wins earlier in the year; implementation of several electronic medical record projects; increases in orders from our managed service programs; as well as strong fill rates at our managed service programs.

Our 104% book-to-bill ratio in travel nurse and allied in the first quarter drove sequential revenue growth of 4% in this segment -- now, that is not counting the Allied Health acquisition that we made in December. In the second quarter we also experienced 104% book-to-bill ratio in travel nurse and allied. And as a result, we expect to see both sequential and strong year-over-year growth in the third quarter. And that's not counting the impact of MSN.

The really good news that we've seen is that orders for travel nurse and allied are up 11% year over year as of the end of July. Again, that has no impact from the MSN acquisition; that's on an organic basis.

That's the highest -- we are at the highest order level we have been at in travel nurse and allied since July of 2008. Our nurse and allied segment teams once again have done a great job with pricing. For the sixth quarter in a row we have experienced year-over-year increases in our bill rates and our bill pay spreads. Again, that's not counting the impact of the Allied Health acquisition, which had lower rates overall.

In our physician business we had a decline in revenue year-over-year but a small increase sequentially, which was in line with our expectations. I do believe that the locum tenens service market is growing, but we have not been participating in that market trend. We made a change in leadership in this business during the quarter, and we have specific plans in place to get this business back on track. We'll have more to say about these plans as we execute in the coming quarters.

Revenue from our other human capital segment which was also down year over year, but up sequentially, which was slightly below our expectations. The year-over-year decline was reflected in both the search and the education businesses.

Again, given the underperformance within our search business, we also made a change in leadership during the quarter. And we are working to get that business back on track.

The education business experienced declines in rehab seminars for the quarter and an exceptional number of cancellations for our ICD-10 seminars due to the extension of the ICD-10 deadline. ICD-10 seminars had been one of our top-performing seminars before the deadline extension. Given this, we do not anticipate improvement in this business until the fourth quarter.

Our workforce management solutions continued to show very good progress -- specifically, our managed service programs, our MSPs, had increasing demand throughout the quarter and now account for approximately 29% of our overall business at 43% of our nurse and allied segment.

The average number of healthcare professionals working at our MSPs was up 12.5% from Q1. Also in workforce management solutions we implemented several electronic medical record EMR programs, which helped our orders and increased healthcare professionals on assignment.

Finally, as previously announced on June 30, we closed on the deal to acquire the assets of Medical Staffing Network for $48.1 million, subject to a working capital adjustment. Similar to our nurse and allied business, the unaudited MSN business experienced year-over-year revenue growth and increased profitability during the second quarter. The integration is progressing very well, and we are on track to achieve the $12 million to $14 million of targeted cost synergies we previously communicated.

We believe this acquisition makes Cross Country Healthcare significantly more competitive in the market, moves our strategy ahead by almost 3 years, and puts us on the right track to achieve our targeted 8% EBITDA margin. The acquisition also increases our share of the MSP market. On a combined pro forma basis, at the end of Q2 we had 50 managed service programs, with an annualized run rate of over $200 million in revenue, supporting more than 200 acute care and 700 ambulatory facilities.

So overall, I am pleased that we have executed well on our initiatives and returned the Company to revenue growth and increased profitability. That positive progress, along with the MSN acquisition, puts us in very good shape to improve shareholder value going forward.

While we still have work to do in our physician staffing and other human capital segments, we expect the third quarter for Cross Country Healthcare to show organic year-over-year and sequential revenue growth. That revenue growth, combined with the MSN acquisition and the achievement of cost synergies, is expected to produce another quarter with an increase in our adjusted EBITDA margin.

Let me turn it over to Bill Burns to go into the numbers in a little bit more detail.

Thanks, Bill. Let me review first the consolidated results for the quarter. As Bill mentioned, we recently completed the acquisition of Medical Staffing Network. And except for certain acquisition- and integration-related costs pertaining to the transaction, our results for the quarter don't include any of the operating results for MSN.

Turning first to revenue, total revenue for the quarter was $122.7 million, up 11% from the prior year and up 4% sequentially. On an organic basis revenue for the quarter was up 2% from the prior year. The year-over-year growth was entirely due to growth in our largest segment of nursing and allied, which accounted for 67% of our total revenue, while the sequential growth was across all of our segments.

Gross profit margin for the quarter was 26.4%, up 130 basis points from the prior year and up 60 basis points sequentially. The year-over-year increase in the gross profit margin was largely attributable to continued expansion of the bill pay spread as well as the favorable impact from our acquisition of the Allied Health business in December. Sequentially, the increase in gross profit margin was due to costs related to professional liability incurred in the first quarter which did not recur.

Moving down the income statement, SG&A for the quarter was $29.2 million, up 10% on a year-over-year basis, primarily due to the Allied acquisition in late 2013. Excluding that acquisition, SG&A was up 1% over the prior year and down 1% sequentially.

G&A as a percentage of revenue declined again this quarter as we continued to execute on our goal of improving the operating leverage within our business to improve profitability. Adjusted EBITDA was $3.3 million, representing a 2.7% margin, which was within our expected range of 2% to 3%.

Interest expense was $289,000, up over the prior year and sequentially, reflecting the borrowing cost to fund part of the acquisition of the Allied Health business. Acquisition- and integration-related charges were $2.7 million for the quarter, which primarily related to costs associated with the MSN acquisition.

In addition to the acquisition and integration charges, the Company also secured incurred approximately $800,000 in severance costs related to changes in the executive leadership team, which Bill mentioned earlier. Loss from continuing operations net of tax was approximately $3.2 million or $0.10 per share as compared to a loss of $1.4 million in the prior year or $0.05 per share.

Let me next review the results for our three business segments. As we mentioned at the end of the first quarter, we expected sequential revenue growth in all of our businesses, which is what we ultimately saw, though not necessarily at our expected rates.

Starting with our nurse and allied segment, revenue was $82.6 million for the quarter, up 26% year over year and 3% sequentially, while on an organic basis segment revenue was up 11% from the prior year. We averaged 3,177 field FTEs for the quarter, up 38% from prior year and 2% sequentially.

Revenue per FTE per day was $286, essentially flat with the first quarter. Total segment contribution income for the quarter was $6.7 million, representing an 8.1% contribution margin, up 280 basis points from the prior year and 70 basis points sequentially.

Let me turn next to our physician staffing segment. Revenue for this segment was $30.8 million in the second quarter, down 11% from the prior year and up 6% sequentially. The year-over-year decline was largely due to lower volume, as the total days filled were down 14% from prior year, and was partially offset by an increase in the average revenue per day. On a sequential basis the increase was primarily due to growth in both the number of days filled and the average revenue per day.

Segment contribution income for the second quarter was $1.9 million, representing a 6.1% contribution margin, down 130 basis points from the prior year and up 350 basis points sequentially. The year-over-year margin decline was entirely attributable to the lower volume and offset by the average revenue per FTE per day; while on a sequential basis, the improvement was primarily due to lower charges for professional liability and, to a lesser extent, the sequential growth in volume.

Finally, revenue for the other human capital management services segment was $9.2 million, down 11% from the prior year and up 5% sequentially. The year-over-year revenue decline was primarily due to fewer retained executive and physician searches as well as a decline in number of seminars held during the quarter. As a result of the lower revenue, other human capital management reported a loss for the quarter of $232,000.

Turning to cash, we ended the quarter with $9.3 million of cash and cash equivalents, $64.7 million of debt, and a current ratio of 1.9 to 1. Days sales outstanding was 52 days, representing a three-day improvement from the first quarter and a one-day improvement over the prior year.

Net cash provided by operations was $3.8 million, reflecting the three-day sequential improvement in DSO. Capital expenditures totaled approximately $300,000 for the quarter.

Let me spend just a moment on the MSN acquisition and related financing. We purchased substantially all of the assets and certain liabilities of MSN for a cash purchase price of $48.1 million. In order to finance the transaction, we obtained new subordinated debt in the form of a $30 million term loan and $25 million in convertible notes.

The aggregate principal of the new borrowings exceeded the purchase price to cover both deal-related and debt issuance costs. In addition to the subordinated debt, we expanded our senior credit facility to $85 million, which we believe offers us sufficient liquidity to fund the operations and make future investments.

This brings me to our guidance. Guidance for the third quarter includes the projected results of the MSN acquisition. For the third quarter we expect consolidated revenue to be in the $187 million to $192 million range. This guidance assumes a year-over-year growth rate on a pro forma basis of between 6% and 8%, including both the Allied Health and MSN acquisitions.

Also on a pro forma basis, this guidance assumes sequential revenue growth between 1% and 3%. While we don't provide specific guidance for segments, we expect that all of the sequential growth will come from our nurse and allied segment, while we anticipate both the physician staffing and other human capital management segments will be essentially flat. It's worth noting that MSN had a particularly strong quarter from a revenue perspective, and we expect that trend to continue.

Consolidated gross profit is expected to be between 26% and 26.5%, which reflects the impact of incorporating MSN's gross profit margin of approximately 24.5%. Lastly, adjusted EBITDA is expected to be between 3% and 3.5%, reflecting the trends experienced in both Cross Country Healthcare and MSN, as well as the impact of achieving incremental synergies in the quarter.

This concludes our prepared remarks, and at this point I'd like to open up the lines for questions. Operator?

(Operator Instructions) We have no questions yet.

There must be something wrong. We are definitely going to have questions.

(Operator Instructions)

Operator, is everybody still dialed in?

Sir, they are. We have no questions at this time.

I have never not had any questions. I find it hard to believe that they are not trying to get into the question session. The system is working fine?

It seems to be. I will again give the scripting. (Operator Instructions)

Well, I have a feeling that some of the analysts on the call have specific questions. What we can do is I will have Diane, my assistant, send out a separate call-in number for the analysts if they would like to dial in. She will send it through your email, and Bill and I will make ourselves available to answer questions through a separate call.

So, I guess if there are no specific questions, which I find hard to believe, I will thank everybody for joining this morning. And we look forward to updating you on our third-quarter results in November. Sorry for the confusion on the call, but we will get you out another number to call in for Q&A. Thanks.

Thank you. A replay of today's conference will be available through August 21, 2014. You may access the replay by dialing 1-800-262-4966 or 1-402-220-9709. Please use the passcode 2014. Thank you for joining. You may now disconnect.