Good afternoon, ladies and gentlemen, and welcome to the Cross Country Healthcare's Earnings Conference Call for the First Quarter of 2021. A replay of this call will also be available through May 19, 2021 and can be accessed either on the company's website or by dialing (800) 510-0118 for domestic calls and (203) 369-3808 for international calls and by entering the passcode 2021. At the conclusion of the prepared remarks, I will open the lines for questions. I will now turn the call over to Bill Burns, Cross Country's Healthcare Chief Financial Officer. Please go ahead, sir.

Good afternoon, everyone, and welcome to Cross Country Healthcare's first quarter 2021 earnings call. 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 Nurse and Allied. Today's call will include a discussion of our financial results for the first quarter of 2021 and our outlook for the second quarter. A copy of our earnings press release is available on our website at crosscountryhealthcare.com. Please note that certain statements made on this call may constitute forward-looking statements. These statements reflect the company's current 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 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 financial measures calculated in accordance with U.S. GAAP. More information related to these non-GAAP measures is contained in our press release. And just before I turn the call over to Kevin, it's worth noting that, effective with the first quarter, we have changed our reportable segments. And going forward, we'll be reporting only two segments: Nurse and Allied Staffing and Physician Staffing. The prior segment known as Search has been consolidated within Nurse and Allied, and all prior period results have been reclassified to conform with current period presentation. 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. Before I get into the business results, I'd like to start by wishing all of the nurses out there a very Happy Nurses' Month. As many of you know, normally, we celebrate Nurses' Week this time of year, but in honor of the dedication and contributions by nurses throughout the pandemic, the American Nurses Association has extended their recognition by declaring that May is officially Nurses' Month. For all that you do to deliver quality care to millions of Americans, especially over the past year during the pandemic, we celebrate you and thank you. Turning to the business, we enter 2021 on a very positive trajectory with solid execution, higher productivity, and exceptional performance, especially within our Nurse and Allied segment. Consolidated revenue and profitability far exceeded our expectations as we continued to grow our number of healthcare professionals on assignment throughout the quarter. First quarter consolidated revenue of $329 million was up 57% over the prior year and represented a milestone for the company, as it was the single highest revenue quarter in our 35-plus year history. Fueled by increases in both average bill rates and hours worked, the strong top-line performance also allowed us to reach another milestone, reporting an adjusted EBITDA margin of 8.1%, well above our guidance and more than a year earlier than our stated goal to reach 8% by the fourth quarter of 2022. We recognize that these milestones were achieved during an extraordinary time of elevated bill rates, and adjusted EBITDA margin is expected to retreat in Q2 and for the second half. Regardless, I firmly believe that the first quarter results remained possible due to the impressive execution by our team as well as the benefits from the actions taken during the last two years. I also believe that we will continue to make progress on achieving a sustained adjusted EBITDA margin of 8% with continued growth. I am so proud and appreciative of our entire organization, not only for embracing change, but for their dedication and tireless commitment to our healthcare professionals and the clients we serve. Our focused and ethical approach as one Cross Country, as well as solid execution while maintaining the highest commitment to quality, clearly demonstrates the value Cross Country brings to the market. Since the start of the pandemic, Cross Country has led the way in providing the critical staff needed across the nation by partnering with our clients, flexing bill rates accordingly, and by offering shorter length assignments, as we noted on our prior calls. The pandemic has resulted in higher average company costs associated with the significant personal risk each of our frontline workers faces. Our philosophy has been, and continues to be, that we will do all that we can to mitigate the rising cost to our clients. As a result, average pay rates have risen by a significantly higher percentage than our bill rates, driving down the gross margin of our business by 190 basis points over the prior year. As the number of folks vaccinated rises and new cases continue to fall, we expect to see both bill and pay rates moderate throughout the balance of the year, though not necessarily at the same pace. Turning to the segments, revenue for Nurse and Allied rose by 57% on a sequential basis, driven predominantly by strong growth from our Travel Nurse business, which was up nearly 95%. As expected, average bill rates for travel nurses were up more than 40% stemming from the regional spikes in COVID orders, which started late in the fourth quarter of last year. Average bill rates for travel nurses peaked in February and have since declined approximately 10%, and are projected to continue to decline as we work with clients to normalize rates as COVID subsides. In addition to the higher average bill rates, we continued to grow the number of professionals on assignment. As a result, billable hours were up more than 36%, reaching the highest total of professionals on travel assignments in nearly 20 years. Though some of the increase was driven by urgent COVID needs, a significant driver for the increase in travel professionals on assignment was a further improvement in recruiter productivity following the deployment of the applicant tracking system in Q3 last year. Since going live, recruiters with between one and three years of tenure have experienced a double-digit increase in the average number of professionals on assignment per recruiter. We are obviously very encouraged by the progress we are making on deploying technologies and expect to see continued gains in productivity despite the anticipated decline in bill rates during the second quarter. Also within the Nurse and Allied segment, our travel, allied, local, and school businesses also experienced sequential growth, albeit at a slower rate than travel. All of these businesses continued to recover from the earlier impacts of COVID and are expected to grow throughout the remainder of the year. Our only other segment, Physician Staffing, was down roughly 1% over the fourth quarter. Despite the relatively flat revenue, I was encouraged to see a sequential increase in billable days for hospitalists and primary care physicians. From an MSP perspective, spend under management for the quarter rose nearly 73% over the prior quarter, fueled by continued rise in demand as well as higher average bill rates related to their urgent needs. Additionally, our capture rate at MSPs increased to 76% as we continued our focus of ensuring we deliver the critical staff to clients with the highest needs. As a result of the growth in spend under management and the increase in our capture, staffing revenue from MSPs rose 88% and represented nearly 53% of our consolidated revenue. Looking ahead, we expect to see a diminishing impact from COVID-19 on our business. As hospitalizations for COVID cases have declined, and with nearly a third of the country fully vaccinated, we are seeing steady declines in COVID-related orders, especially for ICU physicians. As a result of heightened demand driven in part by an exhausted labor force and the return of patients in larger numbers for non-COVID related care, we are seeing orders for specialties, such as med-surg and OR nurses, at pre-COVID levels. As I mentioned earlier, we fully anticipate that bill rates will continue to decline through the second quarter and throughout the second half of the year, though they may remain elevated relative to pre-COVID rates. Throughout 2021, we expect to see recovery in those areas hardest hit by COVID, such as locum tenens and education. For the second quarter, we expect revenue to be between $300 million and $310 million, representing a 38% to 43% increase over the prior year. The sequential decline of between 6% and 9% is driven almost exclusively by a decline in the average bill rate for Nurse and Allied as we expect to see a mid-single-digit increase in the number of billable hours for that segment. This growth in the number of hours is not only a result of the improved productivity from our revenue producers, but also a result of the ability to attract a growing number of experienced professionals looking to work their first assignment with Cross Country. From a technology perspective, we continued to realize the benefits from the investments we have already made, and we are continuing to make significant progress with several other key projects, including the expansion of our applicant tracking system to our local business, enhancements in our proprietary marketplace application, and the replacement of our middle office payroll and billing system. With speed being essential to both our healthcare clients and professionals, we believe these investments will best position the company for continued growth in both revenue and profitability through better operational execution, enhanced employee productivity, and a world-class client and candidate experience. Our performance and our ability to execute during the pandemic and through the recovery reinforce our value proposition in the market for offering flexible, rapid, and cost-effective means for delivering critical care to millions of Americans across thousands of facilities. And while our guidance points to a slightly lower adjusted EBITDA margin versus the first quarter, it remains well above the prior year despite the continued impact from the mix of lower-margin COVID assignments and the lower revenue from some of our higher-margin business, like education and search. I'm confident that we have the right team, the right strategy, and the proper level of investments to continue on our path of accelerated growth, especially given the favorable tailwinds. We continue to have a robust pipeline for new business for MSPs and other workforce solutions, such as recruitment process outsourcing. I believe that our passion to deliver great service resonates not only with clients and candidates, but with employees who seek to join a growing company with the highest ethical standards. Now let me turn the call over to Bill to walk us through the results in more detail.

Thanks, Kevin. Our results for the first quarter reflected the combined impact from higher bill rates, particularly due to COVID-related travel assignments, as well as solid execution to increase both the number of healthcare professionals on assignment and the total billable hours. Consolidated revenue was $329.2 million, representing a 57% increase over the prior year and a 53% sequential increase. Turning to Nurse and Allied, revenue was $313 million, up 57% sequentially and 63% over the prior year, with the majority of the growth experienced by our Travel Nurse business. On a sequential basis, average bill rates for travel nurses were up more than 40%, while billable hours were up more than 36%. We also saw year-over-year and sequential growth across both our Local business and Travel Allied business, driven predominantly by an increase in average bill rates. With schools reopening, our Education business also experienced sequential growth of 18%, though still down 16% over the prior year. Looking ahead, we expect bill rates to continue to normalize as we move forward, but remain above prior year levels for the next several quarters due primarily to the overall level of demand, the labor shortages experienced nationally following the pandemic, as well as some continued demand for COVID positions in certain geographies. Specific to Travel, we are projecting average bill rates to step down throughout the quarter by more than 20%, with an average decline for the quarter of nearly 15%. Our Physician Staffing segment has stabilized following the initial declines from COVID, though not yet returning to pre-COVID run rates. Revenue of $16.2 million was down 11% over the prior year and 1% sequentially. As Kevin mentioned, we are encouraged by some of the trends we're seeing in the business, with the sequential increase in the days sold for hospitalists and primary care specialists, which are two of our larger specialties. Gross profit for the quarter was $71.5 million, representing a gross margin of 21.7%, which was 190 basis points lower than the prior year and 350 basis points lower than the fourth quarter of last year. The primary driver for the decline in gross margin was due to the higher compensation costs resulting from the pandemic, which rose faster than the bill rates. Average compensation costs across Nurse and Allied were up 47%, while the average bill rates increased 37%. Throughout the pandemic, we expected and planned for a lower gross margin, especially for COVID assignments, as we worked to mitigate the cost for our clients to the greatest extent possible. Total SG&A was $46.3 million for the quarter, up 1% over the prior year and 3% sequentially. As a percent of revenue, SG&A was 14.1% as compared with 21.8% in the prior year and 20.8% in the fourth quarter, reflecting the improved operating leverage. The primary driver for the increase related to the higher variable compensation costs associated with strong performance in the quarter. Contributing to the sequential increase were higher payroll taxes due to the annual reset. Relative to the prior year, total salaries remained lower despite significant investments in incremental revenue producers. As Kevin mentioned, demand remained strong. Given the improved productivity across our Travel business, we are confident that these investments will fuel continued organic revenue growth in the coming quarters. There are several items worth calling out on the income statement. We recognized restructuring costs of $1.2 million associated with severance and other exit costs. Interest expense was approximately $700,000, representing a 22% decline over the prior year and essentially flat relative to the fourth quarter. The year-over-year decline was driven by a lower effective interest rate, partially offset by an increase in average borrowings during the quarter. From a balance sheet perspective, we ended the quarter with $13.5 million in cash, higher than in the prior quarters, partially due to the timing of funding for weekly payroll. From a debt perspective, we had $96 million in outstanding debt under our ABL, excluding letters of credit, which was an increase of $43 million. The sequential increase was entirely due to the investment in working capital, driven by the significant sequential growth in our business, as our receivables increased by more than $75 million. At the end of the quarter, we exercised the remaining accordion feature under our asset baseline to expand the total facility to $150 million. As of March 31, we were able to access the entire line. As a result of the revenue growth and related investment in working capital, we had a use of cash from operations of $25 million. Though receivables were up more than $75 million over the prior year-end, our days sales outstanding of 56 days was actually down two days since the start of the year. Capital expenditures were $1.2 million for the quarter, principally related to continued investments in our digital transformation. And this brings me to our outlook. We expect consolidated revenue to be between $300 million and $310 million, representing a 38% to 43% increase over the prior year. As we discussed, demand remains strong across Nurse and Allied staffing, and we continue to make progress on growing our headcount on assignment across Nurse and Allied. Our guidance assumes a sequential decline in bill rates, especially within our travel business, as we strive to continue to normalize rates for our clients. Offsetting the decline in bill rates, we anticipate a sequential volume increase, driven by the continued execution and improved productivity of our team. Physician Staffing is expected to be relatively flat on a sequential basis as COVID continues to impact that segment. We're guiding to a margin between 22% and 22.5%, up sequentially as a result of the impact from the annual payroll tax reset in the first quarter. Gross margin is expected to continue to be lower than the prior year as a result of the lower margin related to COVID assignments. Adjusted EBITDA is expected to be between $19 million and $21 million, reflecting an EBITDA margin of 6.3% to 6.8%. The sequential decline is primarily related to the lower operating leverage from lower revenue. Our adjusted earnings per share range is $0.37 to $0.42. Also assumed in our guidance is depreciation and amortization of $2.3 million, interest expense of $800,000, stock-based compensation expense of $2 million, and a tax expense of $500,000 with a fully diluted share count of 37 million shares. And this concludes our prepared remarks. At this point, we'd like to open the lines for questions.

Our first question comes from A.J. Rice with Credit Suisse.

I was just trying to understand. This is big-picture. I know there's a lot of pieces that are moving around. But your bill rates you're forecasting to come down, but your placements, you're still assuming the growth, if I heard you right. I guess it's interesting to me that, with the demand for actual placements still very strong, are there just more nurses available? Why does the bill rate start to come down ahead of placements starting to moderate?

It's Kevin. Thanks for the question. Look, demand is strong right now. In fact, just in the last week, demand is up probably about 10%. We've seen the demand grow since the conclusion of the first quarter. But bill rates are normalizing. The hospitalizations are down, as you know. Vaccinations are rolling out. I mean, over 200 million people have been vaccinated at this point, at least with one shot. And our placements are growing because, number one, I think we are becoming the choice of healthcare professionals to do business with. And from our perspective, the broad market is also coming back with that increasing demand, so we're seeing more opportunities in OR, PACU, surgical centers, L&D, peds. And we're seeing that show up with the large hospital systems who are reporting revenue numbers in the first quarter that are up. In some cases, like tenant admission, rates are up 6% to 10%. So demand is coming back into the market. Cross Country is becoming the agency of choice for healthcare professionals. We are very proud of the changes that we've made in the company, especially over the last two years, in a lot of ways coming out of this pandemic. We're certainly stronger, as the country is, and in a lot of ways, the pandemic has helped accelerate our digital transformation. And that's important because part of that ecosystem that we're creating is making it easier for candidates to do business with us. We're innovating again. We're launching technology such as Marketplace, our app for our local staffing, Per Diem Marketplace. So lots of reasons why demand is coming back. And final comment is just that one of the things that we're very excited about, we're seeing a significant number of first-time travelers on the travel division come to Cross Country. And we think that's, again, for some of the reasons I mentioned.

It's interesting to me, when the business is getting strong and the pay rates are going up, your bill pay spread gets squeezed a little bit. Some of that's probably you. The absolute dollars are still going up pretty dramatically. When it starts to come back down, do you hold on? Or does the bill pay spread, you think, expand there? What's the dynamics now that the rates are starting to moderate a bit?

Yes, that's a good question, too. Look, we took the position in the pandemic that we wanted to partner with our clients, and we made sure, as bill rates rose, that we passed through as much of that bill rate as possible to the healthcare professional to support these heroes who are working at the front line. And we have reported all along that that compressed our gross margin percentage in that segment of our business. As rates normalize and we are returning to pre-COVID levels in terms of demand, we think there will be a gradual return of our gross margin profitability to the pre-COVID levels and hopefully better than that as time passes. But maybe, Buffy, you want to add a little bit in terms of what you're seeing in the marketplace on the client side.

Yes, certainly. I think you covered a lot of it, Kevin, and thank you, A.J. We are looking at normalizing rates as quickly as possible for our customers, and of course giving them consultation on making sure that that isn't sacrificed by being able to get supply to the bedside. The specialties are certainly widening across the nation, more diversified requests as overall demand is coming up, deferred services, elective procedures are coming back in line. I would say, as the bill rates start to subside and go down, we're seeing this demand, which is going to offset that. Our teams are primed and ready to fill more volume, get those travelers and local professionals on assignment. And we have, to Kevin's point, stood side-by-side with our clients to be able to make some concessions such that we could support the needs they're having. Obviously, this last year was very tough for them. Their balance sheets are struggling, and they're trying to certainly manage their costs. And so, as a provider with a strong staffing division, we're able to make some of those concessions.

Maybe one last one. It's encouraging to hear that you're getting new people signing up for travel assignments. We read a lot about burnout among nurses, etc., etc. Are you seeing any movement in the percentage of nurses that choose to reup after they complete one assignment? Or can you expand a little bit on what you're seeing in terms of applicants relative to positions to fill and so forth? Just a little bit of a sense of what's happening in the underlying supply out there.

Sure. Generally, our percentage of travelers extending at the same facilities and our travelers renewing with us and moving to the new facilities has remained pretty steady. As Kevin had mentioned, we've seen a significant increase in first-time travelers, and our team has done a tremendous job of onboarding these new travelers and moving them on to their assignments. Now, a lot of the first-time travelers we're seeing at Cross Country have traveled with other companies before, and this increase of these new travelers is a direct result of our investments in our digital marketing efforts over the past year. But the pandemic has also opened up this new world, where we've seen many healthcare professionals who have never traveled with us before who now experience the benefits of travel staffing. We think that these benefits that we're hearing from our travelers, they love the fact that they have flexibility, choice, and control of their career. And while some of these travelers are going to return to their permanent positions, we're thinking that many of them will embrace the travel lifestyle and continue traveling with us. We're seeing our applications really be robust and seeing a lot of the new travelers coming in still into the industry.

Our next question comes from Kevin Steinke with Barrington Research.

You spoke about recruiter productivity and seeing double-digit gains there in terms of professionals on assignment. And clearly, you're still early on in the process with the new applicant tracking system. You said you expect to see further productivity gains. But do you have any sense as to how much room there is to run in terms of productivity gains, and maybe how that balances out your need to add new recruiters or hire more?

We are seeing significantly better productivity from our revenue producers, and specifically our recruiters. We called out on the last earnings call that we saw improvement. We've seen even more double-digit increases in terms of our productivity. So in a way, I think Cross Country is kind of catching up to our potential based on the investment that we have made. We're very excited about the opportunity to bring our local business onto this ATS, as we've called out, later in the year. And for us, we're looking at the market. The market is growing. It's an $18 billion market. We're growing, we think, faster than the overall market right now. We're investing. We're adding revenue producers at all levels, recruiters, account managers, etc. As John pointed out, the investments that we've made in digital advertising, data mining, proprietary technology that Cross Country now has that allows us to use artificial intelligence and machine learning to do candidate matching to open jobs, all of these things are leading to a significantly more productive company. And so I think we're going to continue to see gains each and every quarter. I don't know where we're going to tap out, so to speak, but we're very excited about the potential here at Cross Country.

And you mentioned the capture rate on MSPs increasing to 76%. Would you kind of view that as a function of the current environment and something that we should expect to pull back a bit, going forward? Or is that higher level a little more sustainable?

Look, I would say the market that we are in right now favors large players like Cross Country Healthcare. The model that we have, our total talent solution, being able to go to market and provide not just contingent staffing, but direct hire, RPO, locum tenens on the physician side, nurse, allied, etc., is a total solution to the marketplace. So the market, we believe, favors a company like Cross Country. We have seen a steady increase in adoption of MSPs and VMS from these large healthcare systems. And the other thing that I'd just note, Kevin, is we've seen a pickup in M&A activity with our clients, right? These hospital systems are getting larger. I'll note, for example, Humana in their announcement, they're acquiring Kindred as an example of that. The large systems are getting bigger, and they're going to need bigger staffing partners, such as Cross Country, to bring our workforce solutions to bear. I don't know, Buffy, if you have any additional comments to make there.

No, Kevin, I think you covered all of it. The only thing I was going to add is that these are our premier customers, so this last year in particular, we really had to lean in to make sure that we were caring for their supply needs. And then, we are seeing a lot more adoption across even within our MSPs, that hefty pipeline on newcomers to be, but an expansion of services. So where we may have historically played predominantly in the travel nurse and allied space, now we're seeing more requests for local, more requests for advanced practitioners in locum. So we're starting to see an expansion in activity there, which, of course, is going to help us with our capture.

Last question for me. You mentioned a robust pipeline, not only for MSP but RPO, and I believe RPO is still a pretty small piece of your business. But can you speak to that RPO pipeline? And I also believe it's a higher margin business for you. So maybe can you talk about the opportunity to grow that business, going forward?

Absolutely. Look, our clients are looking for more consultative and creative solutions coming out of this pandemic. They want more cost-effective solutions coming from Cross Country. So RPO for us is relatively small, but it's growing. And to your point, it is high margin. We think there's an important place with our total talent solution to have that as part of our offering. We've had very, very big success with clients hiring 50 to 100 to 150 permanent positions to augment their contingent labor spend. Buffy, you want to add to that?

Yes. So I think, as we saw coming out of COVID, hospitals' core staff, they're fatigued. Many of them are leaving the bedside. They're retiring. And at the same time, companies are really seeking cost controls and lessening their reliance on core staff. They reflect back this year and say we cannot potentially be in this same position should something happen again. But because of the loss of and attrition of their core staff, they are trying to rebuild in a very cost-effective way. So we can drop in and supplement their staff in trying to fill these core positions. So we're seeing high demand for this right now. We're working on with several of our premier customers right now, as well as new customers coming in. I think this is only going to be a significant request moving forward. We're in a strong position to support that, not only on the contingent side, but through our search and RPO group.

Our next question comes from Kevin Fischbeck from Bank of America.

Obviously, COVID's impacting a lot of the metrics that you're reporting today helps Q1. It looks like it's helping Q2 come in a lot better, as well. I guess the question is has your view on Q4 or 2020, I guess, changed at all? It sounds like you're doing some things operationally underneath all of this, but wasn't sure if that's really just executing on track. And we should be thinking differently about the long term, or is this really more kind of a little bit of a COVID boost skewing what was a long-term trajectory, and that's unchanged?

Maybe I'll start with there, and then I'll throw it over to Bill. Look, as I said earlier, I think we're coming out of the pandemic stronger. We have been able to accelerate a lot of our digital transformation. We've hit a lot of the milestones that we've talked about in terms of our strategic plan that map us to 8% EBITDA by the end of next year on a consistent level. We're seeing on our travel business right now, we're seeing double-digit volume growth, mid- to upper single-digit growth overall. As we see some of our segments, like education, come back with now schools reopening, our physician business, as we noted, we're bullish as surgeries start occurring, etc. So we're excited about our future. We've been at this now for 2.5 years, turning around the company, which we called out on the last call. We think we are positioned for sustained growth. We're back to being a growth company, and we think we're best-in-class. But Bill, you may want to talk a little bit more about what you're seeing from the financial side and our horizon.

Sure. Look, I mean, I think we're very thrilled to have hit the 8% this quarter. It shows that, obviously, with the right level of revenue, the operating leverage in the business, we can certainly put the 8% on the bottom line. I would say the quarter was muted by the fact that margins on a lot of these assignments were lower than the consolidated average. So at this level of revenue in a normal time, we would have expected even better than the 8.1% that we saw. But without a crystal ball, we've modeled this out and looked at how we think the rest of the year and going into 2022 could play out. If rates continue to follow the trajectory that we're seeing for Q2 and have a sequential step-down in the third quarter and the fourth quarter of this year, but we continue to see kind of volume expansion, which is what we've continued to experience while the market is where it is, and the orders have been robust. We're continuing to put more folks on assignment even as bill rates are coming down. So when you model that kind of all the way out through the end of this year and into 2022, the bill rates, we do expect will level off somewhere north of where they were pre-COVID. It puts us right on track to come back into the 8% range. Obviously, our goal is to get there faster than the fourth quarter of '22, and that's what we're going to continue to do. We're going to continue to invest, though. So it may not be a straight line. We're going to continue to add the revenue capacity from all lines, whether it's recruiters or account managers, just because the market is there, and we're able to continue to show volume growth. One thing we didn't talk about with the technology, and we called out the one- to three-year bucket, which is for the 10-year. That's the most important bucket because, as we've said historically, that's where we expected to see most of the productivity gains. But we are seeing productivity improvements in the other 10-year buckets. And I'd say that the opportunity is for us, as we bring on folks and we make these investments, that they come up the curve faster than they historically had. So we're looking at hopefully seeing productivity enhancements not just in that bucket, but as with the new hires, and we'll continue to make those investments as long as the return is there. So we're encouraged. We think that we've got the right trajectory, and we're doing all the right things to get back to an 8% on a sustained basis.

And I guess you made the comment in your prepared remarks, I guess that bill and pay raises are expected to moderate as the year goes on, but not necessarily at the same rate. I don't know if you were trying to directionally point to margins contracting or expanding in the short term? I wasn't sure if there was a message there. Were you just saying it's uncertain inherently? Any color there?

Yes. I think it's a bit of uncertainty, right, because you're dealing with two different parties on - you're dealing with the healthcare professional on the compensation side and the client on the bill rate, and they're just competing forces. So it's always been a challenge to perfectly time that. What I would say is that, as I look at the early indications coming into Q2, the bill and pay rates are kind of moderating at about the same rate, but that is so early. It's not really indicative of a trend just yet. But we're looking toward the bill rates coming down and the pay rates coming down and returning the margins back to where they were pre-COVID. So, obviously, that would imply bill rates need to decline more substantially than the pay rates do. But thus far, we're not exactly seeing that, but we're just encouraged that they're at least moving somewhat in parity.

And then maybe just last question. I don't know whether it's dissonance, or maybe actually these comments are a lot more in line with maybe how it does feel on the face. But the staffing companies seem to be saying we expect there to be a sustained nurse shortage that is as bad, if not worse, than it was coming into COVID because of fatigue, etc., whereas at least the publicly traded hospitals continue to talk about dramatic improvement in temporary labor and labor costs being difficult to manage, but largely improving from here. So I guess I'd love to hear your thoughts about are we just hearing it from a slice of the hospital industry and it's not necessarily representative? Or is this, in fact, exactly in line with your comments that bill rates will improve, but just not to where they were pre-COVID? Any thoughts there?

Yes. I mean, look, we are certainly in a supply-constrained marketplace. As we called out earlier, Buffy was talking about it, there is a lot of fatigue and burnout. But what we also mentioned is we're seeing a lot of first-time travelers. And I think John was talking through that answer. What's interesting is that I think these high bill rates have encouraged permanent staff to give, for example, travel nursing a try. And I think more and more of our healthcare professionals are millennials. I think they're adopting this kind of freelance gig work style that is really the megatrend that's going on with America's workforce. So from the perspective of where are we encouraged with a severely supply constrained marketplace, it's greater adoption by candidates to choose when and where they want to work and the type of healthcare facility and be able to kind of look at compensation and benefits. John, I don't know if you want to add to that at all.

Well, Kevin, I think you covered it pretty well. But I would say, from the hospital perspective, I think a lot of the hospitals are looking for the flexibility of our contingent labor. And I think we're going to continue to see that. So while there is a tremendous amount of burnout and fatigue with clinicians, and as Kevin mentioned, we're still going to see a lot of nurses come into the travel world, I do think our clients are also going to respond very well with the flexibility to bring in staff when they need them and not to burn out their core staff, as well.

Actually, that answer - so one more question. You mentioned that a lot of first-time people coming in, brought in by the pay raises and now appreciating the lifestyle. I guess, as you think about bill rates moderating, going forward, how comfortable are you that you're going to be able to keep those first-timers beyond the next quarter or two when rates do actually normalize?

I think Bill called out that. I don't think we expect pre-COVID bill rates for the remainder of this year. I mean, I think rates are going to come down gradually, but because of the supply, I think they're going to remain elevated from where they were in terms of pre-COVID. But we don't have the crystal ball. We don't know exactly where this is going to fall once we get to some steady-state. So I just think, from the perspective, I think bill rates and pay rates are very important to the market. But I think adoption is growing. Cross Country has an enhanced brand reputation, the way we've partnered with our clients through the pandemic, making it simpler and easier for a job seeker to find a job. All the things that we've been working on are going to pay dividends for this company as we continue to grow.

Our next question comes from Tobey Sommer with Truist Securities.

Could you discuss changes to the per diem space, as we're hearing that clients no longer really require a brick-and-mortar branch nearby?

And that's certainly our case. I mean, look, last year, in 2020 during the pandemic, it really expedited our transformation as a company. We closed 50 offices. A lot of those 50 offices were small brick-and-mortar branches that we had. We really don't even use the word "branch" anymore. Our company has adopted a virtual model. Our clients have adopted a virtual model. People are working very productively from their homes. Having said that, what is unique about Cross Country versus some of our competitors is we have boots on the ground, so to speak, in almost all 50 markets. So when we go to market, it's important for us to provide not just a travel contingent solution, but also that per diem local offering, as well. And we're just modernizing the way our corporate workforce handles that business.

Could you discuss changes in assignment length and maybe juxtapose what you're seeing now and/or expect with what would be considered normal, as well as the kind of shorter, more variable lengths that you were seeing just two or three quarters ago?

Look, assignment lengths definitely got shorter. And for example, in the Midwest, we're seeing COVID surges occur with these variants, these COVID hotspots. Right now, we have three-week types of assignments for a small segment of our business. But the traditional model at Cross Country and in this industry for the Travel Nurse or Travel Allied worker is 13 weeks. We think we're going to revert back to that three months. I mean, there's a reason for that 13 weeks. It's about the amount of time a healthcare professional can take care of patients through a season, for example, in the Sun Belt, where the patient census fluctuates higher during the winter. 13 weeks allows for greater continuity of care at the bedside, lets the nurse get comfortable with their administrative staff, their head nurse, etc. So for all those reasons, and it certainly functions well moving yourself with short-term leases and all the other things that are associated with travel, but the average length of assignment definitely shrunk, but it's on the way back. We think that as rates normalize and hospitalizations decline, we're going to revert back to the traditional model.

How would you say the distribution of bill pay spread compression compares when you look at your MSP customer base and your non-MSP book?

Yes. That may be data I don't have at my fingertips, but I would say that the majority of the compression would have been experienced in our MSPs just for all the reasons Buffy mentioned about where we were really leaning in. We felt as our premier clients, we really had to make sure that they had the care needed in partnership with them. So I think we would mostly have experienced the higher pay packages in those locations. But obviously, we can't tell every nurse where to go. So if a nurse wants to be in a particular market or geography, we're always looking at making sure that the rates are competitive, and nurses have a lot of visibility on that front to see what a competitive rate is. So I think we've been competitive across whether it's MSPs or direct or other third-party accounts.

From a longer-term perspective, if you're able to hit that 8% EBITDA margin, what kind of general gross margin percentage would be required to do so? Because just kind of if we're endorsing the fourth quarter of next year, then want to get a sense for how much gross margins need to normalize for you to hit that target.

Yes. I mean, it's the kind of thing, Tobey, as you can imagine, you can play a lot of different scenarios out. But I'd say that we certainly would look for gross margins to be, call it, anywhere from 150 to 200 basis points higher than they are right now, excluding payroll tax, of course, so by the fourth quarter. I think that's the expectation. But a lot of things can factor into that mix of business. Of course, as we talked about, our higher-margin businesses haven't really had the opportunity to grow, particularly in our education space. They're still down and doing better, faring better than they were in the fourth quarter. But as schools come back later this year or for the fall semester, I think we'll see that'll be an uplift to margins, as well as the bill pay spread kind of normalizing on our other core businesses. So that would be our expectation, but it could be higher, and there also could be a higher level of productivity in the business. So it's really more of just a normalization, a return to our pre-COVID margin is where I'd like to see us.

So 2019 was approximately 25%, so that's not unreasonable. Just want to drill down on one question that's been discussed, but wanted to get sort of an answer, if I could, on where you think travelers' bill rates may settle compared to pre-COVID levels, whether you're talking about a material change of 15%, 20% higher, or just something kind of slightly better?

Yes, Tobey, I mean, hard to say. I mean, this is uncharted territory for all of us. But I think there's going to be a gradual retrenchment back to kind of pre-COVID levels. I don't know if that will take six months or 18 months or 24 months. It's pretty hard to say because we can't really forecast what happens to population health, where COVID goes, and how deeply impacted the supply is from some of the points we've already made around fatigue and burnout and folks that have left the industry. And who knows, we also read lots of reports that enrollments are moving up in terms of nursing as a profession, given the importance of these heroes. So it's really hard for us to tell. I mean, it's just uncharted. I'm sorry I can't give you a better answer on that.

Last question from me. The FEMA contract out, the proposal and RFP submitted, is that something you think could still translate into a significant opportunity for the industry? Because the vaccine progress has been pretty significant.

It's an interesting question. I think, just for the folks listening, the federal government has solicited the industry and put out an RFP. Folks have been preparing for an uptick in hiring around vaccinations and testing, etc. But what's also interesting is the deadlines that they've given the industry to kind of come back with a program keep getting moved. And at the same time, as we follow the data, there are vaccination centers that don't have people to vaccinate. And now, it seems like the CDC, the government, is moving into a campaign to convince the folks that haven't gotten vaccinated to go get one, right? And President Biden I think laid out a case of 70% by July is the goal. So I'm not sure how that impacts what the federal government wants to do with this bid. I don't know, Buffy, if you have any other insights you can share.

No. I mean, I think that we've been engaged in various testing, as well as vaccine activity across the nation, but it's not just staffing organizations that are supporting that. We've been involved with discussions. It really is hard to say because you are starting to see a lot of folks going and get their vaccines. So we've been in discussions, but no word yet specifically for that opportunity. We are involved with local and regional and then state organizations, as well as direct providers of offering vaccines. So it's expanding as far as the outlets that we have for supporting the vaccinations. No word yet on FEMA.

And our final question comes from Brian Tanquilut from Jefferies.

Just as we think about bill rates, you talk about how they'll still remain elevated. Obviously, demand remains strong, and you sound really confident on recruitment. So without going to guidance for the back half of the year, I mean, is it a good way to think that there shouldn't be that much change from your Q2 guide as we think about earnings power for the back half of the year?

I think, again, if you take out the kind of step-down you're seeing from Q1 to Q2, I think I just mentioned this a little bit ago. If you kind of play out that same scenario where bill rates are down in the, I'll call them, low double-digits, somewhere in the teens on an average basis, and that's both from mix as well as normalizing with clients. Again, no crystal ball here. It could happen faster, it can happen slower. But if you model that out over the third and fourth quarter in a similar fashion with this kind of bill rates stepping down in the teens, and we are still targeting a kind of sequential volume growth in the business for all the reasons we already went through. So I think that'll give you some indication. It will point to a similar year-over-year growth number in the third quarter on a percentage basis, right? But again, we're comparing to a softer quarter. Q3 last year was by far our weakest quarter of the year. And then, it starts to get a little closer as we get into the fourth quarter on a year-over-year growth perspective. The numbers aren't as quite as significant, but it still indicates growth through the back half, but I'd say, I guess, at a diminishing run rate from where it is right now.

And then, my last question, just a follow-up to Kevin Fischbeck's and Tobey's questions on what you're seeing in terms of duration and the flexibility demands from your hospital clients. Are you seeing any interest or openness from the hospitals or want for the hospitals to come up with quicker placement, shorter solutions that are much more flexible versus a traditional four-week, six-week lag?

Look, I think one of the things that we talk about in our company in 2021 is speed and acceleration. Everything is about being able to fill the order with the best, most clinically qualified healthcare professional in really minutes from the time a job seeker chooses an assignment that he or she wants to look at to the time it takes to interview that candidate and go through the whole process of credentialing and onboarding. We want it to be as fast as possible. And that's kind of on the recruitment side. Your question, I think, is largely around the duration of the assignment. We think travel nursing has been around in our company for over 35 years. The assignment length is an attractive work period. We get excess of 60% or more than that in terms of our renewal rate with our travel healthcare professionals. And we think that's going to revert back to the history in this industry. And then on the per diem side, we also cover that too. We are a full, total talent solutions provider. And being able to fill a shift or a two-week or four-week or a one-week type of work order, we can do that as well. So we feel we're well-positioned for whatever the work length of time is. And then just one other comment I'll make is we are seeing, as we've talked about, clients using innovative solutions. We're also working with those clients to help them on what we refer to IRP, which is helping develop float pools and the technology to deliver their own internal staff, as well, to augment their needs in this supply-constrained marketplace.

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

Great. Thank you, Michelle. And thank you, everyone, for joining us this evening. We look forward to updating you on our progress in the second quarter. Stay safe. Happy Nurse's Week, and Happy Nurse's Month to all those heroes out there on the front lines. Appreciate it. Good evening.

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