Good afternoon, everyone. Welcome to Cross Country Healthcare’s Earnings Conference Call for the Second Quarter 2023. Please be advised that this call is being recorded and a replay of this webcast will be available on the company’s website. Details for accessing the audio replay can be found in the company’s earnings release issued this afternoon. 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.

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 second quarter of 2023 as well as our outlook for the third quarter. A copy of our earnings press release is available on our website at crosscountry.com. Please note that certain statements made on this call may constitute forward-looking statements. These statements reflect the company’s beliefs based upon information currently available to it. As noted in our press release, forward-looking statements can vary materially from actual results and are subject to known and unknown risks, uncertainties and other factors, including those contained in the company’s 2022 annual report on Form 10-K and quarterly reports on Form 10-Q, as well as in other filings with the SEC. The company does not intend to update guidance or any of its forward-looking statements prior to the next earnings release. Additionally, we reference non-GAAP financial measures such as adjusted EBITDA or adjusted earnings per share. Such non-GAAP financial measures are provided as additional information and should not be considered substitutes for or superior to those calculated in accordance with US GAAP. More information related to these non-GAAP financial measures is contained in our press release. Also during this call, we may refer to pro forma when normalized numbers pertain to our most recent acquisitions as though the results were included or excluded from the periods presented. With that, I will now turn the call over to our Chief Executive Officer, John Martins.

Thanks, Josh and thank you to everyone for joining us this afternoon. For the second quarter, consolidated revenue of $541 million, and adjusted EBITDA of $44 million were above the high end of our guidance ranges. Our results reflected strong execution in an environment where clients remained focused on controlling labor costs. This is evident to me that our ongoing investments in technology are driving efficiency and productivity gains, enabling our dedicated employees and healthcare professionals to deliver best-in-class services. Bill will get into more detail on the numbers, but I wanted to spend a few moments discussing our second quarter performance. I’ll start with our largest business, travel. Revenue was down approximately 16% in the first quarter, driven by a mix of lower rates and billable hours. As expected, average bill rates declined approximately 7% sequentially and are expected to decline by the mid to high single-digits in both the third and fourth quarters. This would place travel rates on track to settle in roughly 35% above pre-COVID levels as we enter 2024, in line with our prior expectations. As we reported last quarter, demand dropped in April and has been slowly rebounding. In particular, we saw notable pickups in MedSurg, EOR, labor and delivery and pediatrics, and in allied, we saw strength in imaging and lab specialties. So demand has rebounded, though the corresponding growth in the number of travelers in the third quarter has been slower than anticipated. As there appears to be a gap in open order rates relative to the compensation that nurses are seeking. Accordingly, we still expect revenue for the third quarter to be withdrawn, though a little softer than we previously envisioned. For the fourth quarter, we continue to expect sequential volume growth in the business, in part due to the improving outlook for orders, as well as likely seasonal needs, we expect to see ramping in coming months. Heading to our other businesses, I’d like to highlight physician staffing revenue which was up 32% year-over-year organically and 12% sequentially in the second quarter, driven by an increase in the number of days filled across most specialties and revenue per day filled. When we include our most recent acquisitions of Mint and Lotus, which continue to operate above expectations, our physician business was up 105% year-over-year and now is on an annual revenue run rate of more than $180 million. Education also performed very well in the second quarter, up 42% year-over-year. This division is now close to an annual revenue run rate of $100 million. Now, let me spend a moment on our technology initiatives. As you know, we have been successfully redesigning our entire technology landscape using a data-centric model that provides analytics and insights in real time, with Intellify, our proprietary vendor management system at the center of our ecosystem. Since introducing Intellify at our Investor Day event last year, we have successfully migrated nearly half of our managed service program onto this platform with plans to convert the balance over the coming months. As a reminder, this will save us millions of dollars annually in tech fees paid to third-parties. However, the key driver for long-term revenue growth and margin expansion, in my opinion, is the multibillion-dollar opportunity Intellify opens within the vendor-neutral space. We’re meeting with prospective clients, and conversations go beyond just contingent labor by offering a comprehensive, technology-enabled platform that empowers the user with intuitive data and analytics as well as labor efficiencies and transparency. We believe Intellify to be highly differentiated in the industry, and the feedback we have received thus far from clients, prospects, and our subcontract partners has been extremely positive. For example, one of our partners recently noted that the data Intellify introduces helps staffing agencies track their efficiency within the marketplace, which is a very useful tool. As I mentioned on the last call, we landed our first vendor-neutral contract in March, which went live on May 1st. Today, I’m thrilled to announce that we are actively implementing Intellify talent solutions at another new customer. We have a robust pipeline with clients interested in this technology, evident in the numerous live demos we’ve conducted so far. We look forward to updating you on our new business opportunities on future calls. An equally exciting technology initiative underway is on the candidate-facing side. In mid-May, we released the latest version of our Xperience app, which allows travel nurses and allied professionals to utilize a self-service model, easily searching and applying for jobs with convenient functionality and pay transparency. Since the launch, there have been thousands of downloads with KPIs showing positive daily active user, retention, and job view trends. This app is a crucial piece of Cross Country’s ongoing digital transformation. As we pivot to a tech-enabled platform, our mobile-first ecosystem will assist in optimizing candidate and client experiences, rationalizing business operations, and streamlining our delivery models. For the full year, we continue to target an investment of nearly $30 million on technology-related initiatives that we believe will further improve our go-to-market strategy as well as our efficiency. This brings me to our outlook. Given the market backdrop and the seasonality in parts of our business like education, we anticipate that the third quarter revenue will be between $440 million and $450 million. Beyond the third quarter, our expectations for continued improvement in travel demand, as well as potential growth in many of our businesses like education, physician staffing, and home care, point to a full year revenue that will be above $2.05 billion and an adjusted EBITDA margin of approximately 8%. I remain confident in our ability to drive long-term sustainable, profitable growth, and we are focused on increasing shareholder value through our deployment of capital. As you see in today’s press release, our cash generation was very strong in the second quarter, allowing us to fully repay the remaining $74 million on our term loan in June. We will also recall that we announced the restoration of our $100 million share repurchase plan in May. With the term loan now gone, and given that we believe our shares are undervalued, share repurchases remain an attractive use of capital. We will also look to leverage our technology investments and robust balance sheet to further diversify our platform. By continuing to follow the patient across the continuum of care, as well as entering new markets like we did with the interim leadership hire acquisition late in 2022. In closing, we are confident about our prospects and ability to build upon the early momentum from Intellify, which we believe is a game-changer for Cross Country and the industry. None of our success would be achievable without our dedicated employees, and I want to thank each of them for their hard work and contributions. We have an incredible team. We recently won the 2023 Top Workplace Healthcare Industry Award from Energage, and I’m also humbled to highlight our recent award of Winner of Newsweek magazine’s most-loved workplace certification, which recognizes organizations where employees are the happiest and most satisfied. Our workplace culture is second to none in my opinion, and this award is reflective of that as it surveys employees on various elements such as respect, collaboration, support, and a sense of belonging inside the company. Lastly, I want to thank all of our professionals who make Cross Country their employer of choice, as well as our shareholders who believe in the company. With that, let me turn the call over to Bill.

Thanks, John, and good afternoon, everyone. As John highlighted, consolidated revenue for the second quarter of $541 million was above the high end of our guidance range, fueled by over performance across both physician staffing and education. Compared to the prior year and prior quarter, revenue was down 28% and 13% respectively, driven in large part by the expected normalization in travel bill rates and, to a lesser extent, the decline in the number of professionals on assignment. I’ll get into more details on the segments in just a few minutes. Gross profit for the quarter was $123 million, which represented a gross margin of 22.8%. And gross margin was up 40 basis points sequentially, due primarily to the impact of the annual payroll tax reset at the start of the year. Moving down the income statement, selling, general and administrative expense was $79 million, down 6% sequentially and 8% over the prior year. The majority of the decrease relates to lower variable compensation following the historic performance throughout the pandemic, as well as the reductions in salary and benefit costs we mentioned last quarter. Our goal remains to proactively balance investments with current market conditions to maintain our profitability while ensuring we have sufficient capacity for future growth. Including actions taken throughout the second quarter and into the start of the third quarter, we’ve reduced our internal headcount by more than 10% since the start of the year, while continuing to invest in areas of the business with the highest growth potential, as well as in our technology initiatives. Based on the cost actions taken to date, as well as lower compensation associated with the sequential decline in revenue, we anticipate our SG&A will decline in the mid to high single digits for the third quarter. As a percent of revenue, SG&A was 14.6%, up from 13.5% last quarter, as the decline in revenue outpaced the reductions in SG&A. The better-than-expected top line performance coupled with tight cost management drove another quarter of strong earnings with adjusted EBITDA of $44 million, representing an adjusted EBITDA margin of 8.2%, consistent with our goal to maintain margins in the high single to low double-digit range. Interest expense was $3.1 million, which was down 15% sequentially and 18% from the prior year. The decline was entirely driven by lower average borrowings during the quarter, partly offset by higher interest rates. Our effective interest rate for the quarter was 12%, reflecting the reduction in borrowing under our ABL. At the end of the quarter, we prepaid the remaining balance on the subordinated term loan and therefore expect to see interest expense materially lower for the third quarter. As a result of the prepayment of our term loan, we incurred $1.7 million on the extinguishment for the write-off of the debt issuance costs. Also on the income statement, we recorded $900,000 in restructuring costs, primarily related to the severance associated with the reduction in headcount I mentioned a moment ago. Finally, on the income statement, income tax expense was $9 million, representing an effective tax rate of 29.6% in line with expectations for both the full year effective tax rate of between 29% and 30%. Outperformance resulted in an adjusted earnings per share of $0.69, above the high end of guidance, driven by the overall strong performance and lowered interest expense. Turning to the segments, nurse and allied reported revenue of $495 million, down 15% sequentially and 32% from the prior year. Our largest business, Travel Nurse and Allied was down 16% sequentially and down 36% from the prior year. Bill rates for travel were down 7% sequentially, in line with expectations while billable hours were down almost 10%, following the softness we experienced in orders through the first half of the year. The decline relative to the prior year was fairly evenly split between lower bill rates and fewer billable hours. Looking to the third quarter, we continue to expect bill rates to decline in the mid to high single-digits, while billable hours are expected to decline in the low double-digits. Let me spend a moment on that. As we called out, demand softened considerably coming into the start of the year, before troughing in the second quarter, and while total orders are gradually improving, average bill rates continue to soften, which is creating a gap to pay expectations by clinicians. As a result, we’re not yet seeing an improvement in the weekly production, with a slightly softer third quarter than we anticipated a few months ago when we started this rebounding. That said, we remain optimistic that as the seasonal needs pick up, we will start to see our travel on assignment grow once again. It’s worth noting that we continue to have more than double the number of travelers as we had prior to the pandemic. Our local or per diem business continues to feel the impact from a softness in demand with revenue down approximately 9% from the prior quarter, predominantly due to a decline in billable hours. Also within the Nurse and Allied segment, our Education business continued its trend of robust growth, growing more than 40% over the prior year. Home care staffing services performed within our expectations, though down 2% over the prior year, predominantly due to lower needs from a single client. Both of these businesses remain on track to achieve an annual run rate of approximately $100 million each. Finally, Physician Staffing once again exceeded their expectations, delivering $45 million in revenue, which was up 12% sequentially and more than double the prior year, thanks to the impact of our acquisition completed late last year. Turning to the balance sheet. We ended the quarter with $673,000 in cash and $31 million in outstanding debt under our ABL facility. Given our continued strong performance and positive cash flow, our total leverage fell to less than 0.2 times. With the health of our balance sheet and an incredibly low leverage, we remain well positioned to make further investments in technology and acquisitions as well as to continue repurchasing shares under our $100 million share repurchase plan. From a cash flow perspective, we generated $119 million in cash from operations, our second-highest quarter on record compared with $80 million last year and $46 million last quarter. The $166 million in cash generated from operations on a year-to-date basis represented a 172% conversion on the $97 million in year-to-date adjusted EBITDA. Fueling this performance was strong collections that drove further reduction in DSO, which now stands at 63 days. Our goal remains to bring DSO below 60 days, which is more in line with our historical performance, and we believe that we can continue make progress towards that in the second half of the year. Cash used in investing activities was $4 million, reflecting our continued ramp in technology investments. From a financing activity perspective, we paid down $110 million in debt, and repurchased almost 200,000 shares under our 10b5-1 trading plans during the blackout windows. Having retired our exposure to subordinated debt and paying down a considerable portion of the ABL, we anticipate being opportunistic in making additional share repurchases when possible in the third quarter. This brings me to our outlook for the third quarter. We are guiding to revenue of between $440 million and $450 million, representing a sequential decline of 17% to 19%, driven predominantly by the softness in travel bill rates and volumes as well as the impact of summer vacation on our education business. We are expecting adjusted EBITDA to be between $27 million and $32 million, representing an adjusted EBITDA margin of approximately 6% to 7%. As John has mentioned previously, we’re managing this business for long-term success and not to a single quarter. We continue to believe this business can achieve and maintain high single to low double-digit adjusted EBITDA margins. Adjusted earnings per share is expected to be between $0.35 and $0.45 based on an average share count of 35.5 million shares. Also assumed in our guidance is the gross margin of between 22.5% and 23%, interest expense of $1.5 million, depreciation and amortization of $4.5 million, stock-based compensation of $2.5 million and an effective tax rate of 30%. That concludes our prepared remarks, and we’d now like to open the lines for questions.

Thank you. We will now begin the question-and-answer session. Our first question comes from Brian Tanquilut with Jefferies. Your line is open.

Hi, this is Knorr in for Brian. Congrats on the quarter. I guess I just want to take a step back and get your opinion on where you think your relationship with MSPs will be moving forward? Would love to get some clarity on that front. Thanks.

Sure. Hey, Knorr, this is John. MSPs are still a vital part of Cross Country’s strategy. But what we’ve seen since about last summer is that the sentiment has changed in the marketplace, where hospitals are moving towards a vendor-neutral space. That in and of itself has been cyclical, where throughout the year it changes which is the flavor of the day. It has gone from predominantly vendor-neutral to predominantly MSPs, and we’re in a market right now where it’s moving towards that vendor-neutral VMS. At Cross Country, we feel very excited about our prospects in the vendor-neutral space right now and our ability to compete in that vendor-neutral area. When we launched Intellify at our Investor Day in September, that was showing—initially, we invested in Intellify to be a replacement for the third-party VMSs we had from other vendors. But as we saw the market sentiment change toward vendor-neutral, we were able to quickly pivot Intellify into a vendor-neutral platform. In January, we officially launched our Intellify Talent Solutions business as a vendor-neutral business. We hired Eric Christenson, who has been a pioneer in the vendor-neutral space, to come on board. As we mentioned in my prepared remarks, in the first quarter, we won our first vendor-neutral deal, and by May, we had implemented that deal and we’re implementing our second deal in vendor-neutral. We’re excited about the prospects of the vendor-neutral business that Intellify brings to the market because we are receiving positive feedback from our prospects, our clients currently using it, and our vendor partners. It is a totally differentiated model compared to the other vendor management programs available in the market. We’re also working and have a full sales team selling MSPs, but it’s really important to deliver what clients want and what is most effective for them.

Knorr, this is Dan. I’m going to add just a little bit as John said. Our pipeline remains really strong, and I would say, thinking about the mix between the vendor-neutral and MSPs, there’s probably close to 60-65% that are more in this neutral desired space and maybe 35-40% in the MSP category.

Right, thank you.

Thank you. Next we will hear from Trevor Romeo with William Blair. You may proceed.

Hi, good afternoon. Thanks a lot for taking the questions. First, I kind of just wanted to ask about your confidence in demand trend visibility. Just kind of given the step-down in revenue you’re guiding to for Q3 and the reduction to the minimum full-year guide. So just a couple of questions on that front. I guess, one, have you built any extra conservatism into the guide kind of given the environment? And then specifically, could we dive a bit more into the comment about the gap in order rates and the compensation nurses are seeking? Could you maybe flesh that out a bit more?

Yeah, Trevor, this is Bill. Thanks for the question. I guess I’d start with your first question regarding whether we built in conservatism. I think we try our hardest to give you the numbers we have the most confidence in that we can continue to exceed. It was not an easy decision to reduce the minimum guide to $2.05 billion from $2.01 billion. In context with the market, this gets into the second part of the question. Demand has rebounded, but the net weekly booked or how we look at our production—our weekly production hasn’t bounced up as high as we’d like, so we’re seeing a bit of softness in that third quarter and going into the fourth quarter. We still anticipate that the third quarter will be the trough. Regarding that minimum guide, if you squeeze out the numbers to what it implies for the fourth quarter, it wouldn’t show a big bounce off of the third quarter; it’s virtually flat if you take the midpoint of the guidance range. I would not read into that. I still think that the fourth quarter at this point is an upward trend off of the third quarter. That said, there are still some headwinds in the marketplace. We still have bill rate pressures. Although demand has trended up since the trough in mid-April, we’ve not seen a continued deterioration in the open order bill rates. Those bill rates have remained pretty stable over the last call it three-plus months. We’re still winding those through our entire book of business, which is what really gives us rate pressure moving into Q3 and Q4.

And I would add—Trevor, this is John Martins—that what we’re seeing for the second part of your question is that there’s a disparity between nurse pay expectations and the bill rates that hospitals are offering right now. We believe this will come to equilibrium in the upcoming months as we start seeing more orders come in and demand potentially spiking higher. We’ll see the bill rate and pay rate align, which will help us witness an increase in volumes in the latter half of the year.

Okay. Thanks, John, and that was helpful color. I guess as my follow-up just kind of on the levels of contingent contract labor at the hospitals right now. I think some of the public facility operators report in the last week sound like some are kind of comfortable with the levels that they have now that might be expecting further moderation. Just kind of wondering if you could give us your view of kind of broadly how your clients are thinking about the level of contingent staff they have now and where they are in that normalization process?

Yeah. I think the majority of the clients right now feel that they’ve gotten to appropriate levels where bill rates are trending down, especially the bill rates that we’re opening up are trending more down towards the 30-35% range above COVID levels. In terms of volumes, I think we’re still hearing that there is still the need for additional nurse support on the floor. Therefore, as we reach the right bill rate, the hospitals are more willing to see that as a strategic key to bring in travelers to help them grow their revenue and volumes.

Okay, thank you. That was helpful. Appreciate it.

Thank you. Our next question will come from Tobey Sommer with Truist Securities. Your line is open.

Thanks. I wanted to ask you about the seasonal orders that typically come in over the winter, perhaps for a slightly higher rate. What’s your anticipation of how that’ll play out, and do you have any visibility into that at this point or is that still forthcoming?

So this is John, Tobey. It’s still forthcoming. What we’re seeing right now is an interest from our clients in bringing on 26-week contracts that will get them through the early part of the flu season and into the New Year. We’re starting to see a trickle of some of the flu or winter needs. However, the sentiment from our clients is that their approach is more just-in-time, rather than upfront planning as we had previously witnessed before COVID.

And just to be clear, as we head into 2024, is that kind of your expectation for how our higher fourth-quarter numbers will sustain in the 8% EBITDA margin? Is that how we should think about it, or is that influx at this point?

Hey, Tobey, it’s Bill. Yeah, I think that’s a good run rate to assume going into 2024. There is potential, of course, for some continued bill rate pressure, but we’ve been pretty close on how we’ve modeled out the bill rate so far. So that plays out that way. I think that’s a good jumping-off point. If there’s a bit of headwind, it really comes down to the ability for volumes to offset or the growth in other lines of business that have been demonstrating robust growth like local tenants and education.

And could you talk about MSP churn? This is something we’ve heard a lot about in the industry—many people deciding to move to vendor-neutral, even many staffing-led MSPs looking and seeming like vendor-neutral at this stage. Love to get your perspective on this and whether you think we’re kind of more than halfway through the post-pandemic churn that is likely, or if there’s still a lot to come?

Sure. This is John, Tobey. I think we’re probably not halfway through the churn that is occurring in the market. The sentiment has turned over the last year toward the vendor-neutral alternative. We have been transparent that we have seen a higher churn than we’ve historically seen, and those losses have mainly come from the vendor-neutral players. That’s one of the key reasons we launched Intellify to be able to operate in that space, and we believe the strategically-oriented MSPs are now looking much more like vendor-neutral. I’ll tell you it’s very difficult to correlate directly to the last economic downturn; we saw a similar migration to vendor-neutral offerings at that point, and after the Affordable Care Act came into play, we saw MSPs become the preferred model. With the current market dynamics, we’re seeing a lot of healthcare systems reevaluating their current models. To answer your question directly, yes, we’re definitely observing a shift toward vendor-neutral solutions, and we feel Cross Country is well-positioned with Intellify.

Tobey, I just wanted to add a bit more context to the churn discussion. It’s important to remember that these contracts, whether vendor-neutral or not, are typically three years long. Taking into consideration that no one was making significant moves during the pandemic, it follows that a lot of this activity is occurring now—to get back on track. We expect to see a lot of activity in the market.

This is John again, Tobey. I would just reiterate that this is probably the biggest pipeline we’ve had between vendor-neutral and MSP that Cross Country has ever encountered. There is a lot of churn in the market, and it appears that healthcare systems are all reevaluating their strategies moving forward.

And thanks for all that context. Just as a follow-up, are you winning or losing share amid all of that pipeline and activity in the marketplace?

You know, right now, I think we probably lost a little bit of share. However, you have a few factors at play. We have bill rates coming down and volumes declining. We are still above a billion dollars in spending under our management for our MSPs, and we’re adding to vendor-neutral efforts. I think we will gain back some share over the long-term as we roll out our vendor-neutral initiatives. I believe it’s early innings for us in this regard.

And, Tobey, it’s Bill. I think you asked a solid question regarding the state of where we’re in the process. I’d say, it’s still early innings for Intellify. We have called out that we converted 50% of our MSP program to the Intellify platform. We’ve got a roadmap to convert more by the end of Q3, and I think that number will exceed 75%. We have one vendor-neutral solution live and one being implemented. So it’s early innings for Intellify but it’s making great strides.

Thank you.

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

Thank you. Nice work, guys, on the quarter. Bill, can you go through the 4Q seasonality? Just remind us. I know education rebounds strongly. What else do you see usually?

I could say that the businesses that usually see some seasonality in the fourth quarter—locum tenens—historically, we haven’t anticipated a lot of seasonality for us; that’s actually a little bit of a slower start to Q1. The education business you mentioned comes off of their lowest point of the year, and in fact, they’ll be down about 25% sequentially, but the growth into the fourth quarter, because of the new school year, could achieve 30-35% sequential growth. For travel, we don’t typically see a lot of seasonality in the fourth quarter. Our local business tends to feel a little bit more of impact from the holidays as we go through Thanksgiving and year-end holidays. So those are the general impacts we see through the fourth quarter, but education tends to see strong growth.

Okay. Hey, John, is your physician staffing business all locums now, or do you still have recruiting placements?

It’s 99%. I think it is very little; it’s probably 99.5%. Most of it is locums, and you know, that’s one of the areas we’re particularly excited about along with education and home care. Locums is a very good market for growth. Our physician staffing business is growing at 32% year-over-year organically, and it’s projected to exceed $180 million. Our education business that we acquired in 2015 is also performing outstandingly well, growing at 42% year-over-year. Our home care business, that we introduced a little over two years ago, is also projected to exceed $100 million.

I figured I would add some color since you were asking about term placement. It’s important to note that in addition to whatever new sales we’re making, we’ve had really great success cross-selling into the accounts we already have. We’ve had 18 different services added into our client base. Six of those are in the RPO search kind of business, but as John mentioned, locums are all performing nicely in our base accounts.

Dan, is that Intellify for the pace centers? Is that your second vendor-neutral?

No, that is not a new customer. That is implemented and an existing pace customer.

This is John. That is actually MSO or an MSP, it’s certainly going to be MSP that one.

Okay. Allied is, I don’t think I had mentioned; I’m just kind of curious how that’s doing alongside nurse and allied?

The travel and allied side of the business is actually faring quite well. When you look at that relative to travel, our growth isn’t as steep, and the volume declines haven’t been as dramatic. It’s on track to exceed $400 million; it depends on how the trajectory plays out this year. So it’s significant in terms of size compared to the travel business.

This is Marc, just to add a little more. Imaging continues to see robust demand, cath lab, X-ray, MRI, and we term it the path of the surgery. Pre-procedure continues to see very heavy demand. Anything related to cardiovascular services is also seeing very high demand in the allied space.

And then just to wrap up with revisiting this situation here with the nurses and their pay expectation. So you’re just figuring that as the records go unfilled, hospitals get frustrated, and they start to provide the pay rates that you can actually fill the records. That’s kind of just the natural progression that you’re expecting?

I think it’s more of a combination of factors. Nurses—and rightly so throughout the pandemic—were facing intense demands. Their pay increased during these crisis needs. Now as those bill rates are coming down, the expectation for pay is also declining. Therefore, we expect a natural agreement in which bill rates settle into that 30-35% range above pre-COVID levels, and nurses will recognize that those are the new market rates. We think this balance will be reached as demand starts to increase in the latter half of the year.

Yeah. And so what happens with the spread, John, in that case?

The spread should have minimal impact on us regarding gross margins because nurse pay will come down in line with bill rates. But in a tighter market, you could see a bit more pressure on margins. However, to this point, we have not noticed a significant amount of pressure on margins. For the second quarter, we did see bill pay housing spreads, which is an important inclusion, because that was part of what was holding down the gross margin on a year-over-year basis—up over 40 basis points. We’re seeing the bill pay spread is stable as bill rates decrease, but production decisions are slowing due to this difference in expectations.

Thank you. Our last question will come from Kevin Fischbeck with Bank of America. Your line is open.

Okay. I just want to maybe revisit a question about the visibility that you have. I guess this is the second time you’ve cut guidance this year. When you think about where that shortfall has materialized versus your initial expectations, where has that been? And do you feel like you have better visibility today on that driver? Or is that still kind of an influx or moving target that’s hard to fully pin down?

Hey, Kevin, it’s Bill. Look, I think the expectation was a few months ago that we would see that curve bending on the number of travelers on assignment beginning to regrow earlier in Q3. We have seen it level off throughout the quarter, but not to the degree we wanted. So, that’s really it. It’s coming back to say that Q3 appears to still be the trough. The outlook is improving, as we have bill rates stabilizing in the market, improving demand backdrop, which prompts us to expect a seasonal lift into Q4. We’re anticipating that Q4 will be the turning point volume-wise.

And I guess maybe that's your earlier point about the—those 26-week orders, them being kind of late to birth. Is there a reason they’re waiting on that now? Or does that increase the risk that we won’t see that seasonal increase that you would normally be expecting?

So Kevin, it’s two parts. We’re seeing the 26-week orders come in now as hospitals want to lock in clinicians longer. But what we’re observed historically would be an increase in flu or winter orders beginning in July, and they would usually materialize much earlier. That’s not happening now.The sentiment we’re receiving from clients is they’re waiting to determine what their needs will be and how they’ll manage contingent labor. Additionally, there’s a vaccine for RSV hitting the market, and when pediatric hospitals learn which age group will be approved for vaccination, that’ll influence how many clinicians will be needed.

Okay, thanks.

Thank you. Our last question comes from A.J. Rice with Credit Suisse. You may proceed.

Hi everybody. Thanks, and I missed at the beginning a little bit, so I’m sorry if I duplicate this. But it sounds like you were down about 9% in travelers on assignment in Q2 from Q1. But it sounds like you’re saying orders were there. It’s just that people became unwilling to fill those orders because they had higher expectations regarding pricing. Is that right? Or is this more a go-forward phenomenon that you’re mainly trying to call out today?

It’s not a perfect correlation to be clear. So, I would say orders had fallen so sharply that the decline in travelers on assignment was predictable. We signaled that trend last quarter. The rebound in orders exists; however, we’re just not seeing a strong correlation with weekly production to follow. It’s more of a timing concern regarding renewing the travelers on assignment rather than a question of whether orders are available.

Okay. There’s a couple of things, and maybe these are dumb questions, but I’m going to ask. We hear this anecdotal stuff that travelers are making so much money for 9 months that they’re taking the summer off. Is this a phenomenon in your mind that travelers have not engaged over the summer and we’ll see more supply to fill some of these orders when they return in the fall?

It’s Marc. I mean, we see a little of that. I think that’s a bit over-exaggerated. Most of our travelers will do two or three assignments and take time off. It’s not just seasonal. But I think the notion that they’ve made all this money and they’re taking time off is not entirely accurate.

Okay. Okay. Another thing we’re hearing from the hospital side is that they’re accelerating their hiring of permanent labor. As you run through the people that you’ve been recruiting for travel assignments, are you finding that a percentage of them are just choosing to return to permanent positions in this environment? Is that part of what’s going on?

That’s not a large part. There’s always a portion of nurses who came into the marketplace during the pandemic who were not travelers, and who are now returning to their permanent positions. However, I would say most of our traveling nurses who remain want to stay within the marketplace due to the flexibility offered, and they’d like to continue being a part of this gig economy.

A.J., this is Dan. I would also mention that our RPO customers and our existing clients are ramping up their own internal talent acquisition functions and getting better at this. Just to add some nuance here—you might be mixing the two, but it doesn’t necessarily need to be the case.

Well, this is John again, A.J. Yes, hospitals have done a tremendous job of reducing their contingent labor spend and bringing on permanent nurses. But with that being said, there is still such a systemic issue with the shortage of nurses. The data from BLS or reports are coming out noting that there simply won’t be a solution that will rectify this issue in the near future. This is a fact, whether travel nursing normalizes or not, the demand is not dissipating.

Okay. Let me just ask one other one on the comment about seeing more hospitals being willing to consider vendor-neutral alternatives to MSPs and the like, and you’re getting called in to bid on that. I wonder, did you have perfect visibility before, before you had Intellify? Because it seems to me Intellify has made you competitive there and really elevated your position on the vendor-neutral side. So I’m wondering, are you just seeing more of what may have, in some ways, already been out there? Or is it really indeed a big shift in the way people are thinking about whether they want to go vendor-neutral or not?

This is John, A.J. We have more visibility now into all the programs that hospitals are wanting, of course. Before we had Intellify, we did not have a vendor-neutral offering. So when our sales teams, and we have several sales teams going in from a vendor-neutral perspective and from an MSP perspective, if a client didn’t want an MSP, we were essentially blocked out. Now that we have two different offerings, we’re able to gain visibility about which clients are focusing on vendor-neutral VMS. We’re sitting at that table now, where we weren't previously. Dan, do you want to add anything further?

Sure. A.J., you might think of it this way: many customers who went into the pandemic with a vendor-neutral solution are now coming to us and saying, 'Gosh, I wish I had more support and more services.' Whether that’s a traditional staffing-led MSP or just some additional set of services to augment the vendor-neutral aspect. So, customers are now better informed and more open to alternatives than they were before.

Okay, great. No, that’s helpful.

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

Thank you, Sheila. In closing, I’d like to thank everyone for participating in today’s call, and we look forward to updating you on the progress of the company on our next call.

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