Q4 2023 Cross Country Healthcare Inc Earnings Call
Participants
Joshua Vogel; VP of IR; Cross Country Healthcare, Inc
John Martins; President, CEO & Director; Cross Country Healthcare, Inc
William Burns; Executive VP & CFO; Cross Country Healthcare, Inc
Kevin Fischbeck; Analyst; BofA Securities
Brian Tanquilut; Analyst; Jefferies LLC
Trevor Romeo; Analyst; William Blair & Company L.L.C
Tobey Sommer; Analyst; Truist Securities, Inc
Kevin Steinke; Analyst; Barrington Research Associates, Inc
William Sutherland; Analyst; The Benchmark Company, LLC
Presentation
Operator
Good afternoon everyone. Welcome to Cross Country Healthcare's earnings conference call for the fourth quarter 2020. Yes, call is being recorded, and a replay of this webcast will be available Yes. 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 line. 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.
Joshua Vogel
Thank you, and good afternoon, everyone. I'm joined today by our President and Chief Executive Officer, John Martin's, as well as Bill Burns, our Chief Financial Officer, and Mark crude Group President of delivery.
Today's call will include a discussion of our financial results for the fourth quarter and full year of 2023, as well as our outlook for the first quarter of 2020. For a copy of our earnings press release, is available on our website at Cross Country.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 us.
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 Forms 10 Q as well as in other filings with the SEC. The Company does not intend to update guidance or any of its forward looking statements prior to the next earnings release.
Additionally, we reference non-GAAP financial measures, such as adjusted EBITDA or adjusted earnings per share. Such non-GAAP financial measures are provided as additional information and should not be considered substitutes for or superior to those calculated in accordance with U.S. GAAP. More information related to these non-GAAP financial measures is contained in our press release. Also during this call, we may refer to pro forma normalized numbers pertain to our most recent acquisitions as those results were included or excluded from the periods presented.
With that, I will now turn the call over to our Chief Executive Officer, John Martin.
John Martins
Thanks, Josh, and thank you, everyone, for joining us.
This afternoon. Overall, I was pleased with our fourth quarter and full year 2023 results and particularly in how we have responded to the challenging market conditions in our nurse and allied segments as health systems seek ways to reduce their reliance on contingent labor. After declining in the first half of 2023, travel demand remained fairly stable. However, coming into the new year, we were seeing another pullback in orders, which appears to be industry-wide across most specialties and geographies. Many systems are nonetheless seeing increases in volumes, which we believe will ultimately translate into rising demand for our service and with our focus on innovation and operational, excellent as well as the health of our balance sheet. Cross Country is well positioned to weather these near-term headwinds, and we believe we are poised to see sequential growth in the back half of the coming year.
Now let's take a moment to reflect on our full year performance. We generated $144 million of adjusted EBITDA, our second best year in company history following the record year in 2022. We also had a record year for cash flow from operations generating $249 million, which enabled us to end the year with a strong debt pretty balanced. In addition, we invested more than $20 million on technology initiatives. And we purchased 2.3 million shares of stock, representing approximately 6% of our outstanding shares this year. Perhaps the most noteworthy accomplishments in 2023 was the rollout of our vendor management system in telephone. This VMS technology amplifies and enhances productivity by more effectively managing deploying and anticipating workforce needs for our clients throughout the year, we witnessed the level of interest in this technology growth, leading to a series of wins that exceeded internal targets. In fact, two fairly sizable deals that we closed early in the fourth quarter were fully implemented before year-end, demonstrating the speed at which we can deploy this technology. In addition to our client-facing and telephone offering, we rebranded our experience as last year, which is a candidate facing tool that enables clinicians with the power to manage their careers anytime anyplace they want equally exciting experience is on our roadmap to be fully integrated into and telephone. Unlike conventional job matching experience, ensures a precise alignment, have clinicians with rules that uniquely match their skills and aspirations. In 2023, we had more than 18,000 app downloads and over 100,000 unique viewers that access experience through our mobile app and website.
And finally, we launched data aggregation services for data which offers unique insights on bill rate trends that help hospitals validate their costs by providing real-time benchmarking and visitors.
From an MSP and vendor-neutral sales perspective, 2023 was a very active year in our industry. And so we experienced the higher level of attrition in the earlier part of the year. We lead 2023 on a very positive trajectory from both a retention and new client perspective as well as having a robust pipeline. The annualized spend under management from our recent wins is estimated to be over $125 million when fully ramped. And since late December, we've had two more wins, including one vertical with total estimated annual spend of more than $75 million. We believe that fees and other wins we expect to close throughout the year will provide some tailwinds in the second half of the coming year.
It's also interesting to note that we've seen more balanced interest from hospital systems between MSP. and vendor-neutral programs, and we are strategically positioned to capitalize and grow share both these fronts.
Our focus for 2024, we are continuing to expand our client base and growing our relationships with existing clients through an expansion of services. And though we are always focused on driving efficiency, our plans for the coming year include leveraging both our offshore operations as well as continuing to invest in cutting edge technologies such as AI agents and robotic process automation. These efforts will allow us to lower costs, enhanced predictive job matching, improved talent sourcing and assess candidate suitability. I look forward to sharing our progress on these and many other initiatives on future calls.
Turning to the quarter, consolidated revenue was $414 million, which is above the high end of our guidance. And so adjusted EBITDA of $21 million, which was in our guidance range, it would have been even higher, had it not been for a charge to allowance for doubtful accounts, which will bill will cover in more detail as expected, travel revenue in the fourth quarter was down 12% sequentially on track with our expectations for both rates and volumes. Looking ahead, travel rates continued to stabilize and are trending in line with expectations. As we've called out previously, there remains a gap in expectations around bill rates with clients and pay rates were commissions on many orders impacting both our fill rate as well as our margins. As we navigate this dynamic, we will remain competitive in order to preserve our market share while balancing overall profitability.
Turning to our other business lines, physician staffing continued its strong performance with reported fourth quarter revenue up 26% year over year, quickly approaching an annual run rate of $200 million. Driving this was a combination of higher billable days and a improved mix of higher bill rates. Segment contribution income reflects the ongoing investments we are making in the business that we believe will drive organic growth and margin expansion to out 2024 for our education business continued to perform well, up 9% from the prior year and more than 50% from the third quarter following the start of the new school year. Our home care business was flat sequentially and year over year, but we exited the year on a solid trajectory. As we reported last quarter, we had five home care MSP wins and presently have nine programs in implementation on the backs of these wins. I believe this business will experience strong organic growth in 2024.
Now turning to our outlook for the first quarter, given my earlier comments on the current market backdrop, including recent travel demand trends and industry-wide margin pressure, we anticipate that first quarter revenue will be between $370 million and $380 million, with adjusted EBITDA coming in at $13 million to $18 million. As a reminder, the annual reset and payroll taxes compresses margins at the beginning of the calendar year. I wanted to stress as we work through the current market climate, we are taking actions to drive organic growth and margin expansion in addition to ramping recent vendor neutral MSP wins across acute care and payer settings, we will continue to diversify Physician Staffing into higher-margin modalities as well as seek to capitalize on our growth in education, the geographic expansion is even more. Additionally, we remain diligent on the M&A front with a goal to close on several accretive acquisitions that can further enhance our value proposition and diversify our platform into larger, higher margin offers. Looking ahead, we will continue to balance investments that serve to further diversify and differentiate cross country with necessary cost savings to preserve profitability such as levering leveraging our operations in India. In fact, I just came back from India where we held our 2024 company-wide kickoff, coupled with the enhanced productivity and efficiency gains we are seeing through technology investments. I remain confident in our ability to drive long-term, sustainable, profitable growth, and we intend to remain focused on increasing shareholder value by leveraging our balance sheet and through the deployment of capital, including additional share repurchases, ongoing technology investments and potential M&A opportunity.
In closing, we are confident that our prospects for 2024. Outside of the broader pressures and travel, we are seeing strong momentum within Telephonics, locums education and our home care business. The team continues to execute at a very high level and none of this is possible without our devoted employees. We were recently named a 2023 winner of Best Company culture and the best company for diversity by comparables these recognitions see something about our tapestry of culture that we work so hard to pull making cross country the employer destination of choice. I would to thank all of our employees and our health care professionals for your continued hard work and contributions as well as our shareholders for leading the Company.
With that, let me turn the call over to Bill.
William Burns
Thanks, John, and good afternoon, everyone. As John highlighted, our fourth quarter performance was largely in line with expectations, with revenue slightly exceeding the high end of our guidance range and adjusted EBITDA within our range. The outperformance on revenue was mainly attributed to better than expected performance across both education and physician staffing as well as several million dollars from a labor disruption. Consolidated revenue for the fourth quarter of $414 million was down 6% sequentially and 34% over the prior year, driven by the continued normalization in both travel demand and bill rates. I'll get into more details on the segments in just a couple of minutes.
Gross profit for the quarter was $91 million, which represented a gross margin of 21.9%. Gross margin was down 10 basis points sequentially and 20 basis points over the prior year, due primarily to the tightening of the bill pay spreads for travel assignments and was partly offset by certain burdens like workers' comp and health insurance.
Moving down the income statement, selling, general and administrative expense was $68 million, down 3% sequentially and 17% over the prior year. The majority of the decrease relates to lower salary and benefit costs associated with our reductions in headcount as well as lower variable compensation following the historic performance throughout the pandemic in 2023, three, we reduced our US headcount by approximately 22% while continuing to invest in technology and areas of the business with the highest growth potential since the start of 2024, we have reduced our headcount by an additional 8% with plans for further reductions as we proceed throughout the coming year as we called out to the extent we are unable to automate processes in the near term, we're seeking to leverage our center of excellence in India to support our shared service teams over the last several quarters, we've grown our headcount in India by nearly 30%, and we expect to double that investment in 2024 just give you some context for every 100 physician staff in India, we save approximately $3 million annually as bill pay spreads remain compressed amid softer demand. We continue to emphasize the importance of continuous productivity and efficiency gains. We are looking across the entire organization to identify opportunities to drive margins higher and to reduce our overhead while balancing investments in capacity for future growth based on cost actions taken to date as well as lower compensation associated with the sequential decline in revenue, we anticipate total SG&A will decline in the mid-single digits for the first quarter as a percent of revenue, SG&A was 16% in the fourth quarter, flat sequentially and up from 13% in the prior year. Our goal is to exit the year with an SG&A of 15% through a combination of organic top line growth as well as by leveraging our offshore operations, executing targeted cost savings and the further deployment of technology. For instance, the first phase of our ERP project is set to launch in Q2. And as phases are completed, we should have more opportunities to drive efficiencies. We reported adjusted EBITDA of $21 million, representing an adjusted EBITDA margin of 5%. Though revenue was above the high end of our expectations. Our adjusted EBITDA was impacted by an increase in our bad debt expense, one of our MSP clients has fallen behind on payments per share for services rendered throughout the pandemic, leading to deterioration in the aging that requires to take an additional reserve of $2 million for that specific account. We continue to have ongoing dialogue with the client and we've negotiated a payment plan that we believe will recover the remainder of the balance in the coming quarters as revenue would decline as wound down throughout 2023, we do not anticipate a drag on top line performance in 2024. We will continue to monitor the situation closely and look forward to provide updates on future calls. Excluding the bad debt charge, we would have reported approximately $23 million in adjusted EBITDA, representing a 6% adjusted EBITDA margin for the quarter. Our goal remains achieving a high single to low double digit adjusted EBITDA margin, and we continue to believe we can attain it over time. Since we're managing this business towards long term sustainable profitability profitability, we must continue to make certain investments in our digital platforms as well as to ensure we have the capacity to be ready to capitalize when the travel market turns.
Interest expense in the fourth quarter was $600,000, which was down 12% sequentially. And 83% from the prior year. The decline was entirely driven by lower average borrowings throughout the quarter. The majority of the interest expense reported for the fourth quarter was related to the carrying cost for the ABL and fees on our outstanding letters of credit. The effective interest rate on amounts drawn under our ABL was 7% as of December 31st.
And finally, on the income statement, income tax expense was $4 million net of some discrete items, representing an effective tax rate of 30%, essentially in line with expectations. Our overall performance resulted in adjusted earnings per share of $0.29 near the midpoint of our guidance.
Turning to the segments, Nurse and Allied reported revenue of $367 million, down 7% sequentially and 38% from the prior year. Our largest business, Travel, Nurse and Allied was down 12% sequentially and 44% over the prior year. Bill rates for travel were down 4% sequentially, while billable hours were down 8%. Looking to the first quarter, we expect travel to decline sequentially in the low double digit range, driven primarily by continued softness in travel demand with bill rates declining in the low single digits after seeing travelers rise modestly throughout the second half of last year. We've seen another pullback coming into the start of 2024. This seems to be an industry-wide issue across most specialties and geographies. And while orders from existing clients may rebalance we believe that our recent wins will continue ramp, providing a catalyst to regrow. Our travelers on assignment are local or per diem business continued to feel the impact from the softness in demand as well as the timing of the holidays. Fourth quarter revenue was down 29% from the prior year, so up about 1% sequentially due in part to the labor disruption I mentioned earlier, the majority of the year-over-year decline comes from a reduction in billable hours as rates were down about 2% over the prior year. Also within the Nurse and Allied segment, our education business reported 9% year-over-year growth and was up 50% sequentially following the start of the new school year. Finally, physician staffing, once again, delivered a strong top line reporting $47 million of revenue, which was up 26% over the prior year and 3% sequentially. The primary driver for the growth was a rise in the number of days filled across specialties such as anesthesiologists, CRNAs and nurse practitioners and to a lesser extent, an increase in the average revenue per day filled Turning to the balance sheet. We ended the year with $17 million in cash and no outstanding debt with the health of our balance sheet and strong cash flow. And we remain well positioned to make further investments in technology and accretive acquisitions as well as to continue repurchasing shares under our $100 million share repurchase plan from a cash flow perspective, we generated $12 million in cash from operations in the fourth quarter, bringing the full year cash from operations to $249 million. Our strongest year in company history and driven in large part by collections and reductions in net working capital. Dso was 68 days, down four days since the start of the year, and excluding the impact from the single MSP client I mentioned earlier, our DSO would have been 62 days, much closer to our target. Our goal remains to bring DSO below 60 days which is more in line with our historic performance before the pandemic and believe we can get there and make progress to that throughout the coming quarters.
Cash used in investing activities was $3 million, primarily reflecting investments in our tech initiatives such as telephone experienced in our newer ERP system. From a financing activity perspective, we repurchased an additional 300,000 shares during the quarter under both our 10B. 51 and our 10b-18 trading plans.
And this brings me to our outlook for the first quarter. We're guiding to revenue of between $370 million and $380 million, representing a sequential decline of 8% to 11%, driven predominantly by the expected decline in both billable hours and rates for travel, we're guiding to an adjusted EBITDA range of between $13 million nd $18 million, representing an adjusted EBITDA margin of approximately 4% at the midpoint of guidance. Adjusted earnings per share is expected to be between $0.15 and $0.25 based on an average share count of 34 million shares. Also assumed in this guidance of the gross margin of between 21% and 21.5%, interest expense of $500,000, depreciation, amortization of $5 million, stock comp of $2 million and an effective tax rate of between 32% and 33%.
And that concludes our prepared remarks, and we'd now like to open the lines for questions.
Question and Answer Session
Operator
Operator in queue, we will now begin the question and answer session. What one can meet your phone and record your name. Clearly you need to withdraw you again to ask a question, please press star first from there, your line is open.
Kevin Fischbeck
Great, thanks. And I guess I just wanted to follow up on some of the comments you made about now. Things will trend throughout the year. I guess you talked about sequential growth in Q2 in second half of the year, which I guess means you think that Q2 will be down sequentially versus Q1. Is that the right way to think about it?
William Burns
Kevin, it's Bill. I don't we're not giving guidance for Q2 at this point. But based on how we come into the year with demand, it's a possibility that we could see a sequential decline going to the second quarter. But it all it all depends on how much of that is travel because we still seeing great growth across other parts of the business. So we're not going to call out Q2 just yet as to whether it's sequentially down or up. But as we look at the back half. And as we expect our rate, our wins to ramp our that's kind of our lens looking at when we think the travelers on assignment will start to regrow on China.
John Martins
Yes, Kevin, this is John. I would just add, yes, it's getting a sense now that we're getting back to that cyclical nature of this industry back to pre-COVID, where you're going to see traditionally a little bit of a dip in Q2 from Q1. But I do think with the recent wins that we've had on the MSP. and VMS. side with the diversification of our businesses, as Bill mentioned, in the growth, there's an opportunity to buck that trend in Q2.
Kevin Fischbeck
Okay. I guess then when you say the second half is going to ramp then are you assuming then that from an industry perspective, things are going to be flattish and that's your wins that get you to growth or is it? Is it a combination of the industry starting to pick up again about that?
John Martins
You know, I think the way to look at it is as we start looking at the macro data, right? And looking at you have centers and hospitals are still remaining high and increasing looking at the Affordable Care Act and seeing that, look, we had in 2010 there was 16% of the nation didn't have insurance and now it's a 7%, 7.2% number is you still have this this fundamental shortage of nurses and we're seeing that demand, we think demand will start to pick up at one point. In your note, I wish I had that crystal ball saying does demand from a market standpoint start picking up it sometime in the second quarter is the end of second quarter is in the third quarter. It's hard to forecast when that happens, but what we're confident about is how we're executing on the business, winning more deals. And so part, to answer your question is part of it is yes, we think we can outperform the market based upon the deal to winning based how we're really looking at executing above the market in many of our segments and then add that to hopefully some market tailwinds. And then we're in a great place, but we do think that we can buck the market trend just on our wins on our MSPs have EMSs.
William Burns
And Kevin, just to add a little more color to that. As you look at the macro conditions in the market, the demand today as a snapshot remains below the pre-pandemic, get contingent usage by our clients is still higher so there's some misalignment out there right now that we do think that the demand will rebound. And I'll just give you a little retrospective on 2023, we saw sharp drop in the first quarter and it kind of bounce back as we got into the second quarter and then remain steady, probably ticking up throughout the second, third and fourth quarters. And so this is a pretty significant step down. It doesn't seem to be something that is that there's a structural change in the market that would have led to that kind of a demand falloff. So that does feel a little bit perhaps of an overcorrection or a timing issue that we think can work its way back.
Kevin Fischbeck
Okay. And then just to just to make sure I understand how you guys talk about deals. You talked about the spend under management of 125 and then another couple of wins of 75 are those MSP. So we should think about those as like revenue numbers or is that a mix of MSP, VMS. And so it's not necessarily a revenue way to think about it.
John Martins
It's a mix of VMS than vendor-neutral MSPs or any other vendor neutral side willing to capture somewhere in that 30% range can be a little bit higher and on the MSP side unit capture your traditional? We capture somewhere between 65% and 70%.
Kevin Fischbeck
Okay. Thank you.
Operator
You. Our next question comes from Brian Tanquilut with Jefferies.
Your line is open.
Brian Tanquilut
Hey, good afternoon, guys. John, I know one of your comments you talked about you're kind of keeping market share. And so just curious, how are you weighing that balancing market share maintenance and maybe gains versus maintaining the margins? And maybe a follow-up to that, Bill, where do you think margins eventually shake out, assuming that we return to Telegate normalized level of demand?
John Martins
Well, Brian, this is John. Yes, the market is going to do what the market's going to do right now. And so that does put margin pressure on us as there is a as demand softens, right more people are going after the same jobs. So it does create of some bit of a margin pressure on. And so of course, that's how we want to balance, making sure that we're competitive in the market, but we also want to maintain our profitability. And so that's when we talk about the balance and we think we're doing a good job right now with that. And I think that's evidenced by the wins we've had. And we're not it's not and we are definitely not buying the business. We're working on good margins. It's just as an industry, the margins are moving down as a whole.
William Burns
Yes, Brian, I'll just I'll add. You mentioned about how demand has stabilized and then it kind of dropped off. The one interesting note underneath that is that when you look at the open order rates, the bill rates, they've remained fairly steady for quite some time. And this is looking at a subset of where we have some critical mass across ICU and MedSurg that the majority of our demand, the large blocks and you look at what's your what's happened to the lock rate, the rate of the orders that you're closing on and what's happening is you're seeing we're starting to see a narrowing in the spread. So in other words, we're having to lock at lower rates, which you're not going to necessarily be able to pay below market on the nurse compensation of the clinicians compensation in particular because meals, incidentals and lodging are dictated by the markets they're going to. So you you'd naturally will have some margin compression now, does that foreshadow a longer tail to the margin compression. I think there's things that the company can certainly do to mitigate that. Number one is we're still migrating intensify across our managed service program stack where about 80% converted. I think there's another $1 million of savings roughly to be garnered from that. And then I think we're growing where we are growing in higher margin businesses like in the homecare and in our education business line. So I think we've got the opportunity to see consolidated margins grow. I don't have a lens as to what happens to the pay bill spreads over time. I would hope that at some point in the future we would be able to see some bill rate improvement. But for now that's certainly not the market conditions we find ourselves in.
Brian Tanquilut
And I appreciate and my follow-up as I think about locums, right, it seems like you're seeing pretty healthy growth there. What would it take to continue driving that growth or maybe even expand it like does it have to be acquisition driven versus contractor? Or does it take more investment to grow that locums segments?
John Martins
Yes. Well, we do love the space of locums. And of course, M&A is definitely a part of where we look at our strategy. But we've invested quite a bit of money over the past couple of years to build the team where it is today. So when you look at contribution income, it's not sort of lower than we wanted to be right now because that's because we've made the investments. So we feel that there's lots of We have lots of capacity ability to ramp this business currently on and improve that bottom line margin and increase and increase the business. But when we look at, we're approaching a $200 million company in Locums for us to get to that next level because you have $1 billion. I think that's going to require acquisitions to get to that level.
Brian Tanquilut
Got it. Thank you.
Operator
Thank you. We'll hear from Trevor Romeo with William Blair.
Trevor Romeo
Yes, hi. Good evening. That Thanks for taking the questions. First one is just kind of on client sentiment regarding contract labor. I think maybe it seems like individual hospitals might be in a variety of different spots in terms of how far they've reduced contract labor spend, some may be all the way back to pre pandemic. Maybe some aren't I guess if you could maybe just generalize your client base more broadly, I guess, does it feel like it's kind of tilted one way or the other in terms of being content with current spend rates or wanting to reduce further or any kind of way you could summarize where your clients are at more broadly?
John Martins
Yes. Let's take a break because every client a little bit different, but let's take a broad view of Broadview is clients for the most part. What we're seeing there, content I see is a good way to put it with where their labor spend is right now, the number of travelers they have out there, they are looking for ways for us to continue to help them save money, but sometimes it's not through travel. It's through maybe helping them with their core staff. It's helping them with their internal resource pool. So we can maximize from there their internal people, which will again, I think a little bit off the travel side. But in general, on the broad stroke, I think what we're seeing from our clients is they're fairly contended with the number of travelers they have now I think everyone would like to if I save a little bit of money a little bit more, but they also come to the realization from the realization that you can only go so far down and that if you want to make sure you have the number of beds opened, if you want to be sure you have the right patient that patient in this ratio, if you want to make sure that you have the nurses at the bedside, taking care of the patients in the community, you need a certain level of travelers and I think we've kind of hit that that point. And I think that's where when we look at saying, when do we see the bottom of this and we're saying, hey, again, not having that crystal ball, which I wish I had. It's coming some time in from now to the back half of the year, and then we start seeing that sequential growth so I think yes, we're almost there at that point.
Trevor Romeo
Okay. Thanks. Thanks, John. That's helpful. And then as you look into Q1, I think the sequential revenue drop you're guiding to is quite a bit below what you typically would see Q1 over Q4. I think it's also below what maybe some of your competitors are expecting in Q1 in terms of a sequential change there. So just wondering if you could maybe trying to square those differences at all as we speak and maybe your level of conservatism in the guidance.
William Burns
Yes, Brian, Trevor, I'll start to give it a shot. When you look at the trial, the sequential decline that's implied in the guidance, it's almost exclusively on the travel side, right? So we've talked about the fall-off in demand. So we're looking at that to say it how is our net weeks booked progressing. And that's our internal metric for how we see the production one of the things that's interesting is even though the demand is down, we're still we're still looking at a fairly consistent rate overall for the start of the first quarter. I would not say there's an air of conservatism. I think travel is the one line of business. We have a pretty good lens because of the length of the assignments. And so I think it really is not something that I'm anticipating to see a huge in variance to what we've guided on the travel side. There is opportunity now, of course, you know that it's the start of the restart of the school year as we come into the winter session or the fall the spring session, we can sometimes see a little bit of an uptick on the education side of the business. But I don't know, John, if you have anything else you want to throw in there?
John Martins
I'd say February that I think when you look at you said, hey, how we compare to our competitors. I think when you look at the growth we had over the last several years in 21 and 22 in 2021 stands at the staffing industry. Analysts is kind of how we kind of judge the market rate. And our growth from the market grew at 105%, and we grew at 100%. You got to remember, we're going through our digital transformation. We were really reforming the company and but really creating a new roadmap and vision for the company. And that happened in 19 and 20. And then in 21, we go from newly built nearly being at market. And then in 2022, the market grew at 45% and cross country grew at 67%, clearly beating the market. And if you actually look in at the travel nurse and travel allied in particular, those numbers are actually a higher percentage of growth in 22 and 23. We're not going to be able to see what Stephanie energy analyst has where the market has has come down to because they report that in sometime in the summer. And what we do see that I'm confident that we're going to show that we once again have outpaced the market even as the market is going down. So I think that's one area.
And the other thing, when you look to our competitors, sometimes we grew so fast in the pandemic in Nurse and Allied and maybe even a little bit more diversified. So you're going to see a little bit of difference in that and the other thing is I think when you look at those numbers, you have to also look at acquisitions that happened in that time period to make sure you're comparing apples to apples.
Trevor Romeo
Okay. Thanks, John. And then maybe if I could sneak one just one more in. Just wanted to follow up on a comment. I think you had in the prepared remarks about and maybe having a goal to close on some acquisitions this year. Just wondering if you could kind of double-click on that and maybe give us an update on what you're seeing in terms of targets coming to market and the pipeline in your area of areas of interest.
John Martins
You might miss is I think a buyer's market right now we're seeing multiples come down. There's companies that you don't want to go through another cycle of what of this downturn that we've seen in the market over the last 18 months. And so I think it's a buyer's market right now and there's opportunities for us. And as we've said before, and I said just earlier, we really love the local space and there's opportunities and look with space from the Allied space is something that we like our education business, which is just doing phenomenally as on fire. We love that space and that is a young. It's a very fragmented space, but we've done a great job of growing that into a fairly sizable business. It's nearly $100 million business, and I think there's lots of opportunity in the education space to continue to roll up companies into that space and green gained some of some scale in the education space.
Trevor Romeo
All right. Thank you very much.
Operator
Yes, we're with Truist Securities, Linus, Steffan.
Tobey Sommer
Thanks. I know you made some comments about customer retention and market share, but I want to explore that a little bit more if you could from it because it's a little bit of a challenge externally to take the comment about gross new and telephonic sales and think about a ramp to maturity and know how to use that as a modeling input, are you trying to message that the market share you have within existing customers is stable and your income statement is just kind of transmitting trends and demand and pricing?
John Martins
Yes, that's correct. And I think I can kind of give you a little bit of flavor on where we're at on that spend under management. When you look at our spend under management and that includes the Intel FI business. Pre-covid, we were somewhere between $400 million to $500 million. And as of December, we were at somewhere between $800 million to $900 million. And now, of course, their bill rates have gone up, but the rates are up, Bill, what would you say the rates are up from that period?
15%, 25% out of that period. So you have a 25%, 30% increase in that, but we clearly have nearly double the amount of spend under management so we are we are gaining and that's why we think we're gaining. We feel confident we're gaining market share because of those numbers.
Look, volumes volumes are definitely up a little bit too, and the market size will be bigger. But on the other side, demand, as Bill called it earlier on the call, demand is actually lower than pre-COVID right now. And so. And so as we get in and as we in and that that the spend of between $800 million doesn't account to the ramp-ups of most of that $200 million plus spent in management that is still being ramped up now.
Tobey Sommer
Okay. And do you feel like the G&A is rightsized and appropriate for the 1Q guidance levels or is it built for a different level of volume in the business?
William Burns
Your question, Tobey, there's probably two pieces to that. Number one, we do it. I mentioned in my prepared remarks, we've had about an 8% reduction in headcount since the start of the year that we won't get the full quarter of benefit of that. So does just bearing that in mind there is some also some impact on the G&A in the first quarter from the payroll tax reset that we usually bear. It's $0.5 million on that. And then kind of picking up on some of the remarks John made, we do maintain extra capacity in the business. If we were to just simply run the numbers you'd say you could do with fewer headcount, but that's not the place we want to be and we don't want to have to start from ground zero to rebuild the revenue producers that we've brought onboard and trained, and there's still opportunity. The reality is where I mentioned the offshoring of labor to India. As important, we're still working through a lot of different opportunities for automating a lot of our complex processes. The ERP system that we're putting in that goes the first phase goes live. But most of the benefits of that will be really realized when we get to the second phase, which is an early 2025. So we're not done getting at the costs in the G&A. But for Q1, that's that's kind of the messaging.
Tobey Sommer
Okay. That's helpful. When we see when you look at the industry, the travel nurse industry as a whole, we're now two years and change of sort of I'm trying to guess when the business may bottom and then finding new logos, how do you think of the industry at this point in capacity within it for the demand that exists today in is there too much in what may need to happen to rain that capacity in?
William Burns
Well, I guess, Tobey, I'd say that a lot of companies definitely ramped up pretty big and I think the companies that are supporting from a third party perspective, the vendors that are that don't have the direct client relationships are certainly going to have more capacity. I would imagine and companies like cross country, we're still winning new direct relationships and MSP relationships yet.
John Martins
And it's fair to say, Bill, this is John. So the I think that that's right where the third companies are relying on third party are definitely going to you feel a bigger decline in their businesses and has Mark, as you know, companies like cross country win more market share on feel it's important to know like our partner, Morrisons, it's interesting. I mentioned earlier, we have a capture rate of 65% to 70% and why that's important doses, we could actually kind of goes to Trevor's question. We could actually increase our capture rate even higher on and it will actually would offset maybe the decline in our revenue, but that's not our long-term plan.
One of the things is really important to understand about why our capture is between that 65% and 70% is first and foremost, we have these clients that we're accountable to. We want to make sure that we're providing the highest quality solution to the bedside to serve the patients, the communities. And you don't unfortunately, if you want to increase that capture rate, it's higher than something like 65 or 70, you'd actually have to hold orders potentially. And that could affect that patient delivery and that's something we would never do across country.
And then secondly, I've called this out on calls before is we want to make sure that we have excess capacity to win deals. And I think over the last six months, we've certainly proven that. And the wins that we've had is because we have the excess capacity were able to win these deals and then the third part of why we want to keep that capture rate in that 65% to 70% is we want to make sure we are allowing our partner networks. And these vendors is these are the companies that rely on the third party business. We want them think of Cross Country as their first choice, and we want to make sure that that would as we're starting to win more deals, they're there to support our deals so that we're keeping our clients very satisfied and happy.
Tobey Sommer
At less than for your tracking sequencing. Could you talk about the market trend in MSP. and VMS. fees on subcontractors now that not only have you been a MSP in the marketplace for a long time. But now that you've got and telephone out there are fees to subcontractors a changing at all.
John Martins
And what we've seen over the years. I think you know, from 2009 to have an industry way too long. I periodically fees go up and as cost pressures happens in competitive bid, what happens is we're seeing a lot more companies go out there and offer more more services and offerings to clients to win their business. And those costs have to come in the past launches of vendors. So we are seeing an increase across the industry of of those fees going up. But like I said, I say I started essentially in 2005 and every several years you see this is this is Charles. I think when I first started the average, we I think the average fee was, I think, 3% in 2004. And so overtime inflation, you have more services going to clients the end of closing fees. And when you get, as I mentioned, when you're getting more and more competitors and you're seeing more and more companies trying to get into the MSP and VMS space through offering more and more of them, what's the right word, services and offerings that make it more competitive that increase the cost of running and managing an MSP and VMS service.
Tobey Sommer
Thank you very much.
Operator
The you. We're JMP, your line is open.
Hey, Bill, just done and then on the labor disruption front, you called that out, I think you said a few million dollars. Just wondering if you can put a finer point on that. And then do you have any visibility to anything disruption related that's going to impact the first quarter you are cutting?
William Burns
It was it was between $3 million and $4 million that we got within the quarter from labor disruption. So it really wasn't that significant. And as far as having a line of sight to Q1 labor disruptions, no marks here at all. I don't believe we have any demand right now, market there crowd?
John Martins
That's correct.
And then, John, I think you mentioned 2023 tech spend of about $20 million. I just want to clarify that both expensed and capitalized. And I was wondering if you guys could give us some sense for what that spend is going to look like in 24 on the technology front and where it's being directed, you are cutting?
William Burns
It's Bill again, that's correct that the number that John referenced is the combined spend across the projects. So that's capitalized. And what's been run through operating expense as well as what gets deferred. So that cloud computing, it doesn't all go on the investing activities.
On your on your statement, cash flow, some of it is on up in prepaids, and we'll come back in and amortization once the projects alive. But by and large, the $20 million-odd is what we spent across all those projects. And for 2024, we're anticipating spending a very similar amount.
Great. And then last one for me. Where are you guys in the migration of the MSPs over to and telephonic? I remember you sort of part of that at some point last year. Just wondering if you can give us an update there.
William Burns
It's absolutely yes. I mentioned a little earlier in the Q&A that we've seen about 80% of our programs are now on telephone. We've got a handful left that will go over the first the first or second quarter that we've got two or three in Q1 and two or three in Q2. So we're nearly there yet.
John Martins
And it's interesting on that is that a lot of times, it's not it's not because of we don't want to put it there. It's really competing priorities at hospitals. And so yes, as Bill mentioned, we that we would have been there earlier. It's just matching up sometimes at the hospital and getting them set. But right now we have the roadmap to get there to get a pretty complete pretty soon or point first.
Yes, somebody does that before the half of it before the end of the first half, we should be at 100%.
Thank you.
Thank you.
Operator
You should once again, if you would like to ask a question at this time, you can press star one and record your name win. We're Thank you with Barrington, Michael.
Kevin Steinke
Good afternoon. I believe you made a comment in your prepared remarks about Tom margin expansion as you move through 2024, is that correct? And if so, is that tied to does the ramp up of your Intel FI. business? Or are you also anticipating the app maybe some improvement in market conditions potentially contributing?
William Burns
Hey, Kevin, this is Bill. I guess I'd say we're looking at Q1, obviously, being the softest quarter. We've got a number of reasons for that in the not realizing the full cost savings, the fact that there's a payroll tax reset as we progress throughout the year, we're going to continue to expect to see growth across the higher margin businesses like education. Home care, in particular has a number of programs, high single digit number of new programs that are ramping and will go live in the next few months. So there's there's opportunities to see the top line grow, I think is the as those businesses kind of recover, we'll see gross profit and gross margin start to rebound. I'm not making any calls right now on the bait bill pay spread for travel. I think you know, we're still in a very tough market, but that's an opportunity, I think as we move ahead, the intensified conversions once we complete those, that's going to add a little over seven figures of opportunity of savings annualized thrusted see, and that will contribute to our bottom line.
And then finally, just continuing to look at the opportunities for cost savings, right? So we've got the work that we're moving overseas. And we've got a very concerted effort and a very large program effort right now going across all of our our teams to look and see what efforts we have that can we first automate and John made some comments about some of the things we're doing there in the prepared remarks. But if we're able to automate and it's going to be a stable process. We'd like to look at moving that to where we can do it for the most cost effective way. So I think that's a piece of it. And then we are still working through all the things that will give us the opportunities to be more efficient even from our back office. We've had projects that we've been working on over the last year, many of which have been going live throughout the fourth quarter and into the first quarter. So I anticipate that will still continue even improvements across the shared services teams.
Kevin Steinke
Okay. And is your reference do you think revenue could ramp sequentially in the second half of 2024? And with all those various actions and initiatives you just discussed, do you think and of the high single digit adjusted EBITDA margin would be reasonable as we move towards the back half of the year?
William Burns
Yes, I mean? I think look, that's certainly our goal and I made the remark in my prepared remarks that we're targeting to exit the year with SG&A at 15% on revenue. So if you look into where does that what do you think gross profit or gross margin can be by the fourth quarter?
You could start to back into what that could look like, but yes, something in that high single would be our goal to exit the year.
Kevin Steinke
Okay. Thanks for taking the questions.
William Burns
Sure.
Operator
Thank you. And our last question will come from Bill Sutherland with The Benchmark Company LLC.
William Sutherland
And to take us, John, I was thinking about the US. What one not artifact of it because of COVID, I think was a lot of the typical contracting cycles for MSPs got pushed out. So there's been like a bunch of them this year last year and maybe this year that I've heard is occurring in the industry. And I'm just wondering kind of what your contract cycle looks like right now as you look at your book in both MSPNVMS.
John Martins
Pedro. And yes, we are cycle was heavier in 22 and 23 where we had more contracts up. And I think as we've called out, that was because of COVID that people kind of held back and waited to go out to market after COVID, what was perceived efficacy to 22. So we saw a higher number of clubs. Our clients got 22 and 23 this year, Al, it's definitely lower and less than last year. I think when we see more of the typical cycle of somewhere between 20%, 25% go out this year and it varies right. There's ones that are competitive. It is that we have that, that our competitors are going in and getting involved in a competitive bake-off, if you will. And those are the ones that are renewals that are that are evergreen contracts that come up every year that were that the clients really not looking to go out to market and those are the rules that just come automatically. And of course, you still have to make sure you're doing a great job. The client given the service that they need and filling there and providing the needs that they have until the needs they have. But there's a couple of categories. But to answer your question, this should be a this will be a lower year of the total number of renewals we have in the last two years.
William Sutherland
Got it. And I'm going to wrap up with a real quick number question, Bill, just curious what is the headcount in India because you talked about increasing it this quarter, I think first half.
William Burns
Yes, we haven't to my knowledge given the specific India headcount out, but it's a couple of few hundred. So it's between 200 and 300 and ramping quickly. Now we've got about today probably half of the headcount is supporting our IT operation and half of the headcount is supporting our shared services and maybe a little bit more like 60/40 operations versus IT. But we've been doing a lot of development work that are in the office. And so that's part of what we're going to continue to invest in. But the main driver of the growth is going to be on the on the operational side of the business, and that's where we're going to be what and when I say doubling the headcount, the doubling is the total headcount. But it's going to be predominately on the operation side, some more of the investments for the operations.
John Martins
And I think it's important to note on the on that India office that we have overseas. That office has been around for a country for 18 years. It's a long-standing company that we've had. There's a great partnership, great leadership there. As I mentioned, our prepared remarks. I was just there two weeks ago to do our company-wide kickoff from India to all of our offices. And I can tell you the talent that we have over there is just incredible and they're ready to take on more and more of these new these services coming over. And we're really excited about this a great culture that we've created between the U.S. and India, and truly there's real partnership we have with our organization over there.
William Sutherland
Perfect. Thanks, guys.
Operator
Thank you. Ladies and gentlemen, this does conclude the Q&A period. I'll now turn it back over to John closing.
John Martins
Thank you. 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 in May.
Operator
Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation. You may now disconnect.
