Q1 2024 Cross Country Healthcare Inc Earnings Call

Participants

Josh Vogel; Vice President, Investor Relations; Cross Country Healthcare Inc

John Martins; President, Chief Executive Officer, Director; Cross Country Healthcare Inc

William Burns; Chief Financial Officer, Executive Vice President; Cross Country Healthcare Inc

Marc Krug; Group President - Delivery; Cross Country Healthcare Inc

Trevor Romeo; Analyst; William Blair & Company LLC

Brian Tanquilut; Analyst; Jefferies LLC

AJ Rice; Analyst; UBS Equities

Bill Sutherland; Analyst; The Benchmark Company LLC

Constantine Davides; Analyst; JMP Group LLC

Tobey Sommer; Analyst; Truist Securities, Inc

Kevin Steinke; Analyst; Barrington Research Associates, Inc

Presentation

Operator

Good afternoon, everyone. Welcome to Cross Country Healthcare's earnings Conference Call for the First Quarter 2024. 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 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.

Josh Vogel

Thank you and good afternoon, everyone. I'm joined today by our President and Chief Executive Officer, John Martin, as well as Bill Burns, our Chief Financial Officer, and Mark Food Group President of delivery. Today's call will include a discussion of our financial results for the first quarter of 2024, as well as our outlook for the second 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 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 2023 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 or 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 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. Jean-marc?

John Martins

Thanks, Josh, and thank you, everyone, for joining us this afternoon. As you can see in today's press release, our first quarter 2024 revenue and adjusted EBITDA were in line with expectations. I am pleased that our team continues to perform well in this difficult environment as demand for travel assignments softened further since the end of last year and what are the markets for Nurse and Allied remains challenging. Our focus is on growth opportunities across all of our portfolio, including our Locums education, home care, staffing, search and recruitment process outsourcing businesses with our pipeline for new business and continued investments in technology as well as our strong balance sheet. I believe that cross country is well positioned for future growth.
Looking more closely at our travel business, while demand is down across the market in the high double digits since we exited 2023, our weekly production is only down in the mid to high single digits, indicating our ability to exit open order rates for travel have been fairly stable for several quarters, although average bill rates continue to decline as we blend down towards the current market. Accordingly, travel leads in the first quarter were down roughly 2% sequentially and are expected to decline in the low single digits for the next couple of quarters as the market finds.
Yes, similar travel or local or per diem business has faced market headwinds. In the first quarter, we saw a double digit sequential decline in volume and a mid to high single digit decline in rates, we are focused on expanding our local services deeper into non-acute care settings, including within our own offer. Local business remains a key part of our value proposition, and we will continue to offer these services in the markets where it makes sense based on client needs and opportunity.
Shifting gears, we continued to see strong performance in several of our other lines of business Physician Staffing, for example, reported first quarter revenue up double digits year over year. Driving this was a combination of higher billable days and revenue per day filled tied to a growing mix of higher bill rate specials. Contribution income increased both year-over-year and sequentially and as a percent of revenue was up more than 250 basis points reflecting the improved mix and our efforts to proactively manage costs. Our home care business was up mid-single digits, both sequentially and year over year in the first quarter. On the heels of the recent wins and program implementations that we highlighted on the February call. I'm pleased to note that this division now staff's over 1,700 FTEs of high single digits year over year. We believe that this business is poised for robust growth in 2024.
Lastly, our education business continued to perform well, up low double digits sequentially. This business continued to expand nationwide as we are now in more than 20 states.
Yes. I'd like to take a moment to talk about what we are seeing in the market and more importantly, what we're doing to remain competitive while also being mindful of preserving shareholder value and profitability. It is clear that health systems have reduced their reliance on continuously. It remains structural staffing shortages and high turnover within these settings. Accordingly, we believe that a stronger travel environment could emerge sometime in the back half of this year.
Having said that, given the current market headwinds we have taken actions to better align our cost structure to the demand environment. As of today, our US headcount is now down more than 20% since the beginning of the year. While these decisions are never easy, I am confident that we have sufficient capacity to capitalize when the market rebounds.
It's also important to note, but part of the catalyst behind these reductions is the fact that we've been able to further leverage our operations in India, which will yield millions of dollars in annualized costs. Additionally, we expect to drive further efficiencies companywide by leveraging our technology such as artificial intelligence and robotic process automation.
Lastly, we will see additional savings as the remainder of our legacy clients are migrated onto intensified our vendor neutral Knology.
Looking forward, we will continue to make targeted investments in technology and businesses it served to enhance our competitive positioning and operational excellence. As we discussed on our last earnings call the wind between MSP. and VMS., it continues to blur as clients saying we want to have the best of both worlds. This is where intensify has become a critical component of our value proposition since it can be deployed, both as utilized as both EVMS. and MST. Overall, we continue to see strong interest in the market today for this technology, and we are confident that Intelli-Phase value proposition will drive additional business opportunities to cross country. In fact, we are excited to share that yet another Intel by clients we signed last month.
Now turning to our outlook for the second quarter. Given the current demand backdrop and travel, we anticipate the second quarter revenue will be between $330 million and $340 million, with adjusted EBITDA coming in it $10 million to $15 million. Our goal remains to achieve a high single digit adjusted EBITDA margin. And as we navigate the headwinds from the pullback in Nurse and Allied demand, we expect to see mid single digit adjusted EBITDA margins near term, while maintaining capacity.
We're the market leader. We remain confident in our ability to capture market share by leveraging both our leading client and candidate facing technology as well as our expertise in delivering high-quality clinical and nonclinical professionals, coupled with our diversified platform that includes locums on care and education, we expect to emerge a stronger, more agile and profitable organization.
What's the current travel market pressures. We're also focused on putting our healthy balance sheet to work through ongoing strategic technology investments, share repurchases and potential M&A.
On the M&A front, in particular, our goal has not changed. We look to close on several accretive acquisitions that we believe will further diversify our platform, enhance our value proposition and improve our margin profile.
In closing, I am encouraged by our prospects for growth and improved profitability as we execute our strategy as a tech-enabled workforce solutions provider, we are seeing strong momentum in many of our business lines outside of travel, and we continue to execute on our initiatives across the organization. I am impressed by the dedication and hard work of all of our employees, and I am very proud to announce that we were recently named as one of Newsweek's latest Workplaces for Diversity in 2024. A recognition like this is a testament to our workplace culture and the reason why we have such a deep pool of talent that is MapQuest country, their employer destination of choice. I want to thank all of our employees and our health care professionals. Your continued hard work and contributions as well as our shareholders for believing in the Company.
With that, let me turn the call over to Bill.

William Burns

Thanks, John, and good afternoon, everyone. As highlighted in our press release, performance for the first quarter was largely in line with expectations with revenue near the high end of guidance and adjusted EBITDA towards the midpoint of our range.
Consolidated revenue for the first quarter of $379 million was down 8% sequentially and 39% over the prior year, driven primarily by declines in travel and local assignments in large acute care settings. I'll get into more detail on the segments in just a few minutes.
Gross profit for the quarter was $77 million, which represented a gross margin of 20.4%. Gross margin was down 150 basis points sequentially and 200 basis points over the prior year. The sequential decline was primarily due to the annual reset in payroll taxes as well as a rise in certain verticals such as health insurance and workers' comp and an adjustment for professional liability insurance costs that is not expected to recur relative to the prior year. The decline in gross margin was principally due to the tightening of the bill pay spreads for travel and local assignments as well as the burdens that impacted the sequential change.
Moving down the income statement, selling, general and administrative expense was $63 million, down 6% sequentially. And 25% 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 incentive compensation over the last two years, we have proactively manage our costs to align with the broader market while seeking to preserve adequate capacity for future growth and to maintain the cadence of investments in longer-term projects in the first quarter, US headcount was down 9% from the start of the year, and we've taken actions in the second quarter to reduce headcount by an additional 15% over the last 18 months.
We reduced total headcount in the US by 40%, while those were multi reductions reflect the headwinds experienced across both our travel and local businesses. It's important to note that a good portion were the result of enhanced productivity and offshoring to our center of excellence in India. As of the end of the first quarter, we grew headcount in India by 45% since the start of the year, and we'll continue identifying future opportunities to capture incremental savings. While we are keenly focused on managing our total cost structure to the most efficient level possible.
We will continue to make investments in those businesses where we see opportunity for growth like education and home care staffing. Our SG&A for the first quarter includes more than $1 million of cost pertaining to the implementation of our ERP system. The costs were higher than prior quarters as we have been working simultaneously on two phases of the project. I'm proud to share that as of today, we've successfully completed the first phase of the project, which is the foundation that will allow us to realize significant efficiencies once the second phase is completed in mid 2025.
Excluding these implementation costs for our ERP system, SG&A was down more than 7% sequentially and 26% from the prior year. We reported adjusted EBITDA of $15 million for the quarter, representing an adjusted EBITDA margin of 4%. Though revenue was at the high end of our expectations. Our adjusted EBITDA was impacted was impacted by a lower than expected gross margin, which was partly offset by lower SG&A through tighter cost management. Interest expense in the first quarter was $500,000, which was down 21% sequentially and 87% 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 first quarter was related to the carrying costs for the ABL and fees related to outstanding letters of credit the effective interest rates on amounts drawn under our ABL was 7% as of March 31. As a result of our strong cash flows, we ended the quarter once again, with no debt outstanding.
And finally, on the income statement, income tax expense was $1 million, representing an effective tax rate of 27%, which was slightly lower than our expectations due to the impact from discrete items recognized in the quarter. Our overall performance resulted in an adjusted earnings per share of $0.19 near the midpoint of guidance.
Turning to the segments. Nurse and Allied reported revenue of $332 million, down 10% sequentially and 43% from the prior year. Our largest business travel nurse and allied was down 11% sequentially and 48% from the prior year. Billable hours were down 9% sequentially on the softer demand, while bill rates were down 2%. Given the continued softness in travel demand, we expect to see a further sequential decline for revenue for the second quarter in the mid 10s.
Similar to travel, our local business has also been impacted by the softness in demand for contingent clinical labor. First quarter revenue was down 36% from the prior year and 19% sequentially. The majority of the decline came from fewer billable hours and to a lesser extent, lower bill rates. Though core Nurse and Allied Staffing is facing headwinds.
Several other businesses continue to experience organic growth Home Care Staffing was up 4% sequentially, while education was up 11%. And given the growth prospects of both of these businesses, they remain focus areas for further investment specific to the Home Care Staffing business. We continue to win new PACE clients across the nation and have seven programs currently being implemented and another two contracts likely to find in the coming quarter, that should be catalysts for continued growth.
Finally, positions that were once again delivered a strong top line reporting $47 million in revenue, which was up 16% over the prior year and flat sequentially year over year. Growth was evenly split between price and volume, with the number of days filled increasing across specialty, such as anesthesiologists, primary care physicians, CRNAs and nurse practitioners.
Turning to the balance sheet, we ended the first quarter with $5 million in cash and no outstanding debt with the health of our balance sheet and strong cash flow. We remain well positioned to make further investments in technology and accretive acquisitions as well as to continue purchasing shares under our $100 million share repurchase plan.
From a cash flow perspective, we generated $6 million in cash from operations in the first quarter, which was impacted by the timing of payments for annual incentives as well as payroll taxes, collections were largely in line with expectations, though our days sales outstanding increased to 74 days as a result of a single client, which added 5 days to this metric specific to that client. We did see collections resume this quarter and expect that trend to continue. Our goal remains to operate with a DSO of 60 days, which is more in line with our historic performance, and we expect to make progress towards that in the coming quarters.
Cash used in investing activities was $2 million, primarily reflecting continued technology investments, predominantly foreign telephone and our new ERP system.
From a financing perspective, we repurchased an additional 300,000 shares during the quarter by both our [10b5-1] trading plan and our [10b-18]. This brings me to our outlook for the first quarter. We are guiding to revenue of between $330 million and $340 million, representing a sequential decline of 10% to 32%, driven predominantly by the expected decline in both billable hours and rates.
For travel, we're guiding to an adjusted EBITDA range of between $10 million and $15 million, representing an adjusted EBITDA margin of approximately 4% at the midpoint of guidance, adjusted earnings per share is expected to be between $0.10 and $0.20 based on an average share count of approximately 34 million shares also assumed in this guidance of a gross margin of between 21% and 21.5%. Interest expense of $500,000 depreciation, amortization of $5 million, stock-based compensation of $2 million and an effective tax rate of between 30% and 32%.
And that concludes our prepared remarks and we'd now like to open the line for questions. Operator?

Operator

Thank you.
Before we Ladies and gentlemen, before we open the lines for questions, I want to turn the call back over to John Martin's for another word.

John Martins

Thank you, operator. I want to recognize that today is the start of National Nurses month this month serves not only as a celebration of nurses unwavering dedication and tireless efforts, but also as a poignant reminder of the invaluable role they play in health care and our society nurses are the compassionate and steadfast pillars of patient care.
Their contributions extends far beyond the confines of hospital walls, touching the lives of countless individuals and families around the world. Nurses are truly the heroes and the lifeline of the health care system. I want to personally thank every nurse out there for your hard work and dedication. And now I'd like to turn it back to the operator for Q&A.

Question and Answer Session

Operator

If you would like to ask a question, please press star one. Please unmute your phone and record your name. Clearly when prompted, Your name is required to introduce your question to withdraw your request, please press star two and One moment please for the first question. Our first is from Trevor Romeo with William Blair and your line is open.

Trevor Romeo

Hi, good afternoon. Thanks for taking the questions on the first one is if you look at the Q2 guide, I think historically you haven't seen as big of a drop as what you're guiding to in terms of revenue, looks like maybe it's a little more than 10% below Q1 consolidated, I think Bill had said maybe down mid 10s for travel. So I was just kind of wondering if you could talk about demand trends through the first four months of the year this year and maybe what's different versus years in the past?
And I guess further, do you believe the entire industry is experiencing a similar level decline or and are there additional competitive headwinds you're facing?
Or anything more you could say on that front? Would be really helpful.

William Burns

Sure. Thanks for the question, Trevor. Hi, this is Bill Burns.
You're spot on. When you look at our second quarter, it is not following historic patterns and it's entirely driven off of travel as we progress through the first quarter, demand remained soft and still have not yet rebound. And we do think there's some opportunity there and programs that we've won are still ramping, but that's putting the drag on the second quarter bill rates for traveler projected to be kind of in the same range of a low digit 1% to 2% sequential decline going into Q2 and possibly into Q3. I know we don't guide out that far, but rates are trending exactly where we expected them to be this has really been a volume story across travel nurse. And John, I mean, if you want to comment on the market.

John Martins

I would just add. This is definitely the market conditions and some look at the different information that's out there. We can see that demand has fallen off pretty sharply over this first quarter and into the second quarter. Now I would say over the last six weeks, we've seen demand level off. Well, I think it's too early to say that this is a trend. We are cautiously optimistic that we are seeing a flattening of demand, but it's still too early to call it.

Trevor Romeo

Okay. That makes sense.
Thank you. And then I guess on the on the locum side of the house on what you're seeing in terms of the supply side with the willingness among physicians and advanced practice providers to take those assignments like us where we longer term in that adoption curve of the clinicians wanting to take more of the temporary flexible assignments? And how much more room is there for that to increase going forward?

John Martins

Sure. Well, in welcomes, there's I think 800,000 physicians in Locums I'm sorry in in the U.S. total positions. And locums is a certainly a small part of that. But just like we've seen in travel nursing and other staffing industries. We're seeing physicians are more looking to have more freedom of work and they're able to really embrace Borland's space. And so we think that there is still a long runway for more physicians to enter the locum space as we see that in hospital systems, this is the key component for hospital systems to drive revenue is having physicians. So as one of that dynamic remains there, we feel very bullish on the mobile space.

Trevor Romeo

Okay. Thank you very much.

Operator

Our next question is from Brian Tanquilut with Jefferies. Your line is open.

Brian Tanquilut

It up and you guys maybe, John, I'll go back to the demand question. I mean in your prepared remarks, you mentioned it sounds like you have an optimistic or more optimistic for you in the back half of the year. But wondering what's the feedback when you talk to hospital CEOs or chief nursing officers and how much more cutting is there I mean, given the strength in demand for volumes at the hospitals, like how does it all blended regulated into curious what those conversations are and where your optimism is coming from.

John Martins

Interesting question because you are right on there. Hospitals, are still looking to see where that demand levels off. But if we look at what the publicly traded hospitals have said over the past several weeks, they're seeing and the competition to be comfortable with contingent labor is right now. And when we look not only at those hospitals being comfortable but then we see that the census is up.
We're seeing surgeries are increasing the need and demand for for nurses should really continue. And we recently actually literally launched it out to date of our annual under survey that we conducted in collaboration with Florida Atlantic University, a Lincoln College of Nursing. And we ask that we surveyed over 1,100 nurses and nursing students and Adam, same in the same the same trends that we've seen over the last three or four years, Brian, of 43% of nurses are saying that they're still struggling with understanding what their facilities and 37% are facing a stressful work environment that these numbers are a little bit better than they were during COVID.
But there's still so high. And so what we're seeing and why we think that look is the trends can continue of stabilization of demand. When we look at the programs that we've won and we're ramping up. We look at the macro data of the underlying nurse shortage and we start seeing, you know, hopefully that we can if you take those tailwinds and start seeing the back half of the year month over month volume growth as we get into the back half of the year. I think that's where my optimism comes from is that it's the execution of what cross country is doing our intellipath platform and how it's resonating in the market space.
And then thirdly, we're speaking to the hospital systems. They certainly need our services now. And so I think as we get there and then the other component to that is as we start heading towards the summer months of July and August, we'll start seeing the winter needs come in as well. So you put all all those pieces together. It's not one piece that makes me optimistic. When I look at the whole picture is why I get optimistic about the back half of the year.

Brian Tanquilut

And then maybe just shifting gears to the locums business, obviously stronger in the quarter. So how do you think about the sustainability of that strength, maybe number one and second, what do you need to do to continue driving that growth revenue in terms of recruiting and things like that?
So just curious what that looks like as you busy trying to strategize around locums?

John Martins

We've had and as the industry has had a several years of great growth in Locums and Vida piece where the industry was. I wouldn't anticipate that piece that we've had over the past two years continue this year, but I think when you get more to a stable pace I believe staffing industry analysts predicting about a 12% increase year over year.
And I think when you look at that, it's probably more in line where we'll see growth coming I don't think we may see 30% growth that we saw over the last couple of years, but it's still a very sustainable growth period. And in terms of what we need to continue to grow it. Just the same thing where in any industry where you have growth, making sure you are able to attract the right candidates and be able to have the right quality jobs, and we talk a lot about the band even on the Travel Nur se and Allied side.
The same thing on the physician side, there's demand and there's quality of jobs of demand and you need to make sure you have the quality of job. Us gum has the right to be able to offer the right compensation packages for these physicians offering the flexibility they need. And if you can get that quality of job and then it's much easier to match a position with that job possible.

Brian Tanquilut

Thank you.

Operator

Thank you, gentlemen.
Our next question is from A.J. Rice with UBS and your line is open.

AJ Rice

So Vogue So everybody on the gross margin for the quarter, I think at 20.4%, it was a little below the guidance of 21%and 21.5% usually have pretty good visibility on the quarter ahead. I know in the prepared remarks, you said the gross margin pressure in general was because of the bill pay spread. Did anything happen as the quarter progressed toward the end of the quarter that put incremental pressure? Is that just maybe the mix of locums business being stronger, relatively speaking or something else or any comments there?

William Burns

Yes, A.J., this is Bill. Thanks for the question. Yes, I think in the prepared remarks, you heard me say there was some burden charges, and I think that was probably one of the bigger surprises, which you don't really get to till the end of the quarter, the three the three biggies there are health insurance, which costs continue to rise. People are seeing the doctors more frequently, et cetera. But I think the ones that are actuarial driven workers' comp and professional liability were kind of a quarter-end adjustment that we weren't necessarily anticipating. So that was a little bit more of a surprise to us. But as I mentioned, I don't anticipate much of that in your health insurance will continue as we move forward. But the majority of the burden that we saw in the quarter from say from PL is not expected to recur. So I think we'll see a little bit of an uplift, and that's why we've guided back. It's not if you noticed the guidance inflection is for sequential change that is larger than just the payroll tax reset. The payroll tax reset this quarter was about 65 basis points. That too is a little bit higher than we've historically seen. And certain jurisdictions had a little bit of a higher payroll tax burden this year than we expected.
Most notably, California. We saw that was little bit higher than what we had seen in past years. So I'm a little bit surprised on the payroll tax and the burdens, which, as I said, I think the burdens normalize coming into Q2.

AJ Rice

Okay. And the longer-term issue on the whole bill pay spread seems to be in some ways competitor behavior that people that grab some share in the pandemic. We're trying to still hold on to and I know you've talked about your biggest peers talked about that. Are you seeing some easing of that competitive pressure? Is that still pretty prevalent out there.

William Burns

Well, I guess I'd say the pressure is still there. It's obviously always in a market competing for the talent and with the client on the bill rate side, we don't expect to see a lot of bill rate uplift, although interestingly, the open order rate did tick up a couple of points. If I look sequentially and versus the fourth quarter against the year-over-year that not enough to write home about, but a couple of points is still positive direction for us on the open water bill rate. And then you look at the compensation side of things. And again, it's a highly competitive market. A lot of transparency around the pay packages that nurses can can can garner what's embedded in the numbers sequentially for us while payroll tax and burdens were actually a bit of a hit to us the bill pay housing spread and I lump in housing. When I say the bill pay spread, they'll pay housing spread was actually favorable for us sequentially from the fourth quarter to the first quarter. Again, small 20 basis points to 30 basis points, but still a move in the right direction year-over-year still tremendous pressure there don't expect that to ease anytime soon.
And I'll just repeat remarks. I mean from the last earnings call, which was the most the majority of the bill pay spread, pay rates are coming down a commensurate if not faster than the bill rates. The piece that's been stubborn has been the M&A component, the housing component.

AJ Rice

Interesting. Okay. Maybe a last question on the availability of your supply. I know we've talked that nurse expectations for trout price of rate expectations for travelers may be needed to reset. Are you seeing that what is our expectations for the new travelers, those reopening or anything else to talk about in terms of your availability of supply people reopening on assignment, et cetera, et cetera?

John Martins

Sure. Thanks, A.J. This is John. And I see much different than a year ago. A year ago, the nurses payers patients were not in line with where the bill rates were coming down and probably even six months ago.
And Mark, you can add one is a second on, but now as we've had a sustained period of the deceleration of bill rates and pay rates. I think nurses are more apt to accept that there are the low rates and they had two years ago. But I think there's also another dynamic and we've called this out before is that in the height of COVID, we had a lot of core nurses who became travelers and the travel market had expanded much larger that travel market and we will acknowledge, as industry has now shrunk a little bit, still much larger than we were pre-COVID, but definitely down. So some of those nurses I've left to go back to core and potentially those the ones that were seeking the high pay packages, what drove them to leave their core their core jobs. But I think the nurses that we have left are the ones that want to travel want the flexibility once it enjoys is getting lifestyle and they are they are fine with paper. Just Mark, I want to add anything to the shore.

Marc Krug

Sure markets. To John's point, I think there's been a reset in expectations at this point and a lot of the travelers that we'd use the term chasing dollars I think they have gone back to their core positions and we have the traditional travelers back in the market. There's a lot of pay transparency and everyone's pretty clear on what the market is at any given moment in any big jump given geography.

AJ Rice

Okay. Just to make sure to put a fine point on that, it seemed like a few quarters back you guys were saying that if you could just get expectations down to a certain level, there was a lot of incremental demand that might reserve. Is it now that we're sort of getting close to expectations being in line with market. And it's just a we've got to get to a point where supply demand and the volume of the hospitals, et cetera, have picked up to the point where they need a incremental nurses and it's less about getting expectations for the nurses in line with the hospitals' willingness to pay.

John Martins

Yes, that's certainly part of it, A.J., that we have to get the extra kicker that where we get the orders.
Right. But I think a bigger part, we've talked about this on a couple of earnings calls is that all our jobs are equal quality jobs where hospitals will put out. Orders that are really mobility to really have a hard time are really unable to fill. And so the ones that are drillable are the ones that the expectations are of of the eight with the market bill rate is on and we have and where the market pay rate would be. And so when we get those coming together and we're finding more and more of those now it's coming, but the gap is shrinking. We're getting more quality jobs. That's when you start seeing the market, be able to happy to take that extra surplus and be able to fill those needs.

AJ Rice

Okay, great. Thanks so much.

Operator

Thank you. Everyone now. Our next question is from Bill Sutherland with The Benchmark Company and your line is open.

Bill Sutherland

Thank you, guys. And I wanted to just focus on Allied just slightly hoping you could remind us kind of what that is as a proportion of the travel business or was it just nurse and allied business? And then on just a little unpack kind of what's going on with some of those Allied positions. Thanks.

John Martins

So I think about 40% of our total of total of total travel and Anda, yes, I'll hand it over Mark, if you want to talk about some of the specialties and what's going on the outlook or what you're seeing?

Marc Krug

Sure. Demand is very strong and physical therapy imaging continues to have very strong demand. And I don't foresee that slowing down anytime soon. Increased reliance on imaging for diagnosis and efficient patient care with the higher volume and the shortage of some imaging professionals and the shortage of people going into the profession is really going to drive demand.

John Martins

And A.J., this is John. I'm sorry, the build. I'm sorry, go ahead, but this is John. I would add to that some when we're looking at Allied demand, it also follows a lot of the surgeries. So as we're seeing surgery go up, it's the ancillary the ancillary services that you need, a lot of them or actually most of them are the allied services. So those ones we're seeing demand go higher, just like we're seeing a lot of demand for CRNAs and anesthesiologists on the Allied World follows when surgeries go up.

Bill Sutherland

Got it. And so what would be the growth of that? So that piece of the business being, you know, Linda, could you pointed out in 1Q or can you talk about what you're thinking about for 2Q?

William Burns

We don't typically carve out Travel Allied. We think of it as totaled. We talk to total travel as you as you heard. What I can tell you is when we're looking at the second quarter, the majority of the demand is on the nurse Dmart and majority of the falloff in volume is on the nursing side, given the mix of specialties within Allied to Mark's earlier point, if you're not seeing it in imaging, you might be a I'm sorry, if you're not seeing in respiratory, you make be making it up in imaging and lab. So there's a lot more modalities that makeup Allied. So that business has been a little bit more. I'd call it a resistant to the decline that we've seen across the rest of travel bookings.

Bill Sutherland

And then just to one last one. I'm thinking I keep thinking about kind of your visibility beyond the second quarter and just in terms of the client behavior and what their needs are or looking like what what are the things you know, apart from when you start to see the winter orders, is there are there any like duration changes in terms of assignments or is there anything else that's changing that makes it harder to kind of understand what's going under the hood at the client side so that you can have some sense of where demand will be maybe one quarter further out?

John Martins

Yes, I think we're seeing assignment lengths or have been pretty consistent on, I would say for to the past two quarters actually gets caught third quarter and were actually caught up what Q3, Q4 we did see we saw our renewal rates going down a little bit, which was it made sense because demand was going down. And now we're seeing that renewal rate tick up on.
So to me, and they're up probably it's probably up pretty significantly on renewal rates compare to third, fourth quarter first quarter of what that tells me is that the hospitals are needing these nurses more as as the renewal rates go up. And I would anticipate that our renewal rate will continue to increase throughout the remainder of the year as hospitals are really our Navy's needs escalations.
And just like our survey that we've published today on, it's the same story. We're hearing that of nearly 50% of nurses when you ask them are saying that they're there. They feel that there's a shortage of staffing at their facilities. And we've been talking about this for a while, but I can only go on for so long. If we think about back to the OEM recession back in 2009, it was something that was very similar. That happened where they were hospitals utilize nurses in an extra ship for 48 hours on these less contingency, but they only hold on for so long before those nurses that burned out. And I think between COVID between pandemic and between the last 18 months of hospitals, I'm trying to right the financial shift.
Additionally somewhat, you can push on nurses before you really need to bring in help so that the nurses wanted to remain and stay at the bedside because that's look, that's Oracle at the end of the day, we're part of the solution of the overall delivery of health care, and we want to make sure that we're the right percentage of contingent labor, but we don't need to be all of their labor rate. We want to be that rate contingency. So we want to ensure and part of what our offerings do with a telephone now and some of our other product that we're launching, we're helping core staff at hospitals. And the reason that's important is we want to make sure that we help hospitals engage and retain course, there and even are able to bring in more core staff and so that we can help with that contingent labor piece that we need.

Bill Sutherland

Okay. Thanks, John, for all the color.

Operator

Thank you entirely. Our next question now is from Constantine the Vidus with Citizen's JMP. and your line is open.

Constantine Davides

Hey, guys. Can you expand a little bit on the challenges it specific to the per diem portion of the nurse and allied business, it sounds like the first quarter declined it was almost twice as large sequentially as what the segment experienced as a whole, if I heard you correctly spent. And then I guess a follow-up to that is what are you sort of contemplating in your second quarter outlook as far as that business. As far as that business goes.

John Martins

I'll start with with per diem and what we're seeing in that marketplace and because it runs very parallel to the nursing side, travel nursing side, we're seeing very similar pullback in the utilization of those nurses on a daily basis. And then an additional in addition, not only is and part of it in the acute care health care, which is very similar to our travel nursing side.
The other part, a little like, although a large part of our per diem nursing visit is in the skilled nursing facilities. And during COVID, there was a there's a large run-up of conditions in a skilled nursing facilities as well as federal US federal, state and local monies were both put in place to help fund those skilled nursing facilities for QC labor. As that as that money dried up over the last year, we saw that that business not just us, but the market sort of skilled nursing facilities, it utilization went down for the labor, such as really the story behind that marketplace.
Now we're looking at we believe in the local space and premium space that there are opportunities and pockets where we can excel. And that's where we're focusing on right now in our MSP.s is a crucial piece in many of our MSPs to help find that just-in-time labor. And we also we also work in conjunction with float pools to make sure that we're offsetting the four pools that hospitals have, whether we're running a hospital, have their own fourfold to help offset those just in time less needs. So it's really a critical piece to our business, especially when it comes to helping hospitals just in time. But I think we can say where we saw the decline was really just the market conditions that we've seen in the nursing world through both the acute care and the sub-acute LTC space.

William Burns

And customers. And I would just throw in there that the local business, unlike travel, which has a bit more of an annuity concept to it where it's a longer assignment terms, you got more predictability aside the local business. If I look at the the billings weekly billings across that business for the first quarter relative to how we exited the fourth quarter, there wasn't much of a deterioration. It was really more if you compare it to the start of the fourth quarter so Q1 was running pretty consistently across the quarter for all the weeks. And so you asked about the second quarter guide and what's implicit in that?
It's essentially flat sequentially. We're not expecting to see a lot more deterioration or a lot of uptick. I think that business tends to move a little bit quicker up or down based on what the market's doing than travel does.

Constantine Davides

Got it. Thank you, Drew.

Operator

Our next question now is from Tobey Sommer with Truist Securities and your line is open folks.

Tobey Sommer

Last year there was some competitive pressures impacting market share, it has had the effects of that percolated through the P&L? Or is there anything lingering that could provide a headwind of sorts movement moving forward?

John Martins

Yes, Tobey, I'd say over the last six months, we've definitely won more than our fair share of deals on and we're ramping those deals up. And we've pulled, as you pointed, we called out last year that we did have a higher than average number of losses that go over 18 months ago to a year ago. And so both of those have I've already been out of the system for that for the most part and even some of the ones that we've lost we've called out, we've actually retained a large portion of those of those travelers on assignment. So to answer your question, I would say, yes, it's mostly baked out because there's still some good guys and bad guys. And I think the good guys for outweigh the bad guys at this point.

Tobey Sommer

Okay. And then, um, at with the visibility, have you said the demand has kind of been stable for a handful of weeks, six weeks, I think you said, would you think at this point that that try in 3Q would grow sequentially be flat or stable?

William Burns

Yes, I don't know if I'm calling out the full quarter, I think we would expect to be growing TOA across the third quarter and whether that averages to a full increase over the second quarter I think remains to be seen?

John Martins

Yes, it's nuanced, right, Toby, where when does that and lift come up in the volume. And so we do think that, yes, we within the third quarter or fourth quarter but we do think optimistically of Q3, we could see month-over-month volume growth within the quarter.

Tobey Sommer

What are the KPI.s or demand signals that you used to sort of inform that? Or is it or is it predicated on the survey work and over working of nurses? So I'm kind of trying to get at how how changeable that is.

John Martins

Sure. If we continue to see the demand. It will be continue to be stable as it is that we've seen over the last six weeks and then demand can uptick a little bit that gives us the confidence that you have a higher or lower confidence factor that helps to that answer your question.

Tobey Sommer

And then within demand, I would say the quality of.

William Burns

Yes, what I'm going to throw in there is when we look at what we expect in the order volume, the majority of the order improvement we would expect to see as we move through the second quarter will be from programs that are our programs. And so the quality of those orders tend to be a little bit better than say if it was just a market order that we are competing against other players for. So I think that's a little bit of what we have a lens on as we know the programs that we've won. We know what's been currently in our implementation and are ramping right now, and that's what we would look for for the third quarter. I don't have a exact line of how many orders that is and what it will look like, but the quality of the orders should improve.
And I would just throw out one other comment and John made this in the prepared remarks. But as as demand softened, it's down quite a bit more than our production is we're still managing to produce or deliver. Our internal KPI is net weeks booked. We continue to see across the travel landscape that we are producing or our production levels are maintaining despite the fact that orders have curtailed quite a bit.

Tobey Sommer

Okay. And in terms of Intel, if I the the external customers you have on that or the MSP. vendor neutral is one of the aspect that you've been talking about as an opportunity to tap into that vendor neutral. So want to get a sense for progress on that particular front.

John Martins

Yes, sure, Tony, this is John. As I said, some of them have been vendor neutral, but this is what we're seeing at Royal Caribbean neutral. But what we're seeing is a blurred, I think, called it out in the prepared remarks. There's a blurring line between MSP and VMS for a lot of clients right now where we're seeing clients that they want to make sure that they have a vendor panel and they're not reliant on one particular strategic AGENCY to fill all their needs. But they also want someone who is going to be accountable if it needs don't get met. And that's where when you are sometimes a pure vendor-neutral play and have don't have the staffing arm to back it. All you can do is refill rates or go in essentially plead to your agencies to fill in needs where when you are a associated with a a a Stephanie strategics adding company on that, should you have any concrete step in and help fill those needs so that that blur that blurring or that hybrid is really becoming seeming more popular where people can have the best of both worlds. We can still send those orders out, have a vendor-neutral feel, but knowing that they have the backing of Cross Country for that accountability when they need those those needs met.

Tobey Sommer

Thank you very much.

Operator

Thank you. Our final question is from Kevin Steinke with Barrington Research. Your line is open.

Kevin Steinke

Hi. Thanks for taking the questions. So last quarter you had expressed some optimism around the US, the pipeline for until FI. and MSP. on just what's that looking like now? And it sounds like you still expect that to contribute to stronger results in the second half of 2024 So bi speak to that, that would be helpful.

John Martins

Sure, Kevin, this is John. And I said my prepared remarks, we just signed a contract last month with another new and telephone win, which is a fairly large but large client and done. We have a really, truly robust pipeline. And I know we've said the last couple of quarters, but it's one of the biggest pipelines we've had in the Company's history, and it's still robust still there. I would say this clients are a little slower to make decisions right now. I think because there's a little less pressure to make decisions. And they had the last 18 months when the finance teams needed to save money and they were looking for people to offer them cost savings immediately. And they were making decisions probably based on cost savings and maybe not holistic approaches to solving their long-term needs. And so as we've gone through that phase and into this new phase. The cycles are running a little bit longer right now, but we're still very, very excited about where we are in our with our with ARM with our pipeline.

Kevin Steinke

Okay, thanks. That's helpful. And I believe you made a remark in your prepared comments when talking about local staffing, but you're committed to providing it where it makes sense I mean it is that imply that you might look at that business and And Neil, maybe parent pare it back in some sense, or is it still kind of a full commitment to compare to what you're currently doing there.

John Martins

A full commitment in pretty him. But I think what we're saying in that statement is we want to make sure that we have to find the right opportunities for that business. And obviously, that is to supplement our MS. piece in our MSP. space finish where clients have a whole house full service of services to be able to fill their needs. But also, we also want to make sure that it makes sense. And he's a great example. We don't necessarily need to have a pretty in business that fills a client that has one need per year as opposed to billing and client that would have a volume business that we can actually have a longer strategic partnership with.
So when we look at how we envision per diem moving in the future, it's really creating partnerships with clients that we can have strategic relationships where we can we'll offer more than just one service to them.

Kevin Steinke

All right. That makes sense or Thanks for taking the questions. I'll turn it back over.

Operator

Thank you very much.
Ladies and gentlemen, this does conclude the Q&A period. I'll now turn it back over to John Martin's for closing remarks.

John Martins

Thank you, operator. Before I sign off, I want to reiterate one last time how truly optimistic I am for the long-term prospects of Cross Country. Given that the underlying fundamentals for the industry are intact, we really have a great team and we have a great brand and we are well positioned to come out ahead once the market rebounds.
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 the next call.

Operator

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