Cary Grace: We’re seeing both. So we are seeing a healthy increase in our MSP pipeline. We are also seeing a healthy increase in our VMS pipeline. So the answer is, if you look at the growth that we’ve had and I say particularly over the past two to three quarters in our sales pipeline, it’s coming from both MSP and VMS solutions.
Kevin Fischbeck: Would you say that — how does that compare to your current business specs? Is it more shifted to one versus the other?
Cary Grace: You know, it’s a good question. I don’t know that there’s a bias one way or the other. I think that we have become more client centric in how we approach a new client and so we probably had a slight bias towards MSP in the past and if you look at our approach now, we really look at it and say we want to participate fully in all of those markets. So as clients embrace MSP models, we want to be their first choice as clients embrace vendor neutral or other types of hybrid models, we also want to be their first choice.
Kevin Fischbeck: Okay, great. Thanks.
Operator: Thank you. One moment for our next question. Next question comes from the line of Tobey Sommer of Truist Securities. Please go ahead.
Jasper Bibb: Hey, good afternoon. This is Jasper Bibb on for Tobey. Just curious what you’re seeing from a bill pay spread perspective? Do you see spreads continuing the narrow into the first quarter of 2024 or are you starting to see that spread compression stabilize a bit on some of your newer orders? Thanks.
Jeff Knudson: Yes, Jasper, this is Jeff. I would say, if you exclude the workers comp benefit that we received in the third quarter, the midpoint of our gross margin guidance is down about a 100 basis points sequentially in Q4 over Q3. That’s pretty equally driven, I would say, by a change in business mix shifting to lower margin businesses across certainly PLS and TWS, but we are seeing compression in the bill pay spread just given the lower demand environment on Nurse and Allied and that’s a driver of the Q4 over Q3 change. And as we move into next year and certainly the early part of the first two quarters of next year, we wouldn’t anticipate that to change from a bill pay spread dynamic standpoint.
Jasper Bibb: Okay, got it. Yes, apologies if I missed this, but was there any strike planning or labor disruption work contemplated in the 4Q revenue guide? Like, I know there’s been some union action that — clients the past couple of months, but not sure if that’s translated to anything from a revenue perspective?
Jeff Knudson: Yes. There’s about $2 million of Labor disruption revenue embedded in the Q4 guide and that number was right around a $1 million in our Q3 actually is a little less than that, so pretty immaterial both periods.
Jasper Bibb: Okay, great. Thanks for taking the questions.
Operator: Thank you. One moment for our next question. Next question comes from the line of Brian Tanquilut of Jefferies. Please go ahead.
Brian Tanquilut: Hey, good afternoon. Hey, Carrie, I’ll just follow up to Kevin’s questions earlier. As I think about, cover, we cover the hospitals, right? And they’re all still saying that they’re still trying to reduce their use and spend on contract labor. And I know you, I mean in you’re prepared remarks, you talked about kind of like a flattening or the stabilization of broader demand. So how should we be thinking about that? And you know what gives you the confidence that you’re not losing a share in this environment?
Cary Grace: You know, I guess what we have anecdotally heard from others is that what we’ve been experiencing is similar to what others are experiencing our industry. Obviously we work very closely with a number of suppliers. Broadly across a number of different clinical roles and so as we work with our clients around how they think about rebuilding a sustainable workforce. To your point, Brian, there was a significant focus around how do you bring down contingent labor, both in terms of the size, but also if you looked at the marginal cost of that labor relative to permanent hires, there was a historically high difference between that. So the focus I think was both on numbers, but it was also because you were at a point where you had a dislocation in terms of the marginal cost.
If you look at what has happened subsequently, you’ve seen the marginal cost, partially because the marginal cost of a permanent hire has gone up, the labor inflation, but also the cost of contingent labor has gone down. As systems look at how they’re going to really manage and be able to staff a cost effective full mix, it has become much more cost effective for them to bring in contingent labor for the Flex. Now is that true for every client? No, there are some clients that are still at relatively high contingent labor costs. There are other clients and some have been public about this even more recently who they’re at a point where they look at it and say, hey, I need to actually build back volume and I can do this in a more cost effective way.
So there’s not a one size fits all answer. For a client, we have clients who are in different places. We have seen to Jeff’s earlier comment. A number of our clients start to actually go back up, but we still have some very large clients who have targets that they would want to bring it down a little bit from where they are now.
Brian Tanquilut: Okay, that makes sense. Maybe Jeff, as I think about your fourth quarter guidance, right, so midpoint $800 million of revenue, you gave the margin there. So, you know, just a little over $100 million of EBITDA for Q4. Is that the right jumping off point to use? I mean annualize that and then put a growth rate on top of that? And then what are the other moving parts that we need to be thinking about as we think about 2024? I know you called out some of the- what do you call it? Discretionary bonuses that were not in the back half of 2023. So just trying to get any help but you can share with us as we — try to model 2024.
Jeff Knudson: Yes, Brian, so I’ll list out a couple of tailwinds and headwinds off of that Q4 exit rate. So you know, certainly on the tailwind side we would expect continued growth in Language services, moving into next year that business was up 20% year-over-year in Q3. We’ll obviously have the tailwind in locums from the MSDR acquisition which we spoke about earlier and then we saw the opportunity to capitalize on a pretty large sales pipeline. I would say just given ramp and other things, any new client wins would probably impact the second-half of 2024, much more so than the first half. And then, we still do have the opportunity to improve our internal capture within Nurse and Allied we’re still a couple 100 basis points below pre-pandemic norms on that side.
From a headwind standpoint, we talked about where certain clients are and that there could be further reductions in Q1, over Q4 levels. And then within Nurse and Allied we will have an impact on our international nurse business next year from Visa Retrogression. That will again disproportionately impact the back half of next year, but there will start to be impact in Q1 and Q2. We would anticipate that business to be down about $70 million on the top line year-over-year next year and that’ll also pose a 30 to 40 basis point headwind to Nurse and Allied gross margins just from a mix standpoint. And then additionally, just given the performance this year, we do have very low levels of incentive comp in the Q4 run rate and that’ll be about $5 million to $6 million of additional SG&A moving into next year per quarter that’s not in Q4.
Brian Tanquilut: Jeff, if I add all that, I mean, are you still expecting growth in — next year?
