So that’s comment one on renewals. If we look at from a growth standpoint on our sales pipeline, we have continued to see as we have restarted sales really in the second quarter of last year a continuation like-for-like of the build of our overall sales pipeline. And we’ve also seen that sales pipeline progress. We talked about the wins in my opening comments. So we’re seeing progression both in continuing to build our sales pipeline and continuing to convert that down into wins. Kevin, on your question about what would be typical for a large client in terms of how we serve this — insert them. It really depends on where their starting point is and where they want to go. Our strategy is we want to be their preferred provider no matter what model they want.
We ideally want our VMS technology in as the baseline because once they have our VMS technology in, they can go MSP, they can go do MSP, they can go vendor neutral, they can go direct without having to shift any technology. And so if a client starting from MSP and is on our VMS and going to vendor neutral, we still typically would both serve their technology needs and we would be a supplier. If a client starting from vendor neutral and going to MSP, we would take a more active role in supplying them. So it really depends on what their starting point and their ending point is.
Kevin Fischbeck: That’s helpful. And I guess maybe because the market still is normalizing to some degree, it’s hard to tell exactly what’s going on from the outside looking in. I guess as you think about what happened in Q4 and your guidance for Q1, would you say that what you can tell that you are growing in line with the industry? That you’re gaining share within the industry? Or that you’re losing share within the industry in those expectations?
Cary Grace: Yes. What I would say, overall, it’s hard to get industry benchmarks, particularly in any given quarter and especially because we have a different business mix because of the breadth of our solutions than others may have. I think what you saw is, given our focus on MSP clients during COVID — during the COVID years on a relative basis, while we grew overall, we lost some relative positioning in the industry. And if you look at particularly as we left 2023 and go into 2024, as we positioned ourselves against the entire market again, MSPs, vendor-neutral, direct, we’re getting momentum across the entire market that we didn’t have for parts of COVID.
Kevin Fischbeck: And then maybe just last question. The commentary about the Q2 seasonality being a little bit higher than normal and I think it’s a 2/3 volume, 1/3 bill rate. Is that breakout of this Q2 seasonality similar to the normal breakout? Is it normally 2/3 volume, 1/3 bill rate from Q1 to Q2? Or just — order of magnitude little bit higher for both? Or is one of them more of a really the driver of that moving from the mid-single digit to the high single-digit seasonality?
Jeff Knudson: Yes. Q2 over Q1, we would typically see a low single-digit bill rate decline just as the higher bill rate winter needs orders roll off in to the second quarter. So maybe in totality it’s a little more slanted to the volume side this quarter than it has been historically, Kevin.
Operator: Our next question comes from the line of Tobey Sommer from Truist Securities.
Tobey Sommer: You called out a heavy CapEx year last year. I was wondering, as a percent of sales, would you expect that to trend lower in coming years? And maybe could you characterize what aspects of your tech development and new products and solutions that have resulted, you think, are ahead of the market, best-in-class? You referenced many but kind of wondering what the top of the list is.
Cary Grace: So number one and we can give more details around — let me try philosophically and strategically give you a breakdown of how we’re spending the CapEx. One is you should expect to continue to see us spend as a percentage of revenue on CapEx, maybe not quite as high as this year but directionally in that range. And if you look at where we spent the dollars in 2023, think about it roughly as about half of that was around how we continue to ensure that our solutions, including our client-facing solutions, our clinician-facing solutions, our innovative and supporting our clients in what they need to rebuild their workforces sustainably. You saw big spend last year in ShiftWise Flex which we talked about. We’ve also talked quite a bit about Passport.
And a lot of our efforts around our solutions, Tobey, were around us getting speed and agility. One of the things that has accelerated over the past 5 years is not just how you are matching supply and demand but the speed that you are matching that supply and demand. And so we have, both on a tech standpoint and from an operational standpoint, have huge milestones around our speed. That’s important in all markets but it’s particularly important in serving the direct and VMS market. The rest of the CapEx spend, think about it as Jeff mentioned, some of the big projects that we were doing around ERP and how we make our organization more efficient.
Jeff Knudson: And I would just say, Tobey, in totality, the CapEx should be down about $20 million roughly year-over-year this year with just some of those larger projects rolling off and not carrying over into ’24.
Tobey Sommer: I was wondering if you — with the lens — looking to the lens of the last few years, talk to us about the fill rates in your MSP business and if they’ve — if that has flexed as demand has fallen and sort of been theoretical for a number of years. And maybe, if you could give us some numbers about where that fill rate and direct fill sits currently.
Cary Grace: If you go back and look at what you typically see as you get demand kind of going up and going down, is that in lower demand environment, you would typically see internal capture in your MSPs go up. As you get higher demand environments, you would see that internal capture typically go down. And so if you go back into some of our internal capture rates in our MSPs during COVID, you saw that phenomenon where — as you just got this big spike in demand, we were obviously filling for our clients. But we also had a number of other suppliers who took accelerated roles in that. During 2023, if we look at Q4, year-over-year Q4, our internal fill rate for MSPs went up 450 basis points. So we have seen as demand has gone down, we’ve seen our internal capture go up.
And we would expect that to continue in 2024. We’re not expecting as we plan for 2024 for — in the nurse space for there to be any really significant increase in demand, we do think that all the efforts that we are doing to position ourselves across the broader market, MSPs, VMS, direct, we will have more opportunities to fill in a bigger demand environment.
Operator: Our next question comes from the line of Brian Tanquilut with Jefferies.
Unidentified Analyst: This is [indiscernible] in for Brian. Looking at Q1 guidance, it looks like revenue is expected to be roughly flat to possibly slightly down sequentially. And given the usual impact of payroll tax increases in Q1, should we expect a sequential decline in EBITDA in Q1?
Jeff Knudson: Yes. There is a sequential decline in EBITDA dollars and in EBITDA margin in the first quarter. That’s partially driven by payroll tax. But also, gross margin will be down about 60 basis points Q1 over Q4, primarily driven by mix within the PLS and TWS segments. And then we had talked about last quarter that there would be a $5 million to $6 million SG&A dollar headwind per quarter in 2024 compared to the Q4 run rate as variable compensation plans reset with the calendar year in Q1.
Unidentified Analyst: And also, just given the increased reporting of utilization across the various health systems, can you provide some color on what you’re seeing in terms of further volumes given your current vision into the next couple of quarters? And also, could you just shed some more light on the cadence of top line growth in EBITDA for this year? Should it mimic pre-COVID patterns or not?
Jeff Knudson: Yes. So we had talked a little earlier that currently the travel nurse orders are down in the low 20% range from where they sat in Q4. I think we touched on the Q2 seasonality that we were expecting. And then typically, Q3 revenue would be flattish over Q2 and then we would see an uptick in the fourth quarter with the winter needs orders. I think there are a number of tailwinds in the back half predominantly as it relates to the new client wins as well as potential to increase our internal capture that Cary just talked about. But then the headwinds that we would face would be where current demand trends go with our clients as well as the renewal activity that we have to work through on the MSP client side.
Operator: Our next question comes from the line of Mark Marcon with Baird.
Mark Marcon: Most of my questions have been asked. But one, I was — Cary, I was wondering if you could elaborate a little bit. You mentioned earlier that some of the clients, some of the large hospital systems have basically taken down their contract nursing staff down to optimized levels or appropriate levels for the current census that they have. But others are still kind of working down. Can you give us an approximate dimension in terms of like — is it half of the hospital systems that you work with are down to ideal levels? Or a third? Or how should we think about that? Just trying to understand further pressure points that we might see and when we truly get stabilization in that base level.
Cary Grace: Yes. I mean, here’s how I frame it up. If you look at where we started 2023 versus where we’re starting 2024 in aggregate. And obviously, you can see it in our numbers and other’s numbers, particularly on the nursing side. Clients made significant progress. And it was — again, it was them getting contingent back into more normalized rate. And at the same time, you saw really aggressive permanent hiring. So that was really the story for 2023. If you go back, Mark and look at how you would categorize different clients, what we have typically seen is some of the larger and most complex clients is they moved really fast. You see some clients who have been — were focused on 2023 but didn’t move quite as fast. So I can’t think of a client that didn’t make progress in 2023, at least our clients.
And again, a number of them are at their target and we still have work to do. It would be hard to quantify because the other dimension is we focus a lot around the demand piece but this is the labor market. And there’s a supply dimension as well and so there is still a significant portion, a healthy portion of nurses and doctors who want to work in a more flexible environment. And so it’s how they balance this management of spend with also ensuring that they are getting access to 100% of the available market.
Mark Marcon: And then, what are the expectations for MSDR to contribute in Q1 and then over the balance of the year?
Jeff Knudson: Yes. Mark, so we had said MSDR did $13 million in the last month of 2023. You can think about the Q1 expectations in line with that run rate. And then we would expect sequential growth in the second to third quarter from MSDR.
