Q2 2021 ModivCare Inc Earnings Call
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Hello, and welcome to the motives care second quarter, 2021of them.
Financial results conference call and webcast.
At this time all participants are in the listen only mode.
If anyone should require operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation. As a reminder, this conference is being recorded its now my pleasure to turn the call over to Jonathan Bush Senior Vice President General Counsel and Secretary. Please go ahead, Sir thank.
Thank you operator, good morning, everyone and thank you for joining motive Care's second quarter 2021 conference call and webcast with me today from the company are Dan Greenleaf, President and Chief Executive Officer, and Heath Sampson Chief Financial Officer.
Before we get started I would like to remind everyone that during the course of todays call. The Companys management will make certain statements characterized as forward looking statements under the private Securities Litigation Reform Act.
Those statements involve risks uncertainties and other factors, which may cause actual results or events to differ materially.
Information regarding these factors is contained in today's press release and in the Companys filings with the SEC.
We will also discuss certain non-GAAP financial measures in an effort to provide additional information to investors a definition of these non-GAAP measures and reconciliation to the most comparable GAAP measures is included in our press release and form 8-K.
We have arranged for a replay of this call which will be available approximately 1 hour. After today's call on our website www dot motive care Dot com.
This morning, Dan Greenleaf, our Chief Executive Officer will begin with opening remarks, after which he Sampson our chief Financial Officer, who will provide the details of our financial results and then we will open the call for questions.
I will turn the call over to Dan Greenleaf, Dan Yeah. Thank you John and good morning, everyone and thank you for joining us given the 2 significant acquisitions that we announced in the past 2 weeks I'll begin today's call recapping, our positive momentum to transform motive care from a transportation logistics company into the first of its kind.
Provider a holistic support of care solutions designed to address the social determinants of health remove barriers to care for underserved patient populations.
Liver better care in the home enhance patients' lives and health outcomes provide a convenient 1 stop shop for a payer state and hospital partners and reduce healthcare costs.
When I joined the company in December 19, we started with a market, leading nonemergency medical transportation or any empty business with opportunities to automate and modernize operations at the time, we swiftly implemented a sixth pillar strategy involving placing the right people in the right seats acting on the voice of the customer.
Merck pursuing transformational growth implementing a single repeatable model delivering an enhanced technology platform and rebranding of the organization.
We successfully delivered in meaningful ways across each of these pillars during a relatively short timeframe, enabling us to focus on our larger vision of transforming how we connect people to care by utilizing our any empty business as a critical conduit to drive access to the support of care solutions, we provide.
We continue to look for opportunities to broaden access to care and the roughly $8 billion addressable market for any empty in fact yesterday, we announced a nationwide partnership with Uber health <unk>.
Aimed at further strengthening our networks of transportation providers.
Our first foray into expanded supportive care solutions commenced with nutritional meal delivery pilot programs. During the onset of the pandemic to date, we have delivered more than 2 million meals under approximately 30 partnerships with community based organizations and determined that nutrition meal delivery sector.
Is ripe for disruption.
We have completed significant work in preparation for our formal launch of a nutritional meal delivery vertical which we expect to announce later this quarter. We are extremely excited about this opportunity, which adds an estimated 9 billion dollar addressable market projected to grow.
<unk> to $15 billion in the next few years in November 2020, we added another supportive care vertical with the acquisition of simpler health group, marking our entry into the large fragmented and rapidly growing personal care sector.
<unk> scale and density in its core markets provided us with an excellent foundational business in the 55 billion personal care sector, which is expected to grow to $100 billion over the next several years.
Our pending acquisition of Kerr Finders announced last week significantly strengthens our personal care presence in the northeast and complements <unk> capabilities.
<unk> delivers approximately 10 million hours of care annually to over 7500 patients through its more than 6200 caregivers care finders annual revenue is approximately $200 million pro forma for recent acquisitions on a combined basis will be 1 of the largest providers of personal care.
In the United States, managing more than 18000 patient lives and providing approximately 30 million hours of care.
Finally earlier this week, we announced the acquisition of Eri, which adds a healthcare focused national remote patient monitoring and medication management platform fueled by leading technology to our suite of critical supportive care solutions.
<unk> monitors over 155000 patients from its $224.7 care centers Cri has leverages technology platform with thousands of connected patient devices to create a strong data analytics capability the.
The combination of <unk> in home remote monitoring insights with motives care existing data from our other supportive care verticals will further unlock the total health picture of patients and enabling improved health outcomes. The acquisition of <unk> adds an estimated 8.
$5 billion addressable market and remote monitoring that is only 13% penetrated with considerable growth opportunities from increasing coverage of remote monitoring by Medicaid and Medicare advantage health plans.
We believe that our powerful any empty channel.
Access to 30 million patients to approximately 9% of the U S population puts us in the pole position to own the last mile by providing a supportive care solutions to the same payers state and hospital partners. The same underserved patient populations and the same homecare settings.
While leveraging our data analytics and technology.
We envision a future in which our personal care aides serve as the air traffic controllers in the Pea.
Patients AUM, if the patients food stock as major DAA can call on our nutritional meal delivery program. If the patients required medication is in short supply Vijay can deploy or any empty services to transport replenishment to the patient zone.
The aid notices of special need for medication management or remote monitoring we can bring <unk> solutions into the patient zone FBA detects the need for non emergency care outside of the home. Our <unk> business is there to provide the right. We believe that a synergistic ecosystem like.
This will thrive as healthcare increasingly moves away from higher cost interest.
<unk> settings to lower cost home settings preferred by the patients and their families.
In summary in less than 20 months, we've expanded motives care's total addressable market from approximately $8 billion for any empty alone to more than $80 billion for our full suite of supportive care solutions, we have been very deliberate and strategic in bringing together.
Any empty nutritional meal delivery personal care remote patient monitoring and medication management under 1 roof.
We're working towards the best possible outcomes building, a more seamless network of access to essential services fueled by our technology and making every effort to ensure patients never Miss an opportunity to get the care. They deserve I'd like to send a special thanks to every member of the motive care community of team member.
<unk> transportation providers clients per state and hospital partners, who are helping us to realize our vision and our relentless.
Our about improving patients' lives motive care continues to make a meaningful difference in transforming the way patients connected care and your commitment and dedication make this possible on the regulatory front, we remain encouraged by support from legislative leaders and the Biden and administer.
Ration for home and community based services the.
The recently introduced better care better job Act provides a valuable framework for expanding these services for more than 3.2 million Americans, while helping more than $1.1 million family caregivers returned to work in creating more than a half a million new home.
Our jobs.
This vital investment if passed into law could help seniors and people with disabilities access needed support and put the family caregivers back to work.
Moving onto a few second quarter highlights in the second quarter of 2021, we reported total adjusted EBITDA of approximately $53 million with $43 million coming from our <unk> segment and $10 million coming from our personal care segment. These results were in line.
With our expectations from reflect the current state of the pandemic and its impact on activity across both businesses and Emt trip volume has increased incrementally as we anticipated yet remains below pre pandemic levels, we expect that utilization will steadily increase going forward as the health care environment.
Returns to a more normalized level, while an increase in trip volume will lead to increased cost to service. Our patients motive power is also making excellent progress on our cost reduction initiatives, which we call project storm, we have targeted $50 million of total annualized savings.
<unk> from this program by year end, and we believe we will be able to successfully sustain these savings as utilization returns and our transportation in nutritional food delivery business. We have built a modernized interface for transportation providers and patients that rivals that of Uber or lyft.
This easy to use.
User interface is reducing patients need to call our contact centers, while increasing automation for our transportation providers.
Before turning the call over to Heath I'd like to comment on the recent promotions of Jonathan Bush, The senior Vice President General Counsel, and Secretary and can Shepherd, Vice President Chief Accounting Officer, which we announced last month. We are very excited to promote these talented dedicated professionals to advanced.
Leadership roles with our legal and finance functions and their promotions are a testament to the strong bench of talent and our leadership ranks, both John and Ken have been instrumental members of our team throughout motive cares transformation.
Excellent results oriented track records with that I'd like to turn it over to Heath Sampson, our Chief Financial Officer Heath.
Thanks, Dan starting with our consolidated second quarter financial results, we reported revenue of $474 million adjusted EBITDA of $53 million.
And adjusted net income of $30 million or $2.13 per diluted share.
<unk> segment revenue in the second quarter of 2021 was approximately $365 million compared to $282 million in the prior year period.
The quarter over quarter increase is attributed to incremental revenue of $37 million related to our acquisition of national net trend as well as higher trip volume relative to the second quarter of 2020, which was heavily impacted by COVID-19.
As discussed last quarter, approximately 85% of our revenue is derived from our capitate risk contracts and 15% from non <unk> or non risk, which are primarily fee for services.
Within our capitation contracts full risk, where we have the complete response to delete to manage cost cost regardless of trip volume.
Was 44% of revenue there.
The reconciliation and rebate capitation contracts represented 41% of total revenue.
As a reminder, the reconciliation and rebate contracts have provisions that either cap or increase their revenue based on the trip volume <unk> profit margin receipt through Covid. Our revenue has been primarily capped.
Surface expenses for the <unk> segment, which includes all direct costs related to third party transportation providers and our call center operations and other operational functions increased to $293 million compared to $196 million in the prior year the.
The increase was driven by higher services expense costs associated with higher trip volume and related contact center activity.
We continue to focus our efforts on the specific operating cost reduction benefit of the modernization and automation of our contact center and transportation processes.
Second quarter adjusted.
Adjusted EBITDA was $43 million in 2021.
Sequentially compared to $43 million in Q1, 2021, but down on a year over year basis compared to $62 million due.
Due to the higher service expenses mentioned previously.
Utilization increased its primarily impact our margins on a full risk contract, which again represent 44% of our revenue.
We know our contracts well and they are performing as negotiated with our customers.
We expect utilization to steadily increase throughout 2021 and anticipate that it will be normalized by early to mid 2022.
We are confident that our operational initiatives and platform modernization will support these normalized utilization level and then share our any empty business achieved our adjusted EBITDA margin expectations of 7% to 10% we.
We believe our size and scale, coupled with our modernized low cost low cost platform is a major competitive advantage as Dan said earlier. This modernized platform with over 30 million patients served as a unique sales channel for our other social determinants of health offering.
Turning to our personal care segment, we continued to see strong demand for personal care services across our market.
However, government unemployment incentives as well as lingering COVID-19 concerns resulted in flat revenue of $110 million.
With unemployment incentives expected to normalize later this year, we expect caregiver recruitment to improve in the latter half of 2021 and into 2022, which should also result in accelerated growth in billable hours again, because the demand is there.
Despite the flat revenue in the quarter personal care adjusted EBITDA increased sequentially by 8% to $10 million driven by effective service expense management.
Moving to our.
Balance sheet motive care ended the second quarter with a very strong financial position, including $291 million of cash and cash equivalents as of June 30, and an undrawn $225 million revolver.
Cash flow provided by operations in the second quarter of 2021 with $35 million.
While year to date cash flow from the operations was $169 million.
Motive care's strong year to date cash flow has been driven in part by an increase in our contracts payable, which relate to our customer payments associated with our reconciliation and rebate and E&P contract, which we detailed on our first quarter of 2021 earnings call.
During the quarter mode of care repurchased $25 million of shares under our share repurchase program, bringing our year to date repurchases to $39 million.
We don't anticipate any additional share repurchases for the remainder of the year.
As we shared last week, <unk> announced plans to expand our personal care footprint in the northeast with the acquisition of Kerr Finders total care.
Following the transaction our personal care segment is expected to generate over $650 million of annual revenue, which puts us well on our way to reach our near term goal of generating $1 billion of revenue and $100 million of EBITDA from personal care annually.
The total purchase price of the all cash transaction for care finders is $340 million.
Subject to customary purchase adjustments.
The transaction is expected to generate $34 million in present value of estimated tax attribute bringing the net purchase price to $306 million.
Representing a 10.3 times multiple and trailing pro forma adjusted EBITDA of approximately $30 million, including synergies.
We expect the forward EBITDA multiple to be below 10 times as we anticipate a recovery in EBITDA growth following the negative impact of the government unemployment incentive and COVID-19.
EBIT margin at <unk> are slightly higher than motive cares existing personal care segment based on the differences in reimbursement rates between the state in which <unk> operates relative motives carriers personal care segment.
Including Coeur finders our.
Our pro forma personal care will continue have EBIT margin in line with our long term target of 10% to 12%, albeit at the higher end of this range. We're excited about the acquisition and anticipate we will be immediately accretive to motive care with an initial expectation of mid to high teens, earning accretion.
<unk> in 2022 and beyond.
As Dan previously mentioned, we announced the acquisition of <unk> earlier this week vs.
<unk> is 1 of the top healthcare focus remote monitoring companies in the U S with $56 million of highly recurring revenue the company both attractive EBIT margin in the mid to high 30% range.
Top line is expected to continue to grow in the mid teens over the next several years driven by an attractive pipeline of new business opportunities across both Medicaid and Medicare advantage market.
The total purchase price per <unk> is $315 million subject to customary purchase adjustments in an all cash transaction.
This represents a 15 times multiple to LTM EBITDA of $21 million.
While the forward multiple will likely be a couple of turns lower due to the strong growth expectations.
We believe there are terrific cross selling opportunities from these transactions given the very similar payer mix as nearly 60% of <unk> revenue is from Medicaid with another 25% from Medicare advantage. However, these cross selling benefits were not factored into our base case expectations from VII.
We anticipate both transactions should close prior to the end of the third quarter, we have committed financing of $400 million.
As well as full capacity on our $225 million revolver we.
We expect to put in long term debt financing in place to the closing of prior to the closing of these transactions.
Motives cares pro forma net leverage ratio is currently expected to be in the mid 3 times range.
This is consistent with motive care's net leverage expectation at the time of the simpler acquisition announced in September of 2020.
Since this employer acquisition, we have reduced our net leverage into the 1 times range driven by EBITDA growth and strong cash generation.
Our target leverage ratio remains 3 times.
So we will be focused on using free cash flow generation to pay down debt going forward.
Briefly touching on matrix in which we hold a 43, 6% equity investment major 6 topline continues to be strong in 2021.
For the second quarter of 2021.
Matrix's revenue was $114 million, an increase of 26% from $91 million in the second quarter of 2020.
Matrix reported adjusted EBITDA of $23 million or 20% of revenue compared to $33 million or.
Or 36% of revenue for the second quarter of 2020, Q2.2021, adjusted EBITDA was negatively impacted by matrix is clinical solution business due to a faster than expected vaccine rollout from previous quarters, and the winding down of Covid testing.
This was partially offset by the launch of the clinical trial trials business in October of 2020.
Motive care remains excited about the future opportunities for matrix, and we remain engaged and aligned with our private equity investment partner, we believe that matrix represents substantial hidden values its not reflected in our share price, especially given peer market multiple.
Lastly, as we mentioned last quarter, we expect to provide full year 2022 guidance. During our 2021 year end results call. However, consistent with previous statements. Our long term operating objectives include.
<unk> revenue growth in the mid single digit and adjusted EBIT margin between 7% to 10%.
Personal care revenue growth in the high single digits before acquisition and adjusted EBIT margin of between 10, and 12%, albeit on the higher end following the <unk> acquisition.
This concludes our prepared remarks with that operator, please open the call for questions.
Thank you, we'll now be conducting a question and answer session if you'd like to be placed from the question queue. Please press star 1 on your telephone keypad.
A confirmation tone will indicate your line is in the question queue. You May press star 2 if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing star 1.1 moment. Please pull for questions. Our first question today from you from Bob <unk> from CJS Securities.
There's not a lot.
Good morning, congratulations on a great quarter and execution and certainly all the transformative moves you've announced.
Yeah. Thank you Bob.
A lot of exciting stuff.
Too much to dig into really so I'm going to stick with the core business.
In the quarter for al.
Hey could you starting with any empty could you highlight where you stand I know you kind of reiterated the $50 million run rate savings projects storm by year end can you just dig into that a little give us a sense of the initiatives and the buckets of savings behind that $50 million and then are there additional.
Cost savings behind projects storm as we look forward.
Yes.
It can certainly jump in here too but.
There's really 5 or 6 things that contribute to this.
Bob 1 is.
Is waste and that's really around an eligible riders.
The IV RBA.
We have a goal of getting call containment in the.
The 15% to 30% range.
Cost overrides, which is for all intents and purposes surge pricing and just making sure that we continue to manage that effectively that's something they really stopped doing in 2019.
For example, and then our outsourcing initiatives and we've got I think.
And from a PPO standpoint, we've got approximately 800 people now either onshore or offshore and so we feel and we feel really really good about how we're tracking the first $50 million.
And really feel like those annualized savings will be in <unk>.
At the end of the year and then when it comes to what's next we have a lot. This next Bob I don't know.
There is.
As we continue to go digital we think there are all kinds of opportunities.
Optimize and streamline the way the business is being run in and is there a possibility of another $50 million yes.
And at some point as we I.
I think we mentioned that we called the first initiatives storm.
We're calling the second edition of Lightning and I think we're I think we're bullish about.
The work at the pre work that's been done and what we're what we're starting to execute upon but I think those would be some of the bigger buckets I mean, the other 1 is real estate you could imagine if.
Where we are with that is if we have a workforce.
Less decentralized as it relates to the U S. We're just not going to need as many we're just not going to meet as many facilities.
And I think thats, another big bucket and we continue to make really good progress on that.
Okay, Great that's great and then you highlighted it.
Well ride and can you tell us where you are in terms of the digital rollout and how is this helping your customer experience and maybe how will digitizing. The network help you on your renewals and your new bids in the future.
So a couple of things were at approximately 50% of our networks digitize. So it's massive.
Improvement of where we were in just from August of last year, and we remain on track to be at 90%.
So.
That's.
That's growing unbelievably well and we've got some markets that are at 90%. So for example, Utah is already at 90%. So we feel like we've made enormous progress.
It's something that frankly, almost everybody in the organization is involved with.
At the end of the day, we want to make.
Doing business with us easier.
And whether that's a transportation provider or whether that's a member or whether that's a care coordinator or whether that's a fellow team mate or whether that's a payer state.
Digitized network, just unlocks a lot of.
I think opportunity to improve member experience.
And also customer experience. So we feel like we're making enormous progress as it relates to well ride.
You had asked Walt Meffert, Who's our Chief Information Officer.
Our.
Are we in control of our future and.
Somebody had asked well about a year ago. He goes I'm not certain of that.
With the acquisition of well ride we are absolutely unequivocally in control of our future. We bought the gold standard from from an industry perspective in fact 6 of our competitors use this product. So what does that mean I think what it means Bob is like we're building moats, nor building moats because we.
Personal care, we're building moats, because we've moved into remote monitoring we're building mode, because we unequivocally the best technology in the industry and <unk>.
And we.
We feel like we continue to move from a position of strength.
We've always been as you know Bob always been the biggest.
Havent always been the most sophisticated and most nimble and frankly, we've in many.
Specs all for that.
Yes, Bob a little bit more on that you think you can see the member experience because you guys feel free.
Take a uber or Lyft right you know where your car is the driver knows where you are so thats just wonderful from a from a.
From an experience for the member.
Other items below that just with getting well right in place now we can actually see all of those drivers electronically so that will help.
In routing and automated routing. So do you see those then you know okay I can reroute and this cargoes there. This cargoes the other way the other item as things get automated within that technology. We connect all the eligibility data to that which allows it to happen instantaneously to ensure that that.
Remember can actually take that drive for this type of services. So you can imagine what that does for all of the manual.
This is below and Dan since it's all the time and claims we can reduce the manual nature of that by like 80% and Thats just runs across all our high teens locations. So that's why we've been successful in storm. That's why we feel really successful about lightning and Thats why we really feel good about.
How we can as we move into being the low cost provider with the biggest scale so pretty exciting.
That's great absolutely I'll, just ask 1 more and I'll get back in queue.
As it relates to simpler on personal care, you talked about labor availability and.
And there's also everyone's seeing wage pressures out there as well I think cvs's, maybe the willingness to raise there.
There are minimum wage to $15 an hour.
How may that affect you and are you seeing any reimbursement changes, we're able to get reimbursement changes in those conditions from your key partners, how should we think about labor and wages in that regard.
Well.
I'll speak to.
The states now with care fund as we have are our largest presence.
We just got a $2 rate increase from state of New Jersey.
Announced it in the deal.
Effective July 1.
So.
It's gone from 'twenty to 'twenty 2 so we on an hourly basis. So we feel like we have flexibility there in our New York contract.
Rate increases if wages go up we're already built in so from my perspective, given the markets were in I feel really good about how.
How we are positioned how.
The states are responding to wage if you will wage pressures at least from the markets. We're involved with and so I don't really foresee that.
I don't really foresee that being an issue I think I will say this Bob I mean, I've made this very clear to people.
Internally is that.
I'm, a believer and living wages.
This company has historically wasted a lot of money.
<unk> spent $25 million on on recruiting.
In their contact centers.
<unk>.
You can imagine what it.
What the impact of not having appropriate staff does the things like overtime or what not having appropriate staff does to things like our turnover what it does to things as it relates to temp labor and so again as we build out the scalable model that takes the best from the.
And the best from our business process outsourcing and our best from technology, we're going to be in a really unique position.
Thankfully, it's my goal to.
To achieve a minimum living wage for members of our team and but but but in order to do that we have to get the waste out and we're well from my perspective, we're well on track to do that.
Alright, that's great. Thanks, so much.
Bob Thank you.
Thank you. Your next question today is coming from Brian <unk> from Jefferies. Your line is now live.
Hey, good morning, guys and congrats on the quarter.
I guess, Brian <unk> question, Yes of course, so I guess my first question margin, obviously were strong in the <unk> segment, just trying to figure out.
Look at your business.
<unk> the benefit of the initiatives that you've put in place versus just lower utilization.
And then maybe just Dan anything you can share with us in terms of what youre seeing with the uptick in Covid and a lot of markets just in the last couple of weeks.
<unk> seen any changes in utilization trends.
No.
The interesting thing is and I think this is 1 of the.
Problems that.
Sometimes we get we get focused on is that we do unit varied analysis as it relates to utilization.
And so what are what do I mean by that is that Covid is.
Is multifactorial, so while we may see.
We may see.
Utilization drop were seeing pressures in other areas like unit cost and that has a lot to do with Covid. Because you think we're not doing as much multi loading.
The level of service, sometimes is higher we may be more dependent upon.
On ambulances or other types of vehicles, so I'd be very wary, because when I look at our performance you know what I think about Brian I think about we bought national net trends, sometimes people forget that just how valuable that is been for our company.
Look at where we were through the third quarter of last year. We said, we achieved $17 million of EBITDA. So let's not forget that then we add another $10 million of what we're doing on the personal care side, which as you know.
If utilization of the normalize that number would be significantly higher I also work.
<unk>.
These these initiatives we are driving through price storm are moving through our P&L. So I think that actually at this stage I view, if you're if you're evaluating our performance on utilization, it's a false negative.
We have got so many other things now that are adding to the P&L and adding to our performance as we talked about in my script are his script.
Is that our business is becoming a lot more predictable going forward and it is not so dependent upon utilization. So that's what I would say about those things, yes. The other thing I would add.
Done that.
<unk> utilization is definitely up a lot since last year last quarter, I would say that I can see it and you see it as well we said that and also on top of that point I think we've got a lot better we've done a lot better job on how to manage that in specific markets and you layer on everything else and just talked about we feel good about it so.
Typically utilization has been up over these last couple of weeks with Delta variant too early to tell kind of flat to where it is.
And so as I said in my numbers.
Numbers pre delta that we've seen a steady uptick and we expected and kind of.
Mid to early 2022, we'd be at those normalized levels. The beauty of that we feel good about our numbers and see that so if it doesn't happen it doesn't happen.
Our numbers will be.
Strong as well so.
We've got a good handle on it predictable Delta variant TBD, what it does what it does for us and we've seen some increases in absenteeism, Brian I mean, if you.
Just kind of like we run typically around 15% it's moved to 'twenty.
I think thats for a variety of reasons. So we've.
We see some of that just from a managing our business standpoint.
But he's right we look at utilization every single day and it's.
It's about where it's been.
So I don't we haven't really seen any impact on that at this point in time other than we are.
Some of the issues.
I think we've talked to you guys I mean.
During June of 2020, I mean, we saw absenteeism rocket up to like 40%. So.
We've done this before this is seems to be a lot less impactful this time through.
We again, we feel.
Incredible about where the businesses and the things we're doing in.
Again, I think there's a lot of talk about utilization, but I think.
There is negative aspects of utilization that.
As we get supply back into the system.
Some of the things that have negatively impacted us will go away as well and will show up in the numbers in there, they're not insignificant Brian and so I think that's the only other thing I would say I think the things we are doing.
In terms of acquisitions in terms of driving business performance, we are having a bigger impact now than utilization.
No that makes a lot of sense.
Question on the payable how.
How much I'm not sure if you disclosed that in the prepared remarks payables.
Yes, no I don't think I didn't so it didn't obviously Nikki we're at 296.
Million of the payable.
<unk> <unk> $21 million of receivables that are in our accounts receivable net those together, so thats, where we are from a from a payables perspective.
Thank you Brian.
Hello.
Question is coming from Brooks O'neil from Lake Street Capital. Your line is now live.
For our low Brooks are you on mute, Hey, sorry, sorry, sorry, sorry, guys.
Wrapping on and off the call Im not sure why so if I ask a question that's already been answered just say that and I'll read the transcript, but I.
Yes.
To try to keep it simple my my first.
Question as Keith mentioned, the 3.5 times leverage objective.
I think post the 2 acquisitions and the financing I was just curious if that reflects any assumption related to matrix.
Status of matrix is.
Net.
For you guys.
Yes, so so.
I'll clarify so with after the acquisitions will kind of be at the low 3 times and our goal is always to get to 3 or below in the future.
And then that does not include anything to do with matrix obviously.
Monetization event, a matrix that will be a wonderful opportunity for us to delever well below that that 3 times level goal that we always have.
Perfect. That's very helpful. Then secondly, you guys talked a little bit about labor in the prepared remarks.
Wondering if there's any additional color I see this morning, a pretty strong employment report suggests an unemployment dropping are you guys. Having trouble finding people are you having that thing can you just talk about what's working in terms of finding the right people.
To go into the homes and doing the things you need them to do.
Yes.
I would tell you is that we have.
World Class CEO and the name of Dave Middleton.
And.
We've.
Frankly from a recruiting standpoint.
It's something you have to focus on every day and and we've also.
Momentum of new technology solution that.
That is I think delivering.
A number of candidates to us.
And I don't I would say I don't there isn't a silver bullet here I think the silver Bowl will ultimately will be.
The stimulus drawing up.
And.
And I agree with you I just saw the jobs report here that unemployment new U S. New unemployment rate hits, new pandemic era low so we're seeing improvements in.
And again I think we're I think we're.
1 of the beauties of our business is the fact that.
While utilization has in some shape performed helped us on the transportation side, it's hurt us on the personal care side.
Incredible hedge for us, especially given the size of all of our personal care business with the acquisition of Kerr finders now.
And.
Let's not lose sight of.
That opportunity and so I guess I would say Brooks and noticeable.
I feel good about where we are from a labor perspective.
We've been at a certain number of hours for some period of time, but we are seeing improvements in recruiting we're implementing different technologies I don't think were in the business of offering 500 dollar sign on bonuses like Burger King but.
But again I feel good about.
Where we are I think the other thing I want to point out is like because of all the.
Overlap of our businesses in the in the northeast, particularly with care finders can simpler op. We're.
Kind of the if youre on the AG side.
Or the.
Company of choice and what our aides want is they want predictable hours and when you have 30 to 35 million hours or maybe more post COVID-19.
To be in a really good position to recruit people because.
They're going to they're going to have predictable take home pay and Thats and thats at the end of the day Brooks, that's what they want they want predictable take home pay.
Yes.
Cool and I assume they also won.
A strong employer that treat them fairly and I know you guys are doing that so I'm excited for you im going to leave it at that and circle back around after I've had a chance to read some of the stuff I. Thank you very much. Thank you very much Brooks.
Thank you. Our next question today is coming from Mike <unk> from Barrington Research. Your line is now live.
Good morning, guys.
Questions.
Dan do you have any any quantifiable data on the <unk>.
Impact.
Digital Digitization in the call centers, where you can say hey, yet in this call center, we've seen a reduction of 15% of sort of inbound calls checking on rides.
Have you do you have you seen any data like that are accumulating any data that suggests hey. This is this is working.
Yes, I mean, we track.
For example, where we are from call containment worried about frankly below where we wanted to be but about 8% for example on the IV RBA again.
Beth.
I think best in class is somewhere between 15% and 30% so.
So we still have I think lots of opportunity. The other thing. We're tracking is just flat out how much of our network is digitized we already mentioned to you that we're worried about 50% at this point in time, which is really really really strong number and.
It allows us to lock in a lot of opportunities as he said in terms of just reducing the manual nature of.
Historically this business. So I think those are are ones that I would.
I would.
I would point to the other 1 I'd point to is.
We've got 800 people in our business process outsourcing as well.
And that's a.
That provides us a numerous amount of flexibility provides us significant opportunity to scale and then I think ultimately will allow us to better utilize our resources. So those are the ones that I would.
Call your attention to I don't know Heath, what im missing, yes, so all of those and get to the <unk>.
Wait and look at it $1 then we'll talk about the dollars already but the.
The trip volume that we have.
You have that trip volume relative to the calls coming in the door.
So that is the ultimate 2 metrics to look at and with all the initiatives you have in place is that trip volume going up and that call volume is not going up concurrently that means you're doing the right stuff and that's what's showing up in the data.
Okay fair enough.
Just turning this simpler for a minute, so obviously sort of flat.
Revenue comparisons sequentially in a little bit of uptick in terms of profitability can you just speak to sort of the state of <unk>.
Given given maybe some good news unemployment and all the rest I mean.
Where do you see that business kind of.
Start to lift in your view I mean is it is it start in Q3 the start in Q4 due to the some of this stuff rolling off in September what's what's your expectation I guess from the next couple of quarters on that businesses Steve.
They generally flattish sequentially or do you do you expect a lift here in Q.
Q4, yes.
I'd say, we would see gradual improvement in the third quarter I think.
Again, it's going to a lot of it is going to have to do with.
Whats happening with Covid and obviously.
The stimulus package, but I would see more significant improvement in the fourth quarter and and again I think we'd start seeing things ramp up again in the first quarter and again just keep in mind I mean.
Prior to.
Prior to.
Covid.
The.
The simple our personal care business is tracking at 22 million hours a year. If you look at where we've been kind of run rating right. Now is about $18.7 million and so my point in that is like there is a.
There is a whole bunch of opportunity here, where in terms of where they've been historically, but also just from a demand standpoint demand is well above that 22 million hours and so again I think we're going to be in a really good.
Position, bringing care finders and support together.
We remain extremely bullish on this business.
We talked about.
How important we believe that that personal aid is going to be to our business model in many respects the future of health care. So I guess, that's what I'd say, Mike I feel good.
We're dealing with a lot of same stuff a lot of people are dealing with.
That being said I think we're in a.
That's how I would model it at this point in time.
A couple of couple more I'll make he would do a little work here.
What's your sense in terms of.
You know sort of working capital cash.
Move forward, presumably close these transactions later this quarter.
How are you going to sort of run cash at what level or have you thought of.
A range of level for free.
Cash on the balance sheet.
Moving forward after you close these transactions.
Yes, so as you know we have.
Close to $300 million $290 of cash right now and a revolver at $2.25, undrawn and the ability to grow that.
300, if we wanted to spring the accordion.
And then you know with the prices of the acquisition so using a lot of cash to pay for that which is great. But then.
And then yes, I do think we have some longer term debt that we're going to need in place.
So we will the big driver of the working capital. It is all of those payments.
Conciliation and rebate payments, so we have great insight into when we pay those.
And those a good chunk of them will be paid over the next 12 months from now right.
So.
We have a really good insight into and do that whether or not the payables continue to grow is all going to be based on the assumptions around COVID-19 they have been growing.
Likely going to continue to grow from a utilization fit them all that coming together.
We feel really good about our working capital, we obviously strong balance sheet.
We made these 2 acquisitions our leverage is going to be at that low 3 mid mid to low 3 on a net basis.
And then of course, our focus will be to delever that as we move forward. So.
Okay, so given the payables.
Really it's unlikely you are going up.
In terms of the cash on the balance sheet now, it's not going to be huge difference as you move forward due to the payables I mean does that is that fair.
Well you know, we stay where we are using a lot of cash by these acquisitions right. So the cash is going to go down because we are buying these companies.
But we're going to have adequate cash more than adequate cash to ensure that we continue to invest in operating the business. They also the free cash flow of the business jet.
Yes.
Adjusted EBITDA in our business because of low Capex is a good proxy for free cash flow.
And then lastly.
Last 1 have you have you considered maybe there hasn't been a final decision made but just how youre going to segment out.
I guess that's it.
The 2 new acquisitions and are you going to.
It's going to get busy on your on your a pretzel.
With these new businesses I mean is it may be home care transportation and remote monitoring monitoring or how do you. How are you thinking about that.
Yes, that's a good way to think about it right, we'll be looking at that for sure. This year.
For sure going into next year, we'll have a different view, but youre thinking about the right way, we don't want to get too busy but we also want to provide the right insight. So that's the.
The art.
That that we need to put in place, but that youre thinking about it right. That's the way we have it and when we when we breakout all of that we'll see in some of the stuff that makes a lot of sense you can see the revenue side, but even as important as you know is that the cost side and right now the transportation.
Our P&L is getting unfairly burdened with all the technology investments.
And we've got to break that out and average rising here he is.
Compensation too so there's a lot more to it than just the technology investment. So we will be breaking that out as well. So you can really see the profitability of each of these segments.
And then and then understand whether we're using as growth.
Gross investment as well so.
<unk> story.
Quick quick 1 let me just squeeze within Dan on the on the new vertical and nutrition.
Yeah be broken out separately or would that just sort of be priced inside of the transportation contracts or how.
How should we think about I think what we're going to I think ultimately that would be broken out, but I think initially given it's we're launching it in the next.
<unk> or so we're going to it's going to take some time to ramp that up but ultimately I would envision that we're the way we're thinking about the business as we will have these 4 business units.
We will have because of this ownership of this channel which is just.
Think about what was here when I got here Mike.
The company was managing 25 to 30 million members in.
And had this incredible relationship and channel into.
These populations.
And now I think we're really understanding that was and we own this channel now.
To build out these services and as we've talked about these services are also very complementary to the SMT business, but my point is we will do.
Beauty of it is I guess, where I'm going with all this Mike is that we're going to have a sales team. That's that already owns this channel that is going to be selling these products into these channels and this doesn't this isn't a big team I think we can do it with.
Management, and the 10 person range and our sales team and the 10 person range and and.
Yes.
And again I think my point in all this is that we've thought through the 4 verticals, how we're going to sell in because of the ownership of the channels and then there'll be this back office as Keith talked about the amortization of a lot of the back office functions over the 4 business units.
Very good hey, congrats on all the progress. Thanks, Thank you Mike.
Thank you we reached end of our question and answer session I would like to turn the floor back over to management for any further or closing accounts.
Thank you very much and again, thank you all for participating on the call. This morning, while we won't be on the road for Investor conferences in the near term given COVID-19, we remain accessible for 1 on 1 calls please reach out to our Investor relations.
<unk> firm the equity group, if you're interested in scheduling a follow up call. We look forward to reporting back to you in November when we released our third quarter 2021 financial results stay safe and have a good day.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.