Q2 2022 ModivCare Inc Earnings Call
Good morning, and welcome to the motor Scares second quarter 2022 financial results Conference call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
At that time, if you would like to ask a question you May press star one on your telephone keypad.
And also if you May press star two if you'd like to remove your question from the queue.
Please note this conference call is being recorded.
I'll now turn the call over to Kevin Alex <unk> head of Investor Relations. Mr. <unk> you may now begin.
Good morning, and thank you for joining motive Carey second quarter 2022 earnings conference call and webcast.
With me today is Heath Sampson interim Chief Executive Officer, and Chief Financial Officer before we get started I want to remind everyone that today's call.
Management will make forward looking statements under the private Securities Litigation Reform Act.
These statements involve risks uncertainties and other factors that may cause actual results or events to differ materially from expectations.
Information regarding these factors is contained in today's press release.
And the company's filings with the SEC we.
We will also discuss non-GAAP financial measures to provide additional information to investors.
Definition of these non-GAAP financial measures and reconciliation to the most directly comparable GAAP financial measures is included in our press release and form 8-K.
A replay of this conference call will be available approximately one hour. After today's call concludes and will be posted on our website mode of care Dot Com. This morning, Hugh Sampson will begin with opening remarks, and then he will discuss the details of our second quarter financial results and outlook. Then we will open the call for your questions.
With that I'll turn the call over to Heath. Please go ahead.
Thank you, Kevin and good morning, everyone. Today I'll provide some high level comments on our second quarter results and highlights for our two businesses motive care mobility and home then I will review, our financial results and outlook before we open the call to questions.
Before I review, our financial results I would like to address the announcement, we made earlier this week.
We issued a press release, indicating that Dan Greenleaf is no longer motive Kerr CEO or a member of the board.
Our board of Directors has appointed me as interim CEO .
I appreciate the opportunity to board has provided me and I look forward to serving and leading our nearly 20000 team members that provide essential support of care services to approximately 34 million members.
Been here for a year and a half and I've had the opportunity to lead operations for both segment and help grow the company to where it is today.
I have more conviction about our future now more than ever before and it's because of the tremendous work. The entire organization has accomplished over the last few years.
My conviction is also because we have unique businesses and capabilities that nobody else is combined.
And with disciplined yet innovative execution, we will continue to capture the supportive care market tailwind.
Our business fundamentals financial performance strategic position and our long term growth strategy remains strong.
Turning to our quarterly results, we executed and performed well during the second quarter of 2022, which has led us to raise our full year 'twenty two guidance for both revenue and adjusted EBITDA. Our strong financial results were highlighted with consolidated revenue growth of 32% and adjusted EBITDA.
Of $60 million revenue growth was driven by 23% growth from our mobility or Nonemergency medical transportation business and 48% growth in our personal care business, which is our largest segment and our home business.
Adjusted EBITDA grew 13% in the second quarter compared to last year, which was ahead of our expectations due to favorable any empty contract re pricing and a strong reimbursement environment for our personal care services.
While the macro environment presented challenges with inflation and labor headwinds, we are encouraged by our strong results and our operational performance in this quarter are.
Our recruiting and retention initiatives continue to gain traction and our team, particularly our frontline workers, who serve members everyday are doing a great job managing their inflationary environment.
Motive cares holistic platform of services meet members, where they are bringing them to medical appointments and providing in home services that reduce costs and improve outcomes.
We have developed unique strategies and initiatives that are yielding positive results for our workforce, while managing labor cost pressures.
While we have been increasing wages for our caregivers. These wage increases have been supported by significant reimbursement rate increases in the states, where we operate the demand for our personal care services far outweighs the supply and we continue to make progress in recruiting efforts our entire team from recruiters to caregivers.
And our member care center teammates embodies our unwavering commitment to motive cares purpose with their hard work and dedication I'm humbled and proud to be able to lead this organization.
Yes.
During the second quarter, we completed several important accomplishments, including the.
The acquisition of Guardian medical monitoring, which is a leading provider of remote patient monitoring solutions for approximately 50000 aging and chronically ill patients with $18 million of annual revenue.
<unk> is a perfect fit for our remote patient monitoring business as the company has 100% focused on monitoring for managed care and Medicaid climate similar to our existing business.
This tuck in deal bolsters, our position in several important markets and add several new payers.
Following the acquisition of Guardian, there are very few health care payer focused RPM businesses of scale remaining. So we are excited that we could add guardian to the move to care family.
We hosted our inaugural Investor Day, where we provided guidance for 2022, which we increase this morning.
We are also offered a long term financial outlook that calls for 7% to 10% compounded annual revenue growth and adjusted EBITDA margins of 10%.
By 2025, we expect to achieve $3 billion of revenue and $300 million of adjusted EBITDA.
Lastly, we published our inaugural environmental social and governance or ESG report in early July .
This report highlights the progress motive cares made and it will serve as a foundation as we enhance our ESG capabilities and disclosures over time.
These accomplishments position motive care well for continued growth over the next several years drawing from our multi decade customer relationships. We continue to collaborate with health plans to cross sell and bundle our services to our payer partners, while clients already understand the value of our services individually.
<unk>.
They are now grasping the value proposition of bundling and coordinating these services opening the door for significant partnerships. A recent study published in the American Journal of preventative medicine showed that focusing on one social need alone such as transportation may not solve the patients' underlying set of.
Social needs as patients often present with multiple intertwined social needs that require various interventions.
We're having several meaningful discussions with payers today around bundling, our services and initiating value based care pilots and we expect this momentum to continue to build.
The Medicare advantage opportunity is also significant for our social determinants of health or S. D O H suite of services.
S T O H benefits for MAA has been accelerating since the chronic care act of 2018 allowed for non clinical adoption of supplemental benefits.
As we outlined at our Investor day in June the growth of motive cares non clinical services as supplemental benefits and they may health plans is significantly outpacing the overall growth of our core Ma benefit.
Our suite of <unk> capabilities has the potential to significantly improve chronic disease burden functional limitations loneliness and social isolation.
This allows motive care to meaningfully contribute to health plan performance and help close gaps in care for a payer partner members.
As a reminder, our addressable market opportunity across motive care is over $90 billion today.
Which we expect will grow to $150 billion over the next few years.
As we transform our business, we expect much of our growth opportunity will come from care moving into the home.
Our home division is growing organically through new client growth.
Accelerated caregiver recruiting initiatives in existing markets de novo openings and increasing scale and density.
We expect sales growth from home to accelerate to care coordination and our cross selling efforts as case managers are a common referral across home service offering.
We also expect strong growth from our mobility business.
This market benefits from continued growth in Medicaid and accelerating growth in Medicare advantage enrollment coupled with more plans offering transportation as the supplemental benefits.
Now I'd like to provide an update to our mobility or any empty segment during the quarter or nearly 34 million members took seven 8 million rise we have several ongoing initiatives for our mobility business that will help improve performance, while enhancing the member experience.
Some of these initiatives include.
First establishing business partner relationships with transportation providers.
We will continue to transform relationships with their transportation providers by aligning more closely with them and creating a collaborative model. We believe this will provide more transparency and consistency for their businesses, resulting in better service and lower costs for mode of care.
Second establishing a member care coordination model, we will continue investing and leveraging technology to use data to improve and customize our members' experience.
Since we have developed the best in class nationwide program, we have improved our member care Center service levels from 71%.
Later than 84% and our meeting more than 97% of our customer contracts.
Additionally, we have improved attrition rates by 14% year over year.
Focusing on the member experience enables us to provide a better experience and collect data that we can leverage across our business segments and moved who are providing a holistic experience for all our members.
Lastly, as part of our broader mobility strategy, we will continue to develop on demand multimodal solutions.
We continue to engage members to understand the best transportation modality for them, including mass transit in major metropolitan areas and mileage reimbursement in rural areas.
Okay.
Now I will provide an update on our home segment, which includes personal care services remote patient monitoring and meals.
As many of you saw during the Investor day, we have a deep bench of talent across our leadership team and a strong operations in our home Division with me Hany, the COO of personal care services and Jessica Highlander.
Oh of monitoring and emails.
Our home business continues to perform well and we will see a long runway for growth as care shifts to lower cost settings, and we meet patients where they are.
These are great businesses, and combined with mobility business motive care as the only company of scale with its unique supportive care platform focused on the associate terms of health.
As payers continue to narrow their networks, we are uniquely positioned to be the one stop shop for these supportive care services.
We continue to make progress in our home business here are the highlights.
Personal care recruiting and retention.
Our team continues to do a great job driving initiatives for caregiver growth demand for our services continues to outpace the supply of caregivers, but we are seeing signs that the labor market is improving.
Year to date paycheck can't counts are increasing and overtime continues to decrease due to the talent acquisition teams enhanced recruiting effort. They are doing an outstanding job in a challenging environment.
We also believe the strong reimbursement environment, we see from our state's impairs will help us drive meaningful caregiver growth going forward for example, in New Jersey, one of our largest personal care markets. The state recently increased hourly reimbursement rates by over 22% to $24 50.
On July 1st compared to just $20 in June of 2021.
This increase allows us to pay our caregivers more competitively relative to other industries, which will help drive long term growth for the entire personal care market.
Our personal care business had several strategic advantages compared to the smaller mom and pop providers, including scale density and a community based approach.
In addition, we are centralizing back office functions, such as revenue cycle management, and payroll, which allows our frontline team to spend more time recruiting and providing care and services to members.
Shifting to the remote patient monitoring or RPM business, we continued to gain traction with our E. Three offerings, which is now active with eight new programs.
As a reminder, E three as our member engagement platform that stands for engage educate and empower.
E III dynamically identifies member needs and provides tailored education to drive meaningful outcomes, such as gap closure and cost avoidance is.
E. <unk> also enhances the member experience improves outcomes for select populations and broadens our ability to serve members more holistically.
This service directly helps our payers improve their star ratings.
Our RPM business is unique and differentiated from other monitoring companies since we can leverage our contact centers that have live interactions with our members not only do we provide service to our members when they call for assistance, but we collect data that can be leveraged throughout our supportive care platform.
As we integrate our home business from an infrastructure and operational perspective. This will allow motive care to better coordinate care for our service offerings.
Which we have started to do with cross selling and bundling and value based care efforts.
Lastly, the growth opportunity for home remains encouraging for both an organic and M&A standpoint, we expect our growth to be driven more and more by organic efforts going forward to this end during the second quarter. We opened four de Novo personal care locations and we will continue to open additional locations to.
<unk> strengthened our footprint and leverage our infrastructure.
To conclude my home update it's clear that care continues to shift to the home and motive care supportive care platform is focused on meeting members, where they are there's no question that our home business has a lot of tailwind the demand for our comprehensive offering well outpaced growth in our other businesses.
Over the next few years, which is why we expect home will eventually account for the majority of our business.
Okay.
Now I'll review, our second quarter financial results were.
We reported net service revenue of $628 million, which reflected growth of 32% compared to the prior year period, while net income was $3 3 million or 24 per share.
Adjusted net income for the second quarter was $28 million or $1 99 per diluted share and adjusted EBITDA was $60 million or nine 6% of revenue.
Next I'll review, our business segment financial performance, starting with our non emergency medical Transportation segment, our mobility segment second.
Second quarter any empty revenue increased approximately 23% year over year to approximately $449 million driven by a 14% increase in average monthly members.
A 5% increase in revenue per trip and an 18% increase in trips.
Revenue was favorably impacted by approximately $10 million related to an out of period benefit from favorable contract repricing with several customers during the quarter.
These contracts were finalized during the second quarter. However, we negotiated to have the contracts made retroactive to January one which created this out of period benefit.
Surface expense for the <unk> segment, which includes all direct costs increased 28% year over year in the second quarter of 2000 $22 million to $374 million.
This increase was driven by a nominal increase in utilization and higher service costs associated with an 18% increase in trip volume and a 10% increase in purchase service expense per trip.
On a sequential basis surface expense per trip increased approximately 4% from the first quarter driven by transportation provider rate increases and contract mix.
Surface expense per trip has gradually increased over the last several quarters, primarily due to inflation and driver shortages that said, we think this is a nurse near term peak for cost per trip as we accelerate the rollout of our multi modal and preferred provider initiatives.
In the back half of this year.
This should improve unit economics, while also providing a great experience for our members.
<unk> segment net income was $24 million in the second quarter of 2022, while <unk> adjusted EBITDA was $46 million compared to $48 million in the second quarter of 2021.
The year over year decrease was driven by a $5 million increase in G&A expense relating to investments in our contact centers.
And head count, partially offset by a $3 million increase in gross profit dollars.
The gross profit increase was primarily due to an out of period.
Adjusted EBITDA contribution of approximately $7 million during the second quarter of 2022 related to the favorable contract repricing mentioned earlier.
Adjusted EBIT margin for any empty segment was 10, 3% in the second quarter of 2022.
Compared to the first quarter of 2022.
Adjusted EBIT margins increased 100 basis points sequentially, primarily driven by operating cost leverage.
Turning to our personal care segment revenue in the second quarter of 2022 was $163 million compared to $110 million in the second quarter of 2021.
The increase was primarily driven by $42 $4 million of incremental revenue from the <unk> acquisition, which closed in September of last year and rate increases.
On a sequential basis revenue increased approximately 2%.
Hours during the second quarter increased approximately 3% sequentially.
<unk> remains stable and have gradually improved due to our team's recruiting efforts and increased service levels.
Personal care service extent per hour, primarily representing caregiver wage expense decreased 1% sequentially as we have increased wages earlier this year and our recruiting and retention efforts have helped reduce overtime.
Our personal care business continues to move in the right direction.
Yeah.
Personal care segment net income increased to $4 million personal care segment. Adjusted EBITDA was approximately $18 million in the second quarter of 2022 compared to $10 million from the prior year period.
Adjusted EBIT margins were 11%, which was about 200 basis points higher than the second quarter of 2021, and 60 basis point improvement sequentially attributable.
Attributable to slightly lower service expense and G&A expenses.
Moving down to the remote patient monitoring or RPM segment revenue was $17 million, which included $2 $6 million of contribution from the Guardian medical monitoring of the acquisition in mid May.
RPM revenue increased approximately 21% sequentially from the first quarter driven by increased active clients and the Guardian acquisition.
Partially offset by lower revenue per member due to nationally exclusive large commercial payer contract.
Yeah.
RPM segment net income driven by acquisition intangible asset asset amortization was $475000 in the second quarter. Adjusted EBITDA was approximately $6 million in the second quarter and adjusted EBITDA margins were in line with expectations at 33.
6%.
Consolidated cash flow from operations in the second quarter of 2022.
Was a use of $18 million due to payments on our contracts payable and changes in working capital.
As I have mentioned over the last few quarters, we expect to repay approximately $100 million to a $150 million of contract payables. This year. These.
These payables, primarily relate to overpayments in liability reserves on certain of our contracts in the <unk> segment.
The contracts payable balance declined by $34 million during the second quarter due to several large payments.
We also experienced an $18 million increase in reconciliation contracts receivable during the quarter related to underpayments and contracts receivables from our customers.
Excluding the combined negative impact of $52 million for the quarter, our cash flow from our core business continues to be very strong.
For the remainder of 2022, we expect contracts payable to be $75 million to $125 million use of cash.
We ended the second quarter of 2022 with $88 million of cash and cash equivalents and had no amounts drawn on our $325 million revolving credit facility.
Our principal debt balance was flat sequentially at $1 billion and our consolidated pro forma net leverage ratio was three nine times as of June 32022, due to the acquisition of our Guardian with our cash on hand, and the repayment of our contracts payable mentioned earlier.
While our leverage will fluctuate quarter to quarter, we are committed to deleveraging and affirm our target net leverage leverage ratio of three times.
It's important to remember that our current debt structure has 100% fixed rates. So we are less impacted by the rising interest rate environment.
We are committed to a disciplined and balanced capital allocation strategy.
Before we open the call to questions I want to update you regarding our 2022 full year guidance, how business is trending in our long term expectations.
We are increasing our 2022 guidance for revenue and adjusted EBITDA due to the strong second quarter results for the year. We now expect revenue to be in a range of 2.3 dollars 75 to $2 4 billion compared to the prior range of 2.352 to three years.
Seven 5 billion.
We now expect adjusted EBITDA to be in a range of 210.
To $220 million.
Compared to our prior range of $203 million to $213 million.
Our updated guidance includes the benefit to revenue and adjusted EBITDA from the favorable repricing on several <unk> contracts that I mentioned earlier.
Given the strength in membership growth we have seen during the first half of the year, we expect any empty revenue growth in the low double digits for the year, while any empty adjusted EBITDA margins are expected to be towards the lower end of our long term range of 9% to 12% due to higher purchase services per trip.
For our personal care segment, we expect revenue growth in the mid single digits for 2022 on a pro forma basis, and we expect adjusted EBITDA margin will be near the midpoint of our long term range of 10% to 12% as.
As we mentioned at our Investor Day, we expect personal care revenue growth will accelerate to the high single digits through 2025, and adjusted EBITDA margin will be in the range of 10% to 12%.
Lastly, we expect remote patient monitoring growth in the low teens. This year on a pro forma basis for the acquisition of Eri with adjusted EBIT margins in the low to mid 30% range.
Our 2025 targets for RPM remained unchanged at 14% to 16% revenue growth and 34% to 36% adjusted EBITDA margins.
Okay.
Looking to the second half of 2022, we expect personal care and remote patient monitoring revenue and adjusted EBITDA will continue to grow sequentially.
However, we expect any empty revenue and adjusted EBITDA will be more in line. Our first quarter of 2022 results due to the other peers benefits, we recognized in the second quarter related to favorable contract pricing.
We remain very excited about our long term outlook and the tailwind for our business as we execute our strategy to be the nation, leading integrated supportive care provider.
We are setting the foundation for our platform to generate strong growth over the long term as we provide the full breadth of services to our members and our payer partners I want to thank the entire team at motive care for their hard work and dedication.
This concludes our prepared remarks, operator, please open the call for questions.
Okay.
Again at this time, we'll be conducting a question and answer session.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the questions.
You May press Star two if you would like to remove your question from the queue.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
And our first question comes from the line of Brian .
With Jefferies. Please proceed with your question.
Hey, good morning, guys congrats on the quarter.
He I figured just to address that.
Departure here I figured there's not much you can say, but maybe as I think about where are you and the board the corporate strategy right now and where the best So maybe you can just.
Share with US you know the thoughts on that and the execution that is remaining as it relates to the different assets that you've acquired over the last few quarters I got it.
And what what is needed to get through this strategy goals that the board's it's that even prior to Dan's departure.
Yeah, Hey, good morning, Brian .
The board was which our board meeting a few days ago and it's just confirmation on the strategy that we've laid out over the last couple of quarters. You know the last couple of years, making these acquisitions have really enabled us now to have a unique set of assets that allow us to be really the only supportive care company that has this stuff so the strategy.
<unk> is consistent with what it's been in the past and as we've talked about every quarter now it's about executing how do we bring these assets together all the way from what we do on the back office side to what do we do more importantly on the on the revenue side and how we're bringing all of our our sales and account management together and really having that.
One point into our customer so really the strategy to say now it's about execution. We've made a lot of hires there is a lot of great talent in.
A lot of the talent that many of you saw at our Investor day are out there executing every day so.
We have like I said on the call and consistent with what <unk> said in the past and this has been reiterated by the board over these last couple of days, our strategy to stay and continue to execute so.
It's really it's business as usual for us Brian .
No I appreciate that and then I guess, just shifting gears to operations I'll start with the personal care side of the business maybe it sounds like it's picking up and you expect will things et Saturday in the back of that but any color or any quantification you can share with us in terms of recruitment and the orders or the demand that you're getting from this.
State plans.
For personal care services.
Yes, the demand has been consistent so anywhere from 10% to 30% more demand than what actually we can sell so that is the same across the across all of our markets. The demand is there and we have increased hours, but really we're still we're still.
More incremental.
A lot of that has to do with just the labor market in general the strategy that we've started to implement are taking hold but really in the latter part of this year is when they when we expect them to really.
<unk> benefits a lot of that is because we have the scale and density and because of.
The personnel that have been in that leadership role, it's just starting to starting to take hold so we're really optimistic about how the latter part of the year.
Comes into play.
In addition.
Because of the scale and density that we have we're able to centralize a lot of the back office procedures to free up the people in the markets in the local communities that can really focus on recruiting and servicing the members. So really excited about what we're doing in the personal care side.
And again, I expect that acceleration and really growth in hours to happen in the upcoming quarters.
Got you last question from me Heath, so on the transport side.
Obviously, you're raising guidance here, so just want to hear how you're thinking about where the recovery in utilization and what's embedded in the guidance and where you see that eventually normalizing maybe save versus pre COVID-19 levels, yes.
So the good thing that from our Investor day, and now even in our information that we provided in the back pages, we fully disclose a lot of these metrics typically utilization you can see utilization has ticked up year over year.
And really when you get into that it's actually in our kind of core Medicaid that's up even a little bit higher it doesn't seem as high because of our mix change and really the growth in our Medicare business. So it has been growing.
As we disclosed during our Investor day, we expect that to grow to about 10% to 11% range. So and that's that will be back to what we think is the normal levels that is lower than the pre COVID-19 levels and we talked about this before theres a lot of things that have changed whether the the.
<unk> itself because of telehealth to contract mix so.
Consistent with what we said before we think it will incrementally get up to those levels over the next number of years.
And we will be able to manage through that with all the initiatives. We have in addition to the pricing changes that we were able to make with all of our customers. So the conviction we have around that 9% to 12% EBITDA margin holds even at that elevated level when we get back to that 10% utilization range that we expect.
Over the next couple of years.
Awesome, Thanks, and good luck.
Thanks, Brad.
Okay.
Our next question comes from the line of Bob <unk>.
C. G CJS Securities. Please proceed with your question.
Good morning, and congratulations on the strong quarter and on your new title. He's although we hope the interim goes away.
I appreciate that.
Absolutely yeah. So I wanted to start you know obviously as we said very strong performance the biggest delta versus our expectations was in any empty you addressed a little bit of some retro but.
Even with the retro pay there was strong sequential growth in members by the way I love the new metrics I'm still trying to get through all of them, but the sequential growth in members and revenue in general even beyond the the retro pay was greater than we would've expected. So maybe give us a sense of what's going on with the kind of.
Member growth, there and and then in general the competitive marketplace.
Two part question.
And new bids and opportunities to grow members further.
Yeah, well the team is still.
And the retention side and the growth side are doing a great job.
Consistently.
Retaining business.
The winning US business is primarily on our current clients, adding more members and a lot of that additional members that have come in is primarily on the Medicare side.
A large chunk of growth there. So it's a great job by our team retaining and then adding incremental revenue there hasn't been any large there's been a few wins that we've had that have come on but most of those wins are going to affect us from a from a large perspective into 2023. In addition, and this relates to the.
Out of period.
We are very close to our clients and as we're moving through what has changed you know costs are up and you can see that in our metrics and we are appropriately getting the pricing change to reflect that increase in cost and also reflects the services that we provide so it's a lot of things. It's the great work that we've done to get <unk>.
Contract repriced.
The account management and efforts that we have by our operations team to ensure that we are picking people up on top which is allowing us to to to renew our customers and then it's just the disciplined operating discipline that the company has.
Coupled with all the initiatives over the last couple of years, primarily in our contact center. It is allowing us to make sure that we keep costs down even though volume in trips go up.
Yeah.
Okay, Great no that's super helpful.
I guess, just one more broad question and I'll jump back into you. There's just so many things.
Things going on.
So yeah.
Addressing your management team, obviously as you said we met a.
A tremendous number of folks and I'm very strong and talented management team at the analyst day.
We look forward over the next you know.
Quarters and years, what are the areas of need that youre looking to do to add to the team as it currently is constituted.
Yeah Yeah.
At the Investor day here around the table when I leave this conference call and start work across board, we have talent across the country. In every in every section of our business all the way from leadership down to the people that give services into the home or drive the car. So, but we're fortunate to have a great team and there's a lot to <unk>.
Leverage if you think about even over the last couple of years Theres been talented of it has been added to fill where we are whether that's sales and account management.
Two technical skills to build the platform. We have those we will continue to be needed. In addition, and we've talked about this a lot as we start bringing these assets together, we're going to need more technology, and we're going to need the capabilities to use. This data. So that's that's what we're continue to add there and then just in general challenge.
Is everything.
So we executive talent, all the way down to middle management and below so the board is committed to ensuring that we attract and get the right talent in place.
The home business, we have great talent, there, but we know we also need some some additional executive talent to ensure we continue to grow that and also help lead the great. The great leaders there in each of those markets. So it's a bit of a generic question, but at the same time, we are aware of what we need to do strategically going forward and thats.
Primarily around data and technology and those would be the talent that we continue to add.
Okay Super congratulations thanks.
Thanks.
Our next question comes from the line of Scott Fidel with Stephens Inc. Please proceed with your question.
Hi, Thanks, and good morning.
First question I. Appreciate the details you guys provided just start it out walk in and some of it within the segments just interested thinking about the back half of the year and clearly understanding.
Sort of mean reversion.
And any empty around the out of period benefit in <unk> just any other.
Seasonal you want to call out for us across the state.
Or how we should be thinking about.
EBITDA split between three and four can you I understand you don't provide quarterly guidance, but just any call outs on anything unique in either of the quarters.
Yeah, No hey, nice Im glad youre able to join in and thanks for starting coverage with US we really appreciate it.
Look forward to working with you Youre right up in your understanding of our business is tremendous so look forward to working with you. So as we talked about our.
An interesting couple of days already.
No.
It sure has been a very key.
You bet your timing was interesting but anyway.
And the questions around like one point, but the.
As I said in the in the in the prepared remarks, the second half.
Really if you normalize that the second quarter and really take take take half of that amount that's increased and push it to the first quarter were really kind of consistent on Q3, and Q4 from that kind of normalized Q1 run rate. So there is some seasonality in our business you know.
Especially on the on.
On the transportation side, but really it's not that.
Material, so think about being relatively ratable for the rest of the year for both Q3 and Q4 from a from an ending kind of EBITDA for each quarter.
Okay got it.
Question, just you guys really haven't been talking about as much recently, but just interested if you could give us an update on matrix and how that's been performing recently and how you're thinking about the value of that investment at this point.
Yes so.
So matrix in the core business the risk the risk assessment business is starting to perform like it performed in the past. The management team has just been solidified there recently, so that has been the focus and they have been growing there.
And really these next couple of quarters I expect them to grow like like many people that are in the clinical side and specifically higher nurses, that's the challenge right.
So the team that's been put in place the initiatives that they have around retention and recruiting.
Really strong and they're just starting to take hold so I expect that risk adjustment business to continue to grow and do well because as you know there. There's a couple of players there than signify and theyre getting the market shares are strong growth within our MAA. So I'm really encouraged about that the other businesses that have.
<unk> performed well during COVID-19.
Have not performed like we expected them to perform so we're really assessing what is the right thing to do there.
And these next couple of quarters, we'll know if there is growth opportunity are there or not regardless, even without the COVID-19 related businesses that business is going to continue to grow and we are aligned with Frazier support the management team and there will be some some monetization or exit unlikely.
Of anything.
<unk> and 'twenty three maybe the latter part of 'twenty, three but probably after that so we're both patient and we both know that theres value there and there will be a monetization sometime over the next few years.
Got it and just one last one for me if you could give us on how much of the impact of fine jewelry, so far through the year and what you're expecting for the balance of the year and then just remind us with your accounting convention or you're just flowing those through the balance sheet.
And non accruing those revenues or those flowing through the revenues as well.
Yeah. So you cut out I didn't hear from main core of your question. What what was the question sure can you hear me Okay right now, yes, now we can yes.
Okay to ask you about the enhanced ARPA bonds for personal care.
How much you've recorded year to date and what you're expecting over the remainder of the year and then what the accounting convention you're using for those.
Sort of.
Sort of more one time ish shop, well funds that have been coming through.
Yeah, so the ARPA funds for.
It's in our grant income line and for the three months of 2022 is just over $3 million and as you know those ARPA funds depend on what state. It's in with the amounts are and we use them for different things.
So it really depends on.
What we're using for in each state will depend on how we actually account for them, but in general they come in as soon as they come and they go into the grant income line and then we use them for whatever.
Using four whether that's paid caregivers or have COVID-19 costs, whatever that may be so.
It's about $3 million each quarter that it's been and we expect that we will see what happens in the future, but that's how they come into the fee income and then when we use them.
Just go against the expenses in that specific category, depending on again what were using before.
Okay got it thank you.
Okay.
Our next question comes from the line of Brooks O'neil with Lake Street Capital markets. Please proceed with your question.
Good morning, guys can you hear me, okay, Yeah, good morning, Brooks, yet very well.
Gradually ease.
I'm excited for you.
I'm sure you that.
Willing to say much about the changes.
Then Bob band, but can you just comment a little bit about the reaction of the leadership group you have to change it.
How you see that impacting anyone besides yourself.
The organization.
Yeah.
When these changes happened right there is.
There are people involved and there's a lot of emotion and but really all professionals here.
And these professionals individually process and to achieve now everyone's focus in on what they can do to help the company continue to grow.
And I'm proud of the team that there were able to do that and now the focus is really on what do we do to help.
Our company grow and help our frontline employees and serve serve our members. So they've been professional processed and are now moving forward.
Hello.
Following on with Scott's last question I'm, just curious obviously.
The county for the cap repeated contracts you have is complicated and can you just talk just refresh our memory about revenue recognition in the camp of TD business in particular.
But in those periods, where utilization was much lower than normal I guess I'd call. It and then.
The status of the repayment.
Did you have on that.
Those contracts be helpful. Just run through quickly.
Yeah, well the complication is still the same that it's been since I've been here, but the other good side of it it's really been consistent.
Hum.
Bit of a.
Three to four 5% kind of swing between the different types of contracts, but in general it's been the same and so generally again, we have about 85% of our contracts or capitate in about 15% of art and then within that 85%.
About half of those are full risk, where we take the full risk on.
On the transportation and the other half have this mix and this is where the the complication comes in whether Theres a color around how much we can make or theres a reconciliations between how much we utilize or how much we spend so that's where the the complication comes in in that.
The other half of that 85%, but in general the P&L has is consistent.
Where the where the where the the.
The differences have come over the years, specifically through Covid and it's even continuing now will accrue we get paid on that per member per month and.
And even though we won't recognize we won't get the P&L impact it'll get put on the balance sheet and that again goes into that contracts payable amount.
And that contracts payable amount is basically flat quarter over quarter, and a $280 ish million dollars. So what that's telling you is that for those specific contracts. We are still not utilizing like maybe we expect it to but as.
As we said many of those we pay back every quarter or every six months.
And some of those a little bit longer. So so that's the macro way, how we are accounting and again P&L. The same and then we get the cash coming in the door and then we pay back that cash, but like I said and with what we've disclosed.
We've said, we're about $100 million to $150 million that we expect to pay and we said this last quarter and and we've paid.
Net around 50 million.
This quarter. So that's why we took down that that guidance by $50 million reached the top end and the and the bottom end, so pretty consistent with whats been in the past the growth in the.
Contracts payable is consistent in the past based on where the utilization is so the other item and this is probably more important the way. These contracts have been put together even through COVID-19 and even today, we are consistently renewing them.
And in many cases.
Renewing them at higher prices to match the higher costs.
No.
That's the beauty of how we've been operating and how strong our relationships is to ensure that our our business is performing and our and our margins and sticking to that 9% to 10% EBITDA margin.
It's holding for us on the <unk> side.
Ito was tremendous and I really appreciate the fact that you went through it and made it understandable even for non accountant. So thanks a lot.
Yeah.
Let me just move on.
I'm, particularly.
Yeah.
Two things that yet.
As you think about the future one is.
The growth of your Medicare advantage.
Population.
She served in particular with the National and Superregional managed care organizations.
And then I think.
Related to that in some way.
How you think about bundling the services you offer I can see the overlap.
In the business is and what you do for customers I'm, just trying to understand how particularly the new business alignment that you put in play.
With the homecare, the transportation and separate units.
Bundling.
Right.
To look going forward.
Yeah. So so just just macro we know how MAA is growing every year and we know that our services that we have.
Those are large growth all the way from whether 20%, even 40% 50% growth on the supplemental benefits that we have and the areas. We have so MAA for US is a major focus and it's been a large part of our growth like I said before primarily in the transportation.
<unk> side, we expect that growth to continue across all our business lines.
The personal care side has primarily been in the Medicaid side and still a lot of growth there like I talked about before because we're not even meeting the demand there, but on the MA side with remote monitoring and.
And transportation, there's a lot of opportunity most of the growth that's happened on the MA side has been with our our core customers.
Our core customers are large big six are also the large.
Providers, we are just really at the beginning stages of selling beyond those big six we have a great breadth.
That's come in with a great team. So really now I view, they view and we view that as an opportunity to expand even beyond our current customers on the Ma side.
Point solution growth and MAA lots of opportunity. Your second part of your question is and this is really where we actually get more sticky as well as when we bring them together and we bundle them together, we're seeing a lot of the bundling and cross selling right now on the remote monitoring side.
The and primarily we talked about this the E. Three solution a lot of interest from our.
From our current customers on expanding that.
There's direct and we've talked about this at the at the Investor Day and also in the script the direct benefit to outcomes and E. Three is really gaining traction.
And we're starting to cross sell there and with the team that <unk> put in place I expect that cross selling and bundling to accelerate.
Each quarter and then lastly, as we move through this and we are doing pilots right. Now is the eventual value based care and I say that that's a really critical part of our strategy as we move in but not necessary for our near term growth our near term growth as point solutions.
Ross selling and bundling so that gives us the time to ensure that we are partnering with our payers and building the right platform and eventually we'll get the stickiness and growth of value based care in the years to come.
That's great and then my last one since you mentioned it is actually is the topic of my question is can you just give us a little color of whats your value based care offering looks like and how.
Now that.
How that might work for for the providers and payers that you you're trialing it with.
Yeah. So so if you look across all of our business lines and there are many studies just said, we don't even do and I alluded to in my script, but theres, even more around that.
Each of these supportive care services are keeping people healthier and out of the hospital.
So really now it's collecting data on all of that and comparing that to.
Control groups that don't have that so we start measuring that actually yeah, theres. Some we're changing outcomes and lowering costs. So those are the pilots that are starting it's primarily in the home business right now that those pilots are starting and we.
We will collect that data with partnerships on our payers in specific states.
And eventually from there will start contracting in that way, where we we start sharing some of the savings.
That are coming through these control groups and then we'll add on transportation and eventually when we have the right data and everyone's comfortable with that we'll be able to start sharing risk in that across all of our services.
Great. Thanks, a lot I'm looking forward to the future, yes, I really appreciate it Brooks thanks, a bunch.
Our next question comes from the line of Peter Chickering with Deutsche Bank. Please proceed with your question.
Hi, there this is Kieran Ryan on for Peter Thanks for taking the question.
I just wanted to start off on any M. T gross margins looking into the second half do you think that these transportation issue initiatives that you're about to start rolling out and the improved nutrition trends can offset.
Wage pressure and then higher utilization in the back half to keep gross margins about flat with the first half.
Yes, so you could see in the stats that and I'll start with the with the wage side and really for the last three quarters.
Consistent with everything that's happening across the globe and specifically even in the U S. There has been the inflation and wage pressures and you see that you see that in our staff.
Likely you were hitting the peak on the wage.
The wage pressures in there and then the initiatives that we have primarily that are in our multimodal strategy.
Those will take hold and hopefully bring those down we expect in the numbers that we've given in the guidance. We've given we don't expect material decrease in that.
For $2000 for the rest of the year, so very comfortable with with the guidance we've.
We have given on on that side, and then utilization, we expect that nominal uptick to continue for the rest of this year. So long story short basically the margins are relatively consistent for Q3 and Q4.
The changes that will come in utilization, which will continue to happen will be offset by these strategies that were articulated on the mobility side again, primarily the multimodal, but also the partnership model that really ensures that our transportation providers are making.
The right level of money getting the consistent volume and then we ourselves will ensure that we get the right quality at a lower price. So all of those together, we feel really confident in our ability to to offset any increases in utilization that we expect over the couple of years, it's real we see it happening.
Great.
The team is just in California meeting with a lot of our top TPS and.
And going through these initiatives and ensuring that we are putting pen to paper and executing on these so I'm really I'm really confident that we'll be able to do that.
Over the next number of quarters and years.
That's helpful. Thank you.
Quick follow up.
Sticking with an E&P, but looking into 2023 I was wondering if you could just talk a little bit about what needs to happen to hit the midpoint of the G&A guidance for which I believe is sick.
Kevin.
<unk> of revenue in 2023 and algorithm how much is that driven by top line performance versus the direction of cost inflation from here. Thank.
Thank you yeah. So.
We are really now going to get leverage out of our current cost structure. So.
Juruti of that.
March G&A will be flat and were started getting growth on the revenue side. So we'll start getting leverage so that's the right way to think about it we've made the necessary investments there'll be some resource allocation that happens that's a bit different but we have the talent. We have the people we've made the necessary investments on the technology side and the <unk>.
Now, we're going to get leverage and scale out of that as the quarters and years go by.
Thanks, a lot.
And again as a quick reminder, if anyone has any questions that you May press star one to join in the Q&A queue.
Our next question comes from the line of Mike <unk> with Barrington Research. Please proceed with your question.
Hey, good morning, a couple of questions.
So brooks sort of got into some of this but I wanted to try to drill drill drill down a little bit in terms of the bundling coordinated coordination of services et cetera, and pilots that maybe going on I mean could you get a little specific in terms of how many pilot pilots, maybe going on and with whom I mean are these.
Larger M a organizations I mean.
You know length of time of these pilots I'm I'm, just curious where where this really is I mean it was in the first one.
Third inning is it.
Pregame.
Yes, so I did use your baseball analogy, it's really the first inning still and there are really two there.
There are really two different kinds, though so the one that we are really getting a lot of traction on and it wouldn't be as holistic as articulated to broker a few minutes ago is really in the <unk> side. There is a lot of those that are currently happening so call it kind of pseudo point solution, but.
Also bundling and data collection, that's happening on there and there's a there's a number of those happening in a number of those in the pipeline. So EBIT I'm even more encouraged.
Above my expectations on how those are are currently going on and the demand for those the other more holistic ones. Those are the ones. We're more in the first inning on and we're in the planning stages, where were beyond planning stages, but we're in the early execution of that.
And I'll say this again right that that.
Side of.
Moving to value based care.
Even beyond bundling unbundling would be we could do bundling just by <unk>.
Doing contracts together and that's really important as well so I don't want to minimize that because the payers do want things bundled just from the efficiency.
And I'll get into a little bit more of that in a second.
But the value based care, we gotta be rightfully, so deliberate and plan with our with our payers there and the numbers that we've guided for even.
2025 to three and three really doesn't have value based care in there. So.
Execution coordination.
At the point of sale, assuming leveraging their relationships cross selling and bundling is the priority.
And then again value based care.
You had will continue later on those and I expect that to come in over the next couple of years.
The other thing on on.
Cross selling slash bundling.
And we have we're really just starting this as well as leveraging that K expenditure.
To ensure that we can properly have that case manager understand that we have all the services.
And that is that is really at the beginning stages of that.
And I expect that to happen and really get some traction on that probably the latter part of this year.
And then that would be a big part of our growth and efficiency and alignment with our customers into 2023.
Moving on to transportation.
Any update on in terms of our contracts.
Contracts are sort of out there, but I expect it to be decided maybe over the next.
Several months between now and the beginning of 'twenty three or any any update on on how much business. There is out there that you think will be won or lost.
We're in the hunt for over the next several months.
Yeah.
Feel like a broken record on this over the last couple of quarters.
Because we've been expecting large awards to happen. These last couple of quarters, but unfortunately there.
Have not been awarded were in the process of working through some of those big ones.
And Theres a lot of information below that how that's happening and what our expectations are so.
When those contracts are done and the final award is is given we will update I do expect.
Over the next couple of months that some of these larger contracts, we will be able to give you some more definitive information on whether or not we have one those new contracts or not the contracts that we have had that we have and are up for bid as well as those have also not been through the process either.
Again, I feel really good about keeping those but I also can't right now say that we're through that as well so.
Same story that I had last time were optimistic.
We will win more than our fair share retained more than our fair share. So as those final decisions get made over the next number of months, we'll update you.
My last one sort of sticking with transportation you guys alluded to New Jersey, and I think and possibly some other places where.
States have worked with you guys on.
The inflation labor wage challenges I guess.
Mike Mike My question is you know across.
Your your book your book of business. I mean is that are those conversations happening with every single customer and if they are I mean, where where do we stand on that like are you getting the adjustments you need or are we going to be looking you know a year or two from now or maybe even less than a year from now at <unk>.
Sort of a you know a bunch of contracts that really haven't been adjusted to reflect the cost that you're having to sort of.
Thanks.
Every single customer and we're having those discussions on.
And then.
To date, everyone that changed we've been getting the necessary increases.
Contracts that over the last couple of years that were not as profitable as they needed to be they are now profitable. Some of the ones that were maybe more rich are now kind of less rich. So really it's been it's been consistent and thanks to the again the great teams that we have here working.
With our customers and showing the data so so we're.
We're well along that journey, where are we all the big ones and all the ones that.
<unk> had been finished I expect that to continue.
Every year, we have something coming up but the big ones.
And the majority of ones.
Has been repriced.
Over the last call it.
Eight to nine months long story short because of our performance because of our relationships because we.
It's the right thing to do to make a 10% margin to ensure that we properly invest and pick people up on time I'm confident that we'll be able to continue with those contract negotiations.
To ensure that those margins are maintained.
Very good thanks, so much.
Really nice quarter. Thanks.
And we have reached the end of the question and answer.
Now I'll turn the floor back over to Heath Sampson for closing remarks.
Well. Thank you I want to thank you all for participating in our call. This morning and for your interest in our company. If you have any more questions or want to schedule and a follow up call. Please contact Kevin knowledge, our head of Investor Relations.
Look forward to speaking with many of you over the coming days weeks and months before we report our third quarter results here in November so thanks to all of the the team members our customers our clients and thanks to all of you operator. This concludes our call.
Yes.
Indeed concludes our conference and you may disconnect your lines.
Thank you for your participation.
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