Q3 2022 ModivCare Inc Earnings Call
Good morning, and welcome to motive Care's third quarter 2022 financial results conference call. At this time, all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation at that time to ask a question. Please press star one on your telephone keypad. Please note. This conference call is being recorded I will now turn the call over to Kevin Elledge head of Investor Relations. Mr. Elledge, you may begin.
Good morning, and thank you for joining motive carriers third quarter 2022 earnings conference call and webcast with me today is Heath Sampson Motor carriers, President Chief Executive Officer, and Chief Financial Officer before we get started I want to remind everyone that during 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 in the company's filings with the SEC.
We will also discuss non-GAAP financial measures to provide additional information to investors.
<unk> of these non-GAAP financial measures and a 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 motive care dot com.
This morning, she Samsung will begin with opening remarks, and then he will discuss our third quarter financial results and updated outlook.
After she is prepared comments, we will open the call for your questions with that I'll turn the call over to Heath. Please go ahead.
Kevin and good morning, everyone I want to welcome everyone to our third quarter 2022 earnings call. This morning, I will review, our third quarter results and provide an update on our operations and growth strategy.
Then when we open the call to questions.
Before I review, our third quarter results I want to thank our team members, especially the field personnel that serve our members and customers every day.
I am grateful and honored to lead this uniquely position supportive care company as we address the social determinants of health for the nation's most vulnerable population and we are excited about the integral role we play in the U S health care system.
[noise] motive carriers build a platform to scale to provide the first mile preventative supportive care that is necessary to improve clinical outcomes at a lower cost of care.
Our vision strategy and suite of supportive care solution positions us well.
We are in leading market share positions for each of our segments more point solutions, including mobility.
Personal care and remote patient monitoring and we are committed to providing the highest quality and best in class member experience and the most cost efficient manner.
This alone provides value to our payer partners reduces cost of care and improve outcomes for members as well as drive sustainable shareholder value.
We also believe there's exponential value that will be unlocked by collecting synthesizing the operationalize <unk> historically elusive data in the first mile of care across all our point solutions.
Unifying and integrating our suite of solutions will lead to incremental savings for payers improved outcomes and provide valuable data and insights at the member level to support value based care.
This is underpinned by a culture of one member one customer.
All motive care teammates regardless of point solution are positioning the company impacts every single member and customer.
Over the last few months, we have focused our priorities and visited many of our teammates and market leaders across the country.
Our team has been listening and challenging each other to ensure we establish an operating structure in which teammates are empowered to achieve results for our members customers and shareholders as.
As we say no mission without margin and no margin without mission.
In addition to serving our members and customers every day, we are focused on the following priorities over the next 90 days.
First solidifying our high performing executive leadership team, which includes finding my successor as CFO .
Second realigning and reallocating certain resources to drive efficiencies and operating leverage while freeing up teammates are so they can continue to improve the member and customer experience and drive organic growth.
Third implementing a disciplined operating model with clear objectives and metrics along with our system of communication and engagement that fosters a culture of compassion for our members customers and teammates along with high expectations for near term performance.
Builds long term value again, there is no margin without mission and no mission without margin.
And lastly, establishing focused roadmaps for processing technology that align with our one member one customer approach.
Our processes and technology will be developed to enable our point solutions to provide a tailored member experience.
Additionally, without distraction to our point solutions, we will align resources appropriately and build capabilities to cross sell our point solutions and progress our bundling and value based care strategy.
Again, I'm very excited about our competitive position and market tailwind.
Our diversified business currently generates durable results.
Now, it's all about execution in order to build on this foundation for near term performance that drives long term shareholder value.
With that let's move into our third quarter results.
We reported solid quarterly results driven by strong member growth in our non emergency medical transportation or mobility business, while our home division consisting of our personal care and remote patient monitoring businesses continues to perform well.
Third quarter revenue increased 31% over a year to $648 million driven by 23% growth for our mobility business and 43% growth for our personal care business.
Adjusted EBITDA of approximately $52 million was in line with our expectation.
The macro environment remains depreciates, primarily due to inflation and the labor market that said, we have received favorable reimbursement rates for our personal care business, which has helped with caregiver recruitment and retention and.
And we have been able to pass through higher transportation costs in our mobility business.
Additionally, we have a durable business model with natural hedges in place as the challenging macro environment and potential recession could improve the field personnel labor market and drive increased Medicaid membership enrollment.
Okay.
I'll now provide some operational highlights for our business segments, starting with mobility or <unk> segment during.
During the third quarter strong any empty revenue was driven by increased trip growth as membership grew to approximately 36 million members.
Although we continue to experience higher transportation cost per trip due to driver shortages and higher fuel prices, we've been able to contractually share these costs with many of our customers.
As noted on previous calls we have deliberately renegotiated many contracts over the last 18 months to protect the downside.
While it limits excess margin it helps with fluctuations in membership and cost.
This balanced and transparent approach with our customers has shifted the focus to providing the proper level of service that is better tailored to the unique needs of members.
Our more symbiotic customer focused approach will continue to mature and focused on improving the member experience and outcomes, which.
Which no doubt will enable us to grow and achieve our long term margin objectives.
Okay.
We are realigning our people process and technology to focus on three value streams.
<unk>.
The transportation provider and.
And the customer.
We are focused on one primary initiatives for each value stream first.
Member value stream, it's focused on omni channel experience that is unique to the specific member.
The transportation provider is focused on changing the legacy transactional relationship too.
Two and empowering relationships with a smaller group of key providers that perform consistently and have the appropriate volume to scale.
And third the customer is focused on a multi level relationship management approach with current and prospective customers.
<unk> did in communicating member satisfaction.
Member satisfaction, especially in the competitive Medicare advantage market is our customers number one priority.
Okay.
Moving on to the home Division, which is comprised of our personal care and remote patient monitoring segments.
We continued to perform well in our personal care segment, we are organizing our people process and technology processes for the member.
Caregiver as opposed to the transportation provider in our mobility segment and customer value streams.
Our member and customer value streams had been operating appropriately. Therefore, most of our efforts have been focused on the caregiver value stream.
We have approximately 100 personal care locations that have historically been staffed to run end to end operations.
However that model does not scale.
As such we are centralizing non caregiver centric functions and certain operational processes, which will free up our community based personnel to focus on care delivery and caregiver recruitment and retention.
This will improve our operational results and reduce costs over time.
Additionally, we are reallocating resources and investing in senior leadership, while also centralizing and standardizing to ensure we have a scalable toolset that our community based teams can leverage.
Most of the solutions focus on caregiver retention and recruitment, but we will also improve another areas ranging from data collection capabilities to best in class compliance.
Over the last couple of months, we have made significant progress on this transformative client.
But it's not easy to convey the immense underlying work streams involved with integrating these large acquisitions.
Again, I'd like to thank our team for their extraordinary efforts with integration in addition to their day jobs.
Hany.
Oh of our personal care segment and her team are starting to see the fruits of their labor pay off evidenced by weekly record high caregiver growth metrics that continued through October .
We are proud of our caregiver retention rate, which is nearly twice the industry average and we believe this can be improved even more in the future.
During the third quarter hours increased 2% sequentially compared to the second quarter and have continued to grow into the fourth quarter.
We are encouraged by the success our team is having and frankly, we are still in the early stages of this transformation.
As for the regulatory environment for personal care, we have been encouraged by the reimbursement rate increases this year and expect the momentum to continue.
We see a lot of tailwind for personal care due to continued strong demand and support for rate increases, which enables us to increase wages as well as shift by payers to more value based care arrangements, which we are participating today and we'll be doing more so in the future.
Shifting to a remote patient monitoring segment during the quarter, we received Medicaid Credentialing and a few new states, including Nebraska, and Missouri, and we expect to enter several more states by year end.
We have been achieving most of our people process and technology providers for a member.
Device manufacturing provider and customer value streams.
For example, we are exceeding our monitoring referral expectations and our customer satisfaction.
<unk> by a net promoter score of 87 is well above industry benchmarks.
Additionally, our member commitment to answering alerts is less than 10 seconds and is significantly faster than our competition.
Our forward looking priorities and monitoring will focus on innovating across all value streams as there are near term opportunities to provide new solutions to our customers quickly.
And the carpenters needs within this business will be the tip of the spear to value based care.
Turning to our enterprise wide growth strategy, we continue to focus on cross selling and bundling our supportive care services to managed care organizations or NCS.
We have built strong long term relationship with the largest MTO is in the country.
While there is great interest in our point solutions value proposition, we know from our payer partners that there is incremental value in integrating and.
And bundling, our mobility and home services together as.
As our total addressable market is expected to expand from $80 billion to $150 billion over the next few years.
Our growth strategy is multifaceted with steady member growth from our mobility business, coupled with strong growth from our home businesses, driven by Medicaid growth and accelerating growth from Medicare advantage enrollment as supplemental benefits continue to expand for our services.
Our most successful cross selling effort to date is occurring with our <unk> solution in which we engage educate and empower our members.
This is an add on service to personal emergency response systems purse provider that enables health plans to close gaps in care and reduce total cost of care by tailoring programs to specific membership cohorts.
Our pipeline for Additionally, E three opportunities are coming from relationships associated with our broader motive care business.
While we are in the early stages for the full rollout of value based care strategy or individual point solutions are already participating in value based and risk based arrangements today.
In Pennsylvania, our personal care segment has been participating in value based contracts receiving quality payments based on GAAP closure we.
We have seen improved quality through this comprehensive care program, while improving the member experience.
Importantly, these arrangements are enabled by our ability to engage and collect real time data.
We are excited to participate in similar programs in other states continue to rollout these frameworks.
Also in personal care, we have an early warning program that monitors members changing condition.
That empowers caregivers to escalate a case for clinical intervention.
We have seen encouraging results from this program with over 50% of our clients generating alerts leading to escalation avoidance rates in the mid teens.
For a remote patient monitoring segment, we have partnered with leading health plans to improve gap closures for higher acuity members through dynamic and personalized engagement.
These programs has proven to drive results, including a 40% increase in GAAP closure.
Without distracting the operations of our point solutions, we are dedicating the appropriate level of resources and investment to drive value based care innovation.
As previously mentioned, we are conducting integrated pilots with a few payers focused on higher outcomes and total cost of care reduction with opportunities to generate incremental performance revenue.
Our approach is to prove that our supportive care services change outcomes for high risk high cost members.
Currently our approaches to share in the cost savings as we help improve outcomes.
<unk> broad population risks is not a priority.
I am confident that our value based care strategy will become a meaningful long term growth driver for mode of care.
As noted in our point solution business updates, we've aligned our people process and technology to focus on three value streams.
This conclude approach across motive power will allow us to scale move quickly.
Ross Pollinate best practices and progress towards our one member one customer vision.
Most importantly, the common value stream. We are focused on is the member which is most critical to our long term strategy.
We are building unified member profiles across our services, we will have a unique integrated offering and importantly, collect valuable data that most health care service providers continually strive to collect.
Unlike many health care companies, we collect data during everyday life activities, which can be used to predict and intervene before a clinical need.
Additionally.
Many of our high risk and high cost members likely received one or more of our services.
We see these members everyday in their homes or in our vehicles.
Our payer customers struggled to engage with these most volatile metals in a proactive manner and we do it every day.
We have created strategic clarity and are empowering our high performing teammates to ensure we execute every day within our one member one customer approach.
Our daily and results focused execution will again lead to near term growth and long term shareholder value.
I'll now review, our third quarter financial results, which reported net service revenue of $648 million, which reflected growth of 31% compared to prior year period.
Adjusted net income for the third quarter was $23 million or $1 61 per diluted share and adjusted EBITDA was $52 million for an 8% adjusted EBITDA margin.
Next I'll review, our business segment financial performance, starting with our mobility or <unk> segment.
Third quarter, <unk> revenue increased 23% year over year to $460 million driven by a 23% increase in average monthly members.
While revenue per member per month was up slightly.
Approximately $1 million of our average members that we reported in the third quarter were temporary in nature.
Just on how we account for our members and we exited the quarter with closer to 35 million members, which is an appropriate run rate to use for the fourth quarter.
Service expense for the IMT segment, which includes all direct cost increased approximately 30% year over year in the third quarter of 2000 $22 million to $395 million.
The increase was driven by higher service costs associated with a 16% increase in trip volume due to higher membership and a 14% increase in transportation cost per trip due to the general inflationary environment.
On a sequential basis surface expense per trip increased approximately 3% from the second quarter, driven by transportation provider cost increases and service level mix as inflation and higher fuel prices continue to create a headwind.
Utilization, which is defined as paid trips per member tick.
Take lower sequentially to seven 4%.
Due in part to the temporary benefit of approximately 1 million members that I mentioned before.
Any mt's segment income was $19 million in the third quarter of 2022, well any empty adjusted EBITDA was $39 million compared to $42 million in the third quarter of 2021.
The year over year decrease was driven primarily by higher transportation service cost, partially offset by G&A cost leverage.
Adjusted EBIT margin for the <unk> segment was eight 6% in the third quarter of 2022 compared to the second quarter of 2022, adjusted EBIT declined $6 million, primarily related to lower out of period benefit from a favorable contract repricing, which benefited second quarter adjusted <unk>.
EBITDA by approximately $8 million.
While we continue to experience transportation cost pressures, we are pleased with our recovery of the costs through contractual pass through and contract repricing.
Turning to our personal care segment revenue in the third quarter of 2022 was $169 million.
Compared to approximately $119 million in the third quarter of 2021.
The increase was primarily driven by incremental revenue from the <unk> acquisition, which closed in September of last year as well as rate increases.
On a sequential basis revenue increased 4%.
Hours during the third quarter increased approximately 2% sequentially to $6 $8 million driven by increased service levels and our team's focus on workforce development, including recruiting and retention initiatives.
Personal care services expense per hour, primarily representing caregiver wage expense increased 5% sequentially due to increased wage expenses.
Although caregiver wages have increased this year, we have received reimbursement rate increases from state payers to offset these labor related costs, while also allowing us to provide more competitive wages for our caregivers.
Personal care segment net income increase was one 6 million while segment adjusted EBITDA was approximately $19 million in the third quarter of 2022.
Compared to $10 million from the prior year period.
Adjusted EBITDA margins were 11%, which was 260 basis points higher than the third quarter of 2021 and flat sequentially. While surface expense was higher during the quarter, we've been able to drive operating cost leverage to keep margins flat quarter over quarter.
Yeah.
Moving onto our remote patient monitoring our RPM segment revenue was $19 million, which included approximately $4 $7 million of contribution from the Guardian medical monitoring acquisition.
RPM revenue increased approximately 12% sequentially from the second quarter, primarily driven by a full quarter contribution from the Guardian acquisition, which closed in May of 2022.
We've been pleased with the monthly growth in pairs referrals from our Guardian business. Since we completed the acquisition and this in addition to the members coming on in a high contribution margin are the key reasons for acquiring this business.
Okay.
RPM segment net income was $462000 in the third quarter, while adjusted EBITDA was approximately $6 $6 million and adjusted EBITDA margins were 35, 3% in line with our long term target.
For the mid 30% margin range.
Consolidated cash flow from operations in the third quarter of 2022.
Was a use of $6 million due to payments on contracts payable, partially offset by strong cash flow from our core operations during.
During the third quarter, we reduced our contract payable balance net of our contract receivables by $51 million to a net balance of $184 million, we expect to reduce this net balanced by an additional $40 million to $60 million during the fourth quarter, which is in line with our prior X.
Spectation.
As a reminder, these payables primarily relate to overpayments.
And liability reserves on certain of our contracts in the <unk> segment.
Excluding the combined negative impact of $51 million from these items, our cash flow from our core business continues to be very strong as.
As we head into 2023, we expect a more normalized level of activity for these contracts payables and therefore, our free cash flow is expected to be more normalized as well.
Yeah.
We ended the third quarter of 2022 with approximately $73 million in 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.
Solidago pro forma net leverage was four times as of September 30 or 32022.
We remain committed to deleveraging over time, and we expect to reduce our net leverage ratio to three times. As a reminder, we are not exposed to rising interest rates since our current debt structure is 100%.
Fixed rates.
Our capital allocation strategies unchanged since we are committed to a disciplined and balanced approach towards capital deployment as we continued to deliver our balance sheet towards a three times target.
Moving onto guidance. This morning, we increased our revenue guidance range by $75 million for the year due to strong membership growth in our mobility business and reimbursement rate increases in our personal care business revenue is.
As expected to be in a range of $2.45 billion to $475 billion.
The midpoint of our revised guidance range and street is a 3% increase and implies 23% year over year growth for the full year versus 2021.
We maintained our adjusted EBIT guidance for 2022, and a range of $2 10 to $2 $20 million.
While there is only one quarter remaining this year there is normal variability in our business segments and it is prudent to maintain this range.
While revenue growth has been strong and exceeded expectations. Some of the revenue upside has been passed through to offset higher costs.
Thus, having a neutral impact on adjusted EBITDA.
Given the strength in membership growth we've seen throughout the year any empty revenue growth in the third quarter was very strong. However, we think this will start to normalize in the fourth quarter back to the long term range, we provided on Investor day in June .
Yeah.
Additionally, any empty adjusted EBITDA could decline somewhat sequentially due to the lower average members compared to Q3, while margins for the year could be at the lower end of our long term range of 9% to 12% due to higher transportation cost per trip and still being in the early.
Stages of our mobility process and technology transformation.
Okay.
For our personal care segment, we expect revenue growth in the mid single digits for 2022 on a pro forma basis and adjusted EBIT margin is expected to be near the midpoint of our long term range of 10% to 12%.
Our long term outlook for personal care remains unchanged with revenue growth in the high single digits through 2025, and adjusted EBIT margin margins in a range of 10% to 12%.
Yeah.
Lastly, we expect remote patient monitoring growth in the low teens this year on a pro forma basis for.
For the <unk> acquisition.
Which annualized in September .
We expect RPM adjusted EBITDA margins in the mid 30% range for the year.
Overall, we reported another solid quarter and remain encouraged about our long term outlook as we focus on several initiatives to improve and transform our supportive care platform.
We remain confident in our growth strategy and long term opportunities and we will continue to engage and empower our members providing high quality care and the best experience.
Lastly, I want to thank the entire team at motive care for their hard work and dedication.
Every one of our 20000 teammates impacts are one member one customer vision.
This concludes our prepared remarks, operator, please open the call for questions.
Yeah.
Thank you ladies and gentlemen, the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time, if youre using a speakerphone, we asked that while posing a question you pick up your handset to provide favorable film quality once again, ladies and gentlemen, if you do have a question RK.
Please press star one on your telephone keypad at this time, please hold as we poll for questions.
And we will take our first question from Brian Shrank Leela from Jefferies. Please go ahead Brian .
Hey, good morning, and congrats Heath on the on the.
That Oh, yeah.
Permanent CEO , so I guess just to that point right I mean, as I think about the strategy that.
It's been laid out by motive care when you got there first.
Oh, and then now that you're CEO . How are you thinking about you know the part your pieces that you still need to maybe change or add to the story or is it really just execution on this one if you can share with us your vision.
Now that youre in the CEOC. Thank you.
Yes, good morning.
Fortunately yet the vision and the set of solutions, we have in the marketplace and what's happening in health care all that to say so we're fortunate to be in a great spot and have the right people and tools in place for that it really is about how we do it now and we execute on that vision.
And I do think over the last 90 days and that will continue we have a lot of clarity on what we need to do in each of our.
I call. It point solutions, I've said that and then probably probably the item that is probably most different than maybe the last couple of quarters.
Is that what are we doing on bringing these assets together really what needs to happen to change outcomes.
Not necessarily get all the way to the risk bearing side of of.
Well a lot of other companies do that for US just really focusing on the assets, we have and bringing together cross selling bundling and then changing outcomes for payers and states. So.
In summary, it really is it really is about execution and aligning the people aligning the process and then building the right fit for purpose tech.
And executed because the market's there and the opportunities there in front of us.
Got you and then just to clarify as I think about the payables again right there.
Rebates or refund to declines.
Declines into any MP side, how are you thinking about the progression of that say for the next few quarters, how much left should we be thinking.
You'd have to pay back.
Yes, so consistent with what we've been saying for the last couple of quarters.
This year was going to be.
To pay down the majority of that larger balance and we have about $40 million to $60 million left for the fourth quarter and then after that we'll be back to normalized working capital fluctuations, therefore, allowing us to have.
Additional free cash flow to Delever or do what we think is appropriate. So one more quarter left and then we'll be back to a more normalized working capital.
Got you and then last question for me if I may so as I think about your your guidance right and you did $52 million EBITDA in Q3.
So the plug for Q4, it looks like roughly $48 million at the high end of that guidance range. I mean is there anything I need to be thinking about the sequential seasonality of your business or is this just conservatism.
I do think from a seasonality perspective stuff does come down a little bit, but I wouldn't overplay that its because of the holidays right people take less trips or don't go to the doctor as much but really.
It's not that large, but so so I think it's the right.
Forecast and whether you say conservative or not I think it's the right way to think about it right now and we're comfortable with with how we're coming out for the fourth quarter and how you are modeling.
Austin Congrats again, thanks, guys.
Thanks, Brad.
Thank you and we'll take our next question from Bob Bob Leduc from CJ Securities. Please go ahead Bob.
Good morning, I guess, Bob Leduc and Heath, congratulations on a well deserved.
This is primarily with our current customers and primarily with are are large gonna big six players. So that growth has been to all the great work that we've been doing operationally and then with our account management and sales group, adding on volume in specific states that that we have or do not have so it's a combination again I've just been.
Normal growth that happened in the market, but really we are throwing above that because of the good work that we're doing.
Okay, Great and then.
Termination you know [laughter].
Insistence, what we said in our earnings sorry, our Investor day in the early part of the summer we believe on.
Our mix of states, what is gonna potentially happen with three determination.
We'll be able to grow through that.
So were consistent with that and I expect that to still be our stance on Henri determination and where we expect growth to be.
And the fourth quarter and then through 2023.
Okay Super and then you touched on you know the inflationary environment, but that we all see and Ah you know lack of drivers of transportation providers and things like that maybe talk you know just a little bit more about the progress with a partnership model with transportation providers and when we might see.
The purchase services per trip either level off and then hopefully you know start to trend down at some point what are the kind of tipping point, you're looking for there and how should we think about.
Purchase service per trip <unk>.
Trends over the next several quarters.
Yeah. So.
The strategy on.
Having a partnership model with our transportation providers is is really clear to all of us and specifically to me of what needs to happen and the reason for that.
We have.
Done this tested this it's working very well, whether that's with our own internal TNC. That's like a new burned lift were seen as success. There and then addition, where we have moved to this partnership model with some of the larger providers, we're seeing it there.
The so so we know it's there the the rollout of having that across the entire network has been okay that really is the focus of where we need to go. So it's more than just okay and that's what we're that's what we're driving towards so we have a lot of clarity were just I was just talking with the team before that.
A lot of clarity on what needs to happen now.
Now are lining all the teams to ensure that that happens is you look at where yes. There is there is challenges with the macro environment that is affecting labor and cost, but when you can dissect that a little bit.
When you give people more volume.
That far outweighs that that rate challenge there we're having so if you are really good about the strategy and now it's about really putting the pedal down to execute on that I think it's it's something the next three four months that we're really pushing hard on and I expect that to start lowering and.
Mid part of next year that I expect meaningful kind of decrease and overcoming those macroenvironment headwinds.
Got it Super Thank you very much.
Thank you and our next question comes from Brooks O'neill from Lake Street Capital. Please go ahead.
Good morning, <unk> also Wanna offer my congratulations.
So I'm curious.
You talked a little bit about favorable reimbursed for particularly in the personal care segment.
I'm, hoping you could provide a little bit more specificity around that.
And I'm also curious about you know reimbursement related to fuel costs and labor issues on the mobility business you could just talk a little bit about what you're seeing there specifically.
Yeah, so you're right to to separate the two segments because the favorable reimbursement rates are are in our home business and specifically within our personal care business.
In the states that we are participating in those since really mid.
Mid mid mid summer in earlier, we've seen across all of our markets favorable increase in rates.
Reimbursement rates the mix on those reimbursement rates.
A large chunk of them have been required or we have got a pass through to our.
To our caregivers and all that is great because it's allowing us to be competitive.
A more competitive in the marketplace. So so those reimbursement rates have gone up anywhere from.
Anywhere from a couple.
A couple of percent to well over 10, 15%.
And you can see the you can see the the metrics that we have on our financials C. N that but you can also see the matrix of the costs going up so net net where that comes down to her and that kind of 11 ish percentage EBITDA margins in a in the mid range of our targets, but what that's gonna do coupled with wet me unhurt.
Team are doing it's gonna allow us to grow.
And that's really the whole benefit and point in which is why the states have done this and this system of they said before the demand for these services far outweigh are all of the industry's ability to fulfill those so this has been positive for us positive for the industry and now like I said before.
We're starting to see that pay off with the work we've done so.
I expect growth to happened and I expect our margins to maintain where they are and and increased as we move through this integration. So that's very positive for the industry and it's a big driver for our performance that we are today on the on the transportation side.
As you know most of our 85 per cent of our contracts or Capitated. So there's really no kind of reimbursement change in the any empty side. It is really about us how we managed through that.
In addition, and this this is also something we've done over the last 12 to 18 months is ensuring our contracts had been structured so we have a wind winter enable to share in these increased costs that are currently happening primarily in the transportation with the driver. So that's been beneficial to us so.
Those costs have come up that are transportation providers actually have to bear.
At the same time, we want to make sure that they are making money and most importantly, ensuring that we are picking people up on time and having a great member experience because that is the most important thing for our customers.
And therefore were because of our contracts were able to pass those through to a lot of our customers as well or call. It Sharon those costs. So.
So that's the differences between what's happening on the reimbursement ran in the personal care side, specifically on the.
In the home business and then the higher cost and the mobility, we're able to pass a large chunk of those through based on the way we've developed our contracts.
Great. That's very helpful. So I know you've talked a little bit about labor and you're prepared <unk> comment, but that's the other dynamic that has been particularly interesting.
And the country over the last year or two whatever you Wanna say, so I know you're working hard, particularly in personal care to improve your recruiting but let me just give us a quick update on on your outlook for the labor environment again, and both sides of the business.
So the labor environment for the personal care side is really about growth.
It's really had our growth b not as high as we want and we'd been growing and that kind of.
Single digit range.
However.
The the work that we are doing we expect to overcome those macro headwinds because one we're gonna integrating free up.
<unk> integrate coupled with the reimbursement rate, we're able to grow through that and actually recruit and retain more people. In addition on the macro environment.
If there if there is a recession or this continues to be the way. It is that actually helps us in that in that field personnel recruiting and we're starting to see that as well. In addition, there could be also increases in the Medicaid.
<unk> so in general on the on the personal care side because of what we've done because of the reimbursement rates.
And and in general what that does for our ability to probably get more people in the door.
We feel good about where we are and where we're going to continue to be going forward.
On the transportation side similar to what I said before those headwinds are real and the costs are higher than we expected.
Ever our plans on what we need to do with the primarily the partnership model of we're gonna grow through those challenges because of our size and scale. When we appropriately assigned volume two are key providers.
That far outweighs the.
The challenges is that we're having on a rate basis that is driven by the economy net net regardless of where the macro environment is.
The stuff, we're doing is going to overcome that or in some cases, if that continues it's gonna help us drive and grow because.
Because we will be able to recruit better on the personal care sites.
Great. Let me just ask one more you you'd talked a little bit about value base care in I am personally huge believer in the opportunity of value base care, but can you just say.
Is that opportunity growing in your mind.
Maybe highlight one or two places where you really see opportunity for boat of gear to play.
<unk> and a value based environment.
Yeah. So this is this is we've gotten a lot of clarity here over the last <unk>.
Couple of months and quarters on what we do and how we participate one thing we know for sure the supportive care services we have.
Do have an impact on outcomes.
And really for us it's been refining that strategy and what we need to do to actually have that continue to happen as I noted on my call in our personal care business. We're doing work that gets us pay for changing outcomes.
In addition in our monitoring business, we know that we actually do change outcomes. So so for US I think a lot of people when you talk about value based care you completely go too.
Taking full risk on populations and yes that can happen, but for us really it is focusing on how our services we connect to those.
Most vulnerable populations, which are primarily tools or have high acuity.
Issues like diabetes, when we have an understanding of those patients which is what we have been doing right. Now we know that we can change those outcomes and that's what we've been doing getting specific on that and getting specific with our customers or other entities that that would normally haven't been working with.
And we're seeing a lot of success there and then and then I said. This also in my comments and this is important from an operational perspective you.
You have to dedicate the right level of people to ensure that you focus on that and we have done that and when you focus on something and you focus on things in the right way, which is is doing the stuff that I articulated we're gonna see that continue to grow so we have high expectations for continuing to.
Move into that value based care area and I look forward to at the same time, we're going to be deliberate and diligent in how we do it.
Without distracting the great opportunities, we have on on growth and performance that are point solutions. So.
You'll see more and more data from us showing the payments that were actually getting from value base care like we are today.
Alright, let me just ask you one more I apologize blue states and the personal care business, obviously, you're in seven or eight northeastern states.
I'm curious, how you're thinking about the opportunity to expand the G. I have with the as well as deep penetration in your existing states. Thanks a lot.
Yeah. It really is about growing within the states. We are there's a lot of opportunity for us to grow organically, even though her number one or number two in our big three states or other states and even within those states. We can grow and will grow with with continued to take more referrals as well as open up to Nova locations. That's the <unk>.
Priority right now organically grow in the markets that we're in.
Great. Thank you very much.
Thank you.
Thank you well, we'll take our next question from Quito Chickering from Deutsche Bank. Please go ahead.
Yeah. Good morning, guys a couple of questions here it gets real high level perspective.
Got it seems lower margins as we enter fourth quarter do you think that the inflationary pressures.
Now normalized and the fourth fourth quarter or Lucy these sort of this outside so facial pressure is continuing to 2023 and English Street is generally models or 2023, you could talk correctly [noise].
Yeah, so for for our for our home business I think we are at that peak and we will see that.
The benefits of what we are doing kind of.
You'll get better and better both from a growth perspective and from a margin perspective on our own business. The transportation side similar what I said before is where those pressures have been and continue to grow up for the last couple of quarters.
What what Bob said too I think what we're doing with with on the operational side with the changes they were making an <unk>.
Process and tech primarily around the partnership model I think that we can overcome those inflationary pressures, even if they accelerate into Q2 and Q3. So so.
So I think our our we'll be able to get through that and I don't I don't expect us to see any more margin fresh.
Pressure beyond what we're seeing in Q3 and expect in Q4 and again expect improvements in the mid part of 2023 is these actions really takes hold.
Okay.
Or twenty-three EBITDA is that generally in the ballpark you know with street as a model.
[noise], sorry say that again.
I just remodeled twin twenty-three EBITA in in the right ballpark.
So the collar on that.
Sorry, you cut out again go ahead.
Yeah pedal, we'll get we'll give guidance.
So.
Okay fair enough alright, so on any empty maybe a missed this we talked about a million members.
Sure, it's not occurring in four key script be talked about declining membership.
Contract clause are kind of you know how do I reconcile that that million members turn knocking turning into the fourth quarter.
So that million members has nothing to do with contract loss. It has to do with the how we recognized Q3 with the <unk>.
From a standpoint, if we had we had one time kind of catch up <unk>.
Revenue in that quarter, therefore that affected and grew the membership. So membership when you take that million out it is because of how we recognized or one time revenue in that the membership when you normalize for that it's actually continued to increase so you should not say that by any means is there and.
[noise] degradation with a change in in our ability to gain membership or grow. So I'm glad you asked that question because it is a timing accounting issue not a performance issue.
Okay, perfect and the last question for me on.
[noise] you referenced a.
[noise] contract repricing driving sort of that the pricing that 1.1% sequentially I guess, how much was that contract declining and kind of all this fall to that level.
How 'bout she was declining so our contracts have not been declining what the point of the contract discussion.
Was to show that we have been over the last 18 months.
Renegotiating contracts to ensure that they're a win win.
And it in essence protecting the downside in the event that there is some volatility and costs or or or utilization. So our contracts are working which is why I feel really good about the margins that we have have been articulating that was the whole point of the contract discussion to ensure.
We're doing the right stuff and our numbers have rigid earnings as opposed to maybe the volatility that was that was.
That happened pre COVID-19.
[noise], okay. Thanks, so much [noise].
As a reminder, that star one if you do have a question.
And we won't go to Scott find out from Stephen Snacks. Please call I had Scott.
Hi, This is Roger Scott Good morning, So I have a question relating.
About the matrix impairment loss, maybe if you can give us some more color <unk> drove them.
Uh-huh.
Yeah. So so the matrix as we every talked about matrix.
Especially during.
The Covid time had a lot of growth primarily in their non or.
Risk adjustment risk assessment business.
As we have moved through the last couple of quarters. It is most important for us to pivot the strategy back to the core because we know that there's a lot of growth and risk assessment, primarily supported by what's happening in M. A.
So that's a great business with a lotta market tailwinds. So what the matrix management team has done which is new.
Have done a great job on.
On that business and really getting it back to performing the way it had before kind of COVID-19.
However, the challenging part is the business that we invested in around Covid, we thought that those businesses would do well in a post co very environment, that's not working out [laughter]. So that's where the pivot has come away from those businesses and and as we disclosed.
It was disclosed a few months ago, we divest ourselves of the clinical trials business.
So basically it is appropriately reallocating, our resources and focus to the core where there's a lot of growth and a lot of opportunity in the risk assessment business and that has resulted in us taking impairments on those acquisitions, who made a few years ago, again, which which had the bumping COVID-19 and we no longer.
Think our strategic for us so that's the way to view it I know, it's not good to see but at the same time from a from a performance in future perspective, where most excited about what they're doing and and look forward to the next number of.
Of quarters as we as we work through and really grow that risk assessment business back to what it was.
Hi, Thank you for your color and then just pivoting from there.
Just wanted to ask about the strategy behind the mail delivery business I know.
Mmm, there's previous unlimited that maybe you'll give us some like quarterly updates on that and maybe if we will hear more about that in the four Q call, but any color on that.
Great.
Yeah. So so when you think about social determinants of health <unk>.
Meals is really important.
Our payers and state meals is very important and there's two there's two components appealed it is the.
Primarily on the Medicaid side Assuredness.
Helping people ensure that they have meals on a continuous basis and then there's really more episodic when people get out of the hospital, having meals for four.
One month or two months both of those are extremely important and you continued to grow.
Her up we are.
Really allocating resources to ensure that we can execute in that business I think it's really important and the reason why I haven't talked about it much in this call.
Because we have a lot to focus on and in general for Us too.
To continue to grow and to continue to do things that are taking their vision, we need to focus and prioritize appropriately and that's what we're doing and but that doesn't mean that meals is not important to our company when it becomes more meaningful and I have the right conviction around what we're gonna do we'll talk.
Talk about it more so it really is a prioritization and focus issue.
Versus.
My maybe confidence in that business. So our plans and we just had we just had quarterly meetings around all of this and we actually have some some meetings next month's around meals.
As it starts to prove out the business case with I expect to happen will start talking to you more.
Around that and what it's going to mean to our our strategy and as importantly, what it means to our financial picture so more to come.
Alright, that's all for me thank you.
I don't think our next question from Mike Pitofsky from firing research. Please go ahead.
Good morning, and I I didn't Miss some of this call. So if if if you touched on either of these issues forgive Ah.
Have you given an update on maybe a timetable you hope to have a new CFO in the chair.
So the initiatives that I laid out.
For the next 90 days I expect all those to happen. So within the next 90 days I expect to have.
Ah New CFO again, the good thing is here.
For the finance I'd have strong leaders that around the table with me and our ability to execute and do what we're doing a fairly confident about.
But at the same time, where.
We're searching hard to make sure that we find the right person and I expect that to happen within the next 90 days.
And have you <unk> have you guys given an update on the transportation contract pipeline anything anything that you can say there.
So we.
We can.
It gets to what I talked about before around membership growth a lot of the work.
That had been done by her account management team and sales team, we are seeing us adding additional volume.
To our current customer so great success, there and that also shows that we are not losing that volume. So for US we continued to do very well on maintaining and winning our customers and we will announce large wins when they come on.
On.
Each quarter to us so right now some of the stuff around specifically, what's happening code, but a lot of the larger states.
Have pushed out or delayed a lot of what has happened because of COVID-19. So there hasn't been a lot of movement in the market around large contracts.
One side of the coin is that benefits us because we are the largest the other side of it is it hasn't allowed us to kind of close I'm big contracts that we expected to close down so boring.
More to come and you can add just yeah could I ask a follow up on that can you give eve, even if there's not much to say can you give us any update that there might be on a new York and also any other big ones that could be determined saying between now and the end of twenty-three. Thanks.
Yeah. So it you're right there are big ones that will likely be resolved in twenty-three.
Probably probably not even a relief twenty-three like New York, specifically, that's a very large contract and they're switching from a broker bottle to a non broker models. So.
TVD on that won't hear anything this year hopefully the earned apart early part of twenty-three will here, where where that falls out as a reminder, we have a good business in New York right now.
And that's a that's a good thing and so we're keeping it there. So we feel good about where we where we are and more to happen in 23 and the other states as well that have have said they'd come out or will come up I do expect that to know more in Q1.
But likely those coming on and twenty-three we'd be the latter part of 23, so different than what we talked about and 22 again it gets back to a lot of the states, which were those big ones are have just continue to delay and push out.
More more updates probably in Q1 around timing on that and what it means to us in in next year.
And then just the last question on on States, you know that really matter to you guys and just in general I guess the election is coming up next week I mean do you guys care do you have a rooting interest in in in terms of Ah.
Your your business and and and how the election shakes out next week thing. That's that's all I've got things.
Yeah. The good thing for us the way transportation is good.
I don't I feel good about transportation and its ability in every state and across the country to grow and and the same thing and our other business. So it's really agnostic to the the politics that are out there.
Thank you.
And that was our final question I'd like to turn the floor back to heap Samsung for closing remarks.
Right.
Yeah, I want to thank everybody for participating in a call. This morning are updating investor presentation and quarterly supplemental deck are posted on our Investor Relations our website and if you have any questions or have anything that you need to follow up on please get in touch with Kevin Who's the head of our Investor Relations again, thanks for joining I'm excited about it.
What we have in front of us excited and thankful for the team and what they've been doing so I look forward to talking to you all in February 2023, Thanks again.
Thank you ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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