ModivCare Inc. Q1 2023 Earnings Call
Good morning, and welcome to MotivCAD's first quarter 2023 Financial Results Conference call. At this time, all participants are in a listen-only mode. A formal question-and-answer session will follow the presentation. Please note this conference is being recorded.
I will now turn the call over to Keith Eilich, Head of Investor Relations. Mr. Eilich, you may now begin.
Good morning, and thank you for joining MotiveCare's first quarter 2023 earnings conference call and webcast.
Joining me today is Heath Sampson, MotiveCare's President, Chief Executive Officer and Chief Financial Officer and Ken Sheppard, Head of Finance.
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 the company's filings with the SEC.
We will also discuss non-GAAP financial measures to provide additional information to investors. A definition of these non-GAAP financial measures and to the extent applicable, a reconciliation to their most directly comparable GAAP financial measures is included in our press release in Form 8K. We have another video for you.
A replay of this conference call will be available approximately one hour after today's call concludes and will be posted on our website, motivecare.com. This morning, Heath Sampson will begin with opening remarks. Ken Sheppard will review our financial results, then we'll open the call for questions. With that, I'll turn the call over to Heath.
Thanks, Kevin, and a warm welcome to our first quarter earnings call. Today, we reported solid first quarter 2023 results as revenue grew 15% year over year to $662 million.
Strong top line results were driven by a 17% growth in a mobility business and 11% growth from our home division which includes personal care services and remote patient monitoring.
Adjusted EBITDA for the first quarter was in line with our expectations at $50 million.
We remain confident in our ability to drive growth and create shareholder value.
This optimism is grounded in our commitment to delivering innovative and comprehensive supportive care services, which cater to the evolving healthcare landscape characterized by a pronounced shift toward supportive care services that provide better access to care and home-based care solutions.
Achieving our expectations are visible to our entire organization and are rooted in our 2023 strategic initiatives, which are twofold.
Building a scalable platform and amplifying and diversifying growth.
These two initiatives cut across the entire company, providing focus and clarity for our teams to execute every day. Our initiatives are multifaceted, and aim to enable sustained revenue growth and a stable, lowest cost operating platform.
Our Build a Scaleable Platform initiative is centered around optimizing our operations and enhancing our technology infrastructure to ensure we can scale effectively and efficiently. This includes centralizing and standardizing operations and shared services.
Investing in technologies that are fit for purpose to our customers' needs and driving efficiencies in operating leverage through realigning and reallocating resources throughout the entire company.
Our Amplify and Diversify Growth initiative aims to expand our offerings and customer base through strategic partnerships, new service offerings, and geographic expansion within our current customer base, and more importantly, to new customers that have historically not been our focus of ours. For more information, visit www.fema.gov
Additionally, I'd like to provide updates on the recent CMS proposal for ensuring access to Medicaid services and Medicaid redetermination.
Recently, the Centers of Medicare and Medicaid Services released a proposal role titled Ensuring Access to Medicaid Services.
The intention of this rule is to enhance access to services for Medicaid beneficiaries.
which we wholeheartedly appreciate and endorse.
It is commendable that CMS acknowledges the significance of personal care services and then the necessity to track more caregivers to the industry considering the increased demand.
Several notable provisions in the proposed rule have garnered attention, particularly in the requirement that at least 80% of Medicaid payments be allocated to caregiver compensation.
Several notable provisions in the proposed rule have garnered attention, particularly in the requirement that at least 80% of Medicaid payments be allocated to caregiver compensation. There are a couple of important factors to consider.
First, this is a proposal, and CMS will receive ample feedback during the 60-day commentary.
It is essential to remember that this is part of the standard rulemaking process.
The heightened attention on personal care services leads to necessary sophistication, oversight and regulation.
It's also worth noting that the proposed rule indicates this change wouldn't become effective until four years after the final rule is issued.
Second, if higher reimbursement rate is channeled to caregivers, this should enhance our ability to hire caregivers, resulted in accelerating revenue growth and operating leverage. As approximately 25% of our personal care of GNA costs are variable. However,
We believe CMS should consider all costs associated with providing personal care services.
including care coordinators, recruiters, training, and compliance systems like electronic visit verification among others.
The growing attention and support for home and community-based services, again, is commendable. One of CMS's strategic pillars focuses on expanding access, which is vital for our members. Our support-of-care services play a crucial role in helping our customers reduce costs and enhance health outcomes. Also, the Biden administration announced an executive order aimed at boosting funding for personal care. This move underscores the importance of delivering quality.
affordable supportive care services to seniors and others in their home.
Next, I'd like to discuss Medicaid redetermination. As many of you know, states were able to begin redeterminating the eligibility of Medicaid members on April 1st. The healthcare system is in the early stages of the Medicaid program's re-enrolling members, which we think will last up to five quarters.
We expect most of the impact from redetermination will be on the NEMT business where approximately 80% of our members are Medicaid beneficiaries. As mentioned last quarter, we anticipate no significant impact on our NEMT membership from redetermination into the latter half of this year.
Re-determination will unfold over the next few quarters, as said, and our membership could be affected by 10 to 15 percent before considering new contract wins and just the standard market expansion, which is in line with our projections that we talked about last year during our investor day.
We expect the majority of these re-determined members to be lower utilizing individuals, which would lead to a smaller decline in our total trip volume compared to the overall membership.
Additionally, we've been preparing for re-determination over the last several months.
When we exit the pandemic in 2020 and 2021, we made a conscious effort to effectively and efficiently transition a large portion of our previous full-risk contracts to contracts that are shared risk or fee-for-service arrangements, protecting ourselves and our customers. These shared risk contracts significantly de-risk the financial impact from re-determination .
by setting contractual revenue rates primarily based on trip volumes as opposed to membership.
In many situations, we can fully offset the gross profit impact from lower membership from redetermination as these contracts reset monthly. Our remaining full risk capitated contracts currently only account for approximately 20%.
of any MT revenue compared to 60% at the start of the pandemic.
For these contracts, we will continue to have anticipated contract repricing negotiations throughout the year and annual actuarial pricing resets that allow us to normalize pricing in a post-redetermination environment.
As it relates to our membership, we continue to believe that we can grow through the 10 to 15% redetermination hendwood through 2025 based on our new contract winds, existing market expansion, Medicare Advantage growth, and just the underlying Medicaid market growth. In total.
We believe that we have encapsulated the impact from re-determination in our 2023 outlook, as well as our 2024 outlook.
Now I would like to discuss our consolidated 2023 guidance and the longer-term outlook.
We have maintained our revenue and adjusted EBITDA guidance for 2023.
Although our first quarter results align with our internal expectations, we recognize that our guidance anticipates a continued EBITDA ramp throughout the year.
To provide clarity, I'd like to highlight several key factors that reinforce our confidence in this upward trajectory.
First, we've gained significant traction in our new NEMT contract winds.
This includes receipt of an intent to win award for a new and EMT state contract, a new managed Medicaid contract, and a national contract with a large MCO. Combined these contract wins are expected to have nearly mid-single-digit annual contribution to revenue, with the contributions beginning to ramp during the third quarter of this year.
Second, our specific actions in our mobility division will favorably impact EBITDA growth throughout the year.
Our multimodal partnership model is expected to drive lower transportation costs per trip throughout the year as we narrow our network of transportation providers and we continue to shift more trips to our preferred providers, matching the right type of ride with the members' needs.
During the first quarter, our pervert providers accounted for 17% of our trips compared to 11% last year, which led to a sequential decrease in our cost per trip during the quarter.
We also expect our OmniChannel Communication Initiative for improved member interactions to drive lower other expense per trip as we provide more efficient and cost-effective member communication that reduce calls to our contact centers.
We made progress on this front during the first quarter as we reduced calls per trip by 7% sequentially and 14% compared to last year. While we also reduced our missed trips by approximately 10% sequentially.
In our home division, we also expect to see it continue to ramp in revenue and profitability throughout the year.
Our personal care team has made good progress in centralizing and standardizing back office functions and certain operational function functions as we continue to build for scale.
This year, we plan to centralize 12 critical business functions and 100% of our personal care team is expected to be aligned to centralized management by the end of the year. With ongoing continuous improvement, we also expect continued growth in the personal care hours. For more information, visit www.fema.gov
driven by increased caregiver recruiting and retention, as well as the opening of several de novos.
During the first quarter, we opened two denobles and expect to open more than 10 this year. Our remote patient monitoring segment has a healthy referral sales pipeline between new customers, an expansion of existing contracts, and our enterprise team continues to gain traction with cross-selling opportunities for purrs.
two denobles and expect to open more than 10 this year. Our remote patient monitoring segment has a healthy referral sales pipeline between new customers, an expansion of existing contracts, and our enterprise team continues to gain traction with cross-selling opportunities for PERS and E3.
In addition to these mobility and home initiatives, we have taken steps to reduce our corporate G&A cost structure to align with our one-motiv care strategy, gaining efficiencies as we scale and centralize.
Combines a strong visibility in these initiatives gives us confidence in our ability to ramp growth and profitability throughout 2023.
In addition to 2023, we remain confident in our ability to achieve our three and three targets for 2025, which is $3 billion of revenue and $300 million of adjusted EBITDA. I'd like to share some of the key drivers and levers that will help us achieve these long-term targets. In mobility, we expect to increase membership and related revenues from new contract wins
in the Medicare Advantage market.
And the enhancing access to care is an important strategic pillar for the current administration, and NEMT remains highly under penetrated as only 30 to 45% of MA plans offer this benefit.
The bottom line.
is we are confident that despite some of the near term headwinds, that there are a lot of tailwinds and opportunity for a mobility bit as to grow 2024 and beyond.
The second lever in the mobility business is reducing transportation costs per trip and this will be driven by our multimodal partnership model as discussed earlier.
Over the next couple of years, we expect to reduce our NEMT unit costs or purchase services purchase is
At couple of years, we expect to reduce our NEMT unit costs or purchase services per trip to the high 30s.
from $42 per trip today. Our multi-motor partnership model will also improve member satisfaction as on-time performance improved over 400 basis points year-over-year during Q1.
We are also confident that we can reduce other service expense to 11 to 12% range from 13% today through our OmniChannel Member Communication Initiative, which will drive efficiency and operating leverage as we use advanced technologies such as text messaging,
and IVR-AVA systems and other technologies to communicate with members and overall eliminate calls. In personal care, we remain confident in the long-term drivers for personal care.
which include winning new business, low single-digit reimbursement rate increases,
middle single digit hours growth, which will be driven by caregiver recruiting and retention and accelerating to no expansion. In remote patient monitoring, our long-term growth drivers, our new MCO contracts, led by our E3 solutions and other innovation solutions like value-based care arrangements.
which continue to gain traction with our payers and other risk-barred entities.
Our E3 engagement solution really enhances our ability to be paid differently. And that's incremental to our long-term targets that I talked about earlier.
We continue to gain traction with commercial pairs as member engagement and satisfaction are important factors in pair star ratings.
Although we haven't commented on it recently, I'd like to provide an update on our equity investment in Matrix Medical, which is not currently being recognized in our current evaluation.
We have said that it is completed its operational restructuring last year. The benefits are coming through strong, as the company's performance improved meaningfully during the first quarter.
including a 40% year-over-year increase in health assessment volumes. While this is only one quarter, we are confident that MATRIX is on the right trajectory, which will support our eventual monetization at the appropriate time.
We remain aligned with Frazier, and we will be able to monetize the minority ownership of 44% in matrix based on a normalized adjusted to even range in the 50 to 100 million dollar range.
Continuing on with our recent accomplishments.
My first 90 days as CEO are now complete, including upgrading people and processes while accelerating the culture of compassion meets profitability.
With these enhancements in place, we can concentrate on executing on our strategy. In March, we took a significant step in strengthening our leadership team by welcoming Ann Bailey as president of our MotiveCare Home Division.
Ann is a highly experienced healthcare executive with over 25 years of industry experience, having served most recently as a senior executive and group vice president at DaVita.
We're thrilled to have someone of Anne's Calibur onboard and she's already making a substantial impact on our home organization. Regarding our own ongoing CFO search, I cannot compromise on building a high-performing leadership team. It's essential to find individuals who not only excel in the roles. We're thrilled to have someone of Anne's Calibur onboard and she's already making a substantial impact on our home organization.
but also contribute to the overall cohesiveness and performance of the team. Our search for the new CFO remains a top priority and we are committed to finding the right person.
Before I hand the call over to Ken, one of our key leaders within the CFORIANization to discuss our first quarter financial results, I want to extend my sincere appreciation to the entire Motiv Care team.
Their relentless dedication, hard work, and unwavering commitment to excellence has been vital to providing top-notch supportive care to our 34 million members.
I also want to acknowledge the substantial changes we have made over the past few months, and I am grateful for the team's commitment to operational excellence and their active participation in building our unique culture of compassion meets profitability. I am generally proud of the accomplishments we have achieved together.
I'd also like to extend my heartfelt thanks to our valued customers and key partners for their unwavering support and collaboration.
We have made deliberate changes in how we engage with our customers and key partners, and the results are evident in how we are continuously improving together. I'll now pass the call to Ken, who will provide an overview of our financial performance for the first quarter.
deliberate changes in how we engage with our customers and key partners, and the results are evident in how we are continuously improving together. I'll now pass the call to Ken, who will provide an overview of our financial performance for the first quarter. Thank you, Heath, and good morning, everyone.
First quarter 2023 revenue increased 15% year over year to $662 million, driven by 17% growth in mobility and low double digit growth in our home division.
Net loss was approximately $4 million while first quarter adjusted EBITDA with $50 million, which was flat year over year and in line with our expectations.
NEMT, first quarter revenue of $469 million was driven by a 5% increase in average monthly members and a 12% increase in revenue per member per month.
Transportation costs per trip decreased one percent sequentially due to early successes in our multimodal partnership model.
We remain focused on our mobility initiatives to reduce unit cost and drive efficiencies, which will continue to improve performance, increase member satisfaction, and lead to better outcomes.
We expect the benefits from these initiatives will ramp throughout the year. Trip volume for the first quarter increased 5% sequentially, while monthly utilization per member increased to 8.1% compared to 7.5% in the fourth quarter.
personally due to anticipated impact of normal contract attrition from lower utilizing customers that occurred in Q1 as we mentioned last quarter.
As a reminder, there was no impact from redetermination during T1. NEMT adjusted EBITDA for the first quarter with $35 million, down 5% year-over-year due to increased service expense per trip, while we kept adjusted GNA expense flat sequentially.
We expect to realize additional operating leverage throughout 2023 from the initiatives Heath mentioned, which will help drive sequential EVA improvement.
Turning to our home division, first quarter personal care revenue increased 9% year-over-year to $174 million, driven by 4% growth in hours due to improvements in our caregiver recruiting and retention efforts, as well as a 4% growth in revenue per hour.
After experiencing very strong reimbursement growth in 2022, we expect the reimbursement environment will be in a more normal 3-5% range this year.
We expect service expense per hour could be at the higher end of this range as we focus on caregiver growth as demand for personal care services remains very high. Personal care adjusted EBITDA for the first quarter was 17 million or 9.8% of revenue.
As our initiatives build, to build for scale and grow the business continue to gain traction. We expect personal care margins will gradually improve into the 10-12% range.
In our remote patient monitoring or RPM segment, revenue increased 35% year-over-year to $18.7 million driven by favorable contribution from our 2022 acquisition of Guardian Medical Monitor.
RPM adjusted EBITDA was $6.5 million for 35% margin, which is in line with our long-term margin target.
Our monitoring business continues to perform well as we expand it to new states supporting our projected growth rates. Turning to our cash flow and balance sheet, consolidated cash flow from operations in the first quarter of 2023 was the use of approximately $3 million due to a $7 million reduction in contract payables and a $31 million increase in contract receivables.
Excluding these items, our cash flow from operation would have been better in the first quarter by $38 million.
The increase in contract receivables, which represent underpayments and receivables on certain contracts with reconciliation or risk corridor provisions, was higher than our expectations in the first quarter. However, we will be collecting on these receivables later this year, which will contribute to stronger cash flow in the second half of 2023.
Our contract payables, which primarily relate to overpayments and contract liabilities on certain NEMT contracts, were in line with expectations in Q1 at a $7 million reduction. However, we have one large settlement due in the second quarter that we previously expected would be spread throughout the year.
This will likely result in cash flow from operations in Q2 being in a similar range as the first quarter. For all of 2023, we continue to expect our contract payables and receivables will be much less impactful compared to last year.
However, our cash flow generation will be more second half weighted due to these timing issues. We ended the first quarter with approximately 13 million dollars in cash and had 15 million drawn on our revolver. Our 1 billion dollars of long-term debt was flat sequentially and remains all unsecured debt at fixed rates.
Our consolidated pro forma net leverage declined sequentially to 4.2 times as of March 31, 2023.
We continued to target net leverage of three times, which we expect to achieve in 2024, through a combination of debt reduction and EBITDA growth.
We remain committed to a disciplined and balanced capital allocation strategy with the primary focus on delivering our balance sheet.
This morning, we affirmed our 2023 adjusted EBITDA guidance of $225 to $235 million, and our revenue guidance of $2.575 to $2.6 billion.
The comments Heath made on the call should help you bridge to our full year guidance.
We think the current consensus estimates are a fair approximation for the quarterly cadence for the year and we remain confident in our long-term targets of three billion of revenue and three hundred million of adjusted EBITDA in 2025.
To sum things up, our first quarter results were in line with our expectations and we continued to see the benefits from our strategic initiatives that will drive efficiencies and operating leverage going forward.
Our team is working hard to win new contracts and grow the underlying business. Before we open to call to questions, I want to thank our entire organization for the hard work and dedication.
It's because of them that we were able to produce these solid results while helping provide high quality care and the best experience for our members.
This concludes our prepared remarks. Operator, please open the call for questions. Thank you. The floor is now open for questions. If you do have a question, you may press star one on your telephone keypad at this time. If your question has been answered, you can remove yourself in the queue by pressing one. Again, ladies and gentlemen, it's star one.
So as utilization sticks up, and obviously you have your PMPM contracts with your payers, I know on the downside of utilization you've had to refund or rebate some of your payer clients. But maybe if you can walk us through how we should be thinking about the opposite of that, you know, if I like the bands and...
maybe what mechanisms are in place to protect you if there are utilization and broader volumes to pick up on any MT. Thanks.
Yeah, so the utilization increases, like we've been saying for a while, have been steady increases as we come out of COVID and more normal trip volume takes hold and that continues to happen. The other thing, and we talked about this today, primarily we're talking about around reach termination, but it's in general our contracts that we have... We're talking about reach termination, but it's in general our contracts that we have...
Reset renegotiated to ensure that it's a win win for us and the customer as well as you see that. Now, full risk is down to 20% of our mix versus pre cobit 60%. So those structural changes in our contracts.
allow us to grow with our customers and utilization being as planned. So that's a good thing from a structural perspective. The one thing that we have to do and have been doing to ensure that we can make sure that our margins get back to where we want and at the higher range, no belly side, it's two control much more focused. So, I just got
It's the transportation cost and those initiatives are taking hold. That's again narrowing the network and ensuring that we are with our most. The partners that match what we need for that specific member, those initiatives are taking hold and that cost will come down. And then the other item, there's three items. The other item has to relate to.
messaging app and bringing that down to a normal range is going to allow us to save on that. And we're seeing that benefit right now. It really starts taking hold, both of those the second half of this year. But in line with our expectations on the execution plan, which is probably the most promising thing because we know it's working and we just need to execute on that. So.
the other item and this is more strategic.
The conversation around how important trips are to healthcare continue to accelerate.
They know the obvious ones are dialysis, but across the board the people that need transportation Are usually the most sick or the most needy and those conversations primarily with our payers Are showing the transportation is really important I'll tie it back to that. That's why we're able to change our contract
That's why we're able to, and I've said this before, not be apologetic around making a 10 to 12 percent even a margin.
So a lot there that I answered. Hopefully that answers your question, Brian . Yeah, I really appreciate it. I guess my follow up piece of a topic, you know, and fast we talked about, you know, contract with what that type of line looks like. Maybe you can just share with us, you know, some of the discussions you're having and, you know, what the landscape looks like for, you know, RFP and potential win as we look into. So let's go and take a moment. Well, first baby, do you see hello, ...
really new business and the announcements that we made today, a few of those we weren't even talking to a few months ago. So the value proposition coupled with our go-to-market approach is taking hold. We have a large...
MCO that we never talked to before, now we have a national contract. The pipeline is full. It's real. It's a real pipeline that's full. So now I couldn't be more proud and excited about what we're doing on that on the new sales side across the country.
It's not just a one-person approach. It really is a multi-pronged enterprise approach with relationships at the top, with relationships all the way down to the state-based individual procurement level and the team's doing well and the traction is beginning and I expect that to accelerate throughout the year.
Awesome. Appreciate it. Thanks, you. Next question comes from Bob Bladick from CJS Securities. Go ahead. Good morning. Thanks for taking our questions. Good morning.
Yeah, I just wanted to maybe dig in a little further just follow up on the kind of the last two answers you gave and you've given us so much information today. I'm still trying to digest it, but thank you for all the information. So you've mentioned some new wins and congratulations. That's awesome. You also said, you know, re-determination over exp period times six quarters or something could have a 10 to 15% impact on...
member, you know, attrition and addition and timing it over the next two years just to give us a sense how this plays out. Yeah, so the...
You have to break it down kind of per year or the number of quarters that we've laid out there. So for 2023, the way we have talked about it and consistently if if redetermination. Happens like we think it's going to happen in the latter part of the year. Our new wins are going to offset that.
So really it's flat, and you can see that revenue's flat. But the new winds that we are having now and expect to have throughout the year, those start coming on in 2024.
So, even though redetermination will continue into 2024, those new wins will outgrow that. Coupled with other like Medicare advantage as well. So it is expected after 2024 and of course into our 2025 targets, we will grow above the redetermination impacts. There is also the other thing with redetermination that is talked about in...
determination.
Okay, super. And then you gave us a little more details on kind of new contract structure today as well. I think full risk is now 20 percent versus 60 percent before COVID. And maybe just, again, take a half step back and explain the difference in the structure now and...
obviously the benefit to...
you and to the states and to the users and everyone involved and how these new contracts are going to be better going forward. Yeah, and so COVID and really when I got here a couple years ago really highlighted that we had a misbalance in these contracts.
We did very well at the expense of our customers in 2020 and 2021.
Even before that, by the way, in 2018 and 2019, it was the opposite. Our customers did very well and we didn't. So when I got here, this doesn't make sense. This win-lose relationship that was anchored on this kind of capitation that happened five, six years ago. You look
the business in transportation in NAMT changed over these last 10 years. We were not kind of caught up to this win-win relationship. And you couple that with what has happened really over the last couple of years in COVID and continues to accelerate. I touched on this a little bit with Brian's question.
healthcare now realizes or has realized, but now it's an important focus because we were able to track and have data. Transportation matters. It matters to people's clinical outcomes eventually. So you put all that together, we have been enabled to change the contract where we actually...
have a win-win relationship and as whether that's utilization or cost fluctuations happen, we share in the upside and downside with that. So the change to where we are today, I expect that to continue.
So 60% pre-COVID on full risk, which full risk again is we get a PMPM and then we're responsible for everything regardless of cost of utilization.
Now the contract has worked where there is a sharing within that utilization change or cost change. Again, I expect that to continue and that contributes again to the rigidness in our margin profile.
And especially when we get to the high end when we finish off with these initiatives like I articulated a little bit earlier. Yeah, he says if I can add to that, we see that going into these new contracts and procurement of all our pending wins coming up. So.
All the clients are moving towards, hey, let's look at this from a shared risk perspective. So we do see that bucket of our contract profile continue to grow. Okay, that's super. That's great news and appreciate the explanation as well. I'll jump back and cue. Thank you. Thank you.
Yeah, thanks, Bob. Thank you. Our next question comes from... I'm sorry, cat. Scott Fadell? Yes, Scott Fadell from Stevens. Go ahead. Great. Hi, thanks. Just wanted to start out, just appreciate the commentary on the...
thinking sort of longer term if the proposal went into effect, you know, over four years, would that have any impact on your 10 to 12 percent margin target for the personal care segment and looks like in the first quarter you did around a 22.5 percent gross margin.
Would you have the ability, I guess, to offset that if, in terms of G&A, if there was a 20% margin cap for gross margins? Clearly, there's probably going to be definitional flexibility from CMS, I would imagine, around that, but I just wanted to get your thinking on that long-term 10% to 12% margin target if that is secure, if this proposal would go into effect.
Yeah, well, you set it up very well. So the opportunity for us as this gets put in place.
to ensure that we have things centralized, the back office and a lot of shared operations. The wonderful thing about personal care.
The simplicity of hiring caregivers and servicing the member.
It's actually relatively low cost. The majority of that goes to paying the caregiver.
What's happened and we're still through this transition and same with the cross the entire industry and for sure with mom and pop there's a lot of administration cost within each of these offices.
and the opportunity to take those costs.
A way to free up those people to hire and retain and service is right in front of us. And we're part way through that journey. So yes, companies like us that really focus on that, invest in that one platform, one system.
centralized back-off, centralized core operations are going to be able to reduce their G&A costs and therefore make these margins that we have talked about long-term. So I feel really good about it. You can see in the script.
I am mostly, I'm really bullish on what personal care does for our country and CMS sees that. This proposal coming out I view as a good thing, though there is a little disconnect that you talked about right now as a kind of 2% difference. That's going to be worked out.
Companies with sophistication and scale are going to do very well here. So yes, I feel good about our long-term margins. I'm excited about what this industry is doing. And we'll see how these next number of quarters and years pay out on those regulations. But again, I think it's all positive. Okay. And just a follow-up question. I guess.
I want to hopefully try to get our modeling as accurate as possible as we can on the NEMT margin. And then on operating cash flow, I know you guys sort of gave us some of the updates on the impacts for the second quarter. Might be helpful if you have a full year view on operating cash flow in terms of your 2023 expectation there now. Thanks.
Yes, I'll start. The operating cash flow is I think consistent what I talked about in the past around now the and the the clarity that we talked about a little bit, but I'll be more specific around that the Q3 and Q4 is really where we get the the the working capital kind of big fluctuations happen in Q1 and Q2 and they'll be
Q3 and Q4.
From a margin perspective on on Mobility side is twofold. It's the it's the cost per trip that we pay That has improved And I expect that to accelerate throughout the year and that again That's that's on getting the right members and the right modality to our members at the right cost and that's working And I expect that to be
kind of ramping throughout the year at the current pace that it is. Yeah, the other component of our service expense is calls, which Heath mentioned earlier. So as we ramp those down through the initiatives in the second half of the year, we'll see that a new company sharing its own value out of $3.5 million I think, to ah,
margin benefit from that as well. Yeah, and you can see we have like 20 million plus calls. Majority, majority of our interactions are calls. So you can see that that lever is, is a big lever that we are pulling, and we're seeing that traction, and it will accelerate through the year. So tangible, tangible actions. if
Taking hold, I expect that to be kind of a consistent ramp, but more importantly, in probably in Q3 and Q4, accelerating as these initiatives take hold.
So, where would you see that that sort of margin, you know, obviously your longer term range is 9 to 12% as you see those initiatives playing out. We're sort of the exit rate on the margin that you would be thinking about, you know, and for Q. let's say versus the 7. and a half. So, for where we are the extra rates that was gonna be on the lower end of our range, but really accelerating. So I think the right.
approach For where we are is to think about it being on the lower end of our range as we're exiting this year Okay, all right. Thank you And our next question comes from Peter trickering from Deutsche Bank go ahead Peter No, yeah, good morning guys. That's two questions a little more detail
in a fourth quarter and then where it specifically does a payroll and other costs for a trip and the you know in a fourth quarter.
So just to be clear, the purchase services are going to be related more to the transportation cost. And the payroll another is primarily where you're going to see benefits coming from the reduced call volumes. And so yeah, I can let the heat share a little more commentary on.
So just to be clear, the purchase services are going to be related more to the transportation cost. And the payroll another is primarily where you're going to see benefits coming from the reduced call volumes. So yeah, I can let you share a little more commentary on thoughts on the year on that. So you're going to see benefits coming from the reduced call volumes.
Well, again, I think it's the same set I just talked about with Scott. I expect those to continue to increase the improved those margins, combined with that getting us to the lower end of our range on the EBITDA side of kind of that 9-10% range exorrate.
All right, fair enough. And then sort of a follow-up on Brian's question, just to be clear here, as the NEMT, you know, the utilization increases with the new contract structure you guys have, is that an EBITDA dollar increase? And how should we think about increase of utilization relative to EBITDA margin on NEMT? Well, so…
And that's always the challenge on our contract and you know this, Peter, right? So when we talk about the margin percentages that we talked about, there's a lot of things that happen within that based on our current contract mix.
So, in some areas when cost goes up, that affects our revenue line, but it actually hurts our percentage line. So that's why, based on the mix we have, we think that we're going to improve the margin percentages.
in a consistent way based on the cost cutting that we have, based on the utilization in the contract mix that we have to happen. So, what was the...
Well, ask your question again to make sure I answer it. Yeah, no, it's I mean because you know these contracts have changed. I guess the question is it just sort of very very simplistically if the collision increases, that is now a more revenue driver therefore, should we see increased utilization as a EBITDA dollar increase.
yet maybe more of a margin pressure, but even dollars go up? Yeah, okay, so that's what you see here right now. Yes, that's the nature of, with our current contract mix, when if expense goes up, we share in that and a lot of that goes to the revenue line, but the cost line is also going up, so the percentage will be down, but the dollars...
which is why we get back to those margins that I already articulated. And I expect those to improve based on all the initiatives that we have as well. The offset that contract mix phenomenon that you just articulated. Yeah, I see. The contract mix shift as beneficial to us, providing us that protection so that as we do get that payroll and other line addressed through reduction of call volume, that's where you see the margin percent benefit. Great. Thanks so much.
And our next question comes from Miles Highsmith from Deutsche Bank. Go ahead, Miles. Hi. Good morning, guys. Thanks for taking my questions. Just had a couple. I was wondering for 2023, we've talked about operating cash flow.
And you talked about the contract line items around the payables and the receivables together having an impact of roughly $38 million for the quarter. I know you've given some directional comments, but is there anything you can give us in terms of a full year expectation related to that $38 million?
what would that look like on a full year basis? And then my follow up is you talk about on the redetermination side, if I'm hearing your comments earlier, right, Heath, it was some of these guys that are gonna fall off might be lower acuity, and I think you made the comment that could change my mind.
have an impact in terms of type of trip or the number of trips. I was just hoping you could revisit that a little bit. Is it right to think that like these are, you know, patients with fewer trips and that's why the, you know, the average hit might be less to you than if it were an average member. And then if there's
Anything you'd be willing to quantify in terms of trips per patient or anything. Anyway, we could look at it as we kind of model better. That would be great. Thanks. Yeah, I think Miles, this is Dan. I'll take the first part of that question on the contract receivable payables. So we do see the increase in the receivable side of the house in Q1, you know, combination of cost and utilization and the protected nature of our contracts.
We expect that to level off as the collection side of that normalized in the second half of the year. And we do have payables coming down throughout the second half of the year to normalize as well. So you should see that level off in the second half of the year as we expect. And then on the re-determination and the RRR.
Our disclosure around the redetermination is primarily people that aren't utilizers. The reason why we disclose that is similar to the question that PEDO had.
Our disclosure around the redetermination is primarily people that aren't utilizers. The reason why we disclose that is similar to the question that PIDO had. It explains why...
You know, from a utilization perspective, you could see that being higher because that's the phenomenon of people going away that don't take trips. But the reason why we also talk about our contract mix, you see that being shared. So, even though utilization is up, you're seeing that being shared in the way our contracts are structured. So, it's helping you model the coming out of COVID with redetermination.
and showing that our contracts actually work. So even on what Ken just talked about, the increase in receivables is right in line with how we organize these contracts. And they, out of the, we had a lot of noise with paying back COVID expenses in 2022. Those now are done. Now you see the normal fluctuations between receivables and payables that are happening.
Here in 2023, we still have a little bit of noise that's happening in Q1 and Q3 on on coven stuff, but the majority of our. Working capital fluctuations as evidenced by what Ken just talked about have to do with. The way our contracts are set up.
Thank you very much.
Hello, next question comes from Mike Batuski from Barrington Research. Go ahead, Mike. That's again, you get my one.
Good morning. Good morning, Mike. Hey, a couple people sort of asked about this. I feel like they've gotten to the two yard line, one yard line. I'm going to try to get this over the goal. Talk about free cash generation. Look, heavy cap acts quarter.
You're about 16 million negative free cash at one time, at one time, and I understand what we've talked about over the receivables and the payables. But at one time, we're talking about 80, 100 million of free cash generation this year. That does not look like it's going to happen. To me, it feels like free cash probably would be somewhere close to a flatish, maybe, in the second quarter, and then more normalized after that, which would sort of lead to maybe.
30, 40 million of free cash generation this year. I mean, can you just sort of comment on sort of the math I'm trying to sketch out there? Thanks.
Yeah, no, I think you're walking through a decent way of thinking about the first half of the year, but then as we think about the second half of the year, we'll also benefit from the reversal of some of these build and receivables. We're gonna be collecting on these receivables in the second half of this year, and so that's gonna be, from a working capital perspective, a benefit. And then...