Q3 2023 ModivCare Inc Earnings Call
Good morning, and welcome to the motives can't third quarter 'twenty to 'twenty three financial results Conference call.
At this time all participants are in a listen only mode.
A brief question answer session will follow the formal presentation, if anyone should be quiet operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note this call is being recorded.
I would now turn the call over to Kevin Cole.
Head of Investor Relations Mr. Elliott you may begin.
Good morning, and thank you for joining motor carriers third quarter 2023 earnings conference call and webcast joining.
Joining me today is Heath Sampson, both Carey's President and Chief Executive Officer, and Barbara Gutierrez, Medicare's, Chief Financial Officer.
Before we get started I wonder remind everyone that during today's call management will make forward looking statements under the private Securities 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 Companys filings with the SEC.
We will also discuss non-GAAP financial measures to provide additional information to investors.
Definition of these non-GAAP financial measures and to the extent applicable Ah reconciliation to their 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 chair dot com.
This morning Heath Sampson will begin with opening remarks favorite Gutierrez will review our financial results then we'll open the call for your questions.
With that I'll turn the call over to Heath.
Good morning, everyone and thank you Kevin I'm proud of our commitment to deliver high quality supportive care to our 34 million members. This quarter, we were able to show significant improvement in many areas, which resulted in strong third quarter results.
We generated robust free cash flow of approximately $45 million.
Are any empty our mobility adjusted EBITDA margin sequentially approved by.
150 basis points to seven 3%. Additionally.
Additionally, we delivered on our commitment paid down $43 $5 million on our revolving credit facility lowering our bank defined leverage ratio to four six times.
It's been a year since I took the permanent rain and that journey has been and likely our strong performance. Our direct result for me enhancements and progress we've made across numerous parts of our business right.
Recognizing the near term challenges, we face, which may have been more pronounced than initially perceived addressing them demanded targeting investments in bold decisive actions.
While these actions caused some short term headwinds, particularly in Q1 and Q2 cash flow margin.
Undeniably the right choices essential and position us for a promising future.
As we navigated. This transformative here are of course has been guided by four strategic pillars people.
Operational excellence growth and innovation.
Now, let's dive into a few of these achievements within these pillars.
In regards to people we've rebuilt the organization and had been laser focused on off the amazing talent aligning our teammates with our vision and values during.
During the quarter, we welcome two new members to our executive leadership team.
Enrique Toledo, as our new Chief people Officer, and Barb Gutierrez as our new Chief Financial Officer.
I couldnt be more excited to partner with them and all the new leaders, we have that have joined motive care for the last year or so.
Through disciplined financial management, our structured accountability framework and streamline process management, we have significantly advanced towards operational excellence, which has enabled us to address challenges, including the repayment of contract payable in our mobility business.
Reducing our leverage this quarter and laying the groundwork to improve the flexibility of our capital structure.
We are dedicated to developing scalable operations fortified by automation and AI technologies.
Such initiatives are important to enhancing operational efficiency elevating service quality, expanding our revenue model and ensuring long term margin stability.
With respect to growth, we broaden and strengthen their customer base with new and existing relationships.
Our distinct advantage lies in the fact that we have more frequent access to our customer members more than maybe they'd himself to do.
Through the provision of supportive care services that assist members and managing their daily lives, we foster genuine connections with them and build trust.
This established trust subsequently empowers us to engage and intervene on behalf of our customers.
We now have earned the right to do more for their members because we now deliver exceptional service.
Now, let's provide some segment highlights for the third quarter, starting with mobility.
This segment had been transformed through three main initiatives.
Multi modal trip assignment.
On the channel member engagement and customer integration.
These initiatives are the drivers of our $30 million to $50 million cost savings target of at or targeted over the next 12 months.
Drilling down on each initiative, starting with multi modal trip assignments, we've deployed sophisticated automation and AI algorithms to or an array of transportation modalities that best fit our members' needs.
Whether it's through our network of providers offering everything from standard sedan to wheelchair accessible vehicles.
Two advanced or basic life support or through our TNC, a rideshare partnerships or even mass transit and mileage reimbursement, we ensure that our members received the right service at the right time at the optimal cost.
Next is our Omnichannel member engagement, which is more customer oriented and focused on reaching our members where they are whether it's through the phone and the internet.
Overlap.
D. A R E R text messaging or even automated chatbot.
By providing flexible points of engagement, where not only enhancing member satisfaction, but also reducing operational costs.
Lastly, customer interface is crucial enhancing both our operational efficiency and customer relationships.
We've introduced real time eligibility and insights directly into our customers' digital platforms. Furthermore, we aimed to merge our technology into our customers call centers, allowing them a closer management of member experience and concurrently reducing our operational costs.
The financial impact of our mobility operational excellence initiatives is primarily reflected in our payroll and other expense per trip metric, which decreased one 5% quarter over quarter and drove $1 million of cost savings during the quarter.
Keep in mind some of our mobility initiatives were implemented mid to late quarter and on a run rate basis, our cost savings would have been more like $2 million to $3 million had they been abra operation wise for the full quarter.
Other initiatives, specifically, our multi modal strategy will reduce purchased service expenses per trip, which is an important metric for our full risk contracts and honoring our commitments to all our customers.
Moving to Medicaid Redetermination, which is unfolding as expected and tracking in line with our internal projections.
Further corroborated by external sources, such as Kaiser and CNS.
Our shared risk contracts are operating effectively and that's intended safeguarding our gross margins against the backdrop of increasing utilization and cost.
The challenges brought about by Medicaid Redetermination, notwithstanding our margins margins consistently matched our forecast this instills confidence in the accuracy of our internal Redetermination model.
As it stands we are going to be in line with our 2023 expectations for Redetermination.
As well as our expectations for 2024, which we expect to be a $20 million to $40 million impact.
This impact will be mitigated by our $30 million to $50 million cost saving initiative over the next 12 months plus our sales growth.
Over the past year as we frequently pointed out our mobility revenue has been grossed up by pass through trip volume and Cos.
This trend has become increasingly evident as health care utilization returns to an expected normalized level.
Though this may make a challenge to understand our percent margin within this pass through revenue our shared risk contracts with their customers are protecting the downside to our cash flow, creating a win win situation for us and our customers.
Again from a revenue perspective, our primary focus is growing our sales pipeline.
We're optimistic about realizing the benefits from new wins this year and next year. For example, we continue to add win.
This quarter, we won new mobility MTO business with a total contract value of $138 million, most of which will start in 2024.
Now to personal care.
Our revenue is healthy and growing in mid single digit.
Personal care hours continue to trend in the right direction, and we expect 3% to 5% hours growth for the year.
The personal care reimbursement environment remains good as we received rate increases in several states that correspond with the higher wages for caregivers.
Our margin margins are stable and as expected.
As noted earlier, we expect operating expenses to decrease as we complete centralizing and standardizing and automating in 'twenty 'twenty, four which will enable us to maintain our adjusted EBITDA margin target of 10% to 12%, while continuing to invest in growth.
On the regulatory front within P. C. S. Specifically CMS has proposed H C. B S rule, we remain aligned with other industry stakeholders and expect the final rule could be issued during the first half of 'twenty 'twenty four and then would be implemented over the next four years.
Other than the 80 20 position, we're generally supportive of the.
Proposed rule it is focused on quality and safety measures increased transparency and the rate setting process.
We also believe the proposed rule could benefit companies like ours that have professionalized operations at scale with enterprise level compliance program.
And the remote patient monitoring segment.
Revenue growth is solid and prep and driven primarily by industry, leading referral sales penetrating new Medicaid market with personal emergency response or purse.
Going beyond pairs are monitoring and innovation teams are making meaningful strides and exceeding our customers' expectations by improving quality measures and increasing member satisfaction, while reducing costs.
Additionally, our sales team is taking advantage of these new capabilities.
Having closed 17, new programs this year, including six this quarter.
Our customers find our services make a real difference beyond the services that we provide we're not just sending emergency alerts to case managers, we're providing insight that improves patient care, while driving down costs.
For example, a recent pilot study with a leading commercial pair showed that members who are integrated with our tech enabled care center anchored by our foundational supportive care services experienced a remarkable 71% reduction in costs.
This pertains to individuals with disabilities, the elderly and those in need of long term care services understandably this customers eager to expand with us to the next phase of the program.
Did you do risk assessments are another example of our innovative offering.
Unlike our customers, who struggled to proactively risk stratify the population because of the challenges they face engaging their members we can do it and this is unique.
These new value added services on the shoulders of our trusted relationships.
And differentiate us from our competition, we will share more about the financial aspects of these new services when we discuss our plans for 2024 early next year.
Next a quick update on our equity investment in matrix medical which holds significant value.
Matrix has consistently performed well over the last few quarter aligning with our monetization expectations for adjusted EBITDA between $50 million to $100 million.
We own 43, 6% minority stake in matrix and we remain aligned with our partner on a timeline to a monetization.
We look forward to unlocking it's unrealized value as it also helps to fortify our balance sheet further position positioning us to capitalize on growth opportunities.
Before handing the call over to Barb I want to extend my deepest appreciation to the entire motive care team for their relentless dedication and effort.
The past year presented a number of changes each with a set of challenges yet the team is undeniably fortify our foundation.
Our robust third quarter results not only underscores the financial resilience of our platform, but also highlights the substantial cash flow generation of our business.
This in turn AIDS in our deleveraging that we can focus on growth and driving long term shareholder value.
Now I'd like to pass the call to our CFO, Barbara tariffs, who will provide an overview of our financial performance for the third quarter.
Thank you Keith and good morning, everyone before I provide the third quarter financial review I'd like to say that I'm thrilled to be here and very excited for the future of bogus care.
As Keith mentioned in his remarks, our quarter was highlighted by strong free cash flow of $45 million and Emt adjusted EBITDA margins improved by about 150 basis points sequentially to seven 3%.
As a repayment of $43 $5 million on our revolver, which reduced our bank defined net leverage ratio to four six times.
Third quarter, 2023 revenue increased 6% year over year to $687 million driven by approximately 6% growth in our mobility segment.
6% growth in our personal care segment, and 5% growth in remote patient monitoring.
Net loss was approximately $4 million. However, adjusted net income was $20 million or $1.44 per diluted share.
Adjusted EBITDA in the third quarter was $51 million.
G&A expense was lower on a year over year and sequential basis due to leverage created from our restructuring efforts net of strategic Reinvestments made in innovation and growth activities.
We will continue to balance our opportunities to drive efficiencies and leverage in our cost structure, while promoting and generating growth.
N E M T third quarter revenue of $486 million was driven by a 10% increase in paid trips, partially offset by a 4% decrease in revenue per check.
The decrease in revenue per trip was attributed to 3% lower purchase services expense per trap, which flows through to revenue in our shared risk contracts.
Total membership decreased six 6% year over year to $33 7 million members.
On a sequential basis.
Average monthly members during the quarter decreased 2% driven primarily by the impact from Medicaid Redetermination, which was in line with our expectations.
Sequentially any empty gross margin increased 80 basis points as transportation cost per trip decreased 5% sequentially to $41 in 'twenty, one sets well payroll and other costs per trap decreased one 5% to $7.30 driven.
And by our strategic initiatives to improve unit cost through our multimodal delivery strategy and our Omnichannel communication strategy respectively.
Paid trip volume in the third quarter increased 1% sequentially and monthly utilization per member increased eight 7% compared to eight 5% in the second quarter, which was in line with our expectations.
As a result of our strategic initiatives any M. T. Adjusted EBITDA for the third quarter was $35 million or seven 3% of revenue, which was 150 basis point sequential improvement from five 8% in the second quarter.
The improvement was driven by a 4 million dollar reduction in adjusted G&A as well as improved gross profit per track.
During the quarter Medicaid Redetermination reduced our Medicaid membership by approximately 1 million members, bringing our Medicaid membership to approximately 27 million members.
Since April 1st Redetermination has adversely impacted our Medicaid membership by about 5% and is tracking in line with our original target of a 10% to 15% growth impact on membership.
Redetermination impacted adjusted EBITDA by approximately $3 million in the third quarter and the effect was always in our full risk contracts.
The impact was in line with our expectations for the quarter and our full year expectations.
We continue to expect the impact of Redetermination for the second half of 2023 to be $5 million to $10 million, which is reflected in our guidance. We also continue to expect a $20 million to $40 million adjusted EBITDA impact from Redetermination in 2024.
It's important to remember that we are materially protect protected from redetermination on our shared risk contracts, which account for 65% of our any empty revenue.
Even though we will lose some Medicaid members in shared risk contracts, we will receive a corresponding increase in revenue P. M. P. M. On the remaining Medicaid members, resulting from higher utilization because of the construct of these contracts, thereby protecting our gross margin dollars on the majority of the N E M.
T business.
Our risk or exposure to Redetermination is primarily on the members we lose in full risk contracts, which account for approximately 20% of our N E. M T revenue.
Turning to our home division third quarter personal care services or P. C. S revenue increased 6% year over year to $180 million driven by a 2% growth in hours and a 4% increase in revenue per hour.
Third quarter P. C. S. Adjusted EBITDA was approximately $18 million or nine 8% of revenue, which is in line with our commentary from last quarter and at the lower end of our long term expected range of 10% to 12%.
In our remote patient monitoring our RPM segment revenue increased 5% year over year to approximately $20 million driven by new referral sales and business wins.
Well year over year growth this quarter was lower than prior quarters, we expect growth to rebound going forward and still expect full year revenue growth in our long term range in the mid teens.
Third quarter, RPM, adjusted EBITDA was $7 $2 million or 36% margin.
We continue to expect long term RPM adjusted EBITDA margins will be in the mid 30% range.
Our monitoring business is performing well and 2023 is proving to be one of its most productive years for winning new deals referrals growth and adding strategic programs with customers.
Turning to our cash flow and balance sheet during the third quarter, we generated strong free cash flow of $45 million driven by cash flow from operations of $53 million less capital expenditures of $9 million, which was one 3% of revenue.
Positive operating cash flow was driven by lower working capital needs as contract payables was a source of $24 million and contract receivables was a use of $9 million for a net benefit of $15 million.
Now the contract payables and receivables are at more normalized levels going forward. We believe the net balance of payables and receivables could be plus or minus $20 million to $30 million annually in either direction based on our contracts and timing of payments and settlements.
During the third quarter, we repaid $43 $5 million on our revolving credit facility ending the quarter with a balance of $83 million as of September 32023.
Our $1 billion of long term senior unsecured debt was flat sequentially and up fixed rates with a weighted average cost of long term debt at five 4%.
In the fourth quarter, we have semi annual interest payments of approximately $30 million, which means our free cash flow is expected to be nearly flat. After these payments.
There's still puts us on track to achieve our second half of 2023 target of repaying $30 million to $50 million on our revolver.
Our bank defined net leverage ratio declined sequentially to $4 six times as of September 30th 2023, compared to four seven times in the second quarter.
Our primary use of free cash flow going forward will be to pay down on our revolver and delever as we remain committed to a disciplined capital allocation strategy.
There's an updated cash flow bridge in our quarterly investor presentation on our IR website, which illustrates cash flow for each quarter.
Frequently we are asked about the refinancing plan for our 2025 unsecured senior notes.
As a reminder, the interest rate on these notes is five and seven days and the bonds mature in November of 2025.
We are diligently assessing options based on deep market insights and actively monitoring market trends to determine the optimal time to refinance with a goal of maintaining the maximum flexibility in our capital structure.
Turning to our 2023 guidance, we are maintaining our guidance for revenue in a range of $2 75 to $2 $8 billion and adjusted EBITDA in a range of $200 million to $210 million. However, we currently expect full year revenue to be near the low end of our guidance range.
Due to lower revenue pass throughs and mobility as a result of lower than expected purchase services expense per trap.
In summary, we are extremely encouraged by the financial results and significant cash generated in the third quarter. We continue to make progress on our strategic initiatives and the results are showing up in our operating metrics, which all trended in the right direction. This quarter, we still have more work to do but it's great to see the product.
And the momentum.
I'd like to thank Keith and the team for welcoming me and once again I'm thrilled to be here.
I know, it's all our team members from our caregivers and drivers in the field to all of our support functions that make our company succeed and provide high quality service and care to our 34 million members.
Want to express our heartfelt. Thank you to all of our team members for their passion and commitment.
I also look forward to speaking with and meeting many of you on this call over the next several months.
This concludes our prepared remarks, operator, please open the call for questions.
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All participants using speaker equipment, it may be necessary to pick up your handset before question just Archie one moment, while we poll for your first question.
Our first question comes from Peter Chickering with Deutsche Bank. Please proceed.
Hey, good morning, guys and thanks for taking my questions.
Liam.
So you can talk about this in the script, but if we could just go back.
Looking at your two Q3, Q revenues were a bit softer.
Did you look revenue per trip and the utilization ticked up <unk>, 7%.
The lower G&A and also lower survey servicing expense per trip just trying to understand.
She goes up sequentially, but service chip for expense goes down how sustainable are these DNA levels in service.
Trip and how much of these savings are from G&A from automation or.
Getting better cost of drivers.
Hey, good morning, Peter.
So first on the revenue side as you know.
But from an A&P perspective.
Big discussions that we've been having for the last quarter and this continues as well it all kind of relates to our pass through revenue our shared risk contracts and those so that's the main driver for the revenue being being lighter is the.
The nature of our shared risk contracts and not as much pass through as prior quarters. So again contracts working working as can be which is why we automatically go do what does that mean to the bottom line for us really is which is.
The EBITDA and the margin improvement you are seeing <unk> strong EBITDA dollars and also margin recovery a lot of that is the phenomenon that I talked about with revenue being a little bit lower but it's also the initiatives that are starting to take hold whether that's in service expense for G&A. So we're getting leverage we're seeing automation and and at star.
So it's a strong margins improving we've got a ways to go still but we're on the right track and we're performing as expected.
So just be clear serve these margins are the right ones are models for in the near term for any empty.
Yes, that's the right way to think about it continue.
Continue to improve this one was a little bit higher because of the revenue being a little bit lower but we're making progress and we expect the margins continue to tick up.
Each.
Each quarter as we get into 2024 and exit 2024.
And then on cash flow you could talked about payables and receivables for these normal levels, that's for $20 million to $30 million swing annually because Lucas.
Dsos are down significantly to about 26 eight days to Lewis I actually had my model is this a run rate run rate going forward or anything as a one times. The question process and then do you have any cash flow guidance, we should be thinking about for fourth quarter. Thanks. So much.
Yeah, so the the D S. So.
Sometimes it's hard to calculate because of the competition nature of our contracts. So youre looking at it right, but the way I would talk about DSO is.
From our receivables within or around six to nine months payment term and our payables are around nine to 12 month payment terms and those are big contracts. So sometimes you see it being a little bit lumpy each quarter because of those payment terms, but unlike in the past wherever you had.
<unk> had a lot of payables because of Covid now theyre, adding more matching level. So we expect that the swings will be as large as the swings that we have now we're right in line with our expectations and I would expect to see those each quarter is more normalized but still have some swings each quarter, whether that's <unk>.
They were negative from up from a net perspective on receivables and payables.
And then to do it's the cash flow consistent with what we said last quarter. We gave a second half year guidance of $30 million to $50 million and why we gave a second half year is because one we're generating cash as you see we expect to continue that fourth quarter and beyond but in.
The fourth quarter. We also have our twice a year interest payments of about $30 million as well, so obviously with being $45 million of cash generation now we feel really good about hitting our target between 30 and $50 million.
For the end of the year as well.
Great. Thanks, so much nice quarter.
Thank you.
Our next question comes from Bob Lafleur with P. J S Securities. Please proceed.
Good morning, and congratulations on a strong quarter and a welcome to Barb and looking forward to working with you.
The same looking forward to working with you.
Great. So I wanted to start you gave us a ton of good information you talked about redetermination.
And you talked about some additional contract wins can you give us a sense of kind of member numbers over the next six to 12 months and how it plays out and maybe more so just listening to your script to discuss it a little bit in the context of full risk member number changes as we play out you know your wins come in.
Redetermination goes out just to kind of give us a sense of your visibility and end and what we should expect over a six to 12 months.
Yeah, so from a from a wind perspective again, we couldnt be more proud of the team that we have in place.
Whether that's in people that have been hired to do hunting, whether that's account management that is growing whether that's marketing whether it's products or our entire new go to market strategy is taking hold and resonating and we are winning and we're seeing parts of attention in the market. So we're given the kind of guidance guidance were given results every.
Quarter around kind of caught TCE or total contract value. While we're doing that is it has been successful and then in addition, as more than one year. So were going to youre going to start seeing the stacking of our part of our revenue coming in as we know it is still a long sales cycle and a lot of these wins that we have.
Recently had a lot of it is going to come on in 'twenty four or mid 24. So we're still kind of recovering on how we're going to flow through the revenue line, but we feel really good so.
The right way to think about the membership is kind of this debt.
The contracts, where you're winning are not any different from a pricing perspective or a volume perspective of what we had in the past. So you just take the revenue and you divide it by the numbers of members. So we haven't guided to the membership increase, but we're winning more than more than than than what's coming out the door and we feel.
And really good about the revenue side of things and then that's a really important driver for us to continue to get scale on our expenses in our G&A and you're seeing that now and that will continue into 2024, but the other item within redetermination that.
Needs to happen and is happening is to modernize and automate.
Our platform within any empty and that is happening and we started to give some metrics and guidance around that.
And that will that coupled with revenue we feel really good about managing our redetermination. We reconfirmed with Redetermination is we feel really good about it we were right on and predicting what is happening in 2023 that gives us more conviction on what's happening in 2024 as well so.
Yes.
Anything else Firebird, yeah, yeah. The only the only thing we did we did mention that we do think overall the impact on our membership will be in that 10% to 15% range.
In terms of membership from Redetermination.
Got it okay, great and then just you kind of alluded to this a little bit, but maybe discussing the you know the actions that you're taking in order to drive the $30 million to $50 million in savings I think you know bucket is maybe more multimodal omnichannel membership in the.
Digital customer integration if I'm on the right slide you can give us a sense of kind of order of magnitude, which are the like not not exact dollars, but the most money for multimodal or you know, which is the highest and which is lowest in terms of those savings and how hard they are to get them.
Yeah. So.
So omnichannel member engagement. So that's the con how we engage with our members whether that's on the phone or via technology.
It's probably 50 plus percent of the cost savings.
The multi modal is probably another 20%, 25% and then the delta is in that kind of digital customer integration side.
So all of those specifically the first to the Omnichannel and multimodal are initiatives that are starting some further along than others, but we have a really strong plan, we're making a lot of progress specifically in the automation of our.
In the Omnichannel side, we have our app up and running.
One of the top apps within Apple store and within within.
Together.
Google So we're really doing well text is improving IV or V. A we had a we had a.
A message that went out a couple of weeks ago, but that's moving to Genesis that coupled with bots. So we're really happy about our omnichannel approach as well as multi modal multimodal for US has been a long strategy for us and it's a strategic shift ensuring that we are moving to partners within the transportation providers are really new.
Growing the network and giving volume.
Hoover and Lyft, our partners of ours, and we're integrated more with them. So you just go across the board there's numerous initiatives under each of these so yes lots of execution hard is just work to us.
And and we feel really good about getting that $30 million to $50 million within next year and even even more so.
If you look at the cost base, which is made up of manual people right now we feel really good about the 60 to 80 in total.
And then last one on digital and this is this does get cost out but it also is really high on customer satisfaction, and that's where we are integrating and providing data to our customers. So they can properly manage the member experience and even start changing the outcome. So all three of these are getting cost out.
All three of these are having higher member satisfaction, a higher customer satisfaction and couldn't be more excited about the team. We've got in place and we will keep updating you every quarter on these metrics.
Per trip metrics that really show that we're making progress.
Super Thanks, so much.
Thank you. Our next question comes from Brian <unk> with <unk>.
Please proceed.
Good morning, you've got <unk> on for Brian. Thank you for taking my question and bar, we look forward to working with you. So to start off maybe Keith I'll send the first question to you. We know the company has gone through a lot has changed since you took over so maybe can you talk about your strategy for the next few years and what are the risks and other opportunities you see over the next.
One to two years and also you know I guess, how that value based strategy fits within that.
Yeah, Yeah, no I appreciate that that's probably the teammates that are let's say that they're listening to the recording and theyre going to be yeah. There has been a lot of change.
So it all thanks to them. So you go across the board. If you think about what's happened from a people perspective barb sitting here.
And everybody else that has joined the team and even below that theres been a shift to new competency within the people side.
Just a couple that I really want to point out it was really going to product capabilities people that understand the lifecycle and true future of where these services are going we've added a lot of people their development technology people.
And then of course innovation and then our salespeople. So there is there's been a reallocation in rehiring of of people that complement what we do everyday in the field.
So a lot of changes and a lot of opportunity there process across the board heavy discipline daily weekly monthly from a process perspective, and metric perspective, as a as a new culture for us and I couldn't be more excited there and then on the tech side, there's been a lot whether that infrastructure thats going to help us scale all the way from.
Companywide ERP to platform.
Andrew platforms across personal care, that's happened and then even below that how are we adding value with with her getting analytics using AI to help us really change outcomes. So it's been across the board now that we have those components in place Theres really just bringing that together and scaling that even more.
And that's a big part of next year is to finalize.
This new approach.
And ensure that.
We have the best service for each of our point solutions at the lowest cost. If we just finished that which is our plan and a lot of the questions that came before or around that and then when we start bringing these services together.
Value based care and this is where I want to spend a little bit of time.
Value based care to us our customers, whether that's a pair or whether that somebody that the payer has offloaded risk juices. Some other risk bearing entity. Those are the people that take risk they are our customers, but here's what they value with us because we do these services, whether that's a device.
At home, whether we have a person in the home doing personal care, whether that is somebody thats driving or whether that's somebody that's connecting via via our contact centers. We have access that they don't have.
But now because of our competencies around process and specifically around tech enablement. We can we can start tracking a member longitudinally and you put some clinical support behind that we can actually start giving data and helping our customers.
Change outcomes has higher satisfaction as you know CMS or states high expectations on ensuring that happens. So what does that do for us. It is just a trampoline or a further acceleration on selling our point solutions and being sticky and then on top of that creating additional revenue sources were good.
<unk> paid and sharing in those risk bearing entity. So.
Our strategy is meeting warehouse carriers going gross in people that are they're getting older.
People that are sicker and of course, the challenge is on cost.
Marries well with with where our company is where the market's going and so that's really excited about continuing to do that each year on year.
Great really appreciate that and then just one follow up I know that we've kind of talked about the margins pretty extensively so shifting to cash generation. Obviously this quarter. It posted a solid results. So as we look post 2023, you know can you just talk about what gives you confidence in your ability to sustainably deliver.
Free cash flow positive free cash flow.
Mhm yeah.
Yeah. So.
If you look at our individual businesses and I know these last couple of quarters, specifically in the mobility business, we needed to get past some of the Covid.
Ms balanced between payables and receivables and work through that and you see it showing up in.
In Q3, and we expect that to continue in the in the personal care and monitoring side very strong margins right now those margins.
On the personal care side, we're on the low end I expect those to.
To get stronger as we finish our centralization standardization automation. So so that that business very strong rigid margin, it's all about growth there.
And then that's where I'm going with the strategy that I talked about earlier married with our new go to market strategy those margins strong how do we grow there so really that the item that all of you are looking at and that we should continue to pay attention going forward. It's the it's the mobility or in E&C margin.
The good thing for us because of all the work we've done over the last 18 months two years. We have these contracts we have a win win with our customers. So there's kind of downside risk on margins going.
What they were prior to COVID-19 or really though we've kind of protected that Si.
Now how do we get back how do we get back to stronger margins and that's with these.
These efforts that we're doing now.
And they are starting to take hold and we will start seeing now and through 2024 that we will be moving up and gaining margin improvement as we exit.
2024 will probably be on the low end of our margin guidance, which was the 9% to 12% that we've given.
But again, if you look at and this is also the questions. We had before and you go to that.
Slide it has optimate optimizing our cost structure that is kind of assuming middle of the road cost savings for 2024, we continue to execute on that which we should that will allow us to really have rigid and strong margins in an empty and then you put that all together, we're going to continue to get scale as we grow from a revenue line.
<unk> perspective.
And so again I feel really really good about what we've done it's working.
And margins will be strong. So then then we get to as we exit 2024, we'll get we'll get back to that strong kind of hundred 100 plus million run rate cash flow just on our core businesses.
Yes, we have work to do.
But generating cash now we will generate cash in 2024 and it will continue to grow as we exit 2024.
Thank you.
Our next question comes from Scott Fidel with Stephens. Please proceed.
Alright, Thanks, Scott good morning, everyone.
Sorry, just.
Around the service expense per trip metric and in some of the.
Sort of savings.
We're now providing to us and the Jack.
In the third quarter that metric was Jack just around $48 50, which was down around 4% sequentially.
And if you can share with us if you do have a sort of point projection on how we should be thinking about that metric in the fourth quarter and Dan.
And then as we think about sort of ultimately landing back into that 9% to 12% long term.