Q4 2023 ModivCare Inc Earnings Call
Good morning, and welcome to motive Care's fourth quarter and full year 2023 financial results Conference call. At this time, all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference call is being recorded.
Now I'd like to turn the call over to Kevin I'll, let <unk> head of Investor Relations. Mr. Alex you may begin.
Good morning, and thank you for joining motive carriers' fourth quarter and full year 2023 earnings conference call and webcast Joy.
Joining me today as he's Sampson motive cares President and Chief Executive Officer, and Barbara Gutierrez Motor carriers, 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 copies 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 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 their website motive care dot com.
This morning, Hugh Sampson, we'll begin with opening remarks, Barbara Gutierrez will review our financial results and guidance then we'll open the call for your questions with that I'll turn the call over to Heath.
Good morning, and thank you for joining our fourth quarter and full year 2023 earnings call.
Today I'll discuss our 2023 results.
Reflect on our transformation journey and share our outlook for 2024 before handing the call over to Bob who will further elaborate on our financial results.
Let me begin by saying we are pleased to have delivered fourth quarter revenue and adjusted EBITDA in line with our expectations.
Full year 2023 revenue grew 10% with adjusted EBITDA of $204 million.
Before addressing the transformation progress you've made I'd like to address some of the challenges we've encountered primarily stemming from the recovery period following the pandemic.
Firstly, our free cash flow for the fourth quarter was negative $37 million, which was below expectations, primarily due to a delay in payment from an M. C O client within a specific contract in Florida.
Looking ahead, and primarily due to us managing Redetermination and.
And the increased health care utilization environment, we anticipate our free cash flow for the first half of the year will be constrained to the ongoing build and contract receivables and the settlement of several large payables expected in the second quarter.
It's important to note that our $144 million balance and contract receivables is an asset that we aimed to collect in six to nine months.
Consistent with what we've been doing the last several months, we are proactively working to renegotiate the prepayment terms on a number of our shared risk contracts.
This realigned the payments, we eventually reconcile as redetermination unfolds and utilization and cost normalize higher post the pandemic.
This will improve our working capital by securing more cash upfront.
For the second half of 2024, our free cash flow will begin to normalize as redetermination, yes.
The $142 million of the 2023, new sales wins are on boarded and our cost saving measures continued to take hold.
Next I want to share our 'twenty 'twenty four adjusted EBITDA guidance, which we expect will be in a range of $190 million to $210 million and our first quarter 2024, adjusted EBITDA guidance in a range of $28 million to $33 million.
We are guiding first quarter EBITDA to help explain the ramp in the second half of the year.
During the first quarter, we are dressing headwinds from a couple of contracts and membership losses.
Prior to the 2023 contract wins, starting implementation in the second quarter.
These frontloaded challenges are further impacted by the ongoing normalization of health care utilization in Medicaid Redetermination.
The root causes of these contract losses include a few MTO clients not securing their state contracts.
Our state health departments decision to transition to a full broker model favoring an incumbent competitor.
And our clients' decision to diversify volume away from us due to legacy issues.
However, it's important to note that these legacy issues have been addressed through our transformation and I'm proud of my team for doing that in.
In fact, we remain the largest any empty provider and a key strategic partner for this client actively collaborating on several new initiatives.
Also noteworthy to explaining our 2024 guidance, while we've achieved success in securing M C O contracts.
Anticipated state Rfps, we expected to bid on in late 2023, and early 'twenty 'twenty four continue continued to be delayed for extended.
In 2023, we want $142 million in annual contract value and $11 million and our remote patient monitoring segment that will be on boarded starting in the second quarter and will ramp throughout the year.
Even though state rfps have been delayed we.
We did secure a new state contract and expanded and extended to other state Medicaid contracts from early Rfps in 2023.
In addition, we've implemented initiatives to optimize our cost structure, which is expected to generate $30 million to $50 million of in your cost savings.
We've made significant strides.
Digitally integrated with our clients I move we hadn't done in the past, which will enhance our client relationships leading to improved contract retention and reduced attrition.
Additionally, our enhanced go to market capabilities contributed to a 90% win rate and new N C O beds throughout 2023.
To capitalize on this momentum we've recently augmented our sales team with additional talent.
We're leveraging these hence enhance capabilities to secure more wins from our pipeline.
Valued at over $800 million today.
These initiatives will mitigate the negative impact from legacy losses, starting in the second quarter and will become more significant as the year progresses.
Now I'd like to cover our balance sheet and capital structure.
We have a deliberate plan and anticipate refinancing our 2025 unsecured notes in the coming months. Additionally, we are aligned with our partners to monetize our unconsolidated minority equity investment in matrix medical while we are optimistic about achieving this within the year as the company is performing.
Well our primary focus remains on supporting the management team and maximizing the return from this valuable asset.
We have also successfully renegotiated our revolving credit facility covenants enhancing our financial flexibility in addressing our liquidity requirements. Thanks to the backing of our banking partners.
Although our current leverage is higher than our target reducing debt levels continues to be a priority.
Since assuming the role in November 2022, we have undergone a comprehensive transformation, which has been anchored by our core pillars people operational excellence growth and innovation.
Reflecting on the past year, we navigated challenges and a treat achieved significant milestones.
As for the people pillar realigning our organization was crucial.
Notably strengthening our executive leadership team.
We also realized approximately $65 million of savings through restructuring, while reinvesting $30 million in key areas, such as product technology go to market and clinical expertise.
Operational excellence.
We adjusted our business model to the post pandemic environment and transition away from our legacy decentralized and manual processes to a more efficient functional structure.
This shift improved our service quality.
The increasing on time performance in any empty by 6%.
And saving $27 million annually through our digital initiatives.
These efforts have also resulted in improved satisfaction solidifying our leading any M T position.
And the growth pillar, we improved our new business conversions and any empty and focused on cross selling our RPM services, leading to over $150 million in annual contract wins, driven by our improved proposal process and enterprise engagement model.
Innovation has been an important part of our journey, we advanced our leadership position addressing the social determinants of health with new product development and technology aligning closely with CMS as strategic pillars.
And expanding our service offers offerings to proactively meet our clients' needs.
Turning to our 2024 outlook, we project, our adjusted EBITDA will be in the range of $190 million to $210 million and revenue between 2.7 and $2 $9 billion our guidance considers the headwinds previously mentioned.
With confidence in our initiatives as we continue to transform our cost structure and revenue model.
We expect to exit 2024, with a run rate for adjusted EBITDA between 220 in $230 million. Additionally, we expect to generate between $40 million to $60 million in free cash flow.
Materially generated in the second half of 2024.
Looking towards 2025, we will continue to see deleveraging benefits from our asset light high cash flow conversion business.
With normalized expectations of 40% to 50% EBITDA conversion to cash generation.
We expect revenue growth rates for personal care and remote patient monitoring to be 8% to 10% and 10% to 12% respectively with margins consistent with previous years at 10% to 12% for personal care and mid 30% for RPM.
We project modest growth for any empty revenue with margin margins exiting 2024 at approximately eight to eight 5%.
In 2024, we are focused on positioning each of our business lines for long term profitable growth, while continuing the important work to fortify our platform as we prepare for 2025 and beyond as we look forward, we remain committed to being the trusted partner for integrated support of care.
Combining digital and personal engagement to empower living at home.
He was a concise overview of our 'twenty 'twenty four strategic priorities across our segments.
In any empty the focus is to leverage the momentum from the achievements of 2023 aiming to capture additional revenue from our $800 million plus pipeline.
The key for growth this year is execution.
Building on our comprehensive transformation and digital initiatives focused on enhancing omnichannel member engagement.
Spanning multi modal transportation solutions.
In achieving comprehensive integration with all stakeholders.
These efforts are expected to drive significant cost savings targeting $60 million in 2025 with $30 million to $40 million anticipated this year.
Building upon the centralization standardization and technology platforms. In 2023 are our continued transformation in personal care is now focused on leveraging automation and digital tools to improve caregiver efficiency and engagement.
The key here is to free up our frontline members.
This will enable us to outpace the inherent growth within the market.
These market tailwind should further be bolstered by regulatory clarity regarding CMS rule.
No largely as Eddie 80, 20 this spring.
Our.
Strategy and remote patient monitoring is multifaceted and forward looking.
Continue to grow our base in personal emergency device revenue.
And expand our product capabilities with enhanced digitally enabled clinical capabilities.
This includes fostering member engagement through our innovative care center in virtual front door services and devices.
Integrating our P M and M. T services has surpassed surpassed our expectations we.
We've addressed care gaps and reduce costs for our clients, which distinguishes us in the market.
This integrated strategy is notably boosted our any M T cells, especially in the managed Medicaid space as our services become crucial for customers aiming to address health determinants and reduce care costs.
Our journey through 2023 was marked by a comprehensive operational and organizational and cultural restructuring and despite some of the challenges ahead, especially in the first half of this year, our margins and cash flow conversion will progress in the back half of the year.
Our unique competitive advantages coupled with our position in the expanding home centric health care market sets us apart.
I'd like to thank all our team members for their hard work and dedication for providing the highest quality of services to our clients and their members.
Now I'll hand, the call over to Barb, who will share additional details about our financial results and outlook for 2020 for Barb.
Thank you Keith and good morning, everyone.
Fourth quarter 2023 revenue increased seven 5% year over year to $703 million, while full year 2023 revenue increased 10% to $2.75 billion driven by 10% any empty grows 7% growth in Pcs.
S and 14% growth in our Rpms segment.
The fourth quarter net loss was $5 million, while adjusted net income was $18 million or $1 29 per diluted share.
Fourth quarter, adjusted EBITDA was approximately $51 million and adjusted EBITDA margin was seven 2%.
The modest sequential decline due to higher G&A expenses related to investments to enhance our digital and data capabilities.
Fourth quarter gross margin improved 100 basis points sequentially to 16, 8% primarily attributable to our transformation initiatives in any empty, yielding early operational efficiencies to reduce costs.
Full year 2023, adjusted EBITDA was $204 million and adjusted EBITDA margin was seven 4%, a 140 basis point year over year decline, primarily due to higher service expense, partially offset by lower G&A related to our cost saving initiatives.
Full year gross margin decreased 270 basis points to 16, 4% primarily attributable to higher any empty purchased services expense driven by higher utilization and then normalizing health care utilization environment.
Turning to a review of our segment financials.
E M T fourth quarter revenue increased 9% year over year to $499 million total.
Total membership decreased five 5% year over year to $32 9 million members and we averaged $33 6 million members for all of 2023.
On a sequential basis average monthly members decreased 2% during the fourth quarter, primarily due to Medicaid redetermination, which was inline with our expectations.
Trip volume increased 13% in the fourth quarter, while revenue per trip decreased three 5% due to mix changes and an approximate 1% decrease in purchase services expense per trip, which drives the revenue in our shared risk contracts.
Sequentially any empty gross margin increased 150 basis points as payroll and other expense per trip decreased 6% to $6.89. While purchased services per trip increased two 5% to $42.24.
The reduction.
In payroll and other expense per trip is being driven by our cost saving initiatives that he's discussed which are reduced due using our calls per trip.
Trip volume in the fourth quarter decreased 30 basis points sequentially, well monthly utilization increased about 20 basis points sequentially to eight 9% due to lower average monthly members and was in line with our expectations.
As a result of our strategic initiatives any empty adjusted EBITDA for the fourth quarter was approximately $40 million or 8% of revenue representing a 70 basis point sequential improvement from the third quarter.
Gross profit per track improved 16% sequentially, primarily due to improvement in payroll and other costs per trip.
During the fourth quarter, Medicaid Redetermination reduced our Medicaid membership by approximately 450000 members, bringing our Medicaid membership to $24 7 million members.
Since Redetermination started last April we have seen an 8% reduction to our Medicaid membership, which is tracking in line with our original target of 10% to 15%.
Based on our most updated projections, we estimate that as of December 31, 2023, Redetermination was about 70% complete and we expect that the process will conclude in the third quarter of 'twenty 'twenty four.
Redetermination impacted fourth quarter revenue by $10 $5 million and adjusted EBITDA by approximately $3 million, which was in line with our expectations.
In 'twenty 'twenty, four we expect redetermination to adversely impact revenue by approximately $60 million and adjusted EBITDA by approximately $30 million, which is in line with our original range of $20 million to $40 million.
The expected revenue and adjusted EBITDA impact for 'twenty 'twenty four are embedded in our guidance.
As a reminder, our margins are protected from increased utilization from redetermination on our shared risk contracts.
Our shared risk Medicaid contracts accounted for approximately 60% of our any empty revenue in 2023.
Even though we will lose some Medicaid members in these contracts, we expect higher pass through revenue under our shared risk contracts.
Finally, the remainder of any empty revenue approximately 20% is generated for Medicare advantage and fee for service arrangements.
Turning to our home division.
Fourth quarter personal care revenue increased 3% year over year to $181 million driven by a 3% growth in hours and a modest decrease in revenue per hour.
Personal care growth was lower than the last few quarters, primarily due to the lapping of a large minimum wage related reimbursement rate increase in New York that went into effect on October one 2020 to.
That said in 'twenty 'twenty four we received a reimbursement rate increase in New York.
Two the increase in minimum wage, which should accelerate our P. C. S revenue growth in the first quarter.
Fourth quarter personal care, adjusted EBITDA was $16 million or eight 7% of revenue, which was lower than expected primarily due to slower than expected hours growth and higher direct labor, particularly overtime expense, which is used to temporarily staff new cases.
Despite the softer margins in Q4, we still expect personal care margins to be in the 10% to 12% range in 2024, driven by operational efficiency gains and favorable reimbursement.
In our RPM segment revenue increased 7% year over year to $20 million, driven by referral sales and new business wins.
Our RPM team has been successful in winning new business, and we expect organic growth of 10% or more in 2024.
Fourth quarter RPM, adjusted EBITDA was $7.2 million or a 35% margin. We continue to expect long term RPM adjusted EBITDA margins will be in the 30% range. Our monitoring business continues to perform well and 2023 was one of the most productive years for winning new business in.
[noise] referrals, which we expect will continue in 2024.
Turning to our cash flow and balance sheet.
During the fourth quarter net cash used in operating activities was approximately $26 million and free cash flow was negative $37 million as quarter over quarter contract receivables increased approximately $15 million and contracts payables decreased 16 million.
Yeah.
Net cash provided from financing activities was $31 million with the amount drawn on our revolver of $113 $8 million as of December 31, 2023.
Our free cash flow for the fourth quarter of 2023 was less than we originally anticipated.
Primarily attributable to delayed payments under multiple contracts from one of our large M. C O clients, which we expect to collect in the coming months.
The net contract receivable and payable balance at the end of the fourth quarter was $27 million, which was in line with our previously stated range of $20 million to $30 million.
The primary fluctuations in our quarterly working capital are driven by the shared risk contracts with our any empty clients with payments and reconciliation occurring over varying time periods.
We have improved the granularity of our data analytics and forecasting of our cash flow by contract and have increased our focus on timely client payments along with our account management teams, we expect to have more visibility into our free cash flow and contract receivables and payables in 2024.
Since our business has undergone a significant transformation coupled with the impact of Redetermination and a normalizing health care utilization backdrop, we expect continued variability in our quarterly cash flow with improvement occurring in the second half of 'twenty 'twenty four.
Well free cash flow is expected to improve meaningfully in 2024 going from negative $125 million in 'twenty, two 'twenty three to a range of $40 million to $60 million in 2024, we expect that free cash flow in the first half of 'twenty 'twenty four will be negative with a positive exit rate into <unk>.
2025.
The confluence of increasing utilization Medicaid redetermination and higher shared risk revenue is creating a temporary challenge in working capital.
As we work with clients to reset the contractual prepayments to more closely align with recent utilization trends.
We are continuing to build contract receivables.
We also expect to repay certain contract payables in the second quarter of 2024.
The tension on free cash flow will be partially offset by collections on contract receivables and improvements from resetting prepayment rates. However.
However, we expect the full benefit of these items to be weighted in the second half of the year.
I also want to take a minute to remind you about some of the normal quarterly variability specifically, our semiannual cash interest payments in the second and fourth quarters of $30 million to $35 million.
Yeah.
Our senior unsecured notes have a principal balance of $1 billion with a weighted average interest rate of five 4%.
We have been actively evaluating proposed financing options with a goal of maintaining flexibility in our capital structure and expect to formalize our refinancing plan in the coming months.
Our bank defined net leverage ratio increased sequentially to four seven times as of December 31, 2023, compared to four six times in the third quarter.
We filed an 8-K announcing an amendment to our revolving credit facility, extending our covenant relief period, and providing additional cushion in our covenants as we manage through the balance of Redetermination and normalization of utilization.
We appreciate the support and flexibility of our Bank group.
The primary use of free cash flow continues to be paying down our revolver and delevering.
Turning to guidance, we issued 2024 revenue guidance in a range of two seven to $2 $9 billion and adjusted EBITDA in a range of $190 million to $210 million.
The midpoint of our revenue guidance calls for about 2% growth, which reflects the impact of Medicaid Redetermination health care utilization normalizing throughout the year, the timing of any empty contract losses, offset by the onboarding of new contracts and cost savings initiatives throughout the year.
Yeah.
The midpoint of our adjusted EBITDA guidance range indicates relatively flat growth compared to 2023.
Primarily due to the respective timing of the changes in our business in 2024.
We expect the second half of 'twenty 'twenty four to be more normalized in the first half primarily due to the timing mismatch for onboarding new contracts versus contract attrition.
The continued impact for Medicaid redetermination and the impact from cost savings initiatives.
We also issued guidance for the first quarter of 2024 with a revenue range of $650 million to $700 million and adjusted EBITDA in a range of $28 million to $33 million.
Our first quarter will be impacted by a couple of contract losses as well as the loss of certain membership groups from another M. Seattle.
That said, our new contract wins will be implemented in the second quarter and will ramp throughout the year.
In summary, our fourth quarter revenue and adjusted EBITDA results were in line with our expectations.
However, free cash flow was lower than we expected due to the timing of collections under multiple contracts from one of our M. C O clients too.
To reiterate what he said, we expect to exit 'twenty 'twenty four with a run rate for adjusted EBITDA between $220 million to $230 million and free cash flow will improve materially in the second half of 'twenty 'twenty four with a high cash flow conversion rate.
We have conviction around redetermination and utilization stabilizing the traction we are achieving with our cost saving initiatives and the forward momentum from new business wins in 2023 and 2024.
We know there's still a lot of work to be done and we are taking the appropriate actions to deliver on our plans for 'twenty 'twenty four and beyond.
Before we open the call to questions I'd like to thank all of our team members that mode of care for their hard work and dedication we've undergone a meaningful transformation over the last couple of years and our team continues to be highly engaged while providing exceptional supportive care services to our members.
This concludes our prepared remarks, operator, please open the call for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keys, you May press star two if he would like to remove your question from a Q1 moment. Please while we poll for your questions.
Our first questions come from the line of Brian Chin Aquila.
With Jefferies. Please proceed with your questions.
Hey, good morning, guys.
Hey, good morning, Pete Good morning, maybe my first question you know as I think about Q1, obviously the guidance.
Friday lower than even you would have expected. So just trying to get a sense of what happened there how do you feel confident about the <unk>.
Bridge to the full year guidance, and maybe just any thoughts or anything you can share with us on contract losses and starts that.
Obviously happened at the beginning of the year and losses and starts that youre expecting beginning in the second quarter.
Yeah, yeah. Thanks.
It's a good reason why we guided to the first quarter is to provide the insight and really like I said two to talk about the performance that we're having and you start seeing that in the second half the first half of the year and what we've been talking about heavily impacted by Redetermination.
Nation and their recovery in Covid and utilization.
However, the one item that we didn't talk about because it just happened was in the in the in the contract losses and you can see that that that's impacting us in Q1.
The wonderful sales that we had in 2023.
And mobility of $143 million in in home of $11 million the bulk of that.
<unk> coming on in Q2.
So lots of success in winning deals, but with a few contracts that happened in last in Q1. That's the main reason that's the that's the downtick on on Q1, and then and then you can see the rest of the ramp and this gets back to again, what we've been doing in this transformation the success we're having.
In the cost out in sales new wins.
And just the broader growth across the home industry. So the detail is there to show. It's factual. So you guys can bridge to where we are so but you're right. It is specific within those.
Those contract losses that we talked about and that's the main driver for the decrease in Q and Q1.
Got it and then Bob maybe just wondering how are you thinking about there.
2025 maturities and just the ability to refinance and what are the avenues to raise capital.
Yes.
On operations.
The refinancing.
Yeah. Thanks.
Yeah. So in terms of the ability to refinance the 2025.
Say in the remarks.
We are actively pursuing some avenues so you.
We've got some proposals that were evaluating so no concerns about the options that we have some.
Some very good options in front of us So we're going down a couple of different paths.
To determine what's the right option for us, but definitely have some some proposals in front of us so not concerned.
And then second we just kind of related to your question you know we.
We and as you all know as well we amended our credit agreement. So that we have some some breathing room.
In our in our in our revolver going forward and so really don't have any concerns about our ability to have a seat.
Yes, just a little bit more on that Brian right. We said this before too.
Asset light business and our adjusted EBIT in the quarter for generating specifically again, why we guided to the exit rate as well.
And then also said 40% to 50% cash conversion. So we know this business.
<unk> cash flow, we know the transformation that we've done all the way from the operating metrics to customer sat to sales and then now cost structure. We're in a really good spot we have the headwinds that we talked about early but with that Curt profile, we feel really good about our ability to refinance.
And we're refinancing at the at the right time.
Yeah, no that makes that makes sense then maybe one last question for me if I may just thinking about where we are now in the strategy right, where you still have obviously three different business lines. How are you thinking about.
The fit of those different segments and the remaining opportunity there to synergize strategically or maybe maybe not right. So just curious how youre thinking now about putting these cobbling. These three assets together.
Yeah. So.
You think about what the.
The market is doing and what our customers want right.
Pressures that they are having whether that's in Medicare or Medicaid to really treat the patient outside of the clinical area.
It's required to have access to the patient more fully all of our services, whether that's personal care RPM or any empty are critical to that.
So we have the size and scale in each of those and then we've modernized and centralized and standardized so we're in a really good position in each of the individual solutions as a standalone.
So that's that's point number one.
Point number two you think about how they come together, there's a lot of cross selling opportunities and that.
That actually did specifically say this in the in the in the script. If you think about specifically the large pairs.
The integration that they.
Are asking of us in C universe is specifically in the RPM in the E. M. T World. It's there it's the same patient.
And they need both of those services. So they can work standing alone. They can work together so.
My job is to ensure that we continue to execute in accordance with our strategy and vision at the same time, we look at the assets individually so lots of value, whether youre looking at them standalone or or some of the parts, but also value.
As a whole so we're sticking with the strategy, but youre right to point out the individual assets do have value of standalone as well.
Awesome. Thank you.
Thank you. Our next question is come from the line of Scott Fidel with Stephens. Please proceed with your questions.
Oh, hi, thanks, good morning.
First question just wanted to wanted to just try to summarize just on the shortfall on the.
M T outlook in particularly in the first quarter and clearly we know that there there is in revenue.
Yeah. The headwind here that you have called out in detail just want to understand on the cost side.
Whether there is also a sort of a cost issue here that's influencing the outlook relative to where you may have been thinking about it before.
In terms of costs coming in higher than expected or the savings that youre looking to target are not coming in as quickly or whether at least on the cost side things are largely tracking as expected, but it sounds like re determinations. So far is very much playing out as you expected through the end of 2020.
Three.
I do see in your in your deck that you do have around a 70 basis point step up in utilization assumed in the first quarter sequentially. So maybe just sort of sort of level set us around the cost side of things in terms of are they do you think playing out worse than expected here at this point or.
Or is it largely tracking as expected.
Yeah, well so the cost side, we couldnt be more proud of what we've been doing starting in 2023, which is what I said in my script that we're.
<unk> $27 million to $30 million of cost out.
However that was offset because of higher utilization.
And Redetermination, so really the pressures on margin has to do with Redetermination in utilization the cost efforts have been going very well, which is why I have a lot of conviction around those continuing and you can see those in the deck when you look at it.
A per trip basis, we're really showing strong progress there, so which which gets you I have a lot what why we gave the guidance as an exit a lot of it has to do with our conviction around the cost and we're seeing in the data and I expect to continue just to summarize again that the headwinds are in the short term are to do with Readouts.
Termination.
And utilization and then those those missed mismatch of the contract losses to the Onboarding of the wins so with that clarity.
With the cost structure that we're taking out you put that to our scale. We're in a really good spot.
As we exit this year.
Okay.
We lose you do you have any other questions.
Yes.
Most lost them hopefully gets back in the queue, we'll talk to you. Thanks for that question Scott.
Thank you. Our next question is coming from the line of Brooks O'neil with Lake Street Capital markets. Please proceed with your questions.
Thank you good morning, obviously.
Re determination involves member attrition.
And increased utilization as the <unk>.
Exact opposite of what you might expect in light of.
Falling membership so.
Talk to us a little bit about what you're seeing out there in the marketplace and what is that.
Actually driving that higher utilization.
Yeah, well, so you're right to point out is.
The utilization has to do with two two items the big driver just because of a denominator of membership coming away is redetermination.
The good thing about that like we are saying and then also if you. If you are listening to what the payers are doing.
We're about 70% through Redetermination.
And most of it crescendo ing in April there'll be some some some redetermination that will happen in may and June so theres a lot of conviction around that number and then the timing around redetermination, which is the biggest driver for utilization. However.
The other part of utilization that is seen across the country and is seen with US is this normalization of of the usage of health care.
So you can see that we actually have that utilization of health care also continuing to tick up and we expect at the end of this year considering all of those together, we'll exit at about 10 or $10 1 million of utilization. So it's two factors.
And I do think at the end of 2024, and if you listened to the rest of.
The health care World, They would probably agree that at the end of 2024, we should be back to this kind of post COVID-19 normalized environment. So just in summary around that a lot of understanding now that we didn't have early in 2023 or mid 2023 round around all of these factors and again, which is why we have conviction around both redetermination.
And normalization of of health care utilization, but both effect.
Cool that's helpful.
So, let's just talk briefly about the N E M T.
You know really in particular, the contract losses, which I think are relatively unexpected.
Obviously, some factors are beyond your control, but if you could.
Alright nicely on the factory.
You you see or have heard from from customers that are driving contract losses, and then just highlight quickly, but what do you think you could do to fix those problems.
So since I took over in November.
In November of 2022, the focus quickly shifted to our customers.
And our customers.
That are specific to MAA that are managed Medicaid and of course, our state customers and actually a hall have different needs and then you layer on.
What they're actually going through whether that's because of the Rad V rules that CMS came out with on Medicare or whether that's the increased focus of S. D O H within Medicaid and then even within the state related bids the requirement of.
And to do more free members, Mike My point on that is what was in the past is different now from a customer expectation for sure you need to have the right quality picked.
Pick people up on time had lower complaint, but you need to do more than that and then you even need to start integrating with the customer to ensure that they can properly manage the member experience or integrate with our facility. So they can book the trip on behalf all of those item has been part of our transformation.
You look back a year ago, even two years ago. Some of that we weren't we weren't where we needed to be.
And that gets to and this is this is why I have a lot of conviction around what we've done because of what the team has done those issues that we had around quality are gone in fact, we're back to best in class.
Integrating with our customers so they can control the membership remember.
Member experience is happening now.
Having having an understanding of that member. So you know that whether they made their dialysis trip three times. So we can communicate that we're doing that now so all the stuff that we are in the place that we're at now we didn't have before and that's a big reason why some of our competitors were able to get in and it's a driver.
For for one of the reasons why we lost a part of that contract before but I'm going to say this again.
The the wins that we had in 2023 of 101 hundred $40 million plus that was scattered across many different primarily managed Medicaid and the reason why we were chosen because all of these items that we have coupled with we can do more for that member so.
We can give the trip, but we can also give insight to change.
To manage a gap or to improve customer satisfaction long story short you need to have it all and I think some of our competitors have some individual pieces, we have them now, but we didn't have them before so.
We did lose I don't expect to win everything, but what we are where we are what we're doing and what we're doing now will win and continue to win more than when we live.
Great. That's helpful and then just one more.
One thing that I haven't heard a lot of conversation about labor issues.
Yeah.
Mhm considering that.
Good thing, but can you just give us an update on what youre seeing in the marketplace in terms of labor labor availability and.
The cost of late.
Yeah. So so.
Oh, three quarters ago, and this is pretty consistent across our entire company is as you know we have drivers that we have through our transportation providers and of course.
Close to 20000 employees a lot of those caregivers and that's always a challenge, but it's really normalized over the last three quarters.
So we feel we have a lot of opportunity to continue to hire and retain the differentiator now in this environment. So the external headwinds that happened again, three quarters ago or last year. Those are been flat. What we are doing now because of the efforts of centralization standardization and even automation.
We're able to free up resources to ensure we pay the right level and ensure that we can recruit and retain so long story short the environments.
Stable and what we've done around this integration centralization standardization, we're able to outpace the market and and retain and grow appropriately and on the labor side.
Great. Thank you very much.
Thank you. Our next question is come from the line of Peter Chickering with Deutsche Bank. Please proceed with your questions.
Good morning, guys.
Good morning.
A couple of a couple of from here for the managed care contract in Florida as revenues you guys Didnt talk this quarter I believe you said you collect in the next few months can I ask why.
You didn't quite get in the time period that you thought you would.
Is there any issue on what they think they should pay for as to what you guys have recognized opex.
Yes.
Wanted to be specific.
It was one contract in one area, because we have a lot of relationships with that payer that across the country.
Which we are in great standing this specific issue has not been paid at.
At the same time.
What I said.
Next couple of months is because we will get paid because it's contractually owed so.
I wanted to make sure I set it because it was the main driver for the cash flow change in Q4, but I also wanted to be explicit about it and give the amount because it's contractually owed theirs and we'll get it paid within the next 60 days.
Alright, great and then on the contract loss I guess from your sort of the large customer.
I guess, how do you guys feel about retaining other bids that you have with that customer.
Well that that customer and I said this is still we're still the largest any empty broker.
We have relationships from.
From the top of the house down to procurement across all the countries and we are doing things with them.
That are strategic and forward looking so they may.
Maybe appropriately diversified I think we gave them a window a couple of years ago to do that.
But we are still there number one and emt broker and will continue to grow with them. So unfortunate, but going forward I feel good about our relationship and our ability to continue to grow with them and of course, others. Okay for me for interest expense perspective, how should we be modeling interest expense in the back half of the year. After the refi just trying to tie that up with it.
<unk> $40 million to $60 million of free cash flow guidance just to get the models right.
Yeah.
Thanks for the question on inspire them, yes, So I think you know.
Naturally you can see the disclosure on the on the new.
Revolver, the New Amendment and you can see in there that the interest rate is a little bit higher than.
And then the current rate.
It's a complicated formula and depending on how the borrowings snow, but are you looking at aerie.
It's a little bit higher than crane industry, but refinancing the 20 fives, it's going to be higher interest rate that's not in the numbers, but.
We feel like we're going to have a good interest rate and then as we start delevering and paying down our line.
At that higher end that she said of.
$35 70 for the year, that's beyond the higher end if youre modeling after the refi of the 20 fives and we'll update you more as we get closer, but it's not on the lower and it'll be on the higher end after the refi.
Got it.
Sorry can I clarify on that you can look at the release at the interest rate on the revolver is about 50 basis points higher so that's.
That's in the release.
Okay, and then last quick one here.
As you ramp up into two Q EBITDA with the new contract wins coming online Cumulus.
Remind us the process of Onboarding, new customers and how we should think about revenues and cost flowing through in those initial months. That's it for me. Thank you.
Yeah. So again, why we wanted to kind of separate out Q1 versus the rest of the year and an explicitly these contracts coming on or are the sales that we had in closed in 2023.
So why do we feel good about the timing of those and the implementation.
Ease of those is because we have a national platform in each of these states, where we won we already have other clients in there. If we didnt. There is that's a lot of work to get to stand up a network, but we don't have that issue because we're already concentrated in those specific states. So we feel good about the timing and the.
Patient and again, we've already sold though so it really is just execution for us so.
I feel good about that.
Thanks Peter.
Thank you our next questions come from the line of Scott Fidel with Stephens. Please proceed with your questions.
Oh, hi, Thanks on back sorry, I was muted for my follow up so wanted to get those in.
So.
My next follow up just on the <unk> margins just given how important this metric is for all of us.
Could you just.
Sort of tell us what is assumed for any empty margin inside of that <unk> 24 died and then barb did give us that that sort of exit rate of 88, 9%. So I'm just curious on sort of the sequencing of that between <unk> towards getting to that eight to eight 9%.
So so <unk> being down is driven from the items that we talked about right. So it's redetermination.
The recovery in utilization and also the mismatch the loss that we had that hit us in Q1, and then the Onboarding of our sales and then you couple that with the continued ramp of our cost out that's already happening. So those items. We're at the low point in Q1 of of that margin perspective for those.
But again the sales are coming on they already sold them right redetermination will be behind us.
Normalized utilization, we expect and were in line with that so it really gets down to the last component, which is those cost savings.
And.
We've talked about this in the script I feel good about 60 years of total right, but that's probably not good I'm not going to come until 2025. So it really is what do we expect them to get in this year. So it really is about getting 30 million and that is about just execution. So which is why we gave that exit rate of eight to eight 5% so controllable.
In process and really down to that one item.
So do you have a number in terms of what that computes forget an empty margin in Q1.
It'll come down right and then just just to be in line with that the margins will be lower in Q1, and Q2, and then start to ramp in Q3 and Q4 at a.
So the ramp will be higher in Q3, and Q4 exiting out of eight to eight 5%.
Okay, well work through that in our model and then just the other follow up question I want to ask about you did call out matrix in the script was maybe hoping to get a little more detail here in terms of I guess, one just you mentioned that performance has been good is there any any stats that you can share with us in terms of.
How that business performed.
Sort of exiting out of our 23, and then that obviously, we're all interested in sort of the timing of the monetization opportunity here. It sounds like you think that can happen still in 'twenty four.
But what's what would be the holdup prs at.
I know you want to be aligned with your partner are they not ready yet or maybe just walk us through sort of.
Just sort of getting to that monetization.
Catalyst opportunity.
Yes, so first off you're right. The what the team has done has been tremendous right that they've gone through a transformation themselves from from Catherine Who's relatively new as CEO for the last couple of years and you can go through the management team, that's new and across the board in all of that tricks and of course in the finance.
<unk>, it's showing up in any even strategically what they've done on the technology side. So the company is a very well oiled machine that has a very unique capability. They have a network of 5000 nurses across the country that not only can do risk adjust.
But they are in the home.
Which is why there's so much talk in value around that but so I couldnt be more happy with what the team and successful. So we're not going to give you what happened out of 2023, we gave the broad range of number of.
Quarters ago, and we're sticking with that of an EBITDA of $50 million to $100 million again, why was that so broth because that was a long time ago. So it's still use that as the right proxy for how you want to a value of this so getting to the timing of modernization. We are completely aligned with our partners their focus and our focus is again to.
To support the management team and at the right time to actually yeah, Havent monetized in and allow this team to really grow and do the great things. So what I said in my script, it's within the next 12 months.
And that aligns with what we are but it gets back to again that it is performing in a very valuable asset in the marketplace. So.
Hopefully that's helpful.
Yeah, Okay. Thank you.
Thank you. Our next question is coming from the line of Bob <unk> with CJS Securities. Please proceed with your questions.
Yes, hi, good morning, it's Pete Lucas for Bob.
I just wanted to clarify your free cash flow targets for 24 does that assume payment of those delayed payments that you called out and said you expect to get.
Yes yesterday.
Great and then I guess a lot has been covered just one more for me how does the market for matrix. How is it for matrix how has it changed or evolved over time and what are your current thoughts on the likelihood of freight you're monetizing the asset in 'twenty four.
Yeah. So so similar to what I said before I think we're aligned with our partners. The best thing is to support the management team and get the highest value. So my estimate of 12 months is what I expect but it'll be when it's the right time.
Frasier wants to also.
Monetize when that when the time is right so consistent with what I've said before that's that's it.
The value of matrix as.
Is the nursing network right. So it matches with what's happening in healthcare, though there is some pressures around risks.
Our risk adjustment really though risk adjustment. It couldnt be is more of a need than it has ever been because of what is necessary to do with that specific patient. So the value is we have a national platform across all the payers risk adjustment demand remains and then.
Then.
Since you have those nurses and you're in the home you can do a little bit more or a lot more whether that's giving a vaccine to closing another gap. So that's what we're enabling this management team to work on and build and we will monetize at the right time.
Great. Thanks.
Bob did you have any further questions. It sounded like you were about to say something else.
No I'm good thanks.
Thank you.
Thank you. Our next question is coming from the line of Mike <unk> with Barrington Research. Please proceed with your questions.
So I.
Appreciate the commentary around your confidence in the Collectability of the delayed payments.
The possible timing I I didn't catch though if if you commented on it is is there a material disc.
Disagreement between the parties in terms of what's actually out.
Well so.
All of our contracts that are with shared risk and this is why they they reconcile over many months. So it's complicated.
But we've been we've been under this contract with this customer while one they've been a longtime customer of ours. Many many years and this this contract structure started in late 2022. So we feel really good about the the math and the collection of the entire.
Mount It's in line with with the requirements of the contract. So we'll collect it within the next 60 days or so.
Okay, Okay, and then and forgive me I was off the call for about three minutes and I may have missed this if you guys talked about this.
Did you give or could you give sort of a sense of the cadence of free cash between first half and second half I see that the target is essentially sort of $50 million at the midpoint for 24, but just in terms of the cadence first half versus second half.
Yeah. Thanks for the question it's fire in the in our prepared remarks, we comment about the first half we will.
We will have some tensions on our cash flow.
And we will.
Be generating the cash in the back half of the year. So yes.
Okay. So that that part actually caught but I was wondering if there might be at least some kind of range or quantification of the range.
Exactly how much you are expecting within your guidance to have to generate in the second half to get to that sort of 40 to 60.
It's really all of it in the second half.
Mike So again the the.
The amounts in the first half.
And then Barb says tensions, but it really is redetermination in utilization and the contracts are working so its working capital and the bulk.
Of it is the increase in receivables.
Cause redetermination, bringing down our membership and that's just the delta between that we throw in our balance sheet within receivables. So it's it's arithmetic both in a R. And then pay enough the accounts of the contracts payable.
Because I'm gonna be redetermination not any until April may.
That's the main reason why we utilized so much in the first half of the year, but that's also done in the first half of the year, which is why we'll quickly ramp that rest of that kind of midpoint of 50.
But I mean, it should be and sorry for pressing on this but I do think it's important I mean, so are we looking at like sort of a negative 2025, a quarter and the first half and then and then and then and then sort of making making that up plus in the second half.
Yeah, so while we have a refinance line and there'll be fluctuations that happen within the first the first couple of quarters. So we're not going to guide to what's actually going to happen in Q1 and Q2 around cash flow.
But we have a lot of confidence in our exit rate around cash flow. Okay, and then I just wanted to so.
Staying on this.
In terms of free cash the 40 to 60.
Target does not include the any Repot, you know, which you'll likely do in the first half the refi of the 20 fives and it also it does it does it include the them.
Amendment to the revolver or is that not included in the 40 to 60, either yeah. The amendment to the revolvers in there that's relatively small right.
But it doesn't include the additional interest on the 2025 and go into I think it was Peter's question before we did give a range. There. So I think it's going to be higher interest, but we'll also be bringing down.
As we start generating cash flow, we'll be able to bring down that line. So that the right way to think about it right now and we'll get more specific when we do refinance is in that higher end range, which was closer to 70 as a total annual number Okay. And then just last question you sort of alluded to some some contract.
Decisions being being being pushed out or are you hopeful obviously, you've had great success and contract wins in 'twenty. Three are you hopeful that in the second half of 'twenty for some of these decisions.
These awards will be will be will be made and you know sort of setting up for 25 or or or you can get a sense of is that a bunch of this maybe pushing into 'twenty, five and who knows beyond.
So what I was referring to was the state business with mobility, so and those a lot of those contracts, especially in the second half of 'twenty three and even in 'twenty four have been pushed out but I do expect rfps to happen in 2024, but.
Those will that when those awards happen, though that volume won't come on until 2025 and then.
The success rate that we've had in our recent state bids that did come up and we talked about right. We we won one and then extended one and then.
Renewed so I expect that we will win more than we lose therefore that happens in 'twenty four and we'll let you know when that happens in 'twenty, four but that and then.
Appropriately tell you what's going to happen in 'twenty, five and that new volume comes on.
Rough quantification of how much business is out there to sort of be bid on.
Yeah. So so consistent will be I think a couple of quarters ago. We said this the Tam for state is about one two to one $3 billion.
And we have about half of that ourselves right now.
So.
We have the ability to go after that that other half that that entire $1 2 billion is not going to churn in 24, or even 25, but there'll be meaningful opportunities for us to grow to retain that have as well as to grow above that.
Alright, very good thank you.
<unk>.
Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to Heath Sampson for any closing remarks.
Thank you for participating in our call. This morning and for your interest in motive care updated investor presentation is posted on our Investor Relations website. If you want to schedule a follow up call. Please contact Kevin Elledge, our head of Investor Relations, Thanks, and have a great day.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect at this time enjoy the rest of your day.
Okay.
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