Q1 2024 ModivCare Inc Earnings Call

Speaker Change: [music].

Good morning, and welcome to notice cares first quarter 'twenty 'twenty, four and financial results Conference call. At this time, all participants are in a listen only mode.

A question and answer session will follow the formal presentation.

You'd like to ask your question. Please press star one on your telephone keypad.

Press Star Zero for operator assistance during the conference. Please note that this conference call is being recorded.

I will now turn the call over to Kevin Alex.

Relations Mr. Alex you May now begin.

Good morning, and thank you for joining motor carriers first quarter 2024 earnings conference call and webcast.

Joining me today is Heath Sampson Medicare's, 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 company's filings with the SEC.

We will also discuss non-GAAP financial measures to provide additional information to investors.

Definitions 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 a lot of care dot com.

This morning, she will begin with opening remarks.

Barbara will review, our financial results and guidance and 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 first quarter 2024 earnings call I'm pleased to report that in the first quarter revenue increased 3% and adjusted EBITDA of $32 million was in line with our guidance range.

Do you see these results are the outcome of our continued strategic transformation efforts.

Progress made on our initiatives provides conviction that we can achieve our financial targets and exit the fourth quarter of 'twenty 'twenty four with an expected run rate adjusted EBITDA between 220 $230 million.

And our free cash flow conversion of 40% to 50%, excluding the impact from our expected debt refinancing.

Over the past two years, our focus on operational improvement technology advancements and sales has underpinned our no margin no mission culture.

This has significantly enhance our differentiated competitive positioning.

As we complete this transformation in 'twenty 'twenty four the tangible improvements in our Kpis are now being reflected in our financial results with an improving cost structure as well as growing sales. Additionally, Medicaid redetermination is in line to slightly better than expected and concluding in the second quarter.

Providing line of sight of our earnings trajectory and cash flow.

One of our top priority is addressing our 2025 senior unsecured notes.

While it is premature to provide specifics the refinancing process is well underway. Our refinancing efforts are focused on balancing capital flexibility, particularly in terms of debt prepayment options and optimizing our overall cost of capital.

We also remain committed to deleveraging our balance sheet recognizing the significant value this brings to our shareholders.

With our debt expected to be refinanced soon clear insights into the effects of Medicaid Redetermination and health care normalization on our profits and working capital along with new sales on boarding a robust pipeline and continued cost structure optimization, we are positioned to deleverage effectively and grow our business.

Additionally, potential opportunities to monetize assets, including our minority equity stake in matrix medical will provide other avenues to delever.

In the first quarter, we secured $36 million in any empty annualized contract value or a C V from our Mississippi state contract in multiple M. C O contracts.

After March 31st we continue our momentum by renewing and expanding our state contract in May.

We also received notification to negotiate a multiyear extension with one of our largest state contracts with.

With several state RFP is expected this year for both renewals and expansions.

Our status as the incumbent backed by a solid track record of renewals and new business wins positions us very well.

Since we transformed our go to market strategy. We have successfully retained all state any M. P contracts with our last loss in 2022, which again was largely due to legacy performance issues.

We also secured a $142 million of annual revenue from new M. C O wins in 2023 across various regional and national contracts. However, our progress was materially offset by our first quarter 2020 for a reduction in volume from a large payer that began diversifying its transportation.

<unk> two years ago, largely again to due to our past performance rather than our current capabilities nothing no less we remain this payers largest any M. T provider in a key innovation partner. Despite this and when looking at the individual contracts and customer win loss rates, we're proud, but not satisfied or complacent.

Our ability to expand our market share.

Next I'll provide an update on matrix medical matrix recently refinanced its debt, which had an upcoming maturity.

Matrix financial results were consistent with the improvement seen throughout 2023, the business is growing very well.

We continue to have confidence in the value of matrix nationwide network of 2800 in home nurses and its refreshed positioning addressing whole person health.

The management team at matrix has made significant strides over the last year, along with our partners.

We are balancing the timing of the sale versus the continued progress progress financially and with the innovated platform and technological advancements they are making.

That said I expect that we will have the opportunity to monetize our minority equity stake in the latter half of 'twenty 'twenty four or the first half of 2025.

Similar to matrix are supportive care services, leveraging our national platform are increasingly crucial in the evolving U S healthcare landscape.

As health care shifts towards providing high quality services to vulnerable populations.

Our supportive care service offered offerings are essential for managing chronic conditions the.

The market now demand more than basic services, our customers expect insights and actions that directly lower costs improve outcomes and enhance member satisfaction.

Our technology and clinical investments are helping us secure significant competitive advantage as the industry adjusts to the regulatory environment and evolving customer needs, leading legacy and emt providers monitoring and personal care point solution providers to lose market share.

On the other hand, our hybrid engagement model, which combines digital tools like monitoring devices and homes are community stations and omni channel connections with human interaction from our contact centers in home care and transportation services, not only effectively manages care for hard to read.

Reach members with multiple chronic conditions, but also significantly boost our win rates in mobility and monitoring core services. This is a standout result of our transformation.

Furthermore, this approach is creating new revenue channels by compensating us for reducing health care costs, improving outcomes and enhancing member satisfaction with the meaningful impact of our revenue projected in 2025 and beyond.

We are actively addressing challenges from COVID-19 impact on working capital and the necessary adjustments to our cost structure, our ongoing efforts to boost the revenue driving capabilities of our any mt's segment, while transitioning to a more competitively advantaged platform.

This shift not only enhance our cash flow, but also facilitate deleveraging propelling additional growth and scale.

And our unique platform, we possess the optionality to enhance shareholder value through our three business segments and our minority equity investment in matrix, each of which has scale and hold substantial value.

Now I'll address our segment highlights starting with any empty.

Our cost savings initiatives are progressing as scheduled we.

We expect to achieve at least $34 million up in your cost savings and approximately $60 million in annualized savings beyond 2020 for these savings are driven by our any empty transformation, including our digital integration and technology advancements. The savings are reflected in our unit cost or per trip metrics as well.

Keep your eyes like call to trip ratio.

The initiatives in any empty that are driving the savings. This year are in three areas.

Member experience, which is focused on our contact centers interaction with our members and transportation providers.

Transportation services, which is focused on automating right assignment as well as standardizing and centralizing trip management and purchased services, which is the actual cost of providing the trip.

The savings here will come from our multimodal strategy, which is shifting more trips to rideshare mass transit select high quality and lower cost transportation providers and other alternative options.

Once you reiterate the savings and initiatives have been identified and action.

And approximately 60% our standard run rate savings and we have clear actions for achieving our sales target for this year and beyond.

Yeah.

Medicaid Redetermination continues to track in line or slightly better than our projections.

As a reminder, we had $7 million impact of adjusted EBITDA in 2023, and an incremental 26 to 30 million dollar impact is expected in 2024.

Redetermination is coming to an end in the second quarter and the financial impact will flatline in the second half of 2020 for the.

The industry is expecting 20% to 30% of the members that were just enrolled due to procedural terminations will be ria rolled over the next several quarters, which will be an incremental tailwind to our financial performance.

Shifting to personal care their first quarter results were impacted by higher than expected wage increases and higher centralized costs that will be synergize. This year.

Critical strategy is that that is embedded in our transformation is focused on platform implementation.

Shared service centralization and complying enhancement, while implementing a sophisticated member referral and caregiver matching system with these consolidated systems and processes in place, we can improve operating efficiencies, which will help drive growth.

We expect to exit the year in line with our long term revenue growth rate of 7% to 9% and adjusted EBIT margin of 10% to 12%.

Last week CMS issued the long awaited final rule, ensuring access to Medicaid services.

Otherwise known as the 80 20 rule for personal care services.

While the 80% provision was maintained in the final rule. We are pleased that the clinical nursing cost will be included in the 80% calculation.

We were also pleased that the implementation timeline increased from four to six years before it goes into effect.

Ultimately, we anticipate legal challenges and legislation could change the rule before it's even implemented however, we expect to be able to offset any impact with operating efficiencies and growth.

Next New York CD path or the consumer directed program whereby a member can be taken care of by a family member or a person of their choice has encountered challenges from the state.

This is a relatively small part of our business. However, we are staying engaged.

In the event that there are changes we believe we can participate in the change or convert members to more traditional home care services that we provide.

And remote patient monitoring we continue to see solid growth in performance and we're seeing good progress with payers as we shift to an access to care model driven by our hybrid digital and human touch engagement model.

As noted earlier, our marketing solutions are contributing nicely to any empty and pursue sales growth and then more specifically to the innovative revenue streams that generate payments to us for cost savings improved outcomes and member engagement.

Currently we have over 40 programs delivering this model the results are very promising with high customer engagement to expand.

We continue to scale and expect meaningful revenue in 2025 and beyond.

Okay.

Meeting our expectations in the first quarter was an important step towards achieving our 2024 financial targets and our conviction to generate free cash flow in the second half of the year as well as refinancing our 25 25 notes with pre payable debt.

We have confidence in our strategy competitive positioning and execution throughout the year and we will continue to consider available strategic avenues to optimize our capital structure and drive long term shareholder value.

Our outlook for the year remains unchanged and we are confident in achieving our fourth quarter run rate adjusted EBITDA of $220 million to $230 million with a free cash flow conversion rate of 40% to 50%, excluding the impact of the expected debt refinancing.

As we approach the final stages of our transformation, we're seeing a lower cost structure and increasing revenue and we have clarity on the completion of Medicaid redetermination.

With the volatility and unpredictability in cash flow behind us our capital needs for funding working capital are expected to peak in the second quarter and expect it to decrease in the third and fourth quarters as health care utilization stabilizes.

I'd like to thank all our team members and we've navigated change and challenges over the last several months, it's their dedication and hard work that make modus care a special place to be.

Now I'll turn the call over to Barb <unk>, who will share additional details about our financial results and outlook for 2020 for Bart.

Barb: Thank you Heath and good morning, everyone.

First quarter 'twenty 'twenty, four revenue increased 3% year over year to $685 million, driven by 2% empty growth, 5% P. C S gross and 7% RPM growth.

First quarter net loss was $22 million and adjusted net loss was $1.2 million or nine cents per diluted share.

First quarter, adjusted EBITDA was $32 million or four 7% of revenue in line with our guidance range.

Barb: As we discussed last quarter EBIT that was expected to decrease in the first quarter, primarily due to the timing of any empty contract losses occurring in the quarter with contract wins being on boarded in subsequent quarters.

Barb: Turning to a review of our segment financials.

Barb: Any empty first quarter revenue increased 2% year over year to $479 million.

Barb: Any empty revenue incrementally benefited from successful execution of contract settlements and negotiated pricing increases that were more favorable than expected.

Barb: Average monthly membership decreased 12% sequentially to $29 1 million due to a previously announced contract losses and Medicaid Redetermination.

Barb: <unk> volume increased slightly quarter over quarter, while revenue per trip decreased 4% due to mix changes.

Sequentially any empty gross margin decreased 180 basis points.

Primarily due to lower revenue per trip.

Utilization related to mix and lower membership.

Barb: Notably purchased services expense per trip decreased two 4% and payroll and other expense per trip was flat sequentially at $6.90, even as trip volume modestly increased.

This quarter's decrease in service costs unit metrics. Following last quarter's strong decline is evidence that our cost savings initiatives are progressing which includes lower purchase services expense for trap and stable payroll and other expense per trip.

N E M T. Adjusted EBITDA was in line with our expectations at $27 million or five 7% of revenue.

We expect to see margins improve throughout the year due to the onboarding of new contracts in the second and third quarters as well as the execution of our cost initiatives.

During the first quarter, our membership was impacted by Medicaid Redetermination of approximately 600000 members.

Our top five states with full risk contracts or 80% through their respective redetermination period.

Redetermination impacted first quarter revenue by $10 million and adjusted EBITDA by approximately $5 million.

Overall, Medicaid Redetermination is tracking in line to slightly better than we previously expected.

Based on updated information, we now expect redetermination to adversely impact revenue by $60 million and adjusted EBITDA by $26 million to $30 million in 'twenty 'twenty four versus our original range of $20 million to $40 million.

Additionally, Ncos and states are starting to see 20% to 30% re enrollment of eligible members who were procedurally just enrolled in 2023.

Our guidance includes a modest amount of re enrollment, but the timing is hard to predict.

Turning to our home division first quarter personal care revenue increased 5% year over year to $184 million, driven by 2% growth in hours and 3% growth in revenue per hour.

We continue to make steady progress driving hours growth and converting Africans to caregivers.

The reimbursement rate increase this quarter was largely driven by favorable increases in minimum wages in New York. However, we expect a more subdued reimbursement rate environment for the remainder of the year.

Barb: Personal care adjusted EBITDA was $11 million or 6% of revenue, which was lower than expected primarily due to wage growth outpacing rate increases in certain states as well as grant income tapering off.

Lastly, we received several reimbursement rate increases that didn't take effect until March 1st the benefit of these increases will be fully realized in the second quarter.

Going forward, we expect wage increases to moderate and operating efficiencies will drive leverage in G&A, leading to EBITDA margins returning to an expected range of 10% for the year.

Barb: RPM revenue increased 7% year over year to $20 million.

We expect new contract wins and referral sales to further accelerate growth for the remainder of the year toward our revenue growth target of 10%.

Gross margin declined year over year and sequentially, primarily due to higher churn in our Medicare advantage business related to members, who lost eligibility and higher D activation costs.

Barb: The first quarter is seasonally the highest churn quarter for the year, but this quarter was higher than we anticipated.

Barb: RPM adjusted EBITDA was $6 $3 million or a 31% margin.

Barb: Our business trends are normalizing and we continue to expect RPM margins in the mid 30% range, Despite slightly higher service expense during Q1.

Turning to our cash flow and balance sheet during.

During the first quarter free cash flow was $2 million consisting of net cash provided by operating activities of approximately $10 million offset by capital expenditures of $8 million, which was 1% of revenue.

Any empty working capital dynamics were in line with our expectations.

Barb: Contract receivables increased by $10 million sequentially to $154 million contract payables increased by $11 million quarter over quarter to $128 million.

We ended the first quarter in a net receivable position of $26 million essentially flat sequentially.

Our revolving credit facility balance increased by $7 million to $121 million.

But importantly, our net debt remained flat with $10 million in cash on the balance sheet as of March 31st.

We ended the first quarter with approximately $1 $1 billion of debt and our bank defined net leverage ratio increased sequentially to four nine times as of March 31st against our maximum net leverage covenant of five five times.

As he stated we are in the process of refinancing our 'twenty to 'twenty five unsecured senior notes.

We are currently pursuing financing solutions that provide flexibility for prepayment to support our priority to delever, while managing our overall cost of capital.

We will provide updates as the refinancing progresses, but we are focused to completed expeditiously, while optimizing the best outcome.

As a reminder, we continue to expect free cash flow to be negative in the first half of 'twenty 'twenty. Four is the second quarter include settlement of certain contract payables and payment of our semiannual cash interest.

Barb: We expect free cash flow to be positive in the second half of a year based on the improvement in adjusted EBITDA and net working capital being a source of cash.

Barb: We expect that we will exit the year with adjusted EBITDA to free cash flow conversion of 40% to 50% excluding the impact from the expected debt refinancing.

Cash flow conversion may decrease by approximately 10% as a result of our refinancing.

We maintained our 2020 for revenue guidance in a range of 2.7 to $2 $9 billion and adjusted EBITDA in a range of $190 million to $210 million.

For the remainder of 2024 here are a few qualitative items for you to consider.

Barb: Medicaid Redetermination is tracking in line to slightly better than our original expectations. We expect to lose additional members in the second quarter as Redetermination is anticipated to conclude by mid year.

We continue to expect a slightly net positive impact on adjusted EBITDA from business development for 2024, driven by the Onboarding of our any empty contract wins and contract repricing offsetting the attrition from earlier in the year.

Cost savings are expected to be in a range of 34 million to $38 million net of investment and digital service costs.

Barb: We expect utilization within our contract mix to be a headwind as health care utilization normalizes.

Adjusted EBITDA from home is expected to grow in the high single digit millions of dollars for the year.

We expect to invest $2 million to $4 million for the year and innovation strategies and G&A.

Over the remaining quarters for 2024, we expect a steady progression and ramp in adjusted EBITDA driven by new contract implementation.

Greater benefit from cost savings, the diminishing impact from Medicaid Redetermination and improvement in our home segment.

All contributing to financial results consistent with our full year guidance.

In summary, our first quarter results were in line to modestly better than we expected.

These results set a solid foundation for the year and we expect to see sequential improvement as we progress throughout the year.

We expect to have our refinancing done in the near term and we will continue focusing on execution and driving operational improvements and results.

I'd like to thank all of our team members for their continued dedication and passion for serving our clients and members with that operator. Please open the call for questions.

Thank you well now be conducting a question and answer session.

I'd like ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Thank you. Our first question was on Bob <unk> with CJS Securities. Please proceed with your question.

Bob: Good morning, there's lots of them and Pat good morning, Congratulations on a solid start to you know normalizing.

Normalizing things for us here.

Thanks, Bob.

So I wanted to start with any empty you, obviously a lot of moving parts there, but overall I think results at least from our perspective were better than expected better than feared so you know a good good start there.

Biggest changes the model really you know on a macro is the impact on Redetermination and then the shifts to mix shift from the contract that you lost to the new contracts, you're winning so maybe help us understand how that plays out in the P&L This year, maybe particularly.

Utilization in purchase service costs kind of are offsetting Hum you know directionally from where we thought so how might this be different to prior expectations. How should we think about those two key drivers with the mix shift you know the redetermination and the contract change shifts.

Bob: Yes.

Bob: The first item that you hit on Medicaid Redetermination is the big item right.

Bob: 12 months ago, there was fears in the marketplace on what it was going to be and yes, it's hitting US right now as expected and is the main driver for where we are in Q1 and most importantly, we'll be done with it in Q2, and then secondarily, it's right, where we expect it to be but still still material.

Bob: The other and that really affects our full risk contracts because the membership goes down.

Bob: And that's a big driver the other other item that we talked about is the mix change so as we disclosed last quarter that we.

Bob: We lost a number of members through this one one large payer and those coming off off coupled with Medicaid Redetermination has changed our mix.

And especially as we are Onboarding. These new sales wins that we've had over the last 12 months or so and continued into into Q1, so that mix change and I don't know if people realize that all of our contracts that we have though everything averages to what we gave there is a lot of diversity around utilization.

Bob: The main the big differences that are obvious are between like Medicare has a look typically have lower utilization and then within Medicaid. It depends on where you are in that specific state because there could be high utilizes for example, if it's heavy dialysis point being mix really matter.

Bob: And you hit on a big point because of Redetermination and the large volume that came out a lot of the large volume that came out was within the Medicare space, We're dual space and lower utilized so that is the big change and you'll see that utilization from a mathematical mathematical perspective actually is up.

Bob: But really from our standpoint from a macro where healthcare utilization is yes, higher but in line with our expectation and that's probably the most important point in line with our expectations, but do you all it's definitely up so if you remember we expected at the end of 2020 for the complete normally.

Bob: <unk> of health care usage and utilization and we had that at about 10% now with this mix change again as expected it would be at about 11%. So big Big model change when Youre looking at things.

But in in line with that mix change there is other things that happen within our P&L and you hit on it purchase services. So the purchase services within this mix change will.

It will come down significantly based on the type of contracts do we have in place. So those two factors when adjusted Hum.

Make you in line and be able to better predict what our.

Bob: But our P&L, it's going to be at the end of 2024.

Okay Super Thanks, that's really helpful and makes sense there and then you touched on this but maybe we can talk.

Speaker Change: You talked about a little more to congratulations on the success. Another salesmen, obviously you want a bunch last year you won another contract or a couple more in the first quarter.

Talk about the pipeline here any.

Speaker Change: Potential surprise losses, or how how's your visibility going forward I mean wins are great. We just want to avoid losses, because you already have the wins lined up so maybe visibility there. Please.

Yeah, well first off there's a lot that.

We're proud of what we could spend all day going through the entire organization on the great things that have happened, but really in our go to market strategy.

The team that we've added there all the way from people that can drive new sales through marketing through our product organization that is building the right solutions that meet our customers' needs.

Speaker Change: And then even beyond just the transaction of a trip to really think about this as an access to care platform and then again building the necessary capabilities to ensure that that meets our customers needs. So with that transformation of our go to market strategy is resulting in the results.

The sales that where it started last year and the sales that continue this quarter I'm really excited about even how the rest of the year comes out so I couldn't be more proud of what this organization has done we've really changed the culture and capabilities.

Go to market strategy. So and then the losses you know again, the last last quarter a lot of that had to do with legacy items and the need for them to diversify away from us.

And that specific payer I'll, just repeat what I said last quarter, we're still the largest and emt broker and innovation partnering with them. So so we did not lose anything this quarter it would be.

Speaker Change: I'm sure we will but based on what we're what we're doing right now are wins will out pace our losses. So I feel really good about the team and is showing up in the results and.

I expect that pace to continue.

Okay Super and last one for me and I'll get back in line, but just on the Tcs.

I think explained pretty well what happened in the quarter in terms of margins and the expectation for year end, but as a general list maybe you could help simplify the message on the 20% gross margin a proposal from CMS, particularly as it relates to clinical nursing input I don't know how that relates to you.

Just kind of simplify that one for me it would be awesome [laughter], yeah, well first off our focus really over these last 12 months and especially over these last.

Speaker Change: Six months since we have great new leadership in there with and then Damian in the rest of the team there on the Pcs side, we're building a platform.

This this organization historically was made up of a lot of individuals businesses and individual locations that we're doing great work.

But very challenging to scale and grow when you when you have it so that has been the focus and really that.

Speaker Change: Out of this platform we're building there.

And then we do expect.

To get back to the right level of growth at the right margin. After we finished with these with these investments but to your to your question around the <unk> 'twenty that we knew it came out so that that 20% gross margin cap that is being proposed again, most importantly, it doesn't need to be implemented to six years from now and we do think there'll be challenges around that.

Speaker Change: There was something in there that is very beneficial is what is the definition of the 20% and including these clinical costs are these nurse costs are really helpful for us.

Speaker Change: Because really the impact of this was implemented would be very manageable for us. So.

So it was a good outcome by including those those clinical costs because that margin <unk>.

Stork Lee from a gross margin were at 21% to 22% and you include the nurse causes that really covers a lot of that as well. So long story short we do believe that this rule will develop and change we're in a really good position as a large scale company.

And even if it was to get in place six years from now just because of how it was defined we feel like we're in a really good spot to grow and maintain strong strong margins.

Speaker Change: Okay Super. Thank you so much I'll jump back in queue.

Speaker Change: Thanks.

Thank you. Our next question is from Raj Kumar with Stephens. Please proceed with your question.

Raj Kumar: Hi, Good morning, just kind of wanted to dive deeper into the home segment I'm just kind of wanted to see like if there was kind of just differentiation in terms of any empty does have like a more of a back half ramp story to it just given redetermination and and implementation implementation of new contract wins, but you know.

C N RPM seem like just based on your commentary that it may have like a smoother path to getting towards those does 'twenty 'twenty four targets. So just wanted to get confirmation on that.

And.

Speaker Change: And then just as a follow up.

Speaker Change: Just kind of walk us through like the acceleration in membership for RPM.

Speaker Change: You know kind of versus <unk>.

Yeah. So the the home segment made up of Tcs in RPM.

Actually there will be specifically in <unk> because of what we had in Q1, which we explained a lot of that has to do with some of the cost that we've added to do with this transformation. We expect that those costs will come out in addition, with the with the team generally on the new platform.

Speaker Change: For him that we're building, we actually expect growth to accelerate as well so but it is smoother right then that mobility. There still is a lot that in mobility because of the timing of getting our sales on our cost out, but but there is still a growth that we expect within PCF as well as RPM RPM two in there.

Speaker Change: Q1 is a timing difference between some of the business that came off related to the Ma.

A large client that has MAA and they didn't win as much business. So we didn't get as much volume and we had some costs that stayed on so we expect that that will accelerate coming out of Q1 as well, but not at the slope that any empty is in.

Speaker Change: It's a reasonable plan to ensure that we hit our targets as we as we come out.

Great. Thank you and then just as my second question, just kind of wanted to double click on the the 80 20.

Provisions and and just trying to get your updated thoughts on just like I know like company in the past has talked to a 23% to 24% gross margin target longer term and given the definitional changes and what adjustments you can make.

Do you think that's still achievable longer term or.

Or if there's like a kind of updated baseline based on the adjustments that you think you guys can make.

Yeah. So.

<unk>.

It depends what states you're in is it depending on what your gross margin is going to be that's hence why a lot of people are arguing around this is not a one size fits all makes sense across the country for us where we are in our states again, our gross margin was historically around 22% 21, 5% to 22% so much more manageable.

So as we go down and I'll repeat again.

Having the clinical cost of the nursing costs is cost in that.

Really we only.

Speaker Change: The gap is in 2% its less than definitely less than 2% to get down to 20.

It's very manageable under the current construct that we have.

But theres other provisions in the in the proposal that really require and demand.

Centralization better compliance better reporting.

Speaker Change: That cost money and that is a lot of stuff that we've been doing for the last 18 months and we'll have that in place. So and then we will be able to get scale and leverage off of that as we as we grow hours.

As well so.

Speaker Change: The 10% to 12% EBITDA margin that we've laid out is definitely possible even after that 80 20.

Rule did come in place again that six years from now we don't think it'll be that.

But we really believe that we're in a good spot to grow and manage through and hit those EBITDA targets that we've always said.

Awesome. Thank you that's all for me.

Thanks.

Thank you our next question.

Ryan <unk> with Jefferies. Please proceed with your question.

Good morning, you have tissue Phillips answer Brian. Thanks for taking my question. So maybe first just kind of talk a little bit deeper on cost savings initiatives I'm clearly in the bridge you outlined on the slide deck, you show 1 million being realized in the quarter, that's another $33 million to $37 million left in the tank maybe can you.

Tell us what gives you confidence in your ability to execute on this and kind of lay out what else needs to happen for you to realize these savings throughout the year.

Yeah, It's a critical part of the remainder of this year. There is another slide that youll see there that shows about 60% is run rated.

Speaker Change: So we've done a lot of good work and then the remainder of that is action.

Speaker Change: Actions that we've identified and are executing on.

The bridge, which is a good bridge to show, even though it was a $1 million quarter over quarter sequential quarter, we had a lot before right. So the run rate coming off of 2023 into this year is really driving a lot of those savings. So the $1 million had a lot to do with.

The gross and trip volume and utilization as well.

Speaker Change: But we feel good about getting that that $34 million to $36 million in year, and then even beyond that because of the run rate and because of the initiatives that we're putting in now I expect that it will be about a $60 million full year benefit as we enter 2025, so yes.

Speaker Change: There is a lot of work that needs to still happen, but we have identified it and again, it's about 60% of that.

Speaker Change: <unk> 30 plus million.

Run rated from previous execution that we've had.

Speaker Change: Great I appreciate the color and then just back on personal care just want to go back to this comment about how youre expecting he's like delayed.

Reimbursement increases maybe can you talk about the magnitude of those and I guess, how we're how you're working to stabilize purchase services, obviously that expense line had pretty.

Pretty much trigger the shortfall this quarter.

Yeah. So it puts that kind of like maybe 5 million ish delta from in the bridge that you see there when you net it all out about a $1 million.

It's about a reimbursement so the reimbursement rates that we expect to get so.

Speaker Change: Another couple million dollars, which is in the G&A and also in the service expense is based on us getting the synergies. After these can consult.

Speaker Change: Centralization efforts and automation efforts that we have and the other $2 million is around is just higher service expense and we expect we will grow and get leverage out of that specifically in a couple of states, where we know that we have growth targets that will allow us to get leverage so that's how it breaks down.

And we have plans and we expect to be able to get back to the margins and growth rates that we had prior.

Thank you.

Thank you.

Our next question is from <unk> Chickering with Deutsche Bank. Please proceed with your question.

Chickering: Hey, good morning, guys. So two questions from me here matrix I think this is the first time you have given color like this or on the <unk>.

Chickering: Monetization of matrix I guess two questions on that one.

I guess what gives you what gives you guys confidence.

That asking monetize for over the next short.

At 12 months and then.

We're not asking for your prices here, but any any ranges at multiples of sort of where are you seeing some sort of transaction can be realized.

Yeah, well, it's similar similar to what I talked about how proud I am of my team here and then specifically around our go to market the same as for matrix Kathryn and her team Kathryn the CEO there what they've done over the last 18 months and really for the past six months, we had a board meeting.

Chickering: A couple of weeks ago.

Chickering: And we're going through everything and it's just tremendous work. This is Joe so the results and the financials are there and growing and stable.

And then the other conviction that the team has and I have as well as the platform. They're also building to really leverage <unk>.

Chickering: More care in the home are more outcome change in the home and it really gets down to their technology implementation that they've had so you couple those two things together.

And the sustained success that this team has.

And then again as importantly, 2800 nurses that are in People's homes.

And Theres a lot of value that they can have on the health care system and Theres a lot of inbounds.

A lot of confidence that we'll be able to.

Get them to another owner and grow beyond that so which is why I gave that guidance and and confidence around our ability to to do that so.

The multiples are going to get because of the great effort that they had so I'm not going to comment on what they're actually going to be obviously, if you. If we get this question and Peter you May have asked this before hey are we going to get the signify multiple which is a 30 times EBITDA now that's not possible, but it's going to be well above the kind of standard health care search.

<unk> multiples.

So I feel really good about it and again, thanks to that team and the execution will get it done.

Okay, Great and then sort of second question just looking at the first quarter EBITDA results.

This year for fourth quarter guidance of <unk> $56 million.

Walk us through just how would you be bridging one Q4 Q.

In terms of margins throughout the year kind of where do you see the biggest margin movement.

Speaker Change: And then sort of.

Touch on some other questions, but what are the biggest key drivers for those margins getting better.

Speaker Change: Yeah.

So similar to what we said last.

And while it's I think barb you been set and hers.

The ramp is in the back part of the year and so I'm focusing on mobility here first.

And it really gets to the stuff implementing the sales that we had.

So again those are some sales that we've already sold and those those are coming on now and I expect them to come on more in Q3. So that's an important item, but that would show why the ramp is in the back half.

Speaker Change: Of the year Redetermination being done.

And then really that kind of the normalized growth within Medicaid post Q2, and Redetermination is done and then the last component that is still needed to execute on it and it also is backend weighted in Q3 and Q4 as the cost out.

And again, there are 60% done from a run rate perspective, but we still have work to do there. So.

Speaker Change: Consistent with what we said before the.

Speaker Change: The EBITA targets around the 8% range exit rate in any empty and then in personal care, we do expect to ramp and be exiting at that 10% EBITDA rate.

Speaker Change: And then monitoring is going to have that steady growth there too so though it is a ramp.

Speaker Change: Q3, Q4, driven specific E mobility, it's a lot of those things that we've done in the past that will ensure that we hit those Q3 Q4 target.

Great. Thanks, so much.

Speaker Change: Thanks.

Thank you. Our next question is from Rishi <unk> with J P. Morgan. Please proceed with your question.

Alright, Thanks for taking my questions. My first question I was hoping that you could walk us through your Ma.

<unk> exposure to the various divisions, specifically within any empty what services are currently being utilized between buy those any empty.

Members.

Yes, we have.

I think it's about 18% to 16%, 16% in the deck, it's a small part 16% of our revenue as MAA.

For us that's and then in the other segments.

Monitoring its higher personal care, there's no exposure on Ma.

In the monitoring side again, it's pretty concentrated to one client and we feel good about where the where were those projections are so within any empty that 16% a lot of it was higher before and that was part of what we what we lost in Q1, but MAA as a critical benefit.

That continues to grow across all transportation and we expect that we will win and grow in an MAA as well probably the biggest thing from a market perspective.

And it gets back to what I talked about a little bit earlier.

Different than than Medicaid. So you really have to understand the member and understand.

Speaker Change: When that trip has taken and how that trip has taken so if you have the right insight and technology.

You can you can service that member at the right cost and a lot of those efforts we've put in place so but as you know MH just across the board for payers as a top issue.

And in many subtle mental benefits are going to be cut transportation.

One of them that is going to going to continue.

So its 16% we do expect it to grow in and it's manageable and and a big part of our business as we move forward.

And sorry.

What are the within the <unk> business what trips is it mostly for dialysis physician offices, a majority of the trips are well. So so M&A is not dialysis for us the bigger volume for that is in the Medicaid side Theres duals within the MAA that will have.

The dialysis. So it is your the adult day care, but there is the normal kind of breakdown of the different trip types, but it's less dialysis and more in line with what you'd expect with people that are over 65.

Okay, Great and then I.

Speaker Change: I believe your new Jersey contracts up for renewal.

Later this August I'm not sure if that's the contract that is currently under RSP. I believe this is also a fairly sizeable contract can you just provide us with some idea as to how that process is going is it still expected to be an exclusive contract. What's your visibility around it and can you quantify your exposure.

Yes, so we have a good slide in the deck that talks about what's in the renewals in the.

Speaker Change: The state business is a critical part.

Speaker Change: In New Jersey that you said is one of our.

Important customers, which we've had for many many years.

A really strong relationship with them why because we are performing and we do more for their members than just the trip and were an important part of their community within New Jersey on ensuring that people are working in the transportation providers are fulfilling their commitments. So my point is we really deep within New Jersey.

Speaker Change: <unk> performing well.

Have a very low cost platform, so we meet and check all the boxes.

So I feel good about our ability to renew all of our state business.

We even gained some state business and the other thing we said there.

In the script.

Because of what we have done over the last.

Six to 12 months, our win rate and renewals as well as gaining new business is very strong. So I expect that to continue in that $600 million of renewals that we have this year I expect we will win more of that than than lose so but again on that those are rfps.

Speaker Change: This year I don't expect any impact from any changes both positively or if there is something negatively that comes off until 2025.

Speaker Change: Okay and just a last question on <unk> also obviously noted that it might be an area or segment that you may look to sell.

To assist you made some comments in terms of their dislike of New York, We would love to just better understand where you are in this process and do you view it as a multiyear process or do you view it to be aligned with your matrix asset sale process.

Well, so matrix definitely is going to be something we sell for us.

Our job my job is to ensure that we drive shareholder value and the best way to drive shareholder value and I look at each of the individual parts is to build the best platform. The lowest cost platform that grows and thats the exactly what we're doing for personal care and that's really our focus.

But we always will be looking to see what is the right thing to do from shareholder value. So there is a lot of demand for personal care personal care and if theres a lots of companies whether or not that is whether that's other some large privates.

And that are doing wonderful things around personal care and the value that that adds to the person's health care outcomes. So it's a critical part of.

Health care so.

We will be a value that's our focus and there will be demand for personal care and then I do expect there'll be trades that happen around personal care from an M&A perspective, so everything's on the table for us, but our focus and priority right now is to do what I said before build a platform that's growing and can generate cash flow.

And that's that's that's the focus of ours right now.

Great. Thank you.

Speaker Change: Our next question is from Mike Kotowski with Barrington Research. Please proceed with your question Hey.

Hey, good morning, guys right.

Michael John Petusky: Right off the bat I'm going to apologize I missed part of this call. So if you've commented on this if you could just comment on a lot of quickly I'd I'd appreciate it.

Okay.

Did you guys speak to that a receivable that was sort of out there after last quarter.

Michael John Petusky: 35, $36 million have you have you guys spoken to that or comment on on that.

Yes, we did we did in I think in the prepared remarks, we commented that we received a significant amount of that payment in the quarter.

Our.

Michael John Petusky: So while it's helpful to our cash flow for sure.

Okay.

Okay, and then I was just wondering.

A lot of positive things about matrix and what they've done last.

18 months last six months said that they are growing.

Our belief that they'll get a really good.

Michael John Petusky: Multiple maybe not signified, but really good multiple.

I'd Love to know can you give any help on either trailing adjusted EBITDA.

<unk> EBITDA or something Thats sort of you know then you open you may not get questions around multiple because we can sort of guess at that if we have a good sense of what the EBITDA ranges.

Yeah. So the most important thing that we set this company up to have the right successful exit so I'm not going to give you exact specifics, but I'll go back to something that I said before and this may not be satisfying to you, but it's consistent with what I've said for modeling purposes I've said.

There is a range between $50 million to $100 million of EBITDA and that was a year and a half ago. So you can do your own extrapolation within that.

<unk> bin it's very strong and growing.

But that's the right way to think about it and I just can I just ask a clarifying question on that I think when you made that comment in the past you've said the right way to think about a takeout is on that multiple but I don't think I don't think and maybe maybe you did clarify this and I just didn't I just didn't pick up on it I don't think at that time.

When I've heard you say it I don't think you've ever said, hey, there actually in that range.

Is that what you're saying that they're in a range of 50 to 100 million now, yes, no I said that I said that.

Yeah, So okay fair fair fair enough.

And the.

The just going back to the receivable real quick.

When you said you collected.

Is it fair to say like 75% of that or or more or yeah. I think I think we.

It definitely 75% is about right actually.

Michael John Petusky: But the point there is why we why we said what we said last quarter.

Because just to clarify around what our cash flow expectations that was the main driver for the for the Miss but the other reason why we're giving this type of information as it's a critical important client of ours of a large payer.

Michael John Petusky: And we expect that they will be critical going forward and so there is some negotiation around.

That client itself, we did collect about 75% of that $36 million.

And again.

I may have missed this as well in the prepared but.

Did you guys comment on sort of your home for timing on the Refis I mean does that hopefully is a Q2 event or could that slip into Q3.

Speaker Change: Yeah, Yeah. So it's Q2 for us that's the right way to think about it because we are.

We're executing on it now so we expect to be done before the end of Q2.

Alright, thank you so much.

Alright. Thanks.

Thank you.

No further questions at this time I would like to hand, the floor back over to Heath Sampson for any closing comments.

Great. Thank you for participating in our call. This morning and for the interest in motive care. Our updated investor presentation has been posted on our website. If you want a follow up call or questions. Please contact Kevin our head of Investor Relations. We look forward to speaking many of you over the next coming days weeks and months before we report on our second quarter 2012.

For results in August again, Thank you T. All thank you to the team and have a great day. This concludes our call.

Okay.

This.

Today's conference you may disconnect your lines at this time, thank you for your participation.