Q2 2024 ModivCare Inc Earnings Call

August 8, 2024

Good morning and welcome to Modivcare's second quarter 2024 financial results conference call.

Operator: Financial Results Conference Call. At this time, all participants are in a listen-only mode.

Operator: results conference call. At this time, all participants are in a listen-only mode.

Operator: A question-and-answer session will follow the formal presentation. Please note this conference call is being recorded. I would now like to turn the call over to Kevin Ellich, Head of Investor Relations. Mr. Ellich, you may begin.

Speaker Change: At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

Operator: A question and answer session will follow the formal presentation. Please note, this conference call is being recorded. I would now like to turn the call over to Kevin Ellich, Head of Investor Relations. Mr. Ellich, you may begin.

Please note, this conference call is being recorded. I would now like to turn the call over to Kevin Ellich, Head of Investor Relations. Mr. Ellich, you may begin.

Kevin Ellich: Good morning, and thank you for joining Modivcare's second quarter 2024 earnings conference call and webcast. Joining me today is Heath Sampson, Modivcare's President and Chief Executive Officer, and Barbara Gutierrez, Modivcare's Chief Financial Officer.

Speaker Change: Good morning, and thank you for joining MotiveCare's second quarter 2024 earnings conference call and webcast. Joining me today is Heath Sampson, MotiveCare's President and Chief Executive Officer, and Barbara Gutierrez, MotiveCare's Chief Financial Officer.

Kevin Ellich: 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 and 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.

Speaker Change: 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.

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

Kevin Ellich: A definition of these non-GAAP financial measures and, to the extent applicable, a reconciliation to their most directly comparable GAAP financial measures is included in our press release and Form 8K. A replay of this conference call will be available approximately one hour after today's call concludes and will be posted on our website, modivcare.com. With that, I'll turn the call over to Heath.

Speaker Change: a definition of these non-gaap financial measures and to the extent applicable a reconciliation to their most directly comparable gaap financial measures is included in our press release and form eight-k

Speaker Change: our replay of this conference call will be available or proressimbly one hour after today's call concludes and will be posted on our website motive care com

Kevin Ellich: A replay of this conference call will be available approximately one hour after today's call concludes and will be posted on our website, modivcare.com. This morning, Heath Sampson will begin with opening remarks. Barbara will review financial results and guidance, and then we'll open the call for questions. With that, I'll turn the call over to Heath.

Heath Sampson: this morning he sansamon will begin with opening remarks bara will review financial results and guidance and then we'll open the call for questions with that i'll turn the call over to heath

Heath Sampson: Good morning, and thank you for joining our second quarter 2024 earnings call. Second quarter results were in line with our expectations, with adjusted EBITDA of $45 million, and revenue of $698 million.

Speaker Change: good morning and thank you for joining our second quarter two thousand and twenty four earnings call

Heath Sampson: Second quarter results were in line with our expectations, with adjusted EBITDA of $45 million and revenue of $698 million, due to our improved go-to-market capabilities resulting in new business wins and upward pricing. Next, I'd like to recap some highlights for the second course, starting with business development.

Speaker Change: Second quarter results were in line with our expectations, with adjusted EBITDA of $45 million and revenue of $698 million. These results were primarily driven by our strong operational performance in our NEMT segment.

Heath Sampson: These results were primarily driven by our strong operational performance in our NEMT segment due to our improved go-to-market capabilities resulting in new business wins and upward pricing. Additionally, our cost structure continues to improve as we automate and optimize our omni-channel engagement capabilities and multi-modal networks. Within personal care services, the ongoing centralization and standardization has provided a solid platform to build upon but has temporarily increased our cost structure and moderated growth. That said, our PCS performance improved sequentially, and we exited the quarter trending towards our long-term margin target. Additionally, the softening labor market is favorable for our recruiting and retention efforts.

Speaker Change: due to our improved go-to-market capabilities resulting in new business wins and upward pricing. Additionally, our cost structure continues to improve as we automate and optimize our omni-channel engagement capabilities and multi-modal network.

Speaker Change: Within personal care services, the ongoing centralization and standardization has provided a solid platform to build upon, but has temporarily increased our cost structure and moderated growth.

Speaker Change: That said, our PCS performance improved sequentially, and we exited the quarter trending towards our long-term margin target.

Speaker Change: additionally the softening labor market is favorable for our recruiting and retention efforts

Heath Sampson: Remote patient monitoring revenue growth was lower on a year-over-year basis due to client membership churn, primarily because of a reduction in our membership within our largest Medicare Advantage clients. Although the overall MA Supplemental Benefit market is under pressure, we have a differentiated market position as our RPM business is primarily Medicaid long-term services and support, and we feel confident about RPM growth normalizing in the second half of the year with a mid-30 Based on our first half results, we reaffirmed our 2024 revenue guidance of $2.7 to $2.9 billion and lowered adjusted EBITDA guidance to $185 to $195 million, primarily due to lower than anticipated personal care services results from the first half of 2020. However, we expect to exit 2024 at a seasonally adjusted run rate of 210 to 220 million dollars of adjusted EBIT. Next, I'd like to recap some highlights from the second quarter.

Speaker Change: Remote patient monitoring revenue growth was lower on a year-over-year basis due to client membership churn, primarily because of reduction in our membership within our largest Medicare Advantage client.

Speaker Change: although the overall mma supplemental benefit market is under pressure

Speaker Change: We have a differentiated market position, as our RPM business is primarily Medicaid long-term services and support, and we feel confident about RPM growth normalizing in the second half of the year with mid-30% margins.

Speaker Change: Based on our first-half results, we reaffirmed our 2024 Revenue Guidance of $2.7 to $2.9 billion

Speaker Change: and lowered adjusted ebitda guidance to one hundred eighty five to one hundred and ninety five million dollars primarily due to lower than anticipated personal care services results from the first half of two thousand and twenty four

Speaker Change: However, we expect to exit 2024 at a seasonally adjusted run rate of 210 to 220 million dollars of adjusted EBITDA.

Speaker Change: Next, I'd like to recap some highlights for the second quarter.

Heath Sampson: Starting with business development, during the second quarter, we won $33 million in annual contract value, adding to the 36 million won in the first quarter. In addition to various other client onboarding, we onboarded a significant state contract in early June, which is already demonstrating strong performance and results. Importantly, we received extensions on 84% or 526 million of the 623 million in our state Medicaid contracts that were up for renewal this year, including a verbal commitment from our largest state contract in New Jersey to extend through July of 2025. We remain highly confident in our ability to extend the remainder of our state contracts and win additional contracts in the second half of the year.

Heath Sampson: During the second quarter, we won $33 million in annual contract value, adding to the 36 million won in the first quarter. We're fully integrated with rideshare providers like Lyft and Uber, and we're connected to over 4,000 medical facility portals, and we have over 250,000 members and caregivers who are connected through our member app. Additionally, and uniquely, we have API connections with our largest clients. While our quarterly free cash flow fluctuates throughout the year, we expect a normalized adjusted EBITDA to free cash flow conversion rate of 30% by exiting 2024.

Speaker Change: Starting with business development, during the second quarter, we won $33 million of annual contract value, adding to the $36 million won in the first quarter.

Speaker Change: In addition to various other client onboarding, we onboarded a significant state contract in early June , which is already demonstrating strong performance and results.

Speaker Change: Importantly, we received extensions on 84 percent.

Speaker Change: or five hundred twenty six million of the six hundred and twenty- three million in our state medicaid contracts that were up for renewal this year including a verbal commitment from our largest state contract in new jersey to extend through july of two thousand and twenty-five

Speaker Change: We remain highly confident in our ability to extend the remainder of our state contracts and win additional contracts in the second half of the year.

Heath Sampson: Next, an update on our cost-saving initiatives. In the second quarter, we realized $7 million in net cost savings driven primarily by our strategic initiatives in our NEMT segment. Our omni-channel engagement includes digital tools that help members, transportation providers, and medical facilities manage trips through apps, text messages, web portals, IVA, IVR, or, when needed, a low-cost, high-touch experience with our integrated contact center. For example, digital reservations increased to 33% in the second quarter, up from 23% a year ago.

Speaker Change: Next, an update on our cost-saving initiatives. In the second quarter, we realized $7 million in net cost savings driven primarily by our strategic initiatives in our NEMT segment.

Speaker Change: our omnch engagement includes digital tools that helpped members transportation reviders

Speaker Change: and medical facilities managage trips through apps text messages web portals ivaiv or when needed a low-cost high touch experience with our integrated contact center

Speaker Change: For example, digital reservations increased to 33% in the second quarter, up from 23% a year ago.

Heath Sampson: Additionally, we are the most connected and connectable NEMT provider, meaning that we are the only company that's digitally integrated with our nationwide network of transportation providers through 40 trip management. We're fully integrated with rideshare providers like Lyft and Uber, and we're connected with over 4,000 medical facility portals, and we have over 250,000 members and caregivers who are connected through our member app. Additionally, and uniquely, we have API connections with our largest clients.

Speaker Change: Additionally, we are the most connected and connectable NEMT provider, meaning that we are the only company that's digitally integrated with our nationwide network of transportation providers through 40 trip management systems.

Speaker Change: we're fully integrated with r here providers like lift eoverver and we're connected with over four thousand medical facility portals and we have over two hundred and fifty thousand members and caregivers who are connected tothrough our member ap additionally and uniquely we have appi connections with our largest clients

Heath Sampson: This setup allows real-time automated eligibility verification and enables clients to manage the member experience through an API connection to our platform. All these components not only improve the stakeholder experience but also reduce costs, evidenced by our call-to-trip ratio improving to 38 percent from 52% a year ago. Our second strategic initiative involves sophisticated AI algorithms and technology to manage transportation using fit-for-purpose modes, which is our multi-modal network management initiative. This ensures the optimal time and place for the members' transportation needs.

Speaker Change: This setup allows real-time automated eligibility verification and enables clients to manage the member experience through an API connection to our platform.

Speaker Change: All these components not only improve the stakeholder experience, but also reduce costs, evidenced by our call-to-trip ratio improving to 38% from 52% a year ago.

Speaker Change: Our second strategic initiative involves sophisticated AI algorithms and technology to manage transportation using fit-for-purpose modes, which is our multi-modal network management initiative. This ensures the optimal time and place for the members' transportation needs.

Heath Sampson: Enhancing the client and member experience. This initiative has also shifted more trips to lower cost modalities that are the most appropriate level of service for members, including ride share, mileage reimbursement, and public transit, which combined accounted for 45% of trips in the second quarter. Additionally, our digital engagement and AI algorithms are further reducing waste and improving efficiencies in routing, enabling us to lower our purchase services costs per trip by 5% year-over-year and payroll and other expenses per trip by 17% despite inflationary pressure.

Speaker Change: enhancing the client and member experience

Speaker Change: this initiative has also shifted more trips to lower cost modalities than the most appropriate level of service for members including r shair biology reimbursement and public transit which combined accounted for forty five percent of trips in the second quarter

Speaker Change: additionally our digital engagement and ai algorithms are further reducing waste and improving efficiencies in routing

Speaker Change: enabling us to lower our purchase services costs per trip by five percent year-over-year and pay ro another expenses per trp by seventeen percent despite inflationary pressures

Heath Sampson: Our strategic initiatives are also effectively offsetting the impact of rising healthcare utilization and Medicaid redetermination. We remain confident in achieving our targeted savings of $30 to $50 million in 2024, as most of the initiatives have been developed, implemented, and are in varying phases of adoption and optimization. Our platform enhancements result in a member-facing, data-rich platform, which ultimately improves the member experience and allows us to save costs through greater efficiencies in our trip management and related revenue cycle activities, which will help us achieve targeted cost savings of $60 million on a run rate basis in 2025. Additionally, our data-rich capabilities further differentiate our ability to meet client needs beyond the trip itself.

Speaker Change: Our strategic initiatives are also effectively offsetting the impact of rising health care utilization and Medicaid redetermination.

Speaker Change: We remain confident in achieving our targeted savings of $30 to $50 million in 2024, as most of the initiatives have been developed, implemented, and are in varying phases of adoption and optimization.

Speaker Change: Our platform enhancements result in a member-facing, data-rich platform.

Speaker Change: which ultimately improves the member experience and allows us to save costs through greater efficiencies in our trip management and related revenue cycle activities, which will help us achieve targeted cost savings of $60 million on a run rate basis in 2025.

Speaker Change: additionally our data rich capabilities further differentiat our ability to meet client needs beyond the trip itself

Heath Sampson: Our clients greatly value our access to their hard-to-reach members. And when this is combined with critical insights from our tech-enabled, data-rich platform that impact the cost and quality of care, we become an indispensable partner. This differentiation not only strengthens our position to retain and expand an EMT service but will also drive incremental revenue through value-based care programs. Moving to our debt refinance. On July 1st, we completed the successful refinancing of our $500 million 2025 senior secured notes with a new $525 million term loan B.

Speaker Change: Our clients greatly value our access to their hard-to-reach members, and when this is combined with critical insights from our tech-enabled, data-rich platform that impact the cost and quality of care, we become an indispensable partner.

Speaker Change: this differentiation not only strengthens our position to retain and expand any emt services but will also drive eincremental revenue through value-based care programs

Speaker Change: Shifting to our debt refinancing. On July 1st, we completed the successful refinancing of our $500 million 2025 senior secured notes with a new $525 million term loan B. We thank our partners and new investors involved in this transaction.

Heath Sampson: We thank our partners and new investors involved in this transaction. Next, I'll turn to our free cash flow. As anticipated, free cash flow in the first half of 2024 was negative due to settlements on contracts payable, growth in contracts receivables, and our semi-annual cash interest. However, the increase in our contract receivables is primarily related to a few customers with whom we are actively negotiating prepayment resets. These adjustments correspond with Medicaid redetermination and higher utilization and will be retrospective, generating positive cash flows in the second half of 2024 and improving our cash conversion cycle. While our quarterly free cash flow fluctuates throughout the year, we expect a normalized, adjusted EBITDA to free cash flow conversion rate of 30% by exiting 2024.

Speaker Change: next i'll turn to our free cash flow as anticipated free cash flow in thefirsthalf of two thousand and twenty four was negative due to settlements on contract payables growth in contracts receivables and our semiat annual cash interest payment

Speaker Change: However, the increase in our contract receivables is primarily related to a few customers with whom we are actively negotiating prepayment resets.

Speaker Change: These adjustments correspond with Medicaid redetermination and higher utilization and will be retrospective, generating positive cash flows in the second half of 2024 and improving our cash conversion cycles.

Speaker Change: While our quarterly free cash flow fluctuates throughout the year, we expect a normalized adjusted EBITDA to free cash flow conversion rate of 30% exiting 2024.

Heath Sampson: Recovering from COVID and Medicaid redetermination has been challenging and extended, but our sustained, differentiated offering and optimized cost structure are now delivering strong, sustainable results that will enhance shareholder value. Diving a little deeper into our segment performance, second quarter NEMT performance showed meaningful top-line sequential growth and meaningful improvement in our gross margins, driven by our cost-saving initiatives. We are encouraged by performance in NEMT as overall healthcare service utilization continues to normalize, and again, we expect the new normal at year's end.

Speaker Change: Recovering from COVID and Medicaid redetermination has been challenging and extended, but our sustained, differentiated offering and optimized cost structure are now delivering strong, sustainable results that will enhance shareholder value.

Speaker Change: Diving a little deeper into our segment performance.

Speaker Change: second quarter nmt performance showed meaningful top line sequential growth and meaningful improvement in our gross margins

Speaker Change: driven by our cost-saving initiatives. We are encouraged by performance in NEMT as overall healthcare service utilization continues to normalize. And again, we expect the new normal at year's end.

Heath Sampson: Our strategic positioning and enterprise go-to-market approach has enabled us to secure upward pricing to offset higher utilization even in a challenging environment. Our payer clients are under significant pressure to maintain their margin amidst rate cuts and inflationary pressures impacting their growth. We have successfully navigated Medicaid redetermination and the resulting increase in healthcare utilization, diligently managing the corresponding impact on our working capital. As evidenced by our contract wins and retention, we are well-positioned to secure additional NEMT contracts.

Speaker Change: Our strategic positioning and enterprise go-to-market approach has enabled us to secure upward pricing to offset higher utilization even in a challenging environment.

Heath Sampson: Our payer clients are under significant pressure to maintain their margin amidst rate cuts and inflationary pressures impacting their growth. As evidenced by our contract wins and retention, we are well positioned to secure additional EMT contracts. We recently secured a meaningful rate increase from New Jersey, effective July 1st, and continue to benefit from rate increases in New York that became effective on March 1st. With respect to the PCS regulatory environment, while there is ongoing information from New York regarding the Consumer Directed Personal Assistance Program, or CDPAP, we are well positioned with a diversified and healthy book of agency and high-acuity waiver business. Our RPM business continues to experience higher than expected churn from MCO clients.

Speaker Change: our pairer clients are under significant pressure to maintain their margin amidsted rate cuts and inflationary pressures impacting their growth

Speaker Change: We have successfully navigated Medicaid redetermination and the resulting increase in healthcare and utilization, diligently managing the corresponding impact on our working capital. As evidenced by our contract wins and retention, we are well positioned to secure additional NEMT contracts.

Heath Sampson: Incremental volume flows through at a strong contribution margin to adjust DBDA, which is why we are excited about consistently adding net new volume each quarter and the significant positive impact this has on our future growth and margin process. In the second quarter, PCS performance showed sequential improvement with steady growth in both revenue and hours. We recently secured a meaningful rate increase from New Jersey, effective July 1st, and continue to benefit from rate increases in New York that became effective on March 1st.

Speaker Change: Incremental volume flows through at a strong contribution margin to adjust DBIDA, which is why we are excited about consistently adding net new volume each quarter and the significant positive impact this has on our future growth and margin prospects.

Speaker Change: In the second quarter, PCS performance showed sequential improvement with steady growth in both revenue and hours.

Speaker Change: We recently secured a meaningful rate increase from New Jersey effective July 1st and continue to benefit from rate increases in New York that became effective on March 1st.

Heath Sampson: Over the past year, our centralization and standardization efforts have driven efficiencies, aligned incentives, and strengthened our core capabilities. However, as often occurs during a rapid transformation, margins and growth have been temporarily affected by two focused strategic initiatives. First, business development and referral management.

Speaker Change: over the past year our centralization and standardization efforts have driven efficiencies aligned incentives and strengthen our core capabilities however as often occurs during a rapper transformation margins and growth have been temporarary affected

Speaker Change: We have two focused strategic initiatives. First, business development and referral management, and second, optimizing our centralization and standardization efforts to enhance our hyper-local community focus.

Heath Sampson: And second, optimizing our centralization and standardization efforts to enhance our hyper-local community focus, thereby enabling and empowering us to accelerate caregiver recruiting and retention. As a result, we remain confident in driving profitable growth in our personal care segment and have implemented the necessary people, process, and technology changes to return to a 10% margin in the coming quarter. With respect to the PCS regulatory environment, while there is ongoing information from New York regarding the Consumer Directed Personal Assistance Program, or CDPAP, we are well positioned with a diversified and healthy book of agency and high-acuity waiver business. Only $3 to $5 million of PCS-adjusted EBITDA is derived from CDPAP.

Speaker Change: thereby enabling and empowering us to accelerate caregiver recruiting and retention.

Speaker Change: As a result, we remain confident in driving profitable growth in our personal care segment and have implemented the necessary people, process, and technology changes to return to a 10% margin in the coming quarters.

Speaker Change: With respect to PCS regulatory environment, while there is ongoing information from New York regarding the Consumer Directed Personal Assistance Program or CDPAP, we are well positioned with a diversified and healthy book of agency and high acuity waiver business.

Speaker Change: only three to five million dollars of pcs adjusted ebitda is a drive from cdpath additionally we may benefit from changes as we have the expertise and scale to manage consumer directed programs

Heath Sampson: Additionally, we may benefit from changes as we have the expertise and scale to manage consumer-directed programs. However, our RPM business continues to experience higher than expected churn from MCO clients, primarily within our largest M.A. clients.

Speaker Change: Our RPM business continues to experience higher-than-expected churn from MCO clients, primarily within our largest MA client. However, we expect top-line growth will re-accelerate in the second half of 2024.

Heath Sampson: However, we expect top-line growth to re-accelerate in the second half of 2024. We remain confident that growth will normalize, and we believe margins will remain in the mid-30% level as we invest in our offerings and focus on getting more share of clinical budgets allocated to monitoring and engagement services, which have not been impacted by the shifting reimbursement landscape. We have made significant progress over the last 18 months. Our strategy remains clear, as we are well-positioned to capitalize on the evolving healthcare market, which demands services to manage health outside of the clinical setting. We are focused on enabling members to stay at home and are taking a more proactive approach to their health.

Heath Sampson: We remain confident that growth will normalize, and we believe margins will remain in the mid-30% level as we invest in our offerings and focus on getting more share of clinical budgets allocated for monitoring and engagement services. Our proprietary platform and differentiated tech-enabled healthcare services deliver risk-appropriate care based on member acuity and SDOH needs that serve as an extension of the member's existing primary care and care team. Given the ongoing uncertainty about the macroenvironment and potential economic downturn, the demand for our supportive care services is expected to remain stable.

Speaker Change: We remain confident that growth will normalize, and we believe margins will remain in the mid-30% level as we invest in our offerings and focus on getting more share of clinical budgets allocated for monitoring and engagement services, which have not been impacted by the shifting reimbursement landscape.

Speaker Change: We have made significant progress over the last 18 months. Our strategy remains clear as we are well positioned to capitalize on the evolving health care market, which demands services to manage health outside of the clinical settings.

Speaker Change: We are focused on enabling members to stay at home and are taking a more proactive approach to their health.

Heath Sampson: We have added technology and clinical resources to go beyond trips, in-home care, or monitoring devices to manage high-risk cohorts, truly lowering costs and improving health outcomes for our clients. Our proprietary platform and differentiated tech-enabled healthcare services deliver risk-appropriate care based on member acuity and SDOH needs that serve as an extension of the member's existing primary care and care team. We have modernized three service lines that can operate independently as differentiated scale platforms.

Speaker Change: We have added technology and clinical resources to go beyond trips, in-home care, or monitoring devices to manage high-risk cohorts, truly lowering costs and improving health outcomes for our clients.

Speaker Change: Our proprietary platform and differentiated tech-enabled healthcare services delivers risk-appropriate care based on member acuity and SDOH needs that serve as an extension of the member's existing primary care and care team.

Speaker Change: We have modernized three service lines that can operate independently as differentiated scale platforms.

Heath Sampson: When combined, our service lines leverage our unique cost structure with shared services and business development, but also have the ability to drive incremental growth from cross-selling opportunities. Also, it's important to note that our business is counter-cyclical. Given the ongoing uncertainty about the macroenvironment and potential economic downturn, the demand for our supportive care services is expected to remain stable. Regarding our capital structure, now that our debt refinancing is complete, our top priority is to proactively leverage our balance sheet.

Speaker Change: When combined, our service lines leverage our unique cost structure with shared services and business development, while also having ability to drive incremental growth from cross-selling opportunities.

Speaker Change: Also, it's important to note that our business is counter-cyclical.

Speaker Change: given the ongoing uncertainty about the macro environment and potential economic downturn the demand for our supportive care services is expected to remain stable

Speaker Change: Regarding our capital structure, now that our debt refinancing is complete, our top priority is to proactively leverage our balance sheet.

Heath Sampson: We will evaluate all options to enhance value by optimizing our operations and continuing our mission to build a scaled SDUH platform. As for Matrix Medical, we remain aligned with our partner and Matrix Management and will provide updates about a potential monetization event when there are developments to report. As we previously indicated, we anticipate this will be later this year or early next year. I appreciate the hard work and effort from all team members at Modivcare as we continue to provide great value to the healthcare system, our clients, and our members. Now I'll turn the call over to Barb, who will share additional details about our future results and outlook for 2024.

Speaker Change: we will evaluate all options to enhance value by optimizing our operations and continuing our mission to build a scaled ash platform

Speaker Change: As for Matrix Medical, we remain aligned with our partner and Matrix Management and will provide updates about a potential monetization event when there are developments to report. As we previously indicated, we anticipate this will be later this year or early next year.

Speaker Change: I appreciate the hard work and effort from all team members at MotiveCare as we continue to provide great value to the healthcare system, our clients, and our members.

Speaker Change: Now I'll turn the call over to Barb who will share additional details about our future results and Outlook for 2024.

Speaker Change: Barb?

Barbara Gutierrez: Thank you, Heath, and good morning, everyone. Second quarter 2024 revenue was flat year-over-year at $698 million, driven by 3.5% PCS growth, offset by a 1% decrease in both NEMT and RPM. Second quarter net loss was $129 million, largely due to the $105 million goodwill impairment in our RPM segment. An adjusted net loss was $375,000 or $0.03 per diluted share.

Barbara Gutierrez: Thank you, Heath, and good morning, everyone. Second quarter 2024 revenue was flat year over year at $698 million, driven by 3.5% PCS growth, offset by a 1% decrease in both NEMT and RPM. Second quarter net loss was $129 million, largely due to the $105 million goodwill impairment in our RPM segment. An adjusted net loss was $375,000, or 3 cents per diluted share.

Barb: Thank you, Heath, and good morning, everyone.

Barb: Second quarter 2024 revenue was flat year-over-year at $698 million, driven by 3.5% PCS growth, offset by a 1% decrease in both NEMT and RPM.

Speaker Change: The second quarter net loss was $129 million, largely due to the $105 million goodwill impairment in our RPM segment.

Barb: An adjusted net loss was $375,000 or $0.03 per diluted share.

Barbara Gutierrez: Second quarter adjusted EBITDA was $45 million, or 6.5% of revenue, driven by solid performance in our NEMT and RPM segments, as well as sequential improvement in PCS. Now, a review of our segment financials. NEMT's second quarter revenue decreased 1% year over year but increased 2.4% sequentially to $491 million. NEMT revenue incrementally benefited from the successful execution of contract reconciliations and negotiated pricing increases that were more favorable than expected. Average monthly membership increased 2% sequentially to 29.7 million due to the onboarding of previously announced contract wins, modestly offset by Medicaid redetermination.

Barb: Second quarter adjusted EBITDA was 45 million dollars or 6.5 percent of revenue driven by solid performance in our NEMT and RPM segments as well as sequential improvement in PCS.

Barbara Gutierrez: Trip volume increased 2.5% quarter over quarter, while revenue per trip decreased modestly due to contract mix, while purchase services expense per trip was relatively flat. NEMT adjusted EBITDA by $35 million, and NEMT margin improved 150 basis points sequentially to 7.2%, driven by $8 million of repricing and contract reconciliation, of which $2.5 million was attributable to 2023 and greater than anticipated. $5.5 million was related to repricing and in-year contract reconciliations for the first half of 2024.

Speaker Change: Turning to a review of our segment financials.

Speaker Change: NEMT's second quarter revenue decreased 1% year-over-year, but increased 2.4% sequentially to $491 million.

Speaker Change: NEMT revenue incrementally benefited from successful execution of contract reconciliations and negotiated pricing increases that were more favorable than expected.

Speaker Change: Average monthly membership increased 2% sequentially to $29.7 million due to the onboarding of previously announced contract wins, modestly offset by Medicaid redetermination.

Barbara Gutierrez: Trip volume increased 2.5% quarter over quarter, while revenue per trip decreased modestly due to contract mix. Sequentially, NEMT's gross margin increased 120 basis points primarily due to TripMix and our cost savings initiatives. Notably, payroll and other expense per trip decreased 11% sequentially to $6.94, while purchase services expense per trip was relatively flat.

Speaker Change: trip volume increased two point five percent quarter -over-quarter while revenue per trip decreased modestly due to contract mix

Speaker Change: sequentially an mt gross margin increased one hundred and twenty basis points primarily due to trip mix and our cost savings initiatives

Speaker Change: notably payroll and other expense for trip decreased eleven percent sequentially to six dollars and ninety four cents while purchaseed services expense per trip was relatively flock

Barbara Gutierrez: The decrease in service cost unit metrics illustrates continued traction from our cost savings initiative. NEMT adjusted EBITDA by $35 million, and NEMT margin improved 150 basis points sequentially to 7.2%, driven by $8 million of repricing and contract reconciliation, of which $2.5 million was attributable to 2023 and greater than anticipated. $5.5 million was related to repricing and in-year contract reconciliations for the first half of 2024. The increased pricing is in our run rate, as well as our guide.

Speaker Change: The decrease in service cost unit metrics illustrates continued traction from our cost savings initiative.

Speaker Change: NEMT adjusted EBITDA was $35 million, and NEMT margin improved 150 basis points sequentially to 7.2%.

Speaker Change: driven by eight million dollars of repricing and contract reconciliations of which two point five million dollars was attributable to two thousand and twenty-three and greater than anticipated

Speaker Change: five point five million dollars was related to repricing and in-year contract reconciliations for the first half of two thousand and twenty-four

Barbara Gutierrez: The increased pricing is in our run rate as well as our guidance. During the second quarter, our membership was impacted by Medicaid redeterminations for approximately 600,000 members, which is modestly higher than we previously expected for the quarter but still in line with our overall expectations for the cumulative impact from redetermination. We believe redetermination is essentially complete, and we expect a minimal impact on our Medicaid membership for the remainder of the year.

Speaker Change: The increased pricing is in our run rate as well as our guidance.

Barbara Gutierrez: During the second quarter, our membership was impacted by Medicaid redeterminations for approximately 600,000 members, which is modestly higher than we previously expected for the quarter but still in line with our overall expectations for the cumulative impact from redetermination. We believe redetermination is essentially complete, and we expect a minimal impact on our Medicaid membership for the remainder of the year.

Speaker Change: During the second quarter, our membership was impacted by Medicaid redeterminations of approximately 600,000 members.

Speaker Change: which is modestly higher than we previously expected for the quarter, but still in line with our overall expectations for the cumulative impact from redetermination.

Speaker Change: We believe redetermination is essentially complete and expect a minimal impact on our Medicaid membership for the remainder of the year.

Barbara Gutierrez: Redetermination impacted second quarter revenue by $3 million and adjusted EBITDA by approximately $1 million. Overall, Medicaid redetermination is tracking in line to slightly better with our expectations and is estimated to adversely impact revenue by $60 million and adjusted EBITDA by about $25 to $30 million in 2024, which aligns with our original adjusted EBITDA range of $20 to $40 million. Turning to our personal care segment,

Speaker Change: Redetermination impacted second quarter revenue by $3 million and adjusted EBITDA by approximately $1 million.

Speaker Change: Overall, Medicaid redetermination is tracking in line to slightly better with our expectations.

Speaker Change: and is estimated to adversely impact revenue by sixty million dollars

Speaker Change: and adjusted ebitda by about twenty-five to thirty million dollars in two thousand and twenty four which aligns with our original adjusted ebitda range of twenty to forty million dollars

Barbara Gutierrez: Second quarter personal care revenue increased 4% year over year to $187 million, driven by 2% growth in hours and 2% growth in revenue per hour. We are seeing solid revenue growth driven by hours and a reimbursement rate increase in New York that became effective on March 1st, subsequent to their minimum wage increase earlier this year. Additionally, during the quarter, New Jersey approved a rate increase of approximately $1.50 per hour, effective on July 1.

Speaker Change: turning to our personal care segment

Speaker Change: Second quarter personal care revenue increased 4% year-over-year to 187 million dollars driven by 2% growth in hours and 2% growth in revenue per hour.

Speaker Change: We are seeing solid revenue growth driven by hours and a reimbursement rate increase in New York that became effective on March 1st, subsequent to their minimum wage increase earlier this year.

Speaker Change: Additionally, during the quarter, New Jersey approved a rate increase of approximately $1.50 per hour, effective on July 1st.

Barbara Gutierrez: Personal care adjusted EBITDA was $15 million, or 8% of revenue, which was a 200 basis point improvement from the first quarter, driven primarily by rate increases and operating expense controls. We are encouraged by the improvement in personal care margins. We expect the momentum to continue in the second half of the year and remain confident margins will approach the 10% level by year end. RPM revenue decreased 1% year-over-year to $19 million.

Barbara Gutierrez: Personal care adjusted EBITDA was $15 million, or 8% of revenue, which was a 200 basis point improvement from the first quarter, driven primarily by rate increases and operating expense controls. We are encouraged by the improvement in personal care margins. We expect the momentum to continue in the second half of the year and remain confident margins will approach the 10% level by year-end. RPM revenue decreased 1% year-over-year to $19 million.

Speaker Change: personal care adjusted ebitda was fifteen million dollars or eight percent of revenue which was a two hundred basis point improvement from the first quarter driven primarily by rate increases and operating expense controls

Speaker Change: we are encouraged by the improvement in personal care margins we expect the momentum to continue in the second half of the year and remain confident margins will approach the ten percent level by year-end

Speaker Change: rpm revenue decreased one percent year-over-year to nineteen million dollars as we also indicated during the first quarter lower rpm revenue was primarily attributable to medicare advantage contract churn from earlier this year

Barbara Gutierrez: As we also indicated during the first quarter, lower RPM revenue was primarily attributable to Medicare Advantage contract churn from earlier this year. With churn issues believed to be behind us, we saw solid growth exiting the quarter, which we expect will carry into Q3 and the second half of 2024. RPM's adjusted EBITDA was $6.1 million, or a 32% margin. We continue to expect RPM margins in the mid 30% range in the second half of 2024.

Barbara Gutierrez: As we also indicated during the first quarter, lower RPM revenue was primarily attributable to Medicare Advantage contract churn from earlier this year. With churn issues believed to be behind us, we saw solid growth exiting the quarter, which we expect will carry into Q3 and the second half of 2024. RPM's Adjusted EBITDA was $6.1 million, or a 32% margin. We continue to expect RPM margins in the mid-30% range in the second half of 2024.

Speaker Change: With churn issues believed to be behind us, we saw solid growth exiting the quarter, which we expect will carry into Q3 and the second half of 2024.

Speaker Change: RPM adjusted EBITDA was $6.1 million or a 32% margin.

Speaker Change: We continue to expect RPM margins in the mid-30% range in the second half of 2024.

Barbara Gutierrez: During the quarter, we performed our annual goodwill impairment assessment, and we recorded a non-cash goodwill impairment of $105.3 million for the RPM segment. As a reminder, the impairment is a non-cash expense and does not impact our operating cash flows or ongoing activities.

Speaker Change: during the quarter we performed our annual goodwill impairment assessment and we recorded a noncash goodwill impairment of one hundred five point three million dollars for the rpm segment

Speaker Change: as a reminder the impairment is a noncash expense and does not impact our operating cash flows or ongoing activities

Barbara Gutierrez: Turning to our balance sheet and cash flow. During the quarter, free cash flow was negative $62 million, consisting of a net use of cash provided by operating activities of approximately $55 million and capital expenditures of $7 million, which was 1% of revenue. Driven by NEMT working capital dynamics, we ended the quarter in a net contract receivables position of $79 million. Contract receivables increased by $12 million sequentially to $166 million, primarily due to successful repricing and contract reconciliations during the quarter. Contract payables decreased by $41 million quarter over quarter to $87 million, primarily due to the expected annual reconciliation and settlement on certain contracts.

Barbara Gutierrez: Turning to our balance sheet and cash flow. During the quarter, free cash flow was negative $62 million, consisting of a net use of cash provided by operating activities of approximately $55 million and capital expenditures of $7 million, which was 1% of revenue. Driven by NEMT working capital dynamics, we ended the quarter in a net contract receivables position of $79 million; contract receivables increased by $12 million sequentially to $166 million, primarily due to successful repricing and contract reconciliations during the quarter; contract payables decreased by $41 million quarter over quarter to $87 million, primarily due to the expected annual reconciliation and settlement on certain contracts.

Speaker Change: Turning to our balance sheet and cash flow.

Speaker Change: During the quarter, free cash flow was negative $62 million, consisting of a net use of cash provided by operating activities of approximately $55 million and capital expenditures of $7 million, which was 1% of revenue.

Speaker Change: Driven by NEMT Working Capital Dynamics, we ended the quarter in a net contract receivables position of $79 million.

Speaker Change: Contract receivables increased by $12 million sequentially to $166 million, primarily due to successful repricing and contract reconciliations during the quarter.

Speaker Change: Contract payables decreased by $41 million quarter over quarter to $87 million, primarily due to the expected annual reconciliation and settlement on certain contracts.

Barbara Gutierrez: We have made progress on renegotiating prepayment terms on our shared risk contracts and expect the growth of our contract receivables will be reduced going forward. We have visibility into the collection of approximately $60 million of contract receivables in addition to our normal run rate collections in the third quarter through retrospective rate increases and settlements. As a result of increased utilization in the first half of 2024 and the mismatch in contract payables and receivables affecting our quarterly working capital, our revolving credit facility balance increased by $62 million in the second quarter to $183 million.

Speaker Change: We have made progress on renegotiating prepayment terms on our shared risk contracts and expect the growth of our contract receivables will be reduced going forward.

Speaker Change: We have visibility into the collection of approximately $60 million of contract receivables in addition to our normal run rate collections in the third quarter through retrospective rate increases and settlements.

Speaker Change: as a result of increased utilization in the first half of two thousand and twenty four and the mismatch in contract payles and receivables affecting our quarterly working capital our revolving credit facility balance increased by sixty two million dollars in the second quarter to one hundred and eighty-three million dollars

Barbara Gutierrez: We ended the second quarter with $10.5 million in cash, and approximately $1.17 billion of debt, and our bank-defined net leverage ratio decreased modestly to 5.22 times as of June 30th against our maximum net leverage covenant of 5.5 times.

Speaker Change: We ended the second quarter with $10.5 million in cash.

Speaker Change: approximately 1.17 billion dollars of debt and our bank-defined net leverage ratio decreased modestly to 5.22 times as of June 30th against our maximum net leverage covenant of 5.5 times.

Barbara Gutierrez: On July 1, we successfully completed the refinancing of our $500 million 2025 Senior Unsecured Notes with a new $525 million term loan B, with a current interest rate at the secured overnight financing rate, SOFR, plus 475 basis points. Since this is a variable rate debt, we will see a benefit if there are any rate cuts. The refinancing was in line with our expectations, and we appreciate the diligence and support from our lending partners and advisors on the transaction.

Barbara Gutierrez: On July 1st, we successfully completed the refinancing of our $500 million 2025 senior unsecured notes with a new $525 million term loan B, with a current interest rate at the secured overnight financing rate SOFR plus $4.75 basis. Since this is a variable rate debt, we will see a benefit if there are any rate cuts. The refinancing was in line with our expectations, and we appreciate the diligence and support from our lending partners and advisors on the transaction.

Operator: for Financial Results Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. Please note, this conference call is being recorded.

Speaker Change: On July 1st, we successfully completed the refinancing of our $500 million 2025 Senior Unsecured Notes with a new $525 million term loan B.

Kevin Ellich: I would now like to turn the call over to Kevin Ellich, Head of Investor Relations, Mr. Ellich, who may begin. Good morning, and thank you for joining Modivcare's second quarter, 2024, earnings conference call and webcast. Joining me today is Heath Samson, Modivcare's president and chief executive officer and Barbara Gutierrez, Modivcare's chief financial officer.

Speaker Change: with a current interest rate at the secured overnight financing rate, SOFR, plus 475 basis points.

Speaker Change: since this is a variable rate debt we will see a benefit if there are any rate cuts

Speaker Change: The refinancing was in line with our expectations and we appreciate the diligence and support from our lending partners and advisors on the transaction.

Barbara Gutierrez: Shifting to cash flow, free cash flow was a use in the first half of 2024 given the payment timing mismatch of contract receivables, certain larger settlements on our contract payables, and our semi-annual cash interest. We've made progress on the retrospective renegotiation of the prepayment amount on a number of our shared risk contracts and in-year contract settlements, which gives us confidence that free cash flow will be positive Accounting for the first half of 2024 results with the impact of our debt refinancing.

Kevin Ellich: Before we get started, I want to remind everyone that during today's call, management will make forward-looking payments under the Private Security's litigation reform act. These payments involve risks, uncertainties and other factors and may cause actual results for 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-gap financial measures to provide additional information to investors. A definition of these non-gap financial measures and to the extent applicable, a reconciliation to their most directly comparable gap financial measures is included in our press release and forum 8K.

Speaker Change: Shifting to cash flow, free cash flow was a use in the first half of 2024 given the payment timing mismatch of contract receivables.

Speaker Change: certain larger settlements on our contract payables, and our semi-annual cash interest.

Speaker Change: we've made progress on the retrospective renegotiation of the prepayment amount on a number of our shared risk contracts and in your contract settlements which gives us confidence that free cash flow will be positive for the year

Speaker Change: Accounting for the first half of 2024 results with the impact of our debt refinancing, we now expect an adjusted EBITDA to free cash flow conversion rate of approximately 30% exiting 2024.

Barbara Gutierrez: We now expect an adjusted EBITDA to free cash flow conversion rate of approximately 30% exiting 2024. Shifting to guidance, we maintained our 2024 revenue guidance in the range of $2.7 to $2.9 billion and lowered our adjusted EBITDA to a range of $185 to $195 million due to lower than anticipated results from PCS during the first half of the year, but we continue to see solid performance from NEMT. Here are a few qualitative and quantitative items for you to consider for the remainder of 2024.

Kevin Ellich: A replay of this conference call will be available approximately one hour after today's call concludes and will be posted on our website, Modivcare.com. This morning, Heath Samson will begin with opening remarks. Barbara will review financial results and guidance and then we'll open the call for questions.

Barbara Gutierrez: Shifting to guidance, we maintained our 2024 revenue guidance in the range of $2.7 to $2.9 billion and lowered our adjusted EBITDA to a range of $185 to $195 million due to lower than anticipated results from PCS during the first half of the year, but we continue to see solid performance from NEMT. Here are a few qualitative and quantitative items for you to consider for the remainder of 2024.

Speaker Change: Shifting to guidance.

Speaker Change: We maintained our 2024 revenue guidance in the range of $2.7 to $2.9 billion and lowered our adjusted EBITDA to a range of $185 to $195 million due to the lower than anticipated results from PCS during the first half of the year.

Heath Samson: With that, I'll turn the call over to Heath. Good morning and thank you for joining our second quarter, 2024 earnings call. Second quarter results were in line with our expectations with adjusted EBITDA of $45 million and revenue of $698 million. These results were primarily driven by our strong operational performance in our NEMT segment due to our improved go-to-market capabilities resulting in new business wins and upward pricing. Additionally, our cost structure continues to improve as we automate and optimize our omnichannel engagement capabilities and multimodal network.

Speaker Change: but we continue to see solid performance from nemt

Speaker Change: here are a few qualitative and quantitative items for you to consider for the remainder of two thousand and twenty-four

Barbara Gutierrez: Medicaid redetermination continues to track in line with and slightly better than our original expectation. For the year, we expect a $25 to $30 million adjusted EBITDA impact, nearly all of which is in our run right now. We continue to expect business development to be a meaningful contributor to adjusted EBITDA in the second half of the year, largely driven by NEMT contract settlements and repricings, as well as net new contract wins. Cost savings are expected to be at least $30 million for the year, net of investment and digital service costs.

Speaker Change: Medicaid redetermination continues to track in line to slightly better than our original expectations.

Speaker Change: for the year we expect a twenty-five to thirty million dollar adjusted ebitda impact nearly all of which is in our run rate now

Speaker Change: We continue to expect business development to be a meaningful contributor to adjusted EBITDA in the second half of the year, largely driven by NEMT contract settlements and repricings, as well as net new contract wins.

Heath Samson: Within personal care services, the ongoing centralization and standardization has provided a solid platform to build upon but has temporarily increased our cost structure and moderated growth. That said, our PCS performance improves sequentially and we exited the quarter trending towards our long-term margin target. Additionally, the softening labor market is favorable for our recruiting and retention efforts. Remote patient monitoring revenue growth was lower on a year or a year basis due to client membership turn, primarily because of reduction in our membership within our largest Medicare Advantage client.

Speaker Change: Cost savings are expected to be at least 30 million dollars for the year, net of investment and digital service cost.

Barbara Gutierrez: The majority of cost savings are in our run rate, and we expect to generate an incremental $4 to $6 million in the second half of 2024. We expect utilization within our current contract mix to normalize in a range of 10% to 11% for 2024 and to be a headwind of $4 to $7 million in the second half of the year. We anticipate continued momentum coming out of the second quarter for PCS and RPM, which are expected to contribute $13 to $15 million of adjusted EBITDA growth in the second half of 2025. Additionally, we expect to invest $7-8 million in innovation and G&A for the second half of the year.

Barbara Gutierrez: The majority of cost savings are in our run rate, and we expect to generate an incremental $4 to $6 million in the second half of 2024. We expect utilization within our current contract mix to normalize in a range of 10% to 11% for 2024 and to be a headwind of $4 to $7 million in the second half of the year. We anticipate continued momentum coming out of the second quarter for PCS and RPM, which are expected to contribute 13 to 15 million dollars of adjusted EBITDA growth in the second half of 2020. We expect to invest $7-8 million in innovation and G&A for the second half of the year.

Speaker Change: The majority of cost savings are in our run rate, and we expect to generate an incremental $4 to $6 million in the second half of 2024.

Speaker Change: We expect utilization within our current contract mix to normalize in a range of 10% to 11% for 2024, and to be a headwind of $4 to $7 million in the second half of the year.

Speaker Change: We anticipate continued momentum coming out of the second quarter for PCS and RPM, which are expected to contribute $13 to $15 million of adjusted EBITDA growth in the second half of 2024.

Heath Samson: Although the overall MA supplemental benefit market is under pressure, we have a differentiated market position as our RPM business is primarily Medicaid long-term services in support and we feel confident about RPM growth normalizing in the second half of the year with mid 30% mark. Patients. Based on our first half results, we reaffirmed our 2024 revenue guidance of $2.7 to $2.9 billion and lowered adjusted EBITDA guidance to $185 to $195 million, primarily due to lower than anticipated personal care services results from the first half of 2024. However, we expect to exit 2024 at a seasonally adjusted run rate of $210 to $220 million of adjusted EBITDA.

Speaker Change: We expect to invest seven to eight million dollars in innovation and GNA for the second half of the year.

Barbara Gutierrez: We continue to expect a steady progression in adjusted EBITDA over the next two quarters driven by new contract implementations, greater cumulative benefit from cost savings, the diminishing impact from Medicaid redetermination, and sequential improvement in PCS, all contributing to financial results consistent with our revised guide. In summary, our overall second quarter financial results were in line with our expectations, driven primarily by solid NEMT performance. Personal care and remote patient monitoring were moderately lower than our expectations.

Barbara Gutierrez: We continue to expect a steady progression in adjusted EBITDA over the next two quarters driven by new contract implementations, greater cumulative benefit from cost savings, the diminishing impact from Medicaid redetermination, and sequential improvement in PCS, all contributing to financial results consistent with our revised guidance. In summary, our overall second quarter financial results were in line with our expectations, driven primarily by solid NEMT performance. Personal care and remote patient monitoring were moderately lower than our expectations.

Speaker Change: We continue to expect a steady progression in adjusted EBITDA over the next two quarters, driven by new contract implementations.

Speaker Change: greater cumulative benefit from cost savings, the diminishing impact from Medicaid redetermination, and sequential improvement in PCS.

Speaker Change: All contributing to financial results consistent with our revised guidance.

Speaker Change: In summary, our overall second quarter financial results were in line with our expectations.

Speaker Change: driven primarily by solid mt performance

Speaker Change: personal care and remote patient monitoring were moderately lower than our expectations

Heath Samson: Next, I'd like to recap some highlights for the second quarter. Starting with business development, during the second quarter, we won $33 million of annual contract value adding to the $36 million one in the first quarter. In addition to various other client onboarding, we onboarded a significant state contract in early June, which is already demonstrating strong performance and results. Importantly, we received extensions on 84% or 526 million of the 623 million in our state Medicaid contracts that were up for renewal this year, including a verbal commitment from our largest state contract in New Jersey to extend through July of 2025. We remain highly confident in our ability to extend the remainder of our state contracts and when additional contracts in the second half of the year.

Barbara Gutierrez: However, we saw notable progress throughout the quarter in both segments. We feel positive about the momentum of these segments for the rest of the year and achieving previous growth and margin targets as we exit the year. Now that our refinancing is behind us, our top priority is proactively delevering our balance sheet. In closing, I'd like to thank all of our teammates for their unwavering commitment and diligent efforts in serving all of our members and clients. With that, operator, please open the call for questions.

Speaker Change: However, we saw notable progress throughout the quarter in both segments.

Speaker Change: We feel positive about the momentum of these segments for the rest of the year and achieving previous growth and margin targets as we exit the year.

Speaker Change: Now that our refinancing is behind us, our top priority is proactively delevering our balance sheet.

Speaker Change: In closing, I'd like to thank all of our teammates for their unwavering commitment and diligent efforts serving all of our members and clients.

Speaker Change: With that, Operator, please open the call for questions.

Operator: Thank you. The floor is now open for questions. If you do have a question, you may press star 1 on your telephone keypad at this time. If your question has been answered, you can remove yourself from the queue by pressing 1.

Operator: Thank you. The floor is now open to questions. If you do have a question, you may press Star 1 on your telephone keypad at this time. If your question has been answered, you can remove yourself from the queue by pressing 1.

Speaker Change: Thank you. The floor is now open for questions. If you do have a question, you may press star 1 on your telephone keypad at this time. If your question has been answered, you can remove yourself from the queue by pressing 1.

Operator: Again, ladies and gentlemen, it's Star 1 and our first question comes from Brian Tanquilut from Jeffries. Brian, your line is open.

Operator: Again, ladies and gentlemen, it's Star 1, and our first question comes from Brian Tanquilut from Jeffries. Brian, your line is open.

Heath Samson: Next, an update on our cost saving initiatives. In the second quarter, we realized $7 million in net cost savings driven primarily by our strategic initiatives in our NEMT segment. Our omnichannel engagement includes digital tools that help members, transportation providers, and medical facilities manage trips through apps, text messages, web portals, IVA-IVR, or when needed, a low cost high-touch experience with our integrated contact center. For example, digital reservations increased to 33% in the second quarter up from 23% a year ago.

Speaker Change: Again, ladies and gentlemen, it's star one. And our first question comes from Brian Tanquilut from Jeffrey's. Brian , your line is open.

Brian Tanquilut: Hey, good morning guys. I guess, Heath, as I think about the results here, pretty good NEMT progress and RPM as well, it looks like. So, you know, it's kind of like a State of the Union, but as I think about the moving pieces, you know, between PCS and just the cash flow performance over the quarter, I mean, from where you sit, how are you thinking about the path moving forward here?

Brian Tanquilut: Hey, good morning guys. I guess, Heath, as I think about, you know, the results here, you know, pretty good NEMT progress and RPM as well, it looks like. So

Speaker Change: It's kind of like a State of the Union, but as I think about the moving pieces between PCS and just the cash flow performance over the quarter, I mean, from where you sit, how are you thinking about the path moving forward here?

Heath Sampson: Yeah, hey, good morning. Thanks. You know, we have made a lot of progress across all our three segments, and you can see that specifically within NEMT, there's a lot of transformation around all things people process in tech, and in personal care as well, especially over the last six months. Again, like we said there, we exited well in the second quarter, and we expect to be back to growing and approaching the margins there anyway.

Heath Sampson: Yeah, hey, good morning. Thanks.

Heath Samson: Additionally, we are the most connected and connectable NEMT provider, meaning that we are the only company that's digitally integrated with our nationwide network of transportation providers through 40 trip management systems. We're fully integrated with rideshare providers like Lyft & Uber, and we're connected with over 4,000 medical facility portals, and we have over 250,000 members and caregivers who are connected through our member app. Additionally, and uniquely, we have API connections with our largest clients.

Heath Sampson: we have made a lot of progress across all our three segments and you can see that specifically within anymt

Speaker Change: There was a lot of transformation around all things people, process, and tech.

Heath Sampson: So each of the individual parts is doing very well, and together as a whole, we're getting scale and leverage. You can see that we're getting, we're able to generate free cash flow, and as Barb just said, we expect to be positive free cash flow for the year, even though we're high users because of coming out of Redetermination and Higher Utilization in the NEMT contract. So yes, our job is to ensure that all three of these segments in the company as a whole are performing.

Speaker Change: In personal care as well, especially over the last six months, again, like we said there, we exited.

Speaker Change: well in the second quarter and we expect to be back to growing and approach the margins there anyway so each of the individual parts are doing very well and together as a whole we're getting we're getting scale leverage you can see that

Speaker Change: We're getting we're able to generate free cash flow and as Barb's just said We expect to be positive free cash flow for the year Even though we're high users because of coming out of

Heath Samson: This setup allows real-time automated eligibility verification and enables clients to manage the member experience through an API connection to our platform. All these components not only improve the stakeholder experience, but also reduce costs. Evidence by our call to trip ratio, improving to 38% from 52% a year ago. Our second strategic initiative involves sophisticated AI algorithms and technology to manage transportation using fit-for-purpose modes, which is our multimodal network management initiative. This ensures the optimal time and place for the member's transportation needs.

Barb: redetermination and higher utilization in the the nmt contract so yes our job is to ensure that all three of these segments in the company as a whole is performing but

Heath Sampson: But with that, with where we are from a leverage perspective, everything's on the table for us. So we'll look at performing, whether that's delivering through our current cash flow or looking at other options for us. So again, we're evaluating everything, and everything's on the table for us to ensure that we are able to deliver and drive shareholder value.

Speaker Change: But with that, with where we are from a leverage perspective, everything's on the table for us.

Speaker Change: So we'll look at performing, so whether that's delivering through our current cash flow or looking at other options for us. So again, we're evaluating everything and everything's on the table for us to ensure that we are able to deliver and drive shareholder value.

Brian Tanquilut: Heath, maybe just to that point, I know you touched upon it in your prepared remarks as well, right? So is there a leverage target that you've set or how are you thinking about, you know, when you say like everything's on the table, just evaluating the different options or the different business segments that you have in terms of, you know, their contribution to the enterprise? I mean, is that like a returns-based analysis or a cash flow-based analysis? I'm just curious how you view that evaluation process or review. Yeah, yeah, so

Heath Samson: Dean. Enhancing the client and member experience. This initiative has also shifted more trips to lower cost modalities than are the most appropriate level of service for members, including rideshare, biology, and public transit, which combined accounted for 45 percent of trips in the second quarter. Additionally, our digital engagement and AI algorithms are further reducing waste and improving efficiencies and routing, enabling us to lower our purchase services cost per trip by 5 percent year-rear, and pay all other expenses per trip by 17 percent despite inflationary pressures.

Speaker Change: Thank you. Maybe just to that point, I know you touched upon it in your prepared remarks as well, right?

Speaker Change: Is there a leverage target that you've set, or how are you thinking about, you know, when you say, like, everything's on the table, just evaluating the different options or the different business segments that you have in terms of

Speaker Change: their contribution to the enterprise. I mean, is that like a returns-based analysis or a cashflow-based analysis? Just curious how you're viewing that evaluation process or review.

Heath Sampson: Yeah, yeah. So, consistent with what we've been saying for a while, three times is the target. And from where we are today, that's a ways away, right?

Speaker Change: Yeah, yeah, so for consistent what we've been saying for a while, three times is is the target and from where we are today that's...

Heath Sampson: So, considering the three times, that's why we're evaluating all the options. And the way we look at it is having each of those businesses be strong and where they're kind of at from a value today. And what could that be that incremental value that we could get from each of those segments or from the business as a whole? So, it's a pretty simple analysis. The best thing for us to do is to ensure that each of our businesses is performing. They're all at scale.

Heath Sampson: That's a ways away, right?

Heath Samson: Our strategic initiatives are also effectively offsetting the impact of rising healthcare utilization and Medicaid re-determination. We remain confident in achieving our targeted savings of $30 to $50 million in 2024, as most of the initiatives have been developed, implemented, and are in varying phases of adoption and optimization. Our platform enhancements result in a member-facing data-rich platform, which ultimately improves the member experience and allows us to save costs through greater efficiencies in our trip management and related revenue cycle activities, which will help us achieve targeted cost savings of $60 million on a run rate basis in 2025.

Heath Sampson: So, considering the three times, that's why we're evaluating all the options. And the way we look at it is having each of those businesses to be strong and where they're kind of at from a value today. And what can that be, that incremental value that we could get from each of those segments or from the business as a whole. So, it's a pretty...

Speaker Change: Simple analysis. The best thing for us is to do what we're doing.

Speaker Change: is to ensure each of our businesses are performing.

Heath Sampson: They're all meeting where the market is going. We see that with our customers, and we know what's happening in healthcare. So that is our priority. But again, if there is an option for us, we will evaluate those options. And again, it's just where we are today and what we could get is how we're looking at it.

Heath Sampson: They're all meeting where the market is going. We see that with our customers and we know what's happening in health care. So that is our priority. But again,

Speaker Change: if there is an option for us we evaluate those options and again it's just where we are today to what we could get ' how we're looking at it

Heath Samson: Additionally, our data-rich capabilities further differentiate our ability to meet client needs beyond the trip itself. Our clients greatly value our access to their hard-to-reach members, and when this is combined with critical insights from our tech-enabled data-rich platform that impact the cost and quality of care, we become an indispensable partner.

Speaker Change: Appreciate it. Thank you so much.

Operator: Thank you. And our next question comes from Bob Labick from CJS Securities. Go ahead, Bob.

Speaker Change: Thank you. And our next question comes from Bob Labick from CJS Securities. Go ahead, Bob.

Robert Labick: Good morning, thanks for taking our questions and thanks for all the information. Good morning.

Robert Labick: Good morning, thanks for taking our questions and thanks for all the information. I want to start and just ask you to elaborate more on the free cash flow discussion for the back half of the year. I think you said something along the lines of actively negotiating prepayment resets on 60 million receivables. But I don't know. I was typing fast. But maybe just help us understand kind of the process, the visibility, and when we get to a normal run rate of working capital and stuff like that. But more specifically, what's the visibility to that? This is a strong pre-cache that you're talking about in the second half.

Robert Labick: Good morning, thanks for taking our questions and thanks for all the information.

Robert Labick: I wanted to start and just ask you to elaborate more on the free cash flow discussion for the back half of the year. I think you said something along the lines of actively negotiating prepayment resets on 60 million receivables. I don't know. I was typing fast. But maybe just help us understand kind of the process, the visibility, and when we get to a normal run rate of working capital and stuff like that. But more specifically, what's the visibility to that?

Heath Samson: This differentiation not only strengthens our position to retain and expand NEMT services, but will also drive incremental revenue through value-based care programs. Shifting to our debt refinancing. On July 1st, we completed the successful refinancing of our $500 million 2025 bean year secured notes with a new $525 million term loan B. We thank our partners and new investors involved in this transaction.

Speaker Change: More you got? I want...

Bob Labick: Good morning. I wanted to start and just ask you to elaborate more on the free cash flow discussion for the back half of the year. I think you said something along the lines of actively…

Speaker Change: Negotiating prepayment resets or on 60 million receivables. I don't know. I was typing fast, but maybe just help us understand, you know, kind of the process the visibility and you know the

When we get to a normal run rate of working capital and stuff like that, but more specifically, what's the visibility to that?

Heath Samson: Next, I'll turn to our free cash flow. As anticipated, free cash flow in the first half of 2024 was negative due to settlements on contracts payables, growth in contracts receivables, and our semi-annual cash interest payment. However, the increase in our contract receivables is primarily related to a few customers with whom we are actively negotiated prepayment resets. These adjustments correspond with Medicaid re-determination and higher utilization, and will be retro-spective generating positive cash flows in the second half of 2024 in improving our cash conversion cycles. While our adjusted EBITDA to free cash flow conversion rate of 30% exiting 2024.

Heath Sampson: This is a strong free cash flow that you're talking about in the second half.

Heath Sampson: Yeah, yeah, thanks, Bob. I'll start here, and Barb can add some color.

Speaker Change: The strong free cash that you're talking about in the second half.

Heath Sampson: Yeah.

Speaker Change: Yeah, thanks, Bob. I'll start here and Barb can add some color. And we did in the investor deck, I think slide 18, we gave a lot of

Heath Sampson: And we did in the investor deck, I think slide 18, we gave a lot of disclosure, and even some disclosure of what we expect for contracts payable and contracts receivable for Q3 and Q4. So it really gives a good kind of picture of what we expect. So the main driver for us, because the businesses are performing on our working capital, is the contracts, right? And again, the contracts, especially over the last kind of two years, 18 months, have been redesigned to ensure that we're in this win-win relationship from a margin and P&L perspective.

Barbara Gutierrez: And we did in the investor deck, I think slide 18, we gave a lot of disclosure, and even some disclosure of what we expect for contracts payable and contracts receivable for Q3 and Q4. So it really gives a good kind of picture of what we expect. So the main driver for us, because the businesses are performing on our working capital, is the contracts, right? And again, the contracts, especially over the last kind of two years, 18 months, have been redesigned to ensure that we're in this win-win relationship from a margin and P&L perspective.

Barb: disclosure and even some disclosure of what we expect for contracts payable and contracts receivable for Q3 and Q4. So it really gives a good kind of picture of what we expect.

Barbara Gutierrez: The main driver for us, because the businesses are performing on our working capital, is the contracts, right? And again, the contracts, especially over the last kind of two years, 18 months, have been redesigned to ensure that we're in this win-win relationship from a margin and P&L perspective.

Barbara Gutierrez: But where we're hit, just as a reminder, you know very well, but many other people with redetermination and then utilization of settlement times within our shared risk contracts, that goes on the balance sheet, mainly in AR. And then we have from the past being below that, we're at the same time paying contracts, for example. So the contracts are working as designed and protecting the downside and protecting the P&L. But there's no question there is a working capital challenge that we've been working through.

Heath Sampson: But where we're hit, just as a reminder, you know very well, but many other people, with redetermination and then utilization of settlement times within our shared risk contracts, that goes on the balance sheet, mainly in AR. And then we have, from the past, being below that, we're at the same time paying contracts payable. So the contracts are working as designed and protecting the downside and protecting the P&L. But there's no question there is a working capital challenge that we've been working through.

Barbara Gutierrez: But where we're hit, just as a reminder, you know very well, but many other people, with redetermination and then utilization with the...

Heath Samson: Recovery from COVID and Medicaid re-determination has been challenging and extended, but our sustained, differentiated offering and optimized cost structure are now delivering strong, sustainable results that will enhance shareholder value, diving a little deeper into our segment performance. Second quarter, NEMT performance showed meaningful top line sequential growth and meaningful improvement in our gross margins driven by our cost saving initiatives. We are encouraged by performance in NEMT as overall healthcare service utilization continues to normalize and again we expect the new normal at year's end.

Barbara Gutierrez: Settlement times within our

Barbara Gutierrez: Shared Risk Contracts

Barbara Gutierrez: That goes on the balance sheet, mainly in AR, and then we have...

Barbara Gutierrez: from the past being below that, we're at the same time paying contracts payable. So the contracts are working as designed and protecting the downside and protecting the P&L, but there's no question there is a working capital.

Heath Sampson: So within those contracts, we know the timing and when those things happen. They're written down, unlike it was in the past. They were a little more ambiguous because COVID was new and wasn't contemplated. But now they're all contemplated in the contract. So that's the general. Damon. And Barb, you want to add something? Yeah, so I'll just add,

Barbara Gutierrez: So within those contracts, we know the timing and when those things happen. They're written down, unlike it was in the past. They were a little more ambiguous because COVID was new and wasn't contemplated. But now they're all contemplated in the contract. So that's the general statement. And Barb, you want to add something? Yeah, so I'll just add

Barb: challenge that we've been working through. So within those contracts, we know the timing and when those happen. They're written down. Unlike it was in the past, they were a little more ambiguous because COVID was new and wasn't contemplated. But now they're all contemplated.

Heath Samson: Our strategic positioning and enterprise go-to-market approach has enabled us to secure upward pricing to offset higher utilization even in a challenging environment. Our payer clients are under significant pressure to maintain their margins amidst rate cuts and inflationary pressures impacting their growth. We have successfully navigated Medicaid re-determination and the resulting increase in healthcare and utilization, diligently managing the corresponding impact on our working capital. As evidenced by our contract wins and retention, we are well positioned to secure additional NEMT contracts.

Barb: in the contract. So that's the general.

Barbara Gutierrez: Yeah, so I'll just add a little bit of color. Thanks for the question, Bob. So just to expand a little bit on what he said, in terms of the $60 million that we referenced in the script, as he said, that's a contractual amount. It's not a fuzzy amount at all.

David: David, and Barb, do you want to add something? Yeah, so I'll just add a little bit of color. Thanks for the question, Bob. So, just to expand a little bit on what he said, you know, in terms of the $60 million that we referenced in the script,

Barbara Gutierrez: as we said that ' a contractual amount it's not a it's not a fuzy amount at all it's what the contractual amount it's a few payers where we've been successful

Barbara Gutierrez: So it's a contractual amount. It's a few payers where we've been successful in our repricing efforts and even successful in an in-year contract settlement, which is earlier than normal. So we have very good visibility to that $60 million in the third quarter, and again, it's primarily related to our successful efforts in repricing. So good visibility, it's contractual, and that really will contribute to the improvement in free cash flow in the back half of the year, in the third quarter, and in the back half of the year.

Barbara Gutierrez: in our repricing efforts, and even successful.

Heath Samson: Incremental volume flows through at a strong contribution margin to adjust debita, which is why we are excited about consistently adding net new volume each quarter and the significant positive impact it has on our future growth and margin prospects. In the second quarter, PCS performance showed sequential improvement with steady growth in both revenue and hours. We recently secured a meaningful rate increase from New Jersey effective July first and continued to benefit from rate increases in New York that became effective on March 1st. Over the past year, our centralization and standardization efforts have driven efficiencies, aligned incentives, and strengths in our core capabilities. However, as often occurs during a rapid transformation, margins and growth have been temporarily affected.

Barbara Gutierrez: in an in-year contract settlement, which is earlier than normal. So we have very good visibility to that $60 million in the third quarter, and again, it's primarily related to our successful efforts in repricing. So good visibility, it's contractual, and that really will contribute to the improvement in the free cash flow in the back half of the year, in the third quarter, in the back half of the year.

Barbara Gutierrez: We also, in the prepared remarks, commented that from an exit perspective, the free cash flow will be improving, and the conversion rate will be approximately 30% as we exit the year. So maybe those are a few highlights and data points to give you a little bit more color on the...

Barbara Gutierrez: We also, in the prepared remarks, commented that from an exit perspective, the free cash flow will be improving, you know, the conversion rate will be approximately 30% as we exit the year. So, maybe those are a few highlights and data points to...

Barbara Gutierrez: to give you a little bit more color on the improvement in the free cash flow.

Robert Labick: Okay, great. Now, I appreciate that.

Robert Labick: Okay, great. I appreciate that.

Speaker Change: Okay, great. Now, I appreciate that. And then on NEMT, obviously, a nice quarter in, I think, utilization and payroll and other were kind of the drivers there. So, two questions.

Robert Labick: And then on NEMT, obviously, a nice quarter, and I think utilization and payroll and other things were kind of the drivers there. So two questions. I'm, you know, bouncing between your slide decks and trying to figure this out quickly, but it looks like the ending number of memberships is lower than last quarter, 30.5 versus maybe 32. The net client growth in the back half, you know, may have changed a little bit. And I, again, I apologize if I got it wrong there, but what changed there? And, you know, obviously, what are the expectations for client growth? Is it going to, or is the onboarding taking longer?

Robert Labick: And then on NEMT, obviously, a nice quarter, and I think utilization and payroll and other things were kind of the drivers there. So two questions. I'm, you know, bouncing between your slide decks and trying to figure this out quickly, but it looks like the ending number of memberships is lower than last quarter, versus maybe 32. The net client growth in the back half, you know, may have changed a little bit. And I, again, I apologize if I got it wrong there, but... What changed there? And, obviously, what are the expectations for client growth? Is it going to or is the onboarding taking longer?

Heath Samson: We have two focus strategic initiatives. First, business development and referral management and second, optimizing our centralization and standardization efforts to enhance our hyper local community focus, thereby enabling and empowering us to accelerate caregiver recruiting and retention. As a result, we remain confident driving profitable growth in our personal care segment and have implemented the necessary people process and technology changes to return to a 10% margins in the coming quarters. With respect to PCS regulatory environment, while there is ongoing information from New York regarding the Consumer Directed Personal Assistance Program, or CDPAP, we are well positioned with a diversified and healthy book of agency and high acuity waiver business.

Robert Labick: um

Robert Labick: I'm bouncing between your slide decks and trying to figure this out quickly, but it looks like the ending number of membership is lower than last quarter, 30 and a half versus maybe 32. The net client growth in the back half may have changed a little bit.

Robert Labick: am i again i apologize i got a wrong there but

Robert Labick: What changed there? And, you know, obviously, what are the expectations for client growth? Is the onboarding taking longer, or were there, you know, additional... Thanks.

Robert Labick: Or were there, you know, you know, what's it?

Heath Sampson: Yeah, no, very good question. Well, the current deck is the deck to look at with our membership because we have a really good understanding of the timing of client onboarding. A couple things on that. If you triangulate in redetermination on the membership, it's about 500K higher than we thought around that. We also did have one of our own that we won state businesses that got pushed into 2025. And then the other items are just a general estimate that we had before and when stuff's coming online or when contracts get ultimately finalized with the right mix.

Heath Samson: Only three to five million dollars of PCS adjustity is a drive from CDPAP. Additionally, we may benefit from changes as we have the expertise and scale to manage consumer directed programs. Our RPM business continues to experience higher than expected churn from MCO clients, primarily within our largest MA client. However, we expect top-line growth will re-accelerate in the second half of 2024. We remain confident that growth will normalize and we believe margins will remain in the mid 30% level as we invest in our offerings and focus on getting more share of clinical budgets allocated for monitoring and engagement services, which have not been impacted by the shifting reimbursement landscape.

Heath Sampson: It's about 500K higher than we thought around that. We also did have one of our...

Heath Sampson: that we won state businesses that got pushed into 2025. And then the other items are just a general estimate that we had before and when stuff's coming online or when contracts get ultimately finalized with the right mix.

Heath Sampson: And that's probably the biggest driver that we had that membership too high. The important thing is that's just the membership item that you're seeing. The economics, and the ultimate bottom line, and ultimate cash flow and timing are right in line with what we expected last quarter. It just is really a membership estimate change for those reasons that I just talked about.

Heath Sampson: And that's probably the biggest driver that we had that membership too high. The important item is that's just the membership item that you're seeing. The economics...

Robert Labick: Okay, great. And last one, I'll get in the queue for this.

Robert Labick: And the ultimate bottom line and ultimate cash flow and timing are right in line with what we expected last quarter. It just is really a membership estimate change for those reasons that I just talked about.

Heath Samson: We have made significant progress over the last 18 months. Our strategy remains clear as we are well positioned to capitalize on the evolving healthcare market, which demands services to manage health outside of the clinical settings. We are focused on enabling members to stay at home and are taking a more proactive approach to their health. We have added technology and clinical resources to go beyond trips, in-home care or monitoring devices to manage high risk cohorts, truly lowering costs and improving health outcomes for our clients.

Robert Labick: The payroll and other was a nice substantial decline sequentially. And, you know, I mean, this is a trend we've been looking for, and it was, you know, good to see in part of the strength in NPMT in the quarter. Just kind of a little bit behind that. Are we at a new run rate? Is there still more improvement there? Was there any one-time benefit there, etc.? How should we think about that? Again, it was a great comforting number. I just want to get a sense of how that plays out going forward.

Robert Labick: Okay, great. And last one, I'll get in the queue for this.

Speaker Change: Okay, great. And last one, I'll get in queue on this. The payroll and other...

Speaker Change: was a a nice substantial decline sequentially and you know i meanthis is a trend we've been looking for andit was good to see in part of the

Speaker Change: Strengthened and DMT in a quarter.

Robert Labick: Just kind of a little bit behind that, are we at a new run rate? Is there still more improvement there? Was there any one-time benefit there, etc.? How should we think about that? Again, it was a great, comforting number. I just want to get a sense of how that plays out going forward.

Heath Samson: Our proprietary platform and differentiated tech-enabled healthcare services delivers risk-appropriate care based on member acuity and SDOH needs that serve as an extension of the members existing primary care and care team. We have modernized three service lines that can operate independently as differentiated scale platforms. When combined, our service lines leverage our unique cost structure with shared services and business development, while also having ability to drive incremental growth from cross-selling opportunities.

Heath Sampson: No, the efforts of the team and what we're doing within our platform are tremendous. We gave a lot of detail in my opening comments. Hopefully, that was helpful because really, all those items together are what are driving our ability to meet the member where they are with technology tools and processes in place.

Heath Sampson: No, it's, again, the efforts of the team and what we're doing within our platform is tremendous. We gave a lot of detail in my opening comments, hopefully that was helpful, because it really, all those items together are what are driving our ability to.

Heath Sampson: meet the member where they are with technology tools and processes in place. So that's a real number and we still have more in the tank.

Heath Sampson: So that's a real number, and we still have more in the tank. You'll see in the cost savings that we're actually achieving what we thought we would in that for the year, right? We're going to be right where we expected. And then, also in my comments, I do expect that we're going to continue to accelerate beyond that to get closer to 60. So we're expecting more and more, kind of on a linear basis as we finish the year and go into 2025.

Heath Sampson: You'll see in the cost savings that we're actually.

Heath Samson: Also, it's important to note that our business is counter-sitclical, given the ongoing uncertainty about the macro environment and potential economic downturn, the demand for our supportive care services is expected to remain stable. Regarding our capital structure, now that our debt refinancing is complete, our top priority is to proactively deliver our balance sheet. We will evaluate all options to enhance value by optimizing our operations and continuing our mission to build a scaled SDOH platform.

Heath Sampson: Barbara Gutierrez, CFO Alphabet and Google

Heath Sampson: So it's been really, really well done by the team. So you see that in payroll and other in-purchase services as well. There is some kind of one-time timing between Q1 and Q2, but that trend is going to continue down as well. Again, from all the hard work we're doing in each of those initiatives, it's really paying off. So, we feel good about it continuing.

Heath Sampson: So, it's been really, really well done by the team. So, you see that in payroll and other...in purchase services as well, there is some kind of one-time timing between Q1 and Q2, but that trend is going to continue down as well, again, from all the hard work we're doing in each of those initiatives. It's really paying off.

Heath Samson: As for Matrix Medical, we remain aligned with our partner and Matrix Management and will provide updates about a potential monetization event when there are developments to report. As we previously indicated, we anticipate this will be later this year or early next year.

Robert Labick: Alright, thank you very much.

Robert Labick: We feel good about it continuing.

Robert Labick: Alright, thank you very much.

Operator: Thank you. And our next question comes from Peter Chickering from Deutsche Bank. Go ahead.

Speaker Change: Thank you. And our next question comes from Peter Chickering from Deutsche Bank. Go ahead.

Peter Chickering: Good morning, guys. Let's go back to the timing of those cash flows from any empty risk contracting. Medicaid liquidation and winding up has been hot the last two years. So why is this happening this quarter versus other quarters? Is there any debate around how much is owed on these contracts? Have you had any issues collecting revenue from these risk-sharing contracts in the last 12 months?

Heath Samson: I appreciate the hard work and effort from all team members at Motive Care as we continue to provide great value to the healthcare system our clients and our members.

Peter Chickering: It's going back to the timing of those cash flows from any empty risk contracting. Medicaid liquid determination and liquidization has been hot for the last two years. So why is this happening this quarter versus other quarters? Is there any debate?

Barbara Gutierrez: Now, I'll turn the call over to Barb who will share additional details about our future results and outlook for 2024. Barb? Thank you, Heath, and good morning, everyone. Second quarter, 2024 revenue with flat year over year at $698 million driven by 3.5 percent PCS growth offset by a 1 percent decrease in both NEMT and RPM. Second quarter net loss was $129 million, largely due to the $105 million goodwill impairment in our RPM segment.

Speaker Change: around how much is owed on these contracts, have you had any issues collecting revenue from these risk-sharing contracts in the last 12 months? Yeah, so you're on it, and you've covered the payers.

Heath Sampson: Yeah, so you're on it, and you've covered the payers, and I think many people on this phone know what's happening. It's pretty clear that utilization's been hot, and it continues to be really hot. But why is it kind of isolated to really the, it's been happening, but really it's kind of hitting this crescendo right now? It's just kind of the timing of where we kind of benchmarked and estimated when this was gonna happen.

Heath Sampson: I think many people on this phone know what's happening.

Heath Sampson: It's pretty clear that utilization has been...

Heath Sampson: It's been hot, and it continues.

Heath Sampson: really to be hot.

Heath Sampson: But why it's kind of isolated to really the, it's been happening, but really it's kind of hitting this crescendo right now. It's just kind of the timing of where we kind of benchmark.

Barbara Gutierrez: An adjusted net loss was $375,000 or $3 cents per diluted share. Second quarter adjusted EBITDA was $45 million or 6.5 percent of revenue driven by solid performance in our NEMT and RPM segments as well as sequential improvement in PCS. Turning to a review of our segment financials, NEMT's second quarter revenue decreased 1 percent year over year, but increased 2.4 percent sequentially to $491 million. NEMT Revenue, incrementally benefited from successful execution of contract reconciliation and negotiated pricing increases that were more favorable than expected.

Heath Sampson: Coupled with, our contracts get settled rather than after six to 12 months. So even though utilization was increasing in 2023, you just gotta settle up with a lot of those kind of 12 months later again. And then coupled with where we've snapped the chalk line earlier on, that's why it's all coming to a head right now, which again, which is why we said in the first part of the year, we're gonna be using a lot.

Heath Sampson: Coupled with, our contracts get settled rather than within six to 12 months. So, even though utilization was increasing in 2023, you're just going to settle up with a lot of those kind of 12 months later, again, and then coupled with where we've snapped the chalk line earlier on, that's why it's all coming to a head right now, which is why we said in the first part of the year that we're going to be using a lot, and in the second part of the year, we' So it's not really a surprise. It's really the design of our contracts and the timing of that, and yes, correct. The utilization has been high, but again, as expected.

Heath Sampson: and estimated when this was going to happen.

Heath Sampson: Coupled with, our contracts get settled whether that's 6 to 12 months.

Heath Sampson: So even though utilization was increasing in 2023, you just kind of settle up with a lot of those kind of 12 months later.

Heath Sampson: Again, and then coupled with where we've snapped the chalk line earlier on, that's why it's all coming to a head right now, which again, which is why we said first part of the year we're going to be using a lot.

Heath Sampson: And in the second part of the year, we'll be able to deliver. So it's not a surprise. It's really the design of our contracts and the timing of that. And yes, correct. The utilization has been high, but again, that's as expected.

Heath Sampson: and the second part of the year we'll be able to deliver. So it's not a surprise. It's really the design of our contracts and the timing of that. And yes, correct, the utilization has been high, but again, as expected.

Peter Chickering: Okay, let's just be clear. Please go ahead.

Peter Chickering: Okay, can you just be clear? Please go ahead.

Barbara Gutierrez: Yeah, sorry, Peter, I would add, and in fact, it's actually, in part, it's been our success in the contracting process, where we've accelerated some of the reconciliation, some of the settlements, you know, in a couple contracts. And so we've talked about that in the past, that, you know, that is our goal, to try to accelerate that so that there's not so much time and distance between when we're actually incurring those costs and that actual cash settlement. So we've actually been successful in accelerating a couple of those.

Speaker Change: Okay, good to speak to you.

Barbara Gutierrez: And in fact, it's actually, in part, it's been our success in the contracting process.

Barbara Gutierrez: Average monthly membership increased 2% sequentially to 29.7 million due to the onboarding of previously announced contract wins, modestly offset by Medicaid re-determination. Trip volume increased 2.5% quarter over quarter, while revenue per trip decreased modestly due to contract mix. Sequentially, NEMT gross margin increased 120 basis points, primarily due to trip mix and our cost savings initiatives. Notably, payroll and other expense per trip decreased 11% sequentially to $6.94, while purchase services expense per trip was relatively flat.

Barbara Gutierrez: where we've accelerated some of the reconciliations, some of the settlements.

Barbara Gutierrez: in a couple of contracts. And so we've talked about that in the past, that that is our goal to try to accelerate that so that there's not so much time and distance between when we're actually incurring those costs and that actual cash settlement. So we've actually been successful in accelerating a couple of those.

Heath Sampson: Dan, just a little bit on that, because what does that mean? So let's just say it's 12 months, and we're halfway through, and we know, And we, and the client, are knowing that utilization is going up. So we know, I don't know, six months from now, we're going to have a large, true upper settlement bet. So we go to the client and say, hey, it's going to be so large, you can see this, you see the data, which is why we've been, oh, okay, let's kind of reset that line so we don't have a big growing receivable and payment at the end.

Heath Sampson: Dan, just a little bit on that, because what does that mean? So let's just say it's 12 months, and we're halfway through, and we know, and we and the client are knowing that utilization is going up. So we know, I don't know, six months from now, we're going to have a large, true upper settlement bet. So we go to the client and say, hey, it's going to be so large, you can see this, you see the data, which is why we've been, oh, okay, let's kind of reset that line so we don't have a big growing receivable and payment at the end.

Speaker Change: Dan, just a little bit on that, because what does that mean?

Heath Sampson: So let's just say it's 12 months and we're halfway through and we're knowing

Heath Sampson: And we and the client are knowing that utilization is going up, so we know, I don't know, six months from now, we're going to have a large true upper settlement bet.

Barbara Gutierrez: The decrease in service cost unit metrics illustrates continued traction from our cost savings initiatives. NEMT adjusted EBITDA with $35 million and NEMT margin improved 150 basis points sequentially to 7.2% driven by $8 million of reprising and contract reconciliation, of which $2.5 million was attributable to 2023 and greater than anticipated. $5.5 million was related to reprising and in-year contract reconciliation for the first half of 2024. The increased pricing is in our run rate as well as our guidance.

Heath Sampson: So, we go to the client and say, hey, it's going to be so large, you can see this, you see the data, which is why we've been, oh, okay, let's kind of reset that line so we don't have a big...

Heath Sampson: And our clients, again, are in a win-win relationship with us to ensure that we do, and that's why, as Barbara articulated, we've been successful in a few of those large contracts to do that ahead of time.

Heath Sampson: growing receivable and payment at the end. And our clients, again, are in a win-win relationship with us to ensure that we're doing that. And that's why, as Barb articulated, we've been successful in a few of those large contracts to do that ahead of time.

Peter Chickering: Great. So, I'll do two quick ones here.

Peter Chickering: Oh, great. So, just two more quick ones here.

Speaker Change: Oh, great. So, two more quick ones here. So, just to be clear, there's no risk for charges on a rival record around these registering contracts.

Peter Chickering: So, just to be clear, there's no risk of charges on arrival rack around these registration contracts. And then, last quarter, you said that we exited the year at a free cash version of 40, 50 percent through debt refinancing. Now, it's 30 percent. Just wanted to understand the change from 40, 50 to 30. Is it just the debt financing or something else?

Peter Chickering: So, just to be clear, there's no risk of charges on arrival records around these registration contracts. And then, last quarter, you said that we exited the year with a fee-cash conversion of 40, 50 percent, excluding the debt refinancing. Now, it's 30 percent. I just want to understand the change from 40, 50 to 30. Is it just the debt financing or something else?

Speaker Change: And then...

Speaker Change: last fquor said that we ex the year of f cci version of forty ty percent excl the debt financing now thirty percent just want to understand the change of forty and fifty and thirty is it justs the deb financing or something else

Barbara Gutierrez: During the second quarter, our membership was impacted by Medicaid re-determinations of approximately 600,000 members, which is modestly higher than we previously expected for the quarter, but still in line with our overall expectations for the cumulative impact from re-determination. We believe re-determination is essentially complete and expect a minimal impact on our Medicaid membership for the remainder of the year. Redetermination impacted second quarter revenue by $3 million and adjusted EBITDA by approximately $1 million.

Heath Sampson: Yeah, so we still have a couple of quarters ago, we talked about one contract in Florida that we didn't collect on, but we've collected 75%. That one's still open, that remainder.

Heath Sampson: Yeah, so we do have still a couple quarters ago, we talked about one contract in Florida that we didn't collect on, but we've collected 75%. That one's still open, that remainder. So there's one client that we're having some...

Heath Sampson: So there's one client that we're having some problems with, but it's really small. So just to be transparent, there was one client that we're still in discussions to get the last 25%. Outside of that, we expect to collect all our receipts. And then, to do with the cash conversion, it really is just the higher cost of the new term loan that we got. It's just math to take us down to that 30% from the 40%.

Heath Sampson: So there's one client that we're having some problems with, but it's really small. So just to be transparent, there was one client that we're still in discussions to get the last 25%. Outside of that, we expect to collect all our receipts. And then to deal with the cash conversion, it really is, with the higher cost in our new term loan that we got, it's just math to take us down to that 30% from the 40%.

Heath Sampson: Some, but it's really small. So just to be transparent that there was one client that we're still in discussions to get the last 25% outside of that we expect to collect all our receivables

Heath Sampson: And then to do with the cash conversion, it really is, we just, with the higher cost in our new term loan that we got, it's just math to take us down to that 30% from the 40%.

Barbara Gutierrez: Overall, Medicaid re-determination is tracking in line to slightly better with our expectations and is estimated to adversely impact revenue by $60 million and adjusted EBITDA by about $25 to $30 million in 2024, which aligns with our original adjusted EBITDA range of $20 to $40 million. Turning to our personal care segment, second quarter personal care revenue increased 4% year over year to $187 million driven by 2% growth in hours and 2% growth in revenue per hour.

Peter Chickering: And the last one for me here, on RPM churn rate. I guess why is the churn rate so high from your largest customer? Is it pricing or service levels?

Speaker Change: On RPM churn rate you guys why is the churn rate so high from your largest your largest customer is it pricing or service levels. Thanks, so much.

Heath Sampson: Thanks so much.

Heath Sampson: Yeah, the main reason, excuse me, is one of our large clients. On the MA side, if you're, again, if you're talking to payers, and specifically supplemental benefit pressure with an MA is high across the board, and this is what happened with this payer. That's where the churn was. First off, the churn related to them not winning states. So they lost states, and therefore, we don't get as much volume.

Peter Chickering: Yeah, the main reason, excuse me, is one of our large clients on the, excuse me. On the MA side, if you're, again, if you're talking to payers and specifically supplemental benefit pressure with an MA is high across the board, and this is what happened with these two. That's where the churn was. First off, the churn is related to them not winning. So they lost states, and therefore, we don't get as much volume. That's the biggest driver, but it also is just some pressure on supplemental benefits and offering that is the issue.

Speaker Change: Yeah, they're the main reason excuse me is one of our large clients.

Heath Sampson: Excuse me.

Heath Sampson: On the MA side.

Heath Sampson: If youre talking to payers and specifically supplemental benefit pressure with an MAA is high cross across the board and this this is what happened with this payer that's where the churn was first off the churn related to them not winning.

Barbara Gutierrez: We are seeing solid revenue growth driven by hours and a reimbursement rate increase in New York that became effective on March 1, subsequent to their minimum wage increase earlier this year. Additionally, during the quarter, New Jersey approved a rate increase of approximately $1.50 per hour effective on July 1st.

Heath Sampson: So they lost states. Therefore, we don't get as much volume that's the biggest driver but it also is just some pressure on supplemental benefits and offering that is what what is the issue, but as we pointed out and we get some data in a minute in.

Heath Sampson: That's the biggest driver, but it also is just some pressure on supplemental benefits in the offering, which is what is the issue. But as we pointed out, and we got some data in the deck here, we, unlike maybe a lot of other RPM businesses, we're not as exposed to MA. It's about 25% of our business. So, yes, that was the reason. Going forward, we believe we'll be able to manage through that challenge in the MA market.

Peter Chickering: But as we pointed out, let me get some data in the deck here. We, unlike maybe a lot of other RPM businesses, are not as exposed to MA, about 25% of our business. So yes, that was the reason. Going forward, we believe we'll be able to manage through that challenge in the MA market. Great, thanks so much.

Heath Sampson: In the deck here.

Heath Sampson: We unlike maybe a lot of other RPM businesses, we're not as exposed to Ma.

Barbara Gutierrez: First. Personal care adjusted EBIDA with $15 million or 8% of revenue, which was a 200 basis point improvement from the first quarter, driven primarily by rate increases and operating expense controls. We are encouraged by the improvement in personal care margins. We expect the momentum to continue in the second half of the year and remain confident margins will approach the 10% level by year end. RPM revenue decreased 1% year over year to $19 million.

Heath Sampson: About 25% of our business.

Heath Sampson: So yes that was the reason.

Heath Sampson: Going forward, we believe we'll be able to manage through that challenge in the M&A market.

Speaker Change: Great. Thanks, so much.

Heath Sampson: Okay.

Operator: Thank you. And our next question comes from Scott Fidel from Stevens. Go ahead, Scott. Your line is open.

Speaker Change: Thank you and our next question comes from Scott Fidel from Stephens Go ahead, Scott Your line is open.

Scott Fidel: Oh, hi, thanks, and good morning.

Scott Fidel: Hi, thanks. So, good morning.

Scott Fidel: First question, just I thought it might be helpful. If you wanted to add great Josh just on the margins.

Heath Sampson: First question, just thought it might be helpful if you wanted to bridge us just on the margins for NEMT. And then with PCS, I did catch the comment about getting close to 10 percent by, you know, the fourth quarter and the exit rate. Maybe if you want to sort of, you know, I guess embedded in getting to that 220, or two-tenths to 220 exit rate, how you see the NEMT margins progressing in 3Q and then 4Q, and similarly with PCS in 3Q and 4Q as well.

Scott Fidel: First question, just thought it might be helpful if you wanted to bridge us just on the margins for NEMT. And then with PCS, I did catch the comment about getting close to 10 percent by, you know, the fourth quarter and the exit rate. Maybe if you want to sort of, you know, I guess embedded in getting to that 220, or two-tenths to 220 exit rate, how you see the NEMT margins progressing in 3Q and then 4Q, and similarly with PCS in 3Q and 4Q as well.

Speaker Change: For any empty and then with Pts did catch the comment about getting you closer to the 10% by fourth quarter on the exit rate.

Barbara Gutierrez: As we also indicated during the first quarter, lower RPM revenue was primarily attributable to Medicare Advantage contract churn from earlier this year. With churn issues believed to be behind us, we saw solid growth exiting the quarter, which we expect will carry into Q3 and the second half of 2024. RPM adjusted EBIDA with $6.1 million or a 32% margin. We continue to expect RPM margins in the mid 30% range in the second half of 2024.

Speaker Change: If you want to start it.

Heath Sampson: I guess embedded in getting to that $2 22 to.

Speaker Change: 200, <unk> exit rate.

Speaker Change: <unk> margins progressing in <unk>, and then <unk> and similarly, with Tcs and <unk> as well.

Heath Sampson: Yeah, thanks, Scott. Well, starting with NEMT, you can see the margins in that 7%-ish range. And then to Bob's kind of question around improving cost savings, that continues, coupled with our continued onboarding of clients, where we have, again, contribution margin that flows through strong. So I do expect an uptick. Call it a kind of to the end of the year around 100 basis points is probably the right way to think about it on the NEMT side.

Scott Fidel: Yeah, thanks, Scott. Well, starting with NEMT, you can see the margins in that 7%-ish range. And then to Bob's kind of question around improving cost savings, that continues, coupled with our continued onboarding of clients, where we have, again, contribution margin that flows through strong. So I do expect an uptick. Call it a kind of to the end of the year, around 100 basis points, is probably the way to think about it on the NEMT side.

Speaker Change: Yes, Thanks, Scott well, starting with any empty you can see the margins in that seven percentage range.

Bob: Then to Bob's question.

Scott Fidel: Around improving cost savings that continuing coupled with our continued onboarding of clients, where we have again contribution margin that flow through strong. So I do expect an uptick.

Barbara Gutierrez: During the quarter, we performed our annual Goodwill Empowerment Assessment and we recorded a non-cash Goodwill Empowerment of $105.3 million for the RPM segment. As a reminder, the impairment is a non-cash expense and does not impact our operating cash flows or ongoing activities. Turning to our balance sheet and cash flow. During the quarter, free cash flow was negative $62 million, consisting of a net use of cash provided by operating activities of approximately $55 million and capital expenditures of $7 million, which was 1% of revenue.

Scott Fidel: Call it a kind of to the end of the year around 100 basis points plus is probably the right way to think about on the IMT side PCF you saw the jump in in Q2 again lots has transformed there still lots of work to do but we also said that we exited that corridor in a strong way and then you couple that in.

Heath Sampson: PCS, you saw the jump in Q2. Again, lots has transformed there, and there is still lots of work to do. But we also said that we actually did that quarter in a strong way. And then you couple that, and why? With PCS, not only have the cost of centralization costs normalized for us because we got it out, but we also have rate increases, and that's a big driver for us. And those started here in early Q3.

Scott Fidel: PCS, you saw the jump in Q2. Again, lots has transformed there, and there is still lots of work to do. But we also said that we exited that quarter in a strong way. And then you couple that and why with PCS, not only have the cost of centralization costs normalized for us because we got it out, but we also have rate increases, and that's a big driver for us. So, and those started here in early Q3.

Scott Fidel: Why with Tcs not only have the cost kind of centralization costs normalized for us because we got it out but.

Scott Fidel: But we also have rate increases and that's a big driver for us So and those started here in early Q.

Heath Sampson: So you'll see that jump. So that'll be more than, and as Bob alluded to, we'll get closer to that 10% range. And then RPM will be kind of in that mid-30s range as well. So really, that's the bridge and all in front of us. Most of it is the actions we have in place or things that we have done, and it will trend that way.

Barbara Gutierrez: Driven by NEMT working capital dynamics, we ended the quarter in a net contract receivables position of $79 million. Contract receivables increased by $12 million during the quarter. Contract payables decreased by $41 million quarter over quarter to $87 million, primarily due to the expected annual reconciliation and settlement on certain contracts. We have made progress on renegotiating prepayment terms on our shared risk contracts and expect the growth of our contract receivables will be reduced going forward.

Heath Sampson: So you'll see that jump. So that'll be more than, and as Barb alluded to, we'll get closer to that 10% range. And then RPM will be kind of in that mid-30s range as well. So that's the bridge and all in front of us. Most of it is the actions we have in place or things that we have done, and it will trend that way.

Heath Sampson: Q3, so youll see that jump so that'll be more than.

Barb: As Bob alluded to we will get closer to that 10% range.

Heath Sampson: And then RPM.

Heath Sampson: It will be kind of in that mid <unk> range as well so.

Heath Sampson: Really that's so that's the bridge and all in front of us.

Heath Sampson: Most of it is the actions we have in place or things that we have done and it will trend that way.

Scott Fidel: Is that helpful. Scott.

Scott Fidel: Yeah, it is. And then just one follow-up on that just on the PCS side, I was, you know, thinking, should we see more of a step function up in the 3Q just because you guys have now gotten those rate increases? Or are there still some costs from the centralization and transformation that offsets that in the 3Q so that we see more of the margin in the 4Q show to get to that sort of close to 10%?

Heath Sampson: Yes.

Speaker Change: And then just one follow up around that just just on the PCI side.

Scott Fidel: I mean should we see more of a step function up in the <unk> just because you guys have now gotten those rate increases or are there still some costs from the centralization and transformation that offsets that in the Q. So that we see more of the margin and the <unk>.

Barbara Gutierrez: We have visibility into the collection of approximately $60 million of contract receivables in addition to our normal run rate collections in the third quarter through retrospective rate increases and settlements. As a result of increased utilization in the first half of 2024 and the mismatch in contract payables and receivables affecting our quarterly working capital, a revolving credit facility balance increased by $62 million in the second quarter to $183 million. We ended the second quarter with $10.5 million in cash, approximately $1.17 billion of debt and our bank defined net leverage ratio decreased modestly due 5.22 times as of June 30th against our maximum net leverage covenant of 5.5 times.

Scott Fidel: So to get to that sort of close to 10%.

Heath Sampson: You'll see a step up because of this stuff. It won't get all the way to the 10% range, but you'll see a meaningful step up.

Speaker Change: You see youll see a step up because of the stuff it won't get all the way to the 10% range, but youll see a meaningful step up.

Speaker Change: Okay got it.

Scott Fidel: Okay, I got it. And then second question, just wanted to just get your update on, and I know you guys talked a little bit about it with Peto, just on the sub-benefits in MA and some of the churn there in RPM. Just looking at 2025, you know, just given the reimbursement pressure that MA plans are facing and the utilization they've seen on supplemental benefits this year, what's your visibility at this point into your MA books in NEMT and then in RPM in terms of, you know, sort of retention of volume and then your sort of pricing with your MA customers? Is that remaining consistent just given the, you know, the rate pressures and cost pressures that MA plans are experiencing?

Scott Fidel: Okay, I got it. And then second question, just wanted to just get your update on, and I know you guys talked a little bit about it with PETO, just on the sub-benefits in MA and some of the churn there in RPM. Just looking at 2025, you know, just given the reimbursement pressure that MA plans are facing and the utilization they've seen on supplemental benefits this year, what's your visibility at this point into your MA books in NEMT and then in RPM in terms of, you know, sort of retention of volume and then your sort of pricing with your MA customers? Is that remaining consistent just given the, you know, the rate pressures and cost pressures that MA plans are experiencing?

Speaker Change: And then second question just wanted to just get your update on <unk>.

Scott Fidel: I know you guys talked a little bit about it with Pete I would just add to stop benefits.

Scott Fidel: And some of the churn therein RPM, just looking out to 2025.

Scott Fidel: Just given the reimbursement pressure that MAA plants are facing and the utilization they've seen on supplemental benefits this year.

Scott Fidel: What's your visibility at this point in your MAA books.

Scott Fidel: Any empty and then an RPM in terms of sort of.

Barbara Gutierrez: On July 1st, we successfully completed the refinancing of our $500 million 2025 Senior Unsecured Notes with a new $525 million term loan B with a current interest rate at the secured, overnight financing rate, SOFR plus 475 basis points. Since this is a variable rate debt, we will see a benefit if there are any rate cuts. The refinancing was in line with our expectations and we appreciate the diligence and support from our lending partners and advisors on the transaction.

Scott Fidel: Retention of volume it and then you're sort of pricing with your customers is that remaining consistent just or are you seeing some pushback just given the.

Scott Fidel: The rate pressures and cost pressures that M&A plans or are experiencing.

Heath Sampson: Yeah, so first, you know this, but no exposure to MA on PCS. Within NEMT, those really supplemental benefits have really been under pressure for the last couple of years, and it's been pretty steady. And so we know the markets that our clients are not going to offer NEMT, so we know that and expect that. There are no question pricing pressures, but we anticipated that, and it's been baked into our current numbers and even what we expect in 2024. Which is why, again, a company like us that has the size and scale and what we're doing around automating, we can get to the right win-win price where we save money for The RPM business is probably the biggest business that is going to be impacted by supplemental benefits. I could spend a lot of time here.

Heath Sampson: Yeah, so first, you know this, but no exposure to MA on PCS. Within NEMT, those supplementary benefits have really been under pressure for the last couple of years, and it's been pretty steady. And so we know the markets where our clients are not going to offer NEMT, so we know that and expect that. There is no question about pricing pressures, but we anticipated that, and it's been baked into our current numbers and even what we expect in 2024, which is why, again, a company like us that has the size and scale and what we're doing around automating, we can get to the right win-win price where we save money for people as well as ensure that we maintain our market.

Scott Fidel: Yes.

Scott Fidel: First.

Heath Sampson: You know this but no exposure to MAA on Pts.

Heath Sampson: Within any empty those really supplemental benefits over have really been under pressure for the last couple of years.

Heath Sampson: And pretty steady and so we know the markets that that our clients are not going to offer any empty. So we know that and expect that there are no question pricing pressures, but we anticipated that and it's been baked into our current numbers and even what we expect in 2024, which is why again a company like us that.

Barbara Gutierrez: Shifting to cash flow, free cash flow was a use in the first half of 2024 given the payment timing mismatch of contract receivables, certain larger settlements on our contract payables, and our semi-annual cash interest. We've made progress on the retrospective renegotiation of the prepayment amount on a number of our shared risk contracts and in-year contract settlements, which gives us confidence that free cash flow will be positive for the year. Accounting for the first half of 2024 results with the impact of our debt refinancing, we now expect an adjusted EBITDA to free cash flow conversion rate of approximately 30% exiting 2024.

Heath Sampson: Has the size and scale and what we're doing around automating, we can get to the right win win price, where we save money for people as well as ensure that we maintain our margins.

Heath Sampson: The RPM business is probably the biggest business that is going to be impacted, and others are too. I'm Chris Chute. Thanks for tuning in. We'll see you next time. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Thank you for the supplemental benefits. I could spend a lot of time here.

Heath Sampson: The RPM business is probably the biggest business that is going to be impacted.

Speaker Change: Uh huh.

Heath Sampson: In the end, the technology in someone's home is going to be really important, especially for people with certain population types. So, though, yes, the current model is under pressure, but I do think there is going to be a more outcomes-based, population-based device in the home transformation. And those are the discussions we're in. So, I don't expect large, large growth in the short term around MA and RPM, but I do expect more of a sustained kind of competitive advantage even on the MA side for us.

Heath Sampson: Supplemental benefits.

Heath Sampson: It's been a lot of time here in.

Heath Sampson: In the end, the technology in someone's home is going to be really important, especially for people with certain population types. So, yes, the current model is under pressure, but I do think there is going to be a more outcomes-based, population-based device in the home transformation. And those are the discussions we're in. So I don't expect large, large growth in the short term around MA and RPM, but I do expect more of a sustained kind of competitive advantage even on the MA side for us.

Heath Sampson: In the end the technology in someone's home is going to be really important, especially for people on certain population types. So though yes. The current model is under pressure, but I do think there is going to be a more outcome based populations based device into home transformation.

Barbara Gutierrez: Shifting to guidance, we maintained our 2024 revenue guidance in the range of $2.7 to $2.9 billion and lowered our adjusted EBITDA to a range of $185 to $195 million due to the lower than anticipated results from PCS during the first half of the year, while we continue to see solid performance from NEMT. Here are a few qualitative and quantitative items for you to consider for the remainder of 2024. Medicaid redetermination continues to track in line to slightly better than our original expectations.

Heath Sampson: And those are the discussions were in so I don't expect large large growth in the short term around MA and RPM, but I do expect more of a sustained kind of competitive advantage even on the MA side for us.

Heath Sampson: And again the other thing and this is Scott. This is what's happening it's not about the alert anymore.

Heath Sampson: And again, this is what's happening. It's not about the alert anymore. It's really about what you do with that alert and the clinical outcomes that are there. And because of what we've invested in with our clinical people, as well as our technological capabilities, we're able now to get into the clinical budget because we're really going to change outcomes. And that's what I mean about the changing dynamic within the RPM world.

Scott Fidel: I've got it. Then I'll do one more if I can.

Heath Sampson: It's really about.

Scott Fidel: What are you going to do with that alert and and the clinical outcomes that are there and because of what we've invested in with our clinical people as well as our technological capabilities. We are able now to get into the clinical budget, because we're really going to change outcomes and that's what I mean about the changing dynamic within the RPM world.

Barbara Gutierrez: For the year, we expect a $25 to $30 million adjusted EBITDA impact, nearly all of which is in our run right now. We continue to expect business development to be a meaningful contributor to adjusted EBITDA in the second half of the year, largely driven by NEMT contract settlements and reprisings as well as net new contract wins. Cost savings are expected to be at least $30 million for the year, net of investment and digital service cost.

Scott Fidel: Okay got it and then one more if I can.

Scott Fidel: Just as we sort of put all of this together, I thought it might be helpful, just, you know, at this vantage point, if you wanted to sort of summarize what you see as the key headwinds and tailwinds for 25 and sort of your confidence in, you know, sort of getting back to EBITDA growth in a nice way. I mean, obviously, there's been a number of these headwinds that seem to be more impacting the first half relative to the second half, but we all need to be respectful of the environment and a lot of fluidity that we see, you know, in the Medicaid market and in some of the businesses. So, sort of taking all that heat, sort of how would you lay out what you see as, you know, the key tailwinds and headwinds for next year? Yeah, Well, so for me

Heath Sampson: Just as we sort of put all of this together, I thought it might be helpful, just, you know, at this vantage point, if you wanted to sort of summarize what you see as the key headwinds and tailwinds for 25 and sort of your confidence in, you know, sort of getting back to EBITDA growth in a nice way. I mean, obviously, there's been a number of these headwinds that seem to be more impacting the first half relative to the second half, but we all need to be respectful of the environment and a lot of fluidity that we see, you know, in the Medicaid market and in some of the businesses. So, sort of taking all that heat, sort of how would you lay out what you see as, you know, the key tailwinds and headwinds for next year? Yeah, Well, so for me

Scott Fidel: Just as we sort of put all this together.

Speaker Change: Might be helpful. Just.

Speaker Change: Disadvantage point it if you wanted to.

Speaker Change: Summarize what you see as the key headwinds and <unk> for 25, and sort of your confidence and sort of getting back to EBITDA growth.

Barbara Gutierrez: The majority of cost savings are in our run rate and we expect to generate an incremental $4 to $6 million in the second half of 2024. We expect utilization within our current contract mix to normalize in a range of 10% to 11% for 2024 and to be a headwind of $4 to $7 million in the second half of the year. We anticipate continued momentum coming out of the second quarter for PCS and RPM, which are expected to contribute $13 to $15 million of adjusted EBITDA growth in the second half of 2024.

Scott Fidel: In a nice way I mean, obviously theres been a number of these headwinds that seem to be more.

Scott Fidel: Impacting the first half relative to the second half, but we all need to be respectful around the environment and.

Scott Fidel: And a lot of fluidity that we see.

Speaker Change: In the Medicaid market and in some of the business Jets. So.

Speaker Change: Taking all of that.

Speaker Change: Sort of how would you lay out what you see as the key key talents at Edwards for next year.

Heath Sampson: Yeah, well, so for next year and beyond, a lot of tailwinds, from the pressures that are helping in the healthcare system and societal demands of moving into the home. Again, those pressures, whether that's cost or the evolution of understanding that care really matters outside of just the clinical episode. That's going to continue to accelerate because it reduces costs as well as improves access, quality, and cost. So those kinds of macro trends are only going to continue and will happen in 24, I mean, sorry, 25 and beyond.

Speaker Change: Yeah, well so for next year.

Heath Sampson: And a.

Heath Sampson: A lot of tailwind.

Heath Sampson: From the pressures that are helping in the health care system and.

Barbara Gutierrez: We expect to invest $7 to $8 million in innovation and GNA for the second half of the year. We continue to expect a steady progression in adjusted EBITDA over the next two quarters driven by new contract implementations, greater cumulative benefit from cost savings, the diminishing impact from Medicaid redetermination, and sequential improvement in PCS, all contributing to financial results consistent with our revised guidance. In summary, our overall second quarter financial results were in line with our expectations, driven primarily by solid NEMT performance.

Heath Sampson: Societal demands of moving into the home.

Heath Sampson: Again, those pressures, whether that's cost or or the evolution of understanding that care really matters outside of just the clinical episode, that's going to continue to accelerate because it reduces cost as well as improved access quality and cost. So those kind of macro are only going to can.

Speaker Change: And we will happen in 'twenty four I'm here I mean, you.

Speaker Change: Sorry, 25, and beyond so with that and what we've invested in a really good spot to ensure that we are meeting that but.

Heath Sampson: So we're with that in what we've invested. We're in a really good spot to ensure that we are meeting that. But specifically around 2025, a lot of what we've done within this transformation has been in place. A lot of the hard work around culture, ensuring the strategies there, ensuring the right operating model is there has been in place. So now it's about this continued execution and really being customer-centric. I know that sounds kind of cliché, but that is our focus because of our customers.

Heath Sampson: So with that and what we've invested, we're in a really good spot to ensure that we are meeting that. But specifically around 2025, a lot of what we've done within this transformation will already be in place. A lot of the hard work around culture, ensuring the strategies there, ensuring the right operating model is there, has been in place. Now it's about continued execution and really being customer-centric. I know that sounds kind of cliche, but that is our focus because our customers literally, whether they are doing explicitly at the contract level, cause they're doing explicitly at the executive level. Yeah, I love the trip piece.

Heath Sampson: But specifically around 2025, a lot of what we've done within this transformation has been in place a lot of the hard work around culture, ensuring the strategies there ensuring the right operating model is there has been in place. So now it's about this continued execution.

Barbara Gutierrez: Personal care and remote patient monitoring were moderately lower than our expectations. However, we saw notable progress throughout the quarter in both segments. We feel positive about the momentum of these segments for the rest of the year and achieving previous growth and margin targets as we exit the year. Now that our refinancing is behind us, our top priority is proactively delivering our balance sheet.

Heath Sampson: And really being customer centric I know that sounds kind of cliche, but that is our focus because our customers literally weather, whether they are doing explicitly at the contract level because they're doing explicitly at the at the executive level, Yes, I love the trip piece I love that you've done the work in the home and I Love the.

Heath Sampson: Literally, whether they are doing explicitly at the contract level because they're doing explicitly at the executive level, yeah, I love the trip piece. I love that you've done the work in the home, and I love the device alert, but really, I want an outcome, and I want you to understand my population.

Barbara Gutierrez: In closing, I'd like to thank all of our teammates for their unwavering commitment and diligent efforts serving all of our members and clients.

Heath Sampson: I love that you've done the work in the home and I love the device alert, but really, I want an outcome, and I want you to understand my population. So that's what we're doing now. So, and then just a little bit around, I think implicit in your question, you know, it was in PCS is a good example. We have soft Q1 and Q2 because of what we've been doing from a centralization standardization of one platform, but you're seeing that grow.

Heath Sampson: The device alert, but really I wanted to come and I want you to understand my population.

Operator: With that, operator, please open the call for questions. Thank you.

Heath Sampson: So that's what we're doing now. And then just a little bit around, I think, implicit in your question, you know, and PCS is a good example. We have soft Q1 and Q2 because of what we've been doing from a centralization, standardization of one platform, but you're seeing that grow. So those kind of internal dynamics are done. You're never done transforming, but from the reality of how much transformation we have, we're able to build on top of that.

Heath Sampson: So that's what we're doing now so and then just a little bit around I think implicit in your question.

Operator: The floor is now open for questions. If you do have a question, you may press star one on your telephone keypad at this time. If you question has been answered, you can remove yourself from the queue by pressing one. Again, ladies and gentlemen, it's star one.

Heath Sampson: Within Tcs is a good example, we had a soft Q1 and Q2 because of what we've been doing from a centralization standardization of one platform, but youre seeing that grow.

Heath Sampson: So those kind of internal dynamics are done. You're never done transforming, but from the reality of how much transformation we had, we're able to build on top of that. So, long story short, I feel good about what we've done internally. The headwinds, of course, are going to be these continued reimbursement pressures. But again, for each of our units, we have scale and size. And then, with the market tailwinds, as long as we meet where the customer wants to go beyond just the transaction, which we are, we're going to ensure that we're in a good spot for growth. So I expect 25 to be a really solid growth off our run rate that we disclosed earlier today.

Heath Sampson: So those kind of internal dynamics of.

Brian Tanquilut: And our first question comes from Brian Tanquist from Jeffries. Brian, your line is open. Hey, good morning, guys. As I think about the results here, pretty good, any MT progress and RPM as well, it looks like. It's kind of like a state of the union, but as I think about the moving pieces between PCS and just the cash flow performance or the quarter, I mean, from where you sit, how are you thinking about the path moving forward here?

Heath Sampson: We're done.

Heath Sampson: <unk> never done transforming but from a reality of how much transformation. We had we're able to build on part of <unk> top of that so long story short I feel good about what we've done internally the headwinds of course theyre going to be the continued reimbursement pressures, but again for each of our units we have scale and size and then the market tailwind as long as we are meeting where the.

Heath Sampson: So, long story short, I feel good about what we've done internally. The headwinds, of course, are going to be these continued reimbursement pressures. But again, for each of our units, we have scale and size. And then, with the market tailwinds, as long as we meet where the customer wants to go beyond just the transaction, which we are, we're going to ensure that we're in a good spot for growth. So I expect 25 to be a really solid growth off our run rate that we disclosed earlier today.

Heath Sampson: The customer wants to go beyond just the transaction, which we are working to ensure that we're in a good spot for growth. So I expect 25 to be to be a really solid growth off our run rate that we disclosed earlier today.

Brian Tanquilut: Yeah, hey, good morning. Thanks. You know, we have made a lot of progress across all our three segments, and you can see that specifically within any MT. There's a lot of transformation around all things, people, process, and tech. In personal care as well, especially over the last six months. Again, like we said there, we exited well in the second quarter, and we expect to be back to growing and approaching the margins there anyway.

Speaker Change: Okay. Thank you.

Heath Sampson: Okay.

Speaker Change: And our next question comes from Rishi <unk> from J P. Morgan go ahead Rishi.

Operator: And our next question comes from Rishi Parekh from J.P. Morgan. Go ahead, Rishi.

Rishi Parekh: Hi, Thank you for taking my questions.

Rishi Parekh: First, on the contract renegotiations that you were referring to earlier, I get that it's a win-win, or at least you note it as a win-win with the payers, but can you just help me better understand how it is a win for the actual payer? I mean, I get that you're getting paid earlier, but are you giving up price, or are you reducing price, or what are the economics that you're changing to make sure that the payers are paying you early? And what does this also mean for payables? Are you going to also have to pay those out faster?

Rishi Parekh: Hi, Thank you for taking my questions.

Rishi Parekh: First on the contract renegotiations that you were referring to earlier I get that it's a win win or at least you noted its a win win with the payers, but can you just help me better understand how is it a win for the actual payer I mean, I get that Youre getting paid earlier, but are you, giving up price or are you reducing price or what are the economics that you're changing to make sure that the.

Brian Tanquilut: So each of the individual parts are doing very well. And together, as a whole, we're getting scale leveraged. You can see that we're able to generate free cash flow. And as Barb just said, we expect to be positive free cash flow for the year, even though we're high users because of coming out of re-determination and higher utilization in the MT contract. So yes, our job is to ensure that all three of these segments in the company as a whole is performing.

Speaker Change: Here's are paying your early and what does this also mean for payables. So are you going to also have to pay those out faster.

Heath Sampson: Yeah, no on the payable side, but the win-win... Yes, the payer wants the best price. So we're able to offer the best price because of what we've done with our platform. But we've estimated that.

Heath Sampson: Yeah, no on the payable side, but the win-win side. Yes, the...

Rishi Parekh: Yes.

Speaker Change: No on the payables side, but the the win win.

Heath Sampson: Yes.

Heath Sampson: The payer wants the best price, so we're able to offer the best price because of what we've done with our platform, but we've estimated that. So it's not different than what we thought. They are getting a better price as we re-underwrite these deals for us, in general because, and then the other item that we need to perform. So you need to ensure that on NEMT, of course, you're picking people up on time, there are no complaints, and then you're starting to do more with the individual population. A dialysis member is very different from a mental health member.

Speaker Change: The payer wants the best price.

Brian Tanquilut: But with that, with where we are from a leverage perspective, everything's on the table for us. So we'll look at performing, so whether that's delivering through our cash flow, or looking at other options for us. So again, we're evaluating everything and everything's on the table for us to ensure that we are able to deliver and drive shareholder value. Thank you.

Heath Sampson: So we're able to offer the best price because of what we've done with our platform, but we've estimated that so it's not different than what we thought they are getting a better price as we re underwrite these deals for us just.

Heath Sampson: So it's not different than what we thought. They are getting a better price as we re-underwrite these deals for us, in general, because, and then the other item that we need to perform. So you need to ensure that on NEMT, of course, you're picking people up on time. There's no complaint, and then you're starting to do more with the individual population. A dialysis member is very different from a mental health member.

Heath Sampson: In general because and then the other item.

Heath Sampson: Need to perform.

Heath Samson: Maybe just at that point, and I know you touched upon it in your prepared remarks as well, right? So is there a leveraged target that you've set or how are you thinking about, you know, when you say like everything's on the table, just evaluating the different options or the different business segments that you have in terms of, you know, their contribution to the enterprise means that like a returns based analysis or a cash flow based analysis?

Heath Sampson: So you need to ensure that on any empty that of course, you are picking people up on time.

Heath Sampson: There's no complaints and then youre starting to do more at the individual population.

Heath Sampson: The dialysis remember is very different than a mental health member.

Heath Sampson: So we are doing all that. So that is really the main reason why our customer status is high, and layer on top of that, we can be the lowest cost, even better. So that's what I mean by win-win, but specifically on your question around kind of the renegotiation. The renegotiation is twofold; it's when something comes up for renewal or when we're at a juncture where we need to reset because of a mix change or because of what's happening in redetermination.

Heath Sampson: We are doing all of that so that is really the main reason why our customer sat is high.

Heath Sampson: They are on that we can be the lowest cost even better. So that's that's what I mean by win win but specifically on your question around kind of the renegotiation. The renegotiation is twofold. It's when something comes up for renewal or we're more at a at a juncture, where we need to to reset because of the.

Heath Samson: Just curious how you're viewing that evaluation process per review? Yeah, yeah, so for consistent what we've been saying for a while, three times is the target and from where we are today, that's a that's a ways away, right? So considering the three times, that's why we're evaluating all the options. And the way we look at it is having each of those businesses to be strong and where they're kind of at from a value today.

Rishi Parekh: But specifically on your question around the kind of renegotiation. The renegotiation is twofold. It's when something comes up for renewal or when we're at a juncture where we need to reset because of a mix change or because of what's happening in redetermination. Those times, we know that we're gonna get a lower price. Again, those are what have been baked into our 2024 numbers and what I expect in 2025. The other item around our free cash flow timing is the contractual design.

Heath Sampson: The mix change or because of what's happening redetermination. Those we know that we're going to get a lower price again, those or would it have been baked into our 2024 numbers and what I expect in 2025, the other item around our free cash flow timing that is the contractual design. We set this specific estimate of $5 and.

Heath Sampson: We know that we're going to get a lower price. Again, those are what have been baked into our 2024 numbers and what I expect in 2025. The other item around our free cash flow timing is the contractual design. We set this specific estimate of $5, and we know now that it's $6, and we're not going to settle for that $6. That is incremental for 12 months. We've negotiated to get half of that or some of that earlier. So it's not an economic issue; it is a timing issue. And because of all the benefits that I talked about earlier, our large customers are receptive to doing that for us.

Heath Samson: And what can that be? That incremental value that[inaudible] It's a very cash flow discussion for the back half of the year. I think you said something along the lines of actively negotiating prepayment resets or on 60 million of receivables. I don't know, I was typing fast. But maybe just help us understand kind of the process, the visibility and when we get to a normal run rate of working capital and stuff like that, but more specifically, what's the visibility to that?

Rishi Parekh: When we set this specific estimate of $5, and we know now that it's $6, and we're not gonna settle up for that $6, that incremental 12 months, we've negotiated to get, call it half of that or some of that earlier. So it's not an economic issue; it is a timing issue. And because of all the benefits that I talked about earlier, our large customers are receptive to doing that for us.

Heath Sampson: We know now that at six and we're not going to settle up for that six that are incremental to 12 months, we have negotiated to get call. It half of that or some of that earlier. So it's not an economic issue. It is a timing issue and because of all the benefits that I talked about earlier, our large customers are receptive to do that for us.

Speaker Change: And just a follow up on is that something thats going to happen every year or was this just a temporary move just to collect on those receivables now for this year.

Rishi Parekh: And just to follow up, is that something that's going to happen every year or is this just a temporary move just to collect on those receivables now for this year?

Heath Sampson: And just to follow up, is that something that's going to happen every year or is this just a temporary move just to collect on those receivables now for this year?

Rishi Parekh: It's this year. We do expect, as we exit this year, redetermination will be done, really the kind of normalized healthcare utilization that we expect to be finished this year.

Speaker Change: This year, we do expect as we exit this year Redetermination will be done really the kind of normalized healthcare utilization. So it's just a bolus because of those two reasons that we expect to be finished this year.

Heath Sampson: Okay. And then you went through some of the numbers on this, and I apologize if I did not type fast enough, but, you know, your first half, second half EBITDA split is usually 50-50, and based upon your guidance, it's more like 40-60. So there's about a $35-40 million delta just to get to your guidance, or at least the midpoint of the guidance. Can you just maybe walk me through what the big drivers are to get to that number?

Speaker Change: Okay, and then I know you went through some of the numbers on this and I apologize I did not type fast enough, but your first half second half EBITDA split, it's usually 50 50 and based upon your guidance. It's more like 40 60, so there's about a $35 $40 million.

Speaker Change: Delta just to get to your guidance or at least the midpoint of the guidance can you just maybe walk me through whats the big drivers to get to that.

Speaker Change: That number.

Speaker Change: Yes, so the.

Heath Sampson: Yeah. So, the... The uncontrollables, again, and this is redetermination, redetermination, a major, large headwind for us.

Speaker Change: The uncontrollable again in this redetermination redetermination major large headwind for us.

Heath Sampson: And that kind of peaked in Q2. So that's one. The other is the timing of our kind of net sales win. We did have legacy attrition.

Speaker Change: <unk> kind of peaked in in Q2. So that's a that's one the other is timing of our net sales when we.

Heath Samson: Precash, the strong precash that you're talking about in the second half. Yeah. Yeah, thanks, Bob. I'll start here in Barbkin at some color. And we did in the investor deck. I think slide 18, we gave a lot of disclosure and even some disclosure what we expect for contracts payable and contracts receivable for Q3 and Q4. So it really gives a good picture of what we expect. So the main driver for us because the businesses are performing on our working capital is the contracts, right?

Heath Sampson: We did have legacy attrition, but we're offsetting that and the onboarding of all those contract wins we had in 2023 and 2024.

Rishi Parekh: We did have legacy attrition.

Heath Sampson: We're offsetting that, and that onboarding of all those contract wins we had in 2023 and 2024 kind of really starts in Q2 and continues to accelerate. So it's the working through the losses and the timing of putting the new ones on. So that. That's a big, those two big items. And then, across the board, but primarily with NAMG, is the continued traction and acceleration of the cost savings.

Heath Sampson: We're offsetting that and that Onboarding of all of those contract wins, we had in 2023 and 2024.

Speaker Change: Just kind of really starts in Q2 and continues to accelerate so it's working through the losses and the timing of putting the new ones answer that.

Speaker Change: That's a big those two big items and then the last one it's across the board, but primarily within AMG is the continued traction and acceleration of the cost savings. So so it really is and theres not a big gap, we need to do X or y. It.

Heath Samson: And again, the contracts, especially over the last kind of two years, 18 months have been redesigned to ensure that we're in this win, win relationship from a from a margin and PNL perspective. But where we're hit just as a reminder, you know, very well, but many other people with re with re determination and then utilization with the settlement time within our shared risk contracts that goes on the balance sheet mainly in AR.

Heath Sampson: So it really is, and there's not a big gap. We need to do X or Y. It really is those items that are in place and are writing or coming on board as scheduled. So we have a lot of conviction in our ability to hit that appears ramped second half of the year for those reasons.

Speaker Change: Those items that are in place and run rating or coming onboard as schedules. So we have a lot of conviction and our ability to hit that that appears ramped second half of the year for those reasons.

Heath Samson: And then we have from the past being below that we're at the same time paying contracts. So that the contracts are working as designed and protecting the downside and protecting the PNL, but there's no question there is a working capital challenge that we've been working through. So within those contracts, we know the timing and when those happen, they're written down, unlike it was in the past, there were a little more ambiguous because COVID was new and wasn't contemplated.

Rishi Parekh: If I could just squeeze one more in. On your leverage target, I know you said three times. One, can you give us a target timeframe as to when you plan on getting there? But more importantly, is that three times based upon your covenant EBITDA number, which is about a two-term difference, or is it based upon actual EBITDA, which is about a four-term difference?

Speaker Change: If I could just squeeze one more in on your leverage target I know you said three times one can you give us a target timeframe as to when you plan on getting there, but more importantly is that three times based upon your covenant EBITDA number which is about a two turn difference or is it based upon actual EBITDA, which is about a four turn difference.

Heath Sampson: Well, first off, the timing, and this is important for us, too. The timing will be hard to predict because there are options for us to get there. So if it's just generating cash from our businesses, that's gonna take longer. If it's some other alternative, that would be faster.

Speaker Change: Well, so first off the timing.

Heath Sampson: And this is important for us too.

Speaker Change: The timing will be hard to predict because were need to there's options for us to get there.

Heath Samson: But now they're all contemplated in the contract. So that's the general statement. And Barb, you want to add some? Yeah, it's all a little bit of color. Thanks for the question, Bob. So just to expand a little bit on what he said, you know, in terms of the 60 million that we reference in the script, as he said, that's a contractual amount. It's not a fuzzy amount at all. So it's a contractual amount.

Heath Sampson: So if it's just generating cash from our businesses, that's gonna take longer. If it's some other alternative, that would be faster.

Speaker Change: So if its just generating cash from our businesses, that's going to take longer if it's some other alternative that would be faster, we're going to do the right thing for us.

Heath Sampson: We're gonna do the right thing for ourselves. We have time. We have a good capital structure in place. So for us, it really is evaluating what's the best economic answer for us. So timing's tough to predict. At the same time, we are looking at everything so we can do it as well. We really do understand how important it is to ensure that we bring down leverage as fast as possible. So, sorry for the fuzzy answer, but really, it's about ensuring that we do the right thing at the right time. But again, we have many options.

Heath Sampson: We're gonna do the right thing for us. We have time. We have a good capital structure in place. So for us, it really is evaluating what's the best economic answer for us. So timing's tough to predict.

Heath Sampson: Half the time, we have a good capital structure in place so for US It really is evaluating what's the best economic.

Heath Samson: It's a few payers where we've been successful in our repricing efforts and even successful in an in year contract settlement, which is earlier than than normal. So we have very good visibility to that 60 million dollars in the third quarter. And again, it's primarily related to our successful efforts in repricing. So good visibility, it's contractual, and that really will contribute to the improvement in the free cash flow in the back half of the year in the third quarter in the back half of the year.

Heath Sampson: Answer for us so timing is tough to predict at the same time.

Heath Sampson: We are looking at everything so we can do it as well, we really do understand and how important it is to ensure that we bring down leverage as fast as possible. So sorry for the fuzzy answer, but really it's about ensuring that we do the right thing at the right time, but again, we have many options in front of US sorry, if I couldn't tell you why don't you go ahead.

Rishi Parekh: Sorry, if I could, sorry, go ahead. Wait, what? Is it based on the Covenant EBITDA or actual EBITDA?

Speaker Change: What's your second question I can't remember, who it was.

Heath Sampson: Wait, what, is it based on the covenant ibadah or actual ibadah?

Speaker Change: What is it based on the covenant EBITDA actual EBITDA.

Heath Samson: We also, in the prepare remarks, common is that from an exit perspective, the free cash flow will be improving, you know, the conversion rate will be approximately 30% as we exit the year. So maybe those are few highlights and data points, to take you a little bit more color on the improvement in the free cash flow. Okay, great. Now I appreciate that.

Heath Sampson: Yeah.

Heath Sampson: Well, for us, it's true economics. We don't have a covenant. Obviously, we have covenants; we have to abide by those. But the decisions we make around timing are going to be economic, not religious.

Speaker Change: Well so for US it's true economics, we don't have a covet, obviously, we have covenants, we have to abide by those but the decisions we make around timing are going to be economic not driven by a covenant.

Heath Sampson: We feel good about our ability to meet those covenants.

Heath Sampson: I'm sorry, but when you say the alternatives, how far down that path are you with those alternatives other than Matrix? I mean, are you in the third inning, fourth inning, or are you just scratching the surface to evaluate those alternatives? Yeah, that is not something.

Speaker Change: Sorry, when you say the alternatives.

Speaker Change: Far down that path are you with those alternatives other than matrix. I mean are you in the third inning fourth inning or are you just scratching the surface to evaluate those so terry alternatives.

Heath Samson: And then on NEMT, obviously, a nice encorder, and I think utilization and payroll and other were kind of the drivers there. So two questions. I'm, you know, bouncing between your slide decks and trying to figure this out quickly, but it looks like the ending number of membership is lower than last quarter, 30 and a half versus maybe 32. The neck client growth in the back half, you know, may have changed a little bit.

Heath Sampson: Yeah, that is not something we're really...because we're not announcing anything like that. We are fully aware of all our businesses and the opportunities in the market, so we're not in any inning or anything that we want to disclose around that, again, other than Matrix, which is...

Heath Sampson: Yeah, that is not something we're really because we're not announcing anything like that. We are fully aware of all our businesses and the opportunities in the market. So we're not in any inning or anything that we want to disclose around that again, other than matrix, which is We know the timing we talked about there already.

Speaker Change: That is.

Heath Sampson: And that's something we're really because we're not announcing anything like that we are fully aware of all of our businesses and the opportunities in the market. So we're not in any.

Heath Sampson: Or anything that we wanted to disclose around that again other than matrix, which is which we know the timing we talked about there already.

Speaker Change: Great. Thank you.

Heath Sampson: Yeah.

Heath Samson: What am I, again, I apologize if I got it wrong there, but what changed there? And, you know, obviously, what are the expectations for client growth? Is it going to, is the onboarding taking longer? Or were there, you know, what's the, thanks. Yeah, no, you know, very, very good question. Well, the current deck is the deck to look at with our membership because we have a really good understanding of the timing of clients onboarding.

Mike <unk>: And our last question comes from Mike <unk> from Barrington Research, Mike Your line is live.

Operator: And our last question comes from Mike Petusky from Barrington Research. Mike, your line is live.

Mike Petusky: Good morning.

Michael Petusky: morning. Heath, and I apologize, but you can do this super quick if you're willing.

Mike Petusky: Heath and I am John So you can do this super quick if you're willing I missed multiple calls this morning I missed the first eight minutes of your prepared remarks, what did you say about matrix.

Michael Petusky: I missed multiple calls this morning. I missed the first eight minutes of your prepared remarks. What did you say about the Matrix?

Operator: Yeah, consistent with what we said last quarter, the timing is either later this year or early next year.

Heath Sampson: Yeah, consistent with what we said last quarter, the timing is either later this year or early next year.

Speaker Change: Yes, consistent what we said last quarter.

Operator: The timing is either later this year or early next year.

Operator: Okay.

Heath Samson: A couple, a couple of things on that. If you triangulate in redetermination on the membership, it's about 500 K higher than we thought around that. We also did have one of our we that we won state businesses that we that got pushed into 2025. And then the other items are just a general estimate that we had before and when stuff's coming online or when contracts get ultimately finalized with the right mix.

Michael Petusky: All right, great. Yeah, great. I'll read the transcript for anything else there. I appreciate it.

Speaker Change: Alright, great Yeah, great all I'll read the transcript for anything else there I appreciate it.

Heath Sampson: Hey, so just going back to the $60 million contract receivable that you think is sort of keyed up, how many contracts does that cover? Is that like three or four contracts primarily, or how many different accounts does that cover? Yeah, it's definitely more than one.

Michael Petusky: Hey, so just going back to the $60 million contract receivable that you think is sort of teed up, how many contracts does that cover? Is that like three or four contracts primarily? Or how many different accounts does that cover? Yeah.

Speaker Change: So just going back to the $60 million contract receivable.

Speaker Change: Do you think is sort of how many contracts does that companies that like three or four contracts, primarily or how many different accounts does that cover.

Speaker Change: Yes, it's definitely more than one.

Heath Sampson: contract. As you all know, the concentration of payers is really kind of the big eight people. So it is, though it's multiple contracts, it's isolated to a couple large ones.

Heath Sampson: Yeah, it's definitely more than one contract. As you all know, the concentration of payers there's really kind of the big eight people, so it is, though it's though it's multiple contracts, it's isolated to a couple large ones.

Speaker Change: Contract as you all know the concentration of payers, there's really kind of big eight people. So it is though so it's multiple contracts it's isolated to a couple of large players.

Heath Samson: And that's probably the biggest driver that that we had that membership too high. The important item is that's just the membership item that you're seeing. The economics and the ultimate bottom line and ultimate cash flow and timing are rate in line with what we expected last quarter. It just is really a membership estimate change for those reasons that I just talked about. Okay, great.

Speaker Change: Okay, So I'd like to.

Heath Sampson: Yes.

Michael Petusky: Okay. All right. And then I'm just curious, has, you know, we're about into the quarter, has any of that been collected to this point, or not?

Heath Sampson: Okay, Alright, and then.

Speaker Change: Just curious has has whereabouts and to the into the quarter has any of that been collected to this point or no.

Heath Sampson: So there's lots of cash flow moving in and out, so... Yeah, we're not going to front run Q3 for us. We just feel good about our ability at the end of Q3 to get those collections going.

Heath Sampson: So theres lots of cash flow moves in and out so.

Heath Samson: And last one, I'll get in Q on this. The payroll and other was a nice substantial decline sequentially. And, you know, I mean, this is a trend we've been looking for. And it was, you know, good to see in part of the strength and empty in the quarter. Just kind of a little bit behind that. Are we at a new run rate? Is there still more improvement there? Was there any one-time benefit there?

Speaker Change: Yeah, we're not I'm not going to.

Heath Sampson: Front run Q3 for US we just feel good about our ability at the end of Q3 to get those collections happening in total.

Michael Petusky: Okay, so can I just ask one more question just sort of connected to the subject. So, given, given, you know, the call out of the 60 million that you think is, you know, likely to be collected sooner rather than later, I mean, is sort of the cadence of the free cash flow in the second half going to be a little bit more heavily weighted in Q3 versus Q4?

Michael Petusky: Okay, so can I just ask one more question just sort of connected to the subject. So, given the call out of the 60 million that you think is, you know, likely to be collected sooner rather than later, is the cadence of the free cash flow in the second half going to be a little bit more heavily weighted in Q3 versus Q4?

Speaker Change: Okay. So can I just ask one more question just on sort of connected to the subject. So so given given.

Heath Sampson: Is that a reasonable sort of estimate? Yeah, no, you're right. And if you look at slide 18, you can actually see that, which is why we gave all that disclosure.

Heath Sampson: The callout of the 60 million that you think as you know.

Heath Sampson: Likely to be collected sooner rather than later.

Heath Samson: Et cetera. How should we think about that? Again, it was a great comforting number. I just want to get a sense of how that plays out going forward. No, it's the efforts of the team and what we're doing within our platform is tremendous. We gave a lot of detail in my opening comments. Hopefully that was helpful because it really all those items together are what are driving our ability to meet the member where they are with technology tools and processes in place.

Heath Sampson: Is it sort of the cadence of the free cash flow in the second half going to be a little bit more heavily weighted in Q3 versus Q4.

Speaker Change: Yes. It is.

Heath Sampson: Yes.

Heath Sampson: You're right, but if you look at slide 18, you actually can see that.

Heath Sampson: Which is why we did all of that disclosure.

Heath Sampson: Yeah.

Heath Sampson: Okay.

Michael Petusky: Yeah. All right. Okay. Very good. Thank you so much.

Speaker Change: Alright, Okay very good thank you so much.

Michael Petusky: Yeah.

Heath Sampson: Thank you. This does conclude our question and answer session. I'd now like to turn it back to Heath for any closing remarks.

Operator: Thank you. This does conclude our question and answer session. I'd now like to turn it back to Heath for any closing remarks.

Michael Petusky: Thank you. This does conclude our question and answer session I'd now like to turn it back to Heath for any closing remarks.

Heath Samson: So that's a real number and we still have more in the tank. You'll see in the cost savings that we're actually achieving what we thought we would in that for the year, right? We're going to be right where we expect it. And then also in my comments, I do expect that we're going to continue to accelerate beyond that to get closer to the 60. So we're expect more and more kind of on a linear basis as we finish the year and go into 2025.

Heath Sampson: Yeah, thank you for participating in our call this morning and for your interest in our company. Our updated investor presentation is posted on our Investor Relations website. If you want to schedule a follow-up call, please call Kevin Ellich, our head of Investor Relations. We look forward to speaking to many of you over the coming days, weeks, and months before we report our third-quarter results in November.

Heath Sampson: Yes. Thank you for participating in our call. This morning and for your interest in our company. Our updated Investor presentation is posted on our Investor Relations website. If you want to schedule a follow up call. Please call Kevin ill, let shar head of Investor Relations. We look forward to speaking to many of you over the coming days weeks and months.

Heath Samson: So it's been really, really well done by the team. So you see that in Payroll and others in purchase services as well. There is some kind of one-time, timing between Q1 and Q2, but that trend is going to continue down as well. Again, from all the hard work we're doing in each of those initiatives, it's really paid off. So We feel good about it continuing.

Heath Sampson: Before we report our third quarter results in November. Thank you again, thanks to the team everybody have a great day operator. This concludes our call.

Operator: Thank you again. Thanks to the team. Everybody have a great day. Operator, this concludes our call.

Heath Sampson: Thank you again. Thanks to the team. Everybody have a great day. Operator, this concludes our call.

Operator: Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

Speaker Change: Thank you. This does conclude today's conference. We thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

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Heath Samson: All right, thank you very much. Thank you.

Peter Lukas: And on next question, come from Pito Chickering from Deutsche Bank. Go ahead. Good morning, guys. It's going back to the time in those cash flows from any empty risk contracting. You know, Medicaid, you know, liquid determination and liquidization has been hot for the last sort of two years. So why does happening this quarter versus other quarters? Is there any debate around how much is odorless contracts? Have you had any issues collecting revenue from these risk-sharing contracts in the last 12 months?

Peter Lukas: Yeah, so you're on it and you've covered the payers and I think many people on this phone know what's happening. It's pretty clear that utilization has been hot and it continues really to be hot. But why it's kind of isolated to really look, it's been happening, but really it's going to hitting this crescendo right now. It's just kind of the timing of where we kind of benchmark and estimate it when this is going to happen.

Peter Lukas: Coupled with, our contracts get settled, rather than six to 12 months. So even though utilization was increasing in 2023, you've got to settle up with a lot of those kind of 12 months later. Again, and then coupled with where we snapped the chalk line earlier on, that's why it's all coming to a head right now, which again, which is why we said, first part of the year, we're going to be using a lot and the second part of the year will be able to deliver.

Peter Lukas: So it's not a surprise. It's the utilization has been high, but again, that's as expected. Okay, I'm just prepared. Please go ahead. Yes, sorry, Peter. I would add, and in fact, it's actually, you know, in part, it's been our success in the contracting process, where we've accelerated some of the reconciliation, some of the settlements, you know, in a couple contracts. And so we've talked about that in the past that, you know, so that there's not so much time and distance between when we're actually incurring those costs, and that actual cash settlement.

Peter Lukas: So we've actually been successful in accelerating our couple of those. Yeah, and just just a little bit on that, because what does that mean? So let's just say it's 12 months and we're halfway through and we're knowing, and we and the client are knowing that utilization is going up. So we know, I don't know, six months from now, we're going to have a large true upper settlement that we go to the client, say, hey, it's going to be so large, you can see this, you see the data, which is why we've been, oh, okay, let's kind of reset that line so we don't have a big growing receivable in payment at the end.

Peter Lukas: And in our clients, again, are in a win-win relationship with us to ensure that we're doing them. That's why at Barber, Tiki, it might have been successful in a few of those large contracts to do that ahead of time. Oh, great. So two more quick ones here. So just be clear, there's no risk for charges on a rubber rack around these risk-strike contracts. And then last floor, you said that we exit the year at a fee cash with a version of 40%, 50%, excuse me, the debt we're financing now, it's 30%, just want to understand the change of the 40%, 50% to 30.

Peter Lukas: Is it just the debt financing or something else? Yeah, so we do have still a couple quarters ago. We talked about one contract in Florida that we didn't collect on, but we've collected 75%. That one's still open, that remainder. So there's one client that we're having some, but it's really small. So just to be transparent, that there was one client that we're still in discussions to get the last 25%. Outside of that, we expect to collect all our, our receivables.

Peter Lukas: And then to do with the cash conversion, it really is, we just, with the higher cost in our new term loan that we got, it's just mass to take us down to that 30% from the 40%. Okay, and the last one for me here on our PM turn rate, I guess why is it turn rate so high from your largest, your largest customer? Is it pricing or service levels? Thanks so much.

Peter Lukas: Yeah, the main reason, excuse me, is one of our large clients on the, excuse me on the MA side. If you're, again, if you're talking to pairs and specifically supplemental benefit pressure with an MA is high across across the board. And this, this is what happened with this pair. That's where the churn was. First off, the churn related to them, not winning state. So they lost states. Therefore, we don't get as much volume.

Peter Lukas: That's the biggest driver, but it also is just some pressure on supplemental benefits and offering that is what, what is the issue. But as we pointed out, and we get some data in the, in the deck here, we, unlike maybe a lot of other RPM businesses, we're not as exposed to MA, about 25% of our business. So, so yes, that was the reason going forward. We believe we'll be able to manage through that challenge in the MA market. Thanks so much. Thank you.

Scott Fidel: And our next question comes from Scott Fidel from Stevens. Go ahead. Scott, your line is open. Hi, thanks. So good morning. First question, just thought it might be helpful if you wanted to bridge us just on the margins for any MT and then with PCS did catch the comment about getting too close to the 10% by, you know, fourth quarter on the exit rate. Maybe if you want to sort of, you know, I guess embedded in getting to that 220 or 210 to 20 exit rate, how you see the NAMT margins progressing in 3Q and then 4Q and similarly with with PCS and 3Q and 4Q as well.

Scott Fidel: Yeah, thanks Scott. Well, starting with any MT, you can see the margins in that 7%ish range and then to Bob's kind of question around improving cost savings that continuing coupled with our continued onboarding of clients, where we have again contribution margin that flow through strong. So I do expect an uptick call it a kind of to the end of the year on 100 basis points, plus is probably the way we're going to think about on the NAMT side PCS.

Scott Fidel: You saw the jump in in Q2 again, lots has transformed there and still lots of work to do. But we also said that we actually did that quarter in a strong way and then you couple that and why with PCS not only have the cost, kind of centralization cost normalized for us because we got it out, but we also have rating creases and that's a big driver for us. So and those started here in early Q3 so you'll see that jump.

Scott Fidel: So that'll be more than and as Barbara alluded to, we'll get closer to that 10% range, and then RPM will be kind of in that mid-30s range as well. So really, so that's the brage in all in front of us. Most of it is the actions we have in place or things that we have done, and it will trend that way. Is that helpful, Scott? Yeah, it is. Peter, and then just one follow-up around that, just on the PCS side, I was, you know, thinking, I mean, should we see more of a step function up in the 3Q just because you guys have now gotten those rate increases, or are there still some costs from the centralization and transformation that offsets that in the 3Q so that we see more of the margin and the 4Q show to get to that sort of close to 10%.

Scott Fidel: You'll see a step up because of the stuff, it won't get all the way to the 10% range, but you'll see a meaningful step up. Okay, got it. And then second question, just wanted to just get your update on, and I know we, you guys talked a little bit about it with PETO, just on the sub-benefits in NA and some of the turn there in RPM. Just looking out to 2025, you know, just given the reimbursement pressure that NA plans are facing and the utilization they've seen on supplemental benefits this year, what's your visibility at this point into your MA, you know, books in NEMT and then in RPM in terms of, you know, sort of retention of volume and then you're sort of pricing with your MA customers.

Scott Fidel: Is that remaining consistent just, or are you seeing some pushback just given the, you know, the rate pressures in cost pressures that MA plans are experiencing? Yeah, so first, you know this, but no exposure to MA on PCS. Within NEMT, those really supplemental benefits over, have really been under pressure for the last couple of years. And probably steady. And so we know the markets that our clients are not going to offer NEMT, so we know that and expect that.

Scott Fidel: There are no question pricing pressures, but we anticipated that and it's been baked into our current numbers and even what we expect in 2024, which is why again, a company like us that has the size and scale and what we're doing around automating, we can get to the right win-win price where we save money for people as well as ensure that we maintain our margins. The RPM business is probably the biggest business that is going to be impacted on supplemental benefits.

Scott Fidel: I could spend a lot of time here. In the end, the technology in someone's home is going to be really important, especially for people on certain population types. So, though yes, the current model is under pressure, but I do think there is going to be a more outcomes-based, populations-based device in a home transformation. And those are the discussions we're in. So, I don't expect large, large growth in the short-term around NEMT but I do expect more of a sustained kind of competitive advantage even on the MA side for us.

Scott Fidel: And again, the other thing, and this is what's happening. It's not about the alert anymore. It's really about what are you going to do with that alert and the clinical outcomes that are there. And because of what we've invested in with our clinical people as well as our technological capabilities, we're able now to get into the clinical budget because we're really going to change outcomes. And that's what I mean about the changing dynamic within the RPM world.

Scott Fidel: They thought that one more if I can. Just as we sort of put all of this together, thought it might be helpful just at this vantage point, if you wanted to sort of summarize what you see as the key headwinds and tellwinds for 25 and sort of your confidence in sort of getting back to EBITDA growth in a nice way. I mean obviously there's been a number of these headwinds that seem to be more impacting the first half relative to the second half, but we all need to be respectful around the environment and a lot of fluidity that we see in the Medicaid market and in some of the businesses.

Scott Fidel: So sort of taking all that heat that sort of how would you lay out what you see as the key tailwinds and headwinds for next year? Yeah. Well so for next year and beyond a lot of tailwinds from the pressures that are helping in the healthcare system and the societal demands of moving into the home. Again those pressures whether that's cost or or the evolution of understanding that care really matters outside of just the clinical episode.

Scott Fidel: That's going to continue to accelerate because it reduces cost as well as improved access, clothing and cost. So those kind of macro are only going to continue and will happen in 24, I mean sorry 25 and beyond. So with that and what we've invested we're in a really good spot to ensure that we are meeting that. But specifically around 2025 a lot of what we've done within this transformation has been in place.

Scott Fidel: A lot of the hard work around culture, ensuring the strategies there, ensuring the right operating model is there has been in place. So now it's about this continued execution and really being customer centric. I know that sounds kind of cliche but that is our focus because our customers literally whether whether they are doing explicitly at the contract level because they're doing explicitly at the at the executive level. Yeah I love the trippies.

Scott Fidel: I love that you've done the work in the home and I love the the the device alert but really I want to know come and I want you to understand my population. So that's what we're doing now. So and then just a little bit around I think implicit in your question you know it was in PCS as a good example. We have soft Q1 and Q2 because of what we've been doing from a centralization standardization one platform but you're seeing that grow.

Scott Fidel: So those kind of internal dynamics of are done. I guess you're never done transforming but from a reality of how much transformation we had we're able to build on top of that. So long story short I feel good about what we've done internally. The headwinds of course are going to be these continued reimbursement pressures but again for each of our units we have scale inside and then the market tailwind as long as we are meeting where the the customer wants to go beyond just the transaction which we are we're going to ensure that we're in a good spot for growth. So I expect 25 to be to be a really solid growth off our run rate that we disclosed earlier today.

Scott Fidel: Okay, thank you.

Rishi Parekh: And the next question comes from Rishi Parekh from J.P. Morgan Gohead, Rishi. Hi, thank you for taking my questions. First on the contractor negotiations that you were referring to earlier. I get that as a win-win. Or at least you noted as a win-win with the payers, but can you just help me better understand how is it a win for the actual payer? I mean, I get that you're getting paid earlier, but are you giving up price or are you reducing price?

Rishi Parekh: Or what are the economics that you're changing to make sure that the payers are paying you early? And what does this also mean for payables? Are you going to also have to pay those out faster? Yeah, no on the payable side, but the win-win gets the payer wants the best price. So we're able to offer the best price because of what we've done with our platform. But we've estimated that. So it's not different than what we thought.

Rishi Parekh: They are getting a better price as we re-underwrite these deals. For us, just in general, because the other item that we need to perform. So you need to ensure that on any MT that of course you're picking people up on time. There's no complaints. And then you're starting to do more at the individual population. But dialysis member is very different than a mental health member. So we are doing all that. So that is really the main reason why our customer status high.

Rishi Parekh: They are on that we can be the lowest cost even better. So that's what I mean by win-win. But specifically on your question around kind of the re-negotiation. The re-negotiation is twofold. It's when something comes up for renewal or when we're at a juncture where we need to reset because of a mix change or because of what's happened to re-determination. Those we know that we're going to get a lower price. Again, those are what have been baked into our 2024 numbers and what I expect in 2025.

Rishi Parekh: The other item around our free cash flow timing. That is the contractual design. We set the specific estimate of five dollars. And we know now that it's six. And we're not going to settle up for that six that incremental 12 months. We've negotiated to get call it half of that or some of that earlier. So it's not an economic issue. It is a timing issue. And because of all the benefits that I talked about earlier, our large customers are receptive to do that for us.

Rishi Parekh: And just to follow up on, is that something that's going to happen every year? Or is this just a temporary move just to collect on those receivables now for this year? It's this year. We do expect as we exit this year re-determination will be done. Really the kind of normalized healthcare utilization. So it's just a bolus because of those two reasons that we expect to be finished this year. Okay. And then I know you went through some of the numbers on this.

Rishi Parekh: And I apologize those did not type fast enough. But you know, your first half second half EBITDA splits usually 50, 50 and based upon your guidance is more like 40, 60. So there's about a 35, 40 million dollar delta just to get to your guidance or at least the midpoint of the guidance. Can you just maybe walk me through what's the big drivers to get to that number? Yeah, so the uncontrollables, again, and this is redetermination, redetermination, major large headwind for us, and that's kind of peaked in Q2, so that's one.

Rishi Parekh: The other is timing of our kind of net saleswinds. We did have legacy attrition. We're offsetting that and that onboarding of all those contract winds we had in 2023 and 2024. It kind of really starts in Q2 and continues to accelerate, so it's working through the losses and the timing of putting the new ones on, so that's a big, those two big items, and then the last one, it's across the board, but primarily with NAMT, is the continued traction and acceleration of the cost savings.

Rishi Parekh: So it really is, and there's not a big gap. We need to do X or Y. It really is those items that are in place and run writing for coming on board as scheduled, so we have a lot of conviction and our ability to hit that appears ramped that can have to the year for those reasons. If I could just squeeze one more in on your leverage target, I know you said three times.

Rishi Parekh: One, can you give us a target time frame as to when you plan on getting there, but more importantly, is that three times based upon your covenant EBITDA number, which is about a two turn difference, or is it based upon actually EBITDA, which is about a four turn difference? Well, so first off, the timing, and this is important for us too, the timing will be hard to predict because we need to, there's options for us to get there.

Rishi Parekh: So if it's just generating cash from our businesses, that's going to take longer. If it's some other alternative, that would be faster. We're going to do the right thing for us. We have the time. We have a good capital structure in place, so for us, it really is evaluating what's the best economic answer for us. So timing's tough to predict. At the same time, we are looking at everything so we can do it as well.

Rishi Parekh: We really do understand and how important it is to ensure that we bring down leverage as fast as possible. So sorry for the fuzzy answer, but really it's about ensuring that we do the right thing at the right time. But again, we have many options in front of us. Sorry if I can't. What's your second question? I can't remember where it was. Is it based on the covenant EBITDA or actually EBITDA?

Rishi Parekh: Well, so for us it's true economics. We don't have a covenant. Obviously we have covenants. We have to abide by those, but the decisions we make around timing are going to be economic, not driven by a covenant because we feel good about our ability to meet those covenants. And sorry, when you say the alternatives, how far down that path are you with those alternatives, other than matrix? Are you in the third inning, fourth inning, or are you just scratching the service to evaluate those alternative alternatives?

Rishi Parekh: Yeah, that is not something we're really, because we're not announcing anything like that. We are fully aware of all our businesses and the opportunities in the market. So we're not in any in-ean or anything that we want to disclose around that. Again, other than matrix, which is... We know the timing we talked about there already. Great, thank you.

Mike Petusky: And our last question comes from Mike Petusky from Barrington Research. Mike, your line is live. Morning.

Mike Petusky: Heath, and I apologize, but you can do this super quick if you're willing. I missed multiple calls this morning and I missed the first eight minutes of your prepared remarks. What did you say about matrix? Yeah, consistent. What we said last quarter. The timing is either later this year or early next year. Okay. All right, great. Yeah, great. I'll read the transcript for anything else there. I appreciate it.

Mike Petusky: Hey, so just going back to the $60 million contract receivable that you think is sort of key dot how many contracts does that come? Is that like three or four contracts primarily or how many different accounts does that cover it? Yeah, it's definitely more than one contract. As you all know, the concentration of payers, there's really kind of big eight people. So it is though it's multiple contracts, it's isolated to a couple large pairs. Okay, so like two. Yes. Okay. All right.

Heath Samson: And then I just curious has has you know, we're about into the into the quarter. Has any of that been collected to this point or no? So there's lots of cash flow moves in and out. So yeah, we don't get I'm not going to front run Q3 for us. We just feel good about our ability at the end of Q3 to get those collections happening in total.

Mike Petusky: Okay, so can I just ask one more question just on sort of connected to the subject. So so given, given, you know, the call out of the $60 million that you think is, you know, likely to be collected sooner rather than later. I mean, it is sort of the cadence of the free cash flow in the second half going to be a little bit more heavily weighted in Q3 versus Q4. Is that yeah, you're right. And but and if you look at slide 18, you actually can see that which is why we did all that disclosure. Yeah. All right. Okay. Very good.

Mike Petusky: Thank you so much. Yep. Thank you.

Heath Samson: This does conclude our question and answer session. I'd now like to turn it back to heat for any closing remarks. Yeah. Thank you for participating in our call this morning. And for your interest in our company, our updated investor presentation is posted on our investor relations website. If you want to schedule a follow call, please call Kevin LHR head of investor relations. We look forward to speaking to many of you over the coming days, weeks and months before we report our third quarter results in November. Thank you again. Thanks to the team.

Operator: Everybody have a great day operator. This concludes our call.

Operator: Thank you.

Operator: This does conclude to this conference. We thank you for your participation.

Operator: You made disconnect your lines at this time and have a wonderful day.

Q2 2024 ModivCare Inc Earnings Call

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