Q4 2024 ModivCare Inc Earnings Call
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Speaker Change: Good day, everyone and welcome to motive fourth quarter and full year 2024 financial results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note the conference call is being recorded today.
Heath Sampson: We'll be Heath, Sampson motive prices, and Chief Executive Officer, and Barbara Gutierrez motives, Chief Finance Officer.
Heath Sampson: Before we get started I'd like to remind everyone that during today's call management will be making forward looking statements under the private Securities Litigation Reform Act.
These statements involve risks and uncertainties and other factors that may cause the actual results or events to differ materially from expectations.
Heath Sampson: Information regarding these factors contained in today's press release and in the company's filings with the S. E. C will also discuss non-GAAP financial measures to provide additional information to investors a definition of these non-GAAP financial measures.
Heath Sampson: A full reconciliation to their most direct comparable GAAP financial measures is included in our press release and form 8-K.
A replay of this conference call will be available approximately one hour after today's call.
Heath Sampson: And will be posted on our website motive care dotcom.
Speaker Change: This this afternoon Heath Sampson will begin with opening remarks, Barbara key T. Erez will review our financial results and guidance. Then we will open the call for questions with that I'll turn the call over to you.
Speaker Change: Thank you operator, and thank you all for joining us today to review, our fourth quarter and full year 2024 results.
Speaker Change: I'm joined today by Barbara tariffs, our Chief Financial Officer.
Speaker Change: Today I'll begin by outlining the current state of our business and reviewing our Q4 and full year 2020 for performance.
Speaker Change: Then I'll walk through the recent steps to strengthen our capital position before diving into key updates and by value drivers across our business segments.
Barb: After that I'll turn the call over to Barb <unk>.
Speaker Change: We'll provide details on our capital raise full.
Barb: Full year performance and Q4 results.
Speaker Change: Before we open the call for questions.
Speaker Change: 2024 was a perfect storm for payer services companies focused on Medicaid and Medicare advantage.
Speaker Change: This industry faced unprecedented disruption from Medicaid redetermination.
Speaker Change: Increased health care utilization.
M a reimbursement cuts.
Speaker Change: <unk> challenges the clouding visibility.
Disrupted cash flow and created significant financial strain across the sector.
Speaker Change: The impact on our performance in working capital less severe.
Speaker Change: Requiring us to navigate painful pressures pushed down from our clients.
Speaker Change: Leading to unpredictable revenue shifts and overall market volatility.
Speaker Change: These external disruptions were challenging.
But we have successfully navigated through them by reducing costs significantly and also strengthening long term partnerships with their clients.
All of this turmoil is now behind us.
Speaker Change: At the same time, we built a strong foundation, our three differentiated segments are fully integrated opt.
Speaker Change: Operationally optimized a competitively positioned within the health care ecosystem.
Speaker Change: That foundation is set and our path forward is clear.
Speaker Change: We will further strengthen our balance sheet by monetizing select platforms that are now ready to thrive leveraging our proven competitive position and strong market demand.
Speaker Change: As we execute our strategy, we will reduce debt sharpened focus and solidify our market, leading position unlocking and driving stakeholder value and equity value.
Speaker Change: Specific to the financial results of our fourth quarter demonstrated progress with revenue of $702 8 million.
Speaker Change: Bringing our full year revenue to $2 $8 billion.
Speaker Change: Our adjusted EBITDA for Q4 was $40 4 million.
Speaker Change: Totaling $161 $1 million for the full year.
Speaker Change: Our priorities for 25 are clear.
Speaker Change: First we will continue strengthening our technology enabled platforms across any empty.
Speaker Change: Personal care and monitoring.
Speaker Change: Second we will execute strategic financial initiatives and diverse platforms to ensure our capital structure supports long term growth and value creation.
Speaker Change: Before I dive into the segments I want to discuss recent steps, we've taken to strengthen our capital position.
Speaker Change: As we approached the end of 2024, it was critical for us to proactively address cash flow and working capital timing risks, specifically as we navigated the accelerating market turmoil.
Speaker Change: Strengthening our capital position became a key priority and we worked diligently to reach an agreement across our capital structure and lending group.
We received strong support from our existing debt holders and shareholders, who recognize the value of our strategic transformation and the underlying enterprise value of each segment.
Speaker Change: As part of this effort, we secured an incremental 75 million term loan and $30 million of new second lien notes.
Speaker Change: Providing financial flexibility to drive operational improvements and execute on our strategic priorities.
Speaker Change: Well the $30 million in new second lien notes require shareholder approval on March 13th of this year. We are confident that we will obtain the approval and believe this investment will further stabilize our financial position.
Speaker Change: To further accelerate our transformation, we appointed Chad Sandler S Chief transformation Officer Chad.
Chad brings deep experience in large scale transformations and its expertise is already proving invaluable as we drive execution and position mode of care for long term success.
Speaker Change: Yeah.
Speaker Change: As we work to prioritize strengthening our platforms and business motive care has appointed Alec Cunningham and David mounts Gonzales to our board of.
Speaker Change: Erector effective March 7th 2025.
Speaker Change: Alex appointment relates to the boards previously announced plan to add three new independent directors as part of our contractual obligation with our lenders.
Speaker Change: With the first appointment being Erin Russell Who's appointment was announced in February.
Speaker Change: As a significant shareholder David's appointment brings valuable perspective directly aligned with the broader interest of shareholders and the company.
These appointments build on our recent track record of adding key areas of expertise to the board that will drive motor carrier motive care strategy and execution.
Speaker Change: Mr. Cunningham, it's a proven public and private company CEO with significant payer experience with Medicaid Medicare and other public funded health care programs, who has delivered excellent operational results and development in turnaround situations.
Speaker Change: He has a unique talent and deep expertise in the policies and operations of government sponsored health insurance program and risk bearing providing organizations.
Speaker Change: As the former CEO of Wellcare health plans. He has strong expertise in managed care and operation transformation.
Speaker Change: Mr. Mouth's Gung Dallas this appointment to the board represents a collaborative step forward with shareholder interests.
Speaker Change: Aligning closely with share goals of enhancing operational efficiency technology.
Innovation.
Speaker Change: And disciplined financial management.
Speaker Change: His deep expertise in AI and all the analytics and strategic cost optimization will support the company company and driving operational efficiency and long term value creation.
Speaker Change: He is a general partner of AI catalyst fun, a significant shareholder in our company, which invest in public companies to enhance their use of artificial intelligence and advanced technology through strategic engagement.
Speaker Change: He's an experienced chief executive and public company director.
Speaker Change: Having served as CEO of Ingmar intelligence or data driven commerce and analytics platform from 'twenty 10 to 2022 include.
Speaker Change: Including as chairman from 2014 to 2022.
Speaker Change: Previously he held senior leadership roles at Domino's Pizza, Domino's Pizza as EVP of supply chain and CFO driving innovation in technology product and logistics and that U P. S, where he held multiple executive positions, including International County manager.
Speaker Change: <unk> controller and.
And SVP of UBS capital.
Speaker Change: Alex and Davids perspective in.
And expertise will provide immense value, including helping to improve the company's service quality and outcomes enhance our competitive cost structure and deliver prudent profitable growth. We are excited to have them both onboard.
Speaker Change: Motive care is committed to a continuous refreshment process.
Speaker Change: Designed to provide board memberships that is comprised of directors with a range of skills and experiences that complement the company's strategy and execution.
Speaker Change: We have engaged advisors and established the strategic alternatives committee on the board to ensure a disciplined and strategic approach to our divestiture process.
Speaker Change: After the seismic shifts of 'twenty 'twenty, four and the significant progress in our transformation now is the optimal time to monetize select segments and unlock value and for the first time, we've launched this process.
Speaker Change: Extensive discussions with third parties have reinforced the strong market demand and competitive positioning positioning of our monitoring platform.
Speaker Change: Is the most advanced in our divestiture process with.
Speaker Change: With cutting edge technology and clinical capabilities.
Speaker Change: Highly attractive member base and recurring revenue streams interest from potential buyers is strong and deep.
Speaker Change: We are executing strategically while maintaining measured speed, ensuring we maximize value creation for all stakeholders.
Speaker Change: Beyond Margaret monitoring we are unlocking significant value in our personal care services segment, and Nonemergency medical transportation platforms as well as through our equity investment in matrix medical.
Speaker Change: P. C. S is also uniquely positioned with the centralized standardized operating model and a single technology platform.
Speaker Change: It highly scalable and attractive for potential monetization.
Speaker Change: This structure enhances efficiency compliance and service quality.
Speaker Change: Reinforced and strategic value within the health care system.
Speaker Change: Meanwhile, our NEM key platform and matrix medical investment continue to be growth drivers benefiting from strong market demand operational improvements and our proven competitive position. Each of these business visitors represents a compelling opportunity for long term value creation.
Speaker Change: And now I will provide further insight into their strengths and future potential later in this presentation.
Turning now to the review of our business segments to set the stage for our <unk> segment no area felt the unprecedented external pressures of 'twenty 'twenty four more acutely well.
Speaker Change: While we met our operational goals Medicaid Redetermination had a significant impact rich.
Speaker Change: Reducing our membership and revenue base and driving industrywide volatility. Despite these challenges we executed effectively.
Speaker Change: Advanced competitive transformation initiatives and took decisive action.
Speaker Change: The volatility and uncertainty are behind us and we are poised to further expand its the largest and most advanced <unk> platform.
Speaker Change: We are executing across the entire any empty value stream.
Speaker Change: From a transformed go to market strategy that continues to drive sales wins and strengthen our client relationships to high Tech and high touch solutions that enhance member satisfaction, while reducing transportation and operating costs.
For example in the fourth quarter.
Speaker Change: Our transportation and call center per trip expenses remained near record lows, demonstrating the effectiveness of our automation and AI powered trip assignment technology.
Speaker Change: As noted earlier, our payer clients faced extraordinary external pressures in 'twenty 'twenty, four and those challenges inevitably reverberated through us.
Speaker Change: While we continue to add new contracts and expand relationships the financial strain on our clients resulted in nutrition of select contracts.
Speaker Change: Unfortunately, two significant contract losses accounted for a net business loss of approximately $200 million in annual revenue for 2025.
Speaker Change: These losses were situational driven by market turmoil, rather than our competitive position our performance in fact, we were performing strong and both.
Speaker Change: They stem from clients caught off guard by rising cost pressures.
Speaker Change: One was a Florida based plan, we've discussed on past calls and the other was a national payer.
Speaker Change: That scaled back any M T services due to the financial strain from losses in its Medicare advantage business.
Speaker Change: In 2024, we secured approximately $90 million in new business from our managed care organization I will address state business next.
Speaker Change: And in just the first two months of this year, we are already outpacing that momentum with the win rate exceeding 90% in the M. C O segment over the past two years.
Speaker Change: But when we pursue and seal business, especially within Medicaid we win because our clients recognize the performance trust or execution and believe in our ability to drive continued differentiation.
Speaker Change: With a total addressable market exceeding 6 billion and an annual M. C O revenue base of $1 billion entering 2025.
Speaker Change: Our identified active pipeline already surpassed $300 million in annual contract value, notably this represents only new business within managed Medicaid and Medicare advantage, we expect to convert many of these opportunities in 2025 and materially recover from the net $200 million revenue attrition.
Speaker Change: Finally, we look forward to the contributions of our new director Alec Cunningham has historically has been with our one of our biggest customers.
Speaker Change: Can help make sure we understand our customers' greatest needs.
Speaker Change: Now turning to state Medicaid, where we have been the dominant player for decades. This segment remains a cornerstone of or any empty business. The state based total addressable market a subset of the 6 billion overall any empty market is $2 billion.
Of which we currently hold 39% or $780 million.
Speaker Change: As a reminder, state contracts are typically larger than MTO contracts and states prioritize proven performance.
Speaker Change: Local presence and large scale capabilities when awarding contracts in.
Speaker Change: In 2020 for only one state contract transition away from an incumbent and that was us.
Speaker Change: Winning the remaining regions in the northeast base State a testament to our track record in the existing regions and the strong preference for scaled incumbents.
Speaker Change: Looking ahead to 2025, we expect multiple state contracts to come up for renewal.
Speaker Change: Largely due to state delay rfps and mid market disruptions caused by Medicaid Redetermination.
Speaker Change: Our well established long term partnership with state agencies proven track record in quality and access and strong commitment to serving diverse population community small businesses and health care providers position us strongly for the successful retention of or any empty business.
I also want to provide.
Speaker Change: Additional detail on our state clients.
Speaker Change: As they emerge from the challenges of 2024, our largest client will likely take part in our Rfps in 2025, and they remain highly supportive of our services and the commitment we have to their statewide diverse communities.
Speaker Change: As with many other state clients, we have been collaborating with them on re underwriting their membership and we expect a price increase over the next few months.
Speaker Change: Beyond 2025, we anticipate new state opportunities emerging in 2026, providing a strong pathway to expand our differentiated state based any empty footprint and further solidifying our market leadership.
Speaker Change: We operate the broadest national network, enabling us to serve diverse population.
Speaker Change: Across urban centers and rural communities with specialized care options, including reach wheelchair accessible vehicles straw.
Speaker Change: Stretcher transport and high touch support for complex cases.
Speaker Change: Also as the largest any MTA user a rideshare services like our partners Uber and Lyft.
Speaker Change: We seamlessly integrate flexible cost effective options, while also leveraging public transit and family provided transportation when most efficient and preferred simply put we have the largest and most diverse transportation network a critical differentiator for large Ncos and state agencies. He can scale.
Speaker Change: Flexibility and reliability.
Speaker Change: Our technology driven platform combined with our hyper local team present.
Speaker Change: Also allows us to optimize trip assignments.
Speaker Change: Allocate resources efficiently and deliver high touch support when needed.
Speaker Change: This ensures every trip is assigned to the right mode of transportation, whether rideshare specialized transport or community based solutions, while maintaining cost efficiency and member satisfaction.
Speaker Change: This strategy is delivering tangible results, we look forward to the contributions of David Gonzales, who has spent the better part of his career optimizing transportation networks, and using technology and AI to drive efficiencies.
Speaker Change: We have consistently met or exceeded key quality metrics, including on time performance and Miss trip reduction.
Speaker Change: While also driving down cost our cost per trip moved from $42. In Q4 2023 to $40 in Q4, 2024, a significant driver, allowing us to achieve savings savings of $35 million in 2024.
Speaker Change: Beyond beyond transportation, we have digitally transform member engagement a significant portion of our membership now uses self service tools, including our top rated mobile app.
Speaker Change: AI powered call box.
Speaker Change: And integrated client facility portals. Additionally, we have seamlessly integrated with clients' systems, allowing them to manage transportation directly through an API connection to our benefits management platform.
Speaker Change: This ability is unique and of high value to our clients.
Speaker Change: Remember self service adoption have reduced our Calder trip ratio from 42% in Q4 of 23% to 34% in Q4 of 24.
By combining automation and self service and seamless integration, we are enhancing the member experience, but again also improving our cost structure.
Speaker Change: As we all know our shared risk contracts helped protect P&L margins post COVID-19.
Speaker Change: But they also created significant working capital challenges.
Speaker Change: With sediment cycles, extending from six to 18 months, we had to wait for reimbursement after delivering higher trip volumes at inflationary driven costs.
Speaker Change: This disconnect is less pronounced moving forward, we recognize the need to improve the cash flow conversion timing by shortening settlement to less than three months.
Speaker Change: Beyond cash flow improvements, we also aim to remove the win loss dynamic between us and our clients relating to trip volume and utilization risk as a result, our preferred contract model moving forward is a fee for service structure.
Speaker Change: Which minimises utilization exposure, while also significantly reducing settlement times.
Speaker Change: To ensure alignment on cost quality and efficiency. We have also incorporated performance based incentives into these contracts reinforcing mutual success for both us and our clients.
Speaker Change: Importantly, we are taking a measured approach to transition to these contract ensuring that we prioritize pricing and margin integrity over speed.
Speaker Change: We recognize the need for flexibility as client objectives and contract structures vary in a competitive market.
Speaker Change: We're working with our largest MTO partners and anticipate a continued shift towards this model to date, we have approximately 25% of our revenue moving to this contract structure.
Speaker Change: The shift to the shorter cash flow conversion structure well.
Speaker Change: Well neutralized significant working capital shift our uses of cash that we historically experienced again this is behind us.
Speaker Change: Our personal care services segment demonstrated steady improvement through 2024, ending the year on a strong note in the fourth quarter, we achieved adjusted EBITDA of $17 $5 million, which included a couple of million dollars of state based quality incentive.
Speaker Change: In 2024, we transitioned from a decentralized model to a centralized hybrid approach that combines centralized deficiencies with local market expertise.
Speaker Change: With new P. C. S leadership the team delivered more predictable results.
Speaker Change: Courted by our recap calibrated business management framework and rate increases that strengthens our financial position.
Speaker Change: These foundational improvements position us for greater stability and sustained growth in 2025 and beyond.
Speaker Change: Yeah.
Speaker Change: Our Pcs business, it's one of the largest personal care providers in the northeast this scale and density combined with a single operating platform and company wide engagement tools have created a differentiated and scaled platform in an industry that has historically been fragmented.
Speaker Change: We continue to believe in the long term value drivers behind serving the nations chronic and aging population and their preferred low cost home setting. This is where health care goes and we will continue to go.
Speaker Change: Well, while our transformation is still ongoing we have laid the groundwork for sustainable growth and 25 and beyond.
Speaker Change: We have direct access to thousands of high risk members.
Speaker Change: And for our payers and for buyers very hard to reach members.
Speaker Change: Coupled with technology and clinical oversight.
Speaker Change: Personal care is a very valuable service and this value will only continue to grow.
Speaker Change: And remote patient monitoring segment 2024 was a year of strategic investment and integration.
Speaker Change: Today, our mandate monitoring platform combined with stable reoccurring revenue stream for our Medicaid L. T. S. S per member alongside digital and clinical capabilities.
Our <unk> business provides a national footprint best in class customer service.
Speaker Change: And valuable engagement tools that help close gaps are vulnerable and at risk members.
Speaker Change: With the launch of our new chronic condition monitoring and virtual care management services, which include clinical oversight, we closed deals with three national managed care plan.
Speaker Change: Our investment has allowed us to expand beyond traditional monitoring by developing digital and clinical solutions that deliver the right care at the right time with the right resources.
Speaker Change: This service allows us to bill as it provider close gaps in care and expand the scope of services provided to appropriately meet the level of acuity needed based on the members' health condition.
Speaker Change: Importantly, these innovations allow us to unlock the opportunity available in MLR budget versus waivers or supplemental benefits.
Speaker Change: The first customer launched in Q1 and the second is expected to launch in early Q2.
Speaker Change: Based on the expected outcomes, we believe we will rapidly expand in the launch market and in addition on the market served by these managed care plans.
Speaker Change: Next I want to address our approach to guidance.
Speaker Change: Given the ongoing strategic review by the company Board and advisors, we have deliberately chosen not to provide formal fiscal 2025 guidance at this time.
Speaker Change: On one hand, we wanted to take a clear position.
Speaker Change: Demonstrating how we successfully navigated Twenty-twenty force challenges.
Speaker Change: And how we are building upon the strong foundation of our scale platform.
Speaker Change: On the other we remain laser focused to strategic investments and executing a divestiture processes with discipline to maximize long term value.
Speaker Change: With material portfolio changes ahead, introducing guidance now it would be premature as we carve out businesses and refine our strategic focus instead, our priority is strengthening our platforms in 2025, ensuring we exited the year with a solidified capital structure.
Speaker Change: And a more focused agile health care services company.
Before I turn the call over to Barb I want to summarize four key takeaways.
Speaker Change: What we.
Barb: We have the liquidity needed to execute our strategy with confidence.
Speaker Change: Two.
Speaker Change: We not only navigated unprecedented period in health care, but we emerged stronger.
Speaker Change: First all three of our businesses.
Speaker Change: This progress is evident in the underlying drivers and metrics across our segments.
Speaker Change: And three we exercised patience and prudent judgment.
Speaker Change: Ensuring we launched a sale process at the optimal time.
Speaker Change: Now with this stability restored and our platform solidified we are well positioned to maximize value.
And lastly, we will continue execution and deliver results through 2024, and beyond driving long term stakeholder value and shareholder value.
Speaker Change: With that I'll now turn the call over to Bob who will walk through our financial results.
Speaker Change: Bart.
Speaker Change: Thank you <unk> and thank you all for joining this evening's call.
Speaker Change: During the call I'll provide additional details on our recent capital raise highlight our full year performance and review our fourth quarter results in a little more detail.
Speaker Change: Starting with our capital raise on January 10th we raised $75 million of additional term loan priced at Telfer plus 750 maturing in January 2026.
Speaker Change: Subject to shareholder approval on March 13th 2025, we have secured an incremental $30 million of new second lien notes due in 'twenty 'twenty nine.
Speaker Change: This capital provides liquidity as we work to normalized working capital in the near term.
Speaker Change: Additionally, the covenant holiday for Q4, 'twenty 'twenty four for Q2 'twenty 'twenty five offers relief, while we complete our strategic review and focus on Delevering.
Speaker Change: Now turning to our full year highlights.
Speaker Change: As he indicated 2024 was a year of significant and unprecedented challenges.
Speaker Change: For the full year 'twenty 'twenty four revenue was $2.79 billion, a slight increase of just over 1%.
Speaker Change: P. C S full year revenue increased by four 1% driven by an increase in organic hours of one 4% and reimbursement growth of two 6%.
Speaker Change: Well any empty and monitoring revenue remained flat.
Speaker Change: Consolidated adjusted EBITDA was 161 $1 million.
Selecting a decrease of approximately 20%.
Speaker Change: Primarily driven by.
Speaker Change: A $28 million impact for Medicaid Redetermination.
Speaker Change: 16 million dollar impact from that any empty business development activities.
Speaker Change: A 10 million dollar impact from contract and utilization mix and any empty.
Speaker Change: Lower P C S and monitoring adjusted EBITDA driven by increased service expense.
Speaker Change: And investments in product technology, and innovation of approximately $8 million.
Speaker Change: These impacts were partially offset by net operational cost efficiencies of $35 million.
Speaker Change: Throughout 2024, we have focused on improving efficiencies.
Speaker Change: Or do you think costs and better aligning revenue with expenses.
Speaker Change: Efforts, we believe will lay a strong foundation for delivering results in 2025.
Speaker Change: Next a review of our fourth quarter results.
Speaker Change: In Q4, 'twenty 'twenty four total revenue was $702 $8 million flat compared to Q4 2023.
Speaker Change: Gains in our P. C S business were offset by slight declines in our monitoring and any empty segments.
Speaker Change: Consolidated net loss was $23 $5 million, while adjusted net income was $2 $7 million.19 per share.
Speaker Change: Adjusted EBITDA was $44 million or five 7% of revenue.
Speaker Change: Our any M. P segment, representing 70% of total revenue generated $495 million in revenue relatively flat year over year and sequentially.
Speaker Change: Average monthly members of $29 4 million decreased by approximately 11% year over year.
Speaker Change: But trip volume increased by eight 5% compared to a year ago, and one 3% compared to the third quarter.
Speaker Change: As health care utilization trends continued upward post pandemic and post redetermination.
Speaker Change: These trends resulted in a utilization rate of 10, 8% in the quarter and.
Speaker Change: An increase of 37 basis points sequentially, and 192 basis points year over here.
Speaker Change: Revenue per tractor decreased by about 1% sequentially due to trip mix.
Speaker Change: Gross margin decreased sequentially by 16 basis points to 11, 2%.
Speaker Change: Cost saving initiatives resulted in a reduction of total service expense per trip of approximately 1% sequentially.
Speaker Change: Purchased service expense per trip.
Speaker Change: Decrease by 1% quarter over quarter, and four 3% year over a year or.
Speaker Change: $240.42 driven.
Speaker Change: Driven by our multi modal initiative.
Speaker Change: Payroll and other expense per trip or $5.67 remained at record low levels, 18% lower than the prior year.
Speaker Change: Any empty reported an adjusted EBITDA of $27.6 million.
Speaker Change: With a sequential decline of 64 basis points in the adjusted EBITDA margin to five 6%, primarily driven by utilization effects, well Medicaid redetermination had minimal sequential impact on membership.
Speaker Change: For the year Medicaid Redetermination resulted in a loss of approximately 4 million members and $28 million of adjusted EBITDA.
Speaker Change: In line with our expectations.
Speaker Change: Our personal care segment represented 27% of total revenue.
Speaker Change: Revenue increased by 3% year over year and decreased by 1% sequentially to $186 $6 million driven by three 5% growth in revenue per hour slightly offset by eight 5% decline in the number of total hours.
Speaker Change: 1% of their revenue per hour increase resulted from a discrete payment of $2 million related to state based quality incentives.
Speaker Change: P. C S. Adjusted EBITDA was $17 $5 million or nine 4% of revenue, including the state based quality incentive payments, which we do not expect to reoccur at similar levels in 'twenty to 'twenty five.
Speaker Change: Remote patient monitoring represents 3% of total revenue, but 16% of our adjusted EBITDA.
Speaker Change: Revenue of $19 $2 million decreased by about 1% sequentially, primarily due to churn in our membership.
Speaker Change: RPM adjusted EBITDA was $6 $8 million with a 35% margin.
Speaker Change: Turning to the balance sheet.
Speaker Change: During the fourth quarter free cash flow was $24 $7 million.
Speaker Change: <unk> net cash provided by operating activities of $30.0 million and capital expenditures of $5 $3 million.
Speaker Change: We ended the year with a net contract receivables position of $95.2 million compared to $63 $1 million last quarter and $26 $5 million a year ago in.
Speaker Change: In 'twenty 'twenty four.
Speaker Change: Networking capital generated by contract receivables and contract payables decreased $68 $7 million.
Speaker Change: Driven by repayment of contract settlements during the year.
Speaker Change: As he indicated we're taking a thoughtful and strategic approach to renegotiating our shared risk contracts.
Balancing pricing terms and the timing of working capital.
Speaker Change: We ended the year fully drawn on our revolver with a balance of $269 million and with $113 million in cash.
Heath Sampson: As Heath mentioned due to our current strategic review, we are not providing guidance at this time.
Heath Sampson: However, we want to provide some color on our current view of the key business drivers.
Heath Sampson: For N and M. T. We expect contract losses, entering 2025 will be partially offset by new wins, which will be weighted towards the back half of the year.
Heath Sampson: We also expect positive movement in contract pricing and further improvements in operating and G&A cost efficiencies.
Heath Sampson: As a reminder, our N E M. T quarterly results are highly sensitive to the timing of 2025 pricing activities in the early part of the year and any shifts in timing may influence the overall financial outcomes.
Heath Sampson: In our P C S business.
Heath Sampson: We expect modest organic hours growth excluding program changes to the C. D Pap business in New York.
Heath Sampson: And it monitoring we expect modest volume growth driven by Medicaid L. T. S. S referral volumes and growth in clinical programs offsetting member attrition driven by Medicare advantage supplemental benefit related changes.
Heath Sampson: As we emerged from the extraordinary challenges of 'twenty 'twenty four we have made meaningful and much needed moves to streamline our operations improve our working capital dynamics and secure additional capital to better position the company for the long term.
Heath Sampson: I look forward to keeping you posted on our progress in the year ahead.
Heath Sampson: With that we'll open the call to questions operator.
Heath Sampson: Thank you.
Speaker Change: Ill be conducting a question and answer session.
Speaker Change: Like to ask a question. Please press star one on your telephone.
Speaker Change: A confirmation tone will indicate your line is in the question queue you.
Speaker Change: You May press Star two if you would like to remove your question for participants using speaker equipment. It may be necessary to pick up your handset before pressing the psyche.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Okay.
Speaker Change: Thank you. Our first question comes from the line of Brian <unk>.
Speaker Change: With Jefferies. Please proceed.
Meghan: Hi, This is meghan hold on for Brian.
Speaker Change: Hey, Megan.
Speaker Change: Hi, how are you at first as we think about Florida has exposure to Medicaid and as you've redone your any M. T contracts, if Medicaid budgets get squeeze given the current proposals coming out of D. C that we're seeing how are you guys thinking about how that translates into the fee for service contracts for the N M and tea business.
Speaker Change: Yeah. So.
Speaker Change: First off with our personal care and monitoring business. Those populations are primarily L. T S members.
Speaker Change: I guess people and we don't expect any cuts to that population where there is risk.
Speaker Change: Excuse me, an E&P business like like you said, but for US we expect to have any big key members go away.
Speaker Change: Because of a cut or because of eligibility changes those will be the most healthy.
Speaker Change: And they're likely not users of transportation.
Speaker Change: And the way it works, how we reset our our payments and how we're negotiating now.
Speaker Change: We look at that mix of members and the related population and that's when the.
Speaker Change: The re underwriting hot and when they were doing that so and in addition, if a big way off track.
Speaker Change: Okay.
Speaker Change: Risk is within our full risk contracts, which right now is about less than 20%.
Speaker Change: Within those contracts, we're in the middle of negotiating those resetting notes.
Speaker Change: Also if it was asked there are provisions.
Speaker Change: Around the world to ensure that we can reprice. So so yes, there will be pressures, but with our contract structures specifically within fee for service and shared risk.
Speaker Change: Sure and we expect the economics to reset if theres any pressure and then again in a full risk contracts representing about 20%.
Speaker Change: We expect that we will be able to reset those at the appropriate economics says we're in the middle of that right now.
Speaker Change: Okay got it and then just as a quick follow up can you give us an update on the asset sale process.
Speaker Change: Yeah.
Speaker Change: You've heard a lot in her script, where we are you know the good thing for US is that we are we are ready now coming out of the market and have done a lot around all of our platforms and specifically with the monitoring and Tcs. It wasn't monitoring instead, we've started we've had great discussions deep discussion and the value in the platform that we built we're excited about.
Speaker Change: Tony and I will get you there but.
Speaker Change: We will update you each quarter as we move along because we are really encouraged about about the interest and we'll be patient to ensure we get the right value.
Speaker Change: Thank you.
Speaker Change: Thank you.
Next question comes from the line of Pete I would say green with Deutsche Bank. Please proceed.
Pete Green: Hey, good afternoon, guys and thanks for taking my questions.
Pete Green: One is here on any empty like you talked about some good contract wins for 2025.
Pete Green: For the year.
Pete Green: It's changed quickly, but with the volatility in MAA can you just know.
Pete Green: The number of members that you finished the year in but any empty and also monitoring and sort of where it is today just wanted to see if there are any changes with your MA customers from.
Pete Green: At the end of the year to the beginning of this year.
Pete Green: Yes, so you're right.
Pete Green: We did have significant reduction in membership on M T.
Pete Green: You can see enough.
Pete Green: Page on page four of the supplemental deck.
Pete Green: This is 2024, you can see the number percentage of managed Medicare at 16%, but that'll be significantly less than 10%.
Pete Green: The right way to think about it Tito.
Pete Green: From the transportation.
Pete Green: That being said, we actually do have a lot of our pipelines with different.
Pete Green: Payers that are out there with our kind of rebuilt MA platform. So thank.
Pete Green: I do expect we're at the bottom of that and I expect it to uptick as we go through 2025.
Pete Green: So the other exposures you know within the <unk> market as a whole into many of our competitors were much more concentrated.
Pete Green: Judy.
Judy: MAA business and a lot of it went away as you know.
Pete Green: The two largest.
Pete Green: Layers completely stopped their purse benefit for.
Speaker Change: Key for us.
Speaker Change: One pair that we do have does see the value in it but they have cut.
Speaker Change: So we're about right.
Speaker Change: Right.
Speaker Change: But yeah.
Speaker Change: Yeah, I think we're a little bit less than that about 20%.
Speaker Change: That but it will come down a little bit this year, and what kind of level off probably in that 10% ish range veto.
Speaker Change: But you can see for us that was a big driver for our kind of flat growth, but were actually expecting that kind of cycles, we've been monitoring.
Speaker Change: We're outgrowing that.
Speaker Change: Cordless business as well as a new contracts with an innovation.
Speaker Change: So long story short, we're able to manage through the volatility in EMEA and then as we come into 'twenty five or do you think there's more opportunity there as well okay. Okay. So just to clarify for any empty <unk> to <unk> <unk> is for Cuba goods Stark right for where we should be thinking about first quarter with no. It wasn't.
Speaker Change: Yes.
Down here that we were at that percentage range.
Speaker Change: 16% Q4, and will it be kind of less than 10%.
Speaker Change: Enter Q1.
Speaker Change: Okay, great great.
Speaker Change: Thanks, a lot and then the 10-K just right before this call.
Speaker Change: The matrix had a net loss of sorry.
Speaker Change: $18 nine for the year I was hoping you could give an update on sort of sort of how matrix is operating fundamentally.
Speaker Change: That'd be great.
Speaker Change: Yeah with that management team has done over the last couple of years they've been in place a new team and one of the big things that they focused on ensuring that we've got the technology.
Speaker Change: To ensure that.
Speaker Change: Yeah.
Speaker Change: Liberty National Nursing platform as you can do things efficiently and effectively so really kind of built a good team and good.
Speaker Change: Good mousetrap there.
Speaker Change: But similar to what is happening across many.
Speaker Change: So services company, an attitude that had been exposed to and they they had the same challenges and have the same challenges in 25, because it's kind of the largest.
Speaker Change: Customer of theirs.
Speaker Change: That hurt the most.
Speaker Change: We have a good team a big process, but we're gonna be patient then sure we work through this kind of lower membership time.
Speaker Change: So we're patient without it you'd probably next question was what's the what's the strategy with us and Frazier on on a potential sale and that's not a priority right now we will update you.
Speaker Change: As we go through each quarter, our priority is to support the management team and it sure does.
Speaker Change: Great asset executes it gets back to growth.
Speaker Change: Great and then last quick one from me on Tcs fourth quarter negative organic hours was that.
Demand issue or is that supply issue.
And kind of how should we be thinking about that sort of that sort of into 'twenty 'twenty five thanks guys.
Speaker Change: Okay.
Speaker Change: But it's a little bit about seasonality in.
Speaker Change: In Q4.
Speaker Change: So the P C S hours and a little bit of a mix shift for us.
Speaker Change: Yeah, So tcf hours growth year over ear schools and sell it in line with market actually.
Speaker Change: What you're saying.
Speaker Change: Sure.
Speaker Change: So we expect that to continue into 2025 for us the big thing with Tcs.
Speaker Change: To continue to execute on what the team has done there.
Speaker Change: For us it really is a floor for the Pennsylvania.
Speaker Change: Pennsylvania reimbursement rate increase that's actually you don't plan to get but we do expect that will happen sometime over the next call. It 12 months, that's a critical part to our to our close strategy.
Okay.
Speaker Change: That business itself, what we've done over the last couple of years.
Speaker Change: Set up this unique platform, where you can.
Speaker Change: Start by touching an acquisition strategy and many of our competitors have done well and we've done that and built that platform again, that's obviously not and we're gonna be doing we're going to be ensuring we're executing and potentially sometime down the road. If it makes sense that monetize that asset alright.
Speaker Change: Alright, great. Thanks, so much.
Speaker Change: Right.
Speaker Change: Thank you. Our next question comes from the line of Bob Lubbock.
Speaker Change: Securities. Please proceed.
Lead: Hi, good afternoon, its actually lead you go to for Bob.
Speaker Change: Yeah.
Speaker Change: Hi, So I guess.
Speaker Change: During your remarks, you mentioned on the N M. P side your largest state contract is going to be up for RFP. In 2025, and then you also mentioned you expect a price increase over the next few months I assume those are two separate things and to the extent that they are as you look to the RFP can you give us any sense for.
Speaker Change: Timing of that RFP, and if you expect any change in the contract structure.
Speaker Change: On a potential renewal.
Speaker Change: Yeah, I don't expect any change in the contract structure that we've had that structure for many years and again, we've had with this client for many years I was just up there a few weeks ago meeting with them in the Medicaid director.
Speaker Change: Well have a strong relationship.
Speaker Change: I'm very optimistic.
Speaker Change: To review that.
Speaker Change: And then the pricing the pricing just like all the clients.
Speaker Change: Full risk contracts in our state contract at the same.
Speaker Change: Reset coming out of Redetermination.
Speaker Change: And that's why we need to re pricing should be in line with the proper economics to ensure we're delivering so it is separate.
Speaker Change: Expect to get the pricing here like I said.
Speaker Change: Couple of months and then when the RFP that we only have two rfps in the state business that we have now.
Speaker Change: We'll see.
Speaker Change: But we do expect that it will come here relatively soon in the next couple of months again for us.
Speaker Change: Feel good about it.
Speaker Change: And we will update you once we get.
Speaker Change: Get the Rfps in the door and when we renew and win them.
Speaker Change: Great and then just one more on cash flow I know, we're not giving guidance for 2025, but as I think about the cadence of free cash flow throughout the year, specifically related to the prior your prior comments around sort of a first half usage and then back to positive free cash flow in the back half is there any change to that.
Speaker Change: No you hit it exactly we're consistent with that and maybe it maybe a few more highlights that may help you kind of model stuff up because we feel really good about.
Speaker Change: We exited the.
Speaker Change: The year end or.
Speaker Change: Our confidence in understanding our contracts one moving to the right fee for service contracts and then also as we as we continue to settle up on our shared risk contracts. The volatility that's out there. So we have good understanding and Christopher predictability.
One thing that I will say we'll.
Speaker Change: Probably get this question later on is that our contracts either home.
Speaker Change: And our contracts payable, which you can see I think we are in the supplemental deck.
Speaker Change: On page 14.
Speaker Change: We're in a large.
Speaker Change: <unk>.
Speaker Change: And the right way to think about that that receivable, we're actually going to get.
Speaker Change: Approximately 30% of that will have a benefit from contracts with Super Bowl.
Speaker Change: Contracts payable.
Speaker Change: In 2025, so that's great and that new I know theres been a lot of confusion.
Speaker Change: Confusion and lack of predictability around that that's probably the most beneficial items and even still we will have still shared risk contracts.
Speaker Change: We're planning for that this year, though we're hopeful that we'll get more converted to fee for service and I expect even even in 2006.
Speaker Change: Kind of unwind the remaining benefit.
Speaker Change: What's that delta as well so that's an important point that I think will help fill out the.
Speaker Change: The big open item, but a lot of people have because everything else is pretty straightforward maybe the only other thing that will help you model and cash flow, while giving us. It goes to my comment before why I'm really confident in our ability to.
Speaker Change: To help with liquidity.
We also have kept that.
Speaker Change: Typically we've been around $30 million were actually a little bit higher planning for that this year to ensure that we are investing in our platform across all across all our services, but specifically within <unk> to ensure that we have to do.
Speaker Change: So long story short those are a couple key points.
Speaker Change: That gave us confidence that maybe it will help a lot about why we feel good about our ability.
Speaker Change: To generate cash and that have liquidity for the full year.
Speaker Change: Great. Thanks very much.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Raj Kumar with Stephens. Please proceed.
Raj Kumar: Hi, I, just sticking to any M. T. I'm just you know just kind of on the question on the 35 million of savings generated in 2020 for just kind of I'm trying to get that number in terms of how that you know kind of close it up to the cumulative target that you guys kind of gave out in the back half of 'twenty three.
Raj Kumar: And you know kind of what what's kind of remaining.
In 2025.
Raj Kumar: Oh, okay.
Raj Kumar: Or maybe see if I heard your question correctly. So yeah, we had $35 million kind of bridging from 'twenty three to 'twenty four.
Raj Kumar: And that was what we expected.
Raj Kumar: Cross with our transportation expense as well as our automation within our.
Raj Kumar: Calls the strip ratios.
Raj Kumar: So that 35, we actually run rate that you would add on another kind of $8 million to $10 million run rate.
Raj Kumar: Going into 2025, and again actually we're not where we expect to get in get out at the beginning of this journey. We expect we will continue to get cost out from incremental actions.
Raj Kumar: Well, that's the math 35 this year our run rate is call it call. It a day.
Raj Kumar: Uh huh.
Raj Kumar: 9 million better on that just run rate, even though the total 25.
Raj Kumar: Okay, and then as a quick follow up I think you spoke to maybe 25% of kind of your revenue now being shifted towards fee for service. So just clarification. That's as of like quarter to date are and you know what or is that like full year and kind of how are we how should we think about the transition over 'twenty.
Raj Kumar: Five and 26 from like the shared risk fee for service.
Raj Kumar: Yeah. So from what we have planned but I think this is the right way to do this with only planning for having that 25% converted to fee for service.
Raj Kumar: Yeah.
Raj Kumar: Most of our clients that are on shared rescue when the middle of those discussions and I think let's see the value in that but we're not planning for that because it's the prudent thing to do.
Raj Kumar: For working capital purposes, so even with that again I feel good about our liquidity standpoint.
Raj Kumar: So and that all happened in Q1 does that 25% a one one kind of went a little bit later, so that will that will flow through that get back to.
Raj Kumar: On the call I had earlier and maybe this will help bring and what the impact is in the simplest way to do that again is that we expect again.
Raj Kumar: In 2025.
Raj Kumar: From our net contracts was achievable. So we won't be using capital will be gain capital within those two and part of that is because of that.
Raj Kumar: Integration of that 2% or 25%.
Raj Kumar: Okay, and then one last one on just a just kind of how do we think about the year over year margin progression just all the moving parts.
Raj Kumar: Kind of given the contract losses and end, but partially offset by new business.
Raj Kumar: And then the framing of you know shared risk fee for service. So maybe you can help US bridge you know year over year, you know margins for that any M tea business.
And how we should kind of think about it yes.
Raj Kumar: Right.
Raj Kumar: To think about it because I know we haven't provided guidance. Yeah, 25 is really because of that lost business.
Raj Kumar: And yes, we are continuing to add new business and yes, we'll continue to get cost out, but I would model kind of the same margin as the right way to think about it but I do as we exit 'twenty five.
I do expect margins to normalize to what we saw.
Raj Kumar: Historically.
Raj Kumar: Most of that 10% to 12% of EBITDA more than that 8% to 10% is the right way to model.
Raj Kumar: As you go into 2026 for ADM to be relatively flat year over years.
Raj Kumar: Gosh.
Great. Thank you.
Raj Kumar: Yeah.
Speaker Change: Thank you there are no further questions at this time I'd like to pass the call back over to you for any closing remarks.
Speaker Change: Well I'd like to have a special thanks to our teammates.
Speaker Change: We have endured a lot of sacrifices of what's surprising all of US. So thank you to all the teammates out there and of course, thanks to our lending partners and are committed equity holders.
Speaker Change: Really appreciate everything that's been done and I look forward to Q1, and it's showing the progress that we've made off the stable base. So I appreciate it have a wonderful night and we'll talk to you all soon in the next quarter.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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