ModivCare Inc.

Q3 2021 Earnings Conference Call

11/5/2021

spk06: Greetings and welcome to the Motive Care Incorporated third quarter 2021 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jonathan Bush, Senior Vice President, General Counsel of Motive Care. Thank you, Jonathan. You may begin.
spk02: Thank you, operator. Good morning, everyone, and thank you for joining MotiveCare's third quarter 2021 conference call and webcast. With me today from the company are Dan Greenleaf, President and Chief Executive Officer, and Heath Sampson, Chief Financial Officer. I would like to remind everyone that during today's call, the company's management will make forward-looking statements under the Private Securities Litigation Reform Act. Those statements involve risks, uncertainties, and other factors that may cause actual results or events to differ materially from expectations. Information regarding these factors is contained in today's press release and in the company's filings with the SEC. We will also discuss non-GAAP financial measures in an effort to provide additional information to investors. These measures should not be considered in isolation from their most directly comparable GAAP financial measures. A definition of these non-GAAP financial measures and a reconciliation to their most directly comparable GAAP financial measures is included in our press release and Form 8K. We've arranged for a replay of this call, which will be available approximately one hour after today's call, on our website at motivecare.com. This morning, Dan Greenleaf, our Chief Executive Officer, will begin with opening remarks, after which Heath Sampson, our Chief Financial Officer, will provide the details of our financial results. Then we will open the call for questions. With that, I will turn the call over to Dan Greenleaf. Dan?
spk09: Thank you, John. Good morning, everyone, and thank you for joining us today. In the third quarter, we made significant progress executing on our strategy to transform motive care into a one-of-a-kind, integrated supportive care company with solutions focused on addressing the social determinants of health. On September 14th, we completed the acquisition of CareFinders, adding a highly complementary leader in the Northeast market for a personal care segment. On September 22nd, we completed the acquisition of VRI, bringing a first-rate remote patient monitoring and medication management company into our fold. Throughout the quarter, we continue to automate and modernize our non-emergency medical transportation, or NEMT, business, and we advance the development of an innovative meal delivery offering. As the market transitions to value-based care, addressing the social determinants of health for our nation's most vulnerable patient populations is critical to promoting positive outcomes and reducing health disparities. We are driving MotiveCare's organizational transformation with a focus on advancing these efforts by removing barriers to care, enhancing the client and patient experience, reducing the cost of care, and improving outcomes. Our team members and partners play an integral role in the communities where we live, work, and serve. And together, we're confident in our unique position to impact the future of healthcare. Turning to our business segments, the acquisition of CareFinders combined with Simplura creates one of the largest personal care platforms in the country with approximately 16,000 caregivers delivering roughly 30 million hours of care annually to approximately 20,000 patients. Scale and density matter in this business. We are leader in seven states in which we operate with approximately $650 million of pro forma revenue as reference to the time of the CareFinder's acquisition. With our scale and density, we can cover large geographies for the payers and states we serve and expand access to personal care. We continue to see robust demand for our personal care services, both in the short term and long term. This demand is driven by the escalating trend of care moving away from institutional settings and into the home, which delivers lower costs, better quality of life, and improved health outcomes. While the strong demand for personal care services is readily apparent, we have experienced muted hours due to the continued labor supply challenges during the pandemic, consistent with others in the industry. We believe that depending on the region, our personal care hours are running 10 to 30% low pre-pandemic levels due to the shortage of caregivers in the workforce. As the impact of labor shortages dissipates, we foresee a meaningful step up in our personal care billable hours and EBITDA run rate from current levels over the coming quarters. We remain optimistic regarding the long-term growth of our personal care segment, as the personal care is a $55 billion market that is highly fragmented and expected to grow rapidly, presenting an attractive opportunity for us to generate organic and inorganic growth with a disciplined approach to tuck-in acquisition. Moving to remote patient monitoring, or RPM, the acquisition of VRI is also integrating nicely in the mode of care as a new value-added offering for payer states and patients. Remote patient monitoring represents an $8.5 billion total addressable market and is only 13% penetrated today. The pandemic has led to an acceleration in digital health and highlighted the value of alternative solutions to in-person care. RPM has made it possible for patients to safely remain at home while their health continues to be supervised. VRI's best-in-class RPM platform is device-agnostic and supports aging in the home for the elderly and care in the home for the chronically ill. By proactively monitoring the health data of more than 170,000 individuals, the team members of VRI's two 24-7 care centers help alleviate pressure pressures on the health system, by preventing emergency room visits and hospital stays, and removing traditional barriers to care. We believe there is a tremendous opportunity to grow VRI's existing revenue through cross-selling RPM across our payer base, which overlaps with 10% of MotiveCare's top clients. Our teams have partnered with their respective counterparts and engaged in some very productive early conversations with our customers. The financial profile of VRI is very appealing, with mid-teens reoccurring revenue growth and the opportunity to accelerate even more while also generating a robust EBITDA margin. By leveraging VRI's data analytics and technology, we expect to differentiate our in-home services and bridge the gaps to care through a more connected care experience. Moving to our NEMT business, this quarter we continue to modernize and automate our national transportation network. Digital transformation has benefited from the Wellride acquisition, which brought us an industry-leading transportation routing technology. In conjunction with our user-friendly Rider driver app, which brings value to our patients by expanding access and reducing complexity, we believe we have amassed and built the strongest technical platform in the industry that further sets us apart from the competition. We continue to benefit from our automation initiatives and other operational enhancements, which we refer to as Project Storm. These initiatives include deployment of IVR, IVA, and workforce management solutions in our contact centers, reduction of transportation waste for ineligible riders, utilization of BPO services, more effective management of cost overrides and surge pricing, and streamlining of our real estate footprint. While the Project Storm initiatives have been fully implemented, there are additional opportunities to optimize our NEMT processes and improve automation, such as improved transportation routing and continued automation of manual processes. We refer to the second group of initiatives as Project Lightning. We will be implementing Project Lightning over the next year. We expect to realize additional benefits from this initiative following the implementation. Looking at our NEMT commercial organization, We have been pleased with our recent investments in both our sales and account management teams as we've retained 100% of our MCO contracts to date and are well positioned to win some very large contracts opportunities in the pipeline. We're also pleased to see the NEMT member growth in the high single digits this quarter. Every NEMT ride we provide enables access to healthcare for a member of our community's most vulnerable populations. Given this important backdrop, we continuously strive to expand and strengthen our transportation provider relationships. We are a mission-driven organization focused on improving the health and well-being of people and communities we serve, and our transportation providers play an important role in this. We are working hand-in-hand with our community-based transportation providers and further building our relationships. In this regard, we have established a Transportation Advisory Council focused on listening to the voice of our transportation providers and acting on their feedback to enhance their overall experience working with motive care. We're grateful for the integral role our providers play in helping us maintain a vibrant transportation network. Moving to our emerging meal delivery business, this quarter we delivered our nutritionally tailored and culturally sensitive meals MCO members and internal team members under our initial programs. And we are very excited by our sales pipeline, which includes multiple national MCOs. We have partnered with a national food service provider, and we believe that our innovative, technology-enabled meal delivery offering will disrupt the current marketplace by working to address our country's food insecurity issues. We continue to believe that our meal delivery business has the potential to generate $500 million in revenue for us within five years. Motive Care has brought together a complementary and synergistic group of businesses that we believe has accelerated our position to be a highly relevant player in the future of healthcare. Our scale, reach, and relationships with our existing channel of approximately 30 million patients, or 9% of the US population, positions us well to close the gaps and access the care holistically. while also providing multiple avenues for sustained growth. Further, a holistic model gives us the potential to address patients' overlapping needs rather than one-by-one. With NEMT, personal care, remote patient monitoring, and mail delivery all under one umbrella, we have a multitude of cross-selling or cross-care opportunities, as we intend to own the last mile and own the home. and remain in an excellent position to serve our states and payers with a one-stop shop experience that is constantly being enhanced by data and analytics resources. Our view is validated by the feedback we have received from our client advisory board. Recently, we have been engaged by our payer partners in meaningful value-based discussions to develop an integrated supportive care pilot. We believe that our integrated supportive care strategy will drive sustainable and profitable growth at MotoCare while also creating long-term value for shareholders. Lastly, I am grateful for our nearly 30,000 team members who are on the front lines every day bringing equity, hope, and healing to the patients we serve in our mission to deliver better access to care for all. I'm incredibly excited about the long-term growth journey we're embarking on as an integrative supportive care company addressing the social determinants of health and I look forward to sharing our progress in the quarters to come. With that, I'd like to turn it over to Heath Sampson, our Chief Financial Officer, for a review of our third quarter financial results. Heath?
spk08: Thanks, Dan. Starting with our consolidated third quarter financial results, we recorded revenue of $493 million, adjusted EBITDA of $44 million, an adjusted net income of $23 million, or $1.63 per diluted share. On a GAAP basis, we had a net loss from continued operations of $8 million, or a loss of $0.53 per diluted share. NEMT segment revenue in the third quarter of 2021 was approximately $373 million compared to $321 million in the prior year period. The year-over-year increase is primarily attributed to higher trip volume relative to the third quarter of 2020. While trip volumes are up roughly 20% compared to last year, trips are still approximately 20% below pre-pandemic levels. As discussed last quarter, approximately 85% of our revenue is derived from our capitated or at-risk contracts, and 15% from non-capitated or non-risk contracts. which are primarily fee-for-service. Within our at-risk contracts, 45% of the revenue is from full-risk capitated contracts, where we are paid a fixed fee per member per month and assume full responsibility to manage our respective transportation costs regardless of trip volume. In comparison, reconciliation and rebate capitated contracts represented 40% of total revenue. As a reminder, the reconciliation and rebate contracts have provisions that either limit or increase our revenue based on trip volume and or profit margin. Simply stated, we are only partially at risk for these capitated contracts. Service expense for the NEMT segment, which includes all direct costs related to transportation providers, our contact center operations, and other operational functions, was $303 million compared to $236 million in the prior year. The increase was driven by higher service expense costs associated with higher trip volume and related contact center activity. Even though revenue is up due to higher trip volume, our margins on our full risk contracts have decreased as we are now paying for the higher trip volume. As a reminder, we have expected this to happen. And again, this is how the contracts with our customers are designed. Additionally, and as discussed before, our cost per trip or unit cost has increased throughout the pandemic. Even though we are experiencing margin improvement because of the lower trip volume during the pandemic, we are also experiencing partially offsetting increases in unit cost because of the pandemic. The increase in unit cost has been driven by our transportation providers' tight supply of drivers, which is prevalent across the entire transportation sector. As a data point, For the Bureau of Labor Statistics, the consumer price index for the broader transportation industry has increased by 4.4% since last year. And various public disclosures from Uber and Lyft echo the tight driver supply. That being said, our model and industry are unique because we have more predictable and recurring trips, which makes it easier to match supply and demand, especially as we continue to digitize our network. Third quarter NEMT adjusted EBITDA was $34 million in 2021, compared to $55 million in the prior period. The decrease was primarily due to the higher service expenses mentioned previously. Adjusted EBITDA margins of NEMT were 9% in the third quarter, which is in line with our long-term NEMT margin expectation of 7% to 10%. While we expect TRIC volumes will continue to increase in the fourth quarter and throughout 2022 steadily, we expect to maintain 7% to 10% EBITDA margins going forward as operational initiatives and platform modernization efforts offset higher trip volume and full risk contracts. NEMT adjusted EBITDA in the fourth quarter is expected to be comparable to our third quarter EBITDA. As Dan mentioned, we remain focused on optimizing operations from the modernization and automation of our contact center and transportation processes, which we call Project Storm and now Project Lightning. While we have fully implemented the Project Storm initiatives, the full $50 million of savings have been obscured by the lingering impacts of COVID-19 and the related tight labor supply. However, the specific actions have been taken. For example, BPO outsourcing will have approximately 1,500 agents by year-end and account for 65% of our call volume. Real estate reductions have already happened and will continue to happen. Interactive voice response containment in our contact centers is approaching industry standards. Ineligible rider process improvements are in place and being measured consistently, and various other initiatives are also in place. As we come out of COVID and the related labor challenges, these savings will more clearly show up in our go-forward cost structure. Our journey to modernize and automate will continue into 2022. We expect more savings as we automate and digitize our processes for making reservations, changing or canceling trips, routing drivers, processing payments, processing claims, and performing other non-value manual tasks. Turning to our personal care segment, third quarter service revenue was $119 million. We closed CareFinders on September 14th, which contributed $9 million of revenue and an immaterial amount of EBITDA in the quarter. As we mentioned at the time of the acquisition, CareFinders generates roughly $200 million of revenue annually. Available hours for a combined personal care segment have remained relatively consistent quarterly throughout 2021. Difficulties with caregiver recruitment because of the pandemic has limited our ability to service the strong demand that exists. While the expiration of unemployment incentives had a short-term benefit to recruiting, vaccine mandates for healthcare workers in New York, Pennsylvania, and New Jersey have temporarily subdued the incentive roll-off. Due to our concentration in the Northeast, we currently don't expect a sequential uptick in billable hours in the fourth quarter, given these recruiting challenges, as well as the fact that the fourth quarter is a slower period for recruitment due to the holidays. Personal care adjusted EBITDA was $10 million in the third quarter, flat sequentially compared to the second quarter of this year. Personal care adjusted EBITDA margins were 9% in the third quarter, consistent with the prior quarters in 2021. We keep a tight rein on costs in the personal care segment as hours remain below pre-pandemic levels. We expect that personal care margins will stay below the 10% to 12% normalized range in the fourth quarter. Still, they are expected to improve into our targeted range over the next year as hours begin to normalize and we realize cost synergies from integrating our personal care acquisitions. Turning to our remote patient monitoring segment, we closed on our acquisition of VRI on September 22nd. So this segment was also financially immaterial for the course. We are often optimistic about the strategic and financial benefits from this transaction. As previously mentioned, VRI generated $56 million recurring revenue for 12 months ended June 30, 2021. Revenue is growing in the mid-teens, and we expect long-term EBITDA margins to be in the mid-30% range. When combined with personal care, meals, and transportation, Remote patient monitoring represents an ideal tech-enabled solution for our members, as well as a valuable cross-selling opportunity across our national payer base. Consolidated cash flow from operations was $21 million in the third quarter of 2021, while year-to-date cash from the operations was $190 million. MotiveCare's strong year-to-date cash flow has been driven in part by an increase in our NEMT reconciliation and rebate contracts payable. While we continue to accrue incremental payables each quarter, we expect to settle a meaningful portion of these payables during the fourth quarter. During the third quarter, MotiveCare issued $500 million of 5% senior notes due in 2029. Proceeds from this debt issuance were issued to fund the $315 million acquisition of VRI and for general corporate purposes, which included the full repayment of borrowings on a revolver, which was used to partially fund the $340 million acquisition of CareFinders. We ended the third quarter in a solid financial position with $127 million of cash and cash equivalents in an undrawn $225 million revolver. Net leverage pro forma for the acquisitions of VRI and Carefinders was 3.4 times at September 30th, which is in line with the mid-three times pro forma net leverage expectation at the time of the simpler acquisition announced in September 2020. We remain committed to maintaining a strong balance sheet, and we are reiterating our net leverage target of three times. Turning to capital allocation, Motive Care has been very active over the last two years on the M&A front with the acquisitions of VRI, Carefinders, Wellride, Templura, and National MedTrans. These acquisitions have accelerated Motive Care's transformation into a technology-enabled supportive care company with long-term revenue growth in the mid to high single digits. But these transactions have also delivered meaningful returns on invested capital and earnings accretion due to the CapEx-like nature of these businesses that generate powerful cash flow. We continue to evaluate a robust pipeline of acquisition opportunities. We remain disciplined in our programmatic approach to acquisitions and are focused on delivering meaningful returns for shareholders while optimizing capital and maintaining a strong balance sheet. Touching on Matrix, in which we hold a 43.6% equity investment. Matrix's third quarter performance was primarily impacted by a decline in their clinical solution segment, which includes employer health, clinical trials, and clinical apps, due to a faster-than-expected rollout of vaccinations nationally, which decreased COVID-related revenue, as well as due to the timing of new business wins. Revenue in their clinical care segment, which is primarily comprised of comprehensive health assessments, continued to perform well during the third quarter, with double-digit year-over-year growth in volumes helping to drive over 20% growth in clinical care revenue. For the third quarter of 2021, Matrix's consolidated revenue was $78 million, compared to $141 million in the third quarter of 2020. On a consolidated basis, Matrix recorded adjusted EBITDA of $3 million compared to $54 million for the third quarter of 2020. Due to the lower clinical solutions revenue, as well as the continued investments in staffing ahead of the new clinical solution wins. While near-term profitability has been impacted by market headwinds and planned investments to support future growth and diversification, Motive Care remains encouraged about the opportunities at Matrix, as the company has diversified beyond the comprehensive health assessments business. We encourage and align with our investment partner to ultimately realize the substantial value in Matrix. Lastly, as we mentioned last quarter, we expect to provide full-year 2022 guidance during our 2021 year-end results call in February. Consistent with previous statements, our long-term operating objectives remain as follows. NEMT revenue growth in the mid-single digits with adjusted EBITDA margins of between 7% and 10%. Personal care revenue growth in the high single digits with adjusted EBITDA margins between 10% and 12%. And remote patient monitoring revenue growth in the mid-teens with adjusted EBITDA margins in the mid-30% range. This concludes our prepared remarks. With that, operator, please open the call for questions.
spk06: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from Bob Labick with CJS Securities. Please proceed with your question.
spk03: Good morning. Thanks for taking my questions, and thanks for all the information. A lot of detail this morning.
spk09: You're welcome, Bob.
spk03: Great. So I want to start with NEMT. And you gave us some good information, obviously, on year-over-year utilization and profitability and things like that. Could you talk a little bit sequentially about how utilization trended from Q2 to Q3, maybe how that impacts the margins in the quarter, and then also how much, for lack of a better term, contra revenue is still in the quarter trying to find a steady run rate when utilization returns to normal levels for revenues?
spk09: Hey, so Bob, this is Dan. So, you know, the thing on the transportation piece, utilization is ticking up incrementally. And so there wasn't any, I think, you know what I would say, substantive swings. I think what we were, what we've been enduring is, for the most part, is related to driver shortages. And so if we look at our rerouting trips, you know, traditionally, driver shortages represent 10% of that number. The number's as high as 22% now. And that plays a role in terms of supply and demand. And I think that's it. And as a result, we've seen some unit cost increases. The good news is, on all of this, is that the unit cost increases we think are temporal, that there is opportunity as the network gets healthy again and we've got a large network initiative going on that we believe will drive down the unit costs. The other thing I'd also like to point out is that Project Storm and Project Lightning are rocking and rolling. And as we've talked about, we have a target on that is $100 million. And if I was thinking about the business, I would be focused on those kinds of things that I would describe are in our control. I also believe, though, that the unit cost increases that we've seen are something that will resolve themselves as labor comes back into the workforce. And, you know, we've got a pretty strong initiative going on right now with building back our network, our network health. And I'm confident that will play a role in also decreasing costs. That's where I'm on that one. Do you want to answer the other one?
spk08: Yeah, yeah. So for utilization, we put in the script just to give some context. From last quarter, we're about 20% higher. And then I also said we're about 20% less than our high point pre-pandemic. Since first quarter, that slope has been pretty steady. We actually expected to increase in this quarter and the fourth quarter, but it's been pretty steady. So I think that slope Well, we'll stay the same way as it did for Q3, Q4, and probably into Q2. So manageable, hopefully. But that's trip bombing utilization on top of Dan's comments around Unicost.
spk03: Got it. Okay. Both of those are super helpful. I appreciate that. And then I think, again, you gave us a lot, which is great. You said you've retained all your contracts and you're bidding on a bunch more. Can you just give us a sense of the market out there right now and, you know, maybe the opportunity ahead of you with potential new contracts?
spk09: Yeah, I mean, I would say it's frothy. I mean, I think we're, you know, we're in many respects in a pole position to win these contracts. And, you know, some of the things historically, Bob, that has gotten in the way of, you know, our business expectations, if you will, were around our technology platform. And I'm pretty confident that I can say we've got a best-in-class technology platform now. And not to mention, we're really the only national provider of services. There really isn't a state that we don't have a significant presence in. And as these RFPs roll out, I think we're in an excellent position to win them. And I also would mention that You know, a big part of our business, as you know, is 50% of it is payer-based. And, you know, I think our relationships with our payers are pretty exceptional. You know, we've put a lot of effort in there. We built out an account management team. We've got a client advisory board that consists of many of our large payer states and hospital systems. And they are... actively involved in the evolution of the company and advising us on things we need to do to make the company better and the member experience better. So I think we're really well positioned. We haven't gone on record on what the order of magnitude is, but I would tell you it's material, is what I would say. And again, I think we're very well positioned in those states and with those payer relationships to win many of them. So I don't know, Heath, anything else you would add?
spk08: We'll know on those this year. The business will come on for those in the latter part of, mid and latter part of 22, for the larger ones that are out there right now.
spk07: But we'll know that, and hopefully we'll be able to update you guys next quarter.
spk09: You know, I'd also like to point out, I mean, there's things also we're doing, Bob. I mean, if you look at our member experience scores, between the fours and fives, we're at, like, 90%, which, you know, if you look at the statistics out there, that's on the upper end of member experience. So our experience with our members is significant. I would also say that, you know, we put recently together, I mentioned it, but I can't – underscore how important this is, is transportation advisory council. We brought in nine of our transportation providers from around the country. We've never done that before, and they're actively involved in how we evolve our relationships with them. And that's something that I think historically the company had treated, you know, as kind of a necessary evil, for lack of a better description. I'm a little embarrassed to say that, but I think that's how I would sum it up. And, you know, in fact, we're going to be in another part of the country with our ELT off-site next week, and every member of the executive leadership team will be spending a morning riding with their transportation provider, and then we're all going to collectively get back together and provide feedback. We also launched a product called Qualtrics. We're this week, in fact, that we're getting real-time feedback from our transportation providers, too, and we've got as many as almost 400 already 400 examples of where we're getting feedback. So I guess, you know, Bob, I guess at the end of the day, I just think we're, this town and gallon relationship that we've had is being significantly enhanced, particularly with the transportation providers, transportation provider networks. We're really focused on building out community-based transportation providers. That, I know, goes a long way also with our payers. We're In fact, launching Transportation University in December, where we're bringing in minority business owners from the Illinois area and kind of giving them the playbook on how to be successful. So we've got a lot of great stuff going on here, Bob, that I think positions us exceptionally well now and well into the future.
spk03: Okay, great. That's super. I will jump back in queue. with questions, but thank you very much.
spk02: Of course.
spk06: Thank you. Our next question comes from Brian Tanqua with Jefferies. Please proceed with your question.
spk07: Hey, good morning, guys. I guess first for you, I know you talked about kind of like Q4 expectations. Just some clarifications there. Q4 expectations, the payable settlement in Q4, just any color you can share with us in terms of on the guidance effectively for Q4, kind of like puts and takes that we should be thinking about, and then on the payable settlement, how do you think any level fall out on that one?
spk08: Yeah, so from an EBITDA perspective, from an NEMT perspective, fairly flat, like I said in the call. And then the other acquisitions that are coming on with VRIs, And personal care, those are going to be performing as expected and as we disclose, and I get a good proxy for that is how we disclose the TTMs for those. So feel really good about the consistency of the EBITDA side on all the segments that have come in. You know, again, personal care we'll probably talk about, but that continues to be depressed, and that's why we're in that high nines, tens range. for the next quarter. And then to do with the payables and consistent with what we said before, there's a few large customers within there that make up a big chunk of the balance and we expect to pay a chunk of those next quarter as well as through the year. That being said, with where utilization and trip volume is, those payables continue to build as well. So I feel really good about our cash position, similar to when we made these deals. So hopefully that's helpful.
spk07: No, it is. Thank you so much for that. I guess my follow-up, Dan, you know, as we think about labor, everyone's obviously focused on it. But maybe, you know, personal care, we know the issues there. But as I think about transporting, you called out driver shortages. Maybe if you can help us think through what the economic structure is of your relationship with your subcontractors effectively and are they able to pass on to you the cost of labor or is it a set rate and you're having to give them incentives or higher rates just to drive the supply? Any color you can share with us in terms of how that all works and how do you think your discussions with them are shaping up in terms of being able to manage through that.
spk09: Yeah. So I think there's a couple of things here and I'll let Heath talk about some of the more kind of the other aspects of this as well. But listen, I just saw the jobs growth rebounded last month. They have 531,000 jobs in October. So, you know, listen, that plays a huge role in the type of people we recruit, Brian. And so I think there's, know we we feel good about that i mean again you've seen it you know in your restaurants and in nashville and and you know we know that labor shortages were real but you know we think that you know that and as a result some of the some of the people we historically done business with had fewer cars available to us um we think that'll all all rebound and and things will get uh we believe we'll get uh we'll get normalized again. But the bigger picture here for us is that we're thinking about, you know, how do we get in the position, and I think COVID has shed light on this for us, is, you know, how do we get in a position so that, you know, we have a, if you will, an Amazon type of relationship with their driver network? And so it's more solidified so that, you know, we can help them extend them lines of credit for purchasing cars that, you know, that we have very specific requirements regarding automobiles and requirements. And moreover, we also know our drivers are very community-based. And so how do we build the communities we're in as well? And so we think like our vision for where this is going is going to be groundbreaking here, Brian. And I think we're figuring this out so that, you know, I don't, you know, if something like a COVID happens in the future, again, there's no guarantee on what's going to happen with the workforce, but having a tighter partnership with, you know, a select group of transportation providers that we're able to build and grow, we believe will be one of the answers in the marketplace going forward. And, you know, And that's something, you know, just, you know, as a company, we're committed to, again, we're a community-based organization. We want to build out minority businesses. And, you know, we think with this transportation university and other things, the game is going to be changed pretty significantly, Brian. So with that, I'll turn it over to Heath on how the pass-throughs work.
spk08: Yeah, yeah. So from a rate perspective or a cost perspective, I've expected those to go up, and those will be at the right fair rate. I said, you know, CPI for transportation was 4.4%. So costs are going to be higher. That's not the issue, though. The issue that we are experiencing now with the shortages causes people to have to drive farther than they should. last-minute trips to a transportation provider that is not maybe a partner that's more expensive, aka surge pricing. So the shortages are causing these inefficient costs to go up. And then also important, and Dan mentioned this, especially as we move forward into this broader partnership. And again, we can do that because we have time to plan. These are not on-demand trips. So when you have time to plan, We know there's a higher rate increase, but really now what's really going to make sure that that transportation provider is profitable, that they get more volume and more consistent volume, and that's where we're moving. So even though there is this higher wage, and we expect it to happen, with our model and with where we're moving, and because we're able to be digitized, we feel really good to ensure that our transportation providers are healthy, make the margins that they should be making. And as we come out of COVID and have these new processes in place, again, we'll be in a really strong spot.
spk09: Yeah, and just, Brian, another example of this is reroutes. I mean, probably 30% of our business right now is reroutes. That number should be under 10%. That is all 100% related to driver shortages. And so these are just examples of things that drive costs, drive work, You know, also, you can also think about, you know, until very recently, we haven't been able to multi-load as well. So that's another example of where, again, these are COVID-related items that, you know, given where we are and what we're doing, should under, you know, should be self-correcting here. Again, particularly as you start seeing people come back into the labor force, and particularly as we continue to evolve our model, which is going to be much more partnership-based going forward.
spk07: Got it. And then last question for me, Dan, you know, you talked about your food strategy and RPM. So just curious, you know, the reception you've gotten from payers and your, you know, kind of like state partners on that and maybe any, any just color incrementally that you can share with us on the food business that, uh, that you're partnering with.
spk09: Yeah. I mean, I feel really good about it. We've got a national partner, um, You know, we've got, I think, the most elegant digital solution out there. And, you know, our client advisory board has seen it and have commented on it. It's more elegant than Uber Eats. And obviously there's a massive unmet need. And we've got, we're in conversations with two very large national payers. And we piloted it with one of the payers. We pilot it even with our own teammates, and we feel really good about where it is and where it's positioned. Keep in mind, Brian, we serve 9% of the US population, or 30 million members. And I don't know if there's another company out there that has that level of concentration around these vulnerable patient populations. And we're going to drive our solutions into those patient populations. And that includes food. That includes obviously continuing to drive transportation, personal care, and remote monitoring. So we, you know, we think we're in an excellent position. We've got phenomenal relationship with our top payers. You know, the six payers represent 80% of that 50%. Well, five of those represent 80% of the Medicare Advantage market. So you just see the expansion. And Medicare Advantage has the number of plans that are offering Food has doubled in the last year, and we expect it to double again. So, Brian, we're just really, really well positioned. We think we have a superior product that has superior packaging, that has a superior technology platform with a company that's had an extended relationship with 30 million members, or 9% of the U.S. population.
spk06: Awesome. Thanks, guys. Thank you. Thank you. Our next question comes from Brian O'Neill with Lake Street Capital Markets. Please proceed with your question.
spk05: Good morning. That's Brooks O'Neill, but appreciate all the color guys and the thoughtful answers to the good questions from my peers. I have a couple of follow-ups. Dan, you were just talking about M&A, I'm sorry, Medicare Advantage opportunity in the food business. I'm hoping you might extend the discussion a little bit to the other segments and whether you're gaining traction with MA payers in those other areas.
spk09: Yeah, so I would say the answer is unequivocally yes. I mean, you know, one of the reasons why we bought National MedTrans, I know you know this, Brooks, is it represented $50 million in Medicare advantage business. And so there is no – and again, if you start looking at the numbers, the number of plans that are offering NEMT doubled a year ago and doubled again. And this is becoming kind of a – it's moving from de facto to du jour, that, you know, from a supplemental benefit, the transportation business is going to be part of the offering in order for these – MA plans to compete so feel really really really good about that Jason's in the room with us and you know maybe I'll let him talk a little bit about the percent of his business is already Medicare Advantage and the opportunities there yeah thanks Dan so approximately about 30 35 percent of our businesses MA business today we have some
spk00: The remote patient monitoring continues to be added as a supplemental benefit in kind of the top 30 MA plans. And today, by our estimations, it's approximately nine of those 30 have remote patient monitoring as a supplemental benefit. And so we're excited about the future opportunities related to other MA plans expanding those benefits.
spk09: And then, Brooks, if you look at the personal care space, what I would say about that is just look at the UnitedHealthcare announcements. We had a health care announcement, again, and I've referenced it several times four months ago, talked about here are the three things we need to provide our MA members. Number one is transportation. Number two is personal care. Number three is food. So, you know, if United's making these moves, you can pretty much guarantee that that's a throwback comment there, Brooks. Right, right. A lot of us won't. But you can pretty much be certain that this is the direction things are going. You know, on the personal care side, Brooks, you know, disproportionately, the personal care business is weighted to duals. It just is. I mean, as much as 75% of the business could be dual-eligibles, and some of these people are, and these are, you know, as you know, the most expensive patient populations we have. So there is just massive interest and massive opportunity in to bend the cost curve there, improve the quality of care. And so, again, these things are just so well positioned right now, Brooks, and the market's moving. I don't know if you saw the strategy from CMS recently that just came out, and there was a couple things that just really stood out for us. One, health equity will be embedded in all of CMS innovation centers at work. And then number two, future models will focus on integrating the whole person approach, and several are likely to include total cost of care approach. And again, Brooks, you start thinking about where we are from a supportive care standpoint, there is not a company out there that's better positioned to lead the way on this. And personal care and remote monitoring and food, And transportation are going to continue to play a more significant role in the MA population. And keep in mind, Brooks, of our top six payers who represent 80% of our revenue on the payer side of the business, five of those represent 80% of the Medicare Advantage lines. So we already have built-in partnerships. This is why this channel that we've been part of for 20 years is such a valuable asset. When you also think about, you know, what's the total addressable market in the home? And we're putting the railroad tracks down. And, again, there isn't a company that's in a better position to change health outcomes than we are as we move forward.
spk05: Absolutely. Would you say, just follow it up there, not trying to go too deep, but are the economics related to the MA customer base and TAM, are they better or equal to the economics in the, let's call it the Medicaid side, for lack of a better term?
spk09: Well, I mean, you just look at, you know, you look at the dollars that are in Medicare Advantage books, and that should tell you everything. Right.
spk02: Yeah.
spk09: And, yeah, so I think they're either comparable or in some instances a little better.
spk05: Yep. All right. Cool. One more. Appreciate the color.
spk09: One thing I would say about remote, before, Brooks, you got to, this is really good stuff. On the remote monitoring piece, just for the record, on PERS, the average length of service is 3.5 years. And on the vitals monitoring, it's two years. So just think about that from a reoccurring revenue standpoint and just, you know, Jason continues to build on those 170,000 patients. That business just continues to stack, Brooks. And on the personal care side, I think the average time we care for a patient is around four years. So, again, just thinking about, like, patient management and ultimately how much more valuable the supportive care side is versus the episodic clinical care side, because the relationships we have with these patients are just far more extensive.
spk05: Yeah. I think it's great. I think it's amazingly exciting. I think you're in the right place at the right time, and it's all good. I'm just curious, Heath, I noticed the G&A line was a little bit higher than I was modeling this quarter. I assume some of that's one-time kind of stuff related to acquisitions and whatnot, but is there any color or commentary you could offer on the, I think it's $68 million this quarter?
spk08: Yeah, a big chunk of that is the acquisitions that we made, $12 million of acquisition costs in that number. Yep, yep. The other build around that is investment in technology, but as expected.
spk05: Yeah. Okay. Perfect. Thanks a lot, guys. Appreciate all the color.
spk07: Thank you, Brooke. Thank you.
spk06: Thank you. Our next question comes from Mike Petusky with Barrington Research. Please proceed with your question.
spk04: Hey, good morning, guys. A few questions. Hey. It wasn't clear to me. The 20% increase in trip volume, was that sequential from Q2 or in utilization? Was that sequential from Q2 or was that versus a year ago Q3? Versus a year ago. Gotcha. Okay.
spk08: And then we have 20% to go to be back to three pandemic levels.
spk04: Yeah, that part of it I got. Okay, excellent. So, Dan, obviously you sort of set a big vision out for what meal delivery could mean for you guys. Just so I have some sense of sort of how this sort of plays out in the initial quarters. I mean, do you expect to break out meal revenue either in Q4 or in 22? I mean, will it be material enough to break out?
spk09: Now, I don't, I don't think so. I don't think it's going to be material enough over the next. 6 to 12 months, I would say that we won't break it out. And so, but we'll continue to talk about it. We'll continue to talk to you about. Who, you know, the, the partners, obviously there might be some concern about who we share exactly, but, but we'll be able to talk about it. You know, I just don't see any reason, you know, if meal reimbursement is $7.50, I just don't see a reason why we couldn't get to a million meals a week. I mean, I just don't, you know, we're going to have to work really hard at it. We're going to have to give it the right level of focus. But, you know, that's what I have in mind. Now that's not going to happen tomorrow and it's going to be, there'll be a process around it, Brooks. But I think that's, you know, again, we feel like we're very, very well positioned. as it relates to relationships, as it relates to technology, and particularly around the quality of food.
spk08: Yeah, and Mike, a little more on the timing on why it's not going to be material in the next six months. The sale process, when you get a contract with a state or with an MCO partner that is within a specific state, you actually have to sell that into the specific care managers as well. So very similar to the sales cycle within VRI and personal care. And that just takes time. On the other side of it, when you get in there and you get that, you're pretty sticky. So even though the, and Dan talked about the length of time we have with a patient. So even though it's six months, 12 months, it's going to ramp quickly after that. And again, it's sticky revenue. And one other point, and around care managers, and this is a really important point, and you guys get what you think when we talk about cross-selling, that we don't have baked in, and we haven't talked about this when we made these acquisitions. The care manager that we are meeting with on food, on vitals, personal care, and remote monitoring, it's the same care manager. So we can sell into that one care manager, and actually, when the RFPs come out, they have it on the list. So the ability for us in this new sales process with food, matching that with VRI, matching that with personal care is really powerful.
spk04: Got it. And I did want to make just one comment. It's one thing for the operator to call Brooks Brian, but for you guys to call me Brooks is really hitting below the belt. Yeah.
spk09: Hey, Mike, I was corrected. My hand was slapped, man. Yeah.
spk04: Getting Brooks. Love you. All right. A couple, a couple more on the, on the home personal care business. Obviously, you know, we all know that the, and you guys reminded people, the pro former revenue is about six 50, obviously tough environment right now. If, if sort of, we're looking at a current run rate, I mean, is that, is that more like 600, 625 somewhere in there? I mean, is that a fair assessment of where that business is now given the, you know, given the headwinds and all the rest.
spk08: Yeah, so you're on what's the slope coming out of COVID, right? So I think the right way to think about it right now is pretty flat Q4. And then as we come out of COVID, you know, the demand, this is a really hard, we know there's a demand gap, right? And Dan said it's anywhere from 10 to 30%. So timing that, you know, our long term is, the growth that we said. But in this coming out of COVID, what's going to happen in Q2, Q3, it could be a lot higher than we've quoted from a growth perspective because of the need to meet the pent-up demand.
spk09: Yeah, and my second thing I would say about it, I mean, Brooks, the other thing, just kidding. The other thing I would say about it, like this is a recruiting and retention business. The demand is there. You know, we talk about 10% to 30%, but actually the demand is about 50% over that. I mean, this is how bananas this business is in terms of – so, you know, we're really thinking hard about, like, how do we supercharge this business on the recruiting side? And I think there's a massive opportunity there. And especially as we come out of the pandemic. And so I, you know, certainly we think there'll be a course correction to that, depending on the market, 10 to 30. But, you know, it's almost like there's no end in sight based on the demand, Mike.
spk08: And then also on that, even though in our states that we're in, and we're the one or two largest player, we're still relatively small from a percentage of market share. So that's the debt. New York. Right. Pennsylvania. Yeah. New Jersey. Connecticut. Yeah, which are some of the largest markets for personal care as a whole. So just echoing Dan's point, when we come out and we even do better on recruiting than we have in the past, there's a lot of upside in this business.
spk09: Yeah, I mean, you could make an argument that the markets alone we're in could be a $3 to $5 billion business. Just the markets we're in right now.
spk04: Great. Hey, and just a quick question on Matrix, which... The results there are extraordinarily volatile from my perspective of it. Can you talk about, I mean, essentially, was a huge part of the spike in profitability there last year sort of related to COVID, and we should sort of going forward expect a lot more muted results? I mean, can you just talk about expectations there? Because on a quarterly basis, man, the results are schizophrenic.
spk09: Yeah, no, I agree with you on that. I do think there is, you know, from a health and wellness piece, from a clinical trials piece, in some respects the assessment piece, because the company from a – had gotten to almost 20% of all their, quote, unquote, in-home visits were being done through telemedicine. And – but – What we're seeing right now is, number one, is the assessment business starting to come back. It's growing again. And they've hired somebody there, chief operating officer who's running that. I think, you know, she's doing a terrific job. So I feel good about that. So that's number one. Number two, you know, they saw an opportunity in the areas of clinical trials. And they made some big investments. And the challenge with clinical trials, it's, it's a timing issue. The pipeline is full, and in fact, of the pipeline opportunities, 80% of them are non-COVID related, which is really, I think, tells you kind of where the business is going in the future. And speaking of the future, we also know that clinical trials like CARE, is moving to a less institutionally centered model. So in other words, you know, having these, you know, nurse practitioners in the home helping do these clinical trials is the wave right now. And again, they're just, they're extremely well positioned. So what I would say, I would describe this as transitory. I don't, you know, I don't know ultimately where EBITDA is going to fall out in 2022. But I feel very good about the investments they've made. And yeah, it's been a little bit of a setback. You know, I think COVID ran down faster than I think we anticipated. So we, you kind of hit a trough, we knew a trough was going to happen in some shape or form. But we also knew that they were making the right investments in areas of clinical testing, you know, clinical trials, and the incessant business should continue to be steady. So that's what I would say. And You know, we'll have more on that after the fourth quarter, because I think we'll have much more visibility to the clinical trials. But we're kind of just waiting for the clinical trials to hit. And if they hit, I think the investments that they've made will bear fruit for quite some time.
spk08: Yeah, I'll add, in the clinical trials, they currently have relatively small contracts with very large contracts. companies. So that's why these next quarter, couple quarters, their success around delivering on that is critical. And then they deliver on that, I think there's a big opportunity in the clinical trial space.
spk04: All right. Thank you so much, guys. Really appreciate it.
spk09: Yeah. Thank you, Mike.
spk06: Thank you. There are no further questions at this time. I would like to turn the floor back over to Dan Greenleaf for any closing comments.
spk09: Yeah. Hey, you know, I just have a couple of things. I'm going to go off script a little bit here. One is, listen, we beat consensus seven quarters in a row. And I just don't want anybody to lose sight of, and again, I don't, I didn't feel like anybody was, but, but, you know, we were building quite a business here and, and, um, And, you know, I'm very proud of what we've been able to do during COVID because we didn't shy. We just didn't get in a position where, hey, let's just collect cash. And we went ahead and deployed cash because we realized there was a greater opportunity in front of us. And we feel like, you know, frankly, whether it be in NEMT or food or personal care or remote monitoring, the company's never been better positioned. And, yeah. We're executing on this vision. I look at where the company was in 19 relative, what I think we'll be able to do by the end of this year. It's incredible, regardless of any way you look at it. And I would say, in many respects, the best is yet to come. And we're, from my, maybe, because we've been through this extraordinary level of change amidst the great pandemic, Some things are not as always 100% clear, but I think we've got a lot of clarity right now, and we feel very good about where the transportation business is headed, where the robotic business, personal care, and food, and how all those things are going to fit together. And so, again, we fundamentally believe, and I know you guys have heard me, the best is yet to come. So with that, I want to thank you all for participating on the call this morning. Please reach out to our investor relations firm, The Equity Group. If you are interested in scheduling a follow-up call, we look forward to reporting back to you in February when we release our fourth quarter 2021 financial result. Stay safe and have a wonderful day.
spk06: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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