ModivCare Inc.

Good morning and welcome to MotiveCast's first quarter 2023 financial results conference call. At this time, all participants are in the listen-only mode. A formal question and answer session will follow the presentation. Please note this conference is being recorded. I will now turn the call over to Kevin Elich, Head of Investor Relations. Mr. Elich, you may now begin.

Good morning, and thank you for joining MotiveCare's first quarter 2023 earnings conference call and webcast. Joining me today is Heath Sampson, MotiveCare's president, chief executive officer, and chief financial officer, and Ken Shepard, head of finance. Before we get started, I want to remind everyone that during today's call, management will make forward-looking statements under the Private Securities Litigation Reform Act. These statements involve risks, uncertainties, and other factors that may cause actual results or events to differ materially from expectations. Information regarding these factors is contained in today's press release and the company's filings with the SEC. We will also discuss non-GAAP financial measures to provide additional information to investors. A definition of these non-GAAP financial measures and to the extent applicable, a reconciliation to their most directly comparable GAAP financial measures is included in our press release in Form 8K. A replay of this conference call will be available approximately one hour after today's call concludes and will be posted on our website, motivecare.com. This morning, Heath Sampson will begin with opening remarks, Ken Shepard will review our financial results, then we'll open the call for questions. With that, I'll turn the call over to Heath.

Thanks, Kevin, and a warm welcome to our first quarter earnings call. Today, we reported solid first quarter 2023 results as revenue grew 15% year over year to $662 million. Strong top line results were driven by a 17% growth in our mobility business, and 11% growth from our home division, which includes personal care services and remote patient monitoring. Adjusted EBITDA for the first quarter was in line with our expectations at $50 million. We remain confident in our ability to drive growth and create shareholder value. This optimism is grounded in our commitment to delivering innovative and comprehensive supportive care services, which cater to the evolving healthcare landscape characterized by a pronounced shift towards supportive care services that provide better access to care and home-based care solutions. Achieving our expectations are visible to our entire organization and are rooted in our 2023 strategic initiatives, which are twofold. Building a scalable platform and amplifying and diversifying growth. These two initiatives cut across the entire company, providing focus and clarity for our teams to execute every day. Our initiatives are multifaceted and aim to enable sustained revenue growth and a stable lowest cost operating platform. Our build a scalable platform initiative is centered around optimizing our operations and enhancing our technology infrastructure to ensure we can scale effectively and efficiently. This includes centralizing and standardizing operations and shared services, investing in technologies that are fit for purpose to our customers' needs, and driving efficiencies in operating leverage through realigning and reallocating resources throughout the entire company. Our Amplify and Diversify Growth Initiative aims to expand our offerings and customer base through strategic partnerships, new service offerings, and geographic expansion within our current customer base, and more importantly, to new customers that have historically not been our focus of ours. Additionally, I'd like to provide updates on the recent CMS proposal for ensuring access to Medicaid services and Medicaid redetermination. Recently, the Centers of Medicare and Medicaid Services released a proposal rule titled, Ensuring Access to Medicaid Services. The intention of this rule is to enhance access to services for Medicaid beneficiaries, which we wholeheartedly appreciate and endorse. It is commendable that CMS acknowledges the significance of personal care services and the necessity to attract more caregivers to the industry, considering the increased demand. Several notable provisions in the proposed rule have garnered attention, particularly in the requirement that at least 80% of Medicaid payments be allocated to caregiver compensation. There are a couple of important factors to consider. First, this is a proposal, and CMS will receive ample feedback during the 60-day commentary. It is essential to remember that this is part of the standard rulemaking process. The heightened attention on personal care services leads to necessary sophistication, oversight, and regulation. It's also worth noting that the proposed rule indicates this change wouldn't become effective until four years after the final rule is issued. Second, if higher reimbursement rate is channeled to caregivers, this should enhance our ability to hire caregivers. resulted in accelerating revenue growth and operating leverage, as approximately 25% of our personal care G&A costs are variable. However, we believe CMS should consider all costs associated with providing personal care services, including care coordinators, recruiters, training, and compliance systems like electronic visit verification, among others. The growing attention and support for home and community-based services, again, is commendable. One of CMS's strategic pillars focuses on expanding access, which is vital for our members. Our supportive care services play a crucial role in helping our customers reduce costs and enhance health outcomes. Also, the Biden administration announced an executive order aimed at boosting funding for personal care. This move underscores the importance of delivering quality, affordable, supportive care services to seniors and others in their home. Next, I'd like to discuss Medicaid redetermination. As many of you know, states were able to begin redeterminating the eligibility of Medicaid members on April 1st. The healthcare system is in the early stages of the Medicaid program's re-enrolling members, which we think will last up to five quarters. We expect most of the impact from redetermination will be on the NEMT business, where approximately 80% of our members are Medicaid beneficiaries. As mentioned last quarter, we anticipate no significant impact on our NEMT membership from redetermination until the latter half of this year. Redetermination will unfold over the next few quarters, as said, and our membership could be affected by 10 to 15% before considering new contract wins and just the standard market expansion, which is in line with our projections that we talked about last year during our investor day. We expect the majority of these redetermined members to be lower utilizing individuals, which would lead to a smaller decline in our total trip volume compared to the overall membership. Additionally, we've been preparing for redetermination over the last several months. When we exit the pandemic in 2020 and 2021, we made a conscious effort to effectively and efficiently transition a large portion of our previous full risk contracts to contracts that are shared risk or fee for service arrangements, protecting ourselves and our customers. These shared risk contracts significantly de-risk the financial impact from redetermination by setting contractual revenue rates primarily based on trip volumes as opposed to membership. In many situations, we can fully offset the gross profit impact from lower membership from redetermination as these contracts reset monthly. Our remaining full risk capitated contracts currently only account for approximately 20% of NEMT revenue compared to 60% at the start of the pandemic. For these contracts, we will continue to have anticipated contract repricing negotiations throughout the year and annual actuarial pricing resets that allow us to normalize pricing in a post-redetermination environment. As it relates to our membership, we continue to believe that we can grow through the 10% to 15% redetermination henwood through 2025 based on our new contract wins, existing market expansion, Medicare Advantage growth, and just the underlying Medicaid market growth. In total, we believe that we have encapsulated the impact from redetermination in our 2023 outlook as well as our 2024 outlook. Now I would like to discuss our consolidated 2023 guidance and the longer-term outlook. We have maintained our revenue and adjusted EBITDA guidance for 2023. Although our first quarter results align with our internal expectations, we recognize that our guidance anticipates a continued EBITDA ramp throughout the year. To provide clarity, I'd like to highlight several key factors that reinforce our confidence in this upward trajectory. We've gained significant traction in our new NEMT contract wins. This includes receipt of an Intent to Win Award for a new NEMT state contract, a new Medicaid contract, and a national contract with a large MCO. Combined, these contract wins are expected to have nearly mid-single-digit annual contribution to revenue, with the contributions beginning to ramp during the third quarter of this year. Second, our specific actions in our mobility division will favorably impact EBITDA growth throughout the year. Our multimodal partnership model is expected to drive lower transportation costs per trip throughout the year as we narrow our network of transportation providers and we continue to shift more trips to our preferred providers, matching the right type of ride with the members' needs. During the first quarter, our preferred providers accounted for 17% of our trips, compared to 11% last year, which led to a sequential decrease in our cost per trip during the quarter. We also expect our omnichannel communication initiative for improved member interactions to drive lower other expense per trip as we provide more efficient and cost-effective member communication that reduce calls to our contact centers. We made progress on this front during the first quarter as we reduced cost calls per trip by 7% sequentially and 14% compared to last year, while we also reduced our missed trips by approximately 10% sequentially. In our home division, we also expect to see a continued ramp in revenue and profitability throughout the year. Our personal care team has made good progress in centralizing and standardizing back office functions and certain operational functions as we continue to build for scale. This year, we plan to centralize 12 critical business functions and 100% of our personal care team is expected to be aligned to centralized management by the end of the year with ongoing continuous improvement. We also expect continued growth in the personal care hours, driven by increased caregiver recruiting and retention, as well as the opening of several de novos. During the first quarter, we opened two de novos and expect to open more than 10 this year. Our remote patient monitoring segment has a healthy referral sales pipeline between new customers and expansion of existing contracts, And our enterprise team continues to gain traction with cross-selling opportunities for PERS and E3. In addition to these mobility and home initiatives, we have taken steps to reduce our corporate G&A cost structure to align with our one mode of care strategy, gaining efficiencies as we scale and centralize. Combined, the strong visibility in these initiatives gives us confidence in our ability to ramp growth and profitability throughout 2023. In addition to 2023, we remain confident in our ability to achieve our three and three targets for 2025, which is $3 billion of revenue and $300 million of adjusted EBITDA. I'd like to share some of the key drivers and levers that will help us achieve these long-term targets. In mobility, we expect to increase membership and related revenues from new contract wins and expansion by high single digits to low double digits over the next couple of years. We have a strong pipeline of state Medicaid and MCO contracts that are coming up for renewal and rebid. We expect to see continued growth within our existing Medicaid markets, as well as the opportunity to expand and grow in the Medicare Advantage market. Enhancing access to care is an important strategic pillar for the current administration, and NEMT remains highly under-penetrated, as only 30 to 45 percent of MA plans offer this benefit. The bottom line, is we are confident that despite some of the near-term headwinds, that there are a lot of tailwinds and opportunity for our mobility business to grow 2024 and beyond. The second lever in the mobility business is reducing transportation costs per trip, and this will be driven by our multimodal partnership model as discussed earlier. Over the next couple of years, we expect to reduce our NEMT unit costs or purchase services per trip to the high 30s from $42 per trip today. Our multimodal partnership model will also improve member satisfaction as on-time performance improved over 400 basis points year-over-year during Q1. We are also confident that we can reduce other service expense to 11% to 12% range from 13% today through our omnichannel member communication initiative. which will drive efficiency and operating leverage as we use advanced technologies such as text messaging and IVR or VA systems and other technologies to communicate with members and overall eliminate calls. In personal care, we remain confident in the long-term drivers for personal care, which include winning new business, low single-digit reimbursement rate increases, middle single-digit hours growth, which will be driven by caregiver recruiting and retention and accelerating de novo expansion. In remote patient monitoring, our long-term growth drivers are new MCO contracts led by our E3 solutions and other innovation solutions like value-based care arrangements, which continue to gain traction with our payers and other risk-bearing entities. Our E3 engagement solution really enhances our ability to be paid differently. And that's incremental to our long-term targets that I talked about earlier. We continue to gain traction with commercial payers as member engagement and satisfaction are important factors in payer star ratings. Although we haven't commented on it recently, I'd like to provide an update on our equity investment in Matrix Medical, which is not currently being recognized in our current valuation. We have said that it has completed its operational restructuring last year. The benefits are coming through strong as the company's performance improved meaningfully during the first quarter, including a 40% year-over-year increase in health assessment volumes. While this is only one quarter, we are confident that Matrix is on the right trajectory, which will support our eventual monetization at the appropriate time. We remain aligned with Frasier. and we will be able to monetize the minority ownership of 44% in Matrix based on a normalized adjusted EBITDA range in the $50 to $100 million range. Continuing on with our recent accomplishments, my first 90 days as CEO are now complete, including upgrading people and processes while accelerating the culture of compassion meets profitability. With these enhancements in place, we can concentrate on executing on our strategy. In March, we took a significant step in strengthening our leadership team by welcoming Ann Bailey as president of our Motive Care Home Division. Ann is a highly experienced healthcare executive with over 25 years of industry experience, having served most recently as a senior executive and group vice president at DaVita. We're thrilled to have someone of Ann's caliber on board, and she's already making a substantial impact on our home organization. Regarding our ongoing CFO search, I cannot compromise on building a high-performing leadership team. It's essential to find individuals who not only excel in their roles, but also contribute to the overall cohesiveness and performance of the team. Our search for the new CFO remains a top priority, and we are committed to finding the right person. Before I hand the call over to Ken, one of our key leaders within the CFO organization, to discuss our first quarter financial results, I want to extend my sincerest appreciation to the entire Motive Care team. Their relentless dedication, hard work, and unwavering commitment to excellence has been vital to providing top-notch supportive care to our 34 million members. I also want to acknowledge the substantial changes we have made over the past few months, And I'm grateful for the team's commitment to operational excellence and their active participation in building our unique culture of compassion meets profitability. I am generally proud of the accomplishments we've achieved together. I'd also like to extend my heartfelt thanks to our valued customers and key partners for their unwavering support and collaboration. We have made deliberate changes in how we engage with our customers and key partners, and the results are evident in how we are continuously improving together. I'll now pass the call to Ken, who will provide an overview of our financial performance for the first quarter.