ModivCare Inc.

Good morning and welcome to Motives Care Third Quarter 2023 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. 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 begin.

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

Good morning, everyone, and thank you, Kevin. I'm proud of our commitment to deliver high-quality supportive care to our 34 million members. This quarter, we were able to show significant improvement in many areas, which resulted in strong third quarter results. We generated robust free cash flow of approximately $45 million. Our NEMT, or Mobility Adjusted EBITDA Margins, sequentially approved 550 basis points to 7.3%. Additionally, we delivered on our commitment and paid down $43.5 million on our revolving credit facility, lowering our bank-defined net leverage ratio to 4.6 times. It's been a year since I took the permanent reins, and the journey has been enlightening. our strong performance are a direct result from the enhancements and progress we've made across numerous parts of our business. Recognizing the near-term challenges we face, which may have been more pronounced than initially perceived, addressing them demanded targeted investments and bold, decisive actions. While these actions caused some short-term headwinds, particularly in Q1 and Q2 cash flow margins, they were undeniably the right choices, essential in positioning us for a promising future. As we navigated this transformative year, our course has been guided by four strategic pillars. People, operational excellence, growth and innovation. Now let's dive into a few of these achievements within these pillars. In regards to people, we've rebuilt the organization and have been laser focused on optimizing talent, aligning our teammates with our vision and values. During the quarter, we welcome two new members to our executive leadership team, Enrique Toledo as our new chief people officer, and Barb Gutierrez as our new chief financial officer. I couldn't be more excited to partner with them and all the new leaders that have joined MotiveCare over the last year or so. Through disciplined financial management, a structured accountability framework, and streamlined process management, we have significantly advanced towards operational excellence, which has enabled us to address challenges including the repayment of contracts payable in our mobility business, reducing our leverage this quarter, and laying the groundwork to improve the flexibility of our capital structure. We are dedicated to developing scalable operations fortified by automation and AI technologies. Such initiatives are important to enhancing operational efficiency, elevating service quality, expanding our revenue model, and ensuring long-term margin stability. With respect to growth, we've broadened and strengthened our customer base with new and existing relationships. In the area of innovation, we've modernized across all pillars and enhanced our data and analytics capabilities, investing in platform technology and people to bridge supportive care to clinical care. particularly as the US healthcare system accelerates to more value-based payments. Our distinct advantage lies in the fact that we have more frequent access to our customer members more than maybe they themselves do. Through the provision of supportive care services that assist members in managing their daily lives, we foster genuine connections with them and build trust. This established trust subsequently empowers us to engage and intervene on behalf of our customers. We now have earned the right to do more for their members because we now deliver exceptional service. Now let's provide some segment highlights for the third quarter, starting with mobility. This segment has been transformed through three main initiatives, multimodal trip assignment, omnichannel member engagement, and customer integration. These initiatives are the drivers of our 30 to $50 million cost savings targeted over the next 12 months. Drilling down on each initiative, starting with multimodal trip assignment, we've deployed sophisticated automation and AI algorithms to an array of transportation modalities that best fit our members' needs. Whether it's through our network of providers offering everything from standard sedans to wheelchair accessible vehicles to advanced or basic life support, or through our TNC or rideshare partnership, or even mass transit and mileage reimbursement. We ensure that our members receive the right service at the right time at the optimal cost. Next is our omni-channel member engagement, which is more customer-oriented and focused on reaching our members where they are, whether it's through the phone, the internet, mobile apps, IVA, IVR, text messaging, or even automated chatbots. By providing flexible points of engagement, we're not only enhancing member satisfaction, but also reducing operational costs. Lastly, customer integration is crucial, enhancing both our operational efficiency and customer relationships. We've introduced real-time eligibility and insights directly into our customers' digital platforms. Furthermore, we aim to merge our technology into our customers' call centers, allowing them a closer management of member experience and concurrently reducing our operational costs. The financial impact of our Mobility Operational Excellence Initiative is primarily reflected in our payroll and other expense per trip metric. which decreased 1.5% quarter over quarter and drove $1 million of cost savings during the quarter. Keep in mind, some of our mobility initiatives were implemented mid to late quarter. And on a run rate basis, our cost savings would have been more like $2 to $3 million had they been operationalized for the full quarter. Other initiatives, specifically our multimodal strategy, will reduce purchase service expense per trip. which is an important metric for our full risk contracts and honoring our commitments to all our customers. Moving to Medicaid redetermination, which is unfolding as expected and tracking in line with our internal projections as further corroborated by external sources such as Kaiser and CMS. Our shared risk contracts are operating effectively and as intended. safeguarding our gross margins against the backdrop of increasing utilization and costs. The challenges brought about by Medicaid redetermination notwithstanding, our margins consistently match our forecast. This instills confidence in the accuracy of our internal redetermination model. As it stands, we are going to be in line with our 2023 expectations for redetermination, as well as our expectations for 2024. which we expect to be a $20 to $40 million impact. This impact will be mitigated by our $30 to $50 million cost saving initiative over the next 12 months, plus our sales growth. Over the past year, as we frequently pointed out, our mobility revenue has been grossed up by pass-through trip volume and cost. This trend has become increasingly evident as healthcare utilization returns to an expected and normalized level. Although this may make a challenge to understand our percent margins within this path to revenue, our shared risk contracts with our customers are protecting the downside to our cash flow, creating a win-win situation for us and our customers. Again, from a revenue perspective, our primary focus is growing our sales pipeline. We're optimistic about realizing the benefits from new wins this year and next year. For example, we continue to add wins. This quarter, we won new mobility MCO business with a total contract value of $138 million, most of which will start in 2024. We also renewed and were awarded additional regions in our state mobility business, and we received an extension on another sizable state contract. Our pipeline is strong and continues to grow. Now to personal care. Our revenue is healthy and growing in mid-single digits. Personal care hours continue to trend in the right direction, and we expect 3 to 5 percent hours growth for the year. The personal care reimbursement environment remains good as we receive rate increases in several states that correspond with the higher wages for caregivers. Our margins are stable and as expected. As noted earlier, we expect operating expenses to decrease as we complete centralizing, standardizing, and automating in 2024, which will enable us to maintain our adjusted EBITDA margin targets of 10% to 12% while continuing to invest in growth. On the regulatory front within PCS, specifically, CMS's proposed HCBS rule, we remain aligned with other industry stakeholders and expect the final rule could be issued during the first half of 2024 and then would be implemented over the next four years. Other than the 80-20 provision, we are generally supportive of the proposed rule. It is focused on quality and safety measures, increased transparency, and the rate-setting process. We also believe the proposed rule could benefit companies like ours that have professionalized operations at scale with enterprise level compliance programs. In the remote patient monitoring segment, revenue growth is solid and driven primarily by industry leading referral sales penetrating new Medicaid markets with personal emergency response or PERS. Going beyond PERS, Our monitoring and innovation teams are making meaningful strides in exceeding our customers' expectations by improving quality measures and increasing member satisfaction while reducing costs. Additionally, our sales team has taken advantage of these new capabilities, having closed 17 new programs this year, including six this quarter. Our customers find our services make a real difference beyond the services that we provide. We're not just sending emergency alerts to case managers. We're providing insight that improves patient care while driving down costs. For example, a recent pilot study with a leading commercial payer showed that members who were integrated with our tech-enabled care center, anchored by our foundational supportive care services, experienced a remarkable 71% reduction in costs. This pertains to individuals with disabilities, the elderly, and those in need of long-term care services. Understandably, this customer is eager to expand with us to the next phase of the program. Digital risk assessments are another example of our innovative offering. Unlike our customers who struggle to proactively risk stratify their population because of the challenges they face engaging their members, we can do it, and this is unique. These new value-added services on the shoulders of our trusted relationships and differentiate us from our competition. We'll share more about the financial aspects of these new services when we discuss our plans for 2024 early next year. Next, a quick update on our equity investment in Matrix Medical, which holds significant value. Matrix has consistently performed well over the last few quarters. aligning with our monetization expectations for adjusted EBITDA between $50 to $100 million. We own 43.6% minority stake in Matrix, and we remain aligned with our partner on a timeline to a monetization. We look forward to unlocking its unrealized value, as it also helps to fortify our balance sheet, further positioning us to capitalize on growth opportunities. Before handing the call over to Barb, I want to extend my deepest appreciation to the entire MotiveCare team for their relentless dedication and effort. The past year presented a number of changes, each with a set of challenges, yet the team has undeniably fortified our foundation. Our robust third quarter results not only underscores the financial resilience of our platform, but also highlights the substantial cash flow generation of our business. in turn aids in our deleveraging so we can focus on growth and driving long-term shareholder value. Now I'd like to pass the call to our CFO, Barb Gutierrez, who will provide an overview of our financial performance for the third quarter. Barb?