ModivCare Inc.

Good morning and welcome to MotiveCare's fourth quarter and full year 2023 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference call is being recorded. I will now like to 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 fourth quarter and full year 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 and guidance, then we'll open the call for questions. With that, I'll turn the call over to Heath.

Good morning, and thank you for joining our fourth quarter and full year 2023 earnings call. Today, I'll discuss our 2023 results, reflect on our transformation journey, and share our outlook for 2024 before handing the call over to Barb, who will further elaborate on our financial results. Let me begin by saying we are pleased to have delivered fourth quarter revenue in adjusted EBITDA in line with our expectations. Full year 2023 revenue grew 10% with adjusted EBITDA of $204 million. Before addressing the transformation progress we've made, I'd like to address some of the challenges we've encountered primarily stemming from the recovery period following the pandemic. Firstly, our free cash flow for the fourth quarter was negative $37 million, which was below expectations, primarily due to a delay in payment from an MCO client within a specific contract in Florida. Looking ahead and primarily to us managing redetermination and the increased healthcare utilization environment, we anticipate our free cash flow for the first half of the year will be constrained to the ongoing build in contract receivables and the settlement of several large payables expected in the second quarter. It's important to note that our $144 million balance in contract receivables is an asset that we aim to collect in six to nine months. Consistent with what we have been doing the last several months, we are proactively working to renegotiate the prepayment terms on a number of our shared risk contracts. This realigns the payments we eventually reconcile as redetermination unfolds and utilization and cost normalize higher post the pandemic. This will improve our working capital by securing more cash upfront. For the second half of 2024, our free cash flow will begin to normalize as redetermination ends. The $142 million of the 2023 new sales wins are onboarded and our cost saving measures continue to take hold. Next, I want to share our 2024 adjusted EBITDA guidance which we expect will be in a range of $190 to $210 million, and our first quarter 2024 adjusted EBITDA guidance in a range of $28 to $33 million. We are guiding first quarter EBITDA to help explain the ramp in the second half of the year. During the first quarter, we are addressing headwinds from a couple contracts and membership losses. Prior to the 2023 contract wins, starting implementation in the second quarter. These front-loaded challenges are further impacted by the ongoing normalization of healthcare utilization and Medicaid redetermination. The root causes of these contract losses include a few MCO clients not securing their state contracts, a state health department's decision to transition to a full broker model favoring an incumbent competitor, and a client's decision to diversify volume away from us due to legacy issues. However, it's important to note that these legacy issues have been addressed through our transformation, and I'm proud of my team for doing that. In fact, we remain the largest NEMT provider and a key strategic partner for this client, actively collaborating on several new initiatives. Also noteworthy to explaining our 2024 guidance While we've achieved success in securing MCO contracts, anticipated state RFPs we expected to bid on in late 2023 and early 2024 continue to be delayed or extended. In 2023, we want $142 million in annual contract value and $11 million in our remote patient monitoring segment that will be onboarded starting the second quarter and will ramp throughout the year. Even though state RFPs have been delayed, we did secure a new state contract and expanded and extended two other state Medicaid contracts from early RFPs in 2023. In addition, we've implemented initiatives to optimize our cost structure, which is expected to generate $30 to $50 million of in-year cost savings. We've made significant strides digitally integrating with our clients, a move we hadn't done in the past, which will enhance our client relationships, leading to improved contract retention and reduced attrition. Additionally, our enhanced go-to-market capabilities contributed to a 90% win rate in new NCO bids throughout 2023. To capitalize on this momentum, we've recently augmented our sales team with additional talent. We're leveraging these enhanced capabilities secure more wins from our pipeline, valued at over $800 million today. These initiatives will mitigate the negative impact from legacy losses started in the second quarter and will become more significant as the year progresses. Now, I'd like to cover our balance sheet and capital structure. We have a deliberate plan and anticipate refinancing our 2025 unsecured notes in the coming months. we are aligned with our partners to monetize our unconsolidated minority equity investment in Matrix Medical. While we are optimistic about achieving this within the year, as the company is performing very well, our primary focus remains on supporting the management team and maximizing the return from this valuable asset. We have also successfully renegotiated our revolving credit facility covenants enhancing our financial flexibility, and addressing our liquidity requirements, thanks to the backing of our banking partners. Although our current leverage is higher than our target, reducing debt levels continues to be a priority. Since assuming the role in November 2022, we have undergone a comprehensive transformation, which has been anchored by our core pillars, people, operational excellence, growth, and innovation. Reflecting on the past year, we navigated challenges and achieved significant milestones. As for the people pillar, realigning our organization was crucial, notably strengthening our executive leadership team. We also realized approximately $65 million of savings through restructuring, while reinvesting $30 million in key areas such as product, technology, go-to-market, and clinical expertise. Operational excellence. We adjusted our business model to the post-pandemic environment and transitioned away from our legacy decentralized and manual processes to a more efficient, functional structure. This shift improved our service quality, notably increasing on-time performance in NEMT by 6% and saving $27 million annually through our digital initiatives. These efforts have also resulted in improved satisfaction, solidifying our leading NEMT position. In the growth pillar, we improved our new business conversions in NEMT and focused on cross-selling our RPM services, leading to over $150 million in annual contract wins, driven by our improved proposal process and enterprise engagement model. Innovation has been an important part of our journey. We advanced our leadership position, addressing the social determinants of health with new product development and technology, aligning closely with CMS's strategic pillars and expanding our service offerings to proactively meet our clients' needs. Turning to our 2024 outlook, we project our adjusted EBITDA will be in the range of $190 to $210 million and revenue between $2.7 and $2.9 billion. Our guidance considers the headwinds previously mentioned with confidence in our initiatives as we continue to transform our cost structure and revenue model. We expect to exit 2024 with a run rate for adjusted EBITDA between $220 and $230 million. Additionally, we expect to generate between $40 to $60 million in free cash flow, materially generated in the second half of 2024. Looking towards 2025, we will continue to see deleveraging benefits from our acid-light high cash flow conversion business with normalized expectations of 40% to 50% EBITDA conversion to cash generation. We expect revenue growth rates for personal care and remote patient monitoring to be 8% to 10% and 10% to 12% respectively, with margins consistent with previous years at 10% to 12% for personal care and mid-30% for RPM. We project modest growth for NEMT revenue with margins exiting 2024 at approximately 8% to 8.5%. In 2024, we are focused on positioning each of our business lines for long-term profitable growth while continuing the important work to fortify our platform as we prepare for 2025 and beyond. As we look forward, we remain committed to being the trusted partner for integrated supportive care, combining digital and personal engagement to empower living at home. Here's our concise overview of our 2024 strategic priorities across our segments. In NEMT, the focus is to leverage the momentum from the achievements of 2023, aiming to capture additional revenue from our $800 million plus pipelines. The key for growth this year is execution. Building on our comprehensive transformation and digital initiatives focused on enhancing omnichannel member engagement, expanding multimodal transportation solutions, and achieving comprehensive integration with all stakeholders. These efforts are expected to drive significant cost savings, targeting $60 million in 2025 with $30 to $40 million anticipated this year. Building upon the centralization, standardization, and technology platforms in 2023, our continued transformation in personal care is now focused on leveraging automation and digital tools to improve caregiver efficiency and engagement. The key here is to free up our frontline members. This will enable us to outpace the inherent growth within the market These market tailwinds should further be bolstered by regulatory clarity regarding CMS's role, known largely as 80-20 this spring. Our strategy in remote patient monitoring is multifaceted and forward-looking. Continue to grow our base in personal emergency device revenue and expand our product capabilities with enhanced digitally enabled clinical capabilities. This includes fostering member engagement through our innovative care center and virtual front door services and devices. Integrating RPM and NEMT services has surpassed our expectations. We have addressed care gaps and reduced costs for our clients, which distinguishes us in the market. This integrated strategy has notably boosted our NEMT sales, especially in the managed Medicaid space. as our services become crucial for customers aiming to address health determinants and reduce care costs. Our journey through 2023 was marked by a comprehensive operational, organizational, and cultural restructuring. And despite some of the challenges ahead, especially in the first half of this year, our margins and cash flow conversion will progress in the back half of the year. Our unique competitive advantages coupled with our position in the expanding home-centric healthcare market sets us apart. I'd like to thank all our team members for their hard work and dedication for providing the highest quality of services to our clients and their members. Now I'll hand the call over to Barb, who will share additional details about our financial results and outlook for 2024. Barb?