ModivCare Inc.

Good morning and welcome to Motive Care's first quarter 2024 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. You may press star 0 for operator assistance during the conference. Please note that this conference call is being recorded. I will now turn the call over to Kevin Ellick, head of investor relations. Mr. Ellick, you may now begin.

Good morning, and thank you for joining MotiveCare's first quarter 2024 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, a reconciliation to their most directly comparable GAAP financial measures is included in our press release and Form 8-K. A replay of this conference call will be available approximately one hour after today's call concludes and will be posted on our website, motivecare.com. This morning, Heath will begin with opening remarks. Barbara will review our financial results and guidance, and 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 first quarter 2024 earnings call. I'm pleased to report that in the first quarter, Revenue increased 3% and adjusted EBITDA of $32 million was in line with our guidance range. These results are the outcome of our continued strategic transformation efforts. The progress made on our initiatives provides conviction that we can achieve our financial targets and exit the fourth quarter of 2024 with an expected run rate adjusted EBITDA between 220 and $230 million, and a free cash flow conversion of 40% to 50%, excluding the impact from our expected debt refinancing. Over the past two years, our focus on operational improvement, technology advancements, and sales has underpinned our no margin, no mission culture. This has significantly enhanced our differentiated competitive positioning. As we complete this transformation in 2024, the tangible improvements in our KPIs are now being reflected in our financial results, with an improving cost structure as well as growing sales. Additionally, Medicaid redetermination is in line to slightly better than expected and concluding in the second quarter, providing line of sight of our earnings trajectory and cash flow. One of our top priorities is addressing our 2025 senior unsecured notes. While it's premature to provide specifics, the refinancing process is well underway. Our refinancing efforts are focused on balancing capital flexibility, particularly in terms of debt prepayment options, and optimizing our overall cost of capital. We also remain committed to deleveraging our balance sheet, recognizing the significant value this brings to our shareholders. With our debt expected to be refinanced soon, clear insights into the effects of Medicaid redetermination and healthcare normalization on our profits and working capital, along with new sales onboarding, a robust pipeline, and continued cost structure optimization, we are positioned to deleverage effectively and grow our business. Additionally, potential opportunities to monetize assets, including our minority equity state in Matrix Medical, will provide other avenues to delever. In the first quarter, we secured $36 million in NEMT annualized contract value, or ACV, from a Mississippi state contract and multiple MCO contracts. After March 31st, we continued our momentum by renewing and expanding our state contract in Maine. We also received notification to negotiate a multi-year extension with one of our largest state contracts. With several state RFPs expected this year for both renewals and expansions, our status as the incumbent, backed by a solid track record of renewals and new business wins, positions us very well. Since we transformed our go-to-market strategy, we have successfully retained all state and EMT contracts with our last loss in 2022, which again was largely due to legacy performance issues. We also secured $142 million of annual revenue from new MCO wins in 2023 across various regional and national contracts. However, our progress was materially offset by a first quarter 2024 reduction in volume from a large payer that began diversifying its transportation providers two years ago, largely again due to our past performance rather than our current capabilities. Nothing to less, We remain this payer's largest NEMT provider and a key innovation partner. Despite this, and when looking at the individual contracts and customer win-loss rates, we are proud, yet not satisfied or complacent, of our ability to expand our market share. Next, I'll provide an update on Matrix Medical. Matrix recently refinanced its debt, which had an upcoming maturity. Matrix's financial results were consistent with the improvement seen throughout 2023, the business is growing very well. We continue to have confidence in the value of Matrix nationwide network of 2,800 in-home nurses and its refreshed positioning addressing whole person health. The management team at Matrix has made significant strides over the last year. Along with our partners, We are balancing the timing of the sale versus the continued progress financially and with the innovative platform and technological advancements they are making. That said, I expect that we will have the opportunity to monetize our minority equity stake in the latter half of 2024 or the first half of 2025. Similar to Matrix, our supportive care services leveraging our national platform are increasingly crucial in the evolving U.S. healthcare landscape. As healthcare shifts toward providing high-quality services to vulnerable populations, our supportive care service offerings are essential for managing chronic conditions. The market now demands more than basic services. Our customers expect insights and actions that directly lower costs, improve outcomes, and enhance member satisfaction. Our technology and clinical investments are helping us secure significant competitive advantage as the industry adjusts to the regulatory environment and evolving customer needs, leading legacy NEMT providers, monitoring, and personal care point solution providers to lose market share. On the other hand, our hybrid engagement model, which combines digital tools like monitoring devices in homes, or community stations and omni-channel connections with human interaction from our contact centers, in-home care, and transportation services, not only effectively manages care for hard to reach members with multiple chronic conditions, but also significantly boosts our win rates in mobility and monitoring core services. This is a standout result of our transformation. Furthermore, This approach is creating new revenue channels by compensating us for reducing healthcare costs, improving outcomes, and enhancing member satisfaction with a meaningful impact of our revenue projected in 2025 and beyond. We are actively addressing challenges from COVID's impact on working capital and the necessary adjustments to our cost structure. Our ongoing efforts to boost the revenue driving capabilities of our NEMT segment While transitioning us to a more competitively advantaged platform, this shift not only enhance our cash flow, but also facilitate deleveraging, propelling additional growth and scale. Beyond our unique platform, we possess the optionality to enhance shareholder value through our three business segments and our minority equity investment and matrix, each of which has scale and holds substantial value. Now I'll address our segment highlights, starting with NEMT. Our cost savings initiatives are progressing as scheduled. We expect to achieve at least $34 million of in-year cost savings and approximately $60 million in annualized savings beyond 2024. These savings are driven by our NEMT transformation, including our digital integration and technology advancements. The savings are reflected in our unit cost or per trip metrics, as well as KPIs like call to trip ratio. The initiatives in NEMT that are driving the savings this year are in three areas. Member experience, which is focused on our contact centers, interaction with our members, and transportation providers. Transportation services, which is focused on automating ride assignment, as well as standardizing and centralizing trip management. And purchase services, which is the actual cost of providing the trip. The savings here will come from our multimodal strategy, which is shifting more trips to rideshare, mass transit, select high quality and lower cost transportation providers, and other alternative options. I want to reiterate the savings and initiatives have been identified and actioned. And approximately 60% are standard run rate savings and we have clear actions for achieving our sales targets for this year and beyond. Medicaid redetermination continues to track inline or slightly better than our projection. As a reminder, we had $7 million impact of adjusted EBITDA in 2023, and an incremental $26 to $30 million impact is expected in 2024. Redetermination is coming to an end in the second quarter, and the financial impact will flatline in the second half of 2024. The industry is expecting 20 to 30% of the members that were disenrolled due to procedural terminations will be re-enrolled over the next several quarters. which will be an incremental tailwind to our financial performance. Shifting to personal care. The first quarter results were impacted by higher than expected wage increases and higher centralized costs that will be synergized this year. A critical strategy that is embedded in our transformation is focused on platform implementation, shared service centralization, and compliant enhancement. while implementing a sophisticated member referral and caregiver matching system. With these consolidated systems and processes in place, we can improve operating efficiencies, which will help drive growth. We expect to exit the year in line with our long-term revenue growth rates of 7% to 9% and adjusted EBITDA margin of 10% to 12%. Last week, CMS issued the long-awaited final rule ensuring access to Medicaid services. otherwise known as the 80-20 rule for personal care services. While the 80% provision was maintained in the final rule, we are pleased that the clinical nursing cost will be included in the 80% calculation. We were also pleased that the implementation timeline increased from four to six years before it goes into effect. Ultimately, We anticipate legal challenges and legislation could change the rule before it's even implemented. However, we expect to be able to offset any impact with operating efficiencies and growth. Next, New York CDPAP, or the Consumer Directive Program, whereby a member can be taken care of by a family member or a person of their choice, has encountered challenges from the state. This is a relatively small part of our business. However, we are staying engaged. In the event that there are changes, we believe we could participate in the change or convert members to more traditional home care services that we provide. In remote patient monitoring, we continue to see solid growth and performance, and we're seeing good progress with payers as we shift to an access to care model driven by our hybrid digital and human touch engagement model. As noted earlier, our monitoring solutions are contributing nicely to NEMT and PERS sales growth. and more specifically to the innovative revenue streams that generate payments to us for cost savings, improved outcomes, and member engagement. Currently, we have over 40 programs delivering this model. The results are very promising with high customer engagement to expand. We continue to scale and expect meaningful revenue in 2025 and beyond. Meeting our expectations in the first quarter was an important step towards achieving our 2024 financial targets and our conviction to generate free cash flow in the second half of the year, as well as refinancing our 2025 notes with prepayable debt. We have confidence in our strategy, competitive positioning, and execution throughout the year, and we will continue to consider available strategic avenues to optimize our capital structure and drive long-term shareholder value. Our outlook for the year remains unchanged, and we are confident in achieving our fourth quarter run rate adjusted to EBITDA of $220 to $230 million with a free cash flow conversion rate of 40% to 50%, excluding the impact of the expected debt refinancing. As we approach the final stages of our transformation, we're seeing a lower cost structure and increasing revenue, and we have clarity on the completion of Medicaid redetermination. With the volatility and unpredictability in cash flow behind us, our capital needs for funding working capital are expected to peak in the second quarter and expected to decrease in the third and fourth quarters as healthcare utilization stabilizes. I'd like to thank all our team members as we've navigated change and challenges over the last several months. It's their dedication and hard work that make motive care a special place to be. Now, I'll turn the call over to Barb, who will share additional details about our financial results and outlook for 2024. Barb?