ModivCare Inc.

Good morning and welcome to Motivacare's second quarter 2024 financial results conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. Please note, this conference call is being recorded. I would now like to turn the call over to Kevin Elitch, head of investor relations. Mr. Elitch, you may begin.

Good morning, and thank you for joining MotiveCare's second 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 and 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 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 will review 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 second quarter 2024 earnings call. Second quarter results were in line with our expectations with adjusted EBITDA of $45 million and revenue of $698 million. These results were primarily driven by our strong operational performance in our NEMT segment due to our improved go-to-market capabilities resulting in new business wins and upward pricing. Additionally, our cost structure continues to improve as we automate and optimize our omnichannel engagement capabilities and multimodal network. Within personal care services, the ongoing centralization and standardization has provided a solid platform to build upon, but has temporarily increased our cost structure and moderated growth. That said, our PCS performance improved sequentially, and we exited the quarter trending towards our long-term margin target. Additionally, the softening labour market is favourable for our recruiting and retention efforts. Remote patient monitoring revenue growth was lower on a year-over-year basis due to client membership churn, primarily because of reduction in our membership within our largest Medicare Advantage client. Although the overall MA supplemental benefit market is under pressure, we have a differentiated market position as our RPM business is primarily Medicaid long-term services and support, and we feel confident about RPM growth normalizing in the second half of the year with mid 30% margins. Based on our first half results, we reaffirmed our 2024 revenue guidance of $2.7 to $2.9 billion and lowered adjusted EBITDA guidance to $185 to $195 million, primarily due to lower than anticipated personal care services results from the first half of 2024. However, we expect to exit 2024 at a seasonally adjusted run rate of $210 to $220 million of adjusted EBITDA. Next, I'd like to recap some highlights for the second quarter, starting with business development. During the second quarter, we won $33 million of annual contract value, adding to the $36 million won in the first quarter. In addition to various other client onboarding, we onboarded a significant state contract in early June, which is already demonstrating strong performance and results. Importantly, we received extensions on 84%. or $526 million of the $623 million in our state Medicaid contracts that were up for renewal this year, including a verbal commitment from our largest state contract in New Jersey to extend through July of 2025. We remain highly confident in our ability to extend the remainder of our state contracts and win additional contracts in the second half of the year. Next, an update on our cost-saving initiatives. In the second quarter, we realized $7 million in net cost savings driven primarily by our strategic initiatives in our NEMT segment. Our omnichannel engagement includes digital tools that help members, transportation providers, and medical facilities manage trips through apps, text messages, web portals, IVA, IVR, or when needed, a low-cost, high-touch experience with our integrated contact center. For example, digital reservations increased to 33% in the second quarter, up from 23% a year ago. Additionally, we are the most connected and connectable NEMT provider, meaning that we are the only company that's digitally integrated with our nationwide network of transportation providers through 40 trip management systems. We're fully integrated with rideshare providers like Lyft and Uber, and we're connected with over 4,000 medical facility portals, and we have over 250,000 members and caregivers who are connected through our member app. Additionally, and uniquely, we have API connections with our largest clients. This setup allows real-time automated eligibility verification and enables clients to manage the member experience through an API connection to our platform. All these components not only improve the stakeholder experience, but also reduce costs, evidenced by our call-to-trip ratio improving to 38% from 52% a year ago. Our second strategic initiative involves sophisticated AI algorithms and technology to manage transportation using fit-for-purpose modes, which is our multi-modal network management initiative. This ensures the optimal time and place for the members' transportation needs, enhancing the client and member experience. This initiative has also shifted more trips to lower cost modalities that are the most appropriate level of service for members, including rideshare, mileage reimbursement, and public transit. which combined accounted for 45% of trips in the second quarter. Additionally, our digital engagement and AI algorithms are further reducing waste and improving efficiencies in routing, enabling us to lower our purchase services cost per trip by 5% year-over-year, and payroll and other expenses per trip by 17%, despite inflationary pressures. Our strategic initiatives are also effectively offsetting the impact of rising healthcare utilization and Medicaid redetermination. We remain confident in achieving our targeted savings of $30 to $50 million in 2024, as most of the initiatives have been developed, implemented, and are in varying phases of adoption and optimization. Our platform enhancements result in a member-facing, data-rich platform. which ultimately improves the member experience and allows us to save costs through greater efficiencies in our trip management and related revenue cycle activities, which will help us achieve targeted cost savings of $60 million on a run rate basis in 2025. Additionally, our data rich capabilities further differentiate our ability to meet client needs beyond the trip itself. Our clients greatly value our access to their hard to reach members. And when this is combined with critical insights from our tech-enabled, data-rich platform that impact the cost and quality of care, we become an indispensable partner. This differentiation not only strengthens our position to retain and expand NEMT services, but will also drive incremental revenue through value-based care programs. Shifting to our debt refinancing. On July 1st, we completed the successful refinancing of our $500 million 2025 senior secured notes with a new $525 million term loan B. We thank our partners and new investors involved in this transaction. Next, I'll turn to our free cash flow. As anticipated, free cash flow in the first half of 2024 was negative due to settlements on contracts payables, growth in contracts receivables, and our semiannual cash interest payment. However, the increase in our contract receivables is primarily related to a few customers with whom we are actively negotiating prepayment resets. These adjustments correspond with Medicaid redetermination and higher utilization and will be retrospective, generating positive cash flows in the second half of 2024 and improving our cash conversion cycles. While our quarterly free cash flow fluctuates throughout the year, we expect a normalized adjusted EBITDA to free cash flow conversion rate of 30% exiting 2024. Recovering from COVID and Medicaid redetermination has been challenging and extended, but our sustained differentiated offering and optimized cost structure are now delivering strong, sustainable results that will enhance shareholder value. Diving a little deeper into our segment performance, second quarter NEMT performance showed meaningful top-line sequential growth and meaningful improvement in our gross margins, driven by our cost-saving initiatives. We are encouraged by performance in NEMT as overall healthcare service utilization continues to normalize, and again, we expect the new normal at year's end. Our strategic positioning and enterprise go-to-market approach has enabled us to secure upward pricing to offset higher utilization even in a challenging environment. Our payer clients are under significant pressure to maintain their margin amidst rate cuts and inflationary pressures impacting their growth. We have successfully navigated Medicaid redetermination and the resulting increase in healthcare and utilization, diligently managing the corresponding impact on our working capital. As evidenced by our contract wins and retention, we are well positioned to secure additional NEMT contracts. Incremental volume flows through at a strong contribution margin to adjust EBITDA, which is why we are excited about consistently adding net new volume each quarter and the significant positive impact this has on our future growth and margin prospects. In the second quarter, PCS performance showed sequential improvement with steady growth in both revenue and hours. We recently secured a meaningful rate increase from New Jersey effective July 1st, and continue to benefit from rate increases in New York that became effective on March 1st. Over the past year, our centralization and standardization efforts have driven efficiencies, aligned incentives, and strengthened our core capabilities. However, as often occurs during a rapid transformation, margins and growth have been temporarily affected. We have two focused strategic initiatives. First, business development and referral management, and second, optimizing our centralization and standardization efforts to enhance our hyper-local community focus, thereby enabling and empowering us to accelerate caregiver recruiting and retention. As a result, we remain confident in driving profitable growth in our personal care segment and have implemented the necessary people, process, and technology changes to return to a 10% margin in the coming quarters. With respect to PCS regulatory environment, while there is ongoing information from New York regarding the Consumer Directed Personal Assistance Program, or CDPAP, we are well positioned with a diversified and healthy book of agency and high acuity waiver business. Only $3 to $5 million of PCS-adjusted EBITDA is derived from CDPAP. Additionally, we may benefit from changes as we have the expertise and scale to manage consumer-directed programs. Our RPM business continues to experience higher than expected churn from MCO clients, primarily within our largest MA client. However, we expect top-line growth will re-accelerate in the second half of 2024. We remain confident that growth will normalize, and we believe margins will remain in the mid-30% level as we invest in our offerings and focus on getting more share of clinical budgets allocated for monitoring and engagement services, which have not been impacted by the shifting reimbursement landscape. We have made significant progress over the last 18 months. Our strategy remains clear as we are well-positioned to capitalize on the evolving healthcare market. which demand services to manage health outside of the clinical settings. We are focused on enabling members to stay at home and are taking a more proactive approach to their health. We have added technology and clinical resources to go beyond trips, in-home care, or monitoring devices to manage high-risk cohorts, truly lowering costs and improving health outcomes for our clients. Our proprietary platform and differentiated tech-enabled healthcare services delivers risk-appropriate care based on member acuity and SDOH needs that serve as an extension of the member's existing primary care and care team. We have modernized three service lines that can operate independently as differentiated scale platforms. When combined, our service lines leverage our unique cost structure with shared services and business development, but also having ability to drive incremental growth from cross-selling opportunities. Also, it's important to note that our business is counter-cyclical. Given the ongoing uncertainty about the macro environment and potential economic downturn, the demand for our supportive care services is expected to remain stable. Regarding our capital structure, now that our debt refinancing is complete, our top priority is to proactively deleverage our balance sheet. we will evaluate all options to enhance value by optimizing our operations and continuing our mission to build a scaled SDUH platform. As for Matrix Medical, we remain aligned with our partner and Matrix Management and will provide updates about a potential monetization event when there are developments to report. As we previously indicated, we anticipate this will be later this year or early next year. I appreciate the hard work and effort from all team members at MotiveCare as we continue to provide great value to the healthcare system, our clients, and our members. Now I'll turn the call over to Barb, who will share additional details about our future results and outlook for 2024. Barb?