ModivCare Inc.

And welcome to Motive Care's third 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, at which time you'll press star 1 to ask a question. Please note this conference call is being recorded. I will now turn the call over to Kevin Elitch, Head of Investor Relations. Mr. Elitch, you may now begin.

Good morning, and thank you for joining MotiveCare's third 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 the applicable reconciliations 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, Hugh 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 third quarter 2024 earnings call. This quarter has shown positive momentum, reflecting both operational enhancements and strengthened relationships even amid broad healthcare market shifts. Third quarter results were in line with our expectations with adjusted EBITDA of $43 million and revenue of $702 million. These results were driven by continued improvements in our personal care services segment, higher margins in remote patient monitoring, and NEMT cost savings. We have made strides in optimizing technology to enhance processes. automating several contact center and back office functions to improve our cost structure and reducing our NEMT unit costs through our multimodal network strategy initiative. During the quarter, we were successful in getting an amendment to our credit agreement, giving us temporary relief with our debt covenants. Our bank group continues to be constructive and supportive, and we are working with them to finalize a long-term solution that provides us with the time needed to thoughtfully and strategically assess the best approach to optimize value for all stakeholders. Over the last several quarters, we have been actively working to reset several of our shared risk and EMT contracts through retrospective upfront prepayment increases. While these adjustments are a standard part of our annual resets, the impact of Medicaid redetermination and increased healthcare utilization created delays and increasing AR accruals. As a reminder, our contracts, payables, and our receivables accrue each quarter. They increase or decrease over six to 12-month reconciliation periods and subsequently settle over the next quarter. In the third quarter, we're able to collect gross contract receivable amounts of $105 million, including $42 million from retrospective prepayment resets, $39 million from an early settlement with our largest MCO client. Furthermore, our negotiations with clients to date have successfully reduced our contracts receivable bill by 40% on a go-forward basis through increased upfront payments, We are working to address our remaining shared risk contracts through further prepayment updates, and in many cases, shifting to fee-for-service arrangements, which will have monthly and quarterly payments. Our working capital and related free cash flow will continue to normalize over the next two to three quarters as these activities are completed and we work through the runoff from current payables and receivables. We had a contract receivable balance of $110 million as of September 30th, of which approximately 70% is contractually due to us by the end of the second quarter of 2025. This excludes any future receivables bill. Regarding our contract payables, we expect to settle or repay substantially all of the existing payables balance, which was $47 million, by the end of the second quarter of 2025. Additionally, we anticipate the billed and receivables over the next two quarters will also be settled in mid-2025 as the contracts complete and we transition to new fee-for-service contracts. Shifting to our guidance. In mid-September, we lowered our 2024 adjusted EBIT guidance to a range of $170 to $180 million, primarily due to some repricing in our NEMT segment that were agreed to strategically retain or expand key customer relationships. We have ongoing discussions that could have a material positive or negative impact in 2024 financial results within the range we provided. Thus, we are not adjusting our guidance. We expect 2025 adjusted EBITDA to increase approximately 10% driven by membership growth and new contract wins, as well as cost savings and other strategic initiatives. Our transformation across all segments has created a foundation for stability with technology, clinical capabilities, and customer engagement differentiations at scale. This positions us for sustainable growth, enhancing the near-term and long-term value for our business. We will provide more information regarding our 2025 outlook when we report fourth quarter and full year 2024 results, which is our normal cadence for providing more details. Over the past 18 months, the government-funded healthcare arena has faced several headwinds from material regulations, rising costs, a strained workforce, and a growing chronic population. Our MCO clients, especially managed Medicaid, have been dealing with a number of issues, including Medicaid redetermination and the normalization of utilization. The Berkeley Research Group projects MA medical costs will increase 4% to 6% in 2025. As a result of lower rates and higher costs, our MAMCO clients have exited several unprofitable geographies and reduced supplemental benefits spent on transportation and other supportive care services. As a reminder, Medicare Advantage accounts for about 15% of our NEMT revenue and 25% of our RPM revenue. We anticipate a shift of our MA mix to winners from losers as a result of potential changes. We are focusing on our sales and product strategy around these shifts, listening to our clients and developing MA products in response to the expected shifts in the market. In 2025, we do anticipate a contraction of our Medicare Advantage business. As our client's MA membership firm up, this will be reflected in our 2025 budget with more details to follow on our next earnings call. Once we get beyond these changes, our supportive care services are well positioned to benefit from the tailwinds in MA and its focus in 2027 to integrating dually eligible members, health equity, and SDOH measures. From an operational perspective, NEMT segment continues to perform well. with high on-time performance, low missed trips, and historically low complaints. Our team has driven efficiencies through automation and optimizing the latest technologies, which has driven significant efficiencies and cost savings. In the third quarter, we realized $3 million of net cost savings driven primarily by our strategic initiatives in our NEMT segment. Since we started these initiatives in mid-2023, we have made major strides enhancing our technology capabilities by implementing new contact center technologies, enhancing the member experience, and more capabilities to provide assistance, while also driving cost savings, evident by lower payroll and other expense per trip, which is down approximately 25% over the last 18 months. Additionally, we have gained operating leverage through our multimodal strategy, reducing unit cost or purchase service expense per trip even in the face of rising utilization, while ensuring members are assigned the most medically appropriate level of service for their needs. While we have made significant progress to optimize our cost structure, we believe there is more opportunity and expect additional cost savings will be realized over the next 12 months. During the third quarter, we won $12 million of NEMT Annual Contract Value, or ACV, and have added $81 million year-to-date. we have successfully renewed or extended all the state NEMT contracts this year. Our NEMT pipeline remains strong with $1.5 billion of ACV. Our multi-pronged go-to-market strategy is positioning us for growth, not only with existing clients, but also with new clients who were previously disillusioned in 2019 to 2022. We've come a long way with tangible tech-enabled and when appropriate, high touch performance. This year, we have successfully renewed, retained, and extended state NEMT contracts and have a significant opportunity over the next five years as our new and expansion contract pipeline is valued at $1.7 billion. We are also seeing a shift in client retention as certain clients who previously moved to competitors focused on pricing or simplified solutions are now experiencing performance and cost issues. Our commitment to sustainable partnership position us well, and we are in close contact with these clients, expecting to win back their business in 2025 as they prioritize quality, member satisfaction, and cost stability. In our personal care services segment, we're making progress growing ours. We have successfully executed a transformation, building upon a unique platform with standardized technology, operational and compliance excellence. Our focus is to continuously optimize aligning our hiring with business development to accelerate the right referrals at the right time, therefore improving top line growth. We anticipate further operational efficiencies and margin improvement over time reinforcing the strength of our Transform platform. Now I'd like to provide an update on New York's consumer-directed personal assistance program, known as CDPAP. The state selected a single vendor as the exclusive administrator for New York CDPAP. PPL plans to have four large regional contractors and 30 subcontractors that will work with them in New York, and we have one of the 30. This is a dramatic shift from today's 700 plus fiscal intermediaries. While this change is slated to go in effect in April 1st of 2025, many industry stakeholders, including legislators and one of the large regional subcontractors, have voiced concern that the timeline is too aggressive and unviable. We expect this transition to be further delayed. There remains a lot of challenge with the state's new approach to CDPAP. However, we have been operating in the New York market for decades and in several counties, and we expect to continue to be an experienced market leader. In 2024, reimbursement rates increased in two of our largest states, New York and New Jersey. Subsequent to the end of the third quarter, West Virginia saw a meaningful rate increase and we continue to advocate at the state and local level among our peers. Our largest state, Pennsylvania, hasn't had a rate increase in over four years. Recently, the state requested public participation for a rate study, which could be a precursor to a potential rate increase that would be very meaningful for our PCS segment. Moving on to our RPM or monitoring segment. Revenue increased 2% sequentially and adjusted EBITDA margin was nearly 37% due to a concerted effort to manage costs. While top line growth is still lower than historical growth rates, primarily due to attrition within our MA portfolio, we expect growth will continue to improve over the coming quarters driven by new business wins and operating leverage. That being said, we expect the headwinds to continue in 2025 for MA supplemental benefits within PERS. As the premier PERS provider in the Medicaid long-term services market, our stable, reoccurring revenue averages around five years per member, creating a stacking effect on long-term growth. Our unique technology-driven clinical monitoring solution is also gaining traction. We've effectively balanced low-cost continuous monitoring with targeted clinical oversight. Results from early pilot programs have been very encouraging, delivering significant value through innovation. Combined with our Medicaid business, long-term growth, and robust margins, this positions us for sustained success. In summary, We've clearly made meaningful strides in taking out costs and driving efficiency in all parts of our business, especially in EMT. The centralization and standardization in our personal care services segment is nearly done, and leading indicators are showing continued margin improvement over the next few quarters. We've gone through an unprecedented time with the impact of Medicaid redeterminations, which has created greater than expected volatility in the timing of our working capital normalization and cash flow generation. We believe there is considerable underlying value in our three segments. As previously stated, delivering our balance sheet is a top priority. In the meantime, discussions with our bank group have been productive, and we expect to have a long-term collaborative solution completed in the near term. Once this is done, we have a number of levers that we can pull to enhance stakeholder value. We are considering all options, but we will be strategic and thoughtful about which path we take to ensure we drive the best outcome for all our stakeholders. I'd like to thank all our teammates at MotiveCare for their hard work and dedication, providing high-quality services to all our members and clients. Now I'll pass the call over to Barb, who will share additional details about our financial results and outlook for 2024. Barb?