ModivCare Inc.

Good day, everyone, and welcome to MotiveCare's first quarter 2025 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. Please note this conference call is being recorded. Today's speaker will be Hugh Sampson, MotiveCare's president and chief executive 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 could 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 measures, 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, Heath Sampson will begin with opening remarks and 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 afternoon, everyone, and thank you for joining us today. We appreciate the opportunity to walk through our first quarter 2025 results and provide an update on execution across our operating priorities. To create a consistent framework for reporting progress, we are aligning our updates to five enterprise objectives. One, grow and retain core customer relationships across all segments. Two, digitize and automate our care access platform. Three, Optimize our operating model for simplicity and scale. Four, increase capital efficiency and advance deleveraging. And five, deliver high-impact client-centric supportive care. These five objectives guide our decision-making across segments and functions and will continue to serve as the structure for how we communicate execution and performance going forward. Now moving to our first strategic objective, to grow core customer relationships across all segments. In Q1, we focused on strengthening customer relationships through retention, targeted renewals, and new business wins across all three segments. In NEMT, we secured two new Medicaid managed care contracts, one in the Southwest and one in the Pacific region. representing a combined annual contract value of approximately $52 million with expected in-year revenue contribution of around $38 million. We remain the platform of choice for large health plans seeking broad network access, consistent quality outcomes, and actual insights to improve member satisfaction and reduce the total cost of care. Our forward-looking, tech-enabled approach to integrating the care ecosystem, combined with our ability to help clients proactively manage evolving CMS requirements, including the complex and state-specific needs of dual eligible populations ahead of the 2027 mandates, continues to differentiate MotiveCare in the market. We also submitted four state contract renewals totaling over $246 million in annual contract value. In each case, we are the incumbent and we remain on track for the renewal and continue to be a high value quality partner in each of these states. Our broader opportunity in 2026 pipeline exceeds $500 million in potential contract value. We also experienced the loss of a regional contract totaling $15 million in annual revenue. driven by a national plan's decision to consolidate vendors. While this was a smaller relationship, it was one we believe we should have retained. Performance was strong. This reinforces the importance of our ongoing investments in commercial responsiveness and account level management discipline. Retention remains a key performance priority. In personal care, we signed four strategic agreements, including two national and two regional plans. These contracts span geographies in the Northeast and Southeast and are expected to generate between 40,000 and 50,000 monthly service hours with contribution margins above our Medicaid average. In monitoring, we continue to grow our Medicaid footprint, adding two new markets during the quarter. In Indiana, which is about 10% of our LTSS revenue, referral volume increased by more than 45% year over year, while our newest Southeastern market delivered sequential growth. Our innovation and development efforts are beginning to deliver results, expanding our monitoring and care management capabilities beyond traditional PRRS solutions. While we are still in early stages launching new contracts, we believe the total addressable market is substantial, and we have built the infrastructure and capability needed to scale effectively. Now turning to our second strategic objective to digitize and automate our Care Access platform. We continue to advance our digital transformation strategy in Q1 with a focus on improving operation scalability, reducing unit cost and preparing each segment for future growth. In NEMT, our self-service call to trip ratio reached 36.1%, up from 35% in Q4 and 31% a year ago. This growth in digital reservations was supported by ongoing API integration and channel enhancements. Automated intake and trip adjudication contributed to 1.2% year-over-year reduction in unit costs with purchase services per trip decreasing to $40.69. Digital trip volume exceeded 1 million transactions in the quarter. Complaints, a key performance metric in the complex NEMT environment, declined 31.2% year-over-year, and on-time performance rose to 95.2%, and missed trips decreased by 20% quarter-over-quarter, reflecting meaningful improvements driven by automation and enhanced service coordination. We also expanded the use of our intelligent virtual agent for outbound call handling and deployed AI power tools for QA automation. These tools are improving writing accuracy, speeding up feedback loops, and creating more consistent oversight across contact center operations. As part of monetization in the NEMT segment, we're in the process of restructuring the organization and are building out a more tech first model by adding talent in data, AI and agile operations. While we continue to operate with over 2000 contact center agents and 800 transportation support roles, the infrastructure now in place positions us to accelerate automation, reduce fixed labor intensity and streamline repetitive tasks going forward. In personal care, we expanded deployment of digital tools included for shift scheduling, caregiver engagement, and e-learning, which achieved a 72% completion rate among newly onboarded caregivers. These are industry-leading tools which enable recruiting and retaining caregivers, while also strengthening compliance in revenue cycle management and supporting robust fraud, waste, and abuse controls. In monitoring, we completed phase one of our cloud-based continuity platform and launched new revenue cycle management automation. Together, these initiatives reflect the foundation of our platform modernization strategy. They are enabling faster execution, reduced manual workload, and supporting more scalable and compliant service delivery in both current operation and future business models. Now for our third strategic objective, to optimize our operating model for simplicity and scale. We advanced our structural realignment work by streamline operations, consolidating leadership structures, and reducing fixed overhead across the business. In April, we launched a company-wide G&A reduction initiative targeting approximately $25 million in annualized savings, with additional opportunities identified as part of the ongoing plan. Combined with the optimization actions implemented in late 2024 and early 2025, The savings were driven by workforce efficiencies, vendor consolidation, and realization of plan reduction. As part of our ongoing organizational alignment and future strategic plans, Bob Gutierrez, CFO, and Jessica Krall, CIO, will be departing the company after advancing their respective functions in the company over the last few years. These transitions are deliberate and aligned with both our near-term priorities and the long-term direction of the business. We have a strong experienced finance team with deep public company, healthcare, and audit experience, backed by leaders focused on execution and results. On the technology side, we're advancing the next phase of our platform with a capable team leading our shift toward automation, AI, and digital scalability. In NEMT, we completed a full operating restructure, integrating trip operations, pricing, client services, and transportation network management under unified regional leadership. This model enhances decision speed and financial accountability in the field while enabling a modern, connected, and hyper-local healthcare ecosystem. In personal care and monitoring, we streamline operation to reduce costs and improve execution. In PCS, a shift to a hub-and-spoke model drove $1 million in year-over-year G&A reduction. supported by standardized dashboards, tracking caregiver onboarding, and branch efficiency. Across all three segments, these operating model changes are designed to simplify execution, reduce structural costs, and support strategic flexibility. Now turning to our fourth strategic objective, to increase capital efficiency and advance new leveraging. In Q1, following the successful capital raise in January, we remain focused on improving cash flow, reducing capital intensity, and future deleveraging. In NEMT, we transitioned several large customers to faster settling fee-for-service-like models. These agreements retain performance and cost-based payments while limiting exposure from utilization or member mix volatility. As a result, collection predictability will improve, and several contracts now settle within 90 days or less. compared to prior cycles of six to 18 months. We have demonstrated improved alignment with our payer partners and a more proactive revenue cycle management. As a result, in April, we collected a large MCO contract receivable from 2024 of approximately $30 million a month earlier than we expected. To reinforce capital discipline and governance, we recently completed the final step of our board recomposition. In April, we also established a strategic alternatives committee of the board. This committee is now overseeing the ongoing portfolio and capital review process, including potential divestitures in close coordination with management, the board as a whole, and external advisors. Now, turning to our fifth strategic objective, to deliver high impact client centric supportive care. Our long-term vision is to become the digital infrastructure for supportive care for each segment, standalone or together. The operational infrastructure connecting payers, providers, caregivers, and members. This allows mode of care to unify fragmented benefits and deliver a coordinated member experience across in-home, virtual, and community-based services. This approach positions us to meet the healthcare system where it is going. Into the home, more preventative, digitally enabled, and increasingly centered around the number, improving satisfaction and lowering the cost of care. It also differentiates us in a fragmented market, not just through our service breadth, but through our ability to coordinate care efficiently at scale. Now, tuning to our consolidated first quarter financial results. Revenue for the quarter was $650.7 million, down 5% year-over-year and 2% sequentially. The decline was driven primarily by known NEMT contract attrition, lower billed hours in PCS, and membership turned in monitoring. These impacts were expected and reflect prior year customer transitions and market dynamics that are now largely behind us. Net loss for the quarter was $50.4 million, up from $22.3 million a year ago. The increase was primarily due to higher interest expense, which rose to $38.8 million, nearly double the prior year, as a result of higher borrowing costs on the fully drawn revolver. Adjusted net loss was $24.5 million, or negative 1.71 per share. which reflects the exclusion of restructure-related costs and amortization of intangibles. Adjusted EBITDA came in at $32.6 million, essentially flat year-over-year, but down sequentially, again, in line with expectations. Key drivers of the sequential decline included an $8 million impact from net NEMT contract development, reflecting the balance of new wins, losses, and repricing. a $7 million impact from lower EBITDA in PCS and monitoring. These impacts were partially offset by improved pricing, favorable utilization mix in EMT, and lower service expense and GNA. In an EMT, revenue of $449 million, representing 69% of total revenue, declined 6% year-over-year due to previously disclosed contract losses. Average monthly members declined 19% year over year and 20% sequentially. Also utilization from the normalization of healthcare increased to 12%. We've either repriced or in the process of repricing our full risk contracts, primarily with state clients to better align with current utilization levels. These pricing resets are designed to stabilize margin and reduce working capital volatility. To that end, We are also redesigning contract terms to accelerate settlement and improve cash conversion. These efforts are already underway with the goal of achieving more stable cash flow dynamics by 2026. Revenue per member per month rose 16% year over year to 6.35 and 13% sequentially. Results are stronger acuity mix and pricing updates. Adjusted EBITDA for mobility was $27.8 million with a 6.2% margin, up 50 basis points year-over-year and 60 points sequentially, driven by pricing discipline, mode optimization, and cost structure improvements. PCS contributed $181.8 million in revenue, or 28% of total revenue. Revenue per hour rose 1.1%, while service hours declined 2.1%, due to expected seasonality and localized labor shortages. Adjusted EBITDA was $12.2 million, up 9% year-over-year, driven by structural cost savings and temporary delay in wage rate changes. Margins will normalize in Q2 as these wage adjustments phase in. Monitoring contributed $18.1 million in revenue, representing just 3% of total revenue but 16% of total adjusted EBITDA. Adjusted EBITDA was $5.2 million for a 29% segment margin. While revenue was impacted by the planned exit of a Medicare Advantage customer in certain PERS markets, Medicaid LTSS referrals grew, including a 45% year-over-year increase in Indiana and additional programs launched in new states. We are now operating under three active condition-based monitoring contracts and continue to progress towards full divestiture readiness, including legal, HR, and operational separation, and advisory engagement. Turning to the balance sheet. Net contracts receivable rose $109 million, up from $95 million in Q4 due to expected billing timing. we are already seeing improvement. In April, we collected $30 million in receivables, approximately two months ahead of contract terms, reflecting improved payer alignment and proactive revenue cycle management. We ended the quarter with $116 million in cash and a fully drawn revolver of $269 million. Free cash flow was negative at $86.2 million, largely due to working capital build from timing of accounts payable contract transitions, and higher interest expense tied to our capital structure. We are continuing to take disciplined action to manage costs, drive execution, and position the business for long-term performance. Our strategic priorities remain unchanged. Grow and retain core customer relationships, digitize and automate our care access platform, optimize our operating model for simplicity and scale, increase capital efficiency and advanced leveraging, and lastly, deliver a high-impact, client-centric supportive care model. These objectives guide our operational decisions, investment focus, and how we evaluate long-term portfolio strategy. As shared previously, we are not issuing formal guidance in 2025. Instead, we are focused on executing against measurable initiatives and communicating progress through clear, objective KPIs and milestones. That said, we are executing with urgency and focus, improving our business unit performance, strengthening our balance sheet, and advancing our platform modernization. Our progress is a direct result of the work of our team, from caregivers and drivers to call center agents, engineers, and operators. Their execution and commitment are enabling us to deliver essential care and build a stronger, more connected mode of care. We look forward to continuing this momentum and updating you on our progress in Q2. Operator, we're now ready to take your questions.

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing your star keys. One moment, please, while we poll for questions. Our first question is from Pito Chikering with Deutsche Bank.