Welcome everyone, to the DB Conference as we kick it off here, to those in the room and those on joining on the webcast. We are very fortunate to have Modivcare here this morning with us. I wanna thank you guys for taking time out of your schedules and running a company to participate in the conference. Really appreciate your time and you guys being here. Up here at the table with me, we have Heath Sampson, Chief Executive Officer of Modivcare. Also in the room, we have Barb Gutierrez, the newly appointed CFO, Kevin Ellich, Head of Investor Relations, and Zach Miller, VP of Finance. So welcome, Heath. Thank you for being here. Yeah, no, thanks for having us. We really appreciate it. So I'm just gonna kinda launch into Q&A here, and I think the first topic is one that some investors have struggled with as we think about the increases in utilization and what that's gonna mean for results. And, you know, I think as we know now, you can correct me, Heath, but I think we're at around 60%, 20% full risk contracts, 15 fee-for-service, and I guess that's really 65% would be the balance on some sort of shared risk contract. Can you just talk to us a little bit on the shared risk side? So with these increases in utilization on the risk sharing, how does this kick in? Is it based on utilization? Is it based on margin? What's the trigger for that? And then where does it kick in? You know, we've got utilization, you know, right now running around 8.5% in the second quarter. At what point does that kick in, and how fully hedged are we? How do we think about, like, being hedged on a, on an EBITDA per basis, versus having a receivable that we're gonna collect later? I know that was a bunch of questions tied into one, but maybe if we could just sort of start there with utilization and these shared risk contracts. Yeah, so for everybody and maybe people that listen to the webcast, so for us, being the premier supportive care company that's focused on social determinants of health, we have a lot of different services, whether that's our home business that has personal care and monitoring, and other services where we're connecting with members, people in their home. The focus for a lot of investors right now, whether that's on the debt side or the equity side, is on the mobility business, which is our core business, which is, call it, kinda 60% of our business. So the questions around utilization and are centered on the mobility business. There's actually a natural hedge on the other side from a home business. Utilization going up in the home business is actually a good thing. So rightfully so, for where we are as a company going through this transformation, the questions that are focused on the transportation business and specifically utilization. Because the way our contracts are structured, and that's the first question is, historically, you know, prior to COVID, and even during the beginnings of COVID, most of our contracts, many of our contracts are capitated. So you said they're 85% capitated and then 15% not capitated. But over these last number of quarters, we've been more specific around what that means, which gets into. Well, they're not- all the 85% isn't truly capitated. There's this shared risk component to that, and before I get into this a little bit more, and it fits with where healthcare is going, with our business as a whole, as well as within transportation. So historically, businesses like us, it's been more very transactional around doing the specific service: care in the home, giving a trip, providing a device. You talk to any of the, of the payers or providers in here, because of the rules that are coming out with CMS, it's required to pay more attention to that specific person and what is their illness. That shift has really happened really over the last kinda 12 to eight months, and it's continuing to accelerate. And so that philosophy, why I bring this up, by our customers, primarily payers, is to have this focus on the patient and not necessarily the individual transaction. And what that has led to within mobility, specifically since I've been here and, and renegotiating these contracts under that philosophy, we've moved to this win-win relationship because the focus should be on that specific member and not necessarily on the transaction, AKA the trip. So we've moved to having more, call it, shared risk contracts. So 20% are full risk, so those are where we get paid a capitated rate, and regardless of cost or trip volume, we have to manage that. Fifteen percent is truly just, we get paid a percentage above, kind of fee-for-service. And then this middle part, the 65%, is the shared risk contract. That's the way actually I expect things to continue to move, more in line with Managed Medicaid, definitely in line with MA, is to have this focus on the member and therefore these shared risk contracts. The way these shared risk contracts work are exactly that. Utilization and cost, no one should be burdened in the wrong way, us or the customer. That's the purpose of that. So if utilization goes way up, we're gonna share in that. If costs go up, we're gonna share in that. And that's the way these contracts work. It's a good thing that we did that, especially coming out of COVID. It really allows us to protect the downside, though we've limited the upside, if there, God forbid, another COVID situation, to ensure that we are in a win-win relationship. So those are allowing us to ensure that we, as we come out of COVID, we're in a great space to grow and maintain our margins on top of that. So you, you indicated that utilization was sort of a driver of the risk-sharing kicking in. Can you just confirm that, and then maybe, can you just talk to us about when do they kick in? Does utilization have to get to 12% like it was pre-COVID, before this sharing kicks in, or where, where does that start to have an impact? Yeah. So in our shared risk contracts, there are different flavors of that shared risk contract. Some are based on a band of gross profit. Most are based on a matrix between utilization and cost. So think about a matrix on that. When we set the contract, we set, if you're familiar with manufacturing, kind of set that, set that standard cost, what we think is gonna be the case, and this matrix allows it to move within that. So the whole point is, we shouldn't be penalizing anybody for increased utilization. It gets back to the member. Someone that's on dialysis needs to go to their appointment. We don't want to utilization manage the wrong way with members. So it really is. There's no really big thresholds. We're at the thresholds right now, so if utilization's going up on those shared risk contracts, we're passing that through. So would that be the case regardless of magnitude? I mean, if utilization went to 25%, would it be the same thing- Yeah - that you're protected, or is there a piece of that, that you do endure? Yeah. So- So on utilization, we're protected, right? Okay. You know, it's not gonna be 25%. Right. Yes, we're protected right now on all those shared risk contracts and fee-for-service contracts. Okay, and that comes back in the form of an increase to the PMPM? Is that how, what, what's the actual how does the actual hedge accrue to you? Yeah. So it is. It's an increase in that PMPM. It basically is, if utilization's going up and we're doing more trips than we thought, so more expensive to us, we're gonna get paid on that. The reality is, and this is one of the things, how it works, is when that situation happens, it gets put on the balance sheet, and then we'll collect it over the next three to six months. And the inverse is there. On the other side, if it's too low, and this was a big part of COVID, it actually gets put on the balance sheet as a payable. On the current situation with utilization increasing, if it's put on the balance sheet. If you had full risk, it would just be, you would see a decline in EBITDA and a decline in cash. Yeah. Because this is going on the balance sheet, we're seeing a decline in cash and an increase in receivables. Yeah. Is that how it- That's correct goes through, and we're not seeing a decrease in EBITDA? That's correct. Okay. So there will be a timing capture- Yeah - for the receivable. Mm-hmm. But we shouldn't see a situation where, I'm just making numbers up, instead of, you know, if you were gonna report $50 million of EBITDA this quarter, and you actually report $40 million, and you say: "Oh, but there was $10 million related to utilization," and, you know, or redetermination, whatever it is, "excluding that, it would be $50 million, and this will normalize." It's not. We shouldn't expect that. No. It should be an actual hedge. Yeah. No, exactly. Okay. That's the whole purpose of the contracts. Where it gets to. So an increase in utilization or trip volume, for that matter, we're protected in our contracts, the big dollars. Where it is, and what we need to do is contact center. So we get a bunch more phone calls when you take trips. We need more people to manage the trip in the field. That is a cost that does increase, but at a much smaller scale. That is an important thing for us to manage. So if we want to get back to our margins, our margin guidance of kind of 9%-10% range in the mobility business, 'cause we're at a lower end of that, we're at that downside of that, we need to take that cost out, which involves modernizing our platform. So right now, we take about 28 million calls at $4 a call. The majority of our interactions with our members are via phone. Half of those calls, approximately half of those calls are people wanting an update on where their ride is, confirming their booking, or "Where is my ride?" Those common technologies that other industries do, and by the way, as well as in healthcare, why not just send a text? Or an IVA, IVR. "You called, Mrs. Smith, are you calling about your trip at 10:00 A.M.?" Those type of modernization and automation are important for us to get back to the higher end of our margin. And that as utilization goes up, our estimates on what we've given for what's happening in 2024 assume that higher utilization, assume that redetermination happens. We feel really good about our initiatives to have in place to offset those, as well as get back to the strong margin. That's helpful. So you figured a few questions for me in that response just now, but I guess I'll bounce around a little bit. Apologies. As it relates to these initiatives on the cost side. Mm-hmm. Is there a capital outlay that will be needed? Like, as we look at CapEx in the next few years, and we think about free cash flow and what that could look like, is there an outsized CapEx outlay that we should expect in connection with any of this or otherwise? I think our CapEx that we've had historically, call it kind of 1% of revenue, is in line with what. It's manageable within that. We've been investing a lot, as much as even the last couple of quarters, on our technology infrastructure, and this is just a continuation of that. Most of the stuff that is needed to make this modernization is just execution with our current people. Okay. And then can you just tell us, when we had the contract payables on the heels of COVID, it was a 1.5 year, two years before those all got paid back, but now we're talking about receivables and collecting those in three to six months. Can you just tell us why we should expect that to be- Yeah a shorter period? How, how we can feel confident about that? Yeah, it's a really important point, and this is a question that everyone should pay attention to, because it gets to what you've seen in the past versus what's happening today. So during COVID, obviously, there wasn't a lot of trips. A lot of these contracts were not renegotiated to where we are today. So we benefited heavily from increased cash coming onto our balance sheet, as well as on the P&L as well, but the big plus was on our balance sheet. And many of these contracts, primarily the full risk contracts, did not contemplate a COVID. So there was no really, "How do you settle this up?" because those contracts are typically 3-5 years, so there was no need to some of them said you'd settle up in a year, some would say you settle up at the end of the contract term. So we didn't contemplate this in COVID, right? So we didn't have to pay these back in many of these instances during COVID. And still, as recently as Q1 of this year, I didn't think we were going to pay a lot of these back. But for many reasons, primarily to ensure that we have this win-win relationship and I ensure that I can continue to grow, we did finalize the settlement of old, old COVID payments in Q2, you know, $96 million of payables that we paid in Q2. At that same time, across all our contracts, full risk or shared risk, we locked in which is the settlement period, so it's anywhere from three to six months. So one, COVID payment's gone. Wow, that was a lot, Heath, that you paid off in Q2. So that will not happen in Q3 and Q4 because we're done with that. And then, of course, the settlement periods are more three to six months. And to finish this off, because we're so large and we have many of these different contracts, and now we are in this kind of net, kind of neutral, we're actually in a net receivable position, we're going to get paid on all the historical stuff. So I'm very comfortable with our normalized working capital post-COVID. Our contracts are working. I don't expect any big fluctuations, and I'll just confirm what I said, that I'll be generating between $30 million and $50 million in the second half of this year that will go down to the airline. Feel really good about that. Great. And then just since you mentioned it, 28 million calls at $4 a call is $112 million a year. And I think on the slide, you talked about 60 million-80 million of annualized- Mm-hmm. -cost savings from automation. Mm-hmm. But you also indicated on the slide that 60-80 comes off a $260 million run rate of payroll and other expenses. Mm-hmm. So I guess- Mm-hmm. When I think about that $112 from the calls, and maybe you said half of those could be, my words now, could be used—you could use a text for, so maybe $56 million or so could possibly go away if you replace those calls with text. That's getting close to the $60-$80. So I guess I'm just curious, is that the right way to think about it? And then looking at this $260 of payroll expenses versus the $112 I just talked about on just the call center expenses, is there other—I guess there's other stuff, right? Yeah. That you can prune. Can you just talk about that? Yeah. So the point of laying it out like that is to show that it's very reasonable for us to hit these normal kind of normal interactions with Medicaid and Medicare members. Not everybody is going to want a text. Not everyone will use IVR. Not everyone will use an app. There's many other initiatives. So I think our assumptions are very reasonable off of that $260 million in general. So the bulk of it, like you said, is the contact center. Call it another $180 million-$100 million is also in how we manage the transportation network. All the way from we still manually inspect cars, not just use camera that our transportation providers do themselves. We still manually route a lot of things. So there is a lot of-- We still have hundreds of people in exceptions that just look at exceptions. We have hundreds of people that follow up on claims, that is normal in healthcare. So it's a very manual process, both on the contact center side as well as managing the operations. So the initiatives that we've laid out, what we have in front of us is a very reasonable. That $80 million, that $60 million-$80 million is there. The amounts that we expect to get in 2024 is reasonable as well. You could argue it's bigger, right? If you think about AI, but we'll save that for another day. Let's just get to the kind of the core stuff, and hopefully we improve on that. Okay, great. Still balancing. We get asked a lot about secure capacity as it relates to, you know, thinking about the 2025 bonds. Mm-hmm. I think calculations, including ours, tend to range between $500 million and $1 billion. Size of that tranche is $500 million, so that would be needed. Are you able to share a number that you guys have internally as it relates to secure capacity or any kind of comments broadly about it? Yeah. So we feel really good about our ability to refinance those under a secured capacity timeframe. We could refinance those now, if we wanted to as well. Our goal is to ensure that we get the lowest cost of capital for us. I feel really good about our ability to generate cash. I feel good about our strategy, and then to refinance just under that, and then you layer on the eventual monetization of Matrix on top, it allows me to ensure that I get the lowest cost of debt too. And that's my focus, and I feel good about our ability to do that. So in theory, stability of results, improved results could yield a better cost to capital? Yeah. Okay. Yeah, absolutely, right? Because a lot of you guys are in this room, or a lot of people that aren't in this room are like: "What's Q3 and Q4 going to be? Especially after this Q2 payment of COVID." And I want to show that we're doing great. What, what's the risk of, you know, we're in a net receivable position now, which is great. Mm-hmm. That's important. Mm-hmm. But there are receivables and payables now that are part of this equation, and not as much just kind of the payables like it was more so before. What is— You know, with what we talked about earlier on these risk-sharing contracts, there's potential for AR to come up, get it back quickly, but nonetheless, optically, it could be, it could be there in, in the immediate term. What's the risk of a really big AR number? Mm-hmm. you know, working capital going against you again. I mean, I know you just reiterated $30 million-$50 million. Mm-hmm. I'm not sure how to ask this in a way that is fair to you. Mm-hmm. But, do the receivable trends fit with what you, I guess, would expect and are not out of line with what would feel comfortable, I guess? Yeah Maybe is the way I'd ask it? So, like us, like anybody else, they're getting lots of questions on what's the new normal of healthcare utilization after COVID. And I think in many areas, we're starting to get to a new normal. And with our contracts post-COVID, that's what started us. We're really the receivables just started in Q1 and Q2, so we're kind of starting from scratch. And so we didn't have any kind of receivables to pay that off. So that was kind of a drag in Q1 and Q2. And then I also do expect, and this is in line with many people in healthcare, that this kind of steady utilization growth. With that steady utilization growth, coupled with we have all these contracts, we're gonna be paying off, using these receivables to pay off that. Mm-hmm. Also, there's payables, too, 'cause we're large. I do believe we won't have these big swings in working capital. Call it, you know, right now, I think we're in a net of 30-ish plus receivable. I think that's the right way to think about it, kind of 20-30 receivables, payables as we manage through these next number of quarters and years. 20-30 net- Yeah, net -receivable? Yeah, net receivable. It could go into a net payable. Oh, okay. Yeah, so I think that- On either side of zero, 20 to 30. The timing and size of these, call it a working capital of $20 million-$40 million need, with the construct of our current contracts. I do expect us to continue to change these contracts. They get more in line with where healthcare is going, but I don't want to distract, you all right now. I guess, as we talked earlier about the risk-sharing in your directly hedged, whether utilization goes to 20% or whatever- Mm-hmm you know, absurd number I threw out for illustrative purposes earlier. Mm-hmm. It would be fair to say that if in that situation, that you would have a bigger receivable? Yeah. Okay. Yeah, yeah. As it relates to utilization, that's something we can be mindful of, even though it won't impact your EBITDA. It'll impact receivables over a very short term- Yeah and then gets paid back. Is that fair? Yeah, there is. But the other thing is, so we still have a payable too, right? Yeah. So- Yeah that payable would be. So it's not all binary. That payable actually would get eaten into in that event. Okay. So again, we have the right mix of contracts that it's. But you're correct, but it's not gonna be as dramatic as it might. Okay. I want to hit on redetermination, just for a minute, too, just kind of on the, again, the accounting of it. Mm-hmm. You know, you're seeing the same data we are, 37% disenrollments. It's probably they've done 15%-20% of the total live so far, and 73% procedural terminations. Mathematically, if we look at it, you would need to have between 82% and 100% reversal of those procedural redeterminations to get back to that kind of 10%-15% guidance. I think on the call, you said you were seeing early indications in some states, like 50%, 50%-80% re-enrollment. Mm-hmm. It's not far off from what I'm talking about here. No. Is that still the feeling you're getting? Because that- Yeah. the percent of these procedural terminations getting re-enrolled is an important- Yeah. - number for us to, or it's important for us to have a sense of that. Is that continuing post- Yeah Q2 call? It's right in line with what you said. Okay. The most important thing for us is understanding our mix of contracts and what states those are in. That far outweighs- Yeah the national- Right data that you just sent out. And as we know, 29 states and D.C. said they have stopped those procedural disenrollments. That's an important point, 'cause most of the disenrollments that are procedural are primarily in Republican-related states. Most of those 30 are Democratic states. And our full risk contracts, primarily state, are primarily Democratic. That's, that's probably the most important point to make around your question. So we do not foresee procedural disenrollments to happen in those states because they said they're not. Mm-hmm. That makes it easier to manage this kind of dis-enrollment, enrollment phenomenon that you're seeing there. The states that are Republican, that's happening, those are in shared risk, so we're protected by that. Okay. That's probably the most important point. Very helpful. So it's in line with our, our estimates that we've given. We feel good about where we're gonna fall out this year. In fact, it's probably a little bit less and slower than we thought. So, and I expect that our estimates that we've given in 2024 play out from a, from a net perspective, which was it will be a $20 million-$40 million impact- Mm-hmm to us in 2024. Okay. And then at the ground level, just in terms of accounting, if I think about a person who's disenrolled June first, they go in the pharmacy July first to get their prescription. They're told they've been disenrolled. I think, as I understand it, they have three months from June first to get reenrolled to have continuous and retroactive coverage. Mm-hmm. So as long as they get re-enrolled by September 1st, that would be continuous to them, to the patient. But I think if they get dis-enrolled June 1st, you are not booking revenue for the period that they're dis-enrolled, regardless of what's continuous and retroactive. Yeah. So is that also on the Matrix? Like, is that considered a. Is it a loss of a life, and now the pool of utilization is based on your adjusted lives? Or is this like, a decrease in utilization? Or sorry, is this a change to margin or whatever it is, that kicks in a risk corridor or a risk sharing, and your PMPM goes up for other parts of your people who are enrolled? Yeah. So, so utilization is math. And in our shared risk contracts, whether it's because of a redetermination or truly because of change in trip volume, that math is contemplated in those shared risk contracts. So it gets back to, I don't- we don't have an issue on timing or coming back within our shared risk contracts, so we're protected. So I feel good about that. Again, those are primarily Republican, where that's happening, so I feel really good. So you shouldn't, the, the, you shouldn't have a fear that we're gonna have a P&L impact. Why is that again? Is it actually a PMPM increase, adjustment that you get when someone drops off the Medicaid roll because you're having a margin impact or whatever it might be? Yeah. Well, so that would show up that way and how the math is calculated. Okay. Yeah, that's correct. But where the issue would be, again, this is, would be in full risk. Full, right. In full risk, that is an issue, and we—but again, we talked about that, that we don't foresee that being a timing issue with procedural. And the way it works within shared risk is that it flows through. It might go on the balance sheet, payable, or receivable, but that's in line with the guidance that I gave around it bumping around kinda $20 million-$30 million each way. That's contemplated with procedural disenrollment within our guidance. Okay. So on the shared risk side for redetermination- Mm-hmm. It should be hedged? Yeah. There might be a balance sheet impact. Yeah. That's fine. We've talked about that. Yeah. It's not gonna be a big one or a small one. Okay. It's gonna be in line with what I said. I have time for a couple others here. Are you able to say anything about Matrix in terms of. I know you said before you'd like to see that EBITDA $50 million-$100 million- Mm-hmm to get, you know, the right monetization. I guess Frazier's gonna probably drive the bus ultimately there, but it sounds like you're in a good space with them on all this. Are you able to give us any? I think they have some privately available information for people that sign up on it, so a lot of people know what Matrix EBITDA is right now. Mm-hmm. But I'm not sure if you're able to say anything about it. Are you able to give us any sense as to whether you're getting closer to that range, or if there's still a lot of wood to chop, or is it just hard to, to- Well, my main responsibility is to ensure Matrix is performing well, and I tell you, we're completely aligned with Frazier and the management team, and tremendous job what they've done with that company to ensure we're the, we're the number two size perspective. And the value of that nursing network is really the value that, that is out there. So yeah, it. We will be monetizing that 'cause it makes sense to do more than just risk adjustment for that business. Because you have access to those 5,000+ sticky, valuable nursing network. And there's a lot to do, right? There's a lot to happen. So we know that it's gonna go somewhere to another company that can help to help use that that nursing network to really, really grow. I feel we haven't given. I stick to the 50-100, so you can box in. It doesn't make sense for me to tell you exactly what it is, and that's not a good thing if we're in the market trying to sell. Yeah. Right? So my whole goal is to ensure that when Frazier and I are all on the same page to monetize this, that it happens in the best way and it's a win-win for us. So I feel good about it. I would stick with the 50-100, and I look forward to when it goes somewhere else. Gotcha. I'll. There's enough time if there's a question in the audience right now. If not, I can ask the final one, but I want to give a chance to those out there. Okay. Maybe, maybe I'll try to do a couple short ones. So can you tell us, utilization today, 8.5%, pre-COVID, it was 12+. Mm-hmm. I think there's some structural differences as to why it won't go back to 12. Yeah. Can you just maybe discuss those? And then lastly, can you just tell us a little bit about how MA contracts are structured differently to, to Medicaid or if there's- Yeah anything worth talking about there? Yeah. So, this has really been consistent with what we've said over a year and a half ago, where we think utilization is gonna be kind of finishing at that 9%-10%. Mm-hmm. The way we are—I think the new normal of utilization is the kind of exit in 2024, that way. That's the way we're planning, and that's in line with customers, the industry, and where we are. So we will get to that endpoint of new normalization in 2024, and I do think it is a steady increase from where we are now, even though Q2 was a little bit more of a bump. Q2 is usually seasonally a little bit higher, but I do think it's just normal for that 9%-10% range on normal utilization. And why it's not gonna get back to 12%, primarily two reasons. Change in healthcare, telehealth, it's the utilization of certain, you know, mental health is generally down further from where it's gonna be. But the other reason why is historically back then, utilization management was not a priority, so people were taking trips that they shouldn't have taken. So those two reasons, and we have clear data on this, that it's not gonna get back to that 12.5% for those two reasons and, and end at that 9%-10% normalization. And then even still, what was different back then, those contracts were very different. We have these shared risk contracts, and even within our full risk contracts, some of them actually have a yearly actuarial settle-up. So regardless of where utilization is gonna be, there's a win-win relationship for us. This is an important benefit to ensure that people get the healthcare they need. So I think we're in a really good spot on where utilization is gonna end up in the end. And then with MA totally depends on the utilization is different for different things, but it's the same. Okay. So, the one thing about MA, and this gets back to what I said earlier, MA is heavily focused on that specific member. The trip is a part to changing outcomes, ensuring that person is healthy, stays out of the hospital, gets ahead of some illness. So that's where it's really moving to, providing information and data and integration with the MA beyond just the transaction of utilization management. Which fits perfectly for you guys. Fits perfectly for us, yeah. All right. Well, let's wrap there. We're at time. I just want to say, Heath, thank you again so much for taking time out to be here and for bringing the team, and it's always great seeing you guys. Thanks for your participation. Yeah, we really appreciate it. Thanks for the questions, and look forward to talking to everybody.