Welcome to the 2024 Jefferies Global Healthcare Conference. I'm Brian Tanquilut, healthcare services analyst here at Jefferies, and joining us this afternoon, we have Modivcare. With us this afternoon is Heath Sampson, the CEO of the company, and Barbara Gutierrez, CFO. Heath, maybe let's start with a Modivcare state of the union. Thanks for coming. Yeah. No, thanks for having us. Really appreciate it, Brian, and good to see everybody here. Looking forward to this short session, and I'm sure lots of questions afterwards, and so far it's been a great conference, and we look forward to the rest of the day. So yeah, state of the union for us, if you think about now since I joined as the CEO in late 2022, 2023 and 2024 have been part of this transformation to really capitalize on this platform that we have. When you think about where, how you analyze a company, right, first, you look at the market and the opportunity and where healthcare is going, outside of the clinical world into the home, and then even into access to care, we're really positioned well. However, what we needed to do over these last couple of years is to ensure we are building a platform to take advantage of that. So we have been in transformation, and part of our strategy is to build, for each of our solutions, the lowest cost or best cost solution with the best member experience for our customers, which is primarily our payers. And we're really proud of what we've done over these last 12-8 months. Really for us, it's just to continue that execution through the rest of this year and complete this transformation so we can take advantage of this great market opportunity and really the size and scale that we have across each of our solutions. Coupled with that transformation, primarily on the NEMT or mobility side, we were hitting the headwinds of coming out of COVID and the related impacts of kinda normalized medical utilization, coupled with Medicaid redetermination, where a lot of our members were coming off. The good thing about that is we're through that. So lots of good optimism on the headwinds of Medicaid redetermination and COVID, coupled with the hard stuff on the transformation, whether that's building a great team, like having Barb here, to implementing the right process in tech, that's in place. So really for us, this last part of the year may see--is, is really about finishing off the execution as we're through some of those headwinds. Thanks for that color, Heath. So maybe we'll dig a little deeper here. So as I think about your core NEMT business, and for the audience, non-emergency medical transport is what it stands for, there have been a lot of changes and moving pieces to that business over the last two years. You know, you've had contract structure changes and strategies there, margins, turnover on members and contracts, and then, you've had some recent contract wins. So how do you view this business now, and what's your outlook for it once things normalize, you know, let's just say, two years from today? Yeah, non-emergency medical or mobility is an important part of the healthcare system, both in Medicaid and Medicare, and we're gonna get into this a little bit. It's gonna continue to grow. It's necessary. It's even more necessary now as, again, moving healthcare out of the clinical world and into what's needed outside of that clinical world, so an important part of our business. This, like any industry, has been maturing over the last 10 years, and for us, we were the largest, and we still are the largest, call it anywhere from 40% of the share. But historically, it was a pure capitated model. So based on membership, you get paid a monthly rate, and then how many trips were taken at whatever cost, you would just work through that. Well, that was challenging pre-COVID, and it is definitely, if you have that model, would be challenging in the current world we have. So to your, to your question, what we've done from a strategy perspective, from a contract perspective, is move to this more win-win relationship with our payers, and we call this the shared risk model. And that, the other side of the shared Risk in Medicaid, and again, about 16% of our business is Medicare, but what's remaining is that full risk component, that's only about 19% of our revenue where we take this full risk. So we've come up with the right balance of contract structure to ensure that we protect the downside on margin, as well as align ourselves with our customers to ensure that we can grow. There's been a massive transformation, and it's a good thing we made that transformation to ensure that our profitability and our cash flow are where they are today. Then maybe, Heath, as a follow-up, right, so as we think about membership and utilization normalizing, how should investors be thinking about the right margin goals for that segment, taking into account the cost-cutting initiatives, that you have in place? Yeah, so an important strategic value, lowest cost, best member experience. To have the lowest cost, you need scale and size. Another thing that is important, if you have the best cost structure and the best member experience, you need to get... And how we are getting that cost structure is to ensure that we have modernized our platform, which is really automating our platform, whether that's sending a member a text message, whether that's integrating with a client, whether that's integrating with a facility. So anything digitally, we are integrating with, as well as providing technology for that best member experience. Again, an app, which we're one of the highest-rated healthcare apps out there today. That's been the big push. For us, that is about a $30-$40 million cost savings in year, and then kind of a $60 million run rate after that. So that, that's gonna allow us to really to be the most cost-effective NEMT platform around those cost statements. So where does that put us? Right now, as we're through this journey, considering the onboarding of all the new sales we had, we should exit the year around an 8% EBITDA margin, and then a more normalized will be in that 9%-10%, call it 2025 and beyond. So maybe Heath, just going a little deeper in that, as we think about getting to that 8% number- Mm-hmm. What are the execution milestones over the- Yeah ... next 6-12 months that we need to be watching for to see- Yeah your progress in getting there? Yeah, so there's a couple just tactical items that you can look at within our P&L. It's our payroll and other line, call it, that is a big part of our cost structure in NEMT. That is a metric on the per trip, and you'll consider that to continue to come down. Right now, it's about 7.2, and see that trending down. The other item is our cost that we pay our providers, and you're seeing that come down, too. Let's call it in a range of about $42 now, and you'll see that coming down. So how are those coming down? It is the automation to our members. So historically, we had about 28 million calls a year, we're less than that now, at $4 a call. The majority of our interactions were via a call, so that's a big part of what we're shedding versus normal healthcare technology. An app is one, but maybe only 15% of the population is gonna use that. Text messaging, as well as what's different for us, is this integration into the platform. So if a payer was sitting up here, maybe they were earlier, they're gonna say, "The most important thing for us is to control the member experience." So now our strategy with technology is to call API, integrate in, so they can use all the benefits of our technology and then still control the member experience. So if a payer has a member that needs a trip, they go through their tech, through their call center. So, and then we also do that with a facility as well. So a dialysis facility, why can't a dialysis facility integrate into our tech? So it's the member experience being automated, but it's also this digitization of the healthcare ecosystem that is allowing us to have a better member experience and really hit the high end of our cost takeout. So those, those milestones you'll continue to see in the metrics, and it's just the continued adoption and development of all the ecosystem around our, our current strategy. Maybe, Barb, I'll shift to you. Just as I think about, you know, some of the moving pieces, whether it's contract attrition, member attrition, plus new contract wins, plus the savings initiatives that Heath just laid out, I mean, at what point do you think we're gonna see the right baseline or the stabilization point for the business? And then from that point, how do you think the growth in NEMT would look? Yeah, you know, I think we're gonna, we're gonna exit this year not quite where we want to be, but, I think we're gonna exit this year in a much more stabilized and normalized fashion. You know, all the things that Heath was talking about. So first of all, redetermination will peak. That'll be behind us. It's peaking in Q2 right now. We'll—as we implement these cost savings, we'll see the benefit of that on a normalized run rate basis, utilization normalizing, so all of those things. So we believe we'll be exiting at a, at a really strong run rate this year. And then we think, you know, the, the growth rate will be in the, you know, the high single digits, and as Heath said, exit with a strong EBITDA margin in the NEMT business, about 8%, and eventually getting to that 9%-10%. We think that's the normalized range. That makes sense. Maybe Heath, you know, I know you don't like talking about specific contracts, but- Mm-hmm ... I think some investors are concerned about recent contract and member attrition, which you- Yeah ... touched on in the last earnings call. Yeah. As well as upcoming contract renewals, specifically with your largest NEMT arrangement. So anything you're willing to share with us, just to give color on contracts and where things are shaking out? Yeah. I wouldn't mind sharing the contracts. My customers wouldn't like that--nor actually from a competitive standpoint, so. But it is good color 'cause we're the largest, right? So to give what's happening from a contract perspective. So in NEMT, you have to bifurcate state business, so direct state business versus managed Medicaid, and our state business is about 40% of our revenue, and the other side is an MCO business. On the state side, you're actually required to be large and have a proven track record. And you could look at the evidence that we've seen over the past couple quarters. The business that has moved has come to us, the business that has stayed with an incumbent, which has benefited us. So the recent past on the state business has been very beneficial to us. Either we've won incrementally or we retained. We have about $600 million additional business that's coming up in the state business this year, but we expect to retain the most of that, and then there's some other business out there that we expect to win. And it requires anyone to have size and scale, so you need to be the lowest cost, best member experience, and then a lot of history. So, and many of these contracts that are coming up that are in that $600 million range, we've had for 10+ years. So we have a lot of conviction that we're gonna be able to maintain that. On the MCO side, a big part of our revamped strategy has been to add value to them, which is low cost, have insight into their members, and give access to the right types of populations to ensure a dialysis member gets there three times a week. That historically, has not been the culture of us or any NEMT business. That is in our ethos now. So what that has resulted in, in our MCO business, we won $140 million of annual contract value last year... Year before that, we won $20 million. Year before that, $0. What that shows is it's working, and we have and last quarter, we won $32 million as well. So MCO business, though evergreen, they can switch out. That's a good thing to us 'cause we think we can stir up more business. So, if performance, low cost, treating more for the member on the MCO is allowing us to win. So, we do have to get through this cycle, right, of renewals, but we feel really good about it on the state side as well. Awesome, and then maybe lastly, in NEMT, you know, the managed care or Medicare Advantage payers have been talking about paring back supplemental benefits in 2025 and 2026- Yeah as they react to higher MLRs. So- Yeah. And not very great reimbursement from CMS. So how should we be thinking about your exposure to the MA side of your business? Yeah ... as we think about supplemental benefits? Well, so NEMT, again, in our MA and our NEMT business, is 16%, but I do expect it to grow. Managed Medicaid or MA business is under a lot of pressure with the payers, so cost, cost, cost, and in MA, it is cost, cost, cost. However, the supplemental benefits, and it's in the rules and requirements, have to show value that it's actually doing something from a healthcare perspective. No question, transportation does that. So from a payer perspective, and this bodes well to what we're doing from a strategy perspective, not all members are the same. So within an NEMT platform, you have duals, call it anywhere from 40%-50% of an MA book. Those duals are the most sick, so people that are on Medicaid and Medicare. They need transportation. So, and they, they are like: "Okay, can you give transportation to that 40%-50%? And then the other 40%-50%," this is a bit for hyperbole, "let's not give a single trip." So that's the mentality that they have. So you have to be able to react to that, so you have to be able to understand that member. And then in some areas, because of that, they won't even offer it because they don't have enough duals. So we understand where the MA market is. There is no question headwinds, but there's probably more tailwinds, especially as we exit into 2026 and 2027, 'cause health equity, and in fact, in 2027, it's gonna be a requirement for star ratings to ensure that you're providing health equity. Right now, it's all about member experience, so I also believe that it's a bit of short-term pain that they're feeling right now that will work its way out over the next couple of years. But so it's a pressure, but it's a pressure we're able to manage through with each of our payers. Awesome. So maybe shifting to your PCS or personal care business- Mm-hmm. We've seen some improvement there. Mm-hmm. I'll ask the same question as NEMT: where do you see that business going, and what will it take for you to get to kinda like where you feel like it baselines and, and flex and grows? Yeah. So you talk about another business that is outside of the clinical world, that is providing service that affects the... someone's outcomes. Personal care hits right there, and it's still a relatively immature market, primarily made up of moms and pops. So I expect regulation to continue there, and that's a good thing for sophisticated, larger companies, and you're seeing that over these last, these last couple years. So what do you need to be successful there? You need a platform that ensures you can scale. So well, again, what this business is, hyper-local business, where you need somebody that maybe speaks the same language, has the same culture, that can serve somebody in that community. So it's important to be hyper-local. That, by definition, is extremely expensive and really fraught with fraud, waste, and abuse, and that's a lot of the problem you hear in the industry is around, how do we get control under this fraud, waste, and abuse? So you need to be able to serve the local community, but then how do you make money? So this is where centralization, standardization, and automation across a platform has been our top priority. Really, we are 60% through that journey. The rest of this year is to ensure that we have one platform, one ERP system, standard processes and policies to ensure you can grow upon that. So that's valuable to us as a scale platform, and that would be a valuable platform for anybody to have to grow on top of that. So that's the focus for us, and then we'll get back to the growth rates. Right now, we're on the low, lower end of our margin perspective. I expect us to exit at that 10% range, EBITDA range, though we are lower now because of our centralization and standardization efforts right now. And then from a growth rate perspective, that's in the mid-single digits from a revenue perspective. Barb, maybe I'll ask you a question related to PCS, right? So it's about a third of... New York is about a third of your PCS business. We just saw Addus leave the state of New York, and they said they just can't make money in the state. How do you feel about that business? I mean, what's the margin profile? And to Heath's point about getting the margins to, like, that 10% range, I mean, is New York a contributor? Does anything need to change in the New York market for that to get or happen? Yeah, we're not overly concerned about what's going on with that business. And like you said, that's about a third of the business. As it relates to the CDPAP itself, a little bit of a lower margin business for us, as well. You know, at the end of the day, somebody's got to provide those services, and we think that there's a number of ways that that could play out over the course of the next year or so when that gets implemented. You know, whether that's we just approach that business in a different way, don't think there'll be a single intermediary. That's highly unlikely, given the volume. So you know, we think it's a piece of our business, not overly concerned. If it did go away, not a huge margin impact, and we think there's a number of ways that could play out. ... Yeah, the other for New York in general, I understand why Addus exited, 'cause relative to the rest of their portfolio, it's lower margin. There's a very high volume there as well. Right. The other thing that's around New York, very favorable reimbursement rates relative to what you need to pay a caregiver. In fact, they're tied. So the reimbursement risks that are in other states are not as significant. In New York, they're actually tighter. So though the margin may be lower, there's more predictability. Mm-hmm. And then the noise around CDPAP, that is de minimis issue for us. Yeah. Even though it's de minimis, I do think there'll be solutions that eventually take hold that will only benefit us. My next question maybe is for both of you guys. As we think about how you weigh your capital structure, the current leverage ratio and cash generation outlook versus the strategic rationale for owning three different business lines that, for the most part, remain independent of each other, you know, how should investors be thinking about where you stand on that today? You want me to go? Yeah, you go ahead. Yeah. So, you know, I think it's incumbent on us to always evaluate all options that are on the table. You know, we think our businesses are strong independently and together. And so, you know, I think we will always evaluate options. What we're really focused on are a couple of things, and that is, you know, one of your, probably your next questions is gonna be about refinancing, and so that is what we're very focused on. I was told to not ask about that. We are very focused on refinancing the 2025s. That's a big focus, along with just delevering the balance sheet, really focused on the capital structure. One of the options on the table, obviously, that we talk about is the monetization of Matrix, and Heath can talk a lot more detail about that. But we really think that'll be a, you know, a strong move for us in order to delever the balance sheet. Critically important to us to delever. It's an important part of our strategy, both from the debt side as well as the equity side, especially considering the kind of life cycle of this company, the transformation that it's in, and maybe the unfamiliarity with NEMT. So, getting our balance sheet delevered in the right level is an important part of our strategy, and we're committed to it. And we've given disclosure around our asset value- Mm-hmm ... so people can see beyond just transportation and see that we're in a really good spot. But optionality's in a good spot. We each individual business can operate on their own. There's lots of value and scale together, but there also is individual value- Mm-hmm ... if we wanted to monetize any of those. So it's a good place to be. Heath, just to that point on deleveraging, right? I mean, what's the path there, right? Mm-hmm. 'Cause if we're looking at- Mm-hmm ... modeling your current cash generation- Yep ... you know, presumably, your refi will cost more than- Yep ... current rate, right? So the cash outlook, once you model it out, like, to get to an equity holder-friendly leverage ratio, will take probably more than just Matrix getting sold, right? So I'm curious how you're thinking about that. Mm-hmm. Well, so we gave a lot of disclosure on how we exit the year. Mm-hmm. Because of redetermination, utilization, and the onboarding of our sales, it's we're really backend weighted, and we have to and the cost out. So we gave it an estimate of $220 million-$230 million of EBITDA, and then we gave a cash conversion range under the current cost structure of 40%-50%. So we think the incremental debt cut about 10% off of that is the right way to think about the additional cost. So there's still a lot of execution that we still need to do in the latter part of the year, but it's very manageable. And then the second component, we've been straightforward around that, the structure that we're gonna put in place when we refinance the 2025 notes will be a structure that allows us to prepay. So whether that's a Matrix sale, whether that's cash flow generation, that is expected or some other option for us, the first priority will be to deleverage the most expensive debt. Makes sense. Barb, just on the topic of cash flow, since Heath touched on that, I know it's been a big focus recently, and you've called out some work that you're doing to collecting some receivables earlier this year, while also renegotiating some terms on contracts. So where do we stand on those initiatives, and does it feel like we'll be in a more normalized cash flow environment, as we exit 2024? Yes, we will, we will be. And we're doing a lot of work as it relates to those contracts, those reconciliations, and making really good progress. So it's been a big focus on the first half of this year to renegotiate some of the prepayments on the shared risks, and making really good progress. We, you know, we think on the back end of the year, we'll be definitely at a more normal level, some of those exit rates that Heath was talking about. And, you know, we're really trying to get those reconciliations to be a little bit more timely and be able to get some of those prepayments a little bit more upfront, so they're not, we're not creating those receivables. That's a bit of a cash drain for us or cash impact for us, and making good progress. Yeah, that makes sense. Heath, so we got a little bit over a minute here. So to conclude, anything you want to leave investors with as they think about Modivcare and the turnaround process and your execution story and the growth outlook going forward? Yeah. Well, once my team was in here, I'd say thanks to them. You know, there's a lot of new people that are sitting here and a lot of great work. The hardest part is the beginning part. Really, the hardest part was last year, is getting the team in, okay, how are we gonna execute on this strategy? And then you couple that with, again, where the market's going. Yes, payers are under extreme pressure from a cost perspective, but where are they going with that? It's healthcare into the home or lower cost methods of healthcare outs, which are typically lower cost, preventative, and outside of the clinical situation. So each of our business lines are one of the largest. So our strategy, lowest cost provider, highest member experience, that's meeting where the payers need to go so that there's market tailwinds. So we have the market tailwinds and the finishing off of our transformation to ensure that we're top of mind for them, and then even more broadly, where healthcare is going. The majority of my conversations, I'll finish with this, are with C-level executives at payers. So first off, it's around the contract. Second is cost. Third is access. We have unique access to these members that they don't have, and when you layer on our clinical and technology capabilities, we can do just a little bit more. So now, if we have those individual solutions that are growing where healthcare is going, and we can do a little bit more 'cause we understand their members and change outcomes, we're in a really good spot. So I couldn't be more proud of the team. I know they've worked their butts off. We're not done. We still have stuff to do, but we see the light to being done, and I'm really excited about the end of 2024 and where we're positioned. Awesome. Thank you so much, Heath, and Barb, and- Yeah ... Kevin, and the whole team. Thank you to the audience as well. Yes. Thank you, everybody.