John French from one of the healthcare services and managed care analysts here at Leerink. I have with me Barbara Gutierrez, CFO of Modivcare, and up front, I have Kevin Ellich, Head of Investor Relations at Modivcare. Thank you guys for being here. Yeah, thanks for having us. I guess to start, can you talk a little bit about your background and how you came into your current position? Yeah, absolutely. So I have a really deep healthcare background. Been in some different industries, but really have a deep healthcare background. And most recently, I was the Chief Financial Officer of a company called InnovAge, which is a Program of All-Inclusive Care for the Elderly. Mm-hmm. And PACE programs, you know, deal with all the medical needs of the participants, but the social determinants of health as well. So, this opportunity presented itself to me, and Modivcare, just a natural fit- Mm-hmm ... with the social focus on the social determinants of health. And personally just have a passion for healthcare, particularly with vulnerable populations. Great. I guess for the new investors or those unfamiliar with your organization, can you touch on the story of Modivcare and kind of the long-term vision of the company? Yeah, absolutely. So Modivcare itself is a tech-enabled healthcare services company focused on supportive care services around the social determinants of health. And while we are a very integrated company and really speak about being one Modivcare, we operate in three business segments, primarily: non-emergency medical transportation, NEMT, personal care services, and remote patient monitoring. So the overall vision is really improving health outcomes and participant and member experience by really the connections to care. So really providing the access and the connections to care for these particularly vulnerable populations. Great. And then, I guess, can you touch on the interplay between those three different kind of unique and distinct assets? You know, some of the synergies between them and how they create a differentiated platform around the social determinants of health. Yeah, of course. Again, really, we approach it from a Modivcare standpoint, really, this integrated approach, and really try to approach it even with our clients, about how we can offer more to these, to folks who typically may not have access to care. So really, what we do with all of our business segments is help close those gaps of care and produce better outcomes, which ultimately also reduces the overall cost of care. So we've done things like pilots with a very large payer in the Midwest, where we've combined both the NEMT benefits and the remote patient monitoring benefits with great success. And one of the things that has come out of that is, we did a survey of these members and asked them things like, you know, "What are the barriers to care for you?" And a number of them, somewhere between, you know, upwards of 30%, said: "Transportation is a barrier to care," when in fact, these folks actually have a benefit, transportation benefit and don't even realize it. So for us, it's about that member engagement and connections to care. We really have the access to members and that connection to care. Gotcha. And so I know you take risk on some of these, on your transportation business. Can you talk about how utilization has trended these past few months and how the overall demand environment for your services has trended recently? Yeah. So I'll speak about them, the segments a little bit differently. Mm-hmm. For PCS, really, it's pretty much a, you know, a fee-for-service type- Mm-hmm ... type business. Our PCS business has grown at market rates in the low single digits. So there's just a constant demand for that. I haven't really seen any unusual change in utilization. Remote Patient Monitoring is on a subscription kind of basis. So when we talk about utilization, it's primarily around our NEMT business. Mm-hmm. And so obviously, you know, during the pandemic, things were very different, low utilization. Coming out of the pandemic, I think all healthcare, all healthcare services, we certainly know the payers have reported, higher utilization as things return to a little bit normal levels. So, currently, around 10% utilization in that business. We think the normal level will be around 11% of our- Mm-hmm ... population utilizing the service. When we look back at the history, we had higher levels of utilization pre-COVID, but really that was during a time, I think, of less managed care. Mm-hmm. And so we don't believe we'll return to those levels of net 13%, but somewhere in that 10%-11% is really what we anticipate the normal level of utilization. Got you. Great, that's very helpful. I guess another macro headwind that's kind of been going on is around redeterminations- Mm-hmm ... so I was wondering if you can give us an updated view on how redeterminations have tracked versus your expectations? Yep. Is the $26 million-$30 million headwind in 2024 still the right number? Yes. So, so yes and yes. So really, redetermination has tracked according to our expectations, maybe even on the slightly lower end of the range. So we're really happy now that we are in our top states, where we have full risk contracts. We're more than 80%- Mm-hmm ... through redetermination, so really at the peak levels of getting through that process. So it's really good to have that transparency and that visibility for redetermination. And so, yeah, that's the right number. We think over the course of the redetermination period, we'll lose about a little over 3 million of our Medicaid members, somewhere in the neighborhood of 10%-15% of those folks. So really, really tracking in line with our expectations. Certainly, a big headwind, but the good news is tracking in line with our expectations, and we'll be peaking and tapering off going forward. Yeah, I know this is kind of an impossible question, but any early indications on how re-enrollment for individuals procedurally disenrolled is tracking? ... early, early. Yeah. Yeah, I think a number of folks have said, you know, somewhere between 23%-30% of those people will come back, and we believe that's in line with our expectations. Mm-hmm. Could be a tailwind for us, but it's a little bit early to tell, but we do think a number of those folks will come back. Gotcha. Thank you. And then related to this topic, state Medicaid populations have changed quite a bit recently, given redeterminations. Can you give us some insight on how your discussion around rates- Mm-hmm ... with states and your MCO partners have been going recently, given these changing pools? Yeah, I would say the word I would use to characterize these discussions is it's stable. It's a stable environment. You know, certainly, there are some reimbursement headwinds in both Medicaid and Medicare- Mm-hmm ... but I think a stable environment. Transportation is a codified benefit under Medicaid, and so it's a necessity. And so I think our rate discussions have been and really stable and very positive going forward. And you know, we have a diversity of contract types. We, the majority of our contracts are in the shared risk- Mm-hmm ... category, which is really a win-win for both us and the payers, really flexing on both utilization and cost. Mm-hmm. I know this is a smaller portion of your business, but, Medicare Advantage has been facing a number of different reimbursement headwinds. Mm-hmm. And a lot of different carriers have kind of signaled to the market that they might be pulling back on benefits, particularly around social determinants of health and some supplemental benefits. How does that impact Modivcare and...? Yeah. So first of all, in terms of the overall business, Medicare is about 16%, right? Mm-hmm. So it's a, it's a smaller end of our business. You know, I was speaking with some folks this morning and last night, and I think while those supplemental benefits, you know, for a number of years, I will say, were a little bit of the bells and whistles- Mm-hmm ... and were used as a tool to recruit new enrollees. But the reality is, the people that utilize the benefit need the benefit, and I think while it may not grow necessarily as fast as it has grown over the past several years, my opinion is I don't think it's gonna go away because it's a necessary benefit. So, we're cognizant of that and continuing to have just real open dialogue with our MCO partners. That's great. Can you provide us an update regarding your RFP pipeline? I believe there are several state contracts that are up for renewal this year. Yes. So 2024 is, what we call an outsized year for renewals. There's just a number of the contracts, up for renewal this year, mostly in the latter half of the year. So in some of our investor, disclosures, you know, we've got nearly $600 million of renewals, this year. There's, one large state renewal in there, one of our larger payers. All going well. Some of it may get pushed to 2025- Mm-hmm ... because we actually haven't gotten any indications that there's gonna be anything going up for RFP yet, and a number of those contracts actually have some extension clauses. So we believe a number of those will just be extended. Mm-hmm. We've got a really good history track record of retaining those, that business. Mm-hmm. Some of that business we've had for more than 10 years. Any early thoughts on how the pipeline looks into 2025 and beyond? Yeah, I think, I think the pipeline will be around MCOs in 2025. And again, because a lot of the state business is already renewing here in 2024. And so I think, I think unless some of it gets extended, the pipeline will be focused around 2025. Great. Can you give us an update around your cost-saving initiatives in your transportation business and how they're trending versus expectation? Yeah. Again, trending according to our expectations, you know, the company is going through a transformation that started in 2023. So we embarked on a number of cost savings initiatives in 2023, and some additional ones in 2024, primarily in three areas. So around what we call omni-channel member engagement. So, really, uplifting our technology so that members have more seamless and automated ways of connecting with us. Mm-hmm. Things through IVR and text and an app. So really modernizing the technology, so that's going along well. You know, the more we do of that, obviously, there'll be less humans and other things that are costs, that have a cost impact, so that's part of our cost savings. Also focusing on a multimodal network. So what's the right type of ride for our members? Mm-hmm. And so some may be ride share, some may be, you know, family reimbursement, it might be public transportation. So really focusing on what's the right type, and those types of transportation have different cost profiles. So that's one, then the second one, and then the third one is just around the digital customer experience. So things like we just announced our Integration Hub- Mm-hmm ... where we're exposing some APIs and really connecting with, with payers and health systems to make it easier, and seamless for the members. So all of those things, really in the realm of, you know, $30 million-$50 million of cost savings, with an exit of potentially $60 million. Mm-hmm. So, really modernizing and streamlining our operations. Yeah, I think you gave some numbers at the end. Do you still expect roughly $34 million of those? Yes ... $60 million savings in 2024? Yes. Any update on the quarterly timing of those savings? Yeah. So we recognized some of those savings in 2023, so some will carry over. But really in Q2, Q3, and Q4- Mm-hmm ... new initiatives and then the momentum from some of the implementation. So, you know, a little bit more back half weighted. ... Gotcha. And then you, you touched on a little bit of some of the investments you're making on your digital transformation and some of your new APIs. Mm-hmm. I'm wondering if we could double-click on that a little bit. Yeah. So really, all of those, all of those things related to the digital transformation. So we launched an app. We implemented a cloud-based member care software- Mm-hmm late last year, that, you know, AI-related software. Mm-hmm. So, you know, it's really anything that's just digitizing and automating, you know, things that we were a little bit behind in some of our technology, so a big effort, focus, and investment in technology. Didn't ask, but I'll also expand on PCS- Mm-hmm is another area where we're investing. Mm-hmm. So our home care business was a roll-up of roll-ups. Very decentralized. There was. We had upwards of 5-7 caregiving systems, you know, not on the same payroll systems, not on the same ERP. So another investment that we've made over the last year is streamlining operations, consolidating some of those functions, and really getting onto single platforms. So another big investment we've made. Okay, great. And then I guess, can you discuss some of your ongoing initiatives inside of your non-emergency medical transportation segment to capture additional revenue from your current pipeline and how that's kind of manifested in 2024? Yeah. So really, it is about this. It's about the integration and the one Modivcare type services. So, you know, I think it's pretty easy to understand the segments individually. They have value individually, but they also have value in an integrated way. So one is. I mentioned the pilot we did with- Mm-hmm a large payer to, you know, how can we combine remote patient monitoring with PCS? Or, you know, because we have access to the members, how can we get them to utilize their benefits? So it's really about this one Modivcare strategy. Mm-hmm. And then back on the PCS business a little bit. Can you give, give us an update on how labor rates, recruiting, retention is tracked? Yeah. You know, we've been very focused and very pleased with our recruiting and retention. Mm-hmm. 95% monthly retention of our caregivers. We have a very large caregiver workforce, about 17,000 caregivers. And so, very pleased about the recruiting and the retention. Labor rates, while we've seen a little bit of a spike in Q1 that we talked about in certain areas, we think it's really leveling off. And for us, it's really about keeping our rates in sync with the increases in minimum wage and those type of rates. And in Q1, we talked about we had a little bit of a mismatch in. We had some increases in one state where the minimum wage went up, but we didn't get corresponding rate increases till the first of March. Mm-hmm. In Q1, a little bit of a mismatch, but going forward, we expect that to be pretty in line. Mm-hmm. And then I was wondering if you could touch on, maybe there's a number of incumbents that have kind of entered into the personal care space through Uber. Mm-hmm ... I think it's Uber Caregiver. Yep. How has that impacted your business? Sometimes I know they can be some of your partners, actually, so. Yeah, Uber Caregiver really is also around the transportation- Mm-hmm Really around transportation. So Uber itself, and Lyft, big partners of ours. Mm-hmm. So very big partners. You know, what, what we really see is, there's so many underserved and unserved people in the, in this particular segment of the market. Mm-hmm. 3.6 million, I think, 3.6 million folks is in a survey by the American Hospital Association, you know, go without care because they don't have transportation. So, you know, we really applaud Uber and, and others for getting into the space, and they're a big partner of ours. I think there's plenty of people to be served. Great. Can you touch on your capital priorities, balance sheet, and plans around refinancing some of your more near-term maturities? Yes. So, you know, hot, hot topic and top priority are both of those things, and we are right in the process of refinancing our 2025- Mm-hmm Notes. So we disclosed that at our last earnings. We're in the process and expect that to be completed very shortly. So that's good news. That'll get us that behind us, you know, with the goal of some flexibility. Mm-hmm. Because our second goal is also delevering- Mm-hmm And really any proceeds or free cash flow, really delevering the balance sheet. So, that's the second priority. Want to have flexibility in that refinancing to be able to do that. Mm-hmm. Yeah, and so in terms of just capital deployment, it's all right now on deleveraging. I think you said at a 4.7x net leverage ratio? Yeah, we were at 4.9 at the end of Q1. Okay. So yes, definitely delevering. You know, the business is actually generates on an unlevered basis- Mm-hmm $100 million-$150 million of free cash flow in this year is our projection. Mm-hmm. Not a highly capital-intensive business, so definitely generates free cash flow, and, you know, we'll get some of this refinancing behind us and be able to focus on delevering. Mm-hmm. And then kind of on that topic, I guess, a little bit is, can you spend a minute talking about your investment in Matrix Medical and then your plans to monetize this asset? Yep. So we have a just under 44% stake, a minority stake in Matrix. Matrix is a risk assessment business, quite successful, second largest behind Signify's previous business. And so it is our intent to monetize that asset. We have a good relationship with our partner, Frazier, and intend to monetize that business. Our current target is the end of this year or early 2025. You know, we think that'll bring us some significant proceeds to help us delever the balance sheet. ... Great! And then, I guess this is kind of a little bit of a longer-term question, but, what opportunities and maybe even risks does generative AI pose for your business? And does this represent a significant opportunity to streamline logistics in your transportation business? Yeah, I think it's definitely an opportunity, not so much a risk. Mm-hmm. We kinda joke if Heath was here. Mm-hmm. He'd go on for quite a while about AI. We really embraced it, really embraced it as a company, not only internally, but as it relates to the NEMT business. I mentioned we implemented this cloud-based software late last year that really has an AI engine. Mm-hmm ... that helps with really matching the member with the ride and, you know, the most streamlined way of finding the right ride for the member. So as a company, we really embrace it. We think it'll really help continue to streamline and automate our business. Gotcha. And then, I guess, touching back on growth, as you guys think about your growth algorithm, and we could, we could start on just the transportation business first, are you looking to enter into new states, new markets when you expand, or are you focused more on just taking your current existing footprint and then kind of expanding, you know, inside different populations in there, or really expanding upon your initial chassis of, your footprint? Yeah. I think it's, I think it's all of that. I think we are currently in 48 states- Mm-hmm ... with the NEMT, so I think it is continuing to, you know, win new markets within the state- Mm-hmm ... as well as just really focusing on, you know, new MCO customers, new segments of the business, like you said. So I think we've got a-- we have a very large footprint- Mm-hmm ... and we just intend to just capitalize on that in every state. Great. I guess we'll just take a second and see if anyone in the audience has any questions. Great. Well, we have a little bit of time left, but I guess I'll let you off a little bit early. Okay. All right. Thank you very much. Great. Thanks, Barbara. Thanks for the conversation.