ModivCare Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 4, 2023

There are 11 speakers on the call.

Operator

Morning, and welcome to Motiv Care's Second Quarter 2023 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. To get into the question queue. Please note that this conference is being recorded.

Operator

I will now turn the call over to Kevin Ellich, Head of Investor Relations. Thank you. Please go ahead.

Speaker 1

Good morning, and thank you for joining MotiveCare's Q2 2023 earnings conference call and webcast. Joining me today is Heath Sampson, MotiveCare's President and Chief Executive Officer and Ken Shepherd, Head of Finance. Before we get started, I want to remind everyone that during today's call, management will make forward looking statements under the Private Securities Litigation Reform Act. These statements involve risks, uncertainties and other factors that may cause actual results or events to differ materially from expectations. Information regarding these factors is contained in today's press release and in the company's filings with the SEC.

Speaker 1

We will also discuss non GAAP financial measures to provide additional information to investors. A definition of these non GAAP financial measures And to the extent applicable, a reconciliation to their most directly comparable GAAP financial measures is included in our press release And Form 8 ks filed with the SEC. A replay of this conference call will be available approximately 1 hour after today's call concludes and will be posted on our website, motivecare.com. This morning, Heath Sampson will begin with opening remarks, Ken Shepherd will review our financial results, then we'll open the call for questions. With that, I'll turn the call over to Heath.

Speaker 2

Thank you, Kevin. I appreciate everyone joining us for our Q2 2023 earnings call. After the market closed yesterday, we reported 2nd quarter revenue of $699,000,000 and adjusted EBITDA of $52,000,000 The increase in revenue was largely driven by strong performance in our home division, which includes our personal care and remote patient monitoring segments, As well as an increase in transportation trips and provider costs, which partially passed through in the form of higher revenue in our NEMT segment. Our Home division's revenue growth contributed positively to adjusted EBITDA. As for NAMT, The increased revenue we obtained from passing through costs in our shared risk contracts helped offset a portion of the increased service expense.

Speaker 2

However, this pass through benefit was more than offset by a negative impact to adjusted EBITDA from our full risk contracts, which represent 20% of our NEMT revenue. Similar to other companies in the healthcare industry, We are seeing a rise in utilization of our services as we see progress in the nation's recovery from the pandemic. Even though this increase has a negative impact in a portion of our NEMT contracts, it has generally been a positive for our Personal Care And remote patient monitoring segments, which we are seeing strong demand for our services. I remain optimistic about MotiveCare's long Our unique position in the healthcare industry enables us to cater to our customers' diverse needs In a continuously evolving market to manage a rapidly aging and chronically ill population amongst rising costs in a complex regulatory environment. While the intricacies of the NEMT segment are complex, particularly with significant fluctuations that arose during the pandemic And current uncertainties surrounding Medicaid redetermination, access to transportation is a vital component to ensuring access to clinical inventions There are several key updates to discuss this quarter.

Speaker 2

First, Increased our 2023 revenue guidance to a range of $2,750,000,000 to $2,800,000,000 from $2,575,000,000 to $2,600,000,000 This increase is primarily due to incremental shared risk contract revenue Despite the increase in revenue, we have lowered our 2023 adjusted EBITDA guidance to $200,000,000 to $210,000,000 from 225 to $235,000,000 This reduction is primarily related to items affecting our NEMT segment, including Higher trip volume and higher trip related costs, particularly in our full risk contracts and timing of new contract implementations being delayed to early 2024, which were previously expected to offset contract attrition from prior years. Next, I'd like to address our 2nd quarter cash flow from operations, which was negative $108,000,000 mainly due To a $96,000,000 decrease in our net contract payables less receivable balance during the quarter, Along with a one time $9,600,000 arbitration settlement with a former employee. Post the pandemic, Coupled with a shift to more shared risk NEMT contracts, we experienced a temporary timing mismatch between payments and collections, which created a large payable balance that we've been reducing over the past year. The Q2 of 2023 marks We've resolved pandemic era balance sheet disparities, transitioning into a net receivable position Where our contract receivables surpass our contract payables.

Speaker 2

This occurred earlier than anticipated, largely due to accelerate payments from a few large state clients. Furthermore, these clients now have established Clear timelines for reconciliation, adding additional layer of predictability to our cash flow. We anticipate the collection of these receivables to balance out, if not surpass, payable repayments for the rest of the year, Positively impacting our cash flow in the second half of twenty twenty three. Our effort to realign contracts with our customers' is yielding positive results. We've safeguarded our margins, trading some pandemic upside for long term stability.

Speaker 2

Now our cash flow mirrors our P and L more closely, indicating improved financial management and a balance between profitability and customer satisfaction. During the second quarter, we borrowed $111,500,000 on our revolving credit facility to support repayments on contract payables. As of June 30, 2023, our net leverage ratio was 4.7 times. We knew we were going to be at this leverage point. However, as noted earlier, we anticipated paying off a couple of key customers in line with prior history.

Speaker 2

Prioritizing long term customer relationships, we agreed to accelerate related contract payables of approximately which we intend to utilize for revolver pay downs. This uplift will be fueled by normalized working capital, The strong core cash flow from our low capital intensive businesses, our quarterly supplemental presentation on our IR website provides a detailed cash flow overview and a view of the expectations for the second half of twenty twenty three. To conclude the balance sheet points, our annual goodwill resulted in a non cash goodwill impairment charge of $183,000,000 within our Personal Care and Remote Patient Monitoring segments. It is important to note that this is a non cash expense and does not impact our operation cash flows or ongoing activities. Instead, it aligns the segment's carrying value with their current fair market value.

Speaker 2

Despite this non cash charge, these segments are performing well. And what's more, we see that Personal Care and Remote Patient Monitoring segments as key tenants of our strategy to Unlock value based care arrangements with supportive care, evidenced by new contracts. This makes us more enthusiastic about the long term prospects, performance and deliver long term shareholder value. Next, I want to address the topic that's the top of mind of all of our investors, Medicaid Redetermination. There has been a lot of industry information about redetermination and some states have taken aggressive approach to redetermination, While others are being more thoughtful to ensure eligible Medicaid members, access to care is not disrupted by evidenced by 12 states pausing procedural terminations in 35 other states having received approval for mitigation plans to address a number of issues.

Speaker 2

That said, today, we have seen minimal impact from Medicaid redeterminations and our membership continues to track in line with our forecast expectations. I would also like to point out that of our 34,300,000 members, 27,100,000 are Medicaid and 7,200,000 are Medicare Advantage, which are not affected by redetermination. Our MA membership has grown from $6,000,000 or 20% since June 30, 2022, primarily due to new contract wins and existing contract membership growth. While redetermination may lead to some Medicaid disenrollment, We expect regular growth in Medicaid and MA programs, providing a counterbalance to redetermination impacts. For the second half of twenty twenty three, we estimate Medicaid redetermination could create an adjusted EBITDA headwind of approximately $5,000,000 to $10,000,000 which is embedded in our guidance.

Speaker 2

Looking towards 2024, we are currently forecasting a Potential growth impact to adjusted EBITDA of $20,000,000 to $40,000,000 from redetermination. Yet, As I will discuss later, our strategic initiatives are expected to drive gross savings of $30,000,000 to $50,000,000 over the next 12 months to 18 months. Rest assured, our data models, industry insights and customer feedback Indicate our projects aligned with what we are seeing in the market and redetermination will be manageable. We'll provide more updates as things progress. Before I review some of our operational highlights, I'm eager to provide some substantial updates to our team.

Speaker 2

We recently brought on Jessica Frahl as our new Chief Information Officer. Jessica came to us from UnitedHealthcare and she has an extensive background in Healthcare IT Leadership and brings a wealth of experience and expertise to our team. Further bolstering our team, we hired a new Chief People Officer Significant field employees and he will be instrumental in further supporting our 20,000 team members in fostering our company's growth. I'm also thrilled to announce that we've also received agreement from an experienced and talented individual as our next Chief Financial Officer, Who will join us in early September and once we are able to officially announce her name, we will issue a press release in Form 8 ks. What I can tell you is she has multi industry experience and a deep healthcare understanding with a multi decade career, which will play a pivotal role in With these recent additions, our executive team will continue to reflect our unwavering commitment to attract Exceptional individuals in their respective fields.

Speaker 2

As we often say, it's all about the people. And I'm confident that once all of these individuals on board, We will have the right team in place to drive our transformation and strategy forward. Lastly, I want to extend a heartfelt gratitude to our extraordinary team for their Dead fast support while I balance the dual roles of CEO and CFO. On a lighter note, I can affirm that I'm excited about finally not having to juggle 2 jobs. Now let's discuss the market, our strategy and segment execution.

Speaker 2

Starting with an important change in the market. As we navigate the rapidly evolving healthcare landscape, it's clear that the industry is being revolutionized by new CMS Strategic mandates, which is accelerating the shift to fee for value from fee for service. This is also driving a paradigm shift towards more holistic member care. It is anticipated that by 2,030, 100% of Medicare Advantage and traditional Medicare and approximately 50% of Medicaid will transition towards value based alternative payment models. As payers and providers grappled with increased in chronically ill populations, higher costs and tighter reimbursement rates, Coupled with an evolving complex regulatory landscape, the quest for an integrated healthcare experience that combine quality, affordability At MotiveCare, we've enhanced our strategy and separated into 3 parts in response to these 1, develop a scalable platform through operational excellence and automation 2, build a customer centric sales and growth platform.

Speaker 2

3, enhance digital and clinical capabilities Our strategy is powered by digital transformation, which is crucial in our fast paced, Data driven artificial intelligence era. The first phase of our strategy revolves around operational excellence, which we are proud of the improvements we've made over the past year and further automation sets a solid foundation for our scaled platform of solutions. Over the past year, we've made considerable strides in upgrading our talent and culture, transitioning from a decentralized and disparate model to a shared service and central operations model. To better understand the scope of this transformation, Approximately $65,000,000 of annual salary has been transitioned, and we expect to upgrade and reallocate back approximately 30,000,000 Phase 2, running parallel to Phase 1 involves fostering an organization that prioritizes growth through a coordinated model of relationship management, Referral execution and hunting new opportunities, all backed by marketing and centralized sales operations. Finally, Phase 3 will participate in value based arrangements in addition to fee for service.

Speaker 2

We will harness our newly developed digital And clinical connected capabilities to augment our supportive care services by providing longitudinal data collection for our customers, members And design engagement models enabling virtual connections to care. Far from being conflicting strategies, these three phases are designed to complement each other, Strengthening each other together, let's now delve into our progress for each of our segments. Our focus on centralization and operational excellence facilitated by technology has considerably improved our NEMT services. We're meeting or exceeding all our customers' quality and service level requirements as seen in our key performance indicators such as on time performance and reduce missed trips. Our multimodal transportation partnership strategy has led to increased customer satisfaction and reduced costs.

Speaker 2

We are transitioning from traditional call centers to omni channel options, improving member engagement at lower cost. Further automation of the transportation processes through unified tech enabled dispatch is a key priority as well. We anticipate savings between $30,000,000 to $15,000,000 over the next 12 months to 18 months through these Continued centralization, operational excellence and automation efforts. We expect these initiatives will mitigate the headwinds Our sales strategy within the NAMT segment has shown promising results, albeit slower than we wanted. Year to date through June 30, we've secured new MCO businesses with a total contract value of $110,000,000 nearly all of which will commence in 2024.

Speaker 2

Including the contract renewals and expansions, the total contract value won this year amounts Over $500,000,000 over 3 to 5 year contract terms. Over the next 5 years, we foresee around 1.3 $1,000,000,000 worth of state NEMT contracts up for RFP, of which we currently serve approximately 700,000,000 Our team has been successful in retaining business and we are delivering higher service levels than historically. We are confident in retaining the majority of the contracts we have and we aim to win and convert additional market share. Additionally, we will continue to pursue approximately $700,000,000 of new opportunities in our MCO pipeline, which is more receptive and frankly demanding that we offer more holistic solutions Beyond just transportation. In Personal Care, our focus on centralization and operational excellence Has streamlined our services, enabling better regulatory compliance.

Speaker 2

We've embarked on a full transformation of this segment, Shifting from disparate local model to a more unified regional model. This has also allowed us to reallocate resources to growth. Hours increased 3.4% in the 2nd quarter as we continue to gain momentum towards additional growth projected in the second half of the year. Quickly commenting on CMS' HCBS proposed rule, we've aligned our feedback with industry stakeholders Supportive of the role, however, expressing concerns about the eightytwenty wage provision, noting that it will further exasperate Supply and demand imbalance for personal care services. It is important to note that we are optimistic that the rule will drive further professionalization.

Speaker 2

And once the final rule is issued, it will not be implemented until 4 years from now. In the RPN segment, Our operational excellence strategies have improved efficiency, allowing us to provide elevated care levels, while also integrating the Guardian Medical Monitoring acquisition from last May. We've leveraged technology to boost efficiency, enable Vital data collection and fostering growth. Within PRRS, we are seeing market share gains and maintaining strong pipeline. For example, activations were up 10% year over year and enrollments increased 81% compared to the Q1.

Speaker 2

We are also adding capabilities to enhance our vitals and medication management offerings and expect meaningful expansion starting this year. Under the careful management of our newly dedicated strategy, product and innovation team led by Jeff Bennett, Previously the CEO of Higgy Healthcare Solutions, our strategy integrates cutting edge technology and data management With our newly developed operational excellence and clinical capabilities. This strategy empowers us to capture Longitudinal data from our customers' members enabling the development of virtual engagement models and facilitating value based arrangements. In In 2023, we expect to generate meaningful dollars from innovation and value based payments. We have over 20 active programs focused on member insights And opportunities to move into value based arrangements that give us the confidence that our innovation approach is aligned to our customers' needs.

Speaker 2

I'd like to provide a brief update on our equity investment in Matrix Medical, which we believe holds significant value for MotiveCare. Matrix saw continued momentum in the 2nd quarter and delivered another strong quarter driven by assessment growth of 30%. For context, Adjusted EBITDA range of $50,000,000 to $100,000,000 is still the correct results to anchor value from. We are confident that Matrix is on the right trajectory to create significant value and we remain aligned with Frasier in monetizing our 44% minority interest at the right time. In closing, I'd like to thank our entire team for their hard work and dedication.

Speaker 2

The last year has been a period of significant change for us. We've remained committed to providing the highest quality of service as we have done amazing things to help transform this business. We continue to build on our culture where compassion meets profitability and will continue to guide us as we move forward. I'm incredibly proud of what we have achieved and the transformation we've undergone. We are clearly on the right trajectory, and I see this continuing as we remain committed to growing our supportive care services focused on the social determinants of health.

Speaker 2

Now, I'd like to pass the call to Ken Sheppard, our Head of Finance, who will provide an overview of our Q2 financial performance. Ken? Thank you, Heath, and good morning, everyone. 2nd quarter 2023 revenue increased 11% year over year to $699,000,000 driven by approximately 11% growth in Mobility and 11% growth in our Home division. Net loss was $191,000,000 which included a non cash goodwill impairment of $183,000,000 And 2nd quarter adjusted EBITDA was $52,000,000 which was 13% lower than Q2 2022 and modestly lower than our expectations.

Speaker 2

NEMT's 2nd quarter revenue of $497,000,000 Was driven by a 1.5% year over year increase in average monthly members to 34,300,000 and a 9% increase And revenue per member per month due to repricing and partial pass through of costs associated with our higher utilization. Trip volume in the 2nd quarter increased 6.5% sequentially, while monthly utilization per member increased to 8.5% Compared to 8.1% in the Q1. Purchased services per trip increased 2.8% sequentially Due to increased utilization resulting in more volume and related service expense. This was partially offset by a 3.9 reduction in payroll and other expense per trip due to early success we are seeing reducing our call to trip ratio in 2023. During the quarter, we saw minimal impact from redetermination, which was in line with our expectations.

Speaker 2

NEMT adjusted EBITDA for the 2nd quarter was approximately $29,000,000 down 38% year over year due to increased service expense per trip On a higher than expected trip volume as well as last year benefiting by $7,000,000 from an out of period repricing benefit. Adjusted G and A expense decreased 8.5% year over year and was 1% lower sequentially as we continue to control costs in this segment. We remain focused on our mobility initiatives to reduce cost and drive efficiencies, which will improve performance and increase Member satisfaction and we expect to recognize the benefits from these initiatives going forward. Turning to our Home division, 2nd quarter personal care revenue increased 11% year over year to $180,000,000 driven by 3 point 4% growth in hours and a 7% increase in revenue per hour, including a reserve reversal from last quarter of $2,600,000 which is included in our run rate going forward. For the full year, we continue to expect revenue per hour and service expense per hour growth will Remain in the mid single digit range.

Speaker 2

Personal Care adjusted EBITDA for the Q2 was $24,000,000 or 13.4 percent of revenue. Excluding the reserve reversal from last quarter related to revenue collections, Personal Care adjusted EBITDA margin Would have been 1.5% lower than the 13.4% we reported this quarter. We Expect continued upward wage pressure could result in margins in the second half of twenty twenty three, moving back towards the lower end on our long term target range of 10% to 12%, ahead of potential reimbursement rate increases in 2024. However, we remain focused on accelerating our personal care growth. In Remote Patient Monitoring or RPM segment, Revenue increased 15% year over year to $19,000,000 driven by strong referral sales as the combination of our RPM business With the Guardian Medical Monitoring acquisition, which annualized in May is performing well.

Speaker 2

RPM adjusted EBITDA was $7,200,000 For 37.5 percent margin, which is at the high end of our long term margin target. Again, our monitoring team is executing and performing well. We are seeing operating efficiencies and leverage from the Guardian acquisition and expect continued growth as we And add programs in new and existing states. Turning to our cash flow and balance sheet. Consolidated cash flow from operations in the second The quarter of 2023 was a use of approximately $108,000,000 The large cash use is attributable to a $79,000,000 increase in contract payables, a $17,000,000 increase in contract receivables and a $9,600,000 arbitration settlement.

Speaker 2

As a result of the accelerated contract payable settlements,

Speaker 3

we

Speaker 2

are now in a net contract receivable position at quarter end, which gives us the ability to offset contract payable payments with receivable collections in a more normalized and manageable way going forward. I'd also like to point out that contract receivables collections increased to approximately $16,000,000 in Q2 From $6,000,000 in the Q1, and we expect collections will continue to improve. Capital expenditures in the second quarter were $8,000,000 Which was 1.1 percent of revenue. We think that capital expenditures in the range of 1% to 1.5% of revenue is a good run rate going forward. We ended the Q2 with approximately $7,000,000 in cash and had $126,500,000 drawn on our $325,000,000 revolver.

Speaker 2

Our $1,000,000,000 of long term debt was flat sequentially and remains all unsecured debt at fixed rates. Our consolidated pro form a net leverage was 4.7x as of June 30, 2023. With our contract receivables now exceeding contract payables, we expect the impact on our cash flow from these accounts in the second half of the year We'll be more balanced and expect to be able to utilize this improved cash flow profile to repay $30,000,000 to $50,000,000 of our revolving credit facility during 2nd half of twenty twenty three. During the Q2, we successfully amended our credit facility to increase our leverage covenant and ensure ample access to liquidity, while the reduction in our net contract payables accelerated. We were pleased by the strong support that we received from our entire bank group led by JPMorgan during the amendment process.

Speaker 2

In November, the call price For our senior unsecured 5.7 percent, 8 percent notes steps down and we will be closely monitoring the capital markets Over the next several quarters as we evaluate refinancing options for these notes. We continue to target net leverage of 3 times, which We expect to achieve through a combination of debt reduction and EBITDA growth along with potential proceeds from monetizing our investment in Matrix. Our primary expected use of cash going forward will be to pay down our revolver and delever our balance sheet as we remain committed to a disciplined and balanced capital allocation strategy. Shifting to guidance, we raised our revenue guidance to a range of 2.75 to $2,800,000,000 and we lowered our adjusted EBITDA guidance to a range of $200,000,000 to 210,000,000 The increased revenue guidance was primarily due to higher NEMT utilization and transportation costs driving more revenue from our shared risk contracts. We lowered our adjusted EBITDA guidance due to the higher NEMT utilization and associated costs and a delay in the start of some of our new contract wins, which will start in early 2024.

Speaker 2

To sum things up, our Q2 results were mixed compared to our expectations As revenue was better than expected due to shared risk cost protection in our NEMT business and adjusted EBITDA was slightly below plan due to higher utilization. Despite these results and our guidance reset, we remain confident about our mission and long term growth strategy, along with the expected benefits from the initiatives to drive efficiencies and create operating leverage. Our team is working diligently to win new business And I want to thank everyone at MotiveCare for their hard work and dedication in providing high quality care and delivering the best experience for our members. This concludes our prepared remarks. Operator, please open the call for questions.

Operator

Thank you. The floor is now open for questions. The first question today is coming from Bob Labick of CJS Securities. Please go ahead.

Speaker 3

Good morning and thank you for all of That information is a lot to absorb and digest, but I think it's very helpful for the thesis here. So thank you.

Speaker 2

Yes. Good morning, Bob.

Speaker 3

And I want to kind of just pick up where you left off in terms of cash flow and make sure given all the information you just gave, I have Good handle on this and investors do as well. You talked about basically, I guess, Netting out the payables and receivables balance, which was $85,000,000 before and now we're at a negative position. So I think that's behind us and you talked about $30,000,000 to $50,000,000 Free cash flow in the second half to repay the revolver. Does this mean we're kind of at a normalized level overall? The question is, how should we Think about working capital swings and free cash flow in 2024 and that ability to re November 'twenty five debt and cash flows through that or I'm not asking for like a specific number, But more how does working capital affect free cash flow in 2024?

Speaker 3

And if we have our own EBITDA assumption, we can kind of build our way to

Speaker 2

that free cash flow number? Yes. Yes. No, it's a good question. Well, first off, as you know, in our home business, those strong adjusted EBITDA flow through Because they're very CapEx light.

Speaker 2

So you understand that, that works. So really where and then the other things, the levers that happen in free cash flow, which you could see is These continue investments in technology and platforms, which you see as well. So all that is strong cash flow, the right amount of Investment that works. So it gets down to is where we are in the mobility business and then specifically within the working capital Related to those payables and receivables. And the one point that you hit on again, which is really important, it's really critical, Some of these new coming into here, looking at that delta between the contract payables and contracts receivables, Just repeating what you said again.

Speaker 2

This is the first time that it's flipped to a receivable. So then you're questioning more broadly, well, how does this work? Basically, our contracts are working post COVID. So the contracts that we've restructured primarily around really implementing these Shared risk contracts have been very helpful for us and help protect our kind of long term margin. So that's you will see fluctuations As we move through the years going in quarters, those will still fluctuate.

Speaker 2

So the good thing now though, because of the COVID Benefits, now the contracts are going to work or they are. And I think they'll bump around. But the good thing is, is we have the receivables and the payables. And because we have so many contracts, we expect that to be kind of a normalized working capital fluctuations in and out, not the big swings like we've Over the last couple of quarters. And then the other item coming out of COVID now, All the states or MCOs, we have more predictable and rigid timeframes for when we pay this back.

Speaker 2

So, it really is kind of a 3 to 6 month timeframe. So, this predictability and normalization coming Out of COVID allows us to have a more predictable cash flow and then a more normalized working capital. So which is why we have a lot of confidence in the back part of this year that we will generate cash flow in accordance with how our P and L works. And I expect that to continue throughout the quarter and into 2024.

Speaker 3

Okay, super. And then, I think you guys just touched on a potential deleveraging target of 3x leverage in 'twenty four. Absent of I guess, what's the probability of a Matrix advantage? Well, yes.

Speaker 2

In that, so You know where we are now. And to get to 3, we need a monetization of Matrix. That is absolutely our long term target and That's the point of that. But we will continue to delever like we talked about before. But to get through the big jump down that quickly, there need to be some monetization Within Matrix and as you heard on the call, Matrix, that team has done an incredible job improving the business, Shedding assets that didn't work and then really the performance is in line with What it was years ago and really kind of best in class.

Speaker 2

So that's showing up in the numbers. So we couldn't be more happy with that performance. And then, yes, What's the timing on that? We're very aligned with Frasier. So the good way to think about it, it's Getting closer because they're performing.

Speaker 2

So that's why we put it in there just 2024, which is a very it's a reasonable timeframe. I don't want to box it in because the most Important thing that it continues to perform and we get the most value, but because of where they are, it could happen in 2024 and that would be a meaningful way for To delever and get to that target of 3 times.

Speaker 3

Sure. Yes, that would be great. Thank you. And then last question and I'll jump back in queue. Obviously, you discussed the faster recovery and utilization in mobility.

Speaker 3

And I guess, First, is that just kind of faster pandemic normalization or is there anything unique to MotiveCare? And then the real question is, where do you see settling out and how does that impact NEMT margins in 2024 and beyond?

Speaker 2

Yes. Also in the quote, utilization healthcare utilization across the board is interesting and we are seeing as well. Faster than we thought in Q1 and Q2. However, actually, if you look at seasonality, Q2 is also the high point as well. So and what we're seeing right now is that we're seeing the traditional kind of pull down from the high point of Q2.

Speaker 2

So I expect utilization to be at the levels that they are now and continue to grow at a more moderate place And then get to that standpoint of between 9% 10% kind of middle of 2024. So very manageable and in line with the forecast that we gave in 2023. And then you couple that with us giving clarity around redetermination, that includes The utilization, so we feel good about that. And again, the other item, the way our contracts work, Whether that's cost or utilization, a lot of that front end is pass through. So the full risk contracts is where we have the exposure And we have good management of those specific states and those specific Networks that are in there, so it is an impact and it is going to be a drag in us, including redetermination.

Speaker 2

We do believe We'll be able to manage through that, and then going into 2024, which is why also and this may be is probably your next question. The size and scope of our business is the strength. The opportunity for us is to automate a lot of the processes that we have. And that will further ensure that we get rigid margins Going forward and not have to be this kind of fluctuation in utilization really is the main impact. So and those initiatives are on.

Speaker 2

We've been in the middle of this transformation for the last year. We have a strong team in place and strong clarity in what we need to do, whether that's and supported by tech. So we need to execute on these initiatives. And I expect every quarter we'll give you updates like we are now. For example, Our trip to call ratio continue to improve.

Speaker 2

That's just one example on how we're able to kind of automate this business and get the right cost structure in place, So that we get back to the ranges that we've given on our EBITDA margins in 2024.

Speaker 3

Okay, super. Thank you for all that extra detail. I'll jump back in queue and let others get some questions. Thanks.

Speaker 2

Thanks Bob.

Operator

Thank you. The next question is coming from Brian Tanquilut of Jefferies. Please go ahead.

Speaker 4

Hey, good morning. I guess, Heath, Maybe my first question, as we think about just your visibility and confidence in your guidance that we'll see Positive cash flow in the back half of the year. And then any color you can share on debt covenants and debt availability? And maybe even if you can share with us Where debt levels are maybe as of the end of July?

Speaker 2

Yes. So We've been paying down. We paid down about $30,000,000 in July. Again, we expect the fluctuations to happen. So it's just a data point, Which aligns to why we feel good about the ranges that Ken gave in our free cash flow of $30,000,000 to $50,000,000 generating Throughout the year, so feel really good about that.

Speaker 2

And I'll keep coming back to that. And it's okay to keep saying this. And What you should look at and why we're comfortable with that is the receivables and payables delta. That gives us a lot of confidence of being through that COVID repayment back. So and then to continue on that from a debt covenant perspective, we did All our banking partners who are great partners who have looked at us gave us that increase in leverage coverage.

Speaker 2

And we have in the deck how that actually works. So you can see that we have A 4.7 leverage. So that gives us lots of room to within that covenant. So we're really comfortable with Where we are from a bank loan perspective, we continue to delever. So we are really comfortable with our current capital structure and our covenant that we just got in place.

Speaker 2

And then your what was your first question?

Speaker 4

Just the confidence and ability to generate positive free cash in the back half of the year?

Speaker 2

Yes. So Then it goes to the other items, which I said a little bit with Bob. You look at the other side of the business, right, in the home business versus that 11% to 12% Margins, RPM in the mid-30s, strong performance and growth there. So you put all that together And then being out of the COVID payments that we accelerated into Q2, we're executing and we'll generate cash. So I feel really confident about that.

Speaker 4

Understand. Okay. And then maybe you gave some color on redeterminations. It sounds like, Number 1, you still believe that it's a 10% to 15% reduction in the number of Medicaid lives covered or enrolled, but also if I add this year's impact, dollars 5,000,000 to $10,000,000 to $40,000,000 next year. So 25,000,000 to 50,000,000 gross.

Speaker 4

Maybe if you can walk us through that math and how you're getting that level of confidence in both The number of lives and the revenue amount or even the amount that we should be thinking about?

Speaker 2

Yes. Yes. And also if you're if Anybody wants to look at it on Page 15 of the investor deck that is posted, it actually goes through that math The team and us did a very good job on being transparent around this and what we think it means. 1, we're all learning as an industry, right? And we know our customers where it is.

Speaker 2

So we want to be transparent on what it means, primarily what it means for into 2024. As we said, in 2023, The impact is around $5,000,000 to $10,000,000 and that's in our current guidance. It really is now about what's going to happen in 2024. So we laid out the math there, on how we are getting to the range of $25,000,000 to $50,000,000 And it really is taking the data that is out there publicly and then we layer that on to our current contracts. And then why it's not maybe a large number like maybe other people are expecting is because we have a state mix That is different than the overall kind of Medicaid population and that where the exposure lies for us In those full risk contracts, again 20% of our revenue is within that.

Speaker 2

And we know where those states are and we know what's happening. So when we put it through that, that's how we get to that $25,000,000 to $50,000,000 And then we also gave an illustrative example on how you could do your own math. I think the real way to think about it, a lot of the data that's out there specifically from Kaiser, which I think is doing a They do that 10% to even 20% across the U. S. And gross.

Speaker 2

They don't take into account the increased Medicaid That is also happening. CMS just last month actually I think has the best information that came out there. They did a net number. And their net number was in 2024, they expect 8,000,000 lives to come off. That is in line when we look at Our contracts, that is very in line with what we think is going to happen.

Speaker 2

And if that's the case, it would be on the lower end. So We really wanted to be transparent around this. I think the numbers that we have are really solid. And then The other item on that, that gives us the ability to say, okay, that's the $20,000,000 to $50,000,000 What are you going to do about it, guys? And that's where we also are being more transparent around the initiatives that we have in place around the cost.

Speaker 2

So that goes to page I think page 13 of the deck. And we were again transparent around this automation. Why we wanted to be that way is because We wanted to show the opportunity we have and the base that we have to work off of there. And that's around automation within our contact center, That's automation within just transportation ops. There's the initiatives that are underway and we still have a lot of opportunity to do that.

Speaker 2

And when you look at that, The total target that we have $60,000,000 to $80,000,000 But for us over these next 12 months, we think we can get $30,000,000 to $50,000,000 So that 30 to 50 across redetermination and utilization of 25 to 50, it shows that we can execute and get back Our margins of that kind of 9% to 10%, 11% range in 2024.

Speaker 5

Awesome. Thanks, Heath.

Operator

Thank you. The next question is coming from Scott Fidel of Stephens. Please go ahead.

Speaker 6

Hi, thanks. Good morning. First question, I was hoping maybe just on the NEMT side. I think it might be helpful if you can sort of Break out how the margins I'm not sure if you're have the data prepared this way, but it would be really helpful if you could break out how The margins are looking in the full risk category, let's call it that 20% that are in full risk versus The 80% that have now moved towards shared risk, and then when you look at the full risk, which Clearly seems to be more pressured right now than the shared risk. Walk us through, I guess, the path to margin normalization For those full risk contracts in terms of visibility into price increases or PMPM increase that you have there or is this where you're going to be also utilizing some of these cost saving initiatives To try to normalize the full risk margins.

Speaker 2

Yes. So, we don't kind of we don't give margin by Jewel category and the reason for that is an entire portfolio. And with full risk And actually shared risk or fee for service and pass through, these constructs are based on how we have a win win relationship with our Customers. Some people want shared risk. Some people want full risk.

Speaker 2

Full risk by definition is us taking on more risk. So Those margins are higher, but that doesn't mean they will go lower. The way the industry has Settled out in NEMT regardless of what contract, we're kind of set on that. So the expectations to these customers that use full risk Is that our margins are higher. So right now, there are pressures from a timing on utilization, But those aren't going to continue to decline where the full risk margins get even at or below our shared risk margins.

Speaker 2

That's not the way it works. So I wouldn't look at it as a big risk or a change within full risk as being The downside, it really is for us being transparent of where the exposure is From our margin perspective right now. So they are higher. They are being under pressure. But as I talked about earlier where we think utilization is going to go and where cost is going to go because more than 80% the other 80% are actually pass through, We feel good as a portfolio in our margins and especially where the levers are in our costs that are internal to us.

Speaker 2

That's where the levers are and that allows us to get back up. The pricing mix, The margin components of what we get from our customers and what we pay our transportation providers in general have really leveled off and I expect those to stay consistent for many quarters and years to come. For many quarters and years to come.

Speaker 6

Okay, got it. So actually bottom line, the full risk contracts, You still actually generate higher margins in those, but with a lot more variability. And then with the shared risk, Essentially, you're willing to trade a little bit lower margin for some more predictability And the margin structures that you'll have over time at shared risk, right? Because that's the way to sort of think about the deal.

Speaker 2

That's exactly because that's what the customers want as well. So And the people that want full risk want that because it allows them to do it more simply and they will remain higher than anything else. So you said it correct, Scott.

Speaker 6

Okay. And then just follow-up question, just sticking on the NEMT margins. And obviously, I think for a lot of Certainly, too. That's it's just the visibility into the NEMT businesses is lower right than some of your other businesses like Personal Care, where we have a lot more Other external ways to monitor trends in other public peers, for example. So in that context, so You did the 5.8% adjusted EBITDA margin in the 2nd quarter.

Speaker 6

You've revised the outlook for the full year. You're still targeting a 10% margin in that business in the intermediate term sort of outlook that you gave in the deck. Could you maybe just give us some more visibility in terms of specifically how you're thinking about that sort of NEMT margin ramp, both in the 3rd quarter and the 4th quarter. And then also just into 2024, how you're thinking about that sort of ramping, Just given that you're going to have obviously the impact from redeterminations playing out and then you're going to have the offset from the cost savings Where you have a lot more understanding of how those cost savings will ultimately accrue than obviously we do externally?

Speaker 2

Yes. Well, so this is just to hopefully start kind of box things in. If we do nothing, these margins that we're at right now, that 6% range would be holding like that. Again, that's a good thing from the contract structure. As you can see and I'll just touch on this, You can see in the data when you look at purchase services to revenue in NEMT, you see that the increase In cost, whether that's unit cost or utilization, 80% of that is pass through.

Speaker 2

So good contracts are working at it. But that 6% margin long term is not what we expect. So what are the levers to pull? So there There's 2 big levers to fall. 1st, Arne talked about the cost savings around automation and the second item is Growth.

Speaker 2

And we talked about a lot of the good things that have happened with our rebuilding our sales and go to market. It's having traction. I wish it was earlier and I wish this was before, but now this team is executing and I expect that To start coming online and we'll get scale out of that. So those two items together will Have us the ability to have those margins creep up. Likely that's going to be that will be in 2024.

Speaker 2

So the right way to think about these next couple of quarters It's kind of in line with these current margins that we have right now in NEMT. And then the uptick as volume comes on and as the cost additions take place, We'll get to those. We'll start getting to those levels that we talked about before.

Speaker 6

Okay. And then just one last question for me, maybe just over on the Personal Care side. First, I did hear Ken, sort of call out some expected wage increases for caregivers in the back half of the year. Could you maybe just Actually, sort of disclose what expected type of wage increases you are expecting to give to the caregivers. And then also just interested if one more targeted question on New York.

Speaker 6

One of your peers had talked about CD PASS having gotten a bit of a retroactive Rate increase and reimbursement there looking more reasonable now. Just wondering how that's flowing through to your business as well? Thanks.

Speaker 7

Yes. This is Zach. So I think the wage increase commentary is really more about normal market Wage increases that we see happening. There were a couple of minimum wage increases that We like Connecticut passed through a minimum wage increase in June, July. And but going forward, Yes, we're going to be passing through wage increases to be competitive in the marketplace.

Speaker 7

In terms of the reimbursement rate environment, we're seeing Some good support from the state still, not as much as maybe we were a year and a half ago. But I would say that in terms of like CDPAP, yes, like we're seeing the same dynamics there as that and New York has been A pretty supportive reimbursement rate environment, but it's also another high wage environment. And so for us, like we're really Focused on how can we make personal care a more value add service than just Going in and making it a single point solution. And so as we think about having this holistic view of the member, that's We're going to drive the most value in personal care. And so, we're yes, we still need to operate in the competitive environment.

Speaker 7

And it's a very regulated industry. We're also bringing Something that we feel like is differentiated in the marketplace, and I think that's the main focus for us going forward.

Speaker 2

Yes. And just a little bit more on that. You think about New Jersey, Pennsylvania and New York, all historically supportive of increased reimbursement rates to match The needs of paying caregivers higher, that has happened, that is happening now and we expect that to continue. For us, We want to continue to pay caregivers more. It really is about growth for us.

Speaker 2

So that's why we stick to that 10% to 12% margin. It really is about how do we get more caregivers to grow. And you're seeing that hours are up, growth is up. So We're really happy with the business. We have a we know there's a lot of opportunity.

Speaker 2

With Ann Bailey has been here now a few months, which she and the team are doing is great. So we even see more upside on what they're doing to really fuel growth. So that's a little more on what Zach just said.

Speaker 6

Okay. All right. Thank you.

Operator

Excuse me. Thank you. The next question is coming from Brooks O'Neil of Lake Street Capital Markets. Please go ahead.

Speaker 8

Hey, good morning, everyone. This is Aaron Wukmer on the line for Brooks. So personal care and remote patient monitoring performed well. And it seems that you guys have a lot of opportunities in that area and are seeing some very strong demand there. So what would you say your main focus in Your long term strategy and enhanced data capability is and what specific and significant factors should we be more focused on going forward here?

Speaker 2

Yes. Thanks for that. So the home business, why we call it a home business having personal care and remote patient monitoring together It's a critical component to our future. And really across the United States, everybody knows that care is going into the home. And then especially over these last couple of years, really appreciating what Personal Care is doing.

Speaker 2

Those Everyday life activities are critical to the health of many people. So That dynamic of growth and need is going to continue to accelerate. So we couldn't be more happy with those and the growth capabilities on that. From a strategy perspective for us, it really is kind of twofold. And the one that we've been executing on for the last kind of 12 months is this Centralization, standardization and automation, like implementing a common platform And then ensuring that we have repeatable processes.

Speaker 2

The value on that is when we get the ability to reallocate Back to our caregivers to grow even more, but it also gives us a platform to grow, grow organically just through adding people, Through de novos and sometime down the road, when appropriate, acquisitions. So having that centralized standard automated platform to plug and play growth is great. So where you are going, the next part is, it really is around the data. And right now, the service that our caregivers provide where we're in the home anywhere from a couple hours to 24 hours is a critical ability for us to start collecting data And then as importantly and more importantly doing something about it. So those investments that we've made to ensure we can do that are happening and in place and that's really where the future strategy goes.

Speaker 2

How do we change outcomes that really help Our customers and members. That's where the focus is as well to ensure that 1, we are more sticky and can grow, but 2, how we get Payment models, which is more in line with value based care. And think about it as us changing outcomes and getting bonus payments for Whether that's changing some risk on falling to actually intervening before somebody gets really sick. So that's the future. And I'll hit this again.

Speaker 2

This is different. So our customers want us to have access. They don't have access Just like we have all the time. So it's a really unique entry point with people and then you layer on data that allows us to do it virtually and that gets to the Why we have remote patient monitoring, Bob? The technology of a device complements or supplements the human, Allow us to scale.

Speaker 2

There's a lot more that we can talk about later, but bringing those together, data and the human touch It's a differentiator for us and in line with what our customers want.

Speaker 8

Great. Yes, that's very helpful. Thanks for taking the question.

Operator

Thank you. The next question is coming from Pito Chickering of Deutsche Bank. Please go ahead.

Speaker 9

Hey, guys. One quick modeling question here. Can you give us a number of rides you provided under the shared risk model versus the fully capitated model in 1Q and 2Q to

Speaker 2

Yes. So it is pretty congruent in line with our revenue. So we've 20% of revenue in our full risk and that is in line with the transportation trips. That's the right way to think about it.

Speaker 9

Okay. And then on the share at risk economics on sort of Page 30, you say that there's 0 impact So depending on overall utilization of this 80% of the contracts, if there is sort of no risk here, why are we not doing a fee for service model? Kind of why are we doing this type of structure?

Speaker 10

Yes. I get back to

Speaker 2

the question that came earlier, right? It really is what do our customers want. And the shift, no question, has been to the shared risk model. And I expect that to continue. It's primarily related to the managed side, so the MCO side, because it's more than just the trip taking.

Speaker 2

They want to expand More broadly, so I expect that shift to continue. We are now at 65 MCO side versus Couple of years ago, we're the other way. So I expect that to happen. However, there's a few of our primarily states that like The full risk contract and getting back to that, though we're seeing pressure right now, those margins will remain higher. So Well, we like those contracts.

Speaker 2

They're in line with our customers. And the overall portfolio of our Contracts are working and I expect that to stay in place and allow I'll get back to you. What really is going to change Our margin profile to be back to that 9% to 10%, 11% range is the cost and automation capabilities.

Speaker 9

Okay. And then That's

Speaker 2

the main lever.

Speaker 9

All right. Fair enough. And then on Page 12, you guys gave us the bridge For EBITDA margins, which include new net wins, re determination, relation costs and initiatives. Using that same construct, Can you help us think about sort of the 5.2% margin we saw in this quarter and how we get to 7.3% in the back half of the year? And what do you assume on utilization in the back half of the

Speaker 2

So utilization to us because of the seasonality in general, it usually comes down in Q3 and Q4. We're keeping this high point of utilization in line with that current trend. And what's my confidence around that? I'm seeing it right now. So and then the other components of what the uptick is, we know where that is and we know what caused it.

Speaker 2

So we We feel good about our predictability in the back half of the year around the utilization. And then from a margin perspective right now, I think We talked about this a lot. I expect that margin to be similar for the next couple of quarters. And then as We add more wins and you can see that there, add more wins that we have sold today that come on in 2024, coupled with the cost Initiatives is going to bring those margins up steady through 2024.

Speaker 9

Okay. And then last one here for me. The bonds have been under a lot of pressure, which is putting pressure on the equities. The issue from the Exempton guys is just obviously leverage, EBITDA, Pressures in cash flow generation with the negative $110,000,000 in the first half of the year. Just regarding a $350,000,000 of cash flow generation for this year.

Speaker 9

Can you just give us a number of what 3rd quarter cash flow from operations

Speaker 2

should be? Thanks so much. Yes. So we gave the full year

Speaker 6

Second

Speaker 10

half of the

Speaker 2

year, sorry, the second half of the year. And Ken said this, that $30,000,000 to $50,000,000 So That's what considering the fluctuations we have, it makes sense to give the full year. So we feel really good. Like I said earlier, we are paying back right now. So I expect each quarter to generate cash for us And then in totality be between that $30,000,000 $50,000,000

Speaker 9

Great. Thanks so much.

Operator

Thank you. The next question is coming from Mike Petusky of Barrington Research. Please go ahead.

Speaker 5

Hey, good morning guys. Good morning.

Speaker 6

I just

Speaker 5

want to make sure I understand what's going on with the revolver. The short term borrowings were like 126 $1,000,000 on the June balance sheet. And did you say that you had paid down $30,000,000 in July? Did I hear that right Yes,

Speaker 2

yes, I did say that. Yes, because I think

Speaker 5

So the revolver is below 100 And then I just want to make sure I understand. When you're saying, hey, we're going to we're essentially going to pay down the revolver 30 to 50 In the second half, that really implies 0 to 20 incremental from here, correct?

Speaker 2

Yes. Yes. So this It gets back to, I think, Pito's question as well. We will still have the fluctuations that happen each year, which is why I mean, each month, each day. The purpose of disclosing what happened in July is when I can ask the question too, is that it's not continuing on that trend.

Speaker 2

I get back before that we're actually not Generating free cash flow. That's so we expect to be at that $30,000,000 to $50,000,000 and we're consistent with that. We feel good about it.

Speaker 5

Right. But essentially, if you say, hey, we're going to pay down the revolver $30,000,000 to $50,000,000 in the second half, but you paid you've Already paid $30,000,000 It's possible for the next 5 months, you don't pay the revolver down any additional amount.

Speaker 2

Yes. So You're looking at the right way. I think the right way, Joe, also is the bridge that we have on Page 7 of the deck. We pay interest The second half of the year too, right? So there's other puts and takes that happen on the fluctuation, but you're right on your math.

Speaker 3

Okay.

Speaker 5

And I'm sorry, this may be in the deck. I don't have the deck right in front of me. What are you paying on the revolver right now?

Speaker 7

9.3%, I believe, is the rate that's in

Speaker 8

the 10 Q. You can look in the 10 Q for the

Speaker 7

actual That's based on sulfur plus the margin.

Speaker 5

Yes, yes. Okay. And then moving over to The other favorite topic of this call, redetermination. I think I saw a piece this morning possibly that Texas had already taken 500,000 Folks off their Medicaid roles in a month. I mean given that, I mean does 8,000,000 lives, does that really Stand up.

Speaker 5

I mean, in 30 days, if that's right, if that story is right, one state took 500,000 beneficiaries off their roles. Is $8,000,000 really the number or is that a hoped for number?

Speaker 2

No. So a lot what you're seeing now, especially over these last couple of quarters, most of the people that are rolling off Across the states are going to be re backrolled. The challenges states are having is that people are rolling off that It should not be rolled off, which is why a lot of people have paused that and are taking the time. So I think the CMS requirements and the CMS pausing of things It's the right thing to do because many of those members and I expect many of those members that are 500,000 within Texas Are actually eligible to be back on as much as 50% to 80%.

Speaker 5

Oh, wow.

Speaker 2

So when you look at that, That's the lumpiness that's happening now, which is why states are taking longer and pausing. So when it all nets out, that $8,000,000 net that CMS has, If you look, we grew in membership in certain states because of just the general growth. And that After the redetermination that we know came off. So our customers, what you see in the news, what's happening, I do feel really good about the information that we gave on Page 15. Though broad, 25 to 50, I think CMS' estimate on 8 is a good kind of middle of the road target based on what's happening right now.

Speaker 2

The data shows that And 50% to 80%, maybe more are going to be re enrolled. And I think Texas is in the same boat.

Speaker 5

And just a last question, you guys have sort of alluded to this, but clearly, 90 days ago, you guys didn't have Great sense of sort of the timing, the cadence of when some of these payables would need to be dealt with at least in order to sort of keep relationships with your customers. And it seems like you're saying Now, hey, look, we've given what we've experienced, we've dialed we've really drilled down on this and we truly have a sense that we're not going to get hit with $20,000,000 payable, hey, due in the next 2 weeks that you're not expecting. Essentially, you At this point, unlike maybe 90 days ago, you have a very good sense of the cadence of how this will come in. Is that fair to say?

Speaker 2

No, that is exactly during COVID, it was the timelines were all over the place. And as recently as 90 days ago and this is why it was explicit. I wanted to give data around really it was 2 large Customers that have this

Speaker 6

lack of

Speaker 7

timeline,

Speaker 2

that is cleared up. We have the timeline. We're out of COVID and we're aligned And now we have a lot of predictability.

Speaker 5

Okay. All right. Very good. Thanks, guys. Appreciate it.

Speaker 10

Thank you.

Operator

Thank you. The next question is coming from Myles Highsmith of Deutsche Bank. Please go ahead.

Speaker 10

Hey, guys. Thanks for taking all the questions. I wanted just to follow-up on the last question on redetermination. I guess, I think, look at the Kaiser data and it's maybe a little apples and oranges in some ways, but you see really high initial rates On a small sample, like 38% disenrollment, but like 74% are procedural terminations. And I think you just made the point, you expect If I back in it like your kind of 10% to 15% guidance, that's kind of embedded in that guidance is implying that the bulk of those procedural terminations are going to get reversed out.

Speaker 10

I think you just mentioned a number of 50% to 80%. Do you have an early data experience about these procedural terminations getting reversed? Is that the 50% to 80 How much like hard data do you have or any anecdotes that might kind of back up that expectation? And then I have a couple of short follow ups. Thanks.

Speaker 2

Yes. So for us in the states that we have and this is we've had redetermination, But the main states that we have, most of those have been pushed off. So where you're seeing the acceleration on People rolling off and then need to come back on. Those are primarily in Republican related states And where we don't have a lot of exposure, so we are seeing it. We are seeing it happen and it's in line with what The market is saying around those are procedural and they'll come back on.

Speaker 2

Just the impact hasn't been that large for us because most of us most of our contracts We're in Democratic states and that hasn't happened yet. Got it.

Speaker 10

Okay, thanks. And then just on accounting, If I've got a patient who, let's say, gets disenrolled June 1, goes in July 1 to get their script, realizes they've been disenrolled, Has 3 months from that June 1 period to get reenrolled, keep their coverage retroactive and uninterrupted. Let's say they do that in August. Is the accounting for you, do you lose that life effective June 1? And if they get that coverage back, do you get kind of a recouped payment per member per month once that's Reinstate it again or just want to make sure I understand the accounting pieces of it?

Speaker 2

Yes. No. So if that Person rolled off for 3 months, as an example, we would not get paid for that person. And then 3 months later, when they We'd start getting paid and it would be just getting paid going forward. We wouldn't be recouped for that.

Speaker 2

The only Difference for that, if they're a utilizer, we would reconcile with them. So we get files every day and every month. So there is a reconciliation process, but if they were a utilizer, we're not going to get paid. If they were a utilizer, That would flow out in our reconciliation processes as getting paid.

Speaker 10

Okay, great. And last one for me. Just Maybe at a more basic level, I see on your slide the cost structure optimizations on automation next 12 to 18 months And the savings associated with those, and I'm reading, you know, Ryerson's calls eliminated, reservations calls eliminated. Can maybe can you just Give us a short kind of real world example of like how it gets done now and like how it looks when somebody tries to schedule A ride, is it a text now? What's the change and what does it look like?

Speaker 10

Because those are kind of big numbers. Thanks. That's all

Speaker 2

I have. So from a call center perspective, which is on that Page 13 is the top part. And we said this before, We do right now about 28,000,000 calls. 28,000,000 calls at a cost of $4 So those 28,000,000 calls are the majority of the interactions that we have with our members. So the opportunities that we put down here is are very reasonable Based on our population, the type of technology they use with common technology like a text message.

Speaker 2

The big opportunity is around when someone needs information and assistance for a ride. So with the automation And then even the improved kind of performance on transportation, that is very reasonable that we can get 75% of those out, where They get a text message and say your car is 5 minutes away. Or instead of calling us, they call the transportation provider directly because now we We've done a better job at aligning that member to the TP. So there is just so that's text messaging, Calling the TP themselves, using the app, using the website, all those are common technologies that are starting, But we're still really, though we understand what it is, the rollout of that and The usage of that is still in early innings, which is why we expect the full cost savings to start coming in, in 2020

Speaker 10

Got it. It's very helpful. Thank you, guys.

Operator

Thank you. At this time, I'd like to turn the floor back over to Mr. Sampson for closing comments.

Speaker 2

Great. So thank you for participating in our call this morning for your interest in MotiveCare. Our updated investor presentation and quarterly supplemental deck on our IR website. If you want to schedule a follow-up call, please call Kevin Ellich, our Head of Investor Relations. We look forward to speaking to many of you over the coming days, weeks and months before we report our Q3 results in November.

Speaker 2

So Thank you again. Have a great day. And operator, this concludes our call.

Operator

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your

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Earnings Conference Call
ModivCare Q2 2023
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