ModivCare Inc. Price & Performance (MODV)

This app our financial results and guidance. Then we'll open the call for questions. With that, I'll turn the call over to Heath. Thank you, operator, and thank you all for joining us today to review our fourth quarter and full year 2024 results. I'm joined today by Barb Gutierrez, our Chief Financial Officer. Today, I'll begin by outlining the current state of our business reviewing our Q4 and full year 2024 performance. Then I'll walk through the recent steps to strengthen our capital position, before diving into key updates and value drivers across our business segment. After that, I'll turn the call over to Barb, who will provide details on our capital raise, full year performance, and Q4 results before we open the call for questions. 2024 was a perfect storm for payer services companies. And Medicare Advantage. This industry faced unprecedented disruption from Medicaid redetermination, increased healthcare utilization and MA reimbursement cuts. Challenges that clouded visibility Disrupted cash flow and created significant financial strain across the sector. The impact on our performance and working capital was severe. Requiring us to navigate painful pressures pushed down from our clients. Leading to unpredictable revenue shifts and overall market volatility. These external disruptions were challenging.

But we have successfully navigated through them by reducing costs significantly, and also strengthening long term partnerships with our clients. And all this turmoil is now behind us. At the same time, we built a strong foundation Our three differentiated segments are fully integrated, operationally optimized and competitively positioned within the healthcare ecosystem. That foundation is set and our path forward is clear. We will further strengthen our balance sheet by monetizing select platforms that are now ready to thrive leveraging our proven competitive position and strong market demand. As we execute our strategy, we will reduce debt sharpen focus and solidify our market leading position. Unlocking and driving stakeholder value and equity value. Specific to the financial results, our fourth quarter demonstrated progress.

With revenue of $702,800,000 dollars bringing our full year revenue to $2,800,000,000 Our adjusted EBITDA for Q4 was 40,400,000.0 totaling $161,100,000 for the full year. Our priorities for 2025 are clear. First, we will continue strengthening our technology, enabled platforms across NEMT, personal care, and monitoring. Second, we will execute strategic financial initiatives and divest platforms to ensure our capital structure supports long term growth and value creation. Before I dive into the segments, I want to discuss recent steps we've taken to strengthen our capital position. As we approach the end of 2024, it was critical for us to proactively address cash flow and working capital timing risk [indiscernible] Strengthening our capital position became a key priority and we worked diligently to reach an agreement across our capital structure group. We received strong support from our existing debt holders and shareholders who recognize the value of our strategic transformation and the underlying enterprise value of each segment. As part of this effort, we secured an incremental $75,000,000 term loan and $30,000,000 in new second lien notes. Providing financial flexibility to drive operational improvements and execute on our strategic priorities. And believe this investment will further stabilize our financial position.

To further accelerate our transformation, we appointed Chad Sandler as Chief Transformation Officer. Chad brings deep experience in large scale transformations and his expertise is already proving invaluable as we drive execution and position ModivCare for long term success. As we work to prioritize MotiveCare has appointed Alec Cunningham, With the first appointment being Aaron Russell, whose appointment was announced in February. As a significant shareholder, David's appointment bring valuable perspective directly aligned with the broader interest of shareholders and the company. These appointments build on a recent track record of adding key areas of expertise to the Board that will drive ModivCare strategy and execution. [indiscernible] Mr. Cunningham is a proven public and private company CEO. With significant payer experience with Medicaid, Medicare, and other public funded healthcare programs. Who has delivered excellent operational results in development and turnaround situation. He has unique talent and deep expertise in the policies and operations of government sponsored health insurance programs, and risk bearing providing organizations. As the former CEO of WellCare Health Plans, he has strong expertise in managed care and operation transformation. Mr. Mount Gonzales' appointment to the Board represents a collaborative step forward with shareholder interest. Aligning closely with shared goals of enhancing operational efficiency, technology innovation, and disciplined financial management.

His deep expertise in AI, [indiscernible] and strategic cost optimization will support the company company in driving operational efficiencies and long term value creation. He is a general partner of AI Catalyst Fund, a significant shareholder in our company which invests in public companies to enhance their use of artificial intelligence and advanced technology through strategic engagement. He is an experienced Chief Executive and Public Company Director. Having served as CEO of InMar Intelligence, a data driven commerce and analytics platform, from twenty ten twenty twenty two, including as Chairman, from 2014 to 2022. Previously, he held senior leadership roles at Domino's Pizza as EVP of Supply Chain and CFO, driving innovation in technology, product and logistics. And at UPS, where he held multiple executive positions, including International County Manager, Corporate Controller and SVP of UPS Capital. Alex and David's perspectives and expertise will provide immense value. Including helping to improve the company's service quality and outcomes enhance our competitive cost structure and deliver prudent profitable growth. We are excited to have them both on board. Motive Care is committed to a continuous refreshment process designed to provide Board membership that is comprised of directors, with a range of skills and experiences that complement the company's strategy and execution.

We have engaged advisors, and established the Strategic Alternatives Committee on the Board to ensure a disciplined and strategic approach to our divestiture process. After the seismic shifts of 2024, and the significant progress in our transformation, now is the optimal time to monetize select segments and unlock value. And for the first time, we have launched this process. Extensive discussions with third parties have reinforced the strong market demand and competitive positioning positioning of our monitoring platform. Which is the most advanced in our divestiture process. With cutting edge technology and clinical capabilities, a highly attractive member base, and recurring revenue streams Interest from potential buyers is strong and deep. [indiscernible] We are executing strategically while maintaining measured speed ensuring we maximize value creation for all stakeholders. Beyond monitoring, we are unlocking significant value in our Personal Care Services segment. And non emergency medical transportation platforms. As well as through our equity investment in Matrix Medical. PCS is also uniquely positioned with a centralized and a single technology platform. Making it highly scalable and attractive for potential monetization. This structure enhances efficiency compliance and service quality. Reinforced in strategic value within the healthcare Meanwhile, our NAM key platform and Matrix Medical investment continue to be growth drivers benefiting from strong market demand, operational improvements, [indiscernible] competitive position.

Each of these business businesses represents a compelling opportunity for long term value creation and I will provide further insight into their strengths and future potential. Later in this presentation. Turning now to the review of our business segments. To set the stage for our NEMT segment, no area felt the unprecedented external pressures of 2024 more acutely. While we met our operational goals, Medicaid redetermination had a significant impact and driving industry wide volatility. Despite these challenges, we executed effectively advanced competitive transformation initiatives and took decisive action. The volatility and uncertainty are behind us. And we are poised to further expand as the largest and most advanced [indiscernible] We are executing across the entire NEMT value stream, from a transformed go to market strategy that continues to drive sales wins and strengthen our client relationships to high-tech and high touch solutions that enhance member satisfaction while reducing transportation and operating costs. For example, in the fourth quarter, our transportation and call center per trip expenses remained near record lows, demonstrating the effectiveness of our automation and AI powered As noted earlier, our payer clients faced extraordinary external pressures and 24. And those challenges inevitably reverberated through us. While we continue to add new contracts and expand relationships, the financial strain on our clients resulted in the attrition of select contracts.

Unfortunately, two significant contract losses accounted for a net business loss of approximately $200,000,000 in annual revenue for 2025. These losses were situational driven by market turmoil rather than our competitive position or performance. In fact, we were performing strong in both They stem from clients caught off guard by rising cost pressures. One was a Florida based plan we've discussed on past calls. And the other was a national payer in its Medicare Advantage business. In 2024, we secured approximately $90,000,000 in new business from our managed care organization. I will address state business next. And in just the first two months of this year, we are already outpacing that momentum with a win rate exceeding 90% in the MCO segment over the past two years. Simply put, when we pursue MCL business, especially within Medicaid, we win. Because our clients recognize their performance, trust their execution and believe in our ability to drive continued differentiation. With a total addressable market exceeding $6,000,000,000 and an annual MCO revenue base of 1,000,000,000 entering 2025, our identified active pipeline already surpasses $300,000,000 in annual contract value. Notably, this represents only new business within managed Medicaid and Medicare Advantage. We expect to convert many of these opportunities in 2025 and materially recover from the net 200,000,000 revenue attrition.

Finally, we look forward to the contributions of our new Director, Alec Cunningham, has historically has been with one of our biggest customers, [indiscernible] Now turning to state Medicaid. Where we have been the dominant player for decades, This segment remains a cornerstone of our NEMT business. The state based total addressable market a subset of the $6,000,000,000 overall NEMT market, is $2,000,000,000 of which we currently hold 39% or $780,000,000 As a reminder, state contracts are typically larger than MCO contracts. And states prioritize proven performance local presence in large scale capabilities when awarding contracts. In 2024, only one state contract transitioned away from an incumbent, and that was us. Winning the remaining regions in a Northeast based state. A testament to our track record in existing regions and the strong preference for scale incumbents. Looking ahead to 2025, we expect multiple largely due to state delay RFPs amid market disruption, caused by Medicaid redetermination Our well established long term partnership with state agencies proven track record in quality and access, and strong commitment to serving diverse populations communities, small businesses and healthcare providers position us strongly for the successful retention of our NEMT business. I also want to provide additional detail on our state clients' as they emerge from the challenges of 2024.

Our largest client will likely take part in our RFPs in 2025. And they remain highly supportive of our services and the commitment we have to their statewide diverse communities. As with many other state clients, we have been collaborating with them on re underwriting their membership and we expect a price increase Beyond 2025, we anticipate new state opportunities emerging in 2026 providing a strong pathway to expand our differentiated state based NEMT footprint. And further solidifying our market leadership. We operate the broadest national network enabling us to serve diverse population across urban centers, and rural communities, with specialized care options. Including wheelchair accessible vehicles, Stretcher transport and high touch support for complex cases. Also, as the largest NEMTA user of rideshare services, like our partners Uber and Lyft, we seamlessly integrate flexible, cost effective options, while also leveraging public transit, and family provided transportation when most efficient and preferred. Simply put, we have the largest and most diverse transportation network. Critical differentiator for large MCOs and state agencies seeking scale, flexibility and reliability. Our technology driven platform combined with the hyperlocal team presence also allows us to optimize trip assignments allocate resources efficiently and deliver high touch support when needed.

This ensures every trip is assigned to the right mode of transportation whether rideshare, specialized transport community based solutions. Maintaining cost efficiency and member satisfaction. This strategy is delivering tangible results. We look forward to the contributions of David Gonzalez, who has spent the better part of his career optimizing transportation networks and using technology and AI drive efficiencies. We have consistently met or exceeded key quality metrics, including on time performance, and missed trip reduction. While also driving down cost. Our cost per trip moved from $42 in Q4 twenty twenty three to $40 in Q4 twenty twenty four. A significant driver allowing us to achieve savings of $35,000,000 in 2024. Beyond transportation, we have digitally transformed member engagement. A significant portion of our membership now uses self-service tools. Including our top rated mobile app. AI powered [indiscernible] an integrated client facility portals. Additionally, we have seamlessly integrated with client system. Allowing them to manage transportation directly through an API connection to our benefits management platform. And of high value to our client. Member self-service adoption have reduced our call to trip ratio from 42% in Q4 of 'twenty three to 34% in Q4 of 'twenty four. By combining automation, self-service and seamless integration, we are enhancing the member experience but again, also As we all know, our shared risk contract helped protect P and L margins post COVID.

But they also created significant working capital challenges. With sediment cycles extending from six to eighteen months, we had to wait for reimbursement after delivering higher trip volumes at inflationary driven costs While this disconnect is less pronounced moving forward, we recognize the need to improve the cash flow conversion timing by shortening settlement to less than three months. Beyond cash flow improvements, we also aim to remove the win loss dynamic between us and our clients relating to trip volume, and utilization risk. As a result, our preferred contract model moving forward is a fee for service structure. Which minimizes utilization exposure while also significantly reducing To ensure alignment on cost, quality and efficiency, we have also incorporated performance based incentives into these contracts. Reinforcing mutual success for both us and our clients. Importantly, we are taking a measured approach to transition to these ensuring that we prioritize pricing and margin integrity over speed We recognize the need for flexibility as client objectives and contract structures vary in the competitive market. We're working with our largest MCO partners and anticipate a continued shift towards this model. To date, we have approximately 25% of our revenue moving to this contract [indiscernible] The shift to this shorter cash flow conversion structure will neutralize significant working capital shift or uses of cash Our Personal Care Services segment demonstrated steady improvement through 2024.

In the fourth quarter, we achieved adjusted EBITDA of $17,500,000 which included a couple of million dollars of state based quality incentives. In 2024, we transitioned from a decentralized model to a centralized hybrid approach that combines centralized efficiencies with local market expertise. With new PCS leadership, the team delivered more predictable results supported by a calibrated business management framework, and rate increases that strengthened our financial position. These foundational improvements position us for greater stability and sustained growth in 2025 and beyond. Our PCS business is one of the largest personal care providers in the Northeast. This scale and density combined with a single operating platform and company wide engagement tools, created a differentiated and scaled platform in an industry that historically been fragmented. We continue to believe in the long term value drivers behind serving the nation's chronic and aging population in their preferred low cost home setting, This is where healthcare goes and will continue to go. While our transformation is still ongoing, we have laid the groundwork for sustainable growth in 2025. [indiscernible] We have direct access to thousands of high risk [indiscernible] And for our payers and providers, very hard to reach members. Coupled with technology and clinical oversight, Personal care is a very valuable service and this value will only continue to grow.

In Remote Patient Monitoring segment, 2024 was a year of strategic investment and integration. Today, our monitoring platform combines a stable, Reoccurring revenue stream from our Medicaid LTSS PERS members alongside digital and clinical capabilities. Our PERS business provides a national footprint best in class customer service and valuable engagement tools that help close gaps of vulnerable and at risk members. With the launch of our new chronic conditions monitoring and virtual care management services, which include clinical oversight, we closed deals with three national managed care plants. Our investment has allowed us to expand beyond traditional monitoring by developing digital and clinical solutions that deliver the right care at the right time with the right resources. This service allows us to bill as a provider. Close gap in care and expand the scope of services provided to appropriately meet the level of acuity needed based on the member's health condition. Importantly, these innovations allow us to unlock the opportunity available in MLR versus waivers or supplemental benefits. The first customer launched in Q1 and the second is expected to launch in early Q2. We believe we will rapidly expand in the launch markets and in addition to markets served by these managed care plans.

Next, I want to address our approach to guidance. Given the ongoing strategic review by the company board and advisors, we have deliberately chosen not to provide formal fiscal twenty twenty five guidance at this time. On one hand, we wanted to stake a clear position Demonstrating how we successfully navigated twenty twenty four's challenges, and how we are building upon the strong foundation of our scale platform. On the other, we remain laser focused to strategic investments and executing our divestiture processes with discipline to maximize long term value. With material portfolio changes ahead, introducing guidance now would be premature as we carve out businesses and refine our strategic focus. Instead, our priority is strengthening our platforms in 2025. Ensuring we exit the year with a solidified capital structure and a more focused, agile Before I turn the call over to Barb, I want to summarize four key takeaways. One, we have the liquidity needed to execute our strategy with confidence. Two, we not only navigated an unprecedented period in healthcare, but we emerged stronger reinforced [indiscernible]