Greetings, and welcome to the ModivCare Inc. Fourth Quarter 2020 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded..

It's now my pleasure to turn the call over to ModivCare's Chief Accounting Officer, John McMahon. Mr. McMahon, please go ahead. .

Thank you, operator. Good morning, everyone, and thank you for joining ModivCare's Fourth Quarter 2020 Conference Call and Webcast. With me today from the company are Dan Greenleaf, President and Chief Executive Officer; and Kevin Dotts, Chief Financial Officer.

During this call, members of the management team will be referencing the presentation that can be found on the Events page in the Investors section of our website at www.modivcare.com, and in the current Form 8-K, which was furnished to the Securities and Exchange Commission this morning..

Before we get started, I would like to remind everyone that during the course of today's call, the company's management will make certain statements characterized as forward-looking under the Private Securities Litigation Reform Act.

Those statements involve risks, uncertainties and other factors, which may cause actual results or events to differ materially. Information regarding these factors is contained in today's press release and in the company's filings with the SEC..

We will also discuss certain non-GAAP financial measures in an effort to provide additional information to investors. The definition of these non-GAAP measures and reconciliation to the most comparable GAAP measures is included in our press release, investor presentation and Form 8-K.

We have arranged for a replay of this call, which will be available approximately 1 hour after today's call on our website..

This morning, Dan Greenleaf, our Chief Executive Officer, will begin with some opening remarks, after which Kevin Dotts, our Chief Financial Officer, will provide a more detailed discussion of our financial results. Then we will open the call for questions..

With that, I will turn the call over to Dan Greenleaf.

Dan?.

Thank you, John, and good morning, everyone, and thank you for joining us today.

Our fourth quarter adjusted EBITDA of $41.6 million exceeded the prior year comparable figure of $10.2 million, primarily due to operational improvements driven by our 6 pillar strategy, a full quarter contribution from National MedTrans, which we acquired in May of 2020, a partial quarter contribution from Simplura Health Group, which we acquired in November of 2020, and lower utilization under capitated contracts.

Our full year adjusted EBITDA totaled $169.3 million, above the comparable figure of $51.2 million in 2019..

Beyond the headline numbers, in 2020, we made significant progress to transform and reposition our organization for future success. We sharpened our focus on social determinants of health to elevate the patient experience and drive positive health outcomes. We upgraded our senior leadership team and supporting talent.

We acted on the voice of the customer, improving our reporting function and implementing corrective action plans, where needed, to enhance and expand relationships with states and payers..

We advanced key technology in Centers of Excellence optimization initiatives. We acquired National MedTrans, which seamlessly folded into our platform, producing immediate accretion, plus long-term strategic opportunities. We purchased Simplura Health Group that provides us with a compelling new growth platform in personal care.

We delivered approximately 1.5 million meals to food insecure patient populations. We simplified the company's capital structure by eliminating the convertible preferred share class and we laid the groundwork for a successful rebranding to ModivCare, which we launched in January of 2021..

We are transforming our company from one that was built on transportation and logistics to one that delivers multiple social determinants of health solutions and drives positive health outcomes for the most vulnerable, underserved patient populations in our country.

We are unifying our organization culturally in building a one-stop shop of supportive care solutions, today comprised of our market-leading non-emergency medical transportation business, our personal care segment, which consists of Simplura, and our nutritional meal delivery initiative, comprising of approximately 30 partnerships to date.

Together, these businesses provide a solid platform for long-term growth..

to make connections to care that have a profound impact on our patients' well-being. Our vision has been extremely well received by our clients, our transportation partners and the patients we serve..

Food insecurity is one of the inequities in health care that we are working on to solve. And as such, we developed a nutritional meal delivery program.

I'd personally like to thank our partners, including Miami-Dade County Public Schools, the Salvation Army, Community Food Bank of New Jersey, MIC Foods, Friend in Actions, Kip Schools, Liberty Resources, among others, who recognized the importance of making sure our country's most vulnerable populations are afforded a healthy meal..

In addition to improving the health of our communities by providing access to nutritious foods, we are facilitating access to vaccinations during the pandemic. To date, we have provided more than 70,000 rides for seniors and other individuals needing transportation to and from their vaccination appointments.

Currently, we're approaching a run rate of 40,000 rides per month for vaccines..

Finally, we collaborated with Care Finders Total Care to provide nearly 40,000 rides since September for home health aids, providing safe and reliable transportation to the homes of patients in need of care during the pandemic. These are all examples of our vision to drive positive health outcomes by transforming the way we connect to care..

The Centers for Medicare and Medicaid Services validated our vision just the last month, when it issued guidance to state officials designed to drive the adoption of strategies that address the social determinants of health, with an eye on improving health outcomes, reducing health disparities and lowering overall health care costs.

We are excited about the changes underway of ModivCare and are very bullish on our future..

In the case of our non-emergency medical transportation business, or NEMT, we expect to benefit from the operational and technology investments we have made and continue to make. We have deployed automated call distribution and cloud-based interactive voice response solutions across all 15 of our Centers of Excellence.

The self-service feature is fully functioning, allowing patients to book new rides, cancel rides and confirm upcoming rides on their own. By intelligently routing calls and capturing relevant data to shorten average handle times, these systems optimize call routing efficiencies and improve the patient experience..

Our goal with these enhancements is to improve the member experience, mainly coming from the containment of cancellations and confirmations while making the interface with the patient more consumer-friendly. Workforce management systems also have been deployed across the enterprise to all of our customer service representatives.

Training and new functionality will continue to roll out over the next few months..

We continue to drive our go digital efforts nationally. With a goal of 90% digitization of our transportation partner network by year-end, enabling patients to track in real-time where their ride is. Specifically, network digitization, in combination with our new driver app, allows transportation partners to service rides in real time.

It enables drivers to communicate with patients, it gives us their GPS route for tracking purposes. Additionally, our rider app is on schedule for completion at the beginning of the second quarter. This app will allow patients to schedule and cancel rides, communicate with drivers, rate them and see the GPS path for the recommended route..

Finally, we are well underway with a business process outsourcing partner that provides business flexibility, allowing us to scale as we grow our operations.

In addition to making operational technology improvements, we are focused on growing our NEMT business organically and have made upgrades to our sales and account management teams to drive further growth.

We are also seeing a number of adjacent opportunities in the areas of nutritional meal delivery, which we discussed earlier, as well as providing rides related to workers' compensation and retirees..

Our NEMT business is benefiting from favorable industry tailwinds, such as rising Medicaid rolls, which appear to be expanding in the highest single digits. Moreover, in December of 2020, the NEMT benefit was written into federal law, compelling states to offer this mandatory benefit to Medicaid members indefinitely.

Any future amendments would require an act of Congress. We applaud the bipartisan efforts to ensure that our country's most vulnerable patient populations will continue to receive critical access to care..

Our NEMT business also stands to benefit from the rapidly growing Medicare Advantage, or MA market, which we believe will expand from approximately $400 million today to $4 billion over the next decade.

Per Wunderman Thompson Health, MA is projected to grow by 2 million members this year, reaching 26.5 million beneficiaries and surpassing 40% of the Medicare marketplace. Nearly a decade ago, there were fewer than 12 million enrollees in MA plans.

There are over 3,500 MA plans available to beneficiaries across the country, following in the footsteps of some of the largest players, a growing number of these plans are seeing the value of offering NEMT..

Finally, the new administration appears to be Medicaid and Medicare-friendly. The administration's robust health care agenda and stance on addressing inequities in health care, harmonize closely with what we are doing in our NEMT, food delivery and personal care businesses.

We launched our personal care business with the acquisition of Simplura, which closed November of 2020. Simplura is a leading network of home health and personal care agencies across 7 states..

Simplura participates in the $55 billion personal care services market, which is expected to expand to $100 billion by 2024. The personal care market is growing rapidly at an estimated 9% to 14% per year as care continues to migrate to the home setting.

The average daily cost of care in the home is approximately 95% less than in a hospital and about half the cost of skilled nursing facilities. This market is highly fragmented.

The top 3 players, including Simplura, make up less than 5% of the total, and we believe there is tremendous opportunity to participate in industry consolidation as provider networks continue to narrow..

We know that ultimately funding all our services, including NEMT and personal care nutrition will support our MCOs and state needs, enhance patient outcomes and accelerate our growth strategy.

While we cannot predict the precision or certainty, the near-term impact of COVID-19 on our business, we are modeling a continuing uptick in utilization into 2021. The ultimate level of utilization will depend on factors such as the number of rides we provide for vaccinations during the coming year and how quickly the pandemic subsides..

That being said, durable operational improvements, plus the National MedTrans and Simplura acquisitions drove a meaningful component of our adjusted EBITDA improvement this quarter.

Also, it is worth noting that our personal care segment serves as a counterbalance to our NEMT business, given that industry prospects should improve for personal care as COVID-19 dissipates..

Regardless of near-term utilization trends, we believe our operational improvements and strategic actions will drive substantial long-term value. We will continue to strive to deepen payer and state relationships by creating a holistic patient experience, focused on solutions that address the social determinants of health.

We are fortunate to have an asset-light business with a robust cash flow profile, enabling us to invest in growth and lead the industry..

NEMT revenue growth at mid-single digits and adjusted EBITDA margins of between 7% and 10%; personal care growth in the high single digits, in line with the expansion of Medicaid rolls and adjusted EBITDA margins of between 8% and 10%. .

A few final items. First, I'd like to acknowledge Brian Tanquilut of Jefferies, who initiated coverage of ModivCare in December. We thank him for his support. We now have 4 covering analysts up from 1 at the start of 2020, and we look forward to adding to this group in 2021..

Lastly, I would like to make a comment on the CFO transition we announced earlier this morning. We are excited to announce the appointment of Heath Sampson as our Chief Financial Officer.

Heath brings us nearly 3 decades of executive and financial leadership experience across a range of private and publicly traded companies, including Square Two Financial, First Data Corporation and most recently, Advanced Emissions Solutions, where he served as the Chief Executive Officer.

He began his career in auditing and business consulting at Arthur Anderson. Heath has an excellent track record of optimizing finance operations, building high-performing teams, driving transformational M&A and delivering profitable growth.

We believe his collaborative, results-oriented management approach will ensure a smooth transition as he takes the reins from Kevin Dotts..

The announcement is bittersweet, as Kevin has been a dedicated member of the team and played a key role managing our finance group during the early stages of our business transformation. With our corporate headquarters moving to Denver, Kevin made the personal decision not to relocate.

Kevin has agreed to continue in a supporting role until March 15, 2021, to facilitate Heath's transition. I would like to thank Kevin for his contributions to our organization. He will be missed, and we wish him the best of luck in his future endeavors..

With that, I'd like to turn it over to Kevin. .

Thanks, Dan. I appreciate your comments. Since this will be my last earnings call with ModivCare, I would like to thank our shareholders and analysts for their support. It has been quite a journey over the last few years, and I look forward to watching ModivCare continue to thrive in the years to come..

Before reviewing the financials, I would like to briefly touch on the Simplura acquisition, which we closed on November 18, 2020. To help finance the all cash purchase price of $575 million, we completed a successful pricing and private placement of $500 million in aggregate principal amount of senior unsecured notes.

The remaining $75 million was drawn from our revolver, which we subsequently paid down in the fourth quarter. As of December 31, 2020, we had cash of $183 million, long-term debt of $486 million and net debt of $303 million.

We estimate that our total net leverage, as defined in our covenant agreement, was approximately 2x last 12 months adjusted EBITDA on December 31, 2020. Going forward, we intend to maintain a net debt-to-EBITDA ratio of below 3x..

Now moving to our fourth quarter financial results, we recorded total revenue of $398.5 million, adjusted EBITDA of $41.6 million and adjusted net income of $13.9 million or $0.98 per diluted share. This quarter, we commenced segment reporting for NEMT and personal care businesses.

NEMT segment revenue in the fourth quarter of 2020 totaled approximately $345 million compared to $385 million in the prior year period, and included $41 million of additional revenue related to our acquisition of National MedTrans in May, offset by a decrease related to lower trip volume due to the COVID-19 pandemic and the associated adjustments to profit corridor and reconciliation contracts..

NEMT adjusted EBITDA this quarter totaled $36.8 million, up from $10.2 million in the prior year period, primarily reflecting operating improvements under our 6 pillar strategy, incremental contribution from National MedTrans and lower utilization under capitated contracts.

Personal care segment revenue in the fourth quarter of 2020 totaled $54 million and adjusted EBITDA equaled $4.8 million. There are not any 2019 comparative figures as we acquired Simplura in November of 2020..

Moving to service expense, our gross margin, defined as revenue less purchased services, was 35.3% of revenue in the fourth quarter of 2020 compared to 21.8% in the fourth quarter of 2019.

While the improvement primarily reflects lower purchase transportation cost due to lower utilization across multiple contracts as a result of COVID-19 pandemic, we also executed on key operational efficiencies that contributed to the margin expansion.

We anticipate that gross margin will decline marginally in 2021, commensurate with an expected increase in utilization and the resulting impact of -- on our NEMT segment..

Our adjusted operating expense, defined as all other expenses excluding purchase services and after adjusting for FX, was 33.8% of revenue in the fourth quarter of 2020 versus 19.1% in the fourth quarter of 2019.

This increase in spend was primarily attributable to additional investment in employees and technology and increased expense for cash-settled equity awards, offset by lower Center of Excellence and other operating expenses driven by our 6 pillar operational strategy.

While we are not providing specific guidance at this time, we are modeling marginally higher utilization in our NEMT segment in 2021, which directionally would reduce margins from the levels we experienced in the second, third and fourth quarters of 2020.

As well as we do realize increased utilization, this would be a benefit to the Personal Care segment..

Moving to our cash flow statement, cash flow provided by operations in the fourth quarter of 2020 was $61.2 million. The above-average variance this quarter between adjusted EBITDA and operating cash flow was driven by an increase in potential rebates related to profit corridor and reconciliation contracts.

For the fourth quarter, we collected $42 million related to these rebates that may be returned in the future dependent upon utilization levels. These potential rebates can be found within our 10-K and the change in our short-term and long-term contracts payable depending on the contractual repayment period..

Finally, in the fourth quarter of 2020, we incurred $8 million of transactional expenses related to the Simplura acquisition and $9.2 million in expenses for cash-settled equity awards as the company's share price appreciated from $91.90 at September 30 to $138 at December 31..

Turning to Matrix. For the fourth quarter 2020, ModivCare recorded a loss of $3.3 million related to its Matrix equity investment. On a stand-alone basis, Matrix generated revenue of $121.9 million, up from $64.6 million in the fourth quarter of 2019; and adjusted EBITDA of $16.3 million, up from $6.3 million in the fourth quarter of 2019.

For the full year 2020, Matrix generated revenue of approximately $415 million, up from $275 million in 2019; and adjusted EBITDA of $113 million, up from $44 million in 2019..

Matrix was positively impacted by its launch of a new employee health and wellness products as well as clinical solutions offerings developed for companies maintaining critical operations.

These new offerings, coupled with the core assets of an expansive clinical network, will allow Matrix to provide services to their long-standing health plan clients, both in the home and via telehealth, while also accelerating services around decentralized clinical trials and lab services.

Matrix has seen a rise in risk assessment volumes and home visits exiting 2020 and continuing into 2021. As a reminder, we report Matrix' value on a book basis. We believe the value of this investment is not fully reflected in ModivCare's share price.

As of December 31, Matrix had stand-alone net debt of $246 million and our ownership interest was 43.6%..

This concludes our prepared remarks. With that, operator, please open the call for questions. .

[Operator Instructions] Our first question today is coming from Bob Labick from CJS Securities. .

Performance obviously in a difficult environment. .

Yes. Thanks, Bob. You're breaking up a little bit. .

Okay.

Is that any better? Can you hear me a little better?.

Yes. You're better now, but I missed the first part of your comment. .

Super. So, congratulations on just strong performance in a difficult environment. I also wanted to send my best wishes to Kevin, it's been a real pleasure working with you. So thank you for all your help to me and analysts and to CJS over this time period. .

Thank you, Bob. It's been great working with you as well as the rest of the analysts. I appreciate that. .

You don't seem to think about a CEO, but we'll leave that alone. .

So just to start off, I mean, you gave us the cash-settled equity award. Just one more number before getting to big picture questions. The interest expense was obviously a lot higher.

I'm assuming that included some fees from closing the deals? Or how should we think about interest expense kind of going forward just so we can normalize the number for this quarter, too?.

Yes. I think -- and John McMahon's in the room, he will keep me honest. But I think we had about $9 million worth of interest expense as it relates to the financing for the backstop that we needed for Simplura. So -- but obviously, we've paid down the revolver.

And then the only interest effectively that's going to be outstanding will be related to the actual senior unsecured notes and that runs about $29.4 million a year, annually. .

Okay. Perfect. Okay, perfect. Right. So then basically, there was... .

There's a little bit of -- sorry, Bob, there's also a little bit on there for LOCs. But call it -- I think it's $1 million or $2 million. .

Okay. Got it. Got it. Yes. Yes. So essentially, that $9 million was kind of onetime. So that's $0.45 or $0.50 of earnings that hit you because of the financing and the timing of the deal, but are nonrecurring. .

That's exactly right. .

Okay. Great. And then on Simplura, I think you did allude to this in your comments, I was going to ask about it. So I just want to make sure I understood it fully. You're talking about the utilization, obviously, given from the pandemic, it sounds like it's somewhat down.

And so can you just confirm that and that you would expect once everyone's vaccinated that the demand for Simplura services could pick up going forward? Just maybe talk a little bit about how that part of the business works to make sure I understood you. .

Yes. That's correct. I mean you could just imagine with the latest outbreak, how that impacted health aids, how that impacted patients. There's even instances, for example, Bob, where people come back into the estate and they're quarantined for 14 days.

So there's -- the market dynamics have been working against -- had been working against Simplura over the last year or so. But obviously, we feel very positive. Networks continue to narrow, they're very well positioned in the markets they're currently in..

And we feel very good about -- as things improve with vaccinations, we feel very good about the Simplura business and where it's headed. And I think we mentioned to you, we see it as a platform business that we are going to be aggressive as it relates to M&A activities. So we're big believers.

And we're in 7 states, and we feel like we can build a national company with them and our partnership with them. .

Yes. That's great. That's exciting. And then given the, call it, contra-revenue related to the profit corridor contracts, it was hard to entirely tell what revenue would have been under a more normalized environment.

I guess my question is this, can you give us a sense of the population you're serving now versus a year ago? How much of that has grown? Because normally, you can kind of track it since you're paid per member per month. But it's harder to see it. Where is the... .

It's up about between $4 million and $5 million. .

Wow. Okay. And that was off of... .

Just to give you the magnitude. .

Yes.

And off a base of, I think, 24?.

So I think 24 and we're floating around 29 now. .

Got it. Okay. Great. Super. And then last one for me. I know you have more people now. I'll get back in queue after. But how should we think about on the balance sheet, you mentioned the profit corridor contracts and some payables going.

Do you have maybe the breakdown of the payables as it relates to the profit corridor, maybe at least the short-term payables? I don't know if you have that prepared yet or not. .

Yes, Bob, let's see here. We have -- what's that? Yes, there's about [ 102 ] on the short term and then it's about [ 72 ] in the long term. .

[ 72 ] long term. .

Our next question today is coming from Brian Tanquilut from Jefferies. .

Congratulations on a good quarter and a good year, and thanks for the shout-out, Dan. I'm glad to be covering your stock here today. So I guess my first question... .

We really appreciate you and the Jefferies team and our partnership over the years. So thank you very much, Brian. .

Yes, definitely. So I guess, first question for you. As we talk about Simplura, it looks like it's obviously a pretty good, solid type organic growth business, but I know you're looking at doing deals in that space.

So from a strategic perspective, how are you thinking about the need to overlay over the other -- over the NEMT footprint? And is that a good way to think about how you would approach looking at deals? And also, how are you thinking about valuations in that space?.

Yes. So I would say that. I mean you just think about -- we're in 7 states, Brian, as it stands right now, we've got overlap in 5. That -- those include New Jersey, New York, Pennsylvania, West Virginia and Florida.

And where we do have a business, for example, in Virginia or in Ohio with our -- in our NEMT space, we would look at those markets as opportunities. And so I would say, unequivocally, that's the case..

I would also say, Brian, that we're looking to -- in some markets, we're going to look to double down. I mean where we have a strong footprint already. We are -- we see opportunities in certain states we're already in to expand our footprint in existing markets as well. .

That makes sense. And then, Dan, I guess, since we were talking about social determinants of health, right? So putting NEMT together with Simplura, I know now you're starting to deliver food in some markets.

If you don't mind walking us just through how you're thinking about this in terms of putting those 3 assets together as capabilities, what does that do in social determinants of health? And how do you get paid eventually for having those capabilities?.

They're already being paid for. I mean that's the thing, Brian. I mean there are already reimbursement programs for food with Medicaid. So this isn't -- as we -- currently, we've been doing it out of our transportation reimbursement, but there is a separate reimbursement mechanism.

You already know that the home health space or the personal care space is paid on an hourly basis. And then most of our contracts are capitated in the -- in our NEMT business..

But listen, the states and payers have been very clear to us that -- and there's a lot of background there. I don't know if it's kind of strange, I don't know who's on hot mic or not. But I guess, at the end of the day, our payers in the states have been telling us they want a one-stop shop. And we're not going to stop there.

I mean we see opportunities in medication management. We see opportunities in behavioral. We see opportunities in monitoring and we're -- what we believe is that the supportive care space as opposed to the clinical space, no one has really -- has ever combined all those aspects into a single offering.

And frankly, Brian, there's nobody in a better position to do that than us..

I will also say that the market, just based on what we've heard, is ready for it. I think we'll be running pilots this year in terms of how do we combine these various services. But the good news is, as we move into food, there's already reimbursement established for it.

So even if we ended up running these businesses separately for a period of time before we join them, there's still significant reimbursement mechanisms already in place. .

Got you. Yes. I guess that's what I was trying to get into is, is there opportunity for value-based arrangements in that situation, right, where you can take a more consolidated PMPM approach and getting more capitation. But I guess shifting gears, Dan -- go ahead. .

Brian, for sure. I mean that's where this is headed. .

Yes. And then shifting gears, Dan, when you joined the company, you outlined kind of like cost opportunities, and you talked about BPO outsourcing and the technology initiatives that you guys have laid out.

Where do you stand on where you think the opportunity is from an EBITDA pickup as these initiatives kind of gain traction and are completed?.

Brian, we're in the early innings because we spent most of 2020 making those investments. Making those investments in IVR, making those investments in go digital, making those investments in partnerships with BPOs, making those investments in our teammates.

As it relates to how we interact with them and the quality, if you will, of even their computers, and so we're in the early innings of this, Brian. But that being said, the savings are massive. I just -- I mean this is -- there's been a lot of waste in this business over the years..

I even look at things like what we've done with temp labor, what we've done in the area of overtime and I just think there's been a lot of waste in this business. And I think there's a lot of waste as a result of not being as consumer-friendly as we are now. And so Brian, the -- there are significant opportunities.

I mean I'm a little hesitant to say exactly what they are for a variety of reasons. But they are significant. .

No, that makes sense. Last question for me.

As we think about increasing utilization, Dan, I know you're not willing to give guidance right now, but how should we be thinking about the cadence as you think about the increase there? And are there mechanisms for essentially the reverse of the rebates that you're seeing as the reconciliations on these utilization trends catch up with you guys over the next few quarters?.

Could you say that again, Brian?.

So as utilization picks up, I mean how are you thinking about the cadence of that over the course of the year and maybe even into 2022 on the NEMT side? And then I guess the other side of the question is, are there mechanisms in place where you would have to rebate the state as utilization has been low over the last, especially year?.

Yes. So a couple of things, Brian. We expect utilization to continue to increase incrementally. At the same time, though, we will continue to see the benefit of the acquisitions of Simplura. We'll continue to see the benefit of the acquisition of National MedTrans.

We'll continue to see the benefit of the operational improvements that we are continuing to make. So as I look at utilization trends going up, I believe we've got a number of things that will offset those trends, if you will, based on what we're able to do in 2020, and I feel very bullish about that.

Interesting enough, utilization trends increase that these payables could move to receivables, Brian. So that number will, just based on how the model works, would drop pretty significantly. So we would benefit from that. .

Our next question today is coming from Mike Petusky from Barrington Research. .

Congratulations on [ strongly ] finishing out the year.

So Dan, I guess I want to start with you sort of affirmed the 90% digitization by year-end in the network and then talked about the rider app and I guess I just wanted to get a sense of your current thoughts on how much cost savings could drop through and I guess then in '21 and then longer term? And then, I guess, my question in terms of your sort of general guide on transportation.

You sort of said 7% to 10% EBITDA margin.

How much of that includes the efficiencies you think you're going to get from sort of your technology investments?.

I think most of it is, Mike, I mean the -- moving this business from what I would say was a historical level of around 6.7%, where if you adjust for the holding company where it was in 2018. So I think the baseline is probably around 6.7%.

But these operational improvements, there's -- Mike, there's no reason to think at this point, we can't get to 10%. I just -- there is a road map for that.

Obviously, there's a lot of work to ask to continue to go into it from digitization to optimizing our Centers of Excellence to driving out additional waste as it relates to kind of the member experience..

But we see there's a bright line to this. And we see an organization that's going to be leaner and meaner going forward and also provide a level of member experience that's going to be second to none. And so that's where we are.

And that's why 2020 was such a big year for us because we made significant moves on these investments that we know are going to have huge impact on the business in the medium to long term. .

Any willingness to quantify the drop-through in '21 or a range of the drop-through in '21?.

Well, again, I think some of it, we're -- obviously, we're dealing with lower utilization. We're dealing with being advantaged by the acquisitions of National MedTrans as well as Simplura. And we saw a pretty decent number, I would say this, in 2020 based on the operational improvements we made.

The good news is the operational niches are all in flight, the IVR is in flight. The workforce management's in flight, have been fully implemented. The automatic call distribution fully implemented, the go digital is we're rocking and rolling on that.

We've chosen a business process outsourcer that is really helping us scale this business much more efficiently. And so all those things are in flight, Mike. And I think, again, I think there's a number. If you look at somewhere between 6.7% and 10% that we're going to get to this year. .

Perfect. So jumping over to meal delivery, I think you said 1.5 million meals delivered. I'm pretty sure I know that you're doing that in New Jersey and maybe parts of Florida.

Are there other places you're doing that in any meaningful way?.

Yes, Pennsylvania as well. So we've got a significant -- and then there's -- we've got about 30 pilots going on across the country. So it's not just limited to the kind of the -- to Florida, Pennsylvania, New Jersey any longer. I mean these -- there's obviously, as you -- as everybody knows this, there's a huge unmet need here.

And we've jumped into the void, and we also think there's a significant business opportunity here for the company going forward. And so yes, those were our initial areas of efforts, but we're expanding this nationally now. .

Okay. So your view is that this is a business that's sort of only in the very early innings.

This wasn't like sort of an opportunity that came up because of COVID and then it sort of dissipate after COVID? Essentially, you think that these payers understand the value of this service, they're willing to continue to pay for it post-COVID? And this is a business that only expands materially going forward? Is that a reasonable characterization?.

Yes. I think there'll be material economic expansion of this business going forward. .

And then just, I guess, generally speaking, as you sort of think through relationships with payers over the past year, can you just talk about -- I mean, I'm sure there were discussions around the low utilization and then on the positive side, discussions around extra services like meal delivery.

Can you just talk about in general, the conversations around sort of the value you can bring to their beneficiaries? And just I guess, in a sense, I mean are these relationships going to, particularly with Simplura, deepen and there's just going to be just way more stickiness as you guys move forward? I mean is that your view?.

Yes. I think the stickiness will come in the form of food, will come into the form of Simplura, will come in the form of our best-in-class technology, that's going to create a second to none consumer experience.

We've got a lot of other things that we're working on as well that we haven't really disclosed, but we'll continue to put this company on the forefront of all the kind of activities in this space. And so that's where we are, Mike..

I -- yes, I think we're in a really, really unique position in a marketplace that has a lot of support, particularly with the current administration. We've got the NEMT benefit codified now. And it would take an act of Congress to change that, not an act of a President.

And we think we're in an incredible position here, Mike, now and well into the future..

And I would share with you that as it relates to our states and payers, we put these risk corridors in there for a reason, right? And that's one of the reasons that very few have actually come back us asking for money because we've already built it in. We've built protective measures in for them..

So -- and again, they see what we're doing in terms of the quality of work we've been doing. And there are things on reporting that we've made enormous improvements on, corrective action plans, enormous improvements on, just partnerships with our payers and states, and the relationships, frankly, are at a whole another level.

I mean there's -- whether it be Kathryn or Kenny or me, I mean, we are actively involved in these relationships and Robert Pitman. So there's a lot more touch points with our company. And when there's a problem, we deal with it..

We also built out in 2020, a best-in-class account management team. Kenny built that out with [ Mark Misplay ] leading it, and we have dedicated account managers that are of a very high-quality that, frankly, this company really hadn't had before. And that's also changed the dialogue interactions with them.

I think the biggest thing for us, Mike, is that if there's an issue, we deal with. And in the past, this company kind of let things go for whatever reason. In many respects, it was unbeknownst to them. But I think we've taken a much more proactive approach, and it's one of the reasons we're able to maintain almost $400 million of business in 2020. .

Great. Last quick one, the Matrix results have been sort of all over the map on a quarterly basis this year.

What are your thoughts as you move forward? I mean is there going to be sort of a smoothing and more of a consistency as maybe COVID dissipates? Or what's your view?.

Yes, it is. And I just pointed out, look at the signify multiple. So I mean, this is -- Keith has done a tremendous job with this business.

We put them in our press release, but they -- from my perspective, they've turned a corner and yes, it was a little bit bumpy because of COVID, but that -- who didn't experience that? But going forward, I think there's going to be very much smoothing in the business.

I think there's going to -- what they've done in their Clinical Solutions business, their Clinical Cares business or Clinical Trials business, the Clinical Labs business, these are businesses that are sustainable. And I think they'll continue to provide value for the customers going forward.

And I think their business is going to be far more predictable. And it's on the upswing. .

Our next question today is coming from Brooks O'Neil from Lake Street Capital Markets. .

I'd like to echo Bob's comments to Kevin. Thank you, Kevin, for helping me and Frank get up to speed on the company. We really appreciate it. We wish you well. .

Thank you very much, Brooks and Frank, I appreciate your thoughts. Kind of feel like my boss. .

I didn't say anything about that but we'll get to that some other time. You guys were just talking about it.

But in the area of sort of contract pushbacks, can you just tell us, in general, what percent of your state Medicaid contracts have risk corridor adjustments? And which -- what percent are sort of naked, if you will?.

I would -- yes, Brooks, we have, I would say, over 300 contracts. So there's about 80 contracts that are, I would call, that are subject to these type of recon rebate reconciliation contracts. .

Okay. Good.

And then I'm curious how do you feel about the SG&A level in Q4? Should we view that as a run rate? Or were there some sort of short-term expenses in fourth quarter that are unlikely to recur as we move into 2021?.

Yes. I think there are -- there were some unique events. I mean, the thing that's always a bit difficult to focus on is the cash-settled equity award hit that we had basically it's just driven by an increase in share price. So -- and then we also have an $8 million worth of transaction expenses that relate to the Simplura acquisition.

So I think those would be the -- that's certainly the unique item. .

Yes. That's helpful. And then you talked a little bit about the debt levels. And obviously, the repayment here right away on the revolver, my sense is the debt you put in place related to Simplura is going to stay in place for the next few years at least.

Is that a reasonable assumption? Or should I be thinking about that differently?.

I would think about it differently because we've got -- we're going to take advantage of our cash position, Brooks.

And well, obviously, we want to make sure we're allocating our cash in the best way possible, like we did last year with the preferred, with the acquisition of both National MedTrans as well as stock buybacks as well as the acquisition of Simplura..

But I think we're going to be pretty thoughtful about how we delever the company. And I think you already know, we took down the revolver. And I think we're going to continue to be appropriate. We have the right to pay down $50 million of it this year and another $50 million next year. And I would be inclined to probably do that. So that's where we are. .

Perfect. That's helpful. Congratulations on a great year, and I'm looking forward to 2021. .

Brooks, thanks for all your support. I know you jumped into this early, and I think people joked around about a stock price of $140 and you look pretty damn smart now, my friend. So thank you. .

Thank you. We're going to $200. .

Thank you. That does conclude today's question-and-answer session. I'd like to turn the floor back over to Dan for any further or closing comments. .

Yes. Thank you all for participating on our call this morning. Though we won't be on the road for investor conferences in the near-term given COVID-19, we remain accessible for one-on-one calls. Please reach out to our Investor Relations firm, The Equity Group, if you are interested in scheduling a follow-up call.

We look forward to reporting back to you in May, when we release our first quarter 2021 financial results. Stay safe, and have a good day. .

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today..