Good morning and welcome to ModivCare's Fourth Quarter and Full Year 2022 Financial Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Kevin Ellich, Head of Investor Relations. Thank you, please go ahead..

Good morning and thank you for joining ModivCare's fourth quarter and full year 2022 earnings conference call and webcast. Joining me today is Heath Sampson, ModivCare's President, Chief Executive Officer, and Chief Financial Officer; Ken Shepard, CFO of Mobility; and Scott Kern, CFO of Home.

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. 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 the most directly comparable GAAP financial measures is included in our press release and Form 8-K. A replay of this conference call will be available approximately 1 hour after today's call concludes and will be posted on our website, modivcare.com.

This morning, Heath Sampson will begin with opening remarks. Then he will provide an update on our business strategy and review highlights of fourth quarter and full year 2022 results. Ken Shepard will review our financial results and outlook for 2023. Then we will open the call for questions. With that I'll turn the call over to Heath..

Hello everyone and a warm welcome to our fourth quarter and full year 2022 earnings call. Today we reported strong full year 2022 results with revenue and adjusted EBITDA exceeding the high end of our guidance ranges.

These results were driven by solid growth in our mobility business and a double digit growth from our Home division, which includes personal care services and remote patient monitoring. I want to take a moment to acknowledge and express my appreciation for the hard work and dedication of the entire team at ModivCare.

It's because of them that we are able to provide high quality care and the best experience for approximately 35 million members. We ended the year with solid momentum heading into 2023.

To this point, we issued 2023 revenue guidance of $2.575 to $2.6 billion and adjusted EBITDA guidance of $225 to $235 million, indicating our confidence in continued growth. In the past two quarters we have taken significant steps to realign and reallocate resources to drive efficiencies and operating leverage.

Our One ModivCare strategy, which is defined as alignment across all of our supportive care services will help us share best practices, drive scale and efficiencies and standardize processes to ensure the best experience for our members and customer's within each point solution and more holistically across all our solutions.

Our goal for 2023 is twofold, build for scale and grow our business. To build for scale. We will strive for operational excellence, integrate as One ModivCare and use technology to enable our solutions.

To grow we will sell our point solutions more effectively, leverage our relationships to cross sell and continue to deliberately develop and grow our value based care solutions.

Our approach to value based care is about driving performance based payments into each of our points solutions and eventually moving into more shared risk arrangements across our entire platform. I'd like to discuss some exciting advancements from our innovation efforts.

Our remote patient monitoring solutions like E3 are the tip of our spear for value based care and we are seeing increased activity from payers who want to sign up new arrangements with us. We recently began an innovative value based care program for E3 with a leading national managed care organization.

This program is essentially the next evolution of E3 as it utilizes greater data sharing and partnership with the health plan for gap closures and assessments, allowing us to have a more meaningful impact on improving health outcomes and using our supportive care services.

We are in discussions with several other national payers for similar programs and we continue to look for ways to build off our innovative programs and point solutions shifting from standard benefits to Medicare Advantage supplemental benefits.

We are confident about adding more value based care arrangements to our portfolio and using valuable member data, insight and analytics to drive meaningful long term value for all of our stakeholders. Our new sales organization has made very good progress and we have a lot of exciting plans for the year to accelerate our growth.

Although most of the sales success will increase revenue in 2024 and beyond. Our sales pipeline has increased by over 1/3 and we are close to signing contracts with new customers that we historically did not pursue. Before I dive into our segment highlights for the quarter, I wanted to update you on some of the changes we made to our leadership team.

We've hired some great people, including an SVP of Strategic Execution, Matt Snyder, and an SVP of Innovation and Growth, Seth Ravine and we have even more exciting announcements soon to come. But as you can imagine it takes time to find the right people for the job.

As we have adjusted our operating model and priorities that had been necessary to make some personnel changes. I want to thank those who are leaving us for their hard work. But I'm confident that we're putting together the best team to take ModivCare to the next level. Moving on to our Mobility or NEMT segment.

I'm pleased to report that we experienced a 14% year over year increase in NEMT revenue during the fourth quarter. This growth was driven by increased trip growth as membership grew to approximately 35 million members, which is consistent with our commentary from the third quarter earnings call.

Our focus on discipline execution and team alignment is working. For example, our fourth quarter on time performance was at its highest level in two years. We also exceeded service level expectations in our contact centers and reduce missed trips by about a third.

We continue to transform our Mobility operating model through three main initiatives, provide a partnership, multimodal network and omnichannel member engagement. Our provide a partnership initiative involved narrowing our transportation network in creating win-win relationships with only the best providers.

Our multimodal network initiative, medically tailored the member's ride via the traditional sedan, rideshare, public transit or a family member. And our omnichannel member engagement initiative, meets the members where they are by providing telephonic, IVA, IVR, texting, chat, web portal or app engagement.

Today, our primary engagement channel is telephonic as such, we have a lot of opportunity ahead of us. All three of these initiatives will further improve the member experience while also driving down operating and trip costs.

We had significant improvement in our operating performance in the fourth quarter, and we expect the initiatives we have implemented to have meaningful impact throughout 2023 on both our member experience and cost structure. Regarding redetermination, we acknowledge that Medicaid members can be reviewed by states starting April 1.

However, states are obligated to fulfill various reporting and outreach obligations, which could cause delays in the process, especially in the states where we have significant presence. We expect the impact of this process in 2023 to be insignificant.

And we have outlined strategies such as contract repricing, business wins and operational enhancements as discussed earlier. And at our Investor Day in June, which we believe will enable us to overcome any long term impacts. Moving on to the Home division, which is comprised of our personal care and remote patient monitoring segments.

In the fourth quarter, our personal care revenue grew 12% year over year, as we continue to see strong improvement in caregiver hiring trends. We recently implemented a caregiver satisfaction score across our organization, similar to a net promoter score.

We improved our caregiver satisfaction by over 50 points in 2022 to the great level by capturing feedback through our caregiver advisory council, and by providing additional benefits such as 401(k), health benefit and an employee assistance program.

While we improved our score last year, we know that we can even do better and we aim to achieve the excellent mark in 2023. All these investments in our team members experience has helped us maintain an industry leading retention rate of 65%. Our main goal is to achieve growth in the personal care sector.

To achieve this, we are continuing the heavy lift to standardize and centralize non-caregiver functions in certain operational processes. By doing this, we aim to create a more efficient and scalable platform for growth.

Our strategy also involves focusing our efforts on developing standard tools and techniques that can be deployed locally to accelerate caregiver recruitment and retention. In addition, we plan to expand our personal care locations through de novo openings and position ourselves to easily integrate any future acquisitions.

We expect the reimbursement environment to remain favorable for personal care services and we plan to add more value based care arrangements similar to our current value based care arrangements in Pennsylvania focused on gap closure.

We have also added new arrangements focused on changes condition escalation, as well as Electronic Visit Verification or EVV. Moving to our remote patient monitoring segment, which is a particularly innovative and important part of our business.

We saw strong growth during the fourth quarter with monitoring revenue increasing 18% year-over-year and adjusted EBITDA margin of 35.8%. We saw 36% year over year increase in total active clients in the fourth quarter which includes the contribution from the integrated Guardian Medical Monitoring acquisition.

Our monitoring team performed exceptionally well last quarter with a couple of new state Medicaid wins and our strong pipeline for additional business that we can execute on this year. Our net promoter score also remained at an industry leading 88.

As we move into 2023 our priorities are to accelerate Medicaid and Medicare Advantage sales and continue to innovate our monitoring offerings and value based care capabilities. We expect growth in line with our long term target of mid-teens revenue growth, and a mid-30% adjusted EBITDA margin.

Before I turn the call over to Ken Shepard, our CFO of Mobility to review the fourth quarter and full year 2022 financial results, I want to remind everyone that the biggest fundamental challenges facing the US healthcare systems today are its elevated cost, the inequities and access to care for the most vulnerable patients and too little focus on care prevention by addressing the social determinants of health.

We are uniquely positioned to address these challenges. Our supportive care solutions provide the highest quality, best in class member experience in the most cost effective manner for our customers in the healthcare system as a whole. Ken, please walk us through our financial results..

Thanks Heath, and good morning, everyone. We had a strong year in 2022 with consolidated revenue of $2.5 billion up 25% year-over-year driven by double digit growth across each of our segments. Net loss from continuing operations and 2022 was approximately $32 million or $2.26 per share.

Adjusted net income for the year was approximately $103 million or $7.32 per diluted share and adjusted EBITDA was approximately $222 million or 8.9% of revenue. For the fourth quarter revenue increased 14% year over year to $654 million. Net loss from continuing operations was $7 million or $0.49 cents per share.

Adjusted net income for the fourth quarter of 2022 was approximately $30 million or $2.11 per diluted share. Fourth quarter adjusted EBITDA was approximately $60 million or 9.1% of revenue.

Fourth quarter adjusted EBITDA included approximately $7 million of onetime benefit about half of which was related to our year end accrual adjustments, and the other half related to a onetime revenue recapture in our NEMT contracts.

Excluding this benefit adjusted EBITDA for the full year would have been near the midpoint of our guidance range which we think is a good baseline when thinking about growth in 2023.

Transitioning to the financial results of our segments starting with Mobility or NEMT, fourth quarter 2022 revenue increased 14% year-over-year to $459 million, driven by a 16% increase in average monthly members.

For the full year NEMT revenue increased 19% year over year to $1.77 billion driven by a 14% increase in average monthly members and a 4% increase in revenue per member per month. Service expense for the NEMT segment, which includes all direct costs increased approximately 22% year over year in the fourth quarter of 2022 to $387 million.

The increase was driven by higher service expense costs associated with higher trip volume related to increased monthly membership and a 13% increase in transportation cost per trip due to the general inflationary environment. On a sequential basis, purchase services per trip were flat at $42 per trip.

utilization, which is defined as monthly paid member -- paid trips per member was quarter-over-quarter at 7.5%. That said, we expect utilization to gradually increase throughout 2023. NEMT net income was $17 million in the fourth quarter of 2022 and approximately $79 million for the full year.

NEMT adjusted EBITDA was approximately $46 million in the fourth quarter of 2022 or 10.1% of NEMT revenue. Full year NEMT adjusted EBITDA was approximately $169 million or 9.6% of any NEMT revenue. NEMT margins for the fourth quarter and full year were lower primarily due to higher transportation costs. partially offset by G&A cost leverage.

While we experienced higher transportation costs throughout the first three quarters of 2022 we expect cost per trip to stabilize and gradually improve in 2023. Turning to our Personal Care segment, revenue in the fourth quarter of 2022 was $176 million, which was a 12% increase year over year.

We saw increases in caregiver hiring throughout the quarter. However, we typically see a seasonal slowdown in hours in December around the holidays.

This resulted in fourth quarter hours remaining flat sequentially at $6.8 million, which was still an improvement from typical Q4 seasonality as we typically see hours decline in the low single-digit range from Q3 to Q4.

Full year 2022 Personal Care revenue increased 35% year-over-year to approximately $668 million, driven by the full year contribution from our CareFinders acquisition, which annualized in September as well as improvements in recruiting, retention and a 6% revenue per hour increase during the year.

Personal Care service expense per hour, primarily representing caregiver wage expense increased approximately 6% sequentially from the third quarter of 2022 due to increased wage expenses, particularly in New York, where there was an increase in caregiver minimum wages and a corresponding reimbursement rate increase during the fourth quarter.

Going forward, we expect caregiver wage inflation to continue to be offset by reimbursement rate increases. Personal Care segment net income was $2.3 million, while segment adjusted EBITDA was $16.6 million in the fourth quarter of 2022 or 9.4% of revenue.

For the full year, Personal Care adjusted EBITDA increased 67% year-over-year to approximately $70 million, which was 10.5% of Personal Care revenue. While we were able to drive some G&A leverage during the fourth quarter, higher service expense led to a 160 basis point sequential decrease in adjusted EBITDA margin.

Moving on to our Remote Patient Monitoring. Revenue in the fourth quarter of 2022 increased 18% year-over-year to approximately $19 million, which included approximately $4.6 million of contribution from our Guardian Medical Monitoring acquisition.

For the full year, Remote Patient Monitoring revenue was $68 million, which included approximately $12 million of contribution from Guardian. On a sequential basis, average monthly members increased approximately 3%, driven by consistent growth in referrals across the legacy and recently acquired RPM business.

RPM segment net income was $0.7 million in the fourth quarter, while adjusted EBITDA was approximately $6.8 million and adjusted EBITDA margins improved 50 basis points sequentially to 35.8%. We remain confident in our long-term targets for RPM revenue growth in the mid-teens and margins in the mid-30% range.

Turning to our cash flow and balance sheet. Consolidated cash flow from operations in the fourth quarter of 2022 was the use of $56 million due to payments on contract payables, partially offset by solid cash flow from our core operations.

During the fourth quarter, we reduced our contract payables balance, net of our contract receivables by $61 million to a net balance of $123 million. For all of 2022, we reduced our net contract payables by $134 million, which primarily relates to overpayments and liability reserves on certain NEMT contracts.

Excluding the combined negative impact of $61 million from these items during the fourth quarter, cash flow from our core business remains solid. As a reminder, we expect a more normalized level of activity for these contracts payable moving forward and, therefore, a more normalized environment for our free cash flow in 2023.

We ended the fourth quarter of 2022 with approximately $14.5 million in cash and had no amounts drawn on our $325 million revolving credit facility. Our principal debt balance was sequentially flat at $1 billion, and our consolidated pro forma net leverage was 4.3x as of December 31, 2022.

We remain committed to delevering over time, and our target net leverage ratio of 3x remains unchanged. In 2023, we expect net leverage will be gradually reduced to the high 3x range through debt reduction and EBITDA growth. As a reminder, 100% of our current debt structure is at fixed rates.

Our capital allocation strategy remains unchanged as we are committed to a disciplined and balanced approach towards capital deployment with the primary focus on delevering our balance sheet. This morning, we provide 2023 guidance that included revenue in a range of $2.575 billion to $2.6 billion and adjusted EBITDA of $225 million to $235 million.

Here are some of the puts and takes to consider as you think about the year ahead. Within our Home division, which includes Personal Care and Remote Patient Monitoring, we expect revenue and adjusted EBITDA to increase double digits on a combined basis in 2023.

For Personal Care, we expect high single-digit to low double-digit revenue growth, driven by continued improvement in the caregiver hiring, leading to growth in hours, along with reimbursement rate increases. For Remote Patient Monitoring, we expect revenue growth in the mid- to high teens, driven by new client growth.

We also expect to see increased utilization of our suite of monitoring services led by our E3 engagement solution. In our Mobility segment, we expect revenue and adjusted EBITDA could approximately be flat in 2023.

While we have had several new NEMT wins in 2022, the timing of our larger opportunities has been pushed out to the extent that we don't expect a meaningful impact in 2023. Our contract pipeline is as strong as ever, and we are confident that we will continue to win our fair share of competitive contracts going forward.

We also believe that the impact from redetermination in the second half of the year and normal attrition could be a headwind, which could offset potential wins, contract expansions and repricings that are expected in 2023.

As we suggested last quarter, we expect our full year 2023 adjusted EBITDA to be more back half weighted due to our ongoing operating initiatives, investments we are making during the first half of the year as well as normal seasonality impact on profitability.

We expect these initiatives to drive lower cost and improved margins in the second half of the year. Overall, we think current consensus estimates capture the quarterly cadence fairly well for 2023.

Again, we also expect to generate solid free cash flow in 2023 and remain committed to delevering and expect to achieve our net leverage target of 3x over time. Lastly, we remain confident in our long-term targets for $3 billion of revenue and $300 million of adjusted EBITDA in 2025.

To wrap things up, we are pleased with our strong fourth quarter and full year 2022 financial results. We are confident that 2023 will build upon the progress that we have made in 2022, and we look forward to reporting meaningful progress on our operational and strategic initiatives over the next several quarters.

I would also like to take this opportunity to thank the entire team at ModivCare for the hard work and dedication throughout the year to generate these results while providing high-quality care, improving health outcomes for our members. This concludes our prepared remarks. Operator, please open the call for questions..

[Operator Instructions] The first question today is coming from Brian Tanquilut of Jefferies..

Congrats on a solid quarter. As I think about cash flow, obviously, you -- there was cash burn in Q4 that was expected.

But how should we be thinking about cash generation going forward and the rebates? Is that an issue that's behind us at this point?.

Yes. Yes. So just -- so consistent with what we've been saying for the last 4 quarters, 2022 involves us paying off the cash that we accumulated on our balance sheet through COVID in 2020 and 2021 and the bulk of accumulation -- or a disproportional amount of that accumulation was all paid off in 2022. So the COVID payoff was finished in 2022.

And that was the main driver, as you can see in our $50 million decrease quarter-over-quarter that we paid above and beyond our kind of normal working capital fluctuations. Another item that just to note for everybody, when we pay our debt as well, we pay semi-annually. So that also happened in this quarter.

So those 2 reasons are the main reasons of why we are for cash. And then again, for your question going forward, now we're at normal levels of working capital, and we expect to be generating free cash flow each quarter going forward..

Awesome. And then Heath, as I think about the NEMT business, obviously, it was pretty strong in Q4. I know in the past, you've talked about redeterminations being a headwind for this year and you've even quantified that.

But how should we be thinking about margins for NEMT over the course of the year and also as we normalize post redeterminations?.

Yes. So margins for 2023 going forward will be on the lower end of our range as we work through the transition. There's mainly 2 reasons for that and it has primarily to do with costs.

Last Q3 and Q4 really hit the high mark on our unit cost within the Mobility segment, primarily driven by the pressures that everybody is feeling and we've been feeling around inflation, fuel that in general.

However, we expect that to start coming down in the latter half, primarily because of the initiatives we have in place, which is mainly involving narrowing our network to the key providers, therefore, assuring that we can pay them the right level of unit cost at a higher level.

So hit the high watermark, that will come down, but that will be the latter part of this year. In addition to that, in our kind of operating expense, which a big chunk of that has to do with the calls we take, the majority of the interactions we have with our members still are telephone.

And we are doing kind of common practices around call avoidance, whether that's text messages, apps, -- those 2 things will allow us to reduce the cost, increase member experience, and I expect us to start moving to the middle part of the range of our expectations in 2023..

The next question is coming from Bob Labick of CJS Securities..

It's Peter Lukas for Bob. You guys covered a lot answer to most of my questions here.

Just if you could give a quick update on labor conditions and staffing levels in Personal Care, what are the expectations for the year? And how much closer do you think you can get to pre-pandemic levels? And in terms of any improvement you're seeing in hiring and are making to achieve those goals?.

Yes. So the amount of work that we've done in the Personal Care segment led by me and Haney there has been tremendous. And it really is transforming that organization where we have these 100-plus locations that are really used to doing everything from the beginning to the end on how you deliver the service and how you can account for it.

We've made a lot of progress in centralizing and standardizing a lot of those kind of halfway through that journey, 2023 is a big part of that. Those efforts, we had some investments that we needed to make at that corporate level, and we'll start to see those investments pay off as we finish with that integration.

But the point around that is that frees up the resources, whether that's the bodies or even capital to ensure that we are properly investing in our caregivers with increased pay or as importantly and in some cases, more importantly, giving additional benefits that ensure that we can recruit and retain.

So that is showing up in the -- in our recruitment and retention numbers. We have grown relatively consistent with the high-performing players within personal care. So very successful, made a lot of progress. So the labor challenges have stabilized, and we expect it to stay at that stabilized level.

And then the initiatives that I just articulated before is going to allow us to really accelerate beyond the market in retention. As we noted as well earlier, our retention rates are high, higher than normal.

So labor is in a good spot, always going to be challenging, hiring hourly people in specific caregivers -- but we feel good about where we're going. Pre-pandemic levels, we're not there yet from a standpoint of meeting that demand. I think that's related to your question.

And that will, we won't get all the way back to that even at the end of this year, but we will have significant growth. So the point of that is, I think we have a reasonable plan. And then after that, I do think we'll continue to accelerate beyond that. But -- so that's kind of the update on the labor market and what we're doing to push beyond that..

The next question is coming from Brooks O'Neil of Lake Street Capital Partners..

I have a couple of questions. I guess, first, I'd love to hear a little bit more about the response of state governments and managed care companies to the One ModivCare initiative that you discussed in your prepared remarks..

Yes. So yes, the One ModivCare vision is resonating well with all our payers and even internally for us, it's allowing us to work cross-functionally across all of our divisions. So it's really resonating with the senior C-level people within each of these specific payers or states.

And why is that? Because they're having the same challenges and struggles within their patient population. It's all about how do they identify the higher risk people and get ahead of that, the one they can help them and also kind of lower that cost of care.

And almost every week or every month, there is some study that comes out around the benefits of supportive care services and the direct impact that has on changing outcomes. So that acceleration, that data is really resonating with executives.

And we are in front of a lot of clients either doing pilots right now, doing contract work where we are actually helping them change outcomes and then even in broader discussions on how we bring them all together to help their population.

So long story short, resonating very well, and we expect our contracts to increase this year around that and then do a lot of work to ensure that, that continues to happen..

Fantastic. I think it's a great initiative. So let me just ask one more. I see some activity in the personal care arena. I guess I might call it consolidation activity, but it's really more just various corporate stages happening.

Do you guys see that as opportunity or threat to you in the personal care arena?.

So the personal care industry as a whole continues to mature. And then it's still made up of primarily mom-and-pop organizations 150,000 plus. So it's a normal cycle of almost every industry that goes through that consolidation.

But more so in personal care, this gets back to your -- even your previous question, the value of these services for people's members are valuable. And that is -- that shows up in our increased reimbursement rates. It shows up in the increased regulation, by the way, which is -- sounds like a bad thing, but it's actually a good thing.

So you're seeing more sophisticated people realize that and continue to roll that up and consolidate. So I view the -- what's happening in the marketplace as a positive thing for the industry as a whole. And there's plenty of hours up there, and I expect and hope that, that continues. So not a threat.

I think good for the industry, and I expect that to continue..

The next question is coming from Scott Fidel of Stephens..

First question, just interested if you've got any insights into just how Matrix has been doing with their operational turnaround. And then I know that you've talked about potentially seeing an opportunity looking out to the back half of '23 for a monetization opportunity. Just interested in your updated thoughts around that potential catalyst..

Yes. We're really proud of what Matrix has done over the last 6 to 9 months, completely new management team, restructuring divestiture of businesses that really pops in COVID, but the thesis of them continuing post COVID was not there.

So a lot of heavy lifting to get those away and not be a distraction and then even take out the costs that are related to that, pretty much done with all that restructuring and costs.

And then more importantly, this gets to the team that they brought in, the levels of performance within the risk adjustment business, they're back to the way it was pre-COVID. Unfortunately, we kind of lost our focus on that in those kind of 2020, 2021 and even kind of early part of 2022.

But they're back and increasing beyond that, that's tech, process new people. So I'm really encouraged about what they've been doing there, showing up in the numbers, and I expect that to accelerate in the related financial performance to continue to improve each quarter. I know I've said that potentially, there's something in 2023.

And that could happen really for us and what we're seeing now is watching them perform and helping them perform. And again, the monetization will be there. I still think that's early is would be in 2023. But yes, so we look forward to watching them do it and at the right point in time, there will be an exit for us..

Understood. And then just my follow-up question, just getting back to redeterminations and obviously, that's a trickier sort of modeling exercise for all of us until we just see the tempo start to kick in. It does sound like you're building in some mix impact, right, in terms of assuming some higher utilization in 2023, which I think seems prudent.

I would be interested in sort of how you're modeling in average membership just as we sort of play out over the course of the quarters just as we factor and think about redeterminations?.

Yes. So you're right. We expect that to -- what we have modeled into our numbers that coming down, membership coming down in Q3 and Q4. But we also do have offsets with other new wins that we're doing, expansion of certain portfolios that we do have. So that's why we're saying we think it's something we'll be able to manage through.

And I also do think if it does start happening in redetermination, our model is probably a little conservative for what's likely going to happen. If you talk to -- and I know, Scott, you talked to everybody a lot around this.

The requirement and the appropriate requirements for states and what they have to do before they roll people off are a laborious and detailed. And I do think that's going to take some time. And I do think we'll figure out that a lot of people price. So again, I think it's -- we're modeling it.

I think it's conservative, but the way it is in our model, we're offsetting a good chunk of that with new volume and new business in the latter half of this year..

The next question is coming from Peter Chickering of Deutsche Bank..

This is Kieran Ryan on for Peter. Can I just start off with guidance. It looks like the margin assumptions within guidance are about 8.6% to 9.1% versus 8.9% in 2022. And you have given us some good color on the top line growth across the businesses.

But is there any key expense swing factors that you can call out between the low and high end of the range, whether it's wage growth, turnover, transportation costs like is there anything that sticks out more than the others?.

Yes. So a couple of things. Getting back to Mobility and where we are in the life cycle of the initiatives that we are doing. The cost structure with Mobility is at the high point right now, both on the unit costs or in our COGS as well as in that operating expense side, and we expect those to start coming down in the latter part of this year.

So that cost structure is high. And again, it's not rolling off to the end of the year, for the full year, it still remained elevated to how we'd be exiting. So that's one explanation for the margin that we have.

In the Personal Care business and deliberate and absolutely the right thing to do, and I said this a little bit earlier, is we're moving into this new model where we have back office centralized as well as other processes in the operations actually centralized, we're investing in that now.

And the reason why we're doing that now because we need to catch the changes that we're making with those people. And that cost shift basically getting the other cost out will also start happening in the latter part of this year and it makes a lot of sense. We're building it up centrally.

But as we finish with the integration in the right deliberate way with people, process and tech, we'll be able to lower that operating cost in the field in the latter part of this year.

So again, we're probably at the high point from a cost perspective in the Personal Care segment aside, and I expect that to improve and exit and be on the higher end of our range from a margin perspective exiting 2023. Really the same with monitoring as well. We're in that we're -- for us, the focus and the opportunity is all about selling.

Margins are very strong. We are getting minimal leverage on the G&A side. I expect that to improve nominally this year and then 2024 and beyond. So the other thing that we are doing, and you can see this if you look at our add-backs, we are ensuring that we have the right people in the right seats.

And a part of that with what I talked about earlier around how we're investing in different parts of the business, we're also releasing people and we did that and we did that in Q4. And I expect that to happen as well going forward to ensure, again, that we have the right people in the right seat.

All that putting aside, we feel really comfortable with the margin ranges that we have in 2023 and feel really comfortable about our cost structure and leverage from the people we get going beyond that..

The other comment that I would add is if you take out what we mentioned on the call, the $7 million of onetime benefit that we experienced in the fourth quarter. The margins will be right at that low end of the 8.6% to 9.1% for 2022. And so really, we feel like the jumping-off point is appropriate.

And so we feel like we have upside opportunity in 2023..

That's very helpful. And then just a quick follow-up. You touched on RPM there. Top line, that it's holding up well, but not as quite as much G&A leverage there.

Would you attribute most of that just kind of to these contract repricings that you talked about last quarter? And then I know there's some negative pricing impact from the Guardian acquisition and to get back to a point where you are generating operating leverage and EBITDA is growing faster than revenue.

Is that kind of just -- do those dynamics just need to annualize out or is there some other factor there that we should look for that?.

Yes. Yes. The Guardian actually has the pricing is right in line with the rest of it. So it hasn't been a -- it's not a drag. The Guardian acquisition is really successful integrated, we are getting leverage off of that from a -- just within the RPM group. So congratulations to the team that's really successful, and it's good for us.

On the pricing side, and definitely related to the margin that we had coming into even in 2022, is the MA pricing that we had for a large payer deliberately doing that because we're getting a national license to hunt.

So I'll do that every day, all day for MA business, but that's the main reason for the delta and the decrease in margin is because of the MA business that we brought on. But that -- again, that will help grow the dollar amount going forward. So that -- we're really excited about that.

For us, it's really about growth and ensuring we are growing that business as a whole. Margins are still strong, but those lower levels are on purpose and as expected, and I'll continue to do that if necessary on the MA side. And then the leverage on the G&A side. I don't want to overplay that because they are still performing well.

I'm just -- the point there is I do think there's an opportunity to get more leverage around the one ModivCare G&A platform as well. But we're just we're prioritizing stuff. And right now, that we're fine with where we are now. So long story short, great margin, on purpose based on the MA business, and I expect that to continue for 2023 and beyond..

The next question is coming from Brian Tanquilut of Jefferies..

Thanks for letting me do a follow-up here. As I think about the longer-term guidance ranges you had previously provided, say, for 2025, both in revenue and EBITDA.

I think about where you are for '23, it implies a little bit of acceleration in '24 and '25 or either that or conservatism in 23, right? So anything you should -- you want to call out for us or we should be thinking about that would drive some growth acceleration next year in valid years?.

So the growth within the Home division is very reasonable. If you look at where we are and what we expect to have, and those are really in line with what we talked about last June, in line with the market, in line with just kind of steady performance.

Where the most -- where the additional growth really needs to happen for us, and I'm comfortable with this is in the NEMT business. And primarily, that has to do with selling. So there's 2 dynamics around what has happened in the NEMT business and why I feel comfortable with that accelerated bump going into '24 and '25.

One is the -- really the pushback of many large RFPs -- and I think we're talking about these RFPs for 12-plus months. And every month, I'd say they keep getting pushed out. Many of them have been pushed out for a year.

And so this year, the latter part of this year, a lot of these larger RFPs will come up, and we expect to win more than our fair share of those. But that volume will come on until 2024. So the other half of that is selling. So our focus -- we've hired some hunters, right. We have great account management people, but we've also hired hunters.

And our focus in the past hasn't been on growth beyond really our current big clients. That is our focus. And there's a lot of other -- we focus on the big 6. We know there's many more big payers out there. And we are really close to signing a large deal with a large payer that we haven't even talked to before, we didn't talk to before.

So -- and the pipeline, as we articulated, is significantly up since kind of the August-September time frame. So those two together, our hunting coupled with the timing of large RFPs, winning our fair share will allow us to hit those growth targets in Mobility and therefore, the growth targets across the company to hold through 2025..

The next question is coming from Mike Petusky of Barrington Research..

Just one real quick one and then maybe possibly one or two others. On the payables issue, I just want to make sure you're essentially saying the impact is sort of completely -- not way reduced, but the impact on cash flows in '23 is essentially axed out.

Is that a fair characterization of what you're saying?.

Well, so yes, so there's a couple of things. There's a little -- like always, there's a little bit more I should explain. Consistent with what I said before, anywhere kind of that kind of $40 million to $60 million paid out that is unusual that happened in 2022, that happens and you see that happen in -- you see that happen in the fourth quarter.

We are still seeing in certain contracts that still that increase a little bit. So there is going to be some -- a little bit of lumpiness in our contracts payable for a few contracts. I don't want that to distract from the message that I've been consistently saying.

I said earlier is that we're back to normal working capital and that kind of big COVID bump is behind us. But there is a little bit that we will still be working through increases and then, therefore, some lumpy decreases in the next couple of quarters, but not to the extent of the $40 million to $60 million each quarter..

Okay.

So I mean -- and I'm not trying to put words in your mouth, but just in terms of magnitude, I mean, it could be maybe sort of $10 million or $20 million, something like that over the course of the year in terms of drag, possibly or?.

Yes, that's the right way to box it in..

Okay. Perfect. And then on the contract pushout and then you sort of seem to allude that there could be some attrition in the second half, which I'm assuming is around existing obviously, attrition existing relationships.

I guess can you sort of size up, I mean, in any way, the contract size that in aggregate that have sort of been pushed out in your mind and also sort of the potential attrition risk in the second half associated with transportation?.

Yes. So I don't see the second half having incremental attrition. I think within our current numbers right now has the -- we continue to win well beyond what we've won and so we are continuing to get new volumes, but we haven't got the increased volume we that we expected. That's the main message.

And again, I don't expect any more attrition happening in Q2, Q3, Q4. What's in our numbers right now is in our numbers. I expect to actually win in the latter part of this year, but you're right, that wouldn't come on until 2024. So I don't want to -- I'm glad you asked that question because I don't expect additional attrition happening.

But we're -- so then from a size perspective, the good thing was that there's nothing that is material as a stand-alone, right, because we don't want to have the risk or on the other side, we don't have the opportunity either for us to really get one contract and it's going to have a material impact.

That being said, there are large contracts that can have an annual EBITDA range of kind of $5 million to $10 million, which is very good. But at the same time, from a risk perspective, we can manage through some of that. So I don't expect anything this year from a risk perspective to come off. I expect all the opportunities to come on going forward.

But the right range of that, there's probably 4 to 5 contracts like that, that will be coming up over the next 12 months in that range..

Got you. All right. Let me sneak last one in.

And I've asked about this a couple of times, and it seems like maybe this is more of a back burner long term, but any update on meal delivery and how you guys are thinking about that? Or should we just sort of back burner that for '23 and think about it more realistically down the road as something you guys might really go all in on?.

No. So I feel really good about our plan for what we want to do in meals. We have great -- new people that have taken that over, and it's actually the platform that it's on is the platform that we have in our Home division, which makes a lot of sense because it's a referral-based business. So they have that -- the tools, the people have that skill set.

And we've appropriately -- we have the right partner, and we have the right states picked to start to grow. We have clear objectives, OKRs that we have in 2023, and I expect that we will achieve that.

The revenue and EBITDA contribution will be nominal as designed because we want to make sure that we continue to prove out this model and have the right mousetrap in place before we really accelerate it. But this year, and I do -- I look for each quarter updating you on how we're doing it mainly to show, yes, we're getting it, it's the right thing.

Here's my conviction around what it's going to do in 2024 and beyond. So it's going to be a good year for meals..

So it actually could get to a point in '24 where you actually start talking about it as a?.

Better, right? Well, it's better. I say that, I don't mean that from a hope perspective. I mean that from the team that's working on this and the disciplined actions that we have in place, the customer commitments we have, we've got to execute on that, and I expect that we will..

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

I want to thank you for participating on our call this morning and your interest in ModivCare. Our updated investor presentation and quarterly supplemental deck are posted on the Investor Relations website. If you are interested in scheduling any follow-up calls, please contact Kevin Ellich, our Head of Investor Relations.

We look forward to speaking with many of you over the next number of days, weeks, months before we report our quarter results in May. So thank you again for all the support. Have a great day..

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 day..