ModivCare Inc (MODV) 2021 Q2 法說會逐字稿

Hello, and welcome to the ModivCare Second Quarter 2021 Financial Results Conference Call and Webcast. (Operator Instructions) As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Jonathan Bush, Senior Vice President, General Counsel and Secretary. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining ModivCare's Second Quarter 2021 Conference Call and Webcast. With me today from the company are Dan Greenleaf, President and Chief Executive Officer; and Heath Sampson, Chief Financial Officer.

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 statements 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. A definition of these non-GAAP measures and reconciliation to the most comparable GAAP measures is included in our press release 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, www.modivcare.com. This morning, Dan Greenleaf, our Chief Executive Officer, will begin with opening remarks, after which, Heath Sampson, our Chief Financial Officer, who will provide the details of our financial results. Then we will open the call for questions.

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

Yes. Thank you, John, and good morning, everyone, and thank you for joining us. Given the 2 significant acquisitions that we announced in the past 2 weeks, I will begin today's call recapping our positive momentum to transform ModivCare from a transportation logistics company into the first-of-its-kind provider of holistic supportive care solutions designed to address the social determinants of health, remove barriers to care for underserved patient populations, deliver better care in the home, enhance patients' lives and health outcomes, provide a convenient one-stop shop for our payers, state and hospital partners, and reduce healthcare costs.

When I joined the company in December '19, we started with a market-leading nonemergency medical transportation, or NEMT business, with opportunities to automate and modernize operations. At the time, we swiftly implemented a 6-pillar strategy involving placing the right people in the right seats, acting on the voice of the customer, pursuing transformational growth, implementing a single repeatable model, delivering an enhanced technology platform, and rebranding the organization. We successfully delivered in meaningful ways across each of these pillars during a relatively short timeframe, enabling us to focus on our larger vision of transforming how we connect people to care by utilizing our NEMT business as a critical conduit to drive access to the supportive care solutions we provide.

We continue to look for opportunities to broaden access the care in the roughly $8 billion addressable market for NEMT. In fact, yesterday, we announced a nationwide partnership with Uber Health aimed at further strengthening our networks of transportation providers.

Our first foray into expanded supportive care solutions commenced with nutritional meal delivery pilot programs during the onset of the pandemic. To date, we have delivered more than 2 million meals under approximately 30 partnerships with community-based organizations and determined that the nutritional meal delivery sector is ripe for disruption. We have completed significant work in preparation for our formal launch of a nutritional meal delivery vertical, which we expect to announce later this quarter. We are extremely excited about this opportunity, which adds an estimated $9 billion addressable market projected to grow to $15 billion in the next few years.

In November 2020, we added another supportive care vertical with the acquisition of Simplura Health Group, marking our entry into the large, fragmented and rapidly-growing personal care sector. Simplura's scale and density in its core markets provided us with an excellent foundational business in the $55 billion personal care sector, which is expected to grow to $100 billion over the next several years.

Our pending acquisition of Care Finders announced last week significantly strengthens our personal care presence in the Northeast and complements Simplura's capabilities. Care Finders delivers approximately 10 million hours of care annually to over 7,500 patients through its more than 6,200 caregivers. Care Finders' annual revenue is approximately $200 million, pro forma for recent acquisitions. On a combined basis, we'll be one of the largest providers of personal care in the United States, managing more than 18,000 patient lives and providing approximately 30 million hours of care.

Finally, earlier this week, we announced the acquisition of VRI, which adds a healthcare-focused national remote patient monitoring and medication management platform fueled by leading technology to our suite of critical supportive care solutions. VRI monitors over 155,000 patients from its 2 24/7 care centers. VRI has leveraged its technology platform with thousands of connected patient devices to create a strong data analytics capability. The combination of VRI's in-home remote monitoring insights with ModivCare existing data from our other supportive care verticals will further unlock the total health picture of patients and enable improved health outcomes.

The acquisition of VRI adds an estimated $8.5 billion addressable market in remote monitoring that is only 13% penetrated, with considerable growth opportunities from increasing coverage of remote monitoring by Medicaid and Medicare Advantage health plans. We believe that our powerful NEMT channel, with access to 30 million patients to approximately 9% of the U.S. population, puts us in the pole position to own the last mile by providing you supportive care solutions to the same payer state and hospital partners, the same underserved patient populations in the same home care settings, while leveraging our data analytics and technology.

We envision a future in which our personal care aides serve as the air traffic controllers in the patient's home. If the patient's food stock is meager, the aide can call on our nutritional meal delivery program. If the patient's required medication is in short supply, the aide can deploy our NEMT services to transport replenishments to the patient's home. If the aide notices a special need for medication management or remote monitoring, we can bring VRI Solutions into the patient's home. If the aide detects a need for nonemergency care outside of the home, our NEMT business is there to provide the ride. We believe that a synergistic ecosystem like this will thrive as healthcare increasingly moves away from higher-cost institutional settings to lower-cost home settings preferred by the patients and their families.

In summary, in less than 20 months, we've expanded ModivCare's total addressable market from approximately $8 billion for NEMT alone to more than $80 billion for our full suite of supportive care solutions. We have been very deliberate and strategic in bringing together NEMT, nutritional meal delivery, personal care, remote patient monitoring and medication management under one roof. We're working toward the best possible outcomes, building a more seamless network of access to essential services, fueled by our technology and making every effort to ensure patients never miss an opportunity to get the care they deserve.

I'd like to send a special thanks to every member of the ModivCare community of team members, transportation providers, clients, payer, state and hospital partners who are helping us to realize our vision and are relentless about improving patients' lives. ModivCare continues to make a meaningful difference in transforming the way patients connect to care, and your commitment and dedication make this possible.

On the regulatory front, we remain encouraged by support from legislative leaders and the Biden administration for home and community-based services. The recently-introduced Better Care Better Job Act provides a valuable framework for expanding these services for more than 3.2 million Americans while helping more than 1.1 million family caregivers return to work in creating more than a 0.5 million new home care jobs. This vital investment, if passed into law, could help seniors and people with disabilities access needed support and put the family caregivers back to work.

Moving on to a few second quarter highlights. In the second quarter of 2021, we reported total adjusted EBITDA of approximately $53 million, with $43 million coming from our NEMT segment and $10 million coming from our personal care segment. These results were in line with our expectations and reflect the current state of the pandemic and its impact on activity across both businesses.

NEMT trip volume has increased incrementally as we anticipated, yet remains below pre-pandemic levels. We expect that utilization will steadily increase, going forward, as the healthcare environment returns to a more normalized level. While an increase in trip volumes will lead to increased costs to service our patients, ModivCare is also making excellent progress on our cost reduction initiatives, which we call Project Storm. We have targeted $50 million of total annualized savings from this program by year-end, and we believe we will be able to successfully sustain these savings as utilization returns.

In our transportation, nutritional food delivery business, we have built a modernized interface for transportation providers and patients that rivals that of Uber or Lyft. This easy-to-use user interface is reducing patients' need to call our contact centers while increasing automation for our transportation providers.

Before turning the call over to Heath, I'd like to comment on the recent promotions of Jonathan Bush to Senior Vice President, General Counsel and Secretary; and Ken Shepard, Vice President, Chief Accounting Officer, which we announced last month. We are very excited to promote these talented, dedicated professionals to advanced leadership roles with illegal and finance functions, and their promotions are a testament to the strong bench of talent in our leadership ranks. Both John and Ken have been instrumental members of our team throughout ModivCare's transformation and have excellent results-oriented track records.

With that, I'd like to turn it over to Heath Sampson, our Chief Financial Officer. Heath?

Thanks, Dan. Starting with our consolidated second quarter financial results, we recorded revenue of $474 million, adjusted EBITDA of $53 million and adjusted net income of $30 million, or $2.13 per diluted share.

NEMT segment revenue in the second quarter of 2021 was approximately $365 million compared to $282 million in the prior year period. The quarter-over-quarter increase is attributed to incremental revenue of $37 million related to our acquisition of National MedTrans, as well as higher trip volume relative to the second quarter of 2020, which was heavily impacted by COVID-19.

As discussed last quarter, approximately 85% of our revenue is derived from our capitated or risk contracts and 15% from non-capitated or non-risk, which are primarily fee-for-service. Within our capitated contracts, full risk, where we have the complete responsibility to manage costs regardless of trip volume, was 44% of revenue. The reconciliation in rebate capitated contracts represented 41% of total revenue. As a reminder, the reconciliation and rebate contracts have provisions that either cap or increase our revenue based on the trip volume and/or profit margin received. Through COVID, our revenue has been primarily capped.

Service expense for the NEMT segment, which includes all direct costs related to third-party transportation providers, and our call center operations and other operational functions, increased to $293 million compared to $196 million in the prior year. The increase was driven by higher service expense costs associated with higher trip volume and related contact center activity. We continued to focus our efforts on the specific operating cost reduction benefit of the modernization and automation of our contact center and transportation processes.

Second quarter [NEMT-adjusted] EBITDA was $43 million in 2021, flat sequentially compared to $43 million in Q1 2021 but down on a year-over-year basis compared to $62 million due to the higher service expenses mentioned previously. Utilization increases primarily impact our margins on our full risk contracts, which, again, represent 44% of our revenue. We know our contracts well, and they are performing as negotiated with our customers. We expect utilization to steadily increase throughout 2021 and anticipate that it will be normalized by early to mid-2022.

We are confident that our operational initiatives and platform modernization will support these normalized utilization levels and ensure our NEMT business achieves our adjusted EBITDA margin expectations of 7% to 10%. We believe our size and scale, coupled with our modernized low-cost platform, is a major competitive advantage. As Dan said earlier, this modernized platform, with over 30 million patients, serves as a unique sales channel for our other social determinants of health offerings.

Turning to our personal care segment. We continued to see strong demand for personal care services across our markets. However, government unemployment incentives, as well as lingering COVID-19 concerns, resulted in flat revenue of $110 million. With unemployment incentives expected to normalize later this year, we expect caregiver recruitment to improve in the latter half of 2021 and into 2022, which should also result in accelerated growth in billable hours, again because the demand is there. Despite the flat revenue in the quarter, personal care adjusted EBITDA increased sequentially by 8% to $10 million, driven by effective service expense management.

Moving to our balance sheet. ModivCare ended the second quarter with a very strong financial position, including $291 million of cash and cash equivalents as of June 30 and an undrawn $225 million revolver. Cash flow provided by operations in the second quarter of 2021 was $35 million, while year-to-date cash flow from the operations was $169 million. ModivCare's strong year-to-date cash flow has been driven in part by an increase in our contracts payable, which relate to our customer payments associated with our reconciliation and rebate NEMT contracts, which we detailed on our first quarter of 2021 earnings call.

During the quarter, ModivCare repurchased $25 million of shares under our share repurchase program, bringing our year-to-date repurchases to $39 million. We don't anticipate any additional share repurchases for the remainder of the year.

As we shared last week, ModivCare announced plans to expand our personal care footprint in the Northeast with the acquisition of Care Finders Total Care. Following the transaction, our personal care segment is expected to generate over $650 million of annual revenue, which puts us well on our way to reach our near-term goal of generating $1 billion of revenue and $100 million of EBITDA from personal care annually. The total purchase price of the all-cash transaction for Care Finders is $340 million, subject to customary purchase adjustments. The transaction is expected to generate $34 million in present value of estimated tax attributes, bringing the net purchase price to $306 million, representing a 10.3x multiple and trailing pro forma adjusted EBITDA of approximately $30 million, including synergies. We expect the forward EBITDA multiple to be below 10x as we anticipate a recovery in EBITDA growth following the negative impact of the government unemployment incentives and COVID-19.

EBITDA margin at Care Finders are slightly higher than ModivCare's existing personal care segment based on the differences in reimbursement rates between the states in which Care Finders operates relative ModivCare's Personal care segment. Including Care Finders, our pro forma personal care will continue to have EBITDA margin in line with our long-term target of 10% to 12%, albeit at the higher end of this range. We are excited about the acquisition and anticipate we will be immediately accretive to ModivCare, with an initial expectation of mid- to high teens earnings accretion in 2022 and beyond.

As Dan previously mentioned, we announced the acquisition of VRI earlier this week. VRI is one of the top healthcare-focused remote monitoring companies in the U.S. with $56 million of highly recurring revenue. The company boasts attractive EBITDA margins in the mid- to high 30% range. VRI's top line is expected to continue to grow in the mid-teens over the next several years, driven by an attractive pipeline of new business opportunities across both Medicaid and Medicare Advantage markets.

The total purchase price for VRI is $315 million, subject to customary purchase adjustments, in an all-cash transaction. This represents a 15x multiple to LTM EBITDA of $21 million, while the forward multiple will likely be a couple of turns lower due to the strong growth expectations.

We believe there are terrific cross-selling opportunities from these transactions, given the very similar payer mix, as nearly 60% of VRIs revenue is from Medicaid, with another 25% from Medicare Advantage. However, these cross-selling benefits were not factored into our base case expectations for VRI.

We anticipate both transactions should close prior to the end of the third quarter. We have committed financing of $400 million as well as full capacity on our $225 million revolver. We expect to put long-term debt financing in place prior to the closing of these transactions. ModivCare's pro forma net leverage ratio is currently expected to be in the mid 3x range. This is consistent with ModivCare's net leverage expectation at the time of the Simplura acquisition announced in September of 2020.

Since the Simplura acquisition, we have reduced our net leverage into the 1x range, driven by EBITDA growth and strong cash generation. Our target leverage ratio remains 3x, so we will be focused on using free cash flow generation to pay down debt, going forward.

Briefly touching on Matrix, in which we hold a 43.6% equity investment. Matrix's top line continues to be strong in 2021. For the second quarter of 2021, Matrix's revenue was $114 million, an increase of 26% from $91 million in the second quarter of 2020. Matrix recorded adjusted EBITDA of $23 million, or 20% of revenue compared to $33 million, or 36% of revenue for the second quarter of 2020. Q2 2021 adjusted EBITDA was negatively impacted by Matrix's clinical solution business due to a faster-than-expected vaccine rollout from previous quarters and the winding down of COVID testing. This was partially offset by the launch of the clinical trials business in October of 2020.

ModivCare remains excited about the future opportunities for Matrix, and we remain engaged and aligned with our private equity investment partner. We believe that Matrix represents substantial hidden value not reflected in our share price, especially given peer market multiples.

Lastly, as we mentioned last quarter, we expect to provide full year 2022 guidance during our 2021 year-end results call. However, consistent with previous statements, our long-term operating objectives include NEMT revenue growth in the mid-single digits and adjusted EBITDA margins between 7% to 10%; personal care revenue growth in the high single digits before acquisitions; and adjusted EBITDA margins of between 10% and 12%, albeit on the higher end following the Care Finders acquisition.

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.

Starting with the NEMT, could you highlight where you stand? I know you kind of reiterated the $50 million run rate savings, Project Storm, by year-end. Could you just dig into that a little, give us a sense of the initiatives and the buckets of savings behind that $50 million? And then, are there additional cost savings behind Project Storm as we look forward?

Heath can certainly jump in here, too, but there's really 5 or 6 things that contribute to this, Bob. One is waste, and that's really around ineligible riders, the IVR, IVA. We have a goal of getting call containment in the 15% to 30% range; cost overrides, which is for all intents and purpose at surge pricing and just making sure that we continue to manage that effectively. That's something they really stopped doing in 2019, for example, and then our outsourcing initiatives. I mean, I think, from a BPO standpoint, we've got approximately 800 people now, either onshore or offshore. And so we feel really, really good about how we're tracking the first $50 million, and really feel like those annualized savings will be in before the end of the year.

And then when it comes to what's next, we have a lot this next, Bob. As we continue to go digital, we think there are all kinds of opportunities to optimize and streamline the way the business is being run. And is there a possibility of another $50 million? Yes. I think we mentioned that we called the first initiative Storm. We're calling the second initiative Lightning. And I think we're bullish about the pre-work that's been done and what we're starting to execute upon.

But I think those would be some of the bigger buckets. I mean, the other one is real estate. You could imagine where we are with that is, if we have a workforce that's less decentralized as it relates to the U.S., we're just not going to need as many. We're just not going to need as many facilities. And I think that's another big bucket, and we continue to make really good progress on that.

And then you highlighted WellRyde. And can you tell us where you are in terms of the digital rollout? And how is this helping your customer experience? And maybe how will digitizing the network help you on your renewals and your new bids in the future?

So a couple things. We're at approximately 50% of our networks digitized, so it's a massive improvement of where we were just from August of last year, and we remain on track to be at 90%. So that's going unbelievably well. And we've got some markets that are [already] at 90%. So for example, Utah is already at 90%.

So we feel like we've made enormous progress. I mean, it's something that, frankly, almost everybody in the organization is involved with. I mean, at the end of the day, we want to make doing business with us easier. And whether that's a transportation provider or whether that's a member, whether that's a care coordinator or whether that's a fellow teammate, whether that's a payer or state, this digitized network just unlocks a lot of, I think, opportunity to improve member experience and also customer experience. So we feel like we're making enormous progress.

As it relates to WellRyde, if you had asked Walt Meffert, who's our Chief Information Officer, are we in control of our future? And if somebody had asked Walt that a year ago, he goes, "I'm not certain of that". With the acquisition of WellRyde, we are absolutely, unequivocally in control of our future. We bought the gold standard from an industry perspective. In fact, 6 of our competitors use this product.

So what does that mean? I think what it means, Bob, is like we're building moats. We're building moats because we have personal care. We're building moats because we've moved into remote monitoring. We're building moats because we have unequivocally the best technology in the industry. And we feel like we continue to move from a position of strength. And we've, as you know, Bob, always been the biggest. We just haven't always been the most sophisticated and most nimble. And frankly, we've, in many respects, solved for that.

Yes. Bob, a little bit more on that. You can see the member experience because you guys feel it when you take an Uber or Lyft, right? You know where your car is, the driver knows where you are. So that's just wonderful from an experience for the member. The other items below that, just with getting WellRyde in place, now we can actually see all those drivers electronically. So that will help in routing, in automated routing. So you see those, then you know, okay, I can reroute, and this car goes there, this car goes the other way.

The other item, as things get automated within that technology, we connect all the eligibility data to that, which allows it to happen instantaneously to ensure that that member can actually take that drive for this type of service. So you can imagine what that does for all the manual processes below, and Dan says this all the time, in claims. We can reduce the manual nature of that by 80%, and that just runs across all our high teens locations.

So that's why we've been successful on Storm. That's why we feel really successful about Lightening, and that's why we really feel good about how we can as we move into being the low-cost provider with the biggest scale. So pretty excited.

As it relates to Simplura and personal care, you talked about labor availability. And everyone's seeing wage pressures out there, as well. I think CVS is maybe the latest to raise their minimum wage to $15 an hour. How may that affect you? And are you seeing any reimbursement changes, or able to get reimbursement changes in those conditions from your key partners? How should we think about labor and wages in that regard?

Well, I mean, I'll speak to the states now with Care Finders. We have our largest presence. We just got a $2 rate increase from state of New Jersey. We announced it in the deal. It's effective July 1. So it's gone from $20 to $22 on an hourly basis. So we feel like we have flexibility there. And our New York contract, those rate increases if wages go up, are already built in.

So from my perspective, given the markets we're in, I feel really good about how we're positioned, how the states are responding to wage, if you will, wage pressures, at least from the markets we're involved with. And so I don't really foresee that being an issue. I will say this, Bob, I mean, and I've made this very clear to people internally, is that I'm a believer in living wages. And this company has historically wasted a lot of money. It's spent $25 million on recruiting in their contact centers. You can imagine what the impact of not having appropriate staff does to things like overtime, or what not having appropriate staff does to things like our turnover, what it does to things as it relates to temp labor.

And so again, as we build out the scalable model that takes the best from the U.S. and the best from our business process outsourcing and our best from technology, we're going to be in a really unique position. And frankly, it's my goal to achieve a minimum living wage for members of our team. But in order to do that, we have to get the waste out. And from my perspective, we're well on track to do that.

Next question today is coming from Brian Tanquilut from Jefferies.

So I guess my first question, margins obviously were strong in the NEMT segment. Just trying to figure out, as you look at your business, separating the benefits of the initiatives that you've put in place versus just lower utilization. And then maybe just, Dan, anything you can share with us in terms of what you're seeing with the uptick in COVID in a lot of markets just in the last couple of weeks. Have you seen any changes in utilization trends since?

The interesting thing is, and I think this is one of the problems that sometimes we get focused on, is that we do [uni-varied] analysis as it relates to utilization. And so what do I mean by that, is that COVID is multifactorial. So while we may see utilization drop, we're seeing pressures in other areas, like unit cost. And that has a lot to do with COVID, because you think we're not doing as much multi-loading. The level of service sometimes is higher. We may be more dependent upon on ambulances or other types of vehicles.

So I'd be very wary, because when I look at our performance, you know what I think about, Brian? I think about we bought National MedTrans. Sometimes people forget just how valuable that has been for our company. And I look at where we were through the third quarter of last year. We said we had achieved $17 million of EBITDA. So let's not forget that. Then we add another $10 million of what we're doing on the personal care side, which is, if utilization have been normalized, that number would be significantly higher.

I also want these initiatives we're driving through Project Storm are moving through our P&L. So I think that, actually at this stage, if you're evaluating our performance on utilization, it's a false negative, because we have got so many other things now that are adding to the P&L and adding to our performance that, as we talked about in my script, or Heath's script, is that our business is becoming a lot more predictable, going forward. And it's not so dependent upon utilization. So that's what I would say about those things.

Yes. The other thing I'd add, just on utilization, is definitely up a lot since last year, last quarter, right? We say that. You see it as well. We've said that. And also, on top of Dan's point, I think we've done a lot better job on how to manage that in the specific markets. And you layer on everything else Dan just talked about, we feel good about it.

So specifically, utilization's been up over these last couple of weeks with Delta variant, too early to tell. It's kind of flat [to] where it is. And so when I said in my numbers, pre-Delta, that we've seen a steady uptick, and we expected it in kind of mid to early 2022, we'd be at those normalized levels.

The beauty of that, we feel good about our numbers and see that. So if it doesn't happen, it doesn't happen. Our numbers will be strong, as well. So I think we've got a good handle on it. It was predictable. Delta variant, TBD what it does for us.

And we've seen some increases in absenteeism, Brian. I mean, just kind of like we run typically around 15%. It's moved to 20%. I mean, I think that's for a variety of reasons. So we see some of that just from managing our business standpoint. But Heath's right. We look at utilization every single day, and it's about where it's been.

So we haven't really seen any impact on that at this point in time other than some of the issues. I think we talked to you guys. I mean, during June of 2020, I mean, we saw absenteeism rocket up to 40%. So we've done this before. This seems to be a lot less impactful this time through. And again, we feel incredible about where the business is and the things we're doing. And again, I think there's a lot of talk about utilization, but I think there's negative aspects of utilization that, as we get supply back into the system, some of the things that have negatively impacted us will go away as well and will show up in the numbers.

And they're not insignificant, Brian. And so I think that's the only other thing I would say. I think the things we are doing in terms of acquisitions, in terms of driving business performance are having a bigger impact now than utilization.

Heath, just a question on the payables. I'm not sure if you disclosed that in the prepared remarks, payables.

No, I don't think I did. So it's obviously in the Q. We're at $296 million of the payables. There's about $20 million, $21 million of receivables that are in our accounts receivable lines, so you'd net those together. So that's where we are from a payables perspective.

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

My first question is Heath mentioned the 3.5x leverage objective I think post- the 2 acquisitions and the financing. I was just curious if that reflects any assumption related to Matrix, or the status of Matrix for you guys.

So I'll clarify. So after the acquisitions, we'll kind of be at the low 3x. And our goal is always to get to 3 or below in the future. And then that does not include anything to do with Matrix. Obviously, in the monetization event of Matrix, that would be a wonderful opportunity for us to de-lever well below that 3x levered goal that we always have.

Then secondly, you guys talked a little bit about labor in the prepared remarks. And I'm just wondering if there's any additional color. I see this morning a pretty strong employment report out, suggesting unemployment's dropping. Are you guys having trouble finding people? Or are you having success? And can you just talk about what's working in terms of finding the right people to go into the homes and do the things you need them to do?

I mean, what I would tell you is that we have a world-class CEO in the name of Dave Middleton. And frankly, from a recruiting standpoint, it's something you have to focus on every day. And we've also implemented a new technology solution that is, I think, delivering a number of candidates to us. And I would say there isn't a silver bullet here. I think the silver bullet ultimately will be the stimulus drying up.

And I agree with you. I just saw the jobs report here, that unemployment, U.S. new unemployment rate hits new pandemic-era low. So we're seeing improvements. And again, I think one of the beauties of our business is the fact that, while utilization has, in some shape performed, helped us on the transportation side, it's hurt us on the personal care side. And it's an incredible hedge for us. And especially given the size of our personal care business with the acquisition of Care Finders now. And let's not lose sight of that opportunity.

And so I guess I would say, Brooks, I know I feel good about where we are from a labor perspective. We've been at a certain number of hours for some period of time, but we are seeing improvements in recruiting. We're implementing different technologies. I don't think we're in the business of offering $1,500 sign-on bonuses like Burger King, but again, I feel good about where we are.

I think the other thing I want to point out is, because of all the overlap of our businesses in the Northeast, particularly with Care Finders and Simplura, if you're on the aide side, we are the company of choice. And what our aides want is they want predictable hours. And when you have 30 million to 35 million hours or maybe more post-COVID, we're going to be in a really good position to recruit people because they're going to have predictable take-home pay. And at the end of the day, Brooks, that's what they want. They want predictable take-home pay.

And I assume they also want a strong employer that treats them fairly, and I know you guys are doing that.

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

Dan, do you have any quantifiable data on the impact of your digitization in the call centers where you can say, hey, yes, in this call center we've seen a reduction of 15% of inbound calls, checking on rides? Have you seen any data like that or accumulated any data that suggests, hey, this is working?

Yes. I mean, we track, for example, where we are from call containment. We're at about, frankly, below where we wanted to be, but about 8%, for example, on the IVR IVA. Again, I think best-in-class is somewhere between 15% and 30%, so we still have, I think, lots of opportunity. The other thing we're tracking is just flat-out how much of our network is digitized. We already mentioned to you that we're at about 50% at this point in time, which is a really, really, really strong number, and it allows us to lock a lot of opportunities, as Heath said, in terms of just reducing the manual nature historically of this business. So I think those are ones that I would point to.

The other one I'd point to is we've got 800 people in our business process outsourcing as well. And that provides us an enormous amount of flexibility, provides us significant opportunity to scale. And then I think, ultimately, will allow us, I think, to better utilize our resources. So those are the ones that I would call your attention to. I don't know, Heath, what am I missing?

Yes. So all those (inaudible) didn't get to, the right way to look at it, well, one's the dollars, and we've talked about the dollars already. But the trip volume that we have, you have that trip volume relative to the calls coming in the door. So that is the ultimate 2 metrics to look at. And with all the initiatives you have in place, if that trip volume is going up and that call volume is not going up concurrently, that means you're doing the right stuff, and that's what's showing up in the data.

Just turning to Simplura for a minute. So obviously sort of flat revenue comparison sequentially and a little bit of uptick in terms of profitability. Can you just speak to sort of the state of, given maybe some good news on employment and all the rest, I mean, where do you see that business kind of start to lift, in your view? I mean is it starting Q3? Is it starting in Q4 due to some of this stuff rolling off in September? What's your expectation, I guess, in the next couple of quarters on that business? Does it stay generally flattish sequentially? Or do you expect a lift here in Q3 or Q4?

Yes. I would say we would see gradual improvement in the third quarter. I think, again, a lot of it's going to have to do with what's happening with COVID and obviously a stimulus package, but I would see more significant improvement in the fourth quarter. And again, I think we'd start seeing things ramp up again in the first quarter.

And again, just keep in mind, I mean, prior to COVID, the Simplura personal care business is tracking to 22 million hours a year. If you look at where we've been kind of run rating right now, it's about $18.7 million. And so my point in that is there is a whole bunch of opportunity here in terms of where they've been historically, but also just from a demand standpoint. The demand is well above that 22 million hours. And so, again, I think we're going to be in a really good position, bringing Care Finders and Simplura together and remain extremely bullish on this business. And as we talked about how important we believe that that personal aide is going to be to our business model and, in many respects, the future of healthcare.

So I guess that's what I'd say, Mike. I feel good. We're dealing with a lot of the same stuff a lot of people are dealing with. That being said, I think that's how I would model it at this point in time.

Heath, what's your sense in terms of working capital cash? As you move forward, presumably close these transactions later this quarter, how are you going to run cash at what level? Or have you thought a range of level for cash on the balance sheet, moving forward, after you've closed these transactions?

Yes. So as you know, we have close to $300 million, $290 million of cash right now and a revolver at $225 million undrawn and the ability to grow that to $300 million if we wanted to spring the accordion. And then, you know what the price is of the acquisition, so using a lot of cash to pay for that, which is great. And then, yes, I do think we have some longer-term debt that we're going to need in place.

So the big driver of the working capital is all those payments, those reconciliation and rebate payments. So we have great insight into when we pay those. And a good chunk of them will be paid over the next 12 months from now, right? So we have a really good insight into that. Whether or not the payables continue to grow is all going to be based on the assumptions around COVID. They have been growing, likely going to continue to grow, but we'll see how utilization fits up.

All that coming together, we feel really good about our working capital. Obviously, strong balance sheet. We've made these 2 acquisitions. Our leverage is going to be at that low 3, mid- to low 3s on a net basis. And then, of course, our focus will be to de-lever that as we move forward.

So given the payables, really it's unlikely you're going to -- in terms of the cash on the balance sheet now, it's not going to be huge difference as you move forward due to the payables. I mean, is that fair?

Yes. We say we're using a lot of cash to buy these acquisitions, right? So the cash is going to go down because we're buying these companies. But we're going to have adequate cash, more than adequate cash to ensure that we continue to invest and operate the business.

Well, also the free cash flow of the business. I mean, it was pretty phenomenal.

Adjusted EBITDA in our business, because a low CapEx is a good proxy for free cash flow.

And then, Heath, last one. Have you considered, and maybe there hasn't been a final decision made, but just how you're going to segment out the 2 new acquisitions. It's going to get busy on your press releases with these new businesses. I mean, is it maybe home care, transportation and remote monitoring? Or how are you thinking about that, if you have?

Yes. That's a good way to think about it, right? We'll be looking at that for sure this year. And for sure, going into next year, we'll have a different view, but you're thinking about it the right way. We don't want to get too busy, but we also want to provide the right insight. So that's the art that we need to put in place.

But you're thinking about it right. That's the way we have it. And when we break out all that, we'll see. In some of the stuff it makes a lot of sense so you can see the revenue side, but even as important, as you know, is the cost side.

And right now, the transportation P&L is getting unfairly burdened with all the technology investments, so we've got to break that out.

And amortizing Heath's compensation, too. So there's a lot more to it than just the technology investment.

Yes. So we'll be breaking that out, as well, so you can really see the profitability of each of these segments and then understand what we're using as growth investment, as well.

Dan, on the new vertical in nutrition, so would that be broken out separately? Or would that just sort of be priced inside of the transportation contracts? Or how should we think about what we're going (inaudible) ?

Yes. I think, ultimately, that would be broken out. But I think initially, given we're launching it in the next month or so, it's going to take some time to ramp that up. But ultimately, I would envision that. The way we're thinking about the business is we'll have these 4 business units.

Because of this ownership of this channel, which is just -- when I think about what was here when I got here, Mike, and the company was managing 25 million to 30 million members and had this incredible relationship and channel into these populations. And now, I think we're really understanding that we own this channel. Now, it's time to build out these services. And as we've talked about, these services are also very complementary to the NEMT business.

But my point is the beauty of it is, I guess, where I'm going with all this, Mike, is that we're going to have a sales team that already owns this channel, that's going to be selling these products into these channels. And this isn't a big team. I think we can do it with account management in the 10-person range and the sales team in the 10-person range. And again, I think my point in all this is that we've thought through the 4 verticals, how we're going to sell in because of the ownership of the channels. And then, there'll be this back office, as Heath talked about, the amortization of a lot of the back-office functions over the 4 business units.

We've reached end of our question-and-answer session. I'd like to turn the floor back over to management for your further or closing comments.

Thank you very much. And again, thank you all for participating on the call this morning. While we won't be on the road from 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're interested in scheduling a follow-up call. We look forward to reporting back to you in November when we release our third quarter 2021 financial results. Stay safe, and have a good day.

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