ModivCare Inc (MODV) 2021 Q4 法說會逐字稿

Greetings. Welcome to ModivCare's Fourth Quarter 2021 Financial Results Conference Call. (Operator Instructions) Please note, this conference is being recorded.

At this time, I'll turn the conference over to Jonathan Bush, Senior Vice President and General Counsel. Jonathan, you may now begin.

Thank you, Operator. Good morning, and thank you for joining ModivCare's Fourth Quarter 2021 Conference Call and Webcast. With me today from the company are Dan Greenleaf, President and Chief Executive Officer; Jason Anderson, President of our Home Division; and Heath Sampson, Chief Financial Officer.

Before we get started, I would like to remind everyone that during today's call, the company's management will make forward-looking statements under the Private Securities Litigation Reform Act. Those statements involve risks and 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 reconciliation to their most directly 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, modivcare.com.

This morning, Dan Greenleaf, our Chief Executive Officer, will begin with opening remarks and provide an update on our NEMT segment. After which, Jason Anderson will provide an update on our Home division, followed by Heath Sampson, who will provide an update on 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?

Thank you, Jon. Good morning, everyone. On a consolidated basis, ModivCare reported strong financial results in the fourth quarter of 2021, delivering 44% revenue growth, driven by contributions from our recent acquisitions and 17% growth from our NEMT segment.

Adjusted EBITDA was $58 million in the fourth quarter, an increase of 11% compared to the prior year. We ended 2021 with a full year adjusted EBITDA of $205 million, which is a meaningful improvement compared to the $51 million of adjusted EBITDA that the company achieved in 2019 when I joined as CEO. I'm very pleased with the significant transformation at ModivCare over these past 2 years.

We embarked on this journey with a vision to address the inequities and access the care for the country's most vulnerable and underserved patient population, leveraging long-term customer relationships in our existing patient base, which today exceeds 30 million patients or roughly 9% of the U.S. population. Today, we have built a one-of-a-kind supportive care platform with a comprehensive suite of solutions that address the social determinants of health.

We have evolved and significantly invested in our technology platform, which fuels our purpose. The decisions we have made over the last 2 years have put us in a position to further impact health inequities by making care accessible to all. Whether on the go or in the home, we meet our patients wherever they are. Now we remain focused on executing to make our vision a reality.

I'd like to spend a little bit of time talking about our NEMT segment, which continues to be a key component of our vision to connect patients to care. Recently, we were pleased to see Medical Transportation Access Coalition's new study, validating NEMT's role in assisting elderly and vulnerable populations to navigate the health care system more successfully. We fundamentally believe NEMT will continue to be a very necessary component in broadening access to care for patients, regardless of demographics, location or economic well-being.

As it relates to our NEMT business, we are focused on 4 key strategic priorities in 2022 centered around enhancing the patient experience and which I will cover with you today. Our first strategic priority is to continue to build our sales pipeline and execute on an aggressive sales growth plan as we believe we have meaningful opportunities both in new and existing markets. We expect to capture $500 million of new sales wins over the next 3 years.

The NEMT market is currently a $5.8 billion market, including Medicaid and Medicare Advantage, and we see the potential for this market to grow at a 10% rate over the next 3 years, driven by continued growth in Medicaid and accelerated growth in Medicare Advantage. We are confident in our position to maintain and expand market share due to our scale, low-cost value-based care offering and high-touch high-tech approach, which meets the member where they are, coupled with consistent best-in-class performance and customer relationships.

Our second strategic priority for NEMT is to create a consistent patient experience. One of the ways we intend to do this is by evolving our relationships with our transportation providers or TPs, creating a greater sense of partnership between us. Our national scale, coupled with our regional state and local presence allows us to develop and support community-based small business transportation owners. We believe a more stable and partnership-like model will foster win-win relationships with us in our best-performing TPs.

Our initial focus has been to increase engagement through initiatives such as ModivCare Academy, which provides technology insights, best practice sharing and training as well as advocacy programs like our TP Advisory Council, focus groups and a new customer experience management platform that enables us to capture the voice of our transportation provider partners.

During the fourth quarter of 2021, we amplified our network development efforts in certain markets to address driver shortages and increase capacity by adding several thousand providers and respective vehicles to our network. We are pleased with the results of these efforts as evidenced by incremental improvement in our network health KPIs.

Our third strategic priority for NEMT is to deliver a standardized experience for patients through a multi-mobile solution. Our goal is for patients to receive the appropriate multi-mobile mobility solution, either a high-touch experience through an experienced care coordinator in our contact centers or a high-tech experience through our member app or portal. The substantial enhancements we have made in our contact centers and investments in enhancing our technology platform over the past year, primarily through our execution of Project Storm, positions us well to provide a consistent and best-in-class patient experience.

Of note, we have meaningfully increased our service levels, improved quality and strategically managed our contact center workforce in the midst of unprecedented labor shortages. We have also successfully transitioned over half of our call volume to our onshore and offshore BPO partners, which has helped us drive improved contact center KPIs while enhancing the patient experience.

Lastly, our fourth strategic priority for NEMT is to further modernize and automate our platform to expand access to care given the investments we have made over the last 18 months. ModivCare has the nation's largest credential and digitally connected advanced notice network of multimodal NEMT providers. We are working to transform and enable our network to be on demand.

We look forward to reporting on our progress in these areas in subsequent quarters. I'm very proud of the work our team has done, given the pandemic and the uncertainty around shifts in the labor market to transform service levels at our contact centers, improve quality, establish a healthy network of transportation providers and ultimately enhance the member experience.

Moving to our Personal Care and Remote Patient Monitoring segments, in January we announced a major milestone for ModivCare, reorganizing and aligning of home-based offerings under a new division, ModivCare Home. We were pleased to promote VRI CEO, Jason Anderson, the President of ModivCare Home. We believe the alignment of our home-based services under Jason's leadership will unlock greater cross-selling opportunities, which is a key component of additional organic growth as the referral source and the case manager are typically the same call point for Personal Care, Remote Patient Monitoring and meals. Jason will cover ModivCare Home in more detail including his strategic priorities a bit later.

Consolidating our home-based services under ModivCare Home puts us in a position to accelerate our value-based care initiatives. We are making significant advancements and our one-stop shop capabilities are in multiple conversations with payers around partnering on an integrated value-based pilot, which we expect to launch later this year. Further, we believe there's a significant opportunity to leverage our collective channel of existing customer relationships, and their respective patients and members.

In 2022, cross-selling and organic revenue growth will be a focal point for our management team while maintaining our current book of business. We have implemented a win, retain and expand sales strategy involving a highly coordinated approach between our account management and growth team. This year, we will strive to meet or exceed 2021's retention rates of 98% for managed care organization contracts and 100% for state relationships. We believe a few significant new state contracts will be awarded this year and remain steadfast in our position to capture these.

In summary, we have assembled a one-of-a-kind suite of supportive care offerings and transformed our platform to holistically meet the needs of our customers in their respective patients. We remain committed to executing on our foundational 6-pillar strategy, which, as a reminder, includes the following: placing the right people in the right seats, listening to the voice of our customers, driving transformational growth, implementing a single repeatable model, enhancing our technology platform and rebranding. The strategic priorities of our business segments align with these pillars, harmonizing focus and driving value across the entire organization.

I'd like to take a moment to recognize our team members, transportation partners and customers whose compassion and commitment to making a difference in our patients' lives have made our accomplishments to date possible.

Finally, before turning it over to Jason, I'd like to touch on an important update on the company's commitment to diversity, equity and inclusion in environmental, social and government initiatives. As you may know, our organization is proud to have a highly diverse team member population, which represents the communities and patients we serve. To that end, we are pleased to announce the appointment of Nate Vaughn as our first Chief Diversity Officer, who will work closely with team members across the organization to ensure that ModivCare continues to advance diversity equity inclusion and create an environment where everyone belongs.

In the near future, we will be issuing our inaugural ESG summary report. These milestones reflect our desire to promote a highly supportive work environment and better world, both of which are important aspects to the success of our company.

With that, I'd like to turn it over to Jason Anderson, President of our Home division, for some comments on the Home division. Jason?

Thank you, Dan. As Dan mentioned, we recently announced the reorganization of our home-based offerings into a new division, ModivCare Home, which encompasses our Personal Care and Remote Patient Monitoring segments. As health care accelerates into the home, we believe that ModivCare is well positioned, which is why this operational realignment is so important.

Today, I will be sharing our top strategic priorities for Home in 2022. Our first strategic priority is to augment our caregiver recruiting initiatives. During the pandemic, we experienced a decrease in our caregiver workforce and are focused on increasing the number of caregivers to serve the high volume of referrals and demand for personal care.

We also recognize the need to modernize our caregiver recruiting strategies, particularly with the challenges of today's labor market. We have implemented a centralized talent acquisition function, which augments our local community-based recruiting team.

Our second strategic priority for Home is to increase our sales pipeline across our suite of services. We expect to accelerate sales growth through coordination and cross-selling. Our Home services are often referred to the same case managers for our patients. By aligning our offerings under Home and bundling our services together, this reduces barriers and friction for our patients and case managers to access supportive care with a single provider.

The integrated supportive care pilot, which Dan mentioned, will be a proof point for us to deliver a bundled and coordinated offering. We are also focused on expanding our remote monitoring sales pipeline for our patient engagement service offerings designed to address complex and at-risk patients and further assist health plans with gap closure.

Lastly, we have a strong pipeline of payers who are interested in our meal delivery service. We are currently shipping meals to members through our national foodservice partner, and we are focused on scaling this business to service the strong demand that exists from our Medicaid and Medicare Advantage customers.

Our third strategic priority for Home is to integrate our businesses and offerings in order to deliver the full breadth of our platform and accelerate our vision to support value-based care. Additionally, bringing our businesses onto a common tech platform will enable us to serve up data insights to our team members, customers and patients.

Our fourth strategic priority for Home is our focus on organic growth and evaluating a robust pipeline of inorganic growth opportunities. We see significant opportunity to drive organic growth in our Personal Care segment with our plans to open de novo branches in several key markets within our existing 7-state footprint. We expect that de novo growth and continued M&A will become a significant part of our strategy going forward. In addition, we will continue to evaluate a robust pipeline of inorganic growth opportunities in order to further scale or enter new markets across our multiple service offerings.

In summary, I am very excited about the important role our Home Services will play in ModivCare's broader supportive care platform and vision to deliver value-based care for our customers and members. As we drive forward our strategic objectives, we will improve patients' lives, reduce health care costs and become the service provider of choice in supportive care.

With that, I'd like to turn the call over to Heath Sampson, our Chief Financial Officer, who will discuss our financial results. Heath?

Thanks, Jason. Starting with our consolidated fourth quarter of 2021 financial results. We recorded revenue of $576 million, a 44% increase compared to the prior year period, a net loss from continuing operations of $31 million or a loss of $2.25 per share, adjusted net income of $30 million or $2.11 per diluted share and adjusted EBITDA of $58 million. For the full year 2021, we recorded revenue of $1.997 billion, a 46% increase compared to 2020, a net loss from continuing operations of $6 million or a loss of $0.45 per share, adjusted net income of $112 million or $7.89 per diluted share, and adjusted EBITDA of $205 million.

Turning to our NEMT segment financials for the fourth quarter of 2021. NEMT revenue increased 17% year-over-year to $403 million, primarily driven by higher trip volumes, which increased nearly 10% compared to the fourth quarter of 2020. Service expense for NEMT segment, which includes all the direct costs, increased 16% year-over-year in the fourth quarter of 2021 to $317 million. The increase was primarily driven by higher service costs associated with higher trip volume as well as higher cost per trip or unit costs.

As we highlighted on our last call, we experienced higher unit costs in 2021 due to driver shortages at our transportation providers. On a sequential basis, our unit costs were flat in the fourth quarter compared to the third quarter, driven by the initiatives in our transportation provider network discussed earlier. Going forward, we expect that the strategic priorities discussed earlier by Dan, along with disciplined operational execution, will continue to drive unit costs lower.

NEMT segment net income from continuing operations was $2 million in the fourth quarter of 2021. Segment adjusted EBITDA was $38 million in the fourth quarter of 2021 compared to $47 million in the prior year period. The decrease was primarily driven by higher trip volume, unit costs and technology-related general and administrative expenses, partially offset by the benefit from a favorable revenue true-up for our capitated contracts.

Excluding the favorable revenue true-up, adjusted EBITDA would have been more in line with our NEMT segment adjusted EBITDA expectations that we shared on the third quarter earnings call. Adjusted EBITDA margins for our NEMT segment were 9% in the fourth quarter of 2021, which is in line with our long-term NEMT adjusted EBITDA margin expectations of 7% to 10%.

Turning to the results of operations for our Personal Care segment. Revenue in the fourth quarter of 2021 was $157 million compared to $54 million in the prior year period. The increase was driven by a full quarter contribution of revenue from the Simplura acquisition, which closed in November 2020 as well as $48 million of revenue from the CareFinders acquisition, which closed in mid-September 2021.

Our Personal Care hours on a combined basis declined low single digits sequentially due to seasonality around the holidays and inclement weather as well as continued caregiver shortages caused by the latest COVID-19 variant and recent vaccine mandates. Personal Care segment income for continuing operations was $2 million in the fourth quarter of 2021. Segment adjusted EBITDA was $13 million in the fourth quarter of 2021 compared to $5 million in the prior year period.

Adjusted EBITDA margins declined to 8% in the fourth quarter compared to 9% in the prior year period and remained below our target of 10% to 12% due to a longer-than-expected continuation of the pandemic, which was the primary cause of our shortage of caregivers, which drove depressed hours of service and elevated levels of over time. We are focused on realizing synergies from our acquisition of CareFinders and Simplura and executing on the strategic and operational initiatives discussed earlier, which will enable us to reach our targeted EBITDA range.

As we head into 2022, we have received or expect to receive reimbursement rate increases in all of our major Personal Care markets. These rate increases will help offset our elevated overtime costs and also increase wages for our caregivers.

Remote Patient Monitoring, or RPM, revenue in the fourth quarter of 2021 was $16 million, driven by a full quarter contribution from the acquisition of VRI, which closed in September of 2021. On a comparable basis, fourth quarter revenue was up double digits compared to the fourth quarter of 2020, prior to our ownership, driven by double-digit growth in active clients.

RPM segment net income from continuing operations was $1 million in the fourth quarter. Adjusted EBITDA was $6 million in the fourth quarter and adjusted EBITDA margins were 40%, which is above the company's normalized margin target of mid-30% range. We still expect to return to our long-term EBITDA margin target in the mid-30% range as we ramp investments in IT and other personnel expenses.

Consolidated cash flows from operations in the fourth quarter of 2021 was $12 million and full year 2021 cash flow from operations was $187 million. During the fourth quarter of 2021, cash flow from operations was favorably impacted by cash generated from a reduction in accounts receivable of $56 million, partially offset by the negative impact of a reduction in contracts payable of $38 million. While we continue to accrue additional contract payables each quarter, we expect to pay or settle roughly $100 million to $150 million of these contract payables over the next 2 to 4 quarters. With that said, the actual timing of these payments could be delayed until later in the year.

We ended the fourth quarter of 2021 in a strong financial position with $133 million of cash and cash equivalents and 0 borrowings on our revolver. In February 2022, we refinanced our prior revolving credit facility with a new $325 million revolving credit facility, which remains undrawn. The new revolver reflects competitive market terms, including lower interest rates, incremental capacity of $100 million and increased flexibility for the company's future capital needs. Our consolidated pro forma net leverage was 3.7x at the end of the fourth quarter of 2021. We remain committed to our net leverage target of 3x and maintaining a strong balance sheet.

With regards to capital allocation, we continue to evaluate a robust pipeline of acquisition opportunities, particularly as we see significant opportunity to scale our Home division in new and existing markets. However, we remain disciplined in our approach to M&A with a focus on creating meaningful value for our shareholders while maintaining a strong balance sheet. While we expect to continue to make acquisitions, we are also focused on successfully integrating the back-office functions, processes, systems and controls of our recent acquisitions into ModivCare's shared service organizations as well as standardizing policies and procedures.

Turning to our equity investment in Matrix in which we own a 43.6% interest. Matrix saw a sequential quarter-over-quarter improvement in its operating performance. However, results continue to lag compared to prior year due to lower revenue from Clinical Solutions, which significantly benefited from COVID-19 related business. Matrix's clinical care showed continued momentum during the fourth quarter of 2021. Due to recent declines in the company's revenue, Matrix recorded a noncash impairment of goodwill of $111 million in the fourth quarter of 2021.

For full year 2021, Matrix recorded revenue of $398 million and adjusted EBITDA of $67 million. While Matrix's performance in the second half of 2021 was below expectations, we remain highly aligned with our private equity partner Frazier and engaged as the support of Board members as Matrix transitions its business focus to a post-COVID environment and returning to its historical financial profile through various strategic initiatives.

We are also excited by the appointment of Catherine Tabaka, as the Interim CEO and Chief Operating Officer of Matrix, and we are encouraged by the steps she's taken to position Matrix for future growth.

Lastly, I'd like to briefly share our thoughts on our expectations for the business going forward. Consistent with previous statements, we are reiterating our long-term operating objectives as follows: NEMT revenue growth in the mid-single digits with adjusted EBITDA margins between 7% and 10%; Personal Care revenue growth in the high single digits, with adjusted EBITDA margins between 10% and 12%; and Remote Patient Monitoring revenue growth in the mid-teens with adjusted EBITDA margins in the mid-30% range.

Overall, we continue to be very excited about the long-term outlook for our business as we execute on our strategy to be the leading integrated supportive care provider in the nation. As we look into 2022, we are excited to have the foundation of a platform fully assembled, and we look forward to providing the full breadth of services to our patients and payer partners.

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

(Operator Instructions) Our first question comes from the line of Bob Labick with CJS Securities.

Congratulations on a strong Q4. So I wanted to start, I mean lots to talk about, lots of good stuff. The update on the transportation provider network was great. You obviously, as you said, filled in thousands, a couple of thousand new vehicles and whatnot. Curious where you stand now in terms of the density of the provider network versus where you want to be. And then also utilization was up year-over-year. Give us a -- broadly speaking, where is it now versus pre-COVID and how you think that trend will continue to recover to pre-COVID levels or how long?

Yes. So Bob, a couple of things. In terms of network health, we have a pretty sophisticated algorithm that we use that we actually look all the way down to the county level where we're evaluating the number of vehicles we need based on the needs of our member population. And as I mentioned, we look at this every day. And I think we feel pretty good where we are from a network health standpoint. I would say, 4 or 5 months ago, kind of on the tail end of the, if you will, the pandemic, I guess, we can make the argument that the Omicron was still around. But we were -- we're in a pretty good position right now. And I think we know where the opportunities are. Is it 100% solved for, I would say no. But we -- our network is much healthier than it's been in quite some time. So that's what I would say about that one.

The other question was around utilization. It's still growing incrementally, Bob. I don't -- we're not seeing any like big bangs. I would just -- from our forecasting, our own internal forecast, our view it will incrementally increase over the next several quarters. I think we do doubt that it will ever go back to the levels it was pre-COVID. And there's one really good reason for that is that we've done a much better job managing ineligible riders and we would view that a percent of our business not coming back. So that's kind of where we are as it stands right now.

Bob, just a little bit more on the states that -- Dan talked about network health, the states where we know we have an opportunity, we know what it is and we have strategies for how to implement. For example, we do own our own TNC network, and we know if we deploy them there, that will improve there. So with the tool and the insight that Dan talked about, now we know where to target, and we have strategies for all the states across the board.

The other thing I would also say, Bob, we're -- I mean I think we're getting much more sophisticated in terms of what's the right modality for the member. So whether that be mass transit, whether that be the member's family member brings that person to the appointment through the use of Lyft or Uber or use of our own of Provado, which is our own TNC, which we apply to different networks. So I think we're also getting much more sophisticated on that end. We're using our call center representatives to engage the member and really evaluate what's the best modality for them. So I think that's something else that's -- I think will be pretty significantly different in terms of how we've historically run this business.

Okay. Great. That's helpful. And then just last one on NEMT. You alluded to a large pipeline of opportunities. I think you said something about $500 million that you expect over the next few years. I know there's some large bids outstanding now. Any update on kind of the 2022 outlook for opportunities ahead of you and when we might learn about any of the current bids that are out there?

What I would say to you, Bob, is we feel very strong about our position. As we've mentioned in my remarks, we had 100% retention in state contracts in 2021 and a 98% retention in our MCO contracts in 2021. We're very well positioned. We've got -- 70% of our network now has been digitized. Some of the issues related to our service levels of the contact centers are -- we've taken a contact center that had kind of bumpy performance and one that I would say is unequivocally best-in-class performance and now on its way to world-class performance.

So I think we're really, really well positioned. And I think some of the other opportunities we saw was in network health and our ability to build networks very quickly is -- it's kind of a super power, if you will. And we did it. We bought the United business and we've done it again in -- at the end of, if you will, COVID. And so we feel very strongly about where we are and again, I think we're very well positioned on these arrangements.

For the record, this marketplace, we did a recent analysis, is growing on a compoundable growth rate of 7.6% and I think that was not well understood previously. And I think the size of the market is larger than what we had been indicating previously because we updated our analysis very recently. And so we feel really good about where this is. We also know that some of the data that came out of that impact study around seniors, particularly Medicare Advantage members, was really powerful. And in terms of their -- the ones who have the most severe conditions were most inclined to use the service, and that's exactly what you want, right, because that ends up being preventative.

So that's where we are and again, if you look at our historical retention rates, you look at what we've done over the last couple of years, and we feel really good about how we're positioned going forward.

Okay. Yes, that sounds terrific, particularly on the network and then the opportunities ahead. So I'll just ask one more and I'll jump back in queue. But -- and it kind of relates to -- you just rebuilt the transportation network again and now you're kind of tasked with the recruiting of caregivers for personal care. And so maybe just -- I know part of the priorities are modernize and improve that process as well. Maybe dig a little bit more, give us a sense of the ability to recruit and how long you think it takes to get your caregiver population or network for lack of better terms to where you want it to be.

So I think there's a light at the end of the tunnel here. I would say that historically, this company has handled things on a very much a regional basis and operated much like a -- more like a holding company than an operating company. And that's something that Jason has made some pretty dramatic changes to and we've also promoted another person to Chief Operating Officer, who is an internal person in the organization.

But we feel good about it. We think the tide is changing. We did get -- for those who don't know, we did get a $3 reimbursement increase over the last 7 months in the State of New Jersey, and that accounts for about 1/3 of our revenue. And then New York, we have a strong concentration as well as Pennsylvania. And those are all, I think, are very good states in terms of what we foresee from a reimbursement standpoint.

So I would share with you that I don't think we've been as sophisticated as we could have been in this area. And I also know that we are working in states where they did have mandates, which probably slowed things down a little bit in terms of recruiting, but we're very bullish on it. I don't -- we feel like the tide is changing, and we feel like that we're very well positioned to, particularly given our density in New York, New Jersey and Pennsylvania to be the personal care company of choice. And we've got 95 locations disproportionately weighted in those states. So I think we have the right concentration of locations in the ZIP codes and I feel very good about what's happening from a labor perspective. I don't know anything else you'd add to that, Heath.

Yes, a little more -- the specifics, the local people used to recruit they're going to continue to do that. And as Dan said, we'll have centralized recruiting. There'll be marketing around that. Dan also talked about the increased reimbursement rates, which will flow through. Too much of it will flow through to the individual caregivers. And then you have small things that matter around ease of use on tech, better timing of payment. So those are just a few specific actions why we feel good about the transition to what Dan talked about. And it'll all add up and it'll all results in us getting caregivers back.

Yes. The other beauty, Bob, of this business is that demand exceeds supply by 50% in many of our markets. So as we bring in the caregivers, the opportunities to provide care are significant. And so we -- again, I think we've got -- we're in a really good position here, Bob, and feel very optimistic about what the future looks like.

Our next question comes from the line of Pito Chickering with Deutsche Bank.

The first one is on the -- so long-term guidance. It's nice that you reiterated that today. But as we think about 2022, I know that you aren't giving guidance at this time, but can you provide any thoughts on where consensus is today versus your own internal expectations?

For us right now, you guys have done a good job if we feel really good about where consensus is across the board. So I think that's the right proxy to look at as a whole.

Okay. Got it. And then sort of back to Bob's question on the margins on the Home segment. I understand your fourth quarter seasonality due to weather and just normal seasonality. But can you sort of help us quantify sort of the number of open positions you guys have sort of at this point today and as you think about hiring for 2022, do you guys think you can sort of hire to the demand, I guess how you could, let's say, on the third quarter call and how -- how we should model that from both a revenue perspective in terms of filling that demand from a margin perspective in terms of the impact of sort of labor inflation on the Home segment?

Heath and I will double team this one. I will say one of the things, Pito, that from a margin perspective has been most impactful has been overtime. Historically, the company had brought in about 10% overtime. We -- during COVID, we got as high as 21%. We believe that is trending back down to 16% right now and ultimately, we believe we'll be back to 10%. So I just want to point that out that that's the driver right now. And I think we've got a good handle on it. We -- again, as we recruit caregivers, we certainly believe that number will continue to go down and Heath?

Yes. The other item, this is good now that we have all the assets too and we said this when we bought that there are synergies because you have 2 offices, 2 levels of people. Those have really accelerated, and we feel good about that happening even earlier than we had in our business case. So that will also help with margin. And then to your first question around demand as Dan said this earlier, in some markets, it's up to 50% short of staffing relative to demand. And that can range anywhere from 10% to 50%. So now we understand where it is and where our efforts need to be to implement the recruiting stuff that we talked about from Bob's question earlier. So we have the visibility. We've got the right leader and team in place. So now it's about execution. And with what we have, we feel good about again where we are from a margin perspective and then meeting that demand in each of the markets that we're working in.

Pito, the other thing I also want to point out that we -- why we aligned around the Home is the case manager. And that case manager is kind of your one-stop shop for personal care, for meals and for remote monitoring. And so again, I think as we continue to staff our business appropriately, there's -- we just think there's going to be enormous opportunity because of the cross-selling opportunities as the case manager.

Okay. Great. And then sort of last one here, a follow-up on Bob's question on capitated NEMT. Are you seeing that overall fourth quarter demand is generally the steady state that we should be modeling going forward? And on the cost side, like you said that you'll drive unit costs lower, the macro environment is going the other way. Just can you give us a little more details on how you guys can counter the overall macro environment?

Yes. I would say a couple of things. One of the -- we're about 44% of full risk, Pito, so and the reason that I bring that up is that some of the increases we see are pass-throughs. So even if unit costs, for example, are going up in some shape or form, I would say disproportion of that is a pass-through and so it's not going to have what I would describe as the impact on the bottom line as you might think. So I just -- I wanted to point that out. And Heath, do you want to take the other part of that?

Yes. So from a macro environment perspective, and utilization has been relatively stable. And we expect that to incrementally increase but again, not to the levels, definitely not even close to the levels of pre-COVID. And then also, the buying behavior with our customers, whether that's state or our MCOs, the priority right now is member experience. And that member experience and then consistency and then operational and then price. For sure, price is #3 or #4 for our states. So with that in mind, everything we're doing is focused on the member experience and operations. And in other cases where maybe the contract was a little thin, we're renegotiating price up. We just renegotiated price with a large payer nationally. So I think with where we are, scale matters, what we've done to ensure customer experience is most important -- what we're doing with the driver network to make sure that we are stabilizing unit cost and that's been the biggest challenge. And then 3, renegotiating where we think we need to renegotiate.

I would say, in essence, I mean the quality of product that we provide our members and our payer partners and our state partners has just been massively improved. And whether it be the service levels and the contact centers, which have been running at about 95%, historically the company had occasionally gotten above 80% to -- even things like encounter data or even things like the reports that we provide them and the accuracy of those reports to digitizing 70% of our network. It's just the relationship we have now with our customers is just massively different. We still think there's still substantive opportunities to improve, but the improvements -- we've made at this point has been so material.

Yes. With the large -- I'll just give you an example around that. There's a large payer primarily on the Medicaid side that wants to grow with us. We're about half of their business now. And they say they like it a lot more and potentially all of it. The reason being is because they know we're there, they know we're performing and want to grow with us. So this is -- like every year, this is a big year for us and with the stuff we put in place, the stuff we're going to do. That's why the initiative that Dan talked about when he was going through NEMT, starting with growth because we can grow within our current payer base -- we know each opportunity that's out there, getting to Bob's question, we know exactly where the competitor bids are coming up. We know exactly where the MA opportunities are and because of where we are, that's why we think we can really start gaining market share this year.

Our next question is from the line of Brian Tanquilut with Jefferies.

Congrats on the quarter. Yes, not too many questions for me. But I guess I'll start, Dan, obviously, we're thinking about the 3 different offerings that you have with RPM or I guess 4, RPM, food, transports and PC. So any details you can share with us on the traction you're getting or the interest you're getting around contracting opportunities for multiple service lines and what MA penetrations look like in that kind of like unique offering that you have there?

So I think the interest level is really high and the future of our relationships with the states and payers is going to be value-based care, Brian. There is no question. The beauty of our business is that we've gone out and acquired the pieces that one needs to do this from a supportive care standpoint. And obviously, we already added the transportation business, which was an incredible asset when you think about -- it had relationships of 30 million members or 30 million patients. So it's high, Brian and I think there'll be a lot coming out of that over the next several months. And we do have a pilot underway with a very large payer in the Midwest. And we certainly think that's going to be something that's going to be very attractive to others as the results come out.

I will say look at -- when you asked me about MA, I'd say look at 2 large payers. UnitedHealthcare and Anthem. They've both gone on record to say the way we're going to handle MA offerings in the future is going to include transportation. It's going to include personal care, and it's going to include meal delivery. And they've both gone on record in the last 5 months, most recently, Anthem in the last 3 weeks about what they believe the offering should be. And obviously, we think there's a lot of opportunity with them on the on the remote monitoring piece. -- remote monitoring for the record, about 44% of our revenue and remote monitoring is in Medicare. So, Brian, we're really well positioned. And what's fascinating, I think, is that we were doing all this stuff before either United or Anthem gone on record about what they felt the Medicare Advantage population needed.

I appreciate that, Dan. And then I guess, Heath, I think about Project Storm and Lightning, how should we be thinking about kind of like the timing for those things? And how you think those initiatives would trickle down to the margins for the different segments that they touch?

Yes. So first for Storm and for Lighting, for Storm, you break it into 2 macro categories, the OpEx side and then what happens with our kind of unit cost side. The OpEx side, primarily within the contact center, and that was the majority of the costs that we were able to get out and those are out. We have BPO 50% offshore. We've implemented technology that's allowed us to reduce our onshore headcount by a factor anywhere -- we're at around 30%. So the cost on Storm are out from a contact center operations' perspective, we're starting to see that now. We had to get through the labor challenges and finish that off and now like -- I know what we're reducing in our head count right now on that side.

Yes. One of the things I just thought I'd point out that Pito asked is, Brian, a little on the labor side. But if our call centers are any indication about what's happening on the labor side, it's pretty amazing. I mean, we're seeing -- we've seen absenteeism get as low as 10%, which during COVID, the middle of COVID, it was high as 45%. The attrition rates at the call centers of this company had historically kind of been at the 250% range in the month of January, it was around 4%. And so -- and the reason I'm bringing this up is that we're looking at labor from a lot of different perspectives and a lot of things we've been doing. And if what we've done at the call centers is any indication of what we believe is happening in the labor market, I think it's extremely favorable. And again, I think we're also -- it's also very indicative from my perspective of just how much we've transformed our model that we're seeing these just dramatic changes in things like attrition and absenteeism.

I appreciate that. And then my last question, I guess, for Jason. As I think about your comments on geographic, the footprint for the Home health business, how should we be thinking about your geographic expansion plans going forward, Florida or Western Pennsylvania and other areas that you're thinking about?

Yes. Thanks for the question. So we're looking at kind of density in the markets we're in. So sort of a ZIP code by ZIP code approach looking at kind of demand, competition in those markets. So logically, it makes sense to continue to penetrate the market we're in. From that perspective, if there's opportunity to present themselves beyond that, we'll evaluate them if it makes sense. But right now, we're really going to focus on continuing to own the markets that we currently have locations in and operations.

The other item, just to add on what Jason, he said this as well, this is relatively new to -- we're in the dense, we're in the markets we're in, but we're also going to set up these de novo locations that are really close. And that strategy on opening an office and community-based locally based is also a strategy that will tag on to what Jason said and allow us to grow within that state, but maybe a little bit more further out from the current communities we're in. So those 2 things together is the priority for Home.

And the only other thing I would say about the Home too guys, just for clarification, it is a ZIP code business. It's not necessarily a state business, and this is why having these locations in the specific ZIP codes matter so much. And so -- and again, I think Jason has a tremendous amount of clarity around that on where we are and where we also need to go. But I just want to make everybody understand that this is truly a ZIP code business, not a state business.

Our next question comes from the line of Brooks O'Neil with Lake Street Capital Markets.

I have a couple of questions, too. I guess first, I was hoping you might provide just a little more detail on the true-up you mentioned related to the capitated contract. Can you give us a sense for the dollar amount of that true-up and can you just help me to be sure I understand did that affect revenue as well as adjusted EBITDA or was that just an adjusted EBITDA impact?

Yes. So the -- well, one, it's not uncommon for this with the contracts we have, capitated contracts we have, when we redo them every -- whether that's every 3 years, so the cycle of redoing those, you kind of clear the deck with what's currently on the balance sheet and take that to income. So that's what's happened and that's a common practice that happens every time. So the amount that was there, and this is what we said on the call, our NEMT adjusted EBITDA was probably more in line with closer to Q3 is kind of what we said in the script. So it's a few million dollars there.

Okay. That's helpful. And then I guess, Kalle sent me an article about Uber and Lyft coming into the NEMT business and some of the challenges they face. Can you help us to understand how you view the competency and training of the driver network you guys use relative to what sounds like the common Uber and Lyft driver who knows how to drive his car, but not much more.

I mean, Brooks, we put our transportation providers through extensive training. And that extensive training could be what sexual improprieties look like. It could be awareness around blood-borne pathogens, it could be around -- and obviously around COVID. We partner with an organization to do this. And -- and we deeply discount it, and it's part of our requirement from a credentialing standpoint, either you're going to go through the training or not. And it also is how to handle people in terms of if we have to take somebody door-to-door. I also want to point out, listen, we've got a whole support network, too. So, that -- if there is an issue with the patient, there's always somebody for the transportation provider to call. And we also have safety members in our locations who also can be advisers to our TP.

So it's not just much of the training we put our transportation providers through, which is extensive, but it's also the support network we put around them. So in the event there's something that does happen or could potentially happen, we're there right by their side. So that's a really unique aspect of our model and that's why -- why we so believe in these community-based transportation providers, a lot of the stuff I've talked about related to ModivCare Academy or how we view our partnership going forward is very different than what I would describe is what a TNC would do. And it's just the model is different. They have their model. We have our model. That all being said, we think in certain instances, they're going to be -- it has been a very good partner. So Heath, do you want to add to that?

A little more specifics on the model, you'll get this too. So the TNCs, Uber and Lyft specifically, those drivers are incented to get the highest dollar amount at the quickest time. And you guys know, if you don't have your Lyft or Uber within, you're not there for 2 minutes, they're going to leave. For people that we serve that are sick or elderly, they may take longer. They may be confused on location. That's not their model. So that's another item to point out that is different between -- the structure is different. That specific driver is competing for themselves every day to make sure they put food on their table. Not really to think about, should I wait for Mrs. Smith or can I properly lift Mrs. Smith in a way. It's a totally different model. Just a little more detail what Dan said.

That's very helpful. And then my last question, I just wanted to ask Jason. I'm particularly excited...

On this model, too, is like, the patient population we serve live in broadband deserts. The patient population we serve often don't have Wi-Fi. The patient population we serve have limited data plans. The patient population we serve may have flip phones and not iPhone. So this is why these contact centers are not going anywhere. And why having these contact centers are so important to accessing transportation. And so I guess -- again, that's a very different part of the model is that we have -- we're going to meet the member where they are. And this is why we believe so much and yes, tech matters, but high touch matters too, because the modalities our members use are very different than what most of us experience day-to-day.

Makes total sense. I appreciate that color. So Jason, I'm particularly excited about the remote patient monitoring business. Obviously, that's core to your experience and background. My sense is that reimbursement rates for physicians, particularly in Medicare Advantage, I guess, but maybe more broadly have been improved significantly. Can you just talk a little bit about the opportunity you see across the country in -- and the growth that you might be able to experience over the next couple of years.

Yes, Brooks, thanks for asking that question. So we really focused on partnering with the health plan today. business has been built around focusing on Managed Medicare, Managed Medicaid and state Medicaid. There is certainly reimbursement rates that have been improving for providers, so physician networks and hospitals, et cetera. The core business has been built around partners that health plan and continue to penetrate that market, and there's consolidation in the industry, quite frankly, which has benefited us because people choose from a service perspective on who they're going to use. We have experienced growth with physician networks, and we've been beginning to take advantage of some of those reimbursement rates -- but today, as far as penetration, we really believe that continuing to penetrate with MA plans and MCOs is the route to kind of continue to build the business and as an add-on or another market to penetrate would be the physician network in the future.

All that makes sense. I mean my own sense is with the growth of value-based care that these MA plans have a massive incentive to monitor and support these patients and correctly diagnose them and support them over time. Is that what you see out there and are you seeing that appetite from the MA plan providers?

Yes. And what I build on that, Brooks, is this really when it's coming down to promote patient monitoring is the trusted relationships we have with those members. The number of times we're interacting with them in a month, we're engaging with them in a month, allows us to have real-time information that is much better than lagging claims data as well as a survey that's done months prior or sometimes quarters prior. So we're able to provide a real kind of information back to the health plan, which allow them to actually create a plan of care that impacts medical expenses period. And so that's when we talked around our E3 solution in the past. That also resonates and that's for the future for kind of the business we go with the trusted relationships we have with members, and we've built throughout our different segments. So whether that's within personal care, monitoring, the meals business or transportation, it's going to allow us to add significant value back to the health plan and so that is definitely where we think it's going today.

Our final question today is from the line of Michael Petusky with Barrington Research.

A couple of things. Dan, on the meal delivery, I'm assuming any revenue that sort of gets booked in NEMT is that where that would go or is that not right?

That's correct.

Okay. At what point might you sort of start talking about that in terms of quantifying it I mean is there a point at which to do that, is there a number at which to do that?

Yes, but it won't be this year. I would say we're building the business, and we're in several contracts with major payers. So we're ramping up there, I would say that, Mike.

Okay. All right. And then -- sorry, I'm jumping between sort of 2 reports this morning, and I may have missed commentary around this. But the G&A expense, can you talk about what's going on there in terms of that increase and just sort of maybe give some sense of what a normalized run rate for '22 would be?

The bulk of the increases in our G&A expense is related to technology, the need to invest in technology to build what we're building right now for the future. And then even still, a lot of the legacy purpose before, legacy platforms in any business and especially in this business, too, we need to reduce that debt, that tech debt. So that's the primary driver for that. We do expect with what we're doing in our plans, and we just went over this with our Board 2 weeks ago, when we get through that, we are going to be reducing our expense around technology as we finish this off. So I think we've hit the peak. Now we're going to get synergies as a broader company and then reduce as we go into '23 and '24.

Can I ask -- I mean, is this the run rate?

So for 2022, yes, -- from a -- yes, that's correct, from a G&A perspective, this is our run rate for the rest of this year.

At this time, we've reached the end of our question-and-answer session. I'll turn the call over to Dan Greenleaf for closing remarks.

Yes. First of all, thank you all for participating on our call this morning. If you're interested in scheduling a follow-up call, please reach out to our Investor Relations firm, The Equity Group. We look forward to reporting back to you in May when we release our first quarter 2022 financial results.

Thank you again, and have a good day. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.