© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, and welcome to ModivCare's First Quarter 2024 Financial Results Conference Call. [Operator Instructions]. Please note that this conference call is being recorded. I will now turn the call over to Kevin Ellich, Head of Investor Relations. Mr. Ellich, you may now begin.
Good morning, and thank you for joining ModivCare's First Quarter 2024 Earnings Conference Call and Webcast. Joining me today is Heath Sampson, ModivCare's President and Chief Executive Officer; and Barbara Gutierrez, ModivCare's Chief Financial Officer. Before we get started, I want to remind everyone that during today's call, management will make forward-looking statements under the Private Securities Litigation Reform Act. These statements involve risks, uncertainties and other factors that may cause actual results or events to differ materially from expectations. Information regarding these factors is contained in today's press release and in the company's filings with the SEC. We will also discuss non-GAAP financial measures to provide additional information to investors. A definition of these non-GAAP financial measures and to the extent applicable, a reconciliation to their most directly comparable GAAP financial measures is included in our press release and Form 8-K. A replay of this conference call will be available approximately 1 hour after today's call concludes and will be posted on our website, modivcare.com. This morning, Heath will begin with opening remarks, Barbara will review our financial results and guidance, and then we'll open the call for questions. With that, I'll turn the call over to Heath.
Good morning, and thank you for joining our first quarter 2024 earnings call. I'm pleased to report that in the first quarter, revenue increased 3% and adjusted EBITDA of $32 million was in line with our guidance range. These results are the outcome of our continued strategic transformation efforts. The progress made on our initiatives provides conviction that we can achieve our financial targets and exit the fourth quarter of 2024 with an expected run rate adjusted EBITDA between $220 million and $230 million and a free cash flow conversion of 40% to 50%, excluding the impact from our expected debt refinancing. Over the past 2 years, our focus on operational improvements, technology advancements and sales has underpinned our no margin, no mission culture. This has significantly enhanced our differentiated competitive positioning. As we complete this transformation in 2024, the tangible improvements in our KPIs are now being reflected in our financial results with an improving cost structure as well as growing sales. Additionally, Medicaid redetermination is in line to slightly better than expected and concluding in the second quarter, providing line of sight of our earnings trajectory and cash flow. One of our top priorities is addressing our 2025 senior unsecured notes. While it's premature to provide specifics, the refinancing process is well underway. Our refinancing efforts are focused on balancing capital flexibility, particular in terms of debt prepayment options and optimizing our overall cost of capital. We also remain committed to deleveraging our balance sheet recognizing the significant value this brings to our shareholders. With our debt expected to be refinanced soon, clear insights into the effects of Medicaid redetermination and health care normalization on our profits and working capital along with new sales onboarding, a robust pipeline and continued cost structure optimization, we are positioned to deleverage effectively and grow our business. Additionally, potential opportunities to monetize assets including our minority equity state in Matrix Medical will provide other avenues to delever. In the first quarter, we secured $36 million in NEMT annualized contract value, or ACV from a Mississippi State contract in multiple MCO contracts. After March 31, we continue our momentum by renewing and expanding our state contract in May. We also received notification to negotiate a multiyear extension with one of our largest state contracts. With several state RFPs expected this year for both renewals and expansions, our status as the incumbent backed by a solid track record of renewals and new business wins positions us very well. Since we transformed our go-to-market strategy, we have successfully retained all state and EMT contracts with our last loss in 2022, which again, was largely due to legacy performance issues. We also secured $142 million of annual revenue from new MCO wins in 2023 across various regional and national contracts. However, our progress was materially offset by a first quarter 2024 reduction in volume from a large payer that began diversifying its transportation providers 2 years ago largely again due to our past performance rather than our current capabilities. Nothing the less, we remain this payer's largest NEMT provider and a key innovation partner. Despite this, and when looking at the individual contracts and customer win loss rates, we are proud yet not satisfied or complacent of our ability to expand our market share. Next, I'll provide an update on Matrix Medical. Matrix recently refinanced its debt, which had an upcoming maturity. Matrix's financial results were consistent with the improvement seen throughout 2023. The business is growing very well. We continue to have confidence in the value of Matrix nationwide network of 2,800 in home nurses and its refreshed positioning addressing whole person health. The management team at Matrix has made significant strides over the last year. Along with our partners, we are balancing the timing of the sale versus the continued progress financially and with the innovative platform and technological advancements they are making. That said, I expect that we will have the opportunity to monetize our minority equity stake in the latter half of 2024 or the first half of 2025. Similar to Matrix, our supportive care services leveraging our national platform are increasingly crucial in the evolving U.S. health care landscape. As health care shifts toward providing high-quality services to vulner populations, our supportive care service offerings are essential for managing chronic conditions. The market now demands more than basic services. Our customers expect insights and actions that directly lower costs, improve outcomes and enhance member satisfaction. Our technology and clinical investments are helping us secure significant competitive advantage as the industry adjusts to the regulatory environment, in evolving customer needs, leading legacy NEMT providers, monitoring and personal care point solution providers to lose market share. On the other hand, our hybrid engagement model, which combines digital tools like monitoring devices in homes or community stations and omnichannel connections with human interaction from our contact centers, in-home care and transportation services not only effectively manages care for hard to reach members with multiple chronic conditions, but also significantly boost our win rates in mobility and monitoring core services. This is a standout result of our transformation. Furthermore, this approach is creating new revenue channels by compensating us for reducing health care costs, improving outcomes and enhancing member satisfaction with a meaningful impact of our revenue projected in 2025 and beyond. We are actively addressing challenges from COVID's impact on working capital and the necessary adjustments to our cost structure. Our ongoing efforts to boost the revenue-driving capabilities of our NEMT segment, while transitioning us to a more competitively advantaged platform, this shift not only enhance our cash flow but also facilitate deleveraging, propelling additional growth and scale. Beyond our unique platform, we possess the optionality to enhance shareholder value through our 3 business segments and our minority equity investment in Matrix, each of which has scale and hold substantial value. Now I'll address our segment highlights, starting with NEMT. Our cost savings initiatives are progressing as scheduled. We expect to achieve at least $34 million of in-year cost savings and approximately $60 million in annualized savings beyond 2024. These savings are driven by our NEMT transformation, including our digital integration and technology advancements. The savings are reflected in our unit cost or per trip metrics as well as KPIs like call to trip ratio. The initiatives in NEMT that are driving the savings this year are in 3 areas: member experience, which is focused on our contact centers, interaction with our members and transportation providers; Transportation services, which is focused on automating ride assignment as well as standardizing and centralizing trip management; and purchase services, which is the actual cost of providing the trip. The savings here will come from our multimodal strategy, which is shifting more trips to rideshare, mass transit, select high-quality and lower-cost transportation providers and other alternative options.
I want to reiterate the savings and initiatives have been identified and actioned and approximately 60% are standard run rate savings, and we have clear actions for achieving our sales targets for this year and beyond. Medicaid redetermination continues to track in line or slightly better than our projection. As a reminder, we had $7 million impact of adjusted EBITDA in 2023 and an incremental $26 million to $30 million impact is expected in 2024. Redetermination is coming to an end in the second quarter, and the financial impact will flatline in the second half of 2024. The industry is expecting 20% to 30% of the members that were disenrolled due to procedural terminations will be reenrolled over the next several quarters, which will be an incremental tailwind to our financial performance. Shifting to personal care. The first quarter results were impacted by higher-than-expected wage increases and higher centralized costs that will be synergized this year. A critical strategy is that is embedded in our transformation is focused on platform implementation, shared service centralization and compliant enhancement while implementing a sophisticated member referral and caregiver matching system. With these consolidated systems and processes in place, we can improve operating efficiencies, which will help drive growth. We expect to exit the year in line with our long-term revenue growth rate of 7% to 9% and adjusted EBITDA margin of 10% to 12%. Last week, CMS issued the long-awaited final rule ensuring access to Medicaid services, otherwise known as the 80/20 rule for personal care services. While the 80% provision was maintained in the final rule, we are pleased that the clinical nursing cost will be included in the 80% calculation. We were also pleased that the implementation time line increased from 4 to 6 years before it goes into effect. Ultimately, we anticipate legal challenges and legislation could change the rule before it's even implemented. However, we expect to be able to offset any impact with operating efficiencies and growth. Next, New York City path or the consumer directive program, whereby a member can be taken care of by a family member or a person of their choice has encountered challenges from the state. This is a relatively small part of our business. However, we are staying engaged. In the event that there are changes, we believe we could participate in the change or convert members to more traditional home care services that we provide. In remote patient monitoring, we continue to see solid growth and performance, and we're seeing good progress with payers as we shift to an access to care model driven by our hybrid digital and human touch engagement model. As noted earlier, our monitoring solutions are contributing nicely to NEMT and PERS sales growth and more specifically to the innovative revenue streams that generate payments to us for cost savings, improved outcomes and member engagement. Currently, we have over 40 programs delivering this model. The results are very promising with high customer engagement to expand. We continue to scale and expect meaningful revenue in 2025 and beyond. Meeting our expectations in the first quarter was an important step towards achieving our 2024 financial targets and our conviction to generate free cash flow in the second half of the year as well as refinancing our 2025 notes with prepayable debt. We have confidence in our strategy, competitive positioning and execution throughout the year, and we will continue to consider available strategic avenues to optimize our capital structure and drive long-term shareholder value. Our outlook for the year remains unchanged, and we are confident in achieving our fourth quarter run rate adjusted EBITDA of $220 million to $230 million with a free cash flow conversion rate of 40% to 50%, excluding the impact of the expected debt refinancing. As we approach the final stages of our transformation, we're seeing a lower cost structure and increasing revenue, and we have clarity on the completion of Medicaid redetermination. With the volatility and unpredictability and cash flow behind us, our capital needs for funding working capital are expected to peak in the second quarter and expect it to decrease in the third and fourth quarters as health care utilization stabilizes. I'd like to thank all our team members as we've navigated change and challenges over the last several months. It's their dedication and hard work that make ModivCare a special place to be. Now I'll turn the call over to Barb, who will share additional details about our financial results and outlook for 2024. Barb?
Thank you, Heath, and good morning, everyone. First quarter 2024 revenue increased 3% year-over-year to $685 million, driven by 2% NEMT growth, 5% PCS growth and 7% RPM growth. First quarter net loss was $22 million and adjusted net loss was $1.2 million or $0.09 per diluted share. First quarter adjusted EBITDA was $32 million or 4.7% of revenue, in line with our guidance range. As we discussed last quarter, EBITDA was expected to decrease in the first quarter primarily due to the timing of NEMT contract losses occurring in the quarter with contract wins being onboarded in subsequent quarters. Turning to a review of our segment financials. NEMT first quarter revenue increased 2% year-over-year to $479 million. NEMT revenue incrementally benefited from successful execution of contract settlements and negotiated pricing increases that were more favorable than expected. Average monthly membership decreased 12% sequentially to $29.1 million due to previously announced contract losses and Medicaid redetermination. Trip volume increased slightly quarter-over-quarter, while revenue per trip decreased 4% due to mix changes. Sequentially, NEMT gross margin decreased 180 basis points, primarily due to lower revenue per trip, higher utilization related to mix and lower membership. Notably, purchased services expense per trip decreased 2.4% and payroll and other expense per trip was flat sequentially at $6.90, even as trip volume modestly increased. This quarter's decrease in service cost unit metrics following last quarter's strong decline is evidence that our cost savings initiatives are progressing which includes lower purchase services expense per trip and stable payroll and other expense per trip. NEMT adjusted EBITDA was in line with our expectations at $27 million or 5.7% of revenue. We expect to see margins improve throughout the year due to the onboarding of new contracts in the second and third quarters as well as the execution of our cost initiatives. During the first quarter, our membership was impacted by Medicaid redetermination of approximately 600,000 members. Our top 5 states with full-risk contracts are 80% through their respective redetermination period. Redetermination impacted first quarter revenue by $10 million and adjusted EBITDA by approximately $5 million. Overall, Medicaid redetermination is tracking in line to slightly better than we previously expected. Based on updated information, we now expect redetermination to adversely impact revenue by $60 million and adjusted EBITDA by $26 million to $30 million in 2024 versus our original range of $20 million to $40 million. Additionally, MCOs and states are starting to see 20% to 30% reenrollment of eligible members who were procedurally disenrolled in 2023. Our guidance includes a modest amount of reenrollment, but the timing is hard to predict. Turning to our Home division. First quarter personal care revenue increased 5% year-over-year to $184 million, driven by 2% growth in hours and 3% growth in revenue per hour. We continue to make steady progress driving hours growth and converting applicants to caregivers. The reimbursement rate increase this quarter was largely driven by favorable increases in minimum wages in New York. However, we expect a more subdued reimbursement rate environment for the remainder of the year. Personal care adjusted EBITDA was $11 million or 6% of revenue, which was lower than expected primarily due to wage growth outpacing rate increases in certain states as well as grant income tapering off.
Lastly, we received several reimbursement rate increases that didn't take effect until March 1. The benefit of these increases will be fully realized in the second quarter. Going forward, we expect wage increases to moderate and operating efficiencies will drive leverage in G&A leading to EBITDA margins returning to an expected range of 10% for the year. RPM revenue increased 7% year-over-year to $20 million. We expect new contract wins and referral sales to further accelerate growth for the remainder of the year toward our revenue growth target of 10%. Gross margin declined year-over-year and sequentially, primarily due to higher churn in our Medicare Advantage business related to members who lost eligibility and higher deactivation costs. The first quarter is seasonally the highest churn quarter for the year, but this quarter was higher than we anticipated. RPM adjusted EBITDA was $6.3 million or a 31% margin. Our business trends are normalizing, and we continue to expect RPM margins in the mid-30% range despite slightly higher service expense during Q1. Turning to our cash flow and balance sheet. During the first quarter, free cash flow was $2 million consisting of net cash provided by operating activities of approximately $10 million, offset by capital expenditures of $8 million, which was 1% of revenue. NEMT working capital dynamics were in line with our expectations. Contract receivables increased by $10 million sequentially to $154 million. Contract payables increased by $11 million quarter-over-quarter to $128 million. We ended the first quarter in a net receivable position of $26 million, essentially flat sequentially. Our revolving credit facility balance increased by $7 million to $121 million. But importantly, our net debt remained flat with $10 million in cash on the balance sheet as of March 31. We ended the first quarter with approximately $1.1 billion of debt and our bank-defined net leverage ratio increased sequentially to 4.9x as of March 31 against our maximum net leverage covenant of 5.5x. As Heath stated, we are in the process of refinancing our 2025 unsecured senior notes. We are currently pursuing financing solutions that provide flexibility for prepayment to support our priority to delever while managing our overall cost of capital. We will provide updates as the refinancing progresses, but we are focused to complete it expeditiously while optimizing the best outcome. As a reminder, we continue to expect free cash flow to be negative in the first half of 2024 as the second quarter includes settlement of certain contract payables and payment of our semiannual cash interest. We expect free cash flow to be positive in the second half of the year based on the improvement in adjusted EBITDA and net working capital being a source of cash. We expect that we will exit the year with adjusted EBITDA to free cash flow conversion of 40% to 50%, excluding the impact from the expected debt refinancing. Free cash flow conversion may decrease by approximately 10% as a result of our refinancing. We maintained our 2024 revenue guidance in a range of $2.7 billion to $2.9 billion and adjusted EBITDA in the range of $190 million to $210 million. For the remainder of 2024, here are a few qualitative items for you to consider. Medicaid redetermination is tracking in line to slightly better than our original expectations. We expect to lose additional members in the second quarter as redetermination is anticipated to conclude by midyear. We continue to expect a slightly net positive impact on adjusted EBITDA from business development for 2024, driven by the onboarding of our NEMT contract wins and contract repricing offsetting the attrition from earlier in the year. Cost savings are expected to be in the range of $34 million to $38 million, net of investment and digital service costs. We expect utilization within our contract mix to be a headwind as health care utilization normalizes. Adjusted EBITDA from Home is expected to grow in the high single-digit millions of dollars for the year. We expect to invest $2 million to $4 million for the year in innovation strategies and G&A. Over the remaining quarters for 2024, we expect a steady progression and ramp in adjusted EBITDA driven by new contract implementations, greater benefit from cost savings, the diminishing impact from Medicaid redetermination and improvement in our Home segment, all contributing to financial results consistent with our full year guidance. In summary, our first quarter results were in line to modestly better than we expected. These results set a solid foundation for the year, and we expect to see sequential improvement as we progress throughout the year. We expect to have our refinancing done in the near term, and we will continue focusing on execution and driving operational improvements and results. I'd like to thank all of our team members for their continued dedication and passion for serving our clients and members. With that, operator, please open the call for questions.
[Operator Instructions]. Our first question is from Bob Labick with CJS Securities.
Congratulation on a solid start to normalizing things for us here. Yes. So I wanted to start with NEMT. Obviously, a lot of moving parts there. But overall, I think results, at least from our perspective, were better than expected, better than feared. So good start there. The biggest changes to the model really on a macro is the impact on redetermination and then the shift, the mix shift from the contracts that you lost to the new contracts you're winning. So maybe help us understand how that plays out in the P&L this year, maybe particularly utilization and purchase service costs kind of offsetting directionally from where we thought. So how would this be different to prior expectations? How should we think about those 2 key drivers with the mix shift, the redetermination and the contract change shift?
Yes. Well, the first item that you hit on Medicaid redetermination is the big item, right? 12 months ago, we -- there was fears in the marketplace on what it was going to be. And yes, it's hitting us right now as expected and is the main driver for where we are in Q1. And most importantly, we'll be done with it in Q2. And then secondarily, it's right where we expect it to be, but still material. The other -- and that really affects our full risk contracts because the membership goes down, and that's a big driver. The other item that we talked about is the mix change. So as we disclosed last quarter that we lost a number of members through this one large payer. And those coming off coupled with Medicaid redetermination has changed our mix. And especially as we are onboarding these new sales wins that we've had over the last 12 months or so and continued into Q1. So that mix change -- and I don't know if people realize that all our contracts that we have, though everything averages to what we give, there's a lot of diversity around utilization. The main -- the big differences that are obvious are between like Medicare, has typically a lower utilization. And then within Medicaid, it depends on where you are in that specific state because there could be high utilizers, for example, if it's heavy dialysis. Point being, mix really matters. And you hit on a big point because of redetermination in the large volume that came out. A lot of the large volume that came out was within the Medicare space or dual space and lower utilizers. So that is the big change, and you'll see that utilization from a mathematical perspective actually is up. But really from the standpoint, from a macro where health care utilization is, yes, higher, but in line with our expectation. That's probably the most important point, in line with our expectations. But to you all, it's definitely up. So if you remember, we expected at the end of 2024, the complete normalization of health care usage and utilization, and we had that at about 10%. Now with this mix change, again, as expected, it will be at about 11%. So big model change when you're looking at things. But in line with that mix change, there's other things that happen within our P&L, and you hit on it, purchase services. So the purchase services within this mix change will come down significantly based on the type of contracts that we have in place. So those 2 factors when adjusted are -- will make you in line and be able to better predict what our P&L is going to be at the end of 2024.
Okay. Super. That's really helpful and makes sense there. And then you touched on this or maybe we can talk about it a little more, too. Congratulations on the success. Another sales when, obviously, you won a bunch last year, you won another contract or a couple more in the first quarter. Just talk about the pipeline here. Any potential surprise losses? Or how's your visibility going forward? I mean wins are great. We just want to avoid losses because you already have the wins lined up. So maybe visibility there, please?
Yes. Well, first off, there's a lot that we're proud of. We could spend all day going through the entire organization on the great things that have happened. But really, in our go-to-market strategy, the team that we've added there all the way from people that can drive new sales through marketing through our product organization that's building the right solutions that meet our customers' needs. And then even beyond just the transaction of a trip to really think about this as an access to care platform and then, again, building the necessary capabilities to ensure that, that meets our customers' needs. So with that, transformation of our go-to-market strategy, it's resulting in the results. The sales that were -- that started last year and the sales that continue this quarter, I'm really excited about even how the rest of the year comes up. So I couldn't be more proud of what this organization has done. We've really changed the culture and capabilities in a go-to-market strategy. So -- and then the loss is -- again, the loss last quarter, a lot of that had to do with legacy items and the need for them to diversify away from us. Again, that specific payer, I'll just repeat what I said last quarter, we're still the largest NEMT broker and innovation partner with them. So we did not lose anything this quarter. It would be -- I'm sure we will. But based on what we're doing right now, our wins will outpace our losses. So I feel really good about the team. It is showing up in the results. And I expect that pace to continue.
Okay. Super. Last one for me, and I'll get back in line. But just on the PCS, you, I think, explained pretty well what happened in the quarter in terms of margins and the expectations for year-end. But as a generalist, maybe you could help simplify the message on the 20% gross margin proposal from CMS, particularly as it relates to clinical nursing input. I don't know how that relates to you, but just kind of simplify that one for me, it would be awesome.
Yes. Well, first off, our focus really over these last 12 months and especially over these last 6 months since we have great new leadership in there with Anne and Damon and the rest of the team there on the PCS side. We're building a platform. This organization historically was made up of a lot of individual businesses and individual locations that were doing great work, but very challenging to scale and grow when you have this. So that has been the focus, and really, that's proud of this platform we're building there. And then we do expect to get back to the right level of growth at the right margin after we finish with these investments. But to your question around the 80-20 that we knew it came out. So that 20% gross margin cap that is being proposed again. Most importantly, it doesn't need to be implemented until 6 years from now, and we do think there'll be challenges around that. But there was something in there that is very beneficial is what is the definition of the 20%. And including these clinical costs or these nurse costs are really helpful for us because really the impact, if this was implemented, it'd be very manageable for us. So it was a good outcome by including those clinical costs because that margin, historically from a gross margin, we're at 21% to 22%. And if you include the nurse costs that really covers a lot of that as well. So long story short, we do believe that this rule will develop and change. We're in a really good position as a large-scale company. And even if it was to get in place 6 years from now, just because of how it was defined, we feel like we're in a really good spot to grow and maintain strong margins.
Our next question is from Raj Kumar with Stephens.
Just kind of wanted to dive deeper into the Home segment. Just kind of wanted to see like if there's kind of differentiation in terms of NEMT does have like a more of a back half ramp story to it, just given redeterminations and implementation of new contract wins, but PC and RPM seem like just based on your commentary that may have like a smoother path to getting towards those 2024 targets. So I just wanted to get confirmation on that. And then just as a follow-up, just kind of walk us through like the acceleration in membership for RPM kind of versus 1Q.
Yes. So the Home segment made up of PCS and RPM. Actually, there will be specifically in PCS because of what we had in Q1, which we explained. A lot of that has to do with some of the costs that we've added to do with this transformation, we expect that those costs will come out. In addition, with the team gelling on the new platform that we're building, we actually expect growth to accelerate as well. So -- but it is smoother, right, than mobility. There still is a lot that in mobility because of the timing of getting our sales on and our cost out. But there is still a growth that we expect within PCS as well as RPM. RPM 2 in the Q1 is the timing difference between some of the business that came off related to the MA -- we have a large client that is MA and they didn't win as much business, so we didn't get as much volume and we had some costs that stayed on. So we expect that, that will accelerate coming out of Q1 as well. But you're -- not at the slope that NEMT is, and it's a reasonable plan to ensure that we hit our targets as we come out.
Great. And then just as my second question, just kind of want to double-click on the 80/20 provisions. And just trying to get your updated thoughts on -- just like -- I know like the company in the past has talked to a 23% to 24% gross margin target longer term. And given the definitional changes what adjustments you can make, do you think that's still achievable longer term? Or if there's like a kind of updated baseline based on the adjustments that you think you guys can make?
Yes. So there -- it depends what states you're in, as it depending on what your gross margin is going to be. That's hence, why a lot of people are arguing around this, not a 1 size fits all make sense across the country. For us, where we are in our states, again, our gross margin was historically around 22%, 21.5% to 22%. So much more manageable as we go down. And I'll repeat again having the clinical cost or the nursing cost in that really, we only -- the gap isn't 2%, it's less than -- definitely less than 2% to get down to 20%, which is very manageable under the current construct that we have. But there's other provisions in the proposal that really require and demand centralization, better compliance, better reporting. That costs money, and that's the lot of stuff that we've been doing for the last 18 months, and we'll have that in place. So -- and then we'll be able to get scale and leverage off of that as we grow ours as well. So the 10% to 12% EBITDA margin that we've laid out is definitely possible even after the 80/20 rule did come in place. Again, that's 6 years from now. We don't think it will be that. But we will believe that we're in a good spot to grow and manage through and hit those EBITDA targets that we've always said.
Our next question is from Brian Tanquilut with Jefferies.
You have Taji Phillips on for Brian. So maybe first to kind of dive a little bit deeper on the cost savings initiatives. And clearly in the bridge you outlined in the slide deck, you showed $1 million being realized in the quarter, but then another $33 million to $37 million left in the tank. Maybe can you tell us what gives you confidence in your ability to execute on this and kind of lay out what else needs to happen for you to realize these savings throughout the year?
Yes. It's a critical part of the remainder of this year. There's another slide that you'll see there that shows about 60% is run rated. So we've done a lot of good work. And then the remainder of that is actions that we've identified and are executing on. The bridge, which is a good bridge to show, even though it was a $1 million quarter of sequential quarter, we had a lot before, right? So the run rate coming off of 2023 into this year is really driving a lot of those savings. So the $1 million had a lot to do with the growth in trip volume and utilization as well. But we feel good about getting that $34 million to $36 million in year. And then even beyond that, because of the run rate and because of the initiatives that we are putting in now, I expect that it will be about a $60 million full year benefit as we enter 2025. So yes, there is a lot of work that needs to still happen, but we have identified it, and again, it's about 60% of that $30-plus million run rate from previous execution that we've had.
Great. I appreciate the color. And then just back on personal care. Just I want to go back to this comment about how you're expecting these like delayed reimbursement increases. Maybe can you talk about the magnitude of those? And I guess, how we're -- how you're working to stabilize purchased services, obviously, that expense line has pretty much triggered the shortfall this quarter?
Yes. So it puts that kind of maybe $5 million-ish delta from -- in the bridge that you see there when you net it all out, about $1 million is about a reimbursement. So the reimbursement rates that we expect to get. So another couple of million, which is in the G&A and also in the service expense is based on us getting the synergies after the centralization efforts and automation efforts that we have. And the other $2 million is around just higher service expense, and we expect we will grow and get leverage out of that, specifically in a couple of states where we know that we have growth targets that allow us to get leverage. So that's how it breaks down. And we have plans, and we expect to be able to get back to the margins and growth rates that we had prior.
Our next question is from Pito Chickering with Deutsche Bank.
So two questions for me here. Matrix, I think it's the first time you've given color like this sort of on the monetization of Matrix. I guess 2 questions now on that one. I guess, what gives you as confidence that, that asset being monetized over the next sort of 12 months? And then we're not asking for prices here, but any ranges or multiples of sort of where you think some strict transaction can be realized.
Yes. Well, similar to what I talked about, how proud I am of my team here and then specifically around go-to-market, the same is for Matrix. Catherine and her team, Catherine is the CEO there. what they've done over the last 18 months. And really, over the last 6 months, it's every -- we had a Board meeting a couple of weeks ago and we're going through everything, and it's just a tremendous work that is driven. So the results in the financials are there and growing and stable. And then the other conviction that the team has and I have as well, is the platform they're also building to really leverage more care in the home or more outcome change in the home, and it really gets down to their technology implementation that they've had. So you couple those 2 things together, and the sustained success that this team has. And then, again, as importantly, 2,800 nurses that are in people's homes, and there's a lot of value that they can have on the health care system. So -- and there's a lot of inbound. So we have a lot of confidence that we'll be able to get them to another owner and grow beyond that. So -- which is why I gave that guidance and confidence around our ability to do that. So the multiples are going to be good because of the great effort that they had. So I'm not going to comment on what they're actually going to be. Obviously, if you -- and we get this question, and Pito, you may have asked this before, hey, we're going to get to signify multiple, which is a 30x EBITDA. No, that's not possible. But it's going to be well above the kind of standard health care services multiples. So I feel really good about it. And again, thanks to that team and the execution. We'll get it done.
Okay. Great. And then to your second question, just looking at the first quarter EBITDA results versus your sort of fourth quarter guidance of like $56 million. Can you just walk us through just how we should be bridging 1Q to 4Q in terms of margins sort of throughout the year, kind of where do we see the biggest margin improvements? And then sort of you touched on some of the questions, but what are the biggest key drivers as far as those margins getting better?
Yes. Well, -- so similar to what we said last quarter, and well, as I think Barb even said in hers, the ramp is in the back part of the year. And so I'm focusing on mobility here first. The -- and it really gets to the stuff implementing the sales that we had. So again, those are some sales that we've already sold, and those are coming on now, and I expect them to come on more in Q3. So that's an important item. But that would show why the ramp is in the back half of the year. Redetermination being done and then really the kind of the normalized growth within Medicaid post Q2 when redetermination is done. And then the last component that is still needed to execute on, and it also is back-end weighted in Q3 and Q4 as the cost out. And again, we're 60% done from a run rate perspective, but we still have work to do there. So consistent with what we said before, the EBITDA targets around 8% range exit rate in NEMT. And then in personal care, we do expect to ramp and be exiting at that 10% EBITDA rate and then monitoring is going to have that steady growth there, too. So though it is a ramp, it's Q3, Q4 driven specifically mobility. It's a lot of those things that we've done in the past that will ensure that we hit those Q3, Q4 target.
Our next question is from Rishi Parekh with JPMorgan.
On my first question, I was hoping that you could walk us through your MA exposure through the various divisions and specifically within NEMT. What services are currently being utilized between -- by those NEMT members?
Yes. We have -- I think it's about 18% -- 16% is in the deck. It's a small pot. 16% of our revenue is MA for us. So that's -- and then on the other segments, monitoring, its higher, personal care, there's no exposure on MA. And in the monitoring side, again, it's pretty concentrated to 1 client. And we feel good about where those projections are. So within NEMT, that 16%, a lot of -- it was higher before and that was part of what we lost in Q1. But M&A is a critical benefit that continues to grow across all transportation, and we expect that we will win and grow in MA as well. Probably the biggest thing from a market perspective, and it gets back to what I talked about a little bit earlier, it's different than Medicaid. So you really have to understand the member and understand when that trip is taken and how that trip was taken. So if you have the right insight in technology, you can service that member at the right cost and a lot of those efforts we put in place. So -- but as you know, MA just across the board for payers is a top issue. And many supplemental benefits are going to be cut. Transportations, one of them that it's going to continue. So though it's 16%. We do expect it to grow, and it's manageable and a big part of our business as we move forward.
And sorry, what are the -- within the NEMT business, what trips? Is it mostly for dialysis, physician offices? Majority of the trips are...
Well, so MA is not. Dialysis for us, the bigger volume for that is in the Medicaid side. There's duals within the MA that will have the dialysis. So it is your adult day care, but there is the normal kind of breakdown of the different trip types, but it's less dialysis and more in line with what you'd expect with people that are over 65.
Okay. Great. And then I believe your New Jersey contract is up for renewal later this August. I'm not sure if that's the contract that's currently under RFP. I believe this is also a fairly sizable contract. Can you just provide us with some idea as to how that process is going. Is it still expected to be an exclusive contract? What's your visibility around it? And can you quantify your exposure?
Yes. So we have a good slide in the deck that talks about what's in the renewals and the state business is a critical part. And New Jersey that you said is one of our important customers, which we've had for many, many years. We have a really strong relationship with them. Why? Because we're performing, and we do more for their members than just the trip. And we're an important part of their community within New Jersey on ensuring that people are working and the transportation providers are fulfilling their commitment. So my point is we're really deep within New Jersey performing well. We have a very low-cost platform. So we meet and check all the boxes. So I feel good about our ability to renew all of our state business and then even gain some state business. And the other thing we said there in the script, because of what we have done over the last 6 to 12 months, our win rate in renewals as well as gaining new business is very strong. So I expect that to continue in that $600 million of renewals that we have this year, I expect we will win more of that than lose. So -- but again, on that, those are RFPs this year. I don't expect any impact from any changes, both positively or if there is something negatively that comes off until 2025.
Okay. And just a last question on PCS. You've also obviously noted that it might be an area or a segment that you may look to sell. Attis has made some comments in terms of their just like of New York. Would love to just better understand where you are in this process and do you view it as a multiyear process? Or do you view it to be aligned with your Matrix asset sale process?
Well, so Matrix definitely is going to be something we sell for us and our job, my job is to ensure that we drive shareholder value. And the best way to drive shareholder value when I look at each of the individual parts is to build the best platform the lowest cost platform that grows. And that's the exactly what we're doing for personal care, and that's really our focus. But we always will be looking to see what is the right thing to do from shareholder value. So there's a lot of demand for personal care. Personal care, and there's lots of companies, whether that's Attis, whether that's other some large privates that are doing wonderful things around personal care and the value that, that adds to the person's health care outcomes. So it's a critical part of health care. So it will be a value -- that's our focus and there will be demand for personal care and then I do expect there'll be trades that happen around personal care from an M&A perspective. So everything is on the table for us, but our focus and priority right now is to do what I said before, build a platform that's growing and can generate cash flow, and that's the focus of ours right now.
Our next question is from Mike Petusky with Barrington Research.
Right off the bat, I want to apologize. I missed part of this call. So if you commented on this, if you could just comment on it quickly. I'd appreciate it, for my benefit. Did you guys speak to that receivable that was sort of out there after last quarter and it was like $35 million, $36 million. Have you guys spoken to that or commented on that?
Yes, we did. We did in -- I think, in the prepared remarks, we commented that we received a significant amount of that payment in the quarter. And we are -- yes, so it was helpful to our cash flow for sure.
Okay. All right. Okay. And then, Heath, I was just wondering, you said a lot of positive things about Matrix and what they've done last 18 months, last 6 months, said that they're growing well, believe that they'll get a really good multiple, maybe not signify but really good multiple. But I'd love to know, can you give any help on either trailing adjusted EBITDA or run rate EBITDA or something that's sort of -- then you may not get questions around multiple because we can sort of guess at that if we have a good sense of what the EBITDA range is.
Yes. So the most important thing that we set this company up to have the right successful exit. So I'm not going to give you exact specifics. But I'll go back to something that I said before. And this may not be satisfying to you, but it's consistent with what I've said for modeling purposes. I said there's a range between $50 million and $100 million of EBITDA. And that was 1.5 years ago, so you can do your own extrapolations within that. The point being, it's very strong and growing, but that's the right way to think about it.
Can I just ask a sort of a clarifying question on that. I think when you made that comment in the past, you said the right way to think about a takeout is on that multiple. But I don't think -- and maybe you did clarify this, and I just didn't pick up on it. I don't think at that time, you -- when I've heard you say it, I don't think you've ever said, "Hey, they're actually in that range." Like -- is that what you're saying that they're in a range of $50 million to $100 million now?
Yes. No, I said that, I said that. Yes. So.
Okay. Fair enough. And the -- just going back to the receivable real quick, when you said you collected -- like I mean, is it fair to say like 75% of that or more or...
Yes, I think we -- it's definitely -- 75% is about right, actually. And -- but the point there is why we said what we said last quarter was because just to clarify around what our cash flow expectations, that was the main driver for the miss. But the other reason why we're giving this type of information is it's a critical important client of ours of a large payer and we expect that they will be critical going forward. And though there is some negotiation around that client itself, we did collect about 75% of that $36 million.
And again, I may have missed this as well in the prepared, but did you guys comment on sort of your hope for timing on the refis. I mean is that hopefully a Q2 event or could that slip into Q3?
Yes. Yes. So it's Q2 for us. That's the right way to think about it because we're executing on it now. So we expect to be done before the end of Q2.
There are no further questions at this time. I would like to hand the floor back over to Heath Sampson for any closing comments.
Great. Thank you for participating in our call this morning and for the interest in ModivCare. Our updated investor presentation has been posted on our website. If you want to follow-up call or questions, please contact Kevin, our Head of Investor Relations. We look forward to speaking to many of you over the next coming days, weeks and months before we report on our second quarter 2024 results in August. Again, thank you to you all. Thank you to the team, and have a great day. This concludes our call.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.