ModivCare Inc. (NASDAQ:MODV) Q2 2021 Earnings Conference Call August 6, 2021 8:00 AM ET

Company Participants

Jonathan Bush ??? Senior Vice President, General Counsel and Secretary
Dan Greenleaf ??? President and Chief Executive Officer
Heath Sampson ??? Chief Financial Officer

Conference Call Participants

Bob Labick ??? CJS Securities
Brian Tanquilut ??? Jefferies
Brooks O???Neill ??? Lake Street Capital
Mike Petusky ??? Barrington Research

Operator

Hello and welcome to the ModivCare???s Second Quarter 2021 Financial Results Conference Call and Webcast. At this time all participants will be in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.

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

Jonathan Bush

Thank you, operator. Good morning, everyone, and thank you for joining ModivCare???s second quarter 2021 conference call and webcast. With me today from the company are Dan Greenleaf, President and Chief Executive Officer; and Heath Sampson, Chief Financial Officer.

Before we get started, I would like to remind everyone that during the course of today???s call, the company???s management will make certain statements characterized as forward-looking under the Private Securities Litigation Reform Act. Those statements involve risks, uncertainties and other factors, which may cause actual results or events to differ materially. Information regarding these factors is contained in today???s press release and in the company???s filings with the SEC.

We will also discuss certain non-GAAP financial measures in an effort to provide additional information to investors. The definition of these non-GAAP measures and reconciliation to the most comparable GAAP measures is included in our press release and Form 8-K. We have arranged for a replay of this call, which will be available approximately one hour after today???s call on our website www.modivcare.com.

This morning, Dan Greenleaf, our Chief Executive Officer, will begin with some opening remarks, after which Heath Sampson, our Chief Financial Officer, will provide a 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?

Dan Greenleaf

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

When I joined the company in December 2019, we started with a market-leading nonemergency medical transportation, or NEMT business, with opportunities to automate and modernize operations. At the time, we swiftly implemented a six pillar strategy involving placing the right people in the right seats, acting on the voice of the customer, pursuing transformational growth, implementing a single repeatable model, delivering an enhanced technology platform and rebranding the organization.

We successfully delivered in meaningful ways across each of these pillars during a relatively short timeframe, enabling us to focus on our larger vision of transforming how we connect people to care, by utilizing our NEMT business as a critical conduit to drive access to the supportive care solutions we provide. We continue to look for opportunities to broaden access the care in the roughly $8 billion addressable market for NEMT. In fact, yesterday we announced a nationwide partnership with Uber Health aimed at further strengthening our networks of transportation providers.

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

In November 2020, we added another supportive care vertical with the acquisition of Simplura Health Group, marking our entry into the large, fragmented and rapidly growing personal care sector. Simplura???s scale and density in its core markets provided us with an excellent foundational business in the $55 billion personal care sector, which is expected to grow to $100 billion over the next several years. Our pending acquisition of Care Finders announced last week significantly strengthens our personal care presence in the Northeast in compliments Simplura???s capabilities. Care Finders delivers approximately 10 million hours of care annually to over 7,500 patients through its more than 6,200 caregivers. Care Finders annual revenue is approximately $200 million pro forma for recent acquisitions. On a combined basis, we???ll be one of the largest providers of personal care in the United States, managing more than 18,000 patient lives and providing approximately 30 million hours of care.

Finally, earlier this week, we announced the acquisition of VRI, which adds a healthcare-focused national remote patient monitoring and medication management platform fueled by leading technology to our suite of critical supportive care solutions. VRI monitors over 155,000 patients from its two 24/7 care centers. VRI has leveraged its technology platform with thousands of connected patient devices to create a strong data analytics capability. The combination of VRI???s in-home remote monitoring insights with ModivCare existing data from our other supportive care verticals will further unlock the total health picture of patients and enable improved health outcomes. The acquisition of VRI adds an estimated $8.5 billion addressable market in remote monitoring that is only 13% penetrated with considerable growth opportunities from increasing coverage of remote monitoring by Medicaid and Medicare Advantage health plans.

We believe that our powerful NEMT channel with access to 30 million patients to approximately 9% of the U.S. population, puts us in the pole position to own the last mile by providing you supportive care solutions to the same payer state and hospital partners, the same underserved patient populations in the same home care settings, while leveraging our data analytics and technology. We envision a future in which our personal care aides serve as the air traffic controllers in the patient???s home. If the patient???s food stock is meager, the aide can call on our nutritional meal delivery program. If the patient???s required medication is in short supply, the aide can deploy our NEMT services to transport replenishments to the patient zone. If the aide notices a special need for medication management, or remote monitoring, we can bring VRI solutions into the patient???s home. If the aide detects a need for nonemergency care outside of the home, or any empty business is there to provide the ride. We believe that a synergistic ecosystem like this will thrive as healthcare increasingly moves away from higher cost institutional settings to lower cost home settings preferred by the patients and their families.

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

I???d like to send a special thanks to every member of the ModivCare community of team members, transportation providers, clients, payer, state and hospital partners who are helping us to realize our vision and are relentless about improving patient???s lives. ModivCare continues to make a meaningful difference in transforming the way patients connect to care, and your commitment and dedication make this possible. On the regulatory front, we remain encouraged by support from legislative leaders and the Biden administration for home and community-based services. The recently introduced Better Care Better Job Act provides a valuable framework for expanding these services for more than 3.2 million Americans while helping more than 1.1 million family caregivers returned to work in creating more than a half a million new homecare jobs. This vital investment, if passed into law could help seniors and people with disabilities access, needed support and put the family caregivers back to work.

Moving on to a few second quarter highlights. In the second quarter of 2021, we reported total adjusted EBITDA of approximately $53 million, with $43 million coming from our NEMT segment and $10 million coming from our personal care segment. These results were in line with our expectations and reflect the current state of the pandemic and its impact on activity across both businesses. NEMT trip volume has increased incrementally, as we anticipated, yet remains below pre-pandemic levels. We expect the utilization will steadily increase going forward as the healthcare environment returns to a more normalized level. While an increase in trip volumes will lead to increased costs to service our patients, ModivCare is also making excellent progress on our cost reduction initiatives, which we call Project Storm.

We have targeted $50 million of total annualized savings from this program by year end, and we believe we will be able to successfully sustain these savings as utilization returns. In our transportation, nutritional food delivery business, we have built a modernized interface for transportation providers and patients that rivals that of Uber or Lyft. This easy-to-use, user interface is reducing patients need to call our contact centers while increasing automation for our transportation providers.

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

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

Heath Sampson

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

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

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

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

Second quarter NEMT adjusted EBITDA was $43 million in 2021, flat sequentially compared to $43 million in Q1 2021. But down on a year-over-year basis compared to $62 million due to the higher service expenses mentioned previously. Utilization increases primarily impact our margins on our full risk contract, which, again, represent 44% of our revenue. We know our contracts well, and they are performing as negotiated with our customers. We expect utilization to steadily increase throughout 2021 and anticipate that it will be normalized by early-to-mid 2022. We are confident that our operational initiatives and platform modernization will support these normalized utilization levels and ensure our NEMT business achieved our adjusted EBITDA margin expectations of 7% to 10%.

We believe our size and scale, coupled with our modernized low-cost platform is a major competitive advantage. As Dan said earlier, this modernized platform with over 30 million patients served as unique sales channel for other social determinants of health offerings.

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

Moving to our balance sheet. ModivCare ended the second quarter with a very strong financial position, including $291 million of cash and cash equivalents as of June 30, and an undrawn $225 million revolver. Cash flow provided by operations in the second quarter of 2021 was $35 million. While year-to-date cash flow from the operations was $169 million.

ModivCare???s strong year-to-date, cash flow has been driven in part by an increase in our contracts payable, which relate to our customer payments associated with our reconciliation and rebate NEMT contracts, which we detailed on our first quarter of 2021 earnings call.

During the quarter ModivCare repurchased $25 million of shares under our share repurchase program, bringing our year-to-date repurchases to $39 million. We don???t anticipate any additional share repurchases for the remainder of the year. As we shared last week, ModivCare announced plans to expand our personal care footprint in the Northeast with the acquisition of Care Finders Total Care. Following the transaction, our personal care segment is expected to generate over $650 million of annual revenue, which puts us well on our way to reach our near term goal of generating $1 billion of revenue and $100 million of EBITDA from personal care annually.

The total purchase price of the all-cash transaction for Care Finders is $340 million, subject to customer repurchase adjustments. The transaction is expected to generate $34 million in present value of estimated tax attributes, bringing the net purchase price to $306 million,

representing a 10.3 times multiple in trailing performance adjusted EBITDA of approximately $30 million, including synergies. We expect the forward EBITDA multiple to be below 10 times as we anticipated recovery in EBITDA growth the following the negative impact of the government unemployment incentives and COVID-19. EBITDA margin at Care Finders are slightly higher than ModivCare???s existing personal care segment based on the differences in reimbursement rates between the state in which Care Finders operates relative ModivCare???s personal care segment. Including Care Finders our pro forma personal care will continue have EBITDA margin in line with our long-term target of 10% to 12%, albeit at the higher end of this range. We are excited about the acquisition and anticipate we will be immediately accretive to ModivCare with an initial expectation of mid-to-high teens earning accretion in 2022 and beyond.

As Dan previously mentioned, we announced the acquisition of VRI earlier this week. VRI is one of the top healthcare focus remote monitoring companies in the U.S. with $56 million of highly recurring revenue. The company boasts attractive EBITDA margins in the mid-to-high 30% range. VRI???s top-line is expected to continue to grow in the mid-teens over the next several years, driven by an attractive pipeline of new business opportunities across both Medicaid and Medicare Advantage market. The total purchase price for VRI is $315 million, subject to customary purchase adjustments, in an all-cash transaction. This represents a 15 times multiple to LTM EBITDA of $21 million, while the forward multiple will likely be a couple of turns lower due to the strong growth expectations. We believe there are terrific cross selling opportunities from these transactions given the very similar payer mix, as nearly 60% of VRI???s revenue is from Medicaid with another 25% from Medicare Advantage. However, these cross-selling benefits were not factored into our base case expectations for VRI.

We anticipate both transactions should close prior to the end of the third quarter. We have committed financing of $400 million as well as full capacity on our $225 million revolver. We expect to put in long-term debt financing in place to the closing of ??? prior to the closing of these transactions. ModivCare???s pro forma net leverage ratio is currently expected to be in the mid-three times range. This is consistent with ModivCare???s net leverage expectation at the time of the Simplura acquisition announced in September of 2020. Since the Simplura acquisition, we have reduced our net leverage into the one times range driven by EBITDA growth and strong cash generation. Our target leverage ratio remains three times. So, we???ll be focused on using free cash flow generation to pay down debt going forward.

Briefly touching on Matrix, in which we hold a 43.6% equity investment. Matrix???s top-line continues to be strong in 2021. For the second quarter of 2021 Matrix???s revenue was $114 million, an increase of 26% from $91 million in the second quarter of 2020. Matrix recorded adjusted EBITDA of $23 million, or 20% of revenue compared to $33 million, or 36% of revenue for the second quarter of 2022. Q2 2021 adjusted EBITDA was negatively impacted by Matrix???s clinical solution business due to a faster than expected vaccine rollout from previous quarters and the winding down of COVID testing. This was partially offset by the launch of the clinical trials business in October of 2020. ModivCare remains excited about the future opportunities for Matrix and we remain engaged and aligned with our private equity investment partner. We believe that Matrix represents substantial hidden value is not reflected in our share price, especially given peer market multiples.

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

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

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question today is coming from Bob Labick from CJS Securities. Your line is alive.

Bob Labick

Good morning, congratulations on a great quarter and execution, and certainly all the transformative moves you???ve announced.

Dan Greenleaf

Thank you, Bob.

Bob Labick

Yes, a lot of exciting stuff. It???s too much to dig into really. So, I???m going to stick with core business and the quarter for now. Could you ??? starting with the NEMT, could you highlight where you stand? I know you kind of reiterated the $50 million run rate savings Project Storm by year-end. Can you just dig into that a little give us a sense of the initiatives and the buckets of savings behind that $50 million? And then are there additional cost savings behind Project Storm as we look forward?

Dan Greenleaf

Yes, Heath can certainly jump in here too. But there???s really five or six things that contribute to this, Bob, one is waist and that???s really around in eligible riders. The IVR IVA, we???re ??? we have a goal of getting call containment in the 15% to 30% range cost overrides, which is for all intents and purpose at surge pricing, and just making sure that we continue to manage that effectively. That???s something they really stopped doing in 2019, for example, and then our outsourcing initiatives, and we???ve got, I think, in a ??? from a BPO standpoint, we???ve got approximately 800 people now, either onshore or offshore. And so we feel ??? and we feel really, really good about how we???re tracking the first $50 million. And really feel like those annualized savings will be in before the end of the year. And then when it comes to what???s next, we have a lot this next, Bob, I don???t ??? there???s, we ??? as we continue to go digital, we think there are all kinds of opportunities to optimize and streamline the way the business is being run. And is there a possibility of another $50 million? Yes. When at some point, as we put in work ??? I think we mentioned that we called the first initiative Storm. We???re calling the second initiative Lightning. And I think we???re bullish about the work ??? the pre-work that???s been done and what we???re starting to execute upon, but I think those would be some of the bigger buckets. I mean, the other one is real estate, you could imagine if you know where we are with that, as if ??? we have a workforce that???s less decentralized as relates to the U.S. we???re just not going to need as many ??? we???re just not going to meet as many facilities. And I think that???s another big bucket, and we continue to make really good progress on that.

Bob Labick

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

Heath Sampson

So a couple things. We???re at approximately 50% of our networks digitized. So it???s a massive improvement of where we were in just from August of last year, and we remain on track to be at 90%. So that???s going unbelievably well. And we???ve got some markets that are already at 90%. So for example, Utah is already at 90%. So, we feel like we???ve made enormous progress. I mean, we ??? it???s something that, frankly, almost everybody in the organization is involved with. I mean, at the end of the day, we want to make doing business with us easier. And whether that???s a transportation provider, or whether that???s a member, whether that???s a care coordinator, or whether that???s a fellow teammate, whether that???s the payer state, this digitized network just unlocks a lot of, I think, opportunity improve member experience, and also customer experience.

So, we feel like, we???re making enormous progress. As relates to WellRyde, if you had asked Walt Meffert, who???s our Chief Information Officer, what was our ??? are we in control of our future? And if somebody had asked Walt that a year ago, he goes, I???m not certain of that. With the acquisition of WellRyde, we???re absolutely unequivocally in control of our future. We bought the gold standard, from an industry perspective, in fact, six of our competitors use this product. So, what does that mean? I think what it means Bob is like, we???re building moats. We???re building moats, because we have personal care. We???re building moats, because we were ??? we???ve moved into remote monitoring. We???re building moats because we have unequivocally the best technology in the industry. And it???s we feel like we???re ??? we continue to move from a position of strength. And we???ve always been, as, Bob always been the biggest. We just haven???t always been the most sophisticated and most nimble and frankly, we???ve in many respects all for that.

Dan Greenleaf

Yes, Bob a little bit more on that, you can see the member experience because you guys feel like it pick when you take an Uber or Lyft, right, you know where your car is, the driver knows where you are. So that???s just wonderful from an experience for the member. The other items below that, just with getting well right in place. Now we can actually see all those drivers electronically. So that will help in routing, in automated routing. So you see those, then you know, okay, I can reroute and this car goes there, this car goes the other way. The other item, as things get automated within that technology, we connect all the eligibility data to that, which allows it to happen instantaneously to ensure that, that member can actually take that drive for this type of service.

So you can imagine what that does for all the manual processes below, and Dan says this all the time and claims, we can reduce the, that the manual nature of that by like 80%. And that just runs across all our high teens locations. So that???s why we???ve been successful on storm. That???s why we feel really successful about Lightening. And that???s why we really feel good about how we can, as we move into being the low cost provider with the biggest scale. So pretty exciting.

Bob Labick

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

Dan Greenleaf

Well, I mean, I???ll speak to the states now with Care Finders, we have our largest presence. We just got a $2 rate increase from state of New Jersey, we announced it in the deal. It???s effective July 1. So, it???s gone from $20 to $22. So we on an hourly basis. So we feel like, we have flexibility there in our New York contract, that those rate increases if wages go up are already built in. So from my perspective, given the markets we???re in, I feel really good about, how we???re positioned, how the states are responding to wage, if you will wage pressures, at least, from the markets were involved with.

And so I don???t really perceive that. I don???t really perceive that being an issue. I think I will say this, Bob, I mean, I???ve made this very clear to people, internally, is that I???m a believer in living wages. And this company has historically wasted a lot of money. It???s spent $25 million on recruiting, in their contact centers, it???s spent, you could imagine what it ??? what the impact of not having appropriate staff does the things like overtime, or what not having appropriate staff does to things like our turnover, what it does the things as it relates to temp labor. And so, again, as we build out the scalable model that takes the best from the U.S. and the best from our business process outsourcing and our best from technology. We???re going to be in a really unique position.

And, frankly, it???s my goal to achieve a minimum living wage for members of our team. And but in order to do that, we have to get the waste out. And we???re well, from my perspective, we???re well on track to do that.

Bob Labick

All right, that???s great. Thanks so much.

Dan Greenleaf

Thank you, Bob.

Bob Labick

Thank you.

Operator

Thank you. Next question today is coming from Brian Tanquilut from Jefferies. Your line is now live.

Brian Tanquilut

Hey, good morning, guys. And congrats on the quarter. I guess???

Dan Greenleaf

Thank you, Brian.

Brian Tanquilut

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

Dan Greenleaf

The interesting thing is and I think this is one of the problems that, sometimes we get focused on is that we do uni-varied analysis as it relates to utilization. And so, what do I mean by that is that, COVID is multifactorial. So, while we may see utilization drop.

We???re seeing pressures in other areas like unit cost. And that has a lot to do with COVID. Because you think, we???re not doing as much multi loading, the level of service sometimes is higher, we may be more dependent upon on ambulances or other types of vehicles. So, you know, I???d be very wary, because when I look at our performance, what I think about Brian, I think about, we bought National MedTrans was, sometimes people forget that, just how valuable that has been for our company. I look at, where we were through the third quarter of last year, we said, we achieved $17 million of EBITDA. So, let???s not forget that. Then we add another $10 million of what we???re doing on the personal care side, which is, if utilization had been normalized, that number would be significantly higher.

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

Heath Sampson

Yes, the other thing I???d add, just on that on utilization is definitely up a lot since last year, last quarter, right, we say that, you see it, and you see it as well, we???ve said that, and also, on top of Dan???s point, I think we???ve got a lot better, we???ve done a lot better job on how to manage that in the specific markets. And you layer on everything else Dan just talked about, we feel good about it. So typically, utilization has been up over these last couple of weeks with Delta variant too early to tell. It???s kind of flat to where it is. And so when I said in my numbers pre Delta, that we???ve seen a steady uptick, and we expected in kind of mid to early 2022, we???d be at those normalized levels, the beauty of that we feel good about our numbers, and see that so if it doesn???t happen, it doesn???t happen.

Our numbers will be strong as well. So I think we???ve got a good handle on it. It was predictable, Delta variant, TBD, what it does for us.

Dan Greenleaf

And we???ve seen some, like increases in absenteeism, Brian, I mean, if you, just kind of like, we???re run typically around 15%. It???s moved to 20%. I mean, I think that, for a variety of reasons. So we???ve, we see some of that just from managing our business standpoint. But he???s right, we look at utilization every single day. And it???s about where it???s been. So I don???t ??? we haven???t really seen any impact on that, at this point in time. Other than, some of the issues, I think we talked to you guys, I mean, during June of 2020, I mean, we saw absenteeism rocket up to like 40%.

So, we???ve done this before, this is, seems to be a lot less impactful this time through. And, we again, we feel incredible about where the business is and the things we???re doing. And I again, I think there???s a lot of talk about utilization, but I think if there???s negative aspects of utilization that, as we get supply back into the system. Some of the things that have negatively impacted us will go away as well and will show up in the numbers and they???re, there???s they???re not insignificant. Brian. And so I think that???s the only other thing I would say I think the things we are doing, in terms of acquisitions, in terms of driving business performance are having a bigger impact now than utilization.

Brian Tanquilut

That makes a lot sense. Heath just question on the payables. How much? I???m not sure if you disclosed that in the prepared remarks payables?

Heath Sampson

Yes, no, I don???t think I did. So think I did, obviously, in the queue we???re at 296 million of the payables was about 21 million of receivables that are in our accounts receivable lines even net those together. So that???s where we are from a payables perspective.

Dan Greenleaf

We lose you Brian.

Operator

Our next question is coming from Brooks O???Neill from Lake Street Capital. Your line is now live. Brook, are you on mute?

Brooks O???Neill

Hey, sorry. Sorry, guys. I???ve been dropping on and off the call. I???m not sure why. So if I asked the question that???s already been answered, just say that and I???ll read the transcript. But I guess I???m going to try to keep it simple. My first question is, Heath mentioned the 3.5 times leverage objective, I think post the two acquisitions and the financing. I was just curious if that reflect any assumption related to Matrix, or the status of Matrix as for you guys.

Heath Sampson

Yes. So I???ll clarify. So with after the acquisitions, we???ll kind of be at the low, three times. And our goal is always to get to three or below in the future. And then that does not include anything to do with Matrix. Obviously, if the monetization event of Matrix that???d be a wonderful opportunity for us to deliver well below that, that three times level of goal that, that we always have.

Brooks O???Neill

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

Dan Greenleaf

Yes, I mean, I would tell you is that we have a, world class CEO in the name of Dave Middleton. And, frankly, from a recruiting standpoint, it???s something you have to focus on every day. And we???ve also, implemented a new technology solution that, that is, I think delivering a number of candidates to us. And I don???t, I would say ??? I don???t, there isn???t a silver bullet here. I think the silver bullet ultimately will be the stimulus drying up. And I agree with you, I just saw the jobs report here that, unemployment, U.S. new unemployment rate hits new pandemic-era low.

So, we???re seeing improvements. And again, I think we???re, one of the beauties of our business, is the fact that the ??? while utilization has, in some shape performed, helped us on the transportation side, it???s heard us on the personal care side, and it???s an incredible hedge for us, and especially given the size of our personal care business with the acquisition of Care Finders now. And, let???s not lose sight of, that opportunity. And so we, I guess, I would say about [indiscernible]. I feel good about where we are from a labor perspective. You know, we???ve been at a certain number of hours for some period of time, but we are seeing improvements in recruiting, we???re implementing, different technologies. I don???t think we???re in the business of offering $1,500 sign on bonuses like Burger King, but again, I feel good about where we are. I think the other thing I want to point out is like because of all the you know, overlap of our businesses in the northeast, particularly Care Finders and Simplura where we???re kind of the, if you???re on the aid side, we are the company of choice.

And, what our aides want is they want predictable hours. And when you have 30 to 35 million hours, or maybe more, post-COVID, we???re going to be in a really good position to recruit people because, they???re going to have predictable take-home pay. And that???s at the end of day, Brooks. That???s what they want. They want predictable take home pay.

Brooks O???Neill

Cool, and they assume they also want a strong employer that treats them fairly. And I know you guys are doing that. So I???m excited for you. I???m going to leave it at that and circle back around after I???ve had a chance to read some of the stuff I missed. Thank you very much.

Dan Greenleaf

Thank you very much, Brooks.

Operator

Thank you. Next question today is coming from Mike Petusky from Barrington Research. Your line is now live.

Mike Petusky

Good morning, guys. Few questions ??? Dan, do you have any quantifiable data on the impact of your digital digitization in the call centers where you can say, hey, yes, in this call center, we???ve seen a reduction of 15% of sort of inbound calls, checking on rides, or what have you do ??? Have you seen any data like that or accumulate any data that suggests. Hey, this is working?

Dan Greenleaf

Yes, I mean, we track, for example, where we are from call containment, we???re at about, frankly, below where we wanted to be, but about 8%, for example, on the IVR, IVA again, I think best-in-class is somewhere between 15% and 30%. So we still have I think, lots of opportunities. The other thing we???re tracking is just flat out how much of our network is digitized. We already mentioned to you that we???re at about 50% at this point in time, which is, really, really, really strong number and it, allows us to lock above a lot of opportunities, as Heath said, in terms of just reducing the manual nature, historically of this business. So I think those are ones that I would point to the other one I???d point to is, we???ve got 800 people in our business process outsourcing as well.

And that???s a, that provides us an enormous amount of flexibility, provides us a significant opportunity to scale. And then I think, ultimately will allow us to, again, I think, to better utilize our resources. So those are the ones that I would, call your attention to, I don???t know, heath, what am I missing.

Heath Sampson

Yes. So all those in, get to the right way to look at it once the dollars and we talked about the dollars already, but you the trip volume that we have, you have that trip volume relative to the calls coming in the door. So that is the ultimate two metrics to look at. And with all the initiatives you have in place, that is that trip volume is going up, and that call volumes not going up concurrently. That means you???re doing the right stuff. And that???s what???s showing up in the data.

Mike Petusky

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

Dan Greenleaf

Yes, I would say ??? we would see gradual improvement in the third quarter. I think ??? again, it???s going lot of it???s going to have to do with, what???s happening with COVID. And obviously,

the stimulus package, but I would see, more significant improvement in the fourth quarter. And again, I think we???d start seeing things ramp up again, and in the first quarter. Yes. And again, just keep in mind, I mean, prior to COVID, the Simplura personal care business is tracking a 22 million hours a year.

If you look at where we???ve been kind of run rating right now is about $18.7 million. And so my point in that is like there is a ??? there is a whole bunch of opportunity here, where in terms of where they???ve been historically but also, just from a demand standpoint, the demand is well above that 22 million hours. And so, again, I think we???re going to be in a really good position, bring Care Finders and support together and, remain extremely bullish on this business. And, as that we talked about, how important we believe that, that personal aid is going to be to our business model, in many respects, the future of healthcare.

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

Mike Petusky

A couple more, I???ll make Heath do a little work here. Heath, what???s your sense in terms of, sort of working capital cash, as you move forward, presumably close these transactions later this quarter? Like, how are you going to sort of run cash at what level? Or have you thought, a range of level for cash on the balance sheet, moving forward after you???ve closed these transactions?

Heath Sampson

Yes. So as ??? we have close to $300 million, $290 million of cash right now. And a revolver at 225 undrawn and the ability to grow that to $300 million, if we wanted to spring the accordion, then, what the price is of the acquisition. So using a lot of cash to pay for that, which is great, but then ??? and then yes, I do think we have some longer term debt that we???re going to need in place. So we will, the big driver of the working capital, it is all those payments, those reconciliation and rebate payments, so we have great insight into when we pay those.

And those, a good chunk of them would be paid over the next 12 months from now, right? So we have a really good insight into, into that whether or not the payables continue to grow is all going to be based on the assumptions around COVID. They have been growing, likely going to continue to grow our utilization system, all that coming together, we feel really good about our working capital, we obviously strong balance sheet. We made these two acquisitions, our leverage is going to be at that low three, mid to low three, on a net basis. And of course, our focus will be to deliver that as we move forward.

Mike Petusky

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

Heath Sampson

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

Dan Greenleaf

Well, the also the free cash flow of the business.

Heath Sampson

Yes. Adjusted EBITDA on our business because the low CapEx is a good proxy for free cash flow so???

Mike Petusky

All right. And then Heath last one, have you considered, and maybe there hasn???t been a final decision made, but just how you???re going to segment out? I guess the two new acquisitions and, are you going to ??? it???s going to get busy on your press releases with these new businesses? I mean, is it maybe homecare, transportation and remote monitoring? Or how are you thinking about that, if you have?

Heath Sampson

Yes. That???s a good way to think about it? Right. We???ll be looking at that, for sure. This year, and for sure, going into next year, we???ll have a different view. But you???re thinking about the right way, we don???t want to get too busy. But we also want to provide the right insight. So that???s the art, that we need to put in place but that you???re thinking about it, right? That???s the way we have it. And when we break out all that we???ll see and in some of the stuff that makes a lot of sense. So you can see the revenue side but even as important, as you know, is that the cost side? And right now the transportation, P&L is getting unfairly burdened with all the technology investments and we got to break that out.

Dan Greenleaf

And amortizing, he said he???s compensation too. So there???s a lot more to it than just the technology investment.

Heath Sampson

Yes. So we???ll be breaking that out as well. So you can really see the profitability of each of these segments. And then understand what we???re using as growth investment as well. So long story.

Mike Petusky

Let???s quick, let me just squeeze this in Dan on the new vertical in nutrition. So would ??? had be broken out separately? Or would that just sort of be priced inside of the transportation contracts or how should we think about, what we???re going?

Dan Greenleaf

Yes, I think ultimately that would be broken out. But I think initially given its, we???re launching it in the next month or so, we???re going to, it???s going to take some time to ramp that up. But ultimately, I would envision that, the way we???re thinking about the business is we???ll have these four business units, we???ll have, because of this ownership of this channel, which is just, I think about what was here, when I got here, Mike, and the company was managing 25 million to 30 million members and, and had this incredible relationship and channel into, these populations and now, I think, we???re really understanding like, that was an, we own this channel, now, it???s time to build out the services.

And as we talked about, these services are also very complimentary to the NEMT business. But my point is, we will, the beauty of it is, I guess, where I???m going with all this, Mike, is that we???re going to have a sales team that???s, that already owns this channel, that???s going to be selling these products into these channels. And this isn???t a big team, I think we can do it with, account management and the 10 person range and the sales team and the 10 person range.

And again, I think my point in all this is that, we???ve thought through the four verticals, how we???re going to sell in because the ownership of the channels, and then there???ll be this back office as he talked about the amortization of a lot of the back office functions over the four business units.

Mike Petusky

Very good. Hey, congrats on all the progress. Thanks.

Dan Greenleaf

Thanks you, Mike.

Heath Sampson

Thanks Mike.

Operator

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

Dan Greenleaf

Thank you very much. And, again, thank you all for participating on the call this morning. We won???t be on the road for investor conferences in the near term given COVID-19. We remain accessible for one-on-one calls. Please reach out to our Investor Relations firm. The Equity Group if you???re interested in scheduling a follow-up call. We look forward to reporting back to you in November, when we release our third quarter 2021 financial results. Stay safe and have a good day.

Operator

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