So, hopefully that’s helpful.
Scott Fidel: Yes. Okay.
Operator: Our next questions come from the line of Bob Labick with CJS Securities.
Peter Lukas: It’s Pete Lukas for Bob. I just wanted to clarify your free cash flow targets for ’24. Does that assume payment of those delayed payments that you called out and said you expect to get?
Heath Sampson: Yes.
Barbara Gutierrez: Yes, Peter.
Peter Lukas: Great. And then I guess a lot has been covered. Just one more for me. How is the market for Matrix, how has it changed — for Matrix, how has it changed or evolved over time? And what are your current thoughts on the likelihood of Frazier monetizing the asset in ’24?
Heath Sampson: Yes. So similar to what I said before, I think we’re aligned with our partners. The best thing is to support the management team and get the highest value. So my estimate of 12 months is what I expect but it’ll be when it’s the right time and Frazier wants to also monetize when the time is right. So consistent with what I said before, that’s it. The value of Matrix is the nursing network, right? So it matches with what’s happening in healthcare. Though there is some pressures around risk adjustment. Really though, risk adjustment couldn’t be, is more of a need than it has ever been because of what is necessary to do with that specific patient. So the value is we have a national platform across all the payers, risk adjustment demand remains.
And then, since you have those nurses and you’re in the home, you can do a little bit more or a lot more, whether that’s giving a vaccine to closing another gap. So that’s what we’re enabling this management team to work on and build and we will monetize at the right time.
Operator: Bob, did you have any further questions? It sounded like you were about to say something else.
Heath Sampson: No. Next question.
Peter Lukas: No, I’m good.
Operator: Our next questions come from the line of Mike Petusky with Barrington Research.
Mike Petusky: So appreciate the commentary around your confidence in the collectability of the delayed payment and the possible timing. I didn’t catch, though, if you commented on it. Is there a material disagreement between the parties in terms of what’s actually owed?
Heath Sampson: Well, so, it’s — all of our contracts that are with shared risk, this is why they reconcile over many months. So it’s complicated. But we’ve been under this contract with this customer. Well, one, they’ve been a long-time customer of ours many, many years. And this contract structure started in late 2022. So we feel really good about the math and the collection of the entire amount. It’s in line with the requirements of the contract. So we’ll collect it within the next 60 days or so.
Mike Petusky: And then — and forgive me, I was off the call for about 3 minutes and I may have missed this if you guys talked about this. Did you give or could you give sort of a sense of the cadence of free cash between first half and second half? I see that the target is essentially sort of $50 million at the midpoint for ’24 but just in terms of the cadence of first half versus second half?
Barbara Gutierrez: Yes. Thanks for the question. It’s Barb. Yes. In the prepared remarks, we comment about the first half, we will have some tensions on our cash flow. And we’ll be generating the cash in the back half of the year.
Mike Petusky: Okay. So that part actually caught but I was wondering if there might be at least some kind of range or quantification range of exactly how much you are expecting within your guidance to have to generate in the second half to get to that sort of $40 million to $60 million [ph]?
Heath Sampson: It’s really all of it in the second half, Mike. So again, the amounts in the first half and then, though, Barb says tensions but it really is redetermination and utilization and the contracts are working. So it’s working capital and the bulk of it is this increase in receivables, because redetermination is bringing down our membership. And that’s just — the delta between that, we throw in our balance sheet within receivables. So it’s arithmetic, both in AR and then paying off the account, the contracts payable. But because of predetermination not ending till April, May. That’s the main reason why we utilize so much in the first half of the year. But that’s also done in the first half of the year which is why we’ll quickly ramp that rest to that kind of midpoint of $50 million.
Mike Petusky: Right. I mean, it should be — and sorry for pressing on this but I do think it’s important. I mean, it is — so are we looking at, like, sort of a negative $20 million, $25 million [ph] a quarter in the first half and then sort of making that up plus in the second half?
Heath Sampson: Yes. So, well, we have a refinance line and there’ll be fluctuations that happen within the first couple of quarters. So we’re not going to guide to what’s actually going to happen in Q1 and Q2 around cash flow but we have a lot of confidence in our exit rate around cash flow.
Mike Petusky: Okay. And then I just wanted to staying on this topic in terms of free cash, the $40 million to $60 million target does not include any refi which you’ll likely do in the first half. A refi of the ’25. And it also — does it include the amendment to the revolver or is that not included in the $40 million to $60 million either?
Heath Sampson: Yes, the amendment to the revolver is in there. And that’s relatively small, right? But it doesn’t include the additional interest on the 2025. And going to — I think it was Pito’s question before. We did give a range there. So I think it’s going to be higher interest but we’ll also be bringing down, as we start generating cash flow, we’ll be able to bring down that line. So the right way to think about it right now and we’ll get more specific when we do refinance is in that higher end range which was closer to 70 [ph] as a total annual number.
Mike Petusky: Okay. And then just last question. You sort of alluded to some contract decisions being pushed out. Are you hopeful and obviously you’ve had great success in contract wins in ’23. Are you hopeful that in the second half of ’24, some of these decisions, these awards will be made and sort of setting up for ’25? Or do you get a sense that a bunch of this may push into ’25 and who knows beyond?
Heath Sampson: So what I was referring to was the state business with Mobility. So and those — a lot of those contracts, especially in the second half of ’23 and even in ’24, have been pushed out. But I do expect RFPs to happen in 2024. But when those awards happen, that volume won’t come on until 2025. And then the success rate that we’ve had in our recent state bids that did come up and that we talked about, right? We won one and then extended one and then renewed. So I expect that we will win more than we lose. Therefore, that happens in ’24 and we’ll let you know when that happens in ’24 but that — and then we’ll appropriately tell you what’s going to happen in ’25 when that new volume comes on.
Mike Petusky: Any rough quantification of how much business is out there to sort of be bid on for…
Heath Sampson: Yes. So consistent with this, I think, a couple of quarters ago we said this, the TAM for state is about $1.2 billion to $1.3 billion and we have about half of that ourselves right now. So we have the ability to go after that other half. That entire $1.2 billion is not going to churn in ’24 or even ’25 but there’ll be meaningful opportunities for us to grow, to retain that half as well as to grow above that.
Operator: Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Heath Sampson for any closing remarks.
Heath Sampson: Thank you for participating in our call this morning and for your interest in ModivCare. Our updated investor presentation is posted on our Investor Relations website. If you want to schedule a follow-up call, please contact Kevin Ellich, our Head of Investor Relations. Thanks and have a great day.
Operator: Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect at this time. Enjoy the rest of your day.
