Modivcare Reports Fourth Quarter and Full Year 2023 Financial Results; Issues 2024 Guidance Denver, CO – February 22, 2024 – Modivcare Inc. (the "Company" or "Modivcare") (Nasdaq: MODV), a technology- enabled healthcare services company that provides a suite of integrated supportive care solutions focused on improving patient outcomes, today reported financial results for the three months and full year ended December 31, 2023. Fourth Quarter 2023 Summary: Full Year 2023 Summary: Non-GAAP financial measure r ...

Financial Data and Key Metrics Changes - The company generated strong free cash flow of approximately $45 million in the third quarter [3][137] - Adjusted EBITDA for the third quarter was $51 million, with a net loss of approximately $4 million, while adjusted net income was $20 million or $1.44 per diluted share [45][137] - The bank-defined net leverage ratio declined sequentially to 4.6x as of September 30, 2023, compared to 4.7x in the second quarter [21][137] - Revenue for the third quarter increased 6% year-over-year to $687 million, driven by growth in various segments [137] Business Line Data and Key Metrics Changes - NEMT adjusted EBITDA margins improved by 150 basis points sequentially to 7.3%, driven by a $4 million reduction in adjusted G&A and improved gross profit per trip [46][137] - Personal Care Services revenue increased 6% year-over-year to $180 million, with a 2% growth in hours and a 4% increase in revenue per hour [47] - Remote Patient Monitoring revenue growth was solid, primarily driven by industry-leading referral sales penetrating new Medicaid markets [135] Market Data and Key Metrics Changes - Total membership decreased 6.6% year-over-year to 33.7 million members, with a sequential decrease of 2% in average monthly members due to Medicaid redetermination [18] - The company expects a 10% to 15% range impact on membership from redetermination [60] Company Strategy and Development Direction - The company is focused on four strategic pillars: people, operational excellence, growth, and innovation [11] - Initiatives include multimodal trip assignment, omnichannel member engagement, and customer integration, targeting $30 million to $50 million in cost savings over the next 12 months [132] - The company aims to maintain adjusted EBITDA margins of 10% to 12% while continuing to invest in growth [126] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about realizing benefits from new wins, including a new mobility MCO business with a total contract value of $138 million starting in 2024 [7] - The impact of Medicaid redetermination is expected to be $5 million to $10 million for the second half of 2023 and $20 million to $40 million in 2024 [19] - Management believes that a recession could be beneficial as more people may need services, potentially increasing Medicaid roles [109] Other Important Information - The company has a 43.6% minority stake in Matrix Medical, which is expected to generate adjusted EBITDA between $50 million to $100 million [16] - The company is committed to a disciplined capital allocation strategy, focusing on paying down debt and improving flexibility in its capital structure [141] Q&A Session Summary Question: Can you explain the sequential increase in utilization while service trip expense decreased? - Management indicated that the improvements in automation and operational efficiency are driving strong margin improvements, and they expect margins to continue to improve [24][25] Question: What are the expected cash flow and DSO metrics going forward? - Management noted that DSO is around 26.8 days, which is the lowest in their model, and they expect to maintain strong cash generation [54][55] Question: Can you provide insights on the savings from multimodal and omnichannel strategies? - Management stated that omnichannel engagement accounts for over 50% of cost savings, while multimodal contributes about 20% to 25% [61] Question: What is the company's strategy for the next few years? - The strategy focuses on scaling operations, improving service delivery, and enhancing margins through centralization and automation [64][66] Question: How does the company view the impact of a potential recession? - Management believes that a recession could lead to increased demand for services, benefiting the company as more individuals may require assistance [109]

PART I—FINANCIAL INFORMATION [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) The company's net loss widened significantly year-to-date to $199.2 million due to a major goodwill impairment, decreasing assets and creating negative operating cash flow [Unaudited Condensed Consolidated Balance Sheets](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to $1.76 billion due to a $183.1 million goodwill impairment, causing a sharp decline in stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | **Assets** | | | | | Cash and cash equivalents | $8,070 | $14,451 | ($6,381) | | Goodwill | $785,554 | $968,654 | ($183,100) | | Total assets | $1,763,086 | $1,944,272 | ($181,186) | | **Liabilities & Equity** | | | | | Short-term borrowings | $83,000 | $0 | +$83,000 | | Total liabilities | $1,604,225 | $1,589,716 | +$14,509 | | Retained earnings (accumulated deficit) | ($19,185) | $180,023 | ($199,208) | | Total stockholders' equity | $158,861 | $354,556 | ($195,695) | [Unaudited Condensed Consolidated Statements of Operations](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) Year-to-date revenue grew 10.7%, but a $183.1 million goodwill impairment drove a substantial net loss of $199.2 million Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Service revenue, net | $686,925 | $647,782 | $2,048,338 | $1,850,472 | | Service expense | $579,214 | $534,563 | $1,718,735 | $1,498,108 | | Impairment of goodwill | $0 | $0 | $183,100 | $0 | | Operating income (loss) | $12,043 | $12,447 | ($155,622) | $50,467 | | Net loss | ($4,302) | ($28,505) | ($199,208) | ($24,859) | | Diluted loss per share | ($0.30) | ($2.03) | ($14.06) | ($1.77) | [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating activities used $57.3 million in cash year-to-date, a sharp reversal from the prior year, necessitating short-term borrowings Cash Flow Summary (in thousands) | Activity | Nine months ended Sep 30, 2023 | Nine months ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($57,327) | $45,526 | | Net cash used in investing activities | ($31,143) | ($104,390) | | Net cash provided by (used in) financing activities | $82,109 | ($1,827) | | **Net change in cash, cash equivalents and restricted cash** | **($6,361)** | **($60,691)** | [Notes to the Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Key disclosures include a $183.1 million goodwill impairment, details of the company's debt structure, and a $9.6 million legal settlement - The company operates in three main segments: **Non-Emergency Medical Transportation (NEMT)**, **Personal Care Services (PCS)**, and **Remote Patient Monitoring (RPM)**[24](index=24&type=chunk)[49](index=49&type=chunk) - In Q2 2023, the company recorded a **$183.1 million non-cash goodwill impairment charge**, with $137.3 million allocated to the PCS segment and $45.8 million to the RPM segment, triggered by a decline in stock price and market volatility[39](index=39&type=chunk)[72](index=72&type=chunk)[75](index=75&type=chunk) - As of September 30, 2023, the company had **$1.0 billion in senior unsecured notes** and **$83.0 million in outstanding short-term borrowings** under its credit facility[79](index=79&type=chunk)[82](index=82&type=chunk) - In May 2023, the company settled with its former CEO, Daniel Greenleaf, for **$9.6 million** regarding claims of a breach of his employment agreement[100](index=100&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Revenue growth was offset by a significant goodwill impairment and rising service expenses, tightening liquidity and increasing reliance on debt [Business Outlook and Trends](index=28&type=section&id=Business%20Outlook%20and%20Trends) The company faces near-term headwinds from labor shortages and Medicaid redetermination despite positive long-term demographic trends - Long-term growth is expected from an **aging population**, rising chronic illnesses, and a shift towards value-based and in-home care[111](index=111&type=chunk) - Near-term challenges include **labor shortages** for healthcare professionals, uncertain macroeconomic conditions, and negative impacts from **Medicaid redetermination efforts**[110](index=110&type=chunk)[111](index=111&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) Consolidated revenue grew across all segments, but profitability was erased by a $183.1 million goodwill impairment and higher service costs NEMT Segment Key Metrics | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Total paid trips (thousands) | 8,824 | 8,045 | 25,761 | 22,987 | | Average monthly members (thousands) | 33,660 | 36,026 | 33,892 | 33,998 | | Service revenue, net ($M) | $485.9 | $459.8 | $1,452.4 | $1,309.4 | | Operating income ($M) | $25.7 | $25.9 | $66.8 | $84.3 | PCS Segment Key Metrics | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Total hours (thousands) | 6,995 | 6,836 | 20,752 | 20,076 | | Service revenue per hour | $25.73 | $24.76 | $25.75 | $24.49 | | Service expense per hour | $20.45 | $19.42 | $20.13 | $18.90 | | Operating income (loss) ($M) | $4.3 | $2.3 | ($118.0) | $10.3 | RPM Segment Key Metrics | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Average monthly members (thousands) | 247 | 230 | 241 | 201 | | Service revenue, net ($M) | $19.8 | $18.8 | $57.7 | $49.4 | | Operating income (loss) ($M) | $1.0 | $0.6 | ($43.1) | ($0.2) | [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20capital%20resources) A significant decrease in operating cash flow to a $57.3 million deficit necessitated drawing $83.0 million from the credit facility - Cash used in operating activities was **$57.3 million for YTD 2023**, a decrease of $102.9 million compared to cash provided by operating activities of $45.5 million for YTD 2022[180](index=180&type=chunk)[183](index=183&type=chunk) - The company had **$83.0 million of short-term borrowings** outstanding on its Credit Facility as of September 30, 2023, with approximately **$164.0 million of remaining availability**[185](index=185&type=chunk)[188](index=188&type=chunk) Future Cash Requirements Summary (in thousands) | Obligation | Total | Less than 1 Year | Greater than 1 Year | | :--- | :--- | :--- | :--- | | Senior Unsecured Notes & Interest | $1,213,996 | $56,847 | $1,157,149 | | Short-term borrowings | $83,000 | $83,000 | $0 | | Operating leases | $42,299 | $8,902 | $33,397 | | Other current cash obligations | $515,888 | $515,888 | $0 | | **Total** | **$1,936,859** | **$691,662** | **$1,245,197** | [Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate exposure from its $83.0 million in variable-rate borrowings - The company is exposed to **interest rate risk** from its Credit Facility, which has variable interest rates; at September 30, 2023, **$83.0 million was outstanding**[194](index=194&type=chunk) - A sensitivity analysis indicates that a **one-percentage point increase in interest rates** would negatively impact pre-tax earnings by approximately **$0.8 million annually**[194](index=194&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were deemed ineffective as of September 30, 2023, due to previously identified material weaknesses under remediation - The principal executive and financial officers concluded that **disclosure controls and procedures were not effective** as of September 30, 2023, due to previously identified material weaknesses[195](index=195&type=chunk) - Ongoing remediation efforts are focused on key areas including **general IT controls (GITC)**, payroll controls, revenue process controls, and risk assessment[197](index=197&type=chunk)[199](index=199&type=chunk) - Management expects that testing the operating effectiveness of the remediation plan will **extend into 2024** for the PCS segment[202](index=202&type=chunk) PART II—OTHER INFORMATION [Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) Ongoing legal matters are not expected to have a material adverse effect on the company's financial condition or operations - The company is subject to legal proceedings in the ordinary course of business but **does not expect them to have a material adverse effect**[205](index=205&type=chunk) [Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) No material changes were reported from the risk factors disclosed in the 2022 Annual Report on Form 10-K - **No material changes** have occurred to the risk factors disclosed in the company's 2022 Annual Report on Form 10-K[206](index=206&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the reporting period - None[208](index=208&type=chunk) [Defaults Upon Senior Securities](index=47&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon its senior securities during the reporting period - None[209](index=209&type=chunk) [Other Information](index=47&type=section&id=Item%205.%20Other%20Information) No officers or directors adopted or terminated Rule 10b5-1 trading plans during the third quarter - No officers or directors adopted or terminated a **Rule 10b5-1 trading plan** during the third quarter of 2023[211](index=211&type=chunk) [Exhibits](index=48&type=section&id=Item%206.%20Exhibits) This section indexes all exhibits filed with the Form 10-Q, including certifications and corporate documents

Financial Data and Key Metrics Changes - In Q2 2023, revenue increased by 11% year-over-year to $699 million, driven by 11% growth in mobility and the Home division [19] - Adjusted EBITDA for NEMT was approximately $29 million, down 38% year-over-year due to increased service expenses and a prior year benefit of $7 million from repricing [20] - Contract receivables collections increased to approximately $16 million in Q2 from $6 million in Q1, indicating improved cash flow [22] - The company lowered its adjusted EBITDA guidance due to higher NEMT utilization and associated costs [24] Business Line Data and Key Metrics Changes - NEMT revenue for Q2 was $497 million, with a 1.5% year-over-year increase in average monthly members to 34.3 million and a 9% increase in revenue per member per month [30] - The Home division's personal care revenue increased by 11% year-over-year to $180 million, driven by a 3.4% growth in hours and a 7% increase in revenue per hour [31] - RPM segment revenue increased by 15% year-over-year to $19 million, supported by strong referral sales [21] Market Data and Key Metrics Changes - The company anticipates Medicaid redetermination could create an adjusted EBITDA headwind of approximately $5 million to $10 million for the second half of 2023 [11] - The company expects regular growth in Medicaid and MA programs to counterbalance the impacts of redetermination [11] Company Strategy and Development Direction - The company's strategy focuses on digital transformation and operational excellence, with a strong emphasis on automation and improving member engagement through omnichannel options [14][15] - The company is pursuing approximately $700 million in new opportunities in its MCO pipeline, aiming to provide holistic solutions beyond transportation [16] - The company is committed to growing supportive care services focused on social determinants of health [29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in generating substantial cash flow in the second half of 2023, driven by normalized working capital and strong core cash flow [9][37] - The company is optimistic about its long-term growth strategy despite the challenges posed by Medicaid redetermination [35] - Management highlighted the importance of automation and cost-saving initiatives to improve margins and cash flow generation [91][119] Other Important Information - The company ended Q2 with approximately $7 million in cash and had $126.5 million drawn on its $325 million revolver [33] - The company continues to target a net leverage of three times, expecting to achieve this through debt reduction and EBITDA growth [34] Q&A Session Summary Question: What is the impact of Medicaid redetermination on the company? - Management expects a 10% to 15% reduction in the number of Medicaid lives covered, with an estimated EBITDA impact of $5 million to $10 million for 2023 [11][82] Question: How are margins looking in the full-risk versus shared-risk categories? - Full-risk contracts generally have higher margins but come with more variability, while shared-risk contracts offer more predictability with slightly lower margins [63][67] Question: What are the expected wage increases for caregivers? - Management indicated that wage increases are expected to be competitive in the marketplace, particularly in states with higher minimum wage requirements [72][94] Question: How does the company plan to manage cash flow and debt? - The company plans to pay down its revolver by $30 million to $50 million in the second half of the year, with expectations of generating cash flow in line with its guidance [128][130] Question: What is the company's strategy for automation and cost savings? - The company is implementing automation to reduce call center interactions and improve efficiency, expecting significant cost savings to materialize in 2024 [160][161]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-34221 ModivCare Inc. (Exact name of registrant as specified in its charter) Delaware 86-0845127 (State or other jurisdiction of i ...

GMM Reported Revenue (Pre-Acquisition) 6,487 Consolidated Pro Forma Revenue $2,510,880 Twelve Months Ended Dec 31, | --- | --- | |-------|----------| | 2022 | | | | $221,902 | | | | | | $224,351 | (dollars in thousands) Consolidated Adj. EBITDA Consolidated Pro Forma Adj. EBITDA | --- | --- | |---------------------------------------------------------|---------------| | | | | Pro Forma Remote Patient Monitoring Segment Revenue | Twelve Months | | | Ended Dec 31, | | (dollars in thousands) | 2022 | | Modivcar ...

ModivCare Inc. (NASDAQ:MODV) Q1 2023 Earnings Conference Call May 4, 2023 8:00 AM ET Company Participants Kevin Ellich - Head, Investor Relations Heath Sampson - President, Chief Executive Officer and Chief Financial Officer Ken Shepard - Head of Finance Conference Call Participants Brian Tanquilut - Jefferies Bob Labick - CJS Securities Scott Fidel - Stephens Pito Chickering - Deutsche Bank Miles Highsmith - Deutsche Bank Mike Petusky - Barrington Research Operator Good morning and welcome to ModivCare's F ...

PART I—FINANCIAL INFORMATION [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) The company's Q1 2023 financial statements show total assets of $1.94 billion, a net loss of $4.0 million, and a significant decrease in operating cash flow [Unaudited Condensed Consolidated Balance Sheets](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Presents the company's financial position as of March 31, 2023, showing total assets and liabilities Condensed Consolidated Balance Sheet (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $12,848 | $14,451 | | Total current assets | $348,231 | $346,154 | | Goodwill | $968,654 | $968,654 | | Total assets | $1,941,529 | $1,944,272 | | **Liabilities & Equity** | | | | Total current liabilities | $494,163 | $491,597 | | Long-term debt, net | $980,433 | $979,361 | | Total liabilities | $1,590,431 | $1,589,716 | | Total stockholders' equity | $351,098 | $354,556 | | **Total liabilities and stockholders' equity** | **$1,941,529** | **$1,944,272** | [Unaudited Condensed Consolidated Statements of Operations](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) Details the company's revenue, expenses, and net income (loss) for the three months ended March 31, 2023 and 2022 Condensed Consolidated Statements of Operations (in thousands) | Account | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Service revenue, net | $662,306 | $574,475 | | Total operating expenses | $655,672 | $560,069 | | Operating income | $8,098 | $14,874 | | Net income (loss) | $(3,962) | $318 | | Basic EPS | $(0.28) | $0.02 | | Diluted EPS | $(0.28) | $0.02 | [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Outlines the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2023 and 2022 Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(2,655) | $71,485 | | Net cash used in investing activities | $(13,320) | $(8,584) | | Net cash provided by (used in) financing activities | $14,380 | $(1,849) | | **Net change in cash, cash equivalents and restricted cash** | **$(1,595)** | **$61,052** | [Notes to the Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed information on the company's business segments, accounting policies, debt structure, and ongoing legal proceedings - ModivCare provides a suite of supportive care solutions including Non-Emergency Medical Transportation (NEMT), Personal Care, and Remote Patient Monitoring (RPM). It also holds a **43.6% minority interest** in Matrix Medical Network[23](index=23&type=chunk)[24](index=24&type=chunk) Segment Operating Income (Loss) for Q1 2023 vs Q1 2022 (in thousands) | Segment | Q1 2023 Operating Income (Loss) | Q1 2022 Operating Income (Loss) | | :--- | :--- | :--- | | NEMT | $21,136 | $24,386 | | Personal Care | $3,974 | $2,296 | | RPM | $599 | $(220) | | Corporate and Other | $(17,611) | $(11,588) | | **Total** | **$8,098** | **$14,874** | Disaggregated Revenue by Contract Type (in thousands) | Contract Type | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | NEMT capitated contracts | $404,689 | $335,718 | | NEMT FFS contracts | $64,774 | $65,202 | | Personal Care FFS contracts | $174,131 | $159,698 | | RPM PMPM contracts | $18,712 | $13,857 | | **Total service revenue, net** | **$662,306** | **$574,475** | - The company has two series of senior unsecured notes totaling **$1 billion principal amount**: **$500 million at 5.875% due 2025** and **$500 million at 5.000% due 2029**. As of March 31, 2023, the carrying amount was **$980.4 million**[64](index=64&type=chunk) - The company is involved in several legal proceedings, including a class action lawsuit regarding caregiver pay and a dispute with its former CEO. Management does not currently expect these to have a **material adverse effect** on the company[81](index=81&type=chunk)[83](index=83&type=chunk)[85](index=85&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Analyzes the company's Q1 2023 financial performance, highlighting revenue growth, operating income decline, and changes in liquidity [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Details the consolidated and segment-specific revenue and expense trends, explaining the drivers behind changes in operating income Consolidated Results of Operations (in thousands) | Account | Q1 2023 | Q1 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Service revenue, net | $662,306 | $574,475 | 15.3% | | Service expense | $550,266 | $459,315 | 19.8% | | Operating income | $8,098 | $14,874 | (45.5)% | | Net income (loss) | $(3,962) | $318 | N/A | - The NEMT segment's service revenue increased by **$68.5 million (17.1%)** due to a **15.3% increase in trip volume** and a **4.7% increase in average monthly membership**. However, service expense grew faster at **22.8%**, causing operating income to fall to **$21.1 million** from **$24.4 million**[122](index=122&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk) - The Personal Care segment's revenue grew by **$14.4 million (9.0%)** due to higher hours worked and higher rates. Operating income increased to **$4.0 million** from **$2.3 million**, despite an **11.3% rise** in service expense driven by higher caregiver wages[128](index=128&type=chunk)[130](index=130&type=chunk)[132](index=132&type=chunk) - The RPM segment's revenue increased by **$4.9 million (35.0%)**, primarily from the GMM acquisition in May 2022. The segment reported an operating income of **$0.6 million**, an improvement from an operating loss of **$0.2 million** in the prior year[136](index=136&type=chunk)[138](index=138&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20capital%20resources) Assesses the company's cash position, operating cash flow changes, available credit, and future cash requirements - Cash used in operating activities was **$2.7 million** for YTD 2023, a decrease of **$74.1 million** from the **$71.5 million** provided in YTD 2022. The decline was primarily due to a **$71.2 million decrease** in cash from working capital changes[150](index=150&type=chunk) - As of March 31, 2023, the company had **$12.8 million** in cash and cash equivalents. It also had **$15.0 million** in short-term borrowings and **$32.8 million** in letters of credit outstanding under its **$325.0 million Credit Facility**[148](index=148&type=chunk)[66](index=66&type=chunk) Summary of Future Cash Requirements (in thousands) | Obligation | Total | Less than 1 Year | Greater than 1 Year | | :--- | :--- | :--- | :--- | | Senior Unsecured Notes | $1,000,000 | $— | $1,000,000 | | Interest on Notes | $238,712 | $54,375 | $184,337 | | Contracts payable | $187,620 | $187,620 | $— | | Operating leases | $51,058 | $11,686 | $39,372 | | Short-term borrowings | $15,000 | $15,000 | $— | | **Total (selected)** | **$1,492,390** | **$268,681** | **$1,223,709** | [Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk exposure is to interest rate fluctuations related to its variable-rate Credit Facility, with a hypothetical one-percentage-point increase impacting pre-tax earnings by approximately $0.1 million - The company is exposed to interest rate risk from its variable-rate Credit Facility. At March 31, 2023, **$15.0 million** was outstanding[162](index=162&type=chunk) - A sensitivity analysis shows that a **one-percentage point increase** in interest rates would have an approximate **$0.1 million negative impact** on pre-tax earnings, assuming the outstanding borrowing amount for the full fiscal year[162](index=162&type=chunk) [Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were not effective as of March 31, 2023, due to identified material weaknesses, for which the company is actively implementing a remediation plan - Management concluded that disclosure controls and procedures were **not effective** as of March 31, 2023, due to **material weaknesses** identified in the Annual Report on Form 10-K for the year ended December 31, 2022[163](index=163&type=chunk) - The company is undergoing remediation efforts, including hiring a third party to lead the process and adding internal resources. Key focus areas are general IT controls (GITC), payroll controls, revenue process controls, and risk assessment[166](index=166&type=chunk) - Specific remediation actions include implementing a new personnel management system in 2023, enhancing the risk assessment process for IT systems and acquisitions, and improving GITCs for change management and logical access[168](index=168&type=chunk)[169](index=169&type=chunk) PART II—OTHER INFORMATION [Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the ordinary course of business, which management does not expect to have a material adverse effect, as detailed in Note 12 - The company is subject to legal proceedings in the ordinary course of business. Management does not anticipate a **material adverse effect** from these matters, but acknowledges the inherent uncertainties of litigation. More details are available in Note 12[172](index=172&type=chunk) [Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) Confirms no material changes to the risk factors previously disclosed in the company's latest annual report - There have been **no material changes** from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[173](index=173&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the quarter, the company acquired 6,000 shares from employees for tax withholding purposes, not as part of a publicly announced repurchase program Issuer Purchases of Equity Securities (Q1 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2023 | — | — | | Feb 2023 | 4,896 | $107.66 | | Mar 2023 | 1,104 | $84.93 | | **Total** | **6,000** | **N/A** | - The purchased shares were from vested restricted stock tendered by participants in the Company's 2006 Plan to cover income tax withholding. These were **not part of a publicly announced repurchase program**[175](index=175&type=chunk) [Other Information](index=39&type=section&id=Item%205.%20Other%20Information) Discloses a separation agreement with Mr. Grover Wray, effective May 1, 2023 - On May 1, 2023, the Company entered into a separation agreement and general release with Mr. Grover Wray upon his separation from employment[178](index=178&type=chunk)

|██ modivcare Forward Looking Statements In addition to the financial measures prepared in accordance with generally accepted accounting principles in the United States ("GAAP"), this investor presentation includes presentations of EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin for the Company and its segments, pro forma presentations of such financial measures that adjust for the acquisitions identified herein, and EBITDA and Adjusted EBITDA for the Company's Matrix equity investment, which are perfor ...

Part I [Item 1. Business](index=7&type=section&id=Item%201.%20Business) ModivCare provides technology-enabled healthcare services, including NEMT, personal care, and RPM, addressing social determinants of health through strategic growth and integrated solutions [Overview](index=7&type=section&id=Overview) ModivCare provides integrated NEMT, personal care, and RPM solutions, leveraging technology to address social determinants of health - ModivCare is a technology-enabled healthcare services company offering integrated solutions like NEMT, personal care, and RPM to address SDoH[28](index=28&type=chunk) - The company holds a **43.6%** minority interest in CCHN Group Holdings, Inc. (Matrix Medical Network), which provides in-home and on-site clinical services[29](index=29&type=chunk) [Our Development](index=7&type=section&id=Our%20Development) ModivCare has expanded through strategic acquisitions in NEMT, Personal Care, and RPM since its 2003 IPO, supported by significant financing activities Key Acquisitions and Divestitures | Date | Company/Segment | Business | Action | Consideration (approx.) | | :--- | :--- | :--- | :--- | :--- | | Dec 2007 | LogistiCare, Inc. | NEMT | Acquired | $220.0 million | | Nov 2020 | Simplura Health Group | Personal Care | Acquired | $575.0 million | | Sep 2021 | Care Finders Total Care | Personal Care | Acquired | $340.0 million | | Sep 2021 | VRI Intermediate Holdings | RPM | Acquired | $315.0 million | | May 2022 | Guardian Medical Monitoring | RPM | Acquired | $71.3 million | | Nov 2015 | Human Services Segment | Human Services | Divested | $200.0 million | - The company has engaged in significant financing activities, including issuing **$500.0 million** in Senior Unsecured Notes in November 2020 and another **$500.0 million** in August 2021 to fund acquisitions. In February 2022, it replaced its old credit facility with a new **$325.0 million** senior secured revolving credit facility[32](index=32&type=chunk) [Our Strategies](index=9&type=section&id=Our%20Strategies) ModivCare's "One ModivCare" strategy integrates NEMT, Personal Care, and RPM services, focusing on technology, organic and inorganic growth, and efficient capital allocation - The company's "One ModivCare" strategy emphasizes alignment across its supportive care services to drive scale, efficiencies, and a better member experience[33](index=33&type=chunk) - Key strategic initiatives include a partnership model in NEMT, centralization of non-clinical functions in Personal Care, and gaining market share through enhanced selling in RPM[35](index=35&type=chunk) - Growth plans include organic expansion in core Medicaid and Medicare Advantage markets and inorganic growth through consolidation in the fragmented NEMT, Personal Care, and RPM industries[37](index=37&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk)[42](index=42&type=chunk) - Capital allocation is focused on investing in platforms to streamline operations, enhance technical capabilities, and improve member care, while also assessing opportunities for dividends, share repurchases, and acquisitions[43](index=43&type=chunk) [Our Operations and Business Segments](index=11&type=section&id=Our%20Operations%20and%20Business%20Segments) ModivCare operates as a leading NEMT, personal care, and RPM provider across four segments, driven by an aging population and the shift to value-based care - The company's operations are divided into four business segments: NEMT, Personal Care, RPM, and Corporate and Other[45](index=45&type=chunk) - Key business trends driving demand include an aging population, the move towards value-based care, increasing demand for in-home care, and technological advancements[46](index=46&type=chunk) - The NEMT segment serves approximately **34.8 million** members and managed **54.7 million** gross trips in 2022, primarily under capitated contracts with state Medicaid programs and MCOs[54](index=54&type=chunk)[59](index=59&type=chunk) - The Personal Care segment had approximately **15,600** caregivers serving **23,300** patients as of December 31, 2022, with revenue primarily from state Medicaid agencies and MCOs[62](index=62&type=chunk)[67](index=67&type=chunk) - The RPM segment serves approximately **236,000** actively monitored members, offering services like personal emergency response systems and vitals monitoring to health plans and government programs[68](index=68&type=chunk)[72](index=72&type=chunk) - The Corporate and Other segment includes executive, finance, legal, and other corporate functions, as well as the results of the company's equity interest in Matrix Medical Network[70](index=70&type=chunk) [Governmental Regulations](index=16&type=section&id=Governmental%20Regulations) ModivCare's business is subject to extensive federal and state healthcare regulations, with non-compliance risking significant penalties and program exclusion - The business is heavily regulated by federal and state laws, including those governing Medicare/Medicaid, HIPAA, false claims, anti-kickback statutes, and state licensure[71](index=71&type=chunk)[72](index=72&type=chunk) - Non-compliance with regulations like the False Claims Act can result in severe penalties, including significant fines and exclusion from federal healthcare programs[76](index=76&type=chunk)[78](index=78&type=chunk) - The company must adhere to HIPAA and HITECH Act rules regarding the privacy and security of patient health information, with violations carrying substantial civil and criminal penalties[81](index=81&type=chunk)[83](index=83&type=chunk) - The company is subject to periodic surveys and audits by government authorities and payors to ensure compliance, which can result in deficiency findings or adverse actions[96](index=96&type=chunk)[97](index=97&type=chunk) - The company's Personal Care segment has received relief payments from the CARES Act Provider Relief Fund and must comply with its specific terms and conditions[106](index=106&type=chunk) [Human Capital Management](index=21&type=section&id=Human%20Capital%20Management) ModivCare's success relies on attracting and retaining talented employees, focusing on competitive compensation, development, and diversity for its approximately 20,000 workforce - As of December 31, 2022, the company employed approximately **20,000** people: ~**3,100** in NEMT/Corporate, ~**16,400** in Personal Care, and ~500 in RPM[112](index=112&type=chunk) - Approximately **2,700** of the Personal Care caregivers in New York were unionized at the end of 2022[112](index=112&type=chunk) - The company is focused on inclusion and diversity, with established goals to improve the hiring, development, and retention of diverse employees[113](index=113&type=chunk) [Item 1A. Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant industry, operational, and regulatory risks, including funding reliance, competition, IT security, acquisition integration, labor shortages, and substantial indebtedness [Risks Related to Our Industry](index=23&type=section&id=Risks%20Related%20to%20Our%20Industry) The company's performance depends on government and private insurance funding, facing risks from payment model shifts, public health emergencies, and IT security breaches - The business is substantially funded by government and private insurance programs; reductions or limitations in this funding could adversely impact the business[117](index=117&type=chunk) - A transition of Medicaid and Medicare beneficiaries to Managed Care Organizations (MCOs) and alternative payment models may limit market share and adversely affect revenues[118](index=118&type=chunk) - The company is vulnerable to public health emergencies like pandemics due to its medically fragile end-user population and the nature of its services[123](index=123&type=chunk) - Inadequacies or security breaches of IT systems, which store sensitive client data, could lead to legal liability, reputational damage, and material adverse effects on the business[124](index=124&type=chunk)[125](index=125&type=chunk) [Risks Related to Our Business](index=25&type=section&id=Risks%20Related%20to%20Our%20Business) ModivCare faces risks from limited payor reliance, pandemic disruptions, accounts receivable delays, goodwill impairment, IT system failures, and challenges in employee retention and acquisition integration - A significant portion of revenue is derived from a limited number of payors; for example, in 2022, one state Medicaid agency accounted for **10.9%** of NEMT revenue and another for **12.0%** of Personal Care revenue[129](index=129&type=chunk) - Pandemics like COVID-19 can adversely affect operations by reducing trip and service hour volumes, creating staffing difficulties, and increasing costs[130](index=130&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk) - Goodwill and intangible assets represent a significant portion of total assets, and impairment could result from factors like loss of contracts or adverse market changes. As of Dec 31, 2022, goodwill was **$968.7 million** and intangibles were **$439.4 million**[142](index=142&type=chunk)[143](index=143&type=chunk) - The integration of acquisitions, such as Care Finders and VRI, presents risks including unanticipated costs, cultural harmonization challenges, and potential failure to realize expected benefits[151](index=151&type=chunk) [Risks Related to Our NEMT Segment](index=30&type=section&id=Risks%20Related%20to%20Our%20NEMT%20Segment) The NEMT segment faces risks from contract non-renewal, intense competition, accurate cost estimation for RFPs, potential penalties, and driver reclassification as employees - A significant portion of NEMT contracts are subject to renewal. In 2022, **30.5%** of NEMT revenue was generated under state Medicaid contracts subject to renewal in 2023[157](index=157&type=chunk) - The company faces competition from national, regional, and local providers, including transportation network companies like Uber and Lyft[159](index=159&type=chunk) - A majority of NEMT revenue (**87.8%** in 2022) is from capitated contracts, where profitability depends on accurately estimating service utilization and costs[165](index=165&type=chunk) - Potential reclassification of independent contractor drivers as employees could materially increase operating expenses[166](index=166&type=chunk) [Risks Related to Our Personal Care Segment](index=32&type=section&id=Risks%20Related%20to%20Our%20Personal%20Care%20Segment) The Personal Care segment faces risks from labor shortages, wage pressures, referral source dependency, regulatory hurdles, and potential labor disruptions from unionized caregivers - The in-home personal care industry is highly competitive and fragmented, with relatively few barriers to entry in local markets[168](index=168&type=chunk)[169](index=169&type=chunk) - The business is dependent on maintaining relationships with referral sources like physicians, hospitals, and MCOs, who are not contractually obligated to refer patients[172](index=172&type=chunk) - The industry has historically experienced shortages of qualified employees, which could increase wage pressures and turnover, harming the business[180](index=180&type=chunk)[181](index=181&type=chunk) - Approximately **2,700** caregivers in New York are unionized, creating risks of labor disruptions and potentially unfavorable collective bargaining agreement terms[182](index=182&type=chunk) [Risks Related to Our Remote Patient Monitoring Segment](index=35&type=section&id=Risks%20Related%20to%20Our%20Remote%20Patient%20Monitoring%20Segment) The RPM segment faces intense competition and relies on continuous innovation and market acceptance to sustain growth and demonstrate service benefits - The RPM industry is competitive, with pressure from specialized providers and large health plans that may have greater resources and name recognition[185](index=185&type=chunk)[186](index=186&type=chunk) - The segment's success depends on its ability to innovate, keep pace with technological developments, and achieve market acceptance for its services[188](index=188&type=chunk) [Risks Related to Our Corporate and Other Segment](index=36&type=section&id=Risks%20Related%20to%20Our%20Corporate%20and%20Other%20Segment) The company's non-controlling interest in Matrix exposes it to risks from lack of decision-making authority and reliance on Matrix's financial condition - The company holds a non-controlling interest in Matrix and lacks unilateral power to direct its activities, which could lead to conflicts or an inability to take actions deemed appropriate[190](index=190&type=chunk)[191](index=191&type=chunk) [Risks Related to Governmental Regulations](index=37&type=section&id=Risks%20Related%20to%20Our%20Governmental%20Regulations) Operating in a heavily regulated healthcare industry, the company faces risks from non-compliance, regulatory changes, government budgetary shifts, audits, and potential Medicaid beneficiary reductions - The business is heavily regulated by federal and state laws, including those governing Medicare/Medicaid, HIPAA, false claims, anti-kickback statutes, and state licensure[192](index=192&type=chunk)[193](index=193&type=chunk) - Non-compliance with regulations like the False Claims Act can result in severe penalties, including significant fines and exclusion from federal healthcare programs[194](index=194&type=chunk)[195](index=195&type=chunk) - The company must adhere to HIPAA and HITECH Act rules regarding the privacy and security of patient health information, with violations carrying substantial civil and criminal penalties[196](index=196&type=chunk)[197](index=197&type=chunk) - The company is subject to periodic surveys and audits by government authorities and payors to ensure compliance, which can result in deficiency findings or adverse actions[198](index=198&type=chunk)[199](index=199&type=chunk) - The company's Personal Care segment has received relief payments from the CARES Act Provider Relief Fund and must comply with its specific terms and conditions[200](index=200&type=chunk) [Risks Related to Our Indebtedness](index=41&type=section&id=Risks%20Related%20to%20Our%20Indebtedness) The company's substantial indebtedness, including a $325 million credit facility and $1 billion in senior notes, limits operational flexibility and poses refinancing risks - Existing debt agreements contain restrictive covenants that limit flexibility in areas such as incurring additional debt, making investments, and paying dividends[214](index=214&type=chunk) - The company has substantial indebtedness and lease obligations that could affect its ability to fund operations and react to changes in the economy[216](index=216&type=chunk) - The New Credit Agreement matures in 2027 and the Senior Notes mature in 2025 and 2029; an inability to refinance this debt could adversely affect financial condition[218](index=218&type=chunk) [Risks Related to Our Common Stock](index=43&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) The company identified material weaknesses in internal control over financial reporting, risking investor confidence, alongside stock price volatility and anti-takeover provisions - The company identified material weaknesses in its internal control over financial reporting as of December 31, 2022, related to risk assessment, reporting lines, and accountability, which could affect the accuracy and timing of financial reports[222](index=222&type=chunk)[224](index=224&type=chunk) - Future sales of common stock by existing stockholders, including those held by Coliseum Capital Partners, could cause the stock price to decline[227](index=227&type=chunk)[228](index=228&type=chunk) - The company's stock price may be volatile due to factors such as changes in reimbursement rates, regulatory policies, and overall market conditions[230](index=230&type=chunk) - Anti-takeover provisions in the company's charter and bylaws could discourage or prevent a change of control, potentially affecting the stock's trading price[235](index=235&type=chunk) [Item 2. Properties](index=45&type=section&id=Item%202.%20Properties) The company maintains principal executive offices in Denver, CO, and leases/owns various facilities nationwide for its NEMT, Personal Care, and RPM operations - Principal executive offices are in a leased **73,000** sq. ft. space in Denver, CO[238](index=238&type=chunk) - The NEMT segment utilizes the former principal offices in Atlanta, GA, and **28** other leased facilities totaling approximately **350,000** sq. ft[239](index=239&type=chunk) - The Personal Care segment maintains a primary office in Valley Stream, NY, and **69** other leased locations totaling approximately **200,000** sq. ft[240](index=240&type=chunk)[241](index=241&type=chunk) - The RPM segment owns two properties in Franklin, OH (**24,000** sq. ft.) and Sullivan, IL (**23,000** sq. ft.)[241](index=241&type=chunk) [Item 3. Legal Proceedings](index=46&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, which management does not expect to materially impact financial condition or operating results - The company is involved in various legal proceedings in the ordinary course of business and records accruals when a loss is probable and reasonably estimable[243](index=243&type=chunk) - Management does not currently expect any ongoing or anticipated legal matters to have a material adverse effect on the company's business or financial condition[243](index=243&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=47&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) ModivCare's common stock trades on NASDAQ, with no expected cash dividends and limited share repurchases for tax withholding purposes in Q4 2022 - The company's common stock is traded on the NASDAQ Global Select Market under the ticker symbol "MODV"[247](index=247&type=chunk) - The company has not paid any cash dividends on its common stock and does not currently expect to, with future payments depending on financial condition and other factors[250](index=250&type=chunk) Issuer Purchases of Equity Securities (Q4 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2022 | 173 | $96.53 | | Nov 2022 | 1,323 | $91.17 | | Dec 2022 | 68 | $90.10 | | **Total** | **1,564** | | - Shares purchased during Q4 2022 were redeemed from participants in the company's 2006 Plan to cover income tax withholding and were not part of a publicly announced repurchase program[254](index=254&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=50&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section details ModivCare's financial condition and results of operations for 2022 vs 2021, covering segment performance, critical accounting policies, and liquidity [Business Outlook and Trends](index=50&type=section&id=Business%20Outlook%20and%20Trends) The company's performance is driven by an aging population and value-based care trends, while facing post-pandemic impacts like NEMT volume shifts and caregiver shortages - Long-term growth is expected to be driven by an aging population, a move towards value-based care, and increasing demand for in-home care and remote monitoring[260](index=260&type=chunk) - The COVID-19 pandemic has led to structural changes, such as increased telehealth use, which continues to impact NEMT trip volume. The Personal Care segment faces labor shortages and wage pressures post-pandemic[260](index=260&type=chunk)[261](index=261&type=chunk)[262](index=262&type=chunk) [Critical Accounting Policies and Estimates](index=51&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting estimates include accrued transportation costs, goodwill recoverability, and income taxes, all requiring significant management judgment - Accrued Transportation Costs require significant judgment to estimate costs for completed but unbilled trips based on historical data. The estimated portion of this accrual was **$19.6 million** greater in 2022 than in 2021 due to increased trip volume[266](index=266&type=chunk)[268](index=268&type=chunk) - Goodwill is tested for impairment annually (as of October 1) or more frequently if indicators exist. The process involves qualitative and potentially quantitative assessments using discounted cash flow and market approaches. No impairment was recorded in the latest analysis[269](index=269&type=chunk)[271](index=271&type=chunk) - Income tax accounting involves significant estimates regarding deferred tax assets and liabilities, valuation allowances, and the sustainability of uncertain tax positions[272](index=272&type=chunk)[273](index=273&type=chunk) [Results of Operations](index=53&type=section&id=Results%20of%20Operations) In 2022, consolidated service revenue increased to $2.50 billion, but operating income decreased to $57.1 million, resulting in a net loss of $31.8 million due to higher expenses Consolidated Results of Operations (2022 vs. 2021) | (in thousands) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Service revenue, net | $2,504,393 | $1,996,892 | **25.4%** | | Total operating expenses | $2,454,660 | $1,912,970 | **28.3%** | | Operating income | $57,084 | $89,363 | (**36.1%**) | | Net loss | $(31,806) | $(6,585) | **383.0%** | - The **$507.5 million** increase in service revenue was driven by a **$284.7 million** increase in the NEMT segment, a **$172.1 million** increase in Personal Care (largely from the Care Finders acquisition), and a **$50.7 million** increase in the RPM segment (from VRI and GMM acquisitions)[292](index=292&type=chunk) - Service expense increased by **$447.8 million** (**28.3%**), primarily due to a **$275.5 million** increase in purchased transportation costs in the NEMT segment and a **$161.1 million** increase in payroll costs, largely from acquisitions[294](index=294&type=chunk)[295](index=295&type=chunk) - Depreciation and amortization increased by **$43.4 million** (**76.2%**), mainly due to intangible assets from the Care Finders, VRI, and GMM acquisitions[297](index=297&type=chunk) [Results of Operations - Segments](index=57&type=section&id=Results%20of%20Operations%20-%20Segments) In 2022, NEMT revenue grew to $1.77 billion but operating income declined, Personal Care revenue increased to $667.7 million, and RPM revenue reached $68.3 million NEMT Segment Operating Results (2022 vs. 2021) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Service revenue, net | $1,768,442 | $1,483,696 | | Operating income | $105,351 | $135,960 | | Total paid trips | 30,795 | 27,282 | Personal Care Segment Operating Results (2022 vs. 2021) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Service revenue, net | $667,674 | $495,579 | | Operating income | $12,570 | $14,049 | | Total hours | 26,918 | 21,188 | RPM Segment Operating Results (2022 vs. 2021) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Service revenue, net | $68,277 | $17,617 | | Operating income | $705 | $2,040 | | Average monthly members | 210 | 173 | Corporate and Other Segment Operating Results (2022 vs. 2021) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | General and administrative expense | $60,715 | $62,686 | | Operating loss | $(61,542) | $(62,686) | [Liquidity and Capital Resources](index=61&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents decreased to $15.0 million in 2022, with cash used in operations at $10.4 million, while the company maintains $1.0 billion in senior notes and a $325.0 million credit facility - Cash and cash equivalents decreased to **$15.0 million** at year-end 2022 from **$133.4 million** at year-end 2021[328](index=328&type=chunk) - Cash used in operating activities was **$10.4 million** in 2022, compared to cash provided by operating activities of **$186.8 million** in 2021, a decrease of **$197.3 million** mainly due to changes in working capital, including repayments of accrued contract payables[330](index=330&type=chunk) - The company has two series of senior unsecured notes totaling **$1.0 billion**, with maturities in 2025 and 2029. It also has a **$325.0 million** New Credit Facility maturing in 2027, with no borrowings outstanding as of December 31, 2022[335](index=335&type=chunk)[338](index=338&type=chunk) Future Cash Requirements as of December 31, 2022 | (in thousands) | Total | Less than 1 Year | Greater than 1 Year | | :--- | :--- | :--- | :--- | | Senior Unsecured Notes & Interest | $1,252,306 | $54,375 | $1,197,931 | | Operating leases | $49,835 | $11,346 | $38,489 | | Contracts payable | $194,287 | $194,287 | $— | | Transportation costs | $96,851 | $96,851 | $— | | **Total (selected items)** | **$1,593,279** | **$356,859** | **$1,236,420** | [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=67&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate exposure on its variable-rate New Credit Facility, which had no outstanding borrowings as of December 31, 2022 - The company's main market risk is interest rate risk associated with its variable-rate New Credit Facility[361](index=361&type=chunk) - As of December 31, 2022, there were no outstanding borrowings under the New Credit Facility[361](index=361&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=68&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's 2022 consolidated financial statements and KPMG's reports, including an adverse opinion on internal control over financial reporting due to material weaknesses [Report of Independent Registered Public Accounting Firm](index=69&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) KPMG issued an unqualified opinion on financial statements but an adverse opinion on internal control over financial reporting due to material weaknesses in risk assessment and IT controls - The auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements for the year ended December 31, 2022[366](index=366&type=chunk) - KPMG issued an adverse opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022, due to identified material weaknesses[367](index=367&type=chunk)[389](index=389&type=chunk) - Critical Audit Matters identified were the sufficiency of audit evidence over certain capitated contracts and the goodwill impairment assessment for certain reporting units[371](index=371&type=chunk)[372](index=372&type=chunk)[376](index=376&type=chunk) [Consolidated Financial Statements](index=74&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements present ModivCare's financial position, operations, and cash flows for 2022, showing total assets of $1.94 billion and a net loss of $31.8 million Key Consolidated Balance Sheet Data (as of Dec 31) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Total Current Assets | $346,154 | $409,834 | | Goodwill | $968,654 | $924,787 | | Total Assets | $1,944,272 | $2,027,425 | | Total Current Liabilities | $491,597 | $527,234 | | Long-term debt, net | $979,361 | $975,225 | | Total Liabilities | $1,589,716 | $1,654,158 | | Total Stockholders' Equity | $354,556 | $373,267 | Key Consolidated Operations Data (Year Ended Dec 31) | (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Service revenue, net | $2,504,393 | $1,996,892 | $1,368,675 | | Operating income | $57,084 | $89,363 | $122,042 | | Net income (loss) | $(31,806) | $(6,585) | $88,836 | | Diluted EPS | $(2.26) | $(0.47) | $2.37 | Key Consolidated Cash Flow Data (Year Ended Dec 31) | (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(10,442) | $186,840 | $348,435 | | Net cash used in investing activities | $(111,813) | $(685,625) | $(635,012) | | Net cash provided by financing activities | $3,808 | $448,851 | $408,260 | | Net change in cash | $(118,447) | $(49,934) | $121,683 | [Notes to Consolidated Financial Statements](index=79&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail significant accounting policies, acquisitions, segment reporting, revenue recognition, debt, and legal contingencies, including a change in intangible asset useful life - Effective January 1, 2022, the company changed the estimated useful lives for Simplura's trademarks (10 to 3 years) and payor network (15 to 10 years), resulting in an additional **$14.3 million** in amortization expense for 2022[423](index=423&type=chunk) - The company provides detailed purchase price allocations for its recent major acquisitions, including Simplura (2020), Care Finders (2021), VRI (2021), and GMM (2022), which added significant goodwill and intangible assets[463](index=463&type=chunk)[468](index=468&type=chunk)[475](index=475&type=chunk)[482](index=482&type=chunk) - The company has two series of senior unsecured notes: **$500 million** at **5.875%** due 2025 and **$500 million** at **5.000%** due 2029. The fair value of the notes as of Dec 31, 2022 was **$896.6 million**[527](index=527&type=chunk) - The company is involved in an arbitration with its former CEO, who is seeking approximately **$35 million** in damages, and a class action lawsuit related to pay for live-in caregivers in New York[603](index=603&type=chunk)[607](index=607&type=chunk) [Item 9A. Controls and Procedures](index=119&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective due to material weaknesses in internal control over financial reporting, specifically in risk assessment, IT general controls, and process-level controls - Management concluded that disclosure controls and procedures were not effective as of December 31, 2022, due to material weaknesses in internal control over financial reporting[618](index=618&type=chunk) - Material weaknesses were identified in three areas: (i) ineffective risk assessment related to new IT systems and acquisitions, (ii) ineffective reporting lines and accountability, and (iii) lack of mechanisms to enforce accountability[623](index=623&type=chunk) - These weaknesses led to ineffective IT general controls and ineffective process-level controls for revenue and payroll processes within the Personal Care, NEMT, and Corporate segments[624](index=624&type=chunk)[625](index=625&type=chunk) - The company is implementing a remediation plan that includes enhancing risk assessment processes, designing and implementing improved controls, and leveraging third-party specialists and new systems[628](index=628&type=chunk)[629](index=629&type=chunk) Part III [Item 10. Directors, Executive Officers and Corporate Governance](index=121&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement, with a code of ethics adopted - Information required by this item is incorporated by reference from the company's 2023 Proxy Statement[633](index=633&type=chunk) - The company has adopted a code of ethics for senior management, directors, and employees, which is available on its website[634](index=634&type=chunk) [Item 11. Executive Compensation](index=121&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation information is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's 2023 Proxy Statement[635](index=635&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=121&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) As of December 31, 2022, 250,077 securities were issuable under equity plans at a weighted-average exercise price of $115.33, with 1,177,991 remaining available Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Number of Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Number of Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | **250,077** | **$115.33** | **1,177,991** | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=121&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on certain relationships, related party transactions, and director independence is incorporated by reference from the 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's 2023 Proxy Statement[639](index=639&type=chunk) [Item 14. Principal Accounting Fees and Services](index=122&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Principal accounting fees and services information is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's 2023 Proxy Statement[640](index=640&type=chunk) Part IV [Item 15. Exhibits, Financial Statement Schedules](index=122&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K, including consolidated financial statements and Schedule II - This item lists all financial statements, schedules, and exhibits filed with the annual report[642](index=642&type=chunk) Schedule II: Valuation and Qualifying Accounts (Allowance for Doubtful Accounts) | (in thousands) | Balance at beginning of period | Additions Charged to costs and expenses | Deductions (Write-offs) | Balance at end of period | | :--- | :--- | :--- | :--- | :--- | | **Year Ended Dec 31, 2022** | $2,296 | $2,690 | $(2,908) | $2,078 | | **Year Ended Dec 31, 2021** | $2,403 | $1,740 | $(1,847) | $2,296 | | **Year Ended Dec 31, 2020** | $5,933 | $642 | $(4,172) | $2,403 | [Item 16. Form 10-K Summary](index=126&type=section&id=Item%2016.%20Form%2010-K%20Summary) No Form 10-K summary is provided in this report - None[650](index=650&type=chunk)