ModivCare (MODV) - 2023 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements 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 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 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 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 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][24] 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] - 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][83][85] Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes the company's Q1 2023 financial performance, highlighting revenue growth, operating income decline, and changes in liquidity Results of Operations 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][124][125] - 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][130][132] - 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][138] Liquidity and Capital Resources 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] - 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][66] 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 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] - 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] Controls and Procedures 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] - 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] - 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][169] PART II—OTHER INFORMATION Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] Other Information 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]