ModivCare (MODV) - 2024 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements The company reported a wider net loss of $22.3 million in Q1 2024 and faces a need to refinance its 2025 Senior Notes Q1 2024 vs. Q1 2023 Statement of Operations Highlights | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Service revenue, net | $684,451 thousand | $662,306 thousand | | Operating income (loss) | $(3,395) thousand | $8,098 thousand | | Net loss | $(22,300) thousand | $(3,962) thousand | | Diluted loss per share | $(1.57) | $(0.28) | Balance Sheet Highlights | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $404,001 thousand | $404,923 thousand | | Total assets | $1,764,048 thousand | $1,767,275 thousand | | Total current liabilities | $539,314 thousand | $520,402 thousand | | Total liabilities | $1,628,207 thousand | $1,611,080 thousand | | Total stockholders' equity | $135,841 thousand | $156,195 thousand | Q1 2024 vs. Q1 2023 Cash Flow Highlights | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $9,560 thousand | $(2,655) thousand | | Net cash used in investing activities | $(7,856) thousand | $(13,320) thousand | | Net cash provided by financing activities | $6,380 thousand | $14,380 thousand | - The company expects to be required to raise additional capital to repay or refinance its Senior Notes due November 15, 2025, as it does not currently have sufficient available cash flows to repay them in full when due[33] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 3.3% in Q1 2024, but higher service expenses led to an operating loss of $3.4 million - Business outlook is influenced by long-term trends such as an aging population and a shift to value-based care, but faces near-term challenges from Medicaid redetermination and macroeconomic pressures[104][105][107] - The company expects that cash from operations and its Credit Facility will be sufficient to fund operations for the next twelve months but anticipates needing to raise additional capital to refinance the Senior Notes due in November 2025[177][178] Consolidated Results of Operations (Q1 2024 vs. Q1 2023) | Line Item | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Service revenue, net | $684,451 | $662,306 | | Service expense | $583,566 | $550,266 | | Operating income (loss) | $(3,395) | $8,098 | | Net loss | $(22,300) | $(3,962) | Results of Operations - Segments Segment performance shows revenue growth across NEMT, PCS, and RPM, but profitability declined in PCS and RPM NEMT Segment Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Service revenue, net | $479,306 thousand | $469,463 thousand | | Operating income | $16,470 thousand | $21,136 thousand | | Total paid trips | 8,808 thousand | 8,202 thousand | | Average monthly members | 29,071 thousand | 33,704 thousand | PCS Segment Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Service revenue, net | $183,568 thousand | $174,131 thousand | | Operating income (loss) | $(3,097) thousand | $3,974 thousand | | Total hours | 6,965 thousand | 6,824 thousand | | Service expense per hour | $21.46 | $19.94 | RPM Segment Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Service revenue, net | $20,102 thousand | $18,712 thousand | | Operating income (loss) | $(375) thousand | $599 thousand | | Average monthly members | 249 thousand | 235 thousand | Liquidity and Capital Resources The company has sufficient liquidity for the next 12 months but faces significant future cash requirements for its notes - Cash provided by operating activities increased by $12.2 million year-over-year, driven by favorable changes in operating assets and liabilities[167][168] - On February 22, 2024, the company amended its Credit Agreement to increase the maximum permitted Total Net Leverage Ratio and add a minimum liquidity covenant of $100.0 million[173][174] Future Cash Requirements as of March 31, 2024 | Obligation | Total (in thousands) | Due in Less than 1 Year (in thousands) | Due in More than 1 Year (in thousands) | | :--- | :--- | :--- | :--- | | Senior Unsecured Notes | $1,000,000 | $— | $1,000,000 | | Interest | $197,633 | $66,036 | $131,597 | | Short-term borrowings | $121,000 | $121,000 | $— | | Total | $1,922,155 | $719,776 | $1,202,379 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuation on its $121.0 million in variable-rate debt - The company is exposed to interest rate risk from its Credit Facility, which has variable interest rates, with $121.0 million outstanding at March 31, 2024[183] - A sensitivity analysis indicates that a one-percentage point increase in interest rates would negatively impact pre-tax earnings by approximately $1.2 million annually[183] Controls and Procedures Management concluded disclosure controls were ineffective as of March 31, 2024, due to previously identified material weaknesses - Management concluded that disclosure controls and procedures were not effective as of March 31, 2024, due to material weaknesses identified in the 2023 Annual Report on Form 10-K[185] - Ongoing remediation efforts are focused on addressing general information technology control deficiencies and process-level controls for revenue and payroll within the PCS segment[188] - Despite the control weaknesses, management believes the financial statements in this report are fairly presented in all material respects due to additional analysis and procedures performed[186] PART II—OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal proceedings not expected to have a material adverse effect - The company is subject to legal proceedings in the ordinary course of business but does not expect them to have a material adverse effect[192] - Note 12 details a class action lawsuit against the PCS subsidiary All Metro Health Care concerning pay for live-in caregivers, which the company is defending vigorously[97] Risk Factors No material changes have occurred to the risk factors previously disclosed in the 2023 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, 2023[193] Unregistered Sales of Equity Securities and Use of Proceeds The company did not conduct any unregistered sales of equity securities during the reporting period - None[195] Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - None[196] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[197] Other Information No officers or directors adopted or terminated Rule 10b5-1 trading plans during the first quarter of 2024 - No officers or directors adopted or terminated any Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[198] Exhibits This section indexes all exhibits filed with the Form 10-Q, including agreements and certifications - The report includes an index of exhibits filed, such as amendments to the credit agreement and certifications required by the Sarbanes-Oxley Act[200]