ModivCare (MODV)2024-11-09 14:38Financial Data and Key Metrics - Q3 2024 revenue increased 2% YoY to $702 million, driven by 5% growth in Personal Care Services (PCS) and 1% growth in Non-Emergency Medical Transportation (NEMT) [32] - Adjusted EBITDA for Q3 2024 was $43 million, or 6.2% of revenue, driven by solid performance in RPM and PCS segments, as well as operational improvements and cost savings in NEMT [33] - Net loss for Q3 2024 was approximately $27 million, while adjusted net income was $6 million, or $0.45 per diluted share [32] - Free cash flow for Q3 2024 was $1.5 million, consisting of $9.3 million in operating cash flow and $7.7 million in capital expenditures [41] Business Line Data and Key Metrics NEMT Segment - NEMT revenue increased 1% YoY to $492 million, with average monthly membership up 1% sequentially to 30 million [34] - NEMT adjusted EBITDA was $31 million, with a margin of 6.2%, down 99 basis points sequentially due to higher utilization, trip mix, and higher G&A expenses [36] - NEMT gross margin decreased 150 basis points sequentially to 11.3%, primarily due to growth in trips and trip mix, partially offset by cost-saving initiatives [35] - NEMT unit costs decreased, with purchased services expense per trip down 1% QoQ to $3.75 and payroll and other expenses per trip down 9% sequentially to $5.60 [35] Personal Care Services (PCS) Segment - PCS revenue increased 5% YoY to $189 million, driven by 3% growth in hours and 2% growth in revenue per hour [37] - PCS adjusted EBITDA was $16 million, or 8.3% of revenue, showing modest improvement from Q2 due to lower G&A expenses and slightly lower service expense per hour [38] - Reimbursement rate increases in New York, New Jersey, and West Virginia contributed to PCS growth [37] Remote Patient Monitoring (RPM) Segment - RPM revenue decreased 2% YoY but increased 2% sequentially to $19 million, with adjusted EBITDA margin at 37% [39] - RPM margins are expected to remain in the mid-30% range despite headwinds from Medicare Advantage (MA) supplemental benefit changes [40] Market Data and Key Metrics - Medicaid redeterminations impacted NEMT membership by approximately 220,000 members and adjusted EBITDA by less than $1 million in Q3 2024 [36] - Medicare Advantage (MA) accounts for 15% of NEMT revenue and 25% of RPM revenue, with anticipated contraction in MA business in 2025 [17] - The company expects a shift in MA mix to "winners" from "losers" due to market changes, with a focus on developing MA products in response to these shifts [17] Company Strategy and Industry Competition - The company is transitioning shared-risk NEMT contracts to fee-for-service arrangements, which will improve cash flow and reduce receivables build [11][12] - The company is focusing on cost-saving initiatives, including automation and technology optimization, which have driven $3 million in net cost savings in Q3 2024 [19] - The company is working to deleverage its balance sheet, with discussions ongoing with the bank group for long-term covenant relief [31][44] - The company is evaluating the potential sale of assets, including Matrix, to optimize value and reduce debt [60][61] Management Commentary on Operating Environment and Future Outlook - Management expects 2025 adjusted EBITDA to increase by approximately 10%, driven by membership growth, new contract wins, and cost-saving initiatives [15] - The company anticipates continued headwinds in the MA market but expects growth in Medicaid and other segments to offset these challenges [90] - Management highlighted the importance of the company's multimodal network strategy in reducing NEMT unit costs and improving operational efficiency [21] Other Important Information - The company collected $105 million in gross contract receivables in Q3 2024, including $42 million from retrospective prepayment resets and $39 million from early settlements [43] - The company ended Q3 2024 with $48 million in cash and $1.2 billion in debt, with a net leverage ratio of 5.6x [45] - The company maintained its 2024 revenue guidance of $2.7 billion to $2.9 billion and adjusted EBITDA guidance of $170 million to $180 million [46] Q&A Session Summary Question: Fee-for-service shift in NEMT contracts - The shift to fee-for-service is driven by the need for faster cash flow and cost of capital considerations, with state Medicaid contracts likely to remain full-risk [53] - The company expects margin compression in shared-risk contracts but believes the cost savings and operational efficiencies will offset this [54][55] Question: Cash flow and receivables outlook - The company expects to normalize working capital and free cash flow by mid-2025 as shared-risk contracts roll off and fee-for-service contracts take effect [57][58] - The company collected $105 million in gross contract receivables in Q3 2024 and expects to settle or repay $47 million in contract payables by mid-2025 [43][57] Question: Potential asset sales and deleveraging - The company is evaluating the sale of assets, including Matrix, as part of its strategy to deleverage the balance sheet [60][61] - The timing of asset sales will depend on market conditions and the company's ability to achieve the right valuation [62] Question: NEMT cost structure and margin outlook - The company has made significant progress in reducing NEMT unit costs through automation and multimodal strategies, with further cost savings expected in 2025 [82][83] - The company expects NEMT margins to improve as it transitions to fee-for-service contracts and continues to optimize its cost structure [84] Question: RPM headwinds and PCS margin outlook - RPM growth is expected to be impacted by MA headwinds, but Medicaid LTSS growth is expected to offset these challenges [90] - PCS margins are expected to improve, with a target exit rate of around 10% by the end of 2024 [87] Question: CDPAP revenue and EBITDA impact - The potential loss of CDPAP revenue would have an EBITDA impact of $3 million to $5 million, but the company expects to continue participating in the New York market [93][94] Question: Fee-for-service revenue mix in NEMT - The company expects approximately 60% of NEMT revenue to transition to fee-for-service by the end of 2025, with the remaining 40% in full-risk state contracts [97] Question: Cash flow conversion and deleveraging - The company expects a 30% cash flow conversion rate post-mid-2025, with potential for improvement to 50% as the company deleverages [110][111] Question: Pennsylvania rate study and Matrix monetization - The company is optimistic about a potential rate increase in Pennsylvania but cannot predict the timing [112] - The timing for Matrix monetization has been pushed out due to MA headwinds [113]