ModivCare (US:MODV)2023-11-03 22:08Financial 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]