Modivcare Reports Third Quarter 2024 Financial Results; Affirms 2024 Guidance

Modivcare Inc. (the "Company" or "Modivcare") (NASDAQ:MODV), a technology-enabled healthcare services company that provides a platform of integrated supportive care solutions focused on improving health outcomes, today reported financial results for the three and nine months ended September 30, 2024.

Third Quarter 2024 Summary:

• Service revenue of $702.0 million increased 2.2% from the third quarter of 2023

• Net loss of $26.6 million, or negative $1.87 per diluted common share

• Adjusted EBITDA⁽¹⁾ of $43.2 million, adjusted net income⁽¹⁾ of $6.4 million and adjusted EPS⁽¹⁾ of $0.45 per diluted common share

• Cash provided by operating activities during the quarter of $9.3 million and free cash flow⁽²⁾ of $1.5 million

• Contract receivables, net of contract payables, of $63.1 million as of September 30, 2024

"This quarter has demonstrated positive momentum, reflected in both operational enhancements and strengthened relationships, even amid shifts in the broader healthcare market. We delivered solid third-quarter results, reporting $43 million of adjusted EBITDA and a 2% increase in consolidated revenue, driven primarily by 5% growth in our personal care services segment," stated L. Heath Sampson, President and CEO. "During the quarter, we proactively amended our credit agreement, securing temporary relief on debt covenants. Our bank group continues to be constructive and supportive as we work toward a long-term solution for our covenants that provides us with the time to thoughtfully and strategically assess the best approach to de-lever our balance sheet and optimize value for stakeholders. Additionally, we achieved significant collections in contract receivables, reducing net receivables by $55 million, and we made meaningful progress in resetting our capitated payment thresholds within our shared risk NEMT contracts, as contractually designed. These actions are expected to improve our cash conversion cycle and enhance future free cash flow."

Sampson continued, "Our transformation efforts have laid a strong foundation across each segment, positioning us to meet our client needs today while anticipating tomorrow's demands in this dynamic market. Our strategic initiatives are driving substantial cost savings in our NEMT segment, with a strong deal pipeline encompassing new business, renewals, and expansions. Our personal care services segment is steadily growing with improving margins, while remote patient monitoring margins have risen to 37%, supported by operational efficiencies and delivering innovative value to our clients. We are confident in our ability to further differentiate our offerings, achieve cost savings, and drive growth in 2025. We remain fully committed to creating value within each segment, deleveraging our balance sheet, and ultimately enhancing stakeholder value."

Guidance*

We affirm our revenue and adjusted EBITDA guidance ranges as follows ($ in millions):

The Company continues to expect Adjusted EBITDA growth in excess of 10% in 2025, based on current 2024 guidance.

*Guidance excludes the effects of any future merger, acquisition or disposition activity and is based on the current operating environment.

Third Quarter 2024 Results

For the third quarter of 2024, the Company reported $702.0 million in revenue, a 2.2% increase from the $686.9 million reported in the third quarter of 2023. NEMT segment revenue grew by $6.3 million or 1.3% and PCS segment revenue grew by $8.5 million or 4.7%, while RPM segment revenue declined $0.3 million or 1.7%, as compared to the third quarter of 2023.

Our operating income was $5.3 million, or 0.7% of revenue, in the third quarter of 2024, compared to operating income of $12.0 million, or 1.8% of revenue, in the third quarter of 2023. Net loss in the third quarter of 2024 was $26.6 million, or negative $1.87 per diluted common share, compared to net loss of $4.3 million, or negative $0.30 per diluted common share in the third quarter of 2023. The increase in net loss for the third quarter of 2024 from the third quarter of 2023 was driven by an increase in interest expense of $10.6 million as well as a loss on extinguishment of debt of $11.8 million that was incurred during the third quarter of 2024 related to the refinancing of our Senior Notes due 2025.

Adjusted EBITDA was $43.2 million, or 6.2% of revenue, in the third quarter of 2024, compared to $51.3 million, or 7.5% of revenue, in the third quarter of 2023. Adjusted net income in the third quarter of 2024 was $6.4 million, or $0.45 per diluted common share, compared to adjusted net income of $20.5 million, or $1.44 per diluted common share, in the third quarter of 2023.

Cash provided by operations during the quarter was $9.3 million as compared to $53.5 million of cash provided by operations during the third quarter of 2023. Changes in operating assets and liabilities during the quarter include a decrease in contract receivables of $55.4 million, net, and a decrease in contract payables of $39.6 million, net. Net cash used in investing activities during the quarter was $7.7 million, primarily due to capitalized investments in technology and purchases of monitoring devices. Net cash provided by financing activities during the quarter was $36.3 million, which resulted in a quarter ended balance on the Company's revolving credit facility of $228.0 million.

During the third quarter, the Company successfully refinanced its $500.0 million Senior Unsecured Notes due 2025 at a redemption premium of 1.469% on the aggregate original principal amount of the 2025 Notes. The 2025 Notes were redeemed in conjunction with the funding of a Term Loan Facility in an aggregate principal amount of $525.0 million.

Third Quarter 2024 Earnings Conference Call

Modivcare will hold a conference call to discuss its financial results on Thursday, November 7, 2024 at 8:30 a.m. ET. To access the call, please dial:

US toll-free: 1 (888) 437-3179

International: 1 (862) 298-0702

You may also access the conference call via webcast at investors.modivcare.com, where the call will also be archived.

About Modivcare

Modivcare Inc. ("Modivcare" or the "Company") is a technology-enabled healthcare services company that provides a suite of integrated supportive care solutions for public and private payors and their members. Our value-based solutions address the social determinants of health (SDoH) by connecting members to essential care services. By doing so, Modivcare helps health plans manage risks, reduce costs, and improve health outcomes. Modivcare is a provider of non-emergency medical transportation (NEMT), personal care services (PCS), and remote patient monitoring solutions (RPM). The company also holds a minority equity investment in CCHN Holdings (d/b/a Matrix Medical Network), an independent, at scale provider of comprehensive in-home health assessments in the U.S. To learn more about Modivcare, please visit www.modivcare.com.

Non-GAAP Financial Measures and Adjustments

In addition to the financial measures prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP"), the information contained herein may include presentations for the Company and its segments (as noted and applicable) of: (1) EBITDA, Adjusted EBITDA, Adjusted G&A expense, Adjusted EBITDA margin, Adjusted Net Income (Loss), and Adjusted EPS, all of which are non-GAAP financial measures considered by management to be performance measures; and (2) free cash flow, which is a non-GAAP financial measure considered by management to be a liquidity measure. EBITDA is defined as net income (loss) before: (1) interest expense, net; (2) provision (benefit) for income taxes; and (3) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA before (as applicable): (1) restructuring and related costs; (2) transaction and integration costs; (3) settlement related costs; (4) a one-time payor collection settlement; (5) stock-based compensation; (6) impairment of goodwill; (7) loss on debt extinguishment; and (8) equity in net (income) loss of investee, net of tax. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by service revenue, net. Adjusted Net Income (Loss) is calculated as net income (loss) before (as applicable): (1) restructuring and related costs; (2) transaction and integration costs; (3) settlement related costs; (4) a one-time payor collection settlement; (5) stock-based compensation; (6) impairment of goodwill; (7) loss on debt extinguishment; (8) equity in net (income) loss of investee, net of tax; (9) intangible asset amortization expense; and (10) the income tax impact of such adjustments. Adjusted EPS is calculated as Adjusted Net Income (Loss) divided by the diluted weighted-average number of common shares outstanding as calculated for Adjusted Net Income (Loss). Adjusted G&A expense is calculated as G&A expense before (as applicable): (1) restructuring and related costs; (2) transaction and integration costs; (3) settlement related costs; and (4) stock-based compensation. Free cash flow is calculated as cash flow from operations less our applicable capital expenditures included in our purchase of property and equipment line in our Consolidated Statements of Cash Flows.

Reconciliations of the non-GAAP financial measures used herein to their most directly comparable GAAP financial measures that are not included in the discussion above are included below. We do not provide guidance for net income (loss) in this presentation on a basis consistent with GAAP or a reconciliation of forward-looking non-GAAP financial measure (Adjusted EBITDA) to its most directly comparable GAAP financial measure (net income (loss)) on a forward-looking basis because we are unable to predict items contained in the GAAP financial measure without unreasonable efforts. Our non-GAAP performance measures exclude expenses and amounts that are not driven by our core operating results and may be one time in nature. Excluding these expenses makes comparisons with prior periods as well as to other companies in our industry more meaningful. We believe such measures allow investors to gain a better understanding of the factors and trends affecting the ongoing operations of our business. We consider our core operations to be the ongoing activities to provide services from which we earn revenue, including direct operating costs and indirect costs to support these activities. As a result, our net income or loss in equity investee is excluded from these measures, as we do not have the ability to manage the venture, allocate resources within the venture, or directly control its operations or performance. Our free cash flow presentation (as applicable) reflects an additional way of viewing our liquidity that, when viewed together with our GAAP results, provides management, investors, and other users of our financial information with a more complete understanding of factors and trends affecting our cash flows. Our use of the term free cash flow is not intended to imply, and no inference should be made, however, that any reported amounts are free to be used without restriction for discretionary expenditures, as our use of these funds may be restricted by the terms of our outstanding indebtedness, including our credit facility, and otherwise earmarked for other non-discretionary expenditures.

Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial measures differently. In addition, there are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies, and exclude expenses that may have a material impact on our reported financial results. The presentation of non-GAAP financial measures is not intended to be considered in isolation from or as a substitute for the most directly comparable financial measures prepared in accordance with GAAP. We urge you to review the reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures included below, and not to rely on any single financial measure to evaluate our business.

Forward-Looking Statements

Certain statements contained in this press release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are predictive in nature and are frequently identified by the use of terms such as "may," "will," "should," "expect," "believe," "estimate," "intend," and similar words indicating possible future expectations, events or actions. The updated guidance discussed herein constitutes forward-looking statements. Such forward-looking statements are based on current expectations, assumptions, estimates and projections about our business and our industry, and are not guarantees of our future performance. These statements are subject to a number of known and unknown risks, uncertainties and other factors, many of which are beyond our ability to control or predict, which may cause actual results to be materially different from those expressed or implied herein, including but not limited to: government or private insurance program funding reductions or limitations; implementation of alternative payment models or the transition of Medicaid and Medicare beneficiaries to Managed Care Organizations; our inability to control reimbursement rates received for our services; cost containment initiatives undertaken by private third-party payors and an inability to maintain or reduce our cost of services below rates set forth by our payors; inadequacies in, or security breaches of, our information technology systems, including those intended to protect our clients' confidential information; the effects of any public health emergency; changes in the funding, financial viability or our relationships with our payors; delays in collection, or non-collection, of our accounts receivable; any impairment of our goodwill and long-lived assets; any failure to maintain or to develop reliable, efficient and secure information technology systems; any inability to attract and retain qualified employees; any disruptions from acquisition or acquisition integration efforts; weakening of general economic conditions, including the impact of inflationary pressures, rising interest rates, labor shortages, higher labor costs and supply chain challenges; estimated income taxes being different from income taxes that we ultimately pay; pandemics and other infectious diseases; our contracts not surviving until the end of their stated terms, or not being renewed or extended; our failure to compete effectively in the marketplace; our not being awarded contracts through the government's requests for proposals process, or our awarded contracts not being profitable; any failure to satisfy our contractual obligations or to maintain existing pledged performance and payment bonds; any failure to estimate accurately the cost of performing our contracts; any misclassification of the drivers we engage as independent contractors rather than as employees; significant interruptions in our communication and data services; not successfully executing on our strategies in the face of our competition; any inability to maintain relationships with existing patient referral sources; certificates of need laws or other regulatory and licensure obligations that may adversely affect our personal care integration efforts and expansion into new markets; any failure to obtain the consent of the New York Department of Health to manage the day to day operations of our licensed in-home personal care services agency business; changes in the case-mix of our personal care patients, or changes in payor mix or payment methodologies; our loss of existing favorable managed care contracts; labor disputes or disruptions, in particular in New York; becoming subject to malpractice, professional negligence, medical liability or other similar claims; our operating in the competitive remote patient monitoring industry, and failing to develop and enhance related technology applications; any failure to innovate and provide services that are useful to customers and to achieve and maintain market acceptance; our lack of sole decision-making authority with respect to our minority investment in Matrix and any failure by Matrix to achieve positive financial position and results of operations; any legal challenges to the relationships or arrangements between our virtual clinical care management services and the unaffiliated physician-owned professional corporation through which such services are provided; any failure to comply with applicable data interoperability and information blocking rules; the lapse of temporary telehealth flexibilities currently permitted under the Consolidated Appropriations Act of 2023; the cost of our compliance with laws; changes to the regulatory landscape applicable to our businesses; changes in budgetary priorities of the government entities or private insurance programs that fund our services; regulations relating to privacy and security of patient and service user information; actions for false claims or recoupment of funds; civil penalties or loss of business for failing to comply with bribery, corruption and other regulations governing business with public organizations; increasing scrutiny and changing expectations with respect to environmental, social and governance matters; changes to, or violations of, licensing regulations, including regulations governing surveys and audits; our contracts being subject to audit and modification by the payors with whom we contract; a loss of Medicaid coverage by a significant number of Medicaid beneficiaries following the expiration of the COVID-19 public health emergency under the Families First Coronavirus Response Act (2020); our existing debt agreements containing restrictions, financial covenants and cross-default provisions that limit our flexibility in operating our business; our substantial indebtedness and lease obligations and ability to generate or distribute sufficient cash to service our indebtedness; the expiration of our existing credit agreement or any loss of available financing alternatives; our ability to incur substantial additional indebtedness or to issue additional equity; the results of the remediation of our identified material weaknesses in internal control over financial reporting; future sales of our common stock by existing stockholders; any stock price volatility; our dependence on our subsidiaries to fund our operations and expenses; securities analysts failing to publish research or publishing misleading or unfavorable research about us; and the effects of applicable anti-takeover provisions.

The Company has provided additional information about the foregoing and other risks facing our business in our annual report on Form 10-K and subsequent periodic and current reports filed with the Securities and Exchange Commission that could impact future performance. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made and are expressly qualified in their entirety by the cautionary statements set forth herein and in our filings with the Securities and Exchange Commission, which you should read in their entirety before making an investment decision with respect to our securities. We undertake no obligation to update or revise any forward-looking statements contained in this release, whether as a result of new information, future events or otherwise, except as required by applicable law.