ModivCare, Inc. (MODV) Q3 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals mixed financial performance: slight revenue growth and modest improvements in personal care, but declining margins in NEMT and RPM. The Q&A section highlights management's optimism about transitioning to fee-for-service and deleveraging but lacks clarity on certain financial impacts. The reaffirmed revenue guidance and expected cost savings are positive, but the lowered EBITDA guidance and high debt levels are concerning. Overall, the sentiment is neutral, reflecting balanced positives and negatives, with no strong catalysts for significant stock price movement in the short term.
Key Financial Performance
Revenue $702 million, up 2% year-over-year, driven by 5% growth in Personal Care Services (PCS) and 1% growth in Non-Emergency Medical Transportation (NEMT).
Adjusted EBITDA $43 million, representing 6.2% of revenue, with solid performance in RPM and PCS segments, and operational improvements in NEMT.
Net Loss Approximately $27 million, with adjusted net income of $6 million or $0.45 per diluted share.
NEMT Revenue $492 million, up 1% year-over-year, benefiting from new contracts and reconciliations, offset by lower revenue per member.
Personal Care Revenue $189 million, up 5% year-over-year, driven by 3% growth in hours and 2% growth in revenue per hour.
RPM Revenue $19 million, down 2% year-over-year, but up 2% sequentially, impacted by higher-than-normal contract churn.
Free Cash Flow $1.5 million, consisting of net cash provided by operating activities of approximately $9.3 million and capital expenditures of $7.7 million.
Contract Receivables $110 million as of September 30, down from $79 million at the end of Q2, primarily due to successful collection efforts.
Contract Payables $47 million, down $40 million quarter-over-quarter, due to reconciliation and settlement on certain contracts.
Debt Approximately $1.2 billion, with a bank-defined net leverage ratio of 5.6x as of September 30.
Cash Position $48 million at the end of the quarter.
Cost Savings Achieved year-to-date savings of $40 million, with expectations for further modest net cost savings.
NEMT Adjusted EBITDA Approximately $31 million, with a margin decrease of 99 basis points sequentially to 6.2% due to higher utilization and trip mix.
Personal Care Adjusted EBITDA Approximately $16 million or 8.3% of revenue, with expectations for additional margin improvement.
RPM Adjusted EBITDA $7.1 million or a 37% margin, driven by aligned service expense and mix.
Operating Highlights
RPM Revenue Growth: RPM revenue increased 2% sequentially and adjusted EBITDA margin was nearly 37% due to a concerted effort to manage costs.
Personal Care Services Growth: Third quarter Personal Care revenue increased 5% year-over-year to approximately $189 million, driven by 3% growth in hours and 2% growth in revenue per hour.
NEMT Contract Wins: During the third quarter, we won $12 million of NEMT annual contract value or ACV and have added $81 million year-to-date.
NEMT Pipeline: Our NEMT pipeline remains strong with $1.5 billion of ACV.
New York CDPAP Update: The state selected a single vendor as the exclusive administrator for New York CDPAP, which is expected to go into effect on April 1, 2025.
Operational Efficiencies in NEMT: In the third quarter, we realized $3 million of net cost savings driven primarily by our strategic initiatives in our NEMT segment.
Cost Structure Optimization: We have made strides in optimizing technology to enhance processes, automating several contact center and back-office functions to improve our cost structure.
Shift to Fee-for-Service: We are working to address our remaining shared risk contracts through further prepayment updates and in many cases, shifting to fee-for-service arrangements.
Long-term Debt Strategy: Our bank group continues to be constructive and supportive and we are working with them to finalize a long-term solution that provides us with the time needed to thoughtfully and strategically assess the best approach to optimize value for all stakeholders.
Risk or Challenges
Debt Covenants: The company received temporary relief with its debt covenants through an amendment to its credit agreement, indicating potential financial strain.
Medicaid Redetermination: The impact of Medicaid redetermination has created delays and increased accounts receivable accruals, affecting cash flow and working capital normalization.
Competitive Pressures: The company anticipates a contraction in Medicare Advantage business, which could lead to reduced revenue and margin pressures.
Regulatory Issues: The transition to a single vendor for New York's Consumer-Directed Personal Assistance Program (CDPAP) raises concerns about the viability of the timeline and potential operational challenges.
Supply Chain Challenges: The company is facing challenges with rising costs and a strained workforce in the government-funded healthcare arena.
Economic Factors: The healthcare market is experiencing headwinds from material regulations and rising costs, which could impact future profitability.
Cash Flow: The company expects to normalize working capital and free cash flow over the next two to three quarters, but current cash flow generation is impacted by contract negotiations and receivable settlements.
Contract Structure Changes: The shift from shared risk contracts to fee-for-service arrangements may lead to price compression, impacting margins.
Market Share Risks: There is a risk of market share loss as competitors may offer lower-cost solutions, including rideshare options.
Guidance & Outlook
Adjusted EBITDA: Third quarter results were in line with expectations with adjusted EBITDA of $43 million.
Revenue: Third quarter revenue was $702 million, driven by improvements in Personal Care Services and higher margins in Remote Patient Monitoring.
Cost Savings: In the third quarter, $3 million of net cost savings were realized primarily from strategic initiatives in the NEMT segment.
Contract Receivables: Successfully collected $105 million of gross contract receivables, including $42 million from retrospective prepayment resets.
NEMT Annual Contract Value: Won $12 million of NEMT annual contract value in the third quarter, adding $81 million year-to-date.
Personal Care Services Growth: Personal Care revenue increased 5% year-over-year to approximately $189 million.
Technology Optimization: Optimizing technology to enhance processes, automating several contact center and back-office functions.
Fee-for-Service Transition: Shifting to fee-for-service arrangements to improve cash flow and reduce price compression.
2024 Adjusted EBITDA Guidance: Lowered to a range of $170 million to $180 million due to repricing in the NEMT segment.
2025 Adjusted EBITDA Growth: Expected to increase approximately 10%, driven by membership growth, new contract wins, and cost savings.
2024 Revenue Guidance: Maintained in a range of $2.7 billion to $2.9 billion.
Cash Flow Conversion: Expect to return to a cash conversion rate of 30% post mid-2025.
Contract Payables Settlement: Expect to settle or repay substantially all existing payables by the end of the second quarter of 2025.
NEMT Revenue Mix: Anticipate a shift to approximately 60% fee-for-service and 40% full risk by the end of 2025.
Shareholder Return Plan
Shareholder Return Plan: ModivCare is focusing on optimizing its financial structure and cash flow management. The company has amended its credit agreement to provide temporary relief with debt covenants, increasing the total net leverage ratio covenant for September 30, 2024, to 6.5x from 5.25x. They are also working on a long-term solution with their bank group to enhance stakeholder value. Additionally, the company is transitioning several shared risk contracts to fee-for-service arrangements, which will allow for quicker payments and improved cash flow. This shift is expected to significantly reduce the gross contract receivables build rate by 40% on a go-forward basis, enhancing cash flow conversion. ModivCare anticipates that by mid-2025, the majority of its contracts will be fee-for-service, which will positively impact cash flow and working capital.
Key Q&A
Earnings Word Cloud
MODV Transcript
The earnings call reveals several concerns: lowered 2024 EBITDA guidance, increased operational costs, and regulatory challenges impacting EBITDA. Despite some positive aspects like EPS beat and revenue growth, the uncertainty in cash flow and contract risks overshadow these. The Q&A highlights management's vague responses, particularly regarding Medicaid cuts and contract renewals. These factors, combined with the flat revenue and adjusted EBITDA, suggest a negative sentiment. The lack of a market cap limits precise impact prediction, but the overall sentiment points to a negative stock price movement in the range of -2% to -8%.
The earnings report revealed several challenges: operational issues due to Medicaid redetermination, flat revenue growth, and a 20% decline in adjusted EBITDA. Despite some cost savings, the guidance was lowered, and management's unclear responses in the Q&A raised concerns. The financial health is strained with fully drawn revolver balance and reliance on new debt instruments. These factors, combined with the economic pressures and membership reductions, suggest a negative sentiment likely leading to a stock price decline of -2% to -8%.
The earnings call reveals flat revenue growth, a significant decrease in EBITDA, and challenges in key segments like NEMT. Despite some positive aspects, such as improved cash flow management, the financial health appears strained with a fully drawn revolver and additional debt. The Q&A session highlighted uncertainties and vague responses from management, particularly regarding asset sales and membership numbers. These factors, combined with regulatory and economic pressures, suggest a negative outlook for the stock price in the short term.
The earnings call reveals mixed financial performance: slight revenue growth and modest improvements in personal care, but declining margins in NEMT and RPM. The Q&A section highlights management's optimism about transitioning to fee-for-service and deleveraging but lacks clarity on certain financial impacts. The reaffirmed revenue guidance and expected cost savings are positive, but the lowered EBITDA guidance and high debt levels are concerning. Overall, the sentiment is neutral, reflecting balanced positives and negatives, with no strong catalysts for significant stock price movement in the short term.
MODV Slides
MODV Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
How soon is the transcript available after the earnings call ends?
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
Is the transcript edited or altered in any way?
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
