ModivCare - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 service revenue fell 4.9% year-over-year to $650.7M and declined sequentially versus Q4 2024 ($702.8M); adjusted EBITDA was $32.6M (5.0% margin), essentially flat YoY but down sequentially, with the net loss widening to $50.4M on higher interest expense.
• Segment trends: NEMT revenue declined to $449.0M (-6.3% YoY) but expanded adjusted EBITDA margin to 6.2%; PCS revenue was $181.8M (-1.0% YoY) with adjusted EBITDA up 8.5% YoY; Monitoring revenue was $18.1M (-9.8% YoY) with adjusted EBITDA margin at 28.8%.
• Liquidity and cash: operating cash flow was a use of $82.1M; net contract receivables increased to $108.5M, partly reflecting shared risk contracts; management collected ~$30M in April on a 2024 MCO receivable and is transitioning contracts to faster settlement terms.
• Guidance stance: the company is not issuing formal FY2025 guidance, focusing on execution; G&A cost actions target >$20M annualized savings (updated to ~$25M through April initiatives).
• Stock-relevant event: Nasdaq notified MODV on May 5, 2025 that MVPHS was below the $15M threshold, triggering a 180-day compliance period to Nov 1, 2025—management is monitoring options to regain compliance.

What Went Well and What Went Wrong

What Went Well

• NEMT margin resilience: Adjusted EBITDA margin expanded to 6.2% (up ~50 bps YoY) on pricing discipline, automation and cost initiatives; revenue per member per month rose 15.5% YoY.
• Commercial execution: New NEMT wins (two Medicaid MCO contracts, ~$52M ACV; ~$38M in-year revenue) and four PCS agreements (40–50K monthly hours) support 2025 pipeline; CEO: “We remain the platform of choice…”.
• Digital automation gains: Self-service call-to-trip ratio reached 36.1% (from 31% YoY), on-time performance 95.2%, complaints -31.2% YoY; expansion of Intelligent Virtual Agent and AI QA tools improves unit costs and routing accuracy.

What Went Wrong

• Top-line/volume pressure: Service revenue fell to $650.7M (-4.9% YoY), with NEMT trips and Monitoring membership down; Monitoring revenue -9.8% YoY and PCS hours -2.1% QoQ.
• Cash flow and leverage: Operating cash flow was -$82.1M; revolver remained fully drawn; interest expense nearly doubled YoY to $38.8M; net loss widened to $50.4M.
• Contract attrition/mix: NEMT losses (including a ~$15M regional contract) and MA exit in certain PERS markets pressured volumes; AR rose despite revenue declines due to shared risk structures not yet converted.

Transcript

Operator (participant)

Good day, everyone, and welcome to ModivCare's First Quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference call is being recorded. Today's speaker will be Heath Sampson, ModivCare's President and Chief Executive Officer. Before we get started, I want to remind everyone that during today's call, management will make forward-looking statements under the Private Securities Litigation Reform Act. These statements involve risk, uncertainties, and other factors that could cause actual results or events to differ materially from expectations. Information regarding these factors is contained in today's press release and in the company's filings with the SEC. We will also discuss non-GAAP financial measures to provide additional information to investors.

A definition of these non-GAAP financial measures and the applicable reconciliations to their most directly comparable GAAP financial measures is included in our press release and Form 8-K. A replay of this conference call will be available approximately one hour after today's call concludes and will be posted on our website, modivcare.com. This morning, Heath Sampson will begin with opening remarks and review our financial results and guidance. We will open the call for questions. With that, I will turn the call over to Heath.

Heath Sampson (President and CEO)

Good afternoon, everyone, and thank you for joining us today. We appreciate the opportunity to walk through our first quarter 2025 results and provide an update on execution across our operating priorities. To create a consistent framework for reporting progress, we are aligning our updates to five enterprise objectives. One, grow and retain core customer relationships across all segments. Two, digitize and automate our care access platform. Three, optimize our operating model for simplicity and scale. Four, increase capital efficiency and advance deleveraging. And five, deliver high-impact, client-centric supportive care. These five objectives guide our decision-making across segments and functions and will continue to serve as the structure for how we communicate execution and performance going forward. Now, moving to our first strategic objective, to grow core customer relationships across all segments.

In Q1, we focused on strengthening customer relationships through retention, targeted renewals, and new business wins across all three segments. In NEMT, we secured two new Medicaid managed care contracts, one in the Southwest and one in the Pacific region, representing a combined annual contract value of approximately $52 million, with expected in-year revenue contribution of around $38 million. We remain the platform of choice for large health plans seeking broad network access, consistent quality outcomes, and actual insights to improve member satisfaction and reduce the total cost of care. Our forward-looking, tech-enabled approach to integrating the care ecosystem, combined with our ability to help clients proactively manage evolving CMS requirements, including the complex and state-specific needs of dual-eligible populations ahead of the 2027 mandates, continues to differentiate ModivCare in the market. We also submitted four state contract renewals totaling over $246 million in annual contract value.

In each case, we are the incumbent, and we remain on track for the renewal and continue to be a high-value quality partner in each of these states. Our broader opportunity in 2026 pipeline exceeds $500 million in potential contract value. We also experienced the loss of a regional contract totaling $15 million in annual revenue, driven by a national plan's decision to consolidate vendors. While this was a smaller relationship, it was one we believe we should have retained. Performance was strong. This reinforces the importance of our ongoing investments in commercial responsiveness and account-level management discipline. Retention remains a key performance priority. In personal care, we signed four strategic agreements, including two national and two regional plans. These contracts span geographies in the Northeast and Southeast and are expected to generate between 40,000 and 50,000 monthly service hours, with contribution margins above our Medicaid average.

In monitoring, we continue to grow our Medicaid footprint, adding two new markets during the quarter. In Indiana, which is about 10% of our LTSS revenue, referral volume increased by more than 45% year-over-year, while our newest southeastern market delivered sequential growth. Our innovation and development efforts are beginning to deliver results, expanding our monitoring and care management capabilities beyond traditional PERS solutions. While we are still in early stages launching new contracts, we believe the total addressable market is substantial, and we have built the infrastructure and capability needed to scale effectively. Now, turning to our second strategic objective, to digitize and automate our care access platform. We continue to advance our digital transformation strategy in Q1, with a focus on improving operation scalability, reducing unit costs, and preparing each segment for future growth.

In NEMT, our self-service call-to-trip ratio reached 36.1%, up from 35% in Q4 and 31% a year ago. This growth in digital reservations was supported by ongoing API integration and channel enhancements. Automated intake and trip adjudication contributed to a 1.2% year-over-year reduction in unit costs, with purchase services per trip decreasing to $40.69. Digital trip volume exceeded 1 million transactions in the quarter. Complaints, a key performance metric in the complex NEMT environment, declined 31.2% year-over-year. On-time performance rose to 95.2%, and missed trips decreased by 20% quarter over quarter, reflecting meaningful improvements driven by automation and enhanced service coordination. We also expanded the use of our intelligent virtual agent for outbound call handling and deployed AI-powered tools for QA automation. These tools are improving writing accuracy, speeding up feedback loops, and creating more consistent oversight across contact center operations.

As part of monetization in the NEMT segment, we're in the process of restructuring the organization and are building out a more tech-first model by adding talent in data, AI, and agile operations. While we continue to operate with over 2,000 contacts and agents and 800 transportation support roles, the infrastructure now in place positions us to accelerate automation, reduce fixed labor intensity, and streamline repetitive tasks going forward. In personal care, we expanded deployment of digital tools, included for shift scheduling, caregiver engagement, and e-learning, which achieved a 72% completion rate among newly onboarded caregivers. These are industry-leading tools which enable recruiting and retaining caregivers, while also strengthening compliance and revenue cycle management and supporting robust fraud, waste, and abuse controls. In monitoring, we completed phase one of our cloud-based continuity platform and launched new revenue cycle management automation.

Together, these initiatives reflect the foundation of our platform modernization strategy. They are enabling faster execution, reduced manual workload, and supporting more scalable and compliant service delivery in both current operations and future business models. Now for our third strategic objective, to optimize our operating model for simplicity and scale. We advanced our structural realignment work by streamlining operations, consolidating leadership structures, and reducing fixed overhead across the business. In April, we launched a company-wide G&A reduction initiative targeting approximately $25 million in annualized savings, with additional opportunities identified as part of the ongoing plan. Combined with the optimization actions implemented in late 2024 and early 2025, the savings were driven by workforce efficiencies, vendor consolidation, and realization of plan reductions.

As part of our ongoing organizational alignment and future strategic plans, Barb Gutierrez, CFO, and Jessica Krall, CIO, will be departing the company after advancing their respective functions in the company over the last few years. These transitions are deliberate and aligned with both our near-term priorities and the long-term direction of the business. We have a strong experienced finance team with deep public company, healthcare, and audit experience, backed by leaders focused on execution and results. On the technology side, we're advancing the next phase of our platform with a capable team leading our shift toward automation, AI, and digital scalability. In NEMT, we completed a full operating restructure, integrating trip operations, pricing, client services, and transportation network management under unified regional leadership. This model enhances decision speed and financial accountability in the field, while enabling a modern, connected, and hyper-local healthcare ecosystem.

In personal care and monitoring, we streamlined operations to reduce costs and improve execution. In PCS, a shift to a hub-and-spoke model drove $1 million in year-over-year G&A reduction, supported by standardized dashboards tracking caregiver onboarding and branch efficiency. Across all three segments, these operating model changes are designed to simplify execution, reduce structural costs, and support strategic flexibility. Now turning to our fourth strategic objective, to increase capital efficiency and advance deleveraging. In Q1, following the successful capital raise in January, we remained focused on improving cash flow, reducing capital intensity, and future deleveraging. In NEMT, we transitioned several large customers to faster settling fee-for-service-like models. These agreements retain performance and cost-based payments while limiting exposure from utilization or member mix volatility. As a result, collection predictability will improve, and several contracts now settle within 90 days or less, compared to prior cycles of 6 months to 18 months.

We have demonstrated improved alignment with our payer partners and a more proactive revenue cycle management. As a result, in April, we collected a large MCO contract receivable from 2024 of approximately $30 million, a month earlier than we expected. To reinforce capital discipline and governance, we recently completed the final step of our board recomposition. In April, we also established a strategic alternatives committee of the board. This committee is now overseeing the ongoing portfolio and capital review process, including potential divestitures in close coordination with management, the board as a whole, and external advisors. Now turning to our fifth strategic objective, to deliver high-impact client-centric supportive care. Our long-term vision is to become the digital infrastructure for supportive care for each segment, standalone or together, the operational infrastructure connecting payers, providers, caregivers, and members.

This allows ModivCare to unify fragmented benefits and deliver a coordinated member experience across in-home, virtual, and community-based services. This approach positions us to meet the healthcare system where it is going, into the home, more preventative, digitally enabled, and increasingly centered around the member, improving satisfaction and lowering the cost of care. It also differentiates us in a fragmented market, not just through our service breadth, but through our ability to coordinate care efficiently at scale. Now turning to our consolidated first quarter financial results. Revenue for the quarter was $650.7 million, down 5% year-over-year and 2% sequentially. The decline was driven primarily by known NEMT contract attrition, lower billed hours in PCS, and membership churn in monitoring. These impacts were expected and reflect prior-year customer transitions and market dynamics that are now largely behind us.

Net loss for the quarter was $50.4 million, up from $22.3 million a year ago. The increase was primarily due to higher interest expense, which rose to $38.8 million, nearly double the prior year as a result of higher borrowing costs on the fully drawn revolver. Adjusted net loss was $24.5 million, or negative $1.71 per share, which reflects the exclusion of restructuring-related costs and amortization of intangibles. Adjusted EBITDA came in at $32.6 million, essentially flat year-over-year, but down sequentially, again in line with expectations. Key drivers of the sequential decline included an $8 million impact from net NEMT contract development, reflecting the balance of new wins, losses, and repricings, a $7 million impact from lower EBITDA in PCS and monitoring. These impacts were partially offset by improved pricing, favorable utilization mix in NEMT, and lower service expense and G&A.

In NEMT, revenue of $449 million, representing 69% of total revenue, declined 6% year-over-year due to previously disclosed contract losses. Average monthly members declined 19% year-over-year and 20% sequentially. Also, utilization from the normalization of healthcare increased to 12%. We've either repriced or are in the process of repricing our full-risk contracts, primarily with state clients, to better align with current utilization levels. These pricing resets are designed to stabilize margins and reduce working capital volatility. To that end, we are also redesigning contract terms to accelerate settlement and improve cash conversion. These efforts are already underway with the goal of achieving more stable cash flow dynamics by 2026. Revenue per member per month rose 16% year-over-year to $6.35 and 13% sequentially, a result of stronger acuity mix and pricing updates.

Adjusted EBITDA for mobility was $27.8 million, with a 6.2% margin, up 50 basis points year-over-year and 60 basis points sequentially, driven by pricing disciplines, mode optimization, and cost structure improvements. PCS contributed $181.8 million in revenue, or 28% of total revenue. Revenue per hour rose 1.1%, while service hours declined 2.1% due to expected seasonality and localized labor shortages. Adjusted EBITDA was $12.2 million, up 9% year-over-year, driven by structural cost savings and temporary delay in wage rate changes. Margins will normalize in Q2 as these wage adjustments phase in. Monitoring contributed $18.1 million in revenue, representing just 3% of total revenue, but 16% of total adjusted EBITDA. Adjusted EBITDA was $5.2 million for a 29% segment margin.

While revenue was impacted by the planned exit of a Medicare Advantage customer in certain PERS markets, Medicaid LTSS referrals grew, including a 45% year-over-year increase in Indiana and additional programs launched in new states. We are now operating under three active condition-based monitoring contracts and continue to progress towards full divestiture readiness, including legal, HR, and operational separation and advisory engagement. Turning to the balance sheet, net contracts receivable rose $109 million, up from $95 million in Q4 due to expected billing timing. However, we are already seeing improvement. In April, we collected $30 million in receivables, approximately two months ahead of contract terms, reflecting improved payer alignment and proactive revenue cycle management. We ended the quarter with $116 million in cash and a fully drawn revolver of $269 million.

Free cash flow was negative at $86.2 million, largely due to working capital build from timing of accounts payable, contract transitions, and higher interest expense tied to our capital structure. We are continuing to take disciplined action to manage costs, drive execution, and position the business for long-term performance. Our strategic priorities remain unchanged. Grow and retain core customer relationships, digitize and automate our care access platform, optimize our operating model for simplicity and scale, increase capital efficiency and advance deleveraging, and lastly, deliver a high-impact, client-centric supportive care model. These objectives guide our operational decisions, investment focus, and how we evaluate long-term portfolio strategy. As shared previously, we are not issuing formal guidance in 2025. Instead, we are focused on executing against measurable initiatives and communicating progress through clear, objective KPIs and milestones.

That said, we are executing with urgency and focus, improving our business unit performance, strengthening our balance sheet, and advancing our platform modernization. Our progress is a direct result of the work of our team, from caregivers and drivers to call center agents, engineers, and operators. Their execution and commitment are enabling us to deliver essential care and build a stronger, more connected mode of care. We look forward to continuing this momentum and updating you on our progress in Q2. Operator, we're now ready to take your questions.

Operator (participant)

Thank you. We'll now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up the handset before pressing your star keys. One moment, please, while we pull for questions. Our first question is from Peter Chickering with Deutsche Bank.

Peter Chickering (Managing Director and Senior Equity Analyst)

Hey, good afternoon, guys. I guess we'll start off just on cash flow from ops. Working capital was obviously a pretty big use of cash this quarter. The cash flow burn of $82 million. Can you just walk us through how we should be thinking about cash flow generation throughout the rest of the year? You talked about the $30 million collection you guys got, but just how we should be modeling cash flow generation for the year. And then it looks like there's a $2 million settlement in the quarter. I just want to see if that's a charge against AR or something else.

Heath Sampson (President and CEO)

Yeah. Hey, thanks, Peter.

I'll start with the $2 million. The $2 million was a settlement for a legacy case in the personal care business that we cleared up. And then cash, yeah, you're on it, right? For us, it's pretty simple. Our EBITDA is driving our cash. Then you can see, and a good way to kind of walk through this is on page eight of the deck. This will help us walk through the other items and how we look forward. You're seeing now that based on the wins that we had in the mobility side, we had $52 million. The legacy losses that we have, those have been flushed through. This continued growth within the business, as well as here utilization for us going up, and because of our contract mix, that's a favorable benefit to us.

Growth in revenue and contracts will add to that EBITDA, so the business development growth. And then our cost savings. You see them here. You see the cost savings that we had from prior year rolling forward. You're seeing the automation cost savings. And then we also talked about continued G&A, that $25 million that we cut. So those will also flow through. And then the changes in PCS that are kind of coming from COVID-related payments and monitoring, you should expect those to contribute as well. All the drivers that are controllable are moving in the right direction for us. The last component that is controllable is around, again, working capital. This is one item that we know we've been talking about for a while, right?

Especially coming out of last year, and also because of the great work that our teams are doing around restructuring these contracts, we are becoming much more predictable. You will see that working capital need continue to come down each quarter. As we exit into 2026, we should have the majority of our contracts onto the right structure so that long working capital need will go away. In addition to that, you did see AR rise this year, this quarter, but as we said on the call, we are moving contracts. Again, we expect that to continue, so that AR will come down. Working capital benefit coupled with the AR will have a, I feel, really good of our ability to generate cash off of that. Of course, you have the taxes and the add-backs. The add-backs rest have come down.

It's mainly going to be kind of restructuring and fees. Long story short, the benefits that we're driving and making decisions around cost out, both in G&A and automation, coupled with the working capital changes, we expect meaningful improvement on cash flow generation as we exit the year.

Peter Chickering (Managing Director and Senior Equity Analyst)

Okay. One more follow-up on that one. I mean, with overall revenue down to 4.9% year-over-year and NEMT is down 6.3% year-over-year, I guess, why do contract receivables and long-term contract receivables increase by $17 million? I guess I'm trying to figure out how, if revenue is down, how the AR is up there.

Heath Sampson (President and CEO)

Yeah. That revenue that went down were for primarily those two contracts, the MA contract and then that Florida contract that rolled off in January. That's the main driver that we knew about end of last year for that.

We have been increasing since then and expect them to roll on. The AR is completely to do with our contracts that are on shared risk. Those contracts have remained, and until we have switched them over, which we have started to now, they just grew in accordance with the way the contracts are structured. It is a disconnect mainly because of the contract mix and the shared risk contracts not being converted until this quarter and going into next year, which is why AR went up in those items and those areas.

Peter Chickering (Managing Director and Senior Equity Analyst)

Great. One sort of, I guess, fundamental one, looking at NEMT, obviously, your total expenses are down due to contract losses. Your revenue per member month is up 13%, and your revenue per term is up 2.4%.

Is this just a mix issue that those contracts were lost or simply shifted around the mix there, or is there something else that's happening there? As we model this thing out for the rest of the year, is this the right revenue per member and revenue per trip that we should be thinking about for 2025? Also, the contract that you lost that you were the incumbent, I guess, any sort of color and sort of why you guys lost that? Thank you so much.

Heath Sampson (President and CEO)

Yeah. The revenue per trip items, you're right, it is a mix change. That's the main driver of that for Q1.

For us, especially coming out of COVID and as we've been repricing these to be in line with the win-win structures that we have with our clients, I expect our revenue mix to stay the same and therefore those per trip metrics to be kind of normal throughout the rest of this year. We will be having, as we said, adding new business, and the mix may change a little bit, but those will be for the benefit. On the contract that we lost, again, we want to be transparent around our competitive advantages that we're seeing in transportation. We also want to be transparent around if something happened and we lost this one payer that consolidated with another competitor. For us, we want to be transparent around that. That's not representative.

We have 40 other contracts on our MCO side that we feel that we're in the process of renewing and extending additional pipeline and, as we said, additional closures in Q1, and I expect that to happen. At the same time, we did. Relative to the wins, definitely smaller, but at the same time, it's important for us to ensure that our continued progress around our account management and client management continues to improve. I expect it will.

Peter Chickering (Managing Director and Senior Equity Analyst)

Great. Thanks so much.

Heath Sampson (President and CEO)

Thanks, Peter.

Thank you. Our next question is from Mike Petusky with Barrington Research.

Mike Petusky (Managing Director and Senior Investment Analyst)

Yeah. Hey, Heath. Yeah, Mike, I'm going to try to drill down a little bit on that cash flow question. I'm just going to ask it real plainly. I think you guys have sort of big debt payments, and I think Q2 and Q4, is that right?

Heath Sampson (President and CEO)

Yeah, that's correct.

Q2, Q4.

Mike Petusky (Managing Director and Senior Investment Analyst)

Okay. I'm assuming that you can't generate positive cash flow from ops in those quarters. I'm wondering, A, is that true? And B, if that is true, is there a positive cash flow possibility in Q3? Thanks.

Heath Sampson (President and CEO)

Yeah. The right way to look at, because of the lumpiness in the debt payments, yes, we manage and cash by a monthly, weekly basis, and also quarterly. The right way to think about it is annually because of those lumpiness.

You saw the cash that we have on the balance sheet, coupled with what I talked about before around the contract changes and what that is going to do to our working capital and the collection of that AR, we feel really good in the cash flow generation for where we are and our balance sheet and everything that we are doing right now to ensure that we have the right level of cash to ensure that we operate as we move through the months and the quarters.

Mike Petusky (Managing Director and Senior Investment Analyst)

Right. Heath, I am going to try to pin you down one more time. Is there a positive cash flow quarter in this year?

Heath Sampson (President and CEO)

Yeah. You are right on the negative cash flows because of the large debt payments in Q2 and Q4. I will not give you the exact forecast on the other quarters.

With what we have done in January, what we've continued to do, what we are expected to do around cost out and automation, we're operating as we should, and I feel good about our current position.

Mike Petusky (Managing Director and Senior Investment Analyst)

Okay. Can we talk a little bit about the strategic alternatives, I guess, initiative? Obviously, it feels like there's some urgency in this situation. I'm just curious, I mean, do you see something coming out of that initiative in the current year?

Heath Sampson (President and CEO)

Yeah. We feel really good about our businesses, what we've done. At the same time, delivering is a top priority for us. That's critical to our stakeholders. That's why we are doing it. That's why we look forward to updating you as we move through. The urgency is the right level of balance to ensure that we're doing the right thing for all stakeholders.

We will sell when it is the right time to sell. That's the best thing for, again, all stakeholders. There's the right level of patience and urgency to ensure that we get the right value at the right time. I'm comfortable with the position we're in, and the great work that each of those businesses are doing is going to ensure that we get the right value. Sure.

Mike Petusky (Managing Director and Senior Investment Analyst)

Last one, and I'll jump off. In terms of the, if you mentioned specifics on the G&A savings, where those are coming from, I missed it. Can you lay out more specifics around the $25 million?

Heath Sampson (President and CEO)

Yeah. It's across the board, but it's primarily within the corporate and shared service areas.

As we continue to get more efficient in our operations that are customer-facing and drive value for the customer-facing improved because of what we've done during the transformation, because of the automation, we're able to ensure that the back office or the extra people that were necessary to compensate for some of the stuff, we don't need that anymore because of our efficiencies, our focus, and simplicity. It's primarily in the shared service and corporate side that those dollars came out.

Mike Petusky (Managing Director and Senior Investment Analyst)

Primarily labor.

Heath Sampson (President and CEO)

Yeah. Oh, so primarily labor. There are vendor statements, but we got those earlier. That $25 million that I said, the majority of that is labor.

Mike Petusky (Managing Director and Senior Investment Analyst)

Okay. All right. Very good. Thank you.

Heath Sampson (President and CEO)

Great. Thanks, Mike. Thank you.

Operator (participant)

There are no further questions at this time. I would like to hand the floor back over to Heath Sampson for any closing comments.

Heath Sampson (President and CEO)

Thanks, everybody. Appreciate you joining the call this afternoon. I'm really proud of what the team has done and really proud about us weathering the storm coming out of last year. It was an unprecedented time. A lot of that behind us. As you can see in Q1, the execution and the progress we made. I really look forward to updating you in Q2 on that continued progress. Thanks again for joining, and look forward to talking to you in a few months. Take care.