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MI

ModivCare Inc (MODV)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 service revenue rose 2.2% year over year to $702.0M; adjusted EBITDA was $43.2M (6.2% margin), while GAAP diluted EPS was -$1.87 and adjusted EPS was $0.45, reflecting lower YoY profitability on higher interest expense and debt extinguishment costs tied to refinancing the 2025 notes .
  • Management affirmed FY 2024 guidance: revenue $2.7–$2.9B and adjusted EBITDA $170–$180M; reiterated expectation for >10% adjusted EBITDA growth in 2025 .
  • Working capital normalized meaningfully: gross collections on contract receivables were $105M in Q3; net contract receivables fell $55M to $110M, and net contract payables decreased $40M to $47M; covenant relief was secured via a credit agreement amendment in October .
  • Strategic pivot underway: shared-risk NEMT contracts shifting to fee‑for‑service through 2025 (target mix ~60% FFS/40% full‑risk), with expected price compression offset by cost efficiencies and improved cash conversion; full‑risk state contracts remain intact and renewed/extended in 2024 .
  • S&P Global Wall Street consensus estimates were unavailable due to a mapping issue; no beat/miss versus consensus can be asserted. Management characterized results as “in line with expectations” .

What Went Well and What Went Wrong

  • What Went Well
    • Collections and working capital: $105M of gross contract receivables collected; net contract receivables down $55M QoQ to $110M and net contract payables down $40M to $47M, improving cash conversion trajectory .
    • PCS growth and margin improvement: PCS revenue grew 4.7% YoY to $188.5M; adjusted EBITDA margin improved sequentially to 8.3%, with management targeting ~10% exit margin by year end .
    • RPM margins strong: RPM adjusted EBITDA margin reached ~37% on sequential revenue growth; management expects mid‑30% margins going forward despite MA headwinds .
  • What Went Wrong
    • Profitability compression vs. prior year: Adjusted EBITDA fell to $43.2M (6.2% margin) from $51.3M (7.5%) in Q3 2023, driven by higher interest expense (+$10.6M) and $11.8M loss on debt extinguishment from refinancing .
    • NEMT margin deterioration: NEMT adjusted EBITDA margin declined to 6.2% from 7.3% YoY amid trip mix and higher utilization; NEMT gross margin fell to 11.3% from 11.9% .
    • MA supplemental benefits and contract mix remain headwinds: Management expects MA contraction in 2025 affecting NEMT/RPM volumes; fee‑for‑service shift entails price compression, requiring continued cost reductions to protect margins .

Financial Results

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Revenue ($USD Millions)$686.9 $684.5 $698.3 $702.0
GAAP Diluted EPS ($)-$0.30 -$1.57 -$9.07 -$1.87
Adjusted EPS ($)$1.44 -$0.09 -$0.03 $0.45
Adjusted EBITDA ($USD Millions)$51.3 $32.1 $45.4 $43.2
Adjusted EBITDA Margin (%)7.5% 4.7% 6.5% 6.2%
Operating Income (Loss) ($USD Millions)$12.0 -$3.4 -$98.9 $5.3
Operating Margin (%)1.8% -0.5% -14.2% 0.7%
Net Income (Loss) ($USD Millions)-$4.3 -$22.3 -$128.9 -$26.6

Segment breakdown (Q3 2024):

SegmentService Revenue ($USD Millions)Adjusted EBITDA ($USD Millions)Adjusted EBITDA Margin (%)
NEMT$492.3 $30.6 6.2%
PCS$188.5 $15.7 8.3%
RPM$19.4 $7.1 36.7%

KPIs – NEMT:

KPIQ3 2023Q2 2024Q3 2024
Total paid trips (thousands)8,824 9,031 9,418
Avg monthly members (thousands)33,660 29,703 30,023
Revenue per member per month ($)4.81 5.51 5.47
Revenue per trip ($)55.07 54.33 52.27
Monthly utilization (%)8.7% 10.1% 10.5%
Purchased services per trip ($)41.21 41.20 40.75
Payroll & other per trip ($)7.30 6.13 5.60
Total service expense per trip ($)48.51 47.39 46.35

KPIs – PCS:

KPIQ3 2023Q2 2024Q3 2024
Total hours (thousands)6,995 7,048 7,174
Revenue per hour ($)25.73 26.48 26.28
Service expense per hour ($)20.45 21.26 21.15

KPIs – RPM:

KPIQ3 2023Q2 2024Q3 2024
Avg monthly members (thousands)247 246 246
Revenue per member per month ($)26.69 25.78 26.35
Service expense per member per month ($)9.36 11.08 10.86

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2024$2.7B–$2.9B (maintained Q2) $2.7B–$2.9B (affirmed Q3) Maintained
Adjusted EBITDAFY 2024$185M–$195M (lowered in Q2) $170M–$180M (revised 9/16; affirmed Q3) Lowered (Q3 affirms)
Adjusted EBITDA GrowthFY 2025“>10%” (introduced 9/16) “>10%” (reaffirmed Q3) Maintained

Notes: 9/16 press release revised FY24 adjusted EBITDA to $170–$180M; Q3 press release affirmed that range and reiterated >10% adjusted EBITDA growth expected in 2025 .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Contract structure (fee-for-service shift)Mgmt began renegotiating shared-risk prepayments; targeted working capital normalization; later disclosed fee-for-service shift in shared-risk MCOs Target ~60% FFS / 40% full-risk by end-2025; expect price compression offset by efficiencies; full-risk state contracts remain Accelerating transition to FFS; margin defense via cost-outs
Medicaid redetermination/utilizationRedetermination peaked mid-year; ~600k member impact in Q1; utilization normalizing to ~10–11% Impact modest in Q3; membership down vs 2023; utilization and mix affected margins; overall tracking in line/better than expected Headwind easing; mix still affects unit economics
Covenant relief / refinancingTerm Loan B closed July 1; bank leverage covenant at 5.22x in Q2 October amendment lifted net leverage covenant to 6.5x and interest coverage reduced to 2.0x; working toward long-term relief Near-term relief secured; long-term solution in progress
Cost savings (NEMT)Identified $34–$38M in-year savings; run-rate path to ~$60M in 2025; unit costs falling ~$3M net cost savings realized in Q3; more expected next 12 months; payroll/other per trip down ~25% over 18 months Ongoing execution; tangible unit cost reductions
RPM MA headwindsHigher churn in MA; margins mid-30% expected MA headwinds to continue in 2025; LTSS/Medicaid strength to offset; margins ~mid-30% Headwinds persist; margin resilience
PCS margin trajectoryPlan to reach ~10% EBITDA margin by YE; rate increases (NY, NJ) Sequential margin improvement; exit ~10% reiterated; additional WV rate increase post-Q3 Improving margins supported by rates and ops
Asset monetization (Matrix)Process underway; later 2024/early 2025 monetization targeted Monetization timing pushed due to MA market; still prepared; EBITDA strong Timing more cautious; option remains

Management Commentary

  • “Third quarter results were in line with our expectations with adjusted EBITDA of $43 million and revenue of $702 million… We were successful in getting an amendment to our credit agreement, giving us temporary relief with our debt covenants” — CEO Heath Sampson .
  • “We were able to collect gross contract receivable amounts of $105 million… and reduced our contracts receivable build by 40% on a go-forward basis through increased upfront payments” — CEO Heath Sampson .
  • “We maintained our 2024 revenue guidance… and our adjusted EBITDA guidance in a range of $170 million to $180 million. We expect 2025 adjusted EBITDA to increase approximately 10%” — CFO Barbara Gutierrez .
  • “In the third quarter, we realized $3 million of net cost savings… payroll and other expense per trip… down approximately 25% over the last 18 months” — CEO Heath Sampson .

Q&A Highlights

  • Fee‑for‑service shift: Shared‑risk NEMT contracts are moving to fee‑for‑service with expected price compression outweighed by improved cash timing; full‑risk state contracts remain; management targets ~60% FFS/40% full‑risk exit‑2025 .
  • Free cash flow conversion: Post mid‑2025, management targets ~30% EBITDA‑to‑FCF conversion; upside toward ~50% contingent on deleveraging .
  • Matrix monetization: Still planned; timing pushed given MA headwinds; option remains open and prepared for execution when value/timing optimal .
  • PCS exit margin: Management reiterated ~10% exit margin for 2024; rate increases (NY, NJ, WV) and operating efficiencies to support trajectory .
  • Defensive position vs rideshare: Brokers manage benefit complexity and higher-acuity transport needs; deep ecosystem integrations with providers/facilities cited as differentiator .

Estimates Context

  • S&P Global Wall Street consensus estimates (EPS, revenue, EBITDA) for MODV were unavailable due to a CIQ mapping issue at the time of analysis; therefore no beat/miss versus consensus is presented. Management stated Q3 was “in line with expectations” .
  • If consensus becomes available, key comparison points would be: Q3 revenue $702.0M, GAAP diluted EPS -$1.87, adjusted EPS $0.45, adjusted EBITDA $43.2M .

Key Takeaways for Investors

  • The quarter stabilized operationally: revenue grew modestly YoY and adjusted EPS returned to positive, while working capital metrics improved materially via collections and prepayment resets — supportive for near‑term liquidity and 2025 cash conversion normalization .
  • NEMT economics are transitioning: expect continued price compression in fee‑for‑service shared‑risk contracts, offset by demonstrable unit cost reductions (purchased services and payroll/other per trip) and scale advantages; full‑risk state contracts remain resilient .
  • PCS is on a margin recovery path with sequential improvements and recent rate actions in NY, NJ and WV; exit‑year EBITDA margin around 10% appears achievable if operational efficiencies continue .
  • RPM margins are robust despite MA headwinds; management expects mid‑30% margins to persist, with Medicaid LTSS growth offsetting MA contraction in 2025 .
  • Balance sheet and covenants: October amendment provided near‑term relief; a long‑term amendment is being pursued; deleveraging via operations and potential asset monetization (Matrix) remains a central strategic priority .
  • 2024 outlook is unchanged on revenue and affirmed lower adjusted EBITDA range; 2025 setup targets >10% adjusted EBITDA growth, but investors should model MA contraction and fee‑for‑service price compression alongside cost‑out benefits .
  • Tactical implication: near‑term stock catalysts likely hinge on progress toward long‑term covenant relief, visibility into fee‑for‑service conversions, PCS margin execution, and any concrete steps on Matrix monetization; monitor Q4 commentary for 2025 guidance detail .