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MI

ModivCare Inc (MODV)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was flat year over year at $702.8M, but profitability compressed: operating margin fell to 0.6% (from 2.2% in Q4’23) and adjusted EBITDA declined to $40.4M (5.7% margin) as service expenses increased across segments .
  • Management provided no formal FY2025 guidance given an active strategic review and planned divestitures; they highlighted a shift to fee‑for‑service contracts to normalize working capital and disclosed two contract losses (~$200M annual revenue headwind entering 2025) to be offset by a strong pipeline over time .
  • Liquidity actions were significant: a covenant holiday from Q4’24–Q2’25, a new $75M incremental term loan, and year-end cash of $113M with the revolver fully drawn at $269M; net contract receivables stood at $95M, with free cash flow of $24.7M in Q4 .
  • Key tactical positives: NEMT cost per trip decreased (purchased services per trip down 4% YoY), automation reduced call-to-trip ratios, and PCS posted sequential margin improvement aided by state quality incentives; headwinds included higher interest expense and MA-related churn in Monitoring and NEMT .

What Went Well and What Went Wrong

  • What Went Well

    • Cost execution in NEMT: purchased services per trip fell to $40.42 (−4.3% YoY) and payroll/other per trip declined 18% YoY; total service expense per trip fell 6.2% YoY as automation and multimodal initiatives took hold .
    • PCS margin stabilization: Q4 PCS adjusted EBITDA rose to $17.5M (9.4% margin), benefiting from ~$2M state quality incentives and centralized operations; revenue per hour increased 3.5% YoY to $26.50 .
    • Strategic positioning and pipeline: launched a divestiture process with Monitoring “most advanced,” and identified >$300M MCO pipeline in NEMT (vs ~$200M attrition); management emphasized the transition to fee‑for‑service (~25% of revenue moving) to normalize cash conversion .
    • Quote: “2024 was a perfect storm… We… emerged stronger… We will further strengthen the balance sheet by monetizing select platforms” — CEO, Heath Sampson .

  • What Went Wrong

    • Profitability compression: Q4 adjusted EBITDA fell to $40.4M (5.7% margin) from $50.5M (7.2%) in Q4’23 on higher service expense across segments; operating margin fell to 0.6% (from 2.2%) .
    • Higher interest burden: Q4 net loss widened YoY due in part to an $8.6M increase in interest expense; full-year interest expense increased to $94.1M .
    • Medicare Advantage pressure and churn: Monitoring revenue −5.3% YoY with margin contraction; MA PERS benefits pulled back at major payors; NEMT MA exposure expected to drop from 16% in Q4 to <10% entering Q1 .

Financial Results

Summary financials vs prior quarters

MetricQ2 2024Q3 2024Q4 2024
Revenue ($MM)$698.3 $702.0 $702.8
Operating Income (Loss) ($MM)$(98.9) $5.3 $4.3
Operating Margin %(14.2)% 0.7% 0.6%
Net Income (Loss) ($MM)$(128.9) $(26.6) $(23.5)
Diluted EPS ($)$(9.07) $(1.87) $(1.64)
Adjusted EBITDA ($MM)$45.4 $43.2 $40.4
Adjusted EBITDA Margin %6.5% 6.2% 5.7%
Adjusted EPS ($)$(0.03) $0.45 $0.19

Notes on non-GAAP: Q4 adjustments included $19.3M intangible amortization, restructuring/related costs, and equity method loss; full-year included $105.3M Monitoring goodwill impairment in Q2 .

Segment performance (Revenue, Adj. EBITDA)

SegmentQ4 2023Q3 2024Q4 2024
NEMT Revenue ($MM)$499.1 $492.3 $495.0
NEMT Adj. EBITDA ($MM)$39.7 $30.6 $27.6
PCS Revenue ($MM)$181.2 $188.5 $186.6
PCS Adj. EBITDA ($MM)$15.8 $15.7 $17.5
Monitoring Revenue ($MM)$20.2 $19.4 $19.2
Monitoring Adj. EBITDA ($MM)$7.2 $7.1 $6.8

KPIs — NEMT

KPIQ4 2023Q3 2024Q4 2024
Total paid trips (000s)8,798 9,418 9,543
Avg. monthly members (000s)32,914 30,023 29,382
Revenue per trip ($)56.72 52.27 51.87
Purchased services per trip ($)42.24 40.75 40.42
Total service expense per trip ($)49.13 46.35 46.09
Utilization (%)8.9% 10.5% 10.8%

KPIs — PCS

KPIQ4 2023Q3 2024Q4 2024
Total hours (000s)7,074 7,174 7,042
Revenue per hour ($)25.61 26.28 26.50
Service expense per hour ($)20.40 21.15 21.05

KPIs — Monitoring

KPIQ4 2023Q3 2024Q4 2024
Avg. monthly members (000s)253 246 249
Revenue per member per month ($)26.67 26.35 25.65
Service expense per member per month ($)9.09 10.86 10.35

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2024$2.7–$2.9B (Q2) $2.7–$2.9B (affirmed Q3) Maintained
Adjusted EBITDAFY 2024$185–$195M (lowered in Q2; prior $190–$210M) $170–$180M (affirmed Q3) Lowered again in Q3 vs Q2
FY 2025 GuidanceFY 2025—Not provided due to strategic review —
Capex (qualitative)FY 2025—“A little bit higher” than ~$30M plan Indicated higher investment
Contract Mix2025—~25% of revenue transitioning to fee‑for‑service in Q1 Working capital friendly

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4 2024)Trend
Capital structure/liquidityRefinanced 2025 notes with $525M Term Loan B; covenant relief discussions; working capital cycles lengthened by shared‑risk contracts Covenant holiday Q4’24–Q2’25; $75M incremental term loan; cash $113M, revolver $269M drawn Strengthened near term
Contract model (FFS vs shared risk)Shared‑risk protected margins but extended settlement cycles Actively shifting to fee‑for‑service (~25% in Q1) to normalize cash and align incentives Accelerating shift
Medicaid redetermination/utilizationRedetermination and rising utilization strained WC and visibility Utilization up to 10.8%; membership lower; pricing resets with states underway Stabilizing utilization; re-pricing
Cost/technology (AI, automation)Ongoing platform automation; cost savings trajectory Cost per trip down; call-to-trip 42%→34% via self-service/AI; board adds AI expertise Efficiency gains continue
Strategic alternatives/divestituresIntent to delever and optimize value Formal process launched; Monitoring “most advanced”; strong buyer interest Execution in progress
Medicare Advantage (MA) headwindsMonitoring impairment on lower than expected membership MA-driven churn in Monitoring; NEMT MA share falling <10% entering Q1 Near-term pressure persists
Working capital (AR/AP)Net contract receivables improved Q3; still volatile Net contract receivables $95M; expect conversion benefits in 2025 as mix shifts Improving trajectory

Management Commentary

  • Strategic posture: “We… built a strong foundation… We will further strengthen the balance sheet by monetizing select platforms… to reduce debt… and solidify our market-leading position” — CEO, Heath Sampson .
  • Divestitures: “Monitoring… is the most advanced in our divestiture process… interest from potential buyers is strong and deep” .
  • NEMT pipeline and attrition: “Two significant contract losses accounted for a net business loss of approximately $200 million in annual revenue for 2025… our identified active [MCO] pipeline already surpasses $300 million” .
  • Efficiency: “Our cost per trip moved from $42 in Q4 2023 to $40 in Q4 2024… savings of $35 million in 2024… call-to-trip ratio from 42%… to 34%” .
  • Contracting/working capital: “Preferred contract model… fee‑for‑service… we have approximately 25% of our revenue moving to this… [to] neutralize significant working capital… uses of cash” .

Q&A Highlights

  • Medicaid budget sensitivity: Management expects any Medicaid cuts to affect the healthiest, least likely transportation users; fee‑for‑service and repricing mechanisms mitigate risk; full‑risk exposure ~20% and being renegotiated .
  • Asset sales: Process underway; Monitoring most advanced; updates to come, timing not disclosed .
  • MA exposure: NEMT MA share expected to decline from 16% in Q4 to <10% entering Q1; Monitoring impacted by large MA payors trimming PERS benefits .
  • State contract RFP and pricing: Largest state client RFP expected in 2025; pricing resets “over the next few months”; structure expected to be unchanged .
  • Free cash flow cadence: Expect use in 1H and positive FCF in 2H; anticipate benefit from contract receivable/payable unwind in 2025; capex planned slightly above ~$30M .
  • Cost savings: Achieved ~$35M savings in 2024; additional $8–$10M run-rate into 2025, with further actions expected .

Estimates Context

  • Wall Street consensus (S&P Global) for MODV could not be retrieved due to a data mapping issue (no CIQ mapping available at query time). As a result, we cannot quantify Q4 revenue/EPS beats or misses versus S&P Global consensus for Q2–Q4 2024.
  • Model implications (management-directed): incorporate disclosed ~$200M 2025 revenue attrition offset by a >$300M MCO pipeline, back‑half‑weighted new business, pricing resets with states, and a shift toward fee‑for‑service that should improve cash conversion; absence of FY2025 guidance suggests wider estimate dispersion near term .

Key Takeaways for Investors

  • Q4 headline stable, underlying mix pressured: flat revenue with margin compression and higher interest expense; adjusted EPS $0.19 vs GAAP loss $(1.64) as non‑GAAP excludes amortization, restructuring, equity investee losses, etc. .
  • Liquidity runway improved (covenant holiday; $75M term loan; $113M cash), but leverage remains elevated and revolver fully drawn ($269M); focus stays on deleveraging via asset sales .
  • Strategic catalysts ahead: divestiture process (Monitoring first) and contract mix shift to fee‑for‑service (~25% already moving) are the core narrative drivers for both cash and valuation .
  • NEMT execution continues: cost per trip down, automation/self‑service adoption up; pipeline >$300M annual value provides path to offset disclosed ~$200M attrition over time .
  • PCS stabilizing: centralized model and rate actions aided Q4 margins; watch for sustainability absent one‑time quality incentives .
  • Monitoring pressured by MA changes but strategically valuable in sale; margin remains relatively high at ~35% adjusted EBITDA, supporting monetization case .
  • Risk watchlist: MA benefit reductions, interest expense, state/MCO repricing timing, and the forward‑looking risk language including “substantial doubt” regarding obligations if plans slip underscore execution urgency .

Appendix: Additional cash flow and balance sheet context

  • Q4 free cash flow: $24.7M; net operating cash $30.0M; capex $5.3M .
  • Year-end net contract receivables: $95.2M; management expects working capital to normalize in 2025 as contract mix shifts .
  • Year-end cash $112.6M; short-term debt $274.3M; long-term debt $986.4M; stockholders’ equity (deficit) $(38.5)M .