ModivCare Inc (MODV) (Q1 2024) Earnings Call Transcript Highlights: Navigating Challenges and ...

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Sat, May 4, 2024, 1:02 AM 4 min read

Revenue: Increased 3% year-over-year to $685 million.
Net Loss: Reported at $22 million.
Adjusted Net Loss: $1.2 million or $0.09 per diluted share.
Adjusted EBITDA: $32 million, 4.7% of revenue, in line with guidance.
Free Cash Flow: $2 million, with net cash from operating activities at $10 million offset by capital expenditures of $8 million.
Debt Refinancing: Process underway, focusing on prepayment flexibility and cost optimization.
Cost Savings: Expected at least $34 million in-year and $60 million annualized beyond 2024 from NEMT transformation.
Medicaid Redetermination Impact: Revenue impact of $60 million and adjusted EBITDA impact of $26 to $30 million in 2024.
Segment Revenue Growth: NEMT up 2%, PCS up 5%, RPM up 7%.
Guidance for 2024: Revenue between $2.7 to $2.9 billion, adjusted EBITDA between $190 to $210 million.

Warning! GuruFocus has detected 5 Warning Signs with MODV.

Release Date: May 03, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Revenue increased by 3% year-over-year, demonstrating continued growth.
Adjusted EBITDA of $32 million was in line with guidance, reflecting stable financial performance.
Secured $36 million in NEMT annualized contract value from new and renewed contracts, indicating strong market competitiveness.
Cost savings initiatives are on track, with expected savings of $34 million in-year and $60 million annualized beyond 2024.
Matrix Medical's refinancing and operational improvements suggest potential for successful monetization in the near future.

Negative Points

First quarter net loss of $22 million and adjusted net loss of $1.2 million, indicating challenges in profitability.
Volume reduction from a large payer due to diversification of transportation providers, impacting revenue.
Medicaid redetermination impacting membership and revenue, with a projected adverse impact of $60 million on revenue and $26 to $30 million on adjusted EBITDA in 2024.
Personal care segment faced challenges with higher than expected wage increases and higher centralized costs.
Free cash flow was only $2 million, with expectations of negative cash flow in the first half of 2024.

Q & A Highlights

Q: Can you discuss the impact of Medicaid redeterminations on NEMT and how the mix shift from lost contracts to new contracts will play out in the P&L this year? A: (L. Heath Sampson - President, CEO, Director) Medicaid redeterminations are a significant factor, expected to conclude in Q2, and are in line with expectations. The mix shift, particularly due to the loss of a large payer and the onboarding of new sales wins, affects utilization and purchased services costs. Despite higher healthcare utilization, the mix change leads to a decrease in purchased services expense, aligning with financial projections.

Q: What is the sales pipeline like, and how are you managing potential contract losses? A: (L. Heath Sampson - President, CEO, Director) The sales pipeline is robust, driven by a transformed go-to-market strategy and strong team performance. The focus is on retaining and expanding state contracts, with a solid track record of renewals and new business wins. Losses have been minimal and related to legacy issues, with ongoing efforts to minimize them in the future.

Q: Could you clarify the impact of the CMS's 80/20 rule for personal care services, especially regarding clinical nursing costs? A: (L. Heath Sampson - President, CEO, Director) The inclusion of clinical nursing costs in the 80% calculation of the CMS's 80/20 rule is beneficial, making the impact manageable. The rule, which caps gross margins at 20%, will not be implemented for six years, and there may be changes before implementation. The company is well-positioned to adapt and maintain strong margins despite this rule.

Q: Can you provide more details on the expected monetization of the Matrix asset? A: (L. Heath Sampson - President, CEO, Director) Matrix is performing well with significant improvements and growth, driven by a strong management team and technological investments. The company is confident in monetizing this asset within the next 12 to 18 months, expecting a multiple above standard healthcare services multiples due to Matrix's strong performance and strategic value.

Q: What are the key drivers for achieving the projected margin improvements by the end of the year? A: (L. Heath Sampson - President, CEO, Director) Margin improvements are expected from the onboarding of new contracts, completion of Medicaid redeterminations, and execution of cost-saving initiatives. These factors will contribute to better financial performance in the latter half of the year, particularly in Q3 and Q4.

Q: How are you addressing the receivable issues mentioned in previous quarters, and what is the status of the refinancing of the 2025 notes? A: (Barbara Gutierrez - CFO) Significant portions of the receivables have been collected, improving cash flow. The company is actively pursuing refinancing solutions for the 2025 notes, aiming to complete the process by the end of Q2, focusing on flexibility for prepayment and optimizing capital costs.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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