UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
(Mark One)
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20222023
OR | | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-34221
ModivCare Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
| Delaware | | 86-0845127 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
6900 E Layton Avenue, 12th Floor, Denver, Colorado 80237
(Address of principal executive offices) (Zip Code)
(303) 728-7030
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of exchange on which registered |
| Common Stock, $0.001 par value per share | MODV | The NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | |
| Large accelerated filer | ☒ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of May 2, 2022,April 28, 2023, there were 14,046,99114,166,601 shares outstanding (excluding treasury shares of 5,427,552)5,432,734) of the registrant’s Common Stock, $0.001 par value per share.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
ModivCare Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
| | | March 31, 2022 | | December 31, 2021 | | | | | | | | | | |
| | | | | | | March 31, 2023 | | December 31, 2022 |
| Assets | Assets | | | | Assets | | | |
| Current assets: | Current assets: | | | | Current assets: | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 194,063 | | | $ | 133,139 | | Cash and cash equivalents | $ | 12,848 | | | $ | 14,451 | |
| Accounts receivable, net of allowance of $1,785 and $2,296, respectively | 262,589 | | | 233,121 | | |
| Accounts receivable, net of allowance of $2,205 and $2,078, respectively | | Accounts receivable, net of allowance of $2,205 and $2,078, respectively | 296,745 | | | 294,341 | |
| Other receivables | Other receivables | 18,326 | | | 4,740 | | Other receivables | 2,246 | | | 2,506 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 33,668 | | | 38,551 | | Prepaid expenses and other current assets | 35,860 | | | 34,332 | |
| Restricted cash | Restricted cash | 411 | | | 283 | | Restricted cash | 532 | | | 524 | |
| Total current assets | Total current assets | 509,057 | | | 409,834 | | Total current assets | 348,231 | | | 346,154 | |
| Property and equipment, net | Property and equipment, net | 57,676 | | | 53,549 | | Property and equipment, net | 76,252 | | | 69,138 | |
| Goodwill | Goodwill | 924,787 | | | 924,787 | | Goodwill | 968,654 | | | 968,654 | |
| Payor network, net | Payor network, net | 410,475 | | | 425,516 | | Payor network, net | 376,672 | | | 391,980 | |
| Other intangible assets, net | Other intangible assets, net | 60,249 | | | 64,697 | | Other intangible assets, net | 43,250 | | | 47,429 | |
| Equity investment | Equity investment | 83,333 | | | 83,069 | | Equity investment | 43,698 | | | 41,303 | |
| Operating lease right-of-use assets | Operating lease right-of-use assets | 42,181 | | | 43,750 | | Operating lease right-of-use assets | 40,311 | | | 39,405 | |
| Other assets | Other assets | 25,226 | | | 22,223 | | Other assets | 44,461 | | | 40,209 | |
| Total assets | Total assets | $ | 2,112,984 | | | $ | 2,027,425 | | Total assets | $ | 1,941,529 | | | $ | 1,944,272 | |
| Liabilities and stockholders' equity | Liabilities and stockholders' equity | | | | Liabilities and stockholders' equity | | | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Short-term borrowings | | Short-term borrowings | $ | 15,000 | | | $ | — | |
| Accounts payable | Accounts payable | $ | 38,050 | | | $ | 8,690 | | Accounts payable | 54,987 | | | 54,959 | |
| Accrued contract payables | Accrued contract payables | 314,126 | | | 281,586 | | Accrued contract payables | 187,620 | | | 194,287 | |
| Accrued transportation costs | Accrued transportation costs | 107,190 | | | 103,294 | | Accrued transportation costs | 93,726 | | | 96,851 | |
| Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 138,071 | | | 119,563 | | Accrued expenses and other current liabilities | 132,978 | | | 135,860 | |
| Current portion of operating lease liabilities | Current portion of operating lease liabilities | 9,858 | | | 9,873 | | Current portion of operating lease liabilities | 9,852 | | | 9,640 | |
| Deferred revenue | 5,648 | | | 4,228 | | |
| Total current liabilities | Total current liabilities | 612,943 | | | 527,234 | | Total current liabilities | 494,163 | | | 491,597 | |
| Long-term debt, net of deferred financing costs of $23,767 and $24,775, respectively | 976,233 | | | 975,225 | | |
| Long-term debt, net of deferred financing costs of $19,567 and $20,639, respectively | | Long-term debt, net of deferred financing costs of $19,567 and $20,639, respectively | 980,433 | | | 979,361 | |
| Deferred tax liabilities | Deferred tax liabilities | 88,025 | | | 94,611 | | Deferred tax liabilities | 53,612 | | | 57,236 | |
| Long-term contract payables | 1,893 | | | — | | |
| | Operating lease liabilities, less current portion | Operating lease liabilities, less current portion | 34,092 | | | 34,524 | | Operating lease liabilities, less current portion | 32,867 | | | 32,088 | |
| Other long-term liabilities | Other long-term liabilities | 23,598 | | | 22,564 | | Other long-term liabilities | 29,356 | | | 29,434 | |
| Total liabilities | Total liabilities | 1,736,784 | | | 1,654,158 | | Total liabilities | 1,590,431 | | | 1,589,716 | |
| Commitments and contingencies (Note 13) | 0 | | 0 | |
| Commitments and contingencies (Note 12) | | Commitments and contingencies (Note 12) | |
| Stockholders’ equity | Stockholders’ equity | | Stockholders’ equity | |
| Common stock: Authorized 40,000,000 shares; $0.001 par value; 19,627,143 and 19,589,422, respectively, issued and outstanding (including treasury shares) | 20 | | | 20 | | |
| Common stock: Authorized 40,000,000 shares; $0.001 par value; 19,755,832 and 19,729,923, respectively, issued and outstanding (including treasury shares) | | Common stock: Authorized 40,000,000 shares; $0.001 par value; 19,755,832 and 19,729,923, respectively, issued and outstanding (including treasury shares) | 20 | | | 20 | |
| Additional paid-in capital | Additional paid-in capital | 433,636 | | | 430,449 | | Additional paid-in capital | 445,379 | | | 444,255 | |
| Retained earnings | Retained earnings | 212,147 | | | 211,829 | | Retained earnings | 176,061 | | | 180,023 | |
| Treasury shares, at cost, 5,574,162 and 5,568,983 shares, respectively | (269,603) | | | (269,031) | | |
| Treasury shares, at cost, 5,579,529 and 5,573,529 shares, respectively | | Treasury shares, at cost, 5,579,529 and 5,573,529 shares, respectively | (270,362) | | | (269,742) | |
| Total stockholders’ equity | Total stockholders’ equity | 376,200 | | | 373,267 | | Total stockholders’ equity | 351,098 | | | 354,556 | |
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 2,112,984 | | | $ | 2,027,425 | | Total liabilities and stockholders’ equity | $ | 1,941,529 | | | $ | 1,944,272 | |
See accompanying notes to the unaudited condensed consolidated financial statements
ModivCare Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
| | | | Three months ended March 31, | | Three months ended March 31, | |
| | | 2022 | | 2021 | | 2023 | | 2022 | |
| Service revenue, net | Service revenue, net | $ | 574,475 | | | $ | 453,610 | | Service revenue, net | $ | 662,306 | | | $ | 574,475 | | |
| Grant income (Note 2) | Grant income (Note 2) | 468 | | | 2,648 | | Grant income (Note 2) | 1,464 | | | 468 | | |
| | Operating expenses: | Operating expenses: | | | | Operating expenses: | | | | |
| Service expense | Service expense | 459,315 | | | 360,333 | | Service expense | 550,266 | | | 459,315 | | |
| General and administrative expense | General and administrative expense | 76,808 | | | 54,925 | | General and administrative expense | 79,713 | | | 76,808 | | |
| Depreciation and amortization | Depreciation and amortization | 23,946 | | | 12,239 | | Depreciation and amortization | 25,693 | | | 23,946 | | |
| Total operating expenses | Total operating expenses | 560,069 | | | 427,497 | | Total operating expenses | 655,672 | | | 560,069 | | |
| | Operating income | Operating income | 14,874 | | | 28,761 | | Operating income | 8,098 | | | 14,874 | | |
| | Other expenses: | | | | |
| Interest expense, net | Interest expense, net | 15,400 | | | 8,423 | | Interest expense, net | 15,958 | | | 15,400 | | |
| Income (loss) before income taxes and equity method investment | (526) | | | 20,338 | | |
| Loss before income taxes and equity method investment | | Loss before income taxes and equity method investment | (7,860) | | | (526) | | |
| Provision (benefit) for income taxes | Provision (benefit) for income taxes | (361) | | | 4,739 | | Provision (benefit) for income taxes | (1,873) | | | (361) | | |
| Equity in net income of investee, net of tax | Equity in net income of investee, net of tax | (483) | | | (3,241) | | Equity in net income of investee, net of tax | (2,025) | | | (483) | | |
| Net income | $ | 318 | | | $ | 18,840 | | |
| Net income (loss) | | Net income (loss) | $ | (3,962) | | | $ | 318 | | |
| | Earnings per common share: | | | | |
| Earnings (loss) per common share: | | Earnings (loss) per common share: | | | | |
| Basic | Basic | $ | 0.02 | | | $ | 1.33 | | Basic | $ | (0.28) | | | $ | 0.02 | | |
| Diluted | Diluted | $ | 0.02 | | | $ | 1.31 | | Diluted | $ | (0.28) | | | $ | 0.02 | | |
| | Weighted-average number of common shares outstanding: | Weighted-average number of common shares outstanding: | | | | Weighted-average number of common shares outstanding: | | | |
| Basic | Basic | 14,023,585 | | | 14,158,666 | | Basic | 14,163,511 | | | 14,023,585 | | |
| Diluted | Diluted | 14,143,548 | | | 14,362,226 | | Diluted | 14,163,511 | | | 14,123,825 | | |
See accompanying notes to the unaudited condensed consolidated financial statements
ModivCare Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
| | | | Three months ended March 31, | | Three months ended March 31, |
| | | 2022 | | 2021 | | 2023 | | 2022 |
| Operating activities | Operating activities | | | | Operating activities | | | |
| Net income | $ | 318 | | | $ | 18,840 | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Net income (loss) | | Net income (loss) | $ | (3,962) | | | $ | 318 | |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | |
| Depreciation | Depreciation | 4,456 | | | 2,737 | | Depreciation | 5,792 | | | 4,456 | |
| Amortization | Amortization | 19,490 | | | 9,502 | | Amortization | 19,901 | | | 19,490 | |
| Provision for doubtful accounts | (1,785) | | | 27 | | |
| Stock-based compensation | Stock-based compensation | 2,049 | | | 1,187 | | Stock-based compensation | 1,124 | | | 2,049 | |
| Deferred income taxes | Deferred income taxes | (6,587) | | | (616) | | Deferred income taxes | (3,624) | | | (6,587) | |
| Amortization of deferred financing costs and debt discount | Amortization of deferred financing costs and debt discount | 1,008 | | | 581 | | Amortization of deferred financing costs and debt discount | 1,278 | | | 1,008 | |
| Other assets | | Other assets | (4,253) | | | (3,004) | |
| Equity in net income of investee | Equity in net income of investee | (483) | | | (4,503) | | Equity in net income of investee | (2,810) | | | (671) | |
| Reduction of right-of-use assets | Reduction of right-of-use assets | 2,884 | | | 2,745 | | Reduction of right-of-use assets | 3,547 | | | 2,884 | |
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
| Accounts receivable and other receivables | Accounts receivable and other receivables | (41,049) | | | (12,219) | | Accounts receivable and other receivables | (1,730) | | | (42,646) | |
| Prepaid expenses and other | 1,879 | | | 18,230 | | |
| Insurance programs | 1,401 | | | (273) | | |
| Prepaid expenses and other current assets | | Prepaid expenses and other current assets | (1,734) | | | 7,298 | |
| Accrued contract payables | Accrued contract payables | 34,433 | | | 71,498 | | Accrued contract payables | (6,667) | | | 34,433 | |
| Accounts payable and accrued expenses | Accounts payable and accrued expenses | 46,469 | | | 27,844 | | Accounts payable and accrued expenses | (2,854) | | | 49,289 | |
| Accrued transportation costs | Accrued transportation costs | 3,895 | | | (8,804) | | Accrued transportation costs | (3,125) | | | 3,895 | |
| Deferred revenue | 1,419 | | | (160) | | |
| Other long-term liabilities | Other long-term liabilities | (727) | | | 7,948 | | Other long-term liabilities | (3,538) | | | (727) | |
| Net cash provided by operating activities | 69,070 | | | 134,564 | | |
| Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | (2,655) | | | 71,485 | |
| Investing activities | Investing activities | | | | Investing activities | | | |
| Purchase of property and equipment | Purchase of property and equipment | (8,584) | | | (5,388) | | Purchase of property and equipment | (13,320) | | | (8,584) | |
| Net cash used in investing activities | Net cash used in investing activities | (8,584) | | | (5,388) | | Net cash used in investing activities | (13,320) | | | (8,584) | |
| Financing activities | Financing activities | | | | Financing activities | | | |
| Repurchase of common stock, for treasury | — | | | (14,450) | | |
| Proceeds from short-term borrowings | | Proceeds from short-term borrowings | 15,000 | | | — | |
| Payment of debt issuance costs | | Payment of debt issuance costs | — | | | (2,415) | |
| Proceeds from common stock issued pursuant to stock option exercise | Proceeds from common stock issued pursuant to stock option exercise | 1,138 | | | 2,286 | | Proceeds from common stock issued pursuant to stock option exercise | — | | | 1,138 | |
| Restricted stock surrendered for employee tax payment | Restricted stock surrendered for employee tax payment | (572) | | | (721) | | Restricted stock surrendered for employee tax payment | (620) | | | (572) | |
| Other financing activities | — | | | (40) | | |
| Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | 566 | | | (12,925) | | Net cash provided by (used in) financing activities | 14,380 | | | (1,849) | |
| Net change in cash, cash equivalents and restricted cash | Net change in cash, cash equivalents and restricted cash | 61,052 | | | 116,251 | | Net change in cash, cash equivalents and restricted cash | (1,595) | | | 61,052 | |
| Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | 133,422 | | | 183,356 | | Cash, cash equivalents and restricted cash at beginning of period | 14,975 | | | 133,422 | |
| Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | $ | 194,474 | | | $ | 299,607 | | Cash, cash equivalents and restricted cash at end of period | $ | 13,380 | | | $ | 194,474 | |
See accompanying notes to the unaudited condensed consolidated financial statements
ModivCare Inc.
Unaudited Supplemental Cash Flow Information
(in thousands)
| | | | Three months ended
March 31, | | Three months ended March 31, |
| Supplemental cash flow information | Supplemental cash flow information | 2022 | | 2021 | Supplemental cash flow information | 2023 | | 2022 |
| Cash paid for interest | Cash paid for interest | $ | 551 | | | $ | 251 | | Cash paid for interest | $ | 1,200 | | | $ | 551 | |
| Cash paid (received) for income taxes | $ | 892 | | | $ | (9,033) | | |
| Cash paid for income taxes | | Cash paid for income taxes | $ | 429 | | | $ | 892 | |
| Assets acquired under operating leases | Assets acquired under operating leases | $ | 1,314 | | | $ | 1,214 | | Assets acquired under operating leases | $ | 4,453 | | | $ | 1,314 | |
|
See accompanying notes to the unaudited condensed consolidated financial statements
ModivCare Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share and per share data)
| | | Three months ended March 31, 2022 | | Three months ended March 31, 2023 |
| | | Common Stock | | Additional
Paid-In | | Retained | | Treasury Stock | | | | Common Stock | | Additional | | Retained | | Treasury Stock | | |
| | | Shares | | Amount | | Capital | | Earnings | | Shares | | Amount | | | Total | | Shares | | Amount | | Paid-In Capital | | Earnings | | Shares | | Amount | | | Total |
| Balance at December 31, 2021 | 19,589,422 | | | $ | 20 | | | $ | 430,449 | | | $ | 211,829 | | | 5,568,983 | | | $ | (269,031) | | | | $ | 373,267 | | |
| Net income | — | | | — | | | — | | | 318 | | | — | | | — | | | | 318 | | |
| Balance at December 31, 2022 | | Balance at December 31, 2022 | 19,729,923 | | | $ | 20 | | | $ | 444,255 | | | $ | 180,023 | | | 5,573,529 | | | $ | (269,742) | | | | $ | 354,556 | |
| Net loss | | Net loss | — | | | — | | | — | | | (3,962) | | | — | | | — | | | | (3,962) | |
| Stock-based compensation | Stock-based compensation | — | | | — | | | 1,963 | | | — | | | — | | | — | | | | 1,963 | | Stock-based compensation | — | | | — | | | 1,039 | | | — | | | — | | | — | | | | 1,039 | |
| Exercise of employee stock options | 20,683 | | | — | | | 1,138 | | | — | | | — | | | — | | | | 1,138 | | |
| | Restricted stock issued | Restricted stock issued | 16,306 | | | — | | | — | | | — | | | — | | | — | | | | — | | Restricted stock issued | 24,903 | | | — | | | — | | | — | | | — | | | — | | | | — | |
| Restricted stock surrendered for employee tax payment | Restricted stock surrendered for employee tax payment | — | | | — | | | — | | | — | | | 5,179 | | | (572) | | | | (572) | | Restricted stock surrendered for employee tax payment | — | | | — | | | — | | | — | | | 6,000 | | | (620) | | | | (620) | |
| Shares issued for bonus settlement and director stipends | Shares issued for bonus settlement and director stipends | 732 | | | — | | | 86 | | | — | | | — | | | — | | | | 86 | | Shares issued for bonus settlement and director stipends | 1,006 | | | — | | | 85 | | | — | | | — | | | — | | | | 85 | |
| Balance at March 31, 2023 | | Balance at March 31, 2023 | 19,755,832 | | | $ | 20 | | | $ | 445,379 | | | $ | 176,061 | | | 5,579,529 | | | $ | (270,362) | | | | $ | 351,098 | |
| | Balance at March 31, 2022 | 19,627,143 | | | $ | 20 | | | $ | 433,636 | | | $ | 212,147 | | | 5,574,162 | | | $ | (269,603) | | | | $ | 376,200 | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2021 |
| | | | | | | | | | | | | |
| Common Stock | | Additional
Paid-In | | Retained | | Treasury Stock | | |
| | Shares | | Amount | | Capital | | Earnings | | Shares | | Amount | | Total |
| | | | | | |
| Balance at December 31, 2020 | 19,570,598 | | | $ | 20 | | | $ | 421,318 | | | $ | 218,414 | | | 5,287,283 | | | $ | (228,141) | | | $ | 411,611 | |
| Net income | — | | | — | | | — | | | 18,840 | | | — | | | — | | | 18,840 | |
| Stock-based compensation | — | | | — | | | 1,149 | | | — | | | — | | | — | | | 1,149 | |
| Exercise of employee stock options | 36,338 | | | — | | | 2,286 | | | — | | | — | | | — | | | 2,286 | |
| Restricted stock issued | 15,821 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Restricted stock surrendered for employee tax payment | — | | | — | | | — | | | — | | | 4,253 | | | (721) | | | (721) | |
| Shares issued for bonus settlement and director stipends | 260 | | | — | | | 38 | | | — | | | — | | | — | | | 38 | |
| Stock repurchase plan | — | | | — | | | — | | | — | | | 94,235 | | | (14,450) | | | (14,450) | |
| Balance at March 31, 2021 | 19,623,017 | | | $ | 20 | | | $ | 424,791 | | | $ | 237,254 | | | 5,385,771 | | | $ | (243,312) | | | $ | 418,753 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2022 |
| | | | | | | | | | | | | |
| Common Stock | | Additional | | Retained | | Treasury Stock | | |
| | Shares | | Amount | | Paid-In Capital | | Earnings | | Shares | | Amount | | Total |
| Balance at December 31, 2021 | 19,589,422 | | | $ | 20 | | | $ | 430,449 | | | $ | 211,829 | | | 5,568,983 | | | $ | (269,031) | | | $ | 373,267 | |
| Net income | — | | | — | | | — | | | 318 | | | — | | | — | | | 318 | |
| Stock-based compensation | — | | | — | | | 1,963 | | | — | | | — | | | — | | | 1,963 | |
| Exercise of employee stock options | 20,683 | | | — | | | 1,138 | | | — | | | — | | | — | | | 1,138 | |
| Restricted stock issued | 16,306 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Restricted stock surrendered for employee tax payment | — | | | — | | | — | | | — | | | 5,179 | | | (572) | | | (572) | |
| Shares issued for bonus settlement and director stipends | 732 | | | — | | | 86 | | | — | | | — | | | — | | | 86 | |
| Balance at March 31, 2022 | 19,627,143 | | | $ | 20 | | | $ | 433,636 | | | $ | 212,147 | | | 5,574,162 | | | $ | (269,603) | | | $ | 376,200 | |
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See accompanying notes to the unaudited condensed consolidated financial statements
ModivCare Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 20222023
1. Organization and Basis of Presentation
Description of Business
ModivCare Inc. ("ModivCare" or the "Company") is a technology-enabled healthcare services company that provides a suite of integrated supportive care solutions for public and private payors and their patients.members. Its value-based solutions address the social determinants of health, or SDoH, connect members to care, help health plans manage risks, reduce costs, and improve outcomes. ModivCare is a provider of non-emergency medical transportation, or NEMT, personal care, and remote patient monitoring, or RPM, solutions, which serve similar, highly vulnerable patient populations.
The technology-enabled operating model in its NEMT segment includes NEMT core competencies in risk underwriting, contact center management, network credentialing, claims management and non-emergency medical transportation management. Additionally, its personal care services include placements of non-medical personal care assistants, home health aides and nurses primarily to Medicaid patient populations in need of care monitoring and assistance performing daily living activities in the home setting. ModivCare’s remote patient monitoring services include personal emergency response systems, vitals monitoring and data-driven patient engagement solutions. ModivCare is further expanding its offerings to include meal delivery and working with communities to provide meals to food-insecure individuals delivery of meals.individuals.
ModivCare also holds a 43.6% minority interest in CCHN Group Holdings, Inc. and its subsidiaries, which operates under the Matrix Medical Network brand which we refer to as “Matrix”(“Matrix”). Matrix, which is included in our Corporate and Other segment, maintains a national network of community-based clinicians who deliver in-home and on-site services, and a fleet of mobile health clinics that provide community-based care with advanced diagnostic capabilities and enhanced care options.
Basis of Presentation
The Company follows accounting standards established by the Financial Accounting Standards Board (“FASB”). The FASB establishes accounting principles generally accepted in the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. References to GAAP issued by the FASB in these notes are to the FASB Accounting Standards Codification (“ASC”), which serves as the single source of authoritative accounting and applicable reporting standards to be applied for non-governmental entities. All amounts are presented in U.S. dollars unless otherwise noted.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for the fair presentation of the results of the interim periods have been included.
The Company has made estimates relating to the reporting of assets and liabilities, revenues and expenses, and certain disclosures in the preparation of these unaudited condensed consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates. Operating results for the three months ended March 31, 20222023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022.2023. Management has evaluated events and transactions that occurred after the balance sheet date and through the date these unaudited condensed consolidated financial statements were filed with the SEC and considered the effect of such events in the preparation of these unaudited condensed consolidated financial statements.
The unaudited condensed consolidated balance sheet at December 31, 20212022 included in this Form 10-Q has been derived from audited financial statements at that date, but does not include all the information and footnotes required by GAAP for complete financial statements. The unaudited condensed consolidated financial statements contained herein should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Reclassifications: Certain prior year amounts have been reclassified to conform to current year presentation.
Impact of the COVID-19 Pandemic
Since March 2020, the COVID-19 pandemic and the measures enacted by state and government officials to containprevent, prepare for, and respond to COVID-19 or slow its spread have had an ongoing adverse impact on the Company’s business, as
well as its patients, communities, and employees. With ongoing uncertainties around the duration and magnitude of the pandemic, especially when considering current mutations of COVID-19, including the Delta and Omicron variants, which may increase reported rates of COVID-19 cases and may give rise to future mutations that are more resistant to the Federal Drug Administration ("FDA") approved vaccines, the ultimate impact to the business remains uncertain. Accordingly, theThe COVID-19 pandemic could continue to have an adverse impact on the Company's financial statements with potential for (i) labor shortages or other disruptions that impact our ability to provide services, and (ii) decreased member comfort leaving the house to obtain transportation for non-emergency medical purposes;purposes, and (iii) supply chain challenges that may cause an increase in the costs of providing our services; among other things. Despite ongoing uncertainties,The Company continues to actively monitor the Company’s priorities throughout the COVID-19 pandemic remain intactand any future impact it may have on our business and results of operations with emphasis on protecting the health and safety of its employees, maximizing the availability of its services and products to support the SDoH, and supporting the operational and financial stability of its business.
Federal, state, and local authorities have taken several actions designed to assist healthcare providers in providing care to COVID-19 and other patients and to mitigate the adverse economic impact of the COVID-19 pandemic. Legislative actions taken by the federal government include the CARES Act.Act and the American Rescue Plan Act of 2021 ("ARPA"). Through the CARES Act, the federal government has authorized payments to be distributed to healthcare providers through the Public Health and Social Services Emergency Fund ("Provider Relief Fund" or "PRF"). The Government further initiated ARPA which established the Coronavirus State and Local Fiscal Recovery Fund ("SLFRF") to send relief payments to state and local governments impacted by the pandemic to assist with responding to the public health emergency (“PHE”) including the economic hardships that continue to impact communities and to respond to workers performing essential work during the COVID-19 PHE, including providers. These funds are not subject to repayment, provided we are able to attest and comply with any terms and conditions of such funding, as applicable.
2. Significant Accounting Policies and Recent Accounting Pronouncements
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingencies, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Changes in Accounting EstimateFair Value Measurements
DuringThe Company follows FASB ASC Topic 820, Fair Value Measurement (“ASC 820”) which establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the first quarter,observability of the Company completed aninputs employed in the measurement. The three levels based on the objectivity of inputs are defined as follows:
–Level 1: Quoted Prices in Active Markets for Identical Assets – inputs to the valuation methodology are quoted prices in active markets as of the measurement date for identical assets or liabilities.
–Level 2: Significant Other Observable Inputs – inputs to the valuation methodology are based upon quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
–Level 3: Significant Unobservable Inputs – inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the useful livessignificance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. As of March 31, 2023 and December 31, 2022, the carrying amount for cash and cash equivalents, accounts receivable (net of allowance for credit losses) and current liabilities was equal to or approximated fair value due to their short-term nature or proximity to current market rates. Fair values for our publicly traded debt securities are based on quoted market prices, when available. See Note 8, Debt, for the fair value of our intangible assetslong-term debt.
Internal-use Software and adjustedCloud Computing Arrangements
The Company develops and implements software for internal use to enhance the performance and capabilities of the technology infrastructure. The costs incurred for the development of the internal-use software are capitalized when they meet the internal-use software capitalization criteria outlined in ASC 350-40. The capitalized costs are amortized using the straight-line method over the estimated useful life of the Simplura trademarks and trade names intangible assetsoftware, ranging from 10 years to 3 years and adjusted the estimated useful life of the payor network from 15 years to 10 years effective as of January 1, 2022. This change was driven by strategic shifts in the Company's personal care segment operations, partially contributed to by the acquisition of Care Finders Total Care, LLC ("Care Finders"). Based on the intangible asset values as of December 31, 2021, the effect of the change in estimate during the three months ended March 31, 2022 was an increase in amortization expense of $3.6 million, or $0.25 per diluted common share outstanding.years.
Grant Income
The Company has received distributions of the CARES Act PRF of approximately $0.5 million and $2.6 million during the three months ended March 31, 2022 and March 31, 2021, respectively, targeted to offset lost revenue and expenditures incurred in connection with the COVID-19 pandemic. The PRF payments are subject to certain restrictions and are subject to recoupment if not used for designated purposes. As a condition to receiving distributions, providers must agree to certain terms and conditions, including, among other things, that the funds are being used for lost revenues and unreimbursed COVID-19 related expenses as defined by the U.S. Department of Health and Human Services ("HHS"). All recipients of PRF payments are required to comply with the reporting requirements described in the terms and conditions and as determined by HHS. The Company recognizes grant payments as grant income when there is reasonable assurance that it has complied with the conditions associated with the grant. Grant income recognized by the Company is presented in grant income in the accompanying unaudited condensed consolidated statements of operations.
CARES Act Payroll Deferral
The CARES Act also provides for certain federal income and other tax changes, including the deferral of the employer portion of Social Security payroll taxes. The Company has deferred payment of approximately $12.3 million related to the deferral of employer payroll taxes as of March 31, 2022 and December 31, 2021 under the CARES Act which is recorded in
accrued expenses on our unaudited condensed consolidated balance sheets. This balance is expectedIn addition to be paid inacquired software, the fourth quarterCompany capitalizes costs associated with cloud computing arrangements (“CCA”) that are service contracts. The CCA includes services which are used to support certain internal corporate functions as well as technology associated with revenue-generating activities. The capitalized costs are amortized using the straight-line method over the term of 2022.
Recent Accounting Pronouncements
the related CCA. As of March 31, 2023 and December 31, 2022, capitalized costs associated with CCA, net of accumulated amortization were $11.8 million and $11.9 million, respectively. The Company adopted the following accounting pronouncementsvalue of accumulated amortization as of March 31, 2023 and December 31, 2022 was $2.7 million and $2.2 million, respectively. Amortization expense during the three months ended March 31, 2022:2023 and 2022, totaled $0.5 million and $0.2 million, respectively.
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04") which provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to reference rate reform. The relief granted in ASC 848, Reference Rate Reform ("ASC 848"), is applicable only to legacy contracts if the amendments made to the agreements are solely for reference rate reform activities. The provisions of ASC 848 must be applied for all transactions other than derivatives, which may be applied at a hedging relationship level. Entities may apply the provisions as of the beginning of the reporting period when the election is made (i.e. as early as the first quarter 2020). Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity is expected to be completed. There was no material impact to the financial statements from the adoption of this ASU.
Recent accounting pronouncements that the Company has yet to adopt are as follows:
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"). The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. ASU 2021-08 is effective for public business entities for fiscal years beginning on or after November 1, 2023, including interim periods therein. Early adoption is permitted. The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the effective date of adoption, and the impact in future periods will depend on the contract assets and contract liabilities acquired in future business combinations. The Company does not expect a material impact to the financial statements upon adoption of the ASU and early adoption will be considered if the standard were to become applicable prior to the effective date of the standard.
3. Acquisitions
Care Finders Total Care, LLC
On September 14, 2021, the Company acquired Care Finders which is a personal care provider in the Northeast, with operations in New Jersey, Pennsylvania, and Connecticut. The acquisition of Care Finders broadens access to in-home personal care solutions for patients and supports the Company's strategy to expand its personal care platform.
The equity transaction was accounted for in accordance with ASC 805, Business Combinations in which a wholly-owned subsidiary of the Company acquired 100.0% of the equity securities of Care Finders for $333.4 million (a preliminary purchase price of $344.8 million less $11.4 million of cash that was acquired).
The following is a preliminary estimate, based on certain preliminary items noted in the table below, of the allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired, as of the acquisition date of September 14, 2021 (in thousands):
| | | | | |
Cash | $ | 11,424 | |
Accounts receivable (1)
| 14,708 | |
Prepaid expenses and other (2)
| 2,625 | |
Property and equipment (3)
| 2,527 | |
Inventories (4)
| 231 | |
Operating right of use asset (5)
| 1,939 | |
Intangibles (6)
| 100,750 | |
Goodwill (7)
| 232,161 | |
Other assets (8)
| 226 | |
Accounts payable (9)
| (2,487) | |
Accrued expenses and other accrued liabilities (9)
| (14,344) | |
Operating lease liability (5)
| (1,939) | |
Deferred tax liabilities (10)
| (2,618) | |
Other liabilities (9)
| (378) | |
Total of assets acquired less liabilities assumed | $ | 344,825 | |
The acquisition method of accounting incorporates fair value measurements that can be highly subjective, and it is possible the application of reasonable judgment could develop different assumptions resulting in a range of alternative estimates using the same facts and circumstances. Upon finalization of the preliminary items noted below there may be related adjustments to certain of such items and to goodwill and income taxes. All items are expected to be finalized by the third quarter of 2022.
(1) Management has valued accounts receivable based on the estimated future collectability of the receivables portfolio. This estimate is preliminary as the Company's evaluation of the collectability of receivables is ongoing.
(2) Given the short-term nature of the balance of prepaid expenses, the carrying value represents the fair value.
(3) The acquired property and equipment consists primarily of capitalized software, computer equipment, and automobiles.
(4) Inventories are stated at fair value as of the acquisition date.
(5) The fair value of the operating lease liability and corresponding right-of-use asset (current and long-term) were recorded at $1.9 million based on market rates available to the Company during our preliminary purchase price allocation.
(6) The allocation of consideration exchanged for intangible assets acquired is as follows (in thousands):
| | | | | | | | | | | |
| Type | Useful Life | Value |
Payor network | Amortizable | 7 years | $ | 97,200 | |
Trade name | Amortizable | 3 years | 1,950 | |
Non-compete agreement | Amortizable | 5 years | 1,600 | |
| | | $ | 100,750 | |
The Company valued the payor network utilizing the multi-period excess earnings method, trade names utilizing the relief-from-royalty method and the non-compete agreement utilizing the with/without method.
(7) The acquisition preliminarily resulted in $232.2 million of goodwill as a result of expected synergies due to future customers driven by expansion into different markets, an increase in market share, and a growing demographic that will need home care solutions. All of the acquired goodwill is deductible for tax purposes.
(8) Included in other assets are security deposits with a value of $0.2 million.
(9) Accounts payable as well as certain other current and non-current liabilities are stated at fair value as of the acquisition date.
(10) Net deferred tax liabilities represent the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax basis.
VRI Intermediate Holdings, LLC
On September 22, 2021, the Company acquired VRI, a provider of remote patient monitoring solutions that manages a comprehensive suite of services including personal emergency response systems, vitals monitoring and data-driven patient engagement solutions. The acquisition of VRI accelerates the Company's strategy to build a holistic suite of supportive care solutions that address SDoH, introduces new technology-enabled in-home solutions that deepen the Company's engagement with payors and patients, and adds a strategic pillar and operating team to advance the Company's broader technology and data strategy.
The stock transaction was accounted for in accordance with ASC 805, Business Combinations in which a wholly-owned subsidiary of the Company acquired 100.0% of the equity securities of VRI for $314.6 million (a preliminary purchase price of $317.5 million less $2.9 million of cash that was acquired).
The following is a preliminary estimate, based on certain preliminary items noted in the table below, of the allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired, as of the acquisition date of September 22, 2021 (in thousands):
| | | | | |
Cash | $ | 2,922 | |
Accounts receivable (1)
| 6,800 | |
Inventory (2)
| 1,684 | |
Prepaid expenses and other (3)
| 805 | |
Property and equipment (4)
| 14,908 | |
Intangible assets (5)
| 75,590 | |
Goodwill (6)
| 236,738 | |
Accounts payable and accrued liabilities (7)
| (1,884) | |
Accrued expense (7)
| (2,487) | |
Deferred revenue (7)
| (67) | |
Deferred tax liabilities (8)
| (17,491) | |
Total of assets acquired less liabilities assumed | $ | 317,518 | |
The acquisition method of accounting incorporates fair value measurements that can be highly subjective, and it is possible the application of reasonable judgment could develop different assumptions resulting in a range of alternative estimates using the same facts and circumstances. Upon finalization of the preliminary items noted below there may be related adjustments to certain of such items and to goodwill and income taxes. All items are expected to be finalized by the third quarter of 2022.
(1) Management has valued accounts receivable based on the estimated future collectability of the receivables portfolio. This estimate is preliminary as the Company's evaluation of the collectability of receivables is ongoing.
(2) Inventory is stated at fair value as of the acquisition date.
(3) Given the short-term nature of the balance of prepaid expenses, the carrying value represents the fair value.
(4) The acquired property and equipment consists primarily of personal emergency response system devices, with the remainder consisting of computer equipment, buildings, and other equipment. The Company valued the personal emergency response system devices, computer equipment and other equipment utilizing the cost approach at $12.7 million. The carrying value of the remainder of the property, plant and equipment, consisting primarily of buildings and land, is assumed to represent the fair value.
(5) The allocation of consideration exchanged for intangible assets acquired is as follows (in thousands):
| | | | | | | | | | | |
| Type | Useful Life | Value |
Payor network | Amortizable | 7 years | $ | 72,150 | |
Trade name | Amortizable | 3 years | 890 | |
Developed technology | Amortizable | 3 years | 2,550 | |
| | | $ | 75,590 | |
The Company valued the payor network utilizing the multi-period excess earnings method, trade names utilizing the relief-from-royalty method and developed technology utilizing the cost approach.
(6) The acquisition preliminarily resulted in $236.7 million of goodwill as a result of expected synergies due to future customers driven by expansion into different markets and an increase in market share. The amount of goodwill deductible for tax purposes has yet to be determined.
(7) Accounts payable as well as certain other current and non-current liabilities are stated at fair value as of the acquisition date.
(8) Net deferred tax liabilities represent the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax basis.
Pro Forma Financial Information (unaudited)
Assuming Care Finders and VRI had been acquired as of January 1, 2021, and the results of each had been included in operations beginning on January 1, 2021, the following table provides estimated unaudited pro forma results of operations for the three months ended March 31, 2022 and March 31, 2021 (in thousands, except earnings per share). The estimated pro forma net income adjusts for the effect of fair value adjustments related to each of the acquisitions, transaction costs and other non-recurring costs directly attributable to the transactions and the impact of the additional debt to finance the applicable acquisitions.
| | | | | | | | | | | |
| Three months ended March 31, |
| 2022 | | 2021 |
| Actual | | Pro Forma |
| Revenue | $ | 574,475 | | | $ | 514,737 | |
| Income from continuing operations, net | 318 | | | 19,265 | |
| Diluted earnings per share | $ | 0.02 | | | $ | 1.34 | |
Estimated unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the acquisitions been completed on the date indicated or of future operating results. The supplemental pro forma earnings were adjusted to exclude the impact of historical interest expense of Care Finders and VRI of $1.3 million and $1.1 million, for the three months ended March 31, 2021.
4. Segments
The Company’s reportable segments are identified based on a number of factors related to how its chief operating decision maker determines the allocation of resources and assesses the performance of the Company’s operations. The Company's chief operating decision maker manages the Company under 4 reportable segments.
The Company’s reportable segments are strategic units that offer different services under different financial and operating models to the Company’s customers. The segments are managed separately because each requires different technology and marketing strategies. Furthermore, the different segments were each generally acquired as a unit, with the management of each at the time of acquisition retained to continue to operate their respective businesses.
The Company has determined each of the separate reportable segments based on the difference in services provided by each of the segments as provided in further detail below:
•NEMT - The Company's NEMT segment is its legacy segment and operates primarily under the brands Modivcare Solutions and Circulation. The NEMT segment is the largest manager of non-emergency medical transportation programs for state governments and managed care organizations, or MCOs, in the U.S.;
•Personal Care - The Company's Personal Care segment began operations in November 2020 with the acquisition of Simplura and expanded in September 2021 with the acquisition of Care Finders. The Personal Care segment operates under the brands Simplura and Care Finders and provides personal care to Medicaid patient populations in need of care monitoring and assistance performing activities of daily living;
•RPM - The Company's RPM segment began operations in September 2021 with the acquisition of VRI. The RPM segment operates under the VRI brand and is a provider of remote patient monitoring solutions, including personal emergency response systems, vitals monitoring and data-driven patient engagement solutions;
•Corporate - Effective January 1, 2022, the Company completed its segment reorganization which resulted in the addition of a Corporate segment that includes the costs associated with the Company's corporate operations. The
operating results of our Corporate segment include our activities related to executive, accounting, finance, internal audit, tax, legal and certain strategic and corporate development functions for each segment, as well as the Company's captive insurance program and the results of our Matrix investment. Prior to our segment reorganization, we reported our investment in Matrix as a separate operating segment, however based on how our CODM now views the business, along with the fact that the Matrix investment and all related activity are very minimal, it was determined that these results are reviewed in conjunction with the other corporate results of the business that are not attributable to one of the three operating segments. The Company reclassified certain costs associated with this reorganization for the three months ended March 31, 2021 to conform to this presentation.
The Company evaluates performance and allocates resources based on the operating income of the reportable segments, which includes an allocation of corporate expenses directly attributable to the specific segment and includes revenues and all other costs directly attributable to the specific segment.
The following table sets forth certain financial information from continuing operations attributable to the Company’s business segments for the three months ended March 31, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, 2022 |
| | NEMT | | Personal Care | | RPM | | | | Corporate | | Total |
| Service revenue, net | $ | 400,920 | | | $ | 159,698 | | | $ | 13,857 | | | | | $ | — | | | $ | 574,475 | |
Grant income (1) | — | | | 468 | | | — | | | | | — | | | 468 | |
| | | | | | | | | | | |
| Service expense | 332,096 | | | 122,232 | | | 4,987 | | | | | — | | | 459,315 | |
| General and administrative expense | 37,333 | | | 23,133 | | | 4,962 | | | | | 11,380 | | | 76,808 | |
| Depreciation and amortization | 7,105 | | | 12,505 | | | 4,128 | | | | | 208 | | | 23,946 | |
| Operating income (loss) | $ | 24,386 | | | $ | 2,296 | | | $ | (220) | | | | | $ | (11,588) | | | $ | 14,874 | |
| | | | | | | | | | | |
| Equity in net loss (income) of investee, net of tax | $ | 65 | | | $ | — | | | $ | — | | | | | $ | (548) | | | $ | (483) | |
| Equity investment | $ | — | | | $ | — | | | $ | — | | | | | $ | 83,333 | | | $ | 83,333 | |
| Goodwill | $ | 135,186 | | | $ | 552,833 | | | $ | 236,738 | | | | | $ | 30 | | | $ | 924,787 | |
| Total assets | $ | 603,875 | | | $ | 1,024,013 | | | $ | 334,071 | | | | | $ | 151,025 | | | $ | 2,112,984 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, 2021 |
| | NEMT | | Personal Care | | | | Corporate | | Total |
| Service revenue, net | $ | 343,416 | | | $ | 110,194 | | | | | $ | — | | | $ | 453,610 | |
Grant income (1) | — | | | 2,648 | | | | | — | | | 2,648 | |
| | | | | | | | | |
| Service expense | 272,416 | | | 87,917 | | | | | — | | | 360,333 | |
| General and administrative expense | 27,987 | | | 15,029 | | | | | 11,909 | | | 54,925 | |
| Depreciation and amortization | 7,312 | | | 4,927 | | | | | — | | | 12,239 | |
| Operating income (loss) | $ | 35,701 | | | $ | 4,969 | | | | | $ | (11,909) | | | $ | 28,761 | |
| | | | | | | | | |
| Equity in net income of investee, net of tax | $ | — | | | $ | — | | | | | $ | (3,241) | | | $ | (3,241) | |
| Equity investment | $ | — | | | $ | — | | | | | $ | 141,220 | | | $ | 141,220 | |
| Goodwill | $ | 135,186 | | | $ | 309,711 | | | | | $ | 30 | | | $ | 444,927 | |
| Total assets | $ | 589,047 | | | $ | 698,985 | | | | | $ | 243,743 | | | $ | 1,531,775 | |
(1) Grant income for the Personal Care segment includes provider relief funds received under the CARES Act. These funds are intended to support healthcare providers by reimbursing them for expenses incurred as a result of the COVID-19 pandemic. See Note 2, Significant Accounting Policies and Recent Accounting Pronouncements.
5. Revenue Recognition
Under ASC 606, the Company recognizes revenue as it transfers promised services to its customers and generates all of its revenue from contracts with customers. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for these services. The Company satisfies substantially all of its performance obligations over time and recognizes revenue over time instead of at points in time and applies the "as-invoiced" practical expedient which aligns the pattern of transfer of promised services with the value received by the customer for the performance completed to date. In the NEMT segment, the Company's performance obligation is to stand ready to perform transportation-related activities, including the management, fulfillment, and recordkeeping activities associated with such services. In the Personal Care segment, the Company's performance obligation is to deliver patient care services in accordance with the nature of services and hours worked per each contract. In the RPM segment, the Company's performance obligation is to stand ready to perform monitoring services in the form of personal emergency response system (PERS) monitoring, vitals monitoring, and medication management, as contractually agreed upon.
The Company holds different contract types under its different segments of business. In the NEMT segment, there are both capitated contracts, under which payors pay a fixed amount monthly per eligible member, and fee-for-service ("FFS") contracts, under which the Company bills and collects a specified amount for each service that is provided. Personal Care contracts are also FFS, and service revenue is reported at the estimated net realizable amount from clients, patients and third-party payors for services rendered. RPM service revenue consists of revenue from monitoring services provided to the customer. Under RPM contracts, payors pay per-enrolled-member-per-month, based on enrolled membership. For each contract type, the Company determines the transaction price based on the gross charges for services provided, reduced by estimates for contractual adjustments due to settlements of audits and payment reviews from third-party payors. The Company determines the estimated revenue adjustments at each segment based on our historical experience with various third-party payors and previous results from the claims and adjudication process. The Personal Care segment uses the portfolio approach to determine the estimated revenue adjustments. See further information in Note 4, Revenue Recognition.
Government Grants
The Company has received government grants under the CARES Act PRF and the ARPA SLFRF to provide economic relief and stimulus to combat health and economic impacts of the COVID-19 pandemic. Under these acts, the Company received distributions of approximately $1.6 million and $0.5 million during the three months ended March 31, 2023 and 2022, respectively, of which $1.5 million and $0.5 million was recognized as grant income during the three months ended March 31, 2023 and 2022, respectively, with the remaining balance recorded in accrued expenses and other current liabilities. Distributions received under these acts are targeted to assist with incremental health care related expenses or lost revenue attributable to the COVID-19 pandemic as well as provide stimulus to support long-term growth and recovery.
The payments from these acts are subject to certain restrictions and possible recoupment if not used for designated purposes. As a condition to receiving PRF distributions, providers must agree to certain terms and conditions, including, among other things, that the funds are being used for healthcare related expenses and lost revenues attributable to COVID-19, as defined by the U.S. Department of Health and Human Services ("HHS"). All recipients of PRF payments are required to comply with the reporting requirements described in the terms and conditions and as determined by HHS. The Company has submitted the required documents to meet reporting requirements for the applicable reporting periods. The Company received an audit inquiry letter from HHS related to one of the business units that received PRF payments, to which the Company has responded and submitted all requested information and believes that the payments received are substantiated and within the terms and conditions defined by HHS and continues to include these amounts as grant income. At this time, the Company is unaware of any other pending or upcoming audits or inquiries related to PRF received.
As a condition to receiving SLFRF, providers must agree to use the funds to respond to the PHE or its negative economic impacts, to respond to workers performing essential work by providing premium pay to eligible workers and to offset reduction in revenue due to the COVID-19 PHE as stipulated by the states in which the funds were received. All recipients of SLFRF payments are required to comply with the reporting requirements that the state in which the funds originated has requested in order for the states to meet the requirements as described in the terms and conditions as determined by the Department of the Treasury. The Company has complied with all known reporting requirements to date.
The Company recognizes distributions from government grants as grant income or accrued expenses and other current liabilities in line with the loss of revenues or expenses for which the grants are intended to compensate when there is reasonable assurance that it has complied with the conditions associated with the grant.
Recent Accounting Pronouncements
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance ("ASU 2021-10"). This update requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. These disclosures include information about the nature of the transactions and the related accounting policy used to account for the transactions, the line items on the balance sheet and income statement that are affected by the transactions, the amounts applicable to each financial line item, and the significant terms and conditions of the transactions, including commitments and contingencies. ASU 2021-10 is effective for public business entities for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company adopted this accounting standard on January 1, 2022 and will apply it to any government assistance received thereafter.
3. Segments
The Company’s reportable segments are identified based on a number of factors related to how its chief operating decision maker ("CODM") determines the allocation of resources and assesses the performance of the Company’s operations. The CODM uses service revenue, net and operating income as the measures of profit or loss to assess segment performance and allocate resources, and uses total assets as the measure of assets attributable to each segment. The Company's operating income for the reportable segments includes an allocated portion of corporate expenses to the respective segments and includes revenues and all other costs directly attributable to the specific segment. The Company’s reportable segments are strategic units that offer different services under different financial and operating models to the Company’s customers. The Company's CODM manages the Company under four reportable segments.
•NEMT - The Company's NEMT segment is the largest manager of non-emergency medical transportation programs for state governments and managed care organizations, or MCOs, in the U.S. This segment also holds the results of the Company's captive insurance program;
•Personal Care - The Company's Personal Care segment provides in home personal care services to State and Managed Medicaid, Medicare, and Private Pay patient populations in need of care monitoring and assistance performing activities of daily living;
•RPM - The Company's RPM segment is a provider of remote patient monitoring solutions, including personal emergency response systems, vitals monitoring and data-driven patient engagement solutions;
•Corporate and Other - The Company's Corporate and Other segment includes the costs associated with the Company's corporate operations. The operating results of the Corporate and Other segment include activities related to executive, accounting, finance, internal audit, tax, legal and certain strategic and corporate development functions for each segment, as well as the results of the Company's Matrix investment.
The following table sets forth certain financial information from operations attributable to the Company’s business segments for the three months ended March 31, 2023 and 2022 (in thousands):
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| | Three months ended March 31, 2023 |
| | NEMT | | Personal Care | | RPM | | Corporate and Other | | Total |
| Service revenue, net | $ | 469,463 | | | $ | 174,131 | | | $ | 18,712 | | | $ | — | | | $ | 662,306 | |
Grant income (1) | — | | | 1,464 | | | — | | | — | | | 1,464 | |
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| Service expense | 407,686 | | | 136,090 | | | 6,490 | | | — | | | 550,266 | |
| General and administrative expense | 33,875 | | | 22,663 | | | 5,769 | | | 17,406 | | | 79,713 | |
| Depreciation and amortization | 6,766 | | | 12,868 | | | 5,854 | | | 205 | | | 25,693 | |
| Operating income (loss) | $ | 21,136 | | | $ | 3,974 | | | $ | 599 | | | $ | (17,611) | | | $ | 8,098 | |
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| Equity in net income of investee, net of tax | $ | (653) | | | $ | — | | | $ | — | | | $ | (1,372) | | | $ | (2,025) | |
| Equity investment | $ | 1,092 | | | $ | — | | | $ | — | | | $ | 42,606 | | | $ | 43,698 | |
| Goodwill | $ | 135,186 | | | $ | 552,775 | | | $ | 280,663 | | | $ | 30 | | | $ | 968,654 | |
| Total assets | $ | 505,823 | | | $ | 924,880 | | | $ | 394,076 | | | $ | 116,750 | | | $ | 1,941,529 | |
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| | Three months ended March 31, 2022 |
| | NEMT | | Personal Care | | RPM | | Corporate and Other | | Total |
| Service revenue, net | $ | 400,920 | | | $ | 159,698 | | | $ | 13,857 | | | $ | — | | | $ | 574,475 | |
Grant income (1) | — | | | 468 | | | — | | | — | | | 468 | |
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| Service expense | 332,096 | | | 122,232 | | | 4,987 | | | — | | | 459,315 | |
| General and administrative expense | 37,333 | | | 23,133 | | | 4,962 | | | 11,380 | | | 76,808 | |
| Depreciation and amortization | 7,105 | | | 12,505 | | | 4,128 | | | 208 | | | 23,946 | |
| Operating income (loss) | $ | 24,386 | | | $ | 2,296 | | | $ | (220) | | | $ | (11,588) | | | $ | 14,874 | |
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| Equity in net loss (income) of investee, net of tax | $ | 65 | | | $ | — | | | $ | — | | | $ | (548) | | | $ | (483) | |
| Equity investment | $ | — | | | $ | — | | | $ | — | | | $ | 83,333 | | | $ | 83,333 | |
| Goodwill | $ | 135,186 | | | $ | 552,833 | | | $ | 236,738 | | | $ | 30 | | | $ | 924,787 | |
| Total assets | $ | 603,875 | | | $ | 1,024,013 | | | $ | 334,071 | | | $ | 151,025 | | | $ | 2,112,984 | |
(1) Grant income for the Personal Care segment includes funding received on a periodic basis from the PRF in relation to relief under the CARES Act and funding received from the SLFRF under ARPA in relation to economic recovery to combat health and economic impacts of the COVID-19 pandemic. See Note 2, Significant Accounting Policies and Recent Accounting Pronouncements.
4. Revenue Recognition
Under ASC 606, the Company recognizes revenue as it transfers promised services to its customers and generates all of its revenue from contracts with customers. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for these services. The Company satisfies substantially all of its performance obligations over time and recognizes revenue over time instead of at points in time.
Revenue Contract Structure
NEMT Capitated Contracts (per-member-per-month)
Under capitated contracts, payors pay a fixed amount per eligible member.member per month. Capitation rates are generally based on expected costs and volume of services. We assume the responsibility of meeting the covered healthcare related transportation requirements based on per-member per-month fees for the number of eligible members in the customer’spayor’s program. Revenue is recognized based on the population served during the period. Certain capitated contracts have provisions for reconciliations, risk corridors or profit rebates. For contracts with reconciliation provisions, capitation payment is received as a prepayment during the month service is provided. These prepayments are periodically reconciled based on actual cost and/or trip volume
and may result in refunds to the customer,payor, or additional payments due from the customer.payor. Contracts with risk corridor or profit rebate provisions allow for profit within a certain corridor and once we reach profit level thresholds or maximums, we discontinue recognizing revenue and instead record a liability within the accrued contract payable account. This liability may be reduced through future increases in trip volume or periodic settlements with the customer.payor. While a profit rebate provision could only result in a liability from this profit threshold, a risk corridor provision could potentially result in receivables if the Company does not reach certain profit minimums, which would be recorded in the reconciliation contract receivables account.
NEMT Fee-for-service Contracts
Fee-for-service ("FFS") revenue represents revenue earned under non-capitated contracts in which we bill and collect a specified amount for each service that we provide. FFS revenue is recognized in the period in which the services are rendered and is reduced by the estimated impact of contractual allowances.
Personal Care Fee-for-service Contracts
Personal Care FFS revenue is reported at the estimated net realizable amount from clients, patients and third-party payors for services rendered.rendered based on actual personal care hours provided. Payment for services received from third-party payors includes, but is not limited to, insurance companies, hospitals, governmental agencies and other home health care providers who subcontract work to the Company. Certain contracts are subject to retroactive auditreview and possible adjustment by those payors based on the nature of the contract or costs incurred. The Company makes estimates of retroactive adjustments and considers these in the recognition of revenue in the period in which the related services are rendered. The difference between estimated settlement and actual settlement is reported in net service revenues as adjustments become known or as years are no longer subject to such audits, reviews, or investigations.
RPM Serviceper-member-per-month Contracts
RPM serviceper-member-per-month ("PMPM") revenue consists of revenue from monitoring services provided to the customer. Under RPM contracts, payors pay per-enrolled-member-per-month based on enrolled membership. Consideration is generally fixed for each type of monitoring service and the contracts do not typically contain variable components of consideration. As such, the RPM segment recognizes revenue based on the monthly fee paid by customers.
Disaggregation of Revenue by Contract Type
The following table summarizes disaggregated revenue from contracts with customers by contract type for the three months ended March 31, 20222023 and 2021 by contract typeMarch 31, 2022 (in thousands):
| | | Three months ended March 31, | | Three months ended March 31, | |
| | 2022 | | 2021 | | 2023 | | 2022 | |
| NEMT capitated contracts | NEMT capitated contracts | $ | 335,718 | | | $ | 296,235 | | NEMT capitated contracts | $ | 404,689 | | | $ | 335,718 | | |
| NEMT FFS contracts | NEMT FFS contracts | 65,202 | | | 47,181 | | NEMT FFS contracts | 64,774 | | | 65,202 | | |
| Total NEMT segment revenue | 400,920 | | | 343,416 | | |
| Total NEMT service revenue, net | | Total NEMT service revenue, net | 469,463 | | | 400,920 | | |
| | Personal Care FFS contracts | Personal Care FFS contracts | 159,698 | | | 110,194 | | Personal Care FFS contracts | 174,131 | | | 159,698 | | |
| RPM service contracts | 13,857 | | | — | | |
| RPM PMPM contracts | | RPM PMPM contracts | 18,712 | | | 13,857 | | |
| Total service revenue, net | Total service revenue, net | $ | 574,475 | | | $ | 453,610 | | Total service revenue, net | $ | 662,306 | | | $ | 574,475 | | |
Payor Information
Service revenue, net, is derived from state and managed Medicaid contracts, managed Medicaid and Medicare contracts, (also known as MCOs), as well as a small amount from private pay and other contracts. Of the NEMT segment’s revenue, 11.1% and 10.4% and 8.8% waswere derived from one U.S. State Medicaid programpayor for the three months ended March 31, 20222023 and 2021,2022, respectively. Of the Personal Care segment's revenue, 11.3% and 17.4% and 28.5% waswere derived from one U.S. State Medicaid programpayor for the three months ended March 31, 20222023 and 2021,2022, respectively. Of the RPM segment's revenue, 15.2% and 22.3% waswere derived from one U.S. State Medicaid programpayor for the three months ended March 31, 2022.2023 and 2022, respectively.
The following table summarizes disaggregated revenue from contracts with customers by payor type (in thousands):
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| Three months ended March 31, |
| 2022 | | 2021 |
| State Medicaid contracts | $ | 218,142 | | | $ | 203,320 | |
| Managed Medicaid contracts | 285,600 | | | 206,294 | |
| Managed Medicare contracts | 57,135 | | | 37,730 | |
| Private pay and other contracts | 13,598 | | | 6,266 | |
| Total service revenue, net | $ | 574,475 | | | $ | 453,610 | |
Revenue Adjustments
During the three months ended March 31, 20222023 and 2021,2022, the Company recognized an increase of $1.2$0.4 million and a reductionan increase of $3.3$1.2 million in service revenue, respectively, from contractual adjustments relating to performance obligations satisfied in previous periods to which the customerpayor agreed.
Related Balance Sheet Accounts
The following table provides information about accounts receivable, net (in thousands):
| | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| Accounts receivable | Accounts receivable | $ | 235,589 | | | $ | 210,937 | | Accounts receivable | $ | 200,926 | | | $ | 225,288 | |
Reconciliation contracts receivable (1) | 28,785 | | | 24,480 | | |
Reconciliation contract receivables (1) | | Reconciliation contract receivables (1) | 98,024 | | | 71,131 | |
| Allowance for doubtful accounts | Allowance for doubtful accounts | (1,785) | | | (2,296) | | Allowance for doubtful accounts | (2,205) | | | (2,078) | |
| Accounts receivable, net | Accounts receivable, net | $ | 262,589 | | | $ | 233,121 | | Accounts receivable, net | $ | 296,745 | | | $ | 294,341 | |
(1) Reconciliation contracts receivable primarily represent underpayments and receivables on certain contracts with reconciliation and risk corridor provisions. See the contract payables and receivables activity below.
The following table provides information about other revenue related accounts included on the accompanying unaudited condensed consolidated balance sheets (in thousands):
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| March 31, 2022 | | December 31, 2021 |
Accrued contract payables (1) | $ | 314,126 | | | $ | 281,586 | |
Long-term contract payables (2) | $ | 1,893 | | | $ | — | |
| Deferred revenue, current | $ | 5,648 | | | $ | 4,228 | |
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| March 31, 2023 | | December 31, 2022 |
Accrued contract payables (1) | $ | 187,620 | | | $ | 194,287 | |
Long-term contract receivables (2) | $ | 4,324 | | | $ | 427 | |
| Deferred revenue, current | $ | 2,155 | | | $ | 2,202 | |
(1) Accrued contract payables primarily represent overpayments and liability reserves on certain risk corridor, profit rebate and reconciliation contracts due to lower activity as a result of COVID-19.contracts.
(2) Long-term contract payablesreceivables primarily represent liability reservesfuture receivable balances on certain risk corridor, profit rebate and reconciliation contracts that may be repaidreceived in greater than 12 months.
The following table provides the summary activity of total contract payables and receivables as reported within the unaudited condensed consolidated balance sheets (in thousands):
| | | December 31, 2021 | | Additional Amounts Recorded | | Amounts Paid or Settled | | March 31, 2022 | | December 31, 2022 | | Additional Amounts Recorded | | Amounts Paid or Settled | | March 31, 2023 |
| Reconciliation contract payables | Reconciliation contract payables | | $ | 22,035 | | | $ | 5,283 | | | $ | (2,162) | | | $ | 25,156 | | Reconciliation contract payables | | $ | 25,853 | | | $ | 1,811 | | | $ | (18,110) | | | $ | 9,554 | |
| Profit rebate/corridor contract payables | Profit rebate/corridor contract payables | | 246,424 | | | 30,142 | | | (6,341) | | | 270,225 | | Profit rebate/corridor contract payables | | 155,161 | | | 22,316 | | | (10,873) | | | 166,604 | |
| Overpayments and other cash items | Overpayments and other cash items | | 13,127 | | | 8,937 | | | (1,426) | | | 20,638 | | Overpayments and other cash items | | 13,273 | | | 799 | | | (2,610) | | | 11,462 | |
| Total contract payables | Total contract payables | | $ | 281,586 | | | $ | 44,362 | | | $ | (9,929) | | | $ | 316,019 | | Total contract payables | | $ | 194,287 | | | $ | 24,926 | | | $ | (31,593) | | | $ | 187,620 | |
| | Reconciliation contract receivables | Reconciliation contract receivables | | $ | 24,403 | | | $ | 4,973 | | | $ | (1,043) | | | $ | 28,333 | | Reconciliation contract receivables | | $ | 48,153 | | | $ | 22,204 | | | $ | (5,922) | | | $ | 64,435 | |
| Corridor contract receivables | Corridor contract receivables | | 77 | | | 375 | | | — | | | 452 | | Corridor contract receivables | | 23,405 | | | 14,508 | | | — | | | 37,913 | |
| Total reconciliation contract receivables | Total reconciliation contract receivables | | $ | 24,480 | | | $ | 5,348 | | | $ | (1,043) | | | $ | 28,785 | | Total reconciliation contract receivables | | $ | 71,558 | | | $ | 36,712 | | | $ | (5,922) | | | $ | 102,348 | |
6.5. Equity Investment
As of March 31, 20222023 and December 31, 2021,2022, the Company owned a 43.6% non-controlling interest in Matrix. Pursuant to a Shareholder’s Agreement, affiliates of Frazier Healthcare Partners hold rights necessary to control the fundamental operations of Matrix. The Company accounts for thisits investment in Matrix under the equity method of accounting and the Company’s share of Matrix’s income or losses are recorded as “Equity in net (income) loss of investee” in the accompanying unaudited condensed consolidated statements of operations. During the year ended December 31, 2021,2022, Matrix recorded asset impairment charges of $111.4$82.2 million. No asset impairment charges were recorded for the three months ended March 31, 20222023 or March 31, 2021.2022.
While the Company has access to certain information and performs certain procedures to review the reasonableness of information, the Company relies on the management of Matrix to provide accurate financial information prepared in accordance with GAAP. The Company receives audit reports relating to such financial information from Matrix’s independent auditors on an annual basis. The Company is not aware of any errors in or possible misstatements of the financial information provided by Matrix that would have a material effect on the Company’s condensed consolidated financial statements.
The Company's gross share of its investment in Matrix was income of $0.8 million and income of $4.5 millionMatrix's operations for the three months ended March 31, 20222023 and March 31, 2021,2022 was income of $1.9 million and income of $0.8 million, respectively, which is presented net of tax on ourthe unaudited condensed consolidated statements of operations for income of $0.5$1.4 million and income of $3.2$0.5 million, for the three months ended March 31, 2022 and March 31, 2021, respectively.
The carrying amount of the assets included in the Company’s unaudited condensed consolidated balance sheets and the maximum loss exposure related to the Company’s interest in Matrix as of March 31, 20222023 and December 31, 20212022 totaled $83.3$42.6 million and $83.1$41.3 million, respectively.
Summary financial information for Matrix on a standalone basis is as follows (in thousands):
| | | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| Current assets | Current assets | $ | 131,300 | | | $ | 124,081 | | Current assets | $ | 98,759 | | | $ | 97,750 | |
| Long-term assets | Long-term assets | $ | 476,573 | | | $ | 482,063 | | Long-term assets | $ | 367,752 | | | $ | 373,297 | |
| Current liabilities | Current liabilities | $ | 62,238 | | | $ | 57,048 | | Current liabilities | $ | 29,436 | | | $ | 36,913 | |
| Long-term liabilities | Long-term liabilities | $ | 337,901 | | | $ | 340,448 | | Long-term liabilities | $ | 324,703 | | | $ | 325,613 | |
| | | Three months ended March 31, | | Three months ended March 31, | |
| | 2022 | | 2021 | | 2023 | | 2022 | |
| Revenue | Revenue | $ | 85,753 | | | $ | 124,042 | | Revenue | $ | 81,316 | | | $ | 85,753 | | |
| Operating income | Operating income | $ | 2,645 | | | $ | 16,092 | | Operating income | $ | 13,407 | | | $ | 2,645 | | |
| Net income (loss) | Net income (loss) | $ | (1,317) | | | $ | 8,613 | | Net income (loss) | $ | 4,570 | | | $ | (1,317) | | |
7.6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets were comprised of the following (in thousands):
| | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| Prepaid income taxes | Prepaid income taxes | $ | 8,646 | | | $ | 13,848 | | Prepaid income taxes | $ | 5,297 | | | $ | 7,186 | |
| Deferred ERP implementation costs | | Deferred ERP implementation costs | 5,231 | | | 5,817 | |
| Prepaid insurance | | Prepaid insurance | 3,513 | | | 6,334 | |
| Deferred financing costs on credit facility | Deferred financing costs on credit facility | 3,789 | | | 1,480 | | Deferred financing costs on credit facility | 2,919 | | | 3,061 | |
| Prepaid insurance | 2,962 | | | 9,487 | | |
| Inventory | Inventory | 903 | | | 1,458 | | Inventory | 1,416 | | | 2,041 | |
| Prepaid rent | Prepaid rent | 227 | | | 265 | | Prepaid rent | 1,290 | | | 278 | |
| Other prepaid expenses | Other prepaid expenses | 17,141 | | | 12,013 | | Other prepaid expenses | 16,194 | | | 9,615 | |
| Total prepaid expenses and other current assets | Total prepaid expenses and other current assets | $ | 33,668 | | | $ | 38,551 | | Total prepaid expenses and other current assets | $ | 35,860 | | | $ | 34,332 | |
8.
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consistedwere comprised of the following (in thousands):
| | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Accrued compensation and related liabilities (1) | Accrued compensation and related liabilities (1) | $ | 47,662 | | | $ | 54,564 | | Accrued compensation and related liabilities (1) | $ | 49,466 | | | $ | 47,947 | |
| Accrued interest | Accrued interest | 26,461 | | | 12,826 | | Accrued interest | 24,177 | | | 10,643 | |
| Insurance reserves | | Insurance reserves | 19,577 | | | 17,836 | |
| Accrued operating expenses | | Accrued operating expenses | 11,229 | | | 18,432 | |
| Accrued legal fees | Accrued legal fees | 16,299 | | | 5,081 | | Accrued legal fees | 9,143 | | | 15,574 | |
| Accrued operating expenses | 14,482 | | | 14,457 | | |
| Insurance reserves | 11,554 | | | 10,152 | | |
| Deferred acquisition payments | 3,918 | | | 3,578 | | |
| Accrued cash settled stock-based compensation | 23 | | | 183 | | |
| Union pension obligation | Union pension obligation | 6,534 | | | 6,629 | | Union pension obligation | 3,548 | | | 3,665 | |
Accrued government grants (1) | | Accrued government grants (1) | 3,464 | | | 7,367 | |
| Deferred revenue | | Deferred revenue | 2,155 | | | 2,202 | |
| Other | Other | 11,138 | | | 12,093 | | Other | 10,219 | | | 12,194 | |
| Total accrued expenses and other current liabilities | Total accrued expenses and other current liabilities | $ | 138,071 | | | $ | 119,563 | | Total accrued expenses and other current liabilities | $ | 132,978 | | | $ | 135,860 | |
(1) Accrued compensation and related liabilitiesgovernment grants include deferred payroll taxes, which are deferred as a result of the CARES Act. The CARES Act provides for certain federal income and other tax changes, including the deferral of the employer portion of Social Security payroll taxes. The Company has deferred payment of $12.3 million relatedpayments received from government entities in relation to the deferral of employer payroll taxesPRF and SLFRF to offset lost revenue or increased expenditures for which the related expenditure has not yet been incurred and thus the related payments are deferred as of March 31, 20222023 and December 31, 2021.2022.
9.8. Debt
Senior Unsecured Notes
Senior unsecured notes as of March 31, 20222023 and December 31, 20212022 consisted of the following (in thousands):
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| Senior Unsecured Note | | Date of Issuance | | March 31, 2022 | | December 31, 2021 |
| $500.0 million 5.875% due November 15, 2025 | | 11/4/2020 | | $ | 489,034 | | | $ | 488,368 | |
| $500.0 million 5.000% due October 1, 2029 | | 8/24/2021 | | $ | 487,199 | | | $ | 486,857 | |
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| Senior Unsecured Note | | Date of Issuance | | March 31, 2023 | | December 31, 2022 |
$500.0 million 5.875% due November 15, 2025 (effective interest rate 6.485%) | | 11/4/2020 | | $ | 491,809 | | | $ | 491,098 | |
$500.0 million 5.000% due October 1, 2029 (effective interest rate 5.395%) | | 8/24/2021 | | 488,624 | | | 488,263 | |
| Total | | | | $ | 980,433 | | | $ | 979,361 | |
The Company pays interest on the Senior Unsecured Notes semi-annually in arrears. Principal payments are not required until the maturity date. Debt issuance costs of $14.5 million in relation to the issuance of the Senior Notes due 2025 were incurred and these costs were deferred and are amortized to interest cost over the term of the Notes. Debt issuance costs of $13.5 million were incurred in relation to the issuance of the Senior Notes due 2029 and these costs were deferred and are amortized to interest cost over the term of the Notes. As of March 31, 2022, $23.82023, $19.6 million of unamortized deferred issuance costs was netted against the long-term debt balance on the unaudited condensed consolidated balance sheets. The fair value of the Notes as of March 31, 2023 and December 31, 2022 was $915.6 million and $896.6 million, respectively, which was determined based on quoted prices in active markets, and therefore designated as Level 1 within the fair value hierarchy. The Company was in compliance with all covenants as of March 31, 2022.2023.
Credit Facility
On February 3, 2022, the Company entered into a new credit agreement (the “New Credit“Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, swing line lender and an issuing bank, Wells Fargo Bank, National Association, as an issuing bank, Truist Bank and Wells Fargo Bank, National Association, as co-syndication agents, Deutsche Bank AG New York Branch, Bank of America, N.A., Regions Bank, Bank of Montreal and Capital One, National Association, as co-documentation agents, and JPMorgan Chase Bank, N.A., Truist Securities, Inc. and Wells Fargo Securities, LLC, as joint bookrunners and joint lead arrangers, and the other lenders party thereto. The New Credit Agreement provides the Company with a senior secured revolving credit facility (the “New Credit“Credit Facility”) in an aggregate principal amount of $325.0 million. The New Credit Facility includesmillion and sublimits for swingline loans, letters of credit and alternative currency loans in amounts of up to $25.0 million, $60.0 million and $75.0 million, respectively. The Company did not draw any amount of the New Credit Facility at closing ofmatures on February 3, 2027 and the New Credit Agreement. At closing of the New Credit Agreement, the Company had $24.0 million of outstanding letters of credit under the New Credit Facility. The proceeds of the New Credit Facility may be used (i) to finance working capital needs of the Company and its subsidiaries and (ii) for general corporate purposes of the Company and its subsidiaries (including to finance capital expenditures, permitted acquisitions and investments). The New Credit Facility replacesAs of March 31, 2023, the
Company had $15.0 million of short-term borrowings outstanding on the Credit Facility and had $32.8 million of outstanding letters of credit under the Credit Agreement, whichFacility. The interest rate for borrowings outstanding as of March 31, 2023 was terminated concurrently with10.5% per annum. As of December 31, 2022, the Company's entry intoCompany did not have any balances outstanding on the New Credit Agreement.Facility and had $38.1 million of outstanding letters of credit under the Credit Facility.
Under the New Credit Facility, the Company has an option to request an increase in the amount of the New Credit Facility or obtain incremental term loans from time to time (on substantially the same terms as apply to the existing facilities) by an aggregate amount of up to $175.0 million, plus an unlimited amount so long as, after giving effect to the relevant incremental facility, the pro forma secured net leverage ratio does not exceed 3.50:1.00, with either additional commitments from lenders under the New Credit Agreement at such time or new commitments from financial institutions approved by the Company and the administrative agent (which approval is not to be unreasonably withheld), so long as, at the time of any such increase, no default or event of default exists, the representations and warranties of the Company set forth in the New Credit Agreement are true and correct in all material respects and the Company is in pro forma compliance with the financial covenants in the New Credit Agreement. The Company may not be able to access additional funds under this increase option as no lender is obligated to participate in any such increase under the New Credit Facility.
The New Credit Facility matures on February 3, 2027.1.00. The Company may prepay the New Credit Facility in whole or in part, at any time without premium or penalty, subject to reimbursement of the lenders’ breakage and redeployment costs in connection with prepayments of Term Benchmark loans or RFR loans, each as defined in the New Credit Agreement. The unutilized portion of the commitments under the New Credit Facility may be irrevocably reduced or terminated by the Company at any time without penalty.
Interest on the outstanding principal amount of the loans accrues at a per annum rate equal to the Alternate Base Rate, the Adjusted Term SOFR Rate, the Adjusted Daily Simple SOFR Rate, the Adjusted EURIBOR Rate or the Adjusted Daily Simple SONIA Rate, as applicable and each as defined in the New Credit Agreement, in each case, plus an applicable margin. The applicable margin ranges from 1.75% to 3.50% in the case of Term Benchmark loans or RFR loans, each as defined in the Credit Agreement, and 0.75% to 2.50% in the case of the Alternate Base Rate loans, as defined in the Credit Agreement, in each case, based on the Company’s total net leverage ratio as defined in the New Credit Agreement. Interest on the loans is payable quarterly in arrears in the case of Alternate Base Rate loans, on the last day
of the relevant interest period in the case of Term Benchmark loans, and monthly in arrears in the case of RFR loans. In addition, the Company is obligated to pay a quarterly commitment fee based on a percentage of the unused portion of the revolving credit facility and quarterly letter of credit fees based on a percentage of the maximum amount available to be drawn under each outstanding letter of credit. The commitment fee and letter of credit fee range from 0.30% to 0.50% and 1.75% to 3.50%, respectively, in each case, based on the Company’s total net leverage ratio.
The New Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default. The negative covenants include restrictions on the Company’s ability to, among other things, incur additional indebtedness, create liens, make investments, give guarantees, pay dividends, sell assets and merge and consolidate. The CompanyCompany's borrowing capacity under the Credit Facility is subject to financialcurrently limited by, among other covenants, includingcompliance with the total net leverage and interest coverage covenants.ratio covenant of 5.00:1.00, which steps down to 4.50:1.00 beginning September 30, 2023.
The Company’s obligations under the New Credit Facility are guaranteed by all of the Company’s present and future material domestic subsidiaries, excluding certain material domestic subsidiaries that are excluded from being guarantors pursuant to the terms of the New Credit Agreement. The Company’s obligations under, and each guarantor’s obligations under its guaranty of, the New Credit Facility are secured by a first priority lien on substantially all of the Company’s or such guarantor’s respective assets. If an event of default occurs, the required lenders may cause the administrative agent to declare all unpaid principal and any accrued and unpaid interest and all fees and expenses under the New Credit Facility to be immediately due and payable. All amounts outstanding under the New Credit Facility will automatically become due and payable upon the commencement of any bankruptcy, insolvency or similar proceedings. The New Credit Agreement also contains a cross default to any of the Company’s indebtedness having a principal amount in excess of $40.0 million. The Company was in compliance with all covenants under the Credit Agreement as of March 31, 20222023.
10.9. Stock-Based Compensation and Similar Arrangements
The Company provides stock-based compensation to employees, non-employee directors, consultants and advisors under the Company’s 2006 Long-Term Incentive Plan (“2006 Plan”). The 2006 Plan allows the flexibility to grant or award stock options, stock appreciation rights, restricted stock, unrestricted stock, stock units including restricted stock units and performance awards to eligible persons.
Stock options. The Company recognized stock-based compensation expense for non-qualified stock options (“NQs”) of $0.6$0.2 million and $0.5$0.6 million for the three months ended March 31, 20222023 and 2021,2022, respectively, in general and administrative expense. At March 31, 2022,2023, the Company had 323,895108,280 stock options outstanding with a weighted-average exercise price of $93.66.$115.55.
Restricted stock awards and restricted stock units. The Company recognized stock-based compensation expense for restricted stock awards ("RSAs") and restricted stock units ("RSUs") of $1.1$0.9 million and $0.8$1.1 million for the three months ended March 31, 20222023 and 2021,2022, respectively, in general and administrative expense. The Company had 7,34411,518 unvested RSAs and 83,54466,383 unvested RSUs outstanding at March 31, 20222023 with a weighted-average grant date fair value of $81.11$97.61 and $113.28,$107.56, respectively.
Performance-based share awards. These awards include RSUs. The purpose of such awards isCompany grants performance-based restricted stock units (PRSUs) to align management’s compensation with ourthe Company's financial performance and other operational objectives and to retain key employees over a specified performance period.employees. Awards granted under this category are based on the achievement of various targeted metrics as defined by the Plan. Stock-based compensation expense related to these awardsfor PRSUs is recognized over a three-yearthe 3-year vesting period under the straight-line attribution method if and when we conclude that it is probable that the performance conditions will be achieved.method. The Company recorded an immaterial amount of stock-based compensation expense for the three months ended March 31, 2023 and recorded $0.3 million of stock-based compensation expense as offor the three months ended March 31, 2022, related to the awards, with the remaining portion expected to be recognized over the remainder of the 3-year requisite service period. The Company had 36,601 unvested PRSUs outstanding at March 31, 2023 with a weighted-average grant date fair value of $112.82.
21Employee Stock Purchase Plan
During the fourth quarter of 2022, the Company began offering an Employee Stock Purchase Plan ("ESPP") with 1,000,000 shares of Common Stock reserved for purchase pursuant to the Plan for eligible employees. The shares of Common Stock may be newly issued shares, treasury shares or shares acquired on the open market. Under the terms of the plan, eligible employees may designate a dollar value or percentage of their compensation to be withheld through payroll deductions, up to a maximum of $25,000 in each plan year, for the purchase of common stock at a discounted rate of 85% of the lower of the market price on the first or last trading day of the offering period. As of March 31, 2023, 997,060 shares remain available for future issuance under this plan.
11.10. Earnings (Loss) Per Share
The following table details the computation of basic and diluted earnings (loss) per share (in thousands, except share and per share data):
| | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2022 | | 2021 | | | | |
| Numerator: | | | | | | | |
| Net income | $ | 318 | | | $ | 18,840 | | | | | |
| | | | | | | |
| | | | | | | |
| Denominator: | | | | | | | |
| Denominator for basic earnings per share -- weighted-average shares | 14,023,585 | | | 14,158,666 | | | | | |
| Effect of dilutive securities: | | | | | | | |
| Common stock options | 74,296 | | | 147,227 | | | | | |
| Restricted stock | 25,944 | | | 56,333 | | | | | |
| Performance contingent shares | 19,723 | | | — | | | | | |
| Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion | 14,143,548 | | | 14,362,226 | | | | | |
| | | | | | | |
| Earnings per share: | | | | | | | |
| Basic earnings per share | $ | 0.02 | | | $ | 1.33 | | | | | |
| Diluted earnings per share | $ | 0.02 | | | $ | 1.31 | | | | | |
| | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2023 | | 2022 | | | | |
| Numerator: | | | | | | | |
| Net income (loss) | $ | (3,962) | | | $ | 318 | | | | | |
| | | | | | | |
| Denominator: | | | | | | | |
| Denominator for basic earnings per share -- weighted-average shares | 14,163,511 | | | 14,023,585 | | | | | |
| Effect of dilutive securities: | | | | | | | |
| Common stock options | — | | | 74,296 | | | | | |
| Restricted stock | — | | | 25,944 | | | | | |
| Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion | 14,163,511 | | | 14,123,825 | | | | | |
| | | | | | | |
| Earnings (loss) per share: | | | | | | | |
| Basic earnings (loss) per share | $ | (0.28) | | | $ | 0.02 | | | | | |
| Diluted earnings (loss) per share | $ | (0.28) | | | $ | 0.02 | | | | | |
The following weighted-average shares were not included in the computation of diluted earnings per share as the effect of their inclusion would have been anti-dilutive:
| | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2022 | | 2021 | | | | |
| Stock options to purchase common stock | 109,085 | | | 24,211 | | | | | |
Purchases of Equity Securities
On March 8, 2021, the Board of Directors authorized a stock repurchase program under which the Company could repurchase up to $75.0 million in aggregate value of the Company’s Common Stock through December 31, 2021, unless terminated earlier. Through March 31, 2021, 94,235 shares were repurchased under the program for $14.5 million. No repurchase program was authorized as of March 31, 2022. | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2023 | | 2022 | | | | |
| Stock options to purchase common stock | 101,861 | | | 109,085 | | | | | |
| Restricted stock awards and restricted stock units | 61,875 | | | 54,114 | | | | | |
12.
11. Income Taxes
The Company’s effective tax rate for continuing operations for the three months ended March 31, 2023 and 2022 was a tax benefit of 23.8% and 68.6%. The effective tax rate for continuing operations for the three months ended March 31, 2021 was 23.3%., respectively. For the three months ended March 31, 2023 and 2022, the effective tax rate wasrates were higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes and favorable adjustments related to stock compensation. For the three months ended March 31, 2021, the effective tax rate was higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes.
The 2017 Tax Reform Act reduced the U.S. corporate income tax rate from 35.0% to 21.0% and provided that U.S. NOLs incurred after 2017 could only be carried forward to offset future taxable income. However, pursuant to the CARES Act, which was enacted on March 27, 2020, the Company carried its 2018 NOL back five years. As of March 31, 2022, the Company has received all of the $27.3 million receivable for the 2018 U.S. NOL carryback.nondeductible expenses.
13.12. Commitments and Contingencies
Surveys, audits and governmental investigations
In the ordinary course of business, the Company may from time to time be or become subject to surveys, audits and governmental investigations under or with respect to various governmental programs and state and federal laws. Agencies associated with the programs and other third-party commercial payors periodically conduct extensive pre-payment or post-payment medical reviews or other audits of claims data to identify possiblepayments made or authorized other than in compliance with the requirements of Medicare or Medicaid. In order to conduct these reviews, documentation is requested from us and then that documentation is reviewed to determine compliance with applicable rules and regulations, including the eligibility of clients to receive benefits, the appropriateness of the care provided to those clients, and the documentation of that care. Similarly, other state and federal governmental agencies conduct reviews and investigations to confirm our compliance with applicable laws where we operate, including regarding employment and wage related regulations and matters. We cannot predict the ultimate outcome of any regulatory reviews or other governmental surveys, audits or investigations, but management does not expect any ongoing surveys, audits or investigations involving the Company to have a material adverse effect on the business, liquidity, financial condition, or results of operations of the Company.Regardless of our expectations, however, surveys, audits or investigations are subject to inherent uncertainties and can have a material adverse impact on our Company due to, among other reasons, potential regulatory orders that inhibit our ability to operate our business, amounts paid as reimbursement or in settlement of any such matter, diversion of management resources and investigative costs.
Legal proceedings
In the ordinary course of business, the Company may from time to time be or become involved in various lawsuits.lawsuits, some of which may seek monetary damages, including claims for punitive damages. Unless otherwise expressly stated, our management does not expect any ongoing lawsuits involving the Company to have a material impact on the business, liquidity, financial condition, or results of operations of the Company. Legal proceedings are subject to inherent uncertainties, however, and unfavorable rulings or other events could occur. Unfavorable resolutions could involve substantial monetary damages. In addition, in matters for which conduct remedies are sought, unfavorable resolutions could include an injunction or other order precluding particular business practices or requiring other remedies. An unfavorable outcome might result in a material adverse impact on our business, liquidity, financial position, or results of operations.
The Company records accruals for loss contingencies related to legal matters when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. If the Company determines that a range of reasonably possible losses can be estimated, the Company records an accrual for the most probable amount in the range. Due to the inherent difficulty in predicting the outcome of any legal proceeding, it may not be reasonably possible to estimate a range of potential liability until the matter is closer to resolution. Legal fees related to all legal matters are expensed as incurred.
On September 27, 2022, Daniel Greenleaf, the Company’s former Chief Executive Officer, asserted claims in an arbitration against the Company. His claims allege that the Company breached Mr. Greenleaf’s employment agreement and include a tort claim against the Company. Mr. Greenleaf’s arbitration complaint seeks contractual, extra-contractual, and statutory damages. The Company disputes Mr. Greenleaf’s claims in their entirety and intends to vigorously contest these claims. Based on the status of the proceeding and the uncertainty of the outcome, the Company is unable to estimate a range of possible loss for this matter. The Company does not believe, based on currently available information, that the outcome of the arbitration will have a material adverse effect on the Company's business, liquidity, financial condition, or results of operations. An unfavorable outcome could, however, be material to the Company's operating results or cash flows for the period in which it occurs.
On August 6, 2020, LogistiCare Solutions, LLC, the Company’s subsidiary, now known as ModivCare Solutions, LLC (“ModivCare Solutions”), was served with a putative class action lawsuit filed against it by Mohamed Farah, the owner of transportation provider Dalmar Transportation, in the Western District of Missouri, seeking to represent all non-employee transportation providers contracted with ModivCare Solutions. The lawsuit alleges claims under the Fair Labor Standards Act of 1938, as amended (the “FLSA”), and the Missouri Minimum Wage Act, and asserts that all transportation providers to ModivCare Solutions in the putative class should be considered ModivCare Solutions’ employees rather than independent contractors. On June 6, 2021, the Court conditionally certified as the putative class all current and former In Network Transportation Providers who, individually or through their
companies, were issued 1099 payments from ModivCare Solutions for providing non-emergency medical transportation services for ModivCare Solutions for the previous three years. Notice of the proposed collective class was issued on October 5, 2021, and potential members of the class had until January 3, 2022 to opt-in. Plaintiff’s deadline to movePlaintiff moved for class certification is June 20,on August 15, 2022, and ModivCare Solutions’Solutions filed an opposition to class certification is due August 2,on September 6, 2022. On January 13, 2023, the matter was transferred with the consent of the parties and the court to binding arbitration. The parties have agreed on a settlement and are awaiting the arbitrator's approval. ModivCare Solutions believes it will be able to successfully oppose class certification of this action after discovery and in any event intends to defend itself vigorously with respect to this matter, believes that it is and has been in compliance in all material respects with the laws and regulations regarding the characterization of the transportation providers as independent contractors, and does not believe that the settlement arrangement, if approved by the arbitrator, or the ultimate outcome of this matterarbitration, if the settlement is not approved (which is not expected), will have a material adverse effect on the Company’s business, liquidity, financial condition or results of operations.
On January 21, 2019, the United States District Court for the Southern District of Ohio unsealed a qui tam complaint, filed in December 2015, against Mobile Care Group, Inc., Mobile Care Group of Ohio, LLC, Mobile Care EMS & Transport, Inc. (collectively, the “Mobile Care Entities”) and ModivCare Solutions by Brandee White, Laura Cunningham, and Jeffery Wisier (the “Relators”) alleging that the Mobile Care Entities and indirectly ModivCare Solutions violated the federal False Claims Act, by presenting claims for payment to government healthcare programs knowing that the prerequisites for such claims to be paid had not been met. The Relators seekand seeking to recover damages, fees and costs under the federal False Claims Act, including treble damages, civil penalties and attorneys’ fees. In addition, the Relators seek reinstatement to their jobs with the Mobile Care Entities. None of the Relators were employed by ModivCare Solutions. TheSolutions, and the federal government has declined to intervene against ModivCare Solutions. Following motions and appeals made by the parties, the Relators and ModivCare Solutions filedexecuted a motionsettlement agreement in March 2023 resolving all claims, including with respect to dismiss the Complaint on April 22, 2019, but such motion was denied on October 26, 2021.attorneys' fees. ModivCare Solutions filed an interlocutory appeal of this ruling, which is currently pending before the Sixth Circuit Court of Appeals. ModivCare Solutions believesdoes not believe that the casesettlement arrangement has had or will not have a material adverse effect on the Company’sCompany's business, liquidity, financial condition, or results of operations.
In 2017, one of our Personal Care segment subsidiaries, All Metro Home Care Services of New York, Inc. d/b/a All Metro Health Care (“All Metro”), received a class action lawsuit in state court claiming that, among other things, it failed to properly pay live-in caregivers who stay in patients’ homes for 24 hours per day (“live-ins”). The Company currently pays live-ins for 13 hours per day as supported through a written opinion letter from the New York State Department of Labor (“NYSDOL”). A similar case involving this issue has been heard by the New York Court of Appeals (New York’s highest court), which on March 26, 2019, issued a ruling reversing earlier lower courts’ decisions that an employer must pay live-ins for 24 hours. The Court of Appeals agreed with the NYSDOL’s interpretation to pay live-ins 13 hours instead of 24 hours if certain conditions were being met. If the class action lawsuit on this matter is allowed to proceed, and is successful, All Metro may be liable for back wages and litigated damages going back to November 2011. All Metro filed its motion to oppose class certification of this matter and the matter was heard on June 23, 2022. The state court issued an order certifying the class on December 12, 2022. Mediation is scheduled for late June 2023. All Metro intends to defend itself vigorously with respect to this matter, believes that it is and has been in compliance in all material respects with the laws and regulations covering pay for live-in caregivers, and does not believe in any event that the ultimate outcome of this matter will have a material adverse effect on the Company’s business, liquidity, financial condition or results of operations.
14. Transactions with Related Parties
Cash-Settled Awards
On an annual basis, the Company grants stock equivalent unit awards (“SEUs”) to Coliseum Capital Management, LLC (“Coliseum”) as compensation for the board of directors’ service of Christopher Shackelton, Chairman of the Board, for his service on the Board in lieu of the restricted share awards that are given to our other non-employee directors. These SEUs typically have a one-year vesting schedule and are paid out in cash upon vesting based upon the closing price of the Company’s common stock on the date of vesting. On February 7, 2022, the Company granted Coliseum 1,223 SEUs under this program. The fair value of the SEUs is based on the closing stock price on the last day of the period and the completed requisite service period. The unrecognized compensation cost for SEUs is expected to be recognized over a weighted average period of one year. The liability for unvested SEU awards of $0.2 million at December 31, 2021, is reflected in “Accrued expenses and other current liabilities” in the unaudited condensed consolidated balance sheets. There is no material liability for unvested SEU awards as of March 31, 2022.
In addition, on September 11, 2014, the Company granted 200,000 stock option equivalent units (“SOEUs”) to Coliseum at an exercise price of $43.81 per share that were fully vested. The SOEUs were accounted for as liability awards, with the recorded expense adjustment attributable to the Company’s change in stock price from the previous reporting period. On August 12, 2021, Coliseum exercised all of the SOEUs at a stock price of $182.73 per share for a total cash settlement of $27.8 million. At March 31, 2022, and December 31, 2021, there were no SOEU's outstanding.
15.13. Subsequent Events
The Company has evaluated events and transactions subsequent to the Company's unaudited condensed consolidated balance sheet date and prior to the date of issuance. Based on this evaluation, the Company is not aware of any events or transactions that occurred subsequent to the unaudited condensed consolidated balance sheet date and prior to the date of issuance that would require recognition or disclosure in these financial statements, other than those noted below.
The Company and its insurance carriers have agreed to settle subsequent to the balance sheet date a case arising out of an automobile accident in Texas and this settlement has been accrued on our unaudited condensed consolidated balance sheets as of March 31, 2022 for $8.0 million. The cost of this settlement is covered substantially by the Company’s insurance policies, and thus the liability and related insurance receivables have been accrued, with minimal impact to expense.statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes for the three months ended March 31, 2023 and 2022 and 2021,included herein, as well as our audited consolidated financial statements and accompanying notes and management’s discussion and analysis of financial condition and results of operations included in our Form 10-K for the year ended December 31, 2021.2022. For purposes of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to Q1 2022"Q1 2023" and Q1 2021"Q1 2022" mean the three months ended March 31, 20222023 and the three months ended March 31, 2021,2022, respectively.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 3b-6 promulgated thereunder, including statements related to the Company’s strategies or expectations about revenues, liabilities, results of operations, cash flows, ability to fund operations, profitability, ability to meet financial covenants, contracts or market opportunities. These statements are predictive in nature and are frequently identified by the use of terms such as “may,” “will,” “should,” “expect,” “believe,” “estimate,” “intend,” and similar words indicating possible future expectations, events or actions. In addition, statements that are not historical statements of fact should also be considered forward-looking statements. Such forward-looking statements are based on current expectations, assumptions, estimates and projections about our business and our industry, and are not guarantees of our future performance. These statements are subject to a number of known and unknown risks, uncertainties and other factors, many of which are beyond our ability to control or predict, that may cause actual events to be materially different from those expressed or implied herein. Among such risks, uncertainties and other factors are those summarized under the caption “Summary Risk Factors” in Part I, and described in further detail under the caption “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, for the fiscal year ended December 31, 2021.2022. Hyperlinks to such sections of our Annual Report are contained in the text included within the quotation marks.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made and are expressly qualified in their entirety by the cautionary statements set forth herein and in our other filings with the SEC, which you should read in their entirety before making an investment decision with respect to our securities. We undertake no obligation to update or revise any forward-looking statements contained in this release, whether as a result of new information, future events or otherwise, except as required by applicable law.
Overview of Our Business
ModivCare Inc. ("ModivCare" or the "Company") is a technology-enabled healthcare services company that provides a suite of integrated supportive care solutions for public and private payors and their patients.members. Its value-based solutions address the social determinants of health, or SDoH, connect members to care, help health plans manage risks, reduce costs, and improve health outcomes. ModivCare is a provider of non-emergency medical transportation, or NEMT, personal care, and remote patient monitoring, or RPM, solutions, which serve similar, highly vulnerable patient populations.
The technology-enabled operating model in its NEMT segment includes NEMT core competencies in risk underwriting, contact center management, network credentialing, claims management and non-emergency medical transportation management. Additionally, its personal care services include placements of non-medical personal care assistants, home health aides and nurses primarily to Medicaid patient populations in need of care monitoring and assistance performing daily living activities in the home setting, including senior citizens and disabled adults. ModivCare’s remote patient monitoring services include personal emergency response systems, vitals monitoring and data-driven patient engagement solutions. ModivCare is further expanding its offerings to include meal delivery and working with communities to provide meals to food-insecure individuals delivery of meals.individuals.
ModivCare also holds a 43.6% minority interest in CCHN Group Holdings, Inc. and its subsidiaries, which operates under the Matrix Medical Network brand and which we refer to as “Matrix”(“Matrix”). Matrix, which is included in our Corporate and Other segment, maintains a national network of community-based clinicians who deliver in-home and on-site services, and a fleet of mobile health clinics that provide community-based care with advanced diagnostic capabilities and enhanced care options.
Business Outlook and Trends
Our performance is affected by a number of trends that drive the demand for our services. In particular, the markets in which we operate are exposed to various trends, such as healthcare industry and demographic dynamics. Over the long term, we believe there are numerous factors that could affect growth within the industries in which we operate, including:
•an aging population, which is expected to increase demand for healthcare services andincluding required transportation to such healthcare services and accordingly, in-home personal care and remote patient monitoring services;
•increasing prevalence of chronic illnesses that require active and ongoing monitoring of health data which can be accomplished at a lower cost and result in better health outcomes through remote patient monitoring services;
•a movement towards value-based care versus fee-for-service and cost plus care and budget pressure on governments, both of which may increase the use of private corporations to provide necessary and innovative services;
•increasing demand for in-home care provision, driven by cost pressures on traditional reimbursement models and technological advances enabling remote engagement, including remote monitoring and similar internet-based health related services;
•technological advancements, which may be utilized by us to improve services and lower costs, but may also be utilized by others, which may increase industry competitiveness; and
•StateMCO, Medicaid programs, Medicaid Managed Care Organizations (“MCOs”) and Medicare Advantage plans increasingly are covering NEMT services for a variety of reasons, including increased access to care, improved patient compliance with treatment plans, social trends, and to promote SDoH, and this trend may be accelerated or reinforced by The Consolidated Appropriations Act of 2021 ("H.R.133"), a component of which mandates that state Medicaid programs ensure that Medicaid beneficiaries have necessary transportation to and from health care providers.
Since March 2020 and primarily as a result of the COVID-19 pandemic emerged in March 2020, we have observed a material reduction in trip volume in our NEMT segment as a result of state imposed public health orders, many of which reduced medical services to life-sustaining programs only (for example, dialysis and chemotherapy). This reduction in trip volume has had a negative financial impact on our transportation providers and may impact the availability of transportation providers in the future given the heightened sanitation requirements imposed on drivers and depressed volume.
Our Personal Care segment business has experienced and is expected to continue to experience a material reduction in volume of service hours and visits. Volume has been reduced as members put services on hold due to infection concerns, and/or because they had the alternative of receiving care from family members and other caregivers working remotely or furloughed from their jobs.Cases have also been lost due to patient deaths, and new case referrals slowed as referral sources faced disruption from the various restrictions and public health orders. Our personal care service volumes are not expected to recover to pre-pandemic levels until the vaccination status of membersvisits in the markets where we provide services is at a higher rate where individuals feel comfortable receiving care and any current or future COVID-19 variants do not jeopardize the safety of vaccinated members.These depressed volumes will continue to result in lower than expected revenue, at least in the near term, in theour Personal Care segment.
Our RPM segment hasdid not experiencedexperience a direct material impact to operations or financial activity as a result of the COVID-19 pandemic. While this segmentreduction in trip volume, service hours, and visits has continued to improve each year following the pandemic, structural changes in the industry as a result of the business has proven resilient givenpandemic, predominantly related to an increase in the increaseutilization of telehealth and virtual care, as well as ongoing constraints on the labor market, specifically related to the strain on healthcare professionals, have continued to impact the volume of services we are able to provide. For the NEMT segment, any ongoing impact to trip volume as a result of this structural change in the industry may have a negative financial impact on our transportation providers and may result in lower revenues as the Company adapts to this change in demand for remotetransportation services and adapts to availability of transportation providers should any capacity constraints within our network of transportation providers arise. For the Personal Care segment, the shortage of caregivers will continue to impact the volume of service hours that can be provided while also driving increased wage rates, which limits the Company's ability to be profitable in contracts with set rates for various care services. Any depressed volumes as a result of the labor shortage and the strain on healthcare professionals could reduce the quality with which our caregivers provide services and could result in a highly contagious infection environment, potential risks could arise thatlower than expected revenue. Any of these circumstances and factors could have a material impactadverse effect on the financial results of the segment. Specifically, given the strain on the healthcare professionals that serve the healthcare community, we could experience shortages in qualified medical professionals that support our remote care monitoringreputation and business.
Furthermore, the impact and long-term effects of the COVID-19 pandemic isare continuously evolving, and the continuation of the pandemic, any additional resurgence, or COVID-19 variantsany long-term macroeconomic impacts that have arisen as a result of the pandemic could continue to change trends in the market.
Our business environment is competitive, the structural changes in our industry related to the COVID-19 pandemic have been lasting, the labor market for healthcare professionals remains constrained, and the market price for our common stock on the Nasdaq Stock Market continues to be volatile; the continuing effect of all or any of the foregoing could result, in future periods, in an impairment to the estimated fair value of the goodwill that has been established for our reporting units. As discussed elsewhere herein and under the caption “Risk Factors” in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2022, impairment tests may be required in advance of annual impairment testing if circumstances change that would more likely than not reduce the fair value of goodwill of a reporting unit below such reporting unit’s carrying value. The Company monitors the performance of the business and the value of its stock price and reporting unit estimated fair values, among other relevant considerations, to determine if any impairments to goodwill could exist at any particular time. Furthermore, our management refines their business strategy throughout the year in order to address the competitive business environment and other market and industry conditions identified above, but there can be no assurances that such efforts will be successful in avoiding future impairments to estimated goodwill fair values.
Critical Accounting Estimates and Policies
There have been no significant changes to our critical accounting policies in our unaudited condensed consolidated financial statements from our Form 10-K for the year ended December 31, 2021.2022. For further discussion of our critical accounting policies, see management’s discussion and analysis of financial condition and results of operations contained in our Form 10-K for the year ended December 31, 2021.
Change in Accounting Estimate
During the first quarter, the Company completed an assessment of the useful lives of our intangible assets and adjusted the estimated useful life of the Simplura trademarks and trade names intangible asset from 10 years to 3 years and adjusted the
estimated useful life of the payor network from 15 years to 10 years effective as of January 1, 2022. This change was driven by strategic shifts in the Company's personal care segment operations, partially contributed to by the acquisition of Care Finders. Based on the intangible asset values as of December 31, 2021, the effect of the change in estimate during the three months ended March 31, 2022 was an increase in amortization expense of $3.6 million, or $0.25 per common share outstanding.
Results of Operations
The following results of operations include the accounts of ModivCare Inc. and our subsidiaries for the three months ended March 31, 2022.2023.
Revenues
Service revenue, net. Service revenue for our NEMT segment includes contracts predominately with state Medicaid agencies and MCOs for the coordination of their members’revenue generated by providing non-emergency transportation needs. Most contractsservices directly to our customers. These services are provided on either a capitated basis, which means we are paid on a per-member, per-month ("PMPM") basis for each eligible member. For most contracts,member, or on a fee-for-service ("FFS") basis, which means we arrangeare paid based on the volume of trips or services performed. We receive payments for transportationour services from third-party payors, predominately made up of members through our network of independent transportation providers, whereby we negotiate ratesstate Medicaid agencies and remit payment to the transportation providers. However, for certain contracts, we assume no risk for the transportation network, credentialing and/or payments to these providers. For these contracts, we only provide administrative management services to support the customers’ efforts to serve their clients.MCOs.
Certain otherUnder capitated contracts, are structured aspayors pay a fixed amount per eligible member per month and we assume the responsibility of meeting the covered healthcare related transportation requirements for the number of eligible members in the payor's program. Revenue is recognized based on the number of members served during the period. For certain capitated contracts, we have provisions for reconciliations, risk corridors, and/or profit rebates. These contracts allow for periodic reconciliations based on actual cost and or/trip volume and may result in refunds to the payor, or additional payments due from the payor.
Under fee-for-service ("FFS") in which we bill and collectcontracts, payors pay a specified amount for each service that we provide.provide based on costs incurred plus an agreed-upon margin. FFS revenue is recognized in the period in which the services are rendered and is reduced by the estimated impact of contractual allowances and policy discounts in the case of third-party payors.allowances.
Service revenue for our Personal Care segment includes the revenue generated based on the hours incurred by our in-home caregivers to provide services to our customers, primarily on a FFS basis in which we earn a specified amount for each service that arewe provide. Payment for our Personal Care services is billed to our customers. Our customers consist of third-party payors including,which include, but are not limited to, MCOs, hospitals, Medicaid agencies and programs and other home health care providers who subcontract the services ofto our caregivers.
Service revenue for our RPM segment includes the sale of monitoring equipment to our third partythird-party distributors as well as revenue generated from the hours incurred by our Clinical Team for providing monitoring services that areto our customers, primarily on a PMPM basis for each eligible member. Payment for our monitoring services is billed to our customers. Our customers consist ofthird-party payors which include, but are not limited to, national and regional health plans, government-funded benefit programs, healthcare provider organizations, and individuals.
Grant Income
Grant Incomeincome. The Company has received distributions ofunder the CARES Act PRFProvider Relief Fund ("PRF") and the ARPA Coronavirus State and Local Fiscal Relief Fund ("SLFRF") targeted to offset lost revenueproviding economic relief and expenditures incurred in connection withstimulus to combat health and economic impacts of the COVID-19 pandemic.
Operating Expenses
Service expense. Service Expense for our NEMT segment includes purchased transportation, operational payroll and other operational related costs. Purchased transportation includes the amounts we pay to third-party service providers and is typically dependent upon service volume. Operational payroll predominately includes our contact center operations, customer advocacy and transportation network team. Other operating expenses primarily include operational overhead costs, and operating facilities and related charges. Service expense for our Personal Care segment includes payroll and other operational related costs for our caregivers to provide in-home care. Service expense for our RPM segment primarily consists of salaries of employees in our contact centers, connectivity costs and occupancy costs.
General and administrative expense. General and administrative expense for all segments consists principally of salaries for administrative employees that indirectly support the operations, occupancy costs, marketing expenditures, insurance, and professional fees.
Depreciation and amortization expense. Depreciation within this caption includes infrastructure items such as computer hardware and software, office equipment, monitoring and vitals equipment, buildings, and leasehold improvements. Amortization expense is generated primarily from amortization of our intangible assets, including payor networks, trade names, developed technology, a non-compete agreement, an assembled workforce, and a New York LHCSA permit.
Other Expenses (Income)
Interest expense, net. Interest expense consists principally of interest paymentsaccrued during the period ended March 31, 2023 on the Company’s borrowings outstanding at March 31, 2022 under the Credit Facility and Senior Unsecured Notes, and amortization of deferred financing fees. Refer to the “Liquidity and Capital Resources” section below for further discussion of these borrowings.
Equity in net income (loss)loss (income) of investee, net of tax. Equity in earnings of equity method investee consists of our proportionate share of equity earnings or losses from our Matrix equity investment.investment, presented net of related taxes.
Income tax (benefit) provision (benefit). The Company is subject to federal taxation in the United States and state taxation in the various jurisdictions in which we operate.
Results of OperationsSegment Reporting
Segment reporting. Our segments reflect the manner in which our operations are organized and reviewed by management. Segment results are based on how our chief operating decision makerCODM manages our business, makes operating decisions and evaluates operating performance.
We operate in four reportable business segments: NEMT, Personal Care, RPM, and Corporate.Corporate and Other. The NEMT segment consists of our legacy operations, which provides non-emergency medical transportation services throughout the country. OurThe Personal Care segment provides non-medical personal care and home health services and is composed of the operations from two acquisitions: Simplura on November 18, 2020, and Care Finders on September 14, 2021. Ourservices. The RPM segment provides remote patient monitoring solutions and was developed through our acquisition of VRI on September 22, 2021.solutions. The operating results of our NEMT, Personal Carethe Corporate and RPM segments include revenue and expenses incurred by the segment.
Effective January 1, 2022, the Company completed its segment reorganization which resulted in the addition of a Corporate segment that includes the costs associated with the Company's corporate operations. The operating results of our CorporateOther segment include our activities related to executive, accounting, finance, internal audit, tax, legal and certain strategic and corporate development functions for each segment, as well as the Company's captive insurance program and the results of our Matrix investment. Prior to our segment reorganization, we reported our investment in Matrix as a separate operating segment, however based on how our CODM now views the business, along with the fact that the Matrix investment and all related activity are very minimal, it was determined that these results are reviewed in conjunction with the other corporate results of the business that are not attributable to oneMatrix investment. The operating results of the three operating segments. NEMT, Personal Care and RPM segments include revenue and expenses generated and incurred by the segment, and the Corporate and Other segment includes expenses incurred in relation to the Corporate operations of Company
See Note 4,3, Segments, in our accompanying unaudited condensed consolidated financial statements for further information on our segments.
Q1 20222023 compared to Q1 20212022
Consolidated Results. The following table sets forth results of operations and the percentage of Service revenue, net represented by items in our unaudited condensed consolidated statements of operations for Q1 20222023 and Q1 20212022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2022 | | 2021 |
| | Amount | | % of Revenue | | Amount | | % of Revenue |
| Service revenue, net | $ | 574,475 | | | 100.0 | % | | $ | 453,610 | | | 100.0 | % |
| Grant income | 468 | | | 0.1 | % | | 2,648 | | | 0.6 | % |
| | | | | | | |
| Operating expenses: | | | | | | | |
| Service expense | 459,315 | | | 80.0 | % | | 360,333 | | | 79.4 | % |
| General and administrative expense | 76,808 | | | 13.4 | % | | 54,925 | | | 12.1 | % |
| Depreciation and amortization | 23,946 | | | 4.2 | % | | 12,239 | | | 2.7 | % |
| Total operating expenses | 560,069 | | | 97.5 | % | | 427,497 | | | 94.2 | % |
| | | | | | | |
| Operating income | 14,874 | | | 2.6 | % | | 28,761 | | | 6.3 | % |
| | | | | | | |
| Other expenses: | | | | | | | |
| Interest expense, net | 15,400 | | | 2.7 | % | | 8,423 | | | 1.9 | % |
| Income (loss) before income taxes and equity method investment | (526) | | | (0.1) | % | | 20,338 | | | 4.5 | % |
| Provision (benefit) for income taxes | (361) | | | (0.1) | % | | 4,739 | | | 1.0 | % |
| Equity in net income of investee, net of tax | (483) | | | (0.1) | % | | (3,241) | | | (0.7) | % |
| Net income | $ | 318 | | | 0.1 | % | | $ | 18,840 | | | 4.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2023 | | 2022 |
| | Amount | | % of Service Revenue | | Amount | | % of Service Revenue |
| Service revenue, net | $ | 662,306 | | | 100.0 | % | | $ | 574,475 | | | 100.0 | % |
| Grant income | 1,464 | | | 0.2 | % | | 468 | | | 0.1 | % |
| | | | | | | |
| Operating expenses: | | | | | | | |
| Service expense | 550,266 | | | 83.1 | % | | 459,315 | | | 80.0 | % |
| General and administrative expense | 79,713 | | | 12.0 | % | | 76,808 | | | 13.4 | % |
| Depreciation and amortization | 25,693 | | | 3.9 | % | | 23,946 | | | 4.2 | % |
| Total operating expenses | 655,672 | | | 99.0 | % | | 560,069 | | | 97.5 | % |
| | | | | | | |
| Operating income | 8,098 | | | 1.2 | % | | 14,874 | | | 2.6 | % |
| | | | | | | |
| | | | | | | |
| Interest expense, net | 15,958 | | | 2.4 | % | | 15,400 | | | 2.7 | % |
| Loss before income taxes and equity method investment | (7,860) | | | (1.2) | % | | (526) | | | (0.1) | % |
| Benefit for income taxes | (1,873) | | | (0.3) | % | | (361) | | | (0.1) | % |
| Equity in net income of investee, net of tax | (2,025) | | | (0.3) | % | | (483) | | | (0.1) | % |
| Net income (loss) | $ | (3,962) | | | (0.6) | % | | $ | 318 | | | 0.1 | % |
Service revenue, net. Consolidated service revenue, net for Q1 20222023 increased $120.9$87.8 million, or 26.6%15.3%, compared to Q1 2021.2022. Service revenue, net, for our NEMT segment increased by $57.5$68.5 million, primarily due to higher membership and trip volume and higher membership when compared to Q1 2021.2022. Service revenue, net, further increased incrementally by $49.5$14.4 million for our Personal Care segment, of which $44.4 million was relatedprimarily due to the inclusion of the operating results of Care Finders which was acquiredhigher hours worked by our caregivers in September 2021.Q1 2023 as compared to Q1 2022. Service revenue, net also increased due to the inclusion of $13.9by $4.9 million for our RPM segment, due to the inclusion of the operating results of VRI which was acquiredan increase in September 2021.average monthly members as compared to Q1 2022. See our ResultsResults of Operations, Segments, for further discussion.
Grant income. The Company received distributionsrecognized income of approximately $1.5 million during the three months ended March 31, 2023 and $0.5 million during the three months ended March 31, 2022, compared to $2.6 million during the three months ended March 31, 2021 related to the receipt of paymentsgrants from the CARES Act PRF and the ARPA SLFRF targeted to provide economic relief and stimulus to combat health and economic impacts of the COVID-19 Provider Relief Fund which waspandemic. These funds were received forby our Personal Care segment and isare available to eligible providers who diagnose, test, or care for individuals with possible or actual cases of COVID-19, and have health care related expenses and lost revenues attributable to COVID-19.
Service expense. Service expense components are shown below (in thousands):
| | | | Three months ended March 31, | | Three months ended March 31, |
| | | 2022 | | 2021 | | 2023 | | 2022 |
| | | Amount | | % of Revenue | | Amount | | % of Revenue | | Amount | | % of Service Revenue | | Amount | | % of Service Revenue |
| Purchased services | Purchased services | $ | 277,947 | | | 48.4 | % | | $ | 223,294 | | | 49.2 | % | Purchased services | $ | 344,420 | | | 52.0 | % | | $ | 277,947 | | | 48.4 | % |
| Payroll and related costs | Payroll and related costs | 167,507 | | | 29.2 | % | | 125,112 | | | 27.6 | % | Payroll and related costs | 189,645 | | | 28.6 | % | | 167,507 | | | 29.2 | % |
| Other service expenses | Other service expenses | 13,861 | | | 2.4 | % | | 11,927 | | | 2.6 | % | Other service expenses | 16,201 | | | 2.4 | % | | 13,861 | | | 2.4 | % |
| Total service expense | Total service expense | $ | 459,315 | | | 80.0 | % | | $ | 360,333 | | | 79.4 | % | Total service expense | $ | 550,266 | | | 83.1 | % | | $ | 459,315 | | | 80.0 | % |
Service expense for Q1 20222023 increased $99.0$91.0 million, or 27.5%19.8%, compared to Q1 20212022 primarily due to higher purchased services costs in the NEMT segment of $54.7$66.5 million due todriven by higher third-party transportation costs and associated payroll costs in our contact centers. costs.
Transportation and payroll costs increased primarily as a result of higher trip volume across multiple contracts and higher wage rates. This increase was also driven by higher payroll and related costsservice expense of $34.3$13.9 million in our Personal Care segment, of which $31.9 million isprimarily related to the Care Finders acquisition in September 2021.higher wage rates paid for our caregivers.
General and administrative expense. General and administrative expense for Q1 20222023 increased $21.9$2.9 million, or 39.8%3.8%, compared to Q1 2021.2022. The increase was primarily attributable to an increase of $13.5 million in generalpersonnel related expenses and administrative costs related to the operations of Care Finders in the Personal Care segment and VRI in the RPM segment, both of which were acquired during September 2021, offset by a decrease in general and administrative expense at Simplura. General and administrative expense for the NEMT segment increased by $9.3 million. See our Results of Operations, Segments for further discussion.integration activities.
Depreciation and amortization. Depreciation and amortization for Q1 20222023 increased $11.7$1.7 million or 95.7%7.3% compared to Q1 20212022 primarily as a result of $8.2$1.2 million of additional depreciation and amortization inexpense at the Personal Care and RPM segments associated with intangible assets purchased in the Care Finders and VRI acquisitions, and $3.6 million of additional amortization in the Personal Care segment related to additional amortization related to Simplura intangible assets. See Note 2, Significant Accounting Policies and Recent Accounting Pronouncements.the assets acquired in May 2022 in the acquisition of GMM.
Interest expense, net. Interest expense, net, for Q1 20222023 and Q1 20212022 was $16.0 million and $15.4 million, and $8.4 million, respectively. Interest expense increased as a result of the issuance of $500.0 million of Senior Unsecured Notes due 2029 ("the 2029 Notes"), issued in August 2021. WeDuring Q1 2023, we incurred $8.0$8.1 million of interest expense related to the Notes due 2025 and $6.7$6.6 million related to the Notes due 2029 in Q1 2022.2029. The remainder of the interest expense in Q1 20222023 is related to interest and fees on the credit facility. Interest expense is recorded at our corporate segmentCorporate and is not included in the operating results of the three operating segments.Other segment.
Equity in net loss (income)income of investee.investee, net of tax. Our equity in net income of investee, net of tax, for Q1 20222023 of $2.0 million and our equity in net income of investee, net of tax, of $0.5 million and net income of $3.2 million for Q1 20212022 was a result of our proportional share of the net income or loss of Matrix and our proportional share of the net loss of our investment in a captive insurance program. Matrix's decrease in net income in Q1 2022 was mainly the result of the operations of its Clinical Solutions business unit which was negatively impacted by a decline in COVID-19 testing and screening within Employee Health, coupled with a decrease in COVID-19 related work in Clinical Trials.
Provision (benefit)Benefit for income taxes. Our effective tax raterates from continuing operations for Q1 20222023 and Q1 2021 was a benefit2022 were tax benefits of 68.6%23.8% and a provision of 23.3%68.6%, respectively. For Q1 2023 and Q1 2022, the effective tax rate on the tax benefit wasrates were higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes and favorable adjustments related to stock compensation. For Q1 2021, the effective tax rate was higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes.nondeductible expenses.
Results of Operations - Segments
The following tables set forth certain financial information from continuing operations attributable to the Company’s business segments (in thousands):segments:
NEMT Segment
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, |
| 2022 | | 2021 |
| Amount | | % of Segment Revenue | | Amount | | % of Segment Revenue |
| Service revenue, net | $ | 400,920 | | | 100.0% | | $ | 343,416 | | | 100.0% |
| | | | | | | |
| Service expense | 332,096 | | | 82.8% | | 272,416 | | | 79.3% |
| General and administrative expense | 37,333 | | | 9.3% | | 27,987 | | | 8.1% |
| Depreciation and amortization | 7,105 | | | 1.8% | | 7,312 | | | 2.1% |
| Operating income | $ | 24,386 | | | 6.1% | | $ | 35,701 | | | 10.4% |
30 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2023 | | 2022 | | | | |
| Amount | | % of Segment Revenue | | Amount | | % of Segment Revenue | | | | | | | | |
| Operating Results | | | | | | | | | | | | | | | |
| Service revenue, net | $ | 469,463 | | | 100.0% | | $ | 400,920 | | | 100.0% | | | | | | | | |
| | | | | | | | | | | | | | | |
| Service expense | 407,686 | | | 86.8% | | 332,096 | | | 82.8% | | | | | | | | |
| General and administrative expense | 33,875 | | | 7.2% | | 37,333 | | | 9.3% | | | | | | | | |
| Depreciation and amortization | 6,766 | | | 1.4% | | 7,105 | | | 1.8% | | | | | | | | |
| Operating income | $ | 21,136 | | | 4.5% | | $ | 24,386 | | | 6.1% | | | | | | | | |
| | | | | | | | | | | | | | | |
Business Metrics (1) | | | | | | | | | | | | | | | |
| Total paid trips | 8,202 | | | | | 7,111 | | | | | | | | | | | |
| Average monthly members | 33,704 | | | | | 32,176 | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Revenue per member per month | $ | 4.64 | | | | | $ | 4.15 | | | | | | | | | | | |
| Revenue per trip | $ | 57.24 | | | | | $ | 56.38 | | | | | | | | | | | |
| Service expense per trip | $ | 49.71 | | | | | $ | 46.70 | | | | | | | | | | | |
| Monthly utilization | 8.1 | % | | | | 7.4 | % | | | | | | | | | | |
(1) These metrics are key performance indicators that Management uses to evaluate our performance. Trends established in these metrics can be used to evaluate current operating results, identify trends affecting our business, determine the allocation of resources and understand the underlying drivers of costs and revenue for our business. We believe these metrics are useful to investors in evaluating and understanding our business but should not be used solely in assessing the Company’s performance. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein to fully evaluate and understand the business as a whole.
The non-emergency medical transportation (“NEMT”)Our NEMT segment which operates under the brands ModivCare Solutions and Circulation, is the largest manager of NEMT programs for state governments and MCOs in the U.S.
Service revenue, net. Service revenue, net, increased by $57.5$68.5 million, and 16.7%or 17.1%, during the three months ended March 31, 20222023 as compared to the three months ended March 31, 2021.2022. This increase is primarily attributable to a 7.4%15.3% increase in trip volume, a 4.7% increase in average monthly membership and higher rates per member as compared to the three months ended March 31, 2021.2022. Trip volume increased for the three months ended March 31, 20222023 when compared to 2021,2022, as trip volume was depressedhas continued to increase each year following the pandemic. The increase in the prior year due to the impact of COVID-19. Whileaverage monthly membership drove higher revenue because a majority of our contacts are capitated and we receive monthly payments on a per member/fixed basis in return for full or partial risk of transportation volumes,volumes. While this increase in membership under these capitated contracts can lead to additional revenue, we also have certain capitated contracts that limit profit to within a certain corridor and once we reach the maximum profit level within the contract, we discontinue recognizing revenue and instead buildaccrue a liability to return back torefund the customer upon reconciliation at a later date. OtherThe increase in trip volume also increases revenue for our contracts that are structured as fee-for-service also experienced positive impacts to revenue due toas higher trip volumes.volumes correlates to a larger number of services performed.
Service expense. Service expense components for the NEMT segment are shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2023 | | 2022 | | | | |
| | Amount | | % of Segment Revenue | | Amount | | % of Segment Revenue | | | | | | | | |
| Purchased services | $ | 344,420 | | | 73.4 | % | | $ | 277,947 | | | 69.3 | % | | | | | | | | |
| Payroll and related costs | 52,036 | | | 11.1 | % | | 44,960 | | | 11.2 | % | | | | | | | | |
| Other service expenses | 11,230 | | | 2.4 | % | | 9,189 | | | 2.3 | % | | | | | | | | |
| Total service expense | $ | 407,686 | | | 86.8 | % | | $ | 332,096 | | | 82.8 | % | | | | | | | | |
Service expense for our NEMT segment primarily consists of transportation costs paid to third party service providers, salaries of employees within our contact centers and operations centers, and occupancy costs. Service expense increased by $59.7$75.6 million, and 21.9%or 22.8%, for the three months ended March 31, 2022,2023, as compared to the three months ended March 31, 2021,2022, primarily related to higher purchased services of $54.7$66.5 million related to an increase in transportation costs and associated payroll costs in our contact centers due todriven by higher trip volume in the current year.
General and administrative expense. General and administrative expense primarily consists of salaries for administrative employees that indirectly support the operations of the NEMT segment, occupancy costs, marketing expenditures, insurance, and professional fees. General and administrative expense increaseddecreased by $9.3$3.5 million, and 33.4%or 9.3%, for the three months ended March 31, 2022,2023, as compared to the three months ended March 31, 2021,2022, primarily as a result of $6.9 million related to higher salary costslower administration expenses and $3.0 million related to software and hardware maintenance.lower legal expenses.
Depreciation and amortization expense. Depreciation and amortization expense decreased by $0.2$0.3 million, and 2.8%or 4.8%, for the three months ended March 31, 2022,2023, as compared to the three months ended March 31, 2021, as a2022, primarily the result of certain intangible assets being fully amortized during 2021.amortized.
Personal Care Segment
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, |
| 2022 | | 2021 |
| Amount | | % of Segment Revenue | | Amount | | % of Segment Revenue |
| Service revenue, net | $ | 159,698 | | | 100.0% | | $ | 110,194 | | | 100.0% |
| Grant income | 468 | | | 0.3% | | 2,648 | | | 2.4% |
| | | | | | | |
| Service expense | 122,232 | | | 76.5% | | 87,917 | | | 79.8% |
| General and administrative expense | 23,133 | | | 14.5% | | 15,029 | | | 13.6% |
| Depreciation and amortization | 12,505 | | | 7.8% | | 4,927 | | | 4.5% |
| Operating income | $ | 2,296 | | | 1.4% | | $ | 4,969 | | | 4.5% |
Our Personal Care segment was | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2023 | | 2022 | | | | |
| Amount | | % of Segment Revenue | | Amount | | % of Segment Revenue | | | | | | | | |
| Operating Results | | | | | | | | | | | | | | | |
| Service revenue, net | $ | 174,131 | | | 100.0% | | $ | 159,698 | | | 100.0% | | | | | | | | |
| Grant income | 1,464 | | | 0.8% | | 468 | | | 0.3% | | | | | | | | |
| | | | | | | | | | | | | | | |
| Service expense | 136,090 | | | 78.2% | | 122,232 | | | 76.5% | | | | | | | | |
| General and administrative expense | 22,663 | | | 13.0% | | 23,133 | | | 14.5% | | | | | | | | |
| Depreciation and amortization | 12,868 | | | 7.4% | | 12,505 | | | 7.8% | | | | | | | | |
| Operating income | $ | 3,974 | | | 2.3% | | $ | 2,296 | | | 1.4% | | | | | | | | |
| | | | | | | | | | | | | | | |
Business Metrics (1) | | | | | | | | | | | | | | | |
| Total hours | 6,824 | | | | | 6,535 | | | | | | | | | | | |
| Service revenue per hour | $ | 25.52 | | | | | $ | 24.44 | | | | | | | | | | | |
| Service expense per hour | $ | 19.94 | | | | | $ | 18.70 | | | | | | | | | | | |
(1) These metrics are key performance indicators that Management uses to evaluate our performance. Trends established in November 2020these metrics can be used to evaluate current operating results, identify trends affecting our business, determine the allocation of resources and understand the underlying drivers of costs and revenue for our business. We believe these metrics are useful to investors in evaluating and understanding our business but should not be used solely in assessing the Company’s performance. These key performance indicators should not be considered superior to, as a substitute
for or as an alternative to, and should be considered in conjunction with, the acquisition of SimpluraGAAP financial measures presented herein to fully evaluate and expanded in September 2021 withunderstand the acquisition of Care Finders. business as a whole.
Our Personal Care segment’s services include placements of non-medical personal care assistants and home health aides and nurses primarily to Medicaid patient populations in need of care monitoring and assistance performing daily living activities in the home setting, including senior citizens and disabled adults. The quarter over quarter fluctuations include incremental changes from the acquisition of Care Finders, as there was only Simplura activity in 2021 and both Simplura and Care Finders activity in 2022.
Service revenue, net. Personal care service contracts are generally structured as fee-for-service contracts, with revenue being driven by hours worked by theour personal care providers. Service revenue, net increased by $49.5$14.4 million, or 44.9% period over period,9.0%, for the three months ended March 31, 2023 as compared to March 31, 2022, primarily due to incremental revenue from the Care Finders acquisition of $44.4 million. The remainder of the increase in service revenue is attributable to Simplura, due to higher hours worked by personal care providers in Q1 20222023 as compared to Q1 2021.2022 as well as higher rates per member.
Grant Income. In the three months ended March 31, 2023 and 2022, the Company receivedrecognized income for distributions of the CARES Act Provider Relief Fund of approximately $0.5 millionPRF and the ARPA SLFRF targeted to offset lost revenueproviding economic relief and unreimbursed expenditures incurred in connection withstimulus to combat health and economic impacts of the COVID-19 pandemic compared to distributions of approximately $2.6$1.5 million during the three months ended March 31, 2021. This income is lower due to phasing out of CARES Act funding as the COVID-19 pandemic winds down.and $0.5 million, respectively.
Service expense. Service expense components for the Personal Care segment are shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2023 | | 2022 | | | | |
| | Amount | | % of Segment Revenue | | Amount | | % of Segment Revenue | | | | | | | | |
| | | | | | | | | | | | | | | |
| Payroll and related costs | $ | 134,393 | | | 77.2 | % | | $ | 120,198 | | | 75.3 | % | | | | | | | | |
| Other service expenses | 1,697 | | | 1.0 | % | | 2,034 | | | 1.3 | % | | | | | | | | |
| Total service expense | $ | 136,090 | | | 78.2 | % | | $ | 122,232 | | | 76.5 | % | | | | | | | | |
Service expense for our personal carePersonal Care segment primarily consists of salaries for theour employees providing thewho provide personal care services and it typically trends with the number of hours worked. Service expense for the three months ended March 31, 2023 increased by $34.3$13.9 million, and 39.0%or 11.3%, as compared to the three months ended March 31, 2022, primarily as a result of incremental expense of $31.9 million related to the Care Finders acquisition. The remainder of the increase is related to increased paywage rates for our caregivers, particularly in New York, as well as increased direct wages associated with the personal care providers for the legacy Simplura business.4.4% increase in hours of service during Q1 2023.
General and administrative expense. General and administrative expense primarily consists of salaries for administrative employees that indirectly support the operations of the Personal Care segment, occupancy costs, marketing expenditures, insurance, and professional fees. General and administrative expense increaseddecreased by $8.1 million and 53.9% primarily related to incremental costs from the acquisition of Care Finders of $8.6 million, offset by a decrease of $0.5 million, at Simplura dueor 2.0%, for the three months ended March 31, 2023 as compared to synergies obtained during the integration.three months ended March 31, 2022.
Depreciation and amortization expense. Depreciation and amortization expense increased by $7.6$0.4 million, and 153.8% from Q1 2021or 2.9%, for the three months ended March 31, 2023 as compared to Q1 2022. The increase in this expense is2022, primarily due to amortization expense on the intangible assets brought on under the Care Findersan asset acquisition of $4.0 million, as well as the additional amortization expense of $3.6 million related to the changecompleted in useful lives of Simplura intangible assets as discussed in Note 2, Q2 2022Significant Accounting Policies and Recent Accounting Pronouncements..
RPM Segment
| | | | | | | | | | | |
| March 31, |
| 2022 |
| Amount | | % of Segment Revenue |
| Service revenue, net | $ | 13,857 | | | 100.0% |
| | | |
| Service expense | 4,987 | | | 36.0% |
| General and administrative expense | 4,962 | | | 35.8% |
| Depreciation and amortization | 4,128 | | | 29.8% |
| Operating income | $ | (220) | | | (1.6)% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2023 | | 2022 | | | | |
| Amount | | % of Segment Revenue | | Amount | | % of Segment Revenue | | | | | | | | |
| Operating Results | | | | | | | | | | | | | | | |
| Service revenue, net | $ | 18,712 | | | 100.0 | % | | $ | 13,857 | | | 100.0 | % | | | | | | | | |
| | | | | | | | | | | | | | | |
| Service expense | 6,490 | | | 34.7 | % | | 4,987 | | | 36.0 | % | | | | | | | | |
| General and administrative expense | 5,769 | | | 30.8 | % | | 4,962 | | | 35.8 | % | | | | | | | | |
| Depreciation and amortization | 5,854 | | | 31.3 | % | | 4,128 | | | 29.8 | % | | | | | | | | |
| Operating income (loss) | $ | 599 | | | 3.2 | % | | $ | (220) | | | (1.6) | % | | | | | | | | |
| | | | | | | | | | | | | | | |
Business Metrics (1) | | | | | | | | | | | | | | | |
| Average monthly members | 235 | | | | | 169 | | | | | | | | | | | |
| Revenue per member per month | $ | 26.54 | | | | | $ | 27.33 | | | | | | | | | | | |
| Service expense per member per month | $ | 9.21 | | | | | $ | 9.84 | | | | | | | | | | | |
(1) These metrics are key performance indicators that Management uses to evaluate our performance. Trends established in these metrics can be used to evaluate current operating results, identify trends affecting our business, determine the allocation of resources and understand the underlying drivers of costs and revenue for our business. We believe these metrics are useful to investors in evaluating and understanding our business but should not be used solely in assessing the Company’s performance. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein to fully evaluate and understand the business as a whole.
Our Remote Patient Monitoring segment was established in September 2021 with the acquisition of VRI. VRI is a provider of remote patient monitoring solutions and manages a comprehensive suite of services, including personal emergency response systems, vitals monitoring and data-driven patient engagement solutions.
Service revenue, net. RPM contracts are generally structured as a fixed fee per enrolled member per month, and therefore revenue is generally driven by number of enrolled members. Service revenue, net, from MCO contracts accounted for 47.2% of service revenue, net,increased by $4.9 million, or 35.0%, for the three months ended March 31, 2022, while U.S. State Medicaid program contracts accounted for 34.1% of service revenue, net for2023 as compared to the three months ended March 31, 2022. The remainder2022, primarily related to incremental revenue of $4.7 million from the RPM segment revenue is derived from private pay and other contracts.GMM acquisition that occurred in May 2022.
Service expense. Service expense components for the RPM segment are shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | |
| | 2023 | | 2022 | | | | |
| | Amount | | % of Revenue | | Amount | | % of Revenue | | | | | | | | |
| | | | | | | | | | | | | | | |
| Payroll and related costs | $ | 3,216 | | | 17.2 | % | | $ | 2,349 | | | 17.0 | % | | | | | | | | |
| Other service expenses | 3,274 | | | 17.5 | % | | 2,638 | | | 19.0 | % | | | | | | | | |
| Total service expense | $ | 6,490 | | | 34.7 | % | | $ | 4,987 | | | 36.0 | % | | | | | | | | |
Service expense for our RPM segment primarily consists of salaries for the employees providing the remote monitoring services and it typically trends with the number of hours worked. Service expense for the three months ended March 31, 2023, increased $1.5 million, or 30.1%, as compared to the three months ended March 31, 2022, primarily as a result of an increase of $0.9 million in direct wages, of which the majority of the increase was related to the additional hours worked to service the 39.1% increase in average monthly members primarily attributable to the acquisition of GMM in May 2022.
General and administrative expense. General and administrative expense primarily consists of salaries for administrative employees that indirectly support the operations, occupancy costs, marketing expenditures, insurance, and professional fees. General and administrative expense increased by $0.8 million, or 16.3%, for the three months ended March 31, 2023 as compared to 2022.
Depreciation and amortization expense. Depreciation and amortization expense consistsincreased by $1.7 million, or 41.8%, for the three months ended March 31, 2023 as compared to March 31, 2022, primarily ofrelated to additional depreciation and amortization expense onof $1.2 million related to the intangible assets brought on duringacquired in May 2022 from the acquisition of GMM.
Corporate and Other Segment
(in thousands)
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2023 | | 2022 | | | | |
| Amount | | Amount | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| General and administrative expense | $ | 17,406 | | | $ | 11,380 | | | | | |
| Depreciation and amortization | 205 | | | 208 | | | | | |
| Operating income (loss) | $ | (17,611) | | | $ | (11,588) | | | | | |
Our Corporate and Other segment includes the Company's executive, accounting, finance, internal audit, tax, legal, public reporting, and corporate development functions. This segment also includes the results of our equity investment in Matrix.
Our Corporate and Other segment includes costs incurred related to strategy and stewardship of the other operating segments. These expenses are primarily general and administrative expenses, with a small amount related to depreciation. The general and administrative expense increased by $6.0 million for the three months ended March 31, 2023 as well as depreciation oncompared to March 31, 2022. This increase is primarily related to software implementation costs for ongoing system integration projects, including the fixed assets acquired.Personal Care and RPM general ledger and personnel management system integrations. This balance has also increased due to consulting costs and litigation costs related to executive turnover.
Seasonality
Our NEMT segment's operating income and cash flows normally fluctuate as a result of seasonal variations in our business, principally due to lower transportation demand during the winter season and higher demand during the summer season.
Our Personal Care segment’s operating income and cash flows also normally fluctuate as a result of seasonal variations in the business, principally due to somewhat lower demand for in-home services from caregivers during the summer and periods with major holidays, as patients may spend more time with family and less time alone needing outside care during those periods.
Our RPM segment’s operating income and cash flows do not normally fluctuate as a result of seasonal variations in the business.
Liquidity and capital resources
Short-term capital requirements consist primarily of recurring operating expenses, new revenue contract start-up costs on new revenue contracts and costs associated with our strategic initiatives. We expect to meet our cash requirements through available cash on hand, cash generated from operations, net of capital expenditures, and borrowing capacityoccasional borrowings under our senior secured credit facilities entered into from time to time.Credit Facility. For information regarding our long-term capital requirements, see below under the caption "Liquidity".
Cash flow fromused in operating activities during the three months ended March 31, 20222023 was $69.1$2.7 million. Our balance of cash and cash equivalents, including restricted cash, was $194.5$13.4 million and $133.4$15.0 million at March 31, 20222023 and December 31, 2021,2022, respectively. We had restricted cash of $0.4$0.5 million and $0.3$0.5 million at March 31, 20222023 and December 31, 2021,2022, respectively. Restricted cash amounts are not included in our balance of cash and cash equivalents in the unaudited condensed consolidated balance sheets, although they are included in the cash, cash equivalents and restricted cash balance on the accompanying unaudited condensed consolidated statements of cash flows.
We may, from time to time, access capital markets to raise equity or debt financing for various business reasons, including acquisitions, repurchases of our common stock, investments in our business and possible refinancing activity. The timing, term, size, and pricing of any such financing will depend on investor interest and market conditions, and there can be no assurance that we will be able to obtain any such financing on terms acceptable to us at the time or at all.
YTD 20222023 cash flows compared to YTD 20212022
Operating activities. Cash used in operating activities was $2.7 million for YTD 2023 compared to cash provided by operating activities was $69.1 million and $134.6of $71.5 million for YTD 2022 and YTD 2021, respectively.2022. The decrease of $65.5$74.1 million was primarily a result of a decrease in cash provided by changes in working capital of $56.3$71.2 million. The working capital changes were related to a decrease in the change in accrued contract payables of $37.1$41.1 million primarily related to repayments on previously accrued contract payable amounts combined with lower liability reserves on certain risk corridor, profit rebate and reconciliation contracts due to higher trip volumes during YTD 2023. Also contributing to the decrease in YTD 2022 andworking capital is a decrease in the change in accounts receivablepayable and other receivablesaccrued expenses balance of $28.8 million. These working capital decreases were partially offset by an increase in the change in accrued transportation costs of $12.7$52.1 million primarily related to higher trip volumetiming of vendor payments and unit cost in YTD 2022. The remaining decrease in cash flow provided by operating activities was a result of the decrease in net income of $18.5 million, primarily from higher operating expenses, offset by an increase in amortizationcash used for prepaid expenses and other of $10.0$9.0 million, duepartially offset by a decrease in the accounts receivable balance of $40.9 million, primarily related to the intangible assets broughtlower receivables recorded on under the Care Findersour reconciliation and VRI acquisitions in Q3 2021.corridor contracts as compared to YTD 2022.
Investing activities. Net cash used in investing activities of $8.6was $13.3 million in YTD 20222023, which increased by $3.2$4.7 million as compared to YTD 20212022, primarily as a result of purchases ofan increase in cash spent on property and equipment primarily related to leasehold improvements and property and equipment purchases by Care Finders and VRI which were acquired in Q3 2021.equipment.
Financing activities. Net cash provided by financing activities of $0.6was $14.4 million infor YTD 2022 increased by $13.5 million as2023, compared to net cash used in financing activities of $1.8 million for YTD 2022. The change of $16.2 million was primarily a result of proceeds from our short-term borrowing on our Credit Facility of $15.0 million during YTD 2021 of $12.9 million. The change was primarily due2023, compared to the Company not participating in a stock repurchase programno proceeds from debt during YTD 2022 as compared to YTD 2021 during which cash paid to repurchase common stock was $14.5 million. See Note 11, Earnings (Loss) Per Share, for further information on the stock buyback.2022.
Obligations and commitments
Senior Unsecured Notes. On November 4, 2020, the Company issued $500.0 million in aggregate principal amount of 5.875% senior unsecured notes due on November 15, 2025 (the “Senior Notes due 2025”). Subsequently, on August 24, 2021, the Company issued an additional $500.0 million in aggregate principal amount of 5.000% senior unsecured notes due on October 1, 2029 (the “Senior Notes due 2029”and, together with the Senior Notes due 2025, the “Notes”). TheFor information related to the Company's Senior Unsecured Notes, due 2025 and the Senior Notes due 2029 were issued pursuantrefer to two indentures, dated November 4, 2020 and August 24, 2021, respectively, between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. The proceeds from the Senior Notes due 2025 were used to fund a portionNote 8 of the Company’s acquisition of Simplura andNotes to the proceeds from the Senior Notes due 2029 were used to fund a portion of the Company’s acquisition of VRI.unaudited condensed consolidated financial statements included in Part I, Item 1, “Financial Statements”.
The Notes are senior unsecured obligations and rank senior in right of payment to all of the Company's future subordinated indebtedness, rank equally in right of payment with all of the Company's existing senior indebtedness, are effectively subordinated to any of the Company's existing and future secured indebtedness, including indebtedness under the
New Credit Facility, to the extent of the value of the assets securing such indebtedness, and are structurally subordinated to all of the existing and future liabilities (including trade payables) of each of the Company’s non-guarantor subsidiaries.
The Company will pay interest on the Notes at their applicable annual rates until maturity. Interest on the Senior Notes due 2025 is payable semi-annually in arrears on May 15 and November 15 of each year. Interest on the Senior Notes due 2029 is payable semi-annually in arrears on April 1 and October 1 of each year, with the first interest payment date being April 1, 2022. Principal payments are not required until the maturity date on November 15, 2025 and October 1, 2029 when 100% of the outstanding principal will be required to be repaid on the Senior Notes due 2025 and the Senior Notes due 2029, respectively.
New Credit Facility. On February 3, 2022, the Company entered into a new credit agreement (the “New Credit“Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, swing line lender and an issuing bank, Wells Fargo Bank, National Association, as an issuing bank, Truist Bank and Wells Fargo Bank, National Association, as co-syndication agents, Deutsche Bank AG New York Branch, Bank of America, N.A., Regions Bank, Bank of Montreal and Capital One, National Association, as co-documentation agents, and JPMorgan Chase Bank, N.A., Truist Securities, Inc. and Wells Fargo Securities, LLC, as joint bookrunners and joint lead arrangers, and the other lenders party thereto. The New Credit Agreement provides the Company with a senior secured revolving credit facility (the “New Credit“Credit Facility”) in an aggregate principal amount of $325.0 million. The New Credit Facility includes sublimits for swingline loans, letters of credit and alternative currency loans in amounts of up to $25.0 million, $60.0 million and $75.0 million, respectively. The Company did not draw any amountFor information related to the Company's Credit Facility, refer to Note 8 of the New Credit Facility at closing of the New Credit Agreement. At closing of the New Credit Agreement, the Company had $22.8 million of outstanding letters of credit under the New Credit Facility. The proceeds of the New Credit Facility may be used (i) to finance working capital needs of the Company and its subsidiaries and (ii) for general corporate purposes of the Company and its subsidiaries (including to finance capital expenditures, permitted acquisitions and investments). The New Credit Facility replaces the Credit Facility under the Credit Agreement, which was terminated concurrently with the Company's entry into the New Credit Agreement.
Under the New Credit Facility the Company has an option to request an increase in the amount of the New Credit Facility or obtain incremental term loans from time to time (on substantially the same terms as applyNotes to the existing facilities) by an aggregate amount of up to $175.0 million, plus an unlimited amount so long as the pro forma secured net leverage ratio does not exceed 3.50:1.00, with either additional commitments from lenders under the New Credit Agreement at such time or new commitments fromunaudited condensed consolidated financial institutions approved by the Company and the administrative agent (which approval is not to be unreasonably withheld), so long as, at the time of any such increase, no default or event of default exists, the representations and warranties of the Company set forthstatements included in the New Credit Agreement are true and correct in all material respects and the Company is in pro forma compliance with the financial covenants in the New Credit Agreement. The Company may not be able to access additional funds under this increase option as no lender is obligated to participate in any such increase under the New Credit Facility.
The New Credit Facility matures on February 3, 2027. The Company may prepay the New Credit Facility in whole or in part, at any time without premium or penalty, subject to reimbursement of the lenders’ breakage and redeployment costs in connection with prepayments of Term Benchmark loans or RFR loans, each as defined in the New Credit Agreement. The unutilized portion of the commitments under the New Credit Facility may be irrevocably reduced or terminated by the Company at any time without penalty.
Interest on the outstanding principal amount of the loans accrues at a per annum rate equal to the Alternate Base Rate, the Adjusted Term SOFR Rate, the Adjusted Daily Simple SOFR Rate, the Adjusted EURIBOR Rate or the Adjusted Daily Simple SONIA Rate, as applicable and each as defined in the New Credit Agreement, in each case, plus an applicable margin. The applicable margin ranges from 1.75% to 3.50% in the case of Term Benchmark loans or RFR loans, and 0.75% to 2.50% in the case of the Alternate Base Rate loans, in each case, based on the Company’s total net leverage ratio as defined in the New Credit Agreement. Interest on the loans is payable quarterly in arrears in the case of Alternate Base Rate loans, on the last day of the relevant interest period in the case of Term Benchmark loan, and monthly in arrears in the case of RFR loans. In addition, the Company is obligated to pay a quarterly commitment fee based on a percentage of the unused portion of the revolving credit facility and quarterly letter of credit fees based on a percentage of the maximum amount available to be drawn under each outstanding letter of credit. The commitment fee and letter of credit fee range from 0.30% to 0.50% and 1.75% to 3.50%, respectively, in each case, based on the Company’s total net leverage ratio.
The New Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default. The negative covenants include restrictions on the Company’s ability to, among other things, incur additional indebtedness, create liens, make investments, give guarantees, pay dividends, sell assets and merge and consolidate. The Company is subject to financial covenants, including total net leverage and interest coverage covenants.
The Company’s obligations under the New Credit Facility are guaranteed by all of the Company’s present and future material domestic subsidiaries, excluding certain material domestic subsidiaries that are excluded from being guarantors pursuant to the terms of the New Credit Agreement. The Company’s obligations under, and each guarantor’s obligations under its guaranty of, the New Credit Facility are secured by a first priority lien on substantially all of the Company’s or such guarantor’s respective assets. If an event of default occurs, the required lenders may cause the administrative agent to declare all unpaid principal and any accrued and unpaid interest and all fees and expenses under the New Credit Facility to be immediately due and payable. All amounts outstanding under the New Credit Facility will automatically become due and payable upon the commencement of any bankruptcy, insolvency or similar proceedings. The New Credit Agreement also contains a cross default to any of the Company’s indebtedness having a principal amount in excess of $40.0 million.
We were in compliance with all covenants under the credit agreement as of March 31, 2022.
Liquidity
Liquidity measures our ability to meet current and future cash flow needs on a timely basis and at a reasonable cost. We manage our liquidity position to meet our daily cash flow needs, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders. Our liquidity position is supported by management of liquid assets and liabilities and access to alternative sources of funds. Liquid assets include cash of $194.1$12.8 million and accounts receivable and other receivables of $280.9$299.0 million. Liquid liabilities which totaled $731.3$660.3 million at yearperiod end as detailed in the table below.below, included $67.2 million in guarantees and letters of credit that are not actually expected to be paid in cash in the next 12 months. Other sources of liquidity include amounts currently available under our New Credit Facility of $325.0 million.up to approximately $160 million as of March 31, 2023, based on our total net debt leverage ratio covenant of 5.00:1.00.
In the ordinary course of business we have entered into contractual obligations and have made other commitments to make future payments. Our short-term and long-term liquidity requirements are primarily to fund on-going operations. These liquidity requirements are met primarily through cash flow from operations, of $69.1 million, debt financing, and our New Credit Facility of $325.0 million.Facility. For
additional information regarding our operating, investing and financing cash flows, see “Condensed Consolidated Financial Statements— Condensed Consolidated Statements of Cash Flows,” included in Part I, Item I of this report.
The Company has cash requirements of $731.3$660.3 million due in one year or less in addition to $1,372.6$1,314.4 million due in more than one year as of March 31, 2022.2023. The following is a summary of our future cash requirements for the next twelve months and the period extending beyond twelve months as of March 31, 20222023 (in thousands):
| | | | | At March 31, 2022 | | | At March 31, 2023 |
| | | | | | Less than | | Greater than | | | | | Less than | | Greater than |
| | Total | | 1 Year | | 1 Year | | Total | | 1 Year | | 1 Year |
Senior Unsecured Notes (1) | Senior Unsecured Notes (1) | | $ | 1,000,000 | | | $ | — | | | $ | 1,000,000 | | Senior Unsecured Notes (1) | | $ | 1,000,000 | | | $ | — | | | $ | 1,000,000 | |
Interest (1) | | Interest (1) | | 238,712 | | | 54,375 | | | 184,337 | |
Contracts payable (2) | Contracts payable (2) | | 316,019 | | | 314,126 | | | 1,893 | | Contracts payable (2) | | 187,620 | | | 187,620 | | | — | |
Interest (1) | | 293,087 | | | 54,375 | | | 238,712 | | |
Transportation costs (3) | Transportation costs (3) | | 107,190 | | | 107,190 | | | — | | Transportation costs (3) | | 93,726 | | | 93,726 | | | — | |
Deferred tax liabilities (4) | Deferred tax liabilities (4) | | 88,025 | | | — | | | 88,025 | | Deferred tax liabilities (4) | | 53,612 | | | — | | | 53,612 | |
Operating leases (5) | Operating leases (5) | | 52,353 | | | 8,844 | | | 43,509 | | Operating leases (5) | | 51,058 | | | 11,686 | | | 39,372 | |
Guarantees (6) | Guarantees (6) | | 47,066 | | | 46,566 | | | 500 | | Guarantees (6) | | 34,392 | | | 34,392 | | | — | |
Letters of credit (6) | Letters of credit (6) | | 24,045 | | | 24,045 | | | — | | Letters of credit (6) | | 32,833 | | | 32,833 | | | — | |
Other current cash obligations (7) | | 176,122 | | | 176,122 | | | — | | |
Purchased service commitment (7) | | Purchased service commitment (7) | | 79,875 | | | 42,750 | | | 37,125 | |
Short-term borrowings (8) | | Short-term borrowings (8) | | 15,000 | | | 15,000 | | | — | |
Other current cash obligations (9) | | Other current cash obligations (9) | | 187,965 | | | 187,965 | | | — | |
| Total | Total | | $ | 2,103,907 | | | $ | 731,268 | | | $ | 1,372,639 | | Total | | $ | 1,974,793 | | | $ | 660,347 | | | $ | 1,314,446 | |
(1)See Note 98 of the Notes to the Condensed Consolidated Financial Statementsunaudited condensed consolidated financial statements included in Part I, Item 1, “Financial Statements” for further detail of our Senior Unsecured Notes and the timing of expected future payments. Interest payments are typically paid semi-annually in arrears and have been calculated at the rates fixed as of March 31, 2022.2023.
(2)See Note 54 of the Notes to the Condensed Consolidated Financial Statementsunaudited condensed consolidated financial statements included in Part I, Item 1, “Financial Statements” for further detail of our contracts payable.
(3)See Note 1 of the Notes to the Consolidated Financial Statementsconsolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of our Form 10-K for the year ended December 31, 20212022 filed on February 28, 2022March 7, 2023 for further detail of our accrued transportation cost.
(4)See Note 12Deferred income taxes reflect the net tax effects of temporary differences between the Notes tocarrying amounts of assets and liabilities for financial reporting purposes and the Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements”amounts used for further detail of our deferredincome tax liabilities.purposes.
(5)The operating leases are for office space. Certain leases contain periodic rent escalation adjustments and renewal options. See Note 1817 of the Notes to the Consolidated Financial Statementsconsolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of our Form 10-K for the year ended December 31, 20212022 filed on February 28, 2022March 7, 2023 for further detail of our operating leases.
(6)Letters of credit (“LOCs”) are guarantees of potential payments to third parties under certain conditions. Guarantees include surety bonds we provide to certain customers to protect against potential non-delivery of our non-emergency transportation services. Our LOCs shown in the table were provided by our Credit Facility and reduced our availability under the related Credit Agreement. The surety bonds and LOC amounts in the above table represent the amount of commitment expiration per period.
(7)The purchased service commitment includes the maximum penalty we would incur if we do not meet our minimum volume commitment over the remaining term of the agreement under certain contracts. See Note 19 of the Notes to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of our Form 10-K for the year ended December 31, 2022 filed on March 7, 2023 for further detail of our purchased service commitment.
(8)Short-term borrowings shown in the table were provided by our Credit Facility and reduced our availability under the related Credit Agreement. See Note 8 of the Notes to the unaudited condensed consolidated financial statements included in Part I, Item 1, “Financial Statements” for further detail of our Credit Facility.
(9)These include other current liabilities reflected in our unaudited condensed consolidated balance sheets as of March 31, 2022,2023, including accounts payable and accrued expenses as detailed at Note 87 to the Condensed Consolidated Financial Statementsunaudited condensed consolidated financial statements included in Part I, Item 1, “Financial Statements”.
Our primary sources of funding include operating cash flows and access to capital markets. There are statutory, regulatory, and debt covenant limitations that affect our ability to access the capital market for funds. Management believes that such limitations will not impact our ability to meet our ongoing short-term cash obligations. Management continuously monitors our liquidity position and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Our management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources, or operations. In addition, our management is not aware of any regulatory recommendations regarding liquidity, which if implemented, would have a material adverse effect on us.
Off-Balance Sheet Arrangements
There have been no material changes to the Off-Balance Sheet Arrangements discussion previously disclosed in our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We have exposure to interest rate risk mainly related to our Credit Facility, which has variable interest rates that may increase. We did not have any amountshad $15.0 million of short-term borrowings outstanding on ourthe Credit Facility and $32.8 million of outstanding letters of credit under the Credit Facility at March 31, 20222023. Interest rates on the outstanding principal amount of the Credit Facility vary, and accrue at a per annum rate equal to the Alternate Base Rate, the Adjusted Term SOFR Rate, the Adjusted Daily Simple SOFR Rate, the Adjusted EURIBOR Rate or the Adjusted Daily Simple SONIA Rate, as applicable and each as defined in the Credit Agreement, in each case, plus an applicable margin. We completed an interest rate risk sensitivity analysis with the assumption that the short-term borrowing amount that was outstanding as of March 31, 2023 was outstanding for the fiscal year with an assumed one-percentage point increase in interest rates. Based on this analysis, the one-percentage point increase would have an approximate $0.1 million negative impact on our pre-tax earnings.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures
The Company,Company's management, under the supervision and with the participation of its management (including its principal executive officer and principal financial officer),officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act as of March 31, 2022.2023. Based upon this evaluation, the Company’s principal executive officer and principal financial officers haveofficer has concluded that, to the extent of the material weaknesses identified in internal control over financial reporting as described in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, such disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and accumulated and communicated to the Company’s management, including its principal executive and financial officers,officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In light of the material weaknesses described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, management performed additional analysis and other procedures to ensure that our unaudited condensed consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP). Accordingly, management believes that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows as of and for the periods presented, in accordance with U.S. GAAP.
(b) Changes in internal control over financial reporting
The principal executive and financial officers also conducted an evaluationWe, with the oversight of whether any changesthe Audit Committee of the Board of Directors, are in the Company’sprocess of ongoing remediation efforts related to the material weaknesses previously reported in our Annual Report on Form 10-K for the year ended December 31, 2022.
During the three months ended March 31, 2023, our management continued updating certain internal controls and supporting processes to address the material weaknesses in our internal control over financial reporting occurred duringdescribed in our Annual Report on Form 10-K for the quarteryear ended March 31, 2022 that have materially affected or which are reasonably likely to materially affect such control. Such officers have concluded that no such changes have occurred, other than those efforts related to the remediation of the material weaknesses identified at December 31, 2021.
Management is in the process of documenting2022. The remediation plans and preliminary remediation dates. The preliminary plan put into place by management includes the hiring of a third party to lead the remediation efforts as well as additionalthe addition of resources within the organization to improve structure and help mitigate risks previously identified. Key focus areas have been identified as general information technology control (GITC) deficiencies, payroll controls, revenue process controls and risk assessment related controls.to changes and business acquisitions.
To that effect, the Company has:
•Implemented a new personnel management system in 2023 after sunsetting the legacy system in which a weakness was identified and are in the process of designing a new suite of internal controls with appropriate authorities around the payroll process.
•Enhanced our risk assessment process to identify and assess changes in our internal control environment, specifically related to new information technology ("IT") systems and newly acquired companies.
•Continued to design, enhance and implement GITCs, including change management and logical access controls, to support process-level automated controls intended to ensure that information needed for the operation of manual process-level controls and financial reporting is accurate and complete.
The company is focused on projects that address processes and technologies to integrate each of the business segments into One ModivCare and standardize our control environment. Management is confident that the steps being taken to implement an effective control environment will remediate the material weaknesses identified. The material weakness will not be considered remediated until the remediation plan has been implemented and there has been appropriate time for us to conclude through testing that the controls are designed and operating effectively. Management will continue to monitor the progress of these efforts to ensure timely remediation.
(c) Limitations on the effectiveness of controls
Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company conducts periodic evaluations of its internal controls to enhance, where necessary, its procedures and controls.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time-to-time, we may become involved in legal proceedings arising in the ordinary course of our business. We record accruals for outstanding legal matters when it is believed to be probable that a loss will be incurred and the amount can be reasonably estimated. Management, following consultation with legal counsel, does not expect the ultimate disposition of any or a combination of any such ongoing or anticipated matters to have a material adverse effect on our business, financial condition or operating results. We cannot predict with certainty, however, the potential for or outcome of any litigation. Regardless of the outcome of any particular litigation and the merits of any particular claim, litigation can have a material adverse impact on us due to, among other reasons, any injunctive relief granted which could inhibit our ability to operate our business, amounts paid as damages or in settlement of any such matter, diversion of management resources and defense costs. Interested parties should refer to Note 13,12, Commitments and Contingencies, in this report for information concerning other potential contingent liabilities matters that do not rise to the level of materiality for purposes of disclosure hereunder.
Item 1A. Risk Factors.
The risks described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20212022 (the “Annual Report”) could materially and adversely affect our business, financial condition, and results of operations, and could cause the trading price of our common stock to decline. The discussion of the risks included under that caption in our Annual Report remains current in all material respects, and there have been no material changes from the risk factors disclosed in the Annual Report. The risk factors that we have discussed do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The following table provides information with respect to purchases made by or on behalf of us or any “affiliated purchasers” (as defined in Rule 10b-18(a)(3) of the Exchange Act) of our common stock during the three months ended March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number
of Shares (or Units)
Purchased | | Average Price
Paid per
Share (or Unit) | | Total Number of
Shares (or Units) of Common Stock
Purchased as Part of
Publicly Announced
Plans or Program | | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (000’s)(1) |
| January 1, 2023 to January 31, 2023 | | — | | | — | | | — | | | $ | — | |
| | | | | | | | |
| February 1, 2023 to February 28, 2023 | | 4,896 | | (2) | $ | 107.66 | | | — | | | $ | — | |
| | | | | | | | |
| March 1, 2023 to March 31, 2023 | | 1,104 | | (2) | $ | 84.93 | | | — | | | $ | — | |
| | | | | | | | |
| Total | | 6,000 | | | | | — | | | $ | — | |
(1) No stock repurchase program was authorized during the period ended March 31, 2023.
(2) Redeemed shares of Common Stock issuable in respect of vested restricted stock tendered in lieu of cash for payment of income tax withholding amounts by participants in the Company’s 2006 Plan (as defined below). These shares were not part of a publicly announced program to purchase common stock.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
On May 1, 2023, the Company entered into a separation agreement and general release (the “Release”) with Mr. Grover Wray in connection with Mr. Wray’s separation of employment with the Company effective as of May 1, 2023, pursuant to which Mr. Wray received, in exchange for a full general release of claims in favor of the Company, the severance compensation described under the caption “Potential Payments Upon Termination or Change in Control” included in the Company’s definitive proxy statement filed with the Securities and Exchange Commission under cover of Schedule 14A on May 1, 2023, which information regarding Mr. Wray’s severance is incorporated herein by reference. The foregoing is a summary only of the more detailed information provided in the Release, a conformed copy of which is filed herewith as an exhibit and incorporated herein by reference. Interested parties are encouraged to read the Release in its entirety because it contains important information not included in this summary.
Item 6. Exhibits.
EXHIBIT INDEX | | | | | | | | |
Exhibit
Number | | Description |
| | |
| | |
| | |
| 10.1* | | |
| | |
| 10.2* | | |
| | |
| | |
| | |
| | |
| | |
| | |
| 31.1* | | |
| | |
| 31.2* | | |
| | |
| 32.1** | | |
| | |
| 32.2** | | |
| | |
10.1 | | |
| | |
10.2 | | |
| | |
| 101.INS* | | Inline XBR Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | |
| 101.SCH* | | Inline XBRL Schema Document |
| | |
| 101.CAL* | | Inline XBRL Calculation Linkbase Document |
| | |
| 101.LAB* | | Inline XBRL Label Linkbase Document |
| | |
| 101.PRE* | | Inline XBRL Presentation Linkbase Document |
| | |
| 101.DEF* | | Inline XBRL Definition Linkbase Document |
| | |
104104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| | | | | |
| * | Filed herewith. |
| ** | Furnished herewith. |
| |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| ModivCare Inc. |
| | |
Date: May 4, 20223, 2023 | By: | /s/ Daniel E. GreenleafL. Heath Sampson |
| | Daniel E. GreenleafL. Heath Sampson
Chief Executive Officer |
| | (Duly Authorized Officer) |
| | |
Date: May 4, 20223, 2023 | By: | /s/ L. Heath Sampson |
| | L. Heath Sampson
Chief Financial Officer |
| | (Principal Financial Officer) |