Modivcare Reports Second Quarter 2023 Financial Results and Adjusts 2023 Guidance

Modivcare Inc., (the “Company” or “Modivcare”) (Nasdaq: MODV), a technology-enabled healthcare services company that provides a platform of integrated supportive care solutions addressing the social determinants of health and improving health outcomes, today reported financial results for the three and six months ended June 30, 2023.

Second Quarter 2023 Highlights:

• Service revenue of $699.1 million, an 11.3% increase as compared to $628.2 million in the second quarter of 2022
• Net loss of $190.9 million or $13.47 per diluted common share, primarily attributable to goodwill impairment of $183.1 million
• Adjusted EBITDA⁽¹⁾ of $52.4 million, adjusted net income⁽¹⁾ of $20.8 million and adjusted EPS⁽¹⁾ of $1.47 per diluted common share
• Cash used in operating activities during the quarter of $108.2 million along with capex spend of $8.9 million
• Contract payables decreased by $78.5 million to $109.1 million and contract receivables increased by $17.4 million to $119.8 million, resulting in net contract receivables of $10.7 million as of June 30, 2023
• $126.5 million drawn on the $325.0 million revolving credit facility as of June 30, 2023
• Amended credit agreement’s maximum Total Net Leverage Ratio to provide improved access to liquidity

"Modivcare continues to transform into a more efficient tech-enabled platform with a differentiated offering in the health care services market. Revenue growth of 11% during the second quarter of 2023 was driven by strong growth across our Home and Mobility businesses,” stated L. Heath Sampson, President, and CEO. “Our Home division is benefiting from our centralization and standardization initiatives, which helped drive double-digit revenue and Adjusted EBITDA growth. We made significant progress on our move towards One Modivcare during the second quarter by accelerating the creation of a longitudinal member profile that will allow us to improve member experience, lower costs, and generate proactive outcome-based insights. Membership in our Mobility division increased 2% sequentially driven by expansions of existing contracts, with 5% Medicare Advantage growth and 1% Medicaid member growth, despite the initial impact of Medicaid redeterminations. However, in the near-term, increased utilization and related higher call volumes in NEMT, along with new contract win implementation delays, and contract attrition from prior years, prompted us to revise our 2023 full-year Adjusted EBITDA guidance to an updated range of $200 million to $210 million. Our cash flow was also negatively impacted during the second quarter of 2023 due to a $96 million decline in our contract payables, net of receivables. We expect positive cash flow in the second half of the year, as collections on our contract receivables align with or exceed declines on our contract payables. Despite the near-term challenges, we believe our business is well positioned to generate strong long-term performance as we continue to drive us towards our unique One Modivcare vision."

2023 Guidance

We updated our revenue and adjusted EBITDA guidance ranges as follows ($ in millions):

Guidance excludes the effects of any future merger or acquisition activity and is based on the current operating environment.

Second Quarter 2023 Results

For the second quarter of 2023, the Company reported revenue of $699.1 million, an increase of 11.3% from $628.2 million in the second quarter of 2022. The increase in revenue is primarily attributable to a 1.5% increase in membership and an 9.0% increase in revenue per member per month in our NEMT segment coupled with a 3.4% increase in hours worked and a 7.2% increase in rate per hour in our Personal Care segment.

Our operating loss was $175.8 million, or 25.1% of revenue, in the second quarter of 2023, compared to operating income of $23.1 million, or 3.7% of revenue, in the second quarter of 2022. Net loss in the second quarter of 2023 was $190.9 million, or $13.47 per diluted common share, compared to net income of $3.3 million, or $0.24 per diluted common share, in the second quarter of 2022. Both the operating loss and the net loss for the second quarter of 2023 are primarily attributable to the non-cash goodwill impairment of $183.1 million.

Adjusted EBITDA was $52.4 million, or 7.5% of revenue, in the second quarter of 2023, compared to $60.2 million, or 9.6% of revenue, in the second quarter of 2022. Our Adjusted EBITDA decreased primarily as a result of a $17.5 million decrease in the NEMT segment. This decrease was driven by increased service expense per trip and higher than expected trip volume, as well as contract losses that impacted NEMT's operating margin. Accordingly, adjusted net income in the second quarter of 2023 was $20.8 million, or $1.47 per diluted common share, compared to $28.1 million, or $1.99 per diluted common share, in the second quarter of 2022.

Cash used in operations during the quarter was $108.2 million as compared to $17.9 million during the second quarter of 2022. The primary use of cash during the quarter was a net $78.5 million reduction in contract payables, coupled with a $17.4 million increase in contract receivables, for a total use of cash of $95.9 million. As of the quarter end, we are in a net contract receivables position of $10.7 million.

During the second quarter, a goodwill impairment of $183.1 million was recognized, as the Company performed its annual goodwill impairment assessment and determined that based on its qualitative assessment for each reporting unit, factors existed which required the Company to perform a quantitative assessment to test its goodwill for impairment. These factors included a decline in the market price of the Company's common stock and general economic and market volatility.

Second Quarter Earnings Conference Call

Modivcare will hold a conference call to discuss its financial results on Friday, August 4, 2023 at 8:30 a.m. ET. To access the call, please dial:

US toll-free: 1 (877) 407-8037

International: 1 (201) 689-8037

You may also access the conference call via webcast at investors.modivcare.com, where the call will also be archived.

About Modivcare

Modivcare Inc. (Nasdaq: MODV) is a technology-enabled healthcare services company that provides a platform of integrated supportive care solutions for public and private payors and their patients. Our value-based solutions are intended to address the social determinants of health (SDoH), enable greater access to care, reduce costs, and improve outcomes. We are a leading provider of non-emergency medical transportation (NEMT), personal care and remote patient monitoring. To learn more about Modivcare, please visit www.modivcare.com.

Non-GAAP Financial Measures and Adjustments

In addition to the financial measures prepared in accordance with generally accepted accounting principles in the United States ("GAAP"), this press release includes (as applicable) EBITDA, Adjusted EBITDA and Adjusted G&A expense for the Company and its segments, Adjusted EBITDA margin for the Company's segments (other than its Corporate segment), and Adjusted Net Income and Adjusted EPS for the Company, all of which are performance measures that are not recognized under GAAP. EBITDA is defined as net income (loss) before: (1) interest expense, net, (2) provision (benefit) for income taxes, and (3) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA before (as applicable): (1) restructuring and related costs, (2) transaction and integration costs, (3) settlement related costs, (4) cash settled equity, (5) stock-based compensation, (6) impairment of goodwill, (7) COVID-19 related costs, net of grant income, and (8) equity in net (income) loss of investee, net of tax. Adjusted EBITDA margin is calculated as Adjusted EBITDA, divided by service revenue, net. Adjusted Net Income is calculated as net income (loss) before: (1) restructuring and related costs, (2) transaction and integration costs, (3) settlement related costs, (4) cash settled equity, (5) stock-based compensation, (6) impairment of goodwill, (7) equity in net (income) loss of investee, net of tax (8) intangible asset amortization expense, (9) COVID-19 related costs, net of grant income, and (10) the income tax impact of such adjustments. Adjusted EPS is calculated as Adjusted Net Income divided by the diluted weighted-average number of common shares outstanding as calculated for Adjusted Net Income. Adjusted G&A expense is calculated as G&A expense before (as applicable): (1) restructuring and related costs, (2) transaction and integration costs, (3) settlement related costs, (4) cash settled equity, and (5) stock-based compensation. Reconciliations of the non-GAAP financial measures to their most directly comparable GAAP financial measures are included below. We do not provide guidance for net income (loss) in this presentation on a basis consistent with GAAP or a reconciliation of forward-looking non-GAAP financial measures to their most directly comparable GAAP financial measures on a forward-looking basis because we are unable to predict items contained in the GAAP financial measures without unreasonable efforts. Our non-GAAP performance measures exclude expenses and amounts that are not driven by our core operating results and may be one time in nature. Excluding these expenses makes comparisons with prior periods as well as to other companies in our industry more meaningful. We believe such measures allow investors to gain a better understanding of the factors and trends affecting the ongoing operations of our business. We consider our core operations to be the ongoing activities to provide services from which we earn revenue, including direct operating costs and indirect costs to support these activities. As a result, our net income or loss in equity investee is excluded from these measures, as we do not have the ability to manage the venture, allocate resources within the venture, or directly control its operations or performance.

Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial measures differently. In addition, there are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies, and exclude expenses that may have a material impact on our reported financial results. The presentation of non-GAAP financial measures is not intended to be considered in isolation from or as a substitute for the most directly comparable financial measures prepared in accordance with GAAP. We urge you to review the reconciliations of our non-GAAP financial measures to the most directly comparable GAAP financial measures included below, and not to rely on any single financial measure to evaluate our business.

Forward-Looking Statements

Certain statements contained in this press release constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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. The updated guidance discussed herein constitutes 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, which may cause actual results to be materially different from those expressed or implied herein, including but not limited to: government or private insurance program funding reductions or limitations; implementation of alternative payment models or the transition of Medicaid and Medicare beneficiaries to Managed Care Organizations; our inability to control reimbursement rates received for our services; cost containment initiatives undertaken by private third-party payors and an inability to maintain or reduce our cost of services below rates set forth by our payors; the effects of a public health emergency; inadequacies in our information technology systems; changes in the funding, financial viability or our relationships with our payors; pandemics and other infectious diseases; disruptions to our contact center operations caused by health epidemics or pandemics; delays in collection of our accounts receivable; any impairment of our goodwill and long-lived assets; any failure to maintain or to develop reliable, efficient and secure information technology systems; any inability to attract and retain qualified employees; any disruptions from acquisition or acquisition integration efforts; estimated income taxes being different from income taxes that we ultimately pay; our contracts not surviving until the end of their stated terms, or not being renewed or extended; our failure to compete effectively in the marketplace; our not being awarded contracts through the government’s requests for proposals process, or our awarded contracts not being profitable; any failure to satisfy our contractual obligations or to maintain existing pledged performance and payment bonds; any failure to estimate accurately the cost of performing our contracts; any misclassification of the drivers we engage as independent contractors rather than as employees; significant interruptions in our communication and data services; not successfully executing on our strategies in the face of our competition; any inability to maintain relationships with existing patient referral sources; certificates of need laws or other regulatory and licensure obligations that may adversely affect our personal care integration efforts and expansion into new markets; any failure to obtain the consent of the New York Department of Health to manage the day to day operations of our licensed in-home personal care services agency business; changes in the case-mix of our personal care patients, or changes in payor mix or payment methodologies; our loss of existing favorable managed care contracts; our experiencing labor shortages in qualified employees and management; labor disputes or disruptions, in particular in New York; becoming subject to malpractice or other similar claims; our operating in the competitive remote patient monitoring industry, and failing to develop and enhance related technology applications; any failure to innovate and provide services that are useful to customers and to achieve and maintain market acceptance; our lack of sole decision-making authority with respect to our minority investment in Matrix and any failure by Matrix to achieve positive financial position and results of operations; the cost of our compliance with laws; changes to the regulatory landscape applicable to our businesses; changes in budgetary priorities of the government entities or private insurance programs that fund our services; regulations relating to privacy and security of patient and service user information; actions for false claims or recoupment of funds; civil penalties or loss of business for failing to comply with bribery, corruption and other regulations governing business with public organizations; changes to, or violations of, licensing regulations; our contracts being subject to audit and modification by the payors with whom we contract; a loss of Medicaid coverage by a significant number of Medicaid beneficiaries following the expiration of the COVID-19 public health emergency under the Families First Coronavirus Response Act (2020); our existing debt agreements containing restrictions that limit our flexibility in operating our business; our substantial indebtedness and lease obligations; any loss of available financing alternatives; our ability to incur substantial additional indebtedness; and the results of the remediation of our identified material weaknesses in internal control over financial reporting.

The Company has provided additional information about the risks facing our business in our annual report on Form 10-K and subsequent periodic and current reports most recently filed with the Securities and Exchange Commission that could impact future performance. 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 filings with the Securities and Exchange Commission, 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.