Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ModivCare Inc (MODV, Financial) reported second quarter results in line with expectations, with adjusted EBITDA of $45 million and revenue of $698 million.
- The company achieved $33 million in annual contract value wins in the second quarter, adding to the $36 million won in the first quarter.
- ModivCare Inc (MODV) realized $7 million in net cost savings in the second quarter, driven by strategic initiatives in the NEMT segment.
- The company successfully completed the refinancing of its $500 million 2025 senior secured notes with a new $525 million term loan B.
- ModivCare Inc (MODV) reaffirmed its 2024 revenue guidance of $2.7 billion to $2.9 billion, indicating confidence in its business outlook.
Negative Points
- The company reported a net loss of $129 million in the second quarter, largely due to a $105 million goodwill impairment in the RPM segment.
- Remote patient monitoring (RPM) revenue growth was lower year-over-year due to client membership churn, particularly within its largest Medicare Advantage clients.
- ModivCare Inc (MODV) lowered its adjusted EBITDA guidance to $185 million to $195 million, primarily due to lower than anticipated personal care services results.
- Free cash flow in the first half of 2024 was negative, driven by settlements on contracts, payables, and semiannual cash interest payments.
- The company faces ongoing challenges with Medicaid redeterminations, impacting revenue and adjusted EBITDA by approximately $60 million and $25 million to $30 million, respectively, in 2024.
Q & A Highlights
Q: How are you thinking about the path forward given the progress in NEMT and RPM, and the cash flow performance through the quarter?
A: L. Heath Sampson, President and CEO, explained that ModivCare has made significant progress across all segments, particularly in NEMT. The company is focused on ensuring each segment performs well, generating positive free cash flow, and evaluating all options to deleverage and drive shareholder value.
Q: Is there a leverage target you've set, and how are you evaluating the different business segments?
A: L. Heath Sampson stated that the target is 3 times leverage, which is a ways away from the current position. The evaluation process involves assessing the value of each business segment and their potential incremental value. The focus is on ensuring each business performs well and meets market demands.
Q: Can you elaborate on the free cash flow discussion for the back half of the year and the visibility to strong free cash flow?
A: Barbara Gutierrez, CFO, mentioned that the company has good visibility into collecting approximately $60 million in the third quarter due to successful repricing and contract settlements. This will contribute to improved free cash flow in the second half of the year, with an expected conversion rate of approximately 30% by year-end.
Q: Why is the churn rate high from your largest RPM customer, and is it due to pricing or service levels?
A: L. Heath Sampson explained that the churn is primarily due to one large MA client losing states and facing pressure on supplemental benefits. The company is managing through this challenge and expects to maintain competitive advantage in the RPM market.
Q: What are the key headwinds and tailwinds for 2025, and how confident are you in achieving EBITDA growth?
A: L. Heath Sampson highlighted that macro tailwinds include the shift towards home-based care and cost reduction pressures in healthcare. Internally, the company has completed significant transformation efforts, positioning it well for growth. Headwinds include reimbursement pressures, but ModivCare's scale and customer-centric approach are expected to drive solid growth in 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
