Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ModivCare Inc (MODV, Financial) reported third-quarter 2024 results in line with expectations, with adjusted EBITDA of $43 million and revenue of $702 million.
- The company successfully amended its credit agreement, providing temporary relief with debt covenants and is working towards a long-term solution.
- ModivCare Inc (MODV) has made significant progress in optimizing technology, automating processes, and reducing costs, particularly in the NEMT segment.
- The company collected $105 million in gross contract receivables during the quarter, including $42 million from retrospective prepayment resets.
- ModivCare Inc (MODV) anticipates a 10% increase in adjusted EBITDA for 2025, driven by membership growth, new contract wins, and cost savings.
Negative Points
- The company reported a net loss of approximately $27 million for the third quarter of 2024.
- Medicaid redeterminations impacted NEMT membership by approximately 220,000 members, affecting adjusted EBITDA by less than $1 million.
- ModivCare Inc (MODV) faces headwinds in the Medicare Advantage market, with anticipated contraction in 2025 due to changes in supplemental benefits.
- The transition to fee-for-service contracts may result in price compression, impacting margins.
- The company is still working through the runoff from current payables and receivables, with normalization expected by mid-2025.
Q & A Highlights
Q: Can you explain the rationale behind the shift to a fee-for-service model and its implications on margins? Will state plans agree to this shift, or is it limited to managed Medicaid?
A: Heath Sampson, President and CEO, explained that state Medicaid contracts will likely remain full risk, while the shift to fee-for-service is primarily in shared risk contracts. This change is supported by ModivCare to ensure timely payments and manage cost of capital. Although there is price compression, the efficiency gains and competitive advantages outweigh the downsides.
Q: How should we think about ModivCare's cash position and net accounts receivable versus accounts payable by mid-2025? Are there delays in new receivables due to contract amendments?
A: Heath Sampson noted that the company has clarity on the timing and amounts of receivables and payables, expecting normalization by mid-2025. The transition to fee-for-service will help stabilize cash flow, and while there were delays due to healthcare industry challenges, ModivCare is working through these with clients.
Q: Is there any interest in selling Matrix or other divisions, and what is the timing for such sales?
A: Heath Sampson stated that ModivCare is evaluating each business segment for potential monetization. The company is preparing for possible sales but will proceed when the timing and value are optimal. Matrix has made significant progress, and the timing of its sale will depend on market conditions and strategic alignment.
Q: With the shift to fee-for-service, how does ModivCare defend against managed care payers using rideshare apps directly for lower acuity patients?
A: Heath Sampson emphasized that managing the benefit is complex and requires a broker, especially for Medicaid. ModivCare's competitive advantage lies in its ability to manage diverse transportation needs and integrate with the healthcare ecosystem, ensuring appropriate service levels and cost management.
Q: Can you provide expectations for working capital and free cash flow over the next few quarters, and what should free cash flow conversion look like once the new structure is in place?
A: Heath Sampson indicated that free cash flow conversion should return to around 30% by the latter half of 2025, post-contract roll-off. The company aims to deleverage, which would improve cash conversion rates further, potentially reaching 50% with reduced debt levels.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
