ModivCare Reports Third Quarter 2021 Financial Results

ModivCare Inc. (the “Company” or “ModivCare”) (Nasdaq: MODV), a technology-enabled healthcare services company that provides a suite of integrated supportive care solutions focused on improving patient outcomes, today reported financial results for the three and nine months ended September 30, 2021.

Third Quarter 2021 Highlights:

• Revenue of $493.1 million, a 53.8% increase as compared to $320.6 million in the third quarter of 2020
• Loss from continuing operations, net of tax, of $7.5 million or a loss of $0.53 per diluted common share
• Adjusted EBITDA of $44.3 million, Adjusted Net Income of $23.0 million and Adjusted EPS of $1.63
• Net cash provided by operating activities during the quarter of $174.7 million
• Cash and cash equivalents of $126.5 million at September 30, 2021, with $500.0 million debt outstanding related to the Senior Unsecured Notes due November 15, 2025 and an additional $500.0 million debt outstanding related to the Senior Unsecured Notes due October 1, 2029
• Matrix, on a standalone basis, had a net loss of $15.6 million and Adjusted EBITDA of $2.6 million

“We continue to make progress executing on our strategy to transform ModivCare into a one-of-a-kind, integrated supportive care company, with solutions focused on addressing the social determinants of health and enhancing the patient experience,” said Daniel E. Greenleaf, President and Chief Executive Officer of ModivCare. “In September, we closed on the acquisitions of VRI and CareFinders, adding two highly complementary businesses to our growing footprint. We are excited about our expanded ability to address patient needs holistically, fueled by our technology, while also driving meaningful shareholder value. We are encouraged by the favorable responses from our customers to our transformation. Lastly, I am extremely grateful for our ModivCare team members, transportation providers and caregivers, who continue to play an integral role in driving access to care and improved outcomes for the 30 million patients we serve.”

Heath Sampson, Chief Financial Officer added, “ModivCare reported a strong third quarter, and we deployed meaningful capital for the strategic and value-enhancing acquisitions of VRI and CareFinders. We were pleased with the successful issuance of $500 million of 5.00% Senior Notes due 2029, of which we used the net proceeds to finance the acquisition of VRI and for general corporate purposes. We ended the third quarter in a strong financial position with $126.5 million of cash and cash equivalents and an undrawn $225.0 million revolving credit facility.”

Third Quarter 2021 Results

For the third quarter of 2021, the Company reported revenue of $493.1 million, an increase of 53.8% from $320.6 million in the third quarter of 2020.

Operating income was $13.1 million, or 2.7% of revenue, in the third quarter of 2021, compared to operating income of $43.3 million, or 13.5% of revenue, in the third quarter of 2020. Loss from continuing operations, net of tax, in the third quarter of 2021 was $7.5 million, or a loss of $0.53 per diluted common share, compared to income from continuing operations, net of tax, of $38.9 million, or $2.51 per diluted common share, in the third quarter of 2020.

Adjusted EBITDA was $44.3 million, or 9.0% of revenue, in the third quarter of 2021, compared to $59.3 million, or 18.5% of revenue, in the third quarter of 2020.

Adjusted Net Income in the third quarter of 2021 was $23.0 million, or $1.63 per diluted common share, compared to $42.0 million, or $2.97 per diluted common share, in the third quarter of 2020.

Comparable Adjusted EBITDA and Adjusted Net Income for Q3 2020 were recast to show the impact of stock-based compensation and cash settled equity, which the Company is now including for the purpose of these calculations.

The quarter-over-quarter increase in revenue was primarily due to incremental revenue of $109.6 million associated with the acquisition of Simplura. Revenue further increased as a result of higher trip volume in our NEMT business, as the third quarter of the prior year was more heavily impacted by the COVID-19 pandemic.

Adjusted EBITDA decreased in the third quarter of 2021 as compared to the third quarter of 2020 due to higher service expense costs associated with higher utilization and contact center activity. Adjusted EBITDA also decreased as a result of higher corporate general and administrative cost as the Company continued to make investments in its employees and technology.

Matrix Medical Network

For the third quarter of 2021, Matrix’s revenue was $78.5 million, a decrease of 44.2% from $140.7 million in the third quarter of 2020. Matrix had an operating loss of $16.8 million for the third quarter of 2021, compared to an operating income of $35.5 million for the third quarter of 2020.

ModivCare recorded a loss of $6.7 million related to its Matrix equity investment compared to an income of $10.3 million for the third quarter of 2020.

For the third quarter of 2021, Matrix recorded Adjusted EBITDA of $2.6 million or 3.3% of revenue, compared to $54.3 million, or 38.6% of revenue, for the third quarter of 2020.

Matrix’s Clinical Solutions business line primarily contributed to the decrease in Adjusted EBITDA. The decrease was due to a significant reduction in COVID-related vaccination and testing revenue. Additionally, Clinical Solutions made significant investments in staffing in anticipation of new business wins within the decentralized clinical trials market. The Clinical Care business line was relatively flat to prior year Adjusted EBITDA, as higher operating costs offset continued double-digit growth in health assessment volumes.

As of September 30, 2021, Matrix had $244.3 million in net debt and ModivCare's ownership interest was 43.6%.

Conference Call

ModivCare will hold a conference call to discuss its financial results on Friday, November 5, 2021 at 8:00 a.m. ET. To access the call, please dial:

US toll-free: 1 (877) 423 9820

International: 1 (201) 493 6749

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

About ModivCare

ModivCare Inc. ("ModivCare") (Nasdaq: MODV) is a technology-enabled healthcare services company that provides a suite of integrated supportive care solutions for public and private payors and their patients. Our value-based solutions 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 and home care, remote patient monitoring and nutritional meal delivery. ModivCare also holds a minority equity interest in CCHN Group Holdings, Inc. and its subsidiaries ("Matrix Medical Network"), which partners with leading health plans and providers nationally, delivering a broad array of assessment and care management services to individuals that improve health outcomes and health plan financial performance. For more information, please visit us at 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 EBITDA and Adjusted EBITDA for the Company and its segments, as well as Adjusted Net Income and Adjusted EPS for the Company, which are performance measures that are not recognized under GAAP. EBITDA is defined as income (loss) from continuing operations, net of taxes, before: (1) interest expense, net, (2) provision (benefit) for income taxes and (3) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA before certain items, including (as applicable): (1) restructuring and related charges, including severance and office closure and professional services costs, (2) certain transaction and related costs, (3) cash settled equity, (4) stock-based compensation, (5) COVID-19 related costs, net of grant income, and (6) equity in net (income) loss of investee. Adjusted Net Income is defined as income from continuing operations, net of taxes, before certain items, including (1) restructuring and related charges including severance and office closure and professional services costs, (2) certain transaction and related costs, (3) cash settled equity, (4) stock-based compensation, (5) equity in net (income) loss of investee, (6) intangible amortization expense, (7) COVID-19 related costs, net of grant income, (8) tax impacts from the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), and (9) the income tax impact of such adjustments. Adjusted EPS is calculated as Adjusted Net Income less (as applicable): (1) dividends on convertible preferred stock and (2) income allocated to participating securities, divided by the diluted weighted-average number of common shares outstanding as calculated for Adjusted Net Income. Our non-GAAP performance measures exclude certain 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. In addition, 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. 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 events to be materially different from those expressed or implied herein, including but not limited to: government or private insurance program funding reductions or limitations; alternative payment models or the transition of Medicaid and Medicare beneficiaries to Managed Care Organizations, or MCOs; our inability to control reimbursement rates received for our services; cost containment initiatives undertaken by private third-party payors; the effects of a public health emergency; inadequacies in, or security breaches of, our information technology systems, including the systems intended to protect our clients’ privacy and confidential information; any changes in the funding, financial viability or our relationships with our payors; pandemic infectious diseases, including the COVID-19 pandemic; disruptions to our contact center operations caused by health epidemics or pandemics like COVID-19; delays in collection, or non-collection, of our accounts receivable, particularly during any business integration; an impairment of our long-lived assets; any failure to maintain or to develop further reliable, efficient and secure information technology systems; an inability to attract and retain qualified employees; any acquisition or acquisition integration efforts; 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; a 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; 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 that we acquired with our Personal Care Segment; acquired unknown liabilities in connection with the acquisition of our Personal Care Segment; 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 shortages in qualified employees and management; labor disputes or disruptions, in particular in New York; becoming subject to malpractice or other similar claims; and our reliance on our Matrix Investment segment's financial condition.

The Company has provided additional information about the risks facing our business in our annual report on Form 10-K and subsequent filings with the Securities and Exchange Commission. 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.

--financial tables to follow--

(1) Includes other receivables, prepaid expenses and other current assets, and short-term restricted cash.

(2) Includes assets or liabilities related to WD Services' former Saudi Arabian operation.

(3) Includes deferred revenue and self-funded insurance programs.

(4) Includes other long-term liabilities and deferred tax liabilities.

(1) Includes provision for doubtful accounts and amortization of deferred financing costs and debt discount.

(2) Includes accounts receivable and other receivables, prepaid expenses and other assets, self-funded insurance programs, income tax refunds on sale of business, accrued contract payables, accounts payable and accrued expenses, accrued transportation costs, deferred revenue and other long-term liabilities.

(1) Restructuring and related charges include professional services costs.

(2) Transaction costs include Circulation management incentive plan ("MIP") costs and certain transaction-related expenses.

(1) Restructuring and related charges include severance and office closure costs of $0.6 million and professional services costs of $0.4 million.

(2) Transaction costs include Circulation management incentive plan ("MIP") costs and certain transaction-related expenses.

(3) Adjusted EBITDA for Q3 of 2020 was recast to show the impact of stock-based compensation and cash settled equity, which the Company is now including for purposes of this calculation.

(1) Restructuring and related charges include professional services costs of $10.1 million and severance and office closure costs of $1.1 million.

(2) Transaction costs include Circulation management incentive plan ("MIP") costs and certain transaction-related expenses.

(1) Restructuring and related charges include severance and office closure costs of $1.7 million and professional services of $1.6 million.

(2) Transaction costs include Circulation MIP and certain transaction-related expenses.

(3) Adjusted EBITDA for the nine months ended September 30, 2020 was recast to show the impact of stock-based compensation and cash settled equity, which the Company is now including for purposes of this calculation.

(1) The results of our equity method investment are excluded from the calculation of ModivCare's Adjusted EBITDA and Adjusted Net Income.

(2) Net debt represents long-term debt including the current portion, excluding deferred financing costs, less cash.

(1) ModivCare accounts for its proportionate share of Matrix's results using the equity method. Matrix's Adjusted EBITDA is not included within ModivCare's Adjusted EBITDA in any period presented.