Notes to the Unaudited Condensed Consolidated Financial Statements
June 30, 2021
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. Its value-based solutions address the social determinants of health, or SDoH, enable greater access to care, reduce costs, and improve outcomes. ModivCare is a provider of non-emergency medical transportation, or NEMT, and personal care. The technology-enabled operating model includes NEMT core competencies in risk underwriting, contact center management, network credentialing, claims management and non-emergency medical transport 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 is further expanding its offerings to include nutritional meal delivery and partners with communities throughout the country, providing food-insecure individuals delivery of nutritional meals.
ModivCare’s solutions help health plans manage risks, close care gaps, reduce costs, and connect members to care. Through the combination of its historical NEMT business with its in-home personal care business that was previously operated by Simplura Health Group, or Simplura, as described further below, ModivCare has united two complementary healthcare companies that serve similar, highly vulnerable patient populations.
On May 6, 2020, ModivCare entered into an Equity Purchase Agreement (the “Purchase Agreement”) with Specialty Benefits, LLC., a Delaware corporation (the “Seller”), National MedTrans, LLC, a New York limited liability company (“NMT”), and for limited purposes therein, United Healthcare Services, Inc., a Minnesota corporation. NMT provides non-emergency medical transportation services under contractual relationships. Pursuant to the terms of the Purchase Agreement, ModivCare acquired all of the outstanding capital stock of NMT.
On November 18, 2020, ModivCare acquired all of the outstanding equity of OEP AM, Inc., a Delaware corporation doing business as Simplura Health Group, which formed the foundation of our personal care business and Personal Care Segment operations.
On May 6, 2021, ModivCare completed the acquisition of WellRyde software from nuVizz, Inc., a technology provider of Advanced Transportation Management Systems (ATMS) software enabling routing, automated trip assignments and real-time network monitoring. See Note 3, Acquisitions, for further information.
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 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. Matrix’s Clinical Care provides risk adjustment solutions that improve health outcomes for individuals and financial performance for health plans. Matrix’s Clinical Solutions provides employee health and wellness services focused on improving employee health with worksite certification solutions that reinforce business resilience and safe return-to-work outcomes. Its Clinical Solutions offerings also provide clinical trial services which support the delivery of safe and effective clinical trial operations to patients and eligible volunteers.
Basis of Presentation
The Company follows accounting standards set 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 and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. 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 condensed consolidated financial statements.
The condensed consolidated balance sheet at December 31, 2020 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, 2020.
The Company accounts for its investment in Matrix using the equity method, as the Company does not control the decision-making process or business management practices of Matrix. 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 consolidated financial statements. See Note 7, Equity Investment, for further information.
Impact of the COVID-19 Pandemic
During 2020 and 2021, the COVID-19 pandemic impacted the Company’s business, as well as its patients, communities, and employees. The Company’s priorities during the COVID-19 pandemic remain protecting the health and safety of its employees, maximizing the availability of its services and products to support the SDoH, and 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 Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which was signed into law on March 27, 2020. 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").
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.
Grant Income
In the six months ended June 30, 2021, the Company received distributions from the CARES Act PRF of approximately $3.5 million 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 condensed consolidated statements of operations. HHS guidance related to PRF grant funds is still evolving and subject to change. The Company is continuing to monitor the reporting requirements as they evolve.
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 $20.8 million related to the deferral of employer payroll taxes as of June 30, 2021 under the CARES Act. Of this amount, approximately 50% is due in December of 2021 and 50% is due in December of 2022; therefore, $10.4 million is recorded in accrued expenses, and $10.4 million is recorded in other long-term liabilities.
Recent Accounting Pronouncements
The Company adopted the following accounting pronouncements during the six months ended June 30, 2021:
In January 2020, the FASB issued ASU 2020-01, Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 ("ASU 2020-01"), to clarify the interaction among the accounting standards for equity securities, equity method investments and certain derivatives. ASU 2020-01 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. There was no material impact to the financial statements from the adoption of this ASU.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The ASU removes certain exceptions to the general principles in ASC 740, Income Taxes, and also clarifies and amends existing guidance to reduce complexity in accounting for income taxes. The ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year, with early adoption permitted. 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 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. The Company is currently evaluating the impact ASU 2020-04 will have on its consolidated financial statements or disclosures; however, does not expect the adoption to have a material impact.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) ("ASU 2020-06") which addresses the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The update limits the accounting models for convertible instruments resulting in fewer embedded conversion features being separately recognized from the host contract. Specifically, ASU 2020-06 removes from GAAP the separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature. As a result, after adopting the ASU’s guidance, entities will not separately present an embedded conversion feature in such debt within equity. ASU 2020-06 is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods therein. The Company is currently evaluating the impact ASU 2020-06 will have on its consolidated financial statements or disclosures; however, does not expect the adoption to have a material impact.
3. Acquisitions
WellRyde
On May 6, 2021, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with nuVizz, Inc., a Georgia corporation, to purchase the software WellRyde. Pursuant to the Purchase Agreement, the Company purchased
the WellRyde software developed by nuVizz for total consideration of $12.0 million in cash, subject to certain adjustments, as provided in the Purchase Agreement. The acquired assets are recorded in other assets on the balance sheet and the Company intends to finalize the purchase accounting for this transaction in the third quarter of 2021.
Simplura Health Group
On November 18, 2020, the Company completed its acquisition of Simplura. Simplura was a nonpublic entity that specializes in personal care services offering placements of personal care assistants, home health aides, and skilled nurses for senior citizens, disabled adults and other high-needs patients. Simplura operates from its headquarters in Valley Stream, New York, with approximately 57 branches across seven states, including in several of the nation’s largest personal care markets. The acquisition of Simplura adds a business segment in personal care—a large, rapidly growing sector of healthcare that complements the NEMT segment.
The stock transaction was accounted for in accordance with ASC 805, Business Combinations in which a wholly-owned subsidiary of ModivCare Inc. acquired 100 percent of the voting stock of Simplura for $548.6 million (a preliminary purchase price of $569.8 million less $21.2 million of cash that was acquired).
The following is a preliminary estimate, as a result of certain 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 November 17, 2020 (in thousands):
|
|
|
|
|
|
|
|
Cash
|
$
|
21,182
|
|
|
Accounts receivable (1)
|
69,882
|
|
|
Prepaid expenses and other (2)
|
9,089
|
|
|
Property and equipment (3)
|
1,640
|
|
|
Intangible assets (4)
|
264,770
|
|
|
Operating right of use asset (5)
|
9,447
|
|
|
Goodwill (6)
|
313,254
|
|
|
Other assets (7)
|
4,505
|
|
|
Accounts payable and accrued liabilities (8)
|
(46,043)
|
|
|
Accrued expense (8)
|
(2,564)
|
|
|
Deferred revenue (8)
|
(2,871)
|
|
|
Deferred acquisition payments (9)
|
(4,046)
|
|
|
Deferred acquisition note payable (8)
|
(1,050)
|
|
|
Operating lease liabilities (5)
|
(9,493)
|
|
|
Deferred tax liabilities (10)
|
(57,883)
|
|
|
Total of assets acquired and liabilities assumed
|
$
|
569,819
|
|
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 2021.
(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 carrying value represents the fair value.
(3) The acquired property and equipment consists primarily of leasehold improvements, furniture and fixtures, and vehicles. The fair value of the property and equipment was determined based upon the best and highest use of the property with final values determined using cost and comparable sales methods.
(4) The allocation of consideration exchanged to intangible assets acquired is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
Useful Life
|
Value
|
|
Payor network
|
Amortizable
|
15 years
|
$
|
221,000
|
|
|
Trademarks and trade names
|
Amortizable
|
10 years
|
43,000
|
|
|
Licenses
|
Not Amortizable
|
Indefinite
|
770
|
|
|
|
|
|
$
|
264,770
|
|
The Company valued trademarks and trade names utilizing the relief of royalty method and payor network utilizing the multi-period excess earnings method, a form of the income approach.
(5) The fair value of the operating lease liability and corresponding right-of-use asset (current and long-term) was recorded at $11.7 million based on market rates available to the Company during our preliminary purchase price allocation. This assessment has since been updated through the implementation of ASC 842 at the Personal Care segment as of June 30, 2021, and the related balances have been updated to $9.5 million and $9.4 million, respectively. This assessment remains preliminary as of the date of our filing and will be finalized with final purchase accounting in the third quarter of 2021.
(6) The acquisition preliminarily resulted in $309.7 million of goodwill as a result of expected synergies due to value-based care and solutions being provided to similar patient populations that partner with many of the same payor groups. In the second quarter of 2021 a closing cash adjustment of $3.5 million was paid to OEP AM, which, along with other immaterial adjustments, increased the goodwill related to this transaction to $313.3 million. Purchase accounting will be finalized in the third quarter of 2021. None of the acquired goodwill is deductible for tax purposes.
(7) Included in Other assets are indemnification guarantees with a value of $3.9 million, obtained in conjunction with the acquisition of Simplura to cover certain acquired liabilities totaling approximately $3.9 million.
(8) Accounts payable as well as certain other current and non-current assets and liabilities are stated at fair value as of the acquisition date.
(9) Deferred acquisition payments are associated with historical acquisitions by Simplura. Of this balance, $0.1 million has been released through the second quarter of 2021.
(10) Net deferred tax liabilities represented the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases. See Note 13, Income Taxes, for additional discussion of the Company’s combined income tax position subsequent to the acquisition.
Assuming Simplura had been acquired as of January 1, 2020, and the results of Simplura had been included in operations beginning on January 1, 2020, the following tables provide estimated unaudited pro forma results of operations for the three and six months ended June 30, 2021 and 2020 (in thousands, except earnings per share). The estimated pro forma net income adjusts for the effect of fair value adjustments related to the acquisition, transaction costs and other non-recurring costs directly attributable to the transaction and the impact of the additional debt to finance the acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
2021
|
2020
|
|
2021
|
2020
|
|
|
Actual
|
Proforma
|
|
Actual
|
Proforma
|
|
Revenue
|
$
|
474,448
|
|
$
|
395,245
|
|
|
$
|
928,058
|
|
$
|
881,946
|
|
|
Income (loss) from continuing operations, net
|
13,757
|
|
(10,659)
|
|
|
32,637
|
|
11,788
|
|
|
Diluted earnings (loss) per share
|
$
|
0.97
|
|
$
|
(0.82)
|
|
|
$
|
2.28
|
|
$
|
0.90
|
|
Estimated unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the date indicated or the future operating results. The supplemental proforma earnings were adjusted to exclude the impact of Simplura's historical interest expense of $6.9 million and $13.9 million for the three and six months ended June 30, 2020.
NMT
On May 6, 2020, ModivCare Solutions, LLC, entered into an equity purchase agreement with the Seller and NMT, acquiring all of the outstanding capital stock. NMT was acquired for total consideration of $80.0 million less certain adjustments, in an all cash transaction.
The transaction was accounted for as an asset acquisition in accordance with ASC 805, Business Combinations. The Company incurred transaction costs for the acquisition of $0.8 million during the year ended December 31, 2020. These costs were capitalized as a component of the purchase price.
The consideration paid for the acquisition is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
Consideration paid
|
|
$
|
80,000
|
|
|
Transaction costs
|
|
774
|
|
|
Restricted cash received
|
|
(3,109)
|
|
|
Net consideration
|
|
$
|
77,665
|
|
Restricted cash acquired was related to a security reserve for a contract and is presented in other current assets in our condensed consolidated balance sheet as of June 30, 2021. No liabilities were assumed.
The fair value allocation of the net consideration is as follows (in thousands, except useful lives):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
Useful Life
|
Value
|
|
Payor relationships
|
Amortizable
|
6 years
|
$
|
75,514
|
|
|
Trade names and trademarks
|
Amortizable
|
3 years
|
2,151
|
|
|
|
|
|
$
|
77,665
|
|
4. Segments
On November 18, 2020, the Company acquired Simplura, which operates as a personal care service provider. As a result, at June 30, 2021, the Company’s chief operating decision maker reviews financial performance and allocates resources based on three segments as follows:
•NEMT - which operates primarily under the brands ModivCare Solutions, LLC, and Circulation, is the largest manager of NEMT programs for state governments and managed care organizations ("MCOs") in the U.S and includes the Company’s activities for executive, accounting, finance, internal audit, tax, legal, certain strategic and development functions and the Company’s insurance captive.
•Personal Care - which consists of Simplura, and provides personal care to Medicaid patient populations, including seniors and disabled adults, in need of care monitoring and assistance performing activities of daily living.
•Matrix Investment - which consists of a minority investment in Matrix, provides a broad array of assessment and care management services that improve health outcomes for individuals and financial performance for health plans. Matrix’s national network of community-based clinicians delivers in-home services while its fleet of mobile health clinics provides community-based care with advance diagnostic capabilities.
The following tables set forth certain financial information from continuing operations attributable to the Company’s business segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2021
|
|
|
NEMT
|
|
Personal Care
|
|
Matrix Investment
|
|
Total
|
|
Service revenue, net
|
$
|
364,760
|
|
|
$
|
109,688
|
|
|
$
|
—
|
|
|
$
|
474,448
|
|
|
Grant income (1)
|
—
|
|
|
852
|
|
|
—
|
|
|
852
|
|
|
|
|
|
|
|
|
|
|
|
Service expense
|
292,657
|
|
|
86,909
|
|
|
—
|
|
|
379,566
|
|
|
General and administrative expense (2)
|
41,621
|
|
|
14,726
|
|
|
—
|
|
|
56,347
|
|
|
Depreciation and amortization
|
6,935
|
|
|
4,884
|
|
|
—
|
|
|
11,819
|
|
|
Operating income
|
$
|
23,547
|
|
|
$
|
4,021
|
|
|
$
|
—
|
|
|
$
|
27,568
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net income (loss) of investee
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(267)
|
|
|
$
|
(267)
|
|
|
Equity investment
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
141,163
|
|
|
$
|
141,163
|
|
|
Goodwill
|
$
|
135,216
|
|
|
$
|
313,544
|
|
|
$
|
—
|
|
|
$
|
448,760
|
|
|
Total assets (continuing operations)
|
$
|
727,077
|
|
|
$
|
707,958
|
|
|
$
|
141,163
|
|
|
$
|
1,576,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2021
|
|
|
NEMT
|
|
Personal Care
|
|
Matrix Investment
|
|
Total
|
|
Service revenue, net
|
$
|
708,176
|
|
|
$
|
219,882
|
|
|
$
|
—
|
|
|
$
|
928,058
|
|
|
Grant income (1)
|
—
|
|
|
3,500
|
|
|
—
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
Service expense
|
565,072
|
|
|
174,826
|
|
|
—
|
|
|
739,898
|
|
|
General and administrative expense (2)
|
81,587
|
|
|
29,630
|
|
|
—
|
|
|
111,217
|
|
|
Depreciation and amortization
|
14,248
|
|
|
9,811
|
|
|
—
|
|
|
24,059
|
|
|
Operating income
|
$
|
47,269
|
|
|
$
|
9,115
|
|
|
$
|
—
|
|
|
$
|
56,384
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net income (loss) of investee
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(4,770)
|
|
|
$
|
(4,770)
|
|
|
Equity investment
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
141,163
|
|
|
$
|
141,163
|
|
|
Goodwill
|
$
|
135,216
|
|
|
$
|
313,544
|
|
|
$
|
—
|
|
|
$
|
448,760
|
|
|
Total assets (continuing operations)
|
$
|
727,077
|
|
|
$
|
707,958
|
|
|
$
|
141,163
|
|
|
$
|
1,576,198
|
|
(1) Grant income for the Personal Care segment includes $3.5 million of provider relief funds received under the CARES Act. These funds are intended to support healthcare providers by reimbursing them for expenses incurred, or revenue lost, as a result of the COVID-19 pandemic. See Note 2, Significant Accounting Policies and Recent Accounting Pronouncements.
(2) General and administrative expense for the NEMT segment includes $2.0 million of costs related to the development of the nutritional meal delivery business offering. As this line of business has not yet commenced, and there is no discrete financial information available related to it, it is not considered a separate reportable segment at this time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2020
|
|
|
NEMT
|
|
|
Matrix Investment
|
|
Total
|
|
Service revenue, net
|
$
|
282,256
|
|
|
|
$
|
—
|
|
|
$
|
282,256
|
|
|
|
|
|
|
|
|
|
|
Service expense
|
196,106
|
|
|
|
—
|
|
|
196,106
|
|
|
General and administrative expense
|
31,199
|
|
|
|
—
|
|
|
31,199
|
|
|
Depreciation and amortization
|
6,108
|
|
|
|
—
|
|
|
6,108
|
|
|
Operating income
|
$
|
48,843
|
|
|
|
$
|
—
|
|
|
$
|
48,843
|
|
|
|
|
|
|
|
|
|
|
Equity in net income of investee
|
$
|
—
|
|
|
|
$
|
4,425
|
|
|
$
|
4,425
|
|
|
Equity investment
|
$
|
—
|
|
|
|
$
|
131,974
|
|
|
$
|
131,974
|
|
|
Goodwill
|
$
|
135,216
|
|
|
|
$
|
—
|
|
|
$
|
135,216
|
|
|
Total assets (continuing operations)
|
$
|
522,271
|
|
|
|
$
|
131,974
|
|
|
$
|
654,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2020
|
|
|
NEMT
|
|
|
Matrix Investment
|
|
Total
|
|
Service revenue, net
|
$
|
649,547
|
|
|
|
$
|
—
|
|
|
$
|
649,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service expense
|
528,767
|
|
|
|
—
|
|
|
528,767
|
|
|
General and administrative expense
|
51,994
|
|
|
|
—
|
|
|
51,994
|
|
|
Depreciation and amortization
|
9,898
|
|
|
|
—
|
|
|
9,898
|
|
|
Operating income
|
$
|
58,888
|
|
|
|
$
|
—
|
|
|
$
|
58,888
|
|
|
|
|
|
|
|
|
|
|
Equity in net income of investee
|
$
|
—
|
|
|
|
$
|
1,875
|
|
|
$
|
1,875
|
|
|
Equity investment
|
$
|
—
|
|
|
|
$
|
131,974
|
|
|
$
|
131,974
|
|
|
Goodwill
|
$
|
135,216
|
|
|
|
$
|
—
|
|
|
$
|
135,216
|
|
|
Total assets (continuing operations)
|
$
|
522,271
|
|
|
|
$
|
131,974
|
|
|
$
|
654,245
|
|
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 and recognizes revenue over time instead of at points in time.
Capitation structure
Under capitated contracts, payors pay a fixed amount per eligible member. 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’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 trip volume and may result in refunds to the customer, or additional payments due from the customer. 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 is reduced through future increases in trip volume and periodic settlements with the customer. 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.
Capitation rates are generally based on expected costs and volume of services. Because Medicare pays capitation using a “risk adjustment model,” which compensates providers based on the health status (acuity) of each individual enrollee, providers with higher acuity enrollees receive more, and those with lower acuity enrollees receive less of the capitation that can be allocated to service providers. Under the risk adjustment model, capitation is paid on an interim basis based on enrollee data submitted for the preceding year and is adjusted in subsequent periods after the final data is compiled.
Fee-for-service structure
Fee-for-service ("FFS") revenue represents revenue earned under 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.
Customer Information
Of the NEMT segment’s revenue, 9.2% and 10.4% were derived from one U.S. state Medicaid program for the six months ended June 30, 2021, and 2020, respectively. Of the Personal Care segment's revenue, 28.2% was derived from one U.S. state Medicaid program for the six months ended June 30, 2021. In addition, substantially all of the Company’s revenues are generated from domestic governmental agencies or entities that contract with governmental agencies.
Disaggregation of Revenue
The following table summarizes disaggregated revenue from contracts with customers by contract type (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2021
|
|
Three months ended June 30, 2020
|
|
State Medicaid agency and Medicare contracts
|
$
|
207,432
|
|
|
$
|
151,545
|
|
|
Managed care organization contracts
|
267,016
|
|
|
130,711
|
|
|
|
|
|
|
|
Total Service revenue, net
|
$
|
474,448
|
|
|
$
|
282,256
|
|
|
|
|
|
|
|
Capitated contracts
|
$
|
312,078
|
|
|
$
|
253,858
|
|
|
Non-capitated contracts
|
162,370
|
|
|
28,398
|
|
|
|
|
|
|
|
Total Service revenue, net
|
$
|
474,448
|
|
|
$
|
282,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2021
|
|
Six months ended June 30, 2020
|
|
State Medicaid agency and Medicare contracts
|
$
|
410,752
|
|
|
$
|
332,276
|
|
|
Managed care organization contracts
|
517,306
|
|
|
317,271
|
|
|
|
|
|
|
|
Total Service revenue, net
|
$
|
928,058
|
|
|
$
|
649,547
|
|
|
|
|
|
|
|
Capitated contracts
|
$
|
608,312
|
|
|
$
|
554,582
|
|
|
Non-capitated contracts
|
319,746
|
|
|
94,965
|
|
|
|
|
|
|
|
Total Service revenue, net
|
$
|
928,058
|
|
|
$
|
649,547
|
|
The table above includes $109.7 million and $219.9 million of non-capitated revenue for the three and six months ended June 30, 2021 related to the Personal Care Segment through the acquisition of Simplura.
During the three months ended June 30, 2021 and 2020, the Company recognized a $0.4 million increase to and a $3.6 million reduction of service revenue respectively, from contractual adjustments relating to performance obligations satisfied in previous periods to which the customer agreed. During the six months ended June 30, 2021 and 2020, the Company recognized a $5.3 million increase to and a $3.5 million reduction of service revenue, respectively, from contractual adjustments relating to performance obligations satisfied in previous periods to which the customer agreed.
Related Balance Sheet Accounts
The following table provides information about accounts receivable, net (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Accounts receivable
|
$
|
206,494
|
|
|
$
|
164,622
|
|
|
Reconciliation contracts receivable (1)
|
21,006
|
|
|
35,724
|
|
|
Allowance for doubtful accounts
|
(527)
|
|
|
(2,403)
|
|
|
Accounts receivable, net
|
$
|
226,973
|
|
|
$
|
197,943
|
|
(1) Reconciliation contracts receivable, primarily represent underpayments and receivables on certain contracts with reconciliation and risk corridor provisions.
The following table provides information about other accounts included on the accompanying condensed consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Accrued contract payables (1)
|
$
|
296,717
|
|
|
$
|
101,705
|
|
|
Long-term contract payables (2)
|
$
|
2,292
|
|
|
$
|
72,183
|
|
|
Deferred revenue, current
|
$
|
2,370
|
|
|
$
|
2,923
|
|
|
Deferred revenue, long-term, included in “other long-term liabilities”
|
$
|
453
|
|
|
$
|
566
|
|
(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.
(2) Long-term contract payables primarily represent liability reserves on certain risk corridor, profit rebate and reconciliation contracts due to lower activity as a result of COVID-19 that may be repaid in greater than 12 months.
6. Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
2021
|
|
2020
|
|
Cash and cash equivalents
|
$
|
290,909
|
|
|
$
|
41,786
|
|
|
Restricted cash, current
|
19
|
|
|
3,213
|
|
|
Current assets of discontinued operations
|
—
|
|
|
89
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash
|
$
|
290,928
|
|
|
$
|
45,088
|
|
Restricted cash primarily relates to amounts held in trusts for reinsurance claims losses under the Company’s insurance operation for historical workers’ compensation, general and professional liability and auto liability reinsurance programs, as well as amounts restricted for withdrawal under our self-insured medical and benefits plans.
7. Equity Investment
As of June 30, 2021 and December 31, 2020, 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 this 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 loss (income) of investee” in the accompanying consolidated statements of operations.
The carrying amount of the assets included in the Company’s condensed consolidated balance sheets and the maximum loss exposure related to the Company’s interest in Matrix as of June 30, 2021 and December 31, 2020 totaled $141.2 million and $137.5 million, respectively.
Summary financial information for Matrix on a standalone basis is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Current assets
|
$
|
143,054
|
|
|
$
|
143,110
|
|
|
Long-term assets
|
$
|
605,262
|
|
|
$
|
619,642
|
|
|
Current liabilities
|
$
|
65,564
|
|
|
$
|
81,920
|
|
|
Long-term liabilities
|
$
|
343,572
|
|
|
$
|
351,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2021
|
|
Three months ended June 30, 2020
|
|
Revenue
|
$
|
114,333
|
|
|
$
|
90,667
|
|
|
Operating income
|
$
|
4,549
|
|
|
$
|
15,258
|
|
|
Net income
|
$
|
319
|
|
|
$
|
8,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2021
|
|
Six months ended June 30, 2020
|
|
Revenue
|
$
|
238,372
|
|
|
$
|
151,971
|
|
|
Operating income
|
$
|
20,157
|
|
|
$
|
13,585
|
|
|
Net income
|
$
|
8,484
|
|
|
$
|
2,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Prepaid income taxes
|
$
|
2,995
|
|
|
$
|
14,633
|
|
|
Prepaid insurance
|
11,821
|
|
|
7,577
|
|
|
|
|
|
|
|
Prepaid rent
|
1,019
|
|
|
1,196
|
|
|
|
|
|
|
|
Other prepaid expenses
|
10,439
|
|
|
8,479
|
|
|
Total prepaid expenses and other current assets
|
$
|
26,274
|
|
|
$
|
31,885
|
|
9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
|
|
|
Accrued compensation and related liabilities (1)
|
$
|
43,611
|
|
|
$
|
57,201
|
|
|
Accrued cash settled stock-based compensation
|
25,347
|
|
|
19,376
|
|
|
Deferred operating expenses
|
9,365
|
|
|
8,018
|
|
|
Union pension obligations
|
8,150
|
|
|
6,632
|
|
|
Accrued legal fees
|
5,337
|
|
|
3,228
|
|
|
Accrued interest
|
4,179
|
|
|
4,927
|
|
|
Deferred acquisition payments
|
3,978
|
|
|
3,978
|
|
|
|
|
|
|
|
Other
|
9,176
|
|
|
13,650
|
|
|
Total accrued expenses and other current liabilities
|
$
|
109,143
|
|
|
$
|
117,010
|
|
(1) Accrued compensation and related liabilities 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 received a cumulative cash benefit of approximately $20.8 million related to the deferral of employer payroll taxes as of June 30, 2021 under the CARES Act. Of this amount, approximately 50% is due in December of 2021 and 50% is due in December of 2022, therefore, $10.4 million is recorded in accrued expenses, and $10.4 million is recorded in other long-term liabilities.
10. Debt
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 “Notes”). The Notes were issued pursuant to an indenture, dated November 4, 2020 (the “Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”).
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 and future senior indebtedness, are effectively subordinated to any of the Company's existing and future secured indebtedness, including indebtedness under the 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 Indenture contains covenants that, among other things, restrict the Company’s ability and the ability of its restricted subsidiaries to, among other things: incur additional indebtedness or issue disqualified capital stock; make certain investments; create or incur certain liens; enter into certain transactions with affiliates; merge, consolidate, amalgamate or transfer substantially all of its assets; agree to dividend or other payment restrictions affecting its restricted subsidiaries; and transfer or sell assets, including capital stock of its restricted subsidiaries. These covenants, however, are subject to a number of important exceptions and qualifications, and certain covenants may be suspended in the event the Notes are assigned an investment grade rating from two of three ratings agencies.
The Indenture provides that the Notes may become subject to redemption under certain circumstances, including if certain escrowed property has not been released from the escrow account in connection with the consummation of the acquisition of the Simplura Group. The Company may also redeem the Notes, in whole or in part, at any time prior to November 15, 2022, at a price equal to 100% of the principal amount of the Notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption plus a “make-whole” premium set forth in the Indenture. In addition, the Company may redeem up to 40% of the Notes prior to November 15, 2022, at a redemption price of 105.875% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, with the proceeds of certain equity offerings, subject to certain conditions as specified in the Indenture Agreement. At any time prior to November 15, 2022, during each calendar year, the Company may redeem up to 10% of the aggregate principal amount of the Notes at a purchase price equal to 103% of the aggregate principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.
On or after November 15, 2022, the Company may redeem all or a part of the Notes upon not less than ten days’ nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest, if any, on the Notes redeemed, to, but excluding, the applicable redemption date, if redeemed during the 12-month period beginning on November 15 of the years indicated below:
|
|
|
|
|
|
|
|
Year
|
Percentage
|
|
2022
|
102.938%
|
|
2023
|
101.469%
|
|
2024 and thereafter
|
100.000%
|
The Company will pay interest on the Notes at 5.875% per annum until maturity. Interest is payable semi-annually in arrears on May 15 and November 15 of each year, with the first interest payment date being May 15, 2021. Principal payments are not required until the maturity date on November 15, 2025 when 100% of the outstanding principal will be required to be repaid. As a part of the bond issuance process, we incurred a $9.0 million bridge commitment fee that provided a potential funding backstop in the event that the Notes did not meet the desired subscription level to be used to acquire Simplura. That commitment expired unused upon closing of the Notes and the fee was expensed in Q4 2020.
Debt issuance costs of $14.5 million were incurred in relation to the Notes issuance and these costs were deferred and are amortized to interest cost over the term of the Notes. As of June 30, 2021, $12.6 million of unamortized deferred issuance costs was netted against the long-term debt balance on the condensed consolidated balance sheet.
Credit Facility
The Company is a party to the amended and restated credit and guaranty agreement, dated as of August 2, 2013 (as amended, the “Credit Agreement”), with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, and the other lenders party thereto. On May 6, 2020, the Company entered into the Seventh Amendment to the Amended and Restated Credit and Guaranty Agreement (the “Seventh Amendment”) which, among other things, extended the maturity date to August 1, 2021, expanded the amount available under the revolving credit facility (the “Credit Facility”) from $200.0 million to $225.0 million, and increased the sub-facility for letters of credits from $25.0 million to $40.0 million. Interest on the loans is payable quarterly in arrears. In addition, the Company is obligated to pay a quarterly commitment fee based on a percentage of the unused portion of each lender’s commitment under the 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.
On October 16, 2020, the Company entered into the Eighth Amendment to the Amended and Restated Credit and Guaranty Agreement (the “Eighth Amendment”), which among other things, amended the Credit Facility to permit the incurrence of additional debt to finance the acquisition of Simplura (the "Simplura Acquisition"), permit borrowing under the Credit Facility to partially fund the Simplura Acquisition with limited conditions to such borrowing, increase the top interest rate margin that may apply to loans thereunder, and revise our permitted ratio of EBITDA to indebtedness. In addition, the Eighth Amendment extended the maturity date to August 2, 2023. See Note 3, Acquisitions, for further information on the acquisition.
Effective as of the Eighth Amendment, interest on the outstanding principal amount of loans under the Credit Facility accrues, at the Company’s election, at a per annum rate equal to the greater of either LIBOR or 1.00%, plus an applicable margin, or the base rate as defined in the agreement plus an applicable margin. The applicable margin ranges from 2.25% to 3.50% in the case of LIBOR loans and 1.25% to 2.50% in the case of the base rate loans, in each case, based on the Company’s consolidated leverage ratio as defined in the credit agreement that governs our Credit Facility. The commitment fee and letter of credit fee range from 0.35% to 0.50% and 2.25% to 3.50%, respectively, in each case based on the Company’s consolidated leverage ratio as defined in the credit agreement that governs our Credit Facility.
As of June 30, 2021, the Company had no borrowings outstanding on the Credit Facility; however, there were letters of credit outstanding in the amount of $17.2 million. The Company’s available credit under the Credit Facility was $207.8 million. Under the Credit Agreement, the Company has an option to request an increase in the amount of the revolving credit facility from time to time (on substantially the same terms as apply to the existing facilities) in an aggregate amount of up to $75.0 million with either additional commitments from lenders under the Credit Agreement at such time or new commitments from financial institutions acceptable to the administrative agent in its reasonable discretion, so long as no default or event of default exists at the time of any such increase. 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 Credit Facility.
11. Stock-Based Compensation and Similar Arrangements
The Company provides stock-based compensation to employees and non-employee directors under the Company's 2006 Long-Term Incentive Plan, as amended and restated effective July 27, 2016 (the “Equity Incentive Plan”). The Equity Incentive 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.
The following table reflects the amount of stock-based compensation, for share settled awards, recorded in each financial statement line item for the three months ended June 30, 2021 and 2020 and six months ended June 30, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Service expense
|
$
|
—
|
|
|
$
|
54
|
|
|
$
|
—
|
|
|
$
|
119
|
|
|
General and administrative expense
|
1,472
|
|
|
675
|
|
|
2,659
|
|
|
1,653
|
|
|
Total stock-based compensation
|
$
|
1,472
|
|
|
$
|
729
|
|
|
$
|
2,659
|
|
|
$
|
1,772
|
|
At June 30, 2021, the Company had 279,707 stock options outstanding with a weighted-average exercise price of $85.56. The Company also had 20,996 unvested restricted stock awards ("RSAs") and 57,380 unvested restricted stock units ("RSUs") outstanding at June 30, 2021 with a weighted-average grant date fair value of $89.52 and $110.94, respectively.
12. Earnings (Loss) Per Share
The following table details the computation of basic and diluted earnings per share (in thousands, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income
|
$
|
13,672
|
|
|
$
|
36,998
|
|
|
$
|
32,513
|
|
|
$
|
53,096
|
|
|
Dividends on convertible preferred stock outstanding
|
—
|
|
|
(76)
|
|
|
—
|
|
|
(1,171)
|
|
|
Dividends paid pursuant to the Conversion Agreement
|
—
|
|
|
(790)
|
|
|
—
|
|
|
(790)
|
|
|
Consideration paid in excess of preferred cost basis pursuant to the Conversion Agreement
|
—
|
|
|
(48,951)
|
|
|
—
|
|
|
(48,951)
|
|
|
Income allocated to participating securities
|
—
|
|
|
—
|
|
|
—
|
|
|
(264)
|
|
|
Net income (loss) available to common stockholders
|
$
|
13,672
|
|
|
$
|
(12,819)
|
|
|
$
|
32,513
|
|
|
$
|
1,920
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
13,757
|
|
|
$
|
(12,518)
|
|
|
$
|
32,637
|
|
|
$
|
2,423
|
|
|
Discontinued operations
|
(85)
|
|
|
(301)
|
|
|
(124)
|
|
|
(503)
|
|
|
Net income (loss) available to common stockholders
|
$
|
13,672
|
|
|
$
|
(12,819)
|
|
|
$
|
32,513
|
|
|
$
|
1,920
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share -- weighted-average shares
|
14,025,325
|
|
|
13,077,596
|
|
|
14,151,946
|
|
|
13,032,931
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Common stock options
|
115,335
|
|
|
—
|
|
|
130,819
|
|
|
10,347
|
|
|
Restricted stock
|
34,934
|
|
|
—
|
|
|
47,029
|
|
|
16,421
|
|
|
Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion
|
14,175,594
|
|
|
13,077,596
|
|
|
14,329,794
|
|
|
13,059,699
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.98
|
|
|
$
|
(0.96)
|
|
|
$
|
2.31
|
|
|
$
|
0.19
|
|
|
Discontinued operations
|
(0.01)
|
|
|
(0.02)
|
|
|
(0.01)
|
|
|
(0.04)
|
|
|
Basic earnings (loss) per share
|
$
|
0.97
|
|
|
$
|
(0.98)
|
|
|
$
|
2.30
|
|
|
$
|
0.15
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.97
|
|
|
$
|
(0.96)
|
|
|
$
|
2.28
|
|
|
$
|
0.19
|
|
|
Discontinued operations
|
(0.01)
|
|
|
(0.02)
|
|
|
(0.01)
|
|
|
(0.04)
|
|
|
Diluted earnings (loss) per share
|
$
|
0.96
|
|
|
$
|
(0.98)
|
|
|
$
|
2.27
|
|
|
$
|
0.15
|
|
Income allocated to participating securities is calculated by allocating a portion of net income attributable to ModivCare, less dividends on convertible stock, to the convertible preferred stockholders on a pro-rata, as converted basis; however, the convertible preferred stockholders are not allocated losses.
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 June 30,
|
|
Six months ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Stock options to purchase common stock
|
62,820
|
|
|
597,842
|
|
|
49,406
|
|
|
604,394
|
|
|
Convertible preferred stock
|
—
|
|
|
633,454
|
|
|
—
|
|
|
715,657
|
|
Issuer Purchases of Equity Securities
On March 8, 2021, the Board of Directors authorized a new stock repurchase program under which the Company may repurchase up to $75.0 million in aggregate value of the Company’s Common Stock through December 31, 2021, unless terminated earlier. Through June 30, 2021, 269,407 shares were repurchased under the program for $39.0 million.
13. Income Taxes
The Company’s effective tax rate for continuing operations for the three and six months ended June 30, 2021 was 29.6% and 26.6% respectively. The effective tax rate for continuing operations for the three and six months ended June 30, 2020 was 28.0% and 9.2%, respectively. For the six months ended June 30, 2021, the effective tax rate was higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes and certain non-deductible expenses. For the six months ended June 30, 2020, the effective tax rate was lower than the U.S. federal statutory rate of 21.0% primarily due to the favorable impact of the CARES Act on the Company’s 2018 U.S. net operating losses ("NOLs").
During 2019, the Company received refunds from the Internal Revenue Service (“IRS”) totaling $30.8 million resulting from the loss on the sale of our workforce development segment ("WD Services segment") in 2018. As a result of the size of the refunds received, in October 2019, the IRS commenced a Joint Committee Review of the refunds. The review is still ongoing.
The 2017 Tax Reform Act reduced the U.S. corporate income tax rate from 35% to 21% and provided that U.S. NOLs incurred after 2017 could only be carried forward to offset future taxable income. Pursuant to the CARES Act, which was enacted on March 27, 2020, the Company carried its 2018 NOL back five years. As a result, during the six months ended June 30, 2020, the Company recorded a $27.3 million receivable for the 2018 U.S. NOL carryback, and a $11.0 million tax benefit from the favorable carryback tax rate of 35% compared to a carryforward tax rate of 21%. The Company also recorded an additional income tax payable of $3.5 million for 2019 as a result of the 2018 NOL being carried back instead of carried forward.
As of June 30, 2021, the Company has received all of the $27.3 million receivable for the 2018 U.S. NOL carryback. This $27.3 million is also subject to the ongoing IRS Joint Committee Review.
14. Commitments and Contingencies
Legal proceedings
In the ordinary course of business, the Company may from time to time be or become involved in various lawsuits. 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.
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 law suit 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. ModivCare Solutions has provided Mr. Farah’s counsel with a list of transportation providers meeting the definition for the putative class and anticipates notices about the putative class action being sent out to the potential class members in the coming weeks. ModivCare Solutions believes it will be able to decertify this class 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 ultimate outcome of this matter 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 violations of 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 seek 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. The federal government has declined to intervene against ModivCare Solutions. ModivCare Solutions filed a motion to dismiss the Complaint on April 22, 2019, and believes that the case will not have a material adverse effect on the Company’s business, liquidity, financial condition or results of operations. This case remains dormant as it relates to ModivCare Solutions.
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 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.
In a companion case to the All Metro case, a federal class action lawsuit was filed in May 2021 alleging similar claims as in the All Metro case. All Metro has retained the same attorneys to represent it in both the state and federal cases. 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.
15. 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 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 10, 2021, the Company granted Coliseum 725 SEUs under this program.
In addition, the Company granted stock option equivalent units (“SOEUs”) to Coliseum in September 2014 that are fully vested. The SOEUs are accounted for as liability awards, with the recorded expense adjustment attributable to the Company’s change in stock price from the previous reporting period.
During the three and six months ended June 30, 2021, the Company recorded expense of $4.5 million and $6.5 million respectively, for all cash-settled awards, and during the three and six months ended June 30, 2020, the Company recorded expense of $4.5 million and $4.0 million respectively, for all cash-settled awards. The expense and benefit for cash-settled awards is included as “General and administrative expense” in the accompanying condensed consolidated statements of operations. The liability for unexercised cash-settled share-based payment awards of $25.3 million and $19.4 million at June 30, 2021 and December 31, 2020, respectively, is reflected in “Accrued expenses and other current liabilities” in the condensed consolidated balance sheets. At June 30, 2021, the Company had 1,344 SEUs and 200,000 SOEUs outstanding.
16. Subsequent Events
On July 26, 2021, ModivCare announced that it signed a merger agreement to acquire CareFinders Total Care LLC (“CareFinders”), a personal care provider in the Northeast, with a presence in New Jersey, Pennsylvania, and Connecticut. Under the terms of the agreement, ModivCare has agreed to acquire 100% of the equity interests in CareFinders for a cash purchase price of $340 million, subject to customary purchase price adjustments. The purchase price is inclusive of an estimated $34 million of net present value tax attributes generated by the transaction, implying a net purchase price of approximately $306 million. The transaction is expected to close in the third quarter of 2021, subject to regulatory approvals and other customary closing conditions.
On August 3, 2021, ModivCare announced that it signed a purchase agreement to acquire VRI Intermediate Holdings, LLC (“VRI”), a provider of remote patient monitoring solutions. VRI manages a comprehensive suite of services, including personal emergency response systems, vitals monitoring, medication management, and data-driven patient engagement solutions. Under the terms of the agreement, ModivCare has agreed to acquire 100% of the equity interests in VRI for a cash purchase price of $315 million, subject to customary purchase price adjustments. The transaction is expected to close in the third quarter of 2021, subject to regulatory approvals and other customary closing conditions.
The Company intends to fund the payment of the purchase price for these transactions with a combination of cash on hand, funds to be drawn under the Company’s undrawn $225 million revolving Credit Facility, as amended, and net proceeds from a $400 million committed debt financing from Deutsche Bank Securities Inc. and Jefferies LLC.