ModivCare (US:MODV)2019-03-01 19:30Revenue Sources - NET Services generated 52.9% of its revenue from state Medicaid agencies and 47.1% from managed care organizations (MCOs) in 2018[30]. - 79.2% of NET Services' revenue in 2018 was derived from capitated contracts, with revenue recognized based on the population served during the period[32]. - In 2018, NET Services renewed contracts representing 32.4% of its revenue for that year, with 13.2% of revenue generated from contracts subject to renewal within the next 12 months[31]. - As of December 31, 2018, 52.9% of NET Services revenue came from state Medicaid contracts, which are subject to renewal every three to five years[81]. - 13.2% of NET Services revenue was generated from state Medicaid contracts that are up for renewal within the next 12 months[81]. - For the years ended December 31, 2018, 2017, and 2016, 51.4%, 52.4%, and 51.7% of consolidated revenue from continuing operations was generated from ten payors, with the top five payors representing 34.0%, 36.1%, and 35.6% respectively[95]. Acquisitions and Strategic Moves - The company completed the acquisition of Circulation on September 21, 2018, to enhance technology capabilities and expand market opportunities[20]. - The company aims to roll out Circulation's technology as its core workflow platform over the next 36 months, converting 21 operations centers[20]. - The company completed the acquisition of Circulation in September 2018, which is expected to decrease the usage of its existing technology and resulted in a $13.5 million impairment charge in Q4 2018[88]. - The company completed two acquisitions in 2017 and 2018, including LP Health Services for $3.6 million and HealthFair for $155 million[39]. - The company completed the acquisition of Circulation on September 21, 2018, enhancing its logistics solutions for non-emergency transportation across healthcare[198]. - The management incentive plan (MIP) established in connection with the Circulation acquisition allows for potential payouts ranging from $12.5 million to $237.5 million based on financial performance from January 1, 2019, to December 31, 2021[198]. Financial Performance - Service revenue for the year ended December 31, 2018, was $1,384,965, an increase of 5% from $1,318,220 in 2017[185]. - Operating income decreased to $24,276 in 2018 from $37,484 in 2017, representing a decline of 35%[185]. - Net loss for 2018 was $(18,825), compared to a net income of $53,820 in 2017, indicating a significant turnaround[185]. - Cash and cash equivalents decreased to $5,678 in 2018 from $52,798 in 2017, a decline of approximately 89%[186]. - Total assets decreased to $572,246 in 2018 from $704,090 in 2017, a reduction of about 19%[186]. - The total stockholders' equity decreased to $310,998 in 2018 from $336,017 in 2017, a decline of approximately 7.5%[186]. Compliance and Regulatory Risks - The company faces competition from both independent providers like Signify Health and smaller competitors such as EMSI Healthcare Services and MedXM[44]. - The company is monitoring compliance with HIPAA and HITECH regulations to avoid potential penalties and ensure operational integrity[57]. - The company’s healthcare segments are subject to audits that could result in fines or adjustments to payments if compliance failures are found[75]. - Compliance with privacy and security regulations is costly and non-compliance could materially affect operating results due to potential penalties[134]. - The company faces risks from potential changes in healthcare laws and regulations that could adversely impact its business[80]. - The company’s ability to provide mid-level practitioner services may be restricted by new state laws governing their scope of practice[77]. Operational Challenges - The company is focused on organic growth by addressing transportation barriers in healthcare, targeting Medicaid markets and new transportation opportunities[22]. - The company is positioned as a natural consolidator in healthcare transportation, seeking tuck-in acquisition opportunities in its core NET market[23]. - The company faces risks related to attracting and retaining qualified employees, which is critical for delivering high-quality services[100]. - The company may incur significant expenses before receiving contract payments, which could adversely affect liquidity and financial position[98]. - The company must accurately estimate costs and performance criteria when responding to government RFPs, as miscalculations could lead to unprofitable contracts[84]. - The company’s future growth may depend on successful integration of acquired companies, which poses significant operational challenges[91]. Market and Economic Factors - The ACA has significantly changed Medicare reimbursement and expanded Medicaid, impacting the healthcare industry and operations[69]. - The ACA has increased penalties for noncompliance, which could materially affect the operations of the healthcare segments[71]. - Many U.S. states are facing budgetary shortfalls, potentially shifting costs from institutional care to home and community-based care, which may not be sustainable[132]. - A decline in government expenditures or changes in funding policies could lead to contract terminations or reduced expenditures, negatively impacting operating results[133]. - Changes in government budgetary priorities could result in loss of contracts or decreased funding for services provided by the company's Healthcare Segments[129]. Technology and Cybersecurity - Matrix's services are primarily dependent on its technology platform, which is designed to support substantial growth and integrate various operational aspects[41]. - Cybersecurity risks are a significant concern, with potential breaches leading to unauthorized access to sensitive client information and reputational damage[112][114]. - The company must effectively manage its technology infrastructure to avoid disruptions that could negatively impact business operations and competitive positioning[116][117]. Debt and Liquidity - The company had $187.7 million available credit under the Credit Facility as of December 31, 2018, which is crucial for meeting liquidity needs[151]. - The Credit Facility matures on August 2, 2019, and failure to refinance could adversely affect financial condition and operational capabilities[152]. - Future substantial indebtedness could impair financial condition and increase the risk of insufficient cash generation to meet obligations[153]. - The company does not expect to declare or pay dividends on its Common Stock for the foreseeable future, focusing instead on funding growth and general corporate purposes[170]. Asset Management - The company recorded an asset impairment charge of $14.2 million in 2018 related to NextGen, indicating potential volatility in asset valuations[119]. - The company holds a non-controlling interest of 28.2% in Matrix, which constitutes a significant portion of its consolidated assets, indicating potential risks associated with joint ventures[94]. - The carrying value of goodwill was $40.0 million, with total long-lived assets valued at $135.2 million as of December 31, 2018[120][121].