Form 10-Q ModivCare Inc For: Jun 30
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E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number 001-34221
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices) (Zip Code)
(303 ) 728-7030
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
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“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of July 29, 2022, there were 14,050,626 shares outstanding (excluding treasury shares of 5,427,687) of the registrant’s Common Stock, $0.001 par value per share.
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TABLE OF CONTENTS
| Page | ||||||||
Item 2. | ||||||||
| Item 1A. | ||||||||
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
ModivCare Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
| June 30, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowance of $ | |||||||||||
| Other receivables | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Restricted cash | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Payor network, net | |||||||||||
| Other intangible assets, net | |||||||||||
| Equity investment | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and stockholders' equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued contract payables | |||||||||||
| Accrued transportation costs | |||||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Total current liabilities | |||||||||||
Long-term debt, net of deferred financing costs of $ | |||||||||||
| Deferred tax liabilities | |||||||||||
| Long-term contract payables | |||||||||||
| Operating lease liabilities, less current portion | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 13) | |||||||||||
| Stockholders’ equity | |||||||||||
Common stock: Authorized | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
Treasury shares, at cost, | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to the unaudited condensed consolidated financial statements
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ModivCare Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Service revenue, net | $ | $ | $ | $ | |||||||||||||||||||
| Grant income (Note 2) | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Service expense | |||||||||||||||||||||||
| General and administrative expense | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Other expenses: | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
Income before income taxes and equity method investment | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Equity in net loss (income) of investee, net of tax | ( | ( | |||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average number of common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements
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ModivCare Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
| Six months ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Provision for doubtful accounts | ( | ( | |||||||||
| Stock-based compensation | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Amortization of deferred financing costs and debt discount | |||||||||||
| Equity in net (income) loss of investee | ( | ||||||||||
| Reduction of right-of-use assets | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable and other receivables | ( | ( | |||||||||
| Prepaid expenses and other | ( | ||||||||||
| Income tax refunds on sale of business | |||||||||||
| Accrued contract payables | |||||||||||
| Accounts payable and accrued expenses | |||||||||||
| Accrued transportation costs | |||||||||||
| Other long-term liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Investing activities | |||||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Acquisition, net of cash acquired | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Financing activities | |||||||||||
| Proceeds from debt | |||||||||||
| Repayment of debt | ( | ||||||||||
| Repurchase of common stock, for treasury | ( | ||||||||||
| Debt issuance costs | ( | ||||||||||
| Proceeds from common stock issued pursuant to stock option exercise | |||||||||||
| Restricted stock surrendered for employee tax payment | ( | ( | |||||||||
| Other financing activities | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net change in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
See accompanying notes to the unaudited condensed consolidated financial statements
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ModivCare Inc.
Unaudited Supplemental Cash Flow Information
(in thousands)
| Six months ended June 30, | |||||||||||
| Supplemental cash flow information | 2022 | 2021 | |||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Assets acquired under operating leases | $ | $ | |||||||||
| Acquisitions: | |||||||||||
| Purchase price | $ | $ | — | ||||||||
| Less: | |||||||||||
| Cash acquired | — | ||||||||||
| Acquisitions, net of cash acquired | $ | $ | — | ||||||||
See accompanying notes to the unaudited condensed consolidated financial statements
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ModivCare Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share and per share data)
| Six months ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In | Retained | Treasury Stock | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Shares | Amount | Total | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Exercise of employee stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Restricted stock issued | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Restricted stock surrendered for employee tax payment | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Shares issued for bonus settlement and director stipends | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Exercise of employee stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Restricted stock forfeited | ( | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Restricted stock surrendered for employee tax payment | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Shares issued for bonus settlement and director stipends | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Six months ended June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In | Retained | Treasury Stock | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Shares | Amount | Total | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Exercise of employee stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Restricted stock issued | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Restricted stock surrendered for employee tax payment | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Shares issued for bonus settlement and director stipends | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Stock repurchase plan | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Exercise of employee stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Restricted stock forfeited | ( | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Restricted stock surrendered for employee tax payment | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Shares issued for bonus settlement and director stipends | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Stock repurchase plan | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements
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ModivCare Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
June 30, 2022
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, connect members to care, help health plans manage risks, reduce costs, and improve outcomes. ModivCare is a provider of non-emergency medical transportation, or NEMT, personal care, and remote patient monitoring, or RPM, solutions, which serve similar, highly vulnerable patient populations.
The technology-enabled operating model includes NEMT core competencies in risk underwriting, contact center management, network credentialing, claims management and non-emergency medical transportation 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. ModivCare’s remote patient monitoring services include personal emergency response systems, vitals monitoring and data-driven patient engagement solutions. ModivCare is further expanding its offerings to include meal delivery and working with communities to provide food-insecure individuals delivery of meals.
ModivCare also holds a 43.6 % minority interest in CCHN Group Holdings, Inc. and its subsidiaries, which operates under the Matrix Medical Network brand, 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.
Basis of Presentation
The Company follows accounting standards established 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, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. 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 unaudited condensed consolidated financial statements.
The unaudited condensed consolidated balance sheet at December 31, 2021 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, 2021.
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Impact of the COVID-19 Pandemic
Since March 2020, the COVID-19 pandemic and the measures enacted by state and government officials to prevent, prepare for, and respond to COVID-19 or slow its spread have had an ongoing adverse impact on the Company’s business, as well as its patients, communities, and employees. With ongoing uncertainties around the duration and magnitude of the pandemic, the ultimate impact to the business remains uncertain. Accordingly, the COVID-19 pandemic could continue to have an adverse impact on the Company's financial statements with potential for (i) labor shortages or other disruptions that impact our ability to provide services, and (ii) decreased member comfort leaving the house to obtain transportation for non-emergency medical purposes; among other things. Despite ongoing uncertainties, the Company’s priorities throughout the COVID-19 pandemic remain intact with emphasis on protecting the health and safety of its employees, maximizing the availability of its services and products to support the SDoH, and supporting the operational and financial stability of its business.
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.
Changes in Accounting Estimate
In accordance with its policy, the Company reviews the estimated useful lives of its fixed assets and intangible assets on an ongoing basis. As a result of this review, the Company adjusted the estimated useful life of the Simplura trademarks and trade names intangible asset from 10 years to 3 years and adjusted the estimated useful life of the payor network from 15 years to 10 years effective as of January 1, 2022. This change was driven by strategic shifts in the Company's personal care segment operations, partially contributed to by the acquisition of Care Finders Total Care, LLC ("Care Finders"). Based on the intangible asset values as of December 31, 2021, the effect of the change in estimate during the three and six months ended June 30, 2022 was an increase in amortization expense of $3.6 million, a decrease in net income of $2.5 million, and a decrease in earnings per share of $0.18 per diluted common share outstanding, and an increase in amortization expense of $7.1 million, a decrease in net income of $5.0 million, and a decrease in earnings per share of $0.36 per diluted common share outstanding, respectively.
Government Grants
The Company has received government grants under the CARES Act PRF and the ARPA CSLERF to provide economic relief and stimulus to combat health and economic impacts of the COVID-19 pandemic. Under these acts, the Company received distributions of approximately $6.2 million and $0.9 million during the three months ended June 30, 2022 and June 30, 2021, respectively, and $9.0 million and $3.5 million during the six months ended June 30, 2022 and June 30, 2021, respectively. Distributions received under these acts are targeted to assist with incremental health care related expenses or lost revenue attributable to the COVID-19 pandemic as well as provide stimulus to support long-term growth and recovery. We recognize distributions from government grants on a systematic basis in line with the loss of revenues or recognition of expenses for which the grants are intended to compensate.
The payments from these acts are subject to certain restrictions and possible recoupment if not used for designated purposes. As a condition to receiving PRF distributions, providers must agree to certain terms and conditions, including that the funds are being used for health care related expenses and lost revenues attributable to COVID-19, 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. As a condition to receiving CSLERF, providers
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must agree to use the funds to respond to the PHE or its negative economic impacts, to respond to workers performing essential work by providing premium pay to eligible workers and to offset reduction in revenue due to the COVID-19 PHE. All recipients of CSLERF payments are required to comply with the reporting requirements described in the terms and conditions as determined by the Department of the Treasury. To the Company’s knowledge, audits have not been performed and it is uncertain as to whether any audits will occur or what the associated guidelines will be.
The Company recognizes grant payments as grant income when there is reasonable assurance that it has complied with the conditions associated with the grant.
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 $12.3
Recent Accounting Pronouncements
The Company adopted the following accounting pronouncements during the six months ended June 30, 2022:
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. 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 October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"). The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. ASU 2021-08 is effective for public business entities for fiscal years beginning on or after November 1, 2023, including interim periods therein. The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the effective date of adoption, and the impact in future periods will depend on the contract assets and contract liabilities acquired in future business combinations. The Company does not expect a material impact to the financial statements upon adoption of the ASU and early adoption will be considered if the standard were to become applicable prior to the effective date of the standard.
3. Acquisitions
Business Combinations
Care Finders Total Care, LLC
On September 14, 2021, the Company acquired Care Finders which is a personal care provider in the Northeast, with operations in New Jersey, Pennsylvania, and Connecticut. The acquisition of Care Finders broadens access to in-home personal care solutions for patients and supports the Company's strategy to expand its personal care platform.
The equity transaction was accounted for in accordance with ASC 805, Business Combinations in which a wholly-owned subsidiary of the Company acquired 100.0 % of the equity securities of Care Finders for $333.4 million (a preliminary purchase price of $344.8 million less $11.4 million of cash that was acquired).
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The following is a preliminary estimate of the allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired, as of the acquisition date of September 14, 2021 (in thousands):
| Cash | $ | ||||
Accounts receivable (1) | |||||
Prepaid expenses and other (2) | |||||
Property and equipment (3) | |||||
Inventories (4) | |||||
Operating right of use asset (5) | |||||
Intangibles (6) | |||||
Goodwill (7) | |||||
Other assets (8) | |||||
Accounts payable (9) | ( | ||||
Accrued expenses and other accrued liabilities (9) | ( | ||||
Operating lease liability (5) | ( | ||||
Deferred tax liabilities (10) | ( | ||||
Other liabilities (9) | ( | ||||
| Total of assets acquired less liabilities assumed | $ | ||||
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 2022.
(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, the carrying value represents the fair value.
(3) The acquired property and equipment consists primarily of capitalized software, computer equipment, and automobiles.
(4) Given the short-term nature of the balance of inventories, the carrying value represents the fair value.
(5) The fair value of the operating lease liability and corresponding right-of-use asset (current and long-term) were recorded at $1.9 million based on market rates available to the Company during the preliminary purchase price allocation.
(6) The allocation of consideration exchanged for intangible assets acquired is as follows (in thousands):
| Type | Useful Life | Value | |||||||||
| Payor network | Amortizable | $ | |||||||||
| Trade name | Amortizable | ||||||||||
| Non-compete agreement | Amortizable | ||||||||||
| $ | |||||||||||
The Company valued the payor network utilizing the multi-period excess earnings method, trade names utilizing the relief-from-royalty method and the non-compete agreement utilizing the with/without method.
(7) The acquisition preliminarily resulted in $232.2 million of goodwill as a result of expected synergies due to future customers driven by expansion into different markets, an increase in market share, and a growing demographic that will need home care solutions. All of the acquired goodwill is deductible for tax purposes.
(8) Included in other assets are security deposits with a value of $0.2 million.
(9) Due to the short-term nature of the accounts, the carrying value is assumed to represent the fair value for accounts payable as well as certain other current and non-current liabilities as of the acquisition date.
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VRI Intermediate Holdings, LLC
On September 22, 2021, the Company acquired VRI, a provider of remote patient monitoring solutions that manages a comprehensive suite of services including personal emergency response systems, vitals monitoring and data-driven patient engagement solutions. The acquisition of VRI accelerates the Company's strategy to build a holistic suite of supportive care solutions that address SDoH, introduces new technology-enabled in-home solutions that deepen the Company's engagement with payors and patients, and adds a new suite of services and operating team to advance the Company's broader technology and data strategy.
The stock transaction was accounted for in accordance with ASC 805, Business Combinations in which a wholly-owned subsidiary of the Company acquired 100.0 % of the equity securities of VRI for $314.6 million (a preliminary purchase price of $317.5 million less $2.9 million of cash that was acquired).
The following is a preliminary estimate of the allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired, as of the acquisition date of September 22, 2021 (in thousands):
| Cash | $ | ||||
Accounts receivable (1) | |||||
Inventory (2) | |||||
Prepaid expenses and other (3) | |||||
Property and equipment (4) | |||||
Intangible assets (5) | |||||
Goodwill (6) | |||||
Accounts payable and accrued liabilities (7) | ( | ||||
Accrued expense (7) | ( | ||||
Deferred revenue (7) | ( | ||||
Deferred tax liabilities (8) | ( | ||||
| Total of assets acquired less liabilities assumed | $ | ||||
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 2022.
(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 inventories, the carrying value represents the fair value.
(3) Given the short-term nature of the balance of prepaid expenses, the carrying value represents the fair value.
(4) The acquired property and equipment consists primarily of personal emergency response system devices, with the remainder consisting of computer equipment, buildings and other equipment. The Company valued the personal emergency response system devices, computer equipment and other equipment utilizing the cost approach at $12.7 million. The carrying value of the remainder of the property, plant and equipment, consisting primarily of buildings and land, is assumed to represent the fair value. Management's assessment of the accounting treatment for PP&E is on-going.
(5) The allocation of consideration exchanged for intangible assets acquired is as follows (in thousands):
| Type | Useful Life | Value | |||||||||
| Payor network | Amortizable | $ | |||||||||
| Trade name | Amortizable | ||||||||||
| Developed technology | Amortizable | ||||||||||
| $ | |||||||||||
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The Company valued the payor network utilizing the multi-period excess earnings method, trade names utilizing the relief-from-royalty method and developed technology utilizing the cost approach.
(6) The acquisition preliminarily resulted in $236.7 million of goodwill as a result of expected synergies due to future customers driven by expansion into different markets and an increase in market share. The amount of goodwill deductible for tax purposes has yet to be determined.
(7) Due to the short-term nature of the accounts, the carrying value is assumed to represent the fair value for accounts payable as well as certain other current and non-current liabilities as of the acquisition date.
(8) Net deferred tax liabilities represent the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax basis.
Guardian Medical Monitoring
On May 11, 2022, the Company acquired Guardian Medical Monitoring ("GMM"), a provider of remote patient monitoring solutions that manages a comprehensive suite of services including personal emergency response systems and medication management. The acquisition of GMM supports the Company's strategy to expand its RPM segment and enhances the Company's suite of supportive care solutions that address SDoH.
The stock transaction was accounted for in accordance with ASC 805, Business Combinations in which a wholly-owned subsidiary of the Company acquired 100.0 % of the equity securities of GMM for $71.3 million (a preliminary purchase price of $71.6 million less $0.3 million of cash that was acquired).
The following is a preliminary estimate of the allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired, as of the acquisition date of May 11, 2022 (in thousands):
| Cash | $ | ||||
Accounts receivable (1) | |||||
Prepaid expenses and other (2) | |||||
Property and equipment (3) | |||||
Intangible assets (4) | |||||
Goodwill (5) | |||||
Accounts payable (6) | ( | ||||
Accrued expenses and other current liabilities (6) | ( | ||||
| Total of assets acquired less liabilities assumed | $ | ||||
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 second quarter of 2023.
(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 and other assets, the carrying value represents the fair value.
(3) The acquired property and equipment consists primarily of personal emergency response system devices, with the remainder consisting of computer equipment and furniture and fixtures. The Company valued the personal emergency response system devices utilizing the cost approach. The carrying value of the remainder of the property, plant and equipment, consisting primarily of computer equipment and furniture and fixtures, is assumed to represent the fair value. Management's assessment of the accounting treatment for PP&E is on-going.
(4) The preliminary allocation of consideration exchanged for intangible assets acquired is as follows (in thousands):
| Type | Useful Life | Value | |||||||||
| Payor network | Amortizable | $ | |||||||||
| Trade name | Amortizable | ||||||||||
| $ | |||||||||||
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The Company valued the payor network utilizing the multi-period excess earnings method and trade names utilizing the relief-from-royalty method.
(5) The acquisition preliminarily resulted in $43.7 million of goodwill as a result of expected synergies due to future customers driven by expansion into different markets and an increase in market share. The amount of goodwill deductible for tax purposes has yet to be determined.
Pro Forma Financial Information (unaudited)
Assuming Care Finders, VRI, and GMM had been acquired as of January 1, 2021, and the results of each had been included in operations beginning on January 1, 2021, the following table provides estimated unaudited pro forma results of operations for the three and six months ended June 30, 2022 and June 30, 2021 (in thousands, except earnings per share). The estimated pro forma net income adjusts for the effect of fair value adjustments related to each of the acquisitions, transaction costs and other non-recurring costs directly attributable to the transactions and the impact of the additional debt to finance the applicable acquisitions.
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Income from continuing operations, net | |||||||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | |||||||||||||||||||
Estimated unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the acquisitions been completed on the date indicated or of future operating results. The supplemental pro forma earnings were adjusted to exclude the impact of historical interest expense of Care Finders and VRI of $1.3 million and $1.1 million, respectively, for the three months ended June 30, 2021 and $2.6 million and $2.1 million, respectively, for the six months ended June 30, 2021.
Acquisition-related costs of approximately $1.6 million for GMM were expensed as incurred, recorded in selling, general and administrative expenses during the period ended June 30, 2022, and are reflected in the pro forma table above at the assumed acquisition date. Acquisition-related costs consisted of professional fees for advisory, consulting, and underwriting services as well as other incremental costs directly related to the acquisition.
Asset Acquisition
On May 30, 2022, the Company entered into an asset purchase agreement with a private entity to purchase certain customer contracts. Pursuant to the purchase agreement, the contracts were acquired for total preliminary consideration of $7.6 million in cash, subject to certain adjustments.
The transaction was accounted for as an asset acquisition in accordance with ASC 805, Business Combinations. The preliminary fair value of the net consideration is fully allocated to a payor network intangible asset recorded at the personal care segment and will be amortized over a period of 6 years.
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4. Segments
The Company’s reportable segments are identified based on a number of factors related to how its chief operating decision maker ("CODM") determines the allocation of resources and assesses the performance of the Company’s operations. The Company's CODM manages the Company under four reportable segments.
The Company’s reportable segments are strategic units that offer different services under different financial and operating models to the Company’s customers. The segments are managed separately because each requires different technology and marketing strategies. Furthermore, the different segments were each generally acquired as a unit, with the management of each at the time of acquisition retained to continue to operate their respective businesses.
The Company has determined each of the separate reportable segments based on the difference in services provided by each of the segments as provided in further detail below:
•NEMT - The Company's NEMT segment is its legacy segment and operates primarily under the brands ModivCare Solutions and Circulation. The NEMT segment is the largest manager of non-emergency medical transportation programs for state governments and managed care organizations, or MCOs, in the U.S. This segment also holds the results of the Company's Captive insurance program.
•Personal Care - The Company's Personal Care segment began operations in November 2020 with the acquisition of Simplura and expanded in September 2021 with the acquisition of Care Finders. The Personal Care segment operates under the brands Simplura and Care Finders and provides personal care to State and Managed Medicaid, Medicare, and Private Pay patient populations in need of care monitoring and assistance performing activities of daily living;
•RPM - The Company's RPM segment began operations in September 2021 with the acquisition of VRI and expanded in May 2022 with the acquisition of GMM. The RPM segment operates under the VRI brand and is a provider of remote patient monitoring solutions, including personal emergency response systems, vitals monitoring and data-driven patient engagement solutions;
•Corporate and Other - Effective January 1, 2022, the Company completed its segment reorganization which resulted in the addition of a Corporate and Other segment that includes the costs associated with the Company's corporate operations. The operating results of the Corporate and Other segment include activities related to executive, accounting, finance, internal audit, tax, legal and certain strategic and corporate development functions for each segment, as well as the results of the Matrix investment. Prior to the segment reorganization, we reported the investment in Matrix as a separate operating segment, however based on the relative size of the Matrix investment and all related activity to the overall financial statements, the CODM no longer views it as a separate operating segment but reviews results in conjunction with the other corporate results of the business. The Company reclassified certain costs associated with this reorganization for the three and six months ended June 30, 2021, to conform to this presentation.
The Company evaluates performance and allocates resources based on the operating income of the reportable segments, which includes an allocation of corporate expenses directly attributable to the specific segment and includes revenues and all other costs directly attributable to the specific segment.
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| Three months ended June 30, 2022 | |||||||||||||||||||||||||||||
| NEMT | Personal Care | RPM | Corporate and Other | Total | |||||||||||||||||||||||||
Service revenue, net | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Grant income (1) | |||||||||||||||||||||||||||||
| Service expense | |||||||||||||||||||||||||||||
| General and administrative expense | |||||||||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||||||||
| Operating income (loss) | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||
| Equity in net loss of investee, net of tax | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Equity investment | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Goodwill (2) | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Six months ended June 30, 2022 | |||||||||||||||||||||||||||||
| NEMT | Personal Care | RPM | Corporate and Other | Total | |||||||||||||||||||||||||
Service revenue, net | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Grant income (1) | |||||||||||||||||||||||||||||
| Service expense | |||||||||||||||||||||||||||||
| General and administrative expense | |||||||||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||||||||
| Operating income (loss) | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||
| Equity in net loss of investee, net of tax | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Equity investment | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Goodwill (2) | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
(1) Grant income for the Personal Care segment includes funding received on a periodic basis from the PRF in relation to relief under the CARES Act and funding received from the CLSERF under ARPA in relation to economic recovery to combat health and economic impacts of the COVID-19 pandemic. See Note 2, Significant Accounting Policies and Recent Accounting Pronouncements.
(2) In May 2022 the Company completed the acquisition of GMM which is included within the RPM segment. The Company recorded goodwill of $43.7 million related to the acquisition. No other changes to goodwill were recognized during the quarter. See Note 3, Acquisitions.
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| Three months ended June 30, 2021 | |||||||||||||||||||||||
| NEMT | Personal Care | Corporate and Other | Total | ||||||||||||||||||||
| Service revenue, net | $ | $ | $ | $ | |||||||||||||||||||
Grant income (1) | |||||||||||||||||||||||
| Service expense | |||||||||||||||||||||||
| General and administrative expense | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Operating income (loss) | $ | $ | $ | ( | $ | ||||||||||||||||||
| Equity in net income of investee, net of tax | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| Equity investment | $ | $ | $ | $ | |||||||||||||||||||
| Goodwill | $ | $ | $ | $ | |||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Six months ended June 30, 2021 | |||||||||||||||||||||||
| NEMT | Personal Care | Corporate and Other | Total | ||||||||||||||||||||
| Service revenue, net | $ | $ | $ | $ | |||||||||||||||||||
Grant income (1) | |||||||||||||||||||||||
| Service expense | |||||||||||||||||||||||
| General and administrative expense | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Operating income (loss) | $ | $ | $ | ( | $ | ||||||||||||||||||
| Equity in net income of investee, net of tax | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| Equity investment | $ | $ | $ | $ | |||||||||||||||||||
| Goodwill | $ | $ | $ | $ | |||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
(1) Grant income for the Personal Care segment includes funding received on a periodic basis from the PRF in relation to relief under the CARES Act and funding received from the CLSERF under ARPA in relation to economic recovery to combat health and economic impacts of the COVID-19 pandemic. See Note 2, Significant Accounting Policies and Recent Accounting Pronouncements.
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.
Revenue Contract Structure
NEMT Capitated Contracts
Under capitated contracts, payors pay a fixed amount per eligible member. Capitation rates are generally based on expected costs and volume of services. 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
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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 cost and/or 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 may be reduced through future increases in trip volume or 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.
NEMT Fee-for-service Contracts
Fee-for-service ("FFS") revenue represents revenue earned under non-capitated 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.
Personal Care Fee-for-service Contracts
Personal Care FFS revenue is reported at the estimated net realizable amount from clients, patients and third-party payors for services rendered. Payment for services received from third-party payors includes, but is not limited to, insurance companies, hospitals, governmental agencies and other home health care providers who subcontract work to the Company. Certain contracts are subject to retroactive audit and possible adjustment by those payors based on the nature of the contract or costs incurred. The Company makes estimates of retroactive adjustments and considers these in the recognition of revenue in the period in which the related services are rendered. The difference between estimated settlement and actual settlement is reported in net service revenues as adjustments become known or as years are no longer subject to such audits, reviews, or investigations.
RPM Service Contracts
RPM service revenue consists of revenue from monitoring services provided to the customer. Under RPM contracts, payors pay per-enrolled-member-per-month based on enrolled membership. Consideration is generally fixed for each type of monitoring service and the contracts do not typically contain variable components of consideration. As such, the RPM segment recognizes revenue based on the monthly fee paid by customers.
Disaggregation of Revenue by Contract Type
The following table summarizes disaggregated revenue from contracts with customers by contract type for the three and six months ended June 30, 2022 and June 30, 2021 (in thousands):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| NEMT capitated contracts | $ | $ | $ | $ | |||||||||||||||||||
| NEMT FFS contracts | |||||||||||||||||||||||
| Total NEMT segment revenue | |||||||||||||||||||||||
| Personal Care FFS contracts | |||||||||||||||||||||||
| RPM service contracts | |||||||||||||||||||||||
| Total service revenue, net | $ | $ | $ | $ | |||||||||||||||||||
Payor Information
Service revenue, net, is derived from state Medicaid contracts, managed Medicaid and Medicare contracts (also known as MCOs), as well as a small amount from private pay and other contracts. Of the NEMT segment’s revenue, 11.3 % and 9.5 % was derived from one U.S. State Medicaid program for the three months ended June 30, 2022 and 2021, respectively, and 12.1 % and 9.2 % was derived from one U.S. State Medicaid program for the six months ended June 30, 2022 and 2021, respectively. Of the Personal Care segment's revenue, 9.5 % and 13.3 % was derived from one U.S. State Medicaid program for the three months ended June 30, 2022 and 2021, respectively, and 9.3 % and 13.6 % was derived from one U.S. State Medicaid program for the six months ended June 30, 2022 and 2021, respectively. Of the RPM segment's revenue, 18.9 % was derived
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from one U.S. State Medicaid program for the three months ended June 30, 2022, and 20.4 % was derived from one U.S. State Medicaid program for the six months ended June 30, 2022.
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| State Medicaid contracts | $ | $ | $ | $ | |||||||||||||||||||
| Managed Medicaid contracts | |||||||||||||||||||||||
| Managed Medicare contracts | |||||||||||||||||||||||
| Private pay and other contracts | |||||||||||||||||||||||
| Total service revenue, net | $ | $ | $ | $ | |||||||||||||||||||
During the three months ended June 30, 2022 and 2021, the Company recognized an increase of $3.6 million and $0.4 million in 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, 2022 and 2021, the Company recognized an increase of $4.1 million and $5.3 million in 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, 2022 | December 31, 2021 | ||||||||||
| Accounts receivable | $ | $ | |||||||||
Reconciliation contracts receivable (1) | |||||||||||
| Allowance for doubtful accounts | ( | ( | |||||||||
| Accounts receivable, net | $ | $ | |||||||||
(1) Reconciliation contracts receivable primarily represent underpayments and receivables on certain contracts with reconciliation and risk corridor provisions. See the contract payables and receivables activity below.
The following table provides information about other revenue related accounts included on the accompanying unaudited condensed consolidated balance sheets (in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
Accrued contract payables (1) | $ | $ | |||||||||
Long-term contract payables (2) | $ | $ | |||||||||
| Deferred revenue, current | $ | $ | |||||||||
(1) Accrued contract payables primarily represent overpayments and liability reserves on certain risk corridor, profit rebate and reconciliation contracts.
(2) Long-term contract payables primarily represent liability reserves on certain risk corridor, profit rebate and reconciliation contracts that are expected to be repaid in greater than 12 months.
The following table provides the summary activity of total contract payables and receivables as reported within the unaudited condensed consolidated balance sheets (in thousands):
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| December 31, 2021 | Additional Amounts Recorded | Amounts Paid or Settled | June 30, 2022 | |||||||||||||||||||||||
| Reconciliation contract payables | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Profit rebate/corridor contract payables | ( | |||||||||||||||||||||||||
| Overpayments and other cash items | ( | |||||||||||||||||||||||||
| Total contract payables | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Reconciliation contract receivables | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Corridor contract receivables | ||||||||||||||||||||||||||
| Total reconciliation contract receivables | $ | $ | $ | ( | $ | |||||||||||||||||||||
6. Equity Investment
As of June 30, 2022 and December 31, 2021, the Company owned a 43.6 111.4 million. No
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 condensed consolidated financial statements.
The Company's gross share of its investment in Matrix was a loss of $2.8 million and income of $0.3 million for the three months ended June 30, 2022 and June 30, 2021, respectively, which is presented net of tax on the unaudited condensed consolidated statements of operations for a loss of $2.1 million and income of $0.2 million for the three months ended June 30, 2022 and June 30, 2021, respectively. For the six months ended June 30, 2022 and June 30, 2021, the Company's gross share of its investment in Matrix was a loss of $2.4 million and income of $4.8 million, respectively, which is presented net of tax on the unaudited condensed consolidated statements of operations for a loss of $1.6 million and income of $3.4 million for the six months ended June 30, 2022 and June 30, 2021, respectively.
The carrying amount of the assets included in the Company’s unaudited condensed consolidated balance sheets and the maximum loss exposure related to the Company’s interest in Matrix as of June 30, 2022 and December 31, 2021 totaled $80.4 million and $83.1 million, respectively.
Summary financial information for Matrix on a standalone basis is as follows (in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Current assets | $ | $ | |||||||||
| Long-term assets | $ | $ | |||||||||
| Current liabilities | $ | $ | |||||||||
| Long-term liabilities | $ | $ | |||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Operating income (loss) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Net income (loss) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
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7. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets were comprised of the following (in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Prepaid insurance | $ | $ | |||||||||
| Prepaid income taxes | |||||||||||
| Deferred financing costs on credit facility | |||||||||||
| Inventory | |||||||||||
| Prepaid rent | |||||||||||
| Other prepaid expenses | |||||||||||
| Total prepaid expenses and other current assets | $ | $ | |||||||||
8. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
Accrued compensation and related liabilities (1) | $ | $ | |||||||||
| Insurance reserves | |||||||||||
| Accrued operating expenses | |||||||||||
| Accrued interest | |||||||||||
Accrued government grants (2) | |||||||||||
| Accrued legal fees | |||||||||||
| Union pension obligation | |||||||||||
| Deferred Revenue | |||||||||||
| Deferred acquisition payments | |||||||||||
| Other | |||||||||||
| Total accrued expenses and other current liabilities | $ | $ | |||||||||
(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. See Note 2, Significant Accounting Policies and Recent Accounting Pronouncements.
(2) Accrued government grants include payments received from government entities in relation to the PRF and ARPA to offset lost revenue or increased expenditures for which the related expenditure has not yet been incurred and thus the related payments are deferred as of as of June 30, 2022 and December 31, 2021.
9. Debt
Senior Unsecured Notes
Senior unsecured notes as of June 30, 2022 and December 31, 2021 consisted of the following (in thousands):
| Senior Unsecured Note | Date of Issuance | June 30, 2022 | December 31, 2021 | |||||||||||||||||
$ | 11/4/2020 | $ | $ | |||||||||||||||||
$ | 8/24/2021 | $ | $ | |||||||||||||||||
The Company pays interest on the Senior Unsecured Notes semi-annually in arrears. Principal payments are not required until the maturity date. Debt issuance costs of $14.5 million in relation to the issuance of the Senior Notes due 2025 were incurred and these costs were deferred and are amortized to interest cost over the term of the Notes. Debt issuance costs of
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$13.5 million were incurred in relation to the issuance of the Senior Notes due 2029 and these costs were deferred and are amortized to interest cost over the term of the Notes. As of June 30, 2022, $22.7 million of unamortized deferred issuance costs was netted against the long-term debt balance on the unaudited condensed consolidated balance sheets. The Company was in compliance with all covenants as of June 30, 2022.
Credit Facility
On February 3, 2022, the Company entered into a new credit agreement (the “New Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, swing line lender and an issuing bank, Wells Fargo Bank, National Association, as an issuing bank, Truist Bank and Wells Fargo Bank, National Association, as co-syndication agents, Deutsche Bank AG New York Branch, Bank of America, N.A., Regions Bank, Bank of Montreal and Capital One, National Association, as co-documentation agents, and JPMorgan Chase Bank, N.A., Truist Securities, Inc. and Wells Fargo Securities, LLC, as joint bookrunners and joint lead arrangers, and the other lenders party thereto. The New Credit Agreement provides the Company with a senior secured revolving credit facility (the “New Credit Facility”) in an aggregate principal amount of $325.0 million. The New Credit Facility includes sublimits for swingline loans, letters of credit and alternative currency loans in amounts of up to $25.0 million, $60.0 million and $75.0 million, respectively. The Company did not draw any amount of the New Credit Facility at closing of the New Credit Agreement. As of June 30, 2022, the Company had $40.8 million of outstanding letters of credit under the New Credit Facility. The proceeds of the New Credit Facility may be used (i) to finance working capital needs of the Company and its subsidiaries and (ii) for general corporate purposes of the Company and its subsidiaries (including to finance capital expenditures, permitted acquisitions and investments). The New Credit Facility replaces the Credit Facility under the Credit Agreement, which was terminated concurrently with the Company's entry into the New Credit Agreement.
Under the New Credit Facility, the Company has an option to request an increase in the amount of the New Credit Facility or obtain incremental term loans from time to time (on substantially the same terms as apply to the existing facilities) by an aggregate amount of up to $175.0 million, plus an unlimited amount so long as the pro forma secured net leverage ratio does not exceed 3.50 :1.00, with either additional commitments from lenders under the New Credit Agreement at such time or new commitments from financial institutions approved by the Company and the administrative agent (which approval is not to be unreasonably withheld), so long as, at the time of any such increase, no default or event of default exists, the representations and warranties of the Company set forth in the New Credit Agreement are true and correct in all material respects and the Company is in pro forma compliance with the financial covenants in the New Credit Agreement. 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 New Credit Facility.
The New Credit Facility matures on February 3, 2027. The Company may prepay the New Credit Facility in whole or in part, at any time without premium or penalty, subject to reimbursement of the lenders’ breakage and redeployment costs in connection with prepayments of Term Benchmark loans or RFR loans, each as defined in the New Credit Agreement. The unutilized portion of the commitments under the New Credit Facility may be irrevocably reduced or terminated by the Company at any time without penalty.
Interest on the outstanding principal amount of the loans accrues at a per annum rate equal to the Alternate Base Rate, the Adjusted Term SOFR Rate, the Adjusted Daily Simple SOFR Rate, the Adjusted EURIBOR Rate or the Adjusted Daily Simple SONIA Rate, as applicable and each as defined in the New Credit Agreement, in each case, plus an applicable margin. The applicable margin ranges from 1.75 % to 3.50 % in the case of Term Benchmark loans or RFR loans, and 0.75 % to 2.50 % in the case of the Alternate Base Rate loans, in each case, based on the Company’s total net leverage ratio as defined in the New Credit Agreement. Interest on the loans is payable quarterly in arrears in the case of Alternate Base Rate loans, on the last day of the relevant interest period in the case of Term Benchmark loans, and monthly in arrears in the case of RFR loans. In addition, the Company is obligated to pay a quarterly commitment fee based on a percentage of the unused portion of the revolving 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. The commitment fee and letter of credit fee range from 0.30 % to 0.50 % and 1.75 % to 3.50 %, respectively, in each case, based on the Company’s total net leverage ratio.
The New Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default. The negative covenants include restrictions on the Company’s ability to, among other things, incur additional indebtedness, create liens, make investments, give guarantees, pay dividends, sell assets and merge and consolidate. The Company is subject to financial covenants, including total net leverage and interest coverage covenants.
The Company’s obligations under the New Credit Facility are guaranteed by all of the Company’s present and future material domestic subsidiaries, excluding certain material domestic subsidiaries that are excluded from being guarantors pursuant to the terms of the New Credit Agreement. The Company’s obligations under, and each guarantor’s obligations under its guaranty of, the New Credit Facility are secured by a first priority lien on substantially all of the Company’s or such
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10. Stock-Based Compensation and Similar Arrangements
The Company provides stock-based compensation to employees, non-employee directors, consultants and advisors under the Company’s 2006 Long-Term Incentive Plan (“2006 Plan”). The 2006 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.
Stock options. The Company recognized stock-based compensation expense for non-qualified stock options (“NQs”) of $0.7 million and $0.5 million for the three months ended June 30, 2022 and 2021, respectively, and $1.3 million and $1.0 million for the six months ended June 30, 2022 and 2021, respectively, in general and administrative expense. At June 30, 2022, the Company had 324,198 stock options outstanding with a weighted-average exercise price of $93.63 .
Restricted stock and restricted stock units. The Company recognized stock-based compensation expense for restricted stock awards ("RSAs") and restricted stock units ("RSUs") of $1.2 0.8 2.2 1.6 3,919 unvested RSAs and 150,551 unvested RSUs outstanding at June 30, 2022 with a weighted-average grant date fair value of $59.75 and $118.60 , respectively.
Performance-based share awards. These awards include RSUs and were first issued beginning on February 8, 2022. The purpose of such awards is to align management’s compensation with the Company's financial performance and other operational objectives and to retain key employees. Awards granted under this category are based on the achievement of various targeted metrics as defined by the Plan. Stock-based compensation expense related to these awards is recognized over the 3-year vesting period under the straight-line attribution method. The Company recorded $0.5 million and $0.8 million of stock-based compensation expense for the three and six months ended June 30, 2022, respectively, related to the awards, with the remaining portion expected to be recognized over the 3 -year requisite service period.
In the second quarter of 2022, an Employee Stock Purchase Program ("ESPP") was approved by the Board of Directors and the Company's shareholders, which will allow employees to purchase Company stock at a discounted rate. The first enrollment period under this program will take place in the third quarter of 2022.
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11. Earnings 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, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
Denominator for basic earnings per share -- weighted-average shares | |||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Common stock options | |||||||||||||||||||||||
| Restricted stock | |||||||||||||||||||||||
Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion | |||||||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | |||||||||||||||||||
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, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Stock options to purchase common stock | |||||||||||||||||||||||
Purchases of Equity Securities
On March 8, 2021, the Board of Directors authorized a stock repurchase program under which the Company could 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. The program ended December 31, 2021. No repurchase program was authorized as of June 30, 2022.
12. Income Taxes
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13. 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, 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 lawsuit 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. Notice of the proposed collective class was issued on October 5, 2021, and potential members of the class had until January 3, 2022 to opt-in. Plaintiff’s deadline to move for class certification is August 15, 2022, and ModivCare Solutions’ opposition to class certification is due September 6, 2022. ModivCare Solutions believes it will be able to successfully oppose class certification of this 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 that the Mobile Care Entities and indirectly ModivCare Solutions violated 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, but such motion was denied on October 26, 2021. ModivCare Solutions filed an interlocutory appeal of this ruling, which is currently pending before the Sixth Circuit Court of Appeals. ModivCare Solutions believes that the case will not have a material adverse effect on the Company’s business, liquidity, financial condition or results of operations.
14. 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, Chairman of the Board, for
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15. Subsequent Events
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes for the three and six months ended June 30, 2022 and 2021 included herein, as well as our audited consolidated financial statements and accompanying notes and management’s discussion and analysis of financial condition and results of operations included in our Form 10-K for the year ended December 31, 2021. For purposes of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to Q2 2022 and Q2 2021 mean the three months ended June 30, 2022 and the three months ended June 30, 2021, respectively.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 3b-6 promulgated thereunder, including statements related to the Company’s strategies or expectations about revenues, liabilities, results of operations, cash flows, ability to fund operations, profitability, ability to meet financial covenants, contracts or market opportunities. 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. In addition, statements that are not historical statements of fact should also be considered forward-looking statements. 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, that may cause actual events to be materially different from those expressed or implied herein. Among such risks, uncertainties and other factors are those summarized under the caption “Summary Risk Factors” in Part I, and described in further detail under the caption “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, for the fiscal year ended December 31, 2021. Hyperlinks to such sections of our Annual Report are contained in the text included within the quotation marks.
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 other filings with the SEC, 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.
Overview of Our 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, connect members to care, help health plans manage risks, reduce costs, and improve outcomes. ModivCare is a provider of non-emergency medical transportation, or NEMT, personal care, and remote patient monitoring, or RPM, solutions, which serve similar, highly vulnerable patient populations.
The technology-enabled operating model includes NEMT core competencies in risk underwriting, contact center management, network credentialing, claims management and non-emergency medical transportation 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’s remote patient monitoring services include personal emergency response systems, vitals monitoring and data-driven patient engagement solutions. ModivCare is further expanding its offerings to include meal delivery and working with communities to provide food-insecure individuals delivery of meals.
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.
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Business Outlook and Trends
Our performance is affected by a number of trends that drive the demand for our services. In particular, the markets in which we operate are exposed to various trends, such as healthcare industry and demographic dynamics. Over the long term, we believe there are numerous factors that could affect growth within the industries in which we operate, including:
•an aging population, which is expected to increase demand for healthcare services and transportation and, accordingly, in-home personal care services;
•increasing prevalence of chronic illnesses that require active and ongoing monitoring of health data which can be accomplished at a lower cost and result in better health outcomes through remote patient monitoring services;
•a movement towards value-based care versus fee-for-service and cost plus care and budget pressure on governments, both of which may increase the use of private corporations to provide necessary and innovative services;
•increasing demand for in-home care provision, driven by cost pressures on traditional reimbursement models and technological advances enabling remote engagement, including remote monitoring and similar internet-based health related services;
•technological advancements, which may be utilized by us to improve services and lower costs, but may also be utilized by others, which may increase industry competitiveness; and
•State Medicaid programs, Medicaid Managed Care Organizations (“MCOs”) and Medicare Advantage plans increasingly are covering NEMT services for a variety of reasons, including increased access to care, improved patient compliance with treatment plans, social trends, and to promote SDoH, and this trend may be accelerated or reinforced by The Consolidated Appropriations Act of 2021 ("H.R.133"), a component of which mandates that state Medicaid programs ensure that Medicaid beneficiaries have necessary transportation to and from health care providers.
Since March 2020 and primarily as a result of the COVID-19 pandemic, we have observed a material reduction in trip volume in our NEMT segment as a result of state imposed public health orders, many of which reduced medical services to life-sustaining programs only (for example, dialysis and chemotherapy). This reduction in trip volume has had a negative financial impact on our transportation providers and may impact the availability of transportation providers in the future given the heightened sanitation requirements imposed on drivers and depressed volume.
Our Personal Care segment has experienced and is expected to continue to experience a material reduction in volume of service hours and visits. Volume has been reduced as members put services on hold due to infection concerns, and/or because they had the alternative of receiving care from family members and other caregivers working remotely or furloughed from their jobs. Cases have also been lost due to patient deaths, and new case referrals slowed as referral sources faced disruption from the various restrictions and public health orders. These depressed volumes will continue to result in lower than expected revenue, at least in the near term, in the Personal Care segment.
Our RPM segment has not experienced a direct material impact to operations or financial activity as a result of the COVID-19 pandemic. While this segment of the business has proven resilient given the increase in demand for remote healthcare services in a highly contagious infection environment, potential risks could arise that could have a material impact on the financial results of the segment. Specifically, given the strain on the healthcare professionals that serve the healthcare community, we could experience shortages in qualified medical professionals that support our remote care monitoring business.
Furthermore, the impact of the COVID-19 pandemic is continuously evolving, and the continuation of the pandemic, any additional resurgence, or COVID-19 variants could continue to change trends in the market.
Critical Accounting Estimates and Policies
There have been no significant changes to our critical accounting policies in our unaudited condensed consolidated financial statements from our Form 10-K for the year ended December 31, 2021. For further discussion of our critical accounting policies, see management’s discussion and analysis of financial condition and results of operations contained in our Form 10-K for the year ended December 31, 2021.
Change in Accounting Estimate
During the first quarter, the Company completed an assessment of the useful lives of our intangible assets and adjusted the estimated useful life of the Simplura trademarks and trade names intangible asset from 10 years to 3 years and adjusted the estimated useful life of the payor network from 15 years to 10 years effective as of January 1, 2022. This change was driven by strategic shifts in the Company's personal care segment operations, partially contributed to by the acquisition of Care Finders. Based on the intangible asset values as of December 31, 2021, the effect of the change in estimate during the three and six
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months ended June 30, 2022 was an increase in amortization expense of $3.6 million, or $0.18 per common share outstanding, and an increase in amortization expense of $7.1 million or $0.36 per diluted common share outstanding, respectively.
Results of Operations
The following results of operations include the accounts of ModivCare Inc. and our subsidiaries for the three and six months ended June 30, 2022.
Revenues
Service revenue, net. Service revenue for our NEMT segment includes contracts predominately with state Medicaid agencies and MCOs for the coordination of their members’ non-emergency transportation needs. Most contracts are capitated, which means we are paid on a per-member, per-month basis for each eligible member. For most contracts, we arrange for transportation of members through our network of independent transportation providers, whereby we negotiate rates and remit payment to the transportation providers. However, for certain contracts, we assume no risk for the transportation network, credentialing and/or payments to these providers. For these contracts, we only provide administrative management services to support the customers’ efforts to serve their clients.
Certain other contracts are structured as fee-for-service ("FFS") 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 and policy discounts in the case of third-party payors.
Service revenue for our Personal Care segment includes hours incurred by our in-home caregivers that are billed to our customers. Our customers consist of third-party payors including, but not limited to, MCOs, hospitals, Medicaid agencies and programs and other home health care providers who subcontract the services of our caregivers.
Service revenue for our RPM segment includes the sale of monitoring equipment to our third-party distributors as well as hours incurred by our Clinical Team for providing monitoring services that are billed to our customers. Our customers consist of national and regional health plans, government-funded benefit programs, healthcare provider organizations, and individuals.
Grant Income
Grant Income. The Company has received distributions under the CARES Act Provider Relief Fund and the ARPA Coronavirus State and Local Fiscal Relief Fund targeted to providing economic relief and stimulus to combat health and economic impacts of the COVID-19 pandemic.
Operating Expenses
Service expense. Service Expense for our NEMT segment includes purchased transportation, operational payroll and other operational related costs. Purchased transportation includes the amounts we pay to third-party service providers and is typically dependent upon service volume. Operational payroll predominately includes our contact center operations, customer advocacy and transportation network team. Other operating expenses primarily include operational overhead costs, and operating facilities and related charges. Service expense for our Personal Care segment includes payroll and other operational related costs for our caregivers to provide in-home care. Service expense for our RPM segment primarily consists of salaries of employees in our contact centers, connectivity costs and occupancy costs.
General and administrative expense. General and administrative expense for all segments consists principally of salaries for administrative employees that indirectly support the operations, occupancy costs, marketing expenditures, insurance, and professional fees.
Depreciation and amortization expense. Depreciation within this caption includes infrastructure items such as computer hardware and software, office equipment, monitoring and vitals equipment, buildings, and leasehold improvements. Amortization expense is generated primarily from amortization of our intangible assets, including payor networks, trade names, developed technology, a non-compete agreement, an assembled workforce, and a New York LHCSA permit.
Other Expenses
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Interest expense, net. Interest expense consists principally of interest payments on the Company’s borrowings outstanding at June 30, 2022 under the Credit Facility and Senior Unsecured Notes, and amortization of deferred financing fees. Refer to the “Liquidity and Capital Resources” section below for further discussion of these borrowings.
Equity in net loss (income) of investee, net of tax. Equity in earnings of equity method investee consists of our proportionate share of equity earnings or losses from our Matrix equity investment, presented net of related taxes.
Income tax provision. The Company is subject to federal taxation in the United States and state taxation in the various jurisdictions in which we operate.
Results of Operations
Segment reporting. Our segments reflect the manner in which our operations are organized and reviewed by management. Segment results are based on how our chief operating decision maker manages our business, makes operating decisions and evaluates operating performance.
We operate four reportable business segments: NEMT, Personal Care, RPM, and Corporate and Other. Effective January 1, 2022, the Company completed its segment reorganization which resulted in the addition of a Corporate and Other segment that includes the costs associated with the Company's corporate operations. The operating results of the Corporate and Other segment include activities related to executive, accounting, finance, internal audit, tax, legal and certain strategic and corporate development functions for each segment, as well as the results of the Matrix investment. Prior to the segment reorganization, we reported the investment in Matrix as a separate operating segment, however based on the relative size of the Matrix investment and all related activity to the overall financial statements, the CODM no longer views it as a separate operating segment but reviews results in conjunction with the other corporate results of the business.
The NEMT segment consists of our legacy operations, which provides non-emergency medical transportation services throughout the country. The Personal Care segment provides non-medical personal care and home health services and is composed of the operations from two acquisitions: Simplura on November 18, 2020, and Care Finders on September 14, 2021. The RPM segment provides remote patient monitoring solutions and was developed through our acquisition of VRI on September 22, 2021 and expanded through our acquisition of GMM on May 18, 2022. The operating results of the NEMT, Personal Care and RPM segments include revenue and expenses generated and incurred by the segment.
See Note 4, Segments, in our accompanying unaudited condensed consolidated financial statements for further information on our segments.
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Q2 2022 compared to Q2 2021
Consolidated Results. The following table sets forth results of operations and the percentage of Service revenue, net represented by items in our unaudited condensed consolidated statements of operations for Q2 2022 and Q2 2021 (in thousands):
| Three months ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | ||||||||||||||||||||
| Service revenue, net | $ | 628,215 | 100.0 | % | $ | 474,448 | 100.0 | % | |||||||||||||||
| Grant income | 3,330 | 0.5 | % | 852 | 0.2 | % | |||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Service expense | 504,230 | 80.3 | % | 379,565 | 80.0 | % | |||||||||||||||||
| General and administrative expense | 79,411 | 12.6 | % | 56,465 | 11.9 | % | |||||||||||||||||
| Depreciation and amortization | 24,758 | 3.9 | % | 11,820 | 2.5 | % | |||||||||||||||||
Total operating expenses | 608,399 | 96.8 | % | 447,850 | 94.4 | % | |||||||||||||||||
| Operating income | 23,146 | 3.7 | % | 27,450 | 5.8 | % | |||||||||||||||||
| Other expenses: | |||||||||||||||||||||||
| Interest expense, net | 15,472 | 2.5 | % | 8,287 | 1.7 | % | |||||||||||||||||
Income before income taxes and equity method investment | 7,674 | 1.2 | % | 19,163 | 4.0 | % | |||||||||||||||||
| Provision for income taxes | 2,291 | 0.4 | % | 5,671 | 1.2 | % | |||||||||||||||||
| Equity in net loss (income) of investee, net of tax | 2,055 | 0.3 | % | (180) | — | % | |||||||||||||||||
| Net income | $ | 3,328 | 0.5 | % | $ | 13,672 | 2.9 | % | |||||||||||||||
Service revenue, net. Consolidated service revenue, net for Q2 2022 increased $153.8 million, or 32.4%, compared to Q2 2021. Service revenue, net, for our NEMT segment increased by $84.0 million, primarily due to higher trip volume and higher membership when compared to Q2 2021. Service revenue, net, further increased by $53.0 million for our Personal Care segment, of which $42.4 million was related to the inclusion of the operating results of Care Finders which was acquired in September 2021. Service revenue, net increased due to the inclusion of $16.7 million for our RPM segment as a result of the operating results of VRI which was acquired in September 2021 and expanded with the acquisition of GMM in May 2022. See our Results of Operations, Segments, for further discussion.
Grant income. The Company recognized grant income of approximately $3.3 million during the three months ended June 30, 2022 compared to $0.9 million during the three months ended June 30, 2021 related to grants from the CARES Act PRF and the ARPA CSLERF targeted to providing economic relief and stimulus to combat health and economic impacts of the COVID-19 pandemic. These funds were received by our Personal Care segment and are available to eligible providers who diagnose, test, or care for individuals with possible or actual cases of COVID-19, and have health care related expenses and lost revenues attributable to COVID-19.
Service expense. Service expense components are shown below (in thousands):
| Three months ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | ||||||||||||||||||||
| Purchased services | $ | 317,213 | 50.5 | % | $ | 245,015 | 51.6 | % | |||||||||||||||
| Payroll and related costs | 171,257 | 27.3 | % | 122,651 | 25.9 | % | |||||||||||||||||
| Other service expenses | 15,760 | 2.5 | % | 11,899 | 2.5 | % | |||||||||||||||||
| Total service expense | $ | 504,230 | 80.3 | % | $ | 379,565 | 80.0 | % | |||||||||||||||
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Service expense for Q2 2022 increased $124.7 million, or 32.8%, compared to Q2 2021 primarily due to higher purchased services costs in the NEMT segment of $72.2 million due to higher third-party transportation costs and associated payroll costs in our contact centers. Transportation and payroll costs increased primarily as a result of higher trip volume across multiple contracts and higher wage rates. This increase was also driven by higher payroll and related costs of $36.8 million in our Personal Care segment, of which $32.3 million million is related to the Care Finders acquisition in September 2021.
General and administrative expense. General and administrative expense for Q2 2022 increased $22.9 million, or 40.6%, compared to Q2 2021. The increase was primarily attributable to an increase of $15.3 million in general and administrative costs related to the operations of Care Finders in the Personal Care segment and VRI in the RPM segment, both of which were acquired during September 2021. General and administrative expense for the NEMT segment increased by $5.5 million. See our Results of Operations, Segments for further discussion.
Depreciation and amortization. Depreciation and amortization for Q2 2022 increased $12.9 million or 109.5% compared to Q2 2021 primarily as a result of $6.8 million of additional amortization in the Personal Care and RPM segments associated with intangible assets purchased in the Care Finders and VRI acquisitions, and $3.6 million of additional amortization in the Personal Care segment related to additional amortization for Simplura intangible assets due to a change in useful life estimate. See Note 2, Significant Accounting Policies and Recent Accounting Pronouncements.
Interest expense, net. Interest expense, net, for Q2 2022 and Q2 2021 was $15.5 million and $8.3 million, respectively. Interest expense increased as a result of the issuance of $500.0 million of Senior Unsecured Notes due 2029 ("the 2029 Notes"), issued in August 2021. We incurred $8.0 million of interest expense related to the Notes due 2025 and $6.6 million related to the Notes due 2029 in Q2 2022. The remainder of the interest expense in Q2 2022 is related to interest and fees on the credit facility. Interest expense is recorded at our Corporate and Other segment.
Equity in net loss (income) of investee, net of tax. Our equity in net loss of investee, net of tax, for Q2 2022 of $2.1 million and our equity in net income of investee, net of tax, of $0.2 million for Q2 2021 was a result of our proportional share of the net income or loss of Matrix and our proportional share of the net loss of our investment in a captive insurance program. Matrix's decrease in net income in Q2 2022 was mainly the result of the operations of its Clinical Solutions business unit which was negatively impacted by a decline in COVID-19 testing and screening within Employee Health, coupled with a decrease in COVID-19 related work in Clinical Trials.
Provision for income taxes. Our effective tax rate from continuing operations for Q2 2022 and Q2 2021 were provisions of 29.9% and 29.6%, respectively. For Q2 2022 and Q2 2021, the effective tax rates were higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes and nondeductible expenses.
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Six months ended June 30, 2022 compared to six months ended June 30, 2021
The following table sets forth results of operations and the percentage of consolidated total revenues represented by items in our condensed consolidated statements of operations for the six months ended June 30, 2022, which we refer to as “YTD 2022”, and for the six months ended June 30, 2021, which we refer to as “YTD 2021” (in thousands):
| Six months ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | ||||||||||||||||||||
| Service revenue, net | $ | 1,202,690 | 100.0 | % | $ | 928,058 | 100.0 | % | |||||||||||||||
| Grant income | 3,798 | 0.3 | % | 3,500 | 0.4 | % | |||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Service expense | 963,545 | 80.1 | % | 739,898 | 79.7 | % | |||||||||||||||||
| General and administrative expense | 156,219 | 13.0 | % | 111,390 | 12.0 | % | |||||||||||||||||
| Depreciation and amortization | 48,704 | 4.0 | % | 24,059 | 2.6 | % | |||||||||||||||||
| Total operating expenses | 1,168,468 | 97.2 | % | 875,347 | 94.3 | % | |||||||||||||||||
| Operating income | 38,020 | 3.2 | % | 56,211 | 6.1 | % | |||||||||||||||||
| Other expenses: | |||||||||||||||||||||||
| Interest expense, net | 30,872 | 2.6 | % | 16,710 | 1.8 | % | |||||||||||||||||
Income before income taxes and equity method investment | 7,148 | 0.6 | % | 39,501 | 4.3 | % | |||||||||||||||||
| Provision for income taxes | 1,930 | 0.2 | % | 10,410 | 1.1 | % | |||||||||||||||||
| Equity in net loss (income) of investee, net of tax | 1,572 | 0.1 | % | (3,421) | (0.4) | % | |||||||||||||||||
| Net income | $ | 3,646 | 0.3 | % | $ | 32,512 | 3.5 | % | |||||||||||||||
Service revenue, net. Consolidated service revenue, net, for YTD 2022 increased $274.6 million, or 29.6%, compared to YTD 2021. Service revenue, net, for the NEMT segment increased by $141.5 million, primarily due to higher trip volume when compared to YTD 2021, as trip volume was depressed in the prior year due to the impact of COVID-19. Service revenue, net, further increased by $102.6 million for our Personal Care segment, of which $86.7 million was related to the inclusion of the operating results of Care Finders which was acquired in September 2021. Service revenue, net increased due to the inclusion of $30.6 million for our RPM segment, as a result of the operating results of VRI which was acquired in September 2021 and expanded with the acquisition of GMM in May 2022. See our Results of Operations, Segments, for further discussion.
Grant income. The Company recognized income of approximately $3.8 million for YTD 2022 compared to $3.5 million during YTD 2021 related to grants from the CARES Act PRF and the ARPA CSLERF targeted to providing economic relief and stimulus to combat health and economic impacts of the COVID-19 pandemic. These funds were received by our Personal Care segment and are available to eligible providers who diagnose, test, or care for individuals with possible or actual cases of COVID-19, and have health care related expenses and lost revenues attributable to COVID-19.
Service expense. Service expense components are shown below (in thousands):
| Six months ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | ||||||||||||||||||||
| Purchased services | $ | 595,160 | 49.5 | % | $ | 468,309 | 50.5 | % | |||||||||||||||
| Payroll and related costs | 338,993 | 28.2 | % | 247,763 | 26.7 | % | |||||||||||||||||
| Other operating expenses | 29,392 | 2.4 | % | 23,826 | 2.6 | % | |||||||||||||||||
| Total service expense | $ | 963,545 | 80.1 | % | $ | 739,898 | 79.7 | % | |||||||||||||||
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Service expense for YTD 2022 increased $223.6 million, or 30.2%, compared to YTD 2021 due to higher purchased services of $126.9 million related to an increase in transportation costs and associated payroll costs in our contact centers for our NEMT segment. Payroll and related costs increased by $91.2 million, primarily related to incremental costs of $69.5 million in the Personal Care and RPM segments due to the acquisitions of Care Finders and VRI in September 2021.
General and administrative expense. General and administrative expense for YTD 2022 increased $44.8 million, or 40.2%, compared to YTD 2021. This increase is primarily attributable to an increase of $28.8 million in general and administrative costs related to the operations of Care Finders in the Personal Care segment and VRI in the RPM segment, both of which were acquired during September 2021. See our Results of Operations, Segments, for further discussion.
Depreciation and amortization. Depreciation and amortization for YTD 2022 increased $24.6 million or 102.4% compared to YTD 2021 primarily as a result of intangibles brought on under the Care Finders and VRI acquisitions in September 2021. See Note 3 Acquisitions.
Interest expense, net. Interest expense, net for YTD 2022 increased $14.2 million compared to YTD 2021. Interest expense increased as a result of the activity related to the $500.0 million Senior Notes due 2029 that were issued in August 2021. We incurred $16.0 million and $13.3 million of interest expense related to the Senior Notes due 2025 and the Senior Notes due 2029, respectively, in the six months ended June 30, 2022. The remainder of the interest expense during YTD 2022 is related to interest and fees on the credit facility. Interest expense is recorded at our Corporate and Other segment.
Equity in net loss (income) of investee, net of tax. For YTD 2022, our equity in net loss of investee is $1.6 million, compared to net income for YTD 2021 of $3.4 million, as a result of our proportional share of the net income or loss of Matrix and our proportional share of the net loss of our investment in a captive insurance program. Matrix's decrease in net income in YTD 2022 was mainly the result of the operations of its Clinical Solutions business unit which was negatively impacted by a decline in COVID-19 testing and screening within Employee Health, coupled with a decrease in COVID-19 related work in Clinical Trials.
Provision for income taxes. Our effective tax rates from continuing operations for YTD 2022 and YTD 2021 were provisions of 27.0% and 26.4%, respectively. The YTD 2022 and YTD 2021 effective tax rates were higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes and certain nondeductible expenses.
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Results of Operations - Segments
The following tables set forth certain financial information from continuing operations attributable to the Company’s business segments (in thousands):
NEMT Segment
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Amount | % of Segment Revenue | Amount | % of Segment Revenue | Amount | % of Segment Revenue | Amount | % of Segment Revenue | ||||||||||||||||||||||||||||||||||||||||
| Service revenue, net | $ | 448,733 | 100.0% | $ | 364,760 | 100.0% | $ | 849,653 | 100.0% | $ | 708,176 | 100.0% | |||||||||||||||||||||||||||||||||||
| Service expense | 373,724 | 83.3% | 292,656 | 80.2% | 705,820 | 83.1% | 565,072 | 79.8% | |||||||||||||||||||||||||||||||||||||||
| General and administrative expense | 33,588 | 7.5% | 28,099 | 7.7% | 70,921 | 8.3% | 56,086 | 7.9% | |||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 7,392 | 1.6% | 6,936 | 1.9% | 14,497 | 1.7% | 14,248 | 2.0% | |||||||||||||||||||||||||||||||||||||||
| Operating income | $ | 34,029 | 7.6% | $ | 37,069 | 10.2% | $ | 58,415 | 6.9% | $ | 72,770 | 10.3% | |||||||||||||||||||||||||||||||||||
The non-emergency medical transportation (“NEMT”) segment, which operates under the brands ModivCare Solutions and Circulation, is the largest manager of NEMT programs for state governments and MCOs in the U.S.
Service revenue, net. Service revenue, net, increased by $84.0 million and 23.0%, during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. This increase is primarily attributable to a 17.6% increase in trip volume, a 13.6% increase in average monthly membership and higher rates per member as compared to the three months ended June 30, 2021. Service revenue, net, increased by $141.5 million and 20.0%, during the six months ended June 30, 2022, primarily attributable to a 12.5% increase in trip volume, a 9.6% increase in average monthly membership and higher rates per member as compared to the six months ended June 30, 2021. Trip volume increased for the three and six months ended June 30, 2022 when compared to 2021, as trip volume was depressed in the prior year due to the impact of COVID-19. While a majority of our contacts are capitated and we receive monthly payments on a per member/fixed basis in return for full or partial risk of transportation volumes, we have certain contracts that limit profit to within a certain corridor and once we reach the maximum profit level we discontinue recognizing revenue and instead build a liability to return back to the customer upon reconciliation at a later date. Other contracts that are structured as fee-for-service also experienced positive impacts to revenue due to higher trip volumes.
Service expense. Service expense components for the NEMT segment are shown below (in thousands):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | Amount | % of Revenue | Amount | % of Revenue | ||||||||||||||||||||||||||||||||||||||||
| Purchased services | $ | 317,213 | 70.7 | % | $ | 245,015 | 67.2 | % | $ | 595,160 | 70.0 | % | $ | 468,309 | 66.1 | % | |||||||||||||||||||||||||||||||
| Payroll and related costs | 45,795 | 10.2 | % | 37,110 | 10.2 | % | 90,756 | 10.7 | % | 75,738 | 10.7 | % | |||||||||||||||||||||||||||||||||||
| Other service expenses | 10,716 | 2.4 | % | 10,531 | 2.9 | % | 19,904 | 2.3 | % | 21,025 | 3.0 | % | |||||||||||||||||||||||||||||||||||
| Total service expense | $ | 373,724 | 83.3 | % | $ | 292,656 | 80.2 | % | $ | 705,820 | 83.1 | % | $ | 565,072 | 79.8 | % | |||||||||||||||||||||||||||||||
Service expense for our NEMT segment primarily consists of transportation costs paid to third party service providers, salaries of employees within our contact centers and operations centers, and occupancy costs. Service expense increased by $81.1 million and 27.7% for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, primarily related to higher purchased services of $72.2 million related to an increase in transportation costs and associated payroll costs in our contact centers due to higher trip volume in the current year. Service expense increased by $140.7 million and 24.9% for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 primarily due to an increase in purchased services of $126.9 million for the same reason as stated above.
General and administrative expense. General and administrative expense primarily consists of salaries for administrative employees that indirectly support the operations, occupancy costs, marketing expenditures, insurance, and professional fees. General and administrative expense increased by $5.5 million and 19.5% for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, primarily as a result of higher salary costs and legal expense. General and administrative expense increased by $14.8 million and 26.5% for the six months ended June 30, 2022, as compared
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to the six months ended June 30, 2021, primarily as a result of higher salary costs and software and hardware maintenance expense.
Depreciation and amortization expense. Depreciation and amortization expense increased by $0.5 million and 6.6% for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021. Depreciation and amortization expense increased by $0.2 million and 1.7% for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021.
Personal Care Segment
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Amount | % of Segment Revenue | Amount | % of Segment Revenue | Amount | % of Segment Revenue | Amount | % of Segment Revenue | ||||||||||||||||||||||||||||||||||||||||
| Service revenue, net | $ | 162,737 | 100.0% | $ | 109,688 | 100.0% | $ | 322,435 | 100.0% | $ | 219,882 | 100.0% | |||||||||||||||||||||||||||||||||||
| Grant income | 3,330 | 2.0% | 852 | 0.8% | 3,798 | 1.2% | 3,500 | 1.6% | |||||||||||||||||||||||||||||||||||||||
| Service expense | 124,445 | 76.5% | 86,909 | 79.2% | 246,677 | 76.5% | 174,826 | 79.5% | |||||||||||||||||||||||||||||||||||||||
| General and administrative expense | 23,346 | 14.3% | 14,775 | 13.5% | 46,479 | 14.4% | 29,804 | 13.6% | |||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 12,552 | 7.7% | 4,884 | 4.5% | 25,057 | 7.8% | 9,811 | 4.5% | |||||||||||||||||||||||||||||||||||||||
| Operating income | $ | 5,724 | 3.5% | $ | 3,972 | 3.6% | $ | 8,020 | 2.5% | $ | 8,941 | 4.1% | |||||||||||||||||||||||||||||||||||
Our Personal Care segment was established in November 2020 with the acquisition of Simplura and expanded in September 2021 with the acquisition of Care Finders. Our Personal Care segment’s services include placements of non-medical personal care assistants and 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. The quarter over quarter fluctuations include incremental changes from the acquisition of Care Finders, as there was only Simplura activity in 2021 and both Simplura and Care Finders activity in 2022.
Service revenue, net. Personal care service contracts are generally structured as fee-for-service contracts, with revenue being driven by hours worked by our personal care providers. Service revenue, net increased by $53.0 million or 48.4% for the three months ended June 30, 2022 as compared to June 30, 2021, primarily due to incremental revenue from the Care Finders acquisition of $42.4 million. The remainder of the increase in service revenue is attributable to Simplura, due to higher hours worked by personal care providers in Q2 2022 as compared to Q2 2021. Service revenue, net increased by $102.6 million or 46.6% for the six months ended June 30, 2022 as compared to June 30, 2021, primarily due to incremental revenue from the Care Finders acquisition of $86.7 million.
Grant Income. In the three and six months ended June 30, 2022, the Company received distributions of the CARES Act PRF and the ARPA CSLERF targeted to providing economic relief and stimulus to combat health and economic impacts of the COVID-19 pandemic of approximately $3.3 million and $3.8 million, respectively, targeted to offset lost revenue and unreimbursed expenditures incurred in connection with the COVID-19 pandemic. In comparison, in the three and six months ended June 30, 2021, the Company received distributions of approximately $0.9 million and $3.5 million.
Service expense. Service expense components for the Personal Care segment are shown below (in thousands):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | Amount | % of Revenue | Amount | % of Revenue | ||||||||||||||||||||||||||||||||||||||||
| Payroll and related costs | $ | 122,375 | 75.2 | % | $ | 85,541 | 78.0 | % | $ | 242,512 | 75.2 | % | $ | 172,024 | 78.2 | % | |||||||||||||||||||||||||||||||
| Other service expenses | 2,070 | 1.3 | % | 1,368 | 1.2 | % | 4,165 | 1.3 | % | 2,802 | 1.3 | % | |||||||||||||||||||||||||||||||||||
| Total service expense | $ | 124,445 | 76.5 | % | $ | 86,909 | 79.2 | % | $ | 246,677 | 76.5 | % | $ | 174,826 | 79.5 | % | |||||||||||||||||||||||||||||||
Service expense for our Personal Care segment primarily consists of salaries for the employees providing the personal care services and it typically trends with the number of hours worked. Service expense for the three months ended June 30, 2022 increased by $37.5 million and 43.2% as compared to the three months ended June 30, 2021, primarily as a result of incremental expense of $33.3 million related to the Care Finders acquisition. Service expense for the six months ended June 30, 2022 increased by $71.9 million and 41.1% as compared to the six months ended June 30, 2021, primarily as a result of
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incremental expense of $65.3 million related to the Care Finders acquisition. The remainder of the increase is related to increased pay rates for the personal care providers for the Simplura business.
General and administrative expense. General and administrative expense primarily consists of salaries for administrative employees that indirectly support the operations, occupancy costs, marketing expenditures, insurance, and professional fees. General and administrative expense increased by $8.6 million and 58.0% for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily related to incremental costs from the acquisition of Care Finders of $8.6 million. General and administrative expense increased by $16.7 million and 55.9% for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily related to incremental costs from the acquisition of Care Finders of $17.1 million.
Depreciation and amortization expense. Depreciation and amortization expense increased by $7.7 million and 157.0% for the three months ended June 30, 2022 as compared to 2021, and increased by $15.2 million and 155.4% for the six months ended June 30, 2022 as compared to 2021. The increase in this expense for the three and six months ended June 30, 2022 is primarily due to amortization expense on the intangible assets brought on under the Care Finders acquisition of $3.7 million and $7.4 million, respectively. The increase for the three and six months ended June 30, 2022 is also driven by the additional amortization expense of $3.6 million and $7.1 million, respectively, related to the change in useful lives of Simplura intangible assets as discussed in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements.
RPM Segment
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2022 | ||||||||||||||||||||||
| Amount | % of Segment Revenue | Amount | % of Segment Revenue | ||||||||||||||||||||
| Service revenue, net | $ | 16,745 | 100.0 | % | $ | 30,602 | 100.0 | % | |||||||||||||||
| Service expense | 6,061 | 36.2 | % | 11,048 | 36.1 | % | |||||||||||||||||
| General and administrative expense | 6,742 | 40.3 | % | 11,704 | 38.2 | % | |||||||||||||||||
| Depreciation and amortization | 4,606 | 27.5 | % | 8,734 | 28.5 | % | |||||||||||||||||
| Operating income | $ | (664) | (4.0) | % | $ | (884) | (2.9) | % | |||||||||||||||
Our Remote Patient Monitoring segment was established in September 2021 with the acquisition of VRI and expanded in May 2022 with the acquisition of GMM. The RPM segment is a provider of remote patient monitoring solutions and manages a comprehensive suite of services, including personal emergency response systems, vitals monitoring and data-driven patient engagement solutions.
Service revenue, net. RPM contracts are generally structured as a fee per enrolled member per month, and therefore revenue is generally driven by number of enrolled members. Service revenue, net, from MCO contracts accounted for 47.5% and 47.4% of service revenue, net, for the three and six months ended June 30, 2022, respectively, while U.S. State Medicaid program contracts accounted for 34.9% and 34.5% of service revenue, net for the three and six months ended June 30, 2022, respectively. The remainder of the RPM segment revenue is derived from private pay and other contracts.
Service expense. Service expense components for the RPM segment are shown below (in thousands):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2022 | ||||||||||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | ||||||||||||||||||||
| Payroll and related costs | $ | 3,087 | 18.4 | % | $ | 5,725 | 18.7 | % | |||||||||||||||
| Other service expenses | 2,974 | 17.8 | % | 5,323 | 17.4 | % | |||||||||||||||||
| Total service expense | $ | 6,061 | 36.2 | % | $ | 11,048 | 36.1 | % | |||||||||||||||
Service expense for our RPM segment primarily consists of salaries for the employees providing the remote monitoring services and it typically trends with the number of hours worked.
General and administrative expense. General and administrative expense primarily consists of salaries for administrative employees that indirectly support the operations, occupancy costs, marketing expenditures, insurance, and professional fees.
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Depreciation and amortization expense. Depreciation and amortization expense consists primarily of amortization expense on the intangible assets brought on during the acquisition as well as depreciation on the fixed assets acquired.
Corporate and Other Segment
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Amount | Amount | Amount | Amount | ||||||||||||||||||||
| General and administrative expense | $ | 15,735 | $ | 13,591 | $ | 27,115 | $ | 25,500 | |||||||||||||||
| Depreciation and amortization | 208 | — | 416 | — | |||||||||||||||||||
| Operating income (loss) | $ | (15,943) | $ | (13,591) | $ | (27,531) | $ | (25,500) | |||||||||||||||
Our Corporate and Other segment was established beginning January 1, 2022 as a result of a segment reorganization completed by the Company. The Company's Corporate and Other segment includes the Company's executive, accounting, finance, internal audit, tax, legal, public reporting, and corporate development functions. This segment also includes the results of our equity investment in Matrix.
Our Corporate and Other segment holds costs incurred related to strategy and stewardship of the other operating segments. These expenses are primarily general and administrative expenses, with a small amount related to depreciation. The general and administrative expense increased by $2.1 million and $1.6 million for the three and six months ended June 30, 2022, primarily due to increased occupancy costs related to the lease for the new corporate headquarters.
Seasonality
Our NEMT segment's operating income and cash flows normally fluctuate as a result of seasonal variations in our business, principally due to lower transportation demand during the winter season and higher demand during the summer season.
Our Personal Care segment’s operating income and cash flows also normally fluctuate as a result of seasonal variations in the business, principally due to somewhat lower demand for in-home services from caregivers during the summer and periods with major holidays, as patients may spend more time with family and less time alone needing outside care during those periods.
Our RPM segment’s operating income and cash flows do not normally fluctuate as a result of seasonal variations in the business.
Liquidity and capital resources
Short-term capital requirements consist primarily of recurring operating expenses, new revenue contract start-up costs and costs associated with our strategic initiatives. We expect to meet our short-term cash requirements through available cash on hand, cash generated from operations, net of capital expenditures, and borrowing from time to time under our New Credit Facility. For information regarding our long-term capital requirements, see below under the caption “Liquidity”.
Cash flow from operating activities during the six months ended June 30, 2022 was $51.2 million. Our balance of cash and cash equivalents, including restricted cash, was $88.0 million and $133.4 million at June 30, 2022 and December 31, 2021, respectively. We had restricted cash of $0.3 million at December 31, 2021 and an immaterial amount at June 30, 2022. Restricted cash amounts are not included in our balance of cash and cash equivalents in the unaudited condensed consolidated balance sheets, although they are included in the cash, cash equivalents and restricted cash balance on the accompanying unaudited condensed consolidated statements of cash flows.
We may, from time to time, access capital markets to raise equity or debt financing for various business reasons, including acquisitions, repurchases of our common stock, investments in our business and possible refinancing activity. The timing, term, size, and pricing of any such financing will depend on investor interest and market conditions, and there can be no assurance that we will be able to obtain any such financing on terms acceptable to us at the time or at all.
YTD 2022 cash flows compared to YTD 2021
Operating activities. Cash provided by operating activities was $51.2 million and $169.1 million for YTD 2022 and YTD 2021, respectively. The decrease of $117.9 million was primarily a result of a decrease in cash provided by changes in working capital of $110.2 million. The working capital changes were related to a decrease in the change in accrued contract
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payables of $125.0 million primarily related to repayments and lower liability reserves on certain risk corridor, profit rebate and reconciliation contracts due to higher trip volumes in YTD 2022. These working capital decreases were partially offset by an increase in the change in accrued transportation costs of $19.0 million primarily related to higher trip volume and unit cost in YTD 2022. The remaining decrease in cash flow provided by operating activities was a result of the decrease in net income of $28.9 million, primarily from higher operating expenses, offset by an increase in amortization of $20.6 million due to the intangible assets brought on under the Care Finders and VRI acquisitions in Q3 2021.
Investing activities. Net cash used in investing activities of $94.8 million in YTD 2022 increased by $70.8 million as compared to YTD 2021 primarily as a result of an increase in cash spent on acquisitions of $63.0 million related to the purchase of GMM.
Financing activities. Net cash used in financing activities of $1.9 million in YTD 2022 decreased by $35.7 million as compared to net cash used in financing activities during YTD 2021 of $37.6 million. The change was primarily due to the Company not participating in a stock repurchase program during YTD 2022 as compared to YTD 2021 during which cash paid to repurchase common stock was $39.0 million. See Note 11, Earnings Per Share, for further information on the stock buyback.
Obligations and commitments
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 “Senior Notes due 2025”). Subsequently, on August 24, 2021, the Company issued an additional $500.0 million in aggregate principal amount of 5.000% senior unsecured notes due on October 1, 2029 (the “Senior Notes due 2029”and, together with the Senior Notes due 2025, the “Notes”). The Senior Notes due 2025 and the Senior Notes due 2029 were issued pursuant to two indentures, dated November 4, 2020 and August 24, 2021, respectively, between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. The proceeds from the Senior Notes due 2025 were used to fund a portion of the Company’s acquisition of Simplura and the proceeds from the Senior Notes due 2029 were used to fund a portion of the Company’s acquisition of VRI.
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 senior indebtedness, are effectively subordinated to any of the Company's existing and future secured indebtedness, including indebtedness under the New 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 Company will pay interest on the Notes at their applicable annual rates until maturity. Interest on the Senior Notes due 2025 is payable semi-annually in arrears on May 15 and November 15 of each year. Interest on the Senior Notes due 2029 is payable semi-annually in arrears on April 1 and October 1 of each year, with the first interest payment date being April 1, 2022. Principal payments are not required until the maturity date on November 15, 2025 and October 1, 2029 when 100% of the outstanding principal will be required to be repaid on the Senior Notes due 2025 and the Senior Notes due 2029, respectively.
New Credit Facility. On February 3, 2022, the Company entered into a new credit agreement (the “New Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, swing line lender and an issuing bank, Wells Fargo Bank, National Association, as an issuing bank, Truist Bank and Wells Fargo Bank, National Association, as co-syndication agents, Deutsche Bank AG New York Branch, Bank of America, N.A., Regions Bank, Bank of Montreal and Capital One, National Association, as co-documentation agents, and JPMorgan Chase Bank, N.A., Truist Securities, Inc. and Wells Fargo Securities, LLC, as joint bookrunners and joint lead arrangers, and the other lenders party thereto. The New Credit Agreement provides the Company with a senior secured revolving credit facility (the “New Credit Facility”) in an aggregate principal amount of $325.0 million. The New Credit Facility includes sublimits for swingline loans, letters of credit and alternative currency loans in amounts of up to $25.0 million, $60.0 million and $75.0 million, respectively. The Company did not draw any amount of the New Credit Facility at closing of the New Credit Agreement. At closing of the New Credit Agreement, the Company had $22.8 million of outstanding letters of credit under the New Credit Facility. The proceeds of the New Credit Facility may be used (i) to finance working capital needs of the Company and its subsidiaries and (ii) for general corporate purposes of the Company and its subsidiaries (including to finance capital expenditures, permitted acquisitions and investments). The New Credit Facility replaces the Credit Facility under the Credit Agreement, which was terminated concurrently with the Company's entry into the New Credit Agreement.
Under the New Credit Facility the Company has an option to request an increase in the amount of the New Credit Facility or obtain incremental term loans from time to time (on substantially the same terms as apply to the existing facilities) by an aggregate amount of up to $175.0 million, plus an unlimited amount so long as the pro forma secured net leverage ratio does not exceed 3.50:1.00, with either additional commitments from lenders under the New Credit Agreement at such time or new commitments from financial institutions approved by the Company and the administrative agent (which approval is not to
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be unreasonably withheld), so long as, at the time of any such increase, no default or event of default exists, the representations and warranties of the Company set forth in the New Credit Agreement are true and correct in all material respects and the Company is in pro forma compliance with the financial covenants in the New Credit Agreement. 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 New Credit Facility.
The New Credit Facility matures on February 3, 2027. The Company may prepay the New Credit Facility in whole or in part, at any time without premium or penalty, subject to reimbursement of the lenders’ breakage and redeployment costs in connection with prepayments of Term Benchmark loans or RFR loans, each as defined in the New Credit Agreement. The unutilized portion of the commitments under the New Credit Facility may be irrevocably reduced or terminated by the Company at any time without penalty.
Interest on the outstanding principal amount of the loans accrues at a per annum rate equal to the Alternate Base Rate, the Adjusted Term SOFR Rate, the Adjusted Daily Simple SOFR Rate, the Adjusted EURIBOR Rate or the Adjusted Daily Simple SONIA Rate, as applicable and each as defined in the New Credit Agreement, in each case, plus an applicable margin. The applicable margin ranges from 1.75% to 3.50% in the case of Term Benchmark loans or RFR loans, and 0.75% to 2.50% in the case of the Alternate Base Rate loans, in each case, based on the Company’s total net leverage ratio as defined in the New Credit Agreement. Interest on the loans is payable quarterly in arrears in the case of Alternate Base Rate loans, on the last day of the relevant interest period in the case of Term Benchmark loan, and monthly in arrears in the case of RFR loans. In addition, the Company is obligated to pay a quarterly commitment fee based on a percentage of the unused portion of the revolving 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. The commitment fee and letter of credit fee range from 0.30% to 0.50% and 1.75% to 3.50%, respectively, in each case, based on the Company’s total net leverage ratio.
The New Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default. The negative covenants include restrictions on the Company’s ability to, among other things, incur additional indebtedness, create liens, make investments, give guarantees, pay dividends, sell assets and merge and consolidate. The Company is subject to financial covenants, including total net leverage and interest coverage covenants.
The Company’s obligations under the New Credit Facility are guaranteed by all of the Company’s present and future material domestic subsidiaries, excluding certain material domestic subsidiaries that are excluded from being guarantors pursuant to the terms of the New Credit Agreement. The Company’s obligations under, and each guarantor’s obligations under its guaranty of, the New Credit Facility are secured by a first priority lien on substantially all of the Company’s or such guarantor’s respective assets. If an event of default occurs, the required lenders may cause the administrative agent to declare all unpaid principal and any accrued and unpaid interest and all fees and expenses under the New Credit Facility to be immediately due and payable. All amounts outstanding under the New Credit Facility will automatically become due and payable upon the commencement of any bankruptcy, insolvency or similar proceedings. The New Credit Agreement also contains a cross default to any of the Company’s indebtedness having a principal amount in excess of $40.0 million.
We were in compliance with all covenants under the New Credit Agreement as of June 30, 2022.
Liquidity
Liquidity measures our ability to meet current and future cash flow needs on a timely basis and at a reasonable cost. We manage our liquidity position to meet our daily cash flow needs, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders. Our liquidity position is supported by management of liquid assets and liabilities and access to alternative sources of funds. Liquid assets include cash of $88.0 million and accounts receivable and other receivables of $279.1 million. Liquid liabilities totaled $692.6 million at period end as detailed in the table below. Other sources of liquidity include our New Credit Facility of $325.0 million.
In the ordinary course of business we have entered into contractual obligations and have made other commitments to make future payments. Our short-term and long-term liquidity requirements are primarily to fund on-going operations. These liquidity requirements are met primarily through cash flow from operations of $51.2 million, debt financing, and our New Credit Facility of $325.0 million. For additional information regarding our operating, investing and financing cash flows, see “Condensed Consolidated Financial Statements— Condensed Consolidated Statements of Cash Flows,” included in Part I, Item I of this report.
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The Company has cash requirements of $692.6 million due in one year or less in addition to $1,353.0 million due in more than one year as of June 30, 2022. The following is a summary of our future cash requirements for the next twelve months and the period extending beyond twelve months as of June 30, 2022 (in thousands):
| At June 30, 2022 | ||||||||||||||||||||
| Less than | Greater than | |||||||||||||||||||
| Total | 1 Year | 1 Year | ||||||||||||||||||
Senior Unsecured Notes (1) | $ | 1,000,000 | $ | — | $ | 1,000,000 | ||||||||||||||
Contracts payable (2) | 281,738 | 278,052 | 3,686 | |||||||||||||||||
Interest (1) | 279,493 | 54,375 | 225,118 | |||||||||||||||||
Transportation costs (3) | 131,282 | 131,282 | — | |||||||||||||||||
Deferred tax liabilities (4) | 80,119 | — | 80,119 | |||||||||||||||||
Operating leases (5) | 50,388 | 6,299 | 44,089 | |||||||||||||||||
Guarantees (6) | 47,659 | 47,659 | — | |||||||||||||||||
Letters of credit (6) | 40,810 | 40,810 | — | |||||||||||||||||
Other current cash obligations (7) | 134,125 | 134,125 | — | |||||||||||||||||
| Total | $ | 2,045,614 | $ | 692,602 | $ | 1,353,012 | ||||||||||||||
(1)See Note 9 of the Notes to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements” for further detail of our Senior Unsecured Notes and the timing of expected future payments. Interest payments are typically paid semi-annually in arrears and have been calculated at the rates fixed as of June 30, 2022.
(2)See Note 5 of the Notes to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements” for further detail of our contracts payable.
(3)See Note 1 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of our Form 10-K for the year ended December 31, 2021 filed on February 28, 2022 for further detail of our accrued transportation cost.
(4)See Note 12 of the Notes to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements” for further detail of our deferred tax liabilities.
(5)The operating leases are for office space. Certain leases contain periodic rent escalation adjustments and renewal options. See Note 18 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of our Form 10-K for the year ended December 31, 2021 filed on February 28, 2022 for further detail of our operating leases.
(6)Letters of credit (“LOCs”) are guarantees of potential payments to third parties under certain conditions. Guarantees include surety bonds we provide to certain customers to protect against potential non-delivery of our non-emergency transportation services. Our LOCs shown in the table were provided by our Credit Facility and reduced our availability under the related Credit Agreement. The surety bonds and LOC amounts in the above table represent the amount of commitment expiration per period.
(7)These include other current liabilities reflected in our unaudited condensed consolidated balance sheets as of June 30, 2022, including accounts payable and accrued expenses as detailed at Note 8 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements”.
Our primary sources of funding include operating cash flows and access to capital markets. There are statutory, regulatory, and debt covenant limitations that affect our ability to access the capital market for funds. Management believes that such limitations will not impact our ability to meet our ongoing short-term cash obligations. Management continuously monitors our liquidity position and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Our management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources, or operations. In addition, our management is not aware of any regulatory recommendations regarding liquidity, which if implemented, would have a material adverse effect on us.
Off-Balance Sheet Arrangements
There have been no material changes to the Off-Balance Sheet Arrangements discussion previously disclosed in our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2021.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We have exposure to interest rate risk mainly related to our Credit Facility, which has variable interest rates that may increase. We did not have any amounts outstanding on our Credit Facility at June 30, 2022.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures
The Company, under the supervision and with the participation of its management (including its principal executive officer and principal financial officer), evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act as of June 30, 2022. Based upon this evaluation, the Company’s principal executive and financial officer has concluded that such disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and accumulated and communicated to the Company’s management, including its principal executive and financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting
The principal executive and financial officer also conducted an evaluation of whether any changes in the Company’s internal control over financial reporting occurred during the quarter ended June 30, 2022 that have materially affected or which are reasonably likely to materially affect such control. Such officer has concluded that no such changes have occurred, other than those efforts related to the remediation of the material weaknesses identified at December 31, 2021.
During the six months ended June 30, 2022, our management continued updating certain internal controls and supporting processes to address the material weakness in our internal control over financial reporting described in our Annual Report on Form 10-K for the year ended December 31, 2021. The remediation plan put into place by management includes the hiring of a third party to lead the remediation efforts as well as the addition of resources within the organization to improve structure and help mitigate risks previously identified. Key focus areas have been identified as general information technology control (GITC) deficiencies, payroll controls, revenue process controls and risk assessment related controls.
To date, management has provided enhanced control training for control owners, and has designed and is in process of implementing our improved processes and related controls in the areas stated above. Management has also enhanced the organizational structure of the personal care segment to ensure accountability and control compliance. Management will continue to monitor the progress of these efforts to ensure timely remediation.
(c) Limitations on the effectiveness of controls
Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company conducts periodic evaluations of its internal controls to enhance, where necessary, its procedures and controls.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time-to-time, we may become involved in legal proceedings arising in the ordinary course of our business. We record accruals for outstanding legal matters when it is believed to be probable that a loss will be incurred and the amount can be reasonably estimated. Management, following consultation with legal counsel, does not expect the ultimate disposition of any or a combination of any such ongoing or anticipated matters to have a material adverse effect on our business, financial condition or operating results. We cannot predict with certainty, however, the potential for or outcome of any litigation. Regardless of the outcome of any particular litigation and the merits of any particular claim, litigation can have a material adverse impact on us due to, among other reasons, any injunctive relief granted which could inhibit our ability to operate our business, amounts paid as damages or in settlement of any such matter, diversion of management resources and defense costs. Interested parties should refer to Note 13, Commitments and Contingencies, in this report for information concerning other potential contingent liabilities matters that do not rise to the level of materiality for purposes of disclosure hereunder.
Item 1A. Risk Factors.
The risks described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”) could materially and adversely affect our business, financial condition, and results of operations, and could cause the trading price of our common stock to decline. The discussion of the risks included under that caption in our Annual Report remains current in all material respects, and there have been no material changes from the risk factors disclosed in the Annual Report. The risk factors that we have discussed do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.
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Item 6. Exhibits.
EXHIBIT INDEX
| Exhibit Number | Description | |||||||
| 10.1* | ||||||||
| 10.2*+ | ||||||||
| 10.3*+ | ||||||||
| 31.1* | ||||||||
| 31.2* | ||||||||
| 32.1** | ||||||||
| 32.2** | ||||||||
| 101.INS* | Inline XBR Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH* | Inline XBRL Schema Document | |||||||
| 101.CAL* | Inline XBRL Calculation Linkbase Document | |||||||
| 101.LAB* | Inline XBRL Label Linkbase Document | |||||||
| 101.PRE* | Inline XBRL Presentation Linkbase Document | |||||||
| 101.DEF* | Inline XBRL Definition Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
| * | Filed herewith. | ||||
| ** | Furnished herewith. | ||||
| + | Management contract or compensatory plan or arrangement. | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ModivCare Inc. | ||||||||
| Date: August 8, 2022 | By: | /s/ L. Heath Sampson | ||||||
L. Heath Sampson Interim Chief Executive Officer | ||||||||
| (Duly Authorized Officer) | ||||||||
| Date: August 8, 2022 | By: | /s/ L. Heath Sampson | ||||||
| L. Heath Sampson Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
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Exhibit 10.2
March 22, 2022
Brett Hickman
4402 W. Woodbridge Ln
New Palestine, IN 46163
Dear Brett,
It gives me great pleasure to offer you the position of Chief Commercial Officer with Modivcare. In addition to confirming our offer, this letter will detail the terms and conditions of your employment and outline the current major features of Modivcare's compensation and benefit plans and practices. All offers of employment are contingent upon the completion of any required pre-employment screening and your ability to establish your identity and authorization to work in the United States. Please be sure to bring work authorization documentation with you on your first day of employment.
Assumption of Duties:
Your start date will be on April 18, 2022 or such earlier date as may be mutually agreed. In your role you will report to Daniel Greenleaf and will have responsibilities commensurate with the Chief Commercial Officer role. You will be based in 6900 Layton Ave, Suite 1200, Denver, Colorado 80237 with the requirement to travel per business need.
Base Salary: Your initial base salary will be $500,000 payable in bi-weekly installments, less applicable taxes and deductions. In your new role, you will be eligible for the Executive Leadership Team Severance Program.
Executive Non-qualified Deferred Compensation Plan: You are also eligible to participate in the Executive Non-qualified Deferred Compensation plan. The next open enrollment will be in December for a January 1st effective date. You may elect to defer up to 10% of your salary and/or 100% of your annual discretionary bonus.
Short-Term Cash Incentive Bonus
You are eligible to participate in a short-term incentive bonus program in the 2022 calendar year. Your target bonus for 2022 will be 100% of your base salary. Your short-term cash incentive bonus will be payable, less applicable taxes and deductions, at such time as cash incentive bonuses are paid to employees, generally and unless otherwise specified, at the end of the first quarter of the year following the year to which the bonus relates. The performance targets for the short-term cash incentive bonus are set by the Compensation Committee of the Board of Directors of The Providence Service Corporation, Modivcare’s parent corporation (the “Compensation Committee”) in its discretion and will be based on individual and organizational performance. The actual amount of any short-term cash incentive bonus will be determined at the discretion of the Compensation Committee based on its assessment of the actual performance against the goals and conditions established for the year and, based on that assessment, no bonus may be paid at all.
Long-Term Equity Incentive Program
Beginning in the calendar year 2022, you will be eligible to receive equity grants under the company’s long-term equity incentive program, with the actual amount, form and terms and conditions of any such awards determined by the Compensation Committee in its sole discretion, and at a grant date by the Compensation Committee. For calendar year 2022, you will be eligible to receive an equity award with a target grant date value equal to 160% of your base salary, comprised of 25% restricted stock units (RSUs),25% options, and 50% performance stock units (PSUs).
Exhibit 10.2
Employee Benefits and Perquisites
You will be eligible to participate in such employee benefit plans, arrangements and programs maintained by Modivcare from time to time for the benefit of its employees generally. Please be aware that these programs are subject to change. If they are modified in the future, you will continue to be eligible for such benefits that are provided to other employees of the company.
Modivcare's current benefit program covers medical, dental, life, short-term and long-term disability insurance, flexible spending accounts, voluntary vision, voluntary life insurance, 401K, and paid time off. As part of our current benefit package, employees can elect medical and/or dental insurance. Please refer to the attached benefit summary for cost details. Also currently included is a 100% company-paid short- and long-term disability policy and 100% company paid life insurance one times annual salary up to $100,000.00. We also offer the opportunity to participate in voluntary vision, voluntary life insurance and both medical care and dependent care flexible spending accounts.
You can enroll online in your benefit coverages after your hire date and during your first 30 days of employment. Your elected coverages will take effect the first of the month following your date of hire. If you miss your initial enrollment window, please note that you will need to wait until the next annual enrollment period.
You will be eligible for paid time off in accordance with company polices. Please refer to the attached vacation policy for VP and above. Additionally, all employees receive six company holidays throughout the calendar year. I have included a current Employee Benefits Summary, which provides you with an overview of the comprehensive package of health and welfare benefits that Modivcare offers employees.
Modivcare offers employees the opportunity to participate in a Traditional 401k (pre-tax) and/or Roth (post-tax) retirement savings plan with an employer match contribution of 100% up to 4%, vested immediately. You are eligible to join the 401(k) Plan upon hire. You must be 21 years of age or older. New hires that have met the eligibility requirements will be automatically enrolled in the plan at a 4% deferral. If you wish to opt out of the automatic deferral, you must change your election to 0%. You can do this by accessing your 401k plan website at www.mkplan.com or contact ADP Retirement Services at 888-822-9238
“At will” Employment and Termination of Employment
Your employment with Modivcare will be an employment “at will” and this arrangement may be altered only in writing by the CEO or General Counsel of Modivcare. Please refer to Appendix A, attached, for further details on “at-will” employment.
Professional Requirements
You will be subject to (and hereby acknowledge) our Corporate Ethics program and will be required to maintain a standard of legal and ethical conduct consistent with such program. Other terms and guidelines for your employment are set forth in our employee handbook, which you will have access to through our employee portal.
You also represent and warrant that you continue to be legally available to work for Modivcare, that you have the full legal right and authority to negotiate and accept this revised offer letter of employment and to render the services as required under this revised offer letter, and that by negotiating, accepting and signing such revised offer letter and rendering such services, you will not have breached or violated and will not breach or otherwise violate any contract or legal obligation that you may owe to any third party. You further represent and warrant that you have not and will not breach or violate any contract or legal obligation owed to any third party, e.g., a fiduciary obligation owed to any prior employer. If for any
Exhibit 10.2
reason whatsoever, any of the foregoing representations or warranties are untrue or inaccurate, or become untrue or inaccurate after the date hereof, in any respect, then Modivcare shall have the right to terminate your employment for Cause.
Restrictive Covenants Agreement
Modivcare intends to honor your ongoing confidentiality obligations and you agree to abide by Modivcare’s strict company policy that prohibits any new employee from using or bringing with them from any prior employer any proprietary information, trade secrets, proprietary materials or processes of such former employers. Upon starting employment with Modivcare you will be required to sign Modivcare’s RCA, a copy of which is provided herewith. At the termination of your employment, you will be reminded of your continuing duties under the RCA. Please read the RCA carefully.
Severability
In the event that any provision or portion of this letter shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this letter shall be unaffected thereby and shall remain in full force and effect to the fullest extent not prohibited by law. You and the firm hereby agree that the court or arbitrator making any such determination shall modify and reform any parts of this letter determined to be invalid or unenforceable, to the extent necessary (and not further than necessary), so as to render them valid and enforceable, or if the court or arbitrator cannot so reform such provision, then such part shall be deemed to have been stricken from this letter with the same force and effect as if such part or parts had never been included.
Section 409A Compliance
Please refer to Appendix A, attached for details regarding Section 409A Compliance.
Withholding
All amounts payable to you hereunder will be subject to customary tax and other withholdings.
Entire Agreement
This offer letter and the Restrictive Covenants Agreement constitutes the entire agreement between you and Modivcare pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations, and discussions, whether oral or written, of the parties with respect to such subject matter.
Acceptance
Upon your acceptance of this offer of employment, please acknowledge your agreement with the terms set forth in this letter by signing in the designated space below.
We are excited about the opportunity to work with you and look forward to hearing your positive response. If you agree with the terms of this offer of employment, please sign and date below and send back via email.
Exhibit 10.2
Sincerely,
/s/ Daniel Greenleaf
Daniel Greenleaf
Chief Executive Officer, Modivcare
Enclosures:
Benefits Booklet & Vacation Policy Appendix A
Accepted By:
/s/ Brett Hickman March 23, 2022
Brett Hickman Date
Exhibit 10.3
March 25, 2022
Ilias Simpson
Mason, OH
Dear Ilias,
It gives me great pleasure to offer you the position of President, Transportation with Modivcare. In addition to confirming our offer, this letter will detail the terms and conditions of your employment and outline the current major features of Modivcare's compensation and benefit plans and practices. All offers of employment are contingent upon the completion of any required pre-employment screening and your ability to establish your identity and authorization to work in the United States. Please be sure to bring work authorization documentation with you on your first day of employment.
Assumption of Duties:
Your start date will be on April 11, 2022 or such earlier date as may be mutually agreed. In your role you will report to Daniel Greenleaf and will have responsibilities commensurate with the President, Transportation role. You will be based in 6900 Layton Ave, Suite 1200, Denver, Colorado 80237 with the requirement to travel per business need.
Base Salary: Your initial base salary will be $500,000 payable in bi-weekly installments, less applicable taxes and deductions. In your new role, you will be eligible for the Executive Leadership Team Severance Program.
Executive Non-qualified Deferred Compensation Plan: You are also eligible to participate in the Executive Non-qualified Deferred Compensation plan. The next open enrollment will be in December for a January 1st effective date. You may elect to defer up to 10% of your salary and/or 100% of your annual discretionary bonus.
Performance Bonus
Within 30 days of start date, together with the CEO, you will determine three written Management by Objective (MBO) goals. Upon completion of these goals, you will be eligible for the performance bonus, in the total amount of $100,000. Upon signature of offer letter, you will inform the CHRO whether you wish to receive your performance bonus in the form of cash or equity payment (50% options, 50% RSU’s).
Short-Term Cash Incentive Bonus
You are eligible to participate in a short-term incentive bonus program in the 2022 calendar year. Your target bonus for 2022 will be 80% of your base salary. Your short-term cash incentive bonus will be payable, less applicable taxes and deductions, at such time as cash incentive bonuses are paid to employees, generally and unless otherwise specified, at the end of the first quarter of the year following the year to which the bonus relates. The performance targets for the short-term cash incentive bonus are set by the Compensation Committee of the Board of Directors of The Providence Service Corporation, Modivcare’s parent corporation (the “Compensation Committee”) in its discretion and will be based on individual and organizational performance. The actual amount of any short-term cash incentive bonus will be determined at the discretion of the Compensation Committee based on its assessment of the actual performance against the goals and conditions established for the year and, based on that assessment, no bonus may be paid at all.
Long-Term Equity Incentive Program
Exhibit 10.3
Beginning in the calendar year 2022, you will be eligible to receive equity grants under the company’s long-term equity incentive program, with the actual amount, form and terms and conditions of any such awards determined by the Compensation Committee in its sole discretion, with a grant date at the next Compensation Committee Meeting on April 27,2022. For calendar year 2022, you will be eligible to receive an equity award with a target grant date value equal to 100% of your base salary, comprised of 25% restricted stock units (RSUs),25% options, and 50% performance stock units (PSUs).
Relocation
As a member of our Executive Leadership Team, you are entitled to reimbursement for any costs associated with relocating yourself and your family to the Denver area. These costs can include, but are not limited to, moving of household goods and services, real estate costs, house hunting trips, closing costs for the sale or purchase of a home or meals and lodging in transit.
Employee Benefits and Perquisites
You will be eligible to participate in such employee benefit plans, arrangements and programs maintained by Modivcare from time to time for the benefit of its employees generally. Please be aware that these programs are subject to change. If they are modified in the future, you will continue to be eligible for such benefits that are provided to other employees of the company.
Modivcare's current benefit program covers medical, dental, life, short-term and long-term disability insurance, flexible spending accounts, voluntary vision, voluntary life insurance, 401K, and paid time off. As part of our current benefit package, employees can elect medical and/or dental insurance. Please refer to the attached benefit summary for cost details. Also currently included is a 100% company-paid short- and long-term disability policy and 100% company paid life insurance one times annual salary up to $100,000.00. We also offer the opportunity to participate in voluntary vision, voluntary life insurance and both medical care and dependent care flexible spending accounts.
You can enroll online in your benefit coverages after your hire date and during your first 30 days of employment. Your elected coverages will take effect the first of the month following your date of hire. If you miss your initial enrollment window, please note that you will need to wait until the next annual enrollment period.
You will be eligible for paid time off in accordance with company polices. Please refer to the attached vacation policy for VP and above. Additionally, all employees receive six company holidays throughout the calendar year. I have included a current Employee Benefits Summary, which provides you with an overview of the comprehensive package of health and welfare benefits that Modivcare offers employees.
Modivcare offers employees the opportunity to participate in a Traditional 401k (pre-tax) and/or Roth (post-tax) retirement savings plan with an employer match contribution of 100% up to 4%, vested immediately. You are eligible to join the 401(k) Plan upon hire. You must be 21 years of age or older. New hires that have met the eligibility requirements will be automatically enrolled in the plan at a 4% deferral. If you wish to opt out of the automatic deferral, you must change your election to 0%. You can do this by accessing your 401k plan website at www.mkplan.com or contact ADP Retirement Services at 888-822-9238
“At will” Employment and Termination of Employment
Your employment with Modivcare will be an employment “at will” and this arrangement may be altered only in writing by the CEO or General Counsel of Modivcare. Please refer to Appendix A, attached, for further details on “at-will” employment.
Exhibit 10.3
Professional Requirements
You will be subject to (and hereby acknowledge) our Corporate Ethics program and will be required to maintain a standard of legal and ethical conduct consistent with such program. Other terms and guidelines for your employment are set forth in our employee handbook, which you will have access to through our employee portal.
You also represent and warrant that you continue to be legally available to work for Modivcare, that you have the full legal right and authority to negotiate and accept this revised offer letter of employment and to render the services as required under this revised offer letter, and that by negotiating, accepting and signing such revised offer letter and rendering such services, you will not have breached or violated and will not breach or otherwise violate any contract or legal obligation that you may owe to any third party. You further represent and warrant that you have not and will not breach or violate any contract or legal obligation owed to any third party, e.g., a fiduciary obligation owed to any prior employer. If for any reason whatsoever, any of the foregoing representations or warranties are untrue or inaccurate, or become untrue or inaccurate after the date hereof, in any respect, then Modivcare shall have the right to terminate your employment for Cause.
Restrictive Covenants Agreement
Modivcare intends to honor your ongoing confidentiality obligations and you agree to abide by Modivcare’s strict company policy that prohibits any new employee from using or bringing with them from any prior employer any proprietary information, trade secrets, proprietary materials or processes of such former employers. Upon starting employment with Modivcare you will be required to sign Modivcare’s RCA, a copy of which is provided herewith. At the termination of your employment, you will be reminded of your continuing duties under the RCA. Please read the RCA carefully.
Severability
In the event that any provision or portion of this letter shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this letter shall be unaffected thereby and shall remain in full force and effect to the fullest extent not prohibited by law. You and the firm hereby agree that the court or arbitrator making any such determination shall modify and reform any parts of this letter determined to be invalid or unenforceable, to the extent necessary (and not further than necessary), so as to render them valid and enforceable, or if the court or arbitrator cannot so reform such provision, then such part shall be deemed to have been stricken from this letter with the same force and effect as if such part or parts had never been included.
Section 409A Compliance
Please refer to Appendix A, attached for details regarding Section 409A Compliance. Withholding
All amounts payable to you hereunder will be subject to customary tax and other withholdings.
Entire Agreement
This offer letter and the Restrictive Covenants Agreement constitutes the entire agreement between you and Modivcare pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations, and discussions, whether oral or written, of the parties with respect to such subject matter.
Acceptance
Exhibit 10.3
Upon your acceptance of this offer of employment, please acknowledge your agreement with the terms set forth in this letter by signing in the designated space below.
We are excited about the opportunity to work with you and look forward to hearing your positive response. If you agree with the terms of this offer of employment, please sign and date below and send back via email.
Sincerely,
/s/ Daniel Greenleaf
Daniel Greenleaf
Chief Executive Officer, Modivcare
Enclosures:
Benefits Booklet & Vacation Policy Appendix A
Accepted By:
/s/ Ilias Simpson March 25, 2022
Ilias Simpson Date
Exhibit 31.1
CERTIFICATIONS
I, L. Heath Sampson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of ModivCare Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 8, 2022
| /s/ L. Heath Sampson | |||||
L. Heath Sampson Interim Chief Executive Officer (Principal Executive Officer) | |||||
Exhibit 31.2
CERTIFICATIONS
I, L. Heath Sampson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of ModivCare Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 8, 2022
| /s/ L. Heath Sampson | ||
L. Heath Sampson Chief Financial Officer (Principal Financial Officer) | ||
Exhibit 32.1
MODIVCARE INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of ModivCare Inc. ("ModivCare" or the "Company") does hereby certify with respect to the Quarterly Report of the Company on Form 10-Q for the quarter ended June 30, 2022 (the “Report”) that, to the best of such officer’s knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: | August 8, 2022 | /s/ L. Heath Sampson | ||||||
L. Heath Sampson Interim Chief Executive Officer (Principal Executive Officer) | ||||||||
Exhibit 32.2
MODIVCARE INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of ModivCare Inc. ("ModivCare" or the "Company") does hereby certify with respect to the Quarterly Report of the Company on Form 10-Q for the quarter ended June 30, 2022 (the “Report”) that, to the best of such officer’s knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: | August 8, 2022 | /s/ L. Heath Sampson | ||||||
L. Heath Sampson Chief Financial Officer (Principal Financial Officer) | ||||||||
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