10-Q 1 modv-20220331.htm 10-Q modv-20220331
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UNITED 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 March 31, 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
 

ModivCare Inc.
(Exact name of registrant as specified in its charter)

Delaware86-0845127
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 6900 Layton Avenue, 12th Floor, Denver, Colorado           80237
(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 classTrading Symbol(s)Name of exchange on which registered
Common Stock, $0.001 par value per shareMODVThe NASDAQ Global Select Market

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,”
1



“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated 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 May 2, 2022, there were 14,046,991 shares outstanding (excluding treasury shares of 5,427,552) of the registrant’s Common Stock, $0.001 par value per share.


2



TABLE OF CONTENTS
 Page
  
 
   
   
 
   
 
  
 
   
Item 2.
   
   
  
 
   
   
Item 1A.
   


3



PART I—FINANCIAL INFORMATION
Item 1.   Financial Statements.

ModivCare Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)

March 31, 2022December 31, 2021
  
Assets  
Current assets:  
Cash and cash equivalents$194,063 $133,139 
Accounts receivable, net of allowance of $1,785 and $2,296, respectively
262,589 233,121 
Other receivables18,326 4,740 
Prepaid expenses and other current assets33,668 38,551 
Restricted cash411 283 
Total current assets509,057 409,834 
Property and equipment, net57,676 53,549 
Goodwill924,787 924,787 
Payor network, net410,475 425,516 
Other intangible assets, net60,249 64,697 
Equity investment83,333 83,069 
Operating lease right-of-use assets42,181 43,750 
Other assets25,226 22,223 
Total assets$2,112,984 $2,027,425 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable$38,050 $8,690 
Accrued contract payables314,126 281,586 
Accrued transportation costs107,190 103,294 
Accrued expenses and other current liabilities138,071 119,563 
Current portion of operating lease liabilities9,858 9,873 
Deferred revenue5,648 4,228 
Total current liabilities612,943 527,234 
Long-term debt, net of deferred financing costs of $23,767 and $24,775, respectively
976,233 975,225 
Deferred tax liabilities88,025 94,611 
Long-term contract payables1,893  
Operating lease liabilities, less current portion34,092 34,524 
Other long-term liabilities23,598 22,564 
Total liabilities1,736,784 1,654,158 
Commitments and contingencies (Note 13)
Stockholders’ equity
Common stock: Authorized 40,000,000 shares; $0.001 par value; 19,627,143 and 19,589,422, respectively, issued and outstanding (including treasury shares)
20 20 
Additional paid-in capital433,636 430,449 
Retained earnings212,147 211,829 
Treasury shares, at cost, 5,574,162 and 5,568,983 shares, respectively
(269,603)(269,031)
Total stockholders’ equity376,200 373,267 
Total liabilities and stockholders’ equity$2,112,984 $2,027,425 
 
See accompanying notes to the unaudited condensed consolidated financial statements
4



ModivCare Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)

 Three months ended March 31,
 20222021
Service revenue, net$574,475 $453,610 
Grant income (Note 2)468 2,648 
Operating expenses:  
Service expense459,315 360,333 
General and administrative expense76,808 54,925 
Depreciation and amortization23,946 12,239 
Total operating expenses560,069 427,497 
Operating income14,874 28,761 
Other expenses:  
Interest expense, net15,400 8,423 
Income (loss) before income taxes and equity method investment
(526)20,338 
Provision (benefit) for income taxes(361)4,739 
Equity in net income of investee, net of tax(483)(3,241)
Net income$318 $18,840 
Earnings per common share:  
Basic$0.02 $1.33 
Diluted$0.02 $1.31 
Weighted-average number of common shares outstanding:  
Basic14,023,585 14,158,666 
Diluted14,143,548 14,362,226 

See accompanying notes to the unaudited condensed consolidated financial statements
5



ModivCare Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

 Three months ended March 31,
 20222021
Operating activities  
Net income$318 $18,840 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation4,456 2,737 
Amortization19,490 9,502 
Provision for doubtful accounts(1,785)27 
Stock-based compensation2,049 1,187 
Deferred income taxes(6,587)(616)
Amortization of deferred financing costs and debt discount1,008 581 
Equity in net income of investee(483)(4,503)
Reduction of right-of-use assets2,884 2,745 
Changes in operating assets and liabilities:
Accounts receivable and other receivables(41,049)(12,219)
Prepaid expenses and other1,879 18,230 
Insurance programs1,401 (273)
Accrued contract payables34,433 71,498 
Accounts payable and accrued expenses46,469 27,844 
Accrued transportation costs3,895 (8,804)
Deferred revenue1,419 (160)
Other long-term liabilities(727)7,948 
Net cash provided by operating activities69,070 134,564 
Investing activities  
Purchase of property and equipment(8,584)(5,388)
Net cash used in investing activities(8,584)(5,388)
Financing activities  
Repurchase of common stock, for treasury (14,450)
Proceeds from common stock issued pursuant to stock option exercise1,138 2,286 
Restricted stock surrendered for employee tax payment(572)(721)
Other financing activities (40)
Net cash provided by (used in) financing activities566 (12,925)
Net change in cash, cash equivalents and restricted cash61,052 116,251 
Cash, cash equivalents and restricted cash at beginning of period133,422 183,356 
Cash, cash equivalents and restricted cash at end of period$194,474 $299,607 

See accompanying notes to the unaudited condensed consolidated financial statements
6



ModivCare Inc.
Unaudited Supplemental Cash Flow Information
(in thousands)

 Three months ended
March 31,
Supplemental cash flow information20222021
Cash paid for interest$551 $251 
Cash paid (received) for income taxes$892 $(9,033)
Assets acquired under operating leases$1,314 $1,214 

See accompanying notes to the unaudited condensed consolidated financial statements
7



ModivCare Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity 
(in thousands, except share and per share data)

Three months ended March 31, 2022
Common StockAdditional
Paid-In
RetainedTreasury Stock
 SharesAmountCapitalEarningsSharesAmountTotal
Balance at December 31, 202119,589,422 $20 $430,449 $211,829 5,568,983 $(269,031)$373,267 
Net income— — — 318 — — 318 
Stock-based compensation— — 1,963 — — — 1,963 
Exercise of employee stock options20,683 — 1,138 — — — 1,138 
Restricted stock issued16,306 — — — — —  
Restricted stock surrendered for employee tax payment— — — — 5,179 (572)(572)
Shares issued for bonus settlement and director stipends732 — 86 — — — 86 
Balance at March 31, 202219,627,143 $20 $433,636 $212,147 5,574,162 $(269,603)$376,200 

Three months ended March 31, 2021
Common StockAdditional
Paid-In
RetainedTreasury Stock
 SharesAmountCapitalEarningsSharesAmountTotal
Balance at December 31, 202019,570,598 $20 $421,318 $218,414 5,287,283 $(228,141)$411,611 
Net income— — — 18,840 — — 18,840 
Stock-based compensation— — 1,149 — — — 1,149 
Exercise of employee stock options36,338 — 2,286 — — — 2,286 
Restricted stock issued15,821 — — — — —  
Restricted stock surrendered for employee tax payment— — — — 4,253 (721)(721)
Shares issued for bonus settlement and director stipends260 — 38 — — — 38 
Stock repurchase plan— — — — 94,235 (14,450)(14,450)
Balance at March 31, 202119,623,017 $20 $424,791 $237,254 5,385,771 $(243,312)$418,753 


See accompanying notes to the unaudited condensed consolidated financial statements
8



ModivCare Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 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 months ended March 31, 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 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.

Reclassifications: Certain prior year amounts have been reclassified to conform to current year presentation.


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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 contain 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, especially when considering current mutations of COVID-19, including the Delta and Omicron variants, which may increase reported rates of COVID-19 cases and may give rise to future mutations that are more resistant to the Federal Drug Administration ("FDA") approved vaccines, 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.

Federal, state, and local authorities have taken several actions designed to assist healthcare providers in providing care to COVID-19 and other patients and to mitigate the adverse economic impact of the COVID-19 pandemic. Legislative actions taken by the federal government include the CARES Act. Through the CARES Act, the federal government has authorized payments to be distributed to healthcare providers through the Public Health and Social Services Emergency Fund ("Provider Relief Fund" or "PRF").

2.    Significant Accounting Policies and Recent Accounting Pronouncements

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingencies, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Changes 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 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 months ended March 31, 2022 was an increase in amortization expense of $3.6 million, or $0.25 per diluted common share outstanding.

Grant Income

The Company has received distributions of the CARES Act PRF of approximately $0.5 million and $2.6 million during the three months ended March 31, 2022 and March 31, 2021, respectively, targeted to offset lost revenue and expenditures incurred in connection with the COVID-19 pandemic. The PRF payments are subject to certain restrictions and are subject to recoupment if not used for designated purposes. As a condition to receiving distributions, providers must agree to certain terms and conditions, including, among other things, that the funds are being used for lost revenues and unreimbursed COVID-19 related expenses as defined by the U.S. Department of Health and Human Services ("HHS"). All recipients of PRF payments are required to comply with the reporting requirements described in the terms and conditions and as determined by HHS. The Company recognizes grant payments as grant income when there is reasonable assurance that it has complied with the conditions associated with the grant. Grant income recognized by the Company is presented in grant income in the accompanying unaudited condensed consolidated statements of operations.

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 million related to the deferral of employer payroll taxes as of March 31, 2022 and December 31, 2021 under the CARES Act which is recorded in
10



accrued expenses on our unaudited condensed consolidated balance sheets. This balance is expected to be paid in the fourth quarter of 2022.

Recent Accounting Pronouncements

The Company adopted the following accounting pronouncements during the three months ended March 31, 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. Early adoption is permitted. 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

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).

The following is a preliminary estimate, based on certain preliminary items noted in the table below, of the allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired, as of the acquisition date of September 14, 2021 (in thousands):

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Cash$11,424 
Accounts receivable (1)
14,708 
Prepaid expenses and other (2)
2,625 
Property and equipment (3)
2,527 
Inventories (4)
231 
Operating right of use asset (5)
1,939 
Intangibles (6)
100,750 
Goodwill (7)
232,161 
Other assets (8)
226 
Accounts payable (9)
(2,487)
Accrued expenses and other accrued liabilities (9)
(14,344)
Operating lease liability (5)
(1,939)
Deferred tax liabilities (10)
(2,618)
Other liabilities (9)
(378)
Total of assets acquired less liabilities assumed$344,825 

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)     Inventories are stated at fair value as of the acquisition date.
(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 our preliminary purchase price allocation.
(6)     The allocation of consideration exchanged for intangible assets acquired is as follows (in thousands):

TypeUseful LifeValue
Payor networkAmortizable7 years$97,200 
Trade nameAmortizable3 years1,950 
Non-compete agreementAmortizable5 years1,600 
$100,750 

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)     Accounts payable as well as certain other current and non-current liabilities are stated at fair value as of the acquisition date.
(10)     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.



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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 strategic pillar 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, based on certain preliminary items noted in the table below, of the allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired, as of the acquisition date of September 22, 2021 (in thousands):

Cash$2,922 
Accounts receivable (1)
6,800 
Inventory (2)
1,684 
Prepaid expenses and other (3)
805 
Property and equipment (4)
14,908 
Intangible assets (5)
75,590 
Goodwill (6)
236,738 
Accounts payable and accrued liabilities (7)
(1,884)
Accrued expense (7)
(2,487)
Deferred revenue (7)
(67)
Deferred tax liabilities (8)
(17,491)
Total of assets acquired less liabilities assumed$317,518 
    

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)     Inventory is stated at fair value as of the acquisition date.
(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.
(5)    The allocation of consideration exchanged for intangible assets acquired is as follows (in thousands):

TypeUseful LifeValue
Payor networkAmortizable7 years$72,150 
Trade nameAmortizable3 years890 
Developed technologyAmortizable3 years2,550 
$75,590 

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.
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(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)     Accounts payable as well as certain other current and non-current liabilities are stated at fair value 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.

Pro Forma Financial Information (unaudited)

Assuming Care Finders and VRI 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 months ended March 31, 2022 and March 31, 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 March 31,
20222021
ActualPro Forma
Revenue$574,475 $514,737 
Income from continuing operations, net318 19,265 
Diluted earnings per share$0.02 $1.34 

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, for the three months ended March 31, 2021.

4.    Segments

The Company’s reportable segments are identified based on a number of factors related to how its chief operating decision maker determines the allocation of resources and assesses the performance of the Company’s operations. The Company's chief operating decision maker 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.;

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 Medicaid 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. 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 - Effective January 1, 2022, the Company completed its segment reorganization which resulted in the addition of a Corporate segment that includes the costs associated with the Company's corporate operations. The
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operating results of our Corporate segment include our activities related to executive, accounting, finance, internal audit, tax, legal and certain strategic and corporate development functions for each segment, as well as the Company's captive insurance program and the results of our Matrix investment. Prior to our segment reorganization, we reported our investment in Matrix as a separate operating segment, however based on how our CODM now views the business, along with the fact that the Matrix investment and all related activity are very minimal, it was determined that these results are reviewed in conjunction with the other corporate results of the business that are not attributable to one of the three operating segments. The Company reclassified certain costs associated with this reorganization for the three months ended March 31, 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.

The following table sets forth certain financial information from continuing operations attributable to the Company’s business segments for the three months ended March 31, 2022 and 2021 (in thousands):

 Three months ended March 31, 2022
 NEMTPersonal CareRPMCorporateTotal
 Service revenue, net
$400,920 $159,698 $13,857 $ $574,475 
Grant income (1)
 468   468 
Service expense332,096 122,232 4,987  459,315 
General and administrative expense37,333 23,133 4,962 11,380 76,808 
Depreciation and amortization7,105 12,505 4,128 208 23,946 
Operating income (loss)$24,386 $2,296 $(220)$(11,588)$14,874 
Equity in net loss (income) of investee, net of tax$65 $ $ $(548)$(483)
Equity investment$ $ $ $83,333 $83,333 
Goodwill$135,186 $552,833 $236,738 $30 $924,787 
Total assets$603,875 $1,024,013 $334,071 $151,025 $2,112,984 

 Three months ended March 31, 2021
 NEMTPersonal CareCorporateTotal
Service revenue, net$343,416 $110,194 $ $453,610 
Grant income (1)
 2,648  2,648 
Service expense272,416 87,917  360,333 
General and administrative expense27,987 15,029 11,909 54,925 
Depreciation and amortization7,312 4,927  12,239 
Operating income (loss)$35,701 $4,969 $(11,909)$28,761 
Equity in net income of investee, net of tax$ $ $(3,241)$(3,241)
Equity investment$ $ $141,220 $141,220 
Goodwill$135,186 $309,711 $30 $444,927 
Total assets$589,047 $698,985 $243,743 $1,531,775 

(1)    Grant income for the Personal Care segment includes provider relief funds received under the CARES Act. These funds are intended to support healthcare providers by reimbursing them for expenses incurred as a result of the COVID-19 pandemic. See Note 2, Significant Accounting Policies and Recent Accounting Pronouncements.


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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 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 for the three months ended March 31, 2022 and 2021 by contract type (in thousands):

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Three months ended March 31,
20222021
NEMT capitated contracts$335,718 $296,235 
NEMT FFS contracts65,202 47,181 
Total NEMT segment revenue400,920 343,416 
Personal Care FFS contracts159,698 110,194 
RPM service contracts13,857  
Total service revenue, net$574,475 $453,610 

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, 10.4% and 8.8% was derived from one U.S. State Medicaid program for the three months ended March 31, 2022 and 2021, respectively. Of the Personal Care segment's revenue, 17.4% and 28.5% was derived from one U.S. State Medicaid program for the three months ended March 31, 2022 and 2021, respectively. Of the RPM segment's revenue, 22.3% was derived from one U.S. State Medicaid program for the three months ended March 31, 2022.

The following table summarizes disaggregated revenue from contracts with customers by payor type (in thousands):

Three months ended March 31,
20222021
State Medicaid contracts$218,142 $203,320 
Managed Medicaid contracts285,600 206,294 
Managed Medicare contracts57,135 37,730 
Private pay and other contracts13,598 6,266 
Total service revenue, net$574,475 $453,610 
During the three months ended March 31, 2022 and 2021, the Company recognized an increase of $1.2 million and a reduction of $3.3 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):
March 31, 2022December 31, 2021
Accounts receivable$235,589 $210,937 
Reconciliation contracts receivable (1)
28,785 24,480 
Allowance for doubtful accounts(1,785)(2,296)
Accounts receivable, net$262,589 $233,121 
(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):
March 31, 2022December 31, 2021
Accrued contract payables (1)
$314,126 $281,586 
Long-term contract payables (2)
$1,893 $ 
Deferred revenue, current$5,648 $4,228 
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(1)     Accrued contract payables primarily represent overpayments and liability reserves on certain risk corridor, profit rebate and reconciliation contracts due to lower activity as a result of COVID-19.

(2)     Long-term contract payables primarily represent liability reserves on certain risk corridor, profit rebate and reconciliation contracts that may 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):

December 31, 2021Additional Amounts RecordedAmounts Paid or SettledMarch 31, 2022
Reconciliation contract payables$22,035 $5,283 $(2,162)$25,156 
Profit rebate/corridor contract payables246,424 30,142 (6,341)270,225 
Overpayments and other cash items13,127 8,937 (1,426)20,638 
Total contract payables$281,586 $44,362 $(9,929)$316,019 
Reconciliation contract receivables$24,403 $4,973 $(1,043)$28,333 
Corridor contract receivables77 375  452 
Total reconciliation contract receivables$24,480 $5,348 $(1,043)$28,785 

6.    Equity Investment

As of March 31, 2022 and December 31, 2021, the Company owned a 43.6% non-controlling interest in Matrix. Pursuant to a Shareholder’s Agreement, affiliates of Frazier Healthcare Partners hold rights necessary to control the fundamental operations of Matrix. The Company accounts for this investment in Matrix under the equity method of accounting and the Company’s share of Matrix’s income or losses are recorded as “Equity in net (income) loss of investee” in the accompanying unaudited condensed consolidated statements of operations. During the year ended December 31, 2021, Matrix recorded asset impairment charges of $111.4 million. No asset impairment charges were recorded for the three months ended March 31, 2022 or March 31, 2021.

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 income of $0.8 million and income of $4.5 million for the three months ended March 31, 2022 and March 31, 2021, respectively, which is presented net of tax on our unaudited condensed consolidated statements of operations for income of $0.5 million and income of $3.2 million for the three months ended March 31, 2022 and March 31, 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 March 31, 2022 and December 31, 2021 totaled $83.3 million and $83.1 million, respectively.

Summary financial information for Matrix on a standalone basis is as follows (in thousands):

 March 31, 2022December 31, 2021
Current assets$131,300 $124,081 
Long-term assets$476,573 $482,063 
Current liabilities$62,238 $57,048 
Long-term liabilities$337,901 $340,448 

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Three months ended March 31,
20222021
Revenue$85,753 $124,042 
Operating income$2,645 $16,092 
Net income (loss)$(1,317)$8,613 

7.    Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets were comprised of the following (in thousands): 

March 31, 2022December 31, 2021
Prepaid income taxes$8,646 $13,848 
Deferred financing costs on credit facility3,789 1,480 
Prepaid insurance2,962 9,487 
Inventory903 1,458 
Prepaid rent227 265 
Other prepaid expenses17,141 12,013 
Total prepaid expenses and other current assets$33,668 $38,551 

8.    Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

March 31, 2022December 31, 2021
Accrued compensation and related liabilities (1)
$47,662 $54,564 
Accrued interest26,461 12,826 
Accrued legal fees16,299 5,081 
Accrued operating expenses14,482 14,457 
Insurance reserves11,554 10,152 
Deferred acquisition payments3,918 3,578 
Accrued cash settled stock-based compensation23 183 
Union pension obligation6,534 6,629 
Other11,138 12,093 
Total accrued expenses and other current liabilities$138,071 $119,563 

(1)     Accrued compensation and related liabilities include deferred payroll taxes, which are deferred as a result of the CARES Act. The CARES Act provides for certain federal income and other tax changes, including the deferral of the employer portion of Social Security payroll taxes. The Company has deferred payment of $12.3 million related to the deferral of employer payroll taxes as of March 31, 2022 and December 31, 2021.


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9.    Debt

Senior Unsecured Notes

Senior unsecured notes as of March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

Senior Unsecured NoteDate of IssuanceMarch 31, 2022December 31, 2021
$500.0 million 5.875% due November 15, 2025
11/4/2020$489,034 $488,368 
$500.0 million 5.000% due October 1, 2029
8/24/2021$487,199 $486,857 

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 $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 March 31, 2022, $23.8 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 March 31, 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. At closing of the New Credit Agreement, the Company had $24.0 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
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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 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. The Company was in compliance with all covenants under the Credit Agreement as of March 31, 2022.

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 $0.6 million and $0.5 million for the three months ended March 31, 2022 and 2021, respectively, in general and administrative expense. At March 31, 2022, the Company had 323,895 stock options outstanding with a weighted-average exercise price of $93.66.

Restricted stock and restricted stock units. The Company recognized stock-based compensation expense for restricted stock awards ("RSAs") and restricted stock units ("RSUs") of $1.1 million and $0.8 million for the three months ended March 31, 2022 and 2021, respectively, in general and administrative expense. The Company had 7,344 unvested RSAs and 83,544 unvested RSUs outstanding at March 31, 2022 with a weighted-average grant date fair value of $81.11 and $113.28, respectively.

Performance-based share awards. These awards include RSUs. The purpose of such awards is to align management’s compensation with our financial performance and other operational objectives and to retain key employees over a specified performance period. 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 a three-year vesting period under the straight-line attribution method if and when we conclude that it is probable that the performance conditions will be achieved. The Company recorded $0.3 million of stock-based compensation expense as of March 31, 2022 related to the awards, with the remaining portion expected to be recognized over the 3-year requisite service period.

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11.    Earnings (Loss) Per Share

The following table details the computation of basic and diluted earnings per share (in thousands, except share and per share data):

 
 Three months ended March 31,
 20222021
Numerator:  
Net income $318 $18,840 
Denominator:  
Denominator for basic earnings per share -- weighted-average shares
14,023,585 14,158,666 
Effect of dilutive securities:  
Common stock options74,296 147,227 
Restricted stock25,944 56,333 
Performance contingent shares19,723  
Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion
14,143,548 14,362,226 
Earnings per share:  
 Basic earnings per share$0.02 $1.33 
  Diluted earnings per share$0.02 $1.31 


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 March 31,
 20222021
Stock options to purchase common stock109,085 24,211 

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 March 31, 2021, 94,235 shares were repurchased under the program for $14.5 million. No repurchase program was authorized as of March 31, 2022.

12.    Income Taxes

The Company’s effective tax rate for continuing operations for the three months ended March 31, 2022 was a benefit of 68.6%. The effective tax rate for continuing operations for the three months ended March 31, 2021 was 23.3%. For the three months ended March 31, 2022, the effective tax rate was higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes and favorable adjustments related to stock compensation. For the three months ended March 31, 2021, the effective tax rate was higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes.

The 2017 Tax Reform Act reduced the U.S. corporate income tax rate from 35.0% to 21.0% and provided that U.S. NOLs incurred after 2017 could only be carried forward to offset future taxable income. However, pursuant to the CARES Act, which was enacted on March 27, 2020, the Company carried its 2018 NOL back five years. As of March 31, 2022, the Company has received all of the $27.3 million receivable for the 2018 U.S. NOL carryback.


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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, our management does not expect any ongoing lawsuits involving the Company to have a material impact on the business, liquidity, financial condition, or results of operations of the Company.

On August 6, 2020, LogistiCare Solutions, LLC, the Company’s subsidiary now known as ModivCare Solutions, LLC (“ModivCare Solutions”), was served with a putative class action 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 June 20, 2022, and ModivCare Solutions’ opposition to class certification is due August 2, 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.

In 2017, one of our Personal Care segment subsidiaries, All Metro Home Care Services of New York, Inc. d/b/a All Metro Health Care (“All Metro”), received a class action lawsuit in state court claiming that, among other things, it failed to properly pay live-in caregivers who stay in patients’ homes for 24 hours per day (“live-ins”). The Company currently pays live-ins for 13 hours per day as supported through a written opinion letter from the New York State Department of Labor (“NYSDOL”). A similar case involving this issue has been heard by the New York Court of Appeals (New York’s highest court), which on March 26, 2019, issued a ruling reversing earlier lower courts’ decisions that an employer must pay live-ins for 24 hours. The Court of Appeals agreed with the NYSDOL’s interpretation to pay live-ins 13 hours instead of 24 hours if certain conditions were being met. If the class action lawsuit on this matter is allowed to proceed, and is successful, All Metro may be liable for back wages and litigated damages going back to November 2011. All Metro filed its motion to oppose class certification of this matter and intends to defend itself vigorously with respect to this matter, believes that it is and has been in compliance in all material respects with the laws and regulations covering pay for live-in caregivers, and does not believe in any event that the ultimate outcome of this matter will have a material adverse effect on the Company’s business, liquidity, financial condition or results of operations.


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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 his service on the Board in lieu of the restricted share awards that are given to our other non-employee directors. These SEUs typically have a one-year vesting schedule and are paid out in cash upon vesting based upon the closing price of the Company’s common stock on the date of vesting. On February 7, 2022, the Company granted Coliseum 1,223 SEUs under this program. The fair value of the SEUs is based on the closing stock price on the last day of the period and the completed requisite service period. The unrecognized compensation cost for SEUs is expected to be recognized over a weighted average period of one year. The liability for unvested SEU awards of $0.2 million at December 31, 2021, is reflected in “Accrued expenses and other current liabilities” in the unaudited condensed consolidated balance sheets. There is no material liability for unvested SEU awards as of March 31, 2022.

In addition, on September 11, 2014, the Company granted 200,000 stock option equivalent units (“SOEUs”) to Coliseum at an exercise price of $43.81 per share that were fully vested. The SOEUs were accounted for as liability awards, with the recorded expense adjustment attributable to the Company’s change in stock price from the previous reporting period. On August 12, 2021, Coliseum exercised all of the SOEUs at a stock price of $182.73 per share for a total cash settlement of $27.8 million. At March 31, 2022, and December 31, 2021, there were no SOEU's outstanding.

15.    Subsequent Events

The Company has evaluated events and transactions subsequent to the Company's unaudited condensed consolidated balance sheet date and prior to the date of issuance. Based on this evaluation, the Company is not aware of any events or transactions that occurred subsequent to the unaudited condensed consolidated balance sheet date and prior to the date of issuance that would require recognition or disclosure in these financial statements, other than those noted below.

The Company and its insurance carriers have agreed to settle subsequent to the balance sheet date a case arising out of an automobile accident in Texas and this settlement has been accrued on our unaudited condensed consolidated balance sheets as of March 31, 2022 for $8.0 million. The cost of this settlement is covered substantially by the Company’s insurance policies, and thus the liability and related insurance receivables have been accrued, with minimal impact to expense.
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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 months ended March 31, 2022 and 2021, 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 Q1 2022 and Q1 2021 mean the three months ended March 31, 2022 and the three months ended March 31, 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 mak