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 September 30, ~~2022~~2023


☐			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)


Delaware						86-0845127
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

6900 E Layton Avenue, 12th Floor, Denver, Colorado 80237

(Address of principal executive offices) (Zip Code)

(303) ~~728-7030~~728-7012

(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
Common Stock, $0.001 par value per share	MODV	The 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,”

“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	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 October ~~28, 2022,~~27, 2023, there were ~~14,138,324~~14,186,655 shares outstanding (excluding treasury shares of ~~5,427,999)~~5,428,370) of the registrant’s Common Stock, $0.001 par value per share.

TABLE OF CONTENTS


		Page

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Unaudited Condensed Consolidated Balance Sheets – September 30, ~~2022~~2023 and December 31, ~~2021~~2022	4

	Unaudited Condensed Consolidated Statements of Operations – Three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022	5

	Unaudited Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, ~~2022~~2023 and ~~2021~~2022	6

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity – ~~Three quarters~~Nine months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022	8

	Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, ~~2022~~2023	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2725

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	42

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Mine Safety Disclosures	45

Item 5 .	Other Information	45

Item 6.	Exhibits	4546

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ModivCare Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)


		September 30, 2022		December 31, 2021
							September 30, 2023		December 31, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	72,703	$	133,139	Cash and cash equivalents	$	8,070	$	14,451
Accounts receivable, net of allowance of $2,670 and $2,296, respectively		266,177		233,121
Accounts receivable, net of allowance of $1,396 and $2,078, respectively						Accounts receivable, net of allowance of $1,396 and $2,078, respectively	202,701		223,210
Contract receivables						Contract receivables	129,275		71,131
Other receivables	Other receivables	6,117		4,740		Other receivables	8,782		2,506
Prepaid expenses and other current assets	Prepaid expenses and other current assets	36,681		38,551		Prepaid expenses and other current assets	38,569		34,332
Restricted cash	Restricted cash	28		283		Restricted cash	544		524
Total current assets	Total current assets	381,706		409,834		Total current assets	387,941		346,154
Property and equipment, net	Property and equipment, net	67,413		53,549		Property and equipment, net	81,419		69,138
Goodwill	Goodwill	968,420		924,787		Goodwill	785,554		968,654
Payor network, net	Payor network, net	408,147		425,516		Payor network, net	346,109		391,980
Other intangible assets, net	Other intangible assets, net	51,643		64,697		Other intangible assets, net	34,482		47,429
Equity investment	Equity investment	43,477		83,069		Equity investment	45,207		41,303
Operating lease right-of-use assets	Operating lease right-of-use assets	38,368		43,750		Operating lease right-of-use assets	39,744		39,405
Other assets	Other assets	30,671		22,223		Other assets	42,630		40,209
Total assets	Total assets	$	1,989,845	$	2,027,425	Total assets	$	1,763,086	$	1,944,272
Liabilities and stockholders' equity	Liabilities and stockholders' equity					Liabilities and stockholders' equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	44,242	$	8,690	Accounts payable	$	41,834	$	54,959
Accrued contract payables	Accrued contract payables	243,800		281,586		Accrued contract payables	133,576		194,287
Accrued transportation costs	Accrued transportation costs	90,114		103,294		Accrued transportation costs	102,974		96,851
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	145,217		123,791		Accrued expenses and other current liabilities	146,564		135,860
Current portion of operating lease liabilities	Current portion of operating lease liabilities	10,134		9,873		Current portion of operating lease liabilities	8,902		9,640

Short-term borrowings						Short-term borrowings	83,000		—
Total current liabilities	Total current liabilities	533,507		527,234		Total current liabilities	516,850		491,597
Long-term debt, net of deferred financing costs of $21,699 and $24,775, respectively		978,301		975,225
Long-term debt, net of deferred financing costs of $17,370 and $20,639, respectively						Long-term debt, net of deferred financing costs of $17,370 and $20,639, respectively	982,630		979,361
Deferred tax liabilities	Deferred tax liabilities	62,666		94,611		Deferred tax liabilities	42,001		57,236

Operating lease liabilities, less current portion	Operating lease liabilities, less current portion	30,595		34,524		Operating lease liabilities, less current portion	33,397		32,088
Other long-term liabilities	Other long-term liabilities	30,628		22,564		Other long-term liabilities	29,347		29,434
Total liabilities	Total liabilities	1,635,697		1,654,158		Total liabilities	1,604,225		1,589,716
Commitments and contingencies (Note 13)	Commitments and contingencies (Note 13)					Commitments and contingencies (Note 13)
Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Common stock: Authorized 40,000,000 shares; $0.001 par value; 19,632,749 and 19,589,422, respectively, issued and outstanding (including treasury shares)		20		20
Common stock: Authorized 40,000,000 shares; $0.001 par value; 19,771,636 and 19,729,923, respectively, issued and outstanding (including treasury shares)						Common stock: Authorized 40,000,000 shares; $0.001 par value; 19,771,636 and 19,729,923, respectively, issued and outstanding (including treasury shares)	20		20
Additional paid-in capital	Additional paid-in capital	436,839		430,449		Additional paid-in capital	448,443		444,255
Retained earnings		186,970		211,829
Treasury shares, at cost, 5,574,905 and 5,568,983 shares, respectively		(269,681)		(269,031)
Retained earnings (accumulated deficit)						Retained earnings (accumulated deficit)	(19,185)		180,023
Treasury shares, at cost, 5,575,275 and 5,573,529 shares, respectively						Treasury shares, at cost, 5,575,275 and 5,573,529 shares, respectively	(270,417)		(269,742)
Total stockholders’ equity	Total stockholders’ equity	354,148		373,267		Total stockholders’ equity	158,861		354,556
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,989,845	$	2,027,425	Total liabilities and stockholders’ equity	$	1,763,086	$	1,944,272

See accompanying notes to the unaudited condensed consolidated financial ~~statements~~statements.

ModivCare Inc.

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)


		Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Service revenue, net	Service revenue, net	$	647,782	$	493,059	$	1,850,472	$	1,421,117	Service revenue, net	$	686,925	$	647,782	$	2,048,338	$	1,850,472
Grant income (Note 2)	Grant income (Note 2)	789		—		4,587		3,500		Grant income (Note 2)	551		789		4,649		4,587

Operating expenses:	Operating expenses:									Operating expenses:
Service expense	Service expense	534,563		399,272		1,498,108		1,139,170		Service expense	579,214		534,563		1,718,735		1,498,108
General and administrative expense	General and administrative expense	75,889		68,205		232,108		179,595		General and administrative expense	70,142		75,889		229,095		232,108
Depreciation and amortization	Depreciation and amortization	25,672		12,608		74,376		36,667		Depreciation and amortization	26,077		25,672		77,679		74,376
Impairment of goodwill										Impairment of goodwill	—		—		183,100		—
Total operating expenses	Total operating expenses	636,124		480,085		1,804,592		1,355,432		Total operating expenses	675,433		636,124		2,208,609		1,804,592

Operating income		12,447		12,974		50,467		69,185
Operating income (loss)										Operating income (loss)	12,043		12,447		(155,622)		50,467

Other expenses:
Interest expense, net	Interest expense, net	15,557		17,702		46,429		34,412		Interest expense, net	17,844		15,557		50,769		46,429
Income (loss) before income taxes and equity method investment	Income (loss) before income taxes and equity method investment	(3,110)		(4,728)		4,038		34,773		Income (loss) before income taxes and equity method investment	(5,801)		(3,110)		(206,391)		4,038
Provision (benefit) for income taxes		(1,053)		(2,001)		877		8,409
Equity in net loss of investee, net of tax		26,448		4,845		28,020		1,424
Net income (loss)		$	(28,505)	$	(7,572)	$	(24,859)	$	24,940
Income tax (provision) benefit										Income tax (provision) benefit	1,659		1,053		4,362		(877)
Equity in net income (loss) of investee, net of tax										Equity in net income (loss) of investee, net of tax	(160)		(26,448)		2,821		(28,020)
Net loss										Net loss	$	(4,302)	$	(28,505)	$	(199,208)	$	(24,859)

Earnings (loss) per common share:
Loss per common share:										Loss per common share:
Basic	Basic	$	(2.03)	$	(0.54)	$	(1.77)	$	1.77	Basic	$	(0.30)	$	(2.03)	$	(14.06)	$	(1.77)
Diluted	Diluted	$	(2.03)	$	(0.54)	$	(1.77)	$	1.75	Diluted	$	(0.30)	$	(2.03)	$	(14.06)	$	(1.77)

Weighted-average number of common shares outstanding:	Weighted-average number of common shares outstanding:									Weighted-average number of common shares outstanding:
Basic	Basic	14,051,794		13,993,438		14,041,224		14,102,371		Basic	14,182,839		14,051,794		14,169,537		14,041,224
Diluted	Diluted	14,051,794		13,993,438		14,041,224		14,278,331		Diluted	14,182,839		14,051,794		14,169,537		14,041,224

See accompanying notes to the unaudited condensed consolidated financial ~~statements~~statements.

ModivCare Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


		Nine months ended September 30,					Nine months ended September 30,
		2022		2021			2023		2022
Operating activities	Operating activities					Operating activities
Net income (loss)		$	(24,859)	$	24,940
Adjustments to reconcile net income to net cash provided by operating activities:
Net loss						Net loss	$	(199,208)	$	(24,859)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:						Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation	Depreciation	14,398		8,839		Depreciation	18,212		14,398
Amortization	Amortization	59,978		27,828		Amortization	59,467		59,978
Provision for doubtful accounts		(2,670)		(1,712)
Stock-based compensation	Stock-based compensation	5,152		4,225		Stock-based compensation	4,029		5,152
Deferred income taxes	Deferred income taxes	(31,232)		(3,295)		Deferred income taxes	(15,235)		(31,232)
Impairment of goodwill						Impairment of goodwill	183,100		—
Amortization of deferred financing costs and debt discount	Amortization of deferred financing costs and debt discount	3,878		2,175		Amortization of deferred financing costs and debt discount	3,907		3,878
Equity in net loss of investees		38,883		1,978
Other assets						Other assets	(2,421)		(8,448)
Equity in net (income) loss of investee						Equity in net (income) loss of investee	(3,915)		38,883
Reduction of right-of-use assets	Reduction of right-of-use assets	8,680		8,681		Reduction of right-of-use assets	9,875		8,680
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable and other receivables	Accounts receivable and other receivables	(28,507)		(69,597)		Accounts receivable and other receivables	14,242		4,403
Prepaid expenses and other		(4,194)		(5,330)

Contract receivables						Contract receivables	(58,143)		(35,580)
Prepaid expenses and other current assets						Prepaid expenses and other current assets	(4,499)		4,254
Accrued contract payables	Accrued contract payables	(37,786)		151,950		Accrued contract payables	(60,710)		(37,786)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	55,887		9,475		Accounts payable and accrued expenses	(2,422)		55,887
Accrued transportation costs	Accrued transportation costs	(13,180)		12,354		Accrued transportation costs	6,123		(13,180)

Other long-term liabilities	Other long-term liabilities	1,098		2,183		Other long-term liabilities	(9,729)		1,098
Net cash provided by operating activities		45,526		174,694
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	(57,327)		45,526
Investing activities	Investing activities					Investing activities
Purchase of property and equipment	Purchase of property and equipment	(25,518)		(13,852)		Purchase of property and equipment	(31,143)		(25,518)
Acquisition, net of cash acquired		(78,872)		(667,228)
Acquisitions, net of cash acquired						Acquisitions, net of cash acquired	—		(78,872)
Net cash used in investing activities	Net cash used in investing activities	(104,390)		(681,080)		Net cash used in investing activities	(31,143)		(104,390)
Financing activities	Financing activities					Financing activities
Proceeds from debt		100,000		625,000
Repayment of debt		(100,000)		(125,000)
Repurchase of common stock, for treasury		—		(39,040)
Debt issuance costs		(2,415)		(13,486)
Net proceeds from short-term borrowings						Net proceeds from short-term borrowings	83,000		—
Payment of debt issuance costs						Payment of debt issuance costs	(376)		(2,415)
Proceeds from common stock issued pursuant to stock option exercise	Proceeds from common stock issued pursuant to stock option exercise	1,237		3,099		Proceeds from common stock issued pursuant to stock option exercise	31		1,237
Restricted stock surrendered for employee tax payment	Restricted stock surrendered for employee tax payment	(649)		(851)		Restricted stock surrendered for employee tax payment	(861)		(649)
Other financing activities						Other financing activities	315		—
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(1,827)		449,722		Net cash provided by (used in) financing activities	82,109		(1,827)
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	(60,691)		(56,664)		Net change in cash, cash equivalents and restricted cash	(6,361)		(60,691)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	133,422		183,356		Cash, cash equivalents and restricted cash at beginning of period	14,975		133,422
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	72,731	$	126,692	Cash, cash equivalents and restricted cash at end of period	$	8,614	$	72,731

See accompanying notes to the unaudited condensed consolidated financial ~~statements~~statements.

ModivCare Inc.

Unaudited Supplemental Cash Flow Information

(in thousands)


		Nine months ended September 30,					Nine months ended September 30,
Supplemental cash flow information	Supplemental cash flow information	2022		2021		Supplemental cash flow information	2023		2022
Cash paid for interest	Cash paid for interest	$	31,460	$	24,006	Cash paid for interest	$	32,816	$	31,460
Cash paid for income taxes	Cash paid for income taxes	$	4,159	$	12,846	Cash paid for income taxes	$	8,348	$	4,159
Assets acquired under operating leases	Assets acquired under operating leases	$	3,298	$	21,829	Assets acquired under operating leases	$	10,214	$	3,298
Acquisitions:	Acquisitions:					Acquisitions:
Purchase price	Purchase price	$	79,199	$	682,113	Purchase price	$	—	$	79,199
Less:	Less:					Less:
Cash acquired	Cash acquired	327		14,885		Cash acquired	—		327
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	$	78,872	$	667,228	Acquisitions, net of cash acquired	$	—	$	78,872

See accompanying notes to the unaudited condensed consolidated financial ~~statements~~statements.

ModivCare Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share and per share data)


		Nine months ended September 30, 2022										Nine months ended September 30, 2023

		Common Stock			Additional		Retained		Treasury Stock							Common Stock			Additional		Retained Earnings		Treasury Stock
		Shares	Amount		Paid-In Capital		Earnings		Shares	Amount			Total			Shares	Amount		Paid-In Capital		(Accumulated Deficit)		Shares	Amount		Total
Balance at December 31, 2021		19,589,422	$	20	$	430,449	$	211,829	5,568,983	$	(269,031)		$	373,267
Net income		—	—		—		318		—	—			318
Balance at December 31, 2022															Balance at December 31, 2022	19,729,923	$	20	$	444,255	$	180,023	5,573,529	$	(269,742)	$	354,556
Net loss															Net loss	—	—		—		(3,962)		—	—		(3,962)
Stock-based compensation	Stock-based compensation	—	—		1,963		—		—	—			1,963		Stock-based compensation	—	—		1,039		—		—	—		1,039
Exercise of employee stock options		20,683	—		1,138		—		—	—			1,138

Restricted stock issued	Restricted stock issued	16,306	—		—		—		—	—			—		Restricted stock issued	24,903	—		—		—		—	—		—
Restricted stock surrendered for employee tax payment	Restricted stock surrendered for employee tax payment	—	—		—		—		5,179	(572)			(572)		Restricted stock surrendered for employee tax payment	—	—		—		—		6,000	(620)		(620)
Shares issued for bonus settlement and director stipends	Shares issued for bonus settlement and director stipends	732	—		86		—		—	—			86		Shares issued for bonus settlement and director stipends	1,006	—		85		—		—	—		85

Balance at March 31, 2022		19,627,143	$	20	$	433,636	$	212,147	5,574,162	$	(269,603)		$	376,200
Net income		—	—		—		3,328		—	—			3,328
Stock-based compensation		—	—		2,363		—		—	—			2,363
Exercise of employee stock options		16	—		—		—		—	—			—
Restricted stock forfeited		(551)	—		—		—		—	—			—
Restricted stock surrendered for employee tax payment		—	—		—		—		322	(36)			(36)
Shares issued for bonus settlement and director stipends		1,000	—		85		—		—	—			85

Balance at June 30, 2022		19,627,608	$	20	$	436,084	$	215,475	5,574,484	$	(269,639)		$	381,940
Balance at March 31, 2023															Balance at March 31, 2023	19,755,832	$	20	$	445,379	$	176,061	5,579,529	$	(270,362)	$	351,098
Net loss	Net loss	—	—		—		(28,505)		—	—			(28,505)		Net loss	—	—		—		(190,944)		—	—		(190,944)
Stock-based compensation	Stock-based compensation	—	—		570		—		—	—			570		Stock-based compensation	—	—		1,021		—		—	—		1,021
Exercise of employee stock options	Exercise of employee stock options	3,381	—		100		—		—	—			100		Exercise of employee stock options	549	—		31		—		—	—		31
Restricted stock issued	Restricted stock issued	914	—		—		—		—	—			—		Restricted stock issued	9,116	—		—		—		—	—		—
Restricted stock surrendered for employee tax payment	Restricted stock surrendered for employee tax payment	—	—		—		—		421	(42)			(42)		Restricted stock surrendered for employee tax payment	—	—		—		—		3,138	(221)		(221)
Shares issued for bonus settlement and director stipends	Shares issued for bonus settlement and director stipends	846	—		85		—		—	—			85		Shares issued for bonus settlement and director stipends	1,871	—		85		—		—	—		85
Shares issued for ESPP															Shares issued for ESPP	—	—		178		—		(7,874)	193		371
Balance at June 30, 2023															Balance at June 30, 2023	19,767,368	$	20	$	446,694	$	(14,883)	5,574,793	$	(270,390)	$	161,441
Net loss															Net loss	—	—		—		(4,302)		—	—		(4,302)
Stock-based compensation															Stock-based compensation	—	—		1,664		—		—	—		1,664

Balance at September 30, 2022		19,632,749	$	20	$	436,839	$	186,970	5,574,905	$	(269,681)		$	354,148
Restricted stock issued															Restricted stock issued	1,583	—		—		—		—	—		—
Restricted stock surrendered for employee tax payment															Restricted stock surrendered for employee tax payment	—	—		—		—		482	(27)		(27)
Shares issued for bonus settlement and director stipends															Shares issued for bonus settlement and director stipends	2,685	—		85		—		—	—		85
Balance at September 30, 2023															Balance at September 30, 2023	19,771,636	$	20	$	448,443	$	(19,185)	5,575,275	$	(270,417)	$	158,861


		Nine months ended September 30, 2021													Nine months ended September 30, 2022

		Common Stock			Additional		Retained		Treasury Stock						Common Stock			Additional		Retained		Treasury Stock
		Shares	Amount		Paid-In Capital		Earnings		Shares	Amount		Total			Shares	Amount		Paid-In Capital		Earnings		Shares	Amount		Total
Balance at December 31, 2020		19,570,598	$	20	$	421,318	$	218,414	5,287,283	$	(228,141)	$	411,611
Balance at December 31, 2021														Balance at December 31, 2021	19,589,422	$	20	$	430,449	$	211,829	5,568,983	$	(269,031)	$	373,267
Net income	Net income	—	—		—		18,840		—	—		18,840		Net income	—	—		—		318		—	—		318
Stock-based compensation	Stock-based compensation	—	—		1,149		—		—	—		1,149		Stock-based compensation	—	—		1,963		—		—	—		1,963
Exercise of employee stock options	Exercise of employee stock options	36,338	—		2,286		—		—	—		2,286		Exercise of employee stock options	20,683	—		1,138		—		—	—		1,138
Restricted stock issued	Restricted stock issued	15,821	—		—		—		—	—		—		Restricted stock issued	16,306	—		—		—		—	—		—
Restricted stock surrendered for employee tax payment	Restricted stock surrendered for employee tax payment	—	—		—		—		4,253	(721)		(721)		Restricted stock surrendered for employee tax payment	—	—		—		—		5,179	(572)		(572)
Shares issued for bonus settlement and director stipends	Shares issued for bonus settlement and director stipends	260	—		38		—		—	—		38		Shares issued for bonus settlement and director stipends	732	—		86		—		—	—		86
Stock repurchase plan		—	—		—		—		94,235	(14,450)		(14,450)
Balance at March 31, 2021		19,623,017	$	20	$	424,791	$	237,254	5,385,771	$	(243,312)	$	418,753
Balance at March 31, 2022														Balance at March 31, 2022	19,627,143	$	20	$	433,636	$	212,147	5,574,162	$	(269,603)	$	376,200
Net income	Net income	—	—		—		13,672		—	—		13,672		Net income	—	—		—		3,328		—	—		3,328
Stock-based compensation	Stock-based compensation	—	—		1,416		—		—	—		1,416		Stock-based compensation	—	—		2,363		—		—	—		2,363
Exercise of employee stock options	Exercise of employee stock options	866	—		49		—		—	—		49		Exercise of employee stock options	16	—		—		—		—	—		—
Restricted stock forfeited	Restricted stock forfeited	(55,162)	—		—		—		—	—		—		Restricted stock forfeited	(551)	—		—		—		—	—		—
Restricted stock surrendered for employee tax payment	Restricted stock surrendered for employee tax payment	—	—		—		—		713	(99)		(99)		Restricted stock surrendered for employee tax payment	—	—		—		—		322	(36)		(36)
Shares issued for bonus settlement and director stipends	Shares issued for bonus settlement and director stipends	324	—		56		—		—	—		56		Shares issued for bonus settlement and director stipends	1,000	—		85		—		—	—		85
Stock repurchase plan		—	—		—		—		175,173	(24,590)		(24,590)
Balance at June 30, 2021		19,569,045	$	20	$	426,312	$	250,926	5,561,657	$	(268,001)	$	409,257
Balance at June 30, 2022														Balance at June 30, 2022	19,627,608	$	20	$	436,084	$	215,475	5,574,484	$	(269,639)	$	381,940
Net loss	Net loss	—	—		—		(7,572)		—	—		(7,572)		Net loss	—	—		—		(28,505)		—	—		(28,505)
Stock-based compensation	Stock-based compensation	—	—		1,505		—		—	—		1,505		Stock-based compensation	—	—		570		—		—	—		570
Exercise of employee stock options	Exercise of employee stock options	12,296	—		765		—		—	—		765		Exercise of employee stock options	3,381	—		100		—		—	—		100
Restricted stock forfeited		(455)	—		—		—		—	—		—
Restricted stock issued														Restricted stock issued	914	—		—		—		—	—		—
Restricted stock surrendered for employee tax payment	Restricted stock surrendered for employee tax payment	—	—		—		—		169	(31)		(31)		Restricted stock surrendered for employee tax payment	—	—		—		—		421	(42)		(42)
Shares issued for bonus settlement and director stipends	Shares issued for bonus settlement and director stipends	333	—		61		—		—	—		61		Shares issued for bonus settlement and director stipends	846	—		85		—		—	—		85

Balance at September 30, 2021		19,581,219	$	20	$	428,643	$	243,354	5,561,826	$	(268,032)	$	403,985
Balance at September 30, 2022														Balance at September 30, 2022	19,632,749	$	20	$	436,839	$	186,970	5,574,905	$	(269,681)	$	354,148

See accompanying notes to the unaudited condensed consolidated financial ~~statements~~statements.

ModivCare Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

September 30, ~~2022~~2023

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.~~members. Its value-based solutions address the social determinants of health ~~or SDoH, connect~~("SDoH") by connecting members to essential care ~~help~~services. By doing so, ModivCare helps health plans manage risks, reduce costs, and improve overall health outcomes. ModivCare is a provider of non-emergency medical transportation ~~or NEMT,~~("NEMT"), personal care services ("PCS"), and remote patient monitoring ~~or RPM,~~("RPM") solutions, which serve similar, highly vulnerable patient populations.

The technology-enabled operating model in its NEMT segment includes ~~NEMT~~the coordination of non-emergency medical transportation services supported by an infrastructure of core competencies in risk underwriting, contact center management, network credentialing ~~claims management~~ and ~~non-emergency medical transportation~~claims 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, medication management 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”). Matrix, which is included in our Corporate and Other segment, 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.~~services.

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 nine months ended September 30, ~~2022~~2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2022.~~2023. 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~~2022 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.~~2022.

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

Impact of the COVID-19 Pandemic

On May 11, 2023, the Department of Health and Human Services ("HHS") declared the end of the public health emergency ("PHE") for the COVID-19 pandemic. While the Company has continued to experience increased trip volume, service hours, and patient visits each year following the pandemic, structural changes in the industry as a result of the 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~~constraints on the ~~duration and magnitude of the pandemic, the ultimate impact~~labor market, specifically related to the ~~business remains uncertain. Accordingly, the COVID-19 pandemic~~strain on healthcare professionals, could continue to have an adverse impact on the Company's financial ~~statements with potential for (i) labor shortages or other disruptions that~~statements. The Company continues to actively monitor the structural changes to the industry and the impact these have on our ~~ability to provide services,~~business 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 intactresults of operations 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 and the American Rescue Plan Act of 2021 ("ARPA"). 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"). ~~The Government further initiated~~Through ARPA ~~which established~~ the Coronavirus State and Local Fiscal Recovery Fund ("SLFRF") was established to send relief payments to state and local governments impacted by the pandemic to assist with responding to the ~~public health emergency (“PHE”)~~PHE including the economic hardships that continue to impact communities and to respond to workers performing essential work during the COVID-19 PHE, including providers. These funds are not subject to repayment, provided we are able to attest to and comply with any terms and conditions of such funding, as applicable. See discussion of grant income at Note 2, Significant Accounting Policies and Recent Accounting Pronouncements.

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~~Fair Value Measurements

The Company follows FASB ASC Topic 820, Fair Value Measurement (“ASC 820”) which establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels based on the observability of inputs are defined as follows:

–Level 1: Quoted Prices in Active Markets for Identical Assets – inputs to the valuation methodology are quoted prices in active markets as of the measurement date for identical assets or liabilities.

–Level 2: Significant Other Observable Inputs – inputs to the valuation methodology are based upon quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

–Level 3: Significant Unobservable Inputs – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. As of September 30, 2023 and December 31, 2022, the carrying amount for cash and cash equivalents, accounts receivable (net of allowance for credit losses), current assets, and current liabilities was equal to or approximated fair value due to their short-term nature or proximity to current market rates. Fair values for our publicly traded debt securities are based on quoted market prices, when available. See Note 9, Debt, for the fair value of our long-term debt.

Goodwill and Intangible Assets

In accordance with ~~its policy,~~ASC 350, Intangibles-Goodwill and Other, the Company reviews goodwill for impairment annually, and more frequently if events and circumstances indicate that an asset may be impaired. Such circumstances could include, but are not limited to: (1) the loss or modification of significant contracts, (2) a significant adverse change in legal factors or in business climate, (3) unanticipated competition, (4) an adverse action or assessment by a regulator, or (5) a significant decline in the Company’s stock price.

When evaluating goodwill for impairment, the Company first performs qualitative assessments for each reporting unit to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the qualitative assessment suggests that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company performs a quantitative assessment and compares the fair value of the reporting unit to its carrying value and to the extent the carrying value is greater than the fair value, the difference is recorded as an impairment in the consolidated statements of operations.

As a result of the Company's annual goodwill assessment during the second quarter of 2023, the Company recorded a $183.1 million impairment of goodwill within its Personal Care and Remote Patient Monitoring reporting units. The Company determined that based on its qualitative assessment for each reporting unit, factors existed which required the Company to test its goodwill and indefinite-lived intangible assets for impairment. These factors included a decline in the market price of the Company's common stock, industry specific regulatory pressures such as Medicaid redetermination and the Centers for Medicare and Medicaid Services ("CMS") proposed ruling on Ensuring Access to Medicaid Services, and general economic and market volatility. As a result, the Company performed a quantitative assessment and determined that the goodwill at its PCS and RPM reporting units was impaired. See Note 7, Goodwill and Intangible Assets, for additional details.

Internal-use Software and Cloud Computing Arrangements

The Company develops and implements software for internal use to enhance the performance and capabilities of the technology infrastructure. The costs incurred for the development of the internal-use software are capitalized when they meet the internal-use software capitalization criteria outlined in ASC 350-40. The capitalized costs are amortized using the straight-line method over the estimated useful lives of ~~its fixed assets and intangible assets on an ongoing basis. As a result of this review,~~the software, ranging from 3 to 10 years.

In addition to acquired software, the Company ~~adjusted~~capitalizes costs associated with cloud computing arrangements (“CCA”) that are service contracts. The CCA includes services which are used to support certain internal corporate functions as well as technology associated with revenue-generating activities. The capitalized costs are amortized using the ~~estimated useful life~~straight-line method over the term of the ~~Simplura trademarks~~related CCA. As of September 30, 2023 and ~~trade names intangible asset from 10 years to 3 years~~December 31, 2022, capitalized costs associated with CCA, net of accumulated amortization were $14.6 million and ~~adjusted the estimated useful life~~$11.9 million, respectively. The value of ~~the payor network from 15 years to 10 years effective~~accumulated amortization 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 ofSeptember 30, 2023 and December 31, ~~2021, the effect of the change in estimate~~2022 was $4.1 million and $2.2 million, respectively. Amortization expense during the three months ended September 30, 2023 and 2022, totaled $0.6 million and $0.5 million, respectively, and during the nine months ended September 30, 2023 and 2022, ~~was an increase in amortization expense of $3.6 million, a decrease in net income of $2.4~~totaled $1.8 million and $0.9 million, respectively.

Revenue Recognition

Under ASC 606, the Company recognizes revenue as it transfers promised services directly to its customers at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing these services. The Company's performance obligations are driven by its different segments of business and primarily consist of integrated service offerings to provide non-emergency medical transportation, personal care services, or remote monitoring services directly to its customers. The Company receives payment for providing these services from third-party payors that include federal, state, and local governmental agencies, managed care organizations, and private consumers. In the NEMT segment, the Company's performance obligation is to stand ready to perform transportation-related activities, including the management, fulfillment, and recordkeeping activities associated with such services. In the PCS segment, the Company's performance obligation is to deliver patient care services in accordance with the nature and frequency of services outlined in each contract. In the RPM segment, the Company's performance obligation is to stand ready to perform monitoring services in the form of personal emergency response system monitoring, vitals monitoring, and other monitoring services, as contractually agreed upon. The Company satisfies substantially all of its performance obligations over time and recognizes revenue over time instead of at points in time which aligns the pattern of transfer of promised services with the value received by the customer for the performance completed to date.

The Company holds different contract types under its different segments of business. In the NEMT segment, there are both capitated contracts, under which payors pay a ~~decrease~~fixed amount monthly per eligible member and revenue is recognized over each distinct service period, and fee-for-service ("FFS") contracts, under which the Company bills and collects a specified amount for each service that is provided and revenue is recognized using the right to invoice practical expedient. In the PCS segment, contracts are also FFS, and service revenue is reported at the estimated net realizable amount from patients and third-party payors for services rendered and revenue is recognized using the right to invoice practical expedient. Under RPM contracts, payors pay per-enrolled-member-per-month, based on enrolled membership, and revenue is recognized ratably over the contract term. For each contract type, the Company determines the transaction price based on the gross charges for services provided, reduced by estimates for contractual adjustments due to settlements of audits and payment reviews from third-party payors. The Company determines the estimated revenue adjustments at each segment based on our historical experience with various third-party payors and previous results from the claims and adjudication process. The PCS segment uses the portfolio approach to determine the estimated revenue adjustments. See further information in earnings per share of $0.17 per diluted common share outstanding, and an increase in amortization expense of $10.7 million, a decrease in net income of $8.4 million, and a decrease in earnings per share of $0.60 per diluted common share outstanding, respectively.Note 4, Revenue Recognition.

Government Grants

The Company has received government grants primarily under the CARES Act PRF and the ARPA SLFRF to provide economic relief and stimulus to combat health and economic impacts of the COVID-19 pandemic. ~~Under these acts,~~During the third quarter of 2023, the Company also filed amended payroll tax returns for 2020 and 2021 to claim refunds for Employee Retention Credits ("ERC"). ERC is a U.S. federal tax credit introduced to support businesses and organizations during the COVID-19 pandemic that was initially established under the CARES Act in 2020 and was later expanded and extended by subsequent legislation, including the Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021. The Company received distributions from these government grants of approximately $6.5 million and $1.4 million during the three months ended September 30, ~~2022. No distributions~~2023 and 2022, respectively, of which $0.6 million and $0.8 million were ~~received~~recognized as grant income during the three months ended September 30, ~~2021. The Company received distributions of approximately $10.4 million~~2023 and ~~$3.5 million during~~2022, respectively, with the remaining balance recorded in accrued expenses and other current liabilities. During the nine months ended September 30, 2023 and 2022, the Company received distributions of approximately $21.0 million and $10.4 million, respectively, of which $4.6 million was recognized as grant income during each of the the nine months ended September 30, ~~2021, respectively.~~2023 and 2022, respectively, with the remaining balance recorded in accrued expenses and other current liabilities. 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.

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, among other things, that the funds are being used for healthcare related expenses and lost revenues attributable to COVID-19, as defined by ~~the U.S. Department of Health and Human Services ("HHS").~~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 has submitted the required

documents to meet reporting requirements ~~through~~for the applicable reporting ~~period three, which ended September 30, 2022.~~periods. The Company received an audit inquiry letter from HHS related to one of the business units that received PRF payments, to which the Company has responded and submitted all requested information and believes that the payments received are substantiated and within the terms and conditions defined by ~~the~~ HHS and continues to include these amounts as grant income. At this time, the Company is unaware of any other pending or upcoming audits or inquiries related to ~~PRF received.~~amounts received under PRF.

As a condition to receiving SLFRF distributions, providers 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 as stipulated by the states in which the funds were received. All recipients of SLFRF payments are required to comply with the reporting requirements that the state in which the funds originated has requested in order for the states to meet the requirements as described in the terms and conditions as determined by the Department of the Treasury. The Company has complied with all known reporting requirements to date.

The Company recognizes distributions from government grants as grant income or accrued expenses and other current liabilities in line with the loss of revenues or expenses for which the grants are intended to compensate 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 million related to the deferral of employer payroll taxes as of September 30, 2022 and December 31, 2021 under the CARES Act which is recorded in accrued expenses on the 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~~company did not adopt any material new accounting ~~pronouncements~~standards during the nine months ended September 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.

~~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 has elected to early adopt this accounting standard and notes that there was no material impact to the financial statements from the adoption of this ASU.2023.

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 purchase price of $344.8 million less $11.4 million of cash that was acquired).

The following table summarizes information from 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~~	$	~~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)~~	~~232,103~~
~~Other assets~~ ~~(8)~~	~~226~~
~~Accounts payable~~ ~~(9)~~	~~(2,720)~~
~~Accrued expenses and other accrued liabilities~~ ~~(9)~~	~~(14,344)~~
~~Operating lease liability~~ ~~(5)~~	~~(1,939)~~
~~Deferred tax liabilities~~ ~~(10)~~	~~(2,327)~~
~~Other liabilities~~ ~~(9)~~	~~(378)~~
~~Total of assets acquired less liabilities assumed~~	$	~~344,825~~

~~(1) Management has valued accounts receivable based on the estimated future collectability of the receivables portfolio.~~

~~(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) was recorded at $1.9 million based on market rates available to the Company during the 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~~	~~7 years~~	$	~~97,200~~
~~Trade name~~	~~Amortizable~~	~~3 years~~	~~1,950~~
~~Non-compete agreement~~	~~Amortizable~~	~~5 years~~	~~1,600~~
			$	~~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 initially 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. In the third quarter of 2022, goodwill decreased by $0.1 million as a result of changes to accounts payable and deferred tax liabilities, as discussed in detail below. 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. In the third quarter of 2022, it was determined that an additional $0.2 million of accounts payable existed as of the acquisition date, and therefore, the initial balance of $2.5 million was increased to $2.7 million.

(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. In the third quarter of 2022, deferred tax liabilities of $2.6 million decreased by $0.3 million due to tax impacts of the acquisition.

~~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 purchase price of $317.5 million less $2.9 million of cash that was acquired).~~

The following table summarizes 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)~~	~~236,317~~
~~Accounts payable and accrued liabilities~~ ~~(7)~~	~~(1,884)~~
~~Accrued expense~~ ~~(7)~~	~~(2,487)~~
~~Deferred revenue~~ ~~(7)~~	~~(67)~~
~~Deferred tax liabilities~~ ~~(8)~~	~~(17,070)~~
~~Total of assets acquired less liabilities assumed~~	$	~~317,518~~

~~(1) Management has valued accounts receivable based on the estimated future collectability of the receivables portfolio.~~

~~(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.

~~(5) The allocation of consideration exchanged for intangible assets acquired is as follows (in thousands):~~


	~~Type~~	~~Useful Life~~	~~Value~~
~~Payor network~~	~~Amortizable~~	~~7 years~~	$	~~72,150~~
~~Trade name~~	~~Amortizable~~	~~3 years~~	~~890~~
~~Developed technology~~	~~Amortizable~~	~~3 years~~	~~2,550~~
			$	~~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.~~

(6) The acquisition initially 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. In the third quarter of 2022, goodwill decreased by $0.4 million due to a decrease in deferred tax liabilities, as discussed in more detail below. The related goodwill is not deductible for tax purposes.

(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. In the third quarter of 2022, deferred tax liabilities of $17.5 million decreased by $0.4 million due to tax impacts of the acquisition.

~~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 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~~	$	~~327~~
~~Accounts receivable~~ ~~(1)~~	~~2,548~~
~~Prepaid expenses and other~~ ~~(2)~~	~~770~~
~~Property and equipment~~ ~~(3)~~	~~2,744~~
~~Intangible assets~~ ~~(4)~~	~~21,950~~
~~Goodwill~~ ~~(5)~~	~~44,113~~
~~Accounts payable~~ ~~(6)~~	~~(281)~~
~~Accrued expenses and other current liabilities~~ ~~(6)~~	~~(577)~~


~~Total of assets acquired less liabilities assumed~~	$	~~71,594~~

The acquisition method of accounting requires us to record the assets acquired and liabilities assumed at their fair values as of the date of acquisition, which requires management to use currently available information to make estimates and assumptions. The Company believes that the available information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, however, if new information becomes available related to facts that existed at the acquisition date, preliminary estimates may be adjusted. Upon finalization of the preliminary items noted below, there may be related adjustments to certain of such items and to goodwill and income taxes.

(1) Management has valued accounts receivable based on the estimated future collectability of the receivables portfolio. In the third quarter of 2022, it was determined that $0.4 million of the initial accounts receivable balance was uncollectible, and therefore, the initial balance of $2.9 million was decreased to $2.5 million. 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 fair value for PP&E is ongoing.

~~(4) The preliminary allocation of consideration exchanged for intangible assets acquired is as follows (in thousands):~~


	~~Type~~	~~Useful Life~~	~~Value~~
~~Payor network~~	~~Amortizable~~	~~7 years~~	$	~~21,600~~
~~Trade name~~	~~Amortizable~~	~~2 years~~	~~350~~
			$	~~21,950~~

~~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. In the third quarter of 2022, accounts receivable was adjusted down by $0.4 million which caused a corresponding increase to goodwill for a total goodwill balance of $44.1 million. The amount of goodwill deductible for tax purposes has yet to be determined.

(6) Due to the short-term nature of the accounts, the carrying value is assumed to represent the fair value for accounts payable and accrued expenses and other current liabilities as of the acquisition date.

~~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 nine months ended September 30, 2022 and September 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 September 30, Nine months ended September 30,
2022 2021 2022 2021
Revenue $ 647,782 $ 552,342 $ 1,850,472 $ 1,616,115
Income (loss) from continuing operations, net (9,714) (13,442) (7,242) 12,439
Diluted earnings (loss) per share $ (0.69) $ (0.96) $ (0.52) $ 0.87

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 $1.1 million and $1.0 million, respectively, for the three months ended September 30, 2021 and $3.7 million and $3.2 million, respectively, for the nine months ended September 30, 2021.

Acquisition-related costs of approximately $0.4 million and $2.0 million for the three and nine months ended September 30, 2022 for GMM were expensed as incurred, recorded in selling, general and administrative expenses 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.~~

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 CODM uses service revenue, net and operating income as the measures of profit or loss to assess segment performance and allocate resources, and uses total assets as the measure of assets attributable to each segment. The Company's ~~CODM manages~~operating income for the ~~Company under four~~ reportable ~~segments.~~

segments includes an allocated portion of corporate expenses to the respective segments and includes revenues and all other costs directly attributable to the specific segment. 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,~~Company's CODM manages 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~~under four reportable ~~segments based on the difference in services provided by each of the segments as provided in further detail below:~~segments.

•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.~~program;

•~~Personal Care~~PCS - The Company's ~~Personal Care~~PCS segment ~~began operations~~provides 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 provideshome personal care services 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~~The Company's Corporate and Other segment ~~that~~ includes the costs associated with the Company's corporate ~~operations.~~operations as well as the results of an investment in innovation related to our data analytics capabilities that the Company made at the end of the first quarter of 2023, which contributes to service revenue and service expense. 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, the results of this investment in innovation, as well as the results of the Company's 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 nine months ended September 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.

The following table sets forth certain financial information from ~~continuing~~ operations attributable to the Company’s business segments for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 (in thousands):


	Three months ended September 30, 2023
	NEMT		PCS		RPM		Corporate and Other		Total
Service revenue, net	$	485,951	$	179,979	$	19,779	$	1,216	$	686,925
Grant income(1)	—		551		—		—		551

Service expense	428,021		143,078		6,934		1,181		579,214
General and administrative expense	25,433		20,252		5,685		18,772		70,142
Depreciation and amortization	6,814		12,850		6,174		239		26,077

Operating income (loss)	$	25,683	$	4,350	$	986	$	(18,976)	$	12,043

Equity in net income (loss) of investee, net of tax	$	142	$	—	$	—	$	(302)	$	(160)
Equity investment	$	1,552	$	—	$	—	$	43,655	$	45,207
Goodwill	$	135,186	$	415,444	$	234,894	$	30	$	785,554
Total assets	$	512,032	$	774,731	$	346,257	$	130,066	$	1,763,086


	Nine months ended September 30, 2023
	NEMT		PCS		RPM		Corporate and Other		Total
Service revenue, net	$	1,452,389	$	534,435	$	57,702	$	3,812	$	2,048,338
Grant income(1)	—		4,649		—		—		4,649

Service expense	1,277,604		417,636		20,129		3,366		1,718,735
General and administrative expense	87,645		63,480		16,781		61,189		229,095
Depreciation and amortization	20,319		38,590		18,087		683		77,679
Impairment of goodwill	—		137,331		45,769		—		183,100
Operating income (loss)	$	66,821	$	(117,953)	$	(43,064)	$	(61,426)	$	(155,622)

Equity in net income of investee, net of tax	$	984	$	—	$	—	$	1,837	$	2,821
Equity investment	$	1,552	$	—	$	—	$	43,655	$	45,207
Goodwill	$	135,186	$	415,444	$	234,894	$	30	$	785,554
Total assets	$	512,032	$	774,731	$	346,257	$	130,066	$	1,763,086


		Three months ended September 30, 2022											Three months ended September 30, 2022
		NEMT		Personal Care		RPM		Corporate and Other		Total			NEMT		PCS		RPM		Corporate and Other		Total
Service revenue, net	Service revenue, net	$	459,796	$	169,226	$	18,760	$	—	$	647,782	Service revenue, net	$	459,796	$	169,226	$	18,760	$	—	$	647,782
Grant income (1)	Grant income (1)	—		789		—		—		789		Grant income(1)	—		789		—		—		789

Service expense	Service expense	394,981		132,746		6,836		—		534,563		Service expense	394,981		132,746		6,836		—		534,563
General and administrative expense	General and administrative expense	31,815		22,057		5,816		16,201		75,889		General and administrative expense	31,815		22,057		5,816		16,201		75,889
Depreciation and amortization	Depreciation and amortization	7,079		12,919		5,467		207		25,672		Depreciation and amortization	7,079		12,919		5,467		207		25,672
Operating income (loss)	Operating income (loss)	$	25,921	$	2,293	$	641	$	(16,408)	$	12,447	Operating income (loss)	$	25,921	$	2,293	$	641	$	(16,408)	$	12,447

Equity in net loss (income) of investee, net of tax		$	(208)	$	—	$	—	$	26,656	$	26,448
Equity in net income (loss) of investee, net of tax												Equity in net income (loss) of investee, net of tax	$	208	$	—	$	—	$	(26,656)	$	(26,448)
Equity investment	Equity investment	$	208	$	—	$	—	$	43,269	$	43,477	Equity investment	$	208	$	—	$	—	$	43,269	$	43,477
Goodwill ~~(2)~~	Goodwill ~~(2)~~	$	135,186	$	552,775	$	280,429	$	30	$	968,420	Goodwill ~~(2)~~	$	135,186	$	552,775	$	280,429	$	30	$	968,420
Total assets	Total assets	$	517,930	$	962,425	$	402,929	$	106,561	$	1,989,845	Total assets	$	517,930	$	962,425	$	402,929	$	106,561	$	1,989,845


		Nine months ended September 30, 2022											Nine months ended September 30, 2022
		NEMT		Personal Care		RPM		Corporate and Other		Total			NEMT		PCS		RPM		Corporate and Other		Total
Service revenue, net	Service revenue, net	$	1,309,449	$	491,661	$	49,362	$	—	$	1,850,472	Service revenue, net	$	1,309,449	$	491,661	$	49,362	$	—	$	1,850,472
Grant income (1)	Grant income (1)	—		4,587		—		—		4,587		Grant income(1)	—		4,587		—		—		4,587

Service expense	Service expense	1,100,801		379,423		17,884		—		1,498,108		Service expense	1,100,801		379,423		17,884		—		1,498,108
General and administrative expense	General and administrative expense	102,736		68,536		17,520		43,316		232,108		General and administrative expense	102,736		68,536		17,520		43,316		232,108
Depreciation and amortization	Depreciation and amortization	21,576		37,976		14,201		623		74,376		Depreciation and amortization	21,576		37,976		14,201		623		74,376
Operating income (loss)	Operating income (loss)	$	84,336	$	10,313	$	(243)	$	(43,939)	$	50,467	Operating income (loss)	$	84,336	$	10,313	$	(243)	$	(43,939)	$	50,467

Equity in net loss (income) of investee, net of tax		$	(143)	$	—	$	—	$	28,163	$	28,020
Equity in net income (loss) of investee, net of tax												Equity in net income (loss) of investee, net of tax	$	143	$	—	$	—	$	(28,163)	$	(28,020)
Equity investment	Equity investment	$	208	$	—	$	—	$	43,269	$	43,477	Equity investment	$	208	$	—	$	—	$	43,269	$	43,477
Goodwill ~~(2)~~	Goodwill ~~(2)~~	$	135,186	$	552,775	$	280,429	$	30	$	968,420	Goodwill ~~(2)~~	$	135,186	$	552,775	$	280,429	$	30	$	968,420
Total assets	Total assets	$	517,930	$	962,425	$	402,929	$	106,561	$	1,989,845	Total assets	$	517,930	$	962,425	$	402,929	$	106,561	$	1,989,845

(1) Grant income for the ~~Personal Care~~PCS segment includes funding received on a periodic basis from the PRF in relation to relief under the CARES Act and funding received from the SLFRF 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 during the second quarter of 2022. During the third quarter of 2022, the Company recorded an increase in GMM goodwill of $0.4 million and a decrease in VRI goodwill of $0.4 million related to measurement period adjustments as discussed in Note 3, ~~Acquisitions,~~ for a total GMM goodwill balance of $44.1 million and a total VRI goodwill balance of $236.3 million. Additionally, during the third quarter of 2022, the Company recorded a net decrease in goodwill of $0.1 million in the Personal Care segment related to measurement period adjustments at the Care Finders subsidiary as discussed in Note 3, ~~Acquisitions~~.

Three months ended September 30, 2021
NEMT Personal Care RPM Corporate and Other Total
Service revenue, net $ 372,992 $ 118,503 $ 1,564 $ — $ 493,059
Grant income (1)
— — — — —
Service expense 304,398 94,107 767 — 399,272
General and administrative expense 29,875 15,802 216 22,312 68,205
Depreciation and amortization 7,496 4,912 200 — 12,608
Operating income (loss) $ 31,223 $ 3,682 $ 381 $ (22,312) $ 12,974
Equity in net loss of investee, net of tax $ — $ — $ — $ 4,845 $ 4,845
Equity investment $ — $ — $ — $ 134,353 $ 134,353
Goodwill $ 135,186 $ 565,886 $ 228,884 $ 30 $ 929,986
Total assets $ 552,912 $ 1,037,886 $ 343,277 $ 201,078 $ 2,135,153

Nine months ended September 30, 2021
NEMT Personal Care RPM Corporate and Other Total
Service revenue, net $ 1,081,168 $ 338,385 $ 1,564 $ — $ 1,421,117
Grant income (1)
— 3,500 — — 3,500
Service expense 869,470 268,933 767 — 1,139,170
General and administrative expense 85,961 45,606 216 47,812 179,595
Depreciation and amortization 21,744 14,723 200 — 36,667
Operating income (loss) $ 103,993 $ 12,623 $ 381 $ (47,812) $ 69,185
Equity in net loss of investee, net of tax $ — $ — $ — $ 1,424 $ 1,424
Equity investment $ — $ — $ — $ 134,353 $ 134,353
Goodwill $ 135,186 $ 565,886 $ 228,884 $ 30 $ 929,986
Total assets $ 552,912 $ 1,037,886 $ 343,277 $ 201,078 $ 2,135,153

5.4. 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 over time and recognizes revenue over time instead of at points in time.

Revenue Contract Structure

NEMT Capitated Contracts (per-member-per-month)

Under capitated contracts, payors pay a fixed amount per eligible member per month. 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 payor’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 payor, or additional payments due from the payor. 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 payor. 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~~PCS Fee-for-service Contracts

~~Personal Care~~PCS FFS revenue is reported at the estimated net realizable amount from clients, patients and third-party payors for services rendered based on actual personal care hours provided. 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~~review 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 per-member-per-month Contracts

RPM per-member-per-month ("PMPM") 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 revenue is recognized ratably over the ~~contracts do not typically contain variable components of consideration. As such, the RPM segment recognizes revenue~~contract term 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 nine months ended September 30, ~~2022~~2023 and September 30, ~~2021~~2022 (in thousands):


		Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
NEMT capitated contracts	NEMT capitated contracts	$	399,859	$	311,913	$	1,145,694	$	916,976	NEMT capitated contracts	$	412,762	$	399,859	$	1,239,957	$	1,145,694
NEMT FFS contracts	NEMT FFS contracts	59,937		61,079		163,755		164,192		NEMT FFS contracts	73,189		59,937		212,432		163,755
Total NEMT revenue		459,796		372,992		1,309,449		1,081,168
Total NEMT service revenue, net										Total NEMT service revenue, net	485,951		459,796		1,452,389		1,309,449

Personal Care FFS contracts		169,226		118,503		491,661		338,385
PCS FFS contracts										PCS FFS contracts	179,979		169,226		534,435		491,661
RPM PMPM contracts	RPM PMPM contracts	18,760		1,564		49,362		1,564		RPM PMPM contracts	19,779		18,760		57,702		49,362
Other service revenue										Other service revenue	1,216		—		3,812		—
Total service revenue, net	Total service revenue, net	$	647,782	$	493,059	$	1,850,472	$	1,421,117	Total service revenue, net	$	686,925	$	647,782	$	2,048,338	$	1,850,472

Payor Information

Service revenue, net, is derived from state and managed Medicaid contracts, managed Medicare contracts, as well as a small amount from private pay and other contracts. Of the NEMT segment’s revenue, ~~10.4%~~11.4% and ~~10.8%~~10.4% were derived from one payor for the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~11.0%~~11.2% and ~~9.7%~~11.0% were derived from one payor for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Of the ~~Personal Care~~PCS segment's revenue, ~~12.1%~~11.4% and ~~12.0%~~12.1% were derived from one payor for the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~12.0%~~11.3% and ~~13.0%~~ 12.0%

were derived from one payor for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Of the RPM segment's revenue, 19.3% and 18.4% ~~was~~were derived from one payor for the three months ended September 30, 2023 and 2022, respectively, and 17.4% and 20.4% ~~was~~were derived from one payor for the nine months ended September 30, ~~2022. As the RPM segment was established on September 22, 2021, the concentration of revenue is not meaningful for the three~~2023 and ~~nine months ended September 30, 2021.~~

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
State and Managed Medicaid contracts $ 547,423 $ 441,802 $ 1,565,738 $ 1,274,660
Managed Medicare contracts 92,228 44,074 254,835 125,571
Private pay and other contracts 8,131 7,183 29,899 20,886
Total service revenue, net $ 647,782 $ 493,059 $ 1,850,472 $ 1,421,117
2022, respectively.

Revenue Adjustments

During the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, the Company recognized a reduction of $0.8 million and an increase of $1.7 ~~million and a reduction of $0.1~~ million in service revenue, respectively, from contractual adjustments relating to performance obligations satisfied in previous periods to which the payor agreed. During the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, the Company recognized a reduction of $3.9 million and an increase of $6.5 ~~million and $0.2~~ million in service revenue, respectively, from contractual adjustments relating to performance obligations satisfied in previous periods to which the payor agreed.

Related Balance Sheet Accounts

The following table provides information about accounts receivable, net (in thousands):

September 30, 2022 December 31, 2021
Accounts receivable $ 208,787 $ 210,937
Reconciliation contracts receivable (1)
60,060 24,480
Allowance for doubtful accounts (2,670) (2,296)
Accounts receivable, net $ 266,177 $ 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.


	September 30, 2023		December 31, 2022
Accounts receivable	$	204,097	$	225,288
Allowance for doubtful accounts	(1,396)		(2,078)
Accounts receivable, net	$	202,701	$	223,210

The following table provides information about other revenue related accounts included on the accompanying unaudited condensed consolidated balance sheets (in thousands):


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
Accrued contract payables (1)	Accrued contract payables (1)	$	243,800	$	281,586	Accrued contract payables(1)	$	133,576	$	194,287

Contract receivables(2)						Contract receivables(2)	$	129,275	$	71,131
Long-term contract receivables(3)						Long-term contract receivables(3)	$	—	$	427
Deferred revenue, current	Deferred revenue, current	$	2,213	$	2,714	Deferred revenue, current	$	2,008	$	2,202

(1) Accrued contract payables primarily represent overpayments and liability reserves on certain risk corridor, profit rebate and reconciliation contracts. See the contract payables and receivables activity below.

(2) Contract receivables primarily represent underpayments and receivables on certain risk corridor, profit rebate, and reconciliation contracts. See the contract payables and receivables activity below.

(3) Long-term contract receivables primarily represent future receivable balances on certain risk corridor, profit rebate and reconciliation contracts that may be received 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, 2021 Additional Amounts Recorded Amounts Paid or Settled September 30, 2022
Reconciliation contract payables $ 22,035 $ 15,675 $ (13,011) $ 24,699
Profit rebate/corridor contract payables 246,424 59,129 (99,123) 206,430
Overpayments and other cash items 13,127 7,529 (7,985) 12,671
Total contract payables $ 281,586 $ 82,333 $ (120,119) $ 243,800
Reconciliation contract receivables $ 24,403 $ 37,838 $ (15,848) $ 46,393
Corridor contract receivables 77 13,590 — 13,667
Total reconciliation contract receivables $ 24,480 $ 51,428 $ (15,848) $ 60,060


	December 31, 2022		Additional Amounts Recorded		Amounts Paid or Settled		March 31, 2023
Reconciliation contract payables	$	25,853	$	1,811	$	(18,110)	$	9,554
Profit rebate/corridor contract payables	155,161		22,316		(10,873)		166,604
Overpayments and other cash items	13,273		799		(2,610)		11,462
Total contract payables	$	194,287	$	24,926	$	(31,593)	$	187,620

Reconciliation contract receivables	$	48,153	$	22,204	$	(5,922)	$	64,435
Corridor contract receivables	23,405		14,508		—		37,913
Total contract receivables	$	71,558	$	36,712	$	(5,922)	$	102,348

2016


	March 31, 2023		Additional Amounts Recorded		Amounts Paid or Settled		June 30, 2023
Reconciliation contract payables	$	9,554	$	6,687	$	(2,749)	$	13,492
Profit rebate/corridor contract payables	166,604		17,447		(98,683)		85,368
Overpayments and other cash items	11,462		2,707		(3,935)		10,234
Total contract payables	$	187,620	$	26,841	$	(105,367)	$	109,094

Reconciliation contract receivables	$	64,435	$	16,686	$	(15,105)	$	66,016
Corridor contract receivables	37,913		16,290		(456)		53,747
Total contract receivables	$	102,348	$	32,976	$	(15,561)	$	119,763


	June 30, 2023		Additional Amounts Recorded		Amounts Paid or Settled		September 30, 2023
Reconciliation contract payables	$	13,492	$	4,763	$	(3,034)	$	15,221
Profit rebate/corridor contract payables	85,368		10,614		(1,840)		94,142
Overpayments and other cash items	10,234		16,313		(2,334)		24,213
Total contract payables	$	109,094	$	31,690	$	(7,208)	$	133,576

Reconciliation contract receivables	$	66,016	$	14,180	$	(19,460)	$	60,736
Corridor contract receivables	53,747		14,792		—		68,539
Total contract receivables	$	119,763	$	28,972	$	(19,460)	$	129,275

5. Equity Investment

As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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 its 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~~income (loss) of ~~investee”~~investee, net of tax” in the accompanying unaudited condensed consolidated statements of operations. During the ~~three and nine months~~year ended ~~September 30,~~December 31, 2022, Matrix recorded asset impairment charges of $82.2 million, ~~and~~of which the entire asset impairment charge was recorded during the ~~year~~three and nine months ended ~~December 31, 2021, Matrix recorded asset impairment charges of $111.4 million.~~September 30, 2022. No asset impairment charges were recorded for the three ~~and~~or nine months ended September 30, ~~2021.~~2023.

The Company's gross share of its Matrix's operations for the three months ended September 30, ~~2022~~2023 and September 30, ~~2021~~2022 was a loss of ~~$36.1~~$0.4 million and a loss of ~~$6.7~~$36.1 million, respectively, which is presented net of tax on the unaudited condensed consolidated statements of operations for a loss of ~~$26.7~~$0.3 million and a loss of ~~$4.8~~$26.7 million, respectively. ~~For~~The Company's gross share of its Matrix's operations for the nine months ended September 30, ~~2022~~2023 and September 30, ~~2021, the Company's gross share~~2022 was income of ~~its investment in Matrix was a loss of $39.0~~$2.5 million and a loss of ~~$2.0~~$39.0 million, respectively, which is presented net of tax on the unaudited condensed consolidated statements of operations for ~~a loss~~income of ~~$28.2~~$1.8 million and a loss of ~~$1.4~~$28.2 million, 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 September 30, ~~2022~~2023 and December 31, ~~2021~~2022 totaled ~~$43.5~~$45.2 million and ~~$83.1~~$41.3 million, respectively.

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


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
Current assets	Current assets	$	110,892	$	124,081	Current assets	$	112,994	$	97,750
Long-term assets	Long-term assets	$	381,096	$	482,063	Long-term assets	$	355,143	$	373,297
Current liabilities	Current liabilities	$	44,557	$	57,048	Current liabilities	$	34,955	$	36,913
Long-term liabilities	Long-term liabilities	$	330,794	$	340,448	Long-term liabilities	$	317,806	$	325,613

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Revenue $ 76,461 $ 78,458 $ 235,582 $ 316,830
Operating income (loss) $ (79,992) $ (16,833) $ (81,604) $ 3,324
Net loss $ (85,081) $ (15,627) $ (93,211) $ (7,143)


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Revenue	$	84,395	$	76,461	$	252,973	$	235,582
Operating income (loss)	$	7,593	$	(79,992)	$	32,196	$	(81,604)
Net income (loss)	$	(239)	$	(85,081)	$	6,976	$	(93,211)

7.6. Prepaid Expenses and Other Current Assets

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


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
Prepaid insurance	Prepaid insurance	$	8,331	$	9,487	Prepaid insurance	$	8,251	$	6,334
Deferred ERP implementation costs	Deferred ERP implementation costs	6,390		3,003		Deferred ERP implementation costs	5,070		5,817
Prepaid income taxes						Prepaid income taxes	4,075		7,186
Deferred financing costs on credit facility	Deferred financing costs on credit facility	3,249		1,480		Deferred financing costs on credit facility	2,864		3,061
Prepaid income taxes		2,709		13,848
Inventory	Inventory	1,864		1,458		Inventory	2,261		2,041
Prepaid rent						Prepaid rent	1,152		278
Other prepaid expenses	Other prepaid expenses	14,138		9,275		Other prepaid expenses	14,896		9,615
Total prepaid expenses and other current assets	Total prepaid expenses and other current assets	$	36,681	$	38,551	Total prepaid expenses and other current assets	$	38,569	$	34,332

7. Goodwill and Intangible Assets

The Company tests goodwill for impairment for its reporting units annually as of July 1 or more frequently when events or changes in circumstances indicate that impairment may have occurred. The Company reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset group may not be recoverable.

Goodwill

During the second quarter of 2023, the Company recorded a $183.1 million impairment of goodwill within its Personal Care and Remote Patient Monitoring reporting units. This impairment was driven primarily by macroeconomic factors, including a decline in the market value of the Company's common stock. After recording these impairments, the associated reporting units have $650.3 million of goodwill remaining. If, among other factors, (i) the Company's equity values were to decline significantly, (ii) the Company experienced additional adverse impacts associated with macroeconomic factors, including increases in our estimated weighted average cost of capital, or (iii) the adverse impacts stemming from competition, economic, regulatory or other factors were to cause the Company's results of operations or cash flows to be worse than currently anticipated, the Company could conclude in future periods that additional impairment charges of certain reporting units are required in order to reduce the carrying values of goodwill. Any such impairment charges could be significant.

The Company performed a quantitative test comparing the carrying value of the Company's reporting units with their respective fair value. The fair value of the Company's reporting units was estimated using both the income approach and the market valuation approach. The income approach produces an estimated fair value of a reporting unit based on the present value of the cash flows the Company expects the reporting unit to generate in the future. Estimates included in the discounted cash flow model are primarily Level 3 inputs and include the discount rate, which the Company determines based on adjusting an industry-wide weighted-average cost of capital for size, geography, and company specific risk factors, long-term rates of growth and profitability of the Company’s business, working capital effects and planned capital expenditures. The market approach produces an estimated fair value of a reporting unit based on a comparison of the reporting unit to comparable publicly traded entities in similar lines of business. The Company’s significant estimates in the market approach include the selected similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and the multiples the Company applies to earnings before interest, taxes, depreciation and amortization (“EBITDA”) to estimate the fair value of the reporting unit.

Changes in key assumptions from the prior year annual goodwill assessment and the resulting reduction in projected future cash flows included in the current year goodwill test resulted in a decrease in the fair values of the Company's PCS and RPM reporting units such that the fair value of each respective reporting unit was less than its respective carrying value. As a

result, during the second quarter of 2023, the Company recorded a non-cash goodwill impairment charge of $137.3 million in the PCS reporting unit and $45.8 million in the RPM reporting unit, which is recorded in “Impairment of goodwill” on the Company’s unaudited condensed consolidated statement of operations. No further impairment was taken during the three months ended September 30, 2023. There was no such goodwill impairment charge in the three and nine months ended September 30, 2022.

Changes in the carrying value of goodwill by reportable segment are presented in the following table (in thousands):


	NEMT		PCS		RPM		Corporate and Other		Total
Balance at December 31, 2022	$	135,186	$	552,775	$	280,663	$	30	$	968,654
Impairment of goodwill	—		(137,331)		(45,769)		—		(183,100)
Balance at September 30, 2023	$	135,186	$	415,444	$	234,894	$	30	$	785,554

The accumulated impairment losses on goodwill totaled $279.1 million as of September 30, 2023 and $96.0 million as of December 31, 2022.

Intangible Assets

Intangible assets are comprised of acquired payor networks, trademarks and trade names, developed technology, non-compete agreements, licenses, and an assembled workforce. Finite-lived intangible assets are amortized using the straight-line method over the estimated economic lives of the assets. These finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Indefinite-lived intangible assets are not amortized, but are tested for impairment annually and more frequently if events occur or circumstances change that indicate an asset may be impaired. Based on the continued value of the definite-lived and indefinite-lived intangible assets acquired, the Company did not identify any circumstances during the three and nine months ended September 30, 2023 that would require an impairment test for our intangible assets.

8. Accrued Expenses and Other Current Liabilities

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


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
Accrued compensation and related liabilities ~~(1)~~	Accrued compensation and related liabilities ~~(1)~~	$	52,107	$	54,564	Accrued compensation and related liabilities ~~(1)~~	$	47,183	$	47,947
Accrued interest	Accrued interest	24,239		12,826		Accrued interest	24,855		10,643
Insurance reserves						Insurance reserves	19,439		17,836
Accrued operating expenses	Accrued operating expenses	16,378		14,457		Accrued operating expenses	13,788		18,432
Insurance reserves		15,972		10,152
Accrued legal fees	Accrued legal fees	11,016		5,081		Accrued legal fees	12,002		15,574
Accrued government grants ~~(2)~~(1)	Accrued government grants ~~(2)~~(1)	5,439		1,514		Accrued government grants ~~(2)~~(1)	10,970		7,367
Union pension obligation	Union pension obligation	4,952		6,629		Union pension obligation	2,970		3,665
Deferred revenue	Deferred revenue	2,213		2,714		Deferred revenue	2,008		2,202
Deferred acquisition payments		50		3,578
Other	Other	12,851		12,276		Other	13,349		12,194
Total accrued expenses and other current liabilities	Total accrued expenses and other current liabilities	$	145,217	$	123,791	Total accrued expenses and other current liabilities	$	146,564	$	135,860

(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, primarily in relation to the PRF and SLFRF, 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~~ September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

9. Debt

Senior Unsecured Notes

Senior unsecured notes as of September 30, ~~2022~~2023 and December 31, ~~2021~~2022 consisted of the following (in thousands):

Senior Unsecured Note Date of Issuance September 30, 2022 December 31, 2021
$500.0 million 5.875% due November 15, 2025 11/4/2020 $ 490,399 $ 488,368
$500.0 million 5.000% due October 1, 2029 8/24/2021 $ 487,902 $ 486,857


Senior Unsecured Note	Date of Issuance	September 30, 2023		December 31, 2022
$500.0 million 5.875% due November 15, 2025 (effective interest rate 6.467%)	11/4/2020	$	493,265	$	491,098
$500.0 million 5.000% due October 1, 2029 (effective interest rate 5.392%)	8/24/2021	489,365		488,263
Total		$	982,630	$	979,361

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 September 30, ~~2022, $21.7~~2023, $17.4 million of unamortized deferred issuance costs was netted against the long-term debt balance on the unaudited condensed consolidated balance sheets. The fair value of the Notes as of September 30, 2023 and December 31, 2022 was $836.3 million and $896.6 million, respectively, which was determined based on quoted prices in active markets, and therefore designated as Level 1 within the fair value hierarchy. The Company was in compliance with all covenants as of September 30, ~~2022.~~2023.

Credit Facility

OnThe Company is a party to the amended and restated credit agreement, dated as of February 3, 2022, (as amended, the ~~Company entered into a new credit agreement (the “New Credit~~“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~~“Credit Facility”) in an aggregate principal amount of $325.0 ~~million. The New Credit Facility includes~~million and 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~~matures on February 3, 2027 and the ~~New Credit Agreement. As of September 30, 2022, the Company had $38.0 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~~

On June 26, 2023, the Company entered into an Amendment No. 1 (the "First Amendment") to the Credit ~~Facility~~Agreement which amended and restated the maximum permitted Total Net Leverage Ratio under the Credit Agreement ~~which~~as follows: for the fiscal quarters ending June 30, 2023 through September 30, 2023, 5.25:1.00; for the fiscal quarters ending December 31, 2023 through March 31, 2024, 5.00:1.00; for the fiscal quarter ending June 30, 2024, 4.75:1.00; and for the fiscal quarters ending September 30, 2024 and for the fiscal quarters ending thereafter, 4.50:1.00.

As of September 30, 2023, the Company had $83.0 million of short-term borrowings outstanding on the Credit Facility and had $39.1 million of outstanding letters of credit under the Credit Facility. The interest rate for borrowings outstanding as of September 30, 2023 was ~~terminated concurrently with~~9.8% per annum. As of December 31, 2022, the ~~Company's entry into~~Company did not have any borrowings outstanding on the ~~New~~ Credit ~~Agreement.~~Facility and had $38.1 million of outstanding letters of credit under the Credit Facility.

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, after giving effect to the relevant incremental facility, the pro forma secured net leverage ratio does not exceed 3.50:1.00, ~~with either additional~~provided that the lenders agree to increase their existing 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.~~incremental term loans. 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.

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, each as defined in the Credit Agreement, and 0.75% to 2.50% in the case of the Alternate Base Rate loans, as defined in the Credit Agreement, 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~~Company's borrowing capacity under the Credit Facility is ~~subject to financial~~currently limited by, among other covenants, ~~including~~compliance with the total net leverage ~~and interest coverage covenants.~~ratio covenant for each fiscal period as amended in the First Amendment to the Credit Agreement.

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 September 30, ~~2022~~2023.

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 $0.2 million for the three months ended September 30, 2023, and recognized a reversal of previously recognized stock-based compensation expense for ~~non-qualified stock options (“NQs”)~~NQs of $0.3 million during the three months ended September 30, 2022 due to forfeitures that occurred during the ~~period~~period. For the nine months ended September 30, 2023 and 2022, the Company recognized stock-based compensation expense for NQs of $0.5 million for the three months ended September 30, 2021 in general and administrative expense. For the nine months ended September 30, 2022 and 2021, the Company recognized stock-based compensation expense for NQs of $1.0$0.6 million and ~~$1.5~~$1.0 million, respectively, in general and administrative expense. At September 30, ~~2022,~~2023, the Company had ~~209,075~~87,388 stock options outstanding with a weighted-average exercise price of ~~$97.30.~~$106.51.

Restricted stock awards and restricted stock units. The Company recognized stock-based compensation expense for restricted stock awards ("RSAs") and restricted stock units ("RSUs") of ~~$0.7~~$1.1 million and ~~$1.0~~$0.7 million for the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$3.5~~$2.9 million and ~~$2.5~~$3.5 million for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively, in general and administrative expense. The Company had ~~13,137~~16,074 unvested RSAs and ~~85,369~~285,472 unvested RSUs outstanding at September 30, ~~2022~~2023 with a weighted-average grant date fair value of ~~$94.44~~$80.47 and ~~$113.19,~~$43.86, respectively.

Performance-based share awards. ~~These awards include RSUs and were initially issued in the first quarter of 2022.~~ The ~~purpose of these awards is~~Company grants performance-based restricted stock units ("PRSUs") 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~~approved by the ~~Plan.~~Compensation Committee and defined in the related PRSU Agreement. Stock-based compensation expense ~~related to these performance-based share awards ("PRSUs")~~for PRSUs is recognized over the 3-year vesting period under the straight-line attribution method. ~~Related to~~The Company recorded stock-based compensation expense of $0.4 million for the ~~PRSUs, the Company~~three months ended September 30, 2023 and recorded a reversal of $0.2 million ~~of previously recognized stock-based compensation expense~~ for the three months ended September 30, 2022 due to forfeitures that occurred during the ~~period and recorded $0.6 million of stock-based compensation expense for~~period. For the nine months ended September 30, 2023 and 2022, ~~with~~ the Company recognized stock-based compensation expense for PRSUs of $0.5 million and $0.6 million, respectively, in general and administrative expense. The remaining ~~portion~~expense is expected to be recognized over the remainder of the 3-year requisite service period. The Company had ~~18,663~~213,428 unvested PRSUs outstanding at September 30, ~~2022~~2023 with a weighted-average grant date fair value of ~~$153.17.~~$43.74

InEmployee Stock Purchase Plan

During the ~~second~~fourth quarter of 2022, the Company began offering an Employee Stock Purchase ~~Program~~Plan ("ESPP") ~~was approved by~~with 1,000,000 shares of Common Stock reserved for purchase pursuant to the ~~Board~~Plan for eligible employees. The shares of ~~Directors and~~Common Stock may be newly issued shares, treasury shares or shares acquired on the ~~Company's shareholders, which will allow~~open market. Under the terms of the ESPP, eligible employees may designate a dollar value or percentage of their compensation to be withheld through payroll deductions, up to a maximum of $25,000 in each plan year, for the purchase ~~Company~~of common stock at a discounted ~~rate. The~~rate of 85% of the lower of the market price on the first or last trading day of the offering ~~period will begin in~~period. For the ~~fourth quarter~~three and nine months ended September 30, 2023, Company recorded an immaterial amount of ~~2022.~~stock-based compensation expense. As of September 30, 2023, 989,186 shares remain available for future issuance under the ESPP.

11. ~~Earnings (Loss)~~Loss Per Share

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


		Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Numerator:	Numerator:									Numerator:
Net income (loss)		$	(28,505)	$	(7,572)	$	(24,859)	$	24,940
Net loss										Net loss	$	(4,302)	$	(28,505)	$	(199,208)	$	(24,859)

Denominator:	Denominator:									Denominator:
Denominator for basic earnings per share -- weighted-average shares	Denominator for basic earnings per share -- weighted-average shares	14,051,794		13,993,438		14,041,224		14,102,371		Denominator for basic earnings per share -- weighted-average shares	14,182,839		14,051,794		14,169,537		14,041,224
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Common stock options	Common stock options	—		—		—		130,221		Common stock options	—		—		—		—
Restricted stock	Restricted stock	—		—		—		45,739		Restricted stock	—		—		—		—
Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion	Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion	14,051,794		13,993,438		14,041,224		14,278,331		Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion	14,182,839		14,051,794		14,169,537		14,041,224

Earnings (loss) per share:
Basic earnings (loss) per share		$	(2.03)	$	(0.54)	$	(1.77)	$	1.77
Diluted earnings (loss) per share		$	(2.03)	$	(0.54)	$	(1.77)	$	1.75
Loss per share:										Loss per share:
Basic loss per share										Basic loss per share	$	(0.30)	$	(2.03)	$	(14.06)	$	(1.77)
Diluted loss per share										Diluted loss per share	$	(0.30)	$	(2.03)	$	(14.06)	$	(1.77)

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 September 30, Nine months ended September 30,
2022 2021 2022 2021
Stock options to purchase common stock 115,686 49,158 123,534 53,550

~~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 September 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 September 30, 2022.


	Three months ended September 30,		Nine months ended September 30,
	2023	2022	2023	2022
Stock options to purchase common stock	90,579	115,686	96,725	123,534
Restricted stock awards and restricted stock units	141,712	80,332	97,719	82,944

12. Income Taxes

The Company’s effective tax rate for the three months ended September 30, ~~2022~~2023 and ~~2021~~2022 was a tax benefit of ~~33.9%~~28.6% and ~~42.3%~~33.9%, ~~respectively. The effective tax rate~~respectively, and for the nine months ended September 30, 2023 and 2022 was a tax benefit of 2.1% and ~~2021 was~~ a tax provision of 21.7% ~~and 24.2%~~, respectively.

For the three months ended September 30, 2023 and 2022, the effective tax rates for the benefits were significantly higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes and nondeductible expenses. For the nine months ended September 30, ~~2022 and 2021,~~2023, the effective tax ~~rates were~~rate for the benefit was significantly lower than the U.S. federal statutory rate of 21.0% primarily due to the nondeductible goodwill impairment. For the nine months ended September 30,

2022, the effective tax rate for the provision was higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes and nondeductible expenses.

13. Commitments and Contingencies

Surveys, audits and governmental investigations

In the ordinary course of business, the Company may from time to time be or become subject to surveys, audits and governmental investigations under or with respect to various governmental programs and state and federal laws. Agencies associated with the programs and other third-party commercial payors periodically conduct extensive pre-payment or post-payment medical reviews or other audits of claims data to identify possiblepayments made or authorized other than in compliance with the requirements of Medicare or Medicaid. In order to conduct these reviews, documentation is requested from us and then that documentation is reviewed to determine compliance with applicable rules and regulations, including the eligibility of clients to receive benefits, the appropriateness of the care provided to those clients, and the documentation of that care. Similarly, other state and federal governmental agencies conduct reviews and investigations to confirm our compliance with applicable laws where we operate, including regarding employment and wage related regulations and matters. We cannot predict the ultimate outcome of any regulatory reviews or other governmental surveys, audits or investigations, but management does not expect any ongoing surveys, audits or investigations involving the Company to have a material adverse effect on the business, liquidity, financial condition, or results of operations of the Company.Regardless of our expectations, however, surveys, audits or investigations are subject to inherent uncertainties and can have a material adverse impact on our Company due to, among other reasons, potential regulatory orders that inhibit our ability to operate our business, amounts paid as reimbursement or in settlement of any such matter, diversion of management resources and investigative costs.

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~~lawsuits, some of which may seek monetary damages, including claims for punitive damages. 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. Legal proceedings are subject to inherent uncertainties, however, and unfavorable rulings or other events could occur. Unfavorable resolutions could involve substantial monetary damages. In addition, in matters for which conduct remedies are sought, unfavorable resolutions could include an injunction or other order precluding particular business practices or requiring other remedies. An unfavorable outcome might result in a material adverse impact on our business, liquidity, financial position, or results of operations.

The Company records accruals for loss contingencies related to legal matters when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. If the Company determines that a range of reasonably possible losses can be estimated, the Company records an accrual for the most probable amount in the range. Due to the inherent difficulty in predicting the outcome of any legal proceeding, it may not be reasonably possible to estimate a range of potential liability until the matter is close to resolution. Legal fees related to all legal matters are expensed as incurred.

On September 27, 2022, Daniel Greenleaf, the Company’s former Chief Executive Officer, asserted claims in an arbitration against the Company. His claims allege that the Company breached Mr. Greenleaf’s employment agreement and included a tort claim against the Company. Mr. Greenleaf’s arbitration complaint sought contractual, extra-contractual, and statutory damages. In May 2023, Mr. Greenleaf and the Company executed a settlement agreement related to both sides' claims in arbitration and a general release of all claims and the Company agreed to pay Mr. Greenleaf $9.6 million. The Company paid the settlement amount in full in May of 2023.

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 moved for class certification on August 15, 2022, and ModivCare Solutions filed an opposition to class certification on September 6, 2022. On January 13, 2023, the matter was transferred with the consent of the parties and the court to binding arbitration. As of September 30, 2023, the parties have agreed on a settlement and are awaiting the arbitrator's approval. 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 settlement arrangement, if approved by the arbitrator, or the ultimate outcome of this ~~matter~~arbitration, if the settlement is not approved (which is not expected), 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 sought to recover damages, fees and costs under the federal False Claims Act, including treble damages, civil penalties and attorneys’ fees. None of the Relators were employed by ModivCare Solutions. The federal government 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 with the Sixth Circuit Court of Appeals which was subsequently denied. The Relators and Modivcare tentatively agreed to settle the Relators' substantive claims in September 2022 and continue discussions concerning the Relators' counsel’s attorney fees. The settlement 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~~PCS 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~~liquidated damages going back to November 2011. All Metro filed its motion to oppose class certification of this matter and the matter was heard on June 23, 2022. ~~A ruling should be~~The state court issued ~~by end-of-year.~~an order certifying the class on December 12, 2022. The parties attempted to mediate their dispute in June 2023, but were unable to reach agreement on a settlement. All Metro intends to defend itself vigorously with respect to this matter, believes that it is and has been in compliance in all material respects with the laws and regulations covering pay for live-in caregivers, and does not believe in any event that the ultimate outcome of this matter will have a material adverse effect on the Company’s business, liquidity, financial condition or results of operations.

~~14. 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.

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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 nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 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.~~2022. For purposes of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to "Q3 ~~2022"~~2023" and "Q3 ~~2021"~~2022" mean the three months ended September 30, ~~2022~~2023 and the three months ended September 30, ~~2021,~~2022, 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.~~2022. 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

The technology-enabled operating model in its NEMT segment includes ~~NEMT~~the coordination of non-emergency medical transportation services supported by an infrastructure of core competencies in risk underwriting, contact center management, network credentialing ~~claims management~~ and ~~non-emergency medical transportation~~claims 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.~~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 ~~and which we refer to as “Matrix”~~(“Matrix”). Matrix, which is included in our Corporate and Other segment, 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.~~services.

2725

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~~including required transportation to such healthcare services and ~~accordingly,~~ in-home personal care and remote patient monitoring 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;

•a shift in membership dynamics as a result of Medicaid redetermination efforts, which may decrease membership levels at our NEMT segment;

•advancement of regulatory priorities, which include the Centers for Medicare and Medicaid Services ("CMS") proposed rule, Ensuring Access to Medicaid Services, which may lower profit margins at our PCS segment;

•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~~MCO, Medicaid ~~programs, Medicaid Managed Care Organizations (“MCOs”)~~ and Medicare ~~Advantage~~ plans ~~increasingly are covering NEMT~~increasing coverage of non-emergency medical transportation 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.~~providers; and

•uncertain macroeconomic conditions, including rising interest rates, could have an effect on our debt and short-term borrowings, which may have a negative impact on our results.

~~Since March 2020~~On May 11, 2023, the Department of Health and ~~primarily~~Human Services ("HHS") declared the end of the public health emergency ("PHE") for the COVID-19 pandemic. While the Company has continued to experience increased trip volume, service hours, and patient visits each year following the pandemic, structural changes in the industry as a result of the ~~COVID-19~~ pandemic, weas well as ongoing constraints on the labor market, specifically related to the strain on healthcare professionals, could continue to have ~~observed a material reduction in~~an adverse impact on the Company's financial statements. For the NEMT segment, trip volume ~~in our NEMT segment as~~may have a result of state imposed public health orders and other pandemic impacts that have driven structural changes in the industry, predominantly related to an increase in the utilization of telehealth and virtual care. This reduction in trip volume has had a negative ~~financial~~ impact on our transportation providers and may ~~impact~~result in higher transportation costs as the Company adapts to this increase in demand for transportation services and to the availability of transportation providers, inshould any capacity constraints within our network of transportation providers arise. For the ~~future given~~PCS segment, 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.~~Additionally, the strain on healthcare professionals as a result of the pandemic has led to a~~ shortage of caregivers ~~which~~ will continue to impact the volume of service hours that can be ~~provided. These depressed volumes will continue~~provided while also driving increased wage rates, which limits the Company's ability to be profitable in contracts with set rates for various care services. Additionally, changes in membership dynamics at the NEMT segment as a result of Medicaid redetermination and reduction in ~~lower than expected~~payor reimbursement rates at the PCS segment in an attempt to contain costs could limit the ability for the Company to generate revenue ~~at least in~~despite the ~~near term, in~~Company's shift toward emphasizing the ~~Personal Care segment.~~

~~Our RPM segment has not experienced~~importance of value-based care. Any of these circumstances and factors could have a ~~direct~~ material ~~impact to operations or financial activity~~adverse effect on our reputation and business and any long-term macroeconomic impacts that have arisen 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.

Our business environment is competitive, the structural changes in our industry related to the COVID-19 pandemic have been lasting, the labor market for healthcare professionals remains constrained, and the market price for our common stock on the Nasdaq Stock Market continues to be volatile; the continuing effect of all or any of the foregoing could result in, in future periods, an impairment to the estimated fair value of the goodwill that has been established for our reporting units. As discussed elsewhere herein and under the caption “Risk Factors” in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2022, impairment tests may be required in addition to the annual impairment testing as of July 1, 2023, if circumstances change that would, more likely than not, reduce the fair value of goodwill of a ~~highly competitive and volatile market and based on current results, may not realize their long-term forecast.~~reporting unit below such reporting unit’s carrying value. The Company ~~continues to monitor~~monitors the performance of the business ~~versus~~and the ~~long-term forecast,~~value of its stock price and estimated fair values of its reporting units, among other relevant considerations, to determine if any impairments ~~exist. Our management has continued~~ to ~~refine their business strategy throughout~~goodwill could exist at any particular time. During our July 1, 2023 annual assessment of goodwill, we determined that based on our qualitative assessment for each reporting unit, factors existed which required us to test our goodwill for impairment. As a result of our quantitative assessment, we determined that the ~~year in order to address the highly competitive~~goodwill at our PCS and volatile business environment but there are no guarantees that such efforts will result in the Company meeting their long-term forecast. Accordingly, the Company believes there is an elevated risk of impairment.RPM reporting units was impaired. See Note 7, Goodwill and Intangible Assets, for additional details.

Critical Accounting Estimates and Policies

~~There~~Other than our change in accounting policy related to the change in the date of our annual goodwill test from October 1 to July 1, included in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements in our Form 10-Q for the quarter ended June 30, 2023, 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.~~2022. 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.~~2022.

~~Change in Accounting Estimate~~

~~During the first quarter, the Company completed an assessment~~Components 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 nine months ended September 30, 2022 was an increase in amortization expense of $3.6 million, a decrease in net income of $2.4 million, and a decrease in earnings per share of $0.17 per diluted common share outstanding, and an increase in amortization expense of $10.7 million, a decrease in net income of $8.4 million, and a decrease in earnings per share of $0.60 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 nine months ended September 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’~~revenue generated by providing non-emergency transportation ~~needs. Most contracts~~services directly to our customers. These services are provided on either a capitated basis, which means we are paid on a per-member, per-month ("PMPM") basis for each eligible ~~member. For most contracts,~~member, or on a fee-for-service ("FFS") basis, which means we ~~arrange~~are paid based on the volume of trips or services performed. We receive payments for ~~transportation~~our services from third-party payors, predominately made up of ~~members through our network of independent transportation providers, whereby we negotiate rates~~state Medicaid agencies 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.MCOs.

~~Certain other~~Our capitated contracts ~~are structured~~operate under either a Full-Risk or a Shared-Risk structure. Under Full-Risk contracts, which represent approximately 20% of our NEMT revenue, payors pay a fixed amount per eligible member per month and we assume the responsibility of meeting the covered healthcare related transportation requirements for the number of eligible members in the payor's program. Revenue is recognized based on the number of members served during the period. Under Shared-Risk contracts, which represent approximately 65% of our NEMT revenue, we have provisions for reconciliations, risk corridors, and/or profit rebates. These contracts allow for periodic reconciliations based on actual cost and or/trip volume and may result in refunds to the payor, or additional payments due from the payor. These shared-risk contracts also allow for margin stabilization, as generally the amount received per member per month is adjusted for the costs to provide the transportation.

Under fee-for-service ("FFS") incontracts, which ~~we bill and collect~~represent approximately 15% of our NEMT revenue, payors pay a specified amount for each service that we ~~provide.~~provide based on costs incurred plus an agreed-upon margin. 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.~~allowances.

Service revenue for our ~~Personal Care~~PCS segment includes the revenue generated based on the hours incurred by our in-home caregivers to provide services to our customers, primarily on a FFS basis in which we earn a specified amount for each service that ~~are~~we provide. Payment for our PCS services is billed to ~~our customers. Our customers consist of~~ third-party payors ~~including,~~which include, but are not limited to, MCOs, hospitals, Medicaid agencies and programs and other home health care providers who subcontract the services ofto our ~~caregivers.~~caregivers, and individuals.

Service revenue for our RPM segment includes the sale of monitoring equipment to our third-party distributors as well as revenue generated from the hours incurred by our Clinical Team for providing monitoring services ~~that are~~to our customers, primarily on a PMPM basis for each eligible member. Payment for our monitoring services is billed to ~~our customers. Our customers consist of~~third-party payors which include, but are not limited to, national and regional health plans, government-funded benefit programs, healthcare provider organizations, and individuals.

Grant Income

Grant ~~Income~~income. The Company has received distributions under the CARES Act Provider Relief Fund ("PRF") and the ARPA Coronavirus State and Local Fiscal Relief Fund ("SLFRF") targeted to providing economic relief and stimulus to combat health and economic impacts of the COVID-19 pandemic.

Operating Expenses

Service expense. Service ~~Expense~~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~~PCS 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.

Impairment of goodwill. We determined that based on our qualitative assessment for each reporting unit, qualitative factors existed which required us to test our goodwill for impairment. As a result of the impairment evaluation, we determined that the goodwill within our PCS and RPM reporting units was impaired during the second quarter of 2023.

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 and developed ~~technology, a non-compete agreement, an assembled workforce, and a New York LHCSA permit.~~technology.

Other Expenses (Income)

Interest expense, net. Interest expense consists principally of interest ~~payments made~~accrued during the period ended September 30, ~~2022~~2023 on the Company’s borrowings outstanding ~~at September 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)~~income (loss) 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 held at our Corporate and Other segment, presented net of related ~~taxes.~~taxes, as well as the earnings of our insurance captive held at the NEMT segment.

Income tax ~~provision~~(provision) benefit. 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

~~Segment reporting.~~ Our segments reflect the manner in which our operations are organized and reviewed by management. Segment results are based on how our CODM manages our business, makes operating decisions and evaluates operating performance.

We operate four reportable business segments: NEMT, ~~Personal Care,~~PCS, RPM, and Corporate and Other. ~~Effective January 1, 2022,~~The NEMT segment provides non-emergency medical transportation services throughout the ~~Company completed its~~country. The PCS segment ~~reorganization which resulted in the addition of a Corporate~~provides non-medical personal care and ~~Other~~home health services. The RPM segment ~~that includes the costs associated with the Company's corporate operations.~~provides remote patient monitoring solutions. 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 11, 2022. The operating results of the NEMT, ~~Personal Care~~PCS and RPM segments include revenue and expenses generated and incurred by the ~~segment.~~segment, and the Corporate and Other segment includes expenses incurred in relation to the Corporate operations of the Company

See Note 4,3, Segments, in our accompanying unaudited condensed consolidated financial statements for further information on our segments.

Results of Operations

Q3 ~~2022~~2023 compared to Q3 ~~2021~~2022

Consolidated ~~Results.~~results. The following table sets forth results of operations and the percentage of consolidated total Service revenue, net represented by items in our unaudited condensed consolidated statements of operations for Q3 ~~2022~~2023 and Q3 ~~2021~~2022 (in thousands):


		Three months ended September 30,									Three months ended September 30,
		2022				2021					2023				2022
		Amount		% of Revenue		Amount		% of Revenue			Amount		% of Service Revenue		Amount		% of Service Revenue
Service revenue, net	Service revenue, net	$	647,782	100.0	%	$	493,059	100.0	%	Service revenue, net	$	686,925	100.0	%	$	647,782	100.0	%
Grant income	Grant income	789		0.1	%	—		—	%	Grant income	551		0.1	%	789		0.1	%

Operating expenses:	Operating expenses:									Operating expenses:
Service expense	Service expense	534,563		82.5	%	399,272		81.0	%	Service expense	579,214		84.3	%	534,563		82.5	%
General and administrative expense	General and administrative expense	75,889		11.7	%	68,205		13.8	%	General and administrative expense	70,142		10.2	%	75,889		11.7	%
Depreciation and amortization	Depreciation and amortization	25,672		4.0	%	12,608		2.6	%	Depreciation and amortization	26,077		3.8	%	25,672		4.0	%

Total operating expenses	Total operating expenses	636,124		98.2	%	480,085		97.4	%	Total operating expenses	675,433		98.3	%	636,124		98.2	%

Operating income	Operating income	12,447		1.9	%	12,974		2.6	%	Operating income	12,043		1.8	%	12,447		1.9	%

Other expenses:

Interest expense, net	Interest expense, net	15,557		2.4	%	17,702		3.6	%	Interest expense, net	17,844		2.6	%	15,557		2.4	%
Loss before income taxes and equity method investment	Loss before income taxes and equity method investment	(3,110)		(0.5)	%	(4,728)		(1.0)	%	Loss before income taxes and equity method investment	(5,801)		(0.8)	%	(3,110)		(0.5)	%
Benefit for income taxes		(1,053)		(0.2)	%	(2,001)		(0.4)	%
Income tax benefit										Income tax benefit	1,659		0.2	%	1,053		0.2	%
Equity in net loss of investee, net of tax	Equity in net loss of investee, net of tax	26,448		4.1	%	4,845		1.0	%	Equity in net loss of investee, net of tax	(160)		—	%	(26,448)		(4.1)	%
Net loss	Net loss	$	(28,505)	(4.4)	%	$	(7,572)	(1.5)	%	Net loss	$	(4,302)	(0.6)	%	$	(28,505)	(4.4)	%

Service revenue, net. Consolidated service revenue, net, for Q3 ~~2022~~2023 increased ~~$154.7~~$39.1 million, or ~~31.4%~~6.0%, compared to Q3 ~~2021. Service~~2022. This change is driven primarily by an increase in revenue ~~net, for~~of $26.2 million at our NEMT segment, increased by $86.8 million, primarily due to higher membership and trip volume when compared to Q3 2021. Service revenue, net, further increased by $50.7 million for our Personal Care segment, of which $34.5 million was related towith the ~~inclusion~~remainder of the ~~incremental operating results of Care Finders which was acquired in September 2021. Service revenue, net increased due to the inclusion of an incremental $17.2 million for~~increase at our PCS and RPM ~~segment as a result of the operating results of VRI which was acquired in September 2021 and GMM which was acquired in May 2022.~~segments. See our Results of Operations - Segments, for further discussion.

Grant income. The Company recognized ~~grant~~ income of approximately $0.6 million during Q3 2023 and $0.8 million during ~~the three months ended September 30,~~Q3 2022 related to ~~grants from~~government grant distributions received, primarily under the CARES Act PRF and the ARPA ~~SLFRF~~SLFRF. These government grants are targeted to provide economic relief and stimulus to combat health and economic impacts of the COVID-19 pandemic. These funds were received by our ~~Personal Care~~PCS 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~~healthcare-related expenses and lost revenues attributable to COVID-19.

Service expense. Service expense components are shown below (in thousands):


		Three months ended September 30,									Three months ended September 30,
		2022				2021					2023				2022
		Amount		% of Revenue		Amount		% of Revenue			Amount		% of Service Revenue		Amount		% of Service Revenue
Purchased services	Purchased services	$	340,138	52.5	%	$	256,750	52.1	%	Purchased services	$	363,594	52.9	%	$	340,138	52.5	%
Payroll and related costs	Payroll and related costs	181,563		28.0	%	131,977		26.8	%	Payroll and related costs	197,009		28.7	%	181,965		28.1	%
Other service expenses	Other service expenses	12,862		2.0	%	10,545		2.1	%	Other service expenses	18,611		2.7	%	12,460		1.9	%
Total service expense	Total service expense	$	534,563	82.5	%	$	399,272	81.0	%	Total service expense	$	579,214	84.3	%	$	534,563	82.5	%

Service expense for Q3 2023 increased $44.7 million, or 8.4%, compared to Q3 2022. This change is primarily due to higher purchased services costs for our NEMT segment of $23.5 million which is caused by an increased number of trips serviced when compared to Q3 2022, partially offset by lower cost per trip due to certain volume service commitments with

~~Service expense for Q3 2022 increased $135.3 million, or 33.9%, compared to Q3 2021 primarily~~some of our larger transportation providers and cost savings due to ~~higher purchased services~~our multi-modal strategy. Payroll and related costs ~~in the NEMT~~increased by $15.0 million, primarily related to increased labor costs at our PCS segment, ~~of $83.4 million~~ driven by ~~higher third-party transportation costs. Transportation and payroll costs increased primarily as a result of higher trip volume across multiple contracts~~an increase in hours worked and higher wage ~~rates. This increase was also driven~~rates paid to our caregivers, further contributed to by higher service expense of $38.6 million in our Personal Care segment, of which $25.6 million is related to the Care Finders acquisition in September 2021. The remaining increase is primarily related to higher wage rates ~~across all segments.~~paid to our call center employees at our NEMT segment. See our Results of Operations - Segments, for further discussion.

General and administrative expense. General and administrative expense for Q3 ~~2022 increased $7.7~~2023 decreased $5.7 million, or ~~11.3%~~7.6%, compared to Q3 2021. The increase was primarily attributable to an increase of $11.1 million in general and administrative costs related to the operations of Care Finders in the Personal Care segment which was acquired during September 2021, and VRI and GMM in the RPM segment, which were acquired during September 2021 and May 2022, respectively. This was partially offset by a decrease in general2022. General and administrative expense, expressed as a percentage of service revenue, net decreased to 10.2% for ~~the corporate segment by $6.1 million.~~Q3 2023 compared to 11.7% for Q3 2022. See ourResults of Operations - Segments, for further discussion.

Depreciation and amortization. Depreciation and amortization ~~for~~remained consistent from Q3 2022 ~~increased $13.1~~to Q3 2023 with an increase of $0.4 million, or 103.6% compared to Q3 2021 primarily as a result of $7.7 million of additional amortization in the Personal Care and RPM segments associated with intangible assets purchased in the Care Finders, VRI, and GMM 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~~1.6%.

Interest expense, net. Interest expense, net, for Q3 ~~2022~~2023 and Q3 ~~2021~~2022 was $17.8 million and $15.6 million, ~~and $17.7 million,~~ respectively. Interest expense decreased as a result of a bridge loan commitment fee of $6.6 million incurred in Q3 2021 related to the VRI acquisition with no comparable fee in Q3 2022. The decrease was partially offset by an increase in interest expense of $4.1 million associated with the issuance of $500.0 million of Senior Unsecured Notes due 2029 ("the 2029 Notes"), issued in August 2021. During Q3 ~~2022,~~2023, we incurred ~~$8.0~~$8.1 million and $6.6 million of interest expense related to the Senior Notes due 2025 and ~~$6.6 million related to the Notes due 2029.~~2029, respectively. The remainder of the interest expense in Q3 ~~2022~~2023 is related to interest and fees on the credit ~~facility.~~facility, which increased during Q3 2023 due to increased borrowing on the credit facility as compared to Q3 2022. Interest expense is recorded at our Corporate and Other segment.

Equity in net ~~loss~~income (loss) of investee, net of tax. Our equity in net loss of investee, net of tax, for Q3 ~~2022~~2023 of ~~$26.4~~$0.2 million and our equity in net loss of investee, net of tax, of ~~$4.8~~$26.4 million for Q3 ~~2021~~2022 was a result of our proportional share of the net income or loss of Matrix and our investment in a captive insurance program. ~~This~~The loss in Q3 2022 was ~~primarily related to~~the result of an asset impairment that occurred at Matrix during Q3 2022 ~~of $82.2 million.~~compared to no asset impairment during Q3 2023.

~~Benefit for income taxes.~~Income tax (provision) benefit. Our effective tax ~~rate~~rates from ~~continuing~~ operations for Q3 ~~2022~~2023 and Q3 ~~2021~~2022 were a tax ~~benefits~~benefit of ~~33.9%~~28.6% and ~~42.3%~~33.9%, respectively. For ~~Q3 2022 and Q3 2021,~~both periods, the effective tax rates for the benefits were significantly higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes and nondeductible expenses.

Nine months ended September 30, 2023 compared to nine months ended September 30, 2022

Consolidated results. The following table sets forth results of operations and the percentage of consolidated total Service revenue, net represented by items in our unaudited condensed consolidated statements of operations for the nine months ended September 30, 2023, which we refer to as “YTD 2023”, and for the nine months ended September 30, 2022, which we refer to as “YTD 2022” (in thousands):


	Nine months ended September 30,
	2023				2022
	Amount		% of Service Revenue		Amount		% of Service Revenue
Service revenue, net	$	2,048,338	100.0	%	$	1,850,472	100.0	%
Grant income	4,649		0.2	%	4,587		0.2	%

Operating expenses:
Service expense	1,718,735		83.9	%	1,498,108		81.0	%
General and administrative expense	229,095		11.2	%	232,108		12.5	%
Depreciation and amortization	77,679		3.8	%	74,376		4.0	%
Impairment of goodwill	183,100		8.9	%	—		—	%
Total operating expenses	2,208,609		107.8	%	1,804,592		97.5	%

Operating income (loss)	(155,622)		(7.6)	%	50,467		2.7	%

Interest expense, net	50,769		2.5	%	46,429		2.5	%

Income (loss) before income taxes and equity method investment	(206,391)		(10.1)	%	4,038		0.2	%
Income tax (provision) benefit	4,362		0.2	%	(877)		—	%
Equity in net income (loss) of investee, net of tax	2,821		0.1	%	(28,020)		(1.5)	%
Net loss	$	(199,208)	(9.7)	%	$	(24,859)	(1.3)	%

Service revenue, net. Consolidated service revenue, net, for YTD 2023 increased $197.9 million, or 10.7%, compared to YTD 2022. This change is driven primarily by an increase in revenue of $142.9 million at our NEMT segment, with the remainder of the increase at our PCS and RPM segments. See our Results of Operations - Segments, for further discussion.

Grant income. The Company recognized income of approximately $4.6 million during both YTD 2023 and YTD 2022 related to government grant distributions received, primarily under the CARES Act PRF and the ARPA SLFRF. These government grants are targeted to provide economic relief and stimulus to combat health and economic impacts of the COVID-19 pandemic. These funds were received by our PCS segment and are available to eligible providers who have healthcare-related expenses and lost revenues attributable to COVID-19.

Service expense. Service expense components are shown below (in thousands):


	Nine months ended September 30,
	2023				2022
	Amount		% of Revenue		Amount		% of Revenue
Purchased services	$	1,085,206	53.0	%	$	935,298	50.5	%
Payroll and related costs	579,571		28.3	%	520,556		28.1	%
Other service expenses	53,958		2.6	%	42,254		2.3	%
Total service expense	$	1,718,735	83.9	%	$	1,498,108	81.0	%

Service expense for YTD 2023 increased $220.6 million, or 14.7%, compared to YTD 2022 primarily due to higher purchased services for our NEMT segment of $149.9 million related to an increase in transportation costs. Payroll and related

costs across all segments increased by $59.0 million, primarily related to increased labor costs paid to our caregivers and call center employees.

General and administrative expense. General and administrative expense for YTD 2023 remained relatively consistent at a decrease of $3.0 million, or 1.3%, compared to YTD 2022. General and administrative expense, expressed as a percentage of service revenue, net decreased slightly to 11.2% for YTD 2023 compared to 12.5% for YTD 2022. See our Results of Operations - Segments, for further discussion.

Depreciation and amortization. Depreciation and amortization remained consistent from YTD 2022 to YTD 2023 with an increase of $3.3 million, or 4.4%.

Impairment of goodwill. Impairment of goodwill for YTD 2023 was $183.1 million and was driven by goodwill impairments that were recorded at our PCS and RPM reporting units during the second quarter of 2023. See Note 7, Goodwill and Intangible Assets.

Interest expense, net. Interest expense, net for YTD 2023 was $50.8 million and for YTD 2022 was $46.4 million. During YTD 2023, we incurred $24.2 million and $19.9 million of interest expense related to the Senior Notes due 2025 and 2029, respectively. The remainder of the interest expense during YTD 2023 is related to interest and fees on the credit facility, which increased during YTD 2023 due to increased borrowing on the credit facility as compared to YTD 2022. Interest expense is recorded at our Corporate and Other segment.

Equity in net income (loss) of investee, net of tax. Our equity in net income of investee, net of tax for YTD 2023 of $2.8 million and our equity in net loss of investee, net of tax for YTD 2022 of $28.0 million was a result of our proportional share of the net income or loss of Matrix and our investment in a captive insurance program. The loss in YTD 2022 was the result of an asset impairment that occurred at Matrix during Q3 2022 compared to no asset impairment during YTD 2023.

Income tax (provision) benefit. Our effective tax rates from operations for YTD 2023 and YTD 2022 were a tax benefit of 2.1% and a tax provision of 21.7%, respectively. The YTD 2023 effective tax rate for the benefit was significantly lower than the U.S. federal statutory rate of 21.0% primarily due to the nondeductible goodwill impairment. The YTD 2022 effective tax rate for the provision was higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes and nondeductible expenses.

~~Nine months ended September 30, 2022 compared to nine months ended September 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 nine months ended September 30, 2022, which we refer to as “YTD 2022”, and for the nine months ended September 30, 2021, which we refer to as “YTD 2021” (in thousands):

Nine months ended September 30,
2022 2021
Amount % of Revenue Amount % of Revenue
Service revenue, net $ 1,850,472 100.0 % $ 1,421,117 100.0 %
Grant income 4,587 0.2 % 3,500 0.2 %
Operating expenses:
Service expense 1,498,108 81.0 % 1,139,170 80.2 %
General and administrative expense 232,108 12.5 % 179,595 12.6 %
Depreciation and amortization 74,376 4.0 % 36,667 2.6 %
Total operating expenses 1,804,592 97.5 % 1,355,432 95.4 %
Operating income 50,467 2.7 % 69,185 4.9 %
Other expenses:
Interest expense, net 46,429 2.5 % 34,412 2.4 %
Income before income taxes and equity method investment 4,038 0.2 % 34,773 2.4 %
Provision for income taxes 877 — % 8,409 0.6 %
Equity in net loss of investee, net of tax 28,020 1.5 % 1,424 0.1 %
Net income (loss) $ (24,859) (1.3) % $ 24,940 1.8 %

~~Service revenue, net.~~ Consolidated service revenue, net, for YTD 2022 increased $429.4 million, or 30.2%, compared to YTD 2021. Service revenue, net, for the NEMT segment increased by $228.3 million, primarily due to higher membership and trip volume when compared to YTD 2021, as both membership and trip volume were depressed in the prior year due to the impact of COVID-19. Service revenue, net, further increased by $153.3 million for our Personal Care segment, of which $121.2 million was related to the inclusion of the incremental operating results of Care Finders which was acquired in September 2021. Service revenue, net increased due to the inclusion of an incremental $47.8 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 R~~esults of Operations, Segments, for further discussion.~~

~~Grant income~~. The Company recognized income of approximately $4.6 million for YTD 2022 compared to $3.5 million during YTD 2021 related to grants from the CARES Act PRF and the ARPA SLFRF 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):~~

Nine months ended September 30,
2022 2021
Amount % of Revenue Amount % of Revenue
Purchased services $ 935,298 50.5 % $ 725,059 51.0 %
Payroll and related costs 520,556 28.1 % 379,739 26.7 %
Other operating expenses 42,254 2.3 % 34,372 2.4 %
Total service expense $ 1,498,108 81.0 % $ 1,139,170 80.2 %

Service expense for YTD 2022 increased $358.9 million, or 31.5%, compared to YTD 2021 due to higher purchased services of $210.2 million related to an increase in transportation costs for the NEMT segment. Payroll and related costs increased by $140.8 million, primarily related to incremental costs of $98.3 million in the Personal Care and RPM segments due to the acquisitions of Care Finders and VRI in September 2021 and GMM in May 2022, as well as increased labor costs across all segments.

~~General and administrative expense.~~ General and administrative expense for YTD 2022 increased $52.5 million, or 29.2%, compared to YTD 2021. This increase is primarily attributable to an increase of $39.9 million in general and administrative costs related to the operations of Care Finders in the Personal Care segment which was acquired during September 2021, and VRI and GMM in the RPM segment which were acquired during September 2021 and May 2022, respectively. See our ~~Results of Operations, Segments, for further discussion.~~

~~Depreciation and amortization.~~ Depreciation and amortization for YTD 2022 increased $37.7 million or 102.8% compared to YTD 2021 primarily as a result of intangibles brought on under the Care Finders and VRI acquisitions in September 2021 and the GMM acquisition in May 2022. See Note 3, ~~Acquisitions~~.

~~Interest expense, net.~~ Interest expense, net for YTD 2022 increased $12.0 million compared to YTD 2021 as a result of the incremental interest activity of $17.4 million from the $500.0 million Senior Notes due 2029 that were issued in August 2021. The increase in interest was partially offset by the $6.6 million bridge loan commitment fee incurred in Q3 2021 related to the VRI acquisition with no comparable fee for the nine months ended September 30, 2022. For YTD 2022, we incurred $24.1 million and $19.9 million of interest expense related to the Senior Notes due 2025 and the Senior Notes due 2029, respectively. 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 of investee, net of tax.~~ For YTD 2022, our equity in net loss of investee is $28.0 million, compared to net loss for YTD 2021 of $1.4 million, as a result of our proportional share of the net income or loss of Matrix and our investment in a captive insurance program. This loss was primarily related to an asset impairment that occurred at Matrix during Q3 2022 of $82.2 million.

~~Provision for income taxes.~~ Our effective tax rates from continuing operations for YTD 2022 and YTD 2021 were provisions of 21.7% and 24.2%, 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.

Results of Operations - Segments

The following tables set forth certain financial information ~~from continuing operations~~ attributable to the Company’s business segments ~~(in thousands):~~for the three and nine months ended September 30, 2023 and 2022:

NEMT Segment

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Amount % of Segment Revenue Amount % of Segment Revenue Amount % of Segment Revenue Amount % of Segment Revenue
Service revenue, net $ 459,796 100.0% $ 372,992 100.0% $ 1,309,449 100.0% $ 1,081,168 100.0%
Service expense 394,981 85.9% 304,398 81.6% 1,100,801 84.1% 869,470 80.4%
General and administrative expense 31,815 6.9% 29,875 8.0% 102,736 7.8% 85,961 8.0%
Depreciation and amortization 7,079 1.5% 7,496 2.0% 21,576 1.6% 21,744 2.0%
Operating income $ 25,921 5.6% $ 31,223 8.4% $ 84,336 6.4% $ 103,993 9.6%
(in thousands, except for revenue per member per month, revenue per trip, and service expense per trip)

~~The non-emergency medical transportation (“NEMT”)~~


	Three months ended September 30,								Nine months ended September 30,
	2023				2022				2023				2022
	Amount			% of Segment Revenue	Amount			% of Segment Revenue	Amount			% of Segment Revenue	Amount			% of Segment Revenue
Operating Results
Service revenue, net	$	485,951		100.0%	$	459,796		100.0%	$	1,452,389		100.0%	$	1,309,449		100.0%

Service expense	428,021			88.1%	394,981			85.9%	1,277,604			88.0%	1,100,801			84.1%
General and administrative expense	25,433			5.2%	31,815			6.9%	87,645			6.0%	102,736			7.8%
Depreciation and amortization	6,814			1.4%	7,079			1.5%	20,319			1.4%	21,576			1.6%
Operating income	$	25,683		5.3%	$	25,921		5.6%	$	66,821		4.6%	$	84,336		6.4%

Business Metrics(1)
Total paid trips	8,824				8,045				25,761				22,987
Average monthly members	33,660				36,026				33,892				33,998

Revenue per member per month	$	4.81			$	4.25			$	4.76			$	4.28
Revenue per trip	$	55.07			$	57.15			$	56.38			$	56.96
Service expense per trip	$	48.51			$	49.10			$	49.59			$	47.89
Monthly utilization	8.7		%		7.4		%		8.4		%		7.5		%

(1) These metrics are key performance indicators that management uses to evaluate our performance. Trends established in these metrics can be used to evaluate current operating results, identify trends affecting our business, determine the allocation of resources and understand the underlying drivers of costs and revenue for our business. We believe these metrics are useful to investors in evaluating and understanding our business but should not be used solely in assessing the Company’s performance. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein to fully evaluate and understand the business as a whole.

Our NEMT segment ~~which operates under the brands ModivCare Solutions and Circulation,~~ is the largest manager of ~~NEMT~~non-emergency medical transportation programs for state governments and MCOs in the U.S.

Service revenue, net. Service revenue, net, increased by ~~$86.8~~$26.2 million, ~~and 23.3%~~or 5.7%, during ~~the three months ended September 30, 2022~~Q3 2023 as compared to ~~the three months ended September 30, 2021.~~Q3 2022. This increase is primarily attributable to a ~~16.1%~~13.2% increase in revenue per member per month, which was driven by a 9.7% increase in trip ~~volume,~~volume. These two factors are correlated due to contract repricing and the partial pass-through of costs associated with our shared risk contracts. This increase to revenue was partially offset by a ~~22.6% increase~~6.6% decrease in average monthly ~~membership and higher rates per member as compared~~members primarily due to ~~the three months ended September 30, 2021.~~Medicaid redetermination. Service revenue, net, increased by ~~$228.3~~$142.9 million, ~~and 21.1%~~or 10.9%, during ~~the nine months ended September 30,~~YTD 2023 as compared to YTD 2022, primarily attributable to a ~~13.8%~~11.2% increase in ~~both~~revenue per member per month driven by a 12.1% increase in trip volume, and average monthly membership, and higher rates per member as compared to the nine months ended September 30, 2021. Trip volume increased for the three and nine months ended September 30, 2022 when compared to 2021, as trip volume was depressed in the prior year due to the impact of COVID-19. The increasepartially offset by a 0.3% decrease in average monthly ~~membership drove higher~~membership.

The change in revenue is impacted by both the change in average monthly members, as well we the rate received per member. The change in average monthly members is correlated to the change in revenue because a majority of our ~~contacts~~contracts are capitated, and we receive monthly payments on a per ~~member/fixed~~member per month basis in return for full or ~~partial~~shared risk of transportation volumes. ~~However, we also have~~Declines in membership over the periods presented were anticipated and primarily related to Medicaid redetermination efforts, along with certain contract losses. While membership decreased, revenue increased due to increases in the average rate received per member, which increases in line with increases in utilization or trip volume in our shared risk contracts. As most of our capitated contracts ~~that limit profit~~have been restructured to ~~within~~ a ~~certain corridor and once we reach~~shared risk format, revenue increased despite 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. The increase~~

decline in ~~trip~~membership. Trip volume increases also ~~increases~~positively affected revenue for ~~our~~fee-for-service contracts ~~that are structured as fee-for-service as higher trip volumes correlates with~~due to a larger number of services performed.

Service expense. Service expense components for the NEMT segment are shown below (in thousands):


		Three months ended September 30,								Nine months ended September 30,									Three months ended September 30,								Nine months ended September 30,
		2022				2021				2022				2021					2023				2022				2023				2022
		Amount		% of Revenue		Amount		% of Revenue		Amount		% of Revenue		Amount		% of Revenue			Amount		% of Segment Revenue		Amount		% of Segment Revenue		Amount		% of Segment Revenue		Amount		% of Segment Revenue
Purchased services	Purchased services	$	340,138	74.0	%	$	256,750	68.8	%	$	935,298	71.4	%	$	725,059	67.1	%	Purchased services	$	363,594	74.8	%	$	340,138	74.0	%	$	1,085,206	74.7	%	$	935,298	71.4	%
Payroll and related costs	Payroll and related costs	46,160		10.0	%	38,105		10.2	%	136,916		10.5	%	113,843		10.5	%	Payroll and related costs	51,655		10.6	%	46,160		10.0	%	155,388		10.7	%	136,916		10.5	%
Other service expenses	Other service expenses	8,683		1.9	%	9,543		2.6	%	28,587		2.2	%	30,568		2.8	%	Other service expenses	12,772		2.6	%	8,683		1.9	%	37,010		2.5	%	28,587		2.2	%
Total service expense	Total service expense	$	394,981	85.9	%	$	304,398	81.6	%	$	1,100,801	84.1	%	$	869,470	80.4	%	Total service expense	$	428,021	88.1	%	$	394,981	85.9	%	$	1,277,604	88.0	%	$	1,100,801	84.1	%

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 ~~$90.6~~$33.0 million, ~~and 29.8%~~or 8.4%, for ~~the three months ended September 30, 2022,~~Q3 2023, as compared to ~~the three months ended September 30, 2021,~~Q3 2022, primarily related to higher purchased services of ~~$83.4~~$23.5 million ~~related to an increase in transportation costs due to higher trip volume in the current year.~~or 6.8%. Service expense increased by ~~$231.3~~$176.8 million and ~~26.6%~~16.1% for ~~the nine months ended September 30, 2022~~YTD 2023, as compared to ~~the nine months ended September 30, 2021,~~YTD 2022, primarily due to an increase in purchased services of ~~$210.2~~$149.9 million or 16.0%. The increase in purchased services for both Q3 2023 and YTD 2023 is related to an increase in transportation costs driven by higher trip volume. Trip volume for QTD 2023 and YTD 2023 increased by 9.7% and 12.1%, respectively, when compared to the same ~~reason~~periods in the prior year. For YTD 2023, cost per trip increased by 3.5% due to increased wages for our transportation providers as ~~stated above.~~compared to YTD 2022, however for QTD 2023, cost per trip decreased by 1.2% primarily due to cost savings from our multi-modal strategy, as compared to QTD 2022.

General and administrative expense. General and administrative expense primarily consists of salaries for administrative employees that ~~indirectly~~ support the operations of the NEMT segment, occupancy costs, marketing expenditures, insurance, and professional fees. General and administrative expense ~~increased~~decreased by ~~$1.9~~$6.4 million, ~~and 6.5%~~or 20.1%, for ~~the three months ended September 30, 2022,~~Q3 2023, as compared to ~~the three months ended September 30, 2021. General~~Q3 2022, and ~~administrative expense increased~~

by ~~$16.8~~$15.1 million, ~~and 19.5%~~or 14.7%, for ~~the nine months ended September 30, 2022,~~YTD 2023, as compared to ~~the nine months ended September 30, 2021,~~YTD 2022, primarily as a result of ~~higher salary~~various cost savings initiatives which resulted in lower personnel and lower professional services costs, ~~and~~as well as lower legal ~~expenses.~~costs related to a case that was settled in 2022.

Depreciation and amortization expense. Depreciation and amortization expense decreased by ~~$0.4~~$0.3 million, ~~and 5.6%~~or 3.7%, for ~~the three months ended September 30, 2022,~~Q3 2023, as compared to ~~the three months ended September 30, 2021. Depreciation~~Q3 2022, and ~~amortization expense~~ decreased by ~~$0.2~~$1.3 million, ~~and 0.8%~~or 5.8%, for ~~the nine months ended September 30, 2022,~~YTD 2023, as compared to ~~the nine months ended September 30, 2021. Both changes are~~YTD 2022, primarily ~~the~~as a result of certain intangible assets ~~at Circulation~~ being fully amortized during the ~~second half of 2021.~~period.

~~Personal Care~~

PCS Segment

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Amount % of Segment Revenue Amount % of Segment Revenue Amount % of Segment Revenue Amount % of Segment Revenue
Service revenue, net $ 169,226 100.0% $ 118,503 100.0% $ 491,661 100.0% $ 338,385 100.0%
Grant income 789 0.5% — —% 4,587 0.9% 3,500 1.0%
Service expense 132,746 78.4% 94,107 79.4% 379,423 77.2% 268,933 79.5%
General and administrative expense 22,057 13.0% 15,802 13.3% 68,536 13.9% 45,606 13.5%
Depreciation and amortization 12,919 7.6% 4,912 4.1% 37,976 7.7% 14,723 4.4%
Operating income $ 2,293 1.4% $ 3,682 3.1% $ 10,313 2.1% $ 12,623 3.7%
(in thousands, except Service revenue per hour and Service expense per hour)


	Three months ended September 30,						Nine months ended September 30,
	2023			2022			2023			2022
	Amount		% of Segment Revenue	Amount		% of Segment Revenue	Amount		% of Segment Revenue	Amount		% of Segment Revenue
Operating Results
Service revenue, net	$	179,979	100.0%	$	169,226	100.0%	$	534,435	100.0%	$	491,661	100.0%
Grant income	551		0.3%	789		0.5%	4,649		0.9%	4,587		0.9%

Service expense	143,078		79.5%	132,746		78.4%	417,636		78.1%	379,423		77.2%
General and administrative expense	20,252		11.3%	22,057		13.0%	63,480		11.9%	68,536		13.9%
Depreciation and amortization	12,850		7.1%	12,919		7.6%	38,590		7.2%	37,976		7.7%
Impairment of goodwill	—		—%	—		—%	137,331		25.7%	—		—%
Operating income (loss)	$	4,350	2.4%	$	2,293	1.4%	$	(117,953)	(22.1)%	$	10,313	2.1%

Business Metrics(1)
Total hours	6,995			6,836			20,752			20,076
Service revenue per hour	$	25.73		$	24.76		$	25.75		$	24.49
Service expense per hour	$	20.45		$	19.42		$	20.13		$	18.90

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~~PCS 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 the acquisition was completed on September 14, 2021 and contributed minimal activity in 2021 compared to a full year of activity in 2022.

Service revenue, net. ~~Personal care service~~PCS contracts are generally structured as fee-for-service contracts, with revenue driven by hours worked by our personal care providers. Service revenue, net, increased by ~~$50.7~~$10.8 million, or ~~42.8%~~6.4%, for ~~the three months ended September 30, 2022~~Q3 2023, as compared to ~~September 30, 2021,~~Q3 2022, primarily due to ~~incremental revenue from the Care Finders acquisition of $34.5 million. The remainder of the increase in service revenue is attributable to Simplura, due to~~2.3% higher hours worked by personal care providers in Q3 ~~2022~~2023 as compared to Q3 ~~2021~~2022, as well as ~~the asset acquisition completed in Q2 2022, as disclosed in Note 3,~~ 3.9% higher rates per member~~Acquisitions,~~. ~~which allowed the Company to service the additional acquired contracts.~~ Service revenue, net increased by ~~$153.3~~$42.8 million, or ~~45.3%~~8.7%, for ~~the nine months ended September 30, 2022~~YTD 2023 as compared to ~~September 30, 2021,~~YTD 2022, primarily due to ~~incremental revenue from the Care Finders acquisition of $121.2 million.~~3.4% higher hours worked by personal care providers during YTD 2023 as compared to YTD 2022, as well as 5.1% higher rates per member.

Grant ~~Income~~income. ~~In the three~~During Q3 2023 and ~~nine months ended September 30,~~Q3 2022, the Company recognized income for government grant distributions received of $0.6 million and $0.8 million, respectively, primarily from the CARES Act PRF and the ARPA ~~SLFRF~~SLFRF. These government grants are targeted to ~~providing~~provide economic relief and stimulus to combat health and economic impacts of the COVID-19 ~~pandemic~~pandemic. These funds were received by our PCS segment and are available to eligible providers who have healthcare-related expenses and lost revenues attributable to COVID-19. During both YTD 2023 and YTD 2022, the Company recognized income for government grant distributions received of ~~$0.8 million and~~ $4.6 million, respectively. ~~In comparison,~~

Service expense. Service expense components for the ~~Company did not receive distributions~~PCS segment are shown below (in thousands):


	Three months ended September 30,								Nine months ended September 30,
	2023				2022				2023				2022
	Amount		% of Segment Revenue		Amount		% of Segment Revenue		Amount		% of Segment Revenue		Amount		% of Segment Revenue
Payroll and related costs	$	141,921	78.9	%	$	132,482	78.3	%	$	413,995	77.5	%	$	374,994	76.3	%
Other service expenses	1,157		0.6	%	264		0.1	%	3,641		0.7	%	4,429		0.9	%
Total service expense	$	143,078	79.5	%	$	132,746	78.4	%	$	417,636	78.1	%	$	379,423	77.2	%

Service expense for our PCS segment primarily consists of salaries for our employees who provide personal care services and it typically trends with the number of hours worked and cost per hour of service. Service expense for Q3 2023 increased by $10.3 million, or 7.8%, as compared to Q3 2022, primarily as a result of a 5.3% increase in service expense per hour, driven primarily by increased wage rates for our caregivers, predominately from wage pressures in New York, as well as a 2.3% increase in hours of service during Q3 2023. Service expense for YTD 2023 increased by $38.2 million or 10.1%, as compared to YTD 2022, primarily as a result of a 6.5% increase in service expense per hour and a 3.4% increase in hours of service during YTD 2023.

General and administrative expense. General and administrative expense primarily consists of salaries for administrative employees that support the ~~three months ended September 30, 2021,~~operations of the PCS segment, occupancy costs, marketing expenditures, insurance, and ~~received distributions~~professional fees. General and administrative expense decreased by $1.8 million, or 8.2%, for Q3 2023 as compared to Q3 2022 and decreased by $5.1 million or 7.4%, for YTD 2023 as compared to YTD 2022. The decrease is primarily related to lower insurance-related expense and lower legal fees during YTD 2023 along with lower integration related expenses during YTD 2023.

Depreciation and amortization expense. Depreciation and amortization expense remained consistent for both Q3 2022 to Q3 2023 and YTD 2022 to YTD 2023 with a decrease of ~~$3.5~~$0.1 million, or 0.5%, for Q3 2023 as compared to Q3 2022 and an increase of $0.6 million, or 1.6%, for YTD 2023 as compared to YTD 2022.

Impairment of goodwill. As a result of our annual goodwill assessment, we determined that the goodwill within our PCS reporting unit was impaired which resulted in an impairment of goodwill charge of $137.3 million during the ~~nine months ended September 30, 2021.~~second quarter of 2023.

RPM Segment

(in thousands, except Revenue per member per month and Service expense per member per month)


	Three months ended September 30,								Nine months ended September 30,
	2023				2022				2023				2022
	Amount		% of Segment Revenue		Amount		% of Segment Revenue		Amount		% of Segment Revenue		Amount		% of Segment Revenue
Operating Results
Service revenue, net	$	19,779	100.0	%	$	18,760	100.0	%	$	57,702	100.0	%	$	49,362	100.0	%

Service expense	6,934		35.1	%	6,836		36.4	%	20,129		34.9	%	17,884		36.2	%
General and administrative expense	5,685		28.7	%	5,816		31.0	%	16,781		29.1	%	17,520		35.5	%
Depreciation and amortization	6,174		31.2	%	5,467		29.1	%	18,087		31.3	%	14,201		28.8	%
Impairment of goodwill	—		—	%	—		—	%	45,769		79.3	%	—		—	%
Operating income (loss)	$	986	5.0	%	$	641	3.4	%	$	(43,064)	(74.6)	%	$	(243)	(0.5)	%

Business Metrics(1)
Average monthly members	247				230				241				201
Revenue per member per month	$	26.69			$	27.19			$	26.60			$	27.29
Service expense per member per month	$	9.36			$	9.91			$	9.28			$	9.89

(1) �� These metrics are key performance indicators that management uses to evaluate our performance. Trends established in these metrics can be used to evaluate current operating results, identify trends affecting our business, determine the allocation of resources and understand the underlying drivers of costs and revenue for our business. We believe these metrics are useful to investors in evaluating and understanding our business but should not be used solely in assessing the Company’s performance. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein to fully evaluate and understand the business as a whole.

Our 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 fixed fee per enrolled member per month, and therefore revenue is generally driven by the number of enrolled members. Service revenue, net, increased by $1.0 million, or 5.4%, for Q3 2023 as compared to Q3 2022, primarily related to a 7.4% increase in average monthly members from Q3 2022 to Q3 2023. Service revenue, net, increased by $8.3 million, or 16.9%, for YTD 2023 as compared to YTD 2022, primarily related to incremental revenue of $7.2 million from an acquisition that occurred in May 2022.

Service expense. Service expense components for the ~~Personal Care~~RPM segment are shown below (in thousands):


		Three months ended September 30,								Nine months ended September 30,									Three months ended September 30,								Nine months ended September 30,
		2022				2021				2022				2021					2023				2022				2023				2022
		Amount		% of Revenue		Amount		% of Revenue		Amount		% of Revenue		Amount		% of Revenue			Amount		% of Segment Revenue		Amount		% of Segment Revenue		Amount		% of Segment Revenue		Amount		% of Segment Revenue

Payroll and related costs	Payroll and related costs	$	132,482	78.3	%	$	93,105	78.6	%	$	374,994	76.3	%	$	265,129	78.4	%	Payroll and related costs	$	3,414	17.3	%	$	3,323	17.7	%	$	9,941	17.2	%	$	8,646	17.5	%
Other service expenses	Other service expenses	264		0.1	%	1,002		0.8	%	4,429		0.9	%	3,804		1.1	%	Other service expenses	3,520		17.8	%	3,513		18.7	%	10,188		17.7	%	9,238		18.7	%
Total service expense	Total service expense	$	132,746	78.4	%	$	94,107	79.4	%	$	379,423	77.2	%	$	268,933	79.5	%	Total service expense	$	6,934	35.1	%	$	6,836	36.4	%	$	20,129	34.9	%	$	17,884	36.2	%

Service expense for our ~~Personal Care~~RPM segment primarily consists of salaries for the employees providing the ~~personal care~~remote monitoring services and it typically trends with the number of hours worked. Service expense for ~~the three months ended September 30, 2022 increased by $38.6 million and 41.1%~~Q3 2023, remained consistent for Q3 2023 as compared to ~~the three months ended September 30, 2021, primarily~~Q3 2022 with an increase of $0.1 million, or 1.4%, as acompared to Q3 2022. Service expense for

3637

~~result of incremental expense of $25.6~~YTD 2023 increased $2.2 million, ~~related to the Care Finders acquisition. Service expense for the nine months ended September 30, 2022 increased by $110.5 million and 41.1%~~or 12.6%, as compared to ~~the nine months ended September 30, 2021,~~YTD 2022, primarily as a result of ~~incremental expense of $90.9 million~~an increase in direct wages driven by the additional hours worked to service the 19.9% increase in average monthly members as well as an increase in device connectivity costs related to the ~~Care Finders acquisition. The remainder of~~additional devices deployed to service the increase ~~is related to increased pay rates for the personal care providers for the Simplura business as well as servicing additional contracts acquired through the asset acquisition completed~~ in ~~Q2 2022, as disclosed in Note 3,~~ ~~Acquisitions, .~~average monthly members.

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 $6.3 million and 39.6% for the three months ended September 30, 2022~~remained consistent in Q3 2023 as compared to ~~the three months ended September 30, 2021, primarily related~~Q3 2022 with a decrease of $0.1 million, or 2.3%, for Q3 2023 as compared to ~~incremental costs from the acquisition of Care Finders of $5.5 million.~~Q3 2022. General and administrative expense ~~increased~~decreased by ~~$22.9~~$0.7 million, ~~and 50.3%~~or 4.2%, for ~~the nine months ended September 30, 2022~~YTD 2023 as compared to ~~the nine months ended September 30, 2021,~~YTD 2022, primarily related to ~~incremental~~a decrease in legal costs ~~from the~~associated with an acquisition ~~of Care Finders of $22.6 million.~~that occurred in May 2022.

Depreciation and amortization expense. Depreciation and amortization expense increased by ~~$8.0~~$0.7 million, ~~and 163.0%~~or 12.9%, for ~~the three months ended September 30, 2022~~Q3 2023 as compared to ~~2021,~~Q3 2022, primarily related to additional depreciation expense related to the additional devices in service related to a 7.4% increase in average monthly members from Q3 2022. Depreciation and amortization expense increased by ~~$23.3~~$3.9 million, ~~and 157.9%~~or 27.4%, for ~~the nine months ended September 30, 2022~~YTD 2023 as compared to ~~2021. The increase in this expense for the three~~YTD 2022, primarily related to additional depreciation and nine months ended September 30, 2022 is primarily due to amortization expense on the intangible assets brought on under the Care Finders acquisition of $3.7 million and $11.1 million, respectively. The increase for the three and nine months ended September 30, 2022 is also driven by the additional amortization expense of ~~$3.6~~$2.1 million ~~and $10.7 million, respectively,~~ related to the ~~change~~assets acquired from an acquisition that occurred in ~~useful lives of Simplura intangible assets~~May 2022 as ~~discussed~~well as additional depreciation expense related to the additional devices in ~~Note 2,~~ ~~Significant Accounting Policies and Recent Accounting Pronouncements.~~service related to a 19.9% increase in average monthly members from YTD 2022.

Impairment of goodwill. As a result of our annual goodwill assessment, we determined that the goodwill within our RPM ~~Segment~~reporting unit was impaired which resulted in an impairment of goodwill charge of $45.8 million during the second quarter of 2023.

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Amount % of Segment Revenue Amount % of Segment Revenue Amount % of Segment Revenue Amount % of Segment Revenue
Service revenue, net $ 18,760 100.0 % $ 1,564 100.0 % $ 49,362 100.0 % $ 1,564 100.0 %
Service expense 6,836 36.4 % 767 49.0 % 17,884 36.2 % 767 49.0 %
General and administrative expense 5,816 31.0 % 216 13.8 % 17,520 35.5 % 216 13.8 %
Depreciation and amortization 5,467 29.1 % 200 12.8 % 14,201 28.8 % 200 12.8 %
Operating income (loss) $ 641 3.4 % $ 381 24.4 % $ (243) (0.5) % $ 381 24.4 %

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. The quarterly and annual fluctuations as of the three and nine months ended September 30, 2022 and 2021, respectively, are not meaningful as the segment only contributed minimal activity in 2021 and a full year of activity in 2022.

~~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 managed Medicare contracts accounted for 19.5% and 21.4% of service revenue, net, for the three and nine months ended September 30, 2022, respectively, while state and managed Medicaid program contracts accounted for 62.7% and 60.6% of service revenue, net for the three and nine months ended September 30, 2022, respectively. The remainder of the RPM segment revenue is derived from private pay and other contracts.

3738

~~Service expense.~~ ~~Service expense components for the RPM segment are shown below (in thousands):~~

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Amount % of Revenue Amount % of Revenue Amount % of Revenue Amount % of Revenue
Payroll and related costs $ 3,323 17.7 % $ 767 49.0 % $ 8,646 17.5 % $ 767 49.0 %
Other service expenses 3,513 18.7 % — 0.0 % 9,238 18.7 % — 0.0 %
Total service expense $ 6,836 36.4 % $ 767 49.0 % $ 17,884 36.2 % $ 767 49.0 %

~~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.

~~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 September 30, Nine months ended September 30,
2022 2021 2022 2021
Amount Amount Amount Amount
General and administrative expense $ 16,201 $ 22,312 $ 43,316 $ 47,812
Depreciation and amortization 207 — 623 —
Operating income (loss) $ (16,408) $ (22,312) $ (43,939) $ (47,812)
(in thousands)


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
	Amount		Amount		Amount		Amount
Service revenue, net	$	1,216	$	—	$	3,812	$	—

Service expense	1,181		—		3,366		—
General and administrative expense	18,772		16,201		61,189		43,316
Depreciation and amortization	239		207		683		623
Operating income (loss)	$	(18,976)	$	(16,408)	$	(61,426)	$	(43,939)

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.~~Matrix and the operating results of investments in innovation related to data analytics products and solutions, which contributes to our strategic investment in growth.

Service revenue, net and Service expense: At the end of the first quarter of 2023, we made an investment in innovation related to our data analytics capabilities within our Corporate and Other segment, which contributes to service revenue and service expense.

General and administrative expense and Depreciation and amortization: Our Corporate and Other segment ~~holds~~includes costs incurred related to strategy and stewardship of the other operating segments. These expenses are primarily general and administrative expenses, with a ~~small~~minimal amount related to depreciation. The general and administrative expense ~~decreased~~increased by ~~$6.1~~$2.6 million and ~~$4.5~~$17.9 million for Q3 2023 as compared to Q3 2022. This increase is primarily related to software implementation costs for ongoing system integration projects, including the ~~three~~PCS and ~~nine months ended September 30, 2022, primarily~~RPM general ledger and personnel management system integrations. This balance has also increased due to ~~a lower bonus accrual in the current year~~consulting costs and ~~lower stock based compensation due~~litigation costs related to executive ~~departure.~~turnover.

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~~PCS 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 on new revenue contracts 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~~occasional borrowings under our ~~New~~ Credit Facility.For information regarding our long-term capital requirements, see below under the caption ~~“Liquidity”~~"Liquidity".

Cash ~~flow from~~used in operating activities during the nine months ended September 30, ~~2022~~2023 was ~~$45.5~~$57.3 million. Our balance of cash and cash equivalents, including restricted cash, was ~~$72.7~~$8.6 million and ~~$133.4~~$15.0 million at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. We had restricted cash of ~~$0.3~~$0.5 million ~~at December 31, 2021~~ and ~~an immaterial amount~~$0.5 million at September 30, ~~2022.~~2023 and December 31, 2022, respectively. 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~~2023 cash flows compared to YTD ~~2021~~2022

Operating activities. Cash used in operating activities was $57.3 million for YTD 2023 compared to cash provided by operating activities ~~was~~of $45.5 ~~million and $174.7~~ million for YTD ~~2022 and YTD 2021, respectively.~~2022. The decrease of ~~$129.2~~$102.9 million was primarily a result of a decrease in cash provided by changes in working capital of ~~$127.7~~$94.2 million. The working capital changes were related to ~~a decrease~~an increase in ~~the change in accrued~~cash paid for contract payables of ~~$189.7~~$22.9 million primarily related to repayments ~~and~~on previously accrued contract payable amounts combined with lower liability reserves on certain risk corridor, profit rebate and reconciliation contracts due to higher trip volumes during YTD ~~2022.~~2023. Also contributing to the decrease in working capital is a decrease in the ~~change in accrued transportation costs~~cash received from contract receivables of ~~$25.5~~$22.6 million primarily related to ~~decreased cycle time~~a build of receivables related to ~~pay our transportation providers therefore decreasing the accrued transportation costs in YTD 2022 compared to YTD 2021. These working capital decreases were partially offset by~~certain risk corridor, profit rebate, and reconciliation contracts, as well as an increase in the cash paid for accounts payable and accrued expenses ~~balance~~ of ~~$46.4~~$58.3 million, primarily related to timing of vendor ~~payments and and~~payments. These working capital changes are partially offset by an increase in ~~the accounts receivable balance~~cash related to an increase in accrued transportation costs of ~~$41.1~~$19.3 million, primarily related to ~~receivables recorded on~~timing of payments to our ~~reconciliation and corridor contracts.~~transportation providers, as compared to YTD 2022.

Investing activities. Net cash used in investing activities ~~of $104.4~~was $31.1 million in YTD ~~2022~~2023, which decreased by ~~$576.7~~$73.2 million as compared to YTD ~~2021~~2022, primarily as a result of ~~a decrease in cash spent on acquisitions of $588.4 million. This is due~~acquisition activity during YTD 2022 related to ~~the Company's acquisitions of WellRyde, Care Finders, and VRI in YTD 2021 compared to only the purchase of GMM and~~ an ~~asset~~ acquisition ~~in 2022.~~made under our RPM segment.

Financing activities. Net cash provided by financing activities was $82.1 million for YTD 2023, compared to cash used in financing activities of $1.8 million infor YTD ~~2022 decreased by $451.5~~2022. The change of $83.9 million aswas primarily a result of proceeds from our short-term borrowing on our Credit Facility of $83.0 million during YTD 2023, compared to ~~net cash provided by financing activities~~no proceeds from debt or other short-term borrowings during YTD 2021 of $449.7 million. The change was primarily due to the Company issuing senior notes during August 2021 for $500.0 million offset by 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.~~2022.

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~~For information related to the Company's Senior Unsecured Notes, ~~due 2025 and the Senior Notes due 2029 were issued pursuant~~refer 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 portionNote 9 of the ~~Company’s acquisition of Simplura and~~Notes to the ~~proceeds from the Senior Notes due 2029 were used to fund a portion of the Company’s acquisition of VRI.~~unaudited condensed consolidated financial statements included in Part I, Item 1, “Financial Statements”.

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. OnThe Company is a party to the amended and restated credit agreement, dated as of February 3, 2022, (as amended, the ~~Company entered into a new credit agreement (the “New Credit~~“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~~“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,~~On June 26, 2023, 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)~~entered into an Amendment No. 1 (the "First Amendment") 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~~amended and restated the maximum permitted Total Net Leverage Ratio under the Credit Agreement. For information related to the Company's ~~entry into the New Credit Agreement.~~

~~Under the New~~ Credit Facility, ~~the Company has an option~~refer to ~~request an increase in the amount~~Note 9 of the ~~New Credit Facility or obtain incremental term loans from time to time (on substantially the same terms as apply~~Notes 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 fromunaudited condensed consolidated 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 forthstatements included 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.

Part I, Item 1, “Financial Statements”.

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 September 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 ~~$72.7~~$8.1 million and accounts receivable, contract receivables, and other receivables of ~~$272.3~~$340.8 million. Liquid liabilities which totaled ~~$667.0~~$691.7 million at period end as detailed in the table ~~below.~~below, included $68.5 million in guarantees and letters of credit that are not expected to be paid in cash in the next 12 months. Other sources of liquidity include amounts currently available under our ~~New~~ Credit Facility of ~~$325.0 million.~~up to approximately $164.0 million as of September 30, 2023 based on our total net debt leverage ratio covenant of 5.25:1.00, and expected future cash generated from operations.

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 $45.5 million,~~ debt financing, and our ~~New~~ Credit ~~Facility of $325.0 million.~~Facility. 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.

The Company has cash requirements of ~~$667.0~~$691.7 million due in one year or less in addition to ~~$1,319.3~~$1,245.2 million due in more than one year as of September 30, ~~2022.~~2023. The following is a summary of our future cash requirements for the next twelve months and the period extending beyond twelve months as of September 30, ~~2022~~2023 (in thousands):

At September 30, 2022
Less than Greater than
Total 1 Year 1 Year
Senior Unsecured Notes (1)
$ 1,000,000 $ — $ 1,000,000
Contracts payable (2)
243,800 243,800 —
Interest (1)
265,899 54,375 211,524
Transportation costs (3)
90,114 90,114 —
Deferred tax liabilities (4)
62,666 — 62,666
Operating leases (5)
48,153 3,349 44,804
Guarantees (6)
48,198 47,923 275
Letters of credit (6)
38,002 38,002 —
Other current cash obligations (7)
189,459 189,459 —
Total $ 1,986,291 $ 667,022 $ 1,319,269


	At September 30, 2023
			Less than		Greater than
	Total		1 Year		1 Year
Senior Unsecured Notes(1)	$	1,000,000	$	—	$	1,000,000
Interest(1)	213,996		56,847		157,149
Contracts payable(2)	133,576		133,576		—
Transportation costs(3)	102,974		102,974		—
Deferred tax liabilities(4)	42,001		—		42,001
Operating leases(5)	42,299		8,902		33,397
Guarantees(6)	29,666		29,391		275
Letters of credit(6)	39,074		39,074		—
Purchased service commitment(7)	61,875		49,500		12,375
Short-term borrowings(8)	83,000		83,000		—
Other current cash obligations(9)	188,398		188,398		—
Total	$	1,936,859	$	691,662	$	1,245,197

(1)See Note 9 of the Notes to the ~~Unaudited Condensed Consolidated Financial Statements~~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 on our Senior Unsecured Notes are typically paid semi-annually in arrears and have been calculated at the rates fixed as of September 30, ~~2022.~~2023. Interest payments on our short-term borrowings have been calculated by taking the expected borrowing on the Credit Facility for the next year at the interest rate of 9.8%.

(2)See Note 54 of the Notes to the ~~Unaudited Condensed Consolidated Financial Statements~~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~~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~~2022 filed on ~~February 28, 2022~~March 7, 2023 for further detail of our accrued transportation cost.

(4)~~See Note 12~~Deferred income taxes reflect the net tax effects of temporary differences between the ~~Notes to~~carrying amounts of assets and liabilities for financial reporting purposes and the ~~Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements”~~amounts used for ~~further detail of our deferred~~income tax ~~liabilities.~~purposes.

(5)The operating leases are for office space. Certain leases contain periodic rent escalation adjustments and renewal options. See Note 1817 of the Notes to the ~~Consolidated Financial Statements~~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~~2022 filed on ~~February 28, 2022~~March 7, 2023 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)The purchased service commitment includes the maximum penalty we would incur if we do not meet our minimum volume commitment over the remaining term of the agreement under certain contracts. See Note 19 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, 2022 filed on March 7, 2023 for further detail of our purchased service commitment.

(8)Short-term borrowings shown in the table were provided by our Credit Facility and reduced our availability under the related Credit Agreement. 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 Credit Facility.

(9)These include other current liabilities reflected in our unaudited condensed consolidated balance sheets as of September 30, ~~2022,~~2023, including accounts payable and accrued expenses as detailed at Note 8 to the ~~Unaudited Condensed Consolidated Financial Statements~~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.~~2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We have exposure to interest rate risk mainly related to our ~~New~~ Credit Facility, which has variable interest rates that may increase. We had ~~$38.0~~$83.0 million of short-term borrowings outstanding on the Credit Facility and $39.1 million of outstanding letters of credit under the ~~New~~ Credit Facility at September 30, ~~2022~~2023. Interest rates on the outstanding principal amount of the Credit Facility vary and accrue 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 Credit Agreement, in each case, plus an applicable margin. We completed an interest rate risk sensitivity analysis with the assumption that the short-term borrowing amount that was outstanding as of September 30, 2023 was outstanding for the fiscal year with an assumed one-percentage point increase in interest rates. Based on this analysis, the one-percentage point increase would have an approximate $0.8 million negative impact on our pre-tax earnings.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures

The ~~Company,~~Company's management, under the supervision and with the participation of its ~~management (including its~~ principal executive officer and principal financial ~~officer),~~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 September 30, ~~2022.~~2023. Based upon this evaluation, the Company’s principal executive officer and principal financial officer ~~has~~ concluded that, to the extent of the material weaknesses identified in internal control over financial reporting as described in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, such disclosure controls and procedures were not 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.

In light of the material weaknesses described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, management performed additional analysis and other procedures to ensure that our unaudited condensed consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP). Accordingly, management believes that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows as of and for the periods presented, in accordance with U.S. GAAP.

(b) Changes in internal control over financial reporting

~~The principal executive and financial officer also conducted an evaluation~~We, with the oversight of ~~whether any changes~~the Audit Committee of the Board of Directors, are in the Company’s internal control over financial reporting occurred during the quarter ended September 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 thoseprocess of ongoing remediation efforts related to the ~~remediation of the~~ material weaknesses ~~identified at~~previously reported in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~

2022.

During the nine months ended September 30, ~~2022,~~2023, our management continued updating certain internal controls and supporting processes to address the material ~~weakness~~weaknesses in our internal control over financial reporting described in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. The remediation plan put into place by management includes ~~the hiring of a third party~~working with our third-party specialist 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 changes and business acquisitions.

To that effect, the Company has:

•Designed and implemented a new suite of internal controls with appropriate authorities around the payroll process at the NEMT and Corporate and Other segments.

•Continued to execute our enhanced risk assessment process to identify and assess changes in our internal control environment, specifically related to new information technology ("IT") systems and newly acquired companies.

•Continued to design, enhance and implement GITCs, including change management and logical access controls, to support process-level automated controls intended to ensure that information needed for the operation of manual process-level controls and financial reporting is accurate and complete.

~~To date,~~The Company is focused on projects that address processes and technologies to integrate each of the business segments into One ModivCare and standardize our control environment. Given the nature and complexity of the integration, management expects that the test of operating effectiveness of remediation will extend into 2024 for the PCS segment. The material weakness will not be considered remediated until the remediation plan has ~~provided enhanced control training~~been implemented and there has been appropriate time for ~~control owners, and has~~us to conclude through testing that the controls are 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.operating effectively. Management will continue to monitor the progress of these efforts to ensure ~~timely~~ remediation.

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.

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~~2022 (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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

During the three months ended September 30, 2023, none of our officers or directors adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

Item 6. Exhibits.

EXHIBIT INDEX


Exhibit Number						Description



10.1*3.1						~~Offer letter,~~Second Amended and Restated Certificate of Incorporation of the registrant, as filed with the Secretary of State of Delaware on December 9, 2011 (Incorporated by reference to Exhibit 3.1 to the registrant's annual report on Form 10-K filed with the SEC on March 1, 2021).

3.2						Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of the registrant, dated as of May 6, 2015 (Incorporated by reference to Exhibit 3.1 to the registrant's current report on Form 8-K filed with the SEC on May 7, 2015).

3.3						Second Amendment to the Second Amended and Restated Certificate of Incorporation of the registrant, effective January 6, 2021 (Incorporated by reference to Exhibit 3.1 to the registrant's current report on Form 8-K filed with the SEC on January 6, 2021).

3.4						Third Amendment to the Second Amended and Restated Certificate of Incorporation of the registrant, effective June 13, 2023 (Incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed with the SEC on June 15, 2023).

3.5						Amended and Restated Bylaws of the registrant, effective January 6, 2021 (Incorporated by reference to Exhibit 3.2 to the registrant’s current report on Form 8-K filed with the SEC on January 6, 2021).

3.6						Amendment to the Amended and Restated Bylaws of the registrant, effective June 13, 2023 (Incorporated by reference to Exhibit 3.2 to the registrant's current report on Form 8-K filed with the SEC on June 15, 2023).

4.1						Indenture for 5.875% Senior Notes Due 2025 dated as of November 4, 2020, between the registrant and The Bank of New York Mellon Trust Company, N.A., as trustee (Incorporated by reference to Exhibit 4.1 to the registrant’s current report on Form 8-K filed with the SEC on November 12, 2020).

4.2						Indenture for 5.000% Senior Notes Due 2029 dated as of August ~~22, 2022,~~24, 2021, between ModivCare Escrow Issuer, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (Incorporated by reference to Exhibit 4.1 to the registrant’s current report on Form 8-K filed with the SEC on August 24, 2021).

10.1*						O ffer Letter, dated July 31 , 2023 , by and between the registrant and ~~and among~~Barbara Gutierrez ~~the~~ ~~registrant, ModivCare Solutions, LLC and Rebecca Orcutt~~.

31.1*						Certification pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer.

31.2*						Certification pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer.

32.1**						Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer.

32.2**						Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer.

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~~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.~~

4546

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: November ~~7, 2022~~2, 2023	By:	/s/ L. Heath Sampson
		L. Heath Sampson Chief Executive Officer
		(~~Duly Authorized~~Principal Executive Officer)

Date: November ~~7, 2022~~2, 2023	By:	/s/ ~~L. Heath Sampson~~Barbara Gutierrez
		~~L. Heath Sampson~~ Barbara Gutierrez Chief Financial Officer
		(Principal Financial Officer)

4647


	Three months ended September 30, 2021
	NEMT		Personal Care		RPM		Corporate and Other		Total
Service revenue, net	$	372,992	$	118,503	$	1,564	$	—	$	493,059
Grant income (1)	—		—		—		—		—

Service expense	304,398		94,107		767		—		399,272
General and administrative expense	29,875		15,802		216		22,312		68,205
Depreciation and amortization	7,496		4,912		200		—		12,608
Operating income (loss)	$	31,223	$	3,682	$	381	$	(22,312)	$	12,974

Equity in net loss of investee, net of tax	$	—	$	—	$	—	$	4,845	$	4,845
Equity investment	$	—	$	—	$	—	$	134,353	$	134,353
Goodwill	$	135,186	$	565,886	$	228,884	$	30	$	929,986
Total assets	$	552,912	$	1,037,886	$	343,277	$	201,078	$	2,135,153


	At September 30, 2022
			Less than		Greater than
	Total		1 Year		1 Year
Senior Unsecured Notes (1)	$	1,000,000	$	—	$	1,000,000
Contracts payable (2)	243,800		243,800		—
Interest (1)	265,899		54,375		211,524
Transportation costs (3)	90,114		90,114		—
Deferred tax liabilities (4)	62,666		—		62,666
Operating leases (5)	48,153		3,349		44,804
Guarantees (6)	48,198		47,923		275
Letters of credit (6)	38,002		38,002		—
Other current cash obligations (7)	189,459		189,459		—
Total	$	1,986,291	$	667,022	$	1,319,269