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, 2023 and 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, 2022. For purposes of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to "Q3 2023" and "Q3 2022" mean the three months ended September 30, 2023 and the three months ended September 30, 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, 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
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 members. Its value-based solutions address the social determinants of health ("SDoH") by connecting members to essential care 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 ("NEMT"), personal care services ("PCS"), and remote patient monitoring ("RPM") solutions, which serve similar, highly vulnerable patient populations. The technology-enabled operating model in its NEMT segment includes the coordination of non-emergency medical transportation services supported by an infrastructure of core competencies in risk underwriting, contact center management, network credentialing and 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 and data-driven patient engagement solutions.
ModivCare also holds a 43.6% minority interest in CCHN Group Holdings, Inc. and its subsidiaries, which operates under the Matrix Medical Network brand (“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.
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 including required transportation to such healthcare services and 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;
•MCO, Medicaid and Medicare plans 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; 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.
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, as well as ongoing constraints on the labor market, specifically related to the strain on healthcare professionals, could continue to have an adverse impact on the Company's financial statements. For the NEMT segment, trip volume may have a negative impact on our transportation providers and may result in higher transportation costs as the Company adapts to this increase in demand for transportation services and to the availability of transportation providers, should any capacity constraints within our network of transportation providers arise. For the PCS segment, the shortage of caregivers will continue to impact the volume of service hours that can be 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 payor reimbursement rates at the PCS segment in an attempt to contain costs could limit the ability for the Company to generate revenue despite the Company's shift toward emphasizing the importance of value-based care. Any of these circumstances and factors could have a material adverse effect on our reputation and business and any long-term macroeconomic impacts that have arisen as a result of the pandemic 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 reporting unit below such reporting unit’s carrying value. The Company monitors the performance of the business and the value of its stock price and estimated fair values of its reporting units, among other relevant considerations, to determine if any impairments to 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 goodwill at our PCS and RPM reporting units was impaired. See Note 7, Goodwill and Intangible Assets, for additional details.
Critical Accounting Estimates and Policies
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, 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, 2022.
Components of Results of Operations
Revenues
Service revenue, net. Service revenue for our NEMT segment includes the revenue generated by providing non-emergency transportation 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, or on a fee-for-service ("FFS") basis, which means we are paid based on the volume of trips or services performed. We receive payments for our services from third-party payors, predominately made up of state Medicaid agencies and MCOs.
Our capitated contracts 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") contracts, which represent approximately 15% of our NEMT revenue, payors pay a specified amount for each service that we 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.
Service revenue for our 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 we provide. Payment for our PCS services is billed to third-party payors which include, but are not limited to, MCOs, hospitals, Medicaid agencies and programs and other home health care providers who subcontract the services to our 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 to our customers, primarily on a PMPM basis for each eligible member. Payment for our monitoring services is billed to 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. 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 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 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 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.
Other Expenses (Income)
Interest expense, net. Interest expense consists principally of interest accrued during the period ended September 30, 2023 on the Company’s borrowings outstanding 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 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, as well as the earnings of our insurance captive held at the NEMT segment.
Income tax (provision) benefit. The Company is subject to federal taxation in the United States and state taxation in the various jurisdictions in which we operate.
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, PCS, RPM, and Corporate and Other. The NEMT segment provides non-emergency medical transportation services throughout the country. The PCS segment provides non-medical personal care and home health services. The RPM segment 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. The operating results of the NEMT, PCS and RPM segments include revenue and expenses generated and incurred by the segment, and the Corporate and Other segment includes expenses incurred in relation to the Corporate operations of the Company
See Note 3, Segments, in our accompanying unaudited condensed consolidated financial statements for further information on our segments.
Results of Operations
Q3 2023 compared to Q3 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 Q3 2023 and Q3 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, |
| | 2023 | | 2022 |
| | Amount | | % of Service Revenue | | Amount | | % of Service Revenue |
| Service revenue, net | $ | 686,925 | | | 100.0 | % | | $ | 647,782 | | | 100.0 | % |
| Grant income | 551 | | | 0.1 | % | | 789 | | | 0.1 | % |
| | | | | | | |
| Operating expenses: | | | | | | | |
| Service expense | 579,214 | | | 84.3 | % | | 534,563 | | | 82.5 | % |
| General and administrative expense | 70,142 | | | 10.2 | % | | 75,889 | | | 11.7 | % |
| Depreciation and amortization | 26,077 | | | 3.8 | % | | 25,672 | | | 4.0 | % |
| | | | | | | |
Total operating expenses | 675,433 | | | 98.3 | % | | 636,124 | | | 98.2 | % |
| | | | | | | |
Operating income | 12,043 | | | 1.8 | % | | 12,447 | | | 1.9 | % |
| | | | | | | |
| | | | | | | |
| Interest expense, net | 17,844 | | | 2.6 | % | | 15,557 | | | 2.4 | % |
Loss before income taxes and equity method investment | (5,801) | | | (0.8) | % | | (3,110) | | | (0.5) | % |
Income tax benefit | 1,659 | | | 0.2 | % | | 1,053 | | | 0.2 | % |
Equity in net loss of investee, net of tax | (160) | | | — | % | | (26,448) | | | (4.1) | % |
Net loss | $ | (4,302) | | | (0.6) | % | | $ | (28,505) | | | (4.4) | % |
Service revenue, net. Consolidated service revenue, net, for Q3 2023 increased $39.1 million, or 6.0%, compared to Q3 2022. This change is driven primarily by an increase in revenue of $26.2 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 $0.6 million during Q3 2023 and $0.8 million during Q3 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):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, |
| | 2023 | | 2022 |
| | Amount | | % of Service Revenue | | Amount | | % of Service Revenue |
| Purchased services | $ | 363,594 | | | 52.9 | % | | $ | 340,138 | | | 52.5 | % |
| Payroll and related costs | 197,009 | | | 28.7 | % | | 181,965 | | | 28.1 | % |
| Other service expenses | 18,611 | | | 2.7 | % | | 12,460 | | | 1.9 | % |
| 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
some of our larger transportation providers and cost savings due to our multi-modal strategy. Payroll and related costs increased by $15.0 million, primarily related to increased labor costs at our PCS segment, driven by an increase in hours worked and higher wage rates paid to our caregivers, further contributed to by higher wage rates 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 2023 decreased $5.7 million, or 7.6%, compared to Q3 2022. General and administrative expense, expressed as a percentage of service revenue, net decreased to 10.2% for Q3 2023 compared to 11.7% for Q3 2022. See our Results of Operations - Segments, for further discussion.
Depreciation and amortization. Depreciation and amortization remained consistent from Q3 2022 to Q3 2023 with an increase of $0.4 million, or 1.6%.
Interest expense, net. Interest expense, net, for Q3 2023 and Q3 2022 was $17.8 million and $15.6 million, respectively. During Q3 2023, we incurred $8.1 million and $6.6 million of interest expense related to the Senior Notes due 2025 and 2029, respectively. The remainder of the interest expense in Q3 2023 is related to interest and fees on the credit 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 income (loss) of investee, net of tax. Our equity in net loss of investee, net of tax, for Q3 2023 of $0.2 million and our equity in net loss of investee, net of tax, of $26.4 million for Q3 2022 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 Q3 2022 was the result of an asset impairment that occurred at Matrix during Q3 2022 compared to no asset impairment during Q3 2023.
Income tax (provision) benefit. Our effective tax rates from operations for Q3 2023 and Q3 2022 were a tax benefit of 28.6% and 33.9%, respectively. For 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.
Results of Operations - Segments
The following tables set forth certain financial information attributable to the Company’s business segments for the three and nine months ended September 30, 2023 and 2022:
NEMT Segment
(in thousands, except for revenue per member per month, revenue per trip, and service expense per trip)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 is the largest manager of non-emergency medical transportation programs for state governments and MCOs in the U.S.
Service revenue, net. Service revenue, net, increased by $26.2 million, or 5.7%, during Q3 2023 as compared to Q3 2022. This increase is primarily attributable to a 13.2% increase in revenue per member per month, which was driven by a 9.7% increase in trip 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 6.6% decrease in average monthly members primarily due to Medicaid redetermination. Service revenue, net, increased by $142.9 million, or 10.9%, during YTD 2023 as compared to YTD 2022, primarily attributable to a 11.2% increase in revenue per member per month driven by a 12.1% increase in trip volume, partially offset by a 0.3% decrease in average monthly 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 contracts are capitated, and we receive monthly payments on a per member per month basis in return for full or shared risk of transportation volumes. 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 have been restructured to a shared risk format, revenue increased despite the
decline in membership. Trip volume increases also positively affected revenue for fee-for-service contracts 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, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | Amount | | % of Segment Revenue | | Amount | | % of Segment Revenue | | Amount | | % of Segment Revenue | | Amount | | % of Segment Revenue |
| Purchased services | $ | 363,594 | | | 74.8 | % | | $ | 340,138 | | | 74.0 | % | | $ | 1,085,206 | | | 74.7 | % | | $ | 935,298 | | | 71.4 | % |
| Payroll and related costs | 51,655 | | | 10.6 | % | | 46,160 | | | 10.0 | % | | 155,388 | | | 10.7 | % | | 136,916 | | | 10.5 | % |
| Other service expenses | 12,772 | | | 2.6 | % | | 8,683 | | | 1.9 | % | | 37,010 | | | 2.5 | % | | 28,587 | | | 2.2 | % |
| 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 $33.0 million, or 8.4%, for Q3 2023, as compared to Q3 2022, primarily related to higher purchased services of $23.5 million or 6.8%. Service expense increased by $176.8 million and 16.1% for YTD 2023, as compared to YTD 2022, primarily due to an increase in purchased services of $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 periods in the prior year. For YTD 2023, cost per trip increased by 3.5% due to increased wages for our transportation providers as 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 support the operations of the NEMT segment, occupancy costs, marketing expenditures, insurance, and professional fees. General and administrative expense decreased by $6.4 million, or 20.1%, for Q3 2023, as compared to Q3 2022, and by $15.1 million, or 14.7%, for YTD 2023, as compared to YTD 2022, primarily as a result of various cost savings initiatives which resulted in lower personnel and lower professional services costs, as well as lower legal costs related to a case that was settled in 2022.
Depreciation and amortization expense. Depreciation and amortization expense decreased by $0.3 million, or 3.7%, for Q3 2023, as compared to Q3 2022, and decreased by $1.3 million, or 5.8%, for YTD 2023, as compared to YTD 2022, primarily as a result of certain intangible assets being fully amortized during the period.
PCS Segment
(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 | | | |
(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 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.
Service revenue, net. 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 $10.8 million, or 6.4%, for Q3 2023, as compared to Q3 2022, primarily due to 2.3% higher hours worked by personal care providers in Q3 2023 as compared to Q3 2022, as well as 3.9% higher rates per member. Service revenue, net increased by $42.8 million, or 8.7%, for YTD 2023 as compared to YTD 2022, primarily due to 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. During Q3 2023 and 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. 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. During both YTD 2023 and YTD 2022, the Company recognized income for government grant distributions received of $4.6 million, respectively.
Service expense. Service expense components for the 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 operations of the PCS segment, occupancy costs, marketing expenditures, insurance, and 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 $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 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 RPM 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 | $ | 3,414 | | | 17.3 | % | | $ | 3,323 | | | 17.7 | % | | $ | 9,941 | | | 17.2 | % | | $ | 8,646 | | | 17.5 | % |
| Other service expenses | 3,520 | | | 17.8 | % | | 3,513 | | | 18.7 | % | | 10,188 | | | 17.7 | % | | 9,238 | | | 18.7 | % |
| Total service expense | $ | 6,934 | | | 35.1 | % | | $ | 6,836 | | | 36.4 | % | | $ | 20,129 | | | 34.9 | % | | $ | 17,884 | | | 36.2 | % |
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. Service expense for Q3 2023, remained consistent for Q3 2023 as compared to Q3 2022 with an increase of $0.1 million, or 1.4%, as compared to Q3 2022. Service expense for
YTD 2023 increased $2.2 million, or 12.6%, as compared to YTD 2022, primarily as a result of 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 additional devices deployed to service the increase in 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 remained consistent in Q3 2023 as compared to Q3 2022 with a decrease of $0.1 million, or 2.3%, for Q3 2023 as compared to Q3 2022. General and administrative expense decreased by $0.7 million, or 4.2%, for YTD 2023 as compared to YTD 2022, primarily related to a decrease in legal costs associated with an acquisition that occurred in May 2022.
Depreciation and amortization expense. Depreciation and amortization expense increased by $0.7 million, or 12.9%, for Q3 2023 as compared to 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 $3.9 million, or 27.4%, for YTD 2023 as compared to YTD 2022, primarily related to additional depreciation and amortization expense of $2.1 million related to the assets acquired from an acquisition that occurred in May 2022 as well as additional depreciation expense related to the additional devices in 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 reporting unit was impaired which resulted in an impairment of goodwill charge of $45.8 million during the second quarter of 2023.
Corporate and Other Segment
(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 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 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 includes costs incurred related to strategy and stewardship of the other operating segments. These expenses are primarily general and administrative expenses, with a minimal amount related to depreciation. The general and administrative expense increased by $2.6 million and $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 PCS and RPM general ledger and personnel management system integrations. This balance has also increased due to consulting costs and litigation costs related to executive 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 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, contract start-up costs on new revenue contracts and costs associated with our strategic initiatives. We expect to meet our cash requirements through available cash on hand, cash generated from operations, net of capital expenditures, and occasional borrowings under our Credit Facility. For information regarding our long-term capital requirements, see below under the caption "Liquidity".
Cash used in operating activities during the nine months ended September 30, 2023 was $57.3 million. Our balance of cash and cash equivalents, including restricted cash, was $8.6 million and $15.0 million at September 30, 2023 and December 31, 2022, respectively. We had restricted cash of $0.5 million and $0.5 million at September 30, 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 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 2023 cash flows compared to YTD 2022
Operating activities. Cash used in operating activities was $57.3 million for YTD 2023 compared to cash provided by operating activities of $45.5 million for YTD 2022. The decrease of $102.9 million was primarily a result of a decrease in cash provided by changes in working capital of $94.2 million. The working capital changes were related to an increase in cash paid for contract payables of $22.9 million primarily related to repayments 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 2023. Also contributing to the decrease in working capital is a decrease in the cash received from contract receivables of $22.6 million primarily related to a build of receivables related to certain risk corridor, profit rebate, and reconciliation contracts, as well as an increase in the cash paid for accounts payable and accrued expenses of $58.3 million, primarily related to timing of vendor payments. These working capital changes are partially offset by an increase in cash related to an increase in accrued transportation costs of $19.3 million, primarily related to timing of payments to our transportation providers, as compared to YTD 2022.
Investing activities. Net cash used in investing activities was $31.1 million in YTD 2023, which decreased by $73.2 million as compared to YTD 2022, primarily as a result of acquisition activity during YTD 2022 related to an acquisition 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 for YTD 2022. The change of $83.9 million was primarily a result of proceeds from our short-term borrowing on our Credit Facility of $83.0 million during YTD 2023, compared to no proceeds from debt or other short-term borrowings during YTD 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”). For information related to the Company's Senior Unsecured Notes, refer to Note 9 of the Notes to the unaudited condensed consolidated financial statements included in Part I, Item 1, “Financial Statements”.
Credit Facility. The Company is a party to the amended and restated credit agreement, dated as of February 3, 2022, (as amended, the “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 Credit Agreement provides the Company with a senior secured revolving credit facility (the “Credit Facility”) in an aggregate principal amount of $325.0 million. The 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. On June 26, 2023, the Company entered into an Amendment No. 1 (the "First Amendment") to the Credit Agreement which amended and restated the maximum permitted Total Net Leverage Ratio under the Credit Agreement. For information related to the Company's Credit Facility, refer to Note 9 of the Notes to the unaudited condensed consolidated financial statements included in Part I, Item 1, “Financial Statements”.
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 $8.1 million and accounts receivable, contract receivables, and other receivables of $340.8 million. Liquid liabilities which totaled $691.7 million at period end as detailed in the table 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 Credit Facility of 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, debt financing, and our Credit 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 $691.7 million due in one year or less in addition to $1,245.2 million due in more than one year as of September 30, 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, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | 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 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, 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 4 of the Notes to the unaudited condensed consolidated financial statements included in Part I, Item 1, “Financial Statements” for further detail of our contracts payable.
(3)See Note 1 of the Notes to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of our Form 10-K for the year ended December 31, 2022 filed on March 7, 2023 for further detail of our accrued transportation cost.
(4)Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
(5)The operating leases are for office space. Certain leases contain periodic rent escalation adjustments and renewal options. See Note 17 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 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, 2023, including accounts payable and accrued expenses as detailed at Note 8 to the unaudited condensed consolidated financial statements included in Part I, Item 1, “Financial Statements”.
Our primary sources of funding include operating cash flows and access to capital markets. There are statutory, regulatory, and debt covenant limitations that affect our ability to access the capital market for funds. Management believes that such limitations will not impact our ability to meet our ongoing short-term cash obligations. Management continuously monitors our liquidity position and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Our management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources, or operations. In addition, our management is not aware of any regulatory recommendations regarding liquidity, which if implemented, would have a material adverse effect on us.
Off-Balance Sheet Arrangements
There have been no material changes to the Off-Balance Sheet Arrangements discussion previously disclosed in our audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2022.
