Despite the softer margins in Q4, we still expect personal care margins to be in the 10% to 12% range in 2024, driven by operational efficiency gains and favorable reimbursement. In our RPM segment, revenue increased 7% year-over-year to $20 million, driven by referral sales and new business wins. Our RPM team has been successful in winning new business and we expect organic growth of 10% or more in 2024. Fourth quarter RPM adjusted EBITDA was $7.2 million or a 35% margin. We continue to expect long-term RPM adjusted EBITDA margins will be in the 30% range. Our monitoring business continues to perform well and 2023 was one of the most productive years for winning new business and referrals which we expect will continue in 2024. Turning to our cash flow and balance sheet.
During the fourth quarter, net cash used in operating activities was approximately $26 million and free cash flow was negative $37 million as quarter-over-quarter contract receivables increased approximately $15 million and contract payables decreased $16 million. Net cash provided from financing activities was $31 million, with the amount drawn on our revolver of $113.8 million as of December 31, 2023. Our free cash flow for the fourth quarter of 2023 was less than we originally anticipated, primarily attributable to delayed payments under multiple contracts from one of our large MCO clients which we expect to collect in the coming months. The net contract receivable and payable balance at the end of the fourth quarter was $27 million which was in line with our previously stated range of $20 million to $30 million.
The primary fluctuations in our quarterly working capital are driven by the shared risk contracts with our NEMT clients, with payments and reconciliations occurring over varying time periods. We have improved the granularity of our data analytics and forecasting of our cash flow by contract and have increased our focus on timely client payments, along with our account management teams. We expect to have more visibility into our free cash flow and contract receivables and payables in 2024. Since our business has undergone a significant transformation, coupled with the impact of redetermination and a normalizing healthcare utilization backdrop, we expect continued variability in our quarterly cash flow with improvement occurring in the second half of 2024.
While free cash flow is expected to improve meaningfully in 2024, going from negative $125 million in 2023 to a range of $40 million to $60 million in 2024, we expect that free cash flow in the first half of 2024 will be negative with a positive exit rate into 2025. The confluence of increasing utilization, Medicaid redetermination and higher shared risk revenue is creating a temporary challenge in working capital. As we work with clients to reset the contractual prepayments to more closely align with recent utilization trends, we are continuing to build contract receivables. We also expect to repay certain contract payables in the second quarter of 2024. The tension on free cash flow will be partially offset by collections on contract receivables and improvements from resetting prepayment rates.
However, we expect the full benefit of these items to be weighted in the second half of the year. I also want to take a minute to remind you about some of the normal quarterly variabilities, specifically our semi-annual cash interest payments in the second and fourth quarters of $30 million to $35 million. Our senior unsecured notes have a principal balance of $1 billion with a weighted average interest rate of 5.4%. We have been actively evaluating proposed financing options with a goal of maintaining flexibility in our capital structure and expect to formalize a refinancing plan in the coming months. Our bank-defined net leverage ratio increased sequentially to 4.7x as of December 31, 2023, compared to 4.6x in the third quarter. We filed an 8-K announcing an amendment to our revolving credit facility, extending our covenant relief period and providing additional cushion in our covenants as we manage through the balance of redetermination and normalization of utilization.
We appreciate the support and flexibility of our bank group. The primary use of free cash flow continues to be paying down our revolver and delivering. Turning to guidance. We issued 2024 revenue guidance in a range of $2.7 billion to $2.9 billion and adjusted EBITDA in a range of $190 million to $210 million. The midpoint of our revenue guidance calls for about 2% growth which reflects the impact of Medicaid redetermination, healthcare utilization normalizing throughout the year, the timing of NEMT contract losses offset by the onboarding of new contracts and cost savings initiatives throughout the year. The midpoint of our adjusted EBITDA guidance range indicates relatively flat growth compared to 2023, primarily due to the respective timing of the changes in our business in 2024.
We expect the second half of 2024 to be more normalized than the first half, primarily due to the timing mismatch for onboarding new contracts versus contract attrition, the continued impact from Medicaid redetermination and the impact from cost savings initiatives. We also issued guidance for the first quarter of 2024 with a revenue range of $650 million to $700 million and adjusted EBITDA in a range of $28 million to $33 million. Our first quarter will be impacted by a couple of contract losses as well as the loss of certain membership groups from another MCO. That said, our new contract wins will be implemented in the second quarter and will ramp throughout the year. In summary, our fourth quarter revenue and adjusted EBITDA results were in line with our expectations.
However, free cash flow was lower than we expected due to the timing of collections under multiple contracts from one of our MCO clients. To reiterate what Heath said, we expect to exit 2024 with a run rate for adjusted EBITDA between $220 million to $230 million and free cash flow will improve materially in the second half of 2024 with a high cash flow conversion rate. We have conviction around redetermination and utilization stabilizing, the traction we are achieving with our cost saving initiatives and the forward momentum from new business wins in 2023 and 2024. We know there’s still a lot of work to be done and we are taking the appropriate actions to deliver on our plans for 2024 and beyond. Before we open the call to questions, I’d like to thank all of our team members at ModivCare for their hard work and dedication.
We’ve undergone a meaningful transformation over the last couple of years and our team continues to be highly engaged while providing exceptional supportive care services to our members. This concludes our prepared remarks. Operator, please open the call for questions.
Operator: [Operator Instructions] Our first questions come from the line of Brian Tanquilut with Jefferies.
Brian Tanquilut: Maybe my first question, as I think about Q1, obviously, the guidance is probably lower than even you would have expected. So just trying to get a sense of what happened there? How do you feel confident about the bridge to the full year guidance? And maybe just any thoughts or anything you can share with us on contract losses and starts that obviously happen at the beginning of the year and losses and starts that you’re expecting beginning in the second quarter?
Heath Sampson: Yes. Thanks. Well, a good reason why we guided to the first quarter is to provide the insight and really, like I said, to talk about the performance that we’re having and you start seeing that in the second half, right? The first half of the year and what we’ve been talking about heavily impacted by redetermination and the recovery in COVID and utilization. However, the one item that we didn’t talk about, because it just happened, was in the contract losses. And you can see that that’s impacting us in Q1. The wonderful sales that we had in 2023, in Mobility of $143 million and in Home of $11 million, the bulk of that starts coming on in Q2. So lots of success in winning deals but with a few contracts that happen and lost in Q1.
That’s the main reason that’s the downtick on Q1. And then you can see the rest of the ramp. And this gets back to, again, what we’ve been doing in this transformation and the success we’re having in the cost out, in sales new wins and just the broader growth across the Home industry. So the detail is there to show, it’s factual, so you guys can bridge to where we are. But you’re right, it is specific within those contract losses that we talked about and that’s the main driver for the decrease in Q1.
Brian Tanquilut: Got it. And then, Barb, maybe just wondering, how are you thinking about the 2025 maturities and just the ability to refinance and what are the avenues to raise capital to fund operations and the refinancing?
Barbara Gutierrez: Yes, thanks. Yes. So in terms of the ability to refinance the 2025, as I say in the remarks, we are actively pursuing some avenues. So we’ve got some proposals that we’re evaluating. So no concerns about the options there, we have some very good options in front of us. So we’re going down a couple different paths to determine what’s the right option for us but definitely have some proposals in front of us. So not concerned. And then secondly, just kind of related to your question, as you all know as well, we amended our credit agreement so that we have some breathing room in our revolver going forward. So really don’t have any concerns about our ability to have liquidity.
Heath Sampson: Yes, just a little bit more on that, Brian, right? We said this before too. We’re asset-light business and our adjusted EBITDA that we’re generating, specifically, again, why we guided to the exit rate as well. And then also said a 40% to 50% cash conversion; so we know this business generates cash flow, we know the transformation that we’ve done all the way from the operating metrics to customer set to sales and then now cost structure. We’re in a really good spot, we have the headwinds that we talked about early. But with that current profile, we feel really good about our ability to refinance and we’re refinancing at the right time.
Brian Tanquilut: Yes, that makes sense. Heath, maybe one last question for me, if I may. Just thinking about where we are now in this strategy, right, where you still have obviously 3 different business lines. How are you thinking about the fit of those different segments and the remaining opportunity there to synergize strategically? Or maybe not, right? So just curious how you’re thinking now about putting these — coupling these 3 assets together?
Heath Sampson: Yes. So you think about what the market is doing and what our customers want, right? The pressures they are having, whether that’s in Medicare or Medicaid, to really treat the patient outside of the clinical area, it’s required to have access to the patient more fully. All of our services, whether that’s personal care, RPM or NEMT are critical to that. So we have the size and scale in each of those. And then we’ve modernized and centralized and standardized. So we’re in a really good position in each of the individual solutions as a standalone. So that’s point number one. But point number two, you think about how they come together. There’s a lot of cross selling opportunities. And actually did specifically say this in the script.
If you think about specifically the large payers, the integration that they are asking of us and seeing of us is specifically in the RPM and the NEMT world. It’s there, it’s the same patient and they need both of those services. So they can work standing alone, they can work together. So my job is to ensure that we continue to execute in accordance with our strategy and vision. At the same time, we look at the assets individually. So lots of value, whether you’re looking at them standalone or some of the parts but also value as a whole. So we’re sticking with the strategy but you’re right to point out the individual assets do have value as standalone as well.
Operator: Our next questions come from the line of Scott Fidel with Stephens.
Scott Fidel: First question, just wanted to just try to summarize just on the shortfall on the NEMT outlook and particularly in the first quarter. And clearly, we know that there’s an revenue headwind here that you have called out in detail. Just want to understand on the cost side whether there’s also sort of a cost issue here that’s influencing the outlook relative to where you may have been thinking about it before, in terms of costs coming in higher than expected or the savings that you’re looking to target not coming in as quickly, or whether at least on the cost side, things are largely tracking as expected. It sounds like redeterminations so far is very much playing out as you expected through the end of 2023. I do see in your deck that you do have around a 70 basis point step up in utilization assumed in the first quarter sequentially.
So maybe just sort of level set us around the cost side of things in terms of are — is anything playing out worse than expected here at this point? Or is it largely tracking as expected?
Heath Sampson: Yes. Well, so the cost side, we couldn’t be more proud of what we’ve been doing. Starting in 2023 which is what I said in my script, that we’re a $27 million to $30 million cost out. However, that was offset because of higher utilization and redetermination. So really the pressures on margin have to do with redetermination and utilization. The cost efforts have been going very well which is why I have a lot of conviction around those continuing. And you can see those in the decks when you look at a per trip basis. We’re really showing strong progress there. So which gets to why I have a lot — why we gave the guidance as an exit. A lot of it has to do with our conviction around the cost and we’re seeing in the data and I expect to continue.
Just to summarize again that the headwinds were in the short-term are to do with redetermination and utilization and then those mismatching of the contract losses to the onboarding of the win. So with that clarity and with the cost structure that we’re taking out, you put that to our scale, we’re in a really good spot as we exit this year. Do we lose you Scott?
Kevin Ellich: Scott, did you have any other questions?
