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Providence Service Corporation Reports Third Quarter 2017 Results

Highlights for the Third Quarter of 2017:

  • Revenue from continuing operations of $409.5 million
  • Income from continuing operations, net of tax, of $15.0 million, or $0.88 per diluted common share, includes gain on sale of Mission Providence of $12.6 million
  • Adjusted Net Income of $6.2 million; Adjusted EPS of $0.32
  • Segment-level Adjusted EBITDA of $24.3 million
  • Completed the sale of Mission Providence JV

STAMFORD, Conn., Nov. 07, 2017 (GLOBE NEWSWIRE) -- The Providence Service Corporation (the “Company” or “Providence”) (Nasdaq:PRSC), today reported financial results for the three and nine months ended September 30, 2017.

“During the third quarter we continued to enhance the intrinsic value of our U.S. Healthcare Services businesses, which encompasses our NET services segment and investment in Matrix, through both capital allocation and organic growth strategies,” stated James Lindstrom, Chief Executive Officer.  “LogistiCare’s value enhancement activities are on track to deliver both improved financial and service delivery benefits in 2017 and beyond.  Within WD Services, our initiatives were largely completed during the second quarter of 2017 and position the segment well for the near future."  He continued, "Largely based upon our value enhancement initiatives, we expect improved profitability in 2018 and are currently investing in growth initiatives to improve our multi-year prospects in businesses which provide critical, yet often overlooked, healthcare services in the home or community."

David Shackelton, Chief Financial Officer, commented, "Consistent with our increased focus on our U.S. Healthcare Services businesses, we sold our stake in Mission Providence and continued to enhance the strategic value of this portfolio with an investment in Circulation through our NET Services segment and the announced acquisition of LP Health by Matrix.  Our conviction in our ability to increase intrinsic value through a focused U.S. healthcare services strategy is reflected by these investments and divestitures and the extension of our share repurchase program through the end of next year."

Third Quarter 2017 Results

For the third quarter of 2017, the Company reported revenue from continuing operations of $409.5 million, a decrease of 0.7% from $412.3 million in the third quarter of 2016.

Income from continuing operations, net of tax, in the third quarter of 2017 was $15.0 million and $0.88 per diluted common share, compared to $3.7 million and $0.14 per diluted common share in the third quarter of 2016.  Income from continuing operations, net of tax, in the third quarters of 2017 and 2016 includes restructuring and related charges of $2.7 million and $1.4 million, respectively.  Income from continuing operations, net of tax, in the third quarter of 2017 also includes a gain on the sale of Mission Providence of $12.6 million.  Adjusted Net Income in the third quarter of 2017 was $6.2 million and $0.32 per diluted common share, compared to $8.0 million and $0.41 per diluted common share in the third quarter of 2016.

Segment-level Adjusted EBITDA was $24.3 million in the third quarter of 2017, compared to $26.0 million in the third quarter of 2016.  Adjusted EBITDA was $15.6 million in the third quarter of 2017, compared to $18.7 million in the third quarter of 2016. 

Year to Date 2017 Results

For the first nine months of 2017, the Company reported revenue from continuing operations of $1,217.0 million, an increase of 2.1% from $1,192.4 million in the comparable period of 2016.  Excluding the effects of changes in currency exchange rates, revenue from continuing operations increased 3.1%. 

Income from continuing operations, net of tax, in the first nine months of 2017 was $20.7 million and $1.09 per diluted common share, compared to income of $6.7 million and $0.23 per diluted common share in the first nine months of 2016.  Income from continuing operations, net of tax, for the first nine months of 2017 and 2016 includes restructuring and related charges of $7.0 million and $7.0 million, respectively.  Income from continuing operations, net of tax, in the first nine months of 2017 also includes a gain on the sale of Mission Providence of $12.6 million.  Adjusted Net Income in the first nine months of 2017 was $18.9 million and $0.99 per diluted common share, compared to $23.4 million and $1.19 per diluted common share in the first nine months of 2016.

Segment-level Adjusted EBITDA was $67.4 million in the first nine months of 2017, compared to $73.6 million in the comparable period of 2016.  Adjusted EBITDA was $46.1 million in the first nine months of 2017, compared to $52.9 million in the first nine months of 2016.

Segment Results

For analysis purposes, the Company provides revenue, expenses, operating income (loss), income (loss) from continuing operations, net of taxes, and Adjusted EBITDA on a segment basis.  Segment results include revenue and expenses incurred by each segment, as well as an allocation of certain direct expenses incurred by Corporate on behalf of the segment.  No direct expenses were incurred by Corporate on behalf of the Matrix Investment segment.  Indirect expenses, including unallocated corporate functions and expenses, such as executive, accounting, audit, process improvement, finance, human resources, information technology, M&A and legal, as well as the results of our captive insurance company and elimination entries recorded in consolidation, are reflected in Corporate and Other.

NET Services

NET Services revenue was $324.8 million for the third quarter of 2017, an increase of 2.4% from $317.3 million in the third quarter of 2016.  Operating income was $14.2 million, or 4.4% of revenue, in the third quarter of 2017, compared to $17.5 million, or 5.5% of revenue, in the third quarter of 2016.  Included in NET Services operating income in the third quarters of 2017 and 2016 was $2.2 million and $0.7 million, respectively, of restructuring and related charges.  NET Services Adjusted EBITDA was $19.7 million, or 6.1% of revenue, in the third quarter of 2017, compared to $21.2 million, or 6.7% of revenue, in the third quarter of 2016.

NET Services revenue was $987.7 million for the first nine months of 2017, an increase of 7.7% from $917.2 million for the first nine months of 2016.  Operating income was $41.9 million, or 4.2% of revenue, in the first nine months of 2017, compared to $53.5 million, or 5.8% of revenue, in the comparable period of 2016.  Included in NET Services operating income in the first nine months of 2017 and 2016 was $4.9 million and $1.2 million, respectively, of restructuring and related charges.  NET Services Adjusted EBITDA was $56.6 million, or 5.7% of revenue, in the first nine months of 2017, compared to $63.6 million, or 6.9% of revenue, in the comparable period of 2016.

The year-over-year increase in NET Services revenue in the third quarter of 2017 was primarily due to increased revenue from existing contracts, including the impact of a final agreement on a rate adjustment and the release of a previously accrued revenue hold-back, and the impact of new contracts, partially offset by reductions in revenue from contracts we no longer serve, including a contract with the state of New York.  The year-over-year decline in Adjusted EBITDA as a percentage of revenue in the third quarter of 2017 was primarily due to the loss of a contract with the state of New York, the impact of new managed care organization ("MCO") contracts in certain markets being at lower margins than previous contracts and higher utilization across certain contracts, including multiple MCO contracts in California.  This margin pressure was partially offset by benefits derived from value enhancement initiatives aimed at improving operating efficiencies and moderately reduced utilization levels in certain markets impacted by Hurricane Irma.

WD Services

WD Services revenue was $84.7 million for the third quarter of 2017, a decrease of 10.8% from $95.0 million in the third quarter of 2016.  Operating income was $1.0 million in the third quarter of 2017, compared to $0.6 million in the third quarter of 2016.  Included within WD Services operating income in the third quarters of 2017 and 2016 were restructuring and related costs of $0.5 million and $0.7 million, respectively.  WD Services Adjusted EBITDA was $4.6 million, or 5.5% of revenue, in the third quarter of 2017 compared to $4.8 million, or 5.1% of revenue, in the third quarter of 2016. 

WD Services revenue was $229.3 million for the first nine months of 2017, a decrease of 16.7% from $275.3 million in the first nine months of 2016.  Excluding the effects of changes in currency exchange rates, revenue declined 12.3% in the first nine months of 2017 versus the first nine months of 2016.  Operating loss was $1.0 million in the first nine months of 2017, compared to an operating loss of $6.7 million in the comparable period of 2016.  Included within WD Services operating loss in the first nine months of 2017 and 2016 were restructuring and related costs of $2.0 million and $5.8 million, respectively.  WD Services Adjusted EBITDA was $10.8 million, or 4.7% of revenue, in the first nine months of 2017 compared to $10.0 million, or 3.6% of revenue, in the comparable period of 2016. 

The year-over-year decrease in WD Services revenue in the third quarter of 2017 was primarily related to the anticipated ending of referrals under the segment’s primary employability program in the UK, partially offset by increased revenue from health services offerings in the UK and from various employability programs outside of the UK, including  in Australia, France and Germany.  Year-over-year revenue in the third quarter of 2017 also declined in part as a result of the non-recurrence of a $5.4 million contractual adjustment received in the third quarter of 2016 under our offender rehabilitation program. Adjusted EBITDA declined slightly in the third quarter of 2017; however, excluding this contractual adjustment, WD Services profitability improved significantly as a result of its value enhancement initiatives which have better aligned headcount with service delivery volumes, improved profitability in France, and improved key operating metrics.

Corporate and Other

Corporate and Other incurred a $8.8 million operating loss in the third quarter of 2017 compared to an operating loss of $8.3 million in the third quarter of 2016.  Corporate and Other Adjusted EBITDA was negative $8.7 million in the third quarter of 2017 compared to negative $7.3 million in the third quarter of 2016.

Corporate and Other incurred a $21.9 million operating loss in the first nine months of 2017, compared to a $22.0 million operating loss in the first nine months of 2016.  Corporate and Other Adjusted EBITDA was negative $21.3 million in the first nine months of 2017 compared to negative $20.7 million in the comparable period of 2016.

The year-over-year increase in corporate costs in the third quarter of 2017 was primarily due to a $2.0 million increase in professional costs due to activities associated with focused strategic initiatives and a $0.6 million increase in compensation expense due to the timing of incentive accruals, partially offset by lower legal and accounting fees and lower costs in the Company's captive insurance program.  Included within Corporate and Other Adjusted EBITDA for the third quarter of 2017 and the third quarter of 2016 is $1.0 million and $0.9 million, respectively, of expense related to a share-based long-term incentive plan, under which no shares will be awarded unless the Company’s 90-day volume weighted average share price as of December 31, 2017, exceeds $56.79.

Equity Investments

Matrix Investment

As previously reported, on October 19, 2016, Frazier Healthcare Partners subscribed for a 53.2% equity interest in Matrix Medical Network (“Matrix” and the “Matrix Transaction”).  For all periods prior to the Matrix Transaction, Matrix’s results are reported in Discontinued Operations under the HA Services segment.  For all periods subsequent to the Matrix Transaction, Providence’s retained equity interest is accounted for as an equity method investment within the Matrix Investment segment within continuing operations. As of September 30th, 2017, Providence holds a 46.6% equity interest in Matrix.

For the three and nine months ended September 30, 2017, Providence recorded a loss in equity earnings of $1.0 thousand and gain of $0.4 million, respectively, related to its Matrix Investment. 

As Providence’s interest in Matrix is accounted for as an equity method investment, the following numbers are not included within the Company’s consolidated results of operations. For the third quarter of 2017, Matrix’s revenue was $58.6 million, an increase of 11.6% from $52.6 million in the third quarter of 2016.  Matrix’s operating income was $3.2 million, or 5.4% of revenue, for the third quarter of 2017, compared to $7.0 million, or 13.3% of revenue, for the third quarter of 2016.  Included within Matrix’s operating income in the third quarter of 2017 were $0.6 million of management fees paid to Matrix shareholders.  Matrix’s Adjusted EBITDA was $12.2 million, or 20.8% of revenue, for the third quarter of 2017, compared to $13.2 million, or 25.1% of revenue, in the third quarter of 2016. 

For the first nine months of 2017, Matrix’s revenue was $175.3 million, an increase of 12.8% from $155.4 million in the first nine months of 2016.  Matrix’s operating income was $10.1 million, or 5.8% of revenue, for the first nine months of 2017, compared to $18.0 million, or 11.6% of revenue, for the comparable period of 2016.  Included within Matrix’s operating income in the first nine months of 2017 was $2.7 million of transaction bonuses paid to the Matrix management team, $1.8 million of management fees paid to Matrix’s shareholders and $0.9 million of other transaction related expenses.  Matrix’s Adjusted EBITDA was $40.1 million, or 22.8% of revenue, for the first nine months of 2017, compared to $40.0 million, or 25.7% of revenue, in the first nine months of 2016. 

The year-over-year increase in Matrix’s revenue for both the third quarter and the first nine months of 2017 was the result of increased assessment volumes and new product launches.  Adjusted EBITDA as a percentage of revenue declined in the third quarter as a result of decreased pricing and impacts from Hurricane Irma in certain markets.

As of September 30, 2017, Matrix had cash of $18.0 million and $194.3 million of term loan debt outstanding under its credit facility.

Mission Providence

On September 29, 2017, Providence completed the sale of its ownership interest in Mission Providence. For the third quarter of 2017, Providence recorded a gain on the transaction of $12.6 million.

Investor Presentation and Conference Call

Providence will hold a conference call to discuss its financial results on Wednesday, November 8, 2017 at 8:00 a.m. ET.  An investor presentation has been prepared to accompany the conference call and can be found on the Company’s website (investor.prscholdings.com). To access the call, please dial:

US toll-free: 1 (844) 244 3865
International: 1 (518) 444 0681
Passcode: 2984418

Replay (available until November 22, 2017):
US toll-free: 1 (855) 859 2056
International: 1 (404) 537 3406
Passcode: 2984418.

You may also access the conference call via webcast at investor.prscholdings.com, where the call also will be archived.

About Providence

The Providence Service Corporation is a company which owns interests in subsidiaries and other companies that are primarily engaged in the provision of healthcare and workforce development services for public and private sector entities seeking to control costs and promote positive outcomes.  For more information, please visit prscholdings.com.

Non-GAAP Financial Measures and Adjustments

In addition to the financial results prepared in accordance with U.S. generally accepted accounting principles (GAAP), this press release includes EBITDA, Adjusted EBITDA and Segment-level Adjusted EBITDA for the Company and its operating segments, and Adjusted Net Income and Adjusted EPS for the Company, which are performance measures that are not recognized under GAAP.  EBITDA is defined as income (loss) from continuing operations, net of taxes, before: (1) interest expense, net, (2) provision (benefit) for income taxes and (3) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA before certain items, including: (1) restructuring and related charges, (2) foreign currency transactions, (3) equity in net earnings or losses of investees, (4) certain litigation related expenses, (5) management fees, and (6) transaction costs.  Segment-level Adjusted EBITDA is calculated as Adjusted EBITDA for the company excluding the Adjusted EBITDA associated with corporate and holding company costs reported as our Corporate and Other Segment.  Adjusted Net Income is defined as income (loss) from continuing operations, net of tax, before certain items, including (1) restructuring and related charges, (2) foreign currency transactions, (3) equity in net earnings or losses of investees, (4) certain litigation related expenses, (5) intangible amortization expense, (6) the impact of adjustments on non-controlling interests, and (7) the income tax impact of such adjustments.  Adjusted EPS is calculated as Adjusted Net Income less (as applicable): (1) dividends on convertible preferred stock, (2) accretion of convertible preferred stock discount, and (3) income allocated to participating stockholders, divided by the diluted weighted-average number of common shares outstanding.  We utilize these non-GAAP performance measures, which exclude certain expenses and amounts, because we believe the timing of such expenses is unpredictable and not driven by our core operating results, and therefore render comparisons with prior periods as well as with other companies in our industry less meaningful.  We believe such measures allow investors to gain a better understanding of the factors and trends affecting the ongoing operations of our business.  We consider our core operations to be the ongoing activities to provide services from which we earn revenue, including direct operating costs and indirect costs to support these activities.  In addition, our net earnings in equity investees are excluded from these measures, as we do not have the ability to manage these ventures, allocate resources within the ventures, or directly control their operations or performance.

Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently. In addition, there are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies, and exclude expenses that may have a material impact on our reported financial results. The presentation of non-GAAP financial information is not meant to be considered in isolation from or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.  We urge you to review the reconciliations of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measure to evaluate our business.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “believe,” “demonstrate,” “expect,” “estimate,” “forecast,” “anticipate,” “should” and “likely” and similar expressions identify forward-looking statements. In addition, statements that are not historical should also be considered forward-looking statements. Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of the date the statement was made. Such forward-looking statements are based on current expectations that involve a number of known and unknown risks, uncertainties and other factors which may cause actual events to be materially different from those expressed or implied by such forward-looking statements. These factors include, but are not limited to, our continuing relationship with government entities and our ability to procure business from them, our ability to manage growing and changing operations, the implementation of healthcare reform law, government budget changes and legislation related to the services that we provide, our ability to renew or replace existing contracts that have expired or are scheduled to expire with significant clients, and other risks detailed in Providence’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K.  Providence is under no obligation to (and expressly disclaims any such obligation to) update any of the information in this press release if any forward-looking statement later turns out to be inaccurate whether as a result of new information, future events or otherwise.

Investor Relations Contact 
Laurence Orton – VP Finance & Corporate Controller
(203) 307-2800

--financial tables to follow--

 
The Providence Service Corporation
Unaudited Condensed Consolidated Statements of Income
(in thousands except share and per share data)
                 
    Three months ended
September 30,
  Nine months ended
September 30,
    2017   2016   2017   2016
                 
Service revenue, net   $ 409,517     $ 412,271     $ 1,216,994     $ 1,192,426  
                 
Operating expenses:                
  Service expense   378,032     378,488     1,124,478     1,095,011  
  General and administrative expense   18,629     17,320     53,705     52,548  
  Depreciation and amortization   6,547     6,670     19,716     20,058  
Total operating expenses   403,208     402,478     1,197,899     1,167,617  
Operating income   6,309     9,793     19,095     24,809  
                 
Other expenses:                
  Interest expense, net   302     338     983     1,239  
  Equity in net (gain) loss of investees   460     1,517     991     5,693  
  Gain on sale of equity investment   (12,606 )       (12,606 )    
  Loss (gain) on foreign currency transactions   200     (482 )   600     (1,332 )
Income from continuing operations before income taxes   17,953     8,420     29,127     19,209  
Provision for income taxes   2,989     4,678     8,391     12,466  
Income from continuing operations, net of tax   14,964     3,742     20,736     6,743  
Discontinued operations, net of tax   (16 )   (2,791 )   (6,000 )   332  
Net income (loss)   14,948     951     14,736     7,075  
Net loss (income) attributable to noncontrolling interests   (95 )   (301 )   (295 )   433  
Net income (loss) attributable to Providence   $ 14,853     $ 650     $ 14,441     $ 7,508  
                 
Net income (loss) available to common stockholders   $ 11,962     $ (745 )   $ 8,927     $ 3,697  
                 
Basic earnings (loss) per common share:                
Continuing operations   $ 0.88     $ 0.14     $ 1.10     $ 0.23  
Discontinued operations       (0.19 )   (0.44 )   0.02  
Basic earnings (loss) per common share   $ 0.88     $ (0.05 )   $ 0.66     $ 0.25  
                 
Diluted earnings (loss) per common share:                
Continuing operations   $ 0.88     $ 0.14     $ 1.09     $ 0.23  
Discontinued operations       (0.19 )   (0.44 )   0.02  
Diluted earnings (loss) per common share   $ 0.88     $ (0.05 )   $ 0.65     $ 0.25  
                 
Weighted-average number of common shares outstanding:                
  Basic   13,581,662     14,523,408     13,612,764     14,823,757  
  Diluted   13,655,554     14,634,483     13,676,468     14,943,024  
                         


 
The Providence Service Corporation
Condensed Consolidated Balance Sheets
(in thousands)
         
    September 30,
2017
  December 31,
2016
    (Unaudited)    
Assets        
Current assets:        
  Cash and cash equivalents   $ 92,178     $ 72,262  
  Accounts receivable, net of allowance   175,162     162,115  
  Other current assets (1)   45,836     53,726  
Total current assets   313,176     288,103  
Property and equipment, net   48,191     46,220  
Goodwill and intangible assets, net   167,305     168,748  
Equity investments   157,067     161,363  
Other long-term assets (2)   23,249     20,845  
Total assets   $ 708,988     $ 685,279  
         
Liabilities, redeemable convertible preferred stock  and stockholders' equity
Current liabilities:        
  Current portion of long-term obligations   $ 1,528     $ 1,721  
  Other current liabilities (3)   246,815     226,075  
Total current liabilities   248,343     227,796  
Long-term obligations, less current portion   566     1,890  
Other long-term liabilities (4)   78,331     80,353  
Total liabilities   327,240     310,039  
         
Mezzanine and stockholder's equity        
Convertible preferred stock, net   77,549     77,565  
Stockholders' equity   304,199     297,675  
Total liabilities, redeemable convertible preferred stock and stockholders' equity   $ 708,988     $ 685,279  
                 
(1) Comprised of other receivables, restricted cash and prepaid expenses and other.
(2) Comprised of restricted cash, less current portion, deferred tax assets and other assets.
(3) Comprised of accounts payable, accrued expenses, accrued transportation costs, deferred revenue and reinsurance and related liability reserves.
(4) Includes deferred tax liabilities and other long-term liabilities.
 


 
The Providence Service Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands) (1)
         
    Nine months ended September 30,
    2017   2016
Operating activities        
Net (loss) income   $ 14,736     $ 7,075  
  Depreciation and amortization   19,716     41,179  
  Stock-based compensation   4,586     3,204  
  Equity in net (gain) loss of investees   991     5,693  
  Gain on sale of equity investment   (12,606 )    
  Other non-cash credits   (4,733 )   (12,956 )
  Changes in working capital   14,240     1,062  
Net cash provided by operating activities   36,930     45,257  
Investing activities        
Purchase of property and equipment   (15,293 )   (33,928 )
Equity investments/loan to joint venture   10     (6,381 )
Proceeds from sale of equity investment   15,823      
Other investing activities   4,329     5,159  
Net cash used in investing activities   4,869     (35,150 )
Financing activities        
Preferred stock dividends   (3,305 )   (3,309 )
Repurchase of common stock, for treasury   (18,763 )   (53,214 )
Net proceeds of long-term debt       20,250  
Other financing activities   (279 )   4,052  
Net cash used in financing activities   (22,347 )   (32,221 )
Effect of exchange rate changes on cash   464     (39 )
Net change in cash and cash equivalents   19,916     (22,153 )
Cash and cash equivalents at beginning of period   72,262     84,770  
Cash and cash equivalents at end of period   $ 92,178     $ 62,617  
                 
(1) Includes both continuing and discontinued operations.
 


 
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Segment Information and Adjusted EBITDA
(in thousands)
(Unaudited)
     
    Three months ended September 30, 2017
    NET
Services
  WD
Services
  Total
Segment-
Level
  Matrix
Investment
  Corporate
and Other
  Total
Continuing
Operations
                         
Service revenue, net $ 324,824     $ 84,693     $ 409,517     $     $     $ 409,517  
                         
Operating expenses:                      
  Service expense 304,454     73,581     378,035         (3 )   378,032  
  General and administrative expense 2,899     6,980     9,879         8,750     18,629  
  Depreciation and amortization 3,286     3,166     6,452         95     6,547  
Total operating expenses 310,639     83,727     394,366         8,842     403,208  
                         
Operating income (loss) 14,185     966     15,151         (8,842 )   6,309  
                         
Other expenses:                      
  Interest expense, net 18     355     373         (71 )   302  
  Equity in net (gain) loss of investees     459     459     1         460  
  Gain on sale of equity investment     (12,606 )   (12,606 )           (12,606 )
  Loss (gain) on foreign currency transactions     200     200             200  
Income (loss) from continuing operations, before income tax 14,167     12,558     26,725     (1 )   (8,771 )   17,953  
Provision (benefit) for income taxes 5,507     (17 )   5,490     (1 )   (2,500 )   2,989  
Income (loss) from continuing operations, net of taxes 8,660     12,575     21,235         (6,271 )   14,964  
                         
Interest expense, net 18     355     373         (71 )   302  
Provision (benefit) for income taxes 5,507     (17 )   5,490     (1 )   (2,500 )   2,989  
Depreciation and amortization 3,286     3,166     6,452         95     6,547  
                         
EBITDA 17,471     16,079     33,550     (1 )   (8,747 )   24,802  
                         
Restructuring and related charges (1) 2,205     501     2,706             2,706  
Equity in net (gain) loss of investees     459     459     1         460  
Gain on sale of equity investment     (12,606 )   (12,606 )           (12,606 )
Foreign currency transactions     200     200             200  
Litigation expense (2)                 18     18  
                         
Adjusted EBITDA $ 19,676     $ 4,633     $ 24,309     $     $ (8,729 )   $ 15,580  
                                               
(1) Restructuring and related charges are comprised of employee separation costs, which include redundancy program costs of $258 within WD Services, as well as third-party consulting and implementation costs related to WD Services' value enhancement initiative of $243 and NET Services' value enhancement initiative of $2,202.
(2) Litigation expense related to defense cost for a putative stockholder class action derivative complaint, which is more fully described in the Company's Form 10-Q.
                                               


     
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Segment Information and Adjusted EBITDA
 (in thousands)
(Unaudited)
     
    Three months ended September 30, 2016
    NET
Services (1)
  WD
Services
  Total
Segment-
Level
  Matrix
Investment
  Corporate
and Other
  Total
Continuing
Operations
                         
Service revenue, net $ 317,280     $ 94,960     $ 412,240     $     $ 31     $ 412,271  
                         
Operating expenses:                      
  Service expense 293,919     84,051     377,970         518     378,488  
  General and administrative expense 2,860     6,780     9,640         7,680     17,320  
  Depreciation and amortization 3,051     3,497     6,548         122     6,670  
Total operating expenses 299,830     94,328     394,158         8,320     402,478  
                         
Operating income (loss) 17,450     632     18,082         (8,289 )   9,793  
                         
Other expenses:                      
  Interest expense, net (1 )   479     478         (140 )   338  
  Equity in net (gain) loss of investees     1,517     1,517             1,517  
  Loss (gain) on foreign currency transactions     (484 )   (484 )       2     (482 )
Income (loss) from continuing operations, before income tax 17,451     (880 )   16,571         (8,151 )   8,420  
Provision (benefit) for income taxes 7,304     94     7,398         (2,720 )   4,678  
Income (loss) from continuing operations, net of taxes 10,147     (974 )   9,173         (5,431 )   3,742  
                         
Interest expense, net (1 )   479     478         (140 )   338  
Provision (benefit) for income taxes 7,304     94     7,398         (2,720 )   4,678  
Depreciation and amortization 3,051     3,497     6,548         122     6,670  
                         
EBITDA 20,501     3,096     23,597         (8,169 )   15,428  
                         
Restructuring and related charges (2) 665     702     1,367             1,367  
Equity in net (gain) loss of investees     1,517     1,517             1,517  
Foreign currency transactions     (484 )   (484 )       2     (482 )
Litigation expense (3)                 898     898  
                         
                         
Adjusted EBITDA $ 21,166     $ 4,831     $ 25,997     $     $ (7,269 )   $ 18,728  
 
(1) We have reclassified certain amounts relating to our prior period results to conform to our current period presentation.
(2) Restructuring and related charges include employee separation costs related to redundancy programs within WD Services of $125, as well as third-party consulting and implementation costs related to WD Services' value enhancement initiative of $577 and NET Services' value enhancement initiative of $665.
(3) Litigation expense related to defense cost for a putative stockholder class action derivative complaint, which is more fully described in the Company's Form 10-Q.
 


     
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Segment Information and Adjusted EBITDA
(in thousands)
(Unaudited)
     
    Nine months ended September 30, 2017
    NET
Services
  WD
Services
  Total
Segment-
Level
  Matrix
Investment
  Corporate
and Other
  Total
Continuing
Operations
                         
Service revenue, net $ 987,662     $ 229,332     $ 1,216,994     $     $     $ 1,216,994  
                         
Operating expenses:                      
  Service expense 927,082     199,665     1,126,747         (2,269 )   1,124,478  
  General and administrative expense 8,879     20,944     29,823         23,882     53,705  
  Depreciation and amortization 9,763     9,695     19,458         258     19,716  
Total operating expenses 945,724     230,304     1,176,028         21,871     1,197,899  
                         
Operating income (loss) 41,938     (972 )   40,966         (21,871 )   19,095  
                         
Other expenses:                      
  Interest expense, net 49     958     1,007         (24 )   983  
  Equity in net (gain) loss of investees     1,419     1,419     (428 )       991  
  Gain on sale of equity investment     (12,606 )   (12,606 )           (12,606 )
  Loss (gain) on foreign currency transactions     600     600             600  
Income (loss) from continuing operations, before income tax 41,889     8,657     50,546     428     (21,847 )   29,127  
Provision (benefit) for income taxes 16,222     (450 )   15,772     161     (7,542 )   8,391  
Income (loss) from continuing operations, net of taxes 25,667     9,107     34,774     267     (14,305 )   20,736  
                         
Interest expense, net 49     958     1,007         (24 )   983  
Provision (benefit) for income taxes 16,222     (450 )   15,772     161     (7,542 )   8,391  
Depreciation and amortization 9,763     9,695     19,458         258     19,716  
                         
EBITDA 51,701     19,310     71,011     428     (21,613 )   49,826  
                         
Restructuring and related charges (1) 4,914     2,047     6,961             6,961  
Equity in net (gain) loss of investees     1,419     1,419     (428 )       991  
Gain on sale of equity investment     (12,606 )   (12,606 )           (12,606 )
Foreign currency transactions     600     600             600  
Litigation expense (2)                 304     304  
                         
Adjusted EBITDA $ 56,615     $ 10,770     $ 67,385     $     $ (21,309 )   $ 46,076  
 
(1) Restructuring and related charges are comprised of employee separation costs, which include redundancy program costs of $1,117 and other severance costs of $182 within WD Services and NET Services chief executive officer search fees of $214, as well as third-party consulting and implementation costs related to WD Services' value enhancement initiative of $748 and NET Services' value enhancement initiative of $4,700. 
(2) Litigation expense related to defense cost for a putative stockholder class action derivative complaint, which is more fully described in the Company's Form 10-Q. 
 


 
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Segment Information and Adjusted EBITDA
 (in thousands)
(Unaudited)
 
    Nine months ended September 30, 2016
    NET
Services (1)
  WD
Services
  Total
Segment-
Level
  Matrix
Investment
  Corporate
and Other
  Total
Continuing
Operations
                         
Service revenue, net $ 917,157     $ 275,293     $ 1,192,450     $     $ (24 )   $ 1,192,426  
                         
Operating expenses:                      
  Service expense 846,311     247,797     1,094,108         903     1,095,011  
  General and administrative expense 8,483     23,236     31,719         20,829     52,548  
  Depreciation and amortization 8,858     10,912     19,770         288     20,058  
Total operating expenses 863,652     281,945     1,145,597         22,020     1,167,617  
                         
Operating income (loss) 53,505     (6,652 )   46,853         (22,044 )   24,809  
                         
Other expenses:                      
  Interest expense, net (3 )   569     566         673     1,239  
  Equity in net (gain) loss of investees     5,693     5,693             5,693  
  Loss (gain) on foreign currency transactions     (1,332 )   (1,332 )           (1,332 )
Income (loss) from continuing operations, before income tax 53,508     (11,582 )   41,926         (22,717 )   19,209  
Provision (benefit) for income taxes 20,497     (885 )   19,612         (7,146 )   12,466  
Income (loss) from continuing operations, net of taxes 33,011     (10,697 )   22,314         (15,571 )   6,743  
                         
Interest expense, net (3 )   569     566         673     1,239  
Provision (benefit) for income taxes 20,497     (885 )   19,612         (7,146 )   12,466  
Depreciation and amortization 8,858     10,912     19,770         288     20,058  
                         
EBITDA 62,363     (101 )   62,262         (21,756 )   40,506  
                         
Restructuring and related charges (2) 1,230     5,758     6,988             6,988  
Equity in net (gain) loss of investees     5,693     5,693             5,693  
Foreign currency transactions     (1,332 )   (1,332 )           (1,332 )
Litigation expense (3)                 1,082     1,082  
                         
Adjusted EBITDA $ 63,593     $ 10,018     $ 73,611     $     $ (20,674 )   $ 52,937  
 
(1) We have reclassified certain amounts relating to our prior period results to conform to our current period presentation.
(2) Restructuring and related charges include employee separation costs related to redundancy programs within WD Services of $5,181, as well as third-party consulting and implementation costs related to WD Services' value enhancement initiative of $577 and NET Services' value enhancement initiative of $1,230.
(3) Litigation expense related to defense cost for a putative stockholder class action derivative complaint, which is more fully described in the Company's Form 10-Q.
 


   
The Providence Service Corporation
Summary Financial Information of Equity Investments (1)
(in thousands)
(Unaudited)
   
  Three months ended September 30, 2017
  Matrix
Investment
  Mission
Providence
  Other   Total
Revenue $ 58,639     $ 10,244     $ 566     $ 69,449  
Operating expense (2) 47,011     9,741     494     57,246  
Depreciation and amortization 8,469     1,102     6     9,577  
Operating income (loss) 3,159     (599 )   66     2,626  
               
Other expense (Income)     10     (12 )   (2 )
Interest expense 3,741     42         3,783  
Taxes (45 )       20     (25 )
Net income (loss) (537 )   (651 )   58     (1,130 )
               
Interest 46.6 %   75.0 %   50.0 %   N/A  
Net income (loss) - Equity Investment (250 )   (488 )   29     (709 )
Management fee and other (3) 249             249  
Equity in net gain (loss) of investee $ (1 )   $ (488 )   $ 29     $ (460 )
               
Net Debt (4) 176,255              
               
  Three months ended September 30, 2016
  Matrix
Investment
  Mission
Providence
  Other   Total
Revenue $     $ 9,349     $ 280     $ 9,629  
Operating expense (2)     11,342     221     11,563  
Depreciation and amortization     910     1     911  
Operating income (loss)     (2,903 )   58     (2,845 )
               
Other income     (257 )   (8 )   (265 )
Interest expense     6         6  
Taxes     (593 )   12     (581 )
Net income (loss)     (2,059 )   54     (2,005 )
               
Interest  N/A     75.0 %   50.0 %   N/A  
Net income (loss) - Equity Investment     (1,544 )   27     (1,517 )
Management fee and other              
Equity in net gain (loss) of investee $     $ (1,544 )   $ 27     $ (1,517 )
 
(1) The results of equity method investments are excluded from the calculation of Providence's Adjusted EBITDA and Adjusted Net Income.
(2) Excludes depreciation and amortization.
(3) Includes amounts relating to management fees due from Matrix to Providence of $259 less Providence share-based compensation expense of $10.
(4) Represents cash of $18,032 and debt of $194,288 on Matrix's standalone balance sheet as of September 30, 2017.
 


   
The Providence Service Corporation
Summary Financial Information of Equity Investments (1)
(in thousands)
(Unaudited)
   
  Nine months ended September 30, 2017
  Matrix
Investment
  Mission
Providence
  Other   Total
Revenue $ 175,346     $ 30,125     $ 1,494     $ 206,965  
Operating expense (2) 140,608     28,739     1,428     170,775  
Depreciation and amortization 24,629     3,150     15     27,794  
Operating income (loss) 10,109     (1,764 )   51     8,396  
               
Other expense (income)     18     (34 )   (16 )
Interest expense 11,005     150         11,155  
Taxes (121 )   1     21     (99 )
Net income (loss) (775 )   (1,933 )   64     (2,644 )
               
Interest 46.6 %   75.0 %   50.0 %   N/A  
Net income (loss) - Equity Investment (362 )   (1,451 )   32     (1,781 )
Management fee and other (3) 790             790  
Equity in net gain (loss) of investee $ 428     $ (1,451 )   $ 32     $ (991 )
               
               
  Nine months ended September 30, 2016
  Matrix
Investment
  Mission
Providence
  Other   Total
Revenue $     $ 26,475     $ 280     $ 26,755  
Operating expense (2)     34,516     221     34,737  
Depreciation and amortization     2,656     1     2,657  
Operating income (loss)     (10,697 )   58     (10,639 )
               
Other income     (658 )   (8 )   (666 )
Interest expense     18         18  
Taxes     (2,430 )   12     (2,418 )
Net income (loss)     (7,627 )   54     (7,573 )
               
Interest  N/A     75.0 %   50.0 %   N/A  
Net income (loss) - Equity Investment     (5,720 )   27     (5,693 )
Management fee and other              
Equity in net gain (loss) of investee $     $ (5,720 )   $ 27     $ (5,693 )
 
(1) The results of equity method investments are excluded from the calculation of Providence's Adjusted EBITDA and Adjusted Net Income.
(2) Excludes depreciation and amortization.
(3) Includes amounts relating to management fees due from Matrix to Providence of $840 less Providence share-based compensation expense of $50.
 


   
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA: Matrix Medical Network (1)
(in thousands)
(Unaudited)
   
  Three months ended September 30, 2017
  HA Services
Segment
  Matrix
Investment (2)
  Total
Matrix
Revenue $     $ 58,639     $ 58,639  
Operating expense (3)     47,011     47,011  
Depreciation and amortization     8,469     8,469  
Operating income     3,159     3,159  
           
Other expense          
Interest expense     3,741     3,741  
Taxes     (45 )   (45 )
Net income (loss)     (537 )   (537 )
           
Depreciation and amortization     8,469     8,469  
Interest expense     3,741     3,741  
Taxes     (45 )   (45 )
EBITDA     11,628     11,628  
Matrix management transaction bonuses          
Management fees     561     561  
Transaction costs     1     1  
Adjusted EBITDA $     $ 12,190     $ 12,190  
           
  Three months ended September 30, 2016
  HA Services
Segment (4)
  Matrix
Investment
  Total
Matrix
Revenue $ 52,557     $     $ 52,557  
Operating expense (3) 40,208         40,208  
Depreciation and amortization 5,359         5,359  
Operating income 6,990         6,990  
           
Interest expense 3,134         3,134  
Taxes 1,612         1,612  
Net income 2,244         2,244  
           
Depreciation and amortization 5,359         5,359  
Interest expense 3,134         3,134  
Taxes 1,612         1,612  
EBITDA 12,349         12,349  
Transaction costs 841         841  
Adjusted EBITDA $ 13,190     $     $ 13,190  
 
(1) Matrix's Adjusted EBITDA is not included within Providence's Adjusted EBITDA in any period presented.
(2) Represents Matrix's results of operation from July 1, 2017 to September 30, 2017.  Providence accounts for its proportionate share of Matrix's results during this time period using the equity method.
(3) Excludes depreciation and amortization.
(4) Represents Matrix's results of operations from July 1, 2016 to September 30, 2016.  These results are included within Discontinued Operations on the Company's consolidated financial statements.
 


   
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA: Matrix Medical Network (1)
(in thousands)
(Unaudited)
   
  Nine months ended September 30, 2017
  HA Services Segment   Matrix
Investment (2)
  Total
Matrix
Revenue $     $ 175,346     $ 175,346  
Operating expense (3)     140,608     140,608  
Depreciation and amortization     24,629     24,629  
Operating income     10,109     10,109  
           
Other expense          
Interest expense     11,005     11,005  
Taxes     (121 )   (121 )
Net loss     (775 )   (775 )
           
Depreciation and amortization     24,629     24,629  
Interest expense     11,005     11,005  
Taxes     (121 )   (121 )
EBITDA     34,738     34,738  
Matrix management transaction bonuses     2,667     2,667  
Management fees     1,802     1,802  
Transaction costs     851     851  
           
Adjusted EBITDA $     $ 40,058     $ 40,058  
           
  Nine months ended September 30, 2016
  HA Services
Segment (4)
  Matrix
Investment
  Total
Matrix
Revenue $ 155,421     $     $ 155,421  
Operating expense (3) 116,278         116,278  
Depreciation and amortization 21,121         21,121  
Operating income 18,022         18,022  
           
Interest expense 9,304         9,304  
Taxes 3,351         3,351  
Net income 5,367         5,367  
           
Depreciation and amortization 21,121         21,121  
Interest expense 9,304         9,304  
Taxes 3,351         3,351  
EBITDA 39,143         39,143  
Transaction costs 841         841  
Adjusted EBITDA $ 39,984     $     $ 39,984  
 
(1) Matrix's Adjusted EBITDA is not included within Providence's Adjusted EBITDA in any period presented.
(2) Represents Matrix's results of operation from January 1, 2017 to September 30, 2017.  Providence accounts for its proportionate share of Matrix's results during this time period using the equity method.
(3) Excludes depreciation and amortization.
(4) Represents Matrix's results of operations from January 1, 2016 to September 30, 2016.  These results are included within Discontinued Operations on the Company's consolidated financial statements.
 


         
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Adjusted Net Income and Adjusted Net Income per Common Share:
(in thousands, except share and per share data)
(Unaudited)
         
    Three months ended September 30,   Nine months ended September 30,
    2017   2016   2017   2016
                 
Income from continuing operations, net of tax $ 14,964     $ 3,742     $ 20,736     $ 6,743  
Net loss (income) attributable to noncontrolling interests (95 )   (301 )   (295 )   433  
                 
Restructuring and related charges (1) 2,706     1,367     6,961     6,988  
Equity in net (gain) loss of investees 460     1,517     991     5,693  
Gain on sale of equity investment (12,606 )       (12,606 )    
Foreign currency transactions 200     (482 )   600     (1,332 )
Intangible amortization expense 1,990     2,143     5,914     6,680  
Litigation expense (2) 18     898     304     1,082  
Impact of adjustments on noncontrolling interests 9         (14 )   (423 )
Tax effected impact of adjustments (1,491 )   (893 )   (3,729 )   (2,420 )
                 
Adjusted Net Income 6,155     7,991     18,862     23,444  
                 
Dividends on convertible preferred stock (1,114 )   (1,111 )   (3,305 )   (3,309 )
Income allocated to participating securities (651 )   (838 )   (2,005 )   (2,410 )
                 
Adjusted Net Income available to common stockholders $ 4,390     $ 6,042     $ 13,552     $ 17,725  
                 
Adjusted EPS $ 0.32     $ 0.41     $ 0.99     $ 1.19  
                 
Diluted weighted-average number of common shares outstanding 13,655,554     14,634,483     13,676,468     14,943,024  
                       
(1) Restructuring and related charges are comprised of employee separation costs, NET Services chief executive officer search fees, as well as third-party consulting and implementation costs related to WD Services' Ingeus Futures initiative and NET Services' LogistiCare Member Experience initiative.  See the above Segment Information and Adjusted EBITDA tables for a detailed breakdown of the restructuring and related charges for each time period presented.
(2) Litigation expense related to defense cost for a putative stockholder class action derivative complaint, which is more fully described in the Company's Form 10-Q.

Source: Providence Service Corporation