Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

FORM 8-K 

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 7, 2018

The Providence Service Corporation
(Exact name of registrant as specified in its charter)
 

 
Delaware
 
001-34221
 
86-0845127
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
 
 
 
 
 
 
700 Canal Street, Third Floor
Stamford, Connecticut
 
06902
 
 
 
 
 
 
 
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (203) 307-2800

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨

 






Item 2.02 Results of Operations and Financial Condition.

On November 7, 2018, The Providence Service Corporation (the “Company”) issued a press release announcing its financial results for the quarter ended September 30, 2018. A copy of the press release is being furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
 
In accordance with General Instruction B.2 of Form 8-K, the information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
Number
Description
99.1



 





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. 
 
 
 
 
 
 
 
THE PROVIDENCE SERVICE CORPORATION
 
 
 
Date: November 7, 2018
 
By:
 
/s/ Kevin M. Dotts
 
 
Name:
 
Kevin M. Dotts
 
 
Title:
 
Chief Financial Officer

Exhibit


http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12537103&doc=3
Providence Service Corporation Reports Third Quarter 2018 Results

Highlights for the Third Quarter of 2018:

Revenue from continuing operations of $421.3 million, a 2.9% increase from the third quarter of 2017
LogistiCare revenues increased by 5.8%
Income from continuing operations, net of tax, of $6.8 million, or $0.37 per diluted common share,
Adjusted Net Income of $10.5 million, a 68.8% increase from the third quarter of 2017; Adjusted EPS of $0.63, a 90.9% increase from the third quarter of 2017
Adjusted EBITDA of $20.6 million a 31.5% increase from the third quarter of 2017
LogistiCare completed its acquisition of Circulation
Signed a share purchase agreement to sell substantially all of the WD Services segment with the exception of our operations in Saudi Arabia


STAMFORD, CT November 7, 2018 – The Providence Service Corporation (the “Company” or “Providence”) (Nasdaq: PRSC), today reported financial results for the three and nine months ended September 30, 2018.

“This was an extremely positive quarter, both from the perspective of significantly improved earnings and on the strategy front. First on earnings, we delivered an Adjusted EPS growth of 91% compared to the same quarter of last year and year to date we are 41% ahead. On the strategic side, we have accomplished a significant amount, having very recently signed an agreement to sell our WD Services segment with the exception of our operations in Saudi Arabia as well as completing the acquisition of Circulation, which presents us with a unique opportunity to accelerate the deployment of industry leading technology across our business, driving margin improvement." stated Carter Pate, Interim Chief Executive Officer. He continued, "Our NET Services segment delivered headline revenue growth of almost 6%, including the new West Virginia contract where we got off to a great start, and margins that were much more in line with our normal expectations. During the quarter we focused on identifying the root causes of the increased transportation costs we saw last quarter and the next step will be to seek to realign rates with those costs which may take a number of quarters to fully recoup, while continuing our ongoing efforts to drive down overall transportation cost."

Third Quarter 2018 Results

For the third quarter of 2018, the Company reported revenue of $421.3 million, an increase of 2.9% from $409.5 million in the third quarter of 2017. The new revenue standard that the company adopted in the first quarter of 2018 resulted in a negative impact to revenue of $1.6 million in the third quarter of 2018 versus the prior standard.

Income from continuing operations, net of tax, in the third quarter of 2018 was $6.8 million, or $0.37 per diluted common share, compared to income from continuing operations net of tax of $15.0 million, or $0.88 per diluted common share, in the third quarter of 2017. Income from continuing operations, net of tax, in the third quarter of 2018 includes a gain related to the step acquisition of Circulation, Inc. ("Circulation") of $6.6 million and the third quarter of 2017 included a gain on the sale of Mission Providence of $12.6 million. Income from continuing operations, net of tax, in the third quarters of 2018 and 2017 include restructuring and related charges of $3.0 million and $2.7 million, respectively. Income from continuing operations, net of tax, in the third quarter of 2018 also includes $1.7 million of transaction costs primarily related to the acquisition of Circulation. Adjusted Net Income in the third quarter of 2018 was $10.5 million, or $0.63 per diluted common share, compared to $6.2 million, or $0.33 per diluted common share, in the third quarter of 2017.

Segment-level Adjusted EBITDA was $24.6 million in the third quarter of 2018, compared to $24.3 million in the third quarter of 2017. Adjusted EBITDA was $20.6 million in the third quarter of 2018, compared to $15.7 million in the third quarter of 2017.

In the three months ended September 30, 2018 the new revenue recognition standard resulted in a positive impact to operating income and Adjusted EBITDA of $0.4 million versus the prior standard.







Acquisition of Circulation, Inc.

On September 21, LogistiCare Solutions, LLC ("LogistiCare") completed the acquisition of Circulation. Circulation offers a full suite of logistics solutions to manage non-emergency transportation across all areas of healthcare, powered by its HIPAA-compliant digital platform. Circulation enables administration of transportation benefits, proactively monitors for fraud waste and abuse, and integrates all transportation capabilities (e.g. outsourced transportation, owned fleets, and other medical logistics services), while placing a new focus on patient convenience and satisfaction. By applying Circulation's technology to LogistiCare's existing operations, the transaction is targeting run-rate synergies of over $25 million within the first 24 months. Providence had previously invested $3.0 million, which was accounted for as a cost method investment. Upon acquisition of the remainder of the shares in Circulation, the initial investment was revalued, resulting in a non-cash gain to Providence of $6.6 million.

Organizational Consolidation

On August 24, Kevin Dotts was hired to serve as CFO of Providence and LogistiCare. This was an important step in our transition plans which continued to be executed in line with our expectations during the third quarter. We continue to anticipate achieving $10 million of annualized cost reduction, upon completion of the consolidation in the second quarter of 2019.

Agreement to sell WD Services

On November 7, Providence entered into a share purchase agreement to sell substantially all of our WD Services segment to Advanced Personnel Management Global Pty Ltd with the exception of our operations in Saudi Arabia, for which it is pursuing alternative strategies which are expected to result in no longer providing services in the country beyond the end of the year. The transaction is expected to close by the end of 2018.


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 and Other on behalf of the segment. No direct cash expenses were incurred by Corporate on behalf of the Matrix Investment segment. The activities reflected in Corporate and Other include executive, accounting, finance, internal audit, tax, legal, public reporting, certain strategic and corporate development functions and the results of the Company’s captive insurance company.


NET Services

NET Services revenue was $343.8 million for the third quarter of 2018, an increase of 5.8% from $324.8 million in the third quarter of 2017. Operating income was $14.6 million, or 4.3% of revenue, in the third quarter of 2018, compared to $14.2 million, or 4.4% of revenue, in the third quarter of 2017. Included in NET Services operating income in the third quarters of 2018 and 2017 were $1.1 million and $2.2 million, respectively, of restructuring and related charges and in the third quarter of 2018, transaction charges related to the Circulation acquisition of $1.6 million. NET Services Adjusted EBITDA was $20.9 million, or 6.1% of revenue, in the third quarter of 2018, compared to $19.7 million, or 6.1% of revenue, in the third quarter of 2017. Third quarter 2018 revenue includes a negative impact of $3.8 million from the adoption of the new revenue recognition standard, as the accounting for one contract changed from a gross basis to net basis. This change had no impact on operating income or Adjusted EBITDA.

The quarter-over-quarter increase in NET Services revenue was primarily due to the impact of new contracts, including managed care organization (“MCO”) contracts in Indiana and Illinois and new state contracts in West Virginia and for additional regions in Texas, together with net increased revenue from existing contracts due to the net impact of membership and rate changes. These increases were partially offset by the impact of contracts we no longer serve, including a state contract in Connecticut and certain MCO contracts in Florida and Louisiana. Adjusted EBITDA margin in the third quarter of 2018 was in line with the prior year despite the comparative quarter benefiting from rate adjustments and the release of a hold back upon the renewal of one of our major contracts. We did benefit from year over year rate increases that were secured at the end of 2017 in several markets, including California and Florida, as rates were aligned to the higher costs experienced throughout 2017. While headwinds from higher utilization and the mode of transportation continue in certain markets, we were able to offset this impact, resulting in margins which were closer in line with expectations.
 






WD Services

WD Services revenue was $77.5 million for the third quarter of 2018, a decrease of 8.4% from $84.7 million in the third quarter of 2017. Excluding the impact of currency exchange rates, revenue declined 7.9% with the most significant component of this decline related to the sale of Ingeus France. Operating loss was $1.6 million in the third quarter of 2018 compared to income of $1.0 million in the third quarter of 2017. Included within WD Services operating loss in the third quarter of 2018 were $1.8 million related to the settlement of certain receivables which were significantly aged due to issues with the implementation of a new payment system by the Saudi Arabian authorities in 2017, which resulted in a protracted process for collection. The Company agreed to a payment discount, in order to collect the receivable. In addition, Q3 2018 includes an indirect tax in Korea related to prior periods and a loss related to the sale of Ingeus France. The third quarters of 2018 and 2017 also included restructuring and related costs of a minimal amount and $0.5 million, respectively. WD Services Adjusted EBITDA was $3.7 million, or 4.8% of revenue, in the third quarter of 2018 compared to Adjusted EBITDA of $4.6 million, or 5.5% of revenue, in the third quarter of 2017. Third quarter 2018 reflects a $2.1 million positive impact on revenue and a $0.4 million positive impact on operating income and Adjusted EBITDA as a result of the adoption of the new revenue recognition standard.

The decrease in revenue was primarily attributable to the sale of Ingeus France, the ongoing wind-down of the segment’s legacy UK employability program, and a decrease in revenue from our Saudi Arabia operations partially due to the deferral of revenue for the August and September 2018 contract period due to delays in executing this contract, and a reduction in revenue related to the offender rehabilitation program. These decreases were partially offset by increased revenue under the segment's health program, as well as a favorable impact of the adoption of the new revenue standard primarily related to the timing of revenue recognition under the segment's seasonal youth services program. WD Services third quarter 2018 Adjusted EBITDA declined compared to the same period last year primarily due to the wind down of the UK employability program and the contract delays in Saudi Arabia offset by the ongoing growth of the UK's health programs, the timing of the Youth services program and the savings related to our Ingeus Futures and RRP Delivery First programs.


Corporate and Other

Corporate and Other incurred a $6.2 million operating loss in the third quarter of 2018 compared to an operating loss of $8.8 million in the third quarter of 2017. Included within Corporate and Other operating loss in the third quarter of 2018 were restructuring and related costs of $1.9 million, excluding accelerated depreciation, related to the consolidation of the holding company structure into LogistiCare. Corporate and Other Adjusted EBITDA was negative $4.0 million in the third quarter of 2018 compared to negative $8.6 million in the third quarter of 2017.

The decrease in Corporate and Other's Adjusted EBITDA loss was primarily due to a decrease in cash settled stock-based compensation expense of $2.6 million as a result of a reduction in the Company’s stock price in the third quarter of 2018 compared to an increase in the third quarter of 2017, together with a reduction in legal and consulting costs.


Matrix Investment (Equity Investment)

For the third quarter of 2018, Providence recorded a loss in equity earnings of $1.6 million related to its Matrix Investment compared to break-even for the third quarter of 2017.

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 2018, Matrix’s revenue was $70.5 million, an increase of 20.3% from $58.6 million in the third quarter of 2017. Matrix’s operating income was $1.5 million, for the third quarter of 2018, compared to $3.2 million, for the third quarter of 2017. Included within Matrix’s operating income in the third quarter of 2018 were $0.6 million of management fees paid to Matrix shareholders, integration costs of $1.9 million and transaction costs of $0.1 million related to the February 2018 acquisition of HealthFair. 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 net loss was $4.4 million for the third quarter of 2018, compared to a net loss of $0.5 million for the third quarter of 2017. Matrix’s Adjusted EBITDA was $13.7 million, or 19.4% of revenue, for the third quarter of 2018, compared to $12.2 million, or 20.8% of revenue, in the third quarter of 2017.

The year-over-year revenue growth for the third quarter of 2018 was related to the continued growth in volumes in Matrix's core in-home assessment business this year and the addition of revenue from mobile visits due to the acquisition of HealthFair in the first quarter of 2018. The volume of mobile visits continue to run below initial expectations due to the slower ramp up





of contracts but progress has been made in the quarter in terms of resolving root causes related to the delayed membership. Adjusted EBITDA increased year over year but the decline in Adjusted EBITDA margin was primarily due to the lower than anticipated mobile visit volume.

As of September 30, 2018, Matrix had cash of $24.3 million and $329.2 million of term loan debt outstanding under its credit facility, which was entered into in February 2018 in conjunction with the HealthFair acquisition. As of September 30, 2018, Providence's ownership interest in Matrix was 43.6%.


Investor Presentation and Conference Call

Providence will hold a conference call to discuss its financial results on Thursday, November 8, 2018 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: 6581709


Replay (available until November 15, 2018):
US toll-free: 1 (855) 859 2056
International: 1 (404) 537 3406
Passcode: 6581709

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 owns subsidiaries and investments primarily engaged in the provision of healthcare services in the United States and workforce development services internationally. 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 (as applicable): (1) restructuring and related charges, including costs related to our corporate reorganization, (2) foreign currency transactions, (3) equity in net earnings or losses of investees, (4) certain litigation related expenses, settlement income or other negotiated settlements relating to certain matters from prior periods, (5) gain or loss on sale of equity investments, (6) management fees, (7) certain transaction and related costs and (8) impairments. 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, settlement income or other negotiated settlements relating to certain matters from prior periods, (5) intangible amortization expense, (6) gain or loss on sale of equity investments, (7) the non-recurring impact of the Tax Cuts and Jobs Act, (8) excess tax charges associated with long term incentive plans, (9) the impact of adjustments on noncontrolling interests, (10) transaction and related costs, (11) the income tax impact of such adjustments and (12) impairments. Adjusted EPS is calculated as Adjusted Net Income less (as applicable): (1) dividends on convertible preferred stock and (2) 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 – Interim CAO & SVP Finance         
(203) 307-2800



--financial tables to follow--







Providence Service Corporation
Page 7

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,
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Service revenue, net
 
$
421,319

 
$
409,517

 
$
1,239,159

 
$
1,216,994

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
    Service expense
 
391,608

 
378,032

 
1,147,914

 
1,124,478

    General and administrative expense
 
16,203

 
18,629

 
53,894

 
53,705

    Asset impairment charge
 

 

 
9,881

 

    Depreciation and amortization
 
6,641

 
6,547

 
20,317

 
19,716

Total operating expenses
 
414,452

 
403,208

 
1,232,006

 
1,197,899

Operating income
 
6,867

 
6,309

 
7,153

 
19,095

 
 
 
 
 
 
 
 
 
Other expenses:
 
 
 
 
 
 
 
 
    Interest expense, net
 
347

 
302

 
918

 
983

    Other loss
 
669

 

 
669

 

    Equity in net (gain) loss of investees
 
1,558

 
460

 
4,026

 
991

    (Gain) loss on sale of equity investment
 

 
(12,606
)
 

 
(12,606
)
    (Gain) on remeasurement of cost method investment
 
(6,577
)
 

 
(6,577
)
 

    Loss (gain) on foreign currency transactions
 
(178
)
 
200

 
(807
)
 
600

Income (loss) from continuing operations before income taxes
 
11,048

 
17,953

 
8,924

 
29,127

Provision for income taxes
 
4,259

 
2,989

 
7,755

 
8,391

Income from continuing operations, net of tax
 
6,789

 
14,964

 
1,169

 
20,736

Discontinued operations, net of tax
 
542

 
(16
)
 
485

 
(6,000
)
Net income
 
7,331

 
14,948

 
1,654

 
14,736

Net loss (income) attributable to noncontrolling interests
 
(177
)
 
(95
)
 
(285
)
 
(295
)
Net income attributable to Providence
 
$
7,154

 
$
14,853

 
$
1,369

 
$
14,441

 
 
 
 
 
 
 
 
 
Net income (loss) available to common
 
 
 
 
 
 
 
 
  stockholders
 
$
5,298

 
$
11,962

 
$
(1,939
)
 
$
8,927

 
 
 
 
 
 
 
 
 
Basic earnings (loss) per common share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.37

 
$
0.88

 
$
(0.19
)
 
$
1.10

Discontinued operations
 
0.04

 

 
0.04

 
(0.44
)
Basic earnings (loss) per common share
 
$
0.41

 
$
0.88

 
$
(0.15
)
 
$
0.66

 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per common share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.37

 
$
0.88

 
$
(0.19
)
 
$
1.09

Discontinued operations
 
0.04

 

 
0.04

 
(0.44
)
Diluted earnings (loss) per common share
 
$
0.41

 
$
0.88

 
$
(0.15
)
 
$
0.65

 
 
 
 
 
 
 
 
 
Weighted-average number of common
 
 
 
 
 
 
 
 
  shares outstanding:
 
 
 
 
 
 
 
 
    Basic
 
12,865,777

 
13,581,662

 
12,992,403

 
13,612,764

    Diluted
 
12,927,122

 
13,655,554

 
12,992,403

 
13,676,468


--more--





Providence Service Corporation
Page 8

The Providence Service Corporation
Condensed Consolidated Balance Sheets
(in thousands)
 
 
 
 
 
 
 
September 30, 2018
 
December 31, 2017
 
 
(Unaudited)
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
    Cash and cash equivalents
 
$
47,492

 
$
95,310

    Accounts receivable, net of allowance
 
181,155

 
158,926

    Other current assets (1)
 
32,441

 
42,093

Total current assets
 
261,088

 
296,329

Property and equipment, net
 
47,027

 
50,377

Goodwill and intangible assets, net
 
213,088

 
165,607

Equity investments
 
164,097

 
169,912

Other long-term assets (2)
 
18,659

 
21,865

Total assets
 
$
703,959

 
$
704,090

 
 
 
 
 
Liabilities, redeemable convertible preferred stock and stockholders' equity
Current liabilities:
 
 
 
 
    Current portion of debt
 
$
37,149

 
$
2,400

    Other current liabilities (3)
 
226,820

 
224,530

Total current liabilities
 
263,969

 
226,930

Long-term obligations, less current portion
 
430

 
584

Other long-term liabilities (4)
 
62,325

 
63,013

Total liabilities
 
326,724

 
290,527

 
 
 
 
 
Mezzanine and stockholder's equity
 
 
 
 
Convertible preferred stock, net
 
77,404

 
77,546

Stockholders' equity
 
299,831

 
336,017

Total liabilities, redeemable convertible preferred stock and stockholders' equity
 
$
703,959

 
$
704,090


(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.


--more--





Providence Service Corporation
Page 9

The Providence Service Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands) (1)
 
 
 
 
 
 
 
Nine months ended September 30,
 
 
2018
 
2017
Operating activities
 
 
 
 
Net income
 
$
1,654

 
$
14,736

  Depreciation and amortization
 
20,317

 
19,716

  Stock-based compensation
 
6,209

 
4,586

  Asset impairment charge
 
9,881

 

  Equity in net (gain) loss of investees
 
4,026

 
991

  Gain on sale of equity investment
 

 
(12,606
)
  Gain on remeasurement of cost method investment
 
(6,577
)
 

  Other non-cash items
 
1,306

 
(4,734
)
  Changes in working capital
 
(14,346
)
 
14,240

Net cash provided by operating activities
 
22,470

 
36,929

Investing activities
 
 
 
 
Purchase of property and equipment
 
(13,194
)
 
(15,293
)
Acquisitions, net of cash acquired
 
(42,067
)
 

Dispositions, net of cash sold
 
(5,862
)
 

Proceeds from note receivable
 
3,130

 

Loan to joint venture
 

 
10

Proceeds from sale of equity investment
 

 
15,823

Other investing activities
 

 
(2,700
)
Net cash used in investing activities
 
(57,993
)
 
(2,160
)
Financing activities
 
 
 
 
Preferred stock dividends
 
(3,302
)
 
(3,305
)
Repurchase of common stock, for treasury
 
(56,009
)
 
(18,763
)
Net proceeds of debt
 
36,000

 

Other financing activities
 
9,455

 
(279
)
Net cash used in financing activities
 
(13,856
)
 
(22,347
)
Effect of exchange rate changes on cash
 
21

 
464

Net change in cash and cash equivalents
 
(49,358
)
 
12,886

Cash, cash equivalents and restricted cash at beginning of period
 
101,606

 
86,392

Cash, cash equivalents and restricted cash at end of period (2)
 
$
52,248

 
$
99,278

(1) Includes both continuing and discontinued operations.
(2) Includes restricted cash of $4,756 at September 30, 2018 and restricted cash of $7,100 at September 30, 2017.


--more--





Providence Service Corporation
Page 10
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Segment Information and Adjusted EBITDA
(in thousands) (Unaudited)
 
 
Three months ended September 30, 2018
 
 
NET Services
 
WD Services
 
Total Segment-Level
 
Matrix Investment
 
Corporate and Other
 
Total Continuing Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
Service revenue, net
$
343,771

 
$
77,548

 
$
421,319

 
$

 
$

 
$
421,319

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
  Service expense
320,697

 
70,911

 
391,608

 

 

 
391,608

  General and administrative expense
4,900

 
5,348

 
10,248

 

 
5,955

 
16,203

  Asset impairment charge

 

 

 

 

 

  Depreciation and amortization
3,543

 
2,861

 
6,404

 

 
237

 
6,641

Total operating expenses
329,140

 
79,120

 
408,260

 

 
6,192

 
414,452

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
14,631

 
(1,572
)
 
13,059

 

 
(6,192
)
 
6,867

 
 
 
 
 
 
 
 
 
 
 
 
 
Other expenses:
 
 
 
 
 
 
 
 
 
 
 
  Interest expense, net
(4
)
 
564

 
560

 

 
(213
)
 
347

  Other loss

 
669

 
669

 

 

 
669

  Equity in net (gain) loss of investees

 
(29
)
 
(29
)
 
1,587

 

 
1,558

  Gain on remeasurement of cost method
 
 
 
 
 
 
 
 
 
 
 
      investment

 

 

 

 
(6,577
)
 
(6,577
)
  Loss (gain) on foreign currency
 
 
 
 
 
 
 
 
 
 
 
     transactions

 
(178
)
 
(178
)
 

 

 
(178
)
Income (loss) from continuing
 
 
 
 
 
 
 
 
 
 
 
     operations, before income tax
14,635

 
(2,598
)
 
12,037

 
(1,587
)
 
598

 
11,048

Provision (benefit) for income taxes
3,729

 
511

 
4,240

 
(245
)
 
264

 
4,259

Income (loss) from continuing operations, net of taxes
10,906

 
(3,109
)
 
7,797

 
(1,342
)
 
334

 
6,789

 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
(4
)
 
564

 
560

 

 
(213
)
 
347

Provision (benefit) for income taxes
3,729

 
511

 
4,240

 
(245
)
 
264

 
4,259

Depreciation and amortization
3,543

 
2,861

 
6,404

 

 
237

 
6,641

 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA
18,174

 
827

 
19,001

 
(1,587
)
 
622

 
18,036

 
 
 
 
 
 
 
 
 
 
 
 
 
Asset impairment charge

 

 

 

 

 

Restructuring and related charges (1)
1,091

 
20

 
1,111

 

 
1,937

 
3,048

Transaction costs (2)
1,597

 

 
1,597

 

 
75

 
1,672

Equity in net (gain) loss of investees

 
(29
)
 
(29
)
 
1,587

 

 
1,558

Loss on sale of equity investment

 

 

 

 

 

Loss on sale of business

 
669

 
669

 

 

 
669

Gain on remeasurement of cost method
 
 
 
 
 
 
 
 
 
 
 
    investment

 

 

 

 
(6,577
)
 
(6,577
)
Loss (gain) on foreign currency transactions

 
(178
)
 
(178
)
 

 

 
(178
)
Litigation income (3)

 

 

 

 
(17
)
 
(17
)
Other (4)

 
2,438

 
2,438

 

 

 
2,438

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
20,862

 
$
3,747

 
$
24,609

 
$

 
$
(3,960
)
 
$
20,649

(1) Restructuring and related charges include redundancy program benefit of $37 and property related costs of $57 for WD Services, value enhancement initiative implementation costs of $1,091 for NET Services and organizational consolidation costs of $1,937 within Corporate and Other.
(2) Transaction costs related to the acquisition of Circulation by NET Services and the agreement to sell Ingeus' French operations.
(3) Resolution of accruals related to defense cost for a putative stockholder class action derivative complaint, which is more fully described in the Company's quarterly report on Form 10-Q.
(4) During Q3 2018, WD Services reached an agreement with the Saudi Arabian authorities to settle certain outstanding receivables arising prior to a change in the Saudi government's billing system, at a discount, recording a write-down of $1,804. $749 related to a prior period tax assessment in Korea.                 
--more—





Providence Service Corporation
Page 11
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

Transaction costs

 

 

 

 
120

 
120

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

Litigation expense (2)

 

 

 

 
18

 
18

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
19,676

 
$
4,633

 
$
24,309

 
$

 
$
(8,609
)
 
$
15,700


(1) Restructuring and related charges include redundancy program costs of $258 and value enhancement implementation costs of $243 within WD Services and $3 of former CEO departure costs and value enhancement implementation initiative costs of $2,202 for NET Services.
(2) Litigation expense related to defense cost for a putative stockholder class action derivative complaint, which is more fully described in the Company's quarterly report on Form 10-Q.        

--more--





Providence Service Corporation
Page 12
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Segment Information and Adjusted EBITDA
(in thousands) (Unaudited)
 
 
Nine months ended September 30, 2018
 
 
NET Services
 
WD Services
 
Total Segment-Level
 
Matrix Investment
 
Corporate and Other
 
Total Continuing Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
Service revenue, net
$
1,024,203

 
$
214,956

 
$
1,239,159

 
$

 
$

 
$
1,239,159

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
  Service expense
955,796

 
192,390

 
1,148,186

 

 
(272
)
 
1,147,914

  General and administrative expense
10,940

 
20,151

 
31,091

 

 
22,803

 
53,894

  Asset impairment charge
679

 
9,202

 
9,881

 

 

 
9,881

  Depreciation and amortization
10,548

 
9,210

 
19,758

 

 
559

 
20,317

Total operating expenses
977,963

 
230,953

 
1,208,916

 

 
23,090

 
1,232,006

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
46,240

 
(15,997
)
 
30,243

 

 
(23,090
)
 
7,153

 
 
 
 
 
 
 
 
 
 
 
 
 
Other expenses:
 
 
 
 

 
 
 
 
 
 
  Interest expense, net
28

 
1,355

 
1,383

 

 
(465
)
 
918

  Other loss

 
669

 
669

 

 

 
669

  Equity in net (gain) loss of investees

 
(80
)
 
(80
)
 
4,106

 

 
4,026

  Gain on remeasurement of cost method
 
 
 
 
 
 
 
 
 
 
 
     investment

 

 

 

 
(6,577
)
 
(6,577
)
  Loss (gain) on foreign currency
 
 
 
 
 
 
 
 
 
 
 
     transactions

 
(807
)
 
(807
)
 

 

 
(807
)
Income (loss) from continuing operations,
 
 
 
 
 
 
 
 
 
 
 
     before income tax
46,212

 
(17,134
)
 
29,078

 
(4,106
)
 
(16,048
)
 
8,924

Provision (benefit) for income taxes
11,851

 
947

 
12,798

 
(784
)
 
(4,259
)
 
7,755

Income (loss) from continuing operations, net of taxes
34,361

 
(18,081
)
 
16,280

 
(3,322
)
 
(11,789
)
 
1,169

 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
28

 
1,355

 
1,383

 

 
(465
)
 
918

Provision (benefit) for income taxes
11,851

 
947

 
12,798

 
(784
)
 
(4,259
)
 
7,755

Depreciation and amortization
10,548

 
9,210

 
19,758

 

 
559

 
20,317

 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA
56,788

 
(6,569
)
 
50,219

 
(4,106
)
 
(15,954
)
 
30,159

 
 
 
 
 
 
 
 
 
 
 
 
 
Asset impairment charge
679

 
9,202

 
9,881

 

 

 
9,881

Restructuring and related charges (1)
2,250

 
2,714

 
4,964

 

 
4,872

 
9,836

Transaction costs (2)
1,597

 
516

 
2,113

 

 
213

 
2,326

Equity in net (gain) loss of investees

 
(80
)
 
(80
)
 
4,106

 

 
4,026

Loss on sale of business

 
669

 
669

 

 

 
669

Gain on remeasurement of cost method
 
 
 
 
 
 
 
 
 
 
 
    investment

 

 

 

 
(6,577
)
 
(6,577
)
Loss (gain) on foreign currency transactions

 
(807
)
 
(807
)
 

 

 
(807
)
Litigation income (3)

 

 

 

 
(218
)
 
(218
)
Other (4)
 

 
2,438

 
2,438

 

 

 
2,438

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
61,314

 
$
8,083

 
$
69,397

 
$

 
$
(17,664
)
 
$
51,733


(1) Restructuring and related charges include redundancy program costs of $2,362 and property related costs of $352 for WD Services, value enhancement initiative implementation costs of $2,250 for NET Services and organizational consolidation costs of $4,872 within Corporate and Other.
(2) Transaction costs related to the acquisition of Circulation by NET Services and the agreement to sell Ingeus' French operations.
(3) Resolution of accruals related to defense cost for a putative stockholder class action derivative complaint, which is more fully described in the Company's quarterly report on Form 10-Q.
(4) During Q3 2018, WD Services reached an agreement with the Saudi Arabian authorities to settle certain outstanding receivables arising prior to a change in the Saudi government's billing system, at a discount, recording a write-down of $1,804. $749 related to a prior period tax assessment in Korea.         --more--





Providence Service Corporation
Page 13
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

  Asset impairment charge

 

 

 

 

 

  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

Transaction costs

 

 

 

 
120

 
120

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

Litigation expense (2)

 

 

 

 
304

 
304

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
56,615

 
$
10,770

 
$
67,385

 
$

 
$
(21,189
)
 
$
46,196

(1) Restructuring and related charges include redundancy program costs of $1,117, other severance costs of $182 and value enhancement implementation costs of $748 within WD Services and $214 of former CEO departure costs and value enhancement implementation initiative costs of $4,700 for NET Services.
(2) Litigation expense related to defense cost for a putative stockholder class action derivative complaint, which is more fully described in the Company's quarterly report on Form 10-Q.            
--more--






Providence Service Corporation
Page 14

The Providence Service Corporation
Summary Financial Information of Equity Investments (1)
(in thousands)
(Unaudited)
 
Three months ended September 30, 2018
 
Matrix Investment
 
Mission
Providence
 
Other
 
Total
Revenue
$
70,522

 
$

 
$
716

 
$
71,238

Operating expense (2)
59,472

 

 
651

 
60,123

Depreciation and amortization
9,558

 

 
10

 
9,568

Operating income (loss)
1,492

 

 
55

 
1,547

 
 
 
 
 
 
 
 
Other expense (income)

 

 
(12
)
 
(12
)
Interest expense
6,193

 

 

 
6,193

Provision (benefit) for income taxes
(350
)
 

 
9

 
(341
)
Net income (loss)
(4,351
)
 

 
58

 
(4,293
)
 
 
 
 
 
 
 
 
Interest
43.6
%
 
%
 
50.0
%
 
N/A

Net income (loss) - Equity Investment
(1,897
)
 

 
29

 
(1,868
)
Management fee and other (3)
310

 

 

 
310

Equity in net gain (loss) of investee
$
(1,587
)
 
$

 
$
29

 
$
(1,558
)
 
 
 
 
 
 
 
 
Net Debt (4)
304,865

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

Provision (benefit) for income 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 (5)
249

 

 

 
249

Equity in net gain (loss) of investee
$
(1
)
 
$
(488
)
 
$
29

 
$
(460
)
(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 $286 plus Providence share-based compensation benefit of $24.
(4) Represents cash of $24,310 and debt of $329,175 on Matrix's standalone balance sheet as of September 30, 2018.
(5) Includes amounts relating to management fees due from Matrix to Providence of $259 less Providence share-based compensation expense of $10.

--more--





Providence Service Corporation
Page 15

The Providence Service Corporation
Summary Financial Information of Equity Investments (1)
(in thousands)
(Unaudited)

 
Nine months ended September 30, 2018
 
Matrix Investment
 
Mission
Providence
 
Other
 
Total
Revenue
$
216,361

 
$

 
$
2,594

 
$
218,955

Operating expense (2)
183,062

 

 
2,399

 
185,461

Depreciation and amortization
27,969

 

 
28

 
27,997

Operating income (loss)
5,330

 

 
167

 
5,497

 
 
 
 
 
 
 
 
Other expense (income)

 

 
(36
)
 
(36
<