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): February 28, 2019

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 February 28, 2019, The Providence Service Corporation (the “Company”) issued a press release announcing its financial results for the quarter and fiscal year ended December 31, 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.
 
On February 28, 2019, the Company posted an investor presentation to the Investor Relations section of its website www.prscholdings.com, in connection with the earnings call for the quarter and fiscal year ended December 31, 2018. A copy of the investor presentation is being furnished as Exhibit 99.2 to this Current Report on Form 8-K.  
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 Exhibits 99.1 and 99.2, 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
 
 
99.2
 






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: February 28, 2019
 
 
 
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=12742247&doc=4
Providence Service Corporation Reports Fourth Quarter and Full Year 2018

Highlights for the Fourth Quarter of 2018:

Revenue from continuing operations of $360.8 million, a 9.1% increase from the fourth quarter of 2017, resulting from growth in NET Services
Loss from continuing operations, net of tax, of $1.5 million, or $0.20 per diluted common share
Adjusted Net Income of $17.2 million, a 60.3% increase from the fourth quarter of 2017, Adjusted EPS of $1.08, a 77.0% increase from the fourth quarter of 2017
Adjusted EBITDA of $27.3 million, a 30.3% increase from the fourth quarter of 2017
Completed the sale of WD Services with proceeds used to pay down short-term debt
Matrix delivered $65.7 million of revenue and an Operating loss of $6.5 million. Year over year revenue growth was primarily attributable to the acquisition of HealthFair

Highlights for the Full Year 2018:

Revenue from continuing operations of $1.38 billion, a 5.1% increase from 2017
Income from continuing operations, net of tax, of $18.2 million, or $0.92 per diluted common share
Adjusted Net Income of $44.9 million, a 59.4% increase from 2017; Adjusted EPS of $2.69, a 78.1% improvement on prior year
Adjusted EBITDA of $72.8 million, a 22.3% increase from 2017


STAMFORD, CT February 28, 2019 – The Providence Service Corporation (the “Company” or “Providence”) (Nasdaq: PRSC), today reported financial results for the three and twelve months ended December 31, 2018.

“2018 has been a year of transformation for Providence while at the same time, continuing to deliver positive financial performance," stated Carter Pate, Interim Chief Executive Officer. He continued, "We finished the year strong with LogistiCare delivering Adjusted EBITDA margins of 8.6% for the quarter driven mostly by expected seasonality. We had started the year by setting out a path to better focus our resources on the opportunities available to LogistiCare through our organizational consolidation of our Arizona and Connecticut offices into LogistiCare's Atlanta office which is substantially complete and our strategic alternatives process for WD Services segment which resulted in a sale. 2019 will be another year of transformation as we continue to integrate Circulation and roll-out the new technology platform across LogistiCare’s existing operations. Matrix continues its own transformation with the integration of HealthFair.”

Fourth Quarter 2018 Results

For the fourth quarter of 2018, the Company reported revenue of $360.8 million, an increase of 9.1% from $330.6 million in the fourth 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 $4.3 million in the fourth quarter of 2018 versus the prior standard.

Loss from continuing operations, net of tax, in the fourth quarter of 2018 was $1.5 million, or $0.20 per diluted common share, compared to income from continuing operations net of tax of $38.0 million, or $2.35 per diluted common share, in the fourth quarter of 2017. Loss from continuing operations, net of tax, in the fourth quarter of 2018 includes an impairment charge of $13.5 million related to in-process software in NET Services resulting from the decision to adopt the technology acquired in the Circulation transaction, compared to income in the fourth quarter of 2017, which included a tax benefit due to the impact of the Tax Cuts and Jobs Act (the “Tax Reform Act”) of $29.5 million in total, including a significant component included in equity income related to Matrix. The loss and income from continuing operations, net of tax, in the fourth quarters of 2018 and 2017 include restructuring and related charges of $4.4 million and $3.1 million, respectively. Loss from continuing operations, net of tax, in the fourth quarter of 2018 also includes $5.4 million of transaction costs including amounts related to the acquisition of Circulation.

Adjusted Net Income in the fourth quarter of 2018 was $17.2 million, or $1.08 per diluted common share, compared to $10.7 million, or $0.61 per diluted common share, in the fourth quarter of 2017.






Adjusted EBITDA was $27.3 million in the fourth quarter of 2018, compared to $21.0 million in the fourth quarter of 2017 with margins of 7.6% and 6.3% respectively.

Sale of WD Services

On December 21, 2018, the Company announced that it had completed the sale of substantially all of the operating subsidiaries of its WD Services segment to Advanced Personnel Management Global Pty Ltd of Australia ("APM"), except for the segment’s employment services operations in Saudi Arabia. The Saudi Arabian government assumed these operations beginning January 1, 2019.

At closing, the Company received total cash consideration of $46.5 million from APM, with the buyer retaining cash on the balance sheet of $21.0 million. Transaction fees and bonuses were $6.7 million. In addition, the Company expects to realize cash tax benefits of approximately $51.9 million from the transaction, including $0.6 million realized as of year-end and approximately $33.7 million in tax refunds or offsets to tax payments otherwise due by the fourth quarter of 2019. The remaining cash tax benefit of $17.6 million is expected to be realized as an offset to tax payments over the following three years, based upon the Company’s current estimate of taxable income.

WD Services has been classified as discontinued operations for all periods, including a loss on sale of $1.1 million in the fourth quarter of 2018 recorded upon the closing of the transaction. The loss includes a reclassification of cumulative (foreign currency) translation adjustment of $29.4 million.

During the fourth quarter, the Company paid off the $36.0 million of borrowings outstanding under the revolving credit facility at the end of the third quarter, with net proceeds from the transaction and other cash on hand.

Organizational Consolidation

Our organizational consolidation is substantially complete with the hiring of two senior finance positions in early 2019. Two members of the Company's former executive team exited the Company on December 31, 2018 as planned. The remainder of our Stamford, CT and Tucson, AZ based corporate teams will exit the Company by the end of the second quarter of 2019 as planned.


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 and corporate development functions and the results of the Company’s captive insurance company.


NET Services

NET Services revenue was $360.8 million for the fourth quarter of 2018, an increase of 9.1% from $330.6 million in the fourth quarter of 2017. Operating income was $10.2 million, or 2.8% of revenue, in the fourth quarter of 2018, compared to $23.8 million, or 7.2% of revenue, in the fourth quarter of 2017. Included in NET Services operating income in the fourth quarters of 2018 and 2017 were $0.9 million and $1.4 million, respectively, of restructuring and related charges. Operating Income in the fourth quarter of 2018 also reflects transaction charges related to the Circulation acquisition of $2.0 million and an impairment charge of $13.5 million related to in-process IT software resulting from the decision to adopt the technology acquired in the Circulation transaction. NET Services Adjusted EBITDA was $31.2 million, or 8.6% of revenue, in the fourth quarter of 2018, compared to $28.7 million, or 8.7% of revenue, in the fourth quarter of 2017. Fourth quarter 2018 revenue includes a negative impact of $4.3 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 a new state contract in West Virginia, net increased revenue from existing contracts due to the net positive impact of membership and rate changes together with revenue from the acquisition of Circulation at the end of the third quarter of 2018. 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 Louisiana. Adjusted EBITDA increased in the fourth quarter of 2018 due to the impact of the revenue increase noted above together with the benefit of securing rates in states such as California that better reflect the level of utilization. Adjusted EBITDA margin was marginally lower as, despite the above, the prior year had the benefit of a significant expense reserve being released upon the finalization of a contract amendment with a state customer.

Corporate and Other

Corporate and Other incurred a $10.9 million operating loss in the fourth quarter of 2018 compared to an operating loss of $9.6 million in the fourth quarter of 2017. Included within Corporate and Other operating loss in the fourth quarter of 2018 were restructuring and related costs of $3.5 million related to the consolidation of the holding company structure into LogistiCare and transaction costs of $3.4 million. Fourth quarter 2017 included restructuring cost of $1.7 million related to severance of the former CEO and income related to a litigation settlement of $5.3 million. Corporate and Other Adjusted EBITDA was negative $3.8 million in the fourth quarter of 2018 compared to negative $7.7 million in the fourth 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 $2.2 million as a result of a reduction in the Company’s stock price in the fourth quarter of 2018 compared to an increase in the fourth quarter of 2017, together with reductions across remaining corporate expenses.


Matrix Investment (Equity Investment)

For the fourth quarter of 2018, Providence recorded a loss in equity earnings of $2.1 million related to its Matrix Investment compared to income of $13.0 million for the fourth quarter of 2017 which included a beneficial impact from the Tax Cuts and Jobs Act (the “Tax Reform Act”).

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 fourth quarter of 2018, Matrix’s revenue was $65.7 million, an increase of 25.1% from $52.5 million in the fourth quarter of 2017. Matrix’s operating loss was $6.5 million for the fourth quarter of 2018, compared to operating income of $1.8 million, for the fourth quarter of 2017. Included within Matrix’s operating loss in the fourth quarter of 2018 were $0.6 million of management fees paid to Matrix shareholders and integration costs of $2.2 million related to the February 2018 acquisition of HealthFair. Included within Matrix's operating income in the fourth quarter of 2017 were $0.5 million of management fees paid to Matrix shareholders and acquisition costs of $0.4 million.

Matrix's net loss was $6.2 million for the fourth quarter of 2018, compared to net income of $27.4 million for the fourth quarter of 2017. Matrix’s Adjusted EBITDA was $12.5 million, or 18.9% of revenue, for the fourth quarter of 2018, compared to $11.6 million, or 22.1% of revenue, in the fourth quarter of 2017. Matrix net income in 2017 includes a tax benefit due to the impact of the Tax Reform Act of $13.6 million (that also resulted in an additional $3.4 million of tax for Providence). Net loss in 2018 reflects the operations of HealthFair, which performed below expectations, as previously discussed.

The year-over-year revenue growth for the fourth quarter of 2018 was related to the growth in volumes in Matrix's core in-home assessment business, pricing in line with the prior year and the addition of revenue from mobile visits due to the acquisition of HealthFair in the February 2018. Adjusted EBITDA increased year over year but the decline in Adjusted EBITDA margin was primarily due to the lower than anticipated HealthFair mobile visit volume. We anticipate continued challenges in 2019 as the Matrix leadership continues its integration of HealthFair.

As of December 31, 2018, Matrix had cash of $23.9 million and $328.4 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 December 31, 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, February 28, 2019 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: 5259676


Replay (available until March 7, 2019):
US toll-free: 1 (855) 859 2056
International: 1 (404) 537 3406
Passcode: 5259676


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. 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 and 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) equity in net earnings or losses of investees, (3) certain litigation related expenses, settlement income or other negotiated settlements relating to certain matters from prior periods, (4) certain transaction and related costs and (5) asset impairment charges. Adjusted Net Income is defined as income (loss) from continuing operations, net of tax, before certain items, including (1) restructuring and related charges, (2) equity in net earnings or losses of investees, (3) certain litigation related expenses, settlement income or other negotiated settlements relating to certain matters from prior periods, (4) intangible amortization expense, (5) gain or loss on sale of equity investments, (6) the non-recurring impact of the Tax Cuts and Jobs Act, (7) excess tax charges associated with long-term incentive plans, (8) the impact of adjustments on noncontrolling interests, (9) certain transaction and related costs, (10) the income tax impact of such adjustments and (11) asset impairment charges. 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 for the year ended December 31, 2018. 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 – SVP Finance         
(203) 307-2800



--financial tables to follow--







Providence Service Corporation
Page 6

The Providence Service Corporation
Unaudited Condensed Consolidated Statements of Operations
(in thousands except share and per share data)
 
 
 
 
 
 
 
 
 
 
 
Three months ended December 31,
 
Twelve months ended December 31,
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Service revenue, net
 
$
360,762

 
$
330,558

 
$
1,384,965

 
$
1,318,220

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
    Service expense
 
329,078

 
298,814

 
1,284,603

 
1,223,627

    General and administrative expense
 
14,174

 
13,974

 
46,098

 
43,491

    Asset impairment charge
 
13,497

 

 
14,175

 

    Depreciation and amortization
 
4,706

 
3,597

 
15,813

 
13,618

Total operating expenses
 
361,455

 
316,385

 
1,360,689

 
1,280,736

Operating income (loss)
 
(693
)
 
14,173

 
24,276

 
37,484

 
 
 
 
 
 
 
 
 
Other expenses:
 
 
 
 
 
 
 
 
    Interest expense, net
 
976

 
278

 
1,783

 
1,204

    Other gain
 

 
(5,363
)
 

 
(5,363
)
    Equity in net (gain) loss of investees
 
2,052

 
(13,017
)
 
6,158

 
(13,445
)
    (Gain) on remeasurement of cost method investment
 

 

 
(6,577
)
 

Income (loss) from continuing operations before income taxes
 
(3,721
)
 
32,275

 
22,912

 
55,088

Provision (benefit) for income taxes
 
(2,267
)
 
(5,733
)
 
4,684

 
4,003

Income (loss) from continuing operations, net of tax
 
(1,454
)
 
38,008

 
18,228

 
51,085

Discontinued operations, net of tax
 
(19,026
)
 
1,074

 
(37,053
)
 
2,735

Net income (loss)
 
(20,480
)
 
39,082

 
(18,825
)
 
53,820

Net loss (income) of discontinued operations attributable to noncontrolling interests
 
130

 
(156
)
 
(156
)
 
(451
)
Net income (loss) attributable to Providence
 
$
(20,350
)
 
$
38,926

 
$
(18,981
)
 
$
53,369

 
 
 
 
 
 
 
 
 
Net income (loss) available to common stockholders
 
$
(21,462
)
 
$
33,046

 
$
(25,257
)
 
$
42,636

 
 
 
 
 
 
 
 
 
Basic earnings (loss) per common share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.20
)
 
$
2.37

 
$
0.92

 
$
2.99

Discontinued operations
 
(1.47
)
 
0.07

 
(2.87
)
 
0.15

Basic earnings (loss) per common share
 
$
(1.67
)
 
$
2.44

 
$
(1.95
)
 
$
3.14

 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per common share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.20
)
 
$
2.35

 
$
0.92

 
$
2.97

Discontinued operations
 
(1.47
)
 
0.07

 
(2.86
)
 
0.15

Diluted earnings (loss) per common share
 
$
(1.67
)
 
$
2.42

 
$
(1.94
)
 
$
3.12

 
 
 
 
 
 
 
 
 
Weighted-average number of common
 
 
 
 
 
 
 
 
  shares outstanding:
 
 
 
 
 
 
 
 
    Basic
 
12,867,169

 
13,570,615

 
12,960,837

 
13,602,140

    Diluted
 
12,867,169

 
13,664,727

 
13,033,247

 
13,673,314



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Providence Service Corporation
Page 7

The Providence Service Corporation
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
 
 
 
 
 
 
 
December 31, 2018
 
December 31, 2017
Assets
 
 
 
 
Current assets:
 
 
 
 
    Cash and cash equivalents
 
$
5,678

 
$
52,798

    Accounts receivable, net of allowance
 
147,756

 
110,208

    Other current assets (1)
 
50,495

 
29,299

    Current assets of discontinued operations (2)
 
7,051

 
104,024

Total current assets
 
210,980

 
296,329

Property and equipment, net
 
22,965

 
37,672

Goodwill and intangible assets, net
 
161,362

 
109,380

Equity investments
 
161,503

 
169,699

Other long-term assets (3)
 
15,436

 
17,182

Noncurrent assets of discontinued operations (2)
 

 
73,828

Total assets
 
$
572,246

 
$
704,090

 
 
 
 
 
Liabilities, redeemable convertible preferred stock and stockholders' equity
Current liabilities:
 
 
 
 
    Current portion of long-term obligations
 
$
718

 
$
2,400

    Other current liabilities (4)
 
138,908

 
162,887

    Current liabilities of discontinued operations (2)
 
3,257

 
61,643

Total current liabilities
 
142,883

 
226,930

Long-term obligations, less current portion
 
353

 
584

Other long-term liabilities (5)
 
40,620

 
55,448

Noncurrent liabilities of discontinued operations (2)
 

 
7,565

Total liabilities
 
183,856

 
290,527

 
 
 
 
 
Mezzanine and stockholder's equity
 
 
 
 
Convertible preferred stock, net
 
77,392

 
77,546

Stockholders' equity
 
310,998

 
336,017

Total liabilities, redeemable convertible preferred stock and stockholders' equity
 
$
572,246

 
$
704,090


(1) Comprised of other receivables, restricted cash and prepaid expenses and other.
(2) Comprised of assets or liabilities primarily related to WD Services' former Saudi Arabian operation
(3) Comprised of restricted cash, less current portion, deferred tax assets and other assets.
(4) Comprised of accounts payable, accrued expenses, accrued transportation costs, deferred revenue and reinsurance and related liability reserves.
(5) Includes deferred tax liabilities and other long-term liabilities.


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Providence Service Corporation
Page 8

The Providence Service Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands) (1)
 
 
 
 
 
 
 
Twelve months ended December 31,
 
 
2018
 
2017
Operating activities
 
 
 
 
Net income (loss)
 
$
(18,825
)
 
$
53,820

  Depreciation and amortization
 
27,677

 
26,469

  Stock-based compensation
 
8,993

 
7,543

  Asset impairment charge
 
23,378

 

  Equity in net (gain) loss of investees
 
6,072

 
(12,054
)
  Gain on sale of equity investment
 

 
(12,377
)
  Gain on remeasurement of cost method investment
 
(6,577
)
 

  Other non-cash items
 
5,676

 
(20,646
)
  Loss on sale of business, net of tax
 
1,831

 

  Changes in working capital
 
(40,326
)
 
12,289

Net cash provided by operating activities
 
7,899

 
55,044

Investing activities
 
 
 
 
Purchase of property and equipment
 
(17,521
)
 
(19,923
)
Acquisitions, net of cash acquired
 
(43,711
)
 

Dispositions, net of cash sold
 
12,780

 

Proceeds from note receivable
 
3,130

 

Loan to joint venture
 

 
10

Proceeds from sale of equity investment
 

 
15,593

Other investing activities
 

 
(2,700
)
Net cash used in investing activities
 
(45,322
)
 
(7,020
)
Financing activities
 
 
 
 
Preferred stock dividends
 
(4,413
)
 
(4,418
)
Repurchase of common stock, for treasury
 
(56,088
)
 
(29,364
)
Other financing activities
 
8,946

 
(6
)
Net cash used in financing activities
 
(51,555
)
 
(33,788
)
Effect of exchange rate changes on cash
 
(261
)
 
978

Net change in cash and cash equivalents
 
(89,239
)
 
15,214

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)
 
$
12,367

 
$
101,606

(1) Includes both continuing and discontinued operations.
(2) Includes restricted cash of $4.4 million at December 31, 2018 and restricted cash of $6.3 million at December 31, 2017.


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Providence Service Corporation
Page 9

The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Segment Information and Adjusted EBITDA
(in thousands) (Unaudited)
 
 
Three months ended December 31, 2018
 
 
NET Services
 
Matrix Investment
 
Corporate and Other
 
Total Continuing Operations
 
 
 
 
 
 
 
 
 
Service revenue, net
$
360,762

 
$

 
$

 
$
360,762

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
  Service expense
329,232

 

 
(154
)
 
329,078

  General and administrative expense
3,307

 

 
10,867

 
14,174

  Asset impairment charge
13,497

 

 

 
13,497

  Depreciation and amortization
4,478

 

 
228

 
4,706

Total operating expenses
350,514

 

 
10,941

 
361,455

 
 
 
 
 
 
 
 
 
Operating income (loss)
10,248

 

 
(10,941
)
 
(693
)
 
 
 
 
 
 
 
 
 
Other expenses:
 
 
 
 
 
 
 
  Interest expense, net
19

 

 
957

 
976

  Equity in net (gain) loss of investees

 
2,052

 

 
2,052

Income (loss) from continuing
 
 
 
 
 
 
 
     operations, before income tax
10,229

 
(2,052
)
 
(11,898
)
 
(3,721
)
Provision (benefit) for income taxes
2,241

 
(780
)
 
(3,728
)
 
(2,267
)
Income (loss) from continuing operations, net of taxes
7,988

 
(1,272
)
 
(8,170
)
 
(1,454
)
 
 
 
 
 
 
 
 
 
Interest expense, net
19

 

 
957

 
976

Provision (benefit) for income taxes
2,241

 
(780
)
 
(3,728
)
 
(2,267
)
Depreciation and amortization
4,478

 

 
228

 
4,706

 
 
 
 
 
 
 
 
 
EBITDA
14,726

 
(2,052
)
 
(10,713
)
 
1,961

 
 
 
 
 
 
 
 
 
Asset impairment charge (1)
13,497

 

 

 
13,497

Restructuring and related charges (2)
935

 

 
3,489

 
4,424

Transaction costs (3)
2,026

 

 
3,391

 
5,417

Equity in net (gain) loss of investees

 
2,052

 

 
2,052

Other

 

 
(8
)
 
(8
)
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
31,184

 
$

 
$
(3,841
)
 
$
27,343

(1) Impairment related to decision not to proceed with NET Services in-process "Next Generation" IT project due to acquisition of Circulation technology.
(2) Restructuring and related charges include value enhancement initiative implementation costs of $587 and severance costs of $348 within NET Services and organizational consolidation costs of $3,489 within Corporate and Other.
(3) Transaction costs related to the acquisition of Circulation by NET Services and certain Corporate transaction related expenses.



                
--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 December 31, 2017
 
 
NET Services
 
Matrix
Investment
 
Corporate and Other
 
Total Continuing Operations
 
 
 
 
 
 
 
 
 
Service revenue, net
$
330,558

 
$

 
$

 
$
330,558

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
  Service expense
300,344

 

 
(1,530
)
 
298,814

  General and administrative expense
2,901

 

 
11,073

 
13,974

  Depreciation and amortization
3,513

 

 
84

 
3,597

Total operating expenses
306,758

 

 
9,627

 
316,385

 
 
 
 
 
 
 
 
 
Operating income (loss)
23,800

 

 
(9,627
)
 
14,173

 
 
 
 
 
 
 
 
 
Other expenses:
 
 
 
 
 
 
 
  Interest expense, net
20

 

 
258

 
278

  Other gain

 

 
(5,363
)
 
(5,363
)
  Equity in net (gain) loss of investees

 
(13,017
)
 

 
(13,017
)
Income (loss) from continuing
 
 
 
 
 
 
 
     operations, before income tax
23,780

 
13,017

 
(4,522
)
 
32,275

Provision (benefit) for income taxes
7,796

 
3,322

 
(16,851
)
 
(5,733
)
Income (loss) from continuing operations, net of taxes
15,984

 
9,695

 
12,329

 
38,008

 
 
 
 
 
 
 
 
 
Interest expense, net
20

 

 
258

 
278

Provision (benefit) for income taxes
7,796

 
3,322

 
(16,851
)
 
(5,733
)
Depreciation and amortization
3,513

 

 
84

 
3,597

 
 
 
 
 
 
 
 
 
EBITDA
27,313

 
13,017

 
(4,180
)
 
36,150

 
 
 
 
 
 
 
 
 
Restructuring and related charges (1)
1,404

 

 
1,716

 
3,120

Equity in net (gain) loss of investees

 
(13,017
)
 

 
(13,017
)
Litigation income (2)

 

 
(5,273
)
 
(5,273
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
28,717

 
$

 
$
(7,737
)
 
$
20,980


(1) Restructuring and related charges include value enhancement implementation initiative costs of $1,404 for NET Services and $1,716 of severance and other costs related to the former CEO of Providence within Corporate and Other.
(2) Litigation income related to the settlement of a putative stockholder class action derivative complaint, which is more fully described in the Company's Form 10-K.
.        



--more--





Providence Service Corporation
Page 11
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Segment Information and Adjusted EBITDA
(in thousands) (Unaudited)
 
 
Twelve months ended December 31, 2018
 
 
NET Services
 
Matrix Investment
 
Corporate and Other
 
Total Continuing Operations
 
 
 
 
 
 
 
 
 
Service revenue, net
$
1,384,965

 
$

 
$

 
$
1,384,965

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
  Service expense
1,285,029

 

 
(426
)
 
1,284,603

  General and administrative expense
14,247

 

 
31,851

 
46,098

  Asset impairment charge
14,175

 

 

 
14,175

  Depreciation and amortization
15,026

 

 
787

 
15,813

Total operating expenses
1,328,477

 

 
32,212

 
1,360,689

 
 
 
 
 
 
 
 
 
Operating income (loss)
56,488

 

 
(32,212
)
 
24,276

 
 
 
 
 
 
 
 
 
Other expenses:
 
 
 
 
 
 
 
  Interest expense, net
47

 

 
1,736

 
1,783

  Equity in net (gain) loss of investees

 
6,158

 

 
6,158

  Gain on remeasurement of cost method
 
 
 
 
 
 
 
     investment

 

 
(6,577
)
 
(6,577
)
Income (loss) from continuing operations,
 
 
 
 
 
 
 
     before income tax
56,441

 
(6,158
)
 
(27,371
)
 
22,912

Provision (benefit) for income taxes
14,092

 
(1,564
)
 
(7,844
)
 
4,684

Income (loss) from continuing operations, net of taxes
42,349

 
(4,594
)
 
(19,527
)
 
18,228

 
 
 
 
 
 
 
 
 
Interest expense, net
47

 

 
1,736

 
1,783

Provision (benefit) for income taxes
14,092

 
(1,564
)
 
(7,844
)
 
4,684

Depreciation and amortization
15,026

 

 
787

 
15,813

 
 
 
 
 
 
 
 
 
EBITDA
71,514

 
(6,158
)
 
(24,848
)
 
40,508

 
 
 
 
 
 
 
 
 
Asset impairment charge (1)
14,175

 

 

 
14,175

Restructuring and related charges (2)
3,185

 

 
8,361

 
11,546

Transaction costs (3)
3,623

 

 
3,608

 
7,231

Equity in net (gain) loss of investees

 
6,158

 

 
6,158

Gain on remeasurement of cost method
 
 
 
 
 
 
 
    investment (4)

 

 
(6,577
)
 
(6,577
)
Litigation income

 

 
(226
)
 
(226
)
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
92,497

 
$

 
$
(19,682
)
 
$
72,815


(1) Impairment related to decision not to proceed with NET Services in-process "Next Generation" IT project due to acquisition of Circulation technology.
(2) Restructuring and related charges include value enhancement initiative implementation costs of $2,837 and severance costs of $348 for NET Services and organizational consolidation costs of $8,361 within Corporate and Other.
(3) Transaction costs related to the acquisition of Circulation by NET Services and certain Corporate transaction related expenses.
(4) Gain on re-measurement of the Company's initial cost method investment in Circulation, upon acquisition of all of remaining equity
--more--





Providence Service Corporation
Page 12
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Segment Information and Adjusted EBITDA
(in thousands) (Unaudited)

 
 
Twelve months ended December 31, 2017
 
 
NET Services
 
Matrix
Investment
 
Corporate and Other
 
Total Continuing Operations
 
 
 
 
 
 
 
 
 
Service revenue, net
$
1,318,220

 
$

 
$

 
$
1,318,220

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
  Service expense
1,227,426

 

 
(3,799
)
 
1,223,627

  General and administrative expense
11,779

 

 
31,712

 
43,491

  Depreciation and amortization
13,275

 

 
343

 
13,618

Total operating expenses
1,252,480

 

 
28,256

 
1,280,736

 
 
 
 
 
 
 
 
 
Operating income (loss)
65,740

 

 
(28,256
)
 
37,484

 
 
 
 
 
 
 
 
 
Other expenses:
 
 
 
 
 
 
 
  Interest expense, net
69

 

 
1,135

 
1,204

  Other income

 

 
(5,363
)
 
(5,363
)
  Equity in net (gain) loss of investees

 
(13,445
)
 

 
(13,445
)
Income (loss) from continuing
 
 
 
 
 
 
 
     operations, before income tax
65,671

 
13,445

 
(24,028
)
 
55,088

Provision (benefit) for income taxes
24,018

 
3,483

 
(23,498
)
 
4,003

Income (loss) from continuing operations, net of taxes
41,653

 
9,962

 
(530
)
 
51,085

 
 
 
 
 
 
 
 
 
Interest expense, net
69

 

 
1,135

 
1,204

Provision (benefit) for income taxes
24,018

 
3,483

 
(23,498
)
 
4,003

Depreciation and amortization
13,275

 

 
343

 
13,618

 
 
 
 
 
 
 
 
 
EBITDA
79,015

 
13,445

 
(22,550
)
 
69,910

 
 
 
 
 
 
 
 
 
Restructuring and related charges (1)
6,318

 

 
1,716

 
8,034

Equity in net (gain) loss of investees

 
(13,445
)
 

 
(13,445
)
Litigation income (2)

 

 
(4,969
)
 
(4,969
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
85,333

 
$

 
$
(25,803
)
 
$
59,530


(1) Restructuring and related charges include $214 of former CEO departure costs and value enhancement implementation initiative costs of $6,104 for NET Services and $1,716 of severance and other costs related to the former CEO of Providence within Corporate and Other.
(2) Litigation income related to the settlement of a putative stockholder class action derivative complaint, which is more fully described in the Company's Form 10-K.
        



    

--more--






Providence Service Corporation
Page 13

The Providence Service Corporation
Summary Financial Information of Equity Investment in Matrix Medical Network (1)
(in thousands)
(Unaudited)
 
Three months ended December 31,
 
Twelve Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
 
Revenue
$
65,746

 
$
52,536

 
$
282,067

 
$
227,872

 
Operating expense (2)
57,073

 
41,881

 
240,134

 
182,489

 
Depreciation and amortization
15,150

 
8,883

 
43,119

 
33,512

 
Operating income (loss)
(6,477
)
 
1,772

 
(1,186
)
 
11,871

 
 
 
 
 
 
 
 
 
 
Other expense (income)

 

 

 

 
Interest expense
3,506

 
3,823

 
25,942

(3)
14,818

 
Provision (benefit) for income taxes
(3,758
)
 
(29,492
)
 
(7,166
)
 
(29,613
)
 
Net income (loss)
(6,225
)
 
27,441

 
(19,962
)
 
26,666

 
 
 
 
 
 
 
 
 
 
Interest
43.6
%
 
46.6
%
 
43.6
%
 
46.6
%
 
Net income (loss) - Equity Investment
(2,714
)
 
12,796

 
(8,703
)
 
12,434

 
Management fee and other
662

(4)
221

(5)
2,545

(6)
1,011

(7)
Equity in net gain (loss) of investee
$
(2,052
)
 
$
13,017

 
$
(6,158
)
 
$
13,445

 
 
 
 
 
 
 
 
 
 
Net Debt (8)
304,425

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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 $3,748 of expense related to the acceleration of deferred financing fees upon debt refinancing.
(4)
Includes amounts relating to management fees due from Matrix to Providence of $257 as well as other adjustments.
(5)
Includes amounts relating to management fees due from Matrix to Providence of $247 less Providence share-based compensation expense of $26.
(6)
Includes amounts relating to management fees due from Matrix to Providence of $2,301 less Providence share-based compensation expense of $137 as well as other adjustments.
(7)
Includes amounts relating to management fees due from Matrix to Providence of $1,087 less Providence share-based compensation expense of $76.
(8)
Represents cash of $23,925 and debt of $328,350 on Matrix's standalone balance sheet as of December 31, 2018.


--more--





Providence Service Corporation
Page 14

The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA: Matrix Medical Network (1)(2)(5)
(in thousands) (Unaudited)
 
Three months ended December 31,
 
Twelve Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Revenue
$
65,746

 
$
52,536

 
$
282,067

 
$
227,872

Operating expense (3)
57,073

 
41,881

 
240,134

 
182,489

Depreciation and amortization
15,150

 
8,883

 
43,119

 
33,512

Operating income (loss)
(6,477
)
 
1,772

 
(1,186
)
 
11,871

 
 
 
 
 
 
 
 
Interest expense
3,506

 
3,823

 
25,942

 
14,818

Provision (benefit) for income taxes
(3,758
)
 
(29,492
)
 
(7,166
)
 
(29,613
)
Net income
(6,225
)
 
27,441

 
(19,962
)
 
26,666

 
 
 
 
 
 
 
 
Depreciation and amortization
15,150

 
8,883

 
43,119

 
33,512

Interest expense
3,506

 
3,823

 
25,942

 
14,818

Provision (benefit) for income taxes
(3,758
)
 
(29,492
)
 
(7,166
)
 
(29,613
)
EBITDA
8,673

 
10,655

 
41,933

 
45,383

Matrix management transaction bonuses

 
12

 

 
2,679

Management fees (4)
550

 
529

 
4,887

 
2,331

Acquisition costs

 
412

 
2,341

 
412

Integration costs
2,231

 

 
6,524

 

Transaction costs
1,004

 
6

 
1,010

 
857

Adjusted EBITDA
$
12,458

 
$
11,614

 
$
56,695

 
$
51,662

 
 
 
 
 
 
 
 

(1) Matrix's Adjusted EBITDA is not included within Providence's Adjusted EBITDA in any period presented.
(2) Providence accounts for its proportionate share of Matrix's results using the equity method.
(3) Excludes depreciation and amortization.
(4) Management fees in the first twelve months of 2018 include fees earned in association with the acquisition of HealthFair.
(5) 2018 includes the results of HealthFair since the date of acquisition on February 16, 2018.























--more--





Providence Service Corporation
Page 15
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 December 31,
 
Twelve months ended December 31,
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Income from continuing operations, net of tax
$
(1,454
)
 
$
38,008

 
$
18,228

 
$
51,085

 
 
 
 
 
 
 
 
Asset impairment charge (1)
13,497

 

 
14,175

 

Restructuring and related charges (2)
4,569

 
3,120

 
11,984

 
8,034

Transaction costs (3)
5,417

 

 
7,231

 

Equity in net (gain) loss of investees
2,052

 
(13,017
)
 
6,158

 
(13,445
)
Gain on remeasurement of cost method investment

 

 
(6,577
)
 

Intangible amortization expense
1,565

 
730

 
3,755

 
2,920

Litigation (income) expense, net (4)
(8
)
 
(5,273
)
 
(226
)
 
(4,969
)
Impact of Tax Reform Act

 
(19,304
)
 

 
(19,304
)
Tax adjustment for 2015 Holding Company LTI Program

 
3,590

 

 
3,590

Tax effected impact of adjustments
(8,438
)
 
2,878

 
(9,849
)
 
253

 
 
 
 
 
 
 
 
 
Adjusted Net Income
17,200

 
10,732

 
44,879

 
28,164

 
 
 
 
 
 
 
 
 
Dividends on convertible preferred stock
(1,112
)
 
(1,114
)
 
(4,420
)
 
(4,419
)
Income allocated to participating securities
(2,174
)
 
(1,240
)
 
(5,438
)
 
(3,063
)
 
 
 
 
 
 
 
 
 
Adjusted Net Income available to common stockholders
$
13,914

 
$
8,378

 
$
35,021

 
$
20,682

 
 
 
 
 
 
 
 
 
Adjusted EPS
$
1.08

 
$
0.61

 
$
2.69

 
$
1.51

 
 
 
 
 
 
 
 
 
Diluted weighted-average number of common shares outstanding
12,926,598

 
13,664,727

 
13,033,247

 
13,673,314


(1) Asset impairment charge of $13,497 in the current quarter related to decision not to proceed with NET Services' in-process "Next Generation" IT project due to acquisition of Circulation technology.
(2) Restructuring and related charges are comprised of employee separation costs as well as third-party consulting and implementation costs related to NET Services' LogistiCare various value initiatives and costs related to the consolidation of the holding company activities into LogistiCare including $436 of accelerated depreciation related to corporate property, plant & equipment for the twelve months ended December 31, 2018. See the above Segment Information and Adjusted EBITDA tables for a detailed breakdown of the restructuring and related charges for each time period presented.
(3) Transaction costs related to the acquisition of Circulation, Inc. in NET Services and certain other Corporate transaction related expenses.
(4) Income or expense related to defense cost and final settlement for a putative stockholder class action derivative complaint, which is more fully described in the Company's Form 10-K.    

--more--





Providence Service Corporation
Page 16
The Providence Service Corporation
Segment-Level Impact of ASC 606 Adoption
(in thousand) (Unaudited)

The following table summarizes the impact that the adoption of ASC 606, Revenue from Contracts with Customers, had on the Company's results for the three and twelve months ended December 31, 2018:
 
 
 
 
Three Months Ended December 31, 2018
 
Three Months Ended December 31, 2017 (1)
Segment
 
Caption
 
Historical
US GAAP
 
ASC 606 Adjustment
 
As Reported
 
As Reported
NET Services (2)
 
Revenue
 
$
365,084

 
$
(4,322
)
 
$
360,762

 
$
330,558

 
 
Adjusted EBITDA
 
31,184

 

 
31,184

 
28,717

 
 
 
 
 
 
 
 
 
 
 
Corporate and Other
 
Revenue
 

 

 

 

 
 
Adjusted EBITDA
 
(3,841
)
 

 
(3,841
)
 
(7,737
)
 
 
 
 
 
 
 
 
 
 
 
Total Continuing Operations
 
Revenue
 
$
365,084

 
$
(4,322
)
 
$
360,762

 
$
330,558

 
 
Adjusted EBITDA
 
27,343

 

 
27,343

 
20,980

 
 
 
 
7.5
%
 
 
 
7.6
%
 
6.3
%

 
 
 
 
Twelve Months Ended December 31, 2018
 
Twelve Months Ended December 31, 2017 (1)
Segment
 
Caption
 
Historical
US GAAP
 
ASC 606 Adjustment
 
As Reported
 
As Reported
NET Services (2)
 
Revenue
 
$
1,400,453

 
$
(15,488
)
 
$
1,384,965

 
$
1,318,220

 
 
Adjusted EBITDA
 
92,497

 

 
92,497

 
85,333

 
 
 
 
 
 
 
 
 
 
 
Corporate and Other
 
Revenue
 

 

 

 

 
 
Adjusted EBITDA
 
(19,682
)
 

 
(19,682
)
 
(25,803
)
 
 
 
 
 
 
 
 
 
 
 
Total Continuing Operations
 
Revenue
 
$
1,400,453

 
$
(15,488
)
 
$
1,384,965

 
$
1,318,220

 
 
Adjusted EBITDA
 
72,815

 

 
72,815

 
59,530

 
 
 
 
5.2
%
 
 
 
5.3
%
 
4.5
%
(1) The Company adopted ASC 606 using the modified retrospective method resulting in an opening retained earnings adjustment of $5,710, primarily related to the WD Services segment, now classified as discontinued operations. Prior periods are not adjusted for the new revenue standard.
(2) NET Services 2018 revenue was impacted by a change to recognize revenue for one contract on a net basis. There is no margin impact for this adjustment.

###


q42018investorpresentati
PROVIDENCE Q4 2018 EARNINGS CALL PRESENTATION FEBRUARY 28, 2019


 
FORWARD-LOOKING STATEMENTS AND NON-GAAP FINANCIAL INFORMATION Forward-looking Statements This presentation 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 for the year ended December 31, 2018. Providence is under no obligation to (and expressly disclaims any such obligation to) update any of the information in this presentation if any forward-looking statement later turns out to be inaccurate whether as a result of new information, future events or otherwise. Non-GAAP Financial Information In addition to the financial results prepared in accordance with U.S. generally accepted accounting principles (GAAP), this presentation includes EBITDA and 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) equity in net earnings or losses of investees, (3) certain litigation related expenses, settlement income or other negotiated settlements relating to certain matters from prior periods, (4) certain transaction and related costs and (5) asset impairment charges. Adjusted Net Income is defined as income (loss) from continuing operations, net of tax, before certain items, including (1) restructuring and related charges, (2) equity in net earnings or losses of investees, (3) certain litigation related expenses, settlement income or other negotiated settlements relating to certain matters from prior periods, (4) intangible amortization expense, (5) gain or loss on sale of equity investments, (6) the non-recurring impact of the Tax Cuts and Jobs Act, (7) excess tax charges associated with long-term incentive plans, (8) the impact of adjustments on noncontrolling interests, (9) certain transaction and related costs, (10) the income tax impact of such adjustments and (11) asset impairment charges. 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. 2


 
Q4 2018 HIGHLIGHTS • Consolidated revenue up 9.1%(1) • NET Services: New State Contract in WV and MCO contracts in Indiana and Illinois Revenue • Existing contracts (excluding new contracts and churn) up 5.2%, driven by Growth mix of rate increases and membership growth • Matrix (2) : Matrix’s in-home assessment business continued strong growth, while mobile assessment volume continued to ramp slowly • Net loss from continuing operations of $(1.5)mm, adjusted net income (3) of $17.2mm and Adjusted EBITDA (3) of $27.3mm • NET Services: margins improved sequentially vs. Q3 2018 driven by Q4 seasonality. Year-over-year margins flat with rate increases and lower Profitability transportation costs offsetting the release of a significant expense reserve in the prior year period • Matrix (2): margins down versus prior year driven by continued delay in HealthFair membership volume • EPS of $(0.20), Adjusted EPS (3) of $1.08 • Key activities • Completed sale of substantially all of WD Services segment for $46.5mm of proceeds (total net cash value of up to $70.5mm (4) including tax benefits) and Capital transitioned Saudi operations to government Allocation • Repaid revolver with WD Services proceeds with no debt at year-end • Personnel changes as part of Organization Consolidation substantially completed with CAO and VP of Internal Audit hired in Atlanta (1) As compared to Q4 2017. (2) Providence’s interest in Matrix is accounted for as an equity method investment. Matrix’s results are not included within Providence’s consolidated revenue. (3) See appendix for a reconciliation of non-GAAP financial measures. 3 (4) See appendix for a reconciliation of WD Services proceeds.


 
NET SERVICES • Revenue growth driven by new State Contract in WV and MCO contracts in Indiana and Illinois • Margins flat year-over-year despite significant one-time pick ups in Q4 ‘17, driven by mix of Q4:2018 rate increases and lower transportation costs Highlights • Completed the acquisition of Circulation which is expected to accelerate operational efficiencies and improve membership experience • Re-aligned organization to a centralized operating structure to drive performance for clients and members • Implemented new MCO contracts in MN and LA % FYE FYE % $Millions Q4:17 Q4:18 Growth 2017 2018 Growth Revenue 330.6 360.8 9.1% 1,318.2 1,385.0 5.1% Key Financial Net Income 16.0 8.0 41.7 42.3 Metrics (1) Adjusted EBITDA 28.7 31.2 8.6% 85.3 92.5 8.4% (1) % Margin 8.7% 8.6% 6.5% 6.7% Capex 4.1 2.2 15.3 10.8 • Integration and rollout of the existing Circulation platform across existing LogistiCare call centers 2019 • First call center expected to be up and operational in Q2, target substantially all Focus sites operational by the end of 2021 • Investments in sales organization to drive future growth (1) See appendix for a reconciliation of non-GAAP financial measures. 4


 
NET Services: Value Proposition Unmanaged Transportation Missed appointments can Average missed increase the risk of appointment rate Average hospitalization $2,100 30% Average ambulance +400% cost of trip cost 25% due to ER visit $400 - transportation $525 issues Managed Proactive healthcare $15 Improved health Transportation management can Average outcomes and decrease costs cost of patient/provider -800% ride to satisfaction doctor Key NET Facts • Patients with lack of access to transportation are 7x less likely to comply with chemotherapy treatment • 95% of diabetic patients want to keep up with follow-up appointments but 50% indicate it would be difficult due to lack of NET services • For every funded medical trip that prevents a trip to the emergency department, the payback to the state for each $1 invested in NET is estimated to be > 10x Source: Health Management Technology, SCI Solutions, National Center for Biological Information, National Institute of Health, Factors Associated with Adherence to Chemotherapy Guidelines in Patients with Non-Small Cell Lung Cancer (2011). 5


 
MATRIX INVESTMENT • Continued growth in core in-home assessments driving 11% growth versus the prior year period from new customers and product diversification Q4:2018 • Core in-home assessment margins remain in line with last year’s margins Highlights • Slower than anticipated ramp of new contracts at HealthFair. Management has made progress re-engaging with payors that had led to a delay in member volume since the acquisition % FYE FYE % $Millions Q4:17 Q4:18 Growth 2017 2018 Growth Revenue 52.5 65.7 25.1% 227.9 282.1 23.8% Key Financial Net Income 27.4 (6.2) 26.7 (20.0) (2) Metrics(1) Adjusted EBITDA 11.6 12.5 7.3% 51.7 56.7 9.8% (2) % Margin 22.1% 18.9% 22.7% 20.1% Capex 3.5 2.4 11.0 10.3 Net Debt 304.4 • Continued efforts to diversify into markets such as Medicaid, Commercial and 2019 quality visits Focus • Continued integration of HealthFair acquisition and focus on converting membership into completed assessment (1) Providence’s interest in Matrix is accounted for as an equity method investment. Matrix’s results are not included within Providence’s consolidated financials. 6 (2) See appendix for a reconciliation of non-GAAP financial measures.


 
FINANCIAL SUMMARY REVENUE ADJUSTED EBITDA (1) $ MILLIONS $ MILLIONS 92.4 92.5 85.3 31.2 72.8 1,385.0 28.7 1,318.2 66.8 1,233.7 27.3 59.5 21.0 360.8 330.6 Q4:2017 Q4:2018 2016 2017 2018 Q4:2017 Q4:2018 2016 2017 2018 NET AfterAfter CorpHoldC costso (2) (1) See appendix for a reconciliation of non -GAAP financial measures. (2) Represents Adj. EBITDA of NET Services less Corporate costs. 7


 
CASHFLOW UPDATE FYE FYE $Millions Q4:17 Q4:18 2017 2018 Cash Earnings (1) 20.1 11.4 42.8 48.2 Working Capital (2.0) (26.0) 12.3 (40.3) Cash Earnings (After Working Capital) 18.1 (14.6) 55.0 7.9 Capex (Continuing Operations) 4.1 2.2 15.4 10.8 Cash flow • Negative working capital in 2018 primarily related to timing of collections and payments at year-end and new contract start up at LogistiCare (1) Cash earnings represents cash provided by operating activities prior to changes in operating assets and liabilities. 8


 
BALANCE SHEET UPDATE $Millions 12/31/15 12/31/16 12/31/17 12/31/18 Cash (1) 84.8 72.3 95.3 8.0 Debt (1) 305.0 - - - Net Debt / (Cash) 220.2 (72.3) (95.3) (8.0) Matrix Carrying Value (2) - 157.2 169.7 161.5 Shares Outstanding (mm) (3) 17.3 15.9 15.4 14.8 Summary • The Company fully re-paid the $36mm revolver draw used to finance the Circulation acquisition • In 2018, the Company repurchased 834k shares for $55.8mm (1) Includes Cash and Debt related to discontinued operations. Excludes capital leases. (2) Represents the carrying value of Providence’s retained equity interest in Matrix. As of 12/31/18, Providence equity ownership in Matrix was 43.6%. (3) Shares outstanding equals common shares outstanding plus total preferred shares on an as-converted basis. As of 2/22/19 shares outstanding equaled 14.8mm. 9


 
APPENDIX


 
ADJUSTED EBITDA RECONCILIATION (Continuing Ops) NET Services Matrix Investment Corporate and Other Total Continuing Operations FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE FYE $Millions Q4:17 Q4:18 2016 2017 2018 Q4:17 Q4:18 2016 2017 2018 Q4:17 Q4:18 2016 2017 2018 Q4:17 Q4:18 2016 2017 2018 Revenue 330.6 360.8 1,233.7 1,318.2 1,385.0 - - - - - - - 0.1 - - 330.6 360.8 1,233.8 1,318.2 1,385.0 Income from Cont Ops after Income Taxes 16.0 8.0 47.4 41.7 42.3 9.7 (1.3) (1.1) 10.0 (4.6) 12.3 (8.2) (19.4) (0.5) (19.5) 38.0 (1.5) 26.9 51.1 18.2 Interest Expense, Net 0.0 0.0 (0.0) 0.1 0.0 - - - - - 0.3 1.0 1.5 1.1 1.7 0.3 1.0 1.5 1.2 1.8 Provision (Benefit) For Income Taxes 7.8 2.2 29.7 24.0 14.1 3.3 (0.8) (0.7) 3.5 (1.6) (16.9) (3.7) (11.1) (23.5) (7.8) (5.7) (2.3) 18.0 4.0 4.7 Depreciation and Amortization 3.5 4.5 12.4 13.3 15.0 - - - - - 0.1 0.2 0.4 0.3 0.8 3.6 4.7 12.8 13.6 15.8 EBITDA 27.3 14.7 89.5 79.0 71.5 13.0 (2.1) (1.8) 13.4 (6.2) (4.2) (10.7) (28.5) (22.6) (24.8) 36.1 2.0 59.1 69.9 40.5 Asset Impairment - 13.5 - - 14.2 - - - - - - - 1.4 - - - 13.5 1.4 - 14.2 Transaction Expense - 2.0 - - 3.6 - - - - - - 3.4 - - 3.6 - 5.4 - - 7.2 Restructuring and Related Expense - - 0.9 0.2 0.3 - - - - - 1.7 3.5 - 1.7 8.4 1.7 3.5 0.9 1.9 8.7 Value Enhancement Initiative Implementation 1.4 0.9 2.0 6.1 2.8 - - - - - - - - - - 1.4 0.9 2.0 6.1 2.8 Equity in Net Loss (Gain) of Investee - - - - - (13.0) 2.1 1.8 (13.4) 6.2 - - - - - (13.0) 2.1 1.8 (13.4) 6.2 (Gain) on Remeasure of Cost Method Invest - - - - - - - - - - - - - - (6.6) - - - - (6.6) Litigation Expense / (Income) - - - - - - - - - - (5.3) (0.0) 1.6 (5.0) (0.2) (5.3) (0.0) 1.6 (5.0) (0.2) Adjusted EBITDA 28.7 31.2 92.4 85.3 92.5 - - - - - (7.7) (3.8) (25.5) (25.8) (19.7) 21.0 27.3 66.8 59.5 72.8 % Margin 8.7% 8.6% 7.5% 6.5% 6.7% 11


 
ADJUSTED EBITDA RECONCILIATION (MATRIX) (1) Matrix FYE 2016 Q4:2016 FYE FYE FYE HA HA (3) (3) (3) (2) (3) (2) (3) $Millions Q4:17 Q4:18 2016 2017 2018 Services Matrix Total Services Matrix Total Revenue 52.5 65.7 207.7 227.9 282.1 166.1 41.6 207.7 10.7 41.6 52.3 Net Income (Loss) 27.4 (6.2) 110.1 26.7 (20.0) 114.3 (4.2) 110.1 109.0 (4.2) 104.8 Interest Expense, Net 3.8 3.5 12.9 14.8 26.0 9.9 2.9 12.9 0.6 2.9 3.6 Provision (Benefit) For Income Taxes (29.5) (3.8) 60.4 (29.6) (7.2) 63.3 (2.8) 60.4 59.9 (2.8) 57.1 Depreciation and Amortization 8.9 15.2 27.5 33.5 43.1 21.1 6.4 27.5 - 6.4 6.4 EBITDA 10.7 8.7 210.9 45.4 42.0 208.6 2.3 210.9 169.5 2.3 171.8 Gain on Disposition - - (167.9) - - (167.9) - (167.9) (167.9) - (167.9) Management Fee 0.5 0.5 - 2.3 4.9 - - - - - - Transaction Costs 0.4 - 6.4 3.9 3.3 0.0 6.3 6.4 (0.8) 6.4 5.6 Integration Expense - 3.2 - - 6.5 - - - - - - Write-off of Deferred Financing Costs - - 2.3 - - 2.3 - 2.3 2.3 - 2.3 Adjusted EBITDA 11.6 12.5 51.7 51.7 56.7 43.1 8.6 51.7 3.1 8.6 11.7 % Margin 22.1% 18.9% 24.9% 22.7% 20.1% Reconciliation of Income / Loss from Equity Investment to Matrix Net Income (4) Equity in Net Gain (Loss) of Investee 13.0 (2.1) 13.4 (6.2) (1.8) 13.0 Management Fee and Other (0.2) (0.7) (1.0) (2.5) (0.2) (0.2) Net Gain (Loss) - Equity Investment 12.8 (2.7) 12.4 (8.7) (2.0) 12.8 (5) Divided by: Providence % Equity Investment in Matrix 46.6% 43.6% 46.6% 43.6% 46.8% 46.8% Matrix Net Income Standalone 27.4 (6.2) 26.7 (20.0) (4.2) 27.4 (1) Represents 100% of Matrix’s results including the results of HealthFair since its acquisition of February 16, 2018. Providence’s retained equity interest is now accounted for as an equity method investment. Matrix’s results are not included within Providence’s consolidated revenue or Adjusted EBITDA in any period presented. (2) Represents Matrix's results of operation through the Matrix Transaction on October 19, 2016. These results are included within Discontinued Operations on the Company's consolidated financial statements. (3) Represents Matrix's results of operation from October 20, 2016 to December 31, 2018, as applicable. Providence accounts for its proportionate share of Matrix's results during this time period using the equity method. (4) A reconciliation has been provided to bridge from the income from Equity in net gain (loss) of investee to Matrix’s standalone Net Income for periods following the Matrix JV transaction. (5) For FYE 2017, % Equity Interest represents Providence’s equity interest in Matrix as of December 31, 2017. It should be noted that Providence’s equity interest in Matrix decreased from 46.8% to 46.6% primarily due to a rollover of management bonuses into equity during Q3:2017. In addition, Providence’s equity interest in Matrix decreased to 43.6% following the rollover of certain HealthFair equity interests related to the acquisition during Q1:2018. 12


 
ADJ. NET INCOME / EPS $Millions, Except Per Share Amounts Q4:18 Income from Continuing Operations, Net of Tax (1.5) Amortization 1.6 Restructuring and Related Expense 4.6 Asset Impairment 13.5 Equity in Net Loss of Investee 2.1 Litigation Expense / (Income) (0.0) Transaction Expenses 5.4 Tax Impact of Adjustments (8.4) Adjusted Net Income 17.2 Dividends on Convertible Preferred Stock (1.1) Income Allocated to Participating Securities (2.2) Adjusted Net Income to Common Stockholders 13.9 Adjusted EPS 1.08 Diluted Weighted-Average Common Shares Outstanding 12.9 13


 
WD Services Proceeds $Millions Gross Proceeds 46.5 Less: Cash on Ingeus Balance Sheet (21.0) Less: Transaction Expenses (6.8) Less: France Sale (6.0) Cash Proceeds 12.8 2019 Cash Tax Receievable 34.3 2020 - 2022 Cash Tax Benefit 17.6 Total Value for WD Services 64.5 Total Value Excluding France 70.5 14