Document
0001220754FALSE00012207542019-11-062019-11-06

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 6, 2019
The Providence Service Corporation
(Exact name of registrant as specified in its charter)
 
 
Delaware001-3422186-0845127
(State or other jurisdiction of
incorporation or organization)
(Commission File Number)(I.R.S. Employer
Identification No.)


1275 Peachtree StreetSixth FloorAtlantaGeorgia30309
(Address of principal executive offices)(Zip Code)

(404888-5800
Registrant’s telephone number, including area code:

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))

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of exchange on which registered
Common Stock, $0.001 par value per sharePRSCThe NASDAQ Global Select Market

¨
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 6, 2019, The Providence Service Corporation (the “Company”) issued a press release announcing its financial results for the quarter ended September 30, 2019. 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 November 6, 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 ended September 30, 2019. 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
101Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.
104The cover page from this Current Report on Form 8-K, formatted as Inline XBRL.   
 




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 6, 2019  By: /s/ Kevin M. Dotts
  Name: Kevin M. Dotts
  Title: Chief Financial Officer


Document

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The Providence Service Corporation Reports Third Quarter 2019 Results

Highlights for the Third Quarter of 2019:

Revenue from continuing operations of $393.4 million, an increase of 14.4% from the third quarter of 2018
Income from continuing operations, net of tax, of $8.6 million, or earnings of $0.50 per diluted common share
Adjusted EBITDA of $23.1 million, Adjusted Net Income of $13.3 million and Adjusted EPS of $0.81
Matrix, on a standalone basis, recorded a net loss of $6.9 million and Adjusted EBITDA of $10.0 million or 14.0% of revenue


ATLANTA, GA – November 6, 2019 – The Providence Service Corporation (the “Company” or “Providence”) (Nasdaq: PRSC), today reported financial results for the three and nine months ended September 30, 2019.

"We completed several key initiatives leading to strong results for our third quarter," stated Carter Pate, Interim Chief Executive Officer. "In response to both increased utilization and an adverse shift in membership mix, we successfully re-negotiated several key contracts which resulted in a one-time pick up during the quarter and increased profitability going forward. On the transportation unit cost side, we continue to refocus on market-level processes to bring costs back in line with historical levels. Revenue grew 14.4% year over year, and the combined LogistiCare/Circulation platform and technology is well-positioned to capitalize on growth opportunities from Medicare Advantage and other adjacent markets. We believe our continued top-line growth, combined with cost structure efficiencies, will drive sustainable margin expansion over the next several years.”

“Matrix's home solution continues to deliver strong top-line growth driven by higher membership and assessment volume, whereas mobile solution was impacted by capacity constraints.”

Third Quarter 2019 Results

For the third quarter of 2019, the Company reported revenue of $393.4 million, an increase of 14.4% from $343.8 million in the third quarter of 2018.

Operating income was $17.0 million, or 4.3% of revenue, in the third quarter of 2019, compared to operating income of $9.4 million, or 2.7% of revenue, in the third quarter of 2018. Income from continuing operations, net of tax, in the third quarter of 2019 was $8.6 million, or $0.50 earnings per diluted common share, compared to income from continuing operations, net of tax, of $10.3 million, or $0.60 earnings per diluted common share, in the third quarter of 2018.

Adjusted EBITDA was $23.1 million, or 5.9% of revenue, in the third quarter of 2019, compared to $17.9 million, or 5.2% of revenue, in the third quarter of 2018.

Adjusted Net Income in the third quarter of 2019 was $13.3 million, or $0.81 earnings per diluted common share, compared to $10.7 million, or $0.64 earnings per diluted common share, in the third quarter of 2018.

The quarter-over-quarter increase in revenue was primarily due to secured rate adjustments which included retroactive revenue benefits, a new state contract in West Virginia and new managed care organization ("MCO") contracts in Minnesota and Louisiana and higher utilization across multiple not at-risk and reconciliation contracts. These increases were partially offset by the impact of contracts we no longer serve, including a state contract in Rhode Island and an MCO contract in California.

Adjusted EBITDA increased in the third quarter of 2019 due to the aforementioned secured rate adjustments which contributed $17.7 million to revenue and Adjusted EBITDA, partially offset by increased transportation costs, utilization



across multiple contracts, and an increase in cash settled stock-based compensation expense of $2.6 million as a result of an increase in the Company’s stock price in the third quarter of 2019 compared to a decrease in the third quarter of 2018.

Matrix - Equity Investment

For the third quarter of 2019, Matrix’s revenue was $71.7 million, an increase of 1.6% from $70.5 million in the third quarter of 2018. Matrix had an operating loss of $2.6 million for the third quarter of 2019, compared to operating income of $1.5 million for the third quarter of 2018.

Matrix recorded Adjusted EBITDA of $10.0 million, or 14.0% of revenue, for the third quarter of 2019, compared to $13.7 million, or 19.4% of revenue, in the third quarter of 2018.

Matrix’s third quarter of 2019 results benefited from higher membership and visits driven by yield initiatives, however, revenue growth was partially offset by a marginal decrease in pricing, compared to the third quarter of 2018. Matrix’s Adjusted EBITDA benefited from lower direct costs per visit, offset by higher indirect costs, compared to the third quarter of 2018.

For the third quarter of 2019, Providence recorded a loss in equity earnings of $3.2 million related to its Matrix equity investment compared to a loss of $1.6 million for the third quarter of 2018.

As of September 30, 2019, Providence's ownership interest and equity investment in Matrix was 43.6% and $154.5 million, respectively.


Share Repurchase Authorization

As previously announced, on August 6, 2019, the Company's Board of Directors approved a new share repurchase program under which the Company may purchase up to $100.0 million of its outstanding common stock through December 31, 2019 (unless terminated earlier). During the quarter ended September 30, 2019, the Company repurchased 105,421 shares of its common stock for approximately $6.0 million, or an average price of $56.80 per share.

As of November 4, 2019, the Company has approximately $94.0 million of availability under its share repurchase program.








Investor Presentation and Conference Call

Providence will hold a conference call to discuss its financial results on Thursday, November 7, 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: 9954499

Replay (available until November 14, 2019):
US toll-free: 1 (855) 859 2056
International: 1 (404) 537 3406
Passcode: 9954499

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, through its fully-owned subsidiary LogistiCare Solutions, LLC, is the nation's largest manager of non-emergency medical transportation programs for state governments and managed care organizations. Its range of services includes call center management, network credentialing, vendor payment management and non-emergency medical transport management. The Company also holds a minority interest in Matrix Medical Network which provides a broad array of assessment and care management services to individuals that improve health outcomes and health plan financial performance. For more information, please visit prscholdings.com.

Non-GAAP Financial Measures and Adjustments

In addition to the financial results prepared in accordance with generally accepted accounting principles in the United States (GAAP), this press release includes EBITDA and Adjusted EBITDA for the Company and its 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 loss of investee, (3) certain litigation related expenses, settlement income or other negotiated settlements relating to certain matters from prior periods, (4) certain transaction and related costs, (5) asset impairment charges, and (6) gain on remeasurement of cost investment. Adjusted Net Income is defined as income (loss) from continuing operations, net of taxes, before certain items, including (1) restructuring and related charges, (2) equity in net loss of investee, (3) certain litigation related expenses, settlement income or other negotiated settlements relating to certain matters from prior periods, (4) gain or loss on sale of equity investments, (5) certain transaction and related costs, (6) asset impairment charges, (7) gain on remeasurement of cost investment, and (8) the income tax impact of such adjustments. Adjusted EPS is calculated as Adjusted Net Income less (as applicable): (1) dividends on convertible preferred stock and (2) adjusted net income allocated to participating stockholders, divided by the diluted weighted-average number of common shares outstanding as calculated for Adjusted Net Income. 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 loss in equity investee is 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   
Bryan Wong – Investor Relations   
(404) 888-5902



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Providence Service Corporation
Page 5

The Providence Service Corporation
Unaudited Condensed Consolidated Statements of Operations
(in thousands except share and per share data)
Three months ended September 30,Nine months ended September 30,
2019201820192018
Service revenue, net$393,385  $343,771  $1,125,111  $1,024,203  
Operating expenses:    
    Service expense356,271  313,511  1,042,717  934,367  
    General and administrative expense15,979  17,045  52,241  53,081  
    Asset impairment charge—  —  —  678  
    Depreciation and amortization4,148  3,780  12,976  11,107  
Total operating expenses376,398  334,336  1,107,934  999,233  
Operating income 16,987  9,435  17,177  24,970  
Other expenses (income):
    Interest expense, net188  250  793  808  
    Other income(66) —  (199) —  
    Equity in net loss of investee3,188  1,587  6,159  4,106  
    Gain on remeasurement of cost method investment—  (6,577) —  (6,577) 
Income from continuing operations before income taxes
13,677  14,175  10,424  26,633  
Provision for income taxes5,097  3,880  3,940  6,951  
Income from continuing operations, net of tax8,580  10,295  6,484  19,682  
(Loss) income from discontinued operations, net of tax(426) (2,964) 540  (18,026) 
Net income8,154  7,331  7,024  1,656  
Net loss from discontinued operations attributable to noncontrolling interest
—  (177) —  (285) 
Net income attributable to Providence$8,154  $7,154  $7,024  $1,371  
Net income (loss) attributable to common stockholders
$6,104  $5,224  $3,230  $(1,939) 
Basic earnings (loss) per common share:
Continuing operations$0.50  $0.61  $0.21  $1.24  
Discontinued operations(0.03) (0.20) 0.04  (1.39) 
Basic earnings (loss) per common share$0.47  $0.41  $0.25  $(0.15) 
Diluted (loss) earnings per common share:
Continuing operations$0.50  $0.60  $0.21  $1.23  
Discontinued operations(0.03) (0.20) 0.04  (1.38) 
Diluted earnings (loss) per common share$0.47  $0.40  $0.25  $(0.15) 
Weighted-average number of common
  shares outstanding:
    Basic12,993,934  12,865,777  12,956,222  12,992,403  
    Diluted13,004,449  12,927,122  12,977,598  13,069,140  


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Providence Service Corporation
Page 6

The Providence Service Corporation
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
September 30, 2019December 31, 2018
Assets
Current assets:
    Cash and cash equivalents$40,637  $5,678  
    Accounts receivable, net of allowance198,232  147,756  
    Other current assets (1)15,703  50,495  
    Current assets of discontinued operations (2)322  7,051  
Total current assets254,894  210,980  
Operating lease right-of-use assets20,266  —  
Property and equipment, net21,968  22,965  
Goodwill and intangible assets, net156,686  161,362  
Equity investment154,532  161,503  
Other long-term assets (3)12,196  12,835  
Total assets$620,542  $569,645  
Liabilities, redeemable convertible preferred stock and stockholders' equity
Current liabilities:
    Current portion of operating lease liabilities$6,742  $—  
    Current portion of long-term obligations308  718  
    Other current liabilities (4)157,545  138,908  
    Current liabilities of discontinued operations (2)1,246  3,257  
Total current liabilities165,841  142,883  
Long-term obligations, less current portion122  353  
Operating lease liabilities, less current portion14,786  —  
Other long-term liabilities (5)42,904  38,019  
Total liabilities223,653  181,255  
Mezzanine and stockholders' equity
Convertible preferred stock, net77,234  77,392  
Stockholders' equity319,655  310,998  
Total liabilities, redeemable convertible preferred stock and stockholders' equity
$620,542  $569,645  

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


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Providence Service Corporation
Page 7

The Providence Service Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands) (1)
Nine months ended September 30,
20192018
Operating activities
Net income$7,024  $1,656  
  Depreciation and amortization12,976  20,317  
  Stock-based compensation4,247  6,209  
  Asset impairment charge—  9,881  
  Equity in net loss of investee6,159  4,026  
  Gain on remeasurement of cost method investment—  (6,577) 
  Other non-cash items2,798  1,306  
  Changes in working capital 6,865  (14,346) 
Net cash provided by operating activities40,069  22,472  
Investing activities
Purchase of property and equipment(7,302) (13,194) 
Acquisition, net of cash acquired—  (42,067) 
Dispositions, net of cash sold—  (5,862) 
Proceeds from note receivable—  3,130  
Net cash used in investing activities(7,302) (57,993) 
Financing activities
Preferred stock dividends(3,295) (3,302) 
Repurchase of common stock, for treasury(6,363) (56,009) 
Proceeds from common stock issued pursuant to stock option exercise
6,885  12,413  
Performance restricted stock surrendered for employee tax payment—  (429) 
Repayment of debt(12,000) —  
Proceeds from debt12,000  36,000  
Capital lease payments and other(641) (2,529) 
Net cash used in financing activities(3,414) (13,856) 
Effect of exchange rate changes on cash—  19  
Net change in cash and cash equivalents29,353  (49,358) 
Cash, cash equivalents and restricted cash at beginning of period12,367  101,606  
Cash, cash equivalents and restricted cash at end of period (2)$41,720  $52,248  
(1) Includes both continuing and discontinued operations.
(2) Includes restricted cash of $833 at September 30, 2019 and restricted cash of $4,756 at September 30, 2018.

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Providence Service Corporation
Page 8

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

Three months ended September 30, 2019
NET ServicesMatrix InvestmentTotal Continuing Operations
Service revenue, net$393,385  $—  $393,385  
Operating expenses:
  Service expense356,271  —  356,271  
  General and administrative expense15,979  —  15,979  
  Depreciation and amortization4,148  —  4,148  
Total operating expenses376,398  —  376,398  
Operating income16,987  —  16,987  
Other expenses (income):
  Interest expense, net188  —  188  
  Other income(66) —  (66) 
  Equity in net loss of investee—  3,188  3,188  
Income (loss) from continuing
     operations before income taxes16,865  (3,188) 13,677  
Provision (benefit) for income taxes5,694  (597) 5,097  
Income (loss) from continuing operations, net of taxes11,171  (2,591) 8,580  
Interest expense, net188  —  188  
Provision (benefit) for income taxes5,694  (597) 5,097  
Depreciation and amortization4,148  —  4,148  
EBITDA21,201  (3,188) 18,013  
Restructuring and related charges (1)901  —  901  
Transaction costs (2)950  —  950  
Equity in net loss of investee—  3,188  3,188  
Adjusted EBITDA$23,052  $—  $23,052  
(1) Restructuring and related charges include severance costs of $149, professional services costs of $139, and organizational consolidation costs of $613.
(2) Transaction costs related to the integration of Circulation and certain transaction-related expenses.



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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 September 30, 2018
NET Services Matrix
Investment
Total Continuing Operations
Service revenue, net$343,771  $—  $343,771  
Operating expenses:
  Service expense313,511  —  313,511  
  General and administrative expense17,045  —  17,045  
  Depreciation and amortization3,780  —  3,780  
Total operating expenses334,336  —  334,336  
Operating income9,435  —  9,435  
Other expenses:
  Interest expense, net250  —  250  
  Equity in net loss of investee—  1,587  1,587  
 Gain on remeasurement of cost method investment(6,577) —  (6,577) 
Income (loss) from continuing
     operations, before income tax15,762  (1,587) 14,175  
Provision (benefit) for income taxes4,125  (245) 3,880  
Income (loss) from continuing operations, net of taxes11,637  (1,342) 10,295  
Interest expense, net250  —  250  
Provision (benefit) for income taxes4,125  (245) 3,880  
Depreciation and amortization3,780  —  3,780  
EBITDA19,792  (1,587) 18,205  
Restructuring and related charges (1)3,028  —  3,028  
Transaction costs related to the acquisition and integration of Circulation and certain transaction-related expenses1,696  —  1,696  
Equity in net loss of investee—  1,587  1,587  
Gain on remeasurement of cost method investment(6,577) —  (6,577) 
Litigation income (2)(17) —  (17) 
Adjusted EBITDA$17,922  $—  $17,922  

(1) Restructuring and related charges include value enhancement implementation initiative costs of $1,091 and organizational consolidation costs of $1,937.
(2) Resolution of accruals, resulting in current period income, related to defense cost for a putative stockholder class action derivative complaint.





Providence Service Corporation
Page 10

The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Segment Information and Adjusted EBITDA
(in thousands) (Unaudited)
Nine months ended September 30, 2019
NET ServicesMatrix InvestmentTotal Continuing Operations
Service revenue, net$1,125,111  $—  $1,125,111  
Operating expenses:
  Service expense1,042,717  —  1,042,717  
  General and administrative expense52,241  —  52,241  
  Depreciation and amortization12,976  —  12,976  
Total operating expenses1,107,934  —  1,107,934  
Operating income17,177  —  17,177  
Other expenses (income):
  Interest expense, net793  —  793  
  Other income(199) —  (199) 
  Equity in net loss of investee—  6,159  6,159  
Income (loss) from continuing
     operations before income tax16,583  (6,159) 10,424  
Provision (benefit) for income taxes5,014  (1,074) 3,940  
Income (loss) from continuing operations, net of taxes11,569  (5,085) 6,484  
Interest expense, net793  —  793  
Provision (benefit) for income taxes5,014  (1,074) 3,940  
Depreciation and amortization12,976  —  12,976  
EBITDA30,352  (6,159) 24,193  
Restructuring and related charges (1)5,371  —  5,371  
Transaction costs (2)5,288  —  5,288  
Equity in net loss of investee—  6,159  6,159  
Litigation expense —   
Adjusted EBITDA$41,020  $—  $41,020  

(1) Restructuring and related charges include severance costs of $1,518, professional services of $139, and organizational consolidation costs of $3,714.
(2) Transaction costs related to the integration of Circulation and certain transaction-related expenses.










Providence Service Corporation
Page 11

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 ServicesMatrix
Investment
Total Continuing Operations
Service revenue, net$1,024,203  $—  $1,024,203  
Operating expenses:
  Service expense934,367  —  934,367  
  General and administrative expense53,081  —  53,081  
  Asset impairment charge678  —  678  
  Depreciation and amortization11,107  —  11,107  
Total operating expenses999,233  —  999,233  
Operating income24,970  —  24,970  
Other expenses:
  Interest expense, net808  —  808  
  Equity in net loss of investee—  4,106  4,106  
  Gain on remeasurement of cost method investment(6,577) —  (6,577) 
Income (loss) from continuing
     operations, before income tax30,739  (4,106) 26,633  
Provision (benefit) for income taxes7,782  (831) 6,951  
Income (loss) from continuing operations, net of taxes22,957  (3,275) 19,682  
Interest expense, net808  —  808  
Provision (benefit) for income taxes7,782  (831) 6,951  
Depreciation and amortization11,107  —  11,107  
EBITDA42,654  (4,106) 38,548  
Asset impairment charge678  —  678  
Restructuring and related charges (1)7,122  —  7,122  
Transaction costs (2)1,814  —  1,814  
Equity in net loss of investee—  4,106  4,106  
Gain on remeasurement of cost investment(6,577) —  (6,577) 
Litigation income (3)(218) —  (218) 
Adjusted EBITDA$45,473  $—  $45,473  

(1) Restructuring and related charges include value enhancement implementation initiative costs of $2,250 and organizational consolidation costs of $4,872.
(2) Transaction costs related to the acquisition of Circulation by NET Services and the agreement to sell Ingeus' French operations.
(3) Resolution of accruals, resulting in current period income, related to defense cost for a putative stockholder class action derivative complaint.



Providence Corporation
Page 12

The Providence Service Corporation
Summary Financial Information of Equity Investment in Matrix Medical Network (1)
(in thousands)
(Unaudited)

Three months ended September 30,Nine months ended September 30,
2019201820192018
Revenue$71,663  $70,522  $210,807  $216,361  
Operating expense (2)63,021  59,472  177,603  183,062  
Depreciation and amortization11,282  9,558  33,746  27,969  
Operating (loss) income(2,640) 1,492  (542) 5,330  
Interest expense 6,236  6,193  19,013  22,475  
Benefit for income taxes(1,970) (350) (4,501) (3,409) 
Net loss(6,906) (4,351) (15,054) (13,736) 
Interest43.6 %43.6 %43.6 %43.6 %
Net loss - Equity Investment(3,011) (1,897) (6,563) (6,012) 
Management fee and other(177) (3) 310  (4) 404  (5) 1,906  (6) 
Equity in net loss of investee$(3,188) $(1,587) $(6,159) $(4,106) 
Net Debt (7)$293,352  
(1)The results of our equity method investment are excluded from the calculation of Providence's Adjusted EBITDA and Adjusted Net Income.
(2)Excludes depreciation and amortization.
(3)Includes amounts related to management fees due from Matrix to Providence of $228 less a tax adjustment of $405.
(4)Includes amounts related to management fees due from Matrix to Providence of $286 plus Providence share-based stock compensation expense of $24.
(5)Includes amounts related to management fees due from Matrix to Providence of $809 less a tax adjustment of $405.
(6)Includes amounts related to management fees due from Matrix to Providence of $2,043 less Providence share-based stock compensation income of $137.
(7)Represents cash of $32,523 and debt of $325,875 on Matrix's standalone balance sheet as of September 30, 2019 excluding the impact of deferred financing costs.



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Providence Service Corporation
Page 13

The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA: Matrix Medical Network (1)(2)(4)
(in thousands) (Unaudited)

Three months ended September 30,Nine months ended September 30,
2019201820192018
Revenue$71,663  $70,522  $210,807  $216,361  
Operating expense (3)63,021  59,472  177,603  183,062  
Depreciation and amortization11,282  9,558  33,746  27,969  
Operating (loss) income(2,640) 1,492  (542) 5,330  
Interest expense6,236  6,193  19,013  22,475  
Benefit for income taxes(1,970) (350) (4,501) (3,409) 
Net loss(6,906) (4,351) (15,054) (13,736) 
Depreciation and amortization11,282  9,558  33,746  27,969  
Interest expense6,236  6,193  19,013  22,475  
Benefit for income taxes(1,970) (350) (4,501) (3,409) 
EBITDA8,642  11,050  33,204  33,299  
Management fees 501  583  1,798  4,337  
Acquisition costs—  95  —  2,341  
Integration costs—  1,931  1,488  4,293  
Severance Costs771  —  771  —  
Transaction costs88  —  418   
Adjusted EBITDA$10,002  $13,659  $37,679  $44,276  

(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) 2018 includes the results of HealthFair since the date of acquisition on February 16, 2018.



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Providence Service Corporation
Page 14
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Adjusted Net Income and Adjusted Net Income per Common Share:
(in thousands, except share and per share data)
(Unaudited)
Three months ended September 30,Nine months ended September 30,
2019201820192018
Income from continuing operations, net of tax$8,580  $10,295  $6,484  $19,682  
Asset impairment charge—  —  —  678  
Restructuring and related charges, including accelerated depreciation related to the Organizational Consolidation (1)901  3,174  5,686  7,415  
Transaction costs (2)950  1,696  5,288  1,814  
Equity in net loss of investee3,188  1,587  6,159  4,106  
Gain on sale of equity investment—  —  —  —  
Gain on remeasurement of cost method investment—  (6,577) —  (6,577) 
Intangible amortization expense1,559  730  4,676  2,190  
Litigation (income) expense, net—  (17)  (218) 
Tax effected impact of adjustments(1,868) (144) (6,989) (1,410) 
Adjusted Net Income13,310  10,744  21,313  27,680  
.
Dividends on convertible preferred stock(1,109) (1,113) (3,295) (3,310) 
Income allocated to participating securities(1,642) (1,302) (2,529) (3,269) 
Adjusted Net Income available to common stockholders$10,559  $8,329  $15,489  $21,101  
Adjusted EPS$0.81  $0.64  $1.19  $1.61  
Diluted weighted-average number of common shares outstanding13,004,448  12,927,122  12,977,598  13,069,140  

(1) See the above Adjusted EBITDA tables for details of these charges for each period presented.
(2) Transaction costs relate to the integration of Circulation and certain transaction-related expenses.





q32019earningscallpresen
PROVIDENCE SERVICE CORP Q3:2019 EARNINGS CALL PRESENTATION November 7, 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 generally accepted accounting principles in the United States (GAAP), this press release includes EBITDA and Adjusted EBITDA for the Company and its 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 loss of investee, (3) certain litigation related expenses, settlement income or other negotiated settlements relating to certain matters from prior periods, (4) certain transaction and related costs, (5) asset impairment charges, and (6) gain on remeasurement of cost investment. Adjusted Net Income is defined as income (loss) from continuing operations, net of taxes, before certain items, including (1) restructuring and related charges, (2) equity in net loss of investee, (3) certain litigation related expenses, settlement income or other negotiated settlements relating to certain matters from prior periods, (4) gain or loss on sale of equity investments, (5) certain transaction and related costs, (6) asset impairment charges, (7) gain on remeasurement of cost investment, and (8) the income tax impact of such adjustments. Adjusted EPS is calculated as Adjusted Net Income less (as applicable): (1) dividends on convertible preferred stock and (2) adjusted net income allocated to participating stockholders, divided by the diluted weighted-average number of common shares outstanding as calculated for Adjusted Net Income. 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 loss in equity investee is 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


 
Q3:2019 HIGHLIGHTS • Q3:2019 Revenue up 14.4% compared to Q3:2018 • NET Services: rate increases including $17.7mm of retro benefit, new State contract in Revenue WV and MCO contracts in Indiana and Louisiana and higher utilization on not at-risk Growth and reconciliation contracts • Matrix(1) : Home solution continues to exceed internal expectations driven by strong membership growth and greater visit yields • Adjusted EBITDA(2) of $23.1mm; NET Services Adjusted EBITDA excluding certain corporate costs(2) of $26.4mm • Margins benefited from $17.7mm of secured retro benefits Profitability • Management remains focused on market-level operating processes to bring transportation costs back in line with historical levels • Matrix(1) : Adj. EBITDA margin of 14.0% down from prior year due to lower Mobile visits and higher indirect costs / overhead, partially offset by reduced direct costs • Adj. EPS(2) of $0.81 • Completed organizational consolidation in Q2:2019, on target to achieve at least $10mm of run-rate savings Capital • Q3:2019 decline in corporate costs of $2.1M compared to Q3:2018 (3) Allocation • Purchased $6.0mm of shares under share repurchase program. $94.0mm remaining capacity through 12/31/19 (1) Providence’s interest in Matrix is accounted for as an equity method investment. Matrix’s full financial results are not included within Providence’s consolidated results. (2) See appendix for a reconciliation of non-GAAP financial measures. (3) Excludes impact of cash settled equity awards and add-backs for restructuring related expenses and transaction expenses. 3


 
Q3:2019 HIGHLIGHTS % FYE FYE LTM $Millions Q3:19 Q3:18 Growth 2018 2017 Q3:19 Revenue $ 393.4 $ 343.8 14.4% $ 1,385.0 $ 1,318.2 $ 1,485.9 Transportation Expense (i.e. Purchased Services) $ 303.8 $ 262.7 $ 1,055.3 $ 1,009.5 $ 1,159.5 % of Rev 77.2% 76.4% 76.2% 76.6% 78.0% Key Financial Other Costs (Offset by Add-backs) $ 63.2 $ 60.2 $ 237.2 $ 223.4 $ 244.7 % of Rev 16.1% 17.5% 17.1% 16.9% 16.5% Metrics NET Services Adj. EBITDA (Exc. Certain Corp Costs) (1) $ 26.4 $ 20.9 $ 92.5 $ 85.3 $ 81.7 (1) % Margin 6.7% 6.1% 6.7% 6.5% 5.5% Certain Corporate Costs (2) (3.3) (2.9) (19.7) (25.8) (13.3) Adjusted EBITDA (1) $ 23.1 $ 17.9 $ 72.8 $ 59.5 $ 68.4 (1) % Margin 5.9% 5.2% 5.3% 4.5% 4.6% • Continue executing market-level initiatives to bring costs back in-line with historic levels 2019 / 2020 • Continue working with payors to true-up contractual rates with costs Focus • Buildout of certain key front-end functional technology features in order to meet customer demand and enhance growth (1) See appendix for a reconciliation of non-GAAP financial measures. (2) Costs represents the continuing corporate and other overhead expenses previously included in our Corporate and Other segment. See appendix for further explanation and a reconciliation to the most comparable GAAP financial measures. 4


 
MATRIX INVESTMENT • For Q3:19, Matrix achieved Adjusted EBITDA of $10.0 million or 14.0% of revenue • Matrix continues to exceed its internal expectations, with Home solution continuing Q3:2019 to outperform driven by higher membership and visits driven by yield initiatives Highlights • Although impacted by now-resolved capacity restraints during the quarter, Mobile solution saw improved volume versus first half of the year % FYE FYE LTM $Millions Q3:19 Q3:18 Growth 2018 2017 Q3:19 Revenue $ 71.7 $ 70.5 1.6% $ 282.1 $ 227.9 $ 276.5 Key Financial Adjusted EBITDA (2) (1) $ 10.0 $ 13.7 $ 56.7 $ 51.7 $ 50.1 Metrics (2) % Margin 14.0% 19.4% 20.1% 22.7% 18.1% Capex $ 2.7 $ 2.5 $ 10.3 $ 11.0 $ 10.0 Net Debt $ 293.4 $ 310.4 (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. (2) See appendix for a reconciliation of non-GAAP financial measures. 5


 
CASH FLOW UPDATE FYE FYE LTM $Millions Q3:19 Q3:18 2018 2017 Q3:19 Cash Flow Before Working Capital $ 20.0 $ 15.0 $ 48.2 $ 42.8 $ 44.6 Working Capital Changes (3.0) 15.4 (40.3) 12.2 (19.1) Cash Provided By Operations $ 17.0 $ 30.4 $ 7.9 $ 55.0 $ 25.5 Capex (Continuing Operations) $ 3.0 $ 2.9 $ 10.8 $ 15.4 $ 9.5 Cash flow • Q3:19 cashflow impacted by working capital timing. One-time retroactive benefits recognized in September were subsequently received in October 6


 
BALANCE SHEET UPDATE $Millions Q3:19 Q2:19 Q1:19 Q4:18 Q3:18 Cash $ 40.6 $ 29.8 $ 46.7 $ 8.0 $ 47.5 Debt $ - $ - $ - $ - $ - Matrix Carrying Value $ 154.5 $ 157.9 $ 159.5 $ 161.5 $ 164.1 Shares Outstanding (mm) 14.9 15.0 14.9 14.8 14.8 Shares outstanding equals common shares outstanding plus total preferred shares on an as-converted basis. 7


 
APPENDIX


 
ADJUSTED EBITDA RECONCILIATION (Continuing Ops) FYE FYE LTM $Millions Q3:19 Q3:18 2018 2017 Q3:19 Revenue $ 393.4 $ 343.8 $ 1,385.0 $ 1,318.2 $ 1,485.9 Income from Cont Ops 8.6 10.3 18.2 51.1 5.0 Interest Expense, Net 0.2 0.3 1.8 1.2 1.8 Income Tax Provision 5.1 3.9 4.7 4.0 1.7 Depreciation and Amortization 4.1 3.8 15.8 13.6 17.7 EBITDA (1) $ 18.0 $ 18.2 $ 40.5 $ 69.9 $ 26.2 Asset Impairment - - 14.2 - 13.5 Transaction Expense 1.0 1.7 7.2 - 10.7 Restructuring and Related Expense 0.9 1.9 8.7 1.9 9.2 Value Enhancement Initiative Implementation - 1.1 2.8 6.1 0.6 Equity in Net Loss/(Gain) of Investee 3.2 1.6 6.2 (13.4) 8.2 (Gain) on Remeasure of Cost Method Investme - (6.6) (6.6) - (0.0) Litigation (Income)/Expense, net - (0.0) (0.2) (5.0) 0.0 Adjusted EBITDA $ 23.1 $ 17.9 $ 72.8 $ 59.5 $ 68.4 % Margin 5.9% 5.2% 5.3% 4.5% 4.6% (1) For Q3:2018, $996k of transaction costs related to sale of WD Services moved from Continuing Operations to Discontinued Operations. 9


 
ADJUSTED EBITDA RECONCILIATION (MATRIX) (1) LTM $ Millions Q3:19 Q3:18 FYE 2018 FYE 2017 Q3:19 Revenue $ 71.7 $ 70.5 $ 282.1 $ 227.9 $ 276.5 Net (loss)/income (6.9) (4.4) (20.0) 26.7 (21.3) Interest expense, net 11.3 6.2 26.0 14.8 22.5 Income tax benefit (2.0) (0.4) (7.1) (29.6) (8.2) Depreciation and amortization 6.2 9.6 43.1 33.5 48.9 EBITDA $ 8.6 $ 11.1 $ 42.0 $ 45.4 $ 41.9 Management fee 0.5 0.6 4.9 2.3 2.4 Transaction costs 0.1 0.1 3.3 4.0 1.5 Severance expense 0.8 - - - 0.8 Integration expense - 1.9 6.5 - 3.8 Adjusted EBITDA $ 10.0 $ 13.7 $ 56.7 $ 51.7 $ 50.2 % Margin 14.0% 19.4% 20.1% 22.7% 18.2% Reconciliation of Matrix Net Income to Equity (Loss) of Investee (2) Matrix Net Income standalone $ (6.9) $ (4.4) $ (20.0) $ 26.7 $ (21.3) Divided by Providence share (3) 43.6% 43.6% 43.6% 46.6% 43.6% Equity in net (loss) gain of investee $ (3.0) $ (1.9) $ (8.7) $ 12.4 $ (9.3) Management fee and other (0.2) 0.3 2.5 1.0 1.5 Net (loss) gain - equity investment $ (3.2) $ (1.6) (6.2) $ 13.4 $ (7.8) (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 results in any period presented. (2) A reconciliation has been provided to bridge from the income from Equity in net (loss)gain of investee to Matrix’s standalone Net Income. (3) 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. 10


 
NET SERVICES ADJUSTED EBITDA RECONCILIATION Q3:2019 Q3:2018 Less: Less: NET Services NET Services Certain Corp Certain Corp Exc. Certain Exc. Certain (1) (1) $Millions NET Services Costs Corp Costs NET Services Costs Corp Costs Revenue $ 393.4 $ - $ 393.4 $ 343.8 $ - $ 343.8 Income from Cont Ops after Income Taxe 11.2 (3.9) 15.0 11.6 1.4 10.3 Interest Expense, Net 0.2 - 0.2 0.3 - 0.3 Provision For Income Taxes 5.7 - 5.7 4.1 - 4.1 Depreciation and Amortization 4.1 0.0 4.1 3.8 0.2 3.5 EBITDA $ 21.2 $ (3.8) $ 25.0 $ 19.8 $ 1.6 $ 18.2 Asset Impairment - - - - - - Gain on Reimeaurement - - - (6.6) (6.6) - Restructuring and Related Expense 0.9 0.6 0.3 3.0 1.9 1.1 Litigation Expense - - - (0.0) (0.0) - Transaction Expense 1.0 (0.1) 1.0 1.7 0.1 1.6 Adjusted EBITDA $ 23.1 $ (3.3) $ 26.4 $ 17.9 $ (2.9) $ 20.9 % Margin 5.9% 6.7% 5.2% 6.1% FYE 2018 FYE 2017 LTM Q3:2019 Less: Less: Less: NET Services NET Services NET Services Certain Corp Certain Corp Certain Corp Exc. Certain Exc. Certain Exc. Certain (1) (1) (1) $Millions NET Services Costs Corp Costs NET Services Costs Corp Costs NET Services Costs Corp Costs Revenue $ 1,385.0 $ - $ 1,385.0 $ 1,318.2 $ - $ 1,318.2 $ 1,485.9 $ - $ 1,485.9 Income from Cont Ops after Income Taxe 22.8 (19.5) 42.3 41.1 (0.5) 41.7 11.4 (20.4) 31.8 Interest Expense, Net 1.8 1.7 0.0 1.2 1.1 0.1 1.8 1.7 0.0 Provision For Income Taxes 6.2 (7.8) 14.1 0.5 (23.5) 24.0 3.5 (7.8) 11.3 Depreciation and Amortization 15.8 0.8 15.0 13.6 0.3 13.3 17.7 0.6 17.1 EBITDA $ 46.7 $ (24.8) $ 71.5 $ 56.5 $ (22.6) $ 79.0 $ 34.4 $ (25.9) $ 60.3 Asset Impairment 14.2 - 14.2 - - - 13.5 - 13.5 Gain on Reimeaurement (6.6) (6.6) - - - - - - - Restructuring and Related Expense 11.5 8.4 3.2 8.0 1.7 6.3 9.8 7.2 2.6 Litigation income (0.2) (0.2) - (5.0) (5.0) - 0.0 0.0 - Transaction Expense 7.2 3.6 3.6 - - - 10.7 5.4 5.3 Adjusted EBITDA $ 72.8 $ (19.7) $ 92.5 $ 59.5 $ (25.8) $ 85.3 $ 68.4 $ (13.4) $ 81.7 % Margin 5.3% 6.7% 4.5% 6.5% 4.6% 5.5% Certain corporate costs are comprised of certain continuing corporate and other overhead expenses, including those previously included in our Corporate and Other segment. In April 2018, the Company announced plans of an organizational consolidation to integrate substantially all activities and functions performed at the holding company into NET Services. As a result of the organizational consolidation, effective January 1, 2019, the Company’s Corporate and Other segment was combined with the NET Services segment. These costs after adjusting for ‘Restructuring and Related Expense’ represent the on-going costs to maintain certain executive, accounting, finance, internal audit, tax, legal, strategic and development functions and the Company’s Captive Insurance Company. 11


 
ADJUSTED NET INCOME / EPS $Millions, Except Per Share Amounts Q3:19 Income from Continuing Operations, Net of Tax $ 8.6 Restructuring and Related Expense 0.9 Transaction Expenses 1.0 Equity in Net Loss of Investee 3.2 Amortization 1.6 Tax Impact of Adjustments (1.9) Adjusted Net Income $ 13.3 Dividends on Convertible Preferred Stock (1.1) Income Allocated to Participating Securities (1.6) Adjusted Net Income to Common Stockholders $ 10.6 Adjusted EPS $ 0.81 Diluted Weighted-Average Common Shares Outstanding (mm) 13.0 12