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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             
 
Commission File Number 001-34221
 

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


Delaware86-0845127
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
       1275 Peachtree StreetSixth FloorAtlantaGeorgia30309
(Address of principal executive offices)(Zip Code)
 
(404) 888-5800
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)


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

1






Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
  
Non-accelerated filer Smaller reporting company
  
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 7(a)(2)(B) of the Securities Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes      No

As of August 3, 2020, there were outstandin14,050,275 shares (excluding treasury shares of 5,285,085) of the registrant’s Common Stock, $0.001 par value per share.


2






TABLE OF CONTENTS
 Page
  
 
   
   
 
Condensed Consolidated Balance Sheets – June 30, 2020 (unaudited) and December 31, 2019
   
 
Unaudited Condensed Consolidated Statements of Operations – Three and Six months ended June 30, 2020 and 2019
  
Unaudited Condensed Consolidated Statements of Stockholders’ Equity – Three and Six months ended June 30, 2020 and 2019
 
Unaudited Condensed Consolidated Statements of Cash Flows – Six months ended June 30, 2020 and 2019
 Notes to the Unaudited Condensed Consolidated Financial Statements – June 30, 2020
   
   
   
  
 
   
   
Item 1A.
   
   


3






PART I—FINANCIAL INFORMATION
Item 1.   Financial Statements.
The Providence Service Corporation
Condensed Consolidated Balance Sheets
(in thousands except share and per share data)
4






June 30, 2020December 31, 2019
 (Unaudited) 
Assets  
Current assets:  
Cash and cash equivalents$41,786  $61,365  
Accounts receivable, net of allowance of $8,162 in 2020 and $5,933 in 2019
170,063  180,416  
Other receivables7,320  3,396  
Prepaid expenses and other23,409  10,942  
Restricted cash3,213  153  
Current assets of discontinued operations89  155  
Total current assets245,880  256,427  
Operating lease right-of-use assets19,864  20,095  
Property and equipment, net20,793  23,243  
Goodwill135,216  135,216  
Intangible assets, net92,242  19,911  
Equity investment131,974  130,869  
Other assets8,365  11,620  
Total assets$654,334  $597,381  
Liabilities, redeemable convertible preferred stock and stockholders’ equity
Current liabilities:
Current portion of finance lease liabilities$199  $308  
Accounts payable8,293  9,805  
Current portion of operating lease liabilities7,016  6,730  
Accrued expenses90,695  38,733  
Accrued transportation costs84,054  87,063  
Deferred revenue689  227  
Self-funded insurance programs8,864  5,890  
Current liabilities of discontinued operations1,504  1,430  
Total current liabilities201,314  150,186  
Finance lease liabilities, less current portion  45  
Operating lease liabilities, less current portion13,886  14,502  
Long-term contract payables 26,079    
Other long-term liabilities12,950  15,029  
Deferred tax liabilities34,348  22,907  
Total liabilities288,577  202,669  
Commitments and contingencies (Note 13)
Redeemable convertible preferred stock
Convertible preferred stock, net: Authorized 10,000,000 shares; $0.001 par value; 54,882 and 798,788, respectively, issued and outstanding; 5.5%/8.5% dividend rate
5,299  77,120  
Stockholders’ equity
Common stock: Authorized 40,000,000 shares; $0.001 par value; 19,254,090 and 18,073,763, respectively, issued and outstanding (including treasury shares)
19  18  
Additional paid-in capital402,433  351,529  
Retained earnings185,917  183,733  
Treasury shares, at cost, 5,285,085 and 5,088,782 shares, respectively
(227,911) (217,688) 
Total stockholders’ equity360,458  317,592  
Total liabilities, redeemable convertible preferred stock and stockholders’ equity$654,334  $597,381  
 See accompanying notes to the unaudited condensed consolidated financial statements
5






The Providence Service Corporation
Unaudited Condensed Consolidated Statements of Operations
(in thousands except share and per share data)
 Three months ended June 30,Six months ended June 30,
 2020201920202019
Service revenue, net$282,256  $363,911  $649,547  $731,726  
Operating expenses:    
Service expense196,106  345,948  528,767  686,446  
General and administrative expense31,199  16,860  51,994  36,262  
Depreciation and amortization6,108  4,353  9,898  8,827  
Total operating expenses233,413  367,161  590,659  731,535  
Operating income (loss)48,843  (3,250) 58,888  191  
Other expenses (income):    
Interest expense, net1,498  301  1,739  604  
Other income  (66)   (132) 
Equity in net (gain) loss of investee(4,425) 1,315  (1,875) 2,971  
Income (loss) from continuing operations before income taxes
51,770  (4,800) 59,024  (3,252) 
Provision (benefit) for income taxes14,471  (1,391) 5,425  (1,157) 
Income (loss) from continuing operations, net of tax37,299  (3,409) 53,599  (2,095) 
(Loss) income from discontinued operations, net of tax(301) 1,697  (503) 966  
Net income (loss)$36,998  $(1,712) $53,096  $(1,129) 
Net (loss) income available to common stockholders (Note 11)
$(12,819) $(2,810) $1,920  $(3,314) 
Basic (loss) earnings per common share:    
Continuing operations$(0.96) $(0.35) $0.19  $(0.33) 
Discontinued operations(0.02) 0.13  (0.04) 0.07  
Basic (loss) earnings per common share$(0.98) $(0.22) $0.15  $(0.26) 
Diluted (loss) earnings per common share:    
Continuing operations$(0.96) $(0.35) $0.19  $(0.33) 
Discontinued operations(0.02) 0.13  (0.04) 0.07  
Diluted (loss) earnings per common share$(0.98) $(0.22) $0.15  $(0.26) 
Weighted-average number of common shares outstanding:    
Basic13,077,596  12,973,496  13,032,931  12,937,054  
Diluted13,077,596  12,973,496  13,059,699  12,937,054  

See accompanying notes to the unaudited condensed consolidated financial statements
6






The Providence Service Corporation
Unaudited Condensed Consolidated Statements of Stockholders’ Equity 
(in thousands except share data)

Six months ended June 30, 2020
Common StockAdditional
Paid-In
RetainedTreasury Stock
 SharesAmountCapitalEarningsSharesAmountTotal
Balance at December 31, 201918,073,763  $18  $351,529  $183,733  5,088,782  $(217,688) $317,592  
Net income —  —  —  16,098  —  —  16,098  
Stock-based compensation—  —  1,005  —  —  —  1,005  
Exercise of employee stock options
39,111  —  2,054  —  —  —  2,054  
Restricted stock issued79,029  —  —  —  626  (37) (37) 
  Shares issued for bonus settlement and director stipends
701  —  38  —  —  —  38  
Stock repurchase plan—  —  —  —  142,821  (7,299) (7,299) 
  Conversion of convertible preferred stock to common stock
40  —  2  —  —  —  2  
  Convertible preferred stock dividends (1)
—  —  —  (1,095) —  —  (1,095) 
Balance at March 31, 202018,192,644  $18  $354,628  $198,736  5,232,229  $(225,024) $328,358  
Net income —  —  —  36,998  —  —  36,998  
Stock-based compensation—  —  691  —  —  —  691  
Exercise of employee stock options129,722  —  9,275  —  —  —  9,275  
Restricted stock forfeited (8,496) —  —  —  —  —  —  
Shares issued for bonus settlement and director stipends487  —  38  —  —  —  38  
Stock repurchase plan—  —  —  —  52,856  (2,887) (2,887) 
Conversion of convertible preferred stock to common stock14,166  —  546  —  —  —  546  
Redemption of convertible preferred stock pursuant to Conversion Agreement—  —  —  (42,954) —  —  (42,954) 
Conversion of convertible preferred stock to common stock pursuant to Conversion Agreement925,567  1  37,255  (5,997) —  —  31,259  
Convertible preferred stock dividends (1)—  —  —  (866) —  —  (866) 
Balance at June 30, 202019,254,090  $19  $402,433  $185,917  5,285,085  $(227,911) $360,458  

(1) Cash dividends on redeemable convertible preferred stock of $1.37 per share were distributed to convertible preferred stockholders for the three months ended March 31, 2020 and June 30, 2020.

Six months ended June 30, 2019
Common StockAdditional
Paid-In
RetainedTreasury Stock
 SharesAmountCapitalEarningsSharesAmountTotal
Balance at December 31, 201817,784,769  $18  $334,744  $187,127  4,970,093  $(210,891) $310,998  
 Net income —  —  —  582  —  —  582  
Stock-based compensation—  —  2,103  —  —  —  2,103  
Exercise of employee stock options
57,022    2,557  —      2,557  
Restricted stock issued25,357  —  —  —  3,459  (217) (217) 
Shares issued for bonus settlement and director stipends599  —    —  —  —    
Convertible preferred stock dividends (2)
—  —  —  (1,087) —  —  (1,087) 
Balance at March 31, 201917,867,747  $18  $339,404  $186,622  4,973,552  $(211,108) $314,936  
 Net loss—  —  —  (1,712) —  —  (1,712) 
Stock-based compensation—  —  1,289  —  —  —  1,289  
Exercise of employee stock options
67,931    3,826  —      3,826  
Restricted stock issued7,088  —    —  2,419  (155) (155) 
Shares issued for bonus settlement and director stipends
202  —    —  —  —    
Conversion of convertible preferred stock to common stock
4,104  —  157  —  —  —  157  
Convertible preferred stock dividends (2)
—  —  —  (1,098) —  —  (1,098) 
Balance at June 30, 201917,947,072  $18  $344,676  $183,812  4,975,971  $(211,263) $317,243  

7






(2) Cash dividends on redeemable convertible preferred stock of $1.36 and $1.37 per share were distributed to convertible preferred stockholders for the three months ended March 31, 2019 and June 30, 2019, respectively.

See accompanying notes to the unaudited condensed consolidated financial statements
8






The Providence Service Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

 Six months ended June 30,
 20202019
Operating activities  
Net income (loss)$53,096  $(1,129) 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:  
Depreciation4,564  5,710  
Amortization5,334  3,117  
Provision for doubtful accounts2,229  281  
Stock-based compensation1,772  3,392  
Deferred income taxes11,441  (1,346) 
Amortization of deferred financing costs and debt discount136  201  
Equity in net (gain) loss of investee(1,875) 2,971  
Reduction of right of use assets4,373  5,093  
Loss on disposal of assets216    
Changes in operating assets and liabilities:  
Accounts receivable and other receivables8,206  (7,389) 
Prepaid expenses and other(13,119) (3,680) 
Income taxes on gain from sale of business173  8,223  
Self-funded insurance programs615  (1,235) 
Accounts payable and accrued expenses50,324  9,775  
Accrued transportation costs(3,010) 2,936  
Deferred revenue462  (433) 
Long-term contract payables and other long-term liabilities22,251  (3,416) 
Net cash provided by operating activities147,188  23,071  
Investing activities  
Purchase of property and equipment(2,330) (4,277) 
Acquisition, net of cash acquired(77,665)   
Net cash used in investing activities(79,995) (4,277) 
Financing activities  
Proceeds from debt162,000  12,000  
Repayment of debt(162,000) (12,000) 
Preferred stock conversion payment(82,769)   
Preferred stock dividends(1,961) (2,185) 
Repurchase of common stock, for treasury(10,186) (372) 
Proceeds from common stock issued pursuant to stock option exercise11,329  6,383  
Restricted stock surrendered for employee tax payment(37)   
Other financing activities(154) (566) 
Net cash (used in) provided by financing activities(83,778) 3,260  
Net change in cash, cash equivalents and restricted cash(16,585) 22,054  
Cash, cash equivalents and restricted cash at beginning of period61,673  12,367  
Cash, cash equivalents and restricted cash at end of period$45,088  $34,421  
See accompanying notes to the unaudited condensed consolidated financial statements
9






The Providence Service Corporation
Supplemental Cash Flow Information
(in thousands)

 Six months ended
June 30,
Supplemental cash flow information20202019
Cash paid for interest$1,669  $852  
Cash paid for income taxes, net of refunds$1,967  $1,992  
Assets acquired under operating leases$4,144  $1,282  

See accompanying notes to the unaudited condensed consolidated financial statements
10






The Providence Service Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
June 30, 2020
(in thousands except years, share and per share data)
 
1.    Organization and Basis of Presentation

Description of Business

The Providence Service Corporation (“we”, the “Company” or “Providence”) is the largest manager of non-emergency medical transportation (“NET”) programs for state governments and managed care organizations (“MCOs”) in the United States (“U.S.”). The Company operates under the brands LogistiCare and Circulation. Additionally, the Company owns a minority investment in CCHN Group Holdings, Inc. and its subsidiaries (“Matrix”). Matrix provides a broad array of assessment and care management services that improve health outcomes for individuals and financial performance for health plans. Matrix’s national network of community-based clinicians delivers in-home and on-site services while its fleet of mobile health clinics provide community-based care with advanced diagnostic capabilities. These solutions combined with Matrix’s advanced engagement approach, help health plans manage risks, close care gaps and connect members to care.

During 2019, the Company consolidated all activities and functions performed at the corporate holding company level into its NET Services segment (“Organizational Consolidation”). As a result of the Organizational Consolidation, the Company incurred restructuring and related organization costs. See Note 8, Restructuring and Related Reorganization Costs, for further information.

Basis of Presentation

The Company follows accounting standards set by the Financial Accounting Standards Board (“FASB”). The FASB establishes accounting principles generally accepted in the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification (“ASC”), which serves as the single source of authoritative accounting and applicable reporting standards to be applied for non-governmental entities. All amounts are presented in U.S. dollars, unless otherwise noted.

The Company’s condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for the fair presentation of the results of the interim periods have been included.

The Company has made estimates relating to the reporting of assets and liabilities, revenues and expenses and certain disclosures in the preparation of these condensed consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. Management has evaluated events and transactions that occurred after the balance sheet date and through the date these condensed consolidated financial statements were filed with the SEC and considered the effect of such events in the preparation of these condensed consolidated financial statements.

The condensed consolidated balance sheet at December 31, 2019 included in this Form 10-Q has been derived from audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements. The condensed consolidated financial statements contained herein should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The Company accounts for its investment in Matrix using the equity method, as the Company does not control the decision-making process or business management practices of Matrix. While the Company has access to certain information and performs certain procedures to review the reasonableness of information, the Company relies on the management of Matrix to provide accurate financial information prepared in accordance with GAAP. The Company receives audit reports relating to such financial information from Matrix’s independent auditors on an annual basis. The Company is not aware of any errors in or possible misstatements of the financial information provided by Matrix that would have a material effect on the Company’s condensed consolidated financial statements. See Note 5, Equity Investment, for further information.
11







Uncertainties due to COVID-19

In December 2019, an outbreak of a new strain of a coronavirus causing a coronavirus disease ("COVID-19"), began in Wuhan, Hubei Province, China. In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. COVID-19, as well as measures taken by governmental authorities and private actors to limit the spread of this virus, has and is likely to continue to interfere with the ability of the Company's employees, suppliers, transportation providers and other business providers to carry out their assigned tasks at ordinary levels of performance relative to the conduct of the Company’s business which may cause the Company to materially curtail certain business operations. While the Company is monitoring the impact of COVID-19 on its business and financial results, at this time the Company is unable to accurately predict the extent to which the COVID-19 pandemic impacts its business, operations and financial results.

The Company’s condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and reported amounts of revenue and expenses. It is possible that these assumptions and estimates may materially change.

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which includes modifications to the limitation on business interest expense and net operating loss provisions, and provides a delay in the payment of employer federal payroll taxes during 2020 after the date of enactment. Due to the favorable impact of the CARES Act on the Company’s 2018 U.S. net operating losses ("NOLs"), the effective tax rate of 9.2% was lower than the U.S. federal statutory rate of 21.0% for the six months ended June 30, 2020. The 28.0% effective tax rate for the three months ended June 30, 2020 was not impacted by the CARES Act. See Note 12, Income Taxes, for further information.

Reclassifications

During the six months ended June 30, 2020, the Company has separately classified the reduction of right-of-use assets in its consolidated statement of cash flows and conformed the prior period.

2.    Significant Accounting Policies and Recent Accounting Pronouncements

The Company adopted the following accounting pronouncements during the six months ended June 30, 2020:

In June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”). The amendments in ASU 2016-13 superseded much of the existing guidance for reporting credit losses for assets held at amortized cost basis and available for sale debt securities. The amendments in ASU 2016-13 affected loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit e