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 SeptemberJune 30, 20172020

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


For the transition period fromto
 
Commission File Number 001-34221
 


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



Delaware

86-0845127
Delaware
86-0845127
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
 
       1275 Peachtree StreetSixth FloorAtlantaGeorgia30309
700 Canal Street, Third Floor
Stamford, Connecticut
06902
(Address of principal executive offices)(Zip Code)
 
(203) 307-2800(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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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"company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐☒Accelerated filer ☒☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)☐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 NovemberAugust 3, 2017,2020, there were outstanding 13,305,502outstanding 14,050,275 shares (excluding treasury shares of 3,944,171)5,285,085) of the registrant’s Common Stock, $0.001 par value per share.






2





TABLE OF CONTENTS
Page
Item 1.
4
Condensed Consolidated Balance Sheets – June 30, 2020 (unaudited) and December 31, 2019
4
Unaudited Condensed Consolidated Statements of Operations – Three and Six months ended June 30, 2020 and 2019
6
Unaudited Condensed Consolidated Statements of Stockholders’ Equity – Three and Six months ended June 30, 2020 and 2019
7
Page
PART I—FINANCIAL INFORMATION
Item 1.
Financial Statements
4
Condensed Consolidated Balance Sheets – September 30, 2017 (unaudited) and December 31, 2016
4
Unaudited Condensed Consolidated Statements of Income – Three and nine months ended September 30, 2017 and 2016
5
Unaudited Condensed Consolidated Statements of Comprehensive Income – Three and nine months ended September 30, 2017 and 2016
6
Unaudited Condensed Consolidated Statements of Cash Flows – NineSix months ended SeptemberJune 30, 20172020 and 20162019
79
Notes to the Unaudited Condensed Consolidated Financial Statements – SeptemberJune 30, 20172020
811
Item 2.
2427
Item 3.
3936
Item 4.
4036
Item 1.
4138
Item 1A.
4138
Item 2.
4239
Item 3.
Defaults Upon Senior Securities
43
Item 4.
Mine Safety Disclosures
43
Item 5.
Other Information
43
Item 6.
4341






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





September 30,
2017		 December 31,
2016		June 30, 2020December 31, 2019
(Unaudited)   (Unaudited) 
Assets   Assets  
Current assets:   Current assets:  
Cash and cash equivalents$92,178
 $72,262
Cash and cash equivalents$41,786  $61,365  
Accounts receivable, net of allowance of $5,765 in 2017 and $5,901 in 2016175,162
 162,115
Accounts receivable, net of allowance of $8,162 in 2020 and $5,933 in 2019Accounts receivable, net of allowance of $8,162 in 2020 and $5,933 in 2019170,063  180,416  
Other receivables5,555
 12,639
Other receivables7,320  3,396  
Prepaid expenses and other39,083
 37,895
Prepaid expenses and other23,409  10,942  
Restricted cash1,198
 3,192
Restricted cash3,213  153  
Current assets of discontinued operationsCurrent assets of discontinued operations89  155  
Total current assets313,176
 288,103
Total current assets245,880  256,427  
Operating lease right-of-use assetsOperating lease right-of-use assets19,864  20,095  
Property and equipment, net48,191
 46,220
Property and equipment, net20,793  23,243  
Goodwill121,555
 119,624
Goodwill135,216  135,216  
Intangible assets, net45,750
 49,124
Intangible assets, net92,242  19,911  
Equity investments157,067
 161,363
Equity investmentEquity investment131,974  130,869  
Other assets12,911
 8,397
Other assets8,365  11,620  
Restricted cash, less current portion5,902
 10,938
Deferred tax asset4,436
 1,510
Total assets$708,988
 $685,279
Total assets$654,334  $597,381  
Liabilities, redeemable convertible preferred stock and stockholders' equity   
Liabilities, redeemable convertible preferred stock and stockholders’ equityLiabilities, redeemable convertible preferred stock and stockholders’ equity
Current liabilities:   Current liabilities:
Current portion of long-term obligations$1,528
 $1,721
Current portion of finance lease liabilitiesCurrent portion of finance lease liabilities$199  $308  
Accounts payable19,921
 22,177
Accounts payable8,293  9,805  
Current portion of operating lease liabilitiesCurrent portion of operating lease liabilities7,016  6,730  
Accrued expenses103,397
 102,381
Accrued expenses90,695  38,733  
Accrued transportation costs101,195
 72,356
Accrued transportation costs84,054  87,063  
Deferred revenue17,421
 20,522
Deferred revenue689  227  
Reinsurance and related liability reserves4,881
 8,639
Self-funded insurance programsSelf-funded insurance programs8,864  5,890  
Current liabilities of discontinued operationsCurrent liabilities of discontinued operations1,504  1,430  
Total current liabilities248,343
 227,796
Total current liabilities201,314  150,186  
Long-term obligations, less current portion566
 1,890
Finance lease liabilities, less current portionFinance lease liabilities, less current portion—  45  
Operating lease liabilities, less current portionOperating lease liabilities, less current portion13,886  14,502  
Long-term contract payablesLong-term contract payables26,079  —  
Other long-term liabilities23,968
 22,380
Other long-term liabilities12,950  15,029  
Deferred tax liabilities54,363
 57,973
Deferred tax liabilities34,348  22,907  
Total liabilities327,240
 310,039
Total liabilities288,577  202,669  
Commitments and contingencies (Note 11)
 
Commitments and contingencies (Note 13)Commitments and contingencies (Note 13)
Redeemable convertible preferred stock   Redeemable convertible preferred stock
Convertible preferred stock, net: Authorized 10,000,000 shares; $0.001 par value; 803,232 and 803,398 issued and outstanding; 5.5%/8.5% dividend rate77,549
 77,565
Stockholders' equity   
Common stock: Authorized 40,000,000 shares; $0.001 par value; 17,446,673 and 17,315,661 issued and outstanding (including treasury shares)17
 17
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 rateConvertible 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 rate5,299  77,120  
Stockholders’ equityStockholders’ 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)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 capital310,017
 302,010
Additional paid-in capital402,433  351,529  
Retained earnings167,004
 156,718
Retained earnings185,917  183,733  
Accumulated other comprehensive loss, net of tax(26,331) (33,449)
Treasury shares, at cost, 3,944,171 and 3,478,676 shares(144,201) (125,201)
Total Providence stockholders' equity306,506
 300,095
Noncontrolling interest(2,307) (2,420)
Total stockholders' equity304,199
 297,675
Total liabilities, redeemable convertible preferred stock and stockholders' equity$708,988
 $685,279
Treasury shares, at cost, 5,285,085 and 5,088,782 shares, respectivelyTreasury shares, at cost, 5,285,085 and 5,088,782 shares, respectively(227,911) (217,688) 
Total stockholders’ equityTotal stockholders’ equity360,458  317,592  
Total liabilities, redeemable convertible preferred stock and stockholders’ equityTotal 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 IncomeOperations
(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 taxes51,770  (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  
 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Service revenue, net$409,517
 $412,271
 $1,216,994
 $1,192,426
        
Operating expenses:       
Service expense378,032
 378,488
 1,124,478
 1,095,011
General and administrative expense18,629
 17,320
 53,705
 52,548
Depreciation and amortization6,547
 6,670
 19,716
 20,058
Total operating expenses403,208
 402,478
 1,197,899
 1,167,617
        
Operating income6,309
 9,793
 19,095
 24,809
        
Other expenses:       
Interest expense, net302
 338
 983
 1,239
Equity in net (gain) loss of investees460
 1,517
 991
 5,693
Gain on sale of equity investment(12,606) —
 (12,606) —
Loss (gain) on foreign currency transactions200
 (482) 600
 (1,332)
Income from continuing operations before income taxes17,953
 8,420
 29,127
 19,209
Provision for income taxes2,989
 4,678
 8,391
 12,466
Income from continuing operations, net of tax14,964
 3,742
 20,736
 6,743
Discontinued operations, net of tax(16) (2,791) (6,000) 332
Net income14,948
 951
 14,736
 7,075
Net loss (income) attributable to noncontrolling interests(95) (301) (295) 433
Net income attributable to Providence$14,853
 $650
 $14,441
 $7,508
        
Net income (loss) available to common stockholders (Note 9)$11,962
 $(745) $8,927
 $3,697
        
Basic earnings (loss) per common share:       
Continuing operations$0.88
 $0.14
 $1.10
 $0.23
Discontinued operations—
 (0.19) (0.44) 0.02
Basic earnings (loss) per common share$0.88
 $(0.05) $0.66
 $0.25
        
Diluted earnings (loss) per common share:       
Continuing operations$0.88
 $0.14
 $1.09
 $0.23
Discontinued operations—
 (0.19) (0.44) 0.02
Diluted earnings (loss) per common share$0.88
 $(0.05) $0.65
 $0.25
        
Weighted-average number of common shares outstanding:       
Basic13,581,662
 14,523,408
 13,612,764
 14,823,757
Diluted13,655,554
 14,634,483
 13,676,468
 14,943,024

See accompanying notes to the unaudited condensed consolidated financial statements

6







The Providence Service Corporation
Unaudited Condensed Consolidated Statements of Comprehensive IncomeStockholders’ Equity 
(in thousands)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 options39,111  —  2,054  —  —  —  2,054  
Restricted stock issued79,029  —  —  —  626  (37) (37) 
  Shares issued for bonus settlement and director stipends701  —  38  —  —  —  38  
Stock repurchase plan—  —  —  —  142,821  (7,299) (7,299) 
  Conversion of convertible preferred stock to common stock40  —  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 options57,022  —  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 options67,931  —  3,826  —  —  —  3,826  
Restricted stock issued7,088  —  —  —  2,419  (155) (155) 
Shares issued for bonus settlement and director stipends202  —  —  —  —  —  —  
Conversion of convertible preferred stock to common stock4,104  —  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





 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Net income$14,948
 $951
 $14,736
 $7,075
Net loss (income) attributable to noncontrolling interest(95) (301) (295) 433
Net income attributable to Providence14,853
 650
 14,441
 7,508
Other comprehensive income (loss):       
Foreign currency translation adjustments, net of tax2,165
 (2,808) 6,591
 (11,140)
Reclassification of translation loss realized upon sale of equity investment527
 —
 527
 —
Other comprehensive income (loss):2,692
 (2,808) 7,118
 (11,140)
Comprehensive income (loss)17,640
 (1,857) 21,854
 (4,065)
Comprehensive loss (income) attributable to noncontrolling interest(26) (266) (113) 378
Comprehensive income (loss) attributable to Providence$17,614
 $(2,123) $21,741
 $(3,687)
(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)

 Nine months ended September 30,
 2017 2016
Operating activities   
Net (loss) income$14,736
 $7,075
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation13,802
 17,039
Amortization5,914
 24,140
Provision for doubtful accounts1,258
 2,196
Stock-based compensation4,586
 3,204
Deferred income taxes(7,062) (15,446)
Amortization of deferred financing costs and debt discount516
 1,573
Equity in net loss of investees991
 5,693
Gain on sale of equity investment(12,606) —
Other non-cash charges (credits)555
 (1,279)
Changes in operating assets and liabilities:   
Accounts receivable(10,647) (22,116)
Prepaid expenses and other7,517
 (9,900)
Reinsurance and related liability reserve(4,924) 984
Accounts payable and accrued expenses(3,407) 32,530
Income taxes payable on sale of business—
 (30,153)
Accrued transportation costs28,839
 31,935
Deferred revenue(4,537) (7,460)
Other long-term liabilities1,399
 5,242
Net cash provided by operating activities36,930
 45,257
Investing activities   
Purchase of property and equipment(15,293) (33,928)
Net increase from short-term investments300
 242
Equity investments—
 (6,381)
Cost method investments(3,000) —
Loan to joint venture(566) —
Repayment of loan from joint venture576
 —
Proceeds from sale of equity investment15,823
 —
Restricted cash for reinsured claims losses and other7,029
 4,917
Net cash provided by (used in) investing activities4,869
 (35,150)
Financing activities   
Preferred stock dividends(3,305) (3,309)
Repurchase of common stock, for treasury(18,763) (53,214)
Proceeds from common stock issued pursuant to stock option exercise1,528
 4,099
Performance restricted stock surrendered for employee tax payment(96) —
Repayment of long-term debt—
 (23,250)
Proceeds from long-term debt—
 43,500
Capital lease payments and other(1,711) (47)
Net cash used in financing activities(22,347) (32,221)
Effect of exchange rate changes on cash464
 (39)
Net change in cash and cash equivalents19,916
 (22,153)
Cash and cash equivalents at beginning of period72,262
 84,770
Cash and cash equivalents at end of period$92,178
 $62,617
    
Supplemental cash flow information:   
Cash paid for interest$776
 $8,873
Cash paid for income taxes$14,804
 $50,037
Prepaid financing and subsidiary stock issuance costs$—
 $1,049
Accrued unfunded future equity investment capital contributions$—
 $1,590
Purchase of equipment through capital lease obligation$—
 $809
 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
SeptemberJune 30, 20172020
(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”), through its subsidiaries and other companies in which it owns interests, is primarily engaged in the provision of healthcare and workforce development services for public and private sector entities seeking to control costs and promote positive outcomes. The subsidiaries and other companies in which the Company holds interests comprise the following segments:
Non-Emergency Transportation Services (“NET Services”) – Nationwide providerlargest manager of non-emergency medical transportation (“NET”) programs for state governments and managed care organizations.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.
Workforce Development
During 2019, the Company consolidated all activities and functions performed at the corporate holding company level into its NET Services segment (“WD Services”Organizational Consolidation”) – Global provider. As a result of employment preparationthe Organizational Consolidation, the Company incurred restructuring and placementrelated organization costs. See Note 8, Restructuring and legal offender rehabilitation services to eligible participants of government sponsored programs.Related Reorganization Costs, for further information.
Matrix Investment – Minority interest in nationwide provider of in-home care optimization and management solutions, including comprehensive health assessments, to members of managed care organizations, accounted for as an equity method investment.


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 non-SEC accounting and applicable reporting standards to be applied byfor non-governmental entities. All amounts are presented in United States (“U.S.”) dollars, unless otherwise noted.


The Company’s unaudited 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 to preparein the preparation of these unaudited condensed consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates. Operating results for the three and ninesix months ended SeptemberJune 30, 20172020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017.2020. Management has evaluated events and transactions that occurred after the balance sheet date and through the date these unaudited condensed consolidated financial statements were filed with the SEC and considered the effect of such events in the preparation of these unaudited condensed consolidated financial statements.


The condensed consolidated balance sheet at December 31, 20162019 included in this Form 10-Q has been derived from the audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements. The unaudited 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, 2016.2019.


The Company holds investments that are accountedaccounts for its investment in Matrix using the equity method. Themethod, as the Company does not control the decision-making process or business management practices of these affiliates.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 these affiliatesMatrix to provide accurate financial information prepared in accordance with GAAP. The Company receives audit reports relating to such financial information from the affiliates’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 its equity affiliatesMatrix that would have a material effect on the Company’s condensed consolidated financial statements. See Note 5, Equity Investment, for further information.

11





Reclassifications


We have reclassified certain amounts relating
Uncertainties due to our prior period resultsCOVID-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 conformlimit the spread of this virus, has and is likely to our current period presentation. On October 19, 2016, affiliatescontinue to interfere with the ability of Frazier Healthcare Partners purchased a 53.2% equity interest in CCHN Group Holdings, Inc.the Company's employees, suppliers, transportation providers and its subsidiaries (“Matrix”) with Providence retaining a 46.8% equity interest (the “Matrix Transaction”). Priorother business providers to carry out their assigned tasks at ordinary levels of performance relative to the closingconduct of the Matrix Transaction,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 Matrix were includedassets 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 Health Assessment Services (“HA Services”2018 U.S. net operating losses ("NOLs") segment. Operating results, the effective tax rate of 9.2% was lower than the U.S. federal statutory rate of 21.0% for this segment are reported as discontinued operations, net ofthe six months ended June 30, 2020. The 28.0% effective tax in the condensed consolidated statements of incomerate for the three and nine months ended SeptemberJune 30, 2016.2020 was not impacted by the CARES Act. See Note 13, Discontinued Operations,12, Income Taxes, for further information. See Note 2, Significant Accounting Policiesinformation.

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 Recent Accounting Pronouncements, for additional information on other reclassifications.conformed the prior period.


2.    Significant Accounting Policies and Recent Accounting Pronouncements


The Company adopted the following accounting pronouncements during the ninesix months ended SeptemberJune 30, 2017:2020:


In November 2015,June 2016, the FASB issued Accounting Standards Update (“ASU”("ASU") No. 2015-17, Income Taxes2016-13, Financial Instruments - Credit Losses (Topic 740): Balance Sheet Classification of Deferred Taxes326) (“ASU 2015-17”2016-13”), which changes how deferred taxes are classified on organizations’ balance sheets. The ASU eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent.. The amendments applyin 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 exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to all organizations that present a classified balance sheet. For public companies, the amendments are effective for financial statements issued for annual periods beginning after December 16, 2016, and interim periods within those annual periods.receive cash. The Company adopted ASU 2015-17 retrospectively2016-13 on January 1, 2017, which resulted2020. As of the quarter ended June 30, 2020, this guidance did not have a material impact on the condensed consolidated financial statements or disclosures nor is it expected to have a material impact in the reclassification of the December 31, 2016 deferred tax assets-current balance of $6,825 and non-current deferred tax assets of $2,493 to long-term deferred tax liabilities in the amount of $9,318.future.


In March 2016,August 2018, the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures2018-13, Fair Value Measurement (Topic 323)820): Simplifying the TransitionDisclosure Framework-Changes to the Equity Method of Accounting (“Disclosure Requirements for Fair Value Measurement (“ASU 2016-07”2018-13”). ASU 2016-07 eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, which removed, modified, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU 2016-07 instead specifies that the investor should add the cost of acquiring theadded additional interest in the investeedisclosures related to the current basis of the investor’s previously held interest and apply the equity method of accounting as of the date the investment became qualified for equity method accounting. ASU 2016-07 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 and should be applied prospectively.fair value measurements. The Company adopted ASU 2016-072018-13 on January 1, 2017. The adoption2020. As of ASU 2016-07 had nothe quarter ended June 30, 2020, this guidance did not have an impact on the Company’scondensed consolidated financial statements or disclosures.disclosures nor is it expected to have a material impact in the future.


In March 2016,August 2018, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment2018-15, Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting (“ for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2016-09”2018-15”). ASU 2016-09 is intended to improve2018-15 aligned the accountingrequirements for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including income tax consequences, classification of awards as either equity or liabilities and classification in the statement of cash flows. For public companies, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted ASU 2016-09 on January 1, 2017, and elected to recognize forfeitures as they occur. As a result, the Company recorded a cumulative effect adjustment of $850 to retained earnings as of January 1, 2017. Upon adoption, all excess tax benefits and tax deficiencies related to employee share-based payments are recognized through income tax expense prospectively. For the three and nine months ended September 30, 2017, the Company recorded excess tax deficiencies of $261 and $148, respectively, as an increase to the provision for income taxes. The Company excluded the related tax benefits when applying the treasury stock method for computing diluted shares outstanding on a prospective basis resultingcapitalizing implementation costs incurred in a decrease in diluted weighted average shares outstanding of 4,779 and 7,451 shares, respectively,hosting arrangement that is a service contract with the requirements for the three and nine months ended September 30, 2017.

The adoption of ASU 2016-09 subjects our tax ratecapitalizing implementation costs incurred to quarterly volatility from the effects of stock award exercises and vesting activities, including the adverse impact on our income tax provision for awards which result in a tax deduction less than the amount recorded for financial reporting purposes based upon the fair value of the award at the grant date. For example, no shares will be distributed under the Company’s 2015 Holding Company LTI Program (the “HoldCo LTIP”) unless the volume weighted average of Providence’s stock price over a 90-day period ending on December 31, 2017 exceeds $56.79. If this market condition is not satisfied, a significant tax shortfall will result, causing an adverse impact on our tax provision.




develop or obtain internal-use software. The Company elected to apply the changeprospective transition approach and therefore applied the transition requirements to any eligible costs incurred after adoption. The Company adopted ASU 2018-15 on January 1, 2020. As of June 30, 2020, the Company has not incurred any material implementation costs associated with new service contracts since the date of adoption.

In February 2020, the FASB has issued ASU No. 2020-02, Financial Instruments—Credit Losses (Topic 326) and
12





Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASU 2020-02"). ASU 2020-02 provides interpretive guidance on methodologies and supporting documentation for measuring credit losses, with a focus on the documentation the SEC would normally expect registrants engaged in classificationlending transactions to prepare and maintain to support estimates of cash flows resulting from excess tax benefits or deficienciescurrent expected credit losses for loan transactions. The Company adopted ASU 2020-02 on a retrospective basis. This resulted inFebruary 6, 2020, as the ASU was effective upon issuance. As of the quarter ended June 30, 2020, this guidance did not have an increase in cash flows provided by operating activities of $276 and an increase of $276 in cash flows used in financing activities inimpact on the condensed consolidated statement of cash flows for the nine months ended September 30, 2016. Additionally, ASU 2016-09 requires that employee taxes paid when an employer withholds shares for tax-withholding purposes be reported as financing activitiesfinancial statements or disclosures nor is it expected to have a material impact in the consolidated statements of cash flows, which is how the Company has historically classified these amounts.future.


In January 2017,March 2020, the FASB issued ASU No. 2017-01, Business Combinations2020-03, Codification Improvements to Financial Instruments ("ASU 2020-03") to make improvements to ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 805)326):Clarifying the Definition Measurement of a Business (“Credit Losses on Financial Instruments ("ASU 2017-01”2016-13"). ASU 2017-01 clarifiesPublic business entities that meet the definition of a business withan SEC filer, excluding eligible smaller reporting companies as defined by the objective of adding guidance to assist entities with evaluating whether transactionsSEC, should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.adopt ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods.2020-03 during 2020. The Company adopted ASU 2017-012020-03 on April 1, 2017. The adoption of ASU 2017-01 had no2020. This guidance did not have an impact on the Company’scondensed consolidated financial statements or disclosures.disclosures nor is it expected to have a material impact in the future.


Recent accounting pronouncements that the Company has yet to adopt are as follows:

In January 2017,December 2019, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other2019-12, Income Taxes (Topic 350)740):Simplifying the TestAccounting for Goodwill Impairment (“Income Taxes ("ASU 2017-04”2019-12")., which modifies ASC 740, Income Taxes, to reduce complexity in certain areas of accounting for income taxes. The amendments in ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test. As a result, under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge2019-12 are effective for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This guidance is effective prospectivelypublic business entities for fiscal years beginning after December 15, 2019.2020, including interim periods therein. Early adoption of the standard is permitted, forincluding adoption in interim or annual goodwill impairment tests performed after January 1, 2017.periods for which financial statements have not yet been issued. The Company adoptedis currently evaluating the impact ASU 2017-042019-12 will have on April 1, 2017. The adoption of ASU 2017-04 had no impact on the Company’sits condensed consolidated financial statements or disclosures.statements.


Updates to the recent accounting pronouncements as disclosed in the Company’s Form 10-K for the year ended December 31, 2016 are as follows:

In May 2014,January 2020, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“2020-01, Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 ("ASU 2014-09”). ASU 2014-09 introduced FASB Accounting Standards Codification Topic 606 (“ASC 606”2020-01"), which will replace most currently applicable existing revenue recognition guidanceto clarify the interaction among the accounting standards for equity securities, equity method investments and is intended to improve and converge with international standards the financial reporting requirements for revenue from contracts with customers. The core principle ofcertain derivatives. ASU 2014-092020-01 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-09 allows for adoption either on a full retrospective basis to each prior reporting period presented or on a modified retrospective basis with the cumulative effect of initially applying the new guidance recognized at the date of initial application, which will be effective for the Company beginning January 1, 2018.

The Company has developed an adoption plan, assembled a cross-functional project team and is in the process of assessing the impacts of applying ASC 606 to the Company’s financial statements, information systems and internal controls. The Company has elected to adopt ASU 2014-09 using the modified retrospective method. Additionally, the Company has performed detailed reviews of a significant number of its existing contracts with customers. These reviews have focused on several key considerations which could impact the Company's accounting and reporting under the new standard:
the effect of specified clauses on the term of many of the Company’s contracts with customers;
the nature of the promises in many of the Company’s contracts with customers to perform integrated services over a period of time;
whether and how much variable consideration to include when determining the transaction prices for its contracts with customers;
whether any of the Company’s customer contracts require performance over a series of distinct service periods and the impact on determining and allocating the transaction price; and
the manner in which the Company will measure its progress towards fully satisfying its performance obligations, including a determination of whether the Company may be able to use certain practical expedients.



These reviews are substantially complete for NET Services and are ongoing for WD Services. The Company expects little to no impact within NET Services from the adoption of ASU 2014-09, and is implementing controls and process changes needed to apply ASC 606. Within WD Services, the Company expects certain amounts of variable consideration related to contingent revenue will be accelerated. Such amounts were previously deferred until the final resolution of the contingency. Management’s assessment is ongoing; however, management does not believe the impact of ASC 606 on its financial statements will be significant based on the procedures performed to date.

In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic323) (“ASU 2017-03”). ASU 2017-03 expands required qualitative disclosures when registrants cannot reasonably estimate the impact that adoption of an ASU will have on the financial statements. Such qualitative disclosures would include a comparison of the registrant’s new accounting policies, if determined, to current accounting policies, a description of the status of the registrant’s process to implement the new standard and a description of the significant implementation matters yet to be addressed by the registrant. Other than enhancements to the qualitative disclosures regarding future adoption of new ASUs, adoption of the provisions of this standard is not expected to have any impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation–Stock Compensation (Topic 718):Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 provides guidance about which changes to the terms of a share-based payment award should be accounted for as a modification. A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do not change, and the classification as an equity or liability instrument does not change. This guidance is effectivepublic business entities for fiscal years beginning after December 15, 2017.2020, including interim periods therein. Early adoption of the standard is permitted.permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The adoptionCompany is currently evaluating the impact ASU 2020-01 will have on its condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2017-092020-04") which provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to reference rate reform. The relief granted in ASC 848, Reference Rate Reform ("ASC 848"), is applicable only to legacy contracts if the amendments made to the agreements are solely for reference rate reform activities. The provisions of ASC 848 must be applied for all transactions other than derivatives, which may be applied at a hedging relationship level. Entities may apply the provisions as of the beginning of the reporting period when the election is made (i.e. as early as the first quarter 2020). Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity is expected to be completed. The Company is currently evaluating the impact ASU 2020-04 will have on its condensed consolidated financial statements or disclosures; however, does not expectedexpect the adoption to have a material impactimpact.

3.    Revenue Recognition

Disaggregation of Revenue
The following table summarizes disaggregated revenue from contracts with customers by contract type:
13





Three months ended June 30, 2020Three months ended June 30, 2019
State Medicaid agency contracts$151,545  $177,773  
Managed care organization contracts130,711  186,138  
  Total Service revenue, net$282,256  $363,911  
Capitated contracts$253,858  $308,690  
Non-capitated contracts28,398  55,221  
  Total Service revenue, net$282,256  $363,911  


Six months ended June 30, 2020Six months ended June 30, 2019
State Medicaid agency contracts$332,276  $354,741  
Managed care organization contracts317,271  376,985  
  Total Service revenue, net$649,547  $731,726  
Capitated contracts$554,582  $613,262  
Non-capitated contracts94,965  118,464  
  Total Service revenue, net$649,547  $731,726  

During the three months ended June 30, 2020 and 2019, the Company recognized negative $3,619 and positive $236 of service revenue respectively, from adjustments relating to performance obligations satisfied in previous periods to which the customer agreed. During the six months ended June 30, 2020 and 2019, the Company recognized negative $3,476 and $39, of service revenue respectively, from contractual adjustments relating to performance obligations satisfied in previous periods to which the customer agreed.

Related Balance Sheet Accounts

The following table provides information about accounts receivable, net:
June 30, 2020December 31, 2019
Accounts receivable$122,349  $124,868  
Reconciliation contracts receivable55,876  61,481  
Allowance for doubtful accounts(8,162) (5,933) 
Accounts receivable, net$170,063  $180,416  
The following table provides information about other accounts included on the Company’saccompanying condensed consolidated financial statements.balance sheets:

June 30, 2020December 31, 2019
Accrued contract payables, current, included in “Accrued expenses”$52,811  $15,706  
Long-term contract payables26,079  —  
Deferred revenue, current689  227  
Deferred revenue, long-term, included in “Other long-term liabilities”725  758  
There were no other significant updatesDuring the six months ended June 30, 2020 and 2019, the Company recognized $121 and $386 of deferred revenue as of December 31, 2019 and 2018, respectively.
14





4.    Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the new accounting guidance not yet adopted byamounts shown in the condensed consolidated statements of cash flows:

June 30, 2020June 30, 2019
Cash and cash equivalents$41,786  $29,804  
Restricted cash, current3,213  1,832  
Current assets of discontinued operations89  889  
Restricted cash, less current portion—  1,896  
Cash, cash equivalents and restricted cash$45,088  $34,421  

Restricted cash as of June 30, 2020 primarily relates to a security reserve obtained as part of the National MedTrans, LLC acquisition. Restricted cash as of June 30, 2019 primarily relates to amounts held in trusts for reinsurance claims losses under the Company’s now dissolved captive insurance operation for historical workers’ compensation, general and professional liability and auto liability reinsurance programs, as well as amounts restricted for withdrawal under our self-insured medical and benefits plans. See Note 15, Acquisition, for further information on the security reserve. The wholly-owned captive insurance subsidiary, Social Services Providers Captive Insurance Company ("SPCIC"), was dissolved during the six months ended June 30, 2020. Current assets of discontinued operations principally reflect the cash position of WD Services operations in Saudi Arabia, which the Company as disclosed in its Form 10-Kis winding down. See Note 16, Discontinued Operations, for further information on the year endedWD Services sale.

5.    Equity Investment

As of June 30, 2020 and December 31, 2016.

3.    Equity Investment

Matrix

Prior to the closing of the Matrix Transaction on October 19, 2016, the financial results of Matrix were included in the Company’s HA Services segment. Subsequent to the closing of the Matrix Transaction,2019, the Company owned a 46.8% noncontrolling43.6% non-controlling interest in Matrix. As of September 30, 2017, the Company owned a 46.6% noncontrolling interest in Matrix. Pursuant to a Shareholder’s Agreement, affiliatesAffiliates of Frazier Healthcare Partners hold rights necessary to control the fundamental operations of Matrix. The Company accounts for this investment in Matrix under the equity method of accounting and theaccounting. The Company’s share of Matrix’s income or losses are recorded as “Equity in net (gain) loss of investees”investee” in the accompanying condensed consolidated statements of income.operations and the investment basis is recorded as "Equity Investment" in the accompanying condensed consolidated balance sheets. During the year ended December 31, 2019, Matrix recorded asset impairment charges of $55,056. NaN impairment was recorded during the six months ended June 30, 2020.


The carrying amount of the assets included in the Company’s condensed consolidated balance sheetsheets and the maximum loss exposure related to the Company’s interest in Matrix as of SeptemberJune 30, 20172020 and December 31, 20162019 totaled $156,883$131,974 and $157,202,$130,869, respectively.


Summary financial information for Matrix on a standalone basis is as follows:
 June 30, 2020December 31, 2019
Current assets$97,897  $64,221  
Long-term assets630,009  631,007  
Current liabilities49,852  31,256  
Long-term liabilities361,529  351,380  

Three months ended June 30, 2020Three months ended June 30, 2019
Revenue$90,667  $72,161  
Operating income15,258  1,543  
Net income (loss)8,892  (3,661) 
Six months ended June 30, 2020Six months ended June 30, 2019
Revenue$151,971  $139,144  
Operating income13,585  2,098  
Net income (loss)2,535  (8,148) 
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 September 30, 2017 December 31, 2016
Current assets$50,015
 $28,589
Long-term assets598,842
 614,841
Current liabilities39,273
 25,791
Long-term liabilities270,816
 281,348


 Three months ended
September 30, 2017
Revenue$58,639
Operating income3,159
Net loss(537)


 Nine months ended
September 30, 2017
Revenue$175,346
Operating income10,109
Net loss(775)

See Note 13, Discontinued Operations, for Matrix’s 2016 results of operations.

Mission Providence

The Company entered into a joint venture agreement in November 2014 with Mission Australia ACN ("Mission Australia") to form Mission Providence Pty Ltd (“Mission Providence”). Mission Providence delivers employment preparation and placement services in Australia. The Company had a 60% ownership interest in Mission Providence, and had rights to 75% of Mission Providence’s distributions of cash or profit surplus twice per calendar year. The Company accounted for this investment under the equity method of accounting and the Company’s share of Mission Providence’s income or losses was recorded as ��Equity in net (gain) loss of investees” in the accompanying condensed consolidated statements of income. Cash contributions made to Mission Providence in exchange for its equity interests are included in the condensed consolidated statements of cash flows as “Equity investments.”

On September 29, 2017, the Company and Mission Australia completed the sale of 100% of the stock of Mission Providence pursuant to a share sale agreement. Upon the sale of Mission Providence, the Company received AUD 20,184, or $15,823 of proceeds, for its equity interest, net of transaction fees. The related gain on sale of Mission Providence totaling $12,606 is recorded as “Gain on sale of equity investment” in the accompanying condensed consolidated statements of income. The carrying amount of the assets included in the Company’s condensed consolidated balance sheet related to the Company’s interest in Mission Providence was $4,021 at December 31, 2016.

Summary financial information for Mission Providence on a standalone basis is as follows:
 December 31, 2016
Current assets$4,640
Long-term assets10,473
Current liabilities12,844
Long-term liabilities1,655
 Three months ended September 30,
 2017 2016
Revenue$10,244
 $9,349
Operating loss(599) (2,903)
Net loss(651) (2,059)
 Nine months ended September 30,
 2017 2016
Revenue$30,125
 $26,475
Operating loss(1,765) (10,697)
Net loss(1,934) (7,627)



4.6.    Prepaid Expenses and Other


Prepaid expenses and other were comprised of the following: 
June 30, 2020December 31, 2019
Prepaid income taxes$11,490  $2,942  
Prepaid insurance3,679  1,317  
Prepaid rent797  868  
Other prepaid expenses7,443  5,815  
Total prepaid expenses and other$23,409  $10,942  


 September 30,
2017		 December 31,
2016
Prepaid income taxes$3,819
 $1,467
Escrow funds10,000
 10,000
Prepaid insurance2,778
 3,153
Prepaid taxes and licenses2,526
 3,570
Note receivable3,201
 3,130
Prepaid rent2,727
 2,013
Deposits held for leased premises and bonds2,744
 2,609
Other11,288
 11,953
Total prepaid expenses and other$39,083
 $37,895

Escrow funds represent amounts related to potential indemnification claims from the sale of the Human Services segment, which was completed on November 1, 2015. The Company has accrued $15,000 as a contingent liability for the settlement of potential indemnification claims, which is included in “Accrued expenses” in the condensed consolidated balance sheet as of September 30, 2017. While the matter is not resolved, it is highly likely the escrow funds will be used to satisfy a portion of this settlement. See Note 11, Commitments and Contingencies, for further information.

5.    7.    Accrued Expenses


Accrued expenses consisted of the following:
June 30, 2020December 31, 2019
Accrued compensation and related liabilities$16,969  $8,941  
Accrued contract payables, current52,811  15,706  
Accrued cash settled stock-based compensation7,127  3,282  
Other accrued expenses13,788  10,804  
Total accrued expenses$90,695  $38,733  

 September 30,
2017		 December 31, 2016
Accrued compensation$24,058
 $23,050
NET Services accrued contract payments26,504
 32,836
Accrued settlement15,000
 6,000
Income taxes payable—
 372
Other37,835
 40,123
Total accrued expenses$103,397
 $102,381

6.8.    Restructuring and Related Reorganization Costs


WD Services hasThe Company completed an Organizational Consolidation during 2019 where it closed the corporate offices in Stamford, Connecticut and Tucson, Arizona. A total of $1,344 and $3,355 in restructuring and related costs was incurred during the three redundancy programs. Two redundancy plans were approved in 2015 and have been substantially completed; a plansix months ended June 30, 2019, respectively, related to the terminationOrganizational Consolidation. These costs include, respectively, $823 and $2,217 of employees delivering services under an offender rehabilitation program (“Offender Rehabilitation Program”)retention and a planpersonnel costs, $89 and $279 of stock-based compensation expense, $93 and $236 of depreciation and $339 and $623 of other costs, primarily related to the termination of employees delivering services under the Company’s employabilityrecruiting and skills training programs and certain other employees in the United Kingdom (“UK Restructuring Program”). In addition, a redundancy plan related to the termination of employees as part of a value enhancement project ("Ingeus Futures Program") to better alignlegal costs. These costs at Ingeus with revenue and to improve overall operating performance was approved in 2016. The Company recorded severance and related charges of $1,117 and $4,741 during the nine months ended September 30, 2017 and 2016, respectively, relating to the termination benefits for employee groups and specifically identified employees impacted by these plans. The severance charges incurred are recorded as “Service“General and administrative expense” and “Depreciation and amortization” in the accompanying condensed consolidated statements of income.operations.


The initial estimateA total of severance$13,060 in restructuring and related charges for the planscosts was based upon the employee groups impacted, average salary and benefits, and redundancy benefits pursuant to the existing policies. Additional charges above the initial estimates were incurred for the redundancy plans during the nine months ended September 30, 2017 and 2016on a cumulative basis through December 31, 2019 related to the actualizationOrganizational Consolidation. These costs include $7,516 of termination benefitsretention and personnel costs, $2,035 of stock-based compensation expense, $673 of depreciation and $2,836 of other costs, primarily related to recruiting and legal costs.

The summary of the liability for specifically identified employees impactedrestructuring and related reorganization costs is as follows:

 January 1, 2019Costs
Incurred		Cash PaymentsDecember 31, 2019
Retention and personnel liability$1,956  $2,418  $(4,374) $—  
Other liability398  1,308  (1,706) —  
Total$2,354  $3,726  $(6,080) $—  

NaN restructuring or related costs were incurred related to the Organizational Consolidation during the three and six months ended June 30, 2020. There was 0 restructuring liability as of June 30, 2020.

During the six months ended June 30, 2020, the Company incurred approximately $719 of restructuring expense for the closure of its Las Vegas contact center. The majority of these costs were recorded to “Service expense” and the remainder were recorded to "General and administrative expense".

9.    Debt
16






The Company is a party to the amended and restated credit and guaranty agreement, dated as of August 2, 2013 (as amended, the “Credit Agreement”), with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, and the other lenders party thereto. On May 6, 2020, the Company entered into the Seventh Amendment to the Amended and Restated Credit and Guaranty Agreement (the “Seventh Amendment”) which, among other things, extended the maturity date to August 1, 2021, expanded the amount available under these plans, as well asthe revolving credit facility (the “Credit Facility”) from $200,000 to $225,000, and increased the sub-facility for letters of credits from $25,000 to $40,000. Interest on the loans is payable quarterly in arrears. In addition, the Company is obligated to pay a quarterly commitment fee based on a percentage of the unused portion of each lender’s commitment under the Credit Facility and quarterly letter of credit fees based on a percentage of the maximum amount available to be drawn under each outstanding letter of credit.

As of June 30, 2020, the Company had 0 borrowings outstanding on the Credit Facility; however, had letters of credit outstanding in the amount of $13,551. The Company’s available credit under the Credit Facility was $211,449. Under the Credit Agreement, the Company has an option to request an increase in the number of individuals impacted by these plans. The final identificationamount of the employees impactedrevolving credit facility from time to time (on substantially the same terms as apply to the existing facilities) in an aggregate amount of up to $75,000 with either additional commitments from lenders under the Credit Agreement at such time or new commitments from financial institutions acceptable to the administrative agent in its reasonable discretion, so long as no default or event of default exists at the time of any such increase. The Company may not be able to access additional funds under this increase option as no lender is obligated to participate in any such increase under the Credit Facility.

As of June 30, 2020, interest on the outstanding principal amount of loans accrues, at the Company’s election, at a per annum rate equal to the greater of either LIBOR or 1.00%, plus an applicable margin, or the base rate as defined in the agreement plus an applicable margin. The applicable margin ranges from 2.25% to 3.00% in the case of LIBOR loans and 1.25% to 2.00% in the case of the base rate loans, in each case, based on the Company’s consolidated leverage ratio as defined in the Credit Agreement. The commitment fee and letter of credit fee ranges from 0.35% to 0.50% and 2.25% to 3.00%, respectively, in each case based on the Company’s consolidated leverage ratio as defined in the Credit Agreement. As of June 30, 2020, the all-in interest rate was 3.88%.

The Company’s obligations under the Credit Facility are guaranteed by each programall of the Company’s present and future domestic subsidiaries. The Company’s obligations are secured by a first priority lien on substantially all of the Company’s assets excluding the Company’s interest in Matrix.

The Credit Agreement contains customary affirmative and negative covenants and events of default. The negative covenants include restrictions on the Company’s ability to, among other things, incur additional indebtedness, create liens, make investments, give guarantees, pay dividends, sell assets, and merge and consolidate. The Company is subject to customary consultation procedures.



Summary of Severancefinancial covenants, including consolidated net leverage and Related Charges
 January 1,
2017		 
Costs
Incurred
 Cash Payments 
Foreign Exchange
Rate Adjustments
 September 30, 2017
          
Ingeus Futures' Program$2,486
 $1,186
 $(3,086) $158
 $744
Offender Rehabilitation Program1,380
 (40) (1,357) 17
 —
UK Restructuring Program50
 (29) —
 3
 24
Total$3,916
 $1,117
 $(4,443) $178
 $768
 January 1,
2016		 
Costs
Incurred
 Cash Payments 
Foreign Exchange
Rate Adjustments
 September 30, 2016
          
Offender Rehabilitation Program$6,538
 $4,204
 $(6,075) $(906) $3,761
UK Restructuring Program2,059
 537
 (2,379) (103) 114
Total$8,597
 $4,741
 $(8,454) $(1,009) $3,875

consolidated interest coverage covenants. The total of accrued severance and related costs of $768 is reflected in “Accrued expenses” in the condensedCompany’s consolidated balance sheet at September 30, 2017. The amount accruednet leverage ratio may not be greater than 3.00:1.00 as of September 30, 2017 is expected to be settled principally by the end of 2017.any fiscal quarter and the Company’s consolidated interest coverage ratio may not be less than 3.00:1.00 as of the end of any fiscal quarter. The Company was in compliance with all covenants as of June 30, 2020.


7.    Stockholders’ Equity

The following table reflects changes in common stock, additional paid-in capital, retained earnings, accumulated other comprehensive loss, treasury stock and noncontrolling interest for the nine months ended September 30, 2017:
 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Non-controlling Interest  Total
 Shares Amount    Shares Amount  
Balance at December 31, 201617,315,661
 $17
 $302,010
 $156,718
 $(33,449) 3,478,676
 $(125,201) $(2,420) $297,675
Stock-based compensation—
 —
 4,636
 —
 —
 —
 —
 —
 4,636
Exercise of employee stock options70,283
 —
 1,468
 —
 —
 5,665
 (238) —
 1,230
Restricted stock issued31,316
 —
 —
 —
 —
 17,865
 (779) —
 (779)
Performance restricted stock issued3,773
 —
 (96) —
 —
 —
 —
 —
 (96)
Shares issued for bonus settlement and director stipend25,225
 

 1,107
 

 —
 —
 —
 —
 1,107
Stock repurchase plan—
 —
 —
 —
 —
 441,965
 (17,983) —
 (17,983)
Conversion of convertible preferred stock to common stock415
 —
 17
 —
 —
 —
 —
 —
 17
Foreign currency translation adjustments, net of tax—
 —
 —
 —
 6,591
 —
 —
 (182) 6,409
Reclassification of translation loss realized upon sale of equity investment—
 —
 —
 —
 527
 —
 —
 —
 527
Convertible preferred stock dividends—
 —
 —
 (3,305) —
 —
 —
 —
 (3,305)
Noncontrolling interests—
 —
 —
 —
 —
 —
 —
 295
 295
Other—
 —
 25
 —
 —
 —
 —
 —
 25
Net income attributable to Providence—
 —
 —
 14,441
 —
 —
 —
 —
 14,441
Cumulative effect adjustment from change in accounting principle—
 —
 850
 (850) ���
 —
 —
 —
 —
Balance at September 30, 201717,446,673
 $17
 $310,017
 $167,004
 $(26,331) 3,944,171
 $(144,201) $(2,307) $304,199



8.10.    Stock-Based Compensation and Similar Arrangements


The Company provides stock-based compensation to employees and non-employee directors under the Company’s 2006 Long-Term Incentive Plan (“2006 Plan”). Typical awards issued under this plan includeThe 2006 Plan allows the flexibility to grant or award stock option awards,options, stock appreciation rights, restricted stock, awards (“RSAs”) and performance basedunrestricted stock, stock units including restricted stock units (“PRSUs”). In addition, the Company has a long-term incentive plan designed to provide long-termand performance based awards to certain executive officers of the Company which also falls under the 2006 Plan.eligible persons.


The following table reflects the amount of stock-based compensation, for share settled grants or awards, recorded in each financial statement line item for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016:2019:

 Three months ended June 30,Six months ended June 30,
 2020201920202019
Service expense$54  $161  $119  $326  
General and administrative expense675  1,128  1,653  3,066  
Total stock-based compensation$729  $1,289  $1,772  $3,392  

17





 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Service expense$131
 $100
 $365
 $280
General and administrative expense1,434
 1,135
 4,221
 2,858
Equity in net loss of investees10
 —
 50
 —
Discontinued operations, net of tax—
 22
 —
 66
Total stock-based compensation$1,575
 $1,257
 $4,636
 $3,204

Stock-based compensation, for share settled awards, includes $1,014 and $3,098 for the three and nine months ended SeptemberAt June 30, 2017, respectively, related to the HoldCo LTIP. Stock-based compensation, for share settled awards, includes $921 and $2,383 for the three and nine months ended September 30, 2016, respectively, related to the HoldCo LTIP. No shares will be distributed under the HoldCo LTIP unless the volume weighted average of Providence’s stock price over a 90-day period ending on December 31, 2017 is greater than $56.79.

At September 30, 2017,2020, the Company had 300,831 500,109 stock options outstanding with a weighted-average exercise price of $37.97. The $64.73. The Company also had 71,193 shares of 57,122 unvested RSAsrestricted stock awards ("RSAs") and 44,412 unvested restricted stock units ("RSUs") outstanding at SeptemberJune 30, 20172020 with a weighted-average grant date fair value of $44.33 $62.66 and 18,298 unvested PRSUs outstanding. $62.24, respectively.


Cash-Settled Awards

The Company also grants stock equivalent unit awards (“SEUs”) and stock option equivalent units that are cash settledcash-settled awards and are not included as part of the 2006 Plan. During the three and nine months ended SeptemberJune 30, 2017, respectively,2020 and 2019, the Company recorded $380 and $1,611 recorded expense of $4,560 and income of $1,762 of stock-based compensation for cash-settled awards, respectively. During the six months ended June 30, 2020 and 2019, the Company recorded expense of $3,997 and income of$573of stock-based compensation for cash-settled awards, respectively. The benefit and expense for cash settled awards. During the three and nine months ended September 30, 2016, respectively, the Company recorded $422 and $305 of stock-based compensation expense for cash settled awards. The expense and benefit for cash settledcash-settled awards is included as “General and administrative expense” in the accompanying condensed consolidated statements of income.operations. As the instruments are accounted for as liability awards, are cash settled, a significant amount of the income or expense recorded for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016 is2019 are attributable to the Company’s increase or decreasechange in stock price from the previous reporting period.period. The liability for unexercised cash settledcash-settled share-based payment awards of $3,168 and $1,764 $7,127 and $3,282at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively, areis reflected in “Accrued expenses” in the condensed consolidated balance sheets. At SeptemberJune 30, 2017,2020, the Company had 6,6713,862 SEUs and 200,000 stockstock option equivalent units outstanding.


TheLong-Term Incentive Plans

In connection with the acquisition of Circulation during 2018, the Company also provides cash settled long-termestablished a management incentive plans for executive management andplan (“MIP”) intended to motivate key employees of its operating segments.Circulation. During the three months ended June 30, 2017,March 31, 2019, the Company revisedMIP was amended to remove the structurepreviously included performance requirements and to provide for a total fixed payment of the NET Services long-term incentive plan. As a result, the Company finalized the amount payable under the plan at $2,956. The total value will be paid$12,000 to the awarded participants pergroup of MIP participants. During the termsyear ended December 31, 2019, the MIP was further amended to a total fixed payment of $2,720. The payout date is within 30 days following the original agreement and thus the remaining unamortized expense relating to this plan continues to be recognized over the remaining service period. As of September 30, 2017, unamortized compensation expense is $696. For the three and nine months ended September 30, 2017, expenses of $274 and $419, respectively, are included as “Service expense” in the condensed consolidated statements of income related to these plans. For the three and nine months ended September 30, 2016, $1,157 and $3,151, respectively, of expense are included as “Service expense” in the condensed consolidated statements of income related to these plans. At September 30, 2017, the liability for long-term incentive plansfinalization of the Company’s operating segments of $2,260 is reflected in “Accrued expenses” and “Other long-term liabilities” inaudited financial statements for the condensed consolidated balance sheet.  Atfiscal year ending December 31, 2016,2021 and is subject to the liabilityparticipant remaining employed by the Company through December 31, 2021, except for long-term incentive planscertain termination scenarios. As of June 30, 2020 and December 31, 2019, the Company’s operating segments of $1,841Company has accrued$1,595 and $1,108, respectively, related to the MIP, which is reflected in “Other long-term liabilities” in the condensed consolidated balance sheet.sheets.




Preferred Stock Conversion
9.    
On June 8, 2020, the Company entered into a Preferred Stock Conversion Agreement (the “Conversion Agreement”) with Coliseum Capital Partners, L.P. and certain funds and accounts managed by Coliseum Capital Management, LLC (collectively, the “Holders”), pursuant to which, among other things, (a) the Company agreed to purchase 369,120 shares of Series A Convertible Preferred Stock, par value $0.001 per share, held by the Holders in the aggregate, in exchange for (i) $209.88 in cash per share of Series A Preferred Stock, plus (ii) a cash amount equal to accrued but unpaid dividends on such shares of Series A Preferred Stock through the day prior to June 11, 2020, and (b) the Holders converted 369,120 shares of Series A Preferred Stock into (i) 2.5075 shares of Common Stock of the Company for each share of Series A Preferred Stock, plus (ii) a cash payment equal to accrued but unpaid dividends on such shares of Series A Preferred Stock through the day prior to June 11, 2020, plus (iii) a cash payment of $8.82 per share of Series A Preferred Stock. The Conversion Agreement was considered to be an induced conversion in which a premium consideration was provided by the Company to Holders of the Series A Preferred Stock.

The following table summarizes the convertible preferred stock activity in 2020:


Dollar ValueShare Count
Balance at January 1, 2020$77,120  798,788  
Conversion to common stock(572) (5,666) 
Conversion to common stock pursuant to Conversion Agreement(37,256) (369,120) 
Preferred stock redemption pursuant to Conversion Agreement(37,256) (369,120) 
Reduction of unamortized issuance cost3,263  —  
Balance at June 30, 2020$5,299  54,882  
18






In accordance with ASC 260, Earnings Per Share, retained earnings was reduced by the excess of the fair value of the consideration transferred over the carrying amount of the shares surrendered. The impact to retained earnings of the excess consideration transferred, including the direct costs incurred, and write-off of any unamortized issuance costs was $48,951.


As of June 30, 2020, the 54,882 outstanding shares of convertible preferred stock are convertible into 137,617 shares of common stock.

11.    Earnings (Loss) Per Share

The following table details the computation of basic and diluted earnings (loss) per share: 
 Three months ended June 30,Six months ended June 30,
 2020201920202019
Numerator:    
Net income (loss)$36,998  $(1,712) $53,096  $(1,129) 
Dividends on convertible preferred stock outstanding(76) (1,098) (1,171) (2,185) 
Dividends paid pursuant to the Conversion Agreement(790) —  (790) —  
Consideration paid in excess of preferred cost basis pursuant to the Conversion Agreement(48,951) —  (48,951) —  
Income allocated to participating securities—  —  (264) —  
 Net (loss) income available to common stockholders$(12,819) $(2,810) $1,920  $(3,314) 
Continuing operations$(12,518) $(4,507) $2,423  $(4,280) 
Discontinued operations(301) 1,697  (503) 966  
Net (loss) income available to common stockholders$(12,819) $(2,810) $1,920  $(3,314) 
Denominator:    
Denominator for basic earnings per share -- weighted-average shares13,077,596  12,973,496  13,032,931  12,937,054  
Effect of dilutive securities:    
Common stock options—  —  10,347  —  
Restricted stock—  —  16,421  —  
Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion13,077,596  12,973,496  13,059,699  12,937,054  
Basic (loss) earnings per share:    
Continuing operations$(0.96) $(0.35) $0.19  $(0.33) 
Discontinued operations(0.02) 0.13  (0.04) 0.07  
 Basic (loss) earnings per share$(0.98) $(0.22) $0.15  $(0.26) 
Diluted (loss) earnings per share:    
Continuing operations$(0.96) $(0.35) $0.19  $(0.33) 
Discontinued operations(0.02) 0.13  (0.04) 0.07  
  Diluted (loss) earnings per share$(0.98) $(0.22) $0.15  $(0.26) 
 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Numerator:       
Net income attributable to Providence$14,853
 $650
 $14,441
 $7,508
Less dividends on convertible preferred stock(1,114) (1,111) (3,305) (3,309)
Less income allocated to participating securities(1,777) (284) (2,209) (502)
Net income (loss) available to common stockholders$11,962
 $(745) $8,927
 $3,697
        
Continuing operations$11,978
 $2,046
 $14,927
 $3,405
Discontinued operations(16) (2,791) (6,000) 292
 $11,962
 $(745) $8,927
 $3,697
        
Denominator:       
Denominator for basic earnings per share -- weighted-average shares13,581,662
 14,523,408
 13,612,764
 14,823,757
Effect of dilutive securities:       
Common stock options68,856
 111,075
 58,668
 119,267
Performance-based restricted stock units5,036
 —
 5,036
 

Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion13,655,554
 14,634,483
 13,676,468
 14,943,024
        
Basic earnings (loss) per share:       
Continuing operations$0.88
 $0.14
 $1.10
 $0.23
Discontinued operations—
 (0.19) (0.44) 0.02
 $0.88
 $(0.05) $0.66
 $0.25
Diluted earnings (loss) per share:       
Continuing operations$0.88
 $0.14
 $1.09
 $0.23
Discontinued operations—
 (0.19) (0.44) 0.02
 $0.88
 $(0.05) $0.65
 $0.25


Income allocated to participating securities is calculated by allocating a portion of net income attributable to Providence, less dividends on convertible stock, to the convertible preferred stockholders on a pro-rata, as converted basis; however, the convertible preferred stockholders are not allocated losses.


In accordance with ASC 260, Earnings Per Share, and as related to the Conversion Agreement discussed in Note 10, Stock-Based Compensation and Similar Arrangements, the numerator was adjusted by the excess of the fair value of consideration paid over the carrying amount of the shares surrendered, net of issuance costs.

19






The following weighted averageweighted-average shares were not included in the computation of diluted earnings per share as the effect of their inclusion would have been anti-dilutive:
 Three months ended June 30,Six months ended June 30,
 2020201920202019
Stock options to purchase common stock597,842  560,849  604,394  587,282  
Convertible preferred stock633,454  801,391  715,657  801,498  
 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Stock options to purchase common stock33,890
 33,957
 56,528
 33,957
Convertible preferred stock803,285
 803,398
 803,360
 803,457



10.12.    Income Taxes


The Company’s effective tax rate fromfor continuing operations for the three and ninesix months ended SeptemberJune 30, 20172020 was 16.7%28.0% and 28.8%9.2%, respectively. The Company’s effective tax rate fromfor continuing operations for the three and ninesix months ended SeptemberJune 30, 20162019 was 55.6%29.0% and 64.9%35.6%, respectively. TheFor the six months ended June 30, 2020, the effective tax rates for the three and nine months ended September 30, 2016 exceededrate was substantially lower than the U.S. federal statutory rate of 35% 21.0%primarily due to foreign net operating losses (including equity investment losses in certainthe favorable impact of the periods) for whichCARES Act on the future incomeCompany’s 2018 U.S. NOLs. For the six months ended June 30, 2019, the effective tax benefit currently cannot be recognized, losses in foreign jurisdictions with tax rates lower thanrate was higher than the U.S. federal statutory rate of 35%,21.0% primarily due to state income taxes and certain non-deductible expenses. Foreign net operating losses for which no tax benefit can be provided were higherthe favorable impact of stock option deductions.

During 2019, the Company received refunds from the Internal Revenue Service (“IRS”) totaling $30,756 resulting from the loss on the 2018 workforce development segment sale. As a result of the size of the refunds received, in 2016 versusOctober 2019, the IRS commenced a mandatory review by a joint committee of Congress. The review is still ongoing.

The 2017 resulting in a decrease inTax Reform Act reduced the effectiveU.S. corporate income tax rate from 201635% to 2017. Additionally,21% and provided that U.S. NOLs incurred after 2017 could only be carried forward to offset future taxable income. Pursuant to the CARES Act, which was enacted on March 27, 2020, the Company carried its 2018 NOLs back five years. As a result, during the six months ended June 30, 2020, the Company recorded a $27,692 receivable for the three2018 U.S. NOL carryback, and nine months ended September 30, 2017, there was no provision for income taxes relatedan $10,984 tax benefit from the favorable carryback tax rate of 35% compared to the gain on salea carryforward tax rate of equity investment of $12,606 due to the substantial difference in tax basis versus book basis in the investment.

21%. The Company also recorded excessan additional income tax deficienciespayable of $3,753 for the three and nine months ended September 30, 2017 of $261 and $148, respectively, which increased the provision for income taxes. These excess tax deficiencies were2019 as a result of applying the guidance in ASU 2016-09 as further2018 NOL being carried back instead of carried forward.

As discussed in Note 2, Significant Accounting Policies16, Discontinued Operations, the Company transferred its operations in Saudi Arabia to its contractual counterparties on January 1, 2019. In connection with the dissolution of its Saudi Arabia legal entity, the Company is protesting withholding tax and Recent Accounting Pronouncements.

The adoption of ASU 2016-09 subjects our tax rate to quarterly volatility from the effects of stock award exercises and vesting activities, including the adverse impact on our income tax provisionassessments for awards which result in a tax deduction less than the amount recorded for financial reporting purposes based uponyears 2012 through 2017. The Company does not believe the fair valueultimate determination of the award at the grant date. For example, no sharesassessments will be distributed under the HoldCo LTIP unless the volume weighted averagehave a material adverse effect on its financial condition or results of Providence’s stock price over a 90-day period ending on December 31, 2017 exceeds $56.79. If this market condition is not satisfied, a significant tax shortfall will result, causing an adverse impact on our tax provision.discontinued operations.



11.13.    Commitments and Contingencies


Legal proceedings

On June 15, 2015, a putative stockholder class action derivative complaint was filed in the Court of Chancery of the State of Delaware (the “Court”), captioned Haverhill Retirement System v. Kerley et al., C.A. No. 11149-VCL (“Haverhill Litigation”).

On September 28, 2017, the Court approved a proposed settlement agreement among the parties that provides for a settlement amount of $10,000 less plaintiff’s legal fees and expenses (the “Settlement Amount”), with 75% of the Settlement Amount to be paid to the Company and 25% of the Settlement Amount to be paid to holders of the Company’s common stock other than certain excluded parties. The Company expects to receive a payment of approximately $5,000. As this amount is considered a gain contingency, the Company has not recorded a receivable for this amount as of September 30, 2017.

For further information regarding this legal proceeding please see Note 19, Commitments and Contingencies, in the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and Note 11, Commitments and Contingencies, in the unaudited condensed consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q for the periods ended March 31, 2017 and June 30, 2017.


In addition to the matter described above, in the ordinary course of business, the Company is a party to various lawsuits. Management does not expect these lawsuits to have a material impact on the liquidity, results of operations, or financial condition of Providence.the Company.




Indemnifications relatedOn January 21, 2019, the United States District Court for the Southern District of Ohio unsealed a qui tam complaint, filed in December 2015, against Mobile Care Group, Inc., Mobile Care Group of Ohio, LLC, Mobile Care EMS & Transport, Inc. and LogistiCare Solutions, LLC (“LogistiCare”) by Brandee White, Laura Cunningham, and Jeffery Wisier (the “Relators”) alleging violations of the federal False Claims Act by presenting claims for payment to Haverhill Litigation

government healthcare programs knowing that the prerequisites for such claims to be paid had not been met. The Relators seek to recover damages, fees and costs under the federal False Claims Act including treble damages, civil penalties and attorneys’ fees. In addition, the Relators seek reinstatement to their jobs with the Mobile Care entities. None of the Relators were employed by LogistiCare. Prior to January 21, 2019, LogistiCare had no knowledge of the complaint. The federal government has declined to intervene against LogistiCare. The Company completedfiled a rights offeringmotion to dismiss the Complaint on February 5, 2015 (the “Rights Offering”) providing allApril 22, 2019, and believes that the case will not have a material adverse effect on its business, financial condition or results of the Company’s existing common stockholders the non-transferable right to purchase their pro rata share of $65,500 of convertible preferred stock at a price equal to $100.00 per share (“Preferred Stock”). Stockholders exercised subscription rights to purchase 130,884 shares of the Company's Preferred Stock. Pursuant to the terms and conditions of the Standby Purchase Agreement (the “Standby Purchase Agreement”) between Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Coliseum Capital Co-Invest, L.P. and Blackwell Partners, LLC (collectively, the “Standby Purchasers”) and the Company, the remaining 524,116 shares of the Company’s Preferred Stock were purchased by the Standby Purchasers at the $100.00 per share subscription price. The Company has indemnified the Standby Purchasers from andoperations.

On March 1, 2019, Meher Patel filed suit against any and all losses, claims, damages, expenses and liabilities relating to or arising out of (i) any breach of any representation, warranty, covenant or undertaking made by or on behalf of the Company in the Standby Purchase AgreementSuperior Court of the State of California, Tuolumne County, on behalf of herself and (ii)as a class action on behalf of others similarly situated, asserting violations under the transactions contemplatedCalifornia Labor Code relating to the alleged failure by LogistiCare to comply with certain applicable state wage and related employment requirements, as well as claims of breach of contract and breach of the implied covenant of good faith and fair dealing. This matter has been resolved in a manner that does not materially impact the Company.
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In Lynch v. Ride Plus et al., a putative class action lawsuit filed in the Superior Court for the County of San Diego, California, a former Ride Plus driver (trade name for Provado Mobile Health, a Company subsidiary) sought to represent all Ride Plus drivers in California on claims identical to the Patel action. This matter has been resolved in a manner that does not materially impact the Company.

On April 1, 2019, a purported class action was filed against LogistiCare in Texas alleging that the Company’s policy with respect to timekeeping for hourly employees constituted violations of the federal Fair Labor Standards Act (“FLSA”), as well as wage and hour laws in South Carolina and Texas. Plaintiffs filed a motion for conditional certification on a nationwide basis, which LogistiCare contested. The court granted the conditional certification motion on January 22, 2020. The Company filed an appeal of the conditional certification order and plans to vigorously contest the allegations on the merits as the plaintiffs have mischaracterized the method by which employees clock in to work. At this early stage in the litigation, it is impossible to predict with any certainty whether plaintiffs will prevail on their claims, or what they might recover.

On June 10, 2020, Gateway Insurance Company (“Gateway”), doing business in California as Alano Insurance Company, a subsidiary of Atlas Financial Holdings, Inc., entered liquidation. Gateway previously insured certain LogistiCare subcontracted transportation providers. LogistiCare is listed as an additional insured on these policies, and received notice of the liquidation on June 15, 2020. LogistiCare currently has 12 active lawsuits involving transportation providers formerly insured by Gateway; however, additional lawsuits may be filed against these subcontracted transportation providers. As a result of the liquidation, these suits will now be taken over by the Standby Purchase Agreementstate guaranty fund in which the suit is pending. It is probable that LogistiCare will lose its additional insured status and be required to defend itself under its own insurance policies, which involve a self-insured retention. All of the 14.0% Unsecured Subordinated Notelawsuits are currently stayed for a time period varying by state in aggregate principal amount of $65,500, exceptorder for the guaranty fund to take over the extent that any such losses, claims, damages, expenses and liabilities are attributable to the gross negligence, willful misconduct or fraud of such Standby Purchaser.

case. The Company has also indemnified other third parties from and against any and all losses, claims, damages, expenses and liabilities arising out of oraccrued reserves related to these lawsuits in connectionaccordance with the Company’s acquisition of CCHN Group Holdings, Inc. (operating under the tradename Matrix, and formerly included in our HA Services segment) in October 2014 and related financing commitments, except to the extent that any such losses, claims, damages, expenses and liabilities are found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence, bad faith or willful misconduct of such third parties, or a material breach of such third parties’ obligations under the related agreements.ASC 450, Contingencies.


Indemnifications

The Company recorded $21 and $296 of such indemnified legal expenses related to the Haverhill Litigation during the three and nine months ended September 30, 2017, respectively, and $791 and $935 of such indemnified legal expenses during the three and nine months ended September 30, 2016, respectively, which is included in “General and administrative expenses” in the condensed consolidated statements of income. Of these amounts, $23 and $231 for the three and nine months ended September 30, 2017, respectively, and $360 and $504 for the three and nine months ended September 30, 2016, respectively, were indemnified legal expenses of related parties. Other legal expenses of the Company related to the Haverhill Litigation are covered under the Company’s insurance policies, subject to applicable deductibles and customary review of the expenses by the carrier. The Company recognized related benefit of $3 and expense of $8 for the three and nine months ended September 30, 2017, respectively, and related expense of $107 for the three and nine months ended September 30, 2016. While the carrier typically remits payment directly to the respective law firm, the Company accrues for the cost and records a corresponding receivable for the amount to be paid by the carrier. The Company has recognized an insurance receivable of $903 and $1,645 in “Other receivables” in the condensed consolidated balance sheets at September 30, 2017 and December 31, 2016, respectively, with a corresponding liability amount recorded to “Accrued expenses”.

Other Indemnifications

The Company has provided certain standard indemnifications in connection with the sale of the Human Services segment to Molina Healthcare Inc. (“Molina”) effective November 1, 2015. AllCertain representations and warranties made by the Company in the related Membership Interest Purchase Agreement (the “Purchase Agreement”) to sell the Human Services segment ended on February 1, 2017. However, claims made prior to February 1, 2017 by the purchaser of the Human Services segment against these representations and warranties may survive until the claims are settled. In addition, certain representations, including tax representations, survive until the expiration of applicable statutes of limitation,limitation. Molina and healthcare representations survive until the third anniversary of the closing date. The Company received indications from the purchaser of the Human Services segment priorentered into a settlement agreement regarding indemnification claims by Molina with respect to the February 1, 2017 deadline regarding potential indemnification claims. One such potential indemnification claim relates to Rodriguez v. Providence Community Corrections (the “Rodriguez Litigation”), a complaint filed in the District Court for the Middle District of Tennessee, Nashville Division, (the “Rodriguez Court”), against Providence Community Corrections, Inc. (“PCC”), an entity sold under the Purchase Agreement. In September 2017, the parties to the Rodriguez Litigation submitted a proposed settlement to the Rodriguez Court for approval pursuant to which PCC would pay the plaintiffs approximately $14,000. In October 2017, the Rodriguez Court denied preliminary approval of the settlement agreement and requested that the parties provide additional information. In October 2017, the parties submitted an amended motion for the Rodriguez Court to approve the proposed settlement.

Molina and2019, the Company have entered intorecovered a memorandum of understanding regarding a settlement of an indemnification claim by Molina with respect to the Rodriguez Litigation and other matters. As of September 30, 2017, the accrual is $15,000 with respect to an estimate of loss for potential indemnification claims. The Company expects to recover a substantial portion of the settlement through insurance coverage, although this cannot be assured.coverage.




The Company has provided certain standard indemnifications in connection with its Matrix stock subscription transaction whereby Mercury Fortuna Buyer, LLC (“Subscriber”), Providence and Matrix entered into a stock subscription agreement (the “Subscription Agreement”), dated August 28, 2016. The representations and warranties made by the Company in the Subscription Agreement survive through the 15th month following the closing date;ended January 19, 2018; however, certain fundamental representations survivesurvived through the 36th month following the closing date.October 19, 2019. The covenants and agreements of the parties to be performed prior to the closing survive through the 15th month following the closing date,ended January 19, 2018, and all other covenants and agreements survivesurvived until the expiration of the applicable statute of limitations in the event of a breach, or for such lesser periods specified therein.The Company is not aware of any indemnification liabilities with respect to Matrix that require accrual at SeptemberJune 30, 2017.2020.


Other Contingencies
On October 26, 2017, the UK Ministry of Justice (the “MOJ”) released a report on reoffending statistics for certain offenders who entered probation services during the period October 2015 to December 2015. The report provides statistics for all providers of probation services, including the Company’s subsidiary Reducing Reoffending Partnership (“RRP”). This information is the first data set that is utilized to determine performance payments under the various providers’ transforming rehabilitation contracts with the MOJ, as the actual rates of recidivism are compared to benchmark rates established by the MOJ. Across the industry, including for RRP, while certain rates of recidivism were less than the applicable benchmarks, other rates exceeded the benchmarks established by the MOJ. If such rates of recidivism were to continue to exceed the benchmark rates established by the MOJ, RRP could be required to make payments to the MOJ, which amounts could be material. The amount of potential payments to the MOJ, if any, under RRP’s contracts with the MOJ is not estimable at this time, as the MOJ is reviewing the data to understand the underlying reasons for the increase in certain rates of recidivism and other factors that could impact the contractual measure.
Loss Reserves for Certain Reinsurance Programs
The Company historically reinsured a substantial portion of its automobile, general and professional liability and workers’ compensation costs under reinsurance programs through the Company’s wholly-owned subsidiary, Social Services Providers Captive Insurance Company (“SPCIC”), a licensed captive insurance company domiciled in the State of Arizona. As of May 16, 2017, SPCIC did not renew the expiring reinsurance policies. SPCIC will continue to resolve claims under the historical policy years.

The Company utilizes a report prepared by an independent actuary to estimate the gross expected losses related to historical automobile, general and professional and workers’ compensation liability reinsurance policies, including the estimated losses in excess of SPCIC’s insurance limits, which would be reimbursed to SPCIC to the extent such losses were incurred.  As of September 30, 2017 and December 31, 2016, the Company had reserves of $8,309 and $11,195, respectively, for the automobile, general and professional liability and workers’ compensation reinsurance policies, net of expected receivables for losses in excess of SPCIC’s historical insurance limits.  The gross reserve as of September 30, 2017 and December 31, 2016 of $14,407 and $16,460, respectively, is classified as “Reinsurance liability reserves” and “Other long-term liabilities” in the condensed consolidated balance sheets.  The estimated amount to be reimbursed to SPCIC as of September 30, 2017 and December 31, 2016 was $6,098 and $5,265, respectively, and is classified as “Other receivables" and “Other assets” in the condensed consolidated balance sheets.

Deferred Compensation Plan

The Company has one deferred compensation planprovided certain standard indemnifications in connection with the sale of substantially all of its WD Services segment to Advanced Personnel Management Global Pty Ltd of Australia (“APM”), which closed on December 21, 2018. The non-title warranties made by the Company in the related Share Purchase Agreement survive for highly compensated employees18 months following the closing date, and the title-related warranties and tax warranties survive five years from the closing date (i.e., December 21, 2023). The Company is not aware of NETany indemnification liabilities with respect to the former WD Services segment that require accrual at June 30, 2020.

On May 9, 2018, the Company entered into a registration indemnification agreement with Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Blackwell Partners, LLC - Series A and Coliseum Capital Co-Invest, L.P. (collectively, the “Coliseum Stockholders”), who as of SeptemberJune 30, 2017. The deferred compensation plan is unfunded, and benefits are paid from the general assets2020 collectively held approximately 12.9% of the Company. The totalCompany’s outstanding common stock and approximately 50.4% of participant deferrals,the Company’s outstanding Preferred Stock, pursuant to which is reflected in “Other long-term liabilities” in the condensed consolidated balance sheets, was $1,718Company has agreed to indemnify the Coliseum Stockholders, and $1,430 at September 30, 2017 and December 31, 2016, respectively.the Coliseum Stockholders have agreed to indemnify the Company, against certain matters relating to the registration of the selling stockholders’ securities for resale under the Securities Act of 1933, as amended (the “Securities Act”).


21
12.





14.    Transactions with Related Parties


The Company incurred legal expenses under an indemnification agreement with the Standby Purchasers as furtherAs discussed in Note 10, Stock-Based Compensation and Similar Arrangements, on June 8, 2020, the Company entered into a Preferred Stock Conversion Agreement with Coliseum Capital Partners, L.P. and certain funds and accounts managed by Coliseum Capital Management, LLC. Pursuant to the Conversion Agreement, the Company purchased 369,120 shares of Series A Convertible Preferred Stock, par value $0.001 per share, in exchange for $209.88 in cash per share of Series A Preferred Stock, plus a cash amount equal to accrued but unpaid dividends on such shares of Series A Preferred Stock through the day prior to June 11, Commitments2020. Further, the Holders converted 369,120 shares of Series A Preferred Stock into 925,567 shares of common stock, a cash payment equal to accrued but unpaid dividends on such shares of Series A Preferred Stock through June 11, 2020, and Contingencies. a cash payment of $8.82 per share of Series A Preferred Stock. The amount of accrued dividends paid pursuant to the Conversion Agreement was equal to $790.

Convertible preferred stock dividends earned by the Standby PurchasersColiseum Stockholders during the three and ninesix months ended SeptemberJune 30, 20172020 and 2019 totaled $1,062$1,878 and $3,151, respectively. Convertible preferred$2,089, respectively, including accrued dividends paid pursuant to the Conversion Agreement.

15.  Acquisitions

On May 6, 2020, LogistiCare Solutions, LLC, a Delaware limited liability company (“LogistiCare”) and wholly-owned subsidiary of Providence, entered into an Equity Purchase Agreement (the “Purchase Agreement”) with Specialty Benefits, LLC., a Delaware corporation (the “Seller”), National MedTrans, LLC, a New York limited liability company (“NMT”) and for limited purposes therein, United Healthcare Services, Inc., a Minnesota corporation. NMT services contractual relationships to provide non-emergency medical transportation. Pursuant to the terms of the Purchase Agreement, LogistiCare acquired all of the outstanding capital stock dividends earnedof NMT.

The transaction was accounted for as an asset acquisition in accordance with ASC 805, Business Combinations. The Company obtained an analysis from an independent third-party valuation specialist to assist in determining the purchase price allocation. The Company incurred transaction costs for the acquisition of $774 during the six months ended June 30, 2020. These costs were capitalized as a component of the purchase price.

The consideration paid for the acquisition is as follows:

Value
Consideration paid$80,000 
Transaction costs774 
Restricted cash received(3,109)
Net consideration$77,665 

Restricted cash acquired was related to a security reserve for a contract. No liabilities were assumed.

The fair value allocation of the net consideration is as follows:

TypeLifeValue
Customer relationshipsAmortizable6$75,514  
Trade names and trademarksAmortizable32,151  
$77,665  

16.  Discontinued Operations

On December 21, 2018, the Company completed the sale of substantially all of the operating subsidiaries of its WD Services segment to APM and APM UK Holdings Limited, an affiliate of APM, except for the segment’s employment services operations in Saudi Arabia. The Company’s contractual counterparties in Saudi Arabia, including an entity owned by the Standby Purchasers during the three and nine months ended September 30, 2016 totaled $1,059 and $3,154, respectively.Saudi Arabian government, assumed these operations beginning January 1, 2019. The Company is winding down its Saudi Arabian entity.



22



During the three months ended March 31, 2017,


On June 11, 2018, the Company madeentered into a $566 loanShare Purchase Agreement to Mission Providence.sell the shares of Ingeus France, its WD Services operation in France, for a de minimis amount. The loansale was repaid during the three months ended September 30, 2017.effective on July 17, 2018.


13.  Discontinued Operations

On November 1, 2015, the Company completed the sale of theits Human Services segment. During the three and ninesix months ended SeptemberJune 30, 2017,2020 and 2019, the Company recorded additional expenses related to the Human Services segment, principally related to previously disclosed legal proceedings as described in Note 11, Commitments and Contingencies, related to an indemnified legal matter.professional fees.

Effective October 19, 2016, the Company completed the Matrix Transaction. Prior to the closing of the Matrix Transaction, the financial results of Matrix were included in the Company’s HA Services segment, which has been reflected as a discontinued operation for the three and nine months ended September 30, 2016. Following the Matrix Transaction, the Company has a continuing involvement with Matrix through its ownership interest in Matrix, which is accounted for as an equity method investment. As of September 30, 2017, the Company holds a 46.6% ownership interest in Matrix. Matrix’s pretax loss for the three and nine months ended September 30, 2017 totaled $582 and $896, respectively. There have been no cash inflows or outflows from or to Matrix subsequent to the closing of the Matrix Transaction, other than the payment of working capital adjustments and management fees associated with its ongoing relationship with Matrix, of which $841 was received during the nine months ended September 30, 2017. $259 and $185 are included in “Other receivables” in the condensed consolidated balance sheets at September 30, 2017 and December 31, 2016, respectively, related to management fees receivable.


Results of Operations


The following tables summarize the results of operations classified as discontinued operations net of tax, for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016.2019:
 Three months ended June 30, 2020
 Human Services
Segment		WD Services
Segment		Total Discontinued
Operations
Operating expenses:
  General and administrative expense$211  $164  $375  
Total operating expense211  164  375  
Operating loss(211) (164) (375) 
Loss from discontinued operations before income taxes(211) (164) (375) 
Benefit for income taxes33  41  74  
Loss from discontinued operations, net of tax$(178) $(123) $(301) 


Six months ended June 30, 2020
Human Services SegmentWD Services SegmentTotal Discontinued Operations
Operating expenses:
General and administrative expense$334  $310  $644  
Total operating expense334  310  644  
Operating loss(334) (310) (644) 
Loss from discontinued operations before income taxes(334) (310) (644) 
Benefit for income taxes64  77  141  
Loss from discontinued operations, net of tax$(270) $(233) $(503) 


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 Three months ended September 30, 2017 Nine months ended September 30, 2017
 
Human
Services
Segment
 
HA Services
Segment
 
Total
Discontinued
Operations
 
Human
Services
Segment
 
HA Services
Segment
 
Total
Discontinued
Operations
            
Operating expenses:           
General and administrative expense$26
 $—
 $26
 $9,622
 $—
 $9,622
Total operating expenses26
 —
 26
 9,622
 —
 9,622
Loss from discontinued operations before income taxes(26) —
 (26) (9,622) —
 (9,622)
Income tax benefit10
 —
 10
 3,622
 —
 3,622
Discontinued operations, net of tax$(16) $—
 $(16) $(6,000) $—
 $(6,000)
 Three months ended June 30, 2019
 Human Services
Segment		WD Services
Segment		Total Discontinued
Operations
Operating expenses:
  General and administrative expense (income)$72  $(2,805) $(2,733) 
Total operating expenses (income)72  (2,805) (2,733) 
Operating (loss) income(72) 2,805  2,733  
(Loss) income from discontinued operations before income taxes(72) 2,805  2,733  
Benefit (provision) for income taxes17  (1,053) (1,036) 
(Loss) income from discontinued operations, net of tax$(55) $1,752  $1,697  


General
Six months ended June 30, 2019
Human Services SegmentWD Services SegmentTotal Discontinued Operations
Operating expenses:
General and administrative expense (income)$217  $(2,097) $(1,880) 
Total operating expense (income)217  (2,097) (1,880) 
Operating (loss) income(217) 2,097  1,880  
(Loss) income from discontinued operations before income taxes(217) 2,097  1,880  
Benefit (provision) for income taxes53  (967) (914) 
(Loss) income from discontinued operations, net of tax$(164) $1,130  $966  


Assets and administrative expenses forliabilities

The following table summarizes the three months ended September 30, 2017 includes legal expenses of $26. General and administrative expenses for the nine months ended September 30, 2017 includes an accrual of $9,000 for an estimated settlement of indemnified claims related to the salecarrying amounts of the Human Services segment, as well as related legal expensesmajor classes of $622. See Note 11, Commitmentsassets and Contingencies, for additional information.


 Three months ended September 30, 2016 Nine months ended September 30, 2016
 
Human
Services
Segment
 
HA Services
Segment
 
Total
Discontinued
Operations
 
Human
Services
Segment
 
HA Services
Segment
 
Total
Discontinued
Operations
            
Service revenue, net$—
 $52,557
 $52,557
 $—
 $155,421
 $155,421
            
Operating expenses:           
Service expense—
 38,703
 38,703
 —
 113,455
 113,455
General and administrative expense7,463
 1,505
 8,968
 7,463
 2,823
 10,286
Depreciation and amortization—
 5,359
 5,359
 —
 21,121
 21,121
Total operating expenses7,463
 45,567
 53,030
 7,463
 137,399
 144,862
Operating income (loss)(7,463) 6,990
 (473) (7,463) 18,022
 10,559
            
Other expenses:           
Interest expense, net—
 3,134
 3,134
 —
 9,304
 9,304
Income (loss) from discontinued operations before income taxes(7,463) 3,856
 (3,607) (7,463) 8,718
 1,255
Income tax benefit (provision)2,428
 (1,612) 816
 2,428
 (3,351) (923)
Discontinued operations, net of tax$(5,035) $2,244
 $(2,791) $(5,035) $5,367
 $332

Interest expense, net

The Company allocated interest expense, including amortizationliabilities of deferred financing fees, to discontinued operations based on the portion of debt that was required to be repaid with the proceeds from the Matrix Transaction. The total allocated interest expense was $3,136 and $9,310 for the three and nine months ended September 30, 2016 respectively, and is included in “Interest expense, net” in the table above.condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019. Amounts represent the accounts of WD Services operations in Saudi Arabia, which were not sold as part of the WD Services sale.


June 30,December 31,
 20202019
Cash and cash equivalents$89  $155  
Current assets of discontinued operations$89  $155  
Accounts payable$41  $16  
Accrued expenses1,463  1,414  
Current liabilities of discontinued operations$1,504  $1,430  

Cash Flow Information

There were $644 in cash flow payments related to operating expenses for WD Services and Human Services Segment for the six months ended June 30, 2020. There were $646 in payments related to income taxes for WD Services Segment for the six months ended June 30, 2019.

17.    Segments

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The following table presents depreciation, amortizationCompany’s chief operating decision maker reviews financial performance and capital expenditures of the discontinued operations for the nine months ended September 30, 2016:allocates resources based on 2 segments as follows:

 Nine months ended September 30, 2016
  
Cash flows from discontinued operating activities: 
Depreciation$3,661
Amortization$17,460
  
Cash flows from discontinued investing activities: 
Purchase of property and equipment$8,020

14.    Segments

Providence, through its subsidiaries and other companies in which it holds interests, is primarily engaged in the provision of healthcare and workforce development services. The subsidiaries and other companies in which the Company holds interests comprise the following segments:
•NET Services – Nationwide provider- which operates primarily under the brands LogistiCare and Circulation, is the largest manager of non-emergency medical transportationNET programs for state governments and managed care organizations.MCOs in the U.S and includes the Company’s activities for executive, accounting, finance, internal audit, tax, legal, certain strategic and development functions and the Company's now dissolved captive insurance company.



WD Services – Global provider of employment preparation and placement and legal offender rehabilitation services to eligible participants of government sponsored programs.
•Matrix Investment – Minority interest in nationwide provider- which consists of in-home care optimization and management solutions, including comprehensive health assessments, to members of managed care organizations, accounted for as an equity method investment.

Effective October 19, 2016, pursuant to the Matrix Transaction, the Company no longer owns a controlling interestminority investment in Matrix, which historically constituted the HA Services segment as further discussed in Note 13, Discontinued Operations. As the HA Services segment, through October 19, 2016, is presented asprovides a discontinued operation, it is not reflected in the Company’s segment disclosures.  However, the Company accountsbroad 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 noncontrolling interest in Matrix from October 19, 2016 through present as an equity method investment, which solely comprises the Matrix Investment in the table below.fleet of mobile health clinics provides community-based care with advance diagnostic capabilities.


The following tables set forth certain financial information from continuing operations attributable to the Company’s business segments for the three and nine months ended September 30, 2017 and 2016:segments:
 Three months ended June 30, 2020
 NET ServicesMatrix
Investment		Total
 Service revenue, net$282,256  $—  $282,256  
Service expense196,106  —  196,106  
General and administrative expense31,199  —  31,199  
Depreciation and amortization6,108  —  6,108  
Operating income$48,843  $—  $48,843  
Equity in net gain of investee$—  $4,425  $4,425  
Investment in equity method investee$—  $131,974  $131,974  
Total assets (continuing operations)$522,271  $131,974  $654,245  


Six months ended June 30, 2020
NET ServicesMatrix InvestmentTotal
Service revenue, net$649,547  $—  $649,547  
Service expense528,767  —  528,767  
General and administrative expense51,994  —  51,994  
Depreciation and amortization9,898  —  9,898  
Operating income$58,888  $—  $58,888  
Equity in net gain of investee$—  $1,875  $1,875  
Investment in equity method investee$—  $131,974  $131,974  
Total assets (continuing operations)$522,271  $131,974  $654,245  

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Three months ended September 30, 2017 Three months ended June 30, 2019
NET Services WD Services 
Matrix
Investment
 
Corporate and
Other
 Total NET ServicesMatrix
Investment		Total
Service revenue, net$324,824
 $84,693
 $—
 $—
 $409,517
Service revenue, net$363,911  $—  $363,911  
Service expense304,454
 73,581
 —
 (3) 378,032
Service expense345,948  —  345,948  
General and administrative expense2,899
 6,980
 —
 8,750
 18,629
General and administrative expense16,860  —  16,860  
Depreciation and amortization3,286
 3,166
 —
 95
 6,547
Depreciation and amortization4,353  —  4,353  
Operating income (loss)$14,185
 $966
 $—
 $(8,842) $6,309
Operating lossOperating loss$(3,250) $—  $(3,250) 
         
Equity in net gain (loss) of investee$—
 $(459) $(1) $—
 $(460)
Equity in net loss of investeeEquity in net loss of investee$—  $(1,315) $(1,315) 
Investment in equity method investeeInvestment in equity method investee$—  $157,948  $157,948  
Total assets (continuing operations)Total assets (continuing operations)$443,703  $157,948  $601,651  


Six months ended June 30, 2019
NET ServicesMatrix InvestmentTotal
Service revenue, net$731,726  $—  $731,726  
Service expense686,446  —  686,446  
General and administrative expense36,262  —  36,262  
Depreciation and amortization8,827  —  8,827  
Operating income$191  $—  $191  
Equity in net loss of investee$—  $(2,971) $(2,971) 
Investment in equity method investee$—  $157,948  $157,948  
Total assets (continuing operations)$443,703  $157,948  $601,651  

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 Three months ended September 30, 2016
 NET Services WD Services 
Matrix
Investment
 
Corporate and
Other
 Total
Service revenue, net$317,280
 $94,960
 $—
 $31
 $412,271
Service expense293,919
 84,051
 —
 518
 378,488
General and administrative expense2,860
 6,780
 —
 7,680
 17,320
Depreciation and amortization3,051
 3,497
 —
 122
 6,670
Operating income (loss)$17,450
 $632
 $—
 $(8,289) $9,793
          
Equity in net gain (loss) of investee$—
 $(1,517) $—
 $—
 $(1,517)





 Nine months ended September 30, 2017
 NET Services WD Services 
Matrix
Investment
 
Corporate and
Other
 Total
Service revenue, net$987,662
 $229,332
 $—
 $—
 $1,216,994
Service expense927,082
 199,665
 —
 (2,269) 1,124,478
General and administrative expense8,879
 20,944
 —
 23,882
 53,705
Depreciation and amortization9,763
 9,695
 —
 258
 19,716
Operating income (loss)$41,938
 $(972) $—
 $(21,871) $19,095
          
Equity in net gain (loss) of investee$—
 $(1,419) $428
 $—
 $(991)


 Nine months ended September 30, 2016
 NET Services WD Services 
Matrix
Investment
 
Corporate and
Other
 Total
Service revenue, net$917,157
 $275,293
 $—
 $(24) $1,192,426
Service expense846,311
 247,797
 —
 903
 1,095,011
General and administrative expense8,483
 23,236
 —
 20,829
 52,548
Depreciation and amortization8,858
 10,912
 —
 288
 20,058
Operating income (loss)$53,505
 $(6,652) $—
 $(22,044) $24,809
          
Equity in net gain (loss) of investee$—
 $(5,693) $—
 $—
 $(5,693)

Geographic Information

Domestic service revenue, net, totaled 82.1% and 78.0% of service revenue, net for the nine months ended September 30, 2017 and 2016, respectively. Foreign service revenue, net, totaled 17.9% and 22.0% of service revenue, net for the nine months ended September 30, 2017 and 2016, respectively.

At September 30, 2017 and December 31, 2016, $99,352, or 26.0%, and $76,579, or 20.4%, respectively, of the Company’s net assets were located in countries outside of the U.S., including $15,823 of proceeds realized on the sale of the equity investment in Mission Providence.

15.    Subsequent Events

On November 2, 2017, the Company’s Board of Directors approved the extension of the Company’s existing stock repurchase program, authorizing the Company to engage in a common stock repurchase program to repurchase up to $69,624 (the amount remaining from the $100,000 repurchase amount authorized in 2016) in aggregate value of the Company’s common stock through December 31, 2018. Purchases under the common stock repurchase program may be made from time-to-time through a combination of open market repurchases (including Rule 10b5-1 plans), privately negotiated transactions, and accelerated share repurchase transactions, at the discretion of the Company’s officers, and as permitted by securities laws, covenants under existing bank agreements, and other legal requirements.





Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.


The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, as well as our consolidated financial statements and accompanying notes and management’s discussion and analysis of financial condition and results of operations included in our Form 10-K for the year ended December 31, 2016.2019. For purposes of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to Q3 2017Q2 2020 and Q3 2016Q2 2019 mean the three months ended SeptemberJune 30, 20172020 and the three months ended SeptemberJune 30, 2016,2019, respectively, and references to YTD 20172020 and YTD 20162019 mean the ninesix months ended SeptemberJune 30, 20172020 and the ninesix months ended SeptemberJune 30, 2016,2019, respectively.


Overview of our businessOur Business


The Providence through its subsidiariesService Corporation ("Providence") is a Delaware corporation that was formed in 1996 and other companies in which it holds interests, is primarily engaged in the provision of healthcare and workforce development services. The subsidiaries and other companies in which we hold interests comprise the following segments:
Non-Emergency Transportation Services (“NET Services”) – Nationwide providerlargest manager of non-emergency medical transportation (“NET”) programs for state governments and managed care organizations.organizations (“MCOs”) in the United States (“U.S.”) primarily through its brands LogistiCare and Circulation. In addition, our NET Services segment includes the Company’s activities related to executive, accounting, finance, internal audit, tax, legal, certain strategic and corporate development functions and the Company's now dissolved captive insurance company. Our headquarters is in Atlanta, GA and we are listed on NASDAQ under the ticker symbol "PRSC".
Workforce Development Services
Providence also owns a minority investment in CCHN Group Holdings, Inc. and its subsidiaries (“WD Services”Matrix”) – Global provider of employment preparation and placement and legal offender rehabilitation services to eligible participants of government sponsored programs.
. Matrix Investment – Minority interest inis a nationwide provider of 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 provides community-based care optimizationwith advanced diagnostic capabilities. These solutions combined with Matrix’s advanced engagement approach, help health plans manage risks, close care gaps and management solutions, including comprehensive health assessments,connect members to members of managed care organizations, accounted for as an equity method investment.care.


Business Outlook and Trends

Our performance is affected by a number of trends that drive the demand for our services. In particular, the markets in which we operate are exposed to various trends such as healthcare industry and demographic dynamics in the United States (“U.S.”) and international government outsourcing and employment dynamics. Over the long term, we believe there are numerous factors that could affect growth within the industries in which we operate, including:
•an aging population, which will increase demand for healthcare services;services and transportation;
•a movement towards value-based versus fee for service care and budget pressure on governments, both of which may increase the use of private corporations to provide necessary and innovative services;
•increasing demand for in-home care provision, driven by cost pressures on traditional reimbursement models and technological advances enabling remote engagement;
•technological advancements, which may be utilized by us to improve service and lower costs, andbut also by others which may increase industry competitiveness;
changes•MCOs that provide Medicare Advantage plans are increasingly offering non-emergency medical transportation services as a supplemental benefit in UK government policy, such as decreased volumes in future welfare-to-work programs, specifically throughaccordance with current social trends;
•proposals by the UK’s Work and Health Programme, which will have a reduced scope and reduced funding compared with the prior programs;
the resultsPresident of the referendum onUnited States and Congress to change the UK’s exit fromMedicaid program, including considering regulatory changes to make the European Unionnon-emergency medical transportation benefit optional for states, and related political and economic uncertainty in the UK; andCenters for Medicare & Medicaid Services’ grant of waivers to states relative to the parameters of their Medicaid programs;
the U.S. federal government's expressed intent•enactment of adverse legislation, regulation or agency guidance, or litigation challenges to repeal the Patient Protection and Affordable Care Act, and replace such law with an alternative proposal. The details of both the extent of the provisions that may be repealed as well as the details of any potential replacement legislation are uncertain at this time. Enactment of adverse legislation, regulationstate Medicaid programs, or agency guidance,other governmental programs may reduce the eligibility or demand for our services, our ability to conduct some or all of our business and/or reimbursement rates for services performed within our segments.segments;

•a trend among MCO, Medicaid and Medicare plans to offer value-add transportation benefits in order to promote social determinants of health;

•the recognition that social determinants of health are as critical or even more so than traditional healthcare delivery in ensuring patients have access and treatment to health;

•the economic impact of the coronavirus ("COVID-19") pandemic could delay Medicaid health care expansion in those states that have not yet adopted the Medicaid expansion; and,
Historically, our segments have grown through organic expansion into new markets•an increase in trip volume once restrictions related to COVID-19 are modified or lifted.
27






We received notice from a customer that it would be terminating or not renewing certain contracts on September 30, 2020 and service lines, organic expansion within existing marketsDecember 31, 2020. For the six months ended June 30, 2020, we recorded revenue of $25.3 million for these contracts.

Critical Accounting Estimates and service lines, increases in the number of members served under contracts wePolicies

There have been awarded, the securing of new contracts, and acquisitions. As we continueno significant changes to focus our attention and capital on our domestic, healthcare services operations ("U.S. Healthcare Services"), we may pursue the acquisition of attractive businesses that are complementary to our U.S. Healthcare Services. In addition, as evidenced by the 2016 Matrix Transaction (as defined below), we may also enter into strategic partnerships if we feel this provides the best opportunity to maximize shareholder value. The pursuit of our strategy may also result in the disposition of current or future investments, as demonstrated in 2017 with our sale of our equity investment in Mission Providence and in 2015 with the sale of our Human Services segment. In coming to these determinations, we base our decisions on a variety of factors, including the availability of alternative opportunities to deploy capital, maximize shareholder value or other strategic considerations. Furthermore, the Company typically incurs costs related to merger and acquisition activities, including third-party costs, whether the transaction is completed or not.

Critical accounting estimates and policies

As of September 30, 2017, there has been no change in our critical accounting policies other thanin our condensed consolidated financial statements from our Form 10-K for stock-based compensation and recoverability of goodwill, as discussed below.the year ended December 31, 2019. For further discussion of our critical accounting policies, see management’s discussion and analysis of financial condition and results of operations contained in our Form 10-K for the year ended December 31, 2016.2019.


Stock-Based Compensation

Our primary forms of employee stock-based compensation are stock option awards and restricted stock awards, including certain awards which vest based upon performance conditions. We measure the value of stock option awards on the date of grant at fair value using the appropriate valuation techniques, including the Black-Scholes and Monte Carlo option-pricing models. We recognize the fair value as stock-based compensation expense on a straight-line basis over the requisite service period, which is typically the vesting period. The pricing models require various highly judgmental assumptions including volatility and expected option term. If any of the assumptions used in the models change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period.

As a result of the adoption of Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), effective January 1, 2017, we no longer record stock-based compensation expense net of estimated forfeitures and the tax effects of awards are treated as discrete items in the period in which tax windfalls or shortfalls occur. The adoption also impacted the presentation of cash flows and the computation of earnings per share.

The adoption of ASU 2016-09 will subject our tax rate to quarterly volatility from the effects of stock award exercises and vesting activities, including the adverse impact on our income tax provision for awards which result in a tax deduction less than the amount recorded for financial reporting purposes based upon the fair value of the award at the grant date. For example, no shares will be distributed under the Company’s 2015 Holding Company LTI Program (the “HoldCo LTIP”) unless the volume weighted average of Providence’s stock price over a 90-day period ending on December 31, 2017 exceeds $56.79. If this market condition is not satisfied, a significant tax shortfall will result, causing an adverse impact on our tax provision.

Recoverability of Goodwill

Goodwill. In accordance with ASC 350, Intangibles-Goodwill and Other, we review goodwill for impairment annually, or more frequently, if events and circumstances indicate that an asset may be impaired. Such circumstances could include, but are not limited to: (1) the loss or modification of significant contracts, (2) a significant adverse change in legal factors or in business climate, (3) unanticipated competition, (4) an adverse action or assessment by a regulator, or (5) a significant decline in the Company’s stock price. We perform the annual goodwill impairment test for all reporting units as of October 1.

First, we perform qualitative assessments for each reporting unit to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment suggests that it is more likely than not that the fair value of a reporting unit is less than its carrying value amount, we then perform a quantitative assessment and compare the fair value of the reporting unit to its carrying value.



We adopted ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350):Simplifying the Test for Goodwill Impairment (“ASU 2017-04”) effective April 1, 2017. ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test. Instead, if we deem it necessary to perform the quantitative goodwill impairment test in an annual or interim period, we recognize an impairment charge equal to the excess, if any, of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

Results of operationsOperations


Segment reporting. Our segments reflect the manner in which our operations are organized and reviewed by management along our segment lines.management. We operate in twoone principal business segments:segment, NET Services and WD Services. Our investment in CCHN Group Holdings, Inc. and its subsidiaries (“Matrix”)Matrix is also a reportable segment referred to as the “Matrix Investment”.

On October 19, 2016, affiliates of Frazier Healthcare Partners purchased a 53.2% equity interest in Matrix, with Providence retaining a 46.8% equity interest (the “Matrix Transaction”), resulting in our ownership of a noncontrolling interest (46.6% as of September 30, 2017) in our historical Health Assessment Services (“HA Services”) segment. The HA Services segment results of operations for the periods through October 19, 2016 are separately discussed in the “Discontinued operations, net of tax” section set forth below. The results of operations for periods subsequent to October 19, 2016 are separately discussed in the “Equity in net loss of investees” section set forth below. Additionally, effective November 1, 2015, we completed the sale of our Human Services segment. The Human Services segment results of operations are separately discussed in the “Discontinued operations, net of tax” section set forth below. Subsequent to the sale of our Human Services segment, we have incurred additional expenses in certain periods related to the settlement of indemnification claims and associated legal costs, which are recorded to “Discontinued operations, net of tax”.

Segment results are based on how our chief operating decision maker manages our business, makes operating decisions and evaluates operating performance. The operating results of the twoour principal business segmentssegment include revenue and expenses incurred by the segment, as well as an allocation of certain direct expenses incurred by our corporate division on behalf of the segment. Indirect expenses, including unallocated corporate functions and expenses, such asactivities related to executive, finance, accounting, human resources, insurance administration,finance, internal audit, process improvement, information technologytax, legal, certain strategic and legal, as well ascorporate development functions and the results of our captive insurance company (the “Captive”)through the date of dissolution. See Note 17, Segments, in our condensed consolidated financial statements for further information on our segments.

Discontinued operations. During prior years, we completed the following transactions, which resulted in the presentation of the related operations as Discontinued Operations.

•On November 1, 2015, we completed the sale of our Human Services segment. However, since the completion of the sale, we have recorded additional expenses related to legal proceedings related to an indemnified legal matter.

•On December 21, 2018, we completed the sale of substantially all of the operating subsidiaries of the WD Services segment to APM and elimination entries recordedAPM UK Holdings Limited, an affiliate of APM, except for the segment’s employment services operations in consolidationSaudi Arabia. Our contractual counterparties in Saudi Arabia, including an entity owned by the Saudi Arabian government, assumed these operations beginning January 1, 2019. Wind-down activities of our Saudi Arabian entity are reflectedincluded in “Corporate and Other”.our discontinued operations. Additionally, on June 11, 2018, we entered into a Share Purchase Agreement to sell Ingeus France for a de minimis amount. The sale was effective on July 17, 2018.



28



Q3 2017


Q2 2020 compared to Q3 2016Q2 2019


Consolidated Results. The following table sets forth results of operations and the percentage of consolidated total revenuesService revenue, net represented by items in our unaudited condensed consolidated statements of incomeoperations for Q3 2017Q2 2020 and Q3 2016Q2 2019 (in thousands):

 Three months ended September 30,
 2017 2016
 $ 
Percentage
of Revenue
 $ 
Percentage
of Revenue
Service revenue, net409,517
 100.0% 412,271
 100.0%
        
Operating expenses:       
Service expense378,032
 92.3% 378,488
 91.8%
General and administrative expense18,629
 4.5% 17,320
 4.2%
Depreciation and amortization6,547
 1.6% 6,670
 1.6%
Total operating expenses403,208
 98.5% 402,478
 97.6%
        
Operating income6,309
 1.5% 9,793
 2.4%
        
Non-operating expense:       
Interest expense, net302
 0.1% 338
 0.1%
Equity in net (gain) loss of investees460
 0.1% 1,517
 0.4%
Gain on sale of equity investment(12,606) 3.1% —
 —%
Loss (gain) on foreign currency transactions200
 —% (482) 0.1%
Income from continuing operations before income taxes17,953
 4.4% 8,420
 2.0%
Provision for income taxes2,989
 0.7% 4,678
 1.1%
Income from continuing operations, net of tax14,964
 3.7% 3,742
 0.9%
Discontinued operations, net of tax(16) —% (2,791) 0.7%
Net income14,948
 3.7% 951
 0.2%
Net loss attributable to noncontrolling interest(95) —% (301) 0.1%
Net income attributable to Providence14,853
 3.6% 650
 0.2%
 Three months ended June 30,
 20202019
 $Percentage
of Revenue		$Percentage
of Revenue
Service revenue, net282,256  100.0 %363,911  100.0 %
Operating expenses:    
Service expense196,106  69.5 %345,948  95.1 %
General and administrative expense31,199  11.1 %16,860  4.6 %
Depreciation and amortization6,108  2.2 %4,353  1.2 %
 Total operating expenses233,413  82.7 %367,161  100.9 %
Operating income (loss)48,843  17.3 %(3,250) (0.9)%
Other expenses (income):
Interest expense, net1,498  0.5 %301  0.1 %
Other income—  — %(66) — %
Equity in net (gain) loss of investee(4,425) -1.6 %1,315  0.4 %
Income (loss) from continuing operations before income taxes51,770  18.3 %(4,800) (1.3)%
Provision (benefit) for income taxes14,471  5.1 %(1,391) (0.4)%
Income (loss) from continuing operations, net of tax37,299  13.2 %(3,409) (0.9)%
(Loss) income from discontinued operations, net of tax(301) (0.1)%1,697  0.5 %
Net income (loss)36,998  13.1 %(1,712) (0.5)%


Service revenue, net. Consolidated servicenet. Service revenue, net for Q3 2017Q2 2020 decreased $2.8$81.7 million, or 0.7%22.4%, compared to Q3 2016. RevenueQ2 2019. Service revenue decreased primarily due to lower volume related to certain profit corridor and reconciliation contracts as a result of COVID-19 and other factors, as well as $12.6 million for Q3 2017 compared to Q3 2016 included a decreasecontracts we no longer serve, including MCO contracts in revenue attributable to WD Services of $10.3 million. This decrease in revenue wasMinnesota, California, Louisiana and New York. These decreases were partially offset by an increase in$8.4 million of revenue attributable to NET Servicesas a result of $7.5 million. Excluding the favorable effects of changes in currency exchange rates, consolidated service revenueNational MedTrans (“NMT”) acquisition.

Service expense, net. Service expense components are shown below (in thousands):
 Three months ended June 30,
 20202019
 $Percentage of
Revenue		$Percentage of
Revenue
Purchased services151,504  53.7 %297,360  81.7 %
Payroll and related costs33,459  11.9 %37,437  10.3 %
Other operating expenses11,088  3.9 %11,086  3.0 %
Stock-based compensation55  — %65  — %
Total service expense196,106  69.5 %345,948  95.1 %

Service expense for Q2 2020 decreased 0.8% for Q3 2017 compared to Q3 2016.

Total operating expenses. Consolidated operating expenses for Q3 2017 increased $0.7$149.8 million, or 0.2%43.3%, compared to Q3 2016. Operating expensesQ2 2019 primarily due to lower purchased transportation costs and associated payroll costs in our contact centers. Transportation and payroll costs decreased as a result of lower utilization across multiple contracts due to the COVID-19 pandemic and efficiency initiatives.

29





General and administrative expense. General and administrative expense for Q3 2017Q2 2020 increased $14.3 million, or 85.0%, compared to Q3 2016 included anQ2 2019. The increase in expenses attributablewas primarily a result of $6.3 million related to NET Services of $10.8cash-settled equity awards, $3.8 million related to our NMT transition services agreement, employee-related compensation including salaries, incentives and an increase in expenses attributable to Corporatehealth insurance, software and Other of $0.5 million. This increase in operating expenses washardware expense and stock-based compensation. These increases were partially offset by a decreaseemployee-related compensation associated with the Organizational Consolidation that was incurred in operating expenses attributable to WD Services of $10.6 million.Q2 2019 that was not incurred in Q2 2020.


Operating income. Consolidated operating incomeDepreciation and amortization. Depreciation and amortization for Q3 2017 decreased $3.5Q2 2020 increased $1.8 million or 35.6%,40.3% compared to Q3 2016. The decrease was Q2 2019 primarily attributable toas a decreaseresult of additional amortization of $2.1 million associated with intangible assets purchased in operating income in Q3 2017 as compared to Q3 2016 at NET Services of $3.3 million and an increase in Corporate and Other operating loss of $0.6 million. This decrease in operating income was partially offset by an increase in WD Services operating income of $0.3 million.the NMT acquisition.


Interest expense, net. Consolidated interest expense, net, for Q3 2017Q2 2020 and Q3 2016 remained relatively consistent.Q2 2019 was $1.5 million and $0.3 million, respectively. The increase in Q2 2020 was primarily related to our proactive decision to borrow $162.0 million under our Credit Facility at the end of Q1 2020 to increase our financial flexibility due to COVID-19. As of June 30, 2020, we fully repaid our Credit Facility.




Equity in net (gain) loss of investees. Equity in net (gain) loss of investees primarily relates to our investments in Mission Providence and Matrix. Mission Providence, which was sold effective September 29, 2017, was part of WD Services, and began providing services in July 2015. We recorded 75% of Mission Providence’s profit or loss in equity in net (gain) loss of investees. We began reporting Matrix as an equity investment effective October 19, 2016, upon the completion of the Matrix Transaction, and record our share of Matrix’s profit or loss in net (gain) loss of investees.investee. Our equity in net gain of investee for Q2 2020 of $4.4 million and net loss of investees$1.3 million for Q3 2017Q2 2019 was a result of $0.5 million primarilyour proportional share of the net income (loss) of Matrix. Matrix's increase in Q2 2020 net income was related to our equitythe launch of a new Employee Health and Wellness product developed for companies maintaining critical operations during COVID-19. Included in net loss for Mission ProvidenceMatrix's standalone Q2 2020 results were severance cost and transaction costs of $0.5$1.5 million and COVID-19 related costs of $4.9 million. Matrix was close to break-even on a net income basis in Q3 2017. Included in Matrix’s standalone Q2 2019 results are depreciationwere integration and amortization of $8.5 million, interest expense of $3.7 million, equity compensation of $0.6 million, management fees paid to certain of Matrix’s shareholders of $0.6 million and merger and acquisitiontransaction related diligence costs of $0.3 million.


Gain on sale of equity investment. The gain on sale of equity investment of $12.6 million relates to the sale of the Company's equity interest in Mission Providence effective September 29, 2017. The investment in Mission Providence was part of the WD Services segment.

Loss (gain) on foreign currency transactions. The foreign currency loss of $0.2 million and foreign currency gain of $0.5 million for Q3 2017 and Q3 2016, respectively, were primarily due to translation adjustments of our foreign subsidiaries.

Provision for income taxes. Our effective tax rate from continuing operations for Q3 2017Q2 2020 and Q3 2016Q2 2019 was 16.7%28.0% and 55.6%29.0%, respectively. TheFor Q2 2020 and Q2 2019, the effective tax rate exceededwas higher than the U.S. federal statutory rate of 35% for Q3 201621.0% primarily due to foreign net operating losses (including equity investment losses) for which the future income tax benefit currently cannot be recognized, losses in foreign jurisdictions with tax rates lower than the U.S. rate of 35%, state income taxes, and certain non-deductible expenses. Foreign net operating losses for which no tax benefit can be provided were higher in Q3 2016 versus Q3 2017 resulting in a decrease in the effective tax ratetaxes.

Loss from Q3 2016 to Q3 2017. Additionally, there is no provision for income taxes related to the gain on sale of equity investment of $12.6 million due to the substantial difference in tax basis versus book basis in the investment.

The Company recorded excess tax deficiencies related to stock-based compensation for the three months ended September 30, 2017 of $0.3 million which increased the provision for income taxes. The adoption of ASU 2016-09 subjects our tax rate to quarterly volatility from the effects of stock award exercises and vesting activities, including the adverse impact on our income tax provision for awards which result in a tax deduction less than the amount recorded for financial reporting purposes based upon fair value of the award at the grant date.

Discontinueddiscontinued operations, net of tax. Discontinued Loss from discontinued operations, net of tax, includes the activity ofrelated to our former WD Services and Human Services segment and our former HA Services segment, composed entirely of our 100% equity interest in Matrix until the completion of the Matrix Transaction on October 19, 2016. For Q3 2017, discontinued operations, net of tax for our Human Services segment was break-even. For Q3 2016, discontinued operations, net of tax for our Human Services segment was a loss of $5.0 million, and discontinued operations, net of tax for our HA Services segment was net income of $2.2 million.segments. See Note 13, 16, Discontinued Operations, to our condensed consolidated financial statements for additional information.


NetFor Q2 2020, the loss attributablefrom discontinued operations, net of tax, for our former WD Services segment was $0.1 million, which includes the income and expense related to noncontrolling interests. Net loss attributablethe wind-down of the WD Services entity in Saudi Arabia. The operations in Saudi Arabia, including personnel, leased facilities and certain assets necessary to noncontrolling interests primarily relatesprovide the employment services, were transferred to a minority interest held by a third-party operating partnerthird party as of January 1, 2019, and thus we are no longer providing services in Saudi Arabia. For Q2 2020, the loss from discontinued operations, net of tax, for our company servicingformer Human Services segment was $0.2 million primarily related to accounting, professional, and legal fees.

For Q2 2019, the offender rehabilitation contract inincome from discontinued operations, net of tax, was due to income of $1.8 million for our former WD Services segment. The income is associated with accounts receivable that were previously written-off, partially offset by administrative costs related to the wind-down of the WD Services entity in Saudi Arabia. For Q2 2019, the loss from discontinued operations, net of tax, for our former Human Services segment was less than $0.1 million.



30






YTD 20172020 compared to YTD 20162019


The following table sets forth results of operations and the percentage of consolidated total revenuesService revenue, net represented by items in our unaudited condensed consolidated statements of incomeoperations for YTD 20172020 and YTD 20162019 (in thousands):

 Nine months ended September 30,
 2017 2016
 $ Percentage of Revenue $ Percentage of Revenue
Service revenue, net1,216,994
 100.0% 1,192,426
 100.0%
        
Operating expenses:       
Service expense1,124,478
 92.4% 1,095,011
 91.8%
General and administrative expense53,705
 4.4% 52,548
 4.4%
Depreciation and amortization19,716
 1.6% 20,058
 1.7%
Total operating expenses1,197,899
 98.4% 1,167,617
 97.9%
        
Operating income19,095
 1.6% 24,809
 2.1%
        
Non-operating expense:       
Interest expense, net983
 0.1% 1,239
 0.1%
Equity in net loss of investees991
 0.1% 5,693
 0.5%
Gain on sale of equity investment(12,606) 1.0% —
 —%
Loss (gain) on foreign currency transactions600
 —% (1,332) 0.1%
Income from continuing operations before income taxes29,127
 2.4% 19,209
 1.6%
Provision for income taxes8,391
 0.7% 12,466
 1.0%
Income from continuing operations, net of tax20,736
 1.7% 6,743
 0.6%
Discontinued operations, net of tax(6,000) 0.5% 332
 —%
Net income14,736
 1.2% 7,075
 0.6%
Net (income) loss attributable to noncontrolling interest(295) —% 433
 —%
Net income attributable to Providence14,441
 1.2% 7,508
 0.6%
 Six months ended June 30,
 20202019
 $Percentage of Revenue$Percentage of Revenue
Service revenue, net649,547  100.0 %731,726  100.0 %
Operating expenses:    
Service expense528,767  81.4 %686,446  93.8 %
General and administrative expense51,994  8.0 %36,262  5.0 %
Depreciation and amortization9,898  1.5 %8,827  1.2 %
Total operating expenses590,659  90.9 %731,535  100.0 %
Operating income58,888  9.1 %191  — %
Other expenses (income):    
Interest expense, net1,739  0.3 %604  0.1 %
Other income—  — %(132) — %
Equity in net (gain) loss of investees(1,875) -0.3 %2,971  0.4 %
Income (loss) from continuing operations before income taxes59,024  9.1 %(3,252) (0.4)%
Provision (benefit) for income taxes5,425  0.8 %(1,157) (0.2)%
Income (loss) from continuing operations, net of tax53,599  8.3 %(2,095) (0.3)%
(Loss) income from discontinued operations, net of tax(503) (0.1)%966  0.1 %
Net income (loss)53,096  8.2 %(1,129) (0.2)%


Service revenue, net. Consolidated service revenue, net for YTD 2017 increased $24.62020 decreased $82.2 million, or 2.1%11.2%, compared to YTD 2016. Revenue2019. Service revenue decreased primarily due to lower volume related to certain profit corridor and reconciliation contracts as a result of COVID-19 in addition to $31.4 million for YTD 2017 compared to YTD 2016 included an increasecontracts we no longer serve, including MCO contracts in revenue attributable to NET Services of $70.5 million. This increase in revenue wasCalifornia, Louisiana, New York and Minnesota. These decreases were partially offset by $8.4 million of revenue as a decrease in revenue attributable to WD Servicesresult of $46.0 million. Excluding the effects of changes in currency exchange rates, consolidated service revenue increased 3.1%NMT acquisition.


Service expense, net. Service expense components are shown below (in thousands):
 Six months ended June 30,
 20202019
 $Percentage of
Revenue		$Percentage of
Revenue
Purchased services431,182  66.4 %585,986  80.1 %
Payroll and related costs74,579  11.5 %78,569  10.7 %
Other operating expenses22,887  3.5 %21,763  3.0 %
Stock-based compensation119  — %128  — %
Total service expense528,767  81.4 %686,446  93.8 %

Service expense for YTD 2017 compared to YTD 2016.

Total operating expenses. Consolidated operating expenses for YTD 2017 increased $30.3 million, or 2.6%, compared to YTD 2016. Operating expenses for YTD 2017 compared to YTD 2016 included an increase in expenses attributable to NET Services of $82.1 million. This increase in operating expenses was partially offset by a decrease in operating expenses attributable to WD Services of $51.6 million and a decrease in operating expenses attributable to Corporate and Other of $0.1 million.

Operating income. Consolidated operating income for YTD 20172020 decreased $5.7$157.7 million, or 23.0%, compared to YTD 2016. The decrease was2019 as a result of lower purchased transportation costs and associated payroll costs in our contact centers. Transportation costs decreased as a result of lower utilization across multiple contracts due to the COVID-19 pandemic as well as efficiency initiatives. Other operating
31





expenses increased by $1.1 million primarily attributable toas a decrease in operating income attributable to NET Servicesresult of $11.6higher bad debt expense, auto insurance and legal fees, partially offset by lower contact center recruiting costs and travel expense.

General and administrative expense. General and administrative expense for YTD 2020 increased $15.7 million, asor 43.4%, compared to YTD 2016.2019. The increase was primarily a result of $4.6 million related to cash settled equity awards, $3.8 million related to our NMT transition services agreement, employee-related compensation including salaries, incentives and health insurance, software and hardware expense and third-party consulting expense. This decrease in operating income was partially offset by a decreaseemployee-related compensation, associated with the Organizational Consolidation and certain transaction related expenses, incurred in WD Services operating lossYTD 2019 that was not incurred in YTD 2020.

Depreciation and amortization. Depreciation and amortization increased $1.1 million primarily due to intangible asset amortization of $5.7$2.1 million and a decreaseassociated with the NMT acquisition. This was partially offset by accelerated depreciation during YTD 2019 associated with the Organizational Consolidation. As of the end of Q2 2019, all fixed assets of the former holding company that were no longer in Corporate and Other operating loss of $0.2 million.use were fully depreciated.


Interest expense, net. Consolidated interest expense, net, for YTD 2017 decreased $0.32020 and YTD 2019 was $1.7 million or 20.7%, comparedand $0.6 million, respectively. The increase in YTD 2020 was primarily related to YTD 2016.our proactive decision to borrow $162.0 million under our Credit Facility at the end of Q1 2020 to increase our financial flexibility due to COVID-19. As of June 30, 2020, we fully repaid our Credit Facility.




Equity in netlossof investees. Our equity in net (gain) loss of investees for YTD 2017 of $1.0 million includes an equity in net loss for Mission Providence of $1.4 million, partially offset byinvestee. Our equity in net gain of Matrixinvestee for YTD 2020 of $0.4$1.9 million and net loss of $3.0 million for YTD 2019 was a result of our proportional share of the net income/loss in Matrix. Matrix's increase in YTD 2020 net income was related to the launch of a new Employee Health and Wellness product developed for companies maintaining critical operations during COVID-19. Included in Matrix's standalone YTD 2020 results were severance costs and transaction costs of $2.7 million and COVID-19 related costs of $5.1 million. Included in Matrix’s standalone YTD 2019 results are depreciationwere integration and amortization of $24.6 million, interest expense of $11.0 million, transaction bonuses and other transaction related costs of $3.5 million, equity compensation of $1.9 million, management fees paid to Matrix’s shareholders of $1.8 million, merger and acquisition diligence related costs of $0.3 million and income tax benefit of $0.1 million.


Gain on sale of equity investment. The gain on sale of equity investment of $12.6 million relates to the sale of the Company's equity interest in Mission Providence effective September 29, 2017. The investment in Mission Providence was part of the WD Services segment.

Loss (gain) on foreign currency transactions. The foreign currency loss of $0.6 million and foreign currency gain of $1.3 million for YTD 2017 and YTD 2016, respectively, were primarily due to translation adjustments of our foreign subsidiaries.

Provision for income taxes. Our effective tax ratesrate from continuing operations for YTD 20172020 and YTD 20162019 was 28.8%9.2% and 64.9%35.6%, respectively. TheFor YTD 2020, the effective tax rate exceededwas substantially lower than the U.S. federal statutory rate of 35% for YTD 201621.0% primarily due to foreignthe favorable impact of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) on our U.S. net operating losses (including equity investment losses) for whichlosses. For YTD 2019, the future incomeeffective tax benefit currently cannot be recognized, losses in foreign jurisdictions with tax rates lowerrate was higher than the U.S. federal statutory rate of 35%,21.0% primarily due to state income taxes and certain non-deductible expenses. Foreign net operating losses for which no tax benefit can be provided were higherexpenses offset, in YTD 2016 versus YTD 2017 resulting in a decrease inpart, by the effective tax rate from YTD 2016 to YTD 2017. Additionally, there was no provision for income taxes related to the gain on sale of equity investment of $12.6 million due to the substantial difference in tax basis versus book basis in the investment.

The Company recorded excess tax deficiencies related to stock-based compensation for the nine months ended September 30, 2017 of $0.1 million which increased the provision for income taxes. The adoption of ASU 2016-09 subjects our tax rate to quarterly volatility from the effectsfavorable impact of stock award exercises and vesting activities, including the adverse impact on our income tax provision for awards which result in a tax deduction less than the amount recorded for financial reporting purposes based upon fair value of the award at the grant date.option deductions.


DiscontinuedLoss from discontinued operations, net of tax. Discontinued Loss from discontinued operations, net of tax, includes the activity ofrelated to our former WD Services and Human Services segment and our former HA Services segment, composed entirely of our 100% equity interest in Matrix until the completion of the Matrix Transaction on October 19, 2016. For YTD 2017, discontinued operations, net of tax for our Human Services segment was a loss of $6.0 million, which primarily related to the accrual of a contingent liability of $9.0 million related to the settlement of indemnification claims and associated legal costs of $0.6 million, partially offset by a related tax benefit. For YTD 2016, discontinued operations, net of tax for our Human Services segment was a net loss of $5.0 million, and discontinued operations, net of tax for our HA Services segment was net income of $5.4 million.segments. See Note 13, 16, Discontinued Operations, to our condensed consolidated financial statements for additional information.


Net (income)For YTD 2020, the loss attributable to noncontrolling interests. Net (income) loss attributable to noncontrolling interests primarily relates to a minority interest held by a third-party operating partner in our company servicing the offender rehabilitation contract in our WD Services segment.

Segment Results. The following analysis includes discussionfrom discontinued operations, net of each of our segments.

NET Services

NET Services segment financial results are as follows for Q3 2017 and Q3 2016 (in thousands):
 Three Months Ended September 30,
 2017 2016
 $ 
Percentage of
Revenue
 $ 
Percentage of
Revenue
Service revenue, net324,824
 100.0% 317,280
 100.0%
        
Service expense304,454
 93.7% 293,919
 92.6%
General and administrative expense2,899
 0.9% 2,860
 0.9%
Depreciation and amortization3,286
 1.0% 3,051
 1.0%
Operating income14,185
 4.4% 17,450
 5.5%



Service revenue, net. Service revenue, net for NET Services for Q3 2017 increased $7.5 million, or 2.4%, compared to Q3 2016.  The increase was primarily related to net increased revenue from existing contracts of $19.2 million, due to the net impact of membership and rate changes, including final agreement on a rate adjustment related to increased utilization and the release of previously accrued revenue hold-backs based on certain contract performance requirements on a significant contract, in addition to the impact of new contracts which contributed $18.8 million of revenue for Q3 2017. These increases were partially offset by the impact of contracts we no longer serve, including a contract with the state of New York, which resulted in a decrease in revenue of $30.5 million.   

Service expense, net. Service expensetax, for our NET Services segment included the following for Q3 2017 and Q3 2016 (in thousands):
 Three Months Ended September 30,
 2017 2016
 $ 
Percentage of
Revenue
 $ 
Percentage of
Revenue
Purchased services250,282
 77.1% 241,884
 76.2%
Payroll and related costs40,753
 12.5% 41,832
 13.2%
Other operating expenses13,299
 4.1% 10,130
 3.2%
Stock-based compensation120
 0.0% 73
 0.0%
Total service expense304,454
 93.7% 293,919
 92.6%

Service expense for Q3 2017 increased $10.5 million, or 3.6%, compared to Q3 2016 due primarily to higher purchased services and other operating costs, partially offset by decreased payroll and related costs.

Purchased services as a percentage of revenue increased from 76.2% in Q3 2016 to 77.1% in Q3 2017 primarily attributable to an increase in utilization across certain contracts, including multiple managed care contracts in California, and the impact of new managed care organization contracts in certain markets being at a lower margin than previous contracts. These increases were partially offset by initiatives aimed at better aligning the rates we pay to our transportation provider partners with local market conditions and the fees paid to us by our customers. In addition, the impact of Hurricane Irma resulted in decreased utilization for certain contracts.

Payroll and related costs as a percentage of revenue decreased from 13.2% in Q3 2016 to 12.5% in Q3 2017 due to efficiencies gained from multiple process improvement initiatives, including those aimed at lowering payroll expense across our reservation and operation center networks, as well as a decrease in incentive compensation. Other operating expenses increased for Q3 2017 as compared to Q3 2016 primarily attributable to an incremental $1.5 million of value enhancement and related costs incurred for external resources used in the design and implementation of NET Services member experience and value enhancement initiatives, as well as increased software and hardware maintenance costs associated with new technology initiatives.

General and administrative expense. General and administrative expense in Q3 2017 remained constant as compared to Q3 2016. As a percentage of revenue, general and administrative expense remained constant at 0.9%.

Depreciation and amortization. Depreciation and amortization increased $0.2 million primarily due to the addition of long-lived assets relating to information technology projects. As a percentage of revenue, depreciation and amortization remained constant at 1.0% for Q3 2016 and Q3 2017. 



NET Services segment financial results are as follows for YTD 2017 and YTD 2016 (in thousands):
 Nine Months Ended September 30,
 2017 2016
 $ 
Percentage of
Revenue
 $ 
Percentage of
Revenue
Service revenue, net987,662
 100.0% 917,157
 100.0%
        
Service expense927,082
 93.9% 846,311
 92.3%
General and administrative expense8,879
 0.9% 8,483
 0.9%
Depreciation and amortization9,763
 1.0% 8,858
 1.0%
Operating income41,938
 4.2% 53,505
 5.8%

Service revenue, net. Service revenue, net for NET Services for YTD 2017 increased $70.5 million, or 7.7%, compared to YTD 2016.  The increase was primarily related to net increased revenue from existing contracts of $68.3 million, due to the net impact of membership and rate changes, including final agreement on a rate adjustment related to increased utilization and the release of previously accrued revenue hold-backs based on certain contract performance requirements on a significant contract, in addition to the impact of new contracts, including new managed care organization contracts in Florida and New York, which contributed $70.5 million of revenue for YTD 2017. These increases were partially offset by the impact of contracts we no longer serve, including a contract with the state of New York, which resulted in a decrease in revenue of $68.3 million.  

Service expense, net. Service expense for our NET Services segment included the following for YTD 2017 and YTD 2016 (in thousands):
 Nine Months Ended September 30,
 2017 2016
 $ 
Percentage of
Revenue
 $ 
Percentage of
Revenue
Purchased services766,303
 77.6% 694,934
 75.8%
Payroll and related costs122,784
 12.4% 122,117
 13.3%
Other operating expenses37,584
 3.8% 29,032
 3.2%
Stock-based compensation411
 0.0% 228
 0.0%
Total service expense927,082
 93.9% 846,311
 92.3%

Service expense for YTD 2017 increased $80.8 million, or 9.5%, compared to YTD 2016 due primarily to higher purchased services and other operating costs, with a slight increase in payroll and related costs.
The increase in service expense was primarily attributable to the impact of new managed care organization contracts in California, Florida and New York. Purchased services as a percentage of revenue increased from 75.8% in YTD 2016 to 77.6% in YTD 2017 primarily attributable to an increase in utilization across multiple contracts. The higher utilization was in part driven by increased Medicaid reimbursement in New Jersey for certain medical services, which in turn increased demand for transportation services; increased utilization across multiple managed care contracts in California; and lower cancellation rates across multiple contracts, which we believe was primarily due to milder winter weather conditions during the first quarter of 2017, although we did experience lower utilization for contracts in Q3 2017 due in part to the impact of the Hurricane Irma.

Payroll and related costs as a percentage of revenue decreased from 13.3% in YTD 2016 to 12.4% in YTD 2017 due to efficiencies gained from multiple process improvement initiatives, including those aimed at lowering payroll expense across our reservation and operation center networks, as well as a decrease in incentive compensation. Other operating expenses increased for YTD 2017 as compared to YTD 2016 primarily attributable to an incremental $3.5 million of value enhancement and related costs incurred for external resources used in the design and implementation of NET Services member experience and value enhancement initiatives in YTD 2017.

General and administrative expense. General and administrative expense in YTD 2017 increased $0.4 million, or 4.7%, as compared to YTD 2016, due to increased facility costs resulting from the overall growth of our operations. As a percentage of revenue, general and administrative expense remained constant at 0.9%.



Depreciation and amortization. Depreciation and amortization increased $0.9 million primarily due to the addition of long-lived assets relating to information technology projects. As a percentage of revenue, depreciation and amortization remained constant at 1.0%.

WD Services

former WD Services segment financial results are as follows for Q3 2017was $0.2 million, which includes the income and Q3 2016 (in thousands):
 Three Months Ended September 30,
 2017 2016
 $ 
Percentage of
Revenue
 $ 
Percentage of
Revenue
Service revenue, net84,693
 100.0% 94,960
 100.0%
        
Service expense73,581
 86.9% 84,051
 88.5%
General and administrative expense6,980
 8.2% 6,780
 7.1%
Depreciation and amortization3,166
 3.7% 3,497
 3.7%
Operating income966
 1.1% 632
 0.7%

Service revenue, net. Service revenue, net for Q3 2017 decreased $10.3 million, or 10.8%, compared to Q3 2016. Excluding the favorable effects of changes in currency exchange rates, service revenue decreased 11.2% in Q3 2017 compared to Q3 2016. This decrease was primarilyexpense related to the anticipated endingwind-down of referrals under the segment’s primary employability programWD Services entity in Saudi Arabia. The operations in Saudi Arabia, including personnel, leased facilities and certain assets necessary to provide the UK,employment services, were transferred to a third party as well as decreased revenue underof January 1, 2019, and thus we are no longer providing services in Saudi Arabia. For YTD 2020, the loss from discontinued operations, net of tax, for our offender rehabilitation program due to $5.4 millionformer Human Services segment was $0.3 million.

For YTD 2020, the income from discontinued operations, net of revenue recognized in Q3 2016tax, for our former WD Services segment was $1.1 million. The income includes administrative costs related to the finalizationwind-down of the WD Services entity in Saudi Arabia. The operations in Saudi Arabia, including personnel, leased facilities and certain assets necessary to provide the employment services, were transferred to a contractual adjustment forthird party as of January 1, 2019, and thus the prior contract years ended March 31, 2015 and 2016.

These revenue decreases were partially offset by increases in healthCompany is no longer providing services in Saudi Arabia. For YTD 2020, the UK and various employability contracts outside the UK, including France, Australia and Germany.

Service expense. Service expenseloss from discontinued operations, net of tax, for our WDformer Human Services segment included the following for Q3 2017was $0.2 million.

Seasonality

Our quarterly operating income and Q3 2016 (in thousands):
 Three Months Ended September 30,
 2017 2016
 $ 
Percentage of
Revenue
 $ 
Percentage of
Revenue
Payroll and related costs41,575
 49.1% 47,854
 50.4%
Purchased services21,946
 25.9% 26,004
 27.4%
Other operating expenses10,046
 11.9% 10,166
 10.7%
Stock-based compensation14
 0.0% 27
 0.0%
Total service expense73,581
 86.9% 84,051
 88.5%

Service expense in Q3 2017 decreased $10.5 million, or 12.5%, compared to Q3 2016. Payroll and related costs decreased primarilycash flows normally fluctuate as a result of the ending of referrals under the segment’s primary employability programseasonal variations in the UK as well as redundancy plans across the WD Services operations that have better aligned headcount with service delivery volumes, resulting in a decrease of payroll and related costs as a percentage of revenue. Payroll and related costs include $0.3 million and $0.1 million in Q3 2017 and Q3 2016, respectively, of termination benefits related to redundancy plans. Purchased services decreased in Q3 2017 compared to Q3 2016 primarily as a result of the ending of client referrals under our primary employability program in the UK, which resulted in a decline in the use of outsourced services. 

General and administrative expense. General and administrative expense in Q3 2017 increased $0.2 million compared to Q3 2016 due primarilybusiness, principally due to increased rent related to facilities used in our offender rehabilitation program.

Depreciation and amortization. Depreciation and amortization for Q3 2017 decreased $0.3 million compared to Q3 2016, primarily due to the asset impairment charges incurredlower transportation demand during the fourth quarter of 2016, which decreased the value of our intangible assetswinter season and certain property and equipment.



WD Services segment financial results are as follows for YTD 2017 and YTD 2016 (in thousands):
 Nine Months Ended September 30,
 2017 2016
 $ 
Percentage of
Revenue
 $ 
Percentage of
Revenue
Service revenue, net229,332
 100.0 % 275,293
 100.0 %
        
Service expense199,665
 87.1 % 247,797
 90.0 %
General and administrative expense20,944
 9.1 % 23,236
 8.4 %
Depreciation and amortization9,695
 4.2 % 10,912
 4.0 %
Operating loss(972) -0.4 % (6,652) -2.4 %

Service revenue, net. Service revenue, net for YTD 2017 decreased $46.0 million, or 16.7%, compared to YTD 2016. Excluding the effects of changes in currency exchange rates, service revenue decreased 12.3% in YTD 2017 compared to YTD 2016. This decrease was primarily related to the anticipated decline of referrals under the segment’s primary employability program in the UK, as well as decreased revenue under our offender rehabilitation program. These decreases were partially offset by increases across various employability contracts outside the UK, including in Australia, Saudi Arabia, France and Germany, as well as increased revenue from our health services contract in the UK. YTD 2017 includes the impact of $5.2 million of revenue recognized under the offender rehabilitation program related to the finalization of a contractual adjustment for the contract year ended March 31, 2017, whereas YTD 2016 includes $5.4 million of revenue recognized under the offender rehabilitation program related to the finalization of a contractual adjustment for the prior contract years ended March 31, 2015 and 2016.

Service expense. Service expense for our WD Services segment included the following for YTD 2017 and YTD 2016 (in thousands):
 Nine Months Ended September 30,
 2017 2016
 $ 
Percentage of
Revenue
 $ 
Percentage of
Revenue
Payroll and related costs130,538
 56.9% 162,542
 59.0%
Purchased services39,949
 17.4% 53,210
 19.3%
Other operating expenses29,136
 12.7% 31,993
 11.6%
Stock-based compensation42
 0.0% 52
 0.0%
Total service expense199,665
 87.1% 247,797
 90.0%

Service expense in YTD 2017 decreased $48.1 million, or 19.4%, compared to YTD 2016. Payroll and related costs decreased primarily as a result of declining referrals under the segment’s primary employability program in the UK as well as redundancy plans that have better aligned headcount with service delivery volumes resulting in a decrease of payroll and related costs as a percentage of revenue. Payroll and related costs include $1.1 million and $5.2 million in YTD 2017 and YTD 2016, respectively, of termination benefits related to redundancy plans. Purchased services decreased in YTD 2017 compared to YTD 2016 primarily as a result of a decline in client referrals under our primary employability program in the UK, which resulted in a decline in the use of outsourced services.

General and administrative expense. General and administrative expense in YTD 2017 decreased $2.3 million compared to YTD 2016 due to office closures associated with restructuring of the UK operations, as well as lower rent for certain offices.

Depreciation and amortization. Depreciation and amortization for YTD 2017 decreased $1.2 million compared to YTD 2016, primarily due to the asset impairment charges incurred during the fourth quarter of 2016, which decreased the value of our intangible assets and certain property and equipment.



Corporate and Other

Corporate and Other includes the headcount and professional service costs incurred at the holding company level, at the Captive, and elimination entries to account for inter-segment transactions. Corporate and Other financial results are as follows for Q3 2017 and Q3 2016 (in thousands):
 Three Months Ended September 30,
 2017 2016
 $ $
Service revenue, net—
 31
    
Service expense(3) 518
General and administrative expense8,750
 7,680
Depreciation and amortization95
 122
Operating loss(8,842) (8,289)

Operating loss. Corporate and Other operating loss in Q3 2017 increased by $0.6 million or 6.7% as compared to Q3 2016. This increase was primarily related to a $2.0 million increase in professional costs due to activities associated with our increased focus on strategic initiatives, as well as a $0.6 million increase in compensation, including the timing impact of accruals for incentive compensation. These increases were partially offset by decreases in legal and accounting fees and lower costs in the Company's captive insurance program due to the Company ceasing to write new policies under the captive in Q2 2017, which drove the decrease in “Service expense”.

General and administrative expense includes stock-based compensation for the HoldCo LTIP of $1.0 million and $0.9 million for Q3 2017 and Q3 2016, respectively. No shares will be distributed under the HoldCo LTIP unless the volume weighted average of Providence’s stock price over a 90-day period ending on December 31, 2017 exceeds $56.79.

Corporate and Other financial results are as follows for YTD 2017 and YTD 2016 (in thousands):
 Nine Months Ended September 30,
 2017 2016
 $ $
Service revenue, net—
 (24)
    
Service expense(2,269) 903
General and administrative expense23,882
 20,829
Depreciation and amortization258
 288
Operating loss(21,871) (22,044)

Operating loss. Corporate and Other operating loss in YTD 2017 decreased by $0.2 million, or 0.8%, as compared to YTD 2016. This decrease was primarily related to a reduction in insurance loss reserves in 2017 due to favorable claims history of our Captive reinsurance programs, which is included in “Service expense” as well as decreased accounting, legal and professional fees included in “General and administrative expense”. This decrease was partially offset by an increase in cash settled stock-based compensation expense of $1.3 million, primarily as a result of a more significant increase in the Company’s stock price in YTD 2017 as compared to YTD 2016, an increase in stock settled stock-based compensation expense of $1.4 million, primarily related to an increase in expense for the HoldCo LTIP and a benefit recorded in YTD 2016 for performance based units, with no corresponding benefit in YTD 2017, as well as an increase of $3.6 million of professional costs due to activities associated with our increased focus on strategic initiatives.

General and administrative expense includes stock-based compensation for the HoldCo LTIP of $3.1 million and $2.4 million for YTD 2017 and YTD 2016, respectively. No shares will be distributed under the HoldCo LTIP unless the volume weighted average of Providence’s stock price over a 90-day period ending on December 31, 2017 exceeds $56.79.



Seasonality

Our quarterly operating results and operating cash flows normally fluctuate due in part to seasonal factors, uneven demand for services and the timing of new contracts, which impact the amount of revenues earned and expenses incurred. NET Services experiences fluctuations inhigher demand during the summer and winter seasons. Due to historically higher demand in the summer months, lower demand during the winter, and a primarily fixed revenue stream based on a per-member, per-month payment structure, NET Services normally experiences lower operating margins during the summer season and higher operating margins during the winter. WD Services is impacted by both the timing of commencement and expiration of major contracts. Under many of WD Services’ contracts, we invest significant sums of money in personnel, leased office space, purchased or developed technology, and other costs, and generally incur these costs prior to commencing services and receiving payments. This results in significant variability in financial performance and cash flows between quarters and for comparative periods. It is expected that future contracts will be structured in a similar fashion. In addition, under the majority of WD Services’ contracts, the Company relies on its customers, which include government agencies, to provide referrals, for whom the Company can provide services and earn revenue. The timing and magnitude of referrals can fluctuate significantly, leading to volatility in revenue.season.


Liquidity and capital resources


32





Short-term capital requirements consist primarily of recurring operating expenses, and new revenue contract start-up costs including workforce restructuring costs.and costs associated with our strategic initiatives. We expect to meet anyour cash requirements through available cash on hand, cash generated from our operating segments,operations, net of capital expenditures, and borrowing capacity under our Credit Facility (as defined below).


Cash flow from operating activities during the six months ended June 30, 2020 was our primary source of cash during YTD 2017. Additionally, YTD 2017 included $15.8 million in proceeds from the sale of our equity investment in Mission Providence which is included in cash provided by investing activities.$147.2 million. Our balance of cash and cash equivalents was $92.2$41.8 million and $72.3$61.4 million at SeptemberJune 30, 20172020 and December 31, 2016, respectively, including $33.8 million and $21.4 million held in foreign countries,2019, respectively. The September 30, 2017 foreign cash balance includes the proceeds from the sale of Mission Providence. Such cash held in foreign countries is generally used to fund foreign operations, although it may also be used to repay intercompany indebtedness existing between Providence and its foreign subsidiaries.

WeAdditionally, we had restricted cash of $7.1$3.2 million and $14.1$0.2 million at SeptemberJune 30, 20172020 and December 31, 2016, respectively, primarily related to contractual obligations and activities of our captive insurance subsidiary. These restricted2019, respectively. Restricted cash amounts are not included in our balance of cash and cash equivalents.equivalents in the condensed consolidated balance sheets, although they are included in the cash, cash equivalents and restricted cash balance on the accompanying condensed consolidated statements of cash flows. At SeptemberJune 30, 2017 and2020, we had no borrowings outstanding under our Credit Facility; however, we had letters of credit outstanding of $13.6 million. At December 31, 2016,2019, we had no amounts outstanding under ourthe Credit Facility.


We may, from time to time, access capital markets to raise equity or debt financing for various business reasons, including acquisitions. We may also raise debt financing to fund future repurchases of our common stock. The timing, term, size, and pricing of any such financing will depend on investor interest and market conditions, and there can be no assurance that we will be able to obtain any such financing. On November 2, 2017, the Company’s Board of Directors approved the extension of the Company’s existing stock repurchase program, authorizing the Company to engage in a common stock repurchase program to repurchase up to $69.6 million (the amount remaining from the $100.0 million repurchase amount authorized in 2016) in aggregate value of the Company’s common stock through December 31, 2018.


The cash flow statementstatements for all periods presented includesinclude both continuing and discontinued operations. Discontinued operations for YTD 2016 includesinclude the activity of our historical WD Services and Human Services and HA Services segments. IncomeThe loss from discontinued operations, totaled $0.3net of tax, was $0.5 million for the six months ended June 30, 2020 and the loss from discontinued operations, net of tax, was $1.0 million for the six months ended June 30, 2019.

YTD 2016. Significant non-cash items of our discontinued operations in YTD 2016 included $3.7 million of depreciation expense and $17.5 million of amortization expense. Our discontinued operations also purchased property and equipment totaling $8.0 million during YTD 2016.

YTD 20172020 cash flows compared to YTD 20162019


Operating activities. Cash provided by operating activities was $36.9$147.2 million and $23.1 million for YTD 2017,2020 and YTD 2019, respectively. Cash flows from operating activities increased by $124.1 million due to an increase in cash provided by working capital of $61.1 million. The increase in working capital was related to an increase in accounts payable, accrued expenses, and long-term contract payables of $66.2 million primarily related to liability reserves on certain profit corridor and reconciliation contracts due to lower activity as a result of COVID-19, and lower accounts receivable and other receivables of $15.6 million. The increase in these working capital items was offset by a decrease in cash associated with $9.4 million in prepaid assets, an $8.1 million decrease in income taxes on gain from sale of $8.3a business, and a $5.9 million compared with YTD 2016. YTD 2017 and YTD 2016decrease in our accrued transportation liability. The remaining increase in the cash flow from operations was driven by net income of $14.7 million and $7.1 million, respectively, non-cash adjustments to reconcile net income to net cash provided by operating activities of $8.0 million and $37.1 million, respectively, and changes in working capital of $14.2 million and $1.1 million, respectively. The change in adjustments to reconcile net income to net cash provided by operating activities was due primarily to the impact of the disposition of HA Services, resulting in decreased depreciation, amortization and deferred taxes in YTD 2017 as compared to YTD 2016, as well as the gain on sale of Mission Providence of $12.6 million in YTD 2017. The change in working capital is primarily driven by the following:


Accounts receivable generated a cash outflow for YTD 2017 of $10.6 million as compared to an outflow of $22.1 million for YTD 2016. The decrease in cash outflow of $11.5 million is primarily attributable to NET Services due to the timing of collections as well as an outflow of $1.4 million of HA Services in YTD 2016.
Prepaid expenses and other generated a cash inflow of $7.5 million in YTD 2017, as compared to a cash outflow of $9.9 million in YTD 2016. The increase in cash inflow of $17.4 million was primarily attributable to a decrease in prepayments in WD Services in relation to certain contracts and a decrease in the prepayment of insurance costs and income taxes.
Accounts payable and accrued expenses generated a cash outflow of $3.4 million in YTD 2017, as compared to a cash inflow of $32.5 million in YTD 2016. The decrease in cash inflow of $35.9 million is due primarily to the impact of NET Services accrued contract payments of $10.1 million, reduced accruals at WD Services of $3.9 million in YTD 2017 as compared to YTD 2016, including the impact of redundancy plans, timing differences on tax payments, as well as the disposition of HA Services, which generated cash inflow of $5.8 million in YTD 2016. Partially offsetting these impacts is the impactresult of the increase in the accrued settlement related to our former Human Services segmentnet income of $9.0$54.2 million during YTD 2017 as compared toprimarily from higher operating income and an increase in deferred income taxes of $6.0$12.8 million due to the favorable impact of the CARES Act. This was partially offset by an increase in equity income by $4.8 million in Matrix.

Investing activities. Net cash used in investing activities of $80.0 million in YTD 2016.
Accrued transportation costs of NET Services generated a cash inflow of $28.8 million in YTD 2017, as compared to a cash inflow of $31.9 million in YTD 2016. The decrease in cash inflow of $3.1 million is due primarily to the timing of payments.
Income taxes payable on sale of business for YTD 2016 includes a cash outflow of $30.2 million related to the sale of our Human Services segment.

Investing activities. Net cash provided by investing activities of $4.9 million in YTD 20172020 increased by $40.0$75.7 million as compared to YTD 2016. The increase was primarily attributable to $15.8 million in proceeds from2019 as a result of the saleacquisition of our equity investment in Mission Providence, a decrease in funding of our equity investment in Mission Providence of $6.4 million and a decrease in the purchase of property and equipment of $18.6 million. YTD 2016 included purchases of property and equipment of $8.0 million by our discontinued operations.NMT.


Financing activities. Net cash used in financing activities of $22.3$83.8 million in YTD 2017 decreased $9.92020 increased $87.0 million as compared to YTD 2016. During YTD 2017, we repurchased $34.52019. The cash outflow was primarily due to $92.6 million less of our common stock than in YTD 2016. Partially offsetting this decrease in cash outflowspaid related to the preferred stock conversion transaction and repurchase of common stock. See Note 10, Stock-Based Compensation and Similar Arrangements, for further information on the preferred stock transaction. YTD 2020 was a decreasepartially offset by an increase in net proceeds from debt during YTD 2017 as comparedcash provided by financing activities of $4.9 million related to YTD 2016 of $20.3 million as well as a decrease in proceeds from common stock issued pursuant to stock option exercises of $2.6 million.during the comparative periods.


Obligations and commitments


Credit facility.Facility. We are party to the amended and restated credit and guaranty agreement, dated as of August 2, 2013 (as amended, the “Credit Agreement”), with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, and the other lenders party thereto. On May 6, 2020, we entered into the Seventh Amendment to the Amended and Restated Credit and Guaranty Agreement (the “Seventh Amendment”). The Credit Agreement provides us with a $200.0 millionSeventh Amendment extended the maturity date to August 1, 2021, expanded the amount available under the revolving credit facility (the “Credit Facility”), including a subfacility of $25.0 from $200.0 million to $225.0 million, and increased the sub-facility for letters of credits from $25.0 million to $40.0 million. Interest on the loans is payable quarterly in arrears. In addition, we are obligated to pay a quarterly commitment fee based on a percentage of the unused portion of each lender’s commitment under the Credit Facility and quarterly letter of credit fees based on a percentage of the maximum amount available to be drawn under each outstanding letter of credit.
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As of SeptemberJune 30, 2017,2020, we had no borrowings and sevenoutstanding on the Credit Facility; however, had letters of credit outstanding in the amount of $11.0 million outstanding under the revolving credit facility. At September 30, 2017, our$13.6 million. Our available credit under the revolving credit facilityCredit Facility was $189.0$211.4 million. Under the Credit Agreement, the Company haswe have an option to request an increase in the amount of the revolving credit facility from time to time (on substantially the same terms as apply to the existing facilities) in an aggregate amount of up to $75.0 million with either additional commitments from lenders under the Credit Agreement at such time or new commitments from financial institutions acceptable to the administrative agent in its reasonable discretion, so long as no default or event of default exists at the time of any such increase. The CompanyWe may not be able to access additional funds under this increase option as no lender is obligated to participate in any such increase under the Credit Facility. The

We may prepay any outstanding principal under the Credit Facility matures on August 2, 2018.in whole or in part, at any time without premium or penalty, subject to reimbursement of the lenders’ breakage and redeployment costs in connection with prepayments of London Interbank Offered Rate ("LIBOR") loans. The unutilized portion of the commitments under the Credit Facility may be irrevocably reduced or terminated by us at any time without penalty.


InterestAs of June 30, 2020, interest on the outstanding principal amount of the loans accrues, at the Company’sour election, at a per annum rate equal to the greater of either LIBOR or 1.00%, plus an applicable margin, or the base rate as defined in the agreement plus an applicable margin. The applicable margin ranges from 2.25% to 3.25%3.00% in the case of LIBOR loans and 1.25% to 2.25%2.00% in the case of the base rate loans, in each case, based on the Company’sour consolidated leverage ratio as defined in the Credit Agreement. Interest on the loans is payable quarterly in arrears. In addition, the Company is obligated to pay a quarterly commitment fee based on a percentage of the unused portion of each lender’s commitment under the Credit Facility and quarterly letter of credit fees based on a percentage of the maximum amount available to be drawn under each outstanding letter of credit. The commitment fee and letter of credit fee range from 0.25%0.35% to 0.50% and 2.25% to 3.25%3.00%, respectively, in each case based on the Company’sour consolidated leverage ratio.ratio as defined in the Credit Agreement. As of June 30, 2020, the all-in interest rate was 3.88%.




The Company’sCredit Facility also requires us (subject to certain exceptions as set forth in the Amended and Restated Credit Agreement) to prepay the outstanding loans in an aggregate amount equal to 100% of the net cash proceeds received from certain asset dispositions, debt issuances, insurance and casualty awards and other extraordinary receipts.

Our obligations under the Credit Facility are guaranteed by all of the Company’sour present and future domestic subsidiaries, excluding certain domestic subsidiaries which include the Company’s insurance captives. The Company’ssubsidiaries. Our obligations under, and each guarantor’s obligations under its guaranty of, the Credit Facility are secured by a first priority lien on substantially all of the Company’s respectiveour assets including a pledge of 100% of the issued and outstanding stock of the Company’s domestic subsidiaries, excluding the Company’s insurance captives, and 65% of the issued and outstanding stock of the Company’s first tier foreign subsidiaries.our interest in Matrix.


The Credit Agreement contains customary affirmative and negative covenants and events of default. The negative covenants include restrictions on the Company’sour ability to, among other things, incur additional indebtedness, create liens, make investments, give guarantees, pay dividends, repurchase shares, sell assets, and merge and consolidate. The Company isWe are subject to financial covenants, including consolidated net leverage and consolidated interest coverage covenants. The Company wasOur consolidated net leverage ratio may not be greater than 3.00:1.00 as of the end of any fiscal quarter and our consolidated interest coverage ratio may not be less than 3.00:1.00 as of the end of any fiscal quarter. We were in compliance with all covenants as of SeptemberJune 30, 2017.2020.


Preferred Stock. Following (i) the completion of a rights offering in February 2015, under which certain holders of our Common Stock exercised subscription rights to purchase Preferred Stock, and (ii) the purchase of Preferred Stock by certain of Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Blackwell Partners, LLC - Series A and Coliseum Capital Co-Invest, L.P. and Blackwell Partners, LLC (collectively, the “Standby Purchasers”“Coliseum Stockholders”), pursuant to the Standby Purchase Agreement between the Standby PurchasersColiseum Stockholders and the Company, the Companyus, we issued 805,000 shares of Preferred Stock, of which 803,232 shares 54,882 shares are outstanding as of SeptemberJune 30, 2017. 2020.

As discussed in Note 10, Stock-Based Compensation and Similar Arrangements, on June 8, 2020, we entered into a Preferred Stock Conversion Agreement (the “Conversion Agreement”) with Coliseum Capital Partners, L.P. and certain funds and accounts managed by Coliseum Capital Management, LLC (collectively, the “Holders”). Pursuant to the Conversion Agreement, we purchased 369,120 shares of Series A Convertible Preferred Stock, par value $0.001 per share, in exchange for $209.88 in cash per share of Series A Preferred Stock, plus a cash amount equal to accrued dividends on such shares of Series A Preferred Stock through the day prior to June 11, 2020. Further, the Holders converted 369,120 shares of Series A Preferred Stock into 925,567 shares of Common Stock, and received a cash payment for accrued dividends on such shares of Series A Preferred Stock through the day prior to June 11, 2020, and a cash payment of $8.82 per share of Series A Preferred Stock. The amount of accrued dividends paid pursuant to the Conversion Agreement was $0.8 million.

For further information regarding these transactions, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and capital resources – ObligationsObligations and commitments – Rights Offering”Preferred Stock” in the Company’sour Annual Report on Form 10-K for the year ended December 31, 2016.2019 and Note 10, Stock-Based Compensation and Similar Arrangements, in the current Form 10-Q. We may pay a noncumulative cash dividend on each share of Preferred Stock, when, as and if declared by a committee of our Board, of Directors (“Board”), at the rate of 5.5% per annum on the liquidation preference then in effect. On or before the third business day immediately preceding each fiscal quarter, we determine our intention whether or not to pay a cash
34





dividend with respect to that ensuing quarter and give notice of our intention to each holder of Preferred Stock as soon as practicable thereafter.


In the event we do not declare and pay a cash dividend, the liquidation preference will be increased to an amount equal to the liquidation preference in effect at the start of the applicable dividend period, plus an amount equal to such then applicable liquidation preference multiplied by 8.5% per annum, computed on the basis of a 365-day year and the actual number of days elapsed from the start of the applicable dividend period to the applicable date of determination.


Cash dividends are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, and, if declared, will begin to accrue on the first day of the applicable dividend period. Paid in kindPaid-in-kind (“PIK”) dividends, if applicable, will accrue and be cumulative on the same schedule as set forth above for cash dividends and will also be compounded at the applicable annual rate on each applicable subsequent dividend date. PIK dividends are paid upon the occurrence of a liquidation event, conversion or redemption in accordance with the terms of the Preferred Stock. Cash dividends were declared for the ninesix months ended SeptemberJune 30, 20172020 and totaled $3.3 million.2019 totaling $2.0 million and $2.2 million, respectively.


Reinsurance and Self-Funded Insurance Programs


Reinsurance


We historically reinsured a substantial portion of our automobile, general and professional liability and workers’ compensation costs under reinsurance programs primarily through our wholly-owned captive insurance subsidiary, Social Services Providers Captive Insurance Company or SPCIC.("SPCIC"). As of May 16, 2017, SPCIC did not renew the expiring reinsurance policies. SPCICWe will continue to resolve claims under the historical policy years. During Q1 2020, we dissolved SPCIC.


At SeptemberJune 30, 2017, 2020, based on an independent actuarial report, the net cumulative reservereserves for expected losses since inception of these historical automobile, general and professional liability and workers’ compensation reinsurance programs was $1.8were$1.4 million $0.8, $1.0 million and $5.7$2.4 million, respectively. Based on an independent actuarial report, our expected losses related to workers’ compensation, automobile and general and professional liability in excess of our liability under our associated historical reinsurance programs at September 30, 2017 was $6.1 million. We recorded a corresponding receivable from third-party insurers and liability at September 30, 2017 for these expected losses, which would be paid by third-party insurers to the extent losses are incurred.


Further, SPCICwe had restricted cash of $6.8$0.1 million and $13.8$0.2 million at SeptemberJune 30, 20172020 and December 31, 2016, respectively, which was restricted2019, related to secure thecollateral for reinsured claims losses of SPCIC under the historical automobile, general and professional liability and workers’ compensation reinsurance programs.




Health Insurance


We offer our NET Services’, certain WD Services’ and corporate employees an option to participate in a self-funded health insurance program. The liability for the self-funded health plan of $2.4$2.0 million and $3.0$1.9 million as of SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively, was recorded in “Reinsurance liability and related reserve”“Self-funded insurance programs” in our condensed consolidated balance sheets.


Off-Balance Sheet Arrangements


There have been no material changes to the Off-Balance Sheet Arrangements discussion previously disclosed in our audited consolidated financial statements contained in the Company’sour Annual Report on Form 10-K for the year ended December 31, 2016.2019.


Forward-Looking Statements


This Quarterly Report on Form 10-Q contains certain statements that may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements related to the Company’s strategies or expectations about revenues, liabilities, results of operations, cash flows, ability to fund operations, profitability, ability to meet financial covenants, contracts or market opportunities. The Company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission (the “SEC”), in materials delivered to stockholders and in press releases. In addition, the Company’s representatives may from time to time make oral forward-looking statements. In certain cases, you may identify forward looking-statements by words such as “may”, “will”, “should”, “could”, “expect”, “plan”, “project”, “intend”, “anticipate”, “believe”, “seek”, “estimate”, “predict”, “potential”, “target”, “forecast”, “likely”, the negative of such terms or comparable terminology. In addition, statements that are not historical statements of fact should also be considered forward-looking statements. These forward-looking statements are based on the Company’s current expectations, assumptions, estimates and projections about its business and industry, and involve risks, uncertainties and other factors that may cause actual events to be materially different from those expressed or implied by such forward-looking statements. These statements are subject to a number of known and unknown risks, uncertainties and other factors, many of which are beyond our
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ability to control or predict, which may cause actual events to be materially different from those expressed or implied herein, including but not limited to: the early termination or non-renewal of contracts; our ability to successfully respond to governmental requests for proposal; our ability to fulfill our contractual obligations; our ability to identify and successfully complete and integrate acquisitions; our ability to identify and realize the benefits of strategic initiatives; the loss of any of the significant payors from whom we generate a significant amount of our revenue; our ability to accurately estimate the cost of performing under certain capitated contracts; our ability to match the timing of the costs of new contracts with its related revenue; the outcome of pending or future litigation; our ability to attract and retain senior management and other qualified employees; our ability to successfully complete recent divestitures or business termination; the accuracy of representations and warranties and strength of related indemnities provided to us in acquisitions or claims made against us for representations and warranties and related indemnities in our dispositions; our ability to effectively compete in the marketplace; inadequacies in or security breaches of our information technology systems, including our ability to protect private data; the impact of COVID-19 on us (including: the duration and scope of the pandemic; governmental, business and individuals’ actions taken in response to the pandemic; economic activity and actions taken in response; the effect on our clients and client demand for our services; and the ability of our clients to pay for our services); seasonal fluctuations in our operations; impairment of long-lived assets; the adequacy of our insurance coverage for automobile, general liability, professional liability and workers’ compensation; damage to our reputation by inaccurate, misleading or negative media coverage; our ability to comply with government healthcare and other regulations; changes in budgetary priorities of government entities that fund our services; failure to adequately comply with patient and service user information regulations; possible actions under Medicare and Medicaid programs for false claims or recoupment of funds for noncompliance; changes in the regulatory landscape applicable to Matrix; changes to our estimated income tax liability from audits or otherwise; our ability to meet restrictive covenants in our credit agreement; restrictions in the terms of our preferred stock; the costs of complying with public company reporting obligations; and the accuracy of our accounting estimates and assumptions

The Company has provided additional information about these risks and uncertainties include, but are not limited to, the risks disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016 and2019, our othersubsequent filings with the SEC.SEC, and in this filing.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. The Company is under no obligation to (and expressly disclaims any such obligation to) update any of the information in any forward-looking statement if such forward-looking statement later turns out to be inaccurate, whether as a result of new information, future events or otherwise.


Item 3.   Quantitative and Qualitative Disclosures About Market Risk.


Foreign currencyWe have exposure to interest rate risk

As of September 30, 2017, we conducted business in eleven countries outside the U.S. As a result, mainly related to our cash flows and earnings are subject to fluctuations due to changes in foreign currency exchange rates.Credit Facility, which has variable interest rates that may increase. We do not currently hedge against the possible impact of currency fluctuations. During YTD 2017 we generated $217.4 million of our net operating revenues from operations outside the U.S. As we expand further into international markets, we expect the risk from foreign currency exchange rates to increase.

A 10% adverse change in the foreign currency exchange rate from British Pounds to U.S. dollars would have a $14.4 million negative impact on consolidated revenue and a negligible impact on net income. A 10% adverse change in other foreign currency exchange rates woulddid not have a significant impactany amounts outstanding on our financial results.Credit Facility at June 30, 2020.


We assess the significance of foreign currency risk on a periodic basis and may implement strategies to manage such risk as we deem appropriate.



Item 4.   Controls and Procedures.


(a) Evaluation of disclosure controls and procedures
The Company, under the supervision and with the participation of its management (including its principal executive officer and principal financial officer), evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act as of SeptemberJune 30, 2017.2020. Based upon this evaluation, the Company’s principal executive and financial officers have concluded that such disclosure controls and procedures were effective to provide reasonable assurance that (i) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in internal controlscontrol over financial reporting
The principal executive and financial officers also conducted an evaluation of whether any changes in the Company’s internal control over financial reporting occurred during the quarter ended SeptemberJune 30, 20172020 that have materially affected or which are reasonably likely to materially affect such control. Such officers have concluded that no such changes have occurred.

(c) Limitations on the effectiveness of controls


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Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company conducts periodic evaluations of its internal controls to enhance, where necessary, its procedures and controls.






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PART II—OTHER INFORMATION




Item 1.    Legal Proceedings.


From time-to-time, we may become involved in legal proceedings arising in the ordinary course of our business. We cannot predict with certainty the potential for or outcome of any future litigation. Regardless of the outcome of any particular litigation and the merits of any particular claim, litigation can have a material adverse impact on us due to, among other reasons, any injunctive relief granted which could inhibit our ability to operate our business, amounts paid as damages or in settlement of any such matter, diversion of management resources and defense costs.

On June 15, 2015,January 21, 2019, the United States District Court for the Southern District of Ohio unsealed a putative stockholder class action derivativequi tam complaint, was filed in December 2015, against Mobile Care Group, Inc., Mobile Care Group of Ohio, LLC, Mobile Care EMS & Transport, Inc. and LogistiCare Solutions, LLC (“LogistiCare”) by Brandee White, Laura Cunningham, and Jeffery Wisier (the “Relators”) alleging violations of the Courtfederal False Claims Act by presenting claims for payment to government healthcare programs knowing that the prerequisites for such claims to be paid had not been met. The Relators seek to recover damages, fees and costs under the federal False Claims Act including treble damages, civil penalties and attorneys’ fees. In addition, the Relators seek reinstatement to their jobs with the Mobile Care entities. None of Chancerythe Relators were employed by LogistiCare. Prior to January 21, 2019, LogistiCare had no knowledge of the complaint. The federal government has declined to intervene against LogistiCare. We filed a motion to dismiss the Complaint on April 22, 2019. Although the outcome of such matter is inherently uncertain and may be materially adverse, based on current information, we do not expect the case to have a material adverse effect on our business, financial condition or results of operations.

On March 1, 2019, Meher Patel filed suit against us in the Superior Court of the State of Delaware (the “Court”), captioned Haverhill Retirement SystemCalifornia, Tuolumne County, on behalf of herself and as a class action on behalf of others similarly situated, asserting violations under the California Labor Code relating to the alleged failure by LogistiCare to comply with certain applicable state wage and related employment requirements, as well as claims of breach of contract and breach of the implied covenant of good faith and fair dealing. This matter has been resolved in a manner that does not materially impact us.

In Lynch v. KerleyRide Plus et al., C.A. No. 11149-VCL. For further information on this legal proceeding, please see Item 3, Legal Proceedings,a putative class action lawsuit filed in the Company’s Annual Report on Form 10-KSuperior Court for the year ended December 31, 2016,County of San Diego, California, a former Ride Plus driver (trade name for Provado Mobile Health, a Company subsidiary) sought to represent all Ride Plus drivers in California on claims identical to the Patel action. This matter has been resolved in a manner that does not materially impact us.

On April 1, 2019, a purported class action was filed against LogistiCare in Texas alleging that the Company’s policy with respect to timekeeping for hourly employees constituted violations of the federal Fair Labor Standards Act (“FLSA”), as well as wage and Part II, Item 1, Legal Proceedings,hour laws in South Carolina and Texas. Plaintiffs filed a motion for conditional certification on a nationwide basis, which LogistiCare contested. The court granted the conditional certification motion on January 22, 2020. We filed an appeal of the conditional certification order and plan to vigorously contest the allegations on the merits as the plaintiffs have mischaracterized the method by which employees clock in to work. At this early stage in the Company’s Quarterly Reportslitigation, it is impossible to predict with any certainty whether plaintiffs will prevail on Form 10-Qtheir claims, or what they might recover.

On June 10, 2020, Gateway Insurance Company (“Gateway”), doing business in California as Alano Insurance Company, a subsidiary of Atlas Financial Holdings, Inc., entered liquidation. Gateway previously insured certain LogistiCare subcontracted transportation providers. LogistiCare is listed as an additional insured on these policies, and received notice of the liquidation on June 15, 2020. LogistiCare currently has 12 active lawsuits involving transportation providers formerly insured by Gateway; however, additional lawsuits may be filed against these subcontracted transportation providers. As a result of the liquidation, these suits will now be taken over by the state guaranty fund in which the suit is pending. It is probable that LogistiCare will lose its additional insured status and be required to defend itself under its own insurance policies, which involve a self-insured retention. All of the lawsuits are currently stayed for a time period varying by state in order for the periods ended March 31, 2017 and June 30, 2017.guaranty fund to take over the case. We have accrued reserves related to these lawsuits in accordance with ASC 450, Contingencies.


On September 28, 2017, the Court approved a proposed settlement agreement among the parties that provides for a settlement amount of $10.0 million less plaintiff’s legal fees and expenses (the “Settlement Amount”), with 75% of the Settlement Amount to be paid to the Company and 25% of the Settlement Amount to be paid to holders of the Company’s common stock other than certain excluded parties. The Company expects to receive a payment of approximately $5.0 million. As this amount is considered a gain contingency, the Company has not recorded a receivable for this amount as of September 30, 2017.

Item 1A. Risk Factors.


There have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2019, except as discussed below.




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Our business, results of operations and financial condition may be adversely affected by pandemic infectious diseases, particularly the novel coronavirus strain known as severe acute respiratory syndrome coronavirus 2 (“SARS-CoV-2”), which causes COVID-19.

We could be negatively impacted by the widespread outbreak of an illness or any other communicable disease, or any other public health crisis that results in economic and trade disruptions, including the disruption of global supply chains. In December 2019, an outbreak of a new strain of coronavirus 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 our employees, suppliers, transportation providers and other business providers to carry out their assigned tasks at ordinary levels of performance relative to the conduct of our business which may cause us to materially curtail certain of our business operations. While we are monitoring the impact of COVID-19 on our business and financial results at this time, we are unable to accurately predict the extent to which the coronavirus pandemic impacts our business, operations and financial results. Such impact will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic, including, potential shifting of governmental policies away from programs that call for the types of services we provide; the impact of the pandemic on economic activity and actions taken in response; the effect on our members and member demand for our services; our ability to provide our services, including as a result of travel restrictions, disruptions in our contact centers related to COVID-19, people working from home, and the willingness of our employees to return to our contact centers as “shelter in place” and other related “stay at home restrictions” are lifted or modified; issues with respect to our employees’ health, working hours and/or ability to perform their duties; increased costs to the Company in response to these changing conditions and to protect the health and safety of our employees; and the ability of our payors to pay for our services. Furthermore, any failure to appropriately respond, or the perception of an inadequate response, could cause reputational harm and/or subject us to claims and litigation.

Beginning in March 2020 we saw a significant reduction in trip volume as the governors of most states in which we operate implemented some form of “stay at home” order, and medical services were reduced to life-sustaining programs only (e.g., dialysis and chemotherapy). This reduction in trip volume has had a negative financial impact on our transportation providers and we believe that some of our transportation providers may not survive this period of reduced volume. As governors in many of the states have lifted or modified such restrictions and allowed businesses to reopen, we have seen some increase in trip volume, however given the continued resurgence of the virus in many such states, such volumes have stayed at lower than pre-pandemic levels. We currently expect that some states will continue to reopen while others may impose or renew restrictions on economic activity to try to mitigate the resurgence of the virus. If volume remains depressed overall, we will continue to see pressure on our transportation providers and lower revenue. If volume increases as a result of reopening measures or because states are able to bring the pandemic under control, depending on the period of time over which this increase in volume occurs, we may face difficulty meeting volume demands due to the capacity constraints within our network of transportation providers. Additionally, there may be an increase in the required level of service for those utilizing NET services during the pandemic as a result of a sicker population or in an effort to reduce the potential transmission of COVID-19. As trip volume increases we may face staffing difficulties in our contact centers as the recruitment of potential employees may be challenging amid health concerns and other factors related to the pandemic.

The uncertainty of trip volume volatility due to COVID-19 can impact the assumptions on which we rely to develop our transportation expense estimates. If we do not accurately estimate costs incurred in providing services, the contract may be less profitable than anticipated and our actual results may be adversely affected.

Any or all of these factors could have an adverse effect on our business, financial condition and results of operations.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.


Issuer Purchases of Equity Securities


On March 11, 2020, the Board authorized a new stock repurchase program under which the Company may repurchase up to $75.0 million in aggregate value of the Company’s Common Stock, subject to the consent of the holders of a majority of the Company’s Series A convertible preferred stock, through December 31, 2020, unless terminated earlier. Since March 11, 2020, 195,677 shares were repurchased under the program. The following table provides information with respect to common stock repurchased by us during the threesix months ended SeptemberJune 30, 2017:2020:
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Period 
Total Number
of Shares of
Common Stock
Purchased (1)
 
Average Price
Paid per
Share
 
Total Number of
Shares of Common Stock
Purchased as Part of
Publicly Announced
Plans or Program
 
Maximum Dollar Value of
Shares of Common Stock
that May Yet Be Purchased
Under the Plans or Program (2)
Month 1:        
July 1, 2017        
to        
July 31, 2017 47
 $50
 —
 $69,624,167
         
Month 2:        
August 1, 2017        
to        
August 31, 2017 115
 $51.54
 —
 $69,624,167
         
Month 3:        
September 1, 2017        
to        
September 30, 2017 —
 $—
 —
 $69,624,167
         
Total 162
  
 —
  
PeriodTotal Number
of Shares (or Units) of
Common Stock
Purchased		Average Price
Paid per
Share (or Unit)		Total Number of
Shares (or Units) of Common Stock
Purchased as Part of
Publicly Announced
Plans or Program		Maximum Dollar Value (or Approximate Dollar Value) of
Shares (or Units) that May Yet Be Purchased
Under the Plans or Program (000’s)
    
Share value authorized for repurchase$75,000  
Repurchase Activity:
March 1, 2020
to
March 31, 2020142,821  $51.11  142,821  $67,701  
April 1, 2020    
to    
April 30, 202046,455  $54.48  46,455  $65,170  
May 1, 2020
to
May 30, 20206,401  $55.64  6,401  $64,813  
June 1, 2020
to
June 30, 2020—  $—  —  $—  
Total195,677  195,677   
______________
(1)Includes shares repurchased from employees in connection with the settlement of income tax and related benefit withholding obligations arising from vesting of restricted stock grants.
(2)On October 26, 2016, our Board authorized a new repurchase program, under which the Company may repurchase up to $100.0 million in aggregate value of the Company’s common stock during the twelve-month period following October 26, 2016. As of September 30, 2017, a total of 770,808 shares were purchased through this plan for $30.4 million, including commission payments.


On November 2, 2017, the Company’s Board of Directors approved the extension of the Company’s existing stock repurchase program, authorizing the Company to engage in a common stock repurchase program to repurchase up to $69.6 million (the amount remaining from the $100.0 million repurchase amount authorized in 2016) in aggregate value of the Company’s common stock through December 31, 2018. Purchases under the common stock repurchase program may be made from time-to-time through a combination of open market repurchases (including Rule 10b5-1 plans), privately negotiated transactions, and accelerated share repurchase transactions, at the discretion of the Company’s officers, and as permitted by securities laws, covenants under existing bank agreements, and other legal requirements.
40


Dividends


We have not paid any cash dividends on our common stock and currently do not expect to pay dividends on our common stock.  In addition, our ability to pay dividends on our common stock is limited by the terms of our Credit Agreement and our preferred stock.  The payment of future cash dividends, if any, will be reviewed periodically by the Board and will depend upon, among other things, our financial condition, funds from operations, the level of our capital and development expenditures, any restrictions imposed by present or future debt or equity instruments, and changes in federal tax policies, if any. 




Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6.  Exhibits.


EXHIBIT INDEX
Exhibit
Number		Description
10.1*
Exhibit
Number
10.2		Description
10.3
31.1*
31.2*
31.2*
32.1*
32.1*
32.2*
32.2*
101. INS101.INSXBRLXBR Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
101.SCHXBRL Schema Document
101.CALXBRL Calculation Linkbase Document
101.LABXBRL Label Linkbase Document
101.PREXBRL Presentation Linkbase Document
101.DEFXBRL Definition Linkbase Document

*
*Filed herewith.




41





SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
THE PROVIDENCE SERVICE CORPORATION
Date: August 6, 2020THE PROVIDENCE SERVICE CORPORATIONBy:/s/ Daniel E. Greenleaf
Date: November 8, 2017By:/s/ James M. Lindstrom
James M. LindstromDaniel E. Greenleaf
Chief ExecutiveOfficer and Director
(Principal Executive Officer)
Date: November 8, 2017August 6, 2020By:/s/ David C. ShackeltonKevin Dotts
David C. Shackelton
Kevin Dotts
Chief Financial Officer
(Principal Financial Officer)



44
42