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 September 30, ~~2017~~2020



☐			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 Street

Sixth Floor

Atlanta

Georgia

30309

~~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 class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, $0.001 par value per share	PRSC	The NASDAQ Global Select Market

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 November 3, ~~2017,~~2020, there were ~~outstanding 13,305,502~~outstanding 14,183,634 shares (excluding treasury shares of ~~3,944,171)~~5,285,666) of the registrant’s Common Stock, $0.001 par value per share.

TABLE OF CONTENTS



					Page

PART I—FINANCIAL INFORMATION

Item 1.			Financial Statements		4

			Condensed Consolidated Balance Sheets – September 30, ~~2017~~2020 (unaudited) and December 31, ~~2016~~2019		4

			Unaudited Condensed Consolidated Statements of ~~Income~~Operations – Three and ~~nine~~Nine months ended September 30, ~~2017~~2020 and ~~2016~~2019		56

			Unaudited Condensed Consolidated Statements of ~~Comprehensive Income~~Stockholders’ Equity – Three and ~~nine~~Nine months ended September 30, ~~2017~~2020 and ~~2016~~2019		67

			Unaudited Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, ~~2017~~2020 and ~~2016~~2019		79

			Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, ~~2017~~2020		811

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations		2429

Item 3.			Quantitative and Qualitative Disclosures About Market Risk		3938

Item 4.			Controls and Procedures		4039

PART II—OTHER INFORMATION

Item 1.			Legal Proceedings		4140

Item 1A.			Risk Factors		4140

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		4246







~~Item 3.~~			~~Defaults Upon Senior Securities~~	43

~~Item 4.~~	~~Mine Safety Disclosures~~	43

~~Item 5.~~	~~Other Information~~	43

Item 6.	Exhibits			4348

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

The Providence Service Corporation

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)


	September 30, 2017			December 31, 2016				September 30, 2020		December 31, 2019
	(Unaudited)							(Unaudited)
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	92,178		$	72,262		Cash and cash equivalents	$	183,277	$	61,365
Accounts receivable, net of allowance of $5,765 in 2017 and $5,901 in 2016	175,162			162,115
Accounts receivable, net of allowance of $2,794 and $5,933, respectively							Accounts receivable, net of allowance of $2,794 and $5,933, respectively	164,944		180,416
Other receivables	5,555			12,639			Other receivables	7,310		3,396
Prepaid expenses and other	39,083			37,895			Prepaid expenses and other	20,266		10,942
Restricted cash	1,198			3,192			Restricted cash	3,182		153
Current assets of discontinued operations							Current assets of discontinued operations	357		155
Total current assets	313,176			288,103			Total current assets	379,336		256,427
Operating lease right-of-use assets							Operating lease right-of-use assets	18,814		20,095
Property and equipment, net	48,191			46,220			Property and equipment, net	21,048		23,243
Goodwill	121,555			119,624			Goodwill	135,216		135,216
Intangible assets, net	45,750			49,124			Intangible assets, net	87,358		19,911
Equity investments	157,067			161,363
Equity investment							Equity investment	141,292		130,869
Other assets	12,911			8,397			Other assets	8,571		11,620
Restricted cash, less current portion	5,902			10,938
Deferred tax asset	4,436			1,510

Total assets	$	708,988		$	685,279		Total assets	$	791,635	$	597,381
Liabilities, redeemable convertible preferred stock and stockholders' equity
Liabilities, redeemable convertible preferred stock and stockholders’ equity							Liabilities, 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 liabilities							Current portion of finance lease liabilities	$	148	$	308
Accounts payable	19,921			22,177			Accounts payable	26,677		9,805
Current portion of operating lease liabilities							Current portion of operating lease liabilities	6,680		6,730
Accrued expenses	103,397			102,381			Accrued expenses	143,033		38,733
Accrued transportation costs	101,195			72,356			Accrued transportation costs	81,558		87,063
Deferred revenue	17,421			20,522			Deferred revenue	681		227
Reinsurance and related liability reserves	4,881			8,639
Self-funded insurance programs							Self-funded insurance programs	10,083		5,890
Current liabilities of discontinued operations							Current liabilities of discontinued operations	1,734		1,430
Total current liabilities	248,343			227,796			Total current liabilities	270,594		150,186
Long-term obligations, less current portion	566			1,890
Finance lease liabilities, less current portion							Finance lease liabilities, less current portion	0		45
Operating lease liabilities, less current portion							Operating lease liabilities, less current portion	13,015		14,502
Long-term contract payables							Long-term contract payables	50,244		0
Other long-term liabilities	23,968			22,380			Other long-term liabilities	12,195		15,029
Deferred tax liabilities	54,363			57,973			Deferred tax liabilities	35,520		22,907

Total liabilities	327,240			310,039			Total liabilities	381,568		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 rate	77,549			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; 0 and 798,788, respectively, issued and outstanding; 5.5%/8.5% dividend rate							Convertible preferred stock, net: Authorized 10,000,000 shares; $0.001 par value; 0 and 798,788, respectively, issued and outstanding; 5.5%/8.5% dividend rate	0		77,120
Stockholders’ equity							Stockholders’ equity
Common stock: Authorized 40,000,000 shares; $0.001 par value; 19,468,591 and 18,073,763, respectively, issued and outstanding (including treasury shares)							Common stock: Authorized 40,000,000 shares; $0.001 par value; 19,468,591 and 18,073,763, respectively, issued and outstanding (including treasury shares)	20		18
Additional paid-in capital	310,017			302,010			Additional paid-in capital	416,504		351,529
Retained earnings	167,004			156,718			Retained earnings	221,509		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' equity	306,506			300,095
Noncontrolling interest	(2,307		)	(2,420		)
Total stockholders' equity	304,199			297,675
Total liabilities, redeemable convertible preferred stock and stockholders' equity	$	708,988		$	685,279

Treasury shares, at cost, 5,285,666 and 5,088,782 shares, respectively							Treasury shares, at cost, 5,285,666 and 5,088,782 shares, respectively	(227,966)		(217,688)
Total stockholders’ equity							Total stockholders’ equity	410,067		317,592
Total liabilities, redeemable convertible preferred stock and stockholders’ equity							Total liabilities, redeemable convertible preferred stock and stockholders’ equity	$	791,635	$	597,381

See accompanying notes to the unaudited condensed consolidated financial statements

The Providence Service Corporation

Unaudited Condensed Consolidated Statements of ~~Income~~Operations

(in thousands, except share and per share data)


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Service revenue, net	$	320,619	$	393,385	$	970,166	$	1,125,111

Operating expenses:
Service expense	235,543		356,271		764,310		1,042,717
General and administrative expense	34,441		15,979		86,435		52,241
Depreciation and amortization	7,301		4,148		17,199		12,976

Total operating expenses	277,285		376,398		867,944		1,107,934

Operating income	43,334		16,987		102,222		17,177

Other expenses (income):
Interest expense, net	379		188		2,118		793
Other income	0		(66)		0		(199)
Equity in net (income) loss of investee	(10,325)		3,188		(12,200)		6,159
Income from continuing operations before income taxes	53,280		13,677		112,304		10,424
Provision for income taxes	14,360		5,097		19,785		3,940
Income from continuing operations, net of tax	38,920		8,580		92,519		6,484
(Loss) income from discontinued operations, net of tax	(115)		(426)		(618)		540
Net income	$	38,805	$	8,154	$	91,901	$	7,024

Net income available to common stockholders (Note 11)	$	35,346	$	6,104	$	34,563	$	3,230

Basic earnings (loss) per common share:
Continuing operations	$	2.53	$	0.50	$	2.63	$	0.21
Discontinued operations	(0.01)		(0.03)		(0.05)		0.04
Basic earnings per common share	$	2.52	$	0.47	$	2.58	$	0.25

Diluted earnings (loss) per common share:
Continuing operations	$	2.51	$	0.50	$	2.62	$	0.21
Discontinued operations	(0.01)		(0.03)		(0.05)		0.04
Diluted earnings per common share	$	2.50	$	0.47	$	2.57	$	0.25

Weighted-average number of common shares outstanding:
Basic	14,026,039		12,993,934		13,367,605		12,956,222
Diluted	14,133,904		13,004,449		13,415,344		12,977,598

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 expense 378,032
378,488
1,124,478
1,095,011
General and administrative expense 18,629
17,320
53,705
52,548
Depreciation and amortization 6,547
6,670
19,716
20,058
Total operating expenses 403,208
402,478
1,197,899
1,167,617

Operating income 6,309
9,793
19,095
24,809

Other expenses:
Interest expense, net 302
338
983
1,239
Equity in net (gain) loss of investees 460
1,517
991
5,693
Gain on sale of equity investment (12,606 ) —
(12,606 ) —
Loss (gain) on foreign currency transactions 200
(482 ) 600
(1,332 )
Income from continuing operations before income taxes 17,953
8,420
29,127
19,209
Provision for income taxes 2,989
4,678
8,391
12,466
Income from continuing operations, net of tax 14,964
3,742
20,736
6,743
Discontinued operations, net of tax (16 ) (2,791 ) (6,000 ) 332
Net income 14,948
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:
Basic 13,581,662
14,523,408
13,612,764
14,823,757
Diluted 13,655,554
14,634,483
13,676,468
14,943,024

See accompanying notes to the unaudited condensed consolidated financial statements

The Providence Service Corporation

Unaudited Condensed Consolidated Statements of ~~Comprehensive Income~~Stockholders’ Equity

(in ~~thousands)~~thousands, except share and per share data)


	Nine months ended September 30, 2020

	Common Stock			Additional Paid-In		Retained		Treasury Stock
	Shares	Amount		Capital		Earnings		Shares	Amount		Total
Balance at December 31, 2019	18,073,763	$	18	$	351,529	$	183,733	5,088,782	$	(217,688)	$	317,592
Net income	—	—		—		16,098		—	—		16,098
Stock-based compensation	—	—		1,005		—		—	—		1,005
Exercise of employee stock options	39,111	—		2,054		—		—	—		2,054
Restricted stock issued	79,029	—		—		—		—	—		—
Restricted stock surrendered for employee tax payment	—	—		—		—		626	(37)		(37)
Shares issued for bonus settlement and director stipends	701	—		38		—		—	—		38
Stock repurchase plan	—	—		—		—		142,821	(7,299)		(7,299)
Conversion of convertible preferred stock to common stock	40	—		2		—		—	—		2
Convertible preferred stock dividends (1)	—	—		—		(1,095)		—	—		(1,095)



Balance at March 31, 2020	18,192,644	$	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 options	129,722	—		9,275		—		—	—		9,275
Restricted stock forfeited	(8,496)	—		—		—		—	—		—

Shares issued for bonus settlement and director stipends	487	—		38		—		—	—		38
Stock repurchase plan	—	—		—		—		52,856	(2,887)		(2,887)
Conversion of convertible preferred stock to common stock	14,166	—		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 Agreement	925,567	1		37,255		(5,997)		—	—		31,259
Convertible preferred stock dividends (1)	—	—		—		(866)		—	—		(866)
Balance at June 30, 2020	19,254,090	$	19	$	402,433	$	185,917	5,285,085	$	(227,911)	$	360,458
Net income	—	—		—		38,805		—	—		38,805
Stock-based compensation	—	—		1,139		—		—	—		1,139
Exercise of employee stock options	145,124	1		10,250		—		—	—		10,251
Restricted stock issued	330	—		—		—					—
Restricted stock surrendered for employee tax payment	—	—		—		—		581	(55)		(55)
Shares issued for bonus settlement and director stipends	414	—		38		—		—	—		38

Conversion of convertible preferred stock to common stock	68,633	—		2,644		—		—	—		2,644
Redemption of convertible preferred stock pursuant to Conversion Agreement	—	—		—		(3,186)		—	—		(3,186)
Dividends paid pursuant to the Conversion Agreement (2)	—	—		—		(27)		—	—		(27)
Balance at September 30, 2020	19,468,591	$	20	$	416,504	$	221,509	5,285,666	$	(227,966)	$	410,067

(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.

(2) On September 3, 2020, accrued cash dividends of $1.37 per share were paid to Coliseum Capital Partners, L.P. and certain funds and accounts managed by Coliseum Capital Management, LLC pursuant to the Preferred Stock Conversion Agreement as discussed in Note 10, Stock-Based Compensation and Similar Arrangements.

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 Providence 14,853
650
14,441
7,508
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax 2,165
(2,808 ) 6,591
(11,140 )
Reclassification of translation loss realized upon sale of equity investment 527
—
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 )


	Nine months ended September 30, 2019

	Common Stock			Additional Paid-In		Retained		Treasury Stock
	Shares	Amount		Capital		Earnings		Shares	Amount		Total
Balance at December 31, 2018	17,784,769	$	18	$	334,744	$	187,127	4,970,093	$	(210,891)	$	310,998
Net income	—	—		—		582		—	—		582
Stock-based compensation	—	—		2,103		—		—	—		2,103
Exercise of employee stock options	57,022	0		2,557		—		—	—		2,557
Restricted stock issued	25,357	—		—		—		3,459	(217)		(217)
Shares issued for bonus settlement and director stipends	599	—		—		—		—	—		0
Convertible preferred stock dividends (3)	—	—		—		(1,087)		—	—		(1,087)
Balance at March 31, 2019	17,867,747	$	18	$	339,404	$	186,622	4,973,552	$	(211,108)	$	314,936
Net loss	—	—		—		(1,712)		—	—		(1,712)
Stock-based compensation	—	—		1,289		—		—	—		1,289
Exercise of employee stock options	67,931	—		3,826		—		—	—		3,826
Restricted stock issued	7,088	—		—		—		2,419	(155)		(155)

Shares issued for bonus settlement and director stipends	202	—		—		—		—	—		0

Conversion of convertible preferred stock to common stock	4,104	—		157		—		—	—		157
Convertible preferred stock dividends (3)	—	—		—		(1,098)		—	—		(1,098)
Balance at June 30, 2019	17,947,072	$	18	$	344,676	$	183,812	4,975,971	$	(211,263)	$	317,243
Net income	—	—		—		8,154		—	—		8,154
Stock-based compensation	—	—		855		—		—	—		855
Exercise of employee stock options	17,755	—		503		—		—	—		503
Restricted stock issued	2,313	—		—		—		42	(3)		(3)
Shares issued for bonus settlement and director stipends	856	—		—		—		—	—		0
Stock repurchase plan	—	—		—		—		105,421	(5,988)		(5,988)

Convertible preferred stock dividends (3)	—	—		—		(1,109)		—	—		(1,109)
Balance at September 30, 2019	17,967,996	$	18	$	346,034	$	190,857	5,081,434	$	(217,254)	$	319,655

(3) Cash dividends on redeemable convertible preferred stock of $1.36, $1.37, and $1.38 per share were distributed to convertible preferred stockholders for the three months ended March 31, 2019, June 30, 2019, and September 30, 2019, respectively.

See accompanying notes to the unaudited condensed consolidated financial statements

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:
Depreciation 13,802
17,039
Amortization 5,914
24,140
Provision for doubtful accounts 1,258
2,196
Stock-based compensation 4,586
3,204
Deferred income taxes (7,062 ) (15,446 )
Amortization of deferred financing costs and debt discount 516
1,573
Equity in net loss of investees 991
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 other 7,517
(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 costs 28,839
31,935
Deferred revenue (4,537 ) (7,460 )
Other long-term liabilities 1,399
5,242
Net cash provided by operating activities 36,930
45,257
Investing activities
Purchase of property and equipment (15,293 ) (33,928 )
Net increase from short-term investments 300
242
Equity investments —
(6,381 )
Cost method investments (3,000 ) —
Loan to joint venture (566 ) —
Repayment of loan from joint venture 576
—
Proceeds from sale of equity investment 15,823
—
Restricted cash for reinsured claims losses and other 7,029
4,917
Net cash provided by (used in) investing activities 4,869
(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 exercise 1,528
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 cash 464
(39 )
Net change in cash and cash equivalents 19,916
(22,153 )
Cash and cash equivalents at beginning of period 72,262
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


	Nine months ended September 30,
	2020		2019
Operating activities
Net income	$	91,901	$	7,024
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	6,980		8,300
Amortization	10,219		4,676
Provision for doubtful accounts	(3,139)		533
Stock-based compensation	2,949		4,247
Deferred income taxes	12,612		1,993
Amortization of deferred financing costs and debt discount	292		272
Equity in net (income) loss of investee	(12,200)		6,159
Reduction of right of use assets	6,769		7,668


Changes in operating assets and liabilities:
Accounts receivable and other receivables	20,017		(44,374)
Prepaid expenses and other	(28,216)		(8,779)
Income tax refunds on sale of business	17,789		37,271
Self-funded insurance programs	1,259		2,511
Accounts payable and accrued expenses	121,408		(9,384)
Accrued transportation costs	(5,506)		27,522
Deferred revenue	453		(486)
Long-term contract payables and other long-term liabilities	43,639		(5,084)
Net cash provided by operating activities	287,226		40,069
Investing activities
Purchase of property and equipment	(4,786)		(7,302)
Acquisition, net of cash acquired	(77,665)		0





Net cash used in investing activities	(82,451)		(7,302)
Financing activities
Proceeds from debt	162,000		12,000
Repayment of debt	(162,000)		(12,000)
Preferred stock redemption payment	(88,743)		0
Preferred stock dividends	(1,988)		(3,295)
Repurchase of common stock, for treasury	(10,186)		(6,363)
Proceeds from common stock issued pursuant to stock option exercise	21,581		6,885
Restricted stock surrendered for employee tax payment	(92)		0
Other financing activities	(204)		(641)
Net cash used in financing activities	(79,632)		(3,414)
Net change in cash, cash equivalents and restricted cash	125,143		29,353
Cash, cash equivalents and restricted cash at beginning of period	61,673		12,367
Cash, cash equivalents and restricted cash at end of period	$	186,816	$	41,720

See accompanying notes to the unaudited condensed consolidated financial statements

The Providence Service Corporation

Supplemental Cash Flow Information

(in thousands)


	Nine months ended September 30,
Supplemental cash flow information	2020		2019
Cash paid for interest	$	1,775	$	1,090
Cash paid (received) for income taxes, net of refunds	$	11,805	$	(30,456)
Assets acquired under operating leases	$	5,488	$	4,770

See accompanying notes to the unaudited condensed consolidated financial statements

The Providence Service Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

September 30, ~~2017~~2020

~~(in thousands except years, share and per share data)~~

1. Organization and Basis of Presentation

Description of Business

The Providence Service Corporation (“we”, the “Company” or “Providence”)~~, 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 provider~~largest benefits manager of non-emergency medical transportation (“NEMT” or "NET") programs for state governments and managed care ~~organizations.~~organizations (“MCOs”) in the United States (“U.S.”) through the wholly-owned subsidiary, LogistiCare Solutions, LLC, a Delaware limited liability company and the brands “LogistiCare” and “Circulation”. The technology-enabled operating model includes core competencies in risk underwriting, call center management, network credentialing, vendor payment management and non-emergency medical transport management. Through this model, the Company provides a suite of integrated supportive care solutions for our payor customers and end-users, focused on addressing the social determinates of health (“SDoH”) and enabling greater access to healthcare and improved outcomes.

~~Workforce Development Services~~

The Company also own a 43.6% 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 in~~is 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 ~~optimization~~with advanced diagnostic capabilities. In 2020, Matrix launched its Employee Health and ~~management~~Wellness solution focused on improving employee health with worksite solutions ~~including comprehensive~~that reinforce business resilience and safe return-to-work outcomes. These solutions combined with Matrix’s advanced engagement approach, help health ~~assessments,~~plans manage risks, close care gaps and connect members to care.

In 2018, the Company acquired Circulation to provide additional technological improvements through their digital transportation platform. Circulation’s technology allows for real time notifications to members on their mobile devices, integration with a wide variety of ~~managed care organizations, accounted~~ ATMS and transportation network companies, real time ride tracking, network management and analytics.

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

On May 6, 2020, LogistiCare entered into an ~~equity method investment.~~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 of NMT. See Note 15, Acquisitions, for further information.

Basis of Presentation

The Company follows accounting standards set by the Financial Accounting Standards Board (“FASB”). The FASB establishes accounting principles generally accepted in the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification (“ASC”), which serves as the single source of authoritative ~~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~~accompanying 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 prepare~~in 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 nine months ended September 30, ~~2017~~2020 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, ~~2016~~2019 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 accounted~~accounts for its investment in Matrix using the equity ~~method. The~~method, 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 affiliates~~Matrix 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 affiliates~~Matrix that would have a material effect on the Company’s condensed consolidated financial statements. See Note 5, Equity Investment, for further information.

Uncertainties due to COVID-19

~~Reclassifications~~

~~We have reclassified certain amounts relating~~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 ~~our prior period results~~limit the spread of this virus, has and is likely to ~~conform~~continue to ~~our current period presentation. On October 19, 2016, affiliates~~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”). Prior~~other business providers to carry out their assigned tasks at ordinary levels of performance relative to the ~~closing~~conduct 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, ~~of Matrix were included~~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.

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”) segment. Operating results for this segment are reported as discontinued operations,~~2018 U.S. net operating losses ("NOLs"), the effective tax rate of ~~tax in~~17.6% was lower than the ~~condensed consolidated statements~~U.S. federal statutory rate of ~~income~~21.0% for the ~~three and~~ nine months ended September 30, ~~2016.~~2020. The 27.0% effective tax rate for the three months ended September 30, 2020 was not impacted by the CARES Act. See Note ~~13,~~ ~~Discontinued Operations,~~12, Income Taxes, for further ~~information~~. ~~See Note 2,~~ ~~Significant Accounting Policies~~information.

The accompanying unaudited condensed consolidated financial statements reflect estimates and ~~Recent Accounting Pronouncements, for additional information on other reclassifications.~~assumptions made by management that affect the reported amounts of assets and liabilities and reported amounts of revenue and expenses. It is possible that the Company's assumptions and estimates may materially change due to these uncertainties.

Reclassifications

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

2. Significant Accounting Policies and Recent Accounting Pronouncements

The Company adopted the following accounting pronouncements during the nine months ended September 30, ~~2017:~~2020:

In ~~November 2015,~~June 2016, the FASB issued Accounting Standards Update ~~(“ASU”~~("ASU") No. ~~2015-17,~~ ~~Income Taxes~~2016-13, Financial Instruments - Credit Losses (Topic ~~740): Balance Sheet Classification of Deferred Taxes~~326) (“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 ~~apply~~in ASU 2016-13 superseded much of the existing guidance for reporting credit losses for assets held at amortized cost basis and available for sale debt securities. The amendments in ASU 2016-13 affected loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit 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 retrospectively~~2016-13 on January 1, ~~2017, which resulted~~2020. As of September 30, 2020, this guidance did not have a material

impact on the unaudited 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 Ventures~~2018-13, Fair Value Measurement (Topic ~~323)~~820): ~~Simplifying the Transition~~Disclosure 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 investee~~disclosures 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 ~~2016-07~~2018-13 on January 1, ~~2017. The adoption~~2020. As of ~~ASU 2016-07 had no~~September 30, 2020, this guidance did not have an impact on the ~~Company’s~~unaudited condensed 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 Payment~~2018-15, 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 improve~~2018-15 aligned the ~~accounting~~requirements 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 rate~~capitalizing 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 ~~change in classification~~prospective 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 cash flows resulting from excess tax benefits or deficiencies on a retrospective basis. This resulted in an increase in cash flows provided by operating activities of $276 and an increase of $276 in cash flows used in financing activities in 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 activities in the consolidated statements of cash flows, which is how2020, the Company has ~~historically classified these amounts.~~not incurred any material implementation costs associated with new service contracts since the date of adoption.

In ~~January 2017,~~February 2020, the FASB issued ASU No. ~~2017-01,~~ ~~Business Combinations~~2020-02, Financial Instruments—Credit Losses (Topic ~~805)~~326) and Leases (Topic 842):~~Clarifying the Definition of a Business~~ (“ 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 ~~2017-01”~~2020-02"). ASU ~~2017-01 clarifies~~2020-02 provides interpretive guidance on methodologies and supporting documentation for measuring credit losses, with a focus on the ~~definition~~documentation the SEC would normally expect registrants engaged in lending transactions to prepare and maintain to support estimates of ~~a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted~~current expected credit losses 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. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods.loan transactions. The Company adopted ASU ~~2017-01~~2020-02 on ~~April 1, 2017. The adoption~~February 6, 2020, as the ASU was effective upon issuance. As of ~~ASU 2017-01 had no~~September 30, 2020, this guidance did not have an impact on the ~~Company’s~~unaudited condensed consolidated financial statements or ~~disclosures.~~disclosures nor is it expected to have a material impact in the future.

In ~~January 2017,~~March 2020, the FASB issued ASU No. ~~2017-04,~~ ~~Intangibles-Goodwill and Other~~2020-03, Codification Improvements to Financial Instruments ("ASU 2020-03") to make improvements to ASU No. 2016-13, Financial Instruments—Credit Losses (Topic ~~350)~~326):~~Simplifying~~ Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). Public business entities that meet the ~~Test for Goodwill Impairment~~ (“definition of an SEC filer, excluding eligible smaller reporting companies as defined by the SEC, should adopt ASU ~~2017-04”)~~. 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 charge 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 prospectively for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017.2020-03 during 2020. The Company adopted ASU ~~2017-04~~2020-03 on April 1, ~~2017. The adoption of ASU 2017-04 had no~~2020. This guidance did not have an impact on the ~~Company’s~~unaudited condensed consolidated financial statements or ~~disclosures.~~disclosures nor is it expected to have a material impact in the future.

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

In ~~May 2014,~~December 2019, the FASB issued ASU ~~No. 2014-09,~~ ~~Revenue from Contracts with Customers~~2019-12, Income Taxes (Topic ~~606)~~ (“740): Simplifying the Accounting for Income Taxes ("ASU ~~2014-09”~~2019-12"). The ASU ~~2014-09 introduced FASB Accounting Standards Codification Topic 606 (“~~removes certain exceptions to the general principles in ASC ~~606”)~~740, Income Taxes, ~~which will replace most currently applicable~~and also clarifies and amends existing ~~revenue recognition~~ guidance ~~and is intended~~ to improve ~~and converge with international standards the financial reporting requirements for revenue from contracts with customers.~~consistent application. The ~~core principle of~~ ASU 2014-09 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 effective for fiscal years beginning after December 15, ~~2017.~~2020, including interim periods within that fiscal year, with early adoption permitted. The Company is currently evaluating the impact of this ASU, but does not expect a material impact to the financial statements upon adoption.

In January 2020, the FASB issued ASU 2020-01, Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 ("ASU 2020-01"), to clarify the interaction among the accounting standards for equity securities, equity method investments and certain derivatives. ASU 2020-01 is effective for public business entities for fiscal years beginning after December 15, 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 ~~adoption of~~Company is currently evaluating the impact ASU ~~2017-09 is~~2020-01 will have on its consolidated financial statements or disclosures; however, does not ~~expected~~expect the adoption to have a material impact.

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04") 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 consolidated financial statements or disclosures; however, does not expect the adoption to have a material impact.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) ("ASU 2020-06") which addresses the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. The update limits the accounting models for convertible instruments resulting in fewer embedded conversion features being separately recognized from the host contract. Specifically, ASU 2020-06 removes from GAAP the separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature. As a result, after adopting the ASU’s guidance, entities will not separately present in equity an embedded conversion feature in such debt. ASU 2020-06 is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods therein. The Company is currently evaluating the impact ASU 2020-06 will have on its consolidated financial statements or disclosures.

3. Revenue Recognition

Disaggregation of Revenue

The following table summarizes disaggregated revenue from contracts with customers by contract type (in thousands):


	Three months ended September 30,
	2020		2019
State Medicaid agency contracts	$	154,689	$	196,891
Managed care organization contracts	165,930		196,494

Total Service revenue, net	$	320,619	$	393,385

Capitated contracts	$	277,908	$	334,549
Non-capitated contracts	42,711		58,836

Total Service revenue, net	$	320,619	$	393,385


	Nine months ended September 30,
	2020		2019
State Medicaid agency contracts	$	486,964	$	551,632
Managed care organization contracts	483,202		573,479

Total Service revenue, net	$	970,166	$	1,125,111

Capitated contracts	$	832,490	$	947,811
Non-capitated contracts	137,676		177,300

Total Service revenue, net	$	970,166	$	1,125,111

During the three months ended September 30, 2020 and 2019, the Company recognized $0.6 million and $15.3 million of service revenue respectively, from adjustments relating to performance obligations satisfied in previous periods to which the customer agreed. During the nine months ended September 30, 2020 and 2019, the Company recognized $0.4 million and $8.5 million, 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 (in thousands):


	September 30, 2020		December 31, 2019
Accounts receivable	$	118,101	$	124,868
Reconciliation contracts receivable	49,637		61,481
Allowance for doubtful accounts	(2,794)		(5,933)
Accounts receivable, net	$	164,944	$	180,416

The following table provides information about other accounts included on the ~~Company’s~~accompanying condensed consolidated ~~financial statements.~~balance sheets (in thousands):


	September 30, 2020		December 31, 2019
Accrued contract payables, current, included in “Accrued expenses” (1)	$	88,347	$	15,706
Long-term contract payables (2)	50,244		0
Deferred revenue, current	681		227
Deferred revenue, long-term, included in “Other long-term liabilities”	629		758

~~There were no other significant updates~~

During the nine months ended September 30, 2020 and 2019, the Company recognized $0.2 million and $0.4 million of deferred revenue, respectively.

(1) Accrued contract payables, current, primarily represents overpayments and liability reserves on certain profit corridor and reconciliation contracts due to lower activity as a result of COVID-19.

(2) Long-term contract payables primarily represents liability reserves on certain profit corridor and reconciliation contracts due to lower activity as a result of COVID-19 that may be repaid in greater than 12 months.

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 by~~amounts shown in the condensed consolidated statements of cash flows (in thousands):


	As of September 30,
	2020		2019
Cash and cash equivalents	$	183,277	$	40,637
Restricted cash, current	3,182		833
Current assets of discontinued operations	357		250

Cash, cash equivalents and restricted cash	$	186,816	$	41,720

Restricted cash as of September 30, 2020 relates to a security reserve obtained as part of the NMT acquisition. Restricted cash as of September 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 nine months ended September 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-K~~is winding down. See Note 16, Discontinued Operations, for further information on the ~~year ended~~WD Services sale.

5. Equity Investment

As of September 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% noncontrolling~~43.6% 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, affiliates~~Affiliates 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 the~~accounting. The Company’s share of Matrix’s income or losses are recorded as “Equity in net ~~(gain)~~(income) loss of ~~investees”~~investee” in the accompanying unaudited condensed consolidated statements of operations and the investment basis is recorded as "Equity investment" in the accompanying condensed consolidated ~~statements~~balance sheets. During the fourth quarter of ~~income.~~the year ended December 31, 2019, Matrix recorded asset impairment charges of $55.1 million. NaN impairment was recorded during the nine months ended September 30, 2020 or 2019.

The carrying amount of the assets included in the Company’s condensed consolidated balance ~~sheet~~sheets and the maximum loss exposure related to the Company’s interest in Matrix as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 totaled ~~$156,883~~$141.3 million and ~~$157,202,~~$130.9 million, respectively.

Summary financial information for Matrix on a standalone basis is as ~~follows:~~follows (in thousands):


	September 30, 2020		December 31, 2019
Current assets	$	149,548	$	64,221
Long-term assets	618,905		631,007
Current liabilities	65,808		31,256
Long-term liabilities	364,061		351,380

September 30, 2017 December 31, 2016
Current assets $ 50,015
$ 28,589
Long-term assets 598,842
614,841
Current liabilities 39,273
25,791
Long-term liabilities 270,816
281,348


	Three months ended September 30,
	2020		2019
Revenue	$	140,728	$	71,663
Operating income (loss)	35,489		(2,640)
Net income (loss)	21,382		(6,906)

	Nine months ended September 30,
	2020		2019
Revenue	$	292,699	$	210,807
Operating income (loss)	49,074		(542)
Net income (loss)	23,917		(15,054)

Three months ended
September 30, 2017
Revenue $ 58,639
Operating income 3,159
Net loss (537 )

Nine months ended
September 30, 2017
Revenue $ 175,346
Operating income 10,109
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 assets 10,473
Current liabilities 12,844
Long-term liabilities 1,655

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:~~following (in thousands):


	September 30, 2020		December 31, 2019
Prepaid income taxes	$	8,105	$	2,942
Prepaid insurance	3,277		1,317

Prepaid rent	849		868

Other prepaid expenses	8,035		5,815
Total prepaid expenses and other	$	20,266	$	10,942

September 30,
2017 December 31,
2016
Prepaid income taxes $ 3,819
$ 1,467
Escrow funds 10,000
10,000
Prepaid insurance 2,778
3,153
Prepaid taxes and licenses 2,526
3,570
Note receivable 3,201
3,130
Prepaid rent 2,727
2,013
Deposits held for leased premises and bonds 2,744
2,609
Other 11,288
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:~~following (in thousands):


	September 30, 2020		December 31, 2019
Accrued compensation and related liabilities	$	28,470	$	8,941
Accrued contract payables, current	88,347		15,706

Accrued cash settled stock-based compensation	10,021		3,282

Other accrued expenses	16,195		10,804
Total accrued expenses	$	143,033	$	38,733

September 30,
2017 December 31, 2016
Accrued compensation $ 24,058
$ 23,050
NET Services accrued contract payments 26,504
32,836
Accrued settlement 15,000
6,000
Income taxes payable —
372
Other 37,835
40,123
Total accrued expenses $ 103,397
$ 102,381

6.8. Restructuring and Related Reorganization Costs

WD Services has three redundancy programs. Two redundancy plans were approved in 2015 and have been substantially completed; a plan related to the termination of employees delivering services under an offender rehabilitation program (“Offender Rehabilitation Program”) and a plan related to the termination of employees delivering services under the Company’s employability 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 align costs at Ingeus with revenue and to improve overall operating performance was approved in 2016. The Company ~~recorded severance~~completed an Organizational Consolidation in 2019 during which it closed the corporate offices in Stamford, Connecticut and Tucson, Arizona. A total of $0.6 million and $3.7 million in restructuring and related ~~charges of $1,117 and $4,741~~costs was incurred during the three and nine months ended September 30, ~~2017 and 2016,~~2019, respectively, ~~relating~~related to the ~~termination benefits for employee groups~~Organizational Consolidation. These costs include, respectively, $0.1 million and ~~specifically identified employees impacted by these plans. The severance charges incurred~~$2.4 million of retention and personnel costs, $0.0 million and $0.3 million of stock-based compensation expense, $0.0 million and $0.2 million of depreciation and $0.5 million and $0.8 million of other costs, primarily related to recruiting and legal costs. These costs are recorded as ~~“Service~~“General and administrative expense” and “Depreciation and amortization” in the accompanying condensed consolidated statements of ~~income.~~operations.

A total of $13.1 million in restructuring and related costs was incurred on a cumulative basis through December 31, 2019 related to the Organizational Consolidation. These costs include $7.5 million of retention and personnel costs, $2.0 million of stock-based compensation expense, $0.7 million of depreciation and $2.8 million of other costs, primarily related to recruiting and legal costs.

The ~~initial estimate~~summary of ~~severance~~the liability for restructuring and related ~~charges for the plans was based upon the employee groups impacted, average salary and benefits, and redundancy benefits pursuant~~reorganization costs is as follows (in thousands):


	As of January 1, 2019		Costs Incurred		Cash Payments		As of December 31, 2019

Retention and personnel liability	$	1,956	$	2,418	$	(4,374)	$	0
Other liability	398		1,308		(1,706)		0
Total	$	2,354	$	3,726	$	(6,080)	$	0

NaN restructuring or related costs were incurred related to the ~~existing policies. Additional charges above~~Organizational Consolidation during the ~~initial estimates were incurred for the redundancy plans during~~three and nine months ended September 30, 2020. There was 0 restructuring liability as of September 30, 2020.

During the nine months ended September 30, ~~2017~~2020, the Company incurred approximately $0.7 million of restructuring expense for the closure of its Las Vegas contact center. The majority of these costs were recorded to “Service expense” and ~~2016 related~~the remainder were recorded to "General and administrative expense".

9. Debt

The Company is a party to the ~~actualization~~amended and restated credit and guaranty agreement, dated as of ~~termination benefits~~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 the revolving credit facility (the “Credit Facility”) from $200.0 million to $225.0 million, and increased the sub-facility for ~~specifically identified employees impacted~~letters of credits from $25.0 million to $40.0 million. 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 ~~these plans, as well as~~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 September 30, 2020, the Company had 0 borrowings outstanding on the Credit Facility; however, had letters of credit outstanding in the amount of $16.9 million. The Company’s available credit under the Credit Facility was $208.1 million. Under the Credit Agreement, the Company has an option to request an increase in the ~~number of individuals impacted by these plans. The final identification~~amount of the ~~employees impacted by each program~~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 Company may not be able to access additional funds under this increase option as no lender is ~~subject~~obligated to ~~customary consultation procedures.~~participate in any such increase under the Credit Facility.

On October 16, 2020, the Company entered into the Eighth Amendment to the Amended and Restated Credit and Guaranty Agreement (the “Eighth Amendment”), which among other things, amended the Credit Facility to permit the incurrence of additional debt to finance the acquisition (the "Simplura Acquisition") of OEP AM, Inc., a Delaware corporation, doing business as Simplura Health Group (“Simplura” and, together with its subsidiaries, the “Simplura Group”), permit borrowing under the Credit Facility to partially fund the Simplura Acquisition with limited conditions to such borrowing, increase the top interest rate margin that may apply to loans thereunder, and revise our permitted ratio of EBITDA to indebtedness. In addition, the Eighth Amendment extended the maturity date to August 2, 2023. See Note 18, Subsequent Events, for further information on the acquisition.

~~Summary~~Effective as of ~~Severance 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 Program 1,380
(40 ) (1,357 ) 17
—
UK Restructuring Program 50
(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 Program 2,059
537
(2,379 ) (103 ) 114
Total $ 8,597
$ 4,741
$ (8,454 ) $ (1,009 ) $ 3,875

~~The total~~the Eighth Amendment, interest on the outstanding principal amount of ~~accrued severance and related costs~~loans under the Credit Facility accrues, at the Company’s election, at a per annum rate equal to the greater of ~~$768 is reflected in “Accrued expenses”~~either LIBOR or 1.00%, plus an applicable margin, or the base rate as defined in the ~~condensed~~agreement plus an applicable margin. The applicable margin ranges from 2.25% to 3.50% in the case of LIBOR loans and 1.25% to 2.50% in the case of the base rate loans, in each case, based on the Company’s consolidated ~~balance sheet at September 30, 2017.~~leverage ratio as defined in the credit agreement that governs our Credit Facility. The ~~amount accrued~~commitment fee and letter of credit fee ranges from 0.35% to 0.50% and 2.25% to 3.50%, respectively, in each case based on the Company’s consolidated leverage ratio as ~~of September 30, 2017 is expected to be settled principally by~~defined in the ~~end of 2017.~~credit agreement that governs our Credit Facility.

~~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, 2016 17,315,661
$ 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 options 70,283
—
1,468
—
—
5,665
(238 ) —
1,230
Restricted stock issued 31,316
—
—
—
—
17,865
(779 ) —
(779 )
Performance restricted stock issued 3,773
—
(96 ) —
—
—
—
—
(96 )
Shares issued for bonus settlement and director stipend 25,225

1,107

—
—
—
—
1,107
Stock repurchase plan —
—
—
—
—
441,965
(17,983 ) —
(17,983 )
Conversion of convertible preferred stock to common stock 415
—
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, 2017 17,446,673
$ 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 include~~The 2006 Plan allows the flexibility to grant or award stock ~~option awards,~~options, stock appreciation rights, restricted stock, ~~awards (“RSAs”) and performance based~~unrestricted stock, stock units including restricted stock units ~~(“PRSUs”). In addition, the Company has a long-term incentive plan designed to provide long-term~~and 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 nine months ended September 30, ~~2017~~2020 and ~~2016:~~2019 (in thousands):


	Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016			2020		2019		2020		2019
Service expense	$	131	$	100	$	365	$	280	Service expense	$	55	$	162	$	174	$	488
General and administrative expense	1,434		1,135		4,221		2,858		General and administrative expense	1,122		693		2,775		3,759
Equity in net loss of investees	10		—		50		—
Discontinued operations, net of tax	—		22		—		66
Total stock-based compensation	$	1,575	$	1,257	$	4,636	$	3,204	Total stock-based compensation	$	1,177	$	855	$	2,949	$	4,247

Stock-based compensation, for share settled awards, includes $1,014 and $3,098 for the three and nine months ended September 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~~ 358,953stock options outstanding with a weighted-average exercise price of ~~$37.97. The~~$63.02. The Company also had ~~71,193 shares of~~ 55,469unvested ~~RSAs~~restricted stock awards ("RSAs") and 46,021 unvested restricted stock units ("RSUs") outstanding at September 30, ~~2017~~2020 with a weighted-average grant date fair value of ~~$44.33~~ $62.78and ~~18,298 unvested PRSUs outstanding.~~$63.17, respectively.

Cash-Settled Awards

The Company also grants stock equivalent unit awards (“SEUs”) and stock option equivalent units that are ~~cash settled~~cash-settled awards and are not included as part of the 2006 Plan. During the three months ended September 30, 2020 and 2019, the Company recorded expense of $2.9 million and $0.4 million for cash-settled awards, respectively. During the nine months ended September 30, ~~2017, respectively,~~2020 and 2019, the Company ~~recorded $380 and $1,611~~recorded expense of ~~stock-based compensation expense~~ $6.9 million and income of $0.2 million 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.~~cash-settled awards, respectively. The expense and benefit for ~~cash settled~~cash-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 nine months ended September 30, ~~2017~~2020 and ~~2016 is~~2019 are attributable to the Company’s ~~increase or decrease~~change in stock price from the previous reporting ~~period.~~period. The liability for unexercised ~~cash settled~~cash-settled share-based payment awards of ~~$3,168 and $1,764~~ $10.0 million and $3.3 millionat September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively, ~~are~~is reflected in “Accrued expenses” in the condensed consolidated balance sheets. At September 30, ~~2017,~~2020, the Company had ~~6,671~~3,862 SEUs and 200,000 ~~stock~~stock option equivalent units outstanding.

~~The~~Long-Term Incentive Plans

In connection with the acquisition of Circulation during 2018, the Company ~~also provides cash settled long-term~~established a management incentive ~~plans for executive management and~~plan (“MIP”) intended to motivate key employees of ~~its operating segments.~~Circulation. During the three months ended ~~June~~March 31, 2019, the MIP was amended to remove the previously included performance requirements and to provide for a total fixed payment of $12.0 million to the group of MIP participants. During the year ended December 31, 2019, the MIP was further amended to a total fixed payment of $2.7 million. The payout date is within 30 ~~2017,~~days following the finalization of the Company’s audited financial statements for the fiscal year ending December 31, 2021 and is subject to the participant remaining employed by the Company revised the structure 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 to the awarded participants per the terms of the original agreement and thus the remaining unamortized expense relating to this plan continues to be recognized over the remaining service period.through December 31, 2021, except for certain termination scenarios. As of September 30, ~~2017, unamortized compensation expense is $696. For~~2020 and December 31, 2019, the ~~three~~Company has accrued $1.8 million and ~~nine months ended September 30, 2017, expenses of $274 and $419,~~$1.1 million, 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 plans of the Company’s operating segments of $2,260MIP, which is reflected in “Accrued expenses” and “Other long-term liabilities” in the condensed consolidated balance sheet. At December 31, 2016, the liability for long-term incentive plans of the Company’s operating segments of $1,841 isprimarily reflected in “Other long-term liabilities” in the condensed consolidated balance ~~sheet.~~sheets.

Preferred Stock Conversion

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.

On September 3, 2020, the Company elected to effect the conversion (the “Conversion”) of all of the outstanding Series A Convertible Preferred Stock. In accordance with the Preferred Stock Conversion Agreement dated June 8, 2020, the Company repurchased 27,509 shares of Series A Preferred Stock from the Holders for (i) a cash amount equal to $209.88 per share of Series A Preferred Stock, plus (ii) a cash amount equal to accrued but unpaid dividends on such shares through the day

prior to the Conversion. In connection with the Conversion, all remaining outstanding shares of Series A Preferred Stock were converted into Common Stock at the conversion rate of 2.5075 shares of Common Stock for each share of Series A Preferred Stock and cash-in-lieu of fractional shares.

The following table summarizes the convertible preferred stock activity in 2020 (in thousands, except share count):


	Dollar Value		Share 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 cost	3,263		—
Balance at June 30, 2020	$	5,299	54,882
Conversion to common stock	(2,763)		(27,373)
Preferred stock redemption pursuant to Conversion Agreement	(2,777)		(27,509)
Reduction of unamortized issuance cost	241		—
Balance at September 30, 2020	$	0	0

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 $52.1 million as of September 30, 2020.

As of September 30, 2020, there were 0 outstanding shares of convertible preferred stock.

11. Earnings Per Share

The following table details the computation of basic and diluted earnings per ~~share:~~share (in thousands, except share and per share data):


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Numerator:
Net income	$	38,805	$	8,154	$	91,901	$	7,024
Dividends on convertible preferred stock outstanding	0		(1,109)		(1,171)		(3,295)
Dividends paid pursuant to the Conversion Agreement	(27)		0		(817)		0
Consideration paid in excess of preferred cost basis pursuant to the Conversion Agreement	(3,186)		0		(52,137)		0
Income allocated to participating securities	(246)		(941)		(3,213)		(499)
Net income available to common stockholders	$	35,346	$	6,104	$	34,563	$	3,230

Continuing operations	$	35,461	$	6,473	$	35,181	$	2,762
Discontinued operations	(115)		(369)		(618)		468
Net income available to common stockholders	$	35,346	$	6,104	$	34,563	$	3,230

Denominator:
Denominator for basic earnings per share -- weighted-average shares	14,026,039		12,993,934		13,367,605		12,956,222
Effect of dilutive securities:
Common stock options	61,312		10,515		15,730		21,376
Restricted stock	46,553		0		32,009		0
Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion	14,133,904		13,004,449		13,415,344		12,977,598

Basic earnings (loss) per share:
Continuing operations	$	2.53	$	0.50	$	2.63	$	0.21
Discontinued operations	(0.01)		(0.03)		(0.05)		0.04
Basic earnings per share	$	2.52	$	0.47	$	2.58	$	0.25
Diluted earnings (loss) per share:
Continuing operations	$	2.51	$	0.50	$	2.62	$	0.21
Discontinued operations	(0.01)		(0.03)		(0.05)		0.04
Diluted earnings per share	$	2.50	$	0.47	$	2.57	$	0.25

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 shares 13,581,662
14,523,408
13,612,764
14,823,757
Effect of dilutive securities:
Common stock options 68,856
111,075
58,668
119,267
Performance-based restricted stock units 5,036
—
5,036

Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion 13,655,554
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.

The following ~~weighted average~~weighted-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 September 30,		Nine months ended September 30,
	2020	2019	2020	2019
Stock options to purchase common stock	3,481	420,846	170,076	499,611
Convertible preferred stock	38,851	799,969	487,576	800,983

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Stock options to purchase common stock 33,890
33,957
56,528
33,957
Convertible preferred stock 803,285
803,398
803,360
803,457

~~10.~~12. Income Taxes

The Company’s effective tax rate ~~from~~for continuing operations for the three and nine months ended September 30, ~~2017~~2020 was ~~16.7%~~27.0% and ~~28.8%~~17.6%, respectively. The ~~Company’s~~ effective tax rate ~~from~~for continuing operations for the three and nine months ended September 30, ~~2016~~2019 was ~~55.6%~~37.3% and ~~64.9%~~37.8%, respectively. ~~The effective tax rates for~~For the ~~three and~~ nine months ended September 30, ~~2016 exceeded~~2020, the effective tax rate was lower than the U.S. federal statutory rate of ~~35%~~ 21.0%primarily due to ~~foreign~~the favorable impact of the CARES Act on the Company’s 2018 U.S. net operating losses ~~(including equity investment losses in certain of~~("NOLs"). For the ~~periods) for which the future income~~nine months ended September 30, 2019, the effective tax ~~benefit currently cannot be recognized, losses in foreign jurisdictions with tax rates lower than~~rate 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 higher~~

During 2019, the Company received refunds from the Internal Revenue Service (“IRS”) totaling $30.8 million resulting from the loss on the 2018 workforce development segment sale. As a result of the size of the refunds received, in ~~2016 versus~~October 2019, the IRS commenced a mandatory review by a joint committee of Congress. The review is still ongoing.

The 2017 ~~resulting in a decrease in~~Tax Reform Act reduced the ~~effective~~U.S. corporate income tax rate from ~~2016~~35% to ~~2017. Additionally, for~~21% and provided that U.S. NOLs incurred after 2017 could only be carried forward to offset future taxable income. Pursuant to the ~~three and~~CARES Act, which was enacted on March 27, 2020, the Company carried its 2018 NOL back five years. As a result, during the nine months ended September 30, ~~2017, there was no provision~~2020, the Company recorded a $27.3 million receivable for ~~income taxes related~~the 2018 U.S. NOL carryback, and a $11.0 million tax benefit from the favorable carryback tax rate of 35% compared to ~~the gain on sale~~a 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 ~~excess~~an additional income tax ~~deficiencies~~payable of $3.5 million 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 were~~2019 as a result of ~~applying~~ the ~~guidance in ASU 2016-09 as further~~2018 NOL being carried back instead of carried forward.

As of September 30, 2020, the Company has received $17.0 million of the $27.3 million receivable for the 2018 U.S. NOL carryback. It is anticipated that the remaining $10.3 million refund will be received by year end.This $27.3 million is also subject to the ongoing IRS mandatory review.

As discussed in Note 2, ~~Significant Accounting Policies~~16, 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 ~~provision~~assessments for ~~awards which result in a tax deduction less than~~ the ~~amount recorded for financial reporting purposes based upon~~years 2012 through 2017. The Company does not believe the ~~fair value~~ultimate determination of the ~~award at the grant date. For example, no shares~~assessments will ~~be distributed under the HoldCo LTIP unless the volume weighted average~~have 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 related~~On 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 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 ~~completed~~filed a ~~rights offering~~motion to dismiss the Complaint on ~~February 5, 2015 (the “Rights Offering”) providing all~~April 22, 2019. Although the outcome of such matter is inherently uncertain and may be materially adverse, based on current information, the Company does not expect the case to have a material adverse effect on our business, financial condition or results of operations.

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 ~~Company’s existing common stockholders~~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 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”)conditional certification motion on January 22, 2020 and the Company ~~the remaining 524,116 shares~~filed an appeal of the ~~Company’s Preferred Stock were purchased~~conditional certification order. If this case goes forward as either a class action or individual claims, the Company plans to vigorously contest the allegations on the merits as the plaintiffs have mischaracterized the method by which employees clock into work. At this stage of 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. On August 11, 2020, American Service Insurance Company and American Country Insurance Company, subsidiaries of Atlas Financial, also entered liquidation. Gateway, American Service and American Country previously insured many of LogistiCare’s subcontracted transportation providers. LogistiCare is listed as an additional insured on these policies. LogistiCare currently has 26 active lawsuits involving Gateway, American Country Insurance Company and American Service Insurance Company. As a result of the liquidation, these suits will now be taken over by the ~~Standby Purchasers at~~state guaranty fund in which the ~~$100.00 per share subscription price.~~suit is pending. LogistiCare will likely 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 guaranty fund to take over the case. The Company has ~~indemnified the Standby Purchasers from and against any and all losses, claims, damages, expenses and liabilities relating~~accrued reserves related to ~~or arising out of (i) any breach of any representation, warranty, covenant or undertaking made by or on behalf of the Company~~these lawsuits in the Standby Purchase Agreement and (ii) the transactions contemplated by the Standby Purchase Agreement and the 14.0% Unsecured Subordinated Note in aggregate principal amount of $65,500, except to 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.accordance with ASC 450, Contingencies.

Indemnifications

The Company has also indemnified other third parties from and against any and all losses, claims, damages, expenses and liabilities arising out of or in connection 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.

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. ~~All~~Certain representations ~~and warranties~~ made by the Company in the related Membership Interest Purchase Agreement (the ~~“Purchase~~“Molina 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 prior~~entered 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 Molina 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 and~~2019, the Company ~~have entered into~~recovered 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 ~~survive~~survived 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 ~~survive~~survived 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 September 30, ~~2017.~~2020.

~~Other Contingencies~~The Company has provided 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 18 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 any indemnification liabilities with respect to the former WD Services segment that require accrual at September 30, 2020.

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, 2016,9, 2018, the Company ~~had reserves of $8,309~~entered into a registration indemnification agreement with Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Blackwell Partners, LLC - Series A and ~~$11,195, respectively, for~~Coliseum Capital Co-Invest, L.P. (collectively, 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“Coliseum Stockholders”), who as of September 30, ~~2017~~2020 collectively held approximately 12.7% of the Company’s outstanding common stock, pursuant to which the Company has agreed to indemnify the Coliseum Stockholders, and ~~December 31, 2016~~the Coliseum Stockholders have agreed to indemnify the Company, against certain matters relating to the registration of ~~$14,407 and $16,460, respectively,~~the selling stockholders’ securities for resale under the Securities Act of 1933, as amended (the “Securities Act”).

Significant Lease Not Yet Commenced

In August 2020, the Company entered into an 11-1/2 year operating lease agreement for new corporate office space in Denver, Colorado. The lease is ~~classified as “Reinsurance liability reserves” and “Other long-term liabilities”~~expected to commence when construction of the asset is completed in the ~~condensed consolidated balance sheets. The~~second quarter of 2021. Total 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~~base rent payments over the ~~condensed consolidated balance sheets.~~

~~Deferred Compensation Plan~~

The Company has one deferred compensation plan for highly compensated employees of NET Services as of September 30, 2017. The deferred compensation plan is unfunded, and benefits are paid from the general assetslife of the Company. The total of participant deferrals, which is reflected in “Other long-term liabilities” in the condensed consolidated balance sheets, was $1,718 and $1,430 at September 30, 2017 and December 31, 2016, respectively.lease are approximately $29.7 million

~~12.~~

14. Transactions with Related Parties

~~The Company incurred legal expenses under an indemnification agreement with the Standby Purchasers as further~~As 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, ~~Commitments~~2020. 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 $0.8 million.

Further, on September 3, 2020, the Company elected to effect the conversion (the “Conversion”) of all of the outstanding Series A Convertible Preferred Stock. In accordance with the Preferred Stock Conversion Agreement dated June 8, 2020 (as amended), immediately prior to the Conversion, the Company repurchased 27,509 shares of Series A Preferred Stock from the Holders for a cash amount equal to $209.88 per share of Series A Preferred Stock and a cash amount equal to accrued but unpaid dividends on such shares through the day prior to the Conversion.

Convertible preferred stock dividends earned by the ~~Standby Purchasers~~Coliseum Stockholders during the three ~~and nine~~ months ended September 30, ~~2017~~2020 and 2019 totaled ~~$1,062~~$0.03 million and ~~$3,151, respectively.~~$1.1 million, respectively, including accrued dividends paid pursuant to the Conversion Agreement. Convertible preferred stock dividends earned by the ~~Standby Purchasers~~Coliseum Stockholders during the ~~three and~~ nine months ended September 30, ~~2016~~2020 and 2019 totaled ~~$1,059~~$1.9 million and ~~$3,154, respectively.~~$3.2 million, respectively, including accrued dividends paid pursuant to the Conversion Agreement.

15. Acquisitions

~~During~~

On May 6, 2020, LogistiCare entered into an equity purchase agreement with the ~~three months ended March 31, 2017,~~Seller and NMT, acquiring all of the outstanding capital stock. NMT’s contractual relationships, which are approximately 85% capitated, provide more than five million trips annually to approximately two million members on behalf of state Medicaid agencies and MCOs across twelve states. NMT was acquired for approximately $80.0 million in an all cash transaction.

The transaction was accounted for as an asset acquisition in accordance with ASC 805, Business Combinations. The Company ~~made a $566 loan~~obtained an analysis from an independent third-party valuation specialist to ~~Mission Providence.~~assist in determining the purchase price allocation. The ~~loan was repaid~~Company incurred transaction costs for the acquisition of $0.8 million during the ~~three~~nine months ended September 30, ~~2017.~~2020. These costs were capitalized as a component of the purchase price.

The consideration paid for the acquisition is as follows (in thousands):

~~13.~~


	Value
Consideration paid	$	80,000
Transaction costs	774
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 (in thousands, except useful lives):


	Type	Useful Life (yrs)	Value
Customer relationships	Amortizable	6	$	75,514
Trade names and trademarks	Amortizable	3	2,151
			$	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 Saudi Arabian government, assumed these operations beginning January 1, 2019. The Company is winding down its Saudi Arabian entity.

On June 11, 2018, the Company entered into a Share Purchase Agreement to sell the shares of Ingeus France, its WD Services operation in France, for a de minimis amount. The sale was effective on July 17, 2018.

On November 1, 2015, the Company completed the sale of ~~the~~its Human Services segment. During the three and nine months ended September 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 nine months ended September 30, ~~2017~~2020 and ~~2016.~~2019 (in thousands):


	Three months ended September 30, 2020
	Human Services Segment		WD Services Segment		Total Discontinued Operations


Operating expenses:

General and administrative (income) expense	$	(7)	$	160	$	153


Total operating (income) expense	(7)		160		153
Operating income (loss)	7		(160)		(153)





Income (loss) from discontinued operations before income taxes	7		(160)		(153)

(Provision) benefit for income taxes	(2)		40		38
Income (loss) from discontinued operations, net of tax	$	5	$	(120)	$	(115)


	Nine months ended September 30, 2020
	Human Services Segment		WD Services Segment		Total Discontinued Operations


Operating expenses:
General and administrative expense	$	327	$	470	$	797
Total operating expense	327		470		797
Operating loss	(327)		(470)		(797)

Loss from discontinued operations before income taxes	(327)		(470)		(797)
Benefit for income taxes	62		117		179
Loss from discontinued operations, net of tax	$	(265)	$	(353)	$	(618)

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 expenses 26
—
26
9,622
—
9,622
Loss from discontinued operations before income taxes (26 ) —
(26 ) (9,622 ) —
(9,622 )
Income tax benefit 10
—
10
3,622
—
3,622
Discontinued operations, net of tax $ (16 ) $ —
$ (16 ) $ (6,000 ) $ —
$ (6,000 )


	Three months ended September 30, 2019
	Human Services Segment		WD Services Segment		Total Discontinued Operations


Operating expenses:

General and administrative (income) expense	$	(12)	$	480	$	468


Total operating (income) loss	(12)		480		468
Operating income (loss)	12		(480)		(468)






Income (loss) from discontinued operations before income taxes	12		(480)		(468)

(Provision) benefit for income taxes	(3)		45		42
Income (loss) from discontinued operations, net of tax	$	9	$	(435)	$	(426)

~~General~~


	Nine months ended September 30, 2019
	Human Services Segment		WD Services Segment		Total Discontinued Operations
Operating expenses:
General and administrative expense (income)	$	205	$	(1,617)	$	(1,412)
Total operating loss (income)	205		(1,617)		(1,412)
Operating (loss) income	(205)		1,617		1,412

(Loss) income from discontinued operations before income taxes	(205)		1,617		1,412
Benefit (provision) for income taxes	50		(922)		(872)
(Loss) income from discontinued operations, net of tax	$	(155)	$	695	$	540

Assets and ~~administrative~~liabilities

The following table summarizes the carrying amounts of the major classes of assets and liabilities of discontinued operations in the condensed consolidated balance sheets as of September 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 (in thousands):


	September 30, 2020		December 31, 2019
Cash and cash equivalents	$	357	$	155



Current assets of discontinued operations	$	357	$	155









Accounts payable	$	41	$	16
Accrued expenses	1,693		1,414

Current liabilities of discontinued operations	$	1,734	$	1,430

Cash Flow Information

There were $0.8 million in cash flow payments related to operating expenses for WD Services and Human Services Segment for the ~~three~~nine months ended September 30, ~~2017 includes legal expenses of $26. General and administrative expenses~~2020. There were $0.6 million in payments related to income taxes for WD Services Segment for the nine months ended September 30, ~~2017 includes an accrual of $9,000 for an estimated settlement of indemnified claims related to the sale of the Human Services segment, as well as related legal expenses of $622. See Note 11,~~ ~~Commitments and Contingencies, for additional information.~~2019.

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 expense 7,463
1,505
8,968
7,463
2,823
10,286
Depreciation and amortization —
5,359
5,359
—
21,121
21,121
Total operating expenses 7,463
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~~

17. Segments

The ~~Company allocated interest expense, including amortization of deferred financing fees, to discontinued operations~~Company’s chief operating decision maker reviews financial performance and allocates resources 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.2 segments as follows:

~~Cash Flow Information~~

~~The following table presents depreciation, amortization and capital expenditures of the discontinued operations for the nine months ended September 30, 2016:~~

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 transportation~~NEMT 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~~("Matrix") - 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 interest~~minority 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 as~~provides a ~~discontinued operation, it is not reflected in the Company’s segment disclosures. However, the Company accounts~~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 ~~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~~(in thousands):


	Three months ended September 30, 2020
	NET Services		Matrix		Total
Service revenue, net	$	320,619	$	0	$	320,619
Service expense	235,543		0		235,543
General and administrative expense	34,441		0		34,441

Depreciation and amortization	7,301		0		7,301

Operating income	$	43,334	$	0	$	43,334

Equity in net income of investee	$	0	$	10,325	$	10,325
Investment in equity method investee	$	0	$	141,292	$	141,292
Total assets (continuing operations)	$	649,986	$	141,292	$	791,278


	Nine months ended September 30, 2020
	NET Services		Matrix		Total
Service revenue, net	$	970,166	$	0	$	970,166
Service expense	764,310		0		764,310
General and administrative expense	86,435		0		86,435

Depreciation and amortization	17,199		0		17,199

Operating income	$	102,222	$	0	$	102,222

Equity in net income of investee	$	0	$	12,200	$	12,200
Investment in equity method investee	$	0	$	141,292	$	141,292
Total assets (continuing operations)	$	649,986	$	141,292	$	791,278


	Three months ended September 30, 2019
	NET Services		Matrix		Total
Service revenue, net	$	393,385	$	0	$	393,385
Service expense	356,271		0		356,271
General and administrative expense	15,979		0		15,979

Depreciation and amortization	4,148		0		4,148
Operating income	$	16,987	$	0	$	16,987

Equity in net loss of investee	$	0	$	(3,188)	$	(3,188)
Investment in equity method investee	$	0	$	154,532	$	154,532
Total assets (continuing operations)	$	465,688	$	154,532	$	620,220


	Nine months ended September 30, 2019
	NET Services		Matrix		Total
Service revenue, net	$	1,125,111	$	0	$	1,125,111
Service expense	1,042,717		0		1,042,717
General and administrative expense	52,241		0		52,241

Depreciation and amortization	12,976		0		12,976
Operating income	$	17,177	$	0	$	17,177

Equity in net loss of investee	$	0	$	(6,159)	$	(6,159)
Investment in equity method investee	$	0	$	154,532	$	154,532
Total assets (continuing operations)	$	465,688	$	154,532	$	620,220

18. Subsequent Events

On September 28, 2020, the ~~three and nine months ended September 30, 2017 and 2016:~~Company entered into a stock purchase agreement (the “Simplura Purchase Agreement”) with OEP AM, Inc., a Delaware corporation, doing business as Simplura Health Group.

Three months ended September 30, 2017
NET Services WD Services
Matrix
Investment

Corporate and
Other
Total
Service revenue, net $ 324,824
$ 84,693
$ —
$ —
$ 409,517
Service expense 304,454
73,581
—
(3 ) 378,032
General and administrative expense 2,899
6,980
—
8,750
18,629
Depreciation and amortization 3,286
3,166
—
95
6,547
Operating income (loss) $ 14,185
$ 966
$ —
$ (8,842 ) $ 6,309

Equity in net gain (loss) of investee $ —
$ (459 ) $ (1 ) $ —
$ (460 )

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 expense 293,919
84,051
—
518
378,488
General and administrative expense 2,860
6,780
—
7,680
17,320
Depreciation and amortization 3,051
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 expense 927,082
199,665
—
(2,269 ) 1,124,478
General and administrative expense 8,879
20,944
—
23,882
53,705
Depreciation and amortization 9,763
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 expense 846,311
247,797
—
903
1,095,011
General and administrative expense 8,483
23,236
—
20,829
52,548
Depreciation and amortization 8,858
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~~Pursuant to 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~~Simplura Purchase Agreement, 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,~~Company plans to acquire all of the ~~Company’s~~issued and outstanding capital stock of Simplura for $575.0 million in cash, subject to certain adjustments, including adjustments based on a determination of net ~~assets were located~~working capital, cash, transaction expenses and indebtedness, as provided in ~~countries outside~~the Simplura Purchase Agreement. The Company intends to close the transaction in the fourth quarter of 2020.

Founded in 1955, Simplura is a home care services provider offering placements of personal care assistants, home health aides, and skilled nurses for senior citizens, disabled adults and other high-needs patients. Simplura operates from its headquarters in Valley Stream, New York, with approximately 57 branches across 7 states, including in several of the ~~U.S., including $15,823~~nation’s largest home care markets. As of June 30, 2020, Simplura had approximately 14,000 trained caregivers throughout all locations serving, on average, approximately 12,500 patients and providing approximately 21 million hours of patient care annually. Simplura’s services are reimbursed by Medicaid, other governmental payors, and major insurance carriers.

On October 22, 2020, the Company agreed to issue and sell $500.0 million in aggregate principal amount of senior notes due on November 15, 2025, which will bear interest at a rate of 5.875% per annum (the “notes”). Completion of the notes offering occurred on November 4, 2020, and the gross proceeds ~~realized on~~of the sale of the ~~equity investment in Mission Providence.~~

~~15. Subsequent Events~~

~~On November 2, 2017,~~notes were deposited into an escrow account for the ~~Company’s Board of Directors approved the extension~~benefit of the ~~Company’s existing stock repurchase program, authorizing~~holders of the notes pending consummation of the Simplura Acquisition.

The Company intends to ~~engage in a common stock repurchase program to repurchase up to $69,624 (the amount remaining~~use the proceeds from the ~~$100,000 repurchase amount authorized~~notes, together with borrowings under its credit facility and cash on hand, to (i) pay the consideration in ~~2016)~~connection with the Simplura Acquisition, (ii) repay in ~~aggregate value~~full substantially all debt for borrowed money of the ~~Company’s common stock through December 31, 2018. Purchases under~~Simplura Group (together with the ~~common stock repurchase program may be made from time-to-time through a combination~~termination of ~~open market repurchases (including Rule 10b5-1 plans)~~all commitments and the release and discharge of all security interests and guarantees related thereto), ~~privately negotiated transactions,~~ and ~~accelerated share repurchase transactions, at~~(iii) pay fees and expenses incurred in connection with the ~~discretion of the Company’s officers, and as permitted by securities laws, covenants under existing bank agreements, and other legal requirements.~~transactions.

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 nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, as well as our audited 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 ~~2017~~2020 and Q3 ~~2016~~2019 mean the three months ended September 30, ~~2017~~2020 and the three months ended September 30, ~~2016,~~2019, respectively, and references to YTD ~~2017~~2020 and YTD ~~2016~~2019 mean the nine months ended September 30, ~~2017~~2020 and the nine months ended September 30, ~~2016,~~2019, respectively.

Overview of ~~our business~~Our Business

The Providence ~~through its subsidiaries and other companies in which it holds interests,~~Service Corporation (“we”, the “Company” or “Providence”) 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 provider~~largest benefits manager of non-emergency medical transportation (“NEMT” or "NET") programs for state governments and managed care ~~organizations.~~organizations (“MCOs”) in the United States (“U.S.”) through the wholly-owned subsidiary, LogistiCare Solutions, LLC, a Delaware limited liability company and the brands “LogistiCare” and “Circulation”. The technology-enabled operating model includes core competencies in risk underwriting, call center management, network credentialing, vendor payment management and non-emergency medical transport management. Through this model, we provide a suite of integrated supportive care solutions for our payor customers and end-users, focused on addressing the social determinates of health (“SDoH”) and enabling greater access to healthcare and improved outcomes.

~~Workforce Development Services~~

We also own a 43.6% 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.~~

In 2018, we acquired Circulation to provide additional technological improvements through their digital transportation platform. Circulation’s technology allows for real time notifications to members on their mobile devices, integration with a wide variety of ~~managed care organizations, accounted~~ ATMS and transportation network companies, real time ride tracking, network management and analytics.

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

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, ~~and~~but 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 through~~accordance 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 results~~President of the ~~referendum on~~United States and Congress to change the ~~UK’s exit from~~Medicaid program, including considering regulatory changes to make the ~~European Union~~non-emergency medical transportation benefit optional for states, and ~~related political and economic uncertainty in~~ the ~~UK; and~~Centers 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 SDoH;

•the recognition that SDoH 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.

We received notice from a customer that it would be terminating or not renewing certain contracts that were set to expire on September 30, 2020, November 30, 2020, and ~~service lines, organic expansion within existing markets~~December 31, 2020. For the nine months ended September 30, 2020, we recorded revenue of $35.6 million for these contracts.

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

There have been ~~awarded, the securing of new contracts, and acquisitions. As we continue~~no 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 than~~in our unaudited 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 ~~operations~~Operations

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 ~~two~~one 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 two~~our principal business ~~segments~~segment 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 as~~activities related to executive, ~~finance,~~ accounting, ~~human resources, insurance administration,~~finance, internal audit, ~~process improvement, information technology~~tax, legal, certain strategic and ~~legal, as well as~~corporate development functions and the results of our captive insurance company ~~(the “Captive”)~~through the date of dissolution. See Note 17, Segments, in our unaudited 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 recorded~~APM UK Holdings Limited, an affiliate of APM, except for the segment’s employment services operations in ~~consolidation~~Saudi 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 ~~reflected~~included 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.

Q3 ~~2017~~2020 compared to Q3 ~~2016~~2019

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


	Three months ended September 30,									Three months ended September 30,
	2017				2016					2020				2019
	$		Percentage of Revenue		$		Percentage of Revenue			Amount		% of Revenue		Amount		% of Revenue
Service revenue, net	409,517		100.0	%	412,271		100.0	%	Service revenue, net	$	320,619	100.0	%	$	393,385	100.0	%

Operating expenses:									Operating expenses:
Service expense	378,032		92.3	%	378,488		91.8	%	Service expense	235,543		73.5	%	356,271		90.6	%
General and administrative expense	18,629		4.5	%	17,320		4.2	%	General and administrative expense	34,441		10.7	%	15,979		4.1	%
Depreciation and amortization	6,547		1.6	%	6,670		1.6	%	Depreciation and amortization	7,301		2.3	%	4,148		1.1	%

Total operating expenses	403,208		98.5	%	402,478		97.6	%	Total operating expenses	277,285		86.5	%	376,398		95.7	%

Operating income	6,309		1.5	%	9,793		2.4	%	Operating income	43,334		13.5	%	16,987		4.3	%

Non-operating expense:
Other expenses (income):									Other expenses (income):
Interest expense, net	302		0.1	%	338		0.1	%	Interest expense, net	379		0.1	%	188		—	%
Equity in net (gain) loss of investees	460		0.1	%	1,517		0.4	%
Gain on sale of equity investment	(12,606	)	3.1	%	—		—	%
Loss (gain) on foreign currency transactions	200		—	%	(482	)	0.1	%
Other income									Other income	—		—	%	(66)		—	%
Equity in net (income) loss of investee									Equity in net (income) loss of investee	(10,325)		(3.2)	%	3,188		0.8	%

Income from continuing operations before income taxes	17,953		4.4	%	8,420		2.0	%	Income from continuing operations before income taxes	53,280		16.6	%	13,677		3.5	%
Provision for income taxes	2,989		0.7	%	4,678		1.1	%	Provision for income taxes	14,360		4.5	%	5,097		1.3	%
Income from continuing operations, net of tax	14,964		3.7	%	3,742		0.9	%	Income from continuing operations, net of tax	38,920		12.1	%	8,580		2.2	%
Discontinued operations, net of tax	(16	)	—	%	(2,791	)	0.7	%
Loss from discontinued operations, net of tax									Loss from discontinued operations, net of tax	(115)		—	%	(426)		(0.1)	%
Net income	14,948		3.7	%	951		0.2	%	Net income	$	38,805	12.1	%	$	8,154	2.1	%
Net loss attributable to noncontrolling interest	(95	)	—	%	(301	)	0.1	%
Net income attributable to Providence	14,853		3.6	%	650		0.2	%

Service revenue, ~~net.~~ ~~Consolidated service~~net. Service revenue, net for Q3 ~~2017~~2020 decreased ~~$2.8~~$72.8 million, or ~~0.7%~~18.5%, compared to Q3 ~~2016. Revenue~~2019. Service revenue, net decreased partially due to lower trip volume caused by the impact of COVID-19. This lower volume resulted in a reduction of revenue in the current period in line with margin limitations that govern some of our profit corridor and reconciliation payor contracts. Additionally, service revenue, net was impacted by a reduction of $22.9 million for ~~Q3 2017 compared to Q3 2016 included a decrease in revenue attributable to WD Services of $10.3 million. This decrease in revenue was~~certain contracts for which we no longer provide services. These decreases were partially offset by ~~an increase in~~$27.7 million of incremental revenue ~~attributable to NET Services of $7.5 million. Excluding~~resulting from the ~~favorable effects of changes in currency exchange rates, consolidated service revenue decreased 0.8%~~National MedTrans (“NMT”) acquisition.

Service expense, net. Service expense components are shown below (in thousands):


	Three months ended September 30,
	2020				2019
	Amount		% of Revenue		Amount		% of Revenue
Purchased services	$	191,503	59.7	%	$	303,840	77.2	%
Payroll and related costs	34,213		10.7	%	40,531		10.3	%
Other service expenses	9,772		3.0	%	11,738		3.0	%
Stock-based compensation	55		—	%	162		—	%
Total service expense	$	235,543	73.5	%	$	356,271	90.6	%

Service expense for Q3 ~~2017 compared to Q3 2016.~~

~~Total operating expenses.~~ ~~Consolidated operating expenses for Q3 2017 increased $0.7~~2020 decreased $120.7 million, or ~~0.2%~~33.9%, compared to Q3 ~~2016. Operating expenses~~2019 primarily due to lower purchased transportation costs and associated payroll costs in our contact centers. Transportation and payroll costs decreased primarily as a result of lower utilization across multiple contracts due to the COVID-19 pandemic as well as efficiency initiatives in our contact centers.

General and administrative expense. General and administrative expense for Q3 2017 compared to Q3 2016 included an increase in expenses attributable to NET Services of $10.8 million and an increase in expenses attributable to Corporate and Other of $0.5 million. This increase in operating expenses was partially offset by a decrease in operating expenses attributable to WD Services of $10.6 million.

~~Operating income.~~ ~~Consolidated operating income for Q3 2017 decreased $3.5~~2020 increased $18.5 million, or ~~35.6%~~115.5%, compared to Q3 ~~2016.~~2019. The ~~decrease~~increase was primarily ~~attributable~~a result of $4.7 million of transaction fees, legal fees and third party consulting expense, $4.0 million related to ~~a decrease~~NMT transition services agreement, $2.6 million related to cash-settled equity awards, and the remainder was due to additional investment in ~~operating income in~~our employees and technology.

Depreciation and amortization. Depreciation and amortization for Q3 ~~2017 as~~2020 increased $3.2 million or 76.0% compared to Q3 ~~2016 at NET Services~~2019 primarily as a result of ~~$3.3 million and an increase~~additional amortization associated with intangible assets purchased 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 ~~2017~~2020 and Q3 ~~2016 remained relatively consistent.~~2019 was $0.4 million and $0.2 million, respectively. Although the Company did not have any debt during Q3 2020 and Q3 2019, the increase in interest expense, net during Q3 2020 was related to higher commitment fee and letter of credit costs associated with the Seventh Amendment.

Equity in net ~~(gain)~~(income) 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 income of investee for Q3 2020 of $10.3 million and net loss of ~~investees~~$3.2 million for Q3 ~~2017~~2019 was a result of ~~$0.5 million primarily~~our proportional share of the net income (loss) of Matrix. Matrix's increase in Q3 2020 net income was related to ~~our equity~~Matrix's new Employee Health and Wellness product which was launched in ~~net loss~~Q2 2020. This new product was developed for ~~Mission Providence~~companies maintaining critical operations during COVID-19. Included in Matrix's standalone Q3 2020 results were restructuring cost of ~~$0.5~~$3.8 million, management fees of $2.2 million and COVID-19 related costs of $1.5 million. ~~Matrix was close to break-even on a net income basis in Q3 2017.~~ Included in Matrix’s standalone Q3 2019 results are depreciation 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 acquisition related diligencewere severance costs of ~~$0.3~~$0.8 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 ~~2017~~2020 and Q3 ~~2016~~2019 was ~~16.7%~~27.0% and ~~55.6%~~37.3%, respectively. ~~The~~For Q3 2020 and Q3 2019, the effective tax rate ~~exceeded~~was higher than the U.S. federal statutory rate of ~~35% for Q3 2016~~21.0% 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 rate~~

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.

~~Discontinued~~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 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.

~~Net~~For Q3 2020, the loss ~~attributable~~from 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 attributable~~the 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 relates~~provide the employment services, were transferred to a ~~minority interest held by a third-party operating partner~~third party as of January 1, 2019, and thus we are no longer providing services in Saudi Arabia. For Q3 2020, there was no income or loss from discontinued operations, net of tax, for our ~~company servicing~~former Human Services segment.

For Q3 2019, the ~~offender rehabilitation contract in~~loss from discontinued operations, net of tax, for our former WD Services segment was $0.4 million. The loss was associated with administrative costs related to the wind-down of the WD Services entity in Saudi Arabia. For Q3 2019, there was no income or loss from discontinued operations, net of tax, for our former Human Services segment.

YTD ~~2017~~2020 compared to YTD ~~2016~~2019

The following table sets forth results of operations and the percentage of ~~consolidated total revenues~~Service revenue, net represented by items in our ~~unaudited~~ condensed consolidated statements of ~~income~~operations for YTD ~~2017~~2020 and YTD ~~2016~~2019 (in thousands):


	Nine months ended September 30,									Nine months ended September 30,
	2017				2016					2020				2019
	$		Percentage of Revenue		$		Percentage of Revenue			Amount		% of Revenue		Amount		% of Revenue
Service revenue, net	1,216,994		100.0	%	1,192,426		100.0	%	Service revenue, net	$	970,166	100.0	%	$	1,125,111	100.0	%

Operating expenses:									Operating expenses:
Service expense	1,124,478		92.4	%	1,095,011		91.8	%	Service expense	764,310		78.8	%	1,042,717		92.7	%
General and administrative expense	53,705		4.4	%	52,548		4.4	%	General and administrative expense	86,435		8.9	%	52,241		4.6	%
Depreciation and amortization	19,716		1.6	%	20,058		1.7	%	Depreciation and amortization	17,199		1.8	%	12,976		1.2	%
Total operating expenses	1,197,899		98.4	%	1,167,617		97.9	%	Total operating expenses	867,944		89.5	%	1,107,934		98.5	%

Operating income	19,095		1.6	%	24,809		2.1	%	Operating income	102,222		10.5	%	17,177		1.5	%

Non-operating expense:
Other expenses (income):									Other expenses (income):
Interest expense, net	983		0.1	%	1,239		0.1	%	Interest expense, net	2,118		0.2	%	793		0.1	%
Equity in net loss of investees	991		0.1	%	5,693		0.5	%
Gain on sale of equity investment	(12,606	)	1.0	%	—		—	%
Loss (gain) on foreign currency transactions	600		—	%	(1,332	)	0.1	%
Other income									Other income	—		—	%	(199)		—	%
Equity in net (income) loss of investees									Equity in net (income) loss of investees	(12,200)		-1.3	%	6,159		0.5	%

Income from continuing operations before income taxes	29,127		2.4	%	19,209		1.6	%	Income from continuing operations before income taxes	112,304		11.6	%	10,424		0.9	%
Provision for income taxes	8,391		0.7	%	12,466		1.0	%	Provision for income taxes	19,785		2.0	%	3,940		0.4	%
Income from continuing operations, net of tax	20,736		1.7	%	6,743		0.6	%	Income from continuing operations, net of tax	92,519		9.5	%	6,484		0.6	%
Discontinued operations, net of tax	(6,000	)	0.5	%	332		—	%
(Loss) income from discontinued operations, net of tax									(Loss) income from discontinued operations, net of tax	(618)		(0.1)	%	540		—	%

Net income	14,736		1.2	%	7,075		0.6	%	Net income	$	91,901	9.5	%	$	7,024	0.6	%
Net (income) loss attributable to noncontrolling interest	(295	)	—	%	433		—	%
Net income attributable to Providence	14,441		1.2	%	7,508		0.6	%

Service revenue, net. Consolidated service revenue, net for YTD ~~2017 increased $24.6~~2020 decreased $154.9 million, or ~~2.1%~~13.8%, compared to YTD ~~2016. Revenue~~2019. Service revenue, net decreased partially due to lower trip volume caused by the impact of COVID-19. This lower volume resulted in a reduction of revenue in the current period in line with margin limitations that govern some of our profit corridor and reconciliation payor contracts. Additionally, service revenue, net was impacted by a reduction of $67.4 million for certain contracts for which we no longer provide services. These decreases were partially offset by $36.1 million of incremental revenue resulting from the NMT acquisition.

Service expense, net. Service expense components are shown below (in thousands):


	Nine months ended September 30,
	2020				2019
	Amount		% of Revenue		Amount		% of Revenue
Purchased services	$	622,685	64.2	%	$	890,039	79.1	%
Payroll and related costs	108,792		11.2	%	119,100		10.6	%
Other service expenses	32,659		3.4	%	33,090		2.9	%
Stock-based compensation	174		—	%	488		—	%
Total service expense	$	764,310	78.8	%	$	1,042,717	92.6	%

Service expense for YTD ~~2017~~2020 decreased $278.4 million, or 26.7%, compared to YTD ~~2016 included an~~2019 as a result of lower purchased transportation costs and associated payroll costs in our contact centers. Transportation costs decreased primarily as a result of lower utilization across multiple contracts due to the COVID-19 pandemic as well as efficiency initiatives in our contact centers.

General and administrative expense. General and administrative expense for YTD 2020 increased $34.2 million, or 65.5%, compared to YTD 2019. The increase ~~in revenue attributable~~was primarily a result of $8.3 million related to ~~NET Services~~cash settled equity awards, $7.8 million related to our NMT transition services agreement, $6.5 million of ~~$70.5 million.~~transaction fees, legal fees and third party consulting expense and employee-related compensation including salaries, incentives and health insurance and software expense. This ~~increase in revenue~~ was partially offset by ~~a decrease~~employee-related compensation, associated with the Organizational Consolidation and certain transaction related expenses, incurred in ~~revenue attributable~~YTD 2019 that was not incurred in YTD 2020.

Depreciation and amortization. Depreciation and amortization increased $4.2 million primarily due to ~~WD Services of $46.0 million. Excluding~~intangible asset amortization associated with the ~~effects of changes in currency exchange rates, consolidated service revenue increased 3.1% 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.NMT acquisition. This ~~increase in operating expenses~~ was partially offset by ~~a decrease~~accelerated depreciation during YTD 2019 associated with the Organizational Consolidation. As of the end of Q3 2019, all fixed assets of the former holding company that were no longer 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.~~use were materially depreciated.

~~Operating income.~~ Consolidated operating income for YTD 2017 decreased $5.7 million, or 23.0%, compared to YTD 2016. The decrease was primarily attributable to a decrease in operating income attributable to NET Services of $11.6 million as compared to YTD 2016. This decrease in operating income was partially offset by a decrease in WD Services operating loss of $5.7 million and a decrease in Corporate and Other operating loss of $0.2 million.

Interest expense, net. Consolidated interest expense, net for YTD ~~2017 decreased $0.3~~2020 and YTD 2019 was $2.1 million ~~or 20.7%, compared~~and $0.8 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 September 30, 2020, we fully repaid our Credit Facility.

Equity in net (income) lossof ~~investees.~~investee. Our equity in net income of investee for YTD 2020 of $12.2 million and net loss of ~~investees~~$6.2 million for YTD ~~2017~~2019 was a result of ~~$1.0~~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 COVID-19 related costs of $6.6 million, ~~includes an equity in net loss for Mission Providence~~management fees of ~~$1.4~~$3.8 million, ~~partially offset by equity in net gain~~restructuring expense of ~~Matrix~~$3.8 million, transaction expense of ~~$0.4~~$2.1 million and severance expense of $1.2 million. Included in Matrix’s standalone YTD 2019 results ~~are depreciation 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,~~were management fees ~~paid to Matrix’s shareholders~~ of $1.8 million ~~merger~~ and ~~acquisition diligence related~~integration costs of ~~$0.3 million and income tax benefit of $0.1~~$1.5 million.

~~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 ~~rates~~rate from continuing operations for YTD ~~2017~~2020 and YTD ~~2016~~2019 was ~~28.8%~~17.6% and ~~64.9%~~37.8%, respectively. ~~The~~For YTD 2020, the effective tax rate ~~exceeded~~was lower than the U.S. federal statutory rate of ~~35% for YTD 2016~~21.0% primarily due to ~~foreign~~the 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 which~~losses. For YTD 2019, the ~~future income~~effective tax ~~benefit currently cannot be recognized, losses in foreign jurisdictions with tax rates lower~~rate 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 higher in YTD 2016 versus YTD 2017 resulting in a decrease in the effective tax rate~~

Loss 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 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.

~~Discontinued~~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 discussion~~from 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, net 324,824
100.0 % 317,280
100.0 %

Service expense 304,454
93.7 % 293,919
92.6 %
General and administrative expense 2,899
0.9 % 2,860
0.9 %
Depreciation and amortization 3,286
1.0 % 3,051
1.0 %
Operating income 14,185
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 expense~~tax, 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 services 250,282
77.1 % 241,884
76.2 %
Payroll and related costs 40,753
12.5 % 41,832
13.2 %
Other operating expenses 13,299
4.1 % 10,130
3.2 %
Stock-based compensation 120
0.0 % 73
0.0 %
Total service expense 304,454
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, net 987,662
100.0 % 917,157
100.0 %

Service expense 927,082
93.9 % 846,311
92.3 %
General and administrative expense 8,879
0.9 % 8,483
0.9 %
Depreciation and amortization 9,763
1.0 % 8,858
1.0 %
Operating income 41,938
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 services 766,303
77.6 % 694,934
75.8 %
Payroll and related costs 122,784
12.4 % 122,117
13.3 %
Other operating expenses 37,584
3.8 % 29,032
3.2 %
Stock-based compensation 411
0.0 % 228
0.0 %
Total service expense 927,082
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 2017~~was $0.4 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, net 84,693
100.0 % 94,960
100.0 %

Service expense 73,581
86.9 % 84,051
88.5 %
General and administrative expense 6,980
8.2 % 6,780
7.1 %
Depreciation and amortization 3,166
3.7 % 3,497
3.7 %
Operating income 966
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 ending~~wind-down of ~~referrals under~~ the ~~segment’s primary employability program~~WD 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 under our offender rehabilitation program due to $5.4 million~~ of ~~revenue recognized in Q3 2016 related to the finalization of a contractual adjustment for the prior contract years ended March 31, 2015~~January 1, 2019, and ~~2016.~~

~~These revenue decreases were partially offset by increases in health~~thus we are 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 expense~~loss from discontinued operations, net of tax, for our former Human Services segment was $0.3 million.

For YTD 2019, the income from discontinued operations, net of tax, for our former WD 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
Payroll and related costs 41,575
49.1 % 47,854
50.4 %
Purchased services 21,946
25.9 % 26,004
27.4 %
Other operating expenses 10,046
11.9 % 10,166
10.7 %
Stock-based compensation 14
0.0 % 27
0.0 %
Total service expense 73,581
86.9 % 84,051
88.5 %

~~Service expense in Q3 2017 decreased $10.5~~was $0.7 million ~~or 12.5%, compared to Q3 2016. Payroll and related costs decreased primarily~~ as a result of cash distribution from WD Services to the ~~ending~~Company, partially offset by costs related to the wind-down of ~~referrals under the segment’s primary employability program in the UK as well as redundancy plans across~~ the WD Services entity in Saudi Arabia. The operations ~~that have better aligned headcount with service delivery volumes, resulting~~ in Saudi Arabia, including personnel, leased facilities and certain assets necessary to provide the employment services, were transferred to a ~~decrease~~third party as of ~~payroll~~January 1, 2019, and ~~related costs as a percentage~~thus the Company is no longer providing services in Saudi Arabia. For YTD 2019, the loss from discontinued operations, net of ~~revenue. Payroll~~tax, for our former Human Services segment was $0.2 million.

Seasonality

Our quarterly operating income 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 primarilycash flows normally fluctuate as a result of ~~the ending of client referrals under~~seasonal variations in 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 primarily~~business, 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 incurred~~lower transportation demand during the ~~fourth quarter of 2016, which decreased the value of our intangible assets~~winter 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, net 229,332
100.0 % 275,293
100.0 %

Service expense 199,665
87.1 % 247,797
90.0 %
General and administrative expense 20,944
9.1 % 23,236
8.4 %
Depreciation and amortization 9,695
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 costs 130,538
56.9 % 162,542
59.0 %
Purchased services 39,949
17.4 % 53,210
19.3 %
Other operating expenses 29,136
12.7 % 31,993
11.6 %
Stock-based compensation 42
0.0 % 52
0.0 %
Total service expense 199,665
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 expense 8,750
7,680
Depreciation and amortization 95
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 expense 23,882
20,829
Depreciation and amortization 258
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

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 ~~any~~our 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 nine months ended September 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.$287.2 million. Our balance of cash and cash equivalents was ~~$92.2~~$183.3 million and ~~$72.3~~$61.4 million at September 30, ~~2017~~2020 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 September 30, ~~2017~~2020 and December 31, ~~2016, respectively, primarily related to contractual obligations and activities of our captive insurance subsidiary. These restricted~~2019, 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 unaudited condensed consolidated statements of cash flows. At September 30, ~~2017 and~~2020, we had no borrowings outstanding under our Credit Facility; however, we had letters of credit outstanding of $16.9 million. At December 31, ~~2016,~~2019, we had no amounts outstanding under ~~our~~the 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 ~~statement~~statements for all periods presented ~~includes~~include both continuing and discontinued operations. Discontinued operations ~~for YTD 2016 includes~~include the activity of our historical WD Services and Human Services ~~and HA Services~~ segments. ~~Income~~The loss from discontinued operations, ~~totaled $0.3~~net of tax, was $0.6 million for the nine months ended September 30, 2020 and the income from discontinued operations, net of tax, was $0.5 million for the nine months ended September 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 2017~~2020 cash flows compared to YTD ~~2016~~2019

Operating activities. Cash provided by operating activities was ~~$36.9~~$287.2 million and $40.1 million for YTD ~~2017,~~2020 and YTD 2019, respectively. Cash flows from operating activities increased by $247.2 million due to an increase in cash provided by working capital of $171.6 million. The increase in working capital was related to an increase of the change in accounts payable, accrued expenses, and long-term contract payables of $179.5 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 change in accounts receivable and other receivables of $64.4 million. The increase in these working capital items was offset by a decrease of ~~$8.3~~the change in cash associated with $19.4 million ~~compared with YTD 2016. YTD 2017~~in prepaid assets, a $19.5 million decrease in income tax refunds on sale of business, and ~~YTD 2016~~a $33.0 million decrease of the change 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 segment~~net income of ~~$9.0~~$84.9 million ~~during YTD 2017 as compared to~~primarily from higher operating income and an increase in deferred income taxes of ~~$6.0~~$10.6 million due to the favorable impact of the CARES Act. This was partially offset by an increase in equity income by $18.4 million in Matrix.

Investing activities. Net cash used in investing activities of $82.5 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 2017~~2020 increased by ~~$40.0~~$75.1 million as compared to YTD ~~2016. The increase was primarily attributable to $15.8 million in proceeds from~~2019 as a result of the ~~sale~~acquisition 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~~$79.6 million in YTD ~~2017 decreased $9.9~~2020 increased $76.2 million as compared to YTD ~~2016. During YTD 2017, we repurchased $34.5~~2019. The increase was primarily due to $92.6 million ~~less of our common stock than in YTD 2016. Partially offsetting this decrease~~ in cash ~~outflows~~paid 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 decrease~~partially offset by an increase in ~~net proceeds from debt during YTD 2017 as compared~~cash provided by financing activities of $16.0 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 and a decrease in preferred stock dividends.

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. The Credit Agreement provides us with a $200.0 million revolving credit facility (the “Credit Facility”), including a subfacility of $25.0 million for letters of credit. As of September 30, 2017, we had no borrowings and seven letters of credit inSeventh Amendment extended the maturity date to August 1, 2021, expanded the amount ~~of $11.0 million outstanding under the revolving credit facility. At September 30, 2017, our~~ available ~~credit~~ under the revolving credit facility (the ��Credit Facility”) 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.

On October 16, 2020, we entered into the Eighth Amendment, which among other things, amended the Credit Facility to permit the incurrence of additional debt to finance the acquisition (the “Simplura Acquisition”) of OEP AM, Inc., a Delaware corporation, doing business as Simplura Health Group (“Simplura” and, together with its subsidiaries, the “Simplura Group”) , permit borrowing under the Credit Facility to partially fund the Simplura Acquisition with limited conditions to such

borrowing, increase the top interest rate margin that may apply to loans thereunder, and revise our permitted ratio of EBITDA to indebtedness. In addition, the Eighth Amendment extended the maturity date to August 2, 2023.

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.

As of September 30, 2020, we had no borrowings outstanding on the Credit Facility; however, we had letters of credit outstanding in the amount of $16.9 million. Our available credit under the Credit Facility was ~~$189.0~~$208.1 million. Under the Credit Agreement, ~~the Company has~~we 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 Company~~We 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.

~~Interest~~As of September 30, 2020, interest on the outstanding principal amount of ~~the~~ loans accrues, at ~~the Company’s~~our 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’s~~our 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’s~~our consolidated leverage ~~ratio.~~ratio as defined in the Credit Agreement.

Effective as of the Eighth Amendment, interest on the outstanding principal amount of loans under the Credit Facility accrues, at the our 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 3.50% in the case of LIBOR loans and 1.25% to 2.50% in the case of the base rate loans, in each case, based on our consolidated leverage ratio as defined in the credit agreement that governs our Credit Facility. The commitment fee and letter of credit fee ranges from 0.35% to 0.50% and 2.25% to 3.50%, respectively, in each case based on our consolidated leverage ratio as defined in the credit agreement that governs our Credit Facility.

The ~~Company’s~~Credit 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’s~~our present and future domestic ~~subsidiaries, excluding certain domestic subsidiaries which include the Company’s insurance captives. The Company’s~~subsidiaries. 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 respective~~our 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’s~~our 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 is~~We are subject to financial covenants, including consolidated net leverage and consolidated interest coverage covenants. ~~The Company~~As of September 30, 2020, our 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. Pursuant to the Eighth Amendment, and contingent upon consummation of the Simplura Acquisition, our consolidated net leverage ratio was increased to 4.50:1.00 for the four quarters following the consummation of the Simplura Acquisition and decreasing to 4.00:1.00 and 3.50:1.00 thereafter.

We were in compliance with all covenants as of September 30, ~~2017.~~2020.

Subsequent to September 30, 2020, the Company agreed to issue and sell $500.0 million in aggregate principal amount of senior notes due on November 15, 2025, which will bear interest at a rate of 5.875% per annum, to fund the Simplura Acquisition. Completion of the notes offering occurred on November 4, 2020, and the gross proceeds of the sale of the notes were deposited into an escrow account for the benefit of the holders of the notes pending consummation of the Simplura Acquisition. We intend to close the Simplura Acquisition in the fourth quarter of 2020.

The Company intends to use the proceeds from the notes, together with borrowings under its credit facility and cash on hand, to (i) pay the consideration in connection with the acquisition of Simplura, (ii) repay in full substantially all debt for borrowed money of the Simplura Group (together with the termination of all commitments and the release and discharge of all security interests and guarantees related thereto), and (iii) pay fees and expenses incurred in connection with the transactions.

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 Purchasers~~Coliseum Stockholders and ~~the Company, the Company~~us, we issued 805,000 shares of Preferred Stock, of which ~~803,232 shares are~~ no shares were outstanding as of September 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.

Further, on September 3, 2020, we elected to effect the conversion (the “Conversion”) of all of the outstanding Series A Convertible Preferred Stock. In accordance with the Preferred Stock Conversion Agreement dated June 8, 2020 (as amended), immediately prior to the Conversion, we repurchased 27,509 shares of Series A Preferred Stock from the Holders for a cash amount equal to $209.88 per share of Series A Preferred Stock and a cash amount equal to accrued but unpaid dividends on such shares through the day prior to the Conversion. In connection with the Conversion, all remaining outstanding shares of Series A Preferred Stock were converted into Common Stock at the conversion rate of 2.5075 shares of Common Stock for each share of Series A Preferred Stock and cash-in-lieu of fractional shares. We paid accrued dividends of $0.03 million pursuant to the Conversion Agreement.

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 – ~~Obligations~~Obligations and commitments – ~~Rights Offering”~~Preferred Stock” in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2016. We may pay a noncumulative cash dividend~~2019 and Note 10, Stock-Based Compensation and Similar Arrangements, in the current Form 10-Q.

As discussed in Note 10, Stock-Based Compensation and Similar Arrangements, on ~~each share~~September 3, 2020, all remaining outstanding shares of Series A Preferred Stock ~~when,~~were either exchanged for cash or converted into Common Stock. As there were no preferred stockholders as ~~and if~~of September 30, 2020, no dividends were 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 dividend with respect to that ensuing quarter and give notice of our intention to each holder of Preferred StockQ3 2020, except 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~~paid pursuant 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.Conversion Agreement.

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 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 nine months ended September 30, ~~2017~~2020 and 2019 totaled $2.0 million and $3.3 ~~million.~~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. ~~SPCIC~~We will continue to resolve claims under the historical policy years. During Q1 2020, we dissolved SPCIC.

At September 30, ~~2017,~~ 2020,the net cumulative ~~reserve~~reserves for expected losses since inception of these historical automobile, general and professional liability and workers’ compensation reinsurance programs ~~was $1.8~~were $2.2 million, ~~$0.8~~$1.2 million and ~~$5.7~~$2.3 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, SPCIC had restricted cash of $6.8 million and $13.8 million at September 30, 2017 and December 31, 2016, respectively, which was restricted to secure the 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~~$1.7 million and ~~$3.0~~$1.9 million as of September 30, ~~2017~~2020 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’s~~our 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 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; 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 and~~2019, our ~~other~~subsequent 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 currency~~We have exposure to interest rate risk

~~As of~~ mainly related to our Credit Facility, which has variable interest rates that may increase. We did not have any amounts outstanding on our Credit Facility at September 30, 2017, we conducted business in eleven countries outside the U.S. As a result, our cash flows and earnings are subject to fluctuations due to changes in foreign currency exchange rates. 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.2020.

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 would not have a significant impact on our financial results.

~~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 September 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 ~~controls~~control 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 September 30, ~~2017~~2020 that have materially affected or which are reasonably likely to materially affect such control. Such officers have concluded that no such changes have occurred.

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.

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 derivative~~qui tam complaint, ~~was~~ filed in ~~the Court~~December 2015, against Mobile Care Group, Inc., Mobile Care Group of ~~Chancery~~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 ~~State of Delaware (the “Court”), captioned Haverhill Retirement System v. Kerley et al., C.A. No. 11149-VCL. For further information on this legal proceeding, please see Item 3,~~ ~~Legal Proceedings, in~~federal False Claims Act by presenting claims for payment to government healthcare programs knowing that the ~~Company’s Annual Report on Form 10-K~~prerequisites for ~~the year ended December 31, 2016, and Part II, Item 1,~~ ~~Legal Proceedings, in the Company’s Quarterly Reports on Form 10-Q for the periods ended March 31, 2017 and June 30, 2017.~~

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 Amountsuch 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. 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 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 and we filed an appeal of the conditional certification order. If this case goes forward as either a class action or individual claims, we 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 stage of 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. On August 11, 2020, American Service Insurance Company and ~~25%~~American Country Insurance Company, subsidiaries of Atlas Financial, also entered liquidation. Gateway, American Service and American Country previously insured many of LogistiCare’s subcontracted transportation providers. LogistiCare is listed as an additional insured on these policies. LogistiCare currently has 26 active lawsuits involving Gateway, American Country Insurance Company and American Service Insurance Company. As a result of the ~~Settlement Amount~~liquidation, these suits will now be taken over by the state guaranty fund in which the suit is pending. LogistiCare will likely lose its additional insured status and be required to ~~be paid to holders~~defend itself under its own insurance policies, which involve a self-insured retention. All of the ~~Company’s common stock other than certain excluded parties. The Company expects~~lawsuits are currently stayed for a time period varying by state in order for the guaranty fund to ~~receive a payment of approximately $5.0 million. As this amount is considered a gain contingency,~~take over the ~~Company has not recorded a receivable for this amount as of September 30, 2017.~~case. We have accrued reserves related to these lawsuits in accordance with ASC 450, Contingencies.

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.

Risks Related to our Business and the Industry

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 work due to health concerns, childcare issues, or enhanced unemployment benefits, 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, including increased spending for personal protective equipment; 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 (for example, 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 and volatility of NET trip volume volatility due to COVID-19 can affect the assumptions on which we rely to develop our transportation expense estimates. If we do not accurately estimate costs incurred in providing these services, the business lines 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.

Regulatory Risks

The cost of NET and personal care services are funded substantially by government and private insurance programs. Changes in budgetary priorities of the government entities or private insurance programs that fund these services could result in the loss of contracts, a reduction in reimbursement rates, or a decrease in amounts payable to us under our contracts.

Payments for NET and personal care services are largely derived from contracts that are directly or indirectly paid by government agencies with public funds and private insurance companies. All of these contracts are subject to legislative appropriations and state and/or national budget approval, as well as changes to potential eligibility for services. The availability of funding under our contracts with state governments is dependent in part upon federal funding to states. Changes in Medicaid provider reimbursement and federal matching funds methodologies may further reduce the availability of federal funds to states in which we provide services.

As it relates to the NET benefit, The Centers for Medicare & Medicaid Services (“CMS”) has repeatedly invited states to submit requests for waivers to CMS that would allow states to reduce or eliminate the NET benefit for some populations. In response, several states have asked for and received temporary waivers of NET requirements for the Medicaid expansion or non-disabled adult population. In addition, in late 2018, the Office of Management and Budget published in the Unified Agenda DHHS’s intention to revise the current regulations under which states are required to provide NET services for all Medicaid

beneficiaries. The stated goal of this proposed rule is to provide states with greater flexibility as part of the administration’s reform initiatives. It is possible that revised regulations could be issued at some point in the future making it optional for the states to provide NET services to some or all Medicaid beneficiaries. Such changes, individually or in the aggregate, could have a material adverse effect on our operations although the extent of such impact is unknowable and will depend on the decisions of each state and, in some circumstances, each Medicaid managed care organization.

Currently, many of the states in which our segments operate are facing budgetary shortfalls or changes in budgetary priorities. While many of these states are dealing with budgetary concerns by shifting costs from institutional care to home and community based care such as we provide, there is no assurance that this trend will continue or be implemented as it has been historically. For example, in New York (one of several states where the Simplura Health Group provides homecare under the trade name “All Metro Health Care”), there are Medicaid Redesign Team initiatives taking place aimed at reducing Medicaid expense through provider consolidation and other measures. The continued ability of the agency to provide core services, though expected, is now dependent upon various competitive bid processes including the following:

•CDPAP Request for Offers (Pending Award) – The Consumer Directed Personal Assistance Program (“CDPAP”) is a Medicaid program that operates pursuant to section 365-f of the New York State Social Services Law (“SSL”) and implementing regulations in section 505.28 of title 18 of the NY Codes Rules and Regulations (“NYCRR”). CDPAP is designed and intended to permit eligible chronically ill and/or physically disabled individuals (referred to as consumers) that are eligible to receive home care services greater flexibility and freedom of choice in obtaining those services by self-directing their care. Under CDPAP, consumers may receive assistance with personal care services (authorized under SSL § 365-f), home health aide services, and skilled nursing tasks (authorized under Article 36 of the Public Health Law) performed by a consumer directed personal assistant (“personal assistant” or “PA”) under the instruction, supervision, and direction of the consumer or the consumer’s designated representative. The role of the Fiscal Intermediary (“FI”), as set forth in SSL § 365-f, is to assist the consumer in carrying out his or her responsibilities by performing administrative services required in statute and regulation (SSL § 365-f(4-a)(a)(ii) and 18 NYCRR § 505.28 (i), respectively) including wage and benefit processing, processing all income tax and other required wage withholdings, and maintaining various types of records. The Simplura Health Group, currently serves as FI for One Thousand One Hundred Fifty Six (1,156) consumers. Following a transition period to be determined by the New York State Department Health (“NYS DOH”), only those entities that have successfully entered into a contract under the terms of this request for offer may continue to provide FI services either directly or through contract with a Medicaid managed care organization (“MCO”); and

•LHCSA Request for Proposal (Anticipated) – The recently enacted FY 2021 New York State Budget created a new Public Health Law (“PHL”) Section 3605-c which, if implemented, would prohibit Licensed Home Care Service Agencies (“LHCSAs”), such as the Simplura Health Group’s twelve (12) individually-licensed branches, from providing or claiming for services provided to Medicaid recipients without being authorized to do so by contract with the NYS DOH. This restriction would apply to the provision of such services under the state Medicaid plan, a plan waiver, or through a managed care organization (for example, managed long term care plan). If implemented, the statute would require the NYS DOH to contract with only enough LHCSAs to ensure that Medicaid recipients have access to care. The NYS DOH is expected to post an RFP (delayed) that includes demonstrated cultural and language competencies specific to the population of recipients and the available workforce, experience serving individuals with disabilities, and demonstrated compliance with all applicable federal and state laws and regulations among the selection criteria. After contracts are awarded, the NYS DOH could terminate a LHCSA’s contract, or suspend or limit a LHCSA’s rights and privileges under a contract, upon thirty (30)-days written notice if the Commissioner of Health finds that a LHCSA has failed to comply with the provisions of Section 3605-c or any regulations promulgated under the statute. Also, authorization received by LHCSAs under PHL Section 3605-c would not substitute for satisfying existing licensure requirements or the screening and enrollment process required for participation in the Medicaid program.

Consequently, a significant decline in government or private insurance company expenditures or the number of program beneficiaries, a shift of expenditures or funding away from programs that call for the types of services that we provide, or change in government contracting or funding policies could cause payors to terminate their contracts with us or reduce their expenditures or reimbursement rates under those contracts, either of which could have a negative impact on our financial position and operating results. Worth noting are also the operational and financial challenges specifically related to COVID-19. All healthcare providers are complying with federal and state guidance related to supplying workers with recommended equipment. It is uncertain how long the pandemic will continue and to what degree, and given the current political climate, it is also uncertain how long associated cost sharing will continue and to what degree.

Risks Related to the Simplura Acquisition

The proposed Simplura Acquisition may not be completed on the anticipated terms and there are uncertainties and risks related to consummating the Simplura Acquisition.

On September 28, 2020, we entered into a stock purchase agreement (the “Simplura Purchase Agreement”) to purchase all of the equity interests in OEP AM, Inc., a Delaware corporation, doing business as Simplura Health Group, at an enterprise value of $575.0 million, subject to certain adjustments. Our obligation to consummate the Simplura Acquisition is subject to satisfaction or waiver, to the extent permitted under applicable law, of a number of conditions. Among other conditions, the Simplura Acquisition is subject to antitrust approvals in certain jurisdictions. We cannot provide any assurance that all required antitrust clearances will be obtained and what conditions will be imposed. Even if the parties receive antitrust approvals, the applicable regulatory authorities could take action under the antitrust laws to prevent or rescind the Simplura Acquisition, require the divestiture of assets or seek other remedies.

We may be unable to integrate Simplura successfully and realize the anticipated benefits of the transaction.

If the Simplura Acquisition is completed, the successful integration of Simplura and its operations into those of our own and our ability to realize the expected benefits of the Simplura Acquisition are subject to a number of risks and uncertainties, many of which are outside of our control. We will also be required to devote significant management attention and resources to integrating business practices, cultures and operations of each business.

The risks and uncertainties relating to integrating the two businesses, and realizing the anticipated benefits, include, among other things:

•the challenge of integrating complex organizations, systems, operating procedures, compliance programs, technology, networks and other assets of Simplura;

•the difficulties harmonizing differences in the business cultures of our company and Simplura;

•the inability to successfully combine our respective businesses in a manner that permits us to achieve the cost savings and other anticipated benefits from the Simplura Acquisition;

•the inability to minimize the diversion of management attention from ongoing business concerns during the process of integrating Simplura into our business;

•the inability to resolve potential conflicts that may arise relating to customer, supplier and other important relationships of our business and Simplura;

• difficulties in retaining key management and other key employees; and

•the challenge of managing the expanded operations of a larger and more complex company and coordinating geographically separate organizations.

We will incur substantial expenses to consummate the Simplura Acquisition but may not realize the anticipated cost benefits and other benefits to the extent expected, on the timeline expected or at all. In addition, even if we are able to integrate Simplura successfully, the anticipated benefits of the Simplura Acquisition may not be realized fully or at all, or may take longer to realize than expected. Moreover, competition in this industry may also cause us not to fully realize the anticipated benefits of the Simplura Acquisition. Finally, our operation of the Simplura LHCSAs in the State of New York will be subject to a “no control” affidavit process, which will be submitted concurrently with the closing of the Simplura Acquisition and will limit our ability to exercise control over that business for certain operational matters until such time that our ownership of that business is approved by the New York Department of Health. We can provide no assurance regarding the timing of the approval of this change of ownership by the New York Department of Health, or that such approval will be obtained at all. During this period, we cannot exercise day to day management of these entities, and the current management team will continue to operate the business, which may adversely affect our successful integration of the Simplura business.

Simplura may have liabilities that are not known to us.

Simplura may have liabilities that we failed, or were unable, to discover in the course of performing our due diligence investigations of Simplura. We cannot assure you that the indemnification available to us under the Simplura Purchase Agreement in respect of the Simplura Acquisition in connection with such agreement will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with Simplura or property that we will assume upon consummation of the Simplura Acquisition. We may learn additional information about Simplura that materially adversely affects us, such as

unknown or contingent liabilities and liabilities related to compliance with applicable laws. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.

Acquisition accounting adjustments could adversely affect our financial results.

We will account for the completion of the Simplura Acquisition using the business combination method of accounting. We will allocate the total estimated purchase price to net tangible assets, amortizable intangible assets and indefinite-lived intangible assets and assumed liabilities, including deferred revenue, and based on their fair values as of the date of completion of the Simplura Acquisition record the excess, if any, of the purchase price over those fair values as goodwill.

Differences between preliminary estimates and the final business combination accounting may occur, and these differences could have a material impact on the consolidated and combined financial statements and the combined company’s future results of operations and financial position.

Failure to complete the Simplura Acquisition could impact our future business and financial results.

If the Simplura Acquisition is not completed, our ongoing business and financial results may be adversely affected and we will be subject to a number of risks, including the following:

•depending on the reasons for the failure to complete the Simplura Acquisition, we could be liable to Simplura for monetary or other damages in connection with the termination or breach of the Simplura Purchase Agreement;

•we have dedicated significant time and resources, financial and otherwise, in planning for the Simplura Acquisition and the associated integration, of which we would lose the benefit if the Simplura Acquisition is not completed;

•we are responsible for certain transaction costs relating to the Simplura Acquisition, whether or not the Simplura Acquisition is completed;

•while the Simplura Purchase Agreement is in force, we are subject to certain restrictions on the conduct of our business, including taking any action that is reasonably likely to prevent, materially delay or materially impair the consummation of the Simplura Acquisition, which restrictions may adversely affect our ability to execute certain of our business strategies; and

•matters relating to the Simplura Acquisition (including integration planning) may require substantial commitments of time and resources by our management, whether or not the Simplura Acquisition is completed, which could otherwise have been devoted to other opportunities that may have been beneficial to us.

In addition, if the Simplura Acquisition is not completed, we may experience negative reactions from the financial markets and from our customers and employees. We also may be subject to litigation related to any failure to complete the Simplura Acquisition or to enforcement proceedings commenced against us to perform our obligations under the Purchase Agreement. If the Simplura Acquisition is not completed, these risks may materialize and may adversely affect our business, financial results and financial condition.

While the Simplura Acquisition is pending, we and Simplura will be subject to business uncertainties that could adversely affect our respective businesses.

Our success following the announcement of the Simplura Acquisition will depend in part upon the ability of us and Simplura to maintain our respective business relationships. Uncertainty about the effect of the Simplura Acquisition on customers, suppliers, employees and other constituencies may have a material adverse effect on us and Simplura. Customers, suppliers and others who deal with us or Simplura may delay or defer business decisions, decide to terminate, modify or renegotiate their relationships or take other actions as a result of the Simplura Acquisition that could negatively affect the revenues, earnings and cash flows of our combined company. If we are unable to maintain these business and operational relationships, our financial position, results of operations or cash flows could be materially affected.

Risks Related to Our Indebtedness

Upon consummation of the transaction, we will have substantial indebtedness and lease obligations, which could affect our ability to meet our obligations under our indebtedness and may otherwise restrict our activities.

Upon consummation of the Simplura Acquisition, our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under the Credit Facility. Our substantial indebtedness could have important consequences, including:

•increasing our vulnerability to adverse economic, industry or competitive developments;

•requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;

•exposing us to the risk of increased interest rates because certain of our borrowings, including borrowings under the Credit Facility, are at variable rates of interest;

•making it more difficult for us to satisfy our obligations with respect to our indebtedness and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the agreements governing such other indebtedness, including the Credit Facility;

•restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

•imposing restrictions on the operation of our business that may hinder our ability to take advantage of strategic opportunities or to grow our business;

•limiting our ability to obtain additional financing for working capital, capital expenditures (including real estate acquisitions), debt service requirements and general corporate or other purposes, which could be exacerbated by volatility in the credit markets; and

•limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to any of our competitors who are less leveraged and who therefore may be able to take advantage of opportunities that our leverage prevents us from exploiting.

Our ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other factors, all of which are beyond our control, including the availability of financing in the international banking and capital markets and the effects of the coronavirus (COVID-19) pandemic. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our debt, to refinance our debt or to fund our other liquidity needs. Any refinancing or restructuring of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations. Further, in the event of a default, the holders of our indebtedness could elect to declare such indebtedness be due and payable, which could materially adversely affect our results of operations and financial condition.

Moreover, the deductibility of interest expenses on our indebtedness could be limited by provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), any regulations promulgated thereunder, and any other applicable legislation.

Our existing debt agreements contain restrictions that limit our flexibility in operating our business.

Our Credit Facility contains various covenants that limit or will limit our ability to engage in specified types of transactions. These agreements may, among other things, limit our ability to:

•incur additional debt;

•provide guarantees in respect of obligations of other persons;

•issue redeemable stock and preferred stock;

•pay dividends or distributions or redeem or repurchase capital stock;

•enter into transactions with affiliates;

•create or incur liens;

•permit contractual obligations that burden our ability to make distributions from our subsidiaries;

•sell assets and capital stock of our subsidiaries;

•make acquisitions; and

•consolidate or merge with or into, or sell substantially all of our assets to, another person.

A breach of any of these covenants could result in a default under one or more of these agreements, including as a result of cross default provisions, and, in the case of our Credit Facility, permit the lenders to cease making loans to us. Upon the occurrence of an event of default under our Credit Facility, the lenders could elect to declare all amounts outstanding under our Credit Facility to be immediately due and payable and terminate all commitments to extend further credit. Such actions by those lenders could cause cross defaults under our other indebtedness. In the event of acceleration of our outstanding indebtedness, we cannot assure you that we would be able to repay the debt or obtain new financing to refinance the debt. Even if new financing is made available to us, it may not be on terms acceptable to us. If we were unable to repay these amounts, certain debt holders could proceed against the collateral granted to them to secure the indebtedness. We will pledge a significant portion of our assets as collateral under our Credit Facility. If the lenders under our Credit Facility accelerate the repayment of borrowings, we may not have sufficient assets to repay our Credit Facility as well as our other indebtedness, including the notes.

Additional borrowing under our Credit Facility is dependent on the maintenance of compliance with financial ratio covenants and other provisions set forth in the Credit Facility.

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

Issuer Purchases of Equity Securities

On March 11, 2020, the Board of Directors 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 ~~three~~nine months ended September 30, ~~2017:~~2020:

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

—


Period	Total 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, 2020	142,821	$	51.11	142,821	$	67,701

April 1, 2020
to
April 30, 2020	46,455	$	54.48	46,455	$	65,170

May 1, 2020
to
May 31, 2020	6,401	$	55.64	6,401	$	64,813

June 1, 2020
to
September 30, 2020	—
Total	195,677			195,677	$	64,813

~~______________~~


~~(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.

~~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*		Transition and Separation Agreement dated as of August 12, 2020, among The Providence Service Corporation,LogistiCare Solutions, LLC, and Suzanne G.Smith

~~Exhibit~~ ~~Number~~ 10.2*		~~Description~~ Employment Agreement dated August 11, 2020, by and between LogistiCare Solutions, LLC and John McMahon

10.3*		~~31.1~~Amendment to Preferred Stock Conversion Agreement, dated as of September 2, 2020, by and among The Providence Service Corporation, and the other signatory parties thereto*

10.4*		Employment Agreement dated April 22, 2020, by and between LogistiCare Solutions, LLC and Kenneth Wilson

10.5		Stock Purchase Agreement, dated as of September 28, 2020, by and among OEP AM, Inc., The Providence Service Corporation, Socrates LLC and OEP AM Holdings, LLC (incorporated by reference to Exhibit 2.1 to the registrant’s current report on Form 8-K filed with the SEC on September 29, 2020)

10.6		Commitment Letter, dated as of September 28, 2020, by and among The Providence Service Corporation, Jefferies Finance LLC, Deutsche Bank AG New York Branch, Deutsche Bank AG Cayman Islands Branch, and Deutsche Bank Securities Inc. (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the SEC on September 29, 2020)

10.7		Eighth Amendment to the Amended and Restated Credit and Guaranty Agreement, dated as of October 16, 2020, among the Providence Service Corporation, the guarantors party thereto, the lenders party thereto and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the SEC on October 16, 2020)

31.1*		Certification pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer.

~~31.2~~* 31.2*		Certification pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer.

~~32.1~~* 32.1*		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer.

~~32.2~~* 32.2*		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer.

~~101. INS~~101.INS*		~~XBRL~~Inline XBR 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.SCH~~	Inline XBRL Schema Document

~~101.CAL~~101.CAL*		Inline XBRL Calculation Linkbase Document

~~101.LAB~~101.LAB*		Inline XBRL Label Linkbase Document

~~101.PRE~~101.PRE*		Inline XBRL Presentation Linkbase Document

~~101.DEF~~101.DEF*		Inline XBRL Definition Linkbase Document




*104	~~Filed herewith.~~	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


*			Filed herewith.

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: November 6, 2020			~~THE PROVIDENCE SERVICE CORPORATION~~By:	/s/ Daniel E. Greenleaf

~~Date: November 8, 2017~~	~~By:~~	~~/s/ James M. Lindstrom~~
		~~James M. Lindstrom~~Daniel E. Greenleaf Chief ExecutiveOfficer ~~and Director~~
				(~~Principal Executive~~Duly Authorized Officer)

Date: November ~~8, 2017~~6, 2020			By:	/s/ ~~David C. Shackelton~~Kevin Dotts
				~~David C. Shackelton~~ Kevin Dotts Chief Financial Officer
				(Principal Financial Officer)



	September 30, 2017		December 31, 2016
Current assets	$	50,015	$	28,589
Long-term assets	598,842		614,841
Current liabilities	39,273		25,791
Long-term liabilities	270,816		281,348



	Three months ended September 30, 2017
Revenue	$	58,639
Operating income	3,159
Net loss	(537		)



	Nine months ended September 30, 2017
Revenue	$	175,346
Operating income	10,109
Net loss	(775		)



	December 31, 2016
Current assets	$	4,640
Long-term assets	10,473
Current liabilities	12,844
Long-term liabilities	1,655



	September 30, 2017		December 31, 2016
Accrued compensation	$	24,058	$	23,050
NET Services accrued contract payments	26,504		32,836
Accrued settlement	15,000		6,000
Income taxes payable	—		372
Other	37,835		40,123
Total accrued expenses	$	103,397	$	102,381



	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 Program	1,380		(40		)	(1,357		)	17		—
UK Restructuring Program	50		(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 Program	2,059		537		(2,379		)	(103		)	114
Total	$	8,597	$	4,741	$	(8,454	)	$	(1,009	)	$	3,875



	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 expenses	26			—		26			9,622			—		9,622
Loss from discontinued operations before income taxes	(26		)	—		(26		)	(9,622		)	—		(9,622		)
Income tax benefit	10			—		10			3,622			—		3,622
Discontinued operations, net of tax	$	(16	)	$	—	$	(16	)	$	(6,000	)	$	—	$	(6,000	)



	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 expense	7,463			1,505			8,968			7,463			2,823			10,286
Depreciation and amortization	—			5,359			5,359			—			21,121			21,121
Total operating expenses	7,463			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



	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



	Three months ended September 30, 2017
	NET Services		WD Services			Matrix Investment			Corporate and Other			Total
Service revenue, net	$	324,824	$	84,693		$	—		$	—		$	409,517
Service expense	304,454		73,581			—			(3		)	378,032
General and administrative expense	2,899		6,980			—			8,750			18,629
Depreciation and amortization	3,286		3,166			—			95			6,547
Operating income (loss)	$	14,185	$	966		$	—		$	(8,842	)	$	6,309

Equity in net gain (loss) of investee	$	—	$	(459	)	$	(1	)	$	—		$	(460	)



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			—