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, 2020~~March 31, 2021


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

For the transition period from to

Commission File Number 001-34221

~~The Providence Service Corporation~~ModivCare Inc.

(Exact name of registrant as specified in its charter)


Delaware						86-0845127
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

4700 South Syracuse Street, 4th Floor, Denver, Colorado80237

~~1275 Peachtree Street~~(Address of principal executive offices)(Zip Code)

~~Sixth Floor~~

~~Atlanta~~

~~Georgia~~

~~30309~~

~~(Address of principal executive offices)~~

~~(Zip Code)~~

~~(404) 888-5800~~(303) 720-7003

(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~~MODV	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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of ~~November~~May 3, ~~2020,~~2021, there were ~~outstan~~outsta~~ding 14,183,634~~nding 14,019,075 shares (excluding treasury shares of ~~5,285,666)~~5,378,729) 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

	Unaudited Condensed Consolidated Balance Sheets – ~~September 30, 2020 (unaudited)~~March 31, 2021 and December 31, ~~2019~~2020	4

	Unaudited Condensed Consolidated Statements of Operations – Three ~~and Nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	65

	Unaudited Condensed Consolidated Statements of ~~Stockholders’ Equity~~Cash Flows – Three ~~and Nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	76

	Unaudited Condensed Consolidated Statements of ~~Cash Flows~~Stockholders’ Equity – ~~Nine~~Three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	98

	Notes to the Unaudited Condensed Consolidated Financial Statements – ~~September 30, 2020~~March 31, 2021	119

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2923

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3831

Item 4.	Controls and Procedures	3931

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	4032

Item 1A.	Risk Factors	4032

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4632







Item 6.	Exhibits	4833

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

~~The Providence Service Corporation~~ModivCare Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)


	March 31, 2021		December 31, 2020

Assets
Current assets:
Cash and cash equivalents	$	299,559	$	183,281
Accounts receivable, net of allowance of $2,376 and $2,403, respectively	211,340		197,943
Other receivables	12,219		12,674
Prepaid expenses and other current assets	13,927		31,885
Restricted cash	48		75
Current assets of discontinued operations	141		758
Total current assets	537,234		426,616
Operating lease right-of-use assets	29,398		30,928
Property and equipment, net	30,195		27,544
Goodwill	444,927		444,927
Intangible assets, net	336,150		345,652
Equity investment	141,220		137,466
Other assets	12,651		12,780


Total assets	$	1,531,775	$	1,425,913
Liabilities and stockholders' equity
Current liabilities:


Accounts payable	$	33,779	$	8,464
Accrued contract payables	245,386		101,705
Accrued expenses and other current liabilities	119,326		117,010
Accrued transportation costs	70,870		79,674
Current portion of operating lease liabilities	7,922		8,277
Self-funded insurance programs	4,453		4,727
Deferred revenue	2,820		2,923
Current liabilities of discontinued operations	1,527		1,971
Total current liabilities	486,083		324,751
Long-term debt, net of deferred financing costs of $13,295 and $14,020, respectively	486,705		485,980
Deferred tax liabilities	91,579		92,195
Operating lease liabilities, less current portion	22,214		23,437
Long-term contract payables	0		72,183
Other long-term liabilities	26,441		15,756

Total liabilities	1,113,022		1,014,302
Commitments and contingencies (Note 14)	0		0


Stockholders’ equity
Common stock: Authorized 40,000,000 shares; $0.001 par value; 19,623,017 and 19,570,598, respectively, issued and outstanding (including treasury shares)	20		20
Additional paid-in capital	424,791		421,318
Retained earnings	237,254		218,414

Treasury shares, at cost, 5,385,771 and 5,287,283 shares, respectively	(243,312)		(228,141)
Total stockholders’ equity	418,753		411,611
Total liabilities and stockholders’ equity	$	1,531,775	$	1,425,913

See accompanying notes to the unaudited condensed consolidated financial statements

September 30, 2020 December 31, 2019
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 183,277 $ 61,365
Accounts receivable, net of allowance of $2,794 and $5,933, respectively 164,944 180,416
Other receivables 7,310 3,396
Prepaid expenses and other 20,266 10,942
Restricted cash 3,182 153
Current assets of discontinued operations 357 155
Total current assets 379,336 256,427
Operating lease right-of-use assets 18,814 20,095
Property and equipment, net 21,048 23,243
Goodwill 135,216 135,216
Intangible assets, net 87,358 19,911
Equity investment 141,292 130,869
Other assets 8,571 11,620
Total assets $ 791,635 $ 597,381
Liabilities, redeemable convertible preferred stock and stockholders’ equity
Current liabilities:
Current portion of finance lease liabilities $ 148 $ 308
Accounts payable 26,677 9,805
Current portion of operating lease liabilities 6,680 6,730
Accrued expenses 143,033 38,733
Accrued transportation costs 81,558 87,063
Deferred revenue 681 227
Self-funded insurance programs 10,083 5,890
Current liabilities of discontinued operations 1,734 1,430
Total current liabilities 270,594 150,186
Finance lease liabilities, less current portion 0 45
Operating lease liabilities, less current portion 13,015 14,502
Long-term contract payables 50,244 0
Other long-term liabilities 12,195 15,029
Deferred tax liabilities 35,520 22,907
Total liabilities 381,568 202,669
Commitments and contingencies (Note 13)
Redeemable convertible preferred stock
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
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 416,504 351,529
Retained earnings 221,509 183,733
Treasury shares, at cost, 5,285,666 and 5,088,782 shares, respectively (227,966) (217,688)
Total stockholders’ equity 410,067 317,592
Total liabilities, redeemable convertible preferred stock and stockholders’ equity $ 791,635 $ 597,381
ModivCare Inc.

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)


	Three months ended March 31,
	2021		2020
Service revenue, net	$	453,610	$	367,291
Grant income (Note 2)	2,648		0

Operating expenses:
Service expense	360,333		332,661
General and administrative expense	54,871		20,795
Depreciation and amortization	12,239		3,790

Total operating expenses	427,443		357,246

Operating income	28,815		10,045

Other expenses (income):
Interest expense, net	8,423		241

Equity in net loss (income) of investee	(4,503)		2,550
Income from continuing operations before income taxes	24,895		7,254
Provision (benefit) for income taxes	6,016		(9,046)
Income from continuing operations, net of tax	18,879		16,300
Loss from discontinued operations, net of tax	(39)		(202)
Net income	$	18,840	$	16,098

Net income available to common stockholders (Note 12)	$	18,840	$	12,998

Basic earnings (loss) per common share:
Continuing operations	$	1.33	$	1.02
Discontinued operations	0		(0.02)
Basic earnings per common share	$	1.33	$	1.00

Diluted earnings (loss) per common share:
Continuing operations	$	1.31	$	1.02
Discontinued operations	0		(0.02)
Diluted earnings per common share	$	1.31	$	1.00

Weighted-average number of common shares outstanding:
Basic	14,158,666		12,987,740
Diluted	14,362,226		13,012,991

See accompanying notes to the unaudited condensed consolidated financial statements

~~The Providence Service Corporation~~ModivCare Inc.

Unaudited Condensed Consolidated Statements of ~~Operations~~Cash Flows

(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
thousands)


	Three months ended March 31,
	2021		2020
Operating activities
Net income	$	18,840	$	16,098
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	2,737		2,231
Amortization	9,502		1,559
Provision for doubtful accounts	27		827
Stock-based compensation	1,187		1,045
Deferred income taxes	(616)		11,590
Amortization of deferred financing costs and debt discount	581		33
Equity in net loss (income) of investee	(4,503)		2,550
Reduction of right-of-use assets	2,745		2,248

Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable and other receivables	(12,219)		7,484
Prepaid expenses and other	18,230		(21,496)

Self-funded insurance programs	(273)		(388)
Accrued contract payables	71,498		4,352
Accounts payable and accrued expenses	27,844		31,965
Accrued transportation costs	(8,804)		(19,285)
Deferred revenue	(160)		338
Other long-term liabilities	7,948		(2,352)
Net cash provided by operating activities	134,564		38,799
Investing activities
Purchase of property and equipment	(5,388)		(1,574)


Net cash used in investing activities	(5,388)		(1,574)
Financing activities
Proceeds from debt	0		162,000


Preferred stock dividends	0		(1,095)
Repurchase of common stock, for treasury	(14,450)		(7,299)
Proceeds from common stock issued pursuant to stock option exercise	2,286		2,054
Restricted stock surrendered for employee tax payment	(721)		(37)
Other financing activities	(40)		(77)
Net cash provided by (used in) financing activities	(12,925)		155,546
Net change in cash, cash equivalents and restricted cash	116,251		192,771
Cash, cash equivalents and restricted cash at beginning of period	183,356		61,673
Cash, cash equivalents and restricted cash at end of period	$	299,607	$	254,444

See accompanying notes to the unaudited condensed consolidated financial statements

~~The Providence Service Corporation~~ModivCare Inc.

Unaudited Supplemental Cash Flow Information

(in thousands)


	Three months ended March 31,
Supplemental cash flow information	2021		2020
Cash paid for interest	$	251	$	197
Cash paid (received) for income taxes, net of refunds	$	(9,033)	$	1,437
Assets acquired under operating leases	$	1,214	$	0

See accompanying notes to the unaudited condensed consolidated financial statements

ModivCare Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share and per share data)


		Nine months ended September 30, 2020										Three months ended March 31, 2021

		Common Stock			Additional Paid-In		Retained		Treasury Stock							Common Stock			Additional Paid-In		Retained		Treasury Stock
		Shares	Amount		Capital		Earnings		Shares	Amount			Total			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
Balance at December 31, 2020															Balance at December 31, 2020	19,570,598	$	20	$	421,318	$	218,414	5,287,283	$	(228,141)	$	411,611
Net income	Net income	—	—		—		16,098		—	—			16,098		Net income	—	—		—		18,840		—	$	—	18,840
Stock-based compensation	Stock-based compensation	—	—		1,005		—		—	—			1,005		Stock-based compensation	—	—		1,149		—		—	$	—	1,149
Exercise of employee stock options	Exercise of employee stock options	39,111	—		2,054		—		—	—			2,054		Exercise of employee stock options	36,338	—		2,286		—		—	$	—	2,286
Restricted stock issued	Restricted stock issued	79,029	—		—		—		—	—			—		Restricted stock issued	15,821	—		—		—		—	$	—	0
Restricted stock surrendered for employee tax payment	Restricted stock surrendered for employee tax payment	—	—		—		—		626	(37)			(37)		Restricted stock surrendered for employee tax payment	—	—		—		—		4,253	$	(721)	(721)
Shares issued for bonus settlement and director stipends	Shares issued for bonus settlement and director stipends	701	—		38		—		—	—			38		Shares issued for bonus settlement and director stipends	260	—		38		—		—	$	—	38
Stock repurchase plan	Stock repurchase plan	—	—		—		—		142,821	(7,299)			(7,299)		Stock repurchase plan	—	—		—		—		94,235	$	(14,450)	(14,450)
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
Balance at March 31, 2021															Balance at March 31, 2021	19,623,017	$	20	$	424,791	$	237,254	5,385,771	$	(243,312)	$	418,753


	Three months ended March 31, 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	—		—		—		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

(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.~~

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,
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~~ModivCare Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

~~September 30, 2020~~March 31, 2021

1. Organization and Basis of Presentation

Description of Business

~~The Providence Service Corporation (“we”,~~ModivCare Inc. ("ModivCare" or the ~~“Company” or “Providence”~~"Company") is the largest benefits manager of non-emergency medical transportation (“NEMT” or "NET") programs for state governments and managed care organizations (“MCOs”) in the United States (“U.S.”) through the wholly-owned subsidiary, LogistiCare Solutions, LLC, a ~~Delaware limited liability~~technology-enabled healthcare services 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 Companywhich provides a suite of integrated supportive care solutions for ~~our payor customers~~public and ~~end-users, focused on addressing~~private payors and their patients. Its value-based solutions address the social ~~determinates~~determinants of health, ~~(“SDoH”) and enabling~~or SDoH, enable greater access to ~~healthcare~~care, reduce costs, and ~~improved~~improve outcomes. ModivCare is a leading provider of non-emergency medical transportation, or NEMT, personal and home care, and nutritional meal delivery. Our technology-enabled operating model includes NEMT core competencies in risk underwriting, contact center management, network credentialing, claims management and non-emergency medical transport management. The Company also partners with communities throughout the country, providing food-insecure individuals delivery of nutritional meals. Additionally, its personal and home care services include placements of non-medical personal care assistants, home health aides and skilled nurses primarily to Medicaid patient populations in need of care monitoring and assistance performing daily living activities in the home setting, including senior citizens and disabled adults.

The Company also own a 43.6% minority investment in CCHN Group Holdings, Inc. and its subsidiaries (“Matrix”). Matrix 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 with advanced diagnostic capabilities. In 2020, Matrix launched its Employee Health and Wellness solution focused on improving employee health with worksiteModivCare’s solutions ~~that reinforce business resilience and safe return-to-work outcomes. These solutions combined with Matrix’s advanced engagement approach,~~ help health plans manage risks, close care gaps, reduce costs, and connect members to care. Through the combination of its historical NEMT business with its in-home personal care business that was previously operated by Simplura Health Group, or Simplura, as described further below, ModivCare has united two complementary healthcare companies that serve similar, highly vulnerable patient populations. Collectively, ModivCare is uniquely positioned to remove the barriers of health inequities and address the SDoH.

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 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 further information.~~

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

On November 18, 2020, ModivCare acquired all of the outstanding equity of OEP AM, Inc., a Delaware corporation doing business as Simplura Health Group, which formed the foundation of our personal care business and Personal Care Segment operations. See Note ~~15,~~3, Acquisitions, for further information.

ModivCare also holds a 43.6% minority interest in CCHN Group Holdings, Inc. and its subsidiaries, which operates under the Matrix Medical Network brand and which we refer to as “Matrix”. Matrix maintains a national network of community-based clinicians who deliver in-home and on-site services, and a fleet of mobile health clinics that provide community-based care with advanced diagnostic capabilities and enhanced care options. Matrix’s Clinical Care provides risk adjustment solutions that improve health outcomes for individuals and financial performance for health plans. Matrix’s Clinical Solutions provides employee health and wellness services focused on improving employee health with worksite certification solutions that reinforce business resilience and safe return-to-work outcomes. Its Clinical Solutions offerings also provide clinical trial services which support the delivery of safe and effective clinical trial operations to patients and eligible volunteers.

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 the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. References to GAAP issued by the FASB in these ~~footnotes~~notes are to the FASB Accounting Standards Codification (“ASC”), which serves as the single source of authoritative accounting and applicable reporting standards to be applied for non-governmental entities. All amounts are presented in U.S. dollars unless otherwise noted.

The 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 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, 2020~~March 31, 2021 are not

necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2020.~~2021. 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 condensed consolidated financial statements.

The condensed consolidated balance sheet at December 31, ~~2019~~2020 included in this Form 10-Q has been derived from audited financial statements at that date, but does not include all the information and footnotes required by GAAP for complete financial statements. The 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, ~~2019.~~2020.

The Company accounts for its investment in Matrix using the equity method, as the Company does not control the decision-making process or business management practices of Matrix. While the Company has access to certain information and performs certain procedures to review the reasonableness of information, the Company relies on the management of Matrix to provide accurate financial information prepared in accordance with GAAP. The Company receives audit reports relating to such financial information from Matrix’s independent auditors on an annual basis. The Company is not aware of any errors in or possible misstatements of the financial information provided by Matrix that would have a material effect on the Company’s ~~condensed~~ consolidated financial statements. See Note 5,7, Equity Investment, for further information.

~~Uncertainties due to~~Impact of the COVID-19 Pandemic

~~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~~During 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,~~Company’s business, as well as ~~measures taken by governmental authorities~~its patients, communities, and private actors to limit the spread of this virus, has and is likely to continue to interfere with the ability of the Company's employees, suppliers, transportation providers and other business providers to carry out their assigned tasks at ordinary levels of performance relative to the conduct of theemployees. The Company’s business which may cause the Company to materially curtail certain business operations. While the Company is monitoring the impact of COVID-19 on its business and financial results, at this time the Company is unable to accurately predict the extent to whichpriorities during the COVID-19 pandemic ~~impacts~~remain protecting the health and safety of its ~~business, operations~~employees, maximizing the availability of its services and products to support the SDoH, and the operational and financial ~~results.~~stability of its business.

~~On March 27, 2020,~~Federal, state, and local authorities have taken several actions designed to assist healthcare providers in providing care to COVID-19 and other patients and to mitigate the ~~U.S.~~adverse economic impact of the COVID-19 pandemic. Legislative actions taken by the federal government ~~enacted~~include the Coronavirus Aid, Relief, and Economic Security Act ~~(“CARES Act”~~(the "CARES Act"), which ~~includes modifications to the limitation~~was signed into law 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 ofMarch 27, 2020. Through the CARES Act, on the ~~Company’s 2018 U.S. net operating losses~~federal government has authorized payments to be distributed to healthcare providers through the Public Health and Social Services Emergency Fund ("~~NOLs"~~Provider Relief Fund" or "PRF"), the effective tax rate of 17.6% was lower than the U.S. federal statutory rate of 21.0% for the nine months ended September 30, 2020. The 27.0% effective tax rate for the three months ended September 30, 2020 was not impacted by the CARES Act. See Note 12, ~~Income Taxes, for further information.~~

The accompanying unaudited condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and reported amounts of revenue and expenses. It is possible that 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, 2020:~~Use of Estimates

~~In June 2016,~~The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the ~~FASB issued Accounting Standards Update ("ASU") No. 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326)~~ ~~(“ASU 2016-13”). The amendments in ASU 2016-13 superseded much~~reported amounts of assets and liabilities, including disclosure of contingencies, at the date of the ~~existing guidance~~financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Grant Income

In the first quarter of 2021, the Company received distributions of the CARES Act PRF of approximately $2.6 million targeted to offset lost revenue and expenditures incurred in connection with the COVID-19 pandemic. The PRF payments are subject to certain restrictions and are subject to recoupment if not used for designated purposes. As a condition to receiving distributions, providers must agree to certain terms and conditions, including, among other things, that the funds are being used for lost revenues and unreimbursed COVID-19 related expenses as defined by the U.S. Department of Health and Human Services (HHS). All recipients of PRF payments are required to comply with the reporting ~~credit losses for assets held at amortized cost basis~~requirements described in the terms 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,conditions and ~~any other financial assets not excluded from the scope that have the contractual right to receive cash.~~as determined by HHS. The Company ~~adopted ASU 2016-13 on January 1, 2020. As~~recognizes grant payments as grant income when there is reasonable assurance that it has complied with the conditions associated with the grant. Grant income recognized by the Company is presented in grant income in the accompanying condensed consolidated statements of ~~September 30, 2020, this~~operations. HHS guidance ~~did not have a material~~related to PRF grant funds is still evolving and subject to change. The Company is continuing to monitor the reporting requirements as they evolve.

1210

~~impact on the unaudited condensed consolidated financial statements or disclosures nor is it expected to have a material impact in the future.~~

CARES Act Payroll Deferral

~~In August 2018,~~The CARES Act also provides for certain federal income and other tax changes, including the ~~FASB issued ASU No. 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework-Changes~~deferral of the employer portion of Social Security payroll taxes. The Company has deferred payment of approximately $20.7 million related to the ~~Disclosure Requirements for Fair Value Measurement~~ ~~(“ASU 2018-13”) which removed, modified,~~deferral of employer payroll taxes as of March 31, 2021 under the CARES Act. Of this amount, approximately 50% is due in December of 2021 and ~~added additional disclosures related to fair value measurements. The Company adopted ASU 2018-13 on January 1, 2020. As~~50% is due in December of ~~September 30, 2020, this guidance did not have an impact on the unaudited condensed consolidated financial statements or disclosures nor~~2022, therefore, $10.3 million is ~~it expected to have a material impact~~recorded in ~~the future.~~

~~In August 2018, the FASB issued ASU No. 2018-15,~~ ~~Intangibles-Goodwill~~accrued expenses, and ~~Other-Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred~~$10.4 million is recorded in ~~a Cloud Computing Arrangement that is a Service Contract~~ (“ASU 2018-15”). ASU 2018-15 aligned the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company elected to apply the 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 September 30, 2020, the Company has not incurred any material implementation costs associated with new service contracts since the date of adoption.

~~In February 2020, the FASB issued ASU No. 2020-02,~~ Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASU 2020-02"). ASU 2020-02 provides interpretive guidance on methodologies and supporting documentation for measuring credit losses, with a focus on the documentation the SEC would normally expect registrants engaged in lending transactions to prepare and maintain to support estimates of current expected credit losses for loan transactions. The Company adopted ASU 2020-02 on February 6, 2020, as the ASU was effective upon issuance. As of September 30, 2020, this guidance did not have an impact on the unaudited condensed consolidated financial statements or disclosures nor is it expected to have a material impact in the future.

~~In March 2020, the FASB issued ASU No. 2020-03,~~ ~~Codification Improvements to Financial Instruments~~ ~~("ASU 2020-03") to make improvements to ASU No. 2016-13,~~ ~~Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ ~~("ASU 2016-13")~~. Public business entities that meet the definition of an SEC filer, excluding eligible smaller reporting companies as defined by the SEC, should adopt ASU 2020-03 during 2020. The Company adopted ASU 2020-03 on April 1, 2020. This guidance did not have an impact on the unaudited condensed consolidated financial statements or disclosures nor is it expected to have a material impact in the future.other long-term liabilities.

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

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~ ~~("ASU 2019-12"). The ASU removes certain exceptions to the general principles in ASC 740,~~ ~~Income Taxes~~, and also clarifies and amends existing guidance to improve consistent application. The ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year, with early adoption permitted. The Company ~~is currently evaluating~~adopted the ~~impact of this ASU, but does not expect a material impact to~~following accounting pronouncements during the ~~financial statements upon adoption.~~three months ended March 31, 2021:

In January 2020, the FASB issued ASU 2020-01, Clarifying the Interactions Between Topic 321, Topic 323, and Topic 818155 ("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~~There was no material impact to the financial statements from the adoption of this ASU.

In December 2019, the ~~standard~~FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The ASU removes certain exceptions to the general principles in ASC 740, Income Taxes, and also clarifies and amends existing guidance to reduce complexity in accounting for income taxes. The ASU is ~~permitted,~~effective for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year, with early adoption ~~in interim or annual periods for which~~permitted. There was no material impact to the financial statements ~~have not yet been issued. The Company is currently evaluating the impact ASU 2020-01 will have on its consolidated financial statements or disclosures; however, does not expect~~from the adoption of this ASU.

Recent accounting pronouncements that the Company has yet to ~~have a material impact.~~adopt are as follows:

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)~~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.~~debt within equity. 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. Acquisitions

Simplura Health Group

On November 18, 2020 the Company completed its acquisition of Simplura. Simplura was a nonpublic entity that specializes in home care services 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 nation’s largest home care markets. The acquisition of Simplura adds a business segment in personal care—a large, rapidly growing sector of healthcare that complements the NEMT segment.

The stock transaction was accounted for in accordance with ASC 805, Business Combinations in which a wholly-owned subsidiary of ModivCare Inc. acquired 100 percent of the voting stock of Simplura for $545.2 million (a purchase price of $566.4 million less $21.2 million of cash that was acquired).

The following is a preliminary estimate, as a result of certain items noted in the table below, of the allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired, as of the acquisition date of November 17, 2020 (in thousands):


Cash	$	21,182
Accounts receivable (1)	69,882
Prepaid expenses and other (2)	9,089
Property and equipment (3)	1,640
Intangible assets (4)	264,770
Operating right of use asset (5)	11,725
Goodwill (6)	309,711
Other assets (7)	4,561
Accounts payable and accrued liabilities (8)	(46,043)
Accrued expense (8)	(2,564)
Deferred revenue (8)	(2,871)
Deferred acquisition payments (9)	(4,046)
Deferred acquisition note payable (8)	(1,050)
Operating lease liabilities (5)	(11,725)
Deferred tax liabilities (10)	(57,883)
Total of assets acquired and liabilities assumed	$	566,378

The acquisition method of accounting incorporates fair value measurements that can be highly subjective, and it is possible the application of reasonable judgment could develop different assumptions resulting in a range of alternative estimates using the same facts and circumstances. Upon finalization of the preliminary items noted below there may be related adjustments to certain of such items and to goodwill and income taxes. All items are expected to be finalized by the second quarter of 2021.

(1) Management has valued accounts receivables based on the estimated future collectability of the receivables portfolio. This estimate is preliminary as the Company's evaluation of the collectability of receivables is ongoing.

(2) Given the short-term nature of the balance of prepaid expenses carrying value represents the fair value.

(3) The acquired property and equipment consists primarily of leasehold improvements, furniture and fixtures, and vehicles. The fair value of the property and equipment was determined based upon the best and highest use of the property with final values determined using cost and comparable sales methods.

(4) The allocation of consideration exchanged to intangible assets acquired is as follows (in thousands):


	Type	Useful Life	Value
Payor network	Amortizable	15 years	$	221,000
Trademarks and trade names	Amortizable	10 years	43,000
Licenses	Not Amortizable	Indefinite	770
			$	264,770

The Company valued trademarks and trade names utilizing the relief of royalty method and payor network utilizing the multi-period excess earnings method, a form of the income approach. These estimates are preliminary as the Company continues to evaluate inputs and assumptions used in arriving at the fair value of the intangible assets.

(5) The fair value of the operating lease liability and corresponding right-of-use asset (current and long-term) was based on current market rates available to the Company. This assessment is preliminary as of the date of our filing and will be finalized with final purchase accounting.

(6) The acquisition preliminarily resulted in $309.7 million of goodwill as a result of expected synergies due to value-based care and solutions being provided to similar patient populations that partner with many of the same payor groups. None of the acquired goodwill is deductible for tax purposes.

(7) Included in Other assets are indemnification guarantees with a value of $3.9 million, obtained in conjunction with the acquisition of Simplura to cover certain acquired liabilities totaling approximately $3.9 million.

(8) Accounts payable as well as certain other current and non-current assets and liabilities are stated at fair value as of the acquisition date.

(9) Deferred acquisition payments are associated with historical acquisitions by Simplura. Of this balance, $0.1 million has been released through the first quarter of 2021.

(10) Net deferred tax liabilities represented the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases. See Note 13, Income Taxes, for additional discussion of the Company’s combined income tax position subsequent to the acquisition.

Assuming Simplura had been acquired as of January 1, 2020, and the results of Simplura had been included in operations beginning on January 1, 2019, the following tables provide estimated unaudited pro forma results of operations for the three months ended March 31, 2021 and 2020 (in thousands except earnings per share). The estimated pro forma net income adjusts for the effect of fair value adjustments related to the acquisition, transaction costs and other non-recurring costs directly attributable to the transaction and the impact of the additional debt to finance the acquisition.


	Three months ended March 31,
	2021		2020
	Actual		Proforma
Revenue	$	453,610	$	486,701
Income from continuing operations, net	18,879		19,048
Diluted earnings per share	$	1.31	$	1.46

Estimated unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the date indicated or the future operating results. The supplemental proforma earnings were adjusted to exclude the impact of Simplura's historical interest expense of $7.0 million for the three months ended March 31, 2020.

NMT

On May 6, 2020, ModivCare Solutions, LLC, entered into an equity purchase agreement with the Seller and NMT, acquiring all of the outstanding capital stock. NMT was acquired for total consideration of $80.0 million less certain adjustments, in an all cash transaction.

The transaction was accounted for as an asset acquisition in accordance with ASC 805, Business Combinations. The Company incurred transaction costs for the acquisition of $0.8 million during the year ended December 31, 2020. These costs were capitalized as a component of the purchase price.

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


	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 and is presented in other current assets in our condensed consolidated balance sheet as of March 31, 2021. No liabilities were assumed.

The fair value allocation of the net consideration is as follows (in thousands, except useful lives):


	Type	Useful Life	Value
Payor relationships	Amortizable	6 years	$	75,514
Trade names and trademarks	Amortizable	3 years	2,151
			$	77,665

4. Segments

On November 18, 2020, the Company acquired Simplura, which operates as a home personal care service provider. As a result, at March 31, 2021, the Company’s chief operating decision maker reviews financial performance and allocates resources based on 3 segments as follows:

•NEMT - which operates primarily under the brands ModivCare Solutions, LLC, and Circulation, is the largest manager of 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 insurance captive.

•Personal Care - which consists of Simplura, and provides personal care to Medicaid patient populations, including seniors and disabled adults, in need of care monitoring and assistance performing activities of daily living.

•Matrix Investment - which consists of a minority investment in Matrix, provides a broad array of assessment and care management services that improve health outcomes for individuals and financial performance for health plans. Matrix’s national network of community-based clinicians delivers in-home services while its 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 (in thousands):


	Three months ended March 31, 2021
	NEMT		Personal Care		Matrix Investment		Total
Service revenue, net	$	343,416	$	110,194	$	0	$	453,610
Grant income (1)	0		2,648		0		2,648

Service expense	272,416		87,917		0		360,333
General and administrative expense	39,967		14,904		0		54,871
Depreciation and amortization	7,312		4,927		0		12,239
Operating income	$	23,721	$	2,446	$	0	$	28,815

Equity in net income of investee	$	0	$	0	$	(4,503)	$	(4,503)
Equity investment	$	0	$	0	$	141,220	$	141,220
Goodwill	$	135,216	$	309,711	$	0	$	444,927
Total assets (continuing operations)	$	691,570	$	698,985	$	141,220	$	1,531,775

(1) Grant income for the Personal Care segment includes $2.6 million of provider relief funds received under the CARES Act. These funds are intended to support healthcare providers by reimbursing them for expenses incurred as a result of the COVID-19 pandemic. See Note 2 Significant Accounting Policies and Recent Accounting Pronouncements.


	Three months ended March 31, 2020
	NEMT		Matrix Investment		Total
Service revenue, net	$	367,291	$	0	$	367,291

Service expense	332,661		0		332,661
General and administrative expense	20,795		0		20,795
Depreciation and amortization	3,790		0		3,790
Operating income	$	10,045	$	0	$	10,045

Equity in net loss of investee	$	0	$	2,550	$	2,550
Equity investment	$	0	$	128,098	$	128,098
Goodwill	$	135,216	$	0	$	135,216
Total assets (continuing operations)	$	668,984	$	128,098	$	797,082

5. Revenue Recognition

Under ASC 606, the Company recognizes revenue as it transfers promised services to its customers and generates all of its revenue from contracts with customers. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for these services. The Company satisfies substantially all of its performance obligations and recognizes revenue over time instead of at points in time.

Capitation structure

Under capitated contracts, payors pay a fixed amount per eligible member. We assume the responsibility of meeting the covered healthcare related transportation requirements based on per-member per-month fees for the number of eligible members in the customer’s program. Revenue is recognized based on the population served during the period. Under certain capitated contracts known as reconciliation contracts, partial payment is received as a prepayment during the month service is provided. These prepayments are periodically reconciled based on actual trip volume and costs and may result in refunds to the customer, or additional payments due from the customer. Other capitated contracts known as risk corridor or profit rebate contacts, allow for profit within a certain corridor and once we reach certain profit level thresholds or maximums, we discontinue recognizing revenue and instead record a liability within the Accrued Contract Payable account. This liability is

reduced through future increases in trip volume and periodic settlements with the customer. Capitation rates are generally based on expected costs and volume of services. Because Medicare pays capitation using a “risk adjustment model,” which compensates providers based on the health status (acuity) of each individual enrollee, providers with higher acuity enrollees receive more, and those with lower acuity enrollees receive less of the capitation that can be allocated to service providers. Under the risk adjustment model, capitation is paid on an interim basis based on enrollee data submitted for the preceding year and is adjusted in subsequent periods after the final data is compiled.

Fee-for-service structure

Fee-for-service ("FFS") revenue represents revenue earned under contracts in which we bill and collect a specified amount for each service that we provide. FFS revenue is recognized in the period in which the services are rendered and is reduced by the estimated impact of contractual allowances and policy discounts in the case of third-party payors.

Customer Information

Of the NEMT segment’s revenue, 8.8% and 11.9% was derived from one U.S. state Medicaid program for the three months ended March 31, 2021 and 2020, respectively. Of the Personal Care segment's revenue, 28.5% was derived from one U.S. state Medicaid program for the three months ended March 31, 2021. In addition, substantially all of the Company’s revenues are generated from domestic governmental agencies or entities that contract with governmental agencies.

Disaggregation of Revenue

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


		Three months ended September 30,					Three months ended March 31,
		2020		2019			2021		2020
State Medicaid agency contracts		$	154,689	$	196,891
State Medicaid agency and Medicare contracts						State Medicaid agency and Medicare contracts	$	203,320	$	180,731
Managed care organization contracts	Managed care organization contracts	165,930		196,494		Managed care organization contracts	250,290		186,560

Total Service revenue, net	Total Service revenue, net	$	320,619	$	393,385	Total Service revenue, net	$	453,610	$	367,291

Capitated contracts	Capitated contracts	$	277,908	$	334,549	Capitated contracts	$	296,235	$	300,724
Non-capitated contracts	Non-capitated contracts	42,711		58,836		Non-capitated contracts	157,375		66,567

Total Service revenue, net	Total Service revenue, net	$	320,619	$	393,385	Total Service revenue, net	$	453,610	$	367,291

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
The table above includes $110.2 million of revenue for the three months ended March 31, 2021 related to the Personal Care Segment through the acquisition of Simplura. Simplura's revenue is non-capitated and approximately 40% is generated from state Medicaid and Medicare agency contracts, while the other 60% is generated from MCO and other private pay contracts.

During the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company recognized a $3.3 million reduction to and a $0.6 million ~~and $15.3 million of~~increase in 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 recogniz~~e~~d $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):


	March 31, 2021		December 31, 2020
Accounts receivable	$	180,500	$	164,622
Reconciliation contracts receivable (1)	33,216		35,724
Allowance for doubtful accounts	(2,376)		(2,403)
Accounts receivable, net	$	211,340	$	197,943

(1) Reconciliation contract receivables, primarily represent underpayments and receivables on certain risk corridor, profit rebate and reconciliation contracts.

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 accompanying condensed consolidated balance sheets (in thousands):


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Accrued contract payables, current, included in “Accrued expenses” (1)		$	88,347	$	15,706
Accrued contract payables (1)						Accrued contract payables (1)	$	245,386	$	101,705
Long-term contract payables (2)	Long-term contract payables (2)	50,244		0		Long-term contract payables (2)	$	0	$	72,183
Deferred revenue, current	Deferred revenue, current	681		227		Deferred revenue, current	$	2,820	$	2,923
Deferred revenue, long-term, included in “Other long-term liabilities”		629		758
Deferred revenue, long-term, included in “other long-term liabilities”						Deferred revenue, long-term, included in “other long-term liabilities”	$	509	$	566

~~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~~represent overpayments and liability reserves on certain ~~profit~~risk corridor and reconciliation contracts due to lower activity as a result of COVID-19.

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

4.6. 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 amounts shown in the condensed consolidated statements of cash flows (in thousands):


		As of September 30,					March 31,
		2020		2019			2021		2020
Cash and cash equivalents	Cash and cash equivalents	$	183,277	$	40,637	Cash and cash equivalents	$	299,559	$	254,371
Restricted cash, current	Restricted cash, current	3,182		833		Restricted cash, current	48		73
Current assets of discontinued operations		357		250

Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	186,816	$	41,720	Cash, cash equivalents and restricted cash	$	299,607	$	254,444

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 is winding down. ~~See Note 16,~~ ~~Discontinued Operations, for further information on the WD Services sale.~~

5.7. Equity Investment

As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company owned a 43.6% non-controlling interest in Matrix. ~~Affiliates~~Pursuant to a Shareholder’s Agreement, 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. The~~accounting and the Company’s share of Matrix’s income or losses are recorded as “Equity in net loss (income) ~~loss~~ of investee” in the accompanying ~~unaudited condensed~~ consolidated statements of operations and the investment basis is recorded as "Equity investment" in the accompanying condensed consolidated balance sheets. During the fourth quarter of 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.operations.

The carrying amount of the assets included in the Company’s condensed consolidated balance sheets and the maximum loss exposure related to the Company’s interest in Matrix as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 totaled ~~$141.3~~$141.2 million and $~~130.9~~137.5 million, respectively.

Summary financial information for Matrix on a standalone basis is as 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

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)

~~6. Prepaid Expenses and Other~~

~~Prepaid expenses and other were comprised of the 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

7. ~~Accrued Expenses~~

~~Accrued expenses consisted of the 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

~~8. Restructuring and Related Reorganization Costs~~

The Company 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 costs was incurred during the three and nine months ended September 30, 2019, respectively, related to the Organizational Consolidation. These costs include, respectively, $0.1 million and $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 “General and administrative expense” and “Depreciation and amortization” in the accompanying condensed consolidated statements of operations.

~~A t~~otal 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 summary of the liability for restructuring and related reorganization costs is as follows (in thousands):~~


	March 31, 2021		December 31, 2020
Current assets	$	153,525	$	143,110
Long-term assets	$	613,249	$	619,642
Current liabilities	$	78,771	$	81,920
Long-term liabilities	$	349,608	$	351,036

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


	Three months ended March 31,
	2021		2020
Revenue	$	124,042	$	61,304
Operating income (loss)	$	16,092	$	(1,673)
Net income (loss)	$	8,613	$	(6,357)

NaN restructuring or related costs were incurred related to the Organizational Consolidation during the 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, 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 the remainder were recorded to "General and administrative expense".

8. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets were comprised of the following (in thousands):


	March 31, 2021		December 31, 2020
Prepaid income taxes	$	0	$	14,633
Prepaid insurance	5,010		7,577

Prepaid rent	1,107		1,196

Other prepaid expenses	7,810		8,479
Total prepaid expenses and other current assets	$	13,927	$	31,885

9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	March 31, 2021		December 31, 2020

Accrued compensation and related liabilities (1)	$	48,838	$	57,201
Accrued cash settled stock-based compensation	20,895		19,376
Accrued interest	12,640		4,927
Union pension obligations	7,748		6,632
Accrued legal fees	6,750		3,228
Deferred acquisition payments	3,978		4,046
Accrued income taxes	2,637		2,042
Other	15,840		19,558
Total accrued expenses and other current liabilities	$	119,326	$	117,010

(1) Accrued compensation and related liabilities includes deferred payroll taxes, which are deferred as a result of the CARES Act. The CARES Act provides for certain federal income and other tax changes, including the deferral of the employer portion of Social Security payroll taxes. The Company has received a cumulative cash benefit of approximately $20.7 million related to the deferral of employer payroll taxes as of March 31, 2021 under the CARES Act. Of this amount, approximately 50% is due in December of 2021 and 50% is due in December of 2022. Therefore, $10.3 million is recorded in accrued expenses, and $10.4 million is recorded in other long-term liabilities.

10. Debt

Senior Unsecured Notes

On November 4, 2020, the Company issued $500.0 million in aggregate principal amount of 5.875% senior unsecured notes due on November 15, 2025 (the “Notes”). The Notes were issued pursuant to an indenture, dated November 4, 2020 (the “Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”).

The Notes are senior unsecured obligations and rank senior in right of payment to all of the Company's future subordinated indebtedness, rank equally in right of payment with all of the Company's existing and future senior indebtedness, are effectively subordinated to any of the Company's existing and future secured indebtedness, including indebtedness under the Credit Facility, to the extent of the value of the assets securing such indebtedness, and are structurally subordinated to all of the existing and future liabilities (including trade payables) of each of the Company’s non-guarantor subsidiaries.

The Indenture contains covenants that, among other things, restrict the Company’s ability and the ability of its restricted subsidiaries to, among other things: incur additional indebtedness or issue disqualified capital stock; make certain investments; create or incur certain liens; enter into certain transactions with affiliates; merge, consolidate, amalgamate or transfer substantially all of its assets; agree to dividend or other payment restrictions affecting its restricted subsidiaries; and transfer or sell assets, including capital stock of its restricted subsidiaries. These covenants, however, are subject to a number of important exceptions and qualifications, and certain covenants may be suspended in the event the Notes are assigned an investment grade rating from two of three ratings agencies.

The Indenture provides that the Notes may become subject to redemption under certain circumstances, including if certain escrowed property has not been released from the escrow account in connection with the consummation of the acquisition of the Simplura Group. The Company may also redeem the Notes, in whole or in part, at any time prior to November 15, 2022, at a price equal to 100% of the principal amount of the Notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption plus a “make-whole” premium set forth in the Indenture. In addition, the Company may redeem up to 40% of the Notes prior to November 15, 2022, at a redemption price of 105.875% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, with the proceeds of certain equity offerings, subject to certain conditions as specified in the Indenture Agreement. At any time prior to November 15, 2022, during each calendar year, the Company may redeem up to 10% of the aggregate principal amount of the Notes at a purchase price equal to 103% of the aggregate principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.

On or after November 15, 2022, the Company may redeem all or a part of the Notes upon not less than ten days’ nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest, if any, on the Notes redeemed, to, but excluding, the applicable redemption date, if redeemed during the 12-month period beginning on November 15 of the years indicated below:


Year			Percentage
2022			102.938%
2023			101.469%
2024 and thereafter			100.000%

The Company will pay interest on the Notes at 5.875% per annum until maturity. Interest is payable semi-annually in arrears on May 15 and November 15 of each year, with the first interest payment date being May 15, 2021. Principal payments are not required until the maturity date on November 15, 2025 when 100% of the outstanding principal will be required to be repaid. As a part of the bond issuance process, we incurred a $9.0 million bridge commitment fee that provided a potential funding backstop in the event that the Notes did not meet the desired subscription level to be used to acquire Simplura. That commitment expired unused upon closing of the Notes and the fee was expensed in Q4 2020.

Debt issuance costs of $14.5 million were incurred in relation to the Notes issuance and these costs were deferred and are amortized to interest cost over the term of the Notes. As of March 31, 2021, approximately $13.3 million of unamortized deferred issuance costs was netted against the long-term debt balance on the condensed consolidated balance sheet.

Credit Facility

The Company is a party to the amended and restated credit and guaranty agreement, dated as of August 2, 2013 (as amended, the “Credit Agreement”), with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, and the other lenders party thereto. On May 6, 2020, the Company entered into the Seventh Amendment to the Amended and Restated Credit and Guaranty Agreement (the “Seventh Amendment”) which, among other things, extended the maturity date to August 1, 2021, expanded the amount available under 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. 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.

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 of Simplura (the "Simplura Acquisition"), 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 3, Acquisitions, for further information on the acquisition.

Effective as of the Eighth Amendment, interest on the outstanding principal amount of loans under the Credit Facility accrues, at the Company’s election, at a per annum rate equal to the greater of either LIBOR or 1.00%, plus an applicable margin, or the base rate as defined in the agreement plus an applicable margin. The applicable margin ranges from 2.25% to 3.50% 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 leverage ratio as defined in the credit agreement that governs our Credit Facility. The commitment fee and letter of credit fee range 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 defined in the credit agreement that governs our Credit Facility.

As of ~~September 30, 2020,~~March 31, 2021, the Company had 0 borrowings outstanding on the Credit Facility; however, ~~had~~there were letters of credit outstanding in the amount of ~~$16.9~~$17.2 million. The Company’s available credit under the Credit Facility was ~~$208.1~~$207.8 million. Under the Credit Agreement, the Company has 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 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.

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.~~

Effective as of the Eighth Amendment, interest on the outstanding principal amount of loans under the Credit Facility accrues, at the Company’s election, at a per annum rate equal to the greater of either LIBOR or 1.00%, plus an applicable margin, or the base rate as defined in the agreement plus an applicable margin. The applicable margin ranges from 2.25% to 3.50% 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 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 the Company’s consolidated leverage ratio as defined in the credit agreement that governs our Credit Facility.

~~10.~~11. 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”). The 2006 Plan allows the flexibility to grant or award stock options, stock appreciation rights, restricted stock, unrestricted stock, stock units including restricted stock units and performance awards to 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,~~March 31, 2021 and 2020 ~~and 2019~~ (in thousands):


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2020		2019		2020		2019			2021		2020
Service expense	Service expense	$	55	$	162	$	174	$	488	Service expense	$	0	$	65
General and administrative expense	General and administrative expense	1,122		693		2,775		3,759		General and administrative expense	1,187		980
Total stock-based compensation	Total stock-based compensation	$	1,177	$	855	$	2,949	$	4,247	Total stock-based compensation	$	1,187	$	1,045

At ~~September 30, 2020,~~March 31, 2021, the Company had ~~358,953~~ 283,636 stock options outstanding with a weighted-average exercise price of~~$63.02.~~ The $79.71. The Company also had ~~55,469~~24,172 unvested restricted stock awards ("RSAs") and ~~46,021~~54,439 unvested restricted stock units ("RSUs") outstanding at ~~September 30, 2020~~March 31, 2021 with a weighted-average grant date fair value of ~~$62.78and$63.17~~, re~~spectively.~~

~~Cash-Settled Awards~~

~~The Company also grants stock equivalent unit awards (“SEUs”)~~$78.87 and ~~stock option equivalent units that are 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 r~~$99.78, respectively.~~ecorded expense~~ ~~of $2.9 million a~~nd ~~$0.4 million for cash-settled awards, respectively. During the nine months ended September 30, 2020 and 2019, the Company recorded expense of~~ ~~$6.9 million and income of~~ $0.2 million for cash-settled awards, respectively. The expense and benefit for cash-settled awards is included as “General and administrative expense” in the accompanying condensed consolidated statements of operations. As the instruments are accounted for as liability awards, the income or expense recorded for the three and nine months ended September 30, 2020 and 2019 are attributable to the Company’s change in stock price from the previous reporting peri~~od. The liability for unexercised cash-settled share-based payment awards of~~ ~~$10.0 million a~~nd ~~$3.3 millionat September 30, 2020 and December 31, 2019, respectively, is reflected in “Accrued expenses” in the condensed consolidated balance sheets. At September 30, 2020, the Company had 3,862 SEUs and~~ ~~200,000~~s~~tock option equivalent units outstanding.~~

~~Long-Term Incentive Plans~~

In connection with the acquisition of Circulation during 2018, the Company established a management incentive plan (“MIP”) intended to motivate key employees of Circulation. During the three months ended 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 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 through December 31, 2021, except for certain termination scenarios. As of September 30, 2020 and December 31, 2019, the Company has accrued $1.8 million and $1.1 million, respectively, related to the MIP, which is primarily reflected in “Other long-term liabilities” in the condensed consolidated balance 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.~~12. Earnings (Loss) Per Share

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


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2020		2019		2020		2019			2021		2020
Numerator:	Numerator:									Numerator:
Net income	Net income	$	38,805	$	8,154	$	91,901	$	7,024	Net income	$	18,840	$	16,098
Dividends on convertible preferred stock outstanding	Dividends on convertible preferred stock outstanding	0		(1,109)		(1,171)		(3,295)		Dividends on convertible preferred stock outstanding	0		(1,095)
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	Income allocated to participating securities	(246)		(941)		(3,213)		(499)		Income allocated to participating securities	0		(2,005)
Net income available to common stockholders	Net income available to common stockholders	$	35,346	$	6,104	$	34,563	$	3,230	Net income available to common stockholders	$	18,840	$	12,998

Continuing operations	Continuing operations	$	35,461	$	6,473	$	35,181	$	2,762	Continuing operations	$	18,879	$	13,200
Discontinued operations	Discontinued operations	(115)		(369)		(618)		468		Discontinued operations	(39)		(202)
Net income available to common stockholders	Net income available to common stockholders	$	35,346	$	6,104	$	34,563	$	3,230	Net income available to common stockholders	$	18,840	$	12,998

Denominator:	Denominator:									Denominator:
Denominator for basic earnings per share -- weighted-average shares	Denominator for basic earnings per share -- weighted-average shares	14,026,039		12,993,934		13,367,605		12,956,222		Denominator for basic earnings per share -- weighted-average shares	14,158,666		12,987,740
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Common stock options	Common stock options	61,312		10,515		15,730		21,376		Common stock options	147,227		11,231
Restricted stock	Restricted stock	46,553		0		32,009		0		Restricted stock	56,333		14,020
Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion	Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion	14,133,904		13,004,449		13,415,344		12,977,598		Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion	14,362,226		13,012,991

Basic earnings (loss) per share:	Basic earnings (loss) per share:									Basic earnings (loss) per share:
Continuing operations	Continuing operations	$	2.53	$	0.50	$	2.63	$	0.21	Continuing operations	$	1.33	$	1.02
Discontinued operations	Discontinued operations	(0.01)		(0.03)		(0.05)		0.04		Discontinued operations	0		(0.02)
Basic earnings per share	Basic earnings per share	$	2.52	$	0.47	$	2.58	$	0.25	Basic earnings per share	$	1.33	$	1.00
Diluted earnings (loss) per share:	Diluted earnings (loss) per share:									Diluted earnings (loss) per share:
Continuing operations	Continuing operations	$	2.51	$	0.50	$	2.62	$	0.21	Continuing operations	$	1.31	$	1.02
Discontinued operations	Discontinued operations	(0.01)		(0.03)		(0.05)		0.04		Discontinued operations	0		(0.02)
Diluted earnings per share	Diluted earnings per share	$	2.50	$	0.47	$	2.57	$	0.25	Diluted earnings per share	$	1.31	$	1.00

Income allocated to participating securities is calculated by allocating a portion of net income attributable to ~~Providence,~~ModivCare, 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 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,			Three months ended March 31,
		2020	2019	2020	2019		2021	2020
Stock options to purchase common stock	Stock options to purchase common stock	3,481	420,846	170,076	499,611	Stock options to purchase common stock	24,211	648,300
Convertible preferred stock	Convertible preferred stock	38,851	799,969	487,576	800,983	Convertible preferred stock	0	798,775

Issuer Purchases of Equity Securities

On March 8, 2021, 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 through December 31, 2021, unless terminated earlier. Through March 31, 2021, 94,235 shares were repurchased under the program for $14.5 million.

~~12.~~13. Income Taxes

The Company’s effective tax rate for continuing operations for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 was ~~27.0% and 17.6%, respectively.~~24.2%. The effective tax rate for continuing operations for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 was ~~37.3% and 37.8%, respectively.~~a benefit of 124.7%. For the ~~nine~~three months ended ~~September 30,~~March 31, 2021, the effective tax rate was higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes and certain non-deductible expenses. For the three months ended March 31, 2020, the effective tax rate was lower than the U.S. federal statutory rate of 21.0% primarily due to the favorable impact of the CARES Act on the Company’s 2018 U.S. net operating losses ("NOLs"). ~~For the nine months ended September 30, 2019, the effective tax rate was~~ ~~higher than the U.S. federal statutory rate of~~ ~~21.0% primarily due to state income taxes and certain non-deductible expenses.~~

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

The 2017 Tax Reform Act reduced the U.S. corporate income tax rate from 35% to 21% and provided that U.S. NOLs incurred after 2017 could only be carried forward to offset future taxable income. Pursuant to the CARES Act, which was enacted on March 27, 2020, the Company carried its 2018 NOL back five years. As a result, during the ~~nine~~three months ended ~~September 30,~~March 31, 2020, the Company recorded a $27.3 million receivable for the 2018 U.S. NOL carryback, and a $11.0 million tax benefit from the favorable carryback tax rate of 35% compared to a carryforward tax rate of 21%. The Company also recorded an additional income tax payable of $3.5 million for 2019 as a result of the 2018 NOL being carried back instead of carried forward.

As of ~~September 30, 2020,~~March 31, 2021, the Company has received ~~$17.0 million~~all 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 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 income tax assessments for the years 2012 through 2017. The Company does not believe the ultimate determination of the assessments will have a material adverse effect on its financial condition or results of discontinued operations.Joint Committee Review.

~~13.~~14. Commitments and Contingencies

Legal proceedings

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 the Company.

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. (collectively, the “Mobile Care Entities”) and LogistiCare Solutions, LLC, the Company’s subsidiary now known as ModivCare Solutions, LLC (“ModivCare Solutions”) by Brandee White, Laura Cunningham, and Jeffery Wisier (the “Relators”) alleging violations of the federal False Claims Act by presenting claims for payment to government healthcare programs knowing that the prerequisites for such claims to be paid had not been met. The Relators seek to recover damages, fees and costs under the federal False Claims Act including treble damages, civil penalties and attorneys’ fees. In addition, the Relators seek reinstatement to their jobs with the Mobile Care ~~entities.~~Entities. None of the Relators were employed by ~~LogistiCare. Prior to January 21, 2019, LogistiCare had no~~ ~~knowledge~~ ~~of the complaint.~~ModivCare Solutions. The federal government has declined to intervene against ~~LogistiCare.~~ModivCare Solutions. The Company filed a motion to dismiss the Complaint on April 22, ~~2019. Although the outcome of such matter is inherently uncertain~~2019, and ~~may be materially adverse, based on current information, the Company does not expect~~believes that the case towill not have a material adverse effect on ~~our~~its business, financial condition or results of operations.

In 2017, one of our Personal Care segment subsidiaries, All Metro Home Care Services of New York, Inc. d/b/a All Metro Health Care (“All Metro”), received a class action lawsuit claiming that, among other things, it failed to properly pay live-in caregivers who stay in patients’ homes for 24 hours per day (“live-ins”). The Company currently pays live-ins for 13 hours per day as supported through a written opinion letter from the New York State Department of Labor (“NYSDOL”). A similar case involving this issue has been heard by the New York Court of Appeals (New York’s highest court), which on March 26, 2019, issued a ruling reversing earlier lower courts’ decisions that an employer must pay live-ins for 24 hours. The Court of Appeals agreed with the NYSDOL’s interpretation to pay live-ins 13 hours instead of 24 hours if certain conditions were being met. If the class action lawsuit on this matter is allowed to proceed, and is successful, the Company may be liable for back wages and litigated damages going back to November 2011. The Company intends to defend itself vigorously with respect to this matter, believes that it is and has been in compliance in all material respects with the laws and regulations covering pay for live-in caregivers, and does not believe in any event that the ultimate outcome of this matter will have a material adverse effect on its 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 the Company filed an appeal of the 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 state guaranty fund in which the 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 accrued reserves related to these lawsuits in accordance with ASC 450, ~~Contingencies.~~

~~Indemnifications~~

The Company provided certain standard indemnifications in connection with the sale of the Human Services segment to Molina Healthcare Inc. (“Molina”) effective November 1, 2015. Certain representations made by the Company in the related Membership Interest Purchase Agreement (the “Molina Purchase Agreement”) including tax representations, survive until the expiration of applicable statutes of limitation. Molina and the Company entered into a settlement agreement regarding indemnification claims by Molina with respect to Rodriguez v. Providence Community Corrections (the “Rodriguez Litigation”), a complaint filed in the District Court for the Middle District of Tennessee, Nashville Division, against Providence Community Corrections, Inc. (“PCC”), an entity sold under the Molina Purchase Agreement. In 2019, the Company recovered a portion of the settlement through insurance 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 ended January 19, 2018; however, certain fundamental representations survived through October 19, 2019. The covenants and agreements of the parties to be performed prior to the closing ended January 19, 2018, and all other covenants and agreements 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, 2020.~~

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 May 9, 2018, the Company entered into a registration indemnification agreement with Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Blackwell Partners, LLC - Series A and Coliseum Capital Co-Invest, L.P. (collectively, the “Coliseum Stockholders”), who as of September 30, 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 the Coliseum Stockholders have agreed to indemnify the Company, against certain matters relating to the registration of the selling stockholders’ securities for resale under the Securities Act of 1933, as amended (the “Securities Act”).

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 expected to commence when construction of the asset is completed in the second quarter of 2021. Total estimated base rent payments over the life of the lease are approximately $29.7 ~~million~~

million.

Indemnifications

The Company has an indemnification agreement in place in relation to the Simplura Acquisition for liabilities that could become due after the closing of the acquisition in the amount of $3.9 million. The liabilities are related to acquisitions made by Simplura, prior to being acquired by ModivCare. ModivCare is indemnified against these liabilities for a period of 18 months from the date of closing, and in the event that these liabilities come due prior to that time, ModivCare will be reimbursed for funds paid from a shared escrow account that was created for this purpose.

~~14.~~15. Transactions with Related Parties

Cash-Settled Awards

~~As discussed in Note 10,~~
~~Stock-Based Compensation and Similar Arrangements, on June 8, 2020,~~

On an annual basis, the Company ~~entered into a Preferred Stock Conversion Agreement with Coliseum Capital Partners, L.P. and certain funds and accounts managed by~~grants stock equivalent unit awards (“SEUs”) to Coliseum Capital Management, ~~LLC. Pursuant~~LLC (“Coliseum”) as compensation for the board of directors’ service of Christopher Shackelton in lieu of the restricted share awards that are given to our other non-employee directors. These SEUs typically have a one-year vesting schedule and are paid out in cash upon vesting based upon the ~~Conversion Agreement,~~closing price of the Company’s common stock on the date of vesting. On February 10, 2021, 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, 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 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.granted Coliseum 725 SEUs under this program.

~~Further, on September 3, 2020,~~In addition, the Company ~~elected~~granted stock option equivalent units (“SOEUs”) to ~~effect the conversion (the “Conversion”) of all of the outstanding Series A Convertible Preferred Stock. In accordance~~Coliseum in September 2014 that are fully vested. The SOEUs are accounted for as liability awards, with the ~~Preferred Stock Conversion Agreement dated June 8, 2020 (as amended), immediately prior~~recorded expense adjustment attributable to the ~~Conversion, the Company repurchased 27,509 shares of Series A Preferred Stock~~Company’s change in stock price 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.~~previous reporting period.

~~Convertible preferred stock dividends earned by~~During the ~~Coliseum Stockholders~~three months ended March 31, 2021, the Company recorded expense of $2.1 million for all cash-settled awards, and during the three months ended ~~September 30,~~March 31, 2020, and 2019 totaled $0.03 million and $1.1 million, respectively, including accrued dividends paid pursuant to the Conversion Agreement. Convertible preferred stock dividends earned by the Coliseum Stockholders during the nine months ended September 30, 2020 and 2019 totaled $1.9 million and $3.2 million, respectively, including accrued dividends paid pursuant to the Conversion Agreement.

~~15. Acquisitions~~

On May 6, 2020, LogistiCare entered into an equity purchase agreement with the 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 obtained an analysis from an independent third-party valuation specialist to assist in determining the purchase price allocation. The Company incurred transaction costs for the acquisition of $0.8 million during the nine months ended September 30, 2020. These costs were capitalized as a component of the purchase price.

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


	~~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 its Human Services segment. During the three and nine months ended September 30, 2020 and 2019,~~ the Company recorded ~~additional~~a benefit of $0.6 million for all cash-settled awards. The expense and benefit for cash-settled awards is included as “General and administrative expense” in the accompanying condensed consolidated statements of operations. The liability for unexercised cash-settled share-based payment awards of $20.9 million and $19.0 million at March 31, 2021 and December 31, 2020, respectively, is reflected in “Accrued expenses ~~related to the Human Services segment, principally related to previously disclosed legal proceedings~~ and ~~professional fees.~~

~~Results of Operations~~

~~The following tables summarize the results of operations classified as discontinued operations for the three and nine months ended September 30, 2020 and 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, 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)

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 liabilities~~

~~The following table summarizes the carrying amounts of the major classes of assets and liabilities of discontinued operations~~other current liabilities” in the condensed consolidated balance ~~sheets as of September 30, 2020 and December~~sheets. At March 31, ~~2019. Amounts represent~~2021, 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~~Company had 1,344 SEUs and ~~Human Services Segment for the nine months ended~~ ~~September 30, 2020. There were $0.6 million in payments related to income taxes for WD Services Segment for the nine months ended September 30, 2019.~~200,000 SOEUs outstanding.

~~17. Segments~~

~~The Company’s chief operating decision maker reviews financial performance and allocates resources based on 2 segments as follows:~~

•NET Services - which operates primarily under the brands LogistiCare and Circulation, is the largest manager of NEMT programs for state governments and 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.

•Matrix Investment ("Matrix") - which consists of a minority investment in Matrix, provides a broad array of assessment and care management services that improve health outcomes for individuals and financial performance for health plans. Matrix’s national network of community-based clinicians delivers in-home and on-site services while its fleet of mobile health clinics 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 (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.~~16. Subsequent Events

On ~~September 28, 2020,~~April 9, 2021, the Company entered into ~~a stock~~an asset purchase agreement (the ~~“Simplura Purchase~~“Purchase Agreement”) with ~~OEP AM,~~nuVizz, Inc., a ~~Delaware corporation, doing business as Simplura Health Group.~~

Georgia corporation. Pursuant to the ~~Simplura~~ Purchase Agreement, the Company ~~plans to acquire all of~~purchased the ~~issued and outstanding capital stock of Simplura~~software developed by nuVizz for ~~$575.0~~$12.0 million in cash, subject to certain adjustments, ~~including adjustments based on a determination of net working capital, cash, transaction expenses and indebtedness,~~ as provided in the ~~Simplura~~ Purchase Agreement. The Company intends to ~~close~~finalize the purchase accounting for this transaction in the ~~fourth~~third quarter of ~~2020.~~2021.

~~Founded in 1955, Simplura~~nuVizz is a ~~home care~~business solutions and services ~~provider offering placements~~company that provides complete mobile business software solutions and supply chain consulting services. It is headquartered in Atlanta, Georgia, USA, and owns and operates a development center in Bangalore, India. nuVizz started operations at the beginning of ~~personal care assistants, home health aides,~~2011 and ~~skilled nurses for senior citizens, disabled adults~~has introduced a portfolio of mobile apps and ~~other high-needs patients. Simplura operates from~~a comprehensive enterprise mobile toolkit, and supports these with its ~~headquarters in Valley Stream, New York, with approximately 57 branches across 7 states, including in several~~team of ~~the 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~~core business process and ~~providing approximately 21 million hours of patient care annually. Simplura’s services are reimbursed by Medicaid, other governmental payors, and major insurance carriers.~~mobile solutions employees.

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 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.

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 Simplura Acquisition, (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.

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,~~March 31, 2021 and 2020, ~~and 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, ~~2019.~~2020. For purposes of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to Q3Q1 2021 and Q1 2020 ~~and Q3 2019~~ mean the three months ended ~~September 30, 2020~~March 31, 2021 and the three months ended ~~September 30, 2019, respectively,~~March 31, 2020, respectively.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and ~~references~~Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 3b-6 promulgated thereunder, including statements related to ~~YTD 2020~~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. These statements are predictive in nature and ~~YTD 2019 mean~~are frequently identified by the ~~nine months~~use of terms such as “may,” “will,” “should,” “expect,” “believe,” “estimate,” “intend,” and similar words indicating possible future expectations, events or actions. In addition, statements that are not historical statements of fact should also be considered forward-looking statements. Such forward-looking statements are based on current expectations, assumptions, estimates and projections about our business and our industry, and are not guarantees of our future performance. 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, that may cause actual events to be materially different from those expressed or implied herein. Among such risks, uncertainties and other factors are those summarized under the caption “Summary Risk Factors” in Part I, and described in further detail under the caption “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, for the fiscal year ended ~~September 30, 2020~~December 31, 2020. Hyperlinks to such sections of our Annual Report are contained in the text included within the quotation marks.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made and are expressly qualified in their entirety by the ~~nine months ended September 30, 2019, respectively.~~cautionary statements set forth herein and in our other filings with the SEC, which you should read in their entirety before making an investment decision with respect to our securities. We undertake no obligation to update or revise any forward- looking statements contained in this release, whether as a result of new information, future events or otherwise, except as required by applicable law.

Overview of Our Business

~~The Providence Service Corporation (“we”, the “Company” or “Providence”)~~ModivCare Inc. is the largest benefits manager of non-emergency medical transportation (“NEMT” or "NET") programs for state governments and managed care organizations (“MCOs”) in the United States (“U.S.”) through the wholly-owned subsidiary, LogistiCare Solutions, LLC, a ~~Delaware limited liability~~technology-enabled healthcare services 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 providewhich provides a suite of integrated supportive care solutions for ~~our payor customers~~public and ~~end-users, focused on addressing~~private payors and their patients. Its value-based solutions address the ~~social determinates of health (“SDoH”) and enabling~~SDoH, enable greater access to ~~healthcare~~care, reduce costs, and ~~improved~~improve outcomes. ModivCare is a leading provider of non-emergency medical transportation, or NEMT, personal and home care, and nutritional meal delivery. Our technology-enabled operating model includes NEMT core competencies in risk underwriting, contact center management, network credentialing, claims management and non-emergency medical transport management. The Company also partners with communities throughout the country, providing food-insecure individuals delivery of nutritional meals. Additionally, its personal and home care services include placements of non-medical personal care assistants, home health aides and skilled nurses primarily to Medicaid patient populations in need of care monitoring and assistance performing daily living activities in the home setting, including senior citizens and disabled adults.

We also own a 43.6% minority investment in CCHN Group Holdings, Inc. and its subsidiaries (“Matrix”). Matrix 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 with advanced diagnostic capabilities. In 2020, Matrix launched its Employee Health and Wellness solution focused on improving employee health with worksiteModivCare’s solutions ~~that reinforce business resilience and safe return-to-work outcomes. These solutions combined with Matrix’s advanced engagement approach,~~ help health plans manage risks, close care gaps, reduce costs, and connect members to care. Through the combination of its historical NEMT business with its in-home personal care business that was previously operated by Simplura Health Group, as described further below, ModivCare has united two complementary healthcare companies that serve similar, highly vulnerable patient populations. Collectively, ModivCare is uniquely positioned to remove the barriers of health inequities and address the SDoH.

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 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 further information.~~

On November 18, 2020, ModivCare acquired all of the outstanding equity of OEP AM, Inc., a Delaware corporation doing business as Simplura Health Group, or Simplura, which formed the foundation of our personal care business and Personal Care Segment operations. See Note ~~15,~~3, Acquisitions, for further 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. 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~~is expected to increase demand for healthcare services and ~~transportation;~~transportation and, accordingly, in-home personal care services;

•a movement towards value-based versus ~~fee for service~~fee-for-service and cost plus, or FFS, 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;~~engagement, including telehealth and similar internet-based health related services;

•technological advancements, which may be utilized by us to improve ~~service~~services and lower costs, but may also be utilized by others, which may increase industry competitiveness;

•Medicaid, Managed Care Organizations (MCOs) and Medicare Advantage plans increasingly are covering NEMT services for a variety of reasons, including increased access to care, improved patient compliance with treatment plans, social trends, and to promote SDoH, and this trend may be accelerated or reinforced by the recent signing into law of The Consolidated Appropriations Act of 2021 ("H.R.133"), a component of which mandates that state Medicaid programs ensure that Medicaid beneficiaries have necessary transportation to and from health care providers.

Update on the Impact of the COVID-19 Pandemic

During 2020, the COVID-19 pandemic impacted the Company’s business, as well as its patients, communities, and employees. The Company’s priorities during the COVID-19 pandemic remain protecting the health and safety of its employees, maximizing the availability of its services and products to support the SDoH, and the operational and financial stability of its business.

Federal, state, and local authorities have taken several actions designed to assist healthcare providers in providing care to COVID-19 and other patients and to mitigate the adverse economic impact of the COVID-19 pandemic. Legislative actions taken by the federal government include the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which was signed into law on March 27, 2020. Through the CARES Act, the federal government has authorized payments to be distributed to healthcare providers through the Public Health and Social Services Emergency Fund ("Provider Relief Fund" or "PRF").

Grant Income. In the first quarter of 2021, the Company received distributions of the CARES Act PRF of approximately $2.6 million targeted to offset lost revenue and expenditures incurred in connection with the COVID-19 pandemic, which is currently recorded as grant income. The PRF payments are subject to certain restrictions and are subject to recoupment if not used for designated purposes. As a condition to receiving distributions, providers must agree to certain terms and conditions, including, among other things, that the funds are being used for lost revenues and unreimbursed COVID-19 related expenses as defined by the HHS. All recipients of PRF payments are required to comply with the reporting requirements described in the terms and conditions and as determined by HHS. The Company recognizes grant payments as grant income when there is reasonable assurance that it has complied with the conditions associated with the grant. Grant income recognized by the Company is presented in grant income in the accompanying consolidated statements of operations. HHS guidance related to PRF grant funds is still evolving and subject to change. The Company is continuing to monitor the reporting requirements as they evolve.

The CARES Act also provides for certain federal income and other tax changes, including the deferral of the employer portion of Social Security payroll taxes. The Company deferred payment of approximately $20.7 million related to the deferral of employer payroll taxes as of March 31, 2021 under the CARES Act. Of this amount, approximately 50% is due in December of 2021 and 50% is due in December of 2022, as such, $10.3 million is recorded in accrued expenses, and $10.4 million is recorded in other long-term liabilities.

As a result of the COVID-19 pandemic, our NEMT Segment has experienced a decreased number of trips beginning in March 2020. As many of our contracts are capitated, our revenues did not experience a decrease to the level of our transportation costs, resulting in a positive impact to our gross margin. However, certain of our contracts contain risk corridor or profit rebate provisions, which result in a possible refund to our payors if our gross margin exceeds certain pre-determined limits. For these contracts, we have recognized a contract payable in relation to revenues that have been received, however are

•~~MCOs that provide Medicare Advantage plans~~unearned due to the possibility of payback. It is possible we could experience higher transportation costs in the future as we are ~~increasingly offering non-emergency medical transportation services as a supplemental benefit~~currently seeing trip volumes increase to levels higher than those pre-pandemic in ~~accordance with current social trends;~~

•~~proposals by the President~~certain regions of the United States and Congress to change the Medicaid program, including considering regulatory changes to make the non-emergency medical transportation benefit optional for states, and the Centers for Medicare & Medicaid Services’ grantcountry. See further discussion of ~~waivers to states relative to the parameters of their Medicaid programs;~~

•this at Note 5 enactment of adverse legislation, regulation or agency guidance, or litigation challenges to the Patient Protection and Affordable Care Act, state Medicaid programs, or 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;

•Revenue Recognition.~~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,~~

•~~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,~~Since March 2020 and ~~December 31, 2020. For~~primarily as a result of the ~~nine months ended September 30, 2020,~~COVID pandemic, our Personal Care Segment business has experienced and is expected to continue to experience a material reduction in the volume of service hours and visits. Volume has been reduced as patients put services on hold due to infection concerns, and/or because they had the alternative of receiving care from family members and others working remotely or furloughed from their jobs.Cases have also been lost and new case referrals slowed as referral sources faced disruption from the various restrictions and “stay at home” orders. Our personal care service volumes are not expected to recover to pre-pandemic levels until the vaccines are more universally applied in the markets where we ~~recorded~~provide our services. While these depressed volumes will continue to result in lower than expected revenue, ~~of $35.6 million for these contracts.~~at least in the near term, we may also be challenged with wage pressures related to minimum wage increases and a narrowing caregiver labor pool that is currently being supplemented by unemployment benefits.

Critical Accounting Estimates and Policies

There have been no significant changes to our critical accounting policies in our unaudited condensed consolidated financial statements from our Form 10-K for the year ended December 31, ~~2019.~~2020. 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, ~~2019.~~2020.

Composition of Results of Operations

The following results of operations include the accounts of ModivCare Inc. and our subsidiaries for the three months ended March 31, 2021.

Revenues

Service revenue, net. Service revenue, net represents the revenue recognized from transportation management services through our NEMT segment and from in home care services through our Personal Care segment.

Grant Income

Grant Income. In the first quarter of 2021, the Company received distributions of the CARES Act PRF targeted to offset lost revenue and expenditures incurred in connection with the COVID-19 pandemic.

Operating Expenses

Service expense. Service expense for our NEMT segment consists primarily of transportation costs paid to third party service providers, salaries of employees within our contact centers and operation centers and facilities costs. Service expense for our Personal Care segment consists primarily of salaries for the employees providing the personal care services.

General and Administrative Expense. General and administrative expense consists principally of salaries for administrative employees that directly and indirectly support the operations, occupancy costs, marketing expenditures, insurance, and professional fees.

Depreciation and Amortization Expense. Depreciation within this caption includes infrastructure items such as computer hardware and software, office equipment and leasehold improvements. Amortization expense is generated primarily from amortization of our intangible assets, including Customer Relationships, Payor Network, Trade Names and a New York LHCSA Permit.

Other Expenses (Income)

Interest Expense, Net. Interest expense consists principally of interest payments on the Company’s outstanding borrowings under the Credit Facility, Senior Unsecured Notes and amortization of deferred financing fees. Refer to the “Liquidity and Capital Resources” section below for further discussion of these outstanding borrowings.

Equity in net loss (income) of investee. Equity in earnings of equity method investee consists of our proportionate share of equity earnings or losses from our Matrix equity investment.

Income Tax Expense (Benefit). The Company is subject to federal taxation in the United States and state taxation in the various jurisdictions in which we operate.

Results of Operations

Segment reporting. Our segments reflect the manner in which our operations are organized and reviewed by management.

We operate in ~~one principal~~three reportable business segments: NEMT, Personal Care and the Matrix Investment. Prior to November 17, 2020, our primary operating segment ~~NET Services.~~was NEMT, which provides non-emergency medical transportation services. On November 18, 2020, we acquired Simplura, resulting in the creation of our Personal Care segment, which operates in the non-medical home care service industry. Our investment in Matrix is also a reportable segment referred to as the “Matrix Investment”. 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 our ~~principal business segment~~NEMT and Personal Care Segments include revenue and expenses incurred by the segment, as well as our activities related to executive, accounting, finance, internal audit, tax, legal and certain strategic and corporate development functions ~~and the results of our captive insurance company through the date of dissolution.~~for each segment. See Note ~~17,~~4, Segments, in our ~~unaudited condensed~~accompanying consolidated financial statements for further information on our segments.

Discontinued operations. During prior years, we completed ~~the following~~several transactions which resulted in the presentation of the related operations as Discontinued Operations. Activity for the current period is not significant.

•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 APM UK Holdings Limited, an affiliate of APM, except for the segment’s employment services operations in 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 included in 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 2020~~Q1 2021 compared to ~~Q3 2019~~Q1 2020

Consolidated Results. The following table sets forth results of operations and the percentage of Service revenue, net represented by items in our unaudited condensed consolidated statements of operations for Q3Q1 2021 and Q1 2020 ~~and Q3 2019~~ (in thousands):


		Three months ended September 30,									Three months ended March 31,
		2020				2019					2021				2020
		Amount		% of Revenue		Amount		% of Revenue			Amount		% of Revenue		Amount		% of Revenue
Service revenue, net	Service revenue, net	$	320,619	100.0	%	$	393,385	100.0	%	Service revenue, net	$	453,610	100.0	%	$	367,291	100.0	%
Grant income										Grant income	2,648		0.6	%	—		—	%

Operating expenses:	Operating expenses:									Operating expenses:
Service expense	Service expense	235,543		73.5	%	356,271		90.6	%	Service expense	360,333		79.4	%	332,661		90.6	%
General and administrative expense	General and administrative expense	34,441		10.7	%	15,979		4.1	%	General and administrative expense	54,871		12.1	%	20,795		5.7	%
Depreciation and amortization	Depreciation and amortization	7,301		2.3	%	4,148		1.1	%	Depreciation and amortization	12,239		2.7	%	3,790		1.0	%

Total operating expenses	Total operating expenses	277,285		86.5	%	376,398		95.7	%	Total operating expenses	427,443		94.2	%	357,246		97.3	%

Operating income	Operating income	43,334		13.5	%	16,987		4.3	%	Operating income	28,815		6.4	%	10,045		2.7	%

Other expenses (income):	Other expenses (income):									Other expenses (income):
Interest expense, net	Interest expense, net	379		0.1	%	188		—	%	Interest expense, net	8,423		1.9	%	241		0.1	%
Other income		—		—	%	(66)		—	%
Equity in net (income) loss of investee		(10,325)		(3.2)	%	3,188		0.8	%

Equity in net loss (income) of investee										Equity in net loss (income) of investee	(4,503)		(1.0)	%	2,550		0.7	%

Income from continuing operations before income taxes	Income from continuing operations before income taxes	53,280		16.6	%	13,677		3.5	%	Income from continuing operations before income taxes	24,895		5.5	%	7,254		2.0	%
Provision for income taxes		14,360		4.5	%	5,097		1.3	%
Provision (benefit) for income taxes										Provision (benefit) for income taxes	6,016		1.3	%	(9,046)		(2.5)	%
Income from continuing operations, net of tax	Income from continuing operations, net of tax	38,920		12.1	%	8,580		2.2	%	Income from continuing operations, net of tax	18,879		4.2	%	16,300		4.4	%
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	(115)		—	%	(426)		(0.1)	%	Loss from discontinued operations, net of tax	(39)		—	%	(202)		(0.1)	%
Net income	Net income	$	38,805	12.1	%	$	8,154	2.1	%	Net income	$	18,840	4.2	%	$	16,098	4.4	%

Service revenue, net. Service revenue, net for ~~Q3 2020 decreased $72.8~~Q1 2021 increased $86.3 million, or ~~18.5%~~24%, compared to ~~Q3 2019.~~Q1 2020. Service revenue, net ~~decreased~~increased $110.2 million due to the acquisition of Simplura in November 2020. This increase was partially offset by lower revenue in the NEMT segment of $23.9 million, primarily due to lower trip volume caused by the impact of COVID-19. ~~This lower volume resulted in~~While a ~~reduction of revenue in the current period in line with margin limitations that govern some~~majority of our contacts are capitated and we receive monthly payments on a per member/fixed basis in return for full or partial risk of transportation volumes, we have certain contracts that limit profit to within a certain corridor and once we reach the maximum profit level we discontinue recognizing revenue and instead build a liability to return back to the customer upon reconciliation ~~payor contracts. Additionally, service~~at a later date. Other contracts that are structured as fee-for-service also experienced negative impacts to revenue ~~net was impacted by a reduction~~due to lower volumes.

Grant Income. In the first quarter of ~~$22.9~~2021, the Company received distributions of the CARES Act PRF of approximately $2.6 million ~~for certain contracts for which we no longer provide services. These decreases were partially~~targeted to offset ~~by $27.7 million of incremental~~lost revenue ~~resulting from~~and unreimbursed expenditures incurred in connection with the ~~National MedTrans (“NMT”) acquisition.~~COVID-19 pandemic.

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


		Three months ended September 30,									Three months ended March 31,
		2020				2019					2021				2020
		Amount		% of Revenue		Amount		% of Revenue			Amount		% of Revenue		Amount		% of Revenue
Purchased services	Purchased services	$	191,503	59.7	%	$	303,840	77.2	%	Purchased services	$	223,294	49.2	%	$	279,678	76.1	%
Payroll and related costs	Payroll and related costs	34,213		10.7	%	40,531		10.3	%	Payroll and related costs	125,112		27.6	%	41,120		11.2	%
Other service expenses	Other service expenses	9,772		3.0	%	11,738		3.0	%	Other service expenses	11,927		2.6	%	11,863		3.2	%
Stock-based compensation		55		—	%	162		—	%

Total service expense	Total service expense	$	235,543	73.5	%	$	356,271	90.6	%	Total service expense	$	360,333	79.4	%	$	332,661	90.6	%

Service expense for ~~Q3 2020 decreased $120.7~~Q1 2021 increased $27.7 million, or ~~33.9%~~8%, compared to ~~Q3 2019~~Q1 2020 primarily due to higher payroll and related costs of $86.5 million in the Personal Care segment due to the Simplura acquisition in November 2020. This increase was partially offset by lower purchased services costs in the NEMT segment of $56.4 million due to lower third-party transportation costs and associated payroll costs in our contact centers. Transportation and payroll costs decreased primarily as a result of lower ~~utilization~~trip volume 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 2020~~Q1 2021 increased ~~$18.5~~$34.1 million, or ~~115.5%~~164%, compared to ~~Q3 2019.~~Q1 2020. The increase was ~~primarily a result~~partially attributable to an increase of ~~$4.7~~$14.9 million of ~~transaction fees, legal fees and third party consulting expense, $4.0 million~~costs related to ~~NMT transition services agreement,~~the addition of the Personal Care segment. General and administrative expense for the NEMT segment increased by $19.2 million, which consists primarily of a $5.7 million increase in contract and consulting costs related to activities around our Simplura integration and contact center optimization, a $3.2 million increase in legal expenses and a $2.6 million increase related to cash-settled equity ~~awards, and the~~awards. The remainder was due to additional investment in our employees and technology.

Depreciation and amortization. Depreciation and amortization for ~~Q3 2020~~Q1 2021 increased ~~$3.2~~$8.4 million or ~~76.0%~~223% compared to ~~Q3 2019~~Q1 2020 primarily as a result of $4.8 million of additional amortization in the Personal Care segment associated with intangible assets purchased in the Simplura acquisition, as well as $3.3 million of additional amortization in the NEMT segment related to intangible assets purchased through the NMT acquisition. See Note 3 Acquisitions.

Interest expense, net. ~~Consolidated interest~~Interest expense, net, for Q3Q1 2021 and Q1 2020 ~~and Q3 2019~~ was ~~$0.4~~$8.4 million and $0.2 million, respectively. ~~Although~~Interest expense increased as a result of the ~~Company did not have any debt during Q3 2020 and Q3 2019, the increase in interest expense, net during Q3 2020 was~~activity related to ~~higher commitment fee and letter~~the $500.0 million of ~~credit costs associated with~~ Senior Unsecured Notes ("the ~~Seventh Amendment.~~Notes") we issued on November 4, 2020. We incurred $7.3 million of accrued interest related to the Notes in Q1 2021 as interest payments are made on a biannual basis.

Equity in net loss (income) ~~loss~~ of investee. Our equity in net income of investee for ~~Q3 2020~~Q1 2021 of ~~$10.3~~$4.5 million and net loss of ~~$3.2~~$2.6 million for ~~Q3 2019~~Q1 2020 was a result of our proportional share of the net income ~~(loss)~~or loss of Matrix. Matrix's ~~increase in Q3 2020~~ net income Q1 2021 was positively impacted by its continued success with its Clinical Solutions business, which they created in the second quarter of 2020 as a response to employers’ needs for mobile health assessment resources during the pandemic. This business has continued to thrive as employers begin to transition more of their workforce back onsite. They are also beginning to see on-site visits in their risk assessment business reach pre-pandemic levels. Additionally, Matrix saw increased revenue and income related to ~~Matrix's new Employee Health and Wellness~~a clinical solutions product ~~which was launched in Q2 2020. This new product was developed for companies maintaining critical operations during COVID-19. Included in Matrix's standalone Q3~~offering following the October 2020 ~~results were restructuring cost~~acquisition of ~~$3.8 million, management fees of $2.2 million and~~Biocerna LLC, a diagnostic company that, among other tests, provides rapid COVID-19 ~~related costs of $1.5 million. Included in Matrix’s standalone Q3 2019 results were severance costs of $0.8 million.~~test kits.

Provision (benefit) for income taxes. Our effective tax rate from continuing operations for Q3Q1 2021 and Q1 2020 was a provision of 24.2% and ~~Q3 2019 was 27.0% and 37.3%~~a benefit of 124.7%, respectively. For ~~Q3 2020 and Q3 2019,~~Q1 2021, the effective tax rate was higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes and certain non-deductible expenses. For Q1 2020, the effective tax

rate was lower than the U.S. federal statutory rate of 21% primarily due to the favorable impact of the CARES Act on the Company's 2018 U.S. NOLs. Pursuant to the CARES Act, the Company carried its 2018 NOL back five years. As a result, during the three months ended March 31, 2020, the Company recorded a $27.3 million receivable for the 2018 U.S. NOL carryback, and a $11.0 million tax benefit from the favorable carryback tax rate of 35% compared to a carryforward tax rate of 21%.

Loss from discontinued operations, net of tax. Loss from discontinued operations, net of tax, includes the activity related to our former WD Services ~~and Human Services segments. See Note 16,~~ ~~Discontinued Operations, to our condensed consolidated financial statements for additional information.~~segment.

For Q3 2020, the loss from discontinued operations, net of tax, for our former WD Services segment was $0.1 million, which includes the income and expense related to 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 provide the employment services, were transferred to a 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 former Human Services segment.

For Q3 2019, the 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 2020 compared to YTD 2019~~

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

Nine months ended September 30,
2020 2019
Amount % of Revenue Amount % of Revenue
Service revenue, net $ 970,166 100.0 % $ 1,125,111 100.0 %
Operating expenses:
Service expense 764,310 78.8 % 1,042,717 92.7 %
General and administrative expense 86,435 8.9 % 52,241 4.6 %
Depreciation and amortization 17,199 1.8 % 12,976 1.2 %
Total operating expenses 867,944 89.5 % 1,107,934 98.5 %
Operating income 102,222 10.5 % 17,177 1.5 %
Other expenses (income):
Interest expense, net 2,118 0.2 % 793 0.1 %
Other income — — % (199) — %
Equity in net (income) loss of investees (12,200) -1.3 % 6,159 0.5 %
Income from continuing operations before income taxes 112,304 11.6 % 10,424 0.9 %
Provision for income taxes 19,785 2.0 % 3,940 0.4 %
Income from continuing operations, net of tax 92,519 9.5 % 6,484 0.6 %
(Loss) income from discontinued operations, net of tax (618) (0.1) % 540 — %
Net income $ 91,901 9.5 % $ 7,024 0.6 %

~~Service revenue, net.~~ Consolidated service revenue, net for YTD 2020 decreased $154.9 million, or 13.8%, compared to YTD 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 2020 decreased $278.4 million, or 26.7%, compared to YTD 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 was primarily a result of $8.3 million related to cash settled equity awards, $7.8 million related to our NMT transition services agreement, $6.5 million of transaction fees, legal fees and third party consulting expense and employee-related compensation including salaries, incentives and health insurance and software expense. This was partially offset by employee-related compensation, associated with the Organizational Consolidation and certain transaction related expenses, incurred in YTD 2019 that was not incurred in YTD 2020.

~~Depreciation and amortization.~~ Depreciation and amortization increased $4.2 million primarily due to intangible asset amortization associated with the NMT acquisition. This was partially offset by 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 use were materially depreciated.

~~Interest expense, net.~~ Consolidated interest expense, net for YTD 2020 and YTD 2019 was $2.1 million and $0.8 million, respectively. The increase in YTD 2020 was primarily related to our proactive decision to borrow $162.0 million under our Credit Facility at the end of Q1 2020 to increase our financial flexibility due to COVID-19. As of September 30, 2020, we fully repaid our Credit Facility.

~~Equity in net (income) loss of investee.~~ Our equity in net income of investee for YTD 2020 of $12.2 million and net loss of $6.2 million for YTD 2019 was a result of our proportional share of the net income/loss in Matrix. Matrix's increase in YTD 2020 net income was related to the launch of a new Employee Health and Wellness product developed for companies maintaining critical operations during COVID-19. Included in Matrix's standalone YTD 2020 results were COVID-19 related costs of $6.6 million, management fees of $3.8 million, restructuring expense of $3.8 million, transaction expense of $2.1 million and severance expense of $1.2 million. Included in Matrix’s standalone YTD 2019 results were management fees of $1.8 million and integration costs of $1.5 million.

~~Provision for income taxes.~~ Our effective tax rate from continuing operations for YTD 2020 and YTD 2019 was 17.6% and 37.8%, respectively. For YTD 2020, the effective tax rate was lower than the U.S. federal statutory rate of 21.0% primarily due to the favorable impact of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) on our U.S. net operating losses. For YTD 2019, the effective tax rate was higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes and certain non-deductible expenses.

~~Loss from discontinued operations, net of tax.~~ ~~Loss from discontinued operations, net of tax, includes the activity related to our former WD Services and Human Services segments. See Note 16,~~ ~~Discontinued Operations, to our condensed consolidated financial statements for additional information.~~

For YTD 2020, the loss from discontinued operations, net of tax, for our former WD Services segment was $0.4 million, which includes the income and expense related to 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 provide the employment services, were transferred to a third party as of January 1, 2019, and thus we are no longer providing services in Saudi Arabia. For YTD 2020, the loss from discontinued operations, net of tax, for our 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 was $0.7 million as a result of cash distribution from WD Services to the Company, partially offset by costs related to 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 provide the employment services, were transferred to a third party as of January 1, 2019, and thus the Company is no longer providing services in Saudi Arabia. For YTD 2019, the loss from discontinued operations, net of tax, for our former Human Services segment was $0.2 million.

Seasonality

Our NEMT segment's quarterly operating income and cash flows normally fluctuate as a result of seasonal variations in our business, principally due to lower transportation demand during the winter season and higher demand during the summer season.

Our Personal Care segment’s quarterly operating income and cash flows also normally fluctuate as a result of seasonal variations in the business, principally due to somewhat lower demand for in-home services from caregivers during the summer and periods with major holidays, as patients may spend more time with family and less time alone needing outside care during those periods.

Liquidity and capital resources

Short-term capital requirements consist primarily of recurring operating expenses, new revenue contract start-up costs and costs associated with our strategic initiatives. We expect to meet our cash requirements through available cash on hand,

cash generated from operations, net of capital expenditures, and borrowing capacity under our Credit Facility (as defined below).

Cash flow from operating activities during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was ~~$287.2~~$134.6 million. Our balance of cash and cash equivalents, including restricted cash, was ~~$183.3~~$299.6 million and ~~$61.4~~$183.4 million at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019, respectively. Additionally, we had restricted cash of $3.2 million and $0.2 million at September 30,~~ 2020, ~~and December 31, 2019,~~ respectively. Restricted cash amounts are not included in our balance of cash and cash 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, 2020,~~March 31, 2021, we had no borrowings outstanding under our Credit Facility; however, we had letters of credit outstanding of ~~$16.9~~$17.2 million. At December 31, ~~2019,~~2020, we had no amounts outstanding under 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.

The cash flow statements for all periods presented include both continuing and discontinued operations. Discontinued operations include the activity of our historical WD Services and Human Services segments. The loss from discontinued operations, 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 ~~2020~~2021 cash flows compared to YTD ~~2019~~2020

Operating activities. Cash provided by operating activities was ~~$287.2~~$134.6 million and ~~$40.1~~$38.8 million for YTD ~~2020~~2021 and YTD ~~2019,~~2020, respectively. Cash flows from operating activities increased by ~~$247.2~~$95.8 million due to an increase in cash provided by changes in working capital of ~~$171.6~~$103.4 million. The ~~increase in~~ working capital ~~was~~changes were related to an increase ofin the change in ~~accounts payable,~~ accrued ~~expenses, and long-term~~ contract payables of ~~$179.5~~$67.1 million primarily related to liability reserves on certain risk corridor, profit ~~corridor~~rebate and reconciliation contracts due to lower ~~activity~~trip volumes as a result of COVID-19, ~~and lower~~an increase in the change in ~~accounts receivable~~prepaid expenses and other ~~receivables~~current assets of ~~$64.4~~$39.7 million and an increase in the change in accrued transportation costs of $10.5 million. The increase in these working capital items was offset by a decrease ofin the change in cash of $19.7 million associated with ~~$19.4 million in prepaid assets, a $19.5 million decrease in income tax refunds on sale of business,~~accounts receivable and ~~a $33.0 million decrease of the change in our accrued transportation liability.~~other receivables. The remaining increase in ~~the~~ cash flow ~~from~~provided by operating activities was a result of the increase in net income of ~~$84.9~~$2.7 million, primarily from higher operating income, and an increase in ~~deferred income taxes~~amortization of ~~$10.6~~$7.9 million due to the ~~favorable impact of~~intangible assets brought on under the ~~CARES Act.~~Simplura and NMT acquisitions in 2020. This was partially offset by an increase in equity income ~~by $18.4 million in Matrix.~~of our investee of $7.1 million.

Investing activities. Net cash used in investing activities of ~~$82.5~~$5.4 million in YTD ~~2020~~2021 increased by ~~$75.1~~$3.8 million as compared to YTD ~~2019~~2020 as a result of ~~the acquisition~~purchases of ~~NMT.~~property and equipment primarily related to leasehold improvements.

Financing activities. Net cash used in financing activities of ~~$79.6~~$12.9 million in YTD ~~2020 increased $76.2~~2021 changed by $168.5 million as compared to net cash provided by financing activities YTD ~~2019.~~2020 of $155.5 million. The ~~increase~~change was primarily due to ~~$92.6~~proceeds

from debt in the first quarter of 2020 of $162.0 million as compared to an increase in cash paid ~~related~~ to repurchase common stock in the ~~preferred stock conversion transaction and repurchase~~first quarter of ~~common stock.~~2021 of $7.2 million. See Note ~~10,~~12, Stock-Based Compensation and Similar Arrangements, for further information on the ~~preferred~~ stock transaction. YTD 2020 was partially offset by an increase in cash provided by financing activities of $16.0 million related to proceeds from common stock issued pursuant to stock option exercises during the comparative periods and a decrease in preferred stock dividends.buyback.

Obligations and commitments

Senior Unsecured Notes. On November 4, 2020, the Company issued $500.0 million in aggregate principal amount of its 5.875% senior unsecured notes due on November 15, 2025 (the “Notes”). The Notes were issued pursuant to an indenture, dated November 4, 2020 (the “Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”).

Credit Facility. ~~. We are~~The Company is a party to the amended and restated credit and guaranty agreement, dated as of August 2, 2013 (as amended, the “Credit Agreement”), with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, and the other lenders party thereto. On May 6, 2020, wethe Company entered into the Seventh ~~Amendment. 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~~“Credit Facility”) from $200.0 million to $225.0 million, and increased the sub-facility for letters of ~~credits~~credit 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~~the Company is obligated to pay a quarterly commitment fee based on a percentage of the unused portion of each lender’s commitment under the Credit Facility and quarterly letter of credit fees based on a percentage of the maximum amount available to be drawn under each outstanding letter of credit.

~~As of September 30,~~On October 16, 2020, ~~we had no borrowings outstanding on~~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; however, we had letters~~Facility to permit the incurrence of ~~credit outstanding in~~additional debt to finance the ~~amount~~acquisition of ~~$16.9 million. Our available credit~~Simplura, permit borrowing under the Credit Facility ~~was $208.1 million. Under~~to partially fund the ~~Credit Agreement, we have an option~~Simplura Acquisition with limited conditions to ~~request an~~such borrowing, increase in the ~~amount of the revolving credit facility from time to time (on substantially the same terms as~~top interest rate margin that may apply to loans thereunder, and revise our permitted ratio of EBITDA to indebtedness. In addition, the ~~existing facilities) in an aggregate amount of up~~Eighth Amendment extended the maturity date 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. 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.

August 2, 2023. See Note 3,
Acquisitions

We may prepay any outstanding principal under the Credit Facility 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.

~~As of September 30, 2020, interest~~, for further information on the outstanding principal amount of loans accrues, at 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 3.00% in the case of LIBOR loans and 1.25% to 2.00% in the case of the base rate loans, in each case, based on our consolidated leverage ratio as defined in the Credit Agreement. The commitment fee and letter of credit fee range from 0.35% to 0.50% and 2.25% to 3.00%, respectively, in each case based on our consolidated leverage ratio as defined in the Credit Agreement.acquisition.

Effective as of the Eighth Amendment, interest on the outstanding principal amount of loans under the Credit Facility accrues, at the ~~our~~Company’s election, at a per annum rate equal to the greater of either LIBOR or 1.00%, plus an applicable margin, or the base rate as defined in the agreement plus an applicable margin. The applicable margin ranges from 2.25% to 3.50% 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~~the Company’s 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~~the Company’s consolidated leverage ratio as defined in the credit agreement that governs our Credit Facility.

~~The Credit Facility also requires us (subject to certain exceptions as set forth in~~As of March 31, 2021, the ~~Amended and Restated Credit Agreement) to prepay the~~Company had no borrowings 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~~on the Credit Facility are guaranteed by all of our present and future domestic subsidiaries. Our obligations are secured by a first priority lien on substantially all of our assets excluding our interest in Matrix.Facility.

The Credit Agreement contains customary affirmative and negative covenants and events of default. The negative covenants include restrictions on 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. We are subject to financial covenants, including consolidated net leverage and consolidated interest coverage covenants. 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 under the credit agreement as of ~~September 30, 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.March 31, 2021.

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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 Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Blackwell Partners, LLC - Series A and Coliseum Capital Co-Invest, L.P. (collectively, the “Coliseum Stockholders”), pursuant to the Standby Purchase Agreement between the Coliseum Stockholders and us, we issued 805,000 ~~shares of Preferred Stock, of which~~ ~~no shares were outstanding as of September 30, 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 – Oblig~~ations and commitments – Preferred Stock” in our Annual Report on Form 10-K for the year ended December 31, 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 September 3, 2020, all remaining outstanding shares of Series A Preferred Stock were either exchanged for cash or converted into Common Stock. As there were no preferred stockholders as of September 30, 2020, no dividends were declared in Q3 2020, except as paid pursuant to the Conversion Agreement.

~~Cash dividends paid for the nine months ended September 30, 2020 and 2019 totaled $2.0 million and $3.3 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 ("SPCIC"). As of May 16, 2017, SPCIC did not renew the expiring reinsurance policies. We will continue to resolve claims under the historical policy years. During Q1 2020, we dissolved SPCIC.

~~At September 30, 2020,the net cumulative reserves for expected losses since inception of these historical automobile, general and professional liability and workers’ compensation reinsurance programs were~~ ~~$2.2 million, $1.2 million and $2.3 million, respectively.~~

~~Health Insurance~~

~~We offer our employees an option to participate in a self-funded health insurance program. The liability for the self-funded health plan of $1.7 million and~~ ~~$1.9 million~~ ~~as of September 30, 2020 and December 31, 2019, respectively, was recorded in “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 our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

~~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 in our Annual Report on Form 10-K for the year ended December 31, 2019, our subsequent filings with the 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.

We have exposure to interest rate risk 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, 2020~~March 31, 2021.

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, 2020.~~March 31, 2021. 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 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, 2020~~March 31, 2021 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.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time-to-time, we may become involved in legal proceedings arising in the ordinary course of our business. We record accruals for outstanding legal matters when it is believed to be probable that a loss will be incurred and the amount can be reasonably estimated. Management, following consultation with legal counsel, does not expect the ultimate disposition of any or a combination of any such ongoing or anticipated matters to have a material adverse effect on our business, financial condition or operating results. We cannot predict with certainty, however, 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 January 21, 2019, the United States District Court~~ Interested parties should refer to Note 14, Commitments and Contingencies, in this report for the Southern District of Ohio unsealed a qui tam complaint, filed in December 2015, against Mobile Care Group, Inc., Mobile Care Group of Ohio, LLC, Mobile Care EMS & Transport, Inc. and LogistiCare Solutions, LLC (“LogistiCare”) by Brandee White, Laura Cunningham, and Jeffery Wisier (the “Relators”) alleging violations of the federal False Claims Act by presenting claims for payment to government healthcare programs knowinginformation concerning other potential contingent liabilities matters 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. 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~~rise to the ~~case to have a material adverse effect on our business, financial condition or results~~level 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~~materiality for ~~hourly employees constituted violations~~purposes 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 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 state guaranty fund in which the 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. We have accrued reserves related to these lawsuits in accordance with ASC 450, ~~Contingencies.~~disclosure hereunder.

Item 1A. Risk Factors.

~~There~~The risks described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”) could materially and adversely affect our business, financial condition, and results of operations, and could cause the trading price of our common stock to decline. The discussion of the risks included under that caption in our Annual Report remains current in all material respects, and 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, 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.Report. 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 evolvingrisk factors that we have discussed do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be ~~able to accurately predict, including: the duration~~a reliable indicator of future performance 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~~historical trends should not be ~~completed on the anticipated terms and there are uncertainties and risks related~~used 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~~anticipate results or trends 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.~~periods.

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

Issuer Purchases of Equity Securities

On March ~~11, 2020,~~8, 2021, 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,~~2021, unless terminated earlier. ~~Since~~Through March ~~11, 2020, 195,677~~31, 2021, 94,235 shares were repurchased under the program. The following table provides information with respect to purchases made by or on behalf of us or any “affiliated purchasers” (as defined in Rule 10b-18(a)(3) of the Exchange Act) of our common stock ~~repurchased by us~~ during the ~~nine~~three months ended ~~September 30, 2020:~~

March 31, 2021:

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


Period	Total Number of Shares (or Units) 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 Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (000’s)
January 1, 2021 to January 31, 2021	—	—		—	$	75,000

February 1, 2021 to February 28, 2021	—	—		—	$	75,000

March 1, 2021 to March 31, 2021	94,235	$	153.35	94,235	$	60,549

Total	94,235			94,235	$	60,549

4732

Item 6. Exhibits.

EXHIBIT INDEX


Exhibit Number						Description
10.1*4.1						~~Transitionand Separation~~ ~~Agreement~~Indenture dated as of November 4, 2020, between ~~August~~ModivC are Inc., f/k/a ~~12,~~ ~~2020,~~ ~~among~~ ~~TheProvidence ServiceCorporation,LogistiCareSolutions,~~ ~~LLC, and~~ ~~Suzanne~~G.~~Smith~~

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

10.3*						~~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~~The Bank of New York Mellon Trust Company, N.A., as ~~of September 28, 2020, by and among OEP AM, Inc., The Providence Service Corporation, Socrates LLC and OEP AM Holdings, LLC (incorporated~~trustee (Incorporated by reference to ~~Exhibit 2.1~~an exhibit to the ~~registrant’s~~registrant's current report on Form 8-K filed with the SEC on ~~September 29,~~November 12, 2020).

~~10.6~~10.1*						~~Commitment Letter,~~Transition and Separation Agreement dated as of ~~September 28,~~March 11, 2020, byamong ModivCare Inc. 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)Kevin Dotts

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

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**						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*						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*						Inline XBRL Schema Document

101.CAL*						Inline XBRL Calculation Linkbase Document

101.LAB*						Inline XBRL Label Linkbase Document

101.PRE*						Inline XBRL Presentation Linkbase Document

101.DEF*						Inline XBRL Definition Linkbase Document

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


*			Filed herewith.
**			Furnished herewith.

4833

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~~ModivCare Inc.

Date: ~~November 6, 2020~~May 7, 2021	By:	/s/ Daniel E. Greenleaf
		Daniel E. Greenleaf Chief Executive Officer
		(Duly Authorized Officer)

Date: ~~November 6, 2020~~May 7, 2021	By:	/s/ ~~Kevin Dotts~~L. Heath Sampson
		~~Kevin Dotts~~L. Heath Sampson Chief Financial Officer
		(Principal Financial Officer)

4934


	September 30, 2020		December 31, 2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	183,277	$	61,365
Accounts receivable, net of allowance of $2,794 and $5,933, respectively	164,944		180,416
Other receivables	7,310		3,396
Prepaid expenses and other	20,266		10,942
Restricted cash	3,182		153
Current assets of discontinued operations	357		155
Total current assets	379,336		256,427
Operating lease right-of-use assets	18,814		20,095
Property and equipment, net	21,048		23,243
Goodwill	135,216		135,216
Intangible assets, net	87,358		19,911
Equity investment	141,292		130,869
Other assets	8,571		11,620


Total assets	$	791,635	$	597,381
Liabilities, redeemable convertible preferred stock and stockholders’ equity
Current liabilities:

Current portion of finance lease liabilities	$	148	$	308
Accounts payable	26,677		9,805
Current portion of operating lease liabilities	6,680		6,730
Accrued expenses	143,033		38,733
Accrued transportation costs	81,558		87,063
Deferred revenue	681		227
Self-funded insurance programs	10,083		5,890
Current liabilities of discontinued operations	1,734		1,430
Total current liabilities	270,594		150,186
Finance lease liabilities, less current portion	0		45
Operating lease liabilities, less current portion	13,015		14,502
Long-term contract payables	50,244		0
Other long-term liabilities	12,195		15,029
Deferred tax liabilities	35,520		22,907

Total liabilities	381,568		202,669
Commitments and contingencies (Note 13)
Redeemable convertible preferred stock
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
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	416,504		351,529
Retained earnings	221,509		183,733

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


	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


	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


	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


	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


	Type	Useful Life (yrs)	Value
Customer relationships	Amortizable	6	$	75,514
Trade names and trademarks	Amortizable	3	2,151
			$	77,665


	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, 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)


	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


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