SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~September 30, 2017~~March 31, 2020



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

For the transition period fromto

Commission File Number 001-34221

The Providence Service Corporation

(Exact name of registrant as specified in its charter)



~~Delaware~~

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

1275 Peachtree Street

Sixth Floor

Atlanta

Georgia

30309

~~700 Canal Street, Third Floor~~

~~Stamford, Connecticut~~

~~06902~~

(Address of principal executive offices)

(Zip Code)

~~(203) 307-2800~~(404) 888-5800

(Registrant’s telephone number, including area code)

N/A

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

Securities registered pursuant to Section 12(b) of the Act:


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

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ☒ Yes ☐ No

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



Large accelerated filer ☐	☒	Accelerated filer ☒	☐

Non-accelerated filer ~~☐ (Do not check if a smaller reporting company)~~	☐	Smaller reporting company	☐

Emerging growth company ☐	☐

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

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

As of ~~November 3, 2017,~~May 4, 2020, there were ~~outstanding 13,305,502~~outstanding 12,913,960 shares (excluding treasury shares of ~~3,944,171)~~5,278,684) of the registrant’s Common Stock, $0.001 par value per share.

TABLE OF CONTENTS


						Page

PART I—FINANCIAL INFORMATION

Item 1.			Financial Statements		4

			Condensed Consolidated Balance Sheets – March 31, 2020 (unaudited) and December 31, 2019		4

			Unaudited Condensed Consolidated Statements of Operations – Three months ended March 31, 2020 and 2019		6

			Unaudited Condensed Consolidated Statements of Stockholders’ Equity – Three months ended March 31, 2020 and 2019		7

			~~Page~~

~~PART I—FINANCIAL INFORMATION~~

~~Item 1.~~	~~Financial Statements~~	4

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

	~~Unaudited Condensed Consolidated Statements of Income – Three and nine months ended September 30, 2017 and 2016~~	5

	~~Unaudited Condensed Consolidated Statements of Comprehensive Income – Three and nine months ended September 30, 2017 and 2016~~	6

	Unaudited Condensed Consolidated Statements of Cash Flows – ~~Nine~~Three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019			78

			Notes to the Unaudited Condensed Consolidated Financial Statements – ~~September 30, 2017~~March 31, 2020		810

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations		24

Item 3.			Quantitative and Qualitative Disclosures About Market Risk		3931

Item 4.			Controls and Procedures		4031

PART II—OTHER INFORMATION

Item 1.			Legal Proceedings		4132

Item 1A.			Risk Factors		4132

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		4233







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

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

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

Item 6.	Exhibits			4335

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

The Providence Service Corporation

Condensed Consolidated Balance Sheets

(in thousands except share and per share data)


	March 31, 2020		December 31, 2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	254,371	$	61,365
Accounts receivable, net of allowance of $6,760 in 2020 and $5,933 in 2019	172,050		180,416
Other receivables	3,672		3,396
Prepaid expenses and other	32,555		10,942
Restricted cash	73		153
Current assets of discontinued operations	33		155
Total current assets	462,754		256,427
Operating lease right-of-use assets	18,693		20,095
Property and equipment, net	22,586		23,243
Goodwill	135,216		135,216
Intangible assets, net	18,353		19,911
Equity investment	128,098		130,869
Other assets	11,415		11,620


Total assets	$	797,115	$	597,381
Liabilities, redeemable convertible preferred stock and stockholders’ equity
Current liabilities:
Current portion of long-term debt	$	162,000	$	—
Current portion of finance lease liabilities	276		308
Accounts payable	38,469		9,805
Current portion of operating lease liabilities	6,737		6,730
Accrued expenses	46,361		38,733
Accrued transportation costs	67,778		87,063
Deferred revenue	565		227
Self-funded insurance programs	5,502		5,890
Current liabilities of discontinued operations	1,455		1,430
Total current liabilities	329,143		150,186
Finance lease liabilities, less current portion	—		45
Operating lease liabilities, less current portion	12,987		14,502
Other long-term liabilities	15,010		15,029
Deferred tax liabilities	34,497		22,907

Total liabilities	391,637		202,669
Commitments and contingencies (Note 13)
Redeemable convertible preferred stock
Convertible preferred stock, net: Authorized 10,000,000 shares; $0.001 par value; 798,772 and 798,788, respectively, issued and outstanding; 5.5%/8.5% dividend rate	77,120		77,120
Stockholders’ equity
Common stock: Authorized 40,000,000 shares; $0.001 par value; 18,192,644 and 18,073,763, respectively, issued and outstanding (including treasury shares)	18		18
Additional paid-in capital	354,628		351,529
Retained earnings	198,736		183,733

Treasury shares, at cost, 5,232,229 and 5,088,782 shares, respectively	(225,024)		(217,688)
Total stockholders’ equity	328,358		317,592
Total liabilities, redeemable convertible preferred stock and stockholders’ equity	$	797,115	$	597,381

September 30,
2017 December 31,
2016
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 92,178
$ 72,262
Accounts receivable, net of allowance of $5,765 in 2017 and $5,901 in 2016 175,162
162,115
Other receivables 5,555
12,639
Prepaid expenses and other 39,083
37,895
Restricted cash 1,198
3,192
Total current assets 313,176
288,103
Property and equipment, net 48,191
46,220
Goodwill 121,555
119,624
Intangible assets, net 45,750
49,124
Equity investments 157,067
161,363
Other assets 12,911
8,397
Restricted cash, less current portion 5,902
10,938
Deferred tax asset 4,436
1,510
Total assets $ 708,988
$ 685,279
Liabilities, redeemable convertible preferred stock and stockholders' equity
Current liabilities:
Current portion of long-term obligations $ 1,528
$ 1,721
Accounts payable 19,921
22,177
Accrued expenses 103,397
102,381
Accrued transportation costs 101,195
72,356
Deferred revenue 17,421
20,522
Reinsurance and related liability reserves 4,881
8,639
Total current liabilities 248,343
227,796
Long-term obligations, less current portion 566
1,890
Other long-term liabilities 23,968
22,380
Deferred tax liabilities 54,363
57,973
Total liabilities 327,240
310,039
Commitments and contingencies (Note 11)

Redeemable convertible preferred stock
Convertible preferred stock, net: Authorized 10,000,000 shares; $0.001 par value; 803,232 and 803,398 issued and outstanding; 5.5%/8.5% dividend rate 77,549
77,565
Stockholders' equity
Common stock: Authorized 40,000,000 shares; $0.001 par value; 17,446,673 and 17,315,661 issued and outstanding (including treasury shares) 17
17
Additional paid-in capital 310,017
302,010
Retained earnings 167,004
156,718
Accumulated other comprehensive loss, net of tax (26,331 ) (33,449 )
Treasury shares, at cost, 3,944,171 and 3,478,676 shares (144,201 ) (125,201 )
Total Providence stockholders' equity 306,506
300,095
Noncontrolling interest (2,307 ) (2,420 )
Total stockholders' equity 304,199
297,675
Total liabilities, redeemable convertible preferred stock and stockholders' equity $ 708,988
$ 685,279

See accompanying notes to the unaudited condensed consolidated financial statements

The Providence Service Corporation

Unaudited Condensed Consolidated Statements of ~~Income~~Operations

(in thousands except share and per share data)


	Three months ended March 31,
	2020		2019
Service revenue, net	$	367,291	$	367,815

Operating expenses:
Service expense	332,661		340,498
General and administrative expense	20,795		19,401
Depreciation and amortization	3,790		4,475

Total operating expenses	357,246		364,374

Operating income	10,045		3,441

Other expenses (income):
Interest expense, net	241		303
Other income	—		(66)
Equity in net loss of investee	2,550		1,656
Income from continuing operations before income taxes	7,254		1,548
(Benefit) provision for income taxes	(9,046)		234
Income from continuing operations, net of tax	16,300		1,314
Loss from discontinued operations, net of tax	(202)		(732)
Net income	$	16,098	$	582

Net income (loss) available to common stockholders (Note 11)	$	12,998	$	(535)

Basic earnings (loss) per common share:
Continuing operations	$	1.02	$	0.02
Discontinued operations	(0.02)		(0.06)
Basic earnings (loss) per common share	$	1.00	$	(0.04)

Diluted earnings (loss) per common share:
Continuing operations	$	1.02	$	0.02
Discontinued operations	(0.02)		(0.06)
Diluted earnings (loss) per common share	$	1.00	$	(0.04)

Weighted-average number of common shares outstanding:
Basic	12,987,740		12,899,714
Diluted	13,012,991		12,953,328

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Service revenue, net $ 409,517
$ 412,271
$ 1,216,994
$ 1,192,426

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

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

Other expenses:
Interest expense, net 302
338
983
1,239
Equity in net (gain) loss of investees 460
1,517
991
5,693
Gain on sale of equity investment (12,606 ) —
(12,606 ) —
Loss (gain) on foreign currency transactions 200
(482 ) 600
(1,332 )
Income from continuing operations before income taxes 17,953
8,420
29,127
19,209
Provision for income taxes 2,989
4,678
8,391
12,466
Income from continuing operations, net of tax 14,964
3,742
20,736
6,743
Discontinued operations, net of tax (16 ) (2,791 ) (6,000 ) 332
Net income 14,948
951
14,736
7,075
Net loss (income) attributable to noncontrolling interests (95 ) (301 ) (295 ) 433
Net income attributable to Providence $ 14,853
$ 650
$ 14,441
$ 7,508

Net income (loss) available to common stockholders (Note 9) $ 11,962
$ (745 ) $ 8,927
$ 3,697

Basic earnings (loss) per common share:
Continuing operations $ 0.88
$ 0.14
$ 1.10
$ 0.23
Discontinued operations —
(0.19 ) (0.44 ) 0.02
Basic earnings (loss) per common share $ 0.88
$ (0.05 ) $ 0.66
$ 0.25

Diluted earnings (loss) per common share:
Continuing operations $ 0.88
$ 0.14
$ 1.09
$ 0.23
Discontinued operations —
(0.19 ) (0.44 ) 0.02
Diluted earnings (loss) per common share $ 0.88
$ (0.05 ) $ 0.65
$ 0.25

Weighted-average number of common shares outstanding:
Basic 13,581,662
14,523,408
13,612,764
14,823,757
Diluted 13,655,554
14,634,483
13,676,468
14,943,024

See accompanying notes to the unaudited condensed consolidated financial statements

The Providence Service Corporation

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

(in ~~thousands)~~thousands except share data)

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


	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.


	Three months ended March 31, 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	—		2,557		—			—	—		2,557
Restricted stock issued	25,357	—		—		—			3,459	(217)		(217)
Shares issued for bonus settlement and director stipends	599	—		—		—			—	—		—


Convertible preferred stock dividends ⁽¹⁾	—	—		—		(1,087)			—	—		(1,087)





Balance at March 31, 2019	17,867,747	$	18	$	339,404	$	186,622		4,973,552	$	(211,108)	$	314,936

⁽¹⁾ Cash dividends on redeemable convertible preferred stock of $1.36 per share were distributed to convertible preferred stockholders for the three months ended March 31, 2019.

See accompanying notes to the unaudited condensed consolidated financial statements

The Providence Service Corporation

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

Nine months ended September 30,
2017 2016
Operating activities
Net (loss) income $ 14,736
$ 7,075
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 13,802
17,039
Amortization 5,914
24,140
Provision for doubtful accounts 1,258
2,196
Stock-based compensation 4,586
3,204
Deferred income taxes (7,062 ) (15,446 )
Amortization of deferred financing costs and debt discount 516
1,573
Equity in net loss of investees 991
5,693
Gain on sale of equity investment (12,606 ) —
Other non-cash charges (credits) 555
(1,279 )
Changes in operating assets and liabilities:
Accounts receivable (10,647 ) (22,116 )
Prepaid expenses and other 7,517
(9,900 )
Reinsurance and related liability reserve (4,924 ) 984
Accounts payable and accrued expenses (3,407 ) 32,530
Income taxes payable on sale of business —
(30,153 )
Accrued transportation costs 28,839
31,935
Deferred revenue (4,537 ) (7,460 )
Other long-term liabilities 1,399
5,242
Net cash provided by operating activities 36,930
45,257
Investing activities
Purchase of property and equipment (15,293 ) (33,928 )
Net increase from short-term investments 300
242
Equity investments —
(6,381 )
Cost method investments (3,000 ) —
Loan to joint venture (566 ) —
Repayment of loan from joint venture 576
—
Proceeds from sale of equity investment 15,823
—
Restricted cash for reinsured claims losses and other 7,029
4,917
Net cash provided by (used in) investing activities 4,869
(35,150 )
Financing activities
Preferred stock dividends (3,305 ) (3,309 )
Repurchase of common stock, for treasury (18,763 ) (53,214 )
Proceeds from common stock issued pursuant to stock option exercise 1,528
4,099
Performance restricted stock surrendered for employee tax payment (96 ) —
Repayment of long-term debt —
(23,250 )
Proceeds from long-term debt —
43,500
Capital lease payments and other (1,711 ) (47 )
Net cash used in financing activities (22,347 ) (32,221 )
Effect of exchange rate changes on cash 464
(39 )
Net change in cash and cash equivalents 19,916
(22,153 )
Cash and cash equivalents at beginning of period 72,262
84,770
Cash and cash equivalents at end of period $ 92,178
$ 62,617

Supplemental cash flow information:
Cash paid for interest $ 776
$ 8,873
Cash paid for income taxes $ 14,804
$ 50,037
Prepaid financing and subsidiary stock issuance costs $ —
$ 1,049
Accrued unfunded future equity investment capital contributions $ —
$ 1,590
Purchase of equipment through capital lease obligation $ —
$ 809


	Three months ended March 31,
	2020		2019
Operating activities
Net income	$	16,098	$	582
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	2,231		2,916
Amortization	1,559		1,559
Provision for doubtful accounts	827		87
Stock-based compensation	1,045		2,103
Deferred income taxes	11,590		(768)
Amortization of deferred financing costs and debt discount	33		101
Equity in net loss of investee	2,550		1,656
Reduction of right of use assets	2,248		2,332


Changes in operating assets and liabilities:
Accounts receivable and other receivables	7,484		1,631
Prepaid expenses and other	(21,463)		3,526
Income taxes on gain from sale of business	22		5,103
Self-funded insurance programs	(388)		(1,311)
Accounts payable and accrued expenses	36,317		(6,003)
Accrued transportation costs	(19,285)		26,640
Deferred revenue	338		(361)
Other long-term liabilities	(2,374)		(962)
Net cash provided by operating activities	38,832		38,831
Investing activities
Purchase of property and equipment	(1,574)		(1,682)






Net cash used in investing activities	(1,574)		(1,682)
Financing activities
Proceeds from debt	162,000		—
Preferred stock dividends	(1,095)		(1,087)
Repurchase of common stock, for treasury	(7,299)		(217)
Proceeds from common stock issued pursuant to stock option exercise	2,054		2,557
Restricted stock surrendered for employee tax payment	(37)		—

Other financing activities	(77)		(145)
Net cash provided by financing activities	155,546		1,108
Net change in cash, cash equivalents and restricted cash	192,804		38,257
Cash, cash equivalents and restricted cash at beginning of period	61,673		12,367
Cash, cash equivalents and restricted cash at end of period	$	254,477	$	50,624

See accompanying notes to the unaudited condensed consolidated financial statements

The Providence Service Corporation

Supplemental Cash Flow Information

(in thousands)


	Three months ended March 31,
Supplemental cash flow information	2020		2019
Cash paid for interest	$	197	$	654
Cash paid for income taxes, net of refunds	$	1,437	$	104

See accompanying notes to the unaudited condensed consolidated financial statements

The Providence Service Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

~~September 30, 2017~~March 31, 2020

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

1. Organization and Basis of Presentation

Description of Business

The Providence Service Corporation (“we”, the “Company” or “Providence”)~~, through its subsidiaries and other companies in which it owns interests,~~ is ~~primarily engaged in~~ the provision of healthcare and workforce development services for public and private sector entities seeking to control costs and promote positive outcomes. The subsidiaries and other companies in which the Company holds interests comprise the following segments:

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

~~Workforce Development~~

During 2018, the Company announced an organizational consolidation plan ("Organizational Consolidation") to integrate substantially all activities and functions performed at the corporate holding company level into its NET Services ~~(“WD Services”) – Global provider~~segment. As part of ~~employment preparation~~the Organizational Consolidation, which was substantially completed by January 1, 2019, the Company incurred restructuring and ~~placement~~related organization costs. See Note 8, Restructuring and ~~legal offender rehabilitation services to eligible participants of government sponsored programs.~~Related Reorganization Costs, for further information.

Matrix Investment – Minority interest in nationwide provider of in-home care optimization and management solutions, including comprehensive health assessments, to members of managed care organizations, accounted for as an equity method investment.

Basis of Presentation

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

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

The Company has made estimates relating to the reporting of assets and liabilities, revenues and expenses and certain disclosures ~~to prepare~~in the preparation of these ~~unaudited~~ condensed consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates. Operating results for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2017.~~2020. Management has evaluated events and transactions that occurred after the balance sheet date and through the date these ~~unaudited~~ condensed consolidated financial statements were filed with the SEC and considered the effect of such events in the preparation of these ~~unaudited~~ condensed consolidated financial statements.

The condensed consolidated balance sheet at December 31, ~~2016~~2019 has been derived from ~~the~~ audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements. The ~~unaudited~~ condensed consolidated financial statements contained herein should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

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

~~Reclassifications~~

~~We have reclassified~~

Uncertainties due to COVID-19

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

The Company’s condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts ~~relating~~of assets and liabilities and reported amounts of revenue and expenses. The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the Company’s first quarter 2020 results of operations or financial position. It is possible that these assumptions and estimates may materially change prior to ~~our prior period results~~December 31, 2020.

In response to ~~conform~~the circumstances described above, the Company borrowed $162,000 under the revolving credit facility to ~~our current period presentation. On October 19, 2016, affiliates of Frazier Healthcare Partners purchased a 53.2% equity interest in CCHN Group Holdings, Inc.~~enhance its financial flexibility given uncertainty during the COVID-19 pandemic and its ~~subsidiaries~~impact on global economies and financial markets. See Note 9, Debt, for further information.

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“~~Matrix”~~CARES Act”) ~~with Providence retaining a 46.8% equity interest (the “Matrix Transaction”). Prior~~which includes modifications to the ~~closing~~limitation on business interest expense and net operating loss provisions, and provides a delay in the payment of employer federal payroll taxes during 2020 after the date of enactment. Due to the favorable impact of the ~~Matrix Transaction, the financial results of Matrix were included in~~CARES Act on the Company’s ~~Health Assessment Services (“HA Services”) segment. Operating results for this segment are reported as discontinued operations,~~2018 U.S. net operating losses ("NOLs"), the effective tax rate was lower than the U.S. federal statutory rate of ~~tax in the condensed consolidated statements of income~~21.0% for the three ~~and nine~~ months ended ~~September 30, 2016.~~March 31, 2020. See Note ~~13,~~ ~~Discontinued Operations,~~12, Income Taxes, for further ~~information~~. ~~See Note 2,~~ ~~Significant Accounting Policies~~information.

Reclassifications

During the three months ended March 31, 2020, the Company has separately classified the reduction of Right of Use assets in its consolidated statement of cash flows and ~~Recent Accounting Pronouncements, for additional information on other reclassifications.~~conformed the prior period.

2. Significant Accounting Policies and Recent Accounting Pronouncements

The Company adopted the following accounting pronouncements during the ~~nine~~three months ended ~~September 30, 2017:~~March 31, 2020:

In ~~November 2015,~~June 2016, the FASB issued Accounting Standards Update ~~(“ASU”~~("ASU") No. ~~2015-17,~~ ~~Income Taxes~~2016-13, Financial Instruments - Credit Losses (Topic ~~740): Balance Sheet Classification of Deferred Taxes~~326) (“ASU ~~2015-17”~~2016-13”), which changes how deferred taxes are classified on organizations’ balance sheets. The ASU eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent.. The amendments ~~apply~~in ASU 2016-13 superseded much of the existing guidance for reporting credit losses for assets held at amortized cost basis and available for sale debt securities. The amendments in ASU 2016-13 affected loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to all organizations that present a classified balance sheet. For public companies, the amendments are effective for financial statements issued for annual periods beginning after December 16, 2016, and interim periods within those annual periods.receive cash. The Company adopted ASU ~~2015-17 retrospectively~~2016-13 on January 1, ~~2017, which resulted~~2020. As of the quarter ended March 31, 2020, this guidance did not have a material impact on the condensed consolidated financial statements or disclosures and we do not expect the adoption of this guidance will have a material impact in the ~~reclassification of the December 31, 2016 deferred tax assets-current balance of $6,825 and non-current deferred tax assets of $2,493 to long-term deferred tax liabilities in the amount of $9,318.~~future.

In ~~March 2016,~~August 2018, the FASB issued ASU No. ~~2016-07,~~ ~~Investments - Equity Method and Joint Ventures~~2018-13, Fair Value Measurement (Topic ~~323)~~820): ~~Simplifying the Transition~~Disclosure Framework-Changes to the ~~Equity Method of Accounting~~ (“Disclosure Requirements for Fair Value Measurement (“ASU ~~2016-07”~~2018-13”). ASU 2016-07 eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations,2018-13 removed certain disclosures, modified certain disclosures and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU 2016-07 instead specifies that the investor should add the cost of acquiring theadded additional interest in the investee to the current basis of the investor’s previously held interest and apply the equity method of accounting as of the date the investment became qualified for equity method accounting. ASU 2016-07 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 and should be applied prospectively.disclosures. The Company adopted ASU ~~2016-07~~2018-13 on January 1, ~~2017. The adoption~~2020. As of ~~ASU 2016-07 had no~~the quarter ended March 31, 2020, this guidance did not have an impact on the ~~Company’s~~condensed consolidated financial statements or ~~disclosures.~~disclosures and we do not expect the adoption of this guidance will have a material impact in the future.

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

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

internal-use software. The Company elected to apply the ~~change in classification~~prospective transition approach and therefore applied the transition requirements to any eligible costs incurred after adoption. The Company adopted ASU 2018-15 on January 1, 2020. As of cash flows resulting from excess tax benefits or deficiencies on a retrospective basis. This resulted in an increase in cash flows provided by operating activities of $276 and an increase of $276 in cash flows used in financing activities in the ~~condensed consolidated statement of cash flows for the nine months~~quarter ended September 30, 2016. Additionally, ASU 2016-09 requires that employee taxes paid when an employer withholds shares for tax-withholding purposes be reported as financing activities in the consolidated statements of cash flows, which is howMarch 31, 2020, the Company has ~~historically classified these amounts.~~not incurred any material implementation costs associated with new service contracts since the date of adoption.

In ~~January 2017,~~March 2020, the FASB issued ASU ~~No. 2017-01,~~ ~~Business Combinations (Topic 805):Clarifying~~2020-03, Codification Improvements to Financial Instruments. The amendments related to Issue 1, Issue 2, Issue 4, and Issue 5 are conforming amendments. For public business entities, the ~~Definition of a Business~~ (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 isamendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company adopted ASU 2017-01 on April 1, 2017. The adoption of ASU 2017-01 had no impact on the Company’s financial statements or disclosures.

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangibles-Goodwill and Other (Topic 350):Simplifying the Test for Goodwill Impairment~~ ~~(“ASU 2017-04”)~~. ~~ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two~~upon issuance of the ~~goodwill impairment test. As~~final ASU. The amendment related to Issue 3 is a ~~result, under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing~~conforming amendment that affects the ~~fair value~~guidance in the amendments in Accounting Standards Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. That guidance relates to the amendments in Accounting Standards Update No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of ~~a reporting unit with its carrying amount~~Financial Assets and ~~should recognize an impairment charge~~Financial Liabilities. The effective date of Update 2019-04 for the ~~amount by which the carrying amount exceeds the reporting unit’s fair value; however, the impairment loss recognized should not exceed the total amount of goodwill allocated~~amendments to ~~that reporting unit. This guidance~~Update 2016-01 is ~~effective prospectively~~ for fiscal years beginning after December 15, ~~2019. Early adoption is permitted for~~2019, including interim ~~or annual goodwill impairment tests performed after January 1, 2017.~~periods within those fiscal years. The amendments related to Issue 6 and Issue 7 affect the guidance in the amendments in Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Public business entities that meet the definition of an SEC filer, excluding eligible smaller reporting companies as defined by the SEC, should adopt the amendments in ASU 2016-13 during 2020. The Company adopted ~~ASU 2017-04~~the amendments on April 1, ~~2017. The adoption of ASU 2017-04 had no~~2020. These amendments did not have an impact on the ~~Company’s~~condensed consolidated financial statements or ~~disclosures.~~disclosures and we do not expect the adoption of the amendments to have a material impact in the future.

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

In ~~May 2014,~~December 2019, the FASB issued ASU ~~No. 2014-09,~~ ~~Revenue from Contracts with Customers~~2019-12, Income Taxes (Topic ~~606)~~ (“740): Simplifying the Accounting for Income Taxes ("ASU ~~2014-09”)~~. ~~ASU 2014-09 introduced FASB Accounting Standards Codification Topic 606 (“ASC 606”~~2019-12"), which ~~will replace most currently applicable existing revenue recognition guidance and is intended~~modifies ASC 740, Income Taxes, to ~~improve and converge with international standards the financial reporting requirements~~reduce complexity in certain areas of accounting for ~~revenue from contracts with customers.~~income taxes. The ~~core principle of~~amendments in ASU 2014-09 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-09 allows for adoption either on a full retrospective basis to each prior reporting period presented or on a modified retrospective basis with the cumulative effect of initially applying the new guidance recognized at the date of initial application, which will be2019-12 are effective for ~~the Company beginning January 1, 2018.~~

The Company has developed an adoption plan, assembled a cross-functional project team and is in the process of assessing the impacts of applying ASC 606 to the Company’s financial statements, information systems and internal controls. The Company has elected to adopt ASU 2014-09 using the modified retrospective method. Additionally, the Company has performed detailed reviews of a significant number of its existing contracts with customers. These reviews have focused on several key considerations which could impact the Company's accounting and reporting under the new standard:

~~the effect of specified clauses on the term of many of the Company’s contracts with customers;~~

~~the nature of the promises in many of the Company’s contracts with customers to perform integrated services over a period of time;~~

~~whether and how much variable consideration to include when determining the transaction prices for its contracts with customers;~~

~~whether any of the Company’s customer contracts require performance over a series of distinct service periods and the impact on determining and allocating the transaction price; and~~

the manner in which the Company will measure its progress towards fully satisfying its performance obligations, including a determination of whether the Company may be able to use certain practical expedients.

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

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

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Compensation–Stock Compensation (Topic 718):Scope of Modification Accounting~~ (“ASU 2017-09”). ASU 2017-09 provides guidance about which changes to the terms of a share-based payment award should be accounted for as a modification. A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do not change, and the classification as an equity or liability instrument does not change. This guidance is effectivepublic business entities for fiscal years beginning after December 15, ~~2017.~~2020, including interim periods therein. Early adoption of the standard is ~~permitted.~~permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company is currently evaluating the impact ASU 2019-12 will have on its condensed consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 ("ASU 2020-01"), to clarify the interaction among the accounting standards for equity securities, equity method investments and certain derivatives. ASU 2020-01 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company is currently evaluating the impact of ASU ~~2017-09~~2020-01 on its condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04") which provides optional expedients and exceptions for applying generally accepted accounting principles 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, 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 to a Topic, Subtopic, or Industry Subtopic 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 have completed. The Company is currently evaluating the impact ASU 2020-01 will have on its condensed consolidated financial statements or disclosures, but it does not ~~expected~~expect the adoption to have a material ~~impact~~impact.

3. Revenue Recognition

Disaggregation of Revenue

The following table summarizes disaggregated revenue from contracts with customers by contract type:


	Three months ended March 31, 2020		Three months ended March 31, 2019
State Medicaid agency contracts	$	180,731	$	176,968
Managed care organization contracts	186,560		190,847

Total Service revenue, net	$	367,291	$	367,815

Capitated contracts	$	300,724	$	304,596
Non-capitated contracts	66,567		63,219

Total Service revenue, net	$	367,291	$	367,815

During the three months ended March 31, 2020 and 2019, the Company recognized $632 and $2,572, 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:


	March 31, 2020		December 31, 2019
Accounts receivable	$	117,536	$	124,868
Reconciliation contracts receivable	61,274		61,481
Allowance for doubtful accounts	(6,760)		(5,933)
Accounts receivable, net	$	172,050	$	180,416

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


	March 31, 2020		December 31, 2019
Accrued contract payments, included in “accrued expenses”	$	20,058	$	15,706
Deferred revenue, current	565		227
Deferred revenue, long-term, included in “other long-term liabilities”	723		758

~~There were no other significant updates~~During the three months ended March 31, 2020 and 2019, $48 and $339 of deferred revenue as of December 31, 2019 and 2018, respectively, was recognized.

4. Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the ~~new accounting guidance~~amounts shown in the condensed consolidated statements of cash flows:


	March 31, 2020		March 31, 2019
Cash and cash equivalents	$	254,371	$	42,418
Restricted cash, current	73		1,868
Current assets of discontinued operations	33		4,297
Restricted cash, less current portion	—		2,041
Cash, cash equivalents and restricted cash	$	254,477	$	50,624

Restricted cash 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. The wholly owned captive insurance subsidiary, Social Services Providers Captive Insurance Company ("SPCIC"), was dissolved during the three months ended March 31, 2020. Current assets of discontinued operations principally reflects the cash position of WD Services operations in Saudi Arabia, which was not ~~yet adopted by~~sold as part of the ~~Company as disclosed~~WD Services Sale. The operation in ~~its Form 10-K~~Saudi Arabia is winding down. See Note 15, Discontinued Operations, for further information on the ~~year ended~~WD Services sale.

5. Equity Investment

As of March 31, 2020 and December 31, ~~2016.~~

~~3. Equity Investment~~

~~Matrix~~

Prior to the closing of the Matrix Transaction on October 19, 2016, the financial results of Matrix were included in the Company’s HA Services segment. Subsequent to the closing of the Matrix Transaction,2019, the Company owned a ~~46.8% noncontrolling interest in Matrix. As of September 30, 2017, the Company owned a 46.6% noncontrolling~~43.6% non-controlling interest in Matrix. Pursuant to a stock subscription agreement by and among The Providence Service Corporation, CCHN Group Holdings, Inc., and Mercury Fortuna Buyer, LLC ("Shareholder’s ~~Agreement, affiliates~~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 and the Company’s share of Matrix’s income or losses are recorded as “Equity in net loss (gain) ~~loss~~ of ~~investees”~~investee” in the accompanying condensed consolidated statements of ~~income.~~operations. During the year ended December 31, 2019, Matrix recorded asset impairment charges of $55,056. NaN impairment was recorded for the three months ended, March 31, 2020.

The carrying amount of the assets included in the Company’s condensed consolidated balance ~~sheet~~sheets and the maximum loss exposure related to the Company’s interest in Matrix as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 totaled ~~$156,883~~$128,098 and ~~$157,202,~~$130,869, respectively.

Summary financial information for Matrix on a standalone basis is as follows:


	March 31, 2020		December 31, 2019
Current assets	$	69,766	$	64,221
Long-term assets	641,065		631,007
Current liabilities	38,891		31,256
Long-term liabilities	365,026		351,380


	Three months ended March 31, 2020		Three months ended March 31, 2019
Revenue	$	61,304	$	66,983
Operating (loss) income	(1,673)		555
Net loss	(6,357)		(4,486)

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

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

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

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

~~Mission Providence~~

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

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

~~Summary financial information for Mission Providence on a standalone basis is as follows:~~

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

Three months ended September 30,
2017 2016
Revenue $ 10,244
$ 9,349
Operating loss (599 ) (2,903 )
Net loss (651 ) (2,059 )

Nine months ended September 30,
2017 2016
Revenue $ 30,125
$ 26,475
Operating loss (1,765 ) (10,697 )
Net loss (1,934 ) (7,627 )

4.6. Prepaid Expenses and Other

Prepaid expenses and other were comprised of the following:


	March 31, 2020		December 31, 2019
Prepaid income taxes	$	25,128	$	2,942
Prepaid insurance	630		1,317

Prepaid rent	892		868

Other prepaid expenses	5,905		5,815
Total prepaid expenses and other	$	32,555	$	10,942

September 30,
2017 December 31,
2016
Prepaid income taxes $ 3,819
$ 1,467
Escrow funds 10,000
10,000
Prepaid insurance 2,778
3,153
Prepaid taxes and licenses 2,526
3,570
Note receivable 3,201
3,130
Prepaid rent 2,727
2,013
Deposits held for leased premises and bonds 2,744
2,609
Other 11,288
11,953
Total prepaid expenses and other $ 39,083
$ 37,895

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

5. 7. Accrued Expenses

Accrued expenses consisted of the following:


	March 31, 2020		December 31, 2019
Accrued compensation and related liabilities	$	14,442	$	8,941
Accrued contract payments	20,058		15,706

Accrued cash settled stock-based compensation	2,567		3,282

Other accrued expenses	9,294		10,804
Total accrued expenses	$	46,361	$	38,733

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

6.8. Restructuring and Related Reorganization Costs

~~WD Services has~~On April 11, 2018, the Company announced the Organizational Consolidation to transfer all job responsibilities previously performed by employees of the holding company to LogistiCare and to close the corporate offices in Stamford, Connecticut and Tucson, Arizona. The Company adopted an employee retention plan designed to retain the holding company level employees during the transition. The Organizational Consolidation was completed during the second quarter of 2019.

A total of $2,011 in restructuring and related costs was incurred during the three ~~redundancy programs. Two redundancy plans were approved in 2015 and have been substantially completed; a plan~~months ended March 31, 2019 related to the ~~termination~~Organizational Consolidation. These costs include $1,393 of ~~employees delivering services under an offender rehabilitation program (“Offender Rehabilitation Program”)~~retention and ~~a plan~~personnel costs, $191 of stock-based compensation expense, $144 of depreciation and $283 of other costs, primarily related to ~~the termination of employees delivering services under the Company’s employability~~recruiting and skills training programs and certain other employees in the United Kingdom (“UK Restructuring Program”). In addition, a redundancy plan related to the termination of employees as part of a value enhancement project ("Ingeus Futures Program") to better alignlegal costs. These costs at Ingeus with revenue and to improve overall operating performance was approved in 2016. The Company recorded severance and related charges of $1,117 and $4,741 during the nine months ended September 30, 2017 and 2016, respectively, relating to the termination benefits for employee groups and specifically identified employees impacted by these plans. The severance charges incurred are recorded as ~~“Service~~“General and administrative expense” and “Depreciation and amortization” in the accompanying condensed consolidated statements of ~~income.~~operations.

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

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


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

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

NaN restructuring and related costs were incurred, related to the Organizational Consolidation, during the three months ended March 31, 2020.

There was 0 restructuring liability as of March 31, 2020.

During the three months ended March 31, 2020, the Company incurred approximately $450 of restructuring expenses 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".

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, extends the maturity date to August 1, 2021, expands the amount available under ~~these plans, as well as~~the revolving credit facility (the “Credit Facility”) from $200,000 to $225,000, and increases the sub-facility for letters of credits from $25,000 to $40,000. Interest on the loans is payable quarterly in arrears. In addition, the Company is obligated to pay a quarterly commitment fee based on a percentage of the unused portion of each lender’s commitment under the Credit Facility and quarterly letter of credit fees based on a percentage of the maximum amount available to be drawn under each outstanding letter of credit.

As of March 31, 2020, the Company had $162,000 of borrowings outstanding on the Credit Facility, in addition to letters of credit outstanding in the amount of $13,551. The Company’s available credit under the Credit Facility was $24,449. Under the Credit Agreement, the Company has an option to request an increase in the ~~number of individuals impacted by these plans. The final identification~~amount of the ~~employees impacted~~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 $75,000 with either additional commitments from lenders under the Credit Agreement at such time or new commitments from financial institutions acceptable to the administrative agent in its reasonable discretion, so long as no default or event of default exists at the time of any such increase. The Company may not be able to access additional funds under this increase option as no lender is obligated to participate in any such increase under the Credit Facility.

As of March 31, 2020, interest on the outstanding principal amount of loans accrued, at the Company’s election, at a per annum rate equal to LIBOR, plus an applicable margin, or the base rate as defined in the agreement plus an applicable margin. The applicable margin ranged from 2.25% to 3.25% in the case of LIBOR loans and 1.25% to 2.25% in the case of the base rate loans, in each case, based on the Company’s consolidated leverage ratio as defined in the Credit Agreement. The commitment fee and letter of credit fee ranged from 0.25% to 0.50% and 2.25% to 3.25%, respectively, in each case based on the Company’s consolidated leverage ratio as defined by the Credit Agreement. As of March 31, 2020, the all-in interest rate was 4.17%.

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

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

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

~~Summary of Severance~~financial covenants, including consolidated net leverage and ~~Related Charges~~

January 1,
2017
Costs
Incurred
Cash Payments
Foreign Exchange
Rate Adjustments
September 30, 2017

Ingeus Futures' Program $ 2,486
$ 1,186
$ (3,086 ) $ 158
$ 744
Offender Rehabilitation Program 1,380
(40 ) (1,357 ) 17
—
UK Restructuring Program 50
(29 ) —
3
24
Total $ 3,916
$ 1,117
$ (4,443 ) $ 178
$ 768

January 1,
2016
Costs
Incurred
Cash Payments
Foreign Exchange
Rate Adjustments
September 30, 2016

Offender Rehabilitation Program $ 6,538
$ 4,204
$ (6,075 ) $ (906 ) $ 3,761
UK Restructuring Program 2,059
537
(2,379 ) (103 ) 114
Total $ 8,597
$ 4,741
$ (8,454 ) $ (1,009 ) $ 3,875

consolidated interest coverage covenants. The ~~total of accrued severance and related costs of $768 is reflected in “Accrued expenses” in the condensed~~Company’s consolidated ~~balance sheet at September 30, 2017. The amount accrued~~net leverage ratio may not be greater than 3.00:1.00 as of ~~September 30, 2017 is expected to be settled principally by~~ the end of ~~2017.~~any fiscal quarter and the Company’s consolidated interest coverage ratio may not be less than 3.00:1.00 as of the end of any fiscal quarter. The Company was in compliance with all covenants as of March 31, 2020. The covenants did not change as a result of the Seventh Amendment.

The following table reflects changes in common stock, additional paid-in capital, retained earnings, accumulated other comprehensive loss, treasury stock and noncontrolling interest for the nine months ended September 30, 2017:

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

The following table reflects the amount of stock-based compensation for continuing operations, for share settled awards, recorded in each financial statement line item for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016:~~2019:

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

~~At September 30, 2017,~~2020, the Company had ~~300,831~~ 664,360 stock options outstanding with a weighted-average exercise price of ~~$37.97. The~~ $65.92. The Company also had ~~71,193 shares of~~ 65,618 unvested ~~RSAs~~restricted stock awards ("RSAs") and 37,050 unvested restricted stock units ("RSUs") outstanding at ~~September 30, 2017~~March 31, 2020 with a weighted-average grant date fair value of ~~$44.33~~ $44.42 and ~~18,298 unvested PRSUs outstanding.~~ $63.57, respectively.

The Company also grants stock equivalent unit awards (“SEUs”) and stock option equivalent units that are ~~cash settled~~cash-settled awards and are not included as part of the 2006 Plan. During the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2020 and March 31, 2019, the Company ~~recorded $380 and $1,611~~recorded a benefit of $563 and expense of $1,189 of stock-based compensation for cash-settled awards, respectively. The benefit and expense for cash settled awards. During the three and nine months ended September 30, 2016, respectively, the Company recorded $422 and $305 of stock-based compensation expense for cash settled awards. The expense and benefit for cash settledcash-settled awards is included as “General and administrative expense” in the accompanying condensed consolidated statements of ~~income.~~operations. As the instruments are accounted for as liability awards, ~~are cash settled, a significant amount of~~ the income or expense recorded for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 is attributable to the Company’s ~~increase or decrease~~change in stock price from the previous reporting ~~period.~~period. The liability for unexercised ~~cash settled~~cash-settled share-based payment awards of ~~$3,168 and $1,764~~ $2,567 and $3,282at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, respectively, ~~are~~is reflected in “Accrued expenses” in the condensed consolidated balance sheets. At ~~September 30, 2017,~~March 31, 2020, the Company had ~~6,671~~3,862 SEUs and 200,000 ~~stock~~stock option equivalent units outstanding.

~~The~~Long-Term Incentive Plans

In connection with the acquisition of Circulation during 2018, the Company ~~also provides cash settled long-term~~established a management incentive ~~plans for executive management and~~plan (“MIP”) intended to motivate key employees of ~~its operating segments.~~Circulation. During the three months ended ~~June 30, 2017,~~March 31, 2019, the ~~Company revised~~MIP was amended to remove the ~~structure~~previously included performance requirements and to provide for a total fixed payment of ~~the NET Services long-term incentive plan. As a result, the Company finalized the amount payable under the plan at $2,956. The total value will be paid~~$12,000 to the ~~awarded participants per~~group of MIP participants. During the ~~terms~~year ended December 31, 2019, the MIP was further amended to a total fixed payment of $2,720. The payout date is within 30 days following the original agreement and thus the remaining unamortized expense relating to this plan continues to be recognized over the remaining service period. As of September 30, 2017, unamortized compensation expense is $696. For the three and nine months ended September 30, 2017, expenses of $274 and $419, respectively, are included as “Service expense” in the condensed consolidated statements of income related to these plans. For the three and nine months ended September 30, 2016, $1,157 and $3,151, respectively, of expense are included as “Service expense” in the condensed consolidated statements of income related to these plans. At September 30, 2017, the liability for long-term incentive plansfinalization of the Company’s ~~operating segments of $2,260 is reflected in “Accrued expenses” and “Other long-term liabilities” in~~audited financial statements for the ~~condensed consolidated balance sheet. At~~fiscal year ending December 31, ~~2016,~~2021 and the ~~liability~~payout is subject to the participant remaining employed by the Company through December 31, 2021, except for ~~long-term incentive plans~~certain termination scenarios. As of March 31, 2020 and December 31, 2019, the ~~Company’s operating segments of $1,841 is~~Company has accrued$1,363 and $1,108, respectively, related to the MIP and reflected in “Other long-term liabilities” in the condensed consolidated balance ~~sheet.~~sheets.

11. Earnings (Loss) Per Share

The following table details the computation of basic and diluted earnings (loss) per share:


	Three months ended March 31,
	2020		2019
Numerator:
Net income	$	16,098	$	582
Less dividends on convertible preferred stock	(1,095)		(1,087)
Less income allocated to participating securities	(2,005)		(30)
Net income (loss) available to common stockholders	$	12,998	$	(535)

Continuing operations	$	13,200	$	197
Discontinued operations	(202)		(732)
Net income (loss) available to common stockholders	$	12,998	$	(535)

Denominator:
Denominator for basic earnings per share -- weighted-average shares	12,987,740		12,899,714
Effect of dilutive securities:
Common stock options	11,231		53,614
Restricted Stock	14,020		—
Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion	13,012,991		12,953,328

Basic earnings (loss) per share:
Continuing operations	$	1.02	$	0.02
Discontinued operations	(0.02)		(0.06)
Basic earnings (loss) per share	$	1.00	$	(0.04)
Diluted earnings (loss) per share:
Continuing operations	$	1.02	$	0.02
Discontinued operations	(0.02)		(0.06)
Diluted earnings (loss) per share	$	1.00	$	(0.04)

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Numerator:
Net income attributable to Providence $ 14,853
$ 650
$ 14,441
$ 7,508
Less dividends on convertible preferred stock (1,114 ) (1,111 ) (3,305 ) (3,309 )
Less income allocated to participating securities (1,777 ) (284 ) (2,209 ) (502 )
Net income (loss) available to common stockholders $ 11,962
$ (745 ) $ 8,927
$ 3,697

Continuing operations $ 11,978
$ 2,046
$ 14,927
$ 3,405
Discontinued operations (16 ) (2,791 ) (6,000 ) 292
$ 11,962
$ (745 ) $ 8,927
$ 3,697

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

Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion 13,655,554
14,634,483
13,676,468
14,943,024

Basic earnings (loss) per share:
Continuing operations $ 0.88
$ 0.14
$ 1.10
$ 0.23
Discontinued operations —
(0.19 ) (0.44 ) 0.02
$ 0.88
$ (0.05 ) $ 0.66
$ 0.25
Diluted earnings (loss) per share:
Continuing operations $ 0.88
$ 0.14
$ 1.09
$ 0.23
Discontinued operations —
(0.19 ) (0.44 ) 0.02
$ 0.88
$ (0.05 ) $ 0.65
$ 0.25

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

The following ~~weighted average~~weighted-average shares were not included in the computation of diluted earnings per share as the effect of their inclusion would have been anti-dilutive:


	Three months ended March 31,
	2020	2019
Stock options to purchase common stock	648,300	559,829
Convertible preferred stock	798,775	801,606

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

~~10.~~12. Income Taxes

The Company’s effective tax rate from continuing operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 was ~~16.7% and 28.8%, respectively.~~ (124.7)%. The ~~Company’s~~ effective tax rate from continuing operations for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2019 was ~~55.6% and 64.9%, respectively. The~~15.1%. For the three months ended March 31, 2020, the effective tax ~~rates for the three and nine months ended September 30, 2016 exceeded~~rate was lower than the U.S. federal statutory rate of ~~35%~~ 21.0%primarily due to ~~foreign net operating losses (including equity investment losses in certain~~the favorable impact of the ~~periods) for which~~CARES Act on the ~~future income tax benefit currently cannot be recognized, losses in foreign jurisdictions with tax rates lower than~~Company’s 2018 U.S. NOLs. For the U.S. rate of 35%, state income taxes and certain non-deductible expenses. Foreign net operating losses for which no tax benefit can be provided were higher in 2016 versus 2017 resulting in a decrease in thethree months ended March 31, 2019, the effective tax rate ~~from 2016 to 2017. Additionally, for~~was lower than the ~~three and nine months ended September 30, 2017, there was no provision for income taxes related to the gain on sale~~U.S. federal statutory rate of ~~equity investment of $12,606~~21.0% primarily due to the ~~substantial difference in tax basis versus book basis in~~favorable impact of stock option deductions.

During 2019, the ~~investment.~~

~~The~~ Company ~~recorded excess tax deficiencies for~~received refunds from the ~~three and nine months ended September 30, 2017 of $261 and $148, respectively, which increased~~Internal Revenue Service (“IRS”) totaling $30,756 resulting from the ~~provision for income taxes. These excess tax deficiencies were~~loss on the 2018 workforce development segment sale. As a result of ~~applying~~ the ~~guidance~~size of the refunds received, in ~~ASU 2016-09~~October 2019, the IRS commenced a mandatory review by a joint committee of Congress.

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 will carry its 2018 NOLs back five years. As a result, during the three months ended March 31, 2020, the Company recorded a $27,769 receivable for the 2018 U.S. NOL carryback, and an $11,060 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 $3,753 for 2019 as ~~further~~a result of the 2018 NOL being carried back instead of carried forward.

As discussed in Note 2, ~~Significant Accounting Policies~~15, Discontinued Operations, the Company transferred its operations in Saudi Arabia to its contractual counterparties on January 1, 2019. In connection with the dissolution of its Saudi Arabia legal entity, the Company is protesting withholding tax and ~~Recent Accounting Pronouncements.~~

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

~~11.~~13. Commitments and Contingencies

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

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

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

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

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

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

On March 1, 2019, Meher Patel filed suit against ~~any and all losses, claims, damages, expenses and liabilities relating to or arising out of (i) any breach of any representation, warranty, covenant or undertaking made by or on behalf of~~ the Company in the ~~Standby Purchase Agreement~~Superior Court of the State of California, Tuolumne County, on behalf of herself and ~~(ii)~~as a class action on behalf of others similarly situated, asserting violations under the ~~transactions contemplated~~California Labor Code relating to the alleged failure by LogistiCare to comply with certain applicable state wage and related employment requirements, as well as claims of breach of contract and breach of the ~~Standby Purchase Agreement~~implied covenant of good faith and fair dealing. The plaintiff seeks to recover an unspecified amount of damages and penalties, as well as certification as a class action. On September 6, 2019, Ms. Patel amended her complaint to add Provado Mobile Health, a Company subsidiary, as a party to

the suit. The Company and Provado Mobile Health have removed the case to the U.S. District Court, Eastern District of California. The Company and its subsidiary intend to defend the litigation vigorously. Although the outcome of such matter is inherently uncertain and may be materially adverse, based on current information, the Company does not expect the case to have a material adverse effect on the Company’s business, financial condition or results of operations.

In Lynch v. Ride Plus et al., a putative class action lawsuit pending in the Superior Court for the County of San Diego, California, a former Ride Plus driver (trade name for Provado Mobile Health, a Company subsidiary) has sought to represent all Ride Plus drivers in California on claims identical to the Patel action. This suit has only recently been served on Provado Mobile Health. Provado Mobile Health plans to remove the case to federal court and combine it with the Patel action or move to stay it while the Patel action is pending, since the two actions cover the same subject matter. At this early stage in the litigation, it is impossible to predict with any certainty whether plaintiff will succeed in getting the court to certify a class, whether the plaintiff and the ~~14.0% Unsecured Subordinated Note~~class, if certified, will prevail on their claims, or what they may recover.

On April 1, 2019, a purported class action was filed against LogistiCare in ~~aggregate principal amount~~Texas alleging that the Company’s policy with respect to timekeeping for hourly employees constituted violations of ~~$65,500, except~~the federal Fair Labor Standards Act (“FLSA”), as well as wage and hour laws in South Carolina and Texas. Plaintiffs filed a motion for conditional certification on a nationwide basis, which LogistiCare contested. The court granted the conditional certification motion on January 22, 2020. The Company filed an appeal of the conditional certification order. The Company also plans to vigorously contest the ~~extent that~~allegations on the merits as the plaintiffs have mischaracterized the method by which employees clock in to work. At this early stage in the litigation, it is impossible to predict with any ~~such losses,~~certainty whether plaintiffs will prevail on their claims, ~~damages, expenses and liabilities are attributable to the gross negligence, willful misconduct~~ or ~~fraud of such Standby Purchaser.~~what they might recover.

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

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

~~Other Indemnifications~~

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

~~Molina and~~2019, the Company ~~have entered into~~recovered a memorandum of understanding regarding a settlement of an indemnification claim by Molina with respect to the Rodriguez Litigation and other matters. As of September 30, 2017, the accrual is $15,000 with respect to an estimate of loss for potential indemnification claims. The Company expects to recover a substantial portion of the settlement through insurance ~~coverage, although this cannot be assured.~~coverage.

The Company has provided certain standard indemnifications in connection with its Matrix stock subscription transaction whereby Mercury Fortuna Buyer, LLC (“Subscriber”), Providence and Matrix entered into a stock subscription agreement (the “Subscription Agreement”), dated August 28, 2016. The representations and warranties made by the Company in the Subscription Agreement ~~survive through the 15th month following the closing date;~~ended January 19, 2018; however, certain fundamental representations ~~survive~~survived through ~~the 36th month following the closing date.~~October 19, 2019. The covenants and agreements of the parties to be performed prior to the closing ~~survive through the 15th month following the closing date,~~ended January 19, 2018, and all other covenants and agreements ~~survive~~survived until the expiration of the applicable statute of limitations in the event of a breach, or for such lesser periods specified therein.The Company is not aware of any indemnification liabilities with respect to Matrix that require accrual at ~~September 30, 2017.~~March 31, 2020.

~~Other Contingencies~~

On October 26, 2017, the UK Ministry of Justice (the “MOJ”) released a report on reoffending statistics for certain offenders who entered probation services during the period October 2015 to December 2015. The report provides statistics for all providers of probation services, including the Company’s subsidiary Reducing Reoffending Partnership (“RRP”). This information is the first data set that is utilized to determine performance payments under the various providers’ transforming rehabilitation contracts with the MOJ, as the actual rates of recidivism are compared to benchmark rates established by the MOJ. Across the industry, including for RRP, while certain rates of recidivism were less than the applicable benchmarks, other rates exceeded the benchmarks established by the MOJ. If such rates of recidivism were to continue to exceed the benchmark rates established by the MOJ, RRP could be required to make payments to the MOJ, which amounts could be material. The amount of potential payments to the MOJ, if any, under RRP’s contracts with the MOJ is not estimable at this time, as the MOJ is reviewing the data to understand the underlying reasons for the increase in certain rates of recidivism and other factors that could impact the contractual measure.

~~Loss Reserves for Certain Reinsurance Programs~~

The Company historically reinsured a substantial portion of its automobile, general and professional liability and workers’ compensation costs under reinsurance programs through the Company’s wholly-owned subsidiary, Social Services Providers Captive Insurance Company (“SPCIC”), a licensed captive insurance company domiciled in the State of Arizona. As of May 16, 2017, SPCIC did not renew the expiring reinsurance policies. SPCIC will continue to resolve claims under the historical policy years.

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

~~Deferred Compensation Plan~~

The Company has ~~one deferred compensation plan~~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 ~~highly compensated employees~~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 ~~NET~~any indemnification liabilities with respect to the former WD Services segment that require accrual at March 31, 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, 2017. The deferred compensation plan is unfunded, and benefits are paid from the general assets~~March 31, 2020 collectively held approximately 6.7% of the ~~Company. The total~~Company’s outstanding common stock and approximately 95.9% of ~~participant deferrals,~~the Company’s outstanding Preferred Stock, pursuant to which ~~is reflected in “Other long-term liabilities” in~~ the ~~condensed consolidated balance sheets, was $1,718~~Company has agreed to indemnify the Coliseum Stockholders, and ~~$1,430 at September 30, 2017 and December 31, 2016, respectively.~~the Coliseum Stockholders have agreed to indemnify the Company, against certain matters relating to the registration of the selling stockholders’ securities for resale under the Securities Act of 1933, as amended (the “Securities Act”).

~~12.~~14. Transactions with Related Parties

~~The Company incurred legal expenses under an indemnification agreement with the Standby Purchasers as further discussed in Note 11,~~ ~~Commitments and Contingencies~~.

Convertible preferred stock dividends earned by the ~~Standby Purchasers~~Coliseum Stockholders during the three and nine months ended September 30, 2017 totaled $1,062 and $3,151, respectively. Convertible preferred stock dividends earned by the Standby Purchasers during the three and nine months ended September 30, 2016 totaled $1,059 and $3,154, respectively.

~~During~~ the three months ended March 31, ~~2017,~~2020 and 2019 totaled $1,050 and $1,039, respectively.

15. Discontinued Operations

On December 21, 2018, the Company ~~made~~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.

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

~~13. Discontinued Operations~~

On November 1, 2015, the Company completed the sale of ~~the~~its Human Services segment. During the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020 and 2019, the Company recorded additional expenses related to the Human Services segment, principally related to previously disclosed legal proceedings ~~as described in Note 11,~~ ~~Commitments~~ and ~~Contingencies, related to an indemnified legal matter.~~professional fees.

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

Results of Operations

The following tables summarize the results of operations classified as discontinued operations, net of tax, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016.~~2019:


	Three months ended March 31, 2020
	Human Services Segment		WD Services Segment		Total Discontinued Operations


Operating expenses:

General and administrative expense	$	123	$	146	$	269


Total operating expense	123		146		269
Operating loss	(123)		(146)		(269)





Loss from discontinued operations before income taxes	(123)		(146)		(269)

Benefit for income taxes	31		36		67
Loss from discontinued operations, net of tax	$	(92)	$	(110)	$	(202)


	Three months ended March 31, 2019
	Human Services Segment		WD Services Segment		Total Discontinued Operations


Operating expenses:

General and administrative expense	$	145	$	708	$	853


Total operating expenses	145		708		853
Operating loss	(145)		(708)		(853)






Loss from discontinued operations before income taxes	(145)		(708)		(853)

Benefit for income taxes	36		85		121
Loss from discontinued operations, net of tax	$	(109)	$	(623)	$	(732)

Assets and liabilities

The following table summarizes the carrying amounts of the major classes of assets and liabilities of discontinued operations in the condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019. Amounts represent the accounts of WD Services operations in Saudi Arabia, which were not sold as part of the WD Services sale.

Three months ended September 30, 2017 Nine months ended September 30, 2017

Human
Services
Segment

HA Services
Segment

Total
Discontinued
Operations

Human
Services
Segment

HA Services
Segment

Total
Discontinued
Operations

Operating expenses:
General and administrative expense $ 26
$ —
$ 26
$ 9,622
$ —
$ 9,622
Total operating expenses 26
—
26
9,622
—
9,622
Loss from discontinued operations before income taxes (26 ) —
(26 ) (9,622 ) —
(9,622 )
Income tax benefit 10
—
10
3,622
—
3,622
Discontinued operations, net of tax $ (16 ) $ —
$ (16 ) $ (6,000 ) $ —
$ (6,000 )


	March 31,		December 31,
	2020		2019
Cash and cash equivalents	$	33	$	155



Current assets of discontinued operations	$	33	$	155









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

Current liabilities of discontinued operations	$	1,455	$	1,430

~~General and administrative~~

Cash Flow Information

There were $122 in cash flow payments related to operating expenses for WD Services Segment for the three months ended ~~September 30, 2017 includes legal expenses of $26. General~~March 31, 2020 and ~~administrative expenses for the nine months ended September 30, 2017 includes an accrual of $9,000 for an estimated settlement of indemnified claims~~$68 in payments related to ~~the sale of the Human~~deferred income taxes for WD Services ~~segment, as well as related legal expenses of $622. See Note 11,~~ ~~Commitments and Contingencies, for additional information.~~

Three months ended September 30, 2016 Nine months ended September 30, 2016

Human
Services
Segment

HA Services
Segment

Total
Discontinued
Operations

Human
Services
Segment

HA Services
Segment

Total
Discontinued
Operations

Service revenue, net $ —
$ 52,557
$ 52,557
$ —
$ 155,421
$ 155,421

Operating expenses:
Service expense —
38,703
38,703
—
113,455
113,455
General and administrative expense 7,463
1,505
8,968
7,463
2,823
10,286
Depreciation and amortization —
5,359
5,359
—
21,121
21,121
Total operating expenses 7,463
45,567
53,030
7,463
137,399
144,862
Operating income (loss) (7,463 ) 6,990
(473 ) (7,463 ) 18,022
10,559

Other expenses:
Interest expense, net —
3,134
3,134
—
9,304
9,304
Income (loss) from discontinued operations before income taxes (7,463 ) 3,856
(3,607 ) (7,463 ) 8,718
1,255
Income tax benefit (provision) 2,428
(1,612 ) 816
2,428
(3,351 ) (923 )
Discontinued operations, net of tax $ (5,035 ) $ 2,244
$ (2,791 ) $ (5,035 ) $ 5,367
$ 332

~~Interest expense, net~~

The Company allocated interest expense, including amortization of deferred financing fees, to discontinued operations based on the portion of debt that was required to be repaid with the proceeds from the Matrix Transaction. The total allocated interest expense was $3,136 and $9,310Segment for the three ~~and nine~~ months ended ~~September 30, 2016 respectively, and is included in “Interest expense, net” in the table above.~~March 31, 2019.

~~Cash Flow Information~~

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

Nine months ended September 30, 2016

Cash flows from discontinued operating activities:
Depreciation $ 3,661
Amortization $ 17,460

Cash flows from discontinued investing activities:
Purchase of property and equipment $ 8,020

Providence, through its subsidiaries and other companies in which it holds interests, is primarily engaged in the provision of healthcare and workforce development services. The subsidiaries and other companies in which the Company holds interests comprise the following segments:

~~Effective October 19, 2016, pursuant to the Matrix Transaction, the Company no longer owns~~ a ~~controlling interest~~minority investment in Matrix, ~~which historically constituted the HA Services segment as further discussed in Note 13,~~ ~~Discontinued Operations. As the HA Services segment, through October 19, 2016, is presented as~~provides a ~~discontinued operation, it is not reflected in the Company’s segment disclosures. However, the Company accounts~~broad array of assessment and care management services that improve health outcomes for individuals and financial performance for health plans. Matrix’s national network of community-based clinicians deliver in-home services while its ~~noncontrolling interest in Matrix from October 19, 2016 through present as an equity method investment, which solely comprises the Matrix Investment in the table below.~~fleet of mobile health clinics provide 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~~segments:


	Three months ended March 31, 2020
	NET Services		Matrix Investment		Total
Service revenue, net	$	367,291	$	—	$	367,291
Service expense	332,661		—		332,661
General and administrative expense	20,795		—		20,795

Depreciation and amortization	3,790		—		3,790

Operating income	$	10,045	$	—	$	10,045

Equity in net loss of investee	$	—	$	(2,550)	$	(2,550)
Investment in equity method investee	$	—	$	128,098	$	128,098
Total assets (continuing operations)	$	668,984	$	128,098	$	797,082


	Three months ended March 31, 2019
	NET Services		Matrix Investment		Total
Service revenue, net	$	367,815	$	—	$	367,815
Service expense	340,498		—		340,498
General and administrative expense	19,401		—		19,401

Depreciation and amortization	4,475		—		4,475
Operating income	$	3,441	$	—	$	3,441

Equity in net loss of investee	$	—	$	(1,656)	$	(1,656)
Investment in equity method investee	$	—	$	159,546	$	159,546
Total assets (continuing operations)	$	449,281	$	159,546	$	608,827

17. Subsequent Events

The Company has evaluated subsequent events through the filing of this Form 10-Q, and determined that there have been no events that have occurred that would require disclosures except for the ~~three~~following:

Amendment to Credit Facility

On May 6, 2020, the Company entered into the Seventh Amendment to the Credit Facility which, among other things, expanded the Credit Facility from $200,000 to $225,000, extended the maturity date to August 1, 2021, and ~~nine months ended September 30, 2017~~increased the sublimit for letters of credit from $25,000 to $40,000. See Note 9, Debt, for further information.

On May 6, 2020, Logisticare Solutions, LLC, a Delaware limited liability company (“Logisticare”) and ~~2016:~~

~~Geographic Information~~

~~Domestic service revenue, net, totaled 82.1%~~wholly-owned subsidiary of Providence, entered into an Equity Purchase Agreement (the “Purchase Agreement”) with Specialty Benefits, LLC., a Delaware corporation (the “Seller”), National MedTrans, LLC, a New York limited liability company (“NMT”) and ~~78.0% of service revenue, net~~ for limited purposes therein, United Healthcare Services, Inc., a Minnesota corporation. Pursuant to the nine months ended September 30, 2017 and 2016, respectively. Foreign service revenue, net, totaled 17.9% and 22.0% of service revenue, net for the nine months ended September 30, 2017 and 2016, respectively.

~~At September 30, 2017 and December 31, 2016, $99,352, or 26.0%, and $76,579, or 20.4%, respectively,~~terms of the ~~Company’s net assets were located in countries outside~~Purchase Agreement, Logisticare acquired from Seller all of the ~~U.S., including $15,823~~outstanding capital stock of ~~proceeds realized on the sale of the equity investment~~NMT. The purchase price paid by Logisticare to Seller was approximately $80,000 in ~~Mission Providence.~~cash.

~~15. Subsequent Events~~

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

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

The following discussion should be read in conjunction with our ~~unaudited~~ condensed consolidated financial statements and accompanying notes for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, as well as our consolidated financial statements and accompanying notes and management’s discussion and analysis of financial condition and results of operations included in our Form 10-K for the year ended December 31, ~~2016.~~2019. For purposes of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to ~~Q3 2017~~Q1 2020 and ~~Q3 2016~~Q1 2019 mean the three months ended ~~September 30, 2017~~March 31, 2020 and the three months ended ~~September 30, 2016, respectively, and references to YTD 2017 and YTD 2016 mean the nine months ended September 30, 2017 and the nine months ended September 30, 2016,~~March 31, 2019, respectively.

Overview of ~~our business~~Our Business

The Providence ~~through its subsidiaries~~Service Corporation is a Delaware corporation that was formed in 1996 and ~~other companies in which it holds interests,~~ is ~~primarily engaged in~~ the ~~provision of healthcare and workforce development services. The subsidiaries and other companies in which we hold interests comprise the following segments:~~

~~Workforce Development Services~~

Providence also owns a minority investment in CCHN Group Holdings, Inc. and its subsidiaries (“~~WD Services”~~Matrix”) ~~– Global provider of employment preparation and placement and legal offender rehabilitation services to eligible participants of government sponsored programs.~~

. Matrix ~~Investment – Minority interest in~~is a nationwide provider of a broad array of assessment and care management services that improve health outcomes for individuals and financial performance for health plans. Matrix’s national network of community-based clinicians deliver in-home services while its fleet of mobile health clinics provide community-based care ~~optimization~~with advanced diagnostic capabilities. These solutions combined with Matrix’s advanced engagement approach, help health plans manage risks, close care gaps and ~~management solutions, including comprehensive health assessments,~~connect members to ~~members of managed care organizations, accounted for as an equity method investment.~~care.

Business Outlook and Trends

Our performance is affected by a number of trends that drive the demand for our services. In particular, the markets in which we operate are exposed to various trends such as healthcare industry and demographic ~~dynamics in the United States (“U.S.”) and international government outsourcing and employment~~ dynamics. Over the long term, we believe there are numerous factors that could affect growth within the industries in which we operate, including:

•an aging population, which will increase demand for healthcare ~~services;~~services and transportation;

•a movement towards value-based versus fee for service care and budget pressure on governments, both of which may increase the use of private corporations to provide necessary and innovative services;

•increasing demand for in-home care provision, driven by cost pressures on traditional reimbursement models and technological advances enabling remote engagement;

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

~~changes~~•MCOs that provide Medicare Advantage plans are increasingly offering non-emergency medical transportation services as a supplemental benefit in ~~UK government policy, such as decreased volumes in future welfare-to-work programs, specifically through~~accordance with current social trends;

•proposals by the ~~UK’s Work and Health Programme, which will have a reduced scope and reduced funding compared with the prior programs;~~

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

Centers for Medicare & Medicaid Services’ grant of waivers to states relative to the ~~U.S. federal government's expressed intent to repeal the Patient Protection and Affordable Care Act and replace such law with an alternative proposal. The details~~parameters of ~~both the extent of the provisions that may be repealed as well as the details of any potential replacement legislation are uncertain at this time.~~their Medicaid programs. 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.~~segments;

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

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

•the economic impact of the coronavirus ("COVID-19") pandemic could delay Medicaid health care expansion in those states that have not yet adopted the Medicaid expansion; and,

~~Historically, our segments have grown through organic expansion into new markets~~•an increase in trip volume once restrictions related to COVID-19 are modified or lifted.

Critical Accounting Estimates and ~~service lines, organic expansion within existing markets and service lines, increases in the number of members served under contracts we~~Policies

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

~~Critical accounting estimates and policies~~

~~As of September 30, 2017, there has been~~ no ~~change~~significant changes in our critical accounting policies ~~other than for stock-based compensation and recoverability of goodwill, as discussed below.~~to our condensed consolidated financial statements. For further discussion of our critical accounting policies, see management’s discussion and analysis of financial condition and results of operations contained in our Form 10-K for the year ended December 31, ~~2016.~~2019.

~~Stock-Based Compensation~~

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

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

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

~~Recoverability of Goodwill~~

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

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

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

Results of ~~operations~~Operations

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

We operate in ~~two~~one principal business ~~segments:~~segment, NET ~~Services and WD~~ Services. Our investment in ~~CCHN Group Holdings, Inc. and its subsidiaries (“Matrix”)~~Matrix is also a reportable segment referred to as the “Matrix Investment”.

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

Segment results are based on how our chief operating decision maker manages our business, makes operating decisions and evaluates operating performance. The operating results of ~~the two~~our principal business ~~segments~~segment include revenue and expenses incurred by the segment, as well as ~~an allocation of certain direct expenses incurred by~~ our ~~corporate division on behalf of the segment. Indirect expenses, including unallocated corporate functions and expenses, such as~~activities related to executive, ~~finance,~~ accounting, ~~human resources, insurance administration,~~finance, internal audit, ~~process improvement, information technology~~tax, legal, certain strategic and ~~legal, as well as~~corporate development functions and the results of our captive insurance company ~~(the “Captive”)~~through the date of dissolution. See Note 16, Segments, in our condensed consolidated financial statements for further information on our segments.

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

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

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

~~Q3 2017~~

Q1 2020 compared to ~~Q3 2016~~Q1 2019

Consolidated Results. The following table sets forth results of operations and the percentage of consolidated total revenues represented by items in our ~~unaudited~~ condensed consolidated statements of ~~income~~operations for ~~Q3 2017~~Q1 2020 and ~~Q3 2016~~Q1 2019 (in thousands):


	Three months ended September 30,									Three months ended March 31,
	2017				2016					2020				2019
	$		Percentage of Revenue		$		Percentage of Revenue			$	Percentage of Revenue		$	Percentage of Revenue
Service revenue, net	409,517		100.0	%	412,271		100.0	%	Service revenue, net	367,291	100.0	%	367,815	100.0	%

Operating expenses:									Operating expenses:
Service expense	378,032		92.3	%	378,488		91.8	%	Service expense	332,661	90.6	%	340,498	92.6	%
General and administrative expense	18,629		4.5	%	17,320		4.2	%	General and administrative expense	20,795	5.7	%	19,401	5.3	%
Depreciation and amortization	6,547		1.6	%	6,670		1.6	%	Depreciation and amortization	3,790	1.0	%	4,475	1.2	%

Total operating expenses	403,208		98.5	%	402,478		97.6	%	Total operating expenses	357,246	97.3	%	364,374	99.1	%

Operating income	6,309		1.5	%	9,793		2.4	%	Operating income	10,045	2.7	%	3,441	0.9	%

Non-operating expense:
Other expenses (income):									Other expenses (income):
Interest expense, net	302		0.1	%	338		0.1	%	Interest expense, net	241	0.1	%	303	0.1	%
Equity in net (gain) loss of investees	460		0.1	%	1,517		0.4	%
Gain on sale of equity investment	(12,606	)	3.1	%	—		—	%
Loss (gain) on foreign currency transactions	200		—	%	(482	)	0.1	%
Other income									Other income	—	—	%	(66)	—	%
Equity in net loss of investee									Equity in net loss of investee	2,550	0.7	%	1,656	0.5	%

Income from continuing operations before income taxes	17,953		4.4	%	8,420		2.0	%	Income from continuing operations before income taxes	7,254	2.0	%	1,548	0.4	%
Provision for income taxes	2,989		0.7	%	4,678		1.1	%
(Benefit) provision for income taxes									(Benefit) provision for income taxes	(9,046)	(2.5)	%	234	0.1	%
Income from continuing operations, net of tax	14,964		3.7	%	3,742		0.9	%	Income from continuing operations, net of tax	16,300	4.4	%	1,314	0.4	%
Discontinued operations, net of tax	(16	)	—	%	(2,791	)	0.7	%
Loss from discontinued operations, net of tax									Loss from discontinued operations, net of tax	(202)	(0.1)	%	(732)	(0.2)	%
Net income	14,948		3.7	%	951		0.2	%	Net income	16,098	4.4	%	582	0.2	%
Net loss attributable to noncontrolling interest	(95	)	—	%	(301	)	0.1	%
Net income attributable to Providence	14,853		3.6	%	650		0.2	%

Service revenue, ~~net.~~ ~~Consolidated service~~net. Service revenue, net for ~~Q3 2017~~Q1 2020 decreased ~~$2.8~~$0.5 million, or ~~0.7%~~0.1%, compared to ~~Q3 2016. Revenue~~Q1 2019. Service revenue decreased by $19.2 million for ~~Q3 2017 compared~~contracts we no longer serve, including MCO contracts in California, Louisiana and New York, as well as due to ~~Q3 2016 included~~lower volume related to certain profit corridor contracts as a ~~decrease in revenue attributable to WD Services~~result of ~~$10.3 million. This decrease in revenue was~~COVID-19. These decreases were partially offset by ~~an increase in revenue attributable to NET Services~~$15.3 million of ~~$7.5~~rate changes secured throughout 2019 and new contracts of $3.4 million. ~~Excluding the favorable effects of changes in currency exchange rates, consolidated service revenue~~

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

Service expense for Q1 2020 decreased ~~0.8% for Q3 2017 compared to Q3 2016.~~

~~Total operating expenses.~~ ~~Consolidated operating expenses for Q3 2017 increased $0.7~~$7.8 million, or ~~0.2%~~2.3%, compared to ~~Q3 2016. Operating~~Q1 2019 primarily due to lower purchased transportation costs. Transportation costs decreased as a result of lower utilization across multiple contracts due to the COVID-19 pandemic. Other operating expenses increased by $1.3 million primarily as a result of higher bad debt expense and legal fees.

General and administrative expense. General and administrative expense for ~~Q3 2017~~Q1 2020 increased $1.4 million, or 7.2%, compared to ~~Q3 2016 included an~~Q1 2019. The increase ~~in expenses attributable to NET Services~~was primarily a result of ~~$10.8 million~~higher corporate overhead costs including incentive compensation and ~~an increase in expenses attributable to Corporate and Other~~costs associated with the closure of ~~$0.5 million. This increase in operating expenses was~~our Las Vegas, Nevada contact center, partially offset by ~~a decrease~~severance and retention costs, associated with the Organizational Consolidation, incurred in ~~operating expenses attributable to WD Services of $10.6 million.~~Q1 2019 that were not incurred in Q1 2020.

~~Operating income.~~ ~~Consolidated operating income~~Depreciation and amortization. Depreciation and amortization for ~~Q3 2017 decreased $3.5~~Q1 2020 decreased$0.7 million or ~~35.6%,~~15.3% compared to ~~Q3 2016. The decrease was~~ Q1 2019 primarily ~~attributable~~due to ~~a decrease~~ accelerated fixed asset depreciation during Q1 2019 associated with the Organizational Consolidation. As of the end of Q2 2019, all fixed assets of the former holding company that were no longer in operating income in Q3 2017 as compared to Q3 2016 at NET Services of $3.3 million and an increase in Corporate and Other operating loss of $0.6 million. This decrease in operating income was partially offset by an increase in WD Services operating income of $0.3 million.use were fully depreciated.

Interest expense, net. Consolidated interest expense for Q1 2020 and Q1 2019 was$0.2million and $0.3 million, respectively. The decrease in interest expense, net ~~for Q3 2017 and Q3 2016 remained relatively consistent.~~in Q2 2020 was primarily related to higher interest income earned on the cash deposits.

Equity in net ~~(gain)~~ loss of ~~investees.~~ Equity in net (gain) loss of investees primarily relates to our investments in Mission Providence and Matrix. Mission Providence, which was sold effective September 29, 2017, was part of WD Services, and began providing services in July 2015. We recorded 75% of Mission Providence’s profit or loss in equity in net (gain) loss of investees. We began reporting Matrix as an equity investment effective October 19, 2016, upon the completion of the Matrix Transaction, and record our share of Matrix’s profit or loss in net (gain) loss of investees.investee. Our equity in net loss of ~~investees~~investee for ~~Q3 2017~~Q1 2020 of ~~$0.5~~$2.6 million ~~primarily related to~~and $1.7 million for Q1 2019 was a result of our ~~equity in~~proportional share of the net loss ~~for Mission Providence~~ of ~~$0.5~~Matrix. Included in Matrix's standalone Q1 2020 results were severance cost and transaction costs of $1.2 million. ~~Matrix was close to break-even on a net income basis in Q3 2017.~~ Included in Matrix’s standalone Q1 2019 results ~~are depreciation~~were integration and amortization of $8.5 million, interest expense of $3.7 million, equity compensation of $0.6 million, management fees paid to certain of Matrix’s shareholders of $0.6 million and merger and acquisitiontransaction related ~~diligence~~ costs of ~~$0.3~~$1.6 million.

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

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

Provision for income taxes. Our effective tax rate from continuing operations for ~~Q3 2017~~Q1 2020 and ~~Q3 2016~~Q1 2019 was ~~16.7%~~(124.7)% and ~~55.6%~~15.1%, respectively. ~~The~~For Q1 2020, the effective tax rate ~~exceeded~~was substantially lower than the U.S. federal statutory rate of ~~35% for Q3 2016~~21.0% primarily due to ~~foreign~~the favorable impact of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) on our U.S. net operating ~~losses (including equity investment losses) for which~~losses. For Q1 2019, the ~~future income~~effective tax ~~benefit currently cannot be recognized, losses in foreign jurisdictions with tax rates~~rate was lower than the U.S. federal statutory rate of 35%, state income taxes, and certain non-deductible expenses. Foreign net operating losses for which no tax benefit can be provided were higher in Q3 2016 versus Q3 2017 resulting in a decrease in the effective tax rate from Q3 2016 to Q3 2017. Additionally, there is no provision for income taxes related to the gain on sale of equity investment of $12.6 million21.0% primarily due to the ~~substantial difference in tax basis versus book basis in the investment.~~

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

~~Discontinued~~Loss from discontinued operations, net of tax. ~~Discontinued~~ Loss from discontinued operations, net of tax, includes the activity ofrelated to our former WD Services and Human Services segment and our former HA Services segment, composed entirely of our 100% equity interest in Matrix until the completion of the Matrix Transaction on October 19, 2016. For Q3 2017, discontinued operations, net of tax for our Human Services segment was break-even. For Q3 2016, discontinued operations, net of tax for our Human Services segment was a loss of $5.0 million, and discontinued operations, net of tax for our HA Services segment was net income of $2.2 million.segments. See Note ~~13,~~ 15, Discontinued Operations, to our condensed consolidated financial statements for additional information.

~~Net~~For Q1 2020, the loss ~~attributable to noncontrolling interests.~~ Net loss attributable to noncontrolling interests primarily relates to a minority interest held by a third-party operating partner in our company servicing the offender rehabilitation contract in our WD Services segment.

~~YTD 2017 compared to YTD 2016~~

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

~~Service revenue, net.~~ Consolidated service revenue, net for YTD 2017 increased $24.6 million, or 2.1%, compared to YTD 2016. Revenue for YTD 2017 compared to YTD 2016 included an increase in revenue attributable to NET Services of $70.5 million. This increase in revenue was partially offset by a decrease in revenue attributable to WD Services of $46.0 million. Excluding the effects of changes in currency exchange rates, consolidated service revenue increased 3.1% for YTD 2017 compared to YTD 2016.

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

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

~~Interest expense, net.~~ ~~Consolidated interest expense, net for YTD 2017 decreased $0.3 million, or 20.7%, compared to YTD 2016.~~

~~Equity in netlossof investees.~~ Our equity in net loss of investees for YTD 2017 of $1.0 million includes an equity in net loss for Mission Providence of $1.4 million, partially offset by equity in net gain of Matrix of $0.4 million. Included in Matrix’s results are depreciation and amortization of $24.6 million, interest expense of $11.0 million, transaction bonuses and other transaction related costs of $3.5 million, equity compensation of $1.9 million, management fees paid to Matrix’s shareholders of $1.8 million, merger and acquisition diligence related costs of $0.3 million and income tax benefit of $0.1 million.

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

~~Provision for income taxes.~~ ~~Our effective tax rates~~ from continuing operations for YTD 2017 and YTD 2016 was 28.8% and 64.9%, respectively. The effective tax rate exceeded the U.S. federal statutory rate of 35% for YTD 2016 primarily due to foreign net operating losses (including equity investment losses) for which the future income tax benefit currently cannot be recognized, losses in foreign jurisdictions with tax rates lower than the U.S. rate of 35%, state income taxes, and certain non-deductible expenses. Foreign net operating losses for which no tax benefit can be provided were higher in YTD 2016 versus YTD 2017 resulting in a decrease in the effective tax rate from YTD 2016 to YTD 2017. Additionally, there was no provision for income taxes related to the gain on sale of equity investment of $12.6 million due to the substantial difference in tax basis versus book basis in the investment.

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

~~Discontinued operations, net of tax.~~ Discontinued operations, net of tax, includes the activity of our former Human Services segment and our former HA Services segment, composed entirely of our 100% equity interest in Matrix until the completion of the Matrix Transaction on October 19, 2016. For YTD 2017, discontinued operations, net of tax, for our ~~Human~~former WD Services segment was ~~a loss of $6.0~~$0.1 million, which ~~primarily~~includes the income and expense related to the ~~accrual~~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 ~~contingent liability~~third party as of ~~$9.0 million related to~~January 1, 2019, and thus we are no longer providing services in Saudi Arabia. For Q1 2020, the ~~settlement of indemnification claims and associated legal costs of $0.6 million, partially offset by a related tax benefit. For YTD 2016,~~loss from discontinued operations, net of tax, for our former Human Services segment was ~~a net~~$0.1 million.

For Q1 2019, the loss ~~of $5.0 million, and~~on discontinued operations, net of tax, was due to a loss of $0.6 million for our ~~HA Services segment was net income of $5.4 million. See Note 13,~~ ~~Discontinued Operations,~~ ~~to our condensed consolidated financial statements for additional information.~~

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

~~Segment Results.~~ ~~The following analysis includes discussion of each of our segments.~~

~~NET Services segment financial results are as follows for Q3 2017 and Q3 2016 (in thousands):~~

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

~~Service expense, net.~~ ~~Service expense for our NET Services segment included the following for Q3 2017 and Q3 2016 (in thousands):~~

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

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

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

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

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

~~NET Services segment financial results are as follows for YTD 2017 and YTD 2016 (in thousands):~~

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

~~Service expense, net.~~ ~~Service expense for our NET Services segment included the following for YTD 2017 and YTD 2016 (in thousands):~~

Service expense for YTD 2017 increased $80.8 million, or 9.5%, compared to YTD 2016 due primarily to higher purchased services and other operating costs, with a slight increase in payroll and related costs.

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

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

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

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

former WD Services segment ~~financial results are as follows for Q3 2017~~ and ~~Q3 2016 (in thousands):~~

~~Service revenue, net.~~ ~~Service revenue, net for Q3 2017 decreased $10.3~~a loss of $0.1 million or 10.8%, compared to Q3 2016. Excluding the favorable effects of changes in currency exchange rates, service revenue decreased 11.2% in Q3 2017 compared to Q3 2016. This decrease was primarily related to the anticipated ending of referrals under the segment’s primary employability program in the UK, as well as decreased revenue under our offender rehabilitation program due to $5.4 million of revenue recognized in Q3 2016 related to the finalization of a contractual adjustment for the prior contract years ended March 31, 2015 and 2016.

~~These revenue decreases were partially offset by increases in health services in the UK and various employability contracts outside the UK, including France, Australia and Germany.~~

~~Service expense.~~ ~~Service expense~~ for our WDformer Human Services ~~segment included the following for Q3 2017~~segment.

Our quarterly operating income and ~~Q3 2016 (in thousands):~~

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

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

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

~~WD Services segment financial results are as follows for YTD 2017 and YTD 2016 (in thousands):~~

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

~~Service expense.~~ ~~Service expense for our WD Services segment included the following for YTD 2017 and YTD 2016 (in thousands):~~

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

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

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

~~Corporate and Other~~

Corporate and Other includes the headcount and professional service costs incurred at the holding company level, at the Captive, and elimination entries to account for inter-segment transactions. Corporate and Other financial results are as follows for Q3 2017 and Q3 2016 (in thousands):

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

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

~~Corporate and Other financial results are as follows for YTD 2017 and YTD 2016 (in thousands):~~

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

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

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

Liquidity and capital resources

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

Cash flow from operating activities was ~~our primary source of cash during YTD 2017. Additionally, YTD 2017 included $15.8~~$38.8 million in ~~proceeds from the sale of our equity investment in Mission Providence which is included in cash provided by investing activities.~~March 31, 2020. Our balance of cash and cash equivalents was ~~$92.2~~$254.4 million and ~~$72.3~~$61.4 million at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016, respectively, including $33.8 million and $21.4 million held in foreign countries,~~2019, respectively. The September 30, 2017 foreign cash balance includes the proceeds from the sale of Mission Providence. Such cash held in foreign countries is generally used to fund foreign operations, although it may also be used to repay intercompany indebtedness existing between Providence and its foreign subsidiaries.

WeAdditionally, we had restricted cash of ~~$7.1~~$0.1 million and ~~$14.1~~$0.2 million at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016, respectively, primarily related to contractual obligations and activities of our captive insurance subsidiary. These restricted~~2019, respectively. Restricted cash amounts are not included in our balance of cash and cash ~~equivalents.~~equivalents in the condensed consolidated balance sheets, although they are included in the cash, cash equivalents and restricted cash balance on the accompanying condensed consolidated statements of cash flows. At ~~September 30, 2017~~March 31, 2020, we had $162.0 million outstanding under our Credit Facility and letters of credit of $13.6 million. We borrowed $162.0 million under the revolving credit facility as a precautionary measure to enhance our financial flexibility given uncertainty surrounding the COVID-19 pandemic and its impact on global economies and financial markets. At December 31, ~~2016,~~2019, we had no amounts outstanding under ~~our~~the Credit Facility.

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

The cash flow ~~statement~~statements for all periods presented ~~includes~~include both continuing and discontinued operations. Discontinued operations ~~for YTD 2016 includes~~include the activity of our historical WD Services and Human Services ~~and HA Services~~ segments. ~~Income~~The loss from discontinued operations, ~~totaled $0.3~~net of tax, was $0.2 million for the three months ended March 31, 2020 and the loss from discontinued operations, net of tax, was $0.7 million for YTD 2016. Significant non-cash items of our discontinued operations in YTD 2016 included $3.7 million of depreciation expense and $17.5 million of amortization expense. Our discontinued operations also purchased property and equipment totaling $8.0 million during YTD 2016.the three months ended March 31, 2019.

~~YTD 2017~~Q1 2020 cash flows compared to ~~YTD 2016~~Q1 2019

Operating activities. Cash provided by operating activities was ~~$36.9~~$38.8 million for ~~YTD 2017,~~Q1 2020 and Q1 2019. Although there was no change during the comparative periods, net income was higher in Q1 2020 primarily as a result of an $11.1 million income tax benefit due to the CARES Act as well as an increase in operating income of $6.6 million.The increase was offset by a decrease of $8.3 million compared with YTD 2016. YTD 2017 and YTD 2016 cash flow from operations was driven by net income of $14.7 million and $7.1 million, respectively, non-cash adjustments to reconcile net income to netin the cash provided by ~~operating activities of $8.0 million and $37.1 million, respectively, and changes in~~ working capital of ~~$14.2~~$27.6 million, primarily related to a $20.8 million increase in prepaid income taxes and ~~$1.1~~$28.7 million ~~respectively. The change~~increase in ~~adjustments to reconcile net income to net cash provided by operating activities~~accounts payable. A majority of the increase in accounts payable was due ~~primarily~~ to the ~~impact~~conversion of ~~the disposition~~accrued transportation cost into accounts payable as of ~~HA Services, resulting~~March 31, 2020 due to timing of our transportation provider payments. The decrease in ~~decreased depreciation, amortization and deferred taxes~~these working capital items were partially offset by an increase in ~~YTD 2017 as compared to YTD 2016, as well as the gain on sale~~accounts receivable collections.

Investing activities. Net cash used in investing activities of ~~Mission Providence of $12.6~~$1.6 million in ~~YTD 2017. The change in working capital is primarily driven~~Q1 2020 decreased by ~~the following:~~

~~Investing activities.~~ Net cash provided by investing activities of $4.9 million in YTD 2017 increased by $40.0 million as compared to YTD 2016. The increase was primarily attributable to $15.8 million in proceeds from the sale of our equity investment in Mission Providence, a decrease in funding of our equity investment in Mission Providence of $6.4 million and a decrease in the purchase of property and ~~equipment of $18.6 million. YTD 2016 included purchases of property and equipment of $8.0 million by our discontinued operations.~~equipment.

Financing activities. Net cash ~~used in~~provided by financing activities of ~~$22.3~~$155.5 million in ~~YTD 2017 decreased $9.9~~Q1 2020 increased $154.4 million as compared to ~~YTD 2016. During YTD 2017, we repurchased $34.5~~Q1 2019. The increase was primarily due to $162.0 million ~~less~~in borrowings made under our Credit Facility during Q1 2020, partially offset by an increase of $7.1 million in repurchase of our common stock ~~than in YTD 2016. Partially offsetting this decrease in cash outflows was a decrease in net proceeds from debt~~ during ~~YTD 2017 as compared to YTD 2016 of $20.3 million as well as a decrease in proceeds from common stock issued pursuant to stock option exercises of $2.6 million.~~the comparative periods.

Obligations and commitments

Credit ~~facility.~~Facility. We are party to the amended and restated credit and guaranty agreement, dated as of August 2, 2013 (as amended, the “Credit Agreement”), with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, and the other lenders party thereto. On May 6, 2020, we entered into the Seventh Amendment to the Amended and Restated Credit and Guaranty Agreement (the “Seventh Amendment”). The ~~Credit Agreement provides us with a $200.0 million~~Seventh Amendment extends the maturity date to August 1, 2021, expands the amount available under the revolving credit facility (the “Credit Facility”)~~, including a subfacility of $25.0~~ from $200.0 million to $225.0 million, and increases the sub-facility for letters of credits from $25.0 million to $40.0 million. Interest on the loans is payable quarterly in arrears. In addition, we are obligated to pay a quarterly commitment fee based on a percentage of the unused portion of each lender’s commitment under the Credit Facility and quarterly letter of credit fees based on a percentage of the maximum amount available to be drawn under each outstanding letter of credit.

As of ~~September 30, 2017,~~March 31, 2020, we had no$162.0 million in borrowings ~~and seven~~outstanding on the Credit Facility in addition to letters of credit outstanding in the amount of ~~$11.0 million outstanding under the revolving credit facility. At September 30, 2017, our~~$13.6 million. Our available credit under the ~~revolving credit facility~~Credit Facility was ~~$189.0~~$24.4 million. Under the Credit Agreement, ~~the Company has~~we have an option to request an increase in the amount of the revolving credit facility from time to time (on substantially the same terms as apply to the existing facilities) in an aggregate amount of up to $75.0 million with either additional commitments from lenders under the Credit Agreement at such time or new commitments from financial institutions acceptable to the administrative agent in its reasonable discretion, so long as no default or event of default exists at the time of any such increase. ~~The Company~~We may not be able to access additional funds under this increase option as no lender is obligated to participate in any such increase under the Credit Facility. ~~The~~

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

~~Interest~~As of March 31, 2020, interest on the outstanding principal amount of ~~the~~ loans ~~accrues,~~accrued, at ~~the Company’s~~our election, at a per annum rate equal to LIBOR, plus an applicable margin, or the base rate as defined in the agreement plus an applicable margin. The applicable margin ~~ranges~~ranged from 2.25% to 3.25% in the case of LIBOR loans and 1.25% to 2.25% in the case of the base rate loans, in each case, based on ~~the Company’s~~our consolidated leverage ratio as defined in the Credit Agreement. Interest on the loans is payable quarterly in arrears. In addition, the Company is obligated to pay a quarterly commitment fee based on a percentage of the unused portion of each lender’s commitment under the Credit Facility and quarterly letter of credit fees based on a percentage of the maximum amount available to be drawn under each outstanding letter of credit. The commitment fee and letter

of credit fee ~~range~~ranged from 0.25% to 0.50% and 2.25% to 3.25%, respectively, in each case based on ~~the Company’s~~our consolidated leverage ~~ratio.~~ratio as defined by the Credit Agreement. As of March 31, 2020, the all-in interest rate was 4.17%.

Subsequent to the Seventh Amendment, interest 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.

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

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

The Credit Agreement contains customary affirmative and negative covenants and events of default. The negative covenants include restrictions on ~~the Company’s~~our ability to, among other things, incur additional indebtedness, create liens, make investments, give guarantees, pay dividends, repurchase shares, sell assets, and merge and consolidate. ~~The Company is~~We are subject to financial covenants, including consolidated net leverage and consolidated interest coverage covenants. ~~The Company was~~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. We were in compliance with all covenants as of ~~September 30, 2017.~~March 31, 2020. The covenants did not change as a result of the Seventh Amendment.

Preferred Stock. Following (i) the completion of a rights offering in February 2015, under which certain holders of our Common Stock exercised subscription rights to purchase Preferred Stock, and (ii) the purchase of Preferred Stock by ~~certain of~~ Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Blackwell Partners, LLC - Series A and Coliseum Capital Co-Invest, L.P. ~~and Blackwell Partners, LLC~~ (collectively, the ~~“Standby Purchasers”~~“Coliseum Stockholders”), pursuant to the Standby Purchase Agreement between the ~~Standby Purchasers~~Coliseum Stockholders and ~~the Company, the Company~~us, we issued 805,000 shares of Preferred Stock, of which ~~803,232 shares~~ 798,772 shares are outstanding as of ~~September 30, 2017.~~March 31, 2020. For further information regarding these transactions, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and capital resources – Obligations and commitments – ~~Rights Offering”~~Preferred Stock” in ~~the Company’s~~ our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019. We may pay a noncumulative cash dividend on each share of Preferred Stock, when, as and if declared by a committee of our Board, ~~of Directors (“Board”),~~ at the rate of 5.5% per annum on the liquidation preference then in effect. On or before the third business day immediately preceding each fiscal quarter, we determine our intention whether or not to pay a cash dividend with respect to that ensuing quarter and give notice of our intention to each holder of Preferred Stock as soon as practicable thereafter.



	September 30, 2017			December 31, 2016
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	92,178		$	72,262
Accounts receivable, net of allowance of $5,765 in 2017 and $5,901 in 2016	175,162			162,115
Other receivables	5,555			12,639
Prepaid expenses and other	39,083			37,895
Restricted cash	1,198			3,192
Total current assets	313,176			288,103
Property and equipment, net	48,191			46,220
Goodwill	121,555			119,624
Intangible assets, net	45,750			49,124
Equity investments	157,067			161,363
Other assets	12,911			8,397
Restricted cash, less current portion	5,902			10,938
Deferred tax asset	4,436			1,510
Total assets	$	708,988		$	685,279
Liabilities, redeemable convertible preferred stock and stockholders' equity
Current liabilities:
Current portion of long-term obligations	$	1,528		$	1,721
Accounts payable	19,921			22,177
Accrued expenses	103,397			102,381
Accrued transportation costs	101,195			72,356
Deferred revenue	17,421			20,522
Reinsurance and related liability reserves	4,881			8,639
Total current liabilities	248,343			227,796
Long-term obligations, less current portion	566			1,890
Other long-term liabilities	23,968			22,380
Deferred tax liabilities	54,363			57,973
Total liabilities	327,240			310,039
Commitments and contingencies (Note 11)
Redeemable convertible preferred stock
Convertible preferred stock, net: Authorized 10,000,000 shares; $0.001 par value; 803,232 and 803,398 issued and outstanding; 5.5%/8.5% dividend rate	77,549			77,565
Stockholders' equity
Common stock: Authorized 40,000,000 shares; $0.001 par value; 17,446,673 and 17,315,661 issued and outstanding (including treasury shares)	17			17
Additional paid-in capital	310,017			302,010
Retained earnings	167,004			156,718
Accumulated other comprehensive loss, net of tax	(26,331		)	(33,449		)
Treasury shares, at cost, 3,944,171 and 3,478,676 shares	(144,201		)	(125,201		)
Total Providence stockholders' equity	306,506			300,095
Noncontrolling interest	(2,307		)	(2,420		)
Total stockholders' equity	304,199			297,675
Total liabilities, redeemable convertible preferred stock and stockholders' equity	$	708,988		$	685,279



	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Service revenue, net	$	409,517		$	412,271		$	1,216,994		$	1,192,426

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

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

Other expenses:
Interest expense, net	302			338			983			1,239
Equity in net (gain) loss of investees	460			1,517			991			5,693
Gain on sale of equity investment	(12,606		)	—			(12,606		)	—
Loss (gain) on foreign currency transactions	200			(482		)	600			(1,332		)
Income from continuing operations before income taxes	17,953			8,420			29,127			19,209
Provision for income taxes	2,989			4,678			8,391			12,466
Income from continuing operations, net of tax	14,964			3,742			20,736			6,743
Discontinued operations, net of tax	(16		)	(2,791		)	(6,000		)	332
Net income	14,948			951			14,736			7,075
Net loss (income) attributable to noncontrolling interests	(95		)	(301		)	(295		)	433
Net income attributable to Providence	$	14,853		$	650		$	14,441		$	7,508

Net income (loss) available to common stockholders (Note 9)	$	11,962		$	(745	)	$	8,927		$	3,697

Basic earnings (loss) per common share:
Continuing operations	$	0.88		$	0.14		$	1.10		$	0.23
Discontinued operations	—			(0.19		)	(0.44		)	0.02
Basic earnings (loss) per common share	$	0.88		$	(0.05	)	$	0.66		$	0.25

Diluted earnings (loss) per common share:
Continuing operations	$	0.88		$	0.14		$	1.09		$	0.23
Discontinued operations	—			(0.19		)	(0.44		)	0.02
Diluted earnings (loss) per common share	$	0.88		$	(0.05	)	$	0.65		$	0.25

Weighted-average number of common shares outstanding:
Basic	13,581,662			14,523,408			13,612,764			14,823,757
Diluted	13,655,554			14,634,483			13,676,468			14,943,024



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



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



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



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



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



	January 1, 2017		Costs Incurred			Cash Payments			Foreign Exchange Rate Adjustments		September 30, 2017

Ingeus Futures' Program	$	2,486	$	1,186		$	(3,086	)	$	158	$	744
Offender Rehabilitation Program	1,380		(40		)	(1,357		)	17		—
UK Restructuring Program	50		(29		)	—			3		24
Total	$	3,916	$	1,117		$	(4,443	)	$	178	$	768



	January 1, 2016		Costs Incurred		Cash Payments			Foreign Exchange Rate Adjustments			September 30, 2016

Offender Rehabilitation Program	$	6,538	$	4,204	$	(6,075	)	$	(906	)	$	3,761
UK Restructuring Program	2,059		537		(2,379		)	(103		)	114
Total	$	8,597	$	4,741	$	(8,454	)	$	(1,009	)	$	3,875



	Three months ended September 30, 2017								Nine months ended September 30, 2017
	Human Services Segment			HA Services Segment		Total Discontinued Operations			Human Services Segment			HA Services Segment		Total Discontinued Operations

Operating expenses:
General and administrative expense	$	26		$	—	$	26		$	9,622		$	—	$	9,622
Total operating expenses	26			—		26			9,622			—		9,622
Loss from discontinued operations before income taxes	(26		)	—		(26		)	(9,622		)	—		(9,622		)
Income tax benefit	10			—		10			3,622			—		3,622
Discontinued operations, net of tax	$	(16	)	$	—	$	(16	)	$	(6,000	)	$	—	$	(6,000	)



	Three months ended September 30, 2016									Nine months ended September 30, 2016
	Human Services Segment			HA Services Segment			Total Discontinued Operations			Human Services Segment			HA Services Segment			Total Discontinued Operations

Service revenue, net	$	—		$	52,557		$	52,557		$	—		$	155,421		$	155,421

Operating expenses:
Service expense	—			38,703			38,703			—			113,455			113,455
General and administrative expense	7,463			1,505			8,968			7,463			2,823			10,286
Depreciation and amortization	—			5,359			5,359			—			21,121			21,121
Total operating expenses	7,463			45,567			53,030			7,463			137,399			144,862
Operating income (loss)	(7,463		)	6,990			(473		)	(7,463		)	18,022			10,559

Other expenses:
Interest expense, net	—			3,134			3,134			—			9,304			9,304
Income (loss) from discontinued operations before income taxes	(7,463		)	3,856			(3,607		)	(7,463		)	8,718			1,255
Income tax benefit (provision)	2,428			(1,612		)	816			2,428			(3,351		)	(923		)
Discontinued operations, net of tax	$	(5,035	)	$	2,244		$	(2,791	)	$	(5,035	)	$	5,367		$	332



	Nine months ended September 30, 2016

Cash flows from discontinued operating activities:
Depreciation	$	3,661
Amortization	$	17,460

Cash flows from discontinued investing activities:
Purchase of property and equipment	$	8,020



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

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



Period	Total Number of Shares of Common Stock Purchased (1)	Average Price Paid per Share		Total Number of Shares of Common Stock Purchased as Part of Publicly Announced Plans or Program	Maximum Dollar Value of Shares of Common Stock that May Yet Be Purchased Under the Plans or Program (2)
Month 1:
July 1, 2017
to
July 31, 2017	47	$	50	—	$	69,624,167

Month 2:
August 1, 2017
to
August 31, 2017	115	$	51.54	—	$	69,624,167

Month 3:
September 1, 2017
to
September 30, 2017	—	$	—	—	$	69,624,167

Total	162			—


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

Total	142,821			142,821


~~(1)~~	~~Includes shares repurchased from employees in connection with the settlement of income tax and related benefit withholding obligations arising from vesting of restricted stock grants.~~


~~(2)~~	On October 26, 2016, our Board authorized a new repurchase program, under which the Company may repurchase up to $100.0 million in aggregate value of the Company’s common stock during the twelve-month period following October 26, 2016. As of September 30, 2017, a total of 770,808 shares were purchased through this plan for $30.4 million, including commission payments.


Exhibit Number		Description

~~Exhibit~~ ~~Number~~ 31.1*		~~Description~~

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

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

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

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

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~~101.SCH~~	XBRL Schema Document

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			THE PROVIDENCE SERVICE CORPORATION

Date: May 7, 2020			~~THE PROVIDENCE SERVICE CORPORATION~~By:	/s/ Daniel E. Greenleaf

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

Date: ~~November 8, 2017~~May 7, 2020			By:	/s/ ~~David C. Shackelton~~Kevin Dotts
				~~David C. Shackelton~~ Kevin Dotts Chief Financial Officer
				(Principal Financial Officer)