UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended September 30, ~~2017~~2021



☐			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~~ModivCare Inc.

(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.)

6900 Layton Avenue, l2th Floor, Denver, Colorado80237

(Address of principal executive offices)(Zip Code)



~~700 Canal Street, Third Floor~~ ~~Stamford, Connecticut~~		~~06902~~
~~(Address of principal executive offices)~~		~~(Zip Code)~~

~~(203) 307-2800~~303-728-7030

(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	MODV	The NASDAQ Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically ~~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~~

“smaller reporting company” and “emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer		☒	Accelerated filer	☐
Non-accelerated filer		☐	Smaller reporting company	☐

~~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, there~~1, 2021, there were ~~outstanding 13,305,502~~outstanding 13,999,767 shares (excluding treasury shares of ~~3,944,171)~~5,415,040) of the registrant’s Common Stock, $0.001 par value per share.

TABLE OF CONTENTS



					Page

PART I—FINANCIAL INFORMATION

Item 1.			Financial Statements		4

			Unaudited Condensed Consolidated Balance Sheets – September 30, ~~2017 (unaudited)~~2021 and December 31, ~~2016~~2020		4

			Unaudited Condensed Consolidated Statements of ~~Income~~Operations – Three and ~~nine~~Nine months ended September 30, ~~2017~~2021 and ~~2016~~2020		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 months ended September 30, ~~2017~~2021 and ~~2016~~2020	76

			Unaudited Condensed Consolidated Statements of Stockholders’ Equity – Three quarters ended September 30, 2021 and 2020		8

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

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations		2431

Item 3.			Quantitative and Qualitative Disclosures About Market Risk		3942

Item 4.			Controls and Procedures		4042

PART II—OTHER INFORMATION

Item 1.			Legal Proceedings		4143

Item 1A.			Risk Factors		4143









~~Item 2.~~			~~Unregistered Sales of Equity Securities and Use of Proceeds~~	42

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

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

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

Item 6.	Exhibits			4344

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

~~The Providence Service Corporation~~ModivCare Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)


	September 30, 2017			December 31, 2016				September 30, 2021		December 31, 2020
	(Unaudited)
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	92,178		$	72,262		Cash and cash equivalents	$	126,506	$	183,281
Accounts receivable, net of allowance of $5,765 in 2017 and $5,901 in 2016	175,162			162,115
Accounts receivable, net of allowance of $690 and $2,403, respectively							Accounts receivable, net of allowance of $690 and $2,403, respectively	289,230		197,943
Other receivables	5,555			12,639			Other receivables	12,934		12,674
Prepaid expenses and other	39,083			37,895
Prepaid expenses and other current assets							Prepaid expenses and other current assets	41,655		31,885
Restricted cash	1,198			3,192			Restricted cash	186		75
Current assets of discontinued operations							Current assets of discontinued operations	141		758
Total current assets	313,176			288,103			Total current assets	470,652		426,616
Operating lease right-of-use assets							Operating lease right-of-use assets	44,077		30,928
Property and equipment, net	48,191			46,220			Property and equipment, net	52,538		27,544
Goodwill	121,555			119,624			Goodwill	929,986		444,927
Intangible assets, net	45,750			49,124			Intangible assets, net	491,997		345,652
Equity investments	157,067			161,363
Equity investment							Equity investment	134,353		137,466
Other assets	12,911			8,397			Other assets	11,550		12,780
Restricted cash, less current portion	5,902			10,938
Deferred tax asset	4,436			1,510

Total assets	$	708,988		$	685,279		Total assets	$	2,135,153	$	1,425,913
Liabilities, redeemable convertible preferred stock and stockholders' equity
Liabilities and stockholders' equity							Liabilities and stockholders' equity
Current liabilities:							Current liabilities:
Current portion of long-term obligations	$	1,528		$	1,721
Accounts payable	19,921			22,177			Accounts payable	$	33,458	$	8,464
Accrued expenses	103,397			102,381
Accrued contract payables							Accrued contract payables	320,045		101,705
Accrued expenses and other current liabilities							Accrued expenses and other current liabilities	109,571		117,010
Accrued transportation costs	101,195			72,356			Accrued transportation costs	92,028		79,674
Current portion of operating lease liabilities							Current portion of operating lease liabilities	9,287		8,277
Self-funded insurance programs							Self-funded insurance programs	7,563		4,727
Deferred revenue	17,421			20,522			Deferred revenue	2,488		2,923
Reinsurance and related liability reserves	4,881			8,639
Current liabilities of discontinued operations							Current liabilities of discontinued operations	1,527		1,971
Total current liabilities	248,343			227,796			Total current liabilities	575,967		324,751
Long-term obligations, less current portion	566			1,890
Long-term debt, net of deferred financing costs of $25,330 and $14,020, respectively							Long-term debt, net of deferred financing costs of $25,330 and $14,020, respectively	974,669		485,980
Deferred tax liabilities							Deferred tax liabilities	112,461		92,195
Operating lease liabilities, less current portion							Operating lease liabilities, less current portion	35,389		23,437
Long-term contract payables							Long-term contract payables	5,793		72,183
Other long-term liabilities	23,968			22,380			Other long-term liabilities	26,887		15,756
Deferred tax liabilities	54,363			57,973

Total liabilities	327,240			310,039			Total liabilities	1,731,166		1,014,302
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
Commitments and contingencies (Note 14)							Commitments and contingencies (Note 14)	0		0

Stockholders’ equity							Stockholders’ equity
Common stock: Authorized 40,000,000 shares; $0.001 par value; 19,581,219 and 19,570,598, respectively, issued and outstanding (including treasury shares)							Common stock: Authorized 40,000,000 shares; $0.001 par value; 19,581,219 and 19,570,598, respectively, issued and outstanding (including treasury shares)	20		20
Additional paid-in capital	310,017			302,010			Additional paid-in capital	428,643		421,318
Retained earnings	167,004			156,718			Retained earnings	243,356		218,414
Accumulated other comprehensive loss, net of tax	(26,331		)	(33,449		)
Treasury shares, at cost, 3,944,171 and 3,478,676 shares	(144,201		)	(125,201		)
Total Providence stockholders' equity	306,506			300,095
Noncontrolling interest	(2,307		)	(2,420		)
Total stockholders' equity	304,199			297,675
Total liabilities, redeemable convertible preferred stock and stockholders' equity	$	708,988		$	685,279

Treasury shares, at cost, 5,561,826 and 5,287,283 shares, respectively							Treasury shares, at cost, 5,561,826 and 5,287,283 shares, respectively	(268,032)		(228,141)
Total stockholders’ equity							Total stockholders’ equity	403,987		411,611
Total liabilities and stockholders’ equity							Total liabilities and stockholders’ equity	$	2,135,153	$	1,425,913

See accompanying notes to the unaudited condensed consolidated financial statements

~~The Providence Service Corporation~~ModivCare Inc.

Unaudited Condensed Consolidated Statements of ~~Income~~Operations

(in thousands, except share and per share data)


	Three months ended September 30,						Nine months ended September 30,							Three months ended September 30,				Nine months ended September 30,
	2017			2016			2017			2016				2021		2020		2021		2020
Service revenue, net	$	409,517		$	412,271		$	1,216,994		$	1,192,426		Service revenue, net	$	493,059	$	320,619	$	1,421,117	$	970,166
Grant income (Note 2)													Grant income (Note 2)	—		—		3,500		—

Operating expenses:													Operating expenses:
Service expense	378,032			378,488			1,124,478			1,095,011			Service expense	399,272		235,543		1,139,170		764,310
General and administrative expense	18,629			17,320			53,705			52,548			General and administrative expense	68,054		34,441		179,271		86,435
Depreciation and amortization	6,547			6,670			19,716			20,058			Depreciation and amortization	12,608		7,301		36,667		17,199

Total operating expenses	403,208			402,478			1,197,899			1,167,617			Total operating expenses	479,934		277,285		1,355,108		867,944

Operating income	6,309			9,793			19,095			24,809			Operating income	13,125		43,334		69,509		102,222

Other expenses:
Other expenses (income):													Other expenses (income):
Interest expense, net	302			338			983			1,239			Interest expense, net	17,702		379		34,412		2,118
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
Equity in net loss (income) of investee													Equity in net loss (income) of investee	6,748		(10,325)		1,978		(12,200)
Income (loss) from continuing operations before income taxes													Income (loss) from continuing operations before income taxes	(11,325)		53,280		33,119		112,304
Provision (benefit) for income taxes													Provision (benefit) for income taxes	(3,863)		14,360		7,944		19,785
Income (loss) from continuing operations, net of tax													Income (loss) from continuing operations, net of tax	(7,462)		38,920		25,175		92,519
Loss from discontinued operations, net of tax													Loss from discontinued operations, net of tax	(108)		(115)		(232)		(618)
Net income (loss)													Net income (loss)	$	(7,570)	$	38,805	$	24,943	$	91,901

Net income (loss) available to common stockholders (Note 12)													Net income (loss) available to common stockholders (Note 12)	$	(7,570)	$	35,346	$	24,943	$	34,563

Basic earnings (loss) per common share:													Basic earnings (loss) per common share:
Continuing operations	$	0.88		$	0.14		$	1.10		$	0.23		Continuing operations	$	(0.53)	$	2.53	$	1.79	$	2.63
Discontinued operations	—			(0.19		)	(0.44		)	0.02			Discontinued operations	(0.01)		(0.01)		(0.02)		(0.05)
Basic earnings (loss) per common share	$	0.88		$	(0.05	)	$	0.66		$	0.25		Basic earnings (loss) per common share	$	(0.54)	$	2.52	$	1.77	$	2.58

Diluted earnings (loss) per common share:													Diluted earnings (loss) per common share:
Continuing operations	$	0.88		$	0.14		$	1.09		$	0.23		Continuing operations	$	(0.53)	$	2.51	$	1.76	$	2.62
Discontinued operations	—			(0.19		)	(0.44		)	0.02			Discontinued operations	(0.01)		(0.01)		(0.02)		(0.05)
Diluted earnings (loss) per common share	$	0.88		$	(0.05	)	$	0.65		$	0.25		Diluted earnings (loss) per common share	$	(0.54)	$	2.50	$	1.74	$	2.57

Weighted-average number of common shares outstanding:													Weighted-average number of common shares outstanding:
Basic	13,581,662			14,523,408			13,612,764			14,823,757			Basic	13,993,438		14,026,039		14,102,371		13,367,605
Diluted	13,655,554			14,634,483			13,676,468			14,943,024			Diluted	13,993,438		14,133,904		14,278,331		13,415,344

See accompanying notes to the unaudited condensed consolidated financial statements

~~The Providence Service Corporation~~

~~Unaudited Condensed Consolidated Statements of Comprehensive Income~~

~~(in thousands)~~

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 )

~~See accompanying notes to the unaudited condensed consolidated financial statements~~

~~The Providence Service Corporation~~ModivCare Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	Nine months ended September 30,
	2021		2020
Operating activities
Net income	$	24,943	$	91,901
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	8,839		6,980
Amortization	27,827		10,219
Provision for doubtful accounts	(1,712)		(3,139)
Stock-based compensation	4,225		2,949
Deferred income taxes	(3,295)		12,612
Amortization of deferred financing costs and debt discount	2,175		292
Equity in net loss (income) of investee	1,978		(12,200)
Reduction of right-of-use assets	8,681		6,769
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable and other receivables	(69,597)		20,017
Prepaid expenses and other assets	(5,330)		(28,216)
Income tax refunds on sale of business	—		17,789
Self-funded insurance programs	2,837		1,259
Accrued contract payables	151,950		88,347
Accounts payable and accrued expenses	7,138		33,061
Accrued transportation costs	12,354		(5,506)
Deferred revenue	(502)		453
Other long-term liabilities	2,183		43,639
Net cash provided by operating activities	174,694		287,226
Investing activities
Purchase of property and equipment	(13,852)		(4,786)
Acquisition, net of cash acquired	(667,228)		(77,665)

Net cash used in investing activities	(681,080)		(82,451)
Financing activities
Proceeds from debt	625,000		162,000
Repayment of debt	(125,000)		(162,000)
Repurchase of common stock, for treasury	(39,040)		(10,186)
Payment of debt issuance costs	(13,486)		—
Proceeds from common stock issued pursuant to stock option exercise	3,099		21,581
Restricted stock surrendered for employee tax payment	(851)		(92)
Preferred stock redemption payment	—		(88,743)
Preferred stock dividends	—		(1,988)
Other financing activities	—		(204)
Net cash provided by (used in) financing activities	449,722		(79,632)
Net change in cash, cash equivalents and restricted cash	(56,664)		125,143
Cash, cash equivalents and restricted cash at beginning of period	183,356		61,673
Cash, cash equivalents and restricted cash at end of period	$	126,692	$	186,816

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

See accompanying notes to the unaudited condensed consolidated financial statements

~~The Providence Service Corporation~~ModivCare Inc.

Unaudited Supplemental Cash Flow Information

(in thousands)


	Nine months ended September 30,
Supplemental cash flow information	2021		2020
Cash paid for interest	$	24,006	$	1,775
Cash paid for income taxes, net of refunds	$	12,846	$	11,805
Assets acquired under operating leases	$	21,829	$	5,488

See accompanying notes to the unaudited condensed consolidated financial statements

ModivCare Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share and per share data)


	Nine months ended September 30, 2021

	Common Stock			Additional Paid-In		Retained		Treasury Stock
	Shares	Amount		Capital		Earnings		Shares	Amount		Total
Balance at December 31, 2020	19,570,598	$	20	$	421,318	$	218,414	5,287,283	$	(228,141)	$	411,611
Net income	—	—		—		18,840		—	—		18,840
Stock-based compensation	—	—		1,149		—		—	—		1,149
Exercise of employee stock options	36,338	—		2,286		—		—	—		2,286
Restricted stock issued	15,821	—		—		—		—	—		—
Restricted stock surrendered for employee tax payment	—	—		—		—		4,253	(721)		(721)
Shares issued for bonus settlement and director stipends	260	—		38		—		—	—		38
Stock repurchase plan	—	—		—		—		94,235	(14,450)		(14,450)


Balance at March 31, 2021	19,623,017	20		424,791		237,254		5,385,771	(243,312)		418,753
Net income	—	—		—		13,672		—	—		13,672
Stock-based compensation	—	—		1,416		—		—	—		1,416
Exercise of employee stock options	866	—		49		—		—	—		49
Restricted stock forfeited	(55,162)	—		—		—		—	—		—
Restricted stock surrendered for employee tax payment	—	—		—		—		713	(99)		(99)
Shares issued for bonus settlement and director stipends	324	—		56		—		—	—		56
Stock repurchase plan	—	—		—		—		175,173	(24,590)		(24,590)



Balance at June 30, 2021	19,569,045	20		426,312		250,926		5,561,657	(268,001)		409,257
Net loss	—	—		—		(7,570)		—	—		(7,570)
Stock-based compensation	—	—		1,505		—		—	—		1,505
Exercise of employee stock options	12,296	—		765		—		—	—		765
Restricted stock issued	(455)	—		—		—		—	—		—
Restricted stock surrendered for employee tax payment	—	—		—		—		169	(31)		(31)
Shares issued for bonus settlement and director stipends	333	—		61		—		—	—		61
Stock repurchase plan	—	—		—		—		—	—		—
Balance at September 30, 2021	19,581,219	$	20	$	428,643	$	243,356	5,561,826	$	(268,032)	$	403,987


	Nine months ended September 30, 2020

	Common Stock			Additional Paid-In		Retained		Treasury Stock
	Shares	Amount		Capital		Earnings		Shares	Amount		Total

Balance at December 31, 2019	18,073,763	$	18	$	351,529	$	183,733	5,088,782	$	(217,688)	$	317,592
Net income	—	—		—		16,098		—	—		16,098
Stock-based compensation	—	—		1,005		—		—	—		1,005
Exercise of employee stock options	39,111	—		2,054		—		—	—		2,054
Restricted stock issued	79,029	—		—		—		626	(37)		(37)
Shares issued for bonus settlement and director stipends	701	—		38		—		—	—		38
Stock repurchase plan	—	—		—		—		142,821	(7,299)		(7,299)
Conversion of convertible preferred stock to common stock	40	—		2		—		—	—		2
Convertible preferred stock dividends (1)	—	—		—		(1,095)		—	—		(1,095)
Balance at March 31, 2020	18,192,644	18		354,628		198,736		5,232,229	(225,024)		328,358
Net income	—	—		—		36,998		—	—		36,998
Stock-based compensation	—	—		691		—		—	—		691
Exercise of employee stock options	129,722	—		9,275		—		—	—		9,275
Restricted stock forfeited	(8,496)	—		—		—		—	—		—
Shares issued for bonus settlement and director stipends	487	—		38		—		—	—		38
Stock repurchase plan	—	—		—		—		52,856	(2,887)		(2,887)
Conversion of convertible preferred stock to common stock	14,166	—		546		—		—	—		546
Redemption of convertible preferred stock	—	—		—		(42,954)		—	—		(42,954)
Conversion of convertible preferred stock to common stock pursuant to Conversion Agreement	925,567	1		37,255		(5,997)		—	—		31,259
Convertible preferred stock dividends (1)	—	—		—		(866)		—	—		(866)
Balance at June 30, 2020	19,254,090	19		402,433		185,917		5,285,085	(227,911)		360,458
Net income	—	—		—		38,805		—	—		38,805
Stock-based compensation	—	—		1,139		—		—	—		1,139
Exercise of employee stock options	145,124	1		10,250		—		—	—		10,251
Restricted stock issued	330	—		—		—		—	—		—
Restricted stock surrendered for employee tax payment	—	—		—		—		581	(55)		(55)
Shares issued for bonus settlement and director stipends	414	—		38		—		—	—		38


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

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

(2) On September 3, 2020, accrued cash dividends of $1.37 per share were paid to Coliseum Capital Partners, L.P. and certain funds and accounts managed by Coliseum Capital Management, LLC pursuant to the Preferred Stock Conversion Agreement as discussed in Note 11, Stock-Based Compensation and Similar Arrangements.

See accompanying notes to the unaudited condensed consolidated financial statements

ModivCare Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

September 30, ~~2017~~2021

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

1. Organization and Basis of Presentation

Description of Business

~~The Providence Service Corporation (“we”,~~ModivCare Inc. ("ModivCare" or the ~~“Company” or “Providence”~~"Company")~~, through its subsidiaries and other companies in which it owns interests,~~ is ~~primarily engaged in the provision~~a technology-enabled healthcare services company that provides a suite of ~~healthcare and workforce development services~~integrated supportive care solutions for public and private ~~sector entities seeking~~payors and their patients. Its value-based solutions address the social determinants of health, or SDoH, enable greater access to ~~control~~care, reduce costs, and ~~promote positive~~improve outcomes. ~~The subsidiaries and other companies in which the Company holds interests comprise the following segments:~~

~~Non-Emergency Transportation Services (“NET Services”) – Nationwide~~ModivCare is a provider of non-emergency medical transportation, ~~programs for state governments~~or NEMT, personal care, and ~~managed~~remote patient monitoring, or RPM, solutions. The technology-enabled operating model includes NEMT core competencies in risk underwriting, contact center management, network credentialing, claims management and non-emergency medical transport management. Additionally, its personal care ~~organizations.~~services include placements of non-medical personal care assistants, home health aides and nurses primarily to Medicaid patient populations in need of care monitoring and assistance performing daily living activities in the home setting, including senior citizens and disabled adults. ModivCare’s remote patient monitoring services include personal emergency response systems, vitals monitoring and data-driven patient engagement solutions. ModivCare is further expanding its offerings to include nutritional meal delivery and partner with communities throughout the country, providing food-insecure individuals delivery of nutritional meals.

~~Workforce Development Services (“WD Services”) – Global~~

ModivCare’s solutions help health plans manage risks, close care gaps, reduce costs, and connect members to care. Through the combination of its historical NEMT business, its in-home personal care business that consists of Simplura Health Group and Care Finders Total Care LLC, and its recent addition of the remote patient monitoring business through its acquisition of VRI Intermediate Holdings, LLC, or VRI, ModivCare has united four complementary healthcare businesses that serve similar, highly vulnerable patient populations.

On May 6, 2020, ModivCare acquired all of the outstanding equity of National MedTrans, LLC, or NMT, a New York limited liability company and provider of ~~employment preparation~~non-emergency medical transportation services under contractual relationships.

On November 18, 2020, ModivCare acquired all of the outstanding equity of OEP AM, Inc., a Delaware corporation doing business as Simplura Health Group, or Simplura, which formed the foundation of our personal care business and ~~placement~~Personal Care segment.

On May 6, 2021, ModivCare acquired the WellRyde software from nuVizz, Inc., a Georgia corporation ("nuVizz"), a technology provider of Advanced Transportation Management Systems software enabling routing, automated trip assignments and ~~legal offender rehabilitation services~~real-time network monitoring.

On September 14, 2021, ModivCare acquired Care Finders Total Care LLC, or Care Finders, a personal care provider in the Northeast, with a scaled presence in New Jersey, Pennsylvania, and Connecticut, as an addition to ~~eligible participants~~the Personal Care segment.

On September 22, 2021, ModivCare acquired VRI, a provider of ~~government sponsored programs.~~remote patient monitoring and data-driven patient engagement solutions.

~~Matrix Investment – Minority~~

See Note 3, Acquisitions, for further information regarding the above acquisitions.

ModivCare also holds a 43.6% minority interest in ~~nationwide provider~~CCHN Group Holdings, Inc. and its subsidiaries, which operates under the Matrix Medical Network brand and which we refer to as “Matrix”. Matrix maintains a national network of community-based clinicians who deliver in-home and on-site services, and a fleet of mobile health clinics that provide community-based care ~~optimization~~with advanced diagnostic capabilities and ~~management~~enhanced care options. Matrix’s clinical care business ("Clinical Care") provides risk adjustment solutions that improve health outcomes for individuals and financial performance for health plans. Matrix’s clinical solutions business ("Clinical Solutions") provides employee health and wellness services focused on improving employee health with worksite certification solutions that reinforce business resilience and safe return-to-work outcomes. Its Clinical Solutions offerings also provide clinical trial services which support the delivery of safe and effective decentralized clinical trial operations to patients and eligible volunteers. Matrix also provides lab services, including ~~comprehensive health assessments,~~services related to ~~members of managed care organizations, accounted for~~COVID-19 such as ~~an equity method investment.~~screening, testing, and vaccinations.

Basis of Presentation

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

The ~~Company’s~~accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by GAAP for ~~complete~~annual audited 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~~2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2017.~~2021. Management has evaluated events and transactions that occurred after the balance sheet date and through the date these unaudited condensed consolidated financial statements were filed with the SEC and considered the effect of such events in the preparation of these ~~unaudited~~ condensed consolidated financial statements.

The condensed consolidated balance sheet at December 31, ~~2016~~2020 included in this Form 10-Q has been derived from ~~the~~ audited financial statements at that date, but does not include all the information and footnotes required by GAAP for ~~complete~~annual audited 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.~~2020.

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 7, Equity Investment, for further information.

~~Reclassifications~~

We have reclassified certain amounts relating to our prior period results to conform 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. and its subsidiaries (“Matrix”) with Providence retaining a 46.8% equity interest (the “Matrix Transaction”). Prior to the closingImpact of the ~~Matrix Transaction,~~COVID-19 Pandemic

Since March 2020, the ~~financial results of Matrix were included in~~COVID-19 pandemic has impacted the Company’s business, as well as its patients, communities, and employees. The Company’s priorities during the COVID-19 pandemic remain protecting the health and safety of its employees, maximizing the availability of its services and products to support the SDoH, and the operational and financial stability of its business.

Federal, state, and local authorities have taken several actions designed to assist healthcare providers in providing care to COVID-19 and other patients and to mitigate the adverse economic impact of the COVID-19 pandemic. Legislative actions taken by the federal government include the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which was signed into law on March 27, 2020. Through the CARES Act, the federal government has authorized payments to be distributed to healthcare providers through the Public Health ~~Assessment~~and Social Services ~~(“HA Services”~~Emergency Fund ("Provider Relief Fund" or "PRF") segment. Operating results for this segment are reported as discontinued operations, net of tax in the condensed consolidated statements of income for the three and nine months ended September 30, 2016. See Note 13, ~~Discontinued Operations,~~ ~~for further information~~. ~~See Note 2,~~ ~~Significant Accounting Policies and Recent Accounting Pronouncements, for additional information on other reclassifications.~~

2. Significant Accounting Policies and Recent Accounting Pronouncements

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingencies, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Grant Income

During the nine months ended September 30, 2021, the Company received distributions from the CARES Act PRF of approximately $3.5 million targeted to offset lost revenue and expenditures incurred in connection with the COVID-19 pandemic. During the three months ended September 30, 2021, Company did not receive distributions from the CARES Act PRF. The PRF payments are subject to certain restrictions and are subject to recoupment if not used for designated purposes. As a condition to receiving distributions, providers must agree to certain terms and conditions, including, among other things, that the funds are being used for lost revenues and unreimbursed COVID-19 related expenses as defined by the U.S. Department of Health and Human Services ("HHS"). All recipients of PRF payments are required to comply with the reporting requirements described in the terms and conditions and as determined by HHS. The Company recognizes grant payments as grant income when there is reasonable assurance that it has complied with the conditions associated with the grant. Grant income recognized by the Company is presented in grant income in the accompanying condensed consolidated statements of operations. HHS guidance related to PRF grant funds is still evolving and subject to change. The Company is continuing to monitor the reporting requirements as they evolve.

CARES Act Payroll Deferral

The CARES Act also provides for certain federal income and other tax changes, including the deferral of the employer portion of Social Security payroll taxes. The Company has deferred payment of approximately $20.8 million related to the deferral of employer payroll taxes as of September 30, 2021 under the CARES Act. Of this amount, approximately 50% is due in December of 2021 and 50% is due in December of 2022; therefore, $10.4 million is recorded in accrued expenses, and $10.4 million is recorded in other long-term liabilities.

Recent Accounting Pronouncements

The Company adopted the following accounting pronouncements during the nine months ended September 30, ~~2017:~~2021:

In ~~November 2015,~~January 2020, the FASB issued ~~Accounting Standards Update (“ASU”) No. 2015-17,~~ ~~Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes~~ (“ASU ~~2015-17”~~2020-01, Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 ("ASU 2020-01"), ~~which changes how deferred taxes are classified on organizations’ balance sheets. The ASU eliminates~~to clarify the ~~current requirement~~interaction among the accounting standards 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 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. The Company adopted ASU 2015-17 retrospectively on January 1, 2017, which resulted 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.

~~In March 2016, the FASB issued ASU No. 2016-07,~~ ~~Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting~~ ~~(“ASU 2016-07”). ASU 2016-07 eliminates the requirement that when an investment qualifies for use of the~~equity securities, 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,~~investments 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.~~certain derivatives. ASU 2016-07 instead specifies that the investor should add the cost of acquiring the 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 2016-072020-01 is effective for ~~all~~public business entities for ~~fiscal years, and interim periods within those~~ fiscal years beginning after December 15, ~~2016 and should be applied prospectively. The Company adopted ASU 2016-07 on January 1, 2017. The~~2020, including interim periods therein. There was no material impact to the financial statements from the adoption of ~~ASU 2016-07 had no impact on the Company’s financial statements or disclosures.~~this ASU.

In ~~March 2016,~~December 2019, the FASB issued ASU ~~No. 2016-09,~~ ~~Compensation - Stock Compensation~~2019-12, Income Taxes (Topic ~~718)~~740): ~~Improvements to Employee Share-Based Payment~~Simplifying the Accounting (“ for Income Taxes ("ASU ~~2016-09”~~2019-12"). The ASU ~~2016-09 is intended~~removes certain exceptions to ~~improve~~ the general principles in ASC 740, Income Taxes, and also clarifies and amends existing guidance to reduce complexity in accounting 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~~taxes. The ASU is effective for ~~annual periods~~fiscal years beginning after December 15, ~~2016, and~~2020, including interim periods within ~~those annual periods.~~that fiscal year, with early adoption permitted. There was no material impact to the financial statements from the adoption of this ASU.

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

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04") which provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to reference rate reform. The relief granted in ASC 848, Reference Rate Reform ("ASC 848"), is applicable only to legacy contracts if the amendments made to the agreements are solely for reference rate reform activities. The provisions of ASC 848 must be applied for all transactions other than derivatives, which may be applied at a hedging relationship level. Entities may apply the provisions as of the beginning of the reporting period when the election is made (i.e. as early as the first quarter 2020). Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity is expected to be completed. The Company ~~adopted~~is currently evaluating the

impact ASU ~~2016-09~~2020-04 will have on ~~January 1, 2017,~~its consolidated financial statements or disclosures; however, does not expect the adoption to have a material impact.

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

3. Acquisitions

Business Combinations

Simplura Health Group

On November 18, 2020, the Company completed its acquisition of Simplura Heath Group, or Simplura. Simplura was a nonpublic entity that specializes in personal care services offering placements of personal care assistants, home health aides, and skilled nurses for senior citizens, disabled adults and other high-needs patients. Simplura operates from its headquarters in Valley Stream, New York, with approximately 57 branches across 7 states, including in several of the nation’s largest personal care markets. The acquisition of Simplura added a new business segment in personal care—a sector of healthcare that complements the NEMT segment.

The stock transaction was accounted for in accordance with ASC 805, Business Combinations in which a wholly-owned subsidiary of ModivCare Inc. acquired 100 percent of the voting stock of Simplura for $548.6 million (a preliminary purchase price of $569.8 million less $21.2 million of cash that was acquired).

The following is a preliminary estimate, based on certain preliminary items noted in the table below, of the allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired, as of the acquisition date of November 18, 2020 (in thousands):


Cash	$	21,182
Accounts receivable (1)	69,882
Prepaid expenses and other (2)	9,688
Property and equipment (3)	1,640
Intangible assets (4)	264,770
Operating right of use asset (5)	10,285
Goodwill (6)	317,085
Other assets (7)	628
Accounts payable and accrued liabilities (7)	(46,073)
Accrued expense (7)	(2,564)
Deferred revenue (7)	(2,871)
Deferred acquisition payments (8)	(4,046)
Deferred acquisition note payable (7)	(1,050)
Operating lease liabilities (5)	(10,285)
Deferred tax liabilities (9)	(58,452)
Total of assets acquired and liabilities assumed	$	569,819

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

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

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

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


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

The Company valued trademarks and trade names utilizing the relief of royalty method and payor network utilizing the multi-period excess earnings method, a form of the income approach. This assessment is preliminary and will be finalized in the fourth quarter of 2021.

(5) The fair value of the operating lease liability and corresponding right-of-use asset (current and long-term) were recorded at $11.7 million based on market rates available to the Company during our preliminary purchase price allocation. This assessment has since been updated through the implementation of ASC 842 at the Personal Care segment as of September 30, 2021, and the related balances have been updated to $10.3 million. This assessment remains preliminary as of the date of our filing and will be finalized with final purchase accounting in the fourth quarter of 2021.

(6) The acquisition preliminarily resulted in $309.7 million of goodwill as a ~~cumulative effect~~result of expected synergies due to value-based care and solutions being provided to similar patient populations that partner with many of the same payor groups. In the second quarter of 2021 a closing cash adjustment of ~~$850~~$3.5 million was paid to ~~retained earnings~~OEP AM and in the third quarter of 2021 other assets acquired were adjusted down by $3.9 million which, along with other immaterial adjustments, increased the goodwill related to this transaction to $317.1 million. This assessment is preliminary and purchase accounting will be finalized in the fourth quarter of 2021. None of the acquired goodwill is deductible for tax purposes.

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

(8) Deferred acquisition payments are associated with historical acquisitions by Simplura.

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

CareFinders Total Care

On September 14, 2021, the Company completed its acquisition of Care Finders. Care Finders is a personal care provider in the Northeast, with operations in New Jersey, Pennsylvania, and Connecticut. The acquisition of Care Finders broadens access to in-home personal care solutions for patients and supports the Company's strategy to expand on its personal care platform, which already includes Simplura.

The equity transaction was accounted for in accordance with ASC 805, Business Combinations in which a wholly-owned subsidiary of ModivCare Inc. acquired 100% percent of the equity securities of Care Finders for $332.3 million (a preliminary purchase price of $344.3 million less $12.0 million of cash that was acquired).

The Company has not yet obtained and assessed all relevant historical financial information needed to perform the valuation and has not completed the final valuations of certain assets and liabilities. As such, the following is a preliminary estimate, based on certain preliminary items noted in the table below, of the allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired, as of the acquisition date of September 14, 2021 (in thousands):


Cash	$	11,963
Accounts receivable (1)	12,253
Prepaid expenses and other (2)	653
Property and equipment (3)	3,206
Inventories (4)	145
Intangibles (5)	75,900
Goodwill (6)	248,518
Other assets (7)	226
Accounts payable and accrued liabilities (8)	(5,347)
Accrued expense (8)	(871)
Other liabilities (8)	(80)
Deferred tax liabilities (9)	(2,275)
Total of assets acquired and liabilities assumed	$	344,291

The acquisition method of accounting incorporates fair value measurements that can be highly subjective, and it is possible the application of reasonable judgment could develop different assumptions resulting in a range of alternative estimates using the same facts and circumstances. Upon finalization of the preliminary items noted below there may be related adjustments to certain of such items and to goodwill and income taxes. All items are expected to be finalized by the third quarter of 2022.

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

(3) The acquired property and equipment consists primarily of capitalized software, construction in progress, and computer equipment. This estimate is preliminary as the Company's evaluation of the fair value of property and equipment is ongoing.

(4) Inventories are stated at fair value as of the acquisition date.

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


	Type	Useful Life	Value
Payor network	Amortizable	9 years	$	68,300
Trade name	Amortizable	8 years	7,600
			$	75,900

The intangible valuation amounts disclosed in the table above represent a preliminary estimate, as of the acquisition date of September 14, 2021. Final purchase accounting is expected to be finalized by the third quarter of 2022.

(6) The acquisition preliminarily resulted in $248.5 million of goodwill as a result of expected synergies due to future customers driven by expansion into different markets, an increase in market share, and a growing demographic that will need VRI's monitoring products. Purchase accounting will be finalized in the third quarter of 2022. All of the acquired goodwill is deductible for tax purposes. Goodwill allocation to reporting units is not completed as of the date of the financial statements, September 30, 2021.

(7) Included in Other assets are security deposits with a value of $0.2 million.

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

Since the date of the acquisition, Care Finders sales of $8.9 million and net income of $0.5 million are included in the Company's consolidated results of operations.

VRI Intermediate Holdings, LLC

On September 22, 2021, the Company completed its acquisition of VRI, a provider of remote patient monitoring solutions, managing a comprehensive suite of services including personal emergency response systems, vitals monitoring and data-driven patient engagement solutions. The acquisition of VRI accelerates the Company's strategy to build a holistic suite of supportive care solutions that address social determinants of health, introduces new technology-enabled in-home solutions that deepen the Company's engagement with payors and patients, and adds a strategic pillar and operating team to advance the Company's broader technology and data strategy. As a result of the acquisition, ModivCare adds remote patient monitoring, or RPM, as a business segment.

The stock transaction was accounted for in accordance with ASC 805, Business Combinations in which a wholly-owned subsidiary of ModivCare Inc. acquired 100% percent of the equity securities of VRI for $314.8 million (a preliminary purchase price of $317.7 million less $2.9 million of cash that was acquired).


Cash	$	2,922
Accounts receivable (1)	6,849
Inventory (2)	1,684
Prepaid expenses and other (3)	284
Property and equipment (4)	16,775
Intangible assets (5)	85,800
Goodwill (6)	228,884
Other assets (7)	217
Accounts payable and accrued liabilities (8)	(1,890)
Accrued expense (8)	(2,481)
Deferred revenue (8)	(66)
Deferred tax liabilities (8)	(21,285)
Total of assets acquired and liabilities assumed	$	317,693

(2) Inventory is stated at fair value as of the acquisition date.

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

(4) The acquired property and equipment consists primarily of monitoring equipment, buildings, and vitals equipment. This estimate is preliminary as the Company's evaluation of the fair value of property and equipment is ongoing.

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


	Type	Useful Life	Value
Payor network	Amortizable	9 years	$	70,700
Trade name	Amortizable	8 years	13,300
Internally developed software	Amortizable	7 years	1,800
			$	85,800

The intangible valuation amounts disclosed in the table above represent a preliminary estimate, as of the acquisition date of September 22, 2021. Final purchase accounting is expected to be finalized by the third quarter of 2022.

(6) The acquisition preliminarily resulted in $228.9 million of goodwill as a result of expected synergies due to future customers driven by expansion into different markets and an increase in market share. Purchase accounting will be finalized in the third quarter of 2022. The amount of goodwill deductible for tax purposes has yet to be determined. Goodwill allocation to reporting units is not completed as of the date of the financial statements, September 30, 2021.

(7) Included in other assets are other receivables and employees advances with a value of approximately $0.2 million.

(8) Accounts payable as well as certain other current and non-current liabilities are stated at fair value as of the acquisition date. Net deferred tax liabilities represent the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases. See Note 13, Income Taxes, for additional discussion of the Company’s combined income tax position subsequent to the acquisition.

Since the date of the acquisition, VRI sales of $1.6 million and net income of $0.4 million are included in the Company's consolidated results of operations.

Pro Forma Financial Information

Assuming Simplura had been acquired as of January 1, ~~2017. Upon adoption, all excess tax benefits~~2019, and ~~tax deficiencies related to employee share-based payments are recognized through income tax expense prospectively. For~~Care Finders and VRI had been acquired as of January 1, 2020, and the ~~three and nine months ended September 30, 2017,~~results of each of them had been included in operations beginning on January 1, 2020, the ~~Company recorded excess tax deficiencies~~following table provides estimated unaudited pro forma results 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 resulting in a decrease in diluted weighted average shares outstanding of 4,779 and 7,451 shares, respectively,operations for the three and nine months ended September 30, ~~2017.~~

2021 and 2020 (in thousands, except earnings per share). The ~~adoption~~estimated pro forma net income adjusts for the effect 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 adjustments related to each of the ~~award at~~acquisitions, transaction costs and other non-recurring costs directly attributable to the ~~grant date. For example, no shares will be distributed under~~transactions and the ~~Company’s 2015 Holding Company LTI Program (the “HoldCo LTIP”) unless~~impact of 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~~additional debt to finance the applicable acquisitions.


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Pro forma:
Revenue	$	547,965	$	489,104	$	1,603,015	$	1,475,668
Income (loss) from continuing operations, net	(13,678)		30,043		11,568		(4,417)
Diluted earnings (loss) per share	$	(0.98)	$	2.13	$	0.81	$	(0.33)

Estimated unaudited pro forma information is not ~~satisfied, a significant tax shortfall will result, causing an adverse~~necessarily indicative of the results that actually would have occurred had the acquisitions been completed on the date indicated or of future operating results. The supplemental proforma earnings were adjusted to exclude the impact ~~on our tax provision.~~

~~The Company elected to apply~~of historical interest expense of Simplura, Care Finders and VRI of $6.2 million, $1.1 million and $1.1 million, respectively, for the ~~change in classification 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~~three months ended September 30, 2020, and ~~an increase of $276 in cash flows used in financing activities in the condensed consolidated statement of cash flows~~$20.1 million, $3.6 million and $3.8 million, respectively, for the nine months ended September 30, ~~2016. Additionally, ASU 2016-09 requires that employee taxes paid when an employer withholds shares~~2020.

Acquisition-related costs of approximately $5.9 million and $4.5 million for ~~tax-withholding purposes be reported~~Care Finders and VRI, respectively, were expensed as ~~financing activities~~incurred, recorded in selling, general and administrative expenses during the period ended September 30, 2021, and are reflected in the ~~consolidated statements~~pro forma table above at the assumed acquisition date. Acquisition-related costs consisted of professional fees for advisory, consulting and underwriting services as well as other incremental costs directly related to the acquisitions.

Asset Acquisitions

National MedTrans

On May 6, 2020, ModivCare Solutions, LLC, entered into a purchase agreement with NMT, pursuant to which NMT was acquired for total consideration of $80.0 million, less certain adjustments, in an all cash ~~flows, which is how the Company has historically classified these amounts.~~transaction.

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ~~Business Combinations (Topic 805):Clarifying 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~~The transaction was 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 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods.an asset acquisition in accordance with ASC 805, Business Combinations. 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 of the goodwill impairment test. As a result, under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment chargeincurred transaction costs 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~~acquisition of goodwill allocated to that reporting unit. This guidance is effective prospectively for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The Company adopted ASU 2017-04 on April 1, 2017. The adoption of ASU 2017-04 had no impact on the Company’s financial statements or disclosures.

~~Updates to the recent accounting pronouncements as disclosed in the Company’s Form 10-K for~~$0.8 million during the year ended December 31, ~~2016~~2020. These costs were capitalized as a component of the purchase price.

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


	Value
Consideration paid	$	80,000
Transaction costs	774
Restricted cash received	(3,109)
Net consideration	$	77,665

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

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


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

WellRyde

On May 6, 2021, the Company entered into an asset purchase agreement with nuVizz to purchase the software, WellRyde. Pursuant to the purchase agreement, the WellRyde software was acquired for total consideration of $12.0 million in cash, subject to certain adjustments.

The transaction was accounted for as an asset acquisition in accordance with ASC 805, Business Combinations. The Company incurred transaction costs for the acquisition of $0.5 million during the period ended September 30, 2021. These costs were capitalized as a component of the purchase price.

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


	Value
Consideration paid	$	12,000
Transaction costs	463
Net consideration	$	12,463

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


	Type	Useful Life	Value
Transportation management software	Amortizable	10 years	$	12,328
Assembled workforce	Amortizable	10 years	135
			$	12,463

4. Segments

Prior to the Company’s acquisition of Simplura in November 2020, the Company, based on how its chief operating decision maker then determined the allocation of resources and assessed the performance of the Company’s operations, determined that it had 2 reportable operating segments: NEMT, which represents the Company’s non-emergency medical transportation business; and Matrix Investment, which represents the Company’s Clinical Care and Clinical Solutions businesses, that is reported by the Company under the equity method of accounting. Following its acquisition of Simplura in November 2020, which operates as a personal care service provider, the Company began reporting a third operating segment: Personal Care. The acquisition of Care Finders in September 2021, another personal care service provider, added to the operations of the Personal Care segment. Finally, the acquisition of VRI in September of 2021, a provider of remote patient monitoring solutions, adds a fourth operating segment, RPM, with respect to which the Company’s chief operating decision maker reviews financial performance and allocates resources.

The Company’s reportable segments are strategic units that offer different services under different financial and operating models to the Company’s customers. The segments are managed separately because each requires different technology and marketing strategies. Furthermore, the different segments were each generally acquired as ~~follows:~~a unit, with the

~~In May 2014,~~management of each at the ~~FASB issued ASU No. 2014-09,~~ ~~Revenue~~time of acquisition retained to continue to operate their respective businesses. The Company has determined each of the separate reportable segments based on the difference in services provided by each of the segments as provided in further detail below:

•NEMT - which operates primarily under the brands ModivCare Solutions and Circulation, is the largest manager of non-emergency medical transportation programs for state governments and managed care organizations, or MCOs, in the U.S and includes the Company’s activities for executive, accounting, finance, internal audit, tax, legal and certain strategic and development functions;

•Personal Care - which operates under the brands Simplura and Care Finders, provides personal care to Medicaid patient populations, including seniors and disabled adults, in need of care monitoring and assistance performing activities of daily living;

•RPM - which operates under the VRI brand, is a provider of remote patient monitoring solutions, including personal emergency response systems, vitals monitoring and data driven patient engagement solutions; and

•Matrix Investment - which consists of a minority investment in Matrix, including its Clinical Care and Clinical Solutions businesses. Matrix’s Clinical Care provides risk adjustment solutions that improve health outcomes for individuals and financial performance for health plans. Matrix’s Clinical Solutions provides employee health and wellness services, decentralized clinical trial services, and lab services to its customers.

The following tables set forth certain financial information from ~~Contracts with Customers (Topic 606)~~ ~~(“ASU 2014-09”)~~. ~~ASU 2014-09 introduced FASB Accounting Standards Codification Topic 606 (“ASC 606”), which will replace most currently applicable existing revenue recognition guidance and is~~continuing operations attributable to the Company’s business segments (in thousands):


	Three months ended September 30, 2021
	NEMT		Personal Care		RPM		Matrix Investment		Total
Service revenue, net	$	372,992	$	118,503	$	1,564	$	—	$	493,059
Grant income (1)	—		—		—		—		—

Service expense	304,398		94,107		767		—		399,272
General and administrative expense (2)	52,118		15,720		216		—		68,054
Depreciation and amortization	7,496		4,912		200		—		12,608
Operating income	$	8,980	$	3,764	$	381	$	—	$	13,125

Equity in net income (loss) of investee	$	—	$	—	$	—	$	(6,748)	$	(6,748)
Equity investment	$	—	$	—	$	—	$	134,353	$	134,353
Goodwill	$	135,216	$	565,886	$	228,884	$	—	$	929,986
Total assets (continuing operations)	$	619,637	$	1,037,886	$	343,277	$	134,353	$	2,135,153


	Nine months ended September 30, 2021
	NEMT		Personal Care		RPM		Matrix Investment		Total
Service revenue, net	$	1,081,168	$	338,385	$	1,564	$	—	$	1,421,117
Grant income (1)	—		3,500		—		—		3,500

Service expense	869,470		268,933		767		—		1,139,170
General and administrative expense (2)	133,706		45,349		216		—		179,271
Depreciation and amortization	21,744		14,723		200		—		36,667
Operating income	$	56,248	$	12,880	$	381	$	—	$	69,509

Equity in net income (loss) of investee	$	—	$	—	$	—	$	(1,978)	$	(1,978)
Equity investment	$	—	$	—	$	—	$	134,353	$	134,353
Goodwill	$	135,216	$	565,886	$	228,884	$	—	$	929,986
Total assets (continuing operations)	$	619,637	$	1,037,886	$	343,277	$	134,353	$	2,135,153

(1) Grant income for the Personal Care segment includes $3.5 million of provider relief funds received under the CARES Act. These funds are intended to ~~improve~~support healthcare providers by reimbursing them for expenses incurred, or revenue lost, as a result of the COVID-19 pandemic. See Note 2, Significant Accounting Policies and ~~converge with international standards~~Recent Accounting Pronouncements.

(2) General and administrative expense for the NEMT segment includes $1.4 million and $3.4 million of costs related to the development of the nutritional meal delivery business offering for the three and nine months ended September 30, 2021, respectively. As this line of business has not yet commenced, and there is no discrete financial ~~reporting requirements for~~information available related to it, it is not considered a separate reportable segment at this time.


	Three months ended September 30, 2020
	NEMT		Matrix Investment		Total
Service revenue, net	$	320,619	$	—	$	320,619

Service expense	235,543		—		235,543
General and administrative expense	34,441		—		34,441
Depreciation and amortization	7,301		—		7,301
Operating income	$	43,334	$	—	$	43,334

Equity in net income of investee	$	—	$	10,325	$	10,325


	Nine months ended September 30, 2020
	NEMT		Matrix Investment		Total
Service revenue, net	$	970,166	$	—	$	970,166


Service expense	764,310		—		764,310
General and administrative expense	86,435		—		86,435
Depreciation and amortization	17,199		—		17,199
Operating income	$	102,222	$	—	$	102,222

Equity in net income of investee	$	—	$	12,200	$	12,200


	December 31, 2020
	NEMT		Personal Care		Matrix Investment		Total
Equity investment	$	—	$	—	$	137,466	$	137,466
Goodwill	$	135,216	$	309,711	$	—	$	444,927
Total assets (continuing operations)	$	594,952	$	693,495	$	137,466	$	1,425,913

5. Revenue Recognition

Under ASC 606, the Company recognizes revenue as it transfers promised services to its customers and generates all of its revenue from contracts with customers. The ~~core principle~~amount of ~~ASU 2014-09 is that an entity should recognize~~ revenue ~~for~~recognized reflects the ~~transfer of goods or services equal~~consideration to which the ~~amount that it~~Company expects to be entitled in exchange for these services. The Company satisfies substantially all of its performance obligations and recognizes revenue over time instead of at points in time.

Revenue Contract Structure

NEMT Capitated Contracts

Under capitated contracts, payors pay a fixed amount per eligible member. We assume the responsibility of meeting the covered healthcare related transportation requirements based on per-member per-month fees for the number of eligible members in the customer’s program. Revenue is recognized based on the population served during the period. Certain capitated contracts have provisions for reconciliations, risk corridors or profit rebates. For contracts with reconciliation provisions, capitation payment is received as a prepayment during the month service is provided. These prepayments are periodically reconciled based on actual trip volume and may result in refunds to ~~receive~~the customer, or additional payments due from the customer. Contracts with risk corridor or profit rebate provisions allow for ~~those goods~~profit within a certain corridor and once we reach profit level thresholds or ~~services. ASU 2014-09 also requires additional disclosures about the nature, timing and uncertainty of~~maximums, we discontinue recognizing revenue and ~~cash flows arising from customer contracts, including significant judgments and changes~~instead record a liability within the accrued contract payable account. This liability may be reduced through future increases in ~~judgments. ASU 2014-09 allows for adoption either on a full retrospective basis to each prior reporting period presented~~trip volume or ~~on a modified retrospective basis~~periodic settlements with the ~~cumulative effect~~customer. While a profit rebate provision could only result in a liability from this profit threshold, a risk corridor provision could potentially result in receivables if the Company does not reach certain profit minimums, which would be recorded in the reconciliation contract receivables account.

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

NEMT Fee-for-service Contracts

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

Personal Care Fee-for-service Contracts

Personal Care FFS service revenue is reported at the ~~date of initial application, which will be effective~~estimated net realizable amount from clients, patients and third-party payors for ~~the Company beginning January 1, 2018.~~

~~The Company has developed an adoption plan, assembled a cross-functional project team~~services rendered. Payment for services received from third-party payors includes, but is not limited to, insurance companies, hospitals, governmental agencies and ~~is in the process of assessing the impacts of applying ASC 606~~other home health care providers who subcontract work to the ~~Company’s financial statements, information systems~~Company. Certain contracts are subject to retroactive audit 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 focusedpossible adjustment by those payors based 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~~contract or costs incurred. The Company makes estimates of retroactive adjustments and considers these in ~~many~~the recognition of revenue in the ~~Company’s~~period in which the related services are rendered. The difference between estimated settlement and actual settlement is reported in net service revenues as adjustments become known or as years are no longer subject to such audits, reviews, or investigations.

RPM Service Contracts

RPM service revenue consists of revenue from monitoring services provided to the customer. Under RPM contracts, payors pay per-enrolled-member-per month, based on enrolled membership. Consideration is generally fixed for each type of

monitoring service and the contracts do not typically contain variable components of consideration. As such, the RPM segment recognizes revenue based on the monthly fee paid by customers.

Disaggregation of Revenue by Contract Type


	Three months ended September 30, 2021		Three months ended September 30, 2020		Nine months ended September 30, 2021		Nine months ended September 30, 2020
NEMT Capitated Contracts	$	287,768	$	277,908	$	854,269	$	832,490
NEMT FFS Contracts	85,224		42,711		226,899		137,676
Total NEMT Segment Revenue	372,992		320,619		1,081,168		970,166

Personal Care FFS Contracts	118,503		—		338,385		—
RPM Service Contracts	1,564		—		1,564		—
Total service revenue, net	$	493,059	$	320,619	$	1,421,117	$	970,166

Payor Information

Service revenue, net, is derived from state Medicaid contracts, managed Medicaid and Medicare contracts (also known as MCOs), as well as a small amount from private pay and other contracts. Of the NEMT segment’s revenue, 9.7% and 10.4% were derived from one U.S. state Medicaid program for the nine months ended September 30, 2021, and 2020, respectively. Personal Care segment revenue is derived from services rendered to Medicaid program beneficiaries and reimbursed by the Medicaid, Medicaid waiver and Medicaid managed care programs. Of the Personal Care segment's revenue, 28.1% was derived from one U.S. state Medicaid program for the nine months ended September 30, 2021. RPM segment revenue is also derived from state Medicaid contracts and managed Medicaid and Medicare contracts (MCOs).

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


	Three months ended September 30, 2021		Three months ended September 30, 2020		Nine months ended September 30, 2021		Nine months ended September 30, 2020
State Medicaid contracts	$	204,403	$	154,318	$	615,154	$	486,971
Managed Medicaid contracts	237,399		141,365		659,506		407,723
Managed Medicare contracts	44,074		24,936		125,571		75,472
Private pay and other contracts	7,183		—		20,886		—
Total service revenue, net	$	493,059	$	320,619	$	1,421,117	$	970,166

During the three months ended September 30, 2021 and 2020, the Company recognized a $0.1 million and a $3.6 million reduction of service revenue respectively, from contractual adjustments relating to ~~perform integrated services over~~performance obligations satisfied in previous periods to which the customer agreed. During the nine months ended September 30, 2021 and 2020, the Company recognized a ~~period~~$0.2 million increase to and a $3.5 million reduction of ~~time;~~service revenue, respectively, from contractual adjustments relating to performance obligations satisfied in previous periods to which the customer agreed.

~~whether~~

Related Balance Sheet Accounts

The following table provides information about accounts receivable, net (in thousands):


	September 30, 2021		December 31, 2020
Accounts receivable	$	269,391	$	164,622
Reconciliation contracts receivable (1)	20,529		35,724
Allowance for doubtful accounts	(690)		(2,403)
Accounts receivable, net	$	289,230	$	197,943

(1) Reconciliation contracts receivable, primarily represent underpayments and ~~how much variable consideration to include when determining the transaction prices for its~~receivables on certain contracts with ~~customers;~~reconciliation and risk corridor provisions. See the contract payables and receivables rollforward below.

~~whether any~~

The following table provides information about other revenue related accounts included on the accompanying condensed consolidated balance sheets (in thousands):


	September 30, 2021		December 31, 2020
Accrued contract payables (1)	$	320,045	$	101,705
Long-term contract payables (2)	$	5,793	$	72,183
Deferred revenue, current	$	2,488	$	2,923

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

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

The following table provides a summary rollforward of total contract payables and receivables as reported within the condensed consolidated balance sheets (in thousands):


	December 31, 2020		Additional Amounts Recorded		Amounts Paid or Settled		September 30, 2021
Reconciliation contract payables	$	33,330	$	34,912	$	(20,549)	$	47,693
Profit rebate/corridor contract payables	123,239		137,003		(47)		260,195
Overpayments and other cash items	17,319		13,366		(12,735)		17,950
Total contract payables	$	173,888	$	185,281	$	(33,331)	$	325,838

Reconciliation contract receivables	$	35,580	$	9,984	$	(25,140)	$	20,424
Corridor contract receivables	144		(39)		—		105
Total contract receivables	$	35,724	$	9,945	$	(25,140)	$	20,529

6. Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows (in thousands):


	September 30,
	2021		2020
Cash and cash equivalents	$	126,506	$	183,277
Restricted cash, current	186		3,182
Current assets of discontinued operations	—		357

Cash, cash equivalents and restricted cash	$	126,692	$	186,816

Restricted cash primarily relates to amounts held in trusts for reinsurance claims losses under the Company’s ~~customer contracts require performance over a series~~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.

7. Equity Investment

As of ~~distinct service periods~~September 30, 2021 and ~~the impact on determining and allocating the transaction price; and~~

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

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

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

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Compensation–Stock Compensation (Topic 718):Scope of Modification Accounting~~ (“ASU 2017-09”). ASU 2017-09 provides guidance about which changes to the terms of a share-based payment award should be accounted for as a modification. A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do not change, and the classification as an equity or liability instrument does not change. This guidance is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. The adoption of ASU 2017-09 is not expected to have a material impact on the Company’s consolidated financial statements.

~~There were no other significant updates to the new accounting guidance not yet adopted by the Company as disclosed in its Form 10-K for the year ended~~ 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,2020, 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 Shareholder’s Agreement, affiliates of Frazier Healthcare Partners hold rights necessary to control the fundamental operations of Matrix. The Company accounts for this investment in Matrix under the equity method of accounting and the Company’s share of Matrix’s income or losses are recorded as “Equity in net ~~(gain)~~ loss (income) of ~~investees”~~investee” in the accompanying ~~condensed~~ consolidated statements of ~~income.~~operations.

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~~2021 and December 31, ~~2016~~2020 totaled ~~$156,883~~$134.4 million and ~~$157,202,~~$137.5 million, respectively.

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


	September 30, 2021		December 31, 2020
Current assets	$	127,994	$	143,110
Long-term assets	$	596,562	$	619,642
Current liabilities	$	60,835	$	81,920
Long-term liabilities	$	339,699	$	351,036


	Three months ended September 30, 2021		Three months ended September 30, 2020
Revenue	$	78,458	$	140,728
Operating income (loss)	$	(16,833)	$	35,489
Net income (loss)	$	(15,627)	$	21,382


	Nine months ended September 30, 2021		Nine months ended September 30, 2020
Revenue	$	316,830	$	292,699
Operating income	$	3,324	$	49,074
Net income (loss)	$	(7,143)	$	23,917

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 )

4.8. Prepaid Expenses and Other Current Assets

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


	September 30, 2021		December 31, 2020
Prepaid income taxes	$	13,499	$	14,633
Prepaid insurance	12,519		7,577
Deferred financing costs on credit facility	2,452		—
Inventory	1,733		—
Prepaid rent	260		1,196

Other prepaid expenses	11,192		8,479
Total prepaid expenses and other current assets	$	41,655	$	31,885

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
9. Accrued Expenses and Other Current Liabilities

~~Escrow funds represent amounts related to potential indemnification claims from the sale~~Accrued expenses and other current liabilities consisted of the ~~Human Services segment,~~following (in thousands):


	September 30, 2021		December 31, 2020

Accrued compensation and related liabilities (1)	$	57,461	$	57,201
Accrued interest	13,735		4,927
Deferred operating expenses	10,375		8,018
Union pension obligations	9,073		6,632
Accrued legal fees	4,862		3,228
Deferred acquisition payments	3,978		3,978
Accrued cash settled stock-based compensation	163		19,376

Other	9,924		13,650
Total accrued expenses and other current liabilities	$	109,571	$	117,010

(1) Accrued compensation and related liabilities include deferred payroll taxes, which ~~was completed on November 1, 2015.~~are deferred as a result of the CARES Act. The CARES Act provides for certain federal income and other tax changes, including the deferral of the employer portion of Social Security payroll taxes. The Company has received a cumulative cash benefit of approximately $20.8 million related to the deferral of employer payroll taxes as of September 30, 2021 under the CARES Act. Of this amount, approximately 50% is due in December of 2021 and 50% is due in December of 2022, therefore, $10.4 million is recorded in accrued ~~$15,000~~expenses, and $10.4 million is recorded in other long-term liabilities.

10. Debt

Senior Unsecured Notes

On November 4, 2020, the Company issued $500.0 million in aggregate principal amount of 5.875% senior unsecured notes due on November 15, 2025 (the “Senior Notes due 2025”). Additionally on August 24, 2021, the Company issued $500 million in aggregate principal amount of 5.000% senior unsecured notes due on October 1, 2029 (the “Senior Notes due 2029”). The Senior Notes due 2025 and the Senior Notes due 2029 were issued pursuant to two indentures, dated November 4, 2020 and August 24, 2021 respectively, between the Company and The Bank of New York Mellon Trust Company, N.A., as ~~a contingent liability~~trustee. The Senior Notes due 2025 relate to the Company’s acquisition of Simplura and the Senior Notes due 2029 relate to the Company’s acquisition of VRI.

The Senior Notes due 2025 and the Senior Notes due 2029 (collectively, the "Notes") are senior unsecured obligations and rank senior in right of payment to all of the Company's future subordinated indebtedness, rank equally in right of payment with all of the Company's existing and future senior indebtedness, are effectively subordinated to any of the Company's existing and future secured indebtedness, including indebtedness under the Credit Facility (as defined below), to the extent of the value of the assets securing such indebtedness, and are structurally subordinated to all of the existing and future liabilities (including trade payables) of each of the Company’s non-guarantor subsidiaries.

The indentures for the ~~settlement~~Notes contain covenants that, among other things, restrict the Company’s ability and the ability of its restricted subsidiaries to, among other things: incur additional indebtedness or issue disqualified capital stock; make certain investments; create or incur certain liens; enter into certain transactions with affiliates; merge, consolidate, amalgamate or transfer substantially all of its assets; agree to dividend or other payment restrictions affecting its restricted subsidiaries; and transfer or sell assets, including capital stock of its restricted subsidiaries. These covenants, however, are subject to a number of important exceptions and qualifications, and certain covenants may be suspended in the event the Notes are assigned an investment grade rating from two of three ratings agencies. The indentures for both the Senior Notes due 2025 and the Senior Notes due 2029 provide that the notes may become subject to redemption under certain circumstances.

In connection with the Senior Notes due 2025, the Company may redeem the notes, in whole or in part, at any time prior to November 15, 2022, at a price equal to 100% of the principal amount of the notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption plus a “make-whole” premium set forth in the Indenture. In addition, the Company may redeem up to 40% of the notes prior to November 15, 2022, at a redemption price of 105.875% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, with the proceeds of certain equity offerings, subject to certain conditions as specified in the Indenture Agreement. At any time prior to November 15, 2022, during each calendar year, the Company may redeem up to 10% of the aggregate principal amount of the notes at a purchase price equal to 103% of the aggregate principal amount of the Senior Notes due 2025 to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.

On or after November 15, 2022, the Company may redeem all or a part of the Senior Notes due 2025 upon not less than ten days’ nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest, if any, on the Senior Notes due 2025 redeemed, to, but excluding, the applicable redemption date, if redeemed during the 12-month period beginning on November 15 of the years indicated below:


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

The Company may also redeem the Senior Notes due 2029, in whole or in part, at any time prior to October 1, 2024, at a price equal to 100% of the principal amount of the notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption plus a “make-whole” premium set forth in the Indenture. In addition, the Company may redeem up to 40% of the Senior Notes due 2029 prior to October 1, 2024, at a redemption price of 105.000% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, with the proceeds of certain equity offerings, subject to certain conditions as specified in the Indenture Agreement.

On or after October 1, 2024, the Company may redeem all or a part of the Senior Notes due 2029 upon not less than ten nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest, if any, on the Notes redeemed, to, but excluding, the applicable redemption date, if redeemed during the 12-month period beginning on October 1 of the years indicated below:


Year			Percentage
2024			102.500%
2025			101.250%
2026 and thereafter			100.000%

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

Pursuant to the Senior Notes due 2029, the Company will pay interest on the notes at 5.000% per annum until maturity. Interest is ~~included~~payable semi-annually in ~~“Accrued expenses”~~arrears on April 1 and October 1 of each year, with the first interest payment date being April 1, 2022. Principal payments are not required until the maturity date on October 1, 2029 when 100% of the outstanding principal will be required to be repaid. As a part of the bond issuance process, we incurred a $6.6 million bridge commitment fee that provided a potential funding backstop in the event that the Notes did not meet the desired subscription level to be used to acquire VRI. That commitment expired unused upon closing of the Notes and the fee was expensed in Q3 2021.

Debt issuance costs of $14.5 million in relation to the issuance of the Senior Notes due 2025 were incurred and these costs were deferred and are amortized to interest cost over the term of the Notes. Debt issuance costs of $13.5 millionwere incurred in relation to the issuance of the Senior Notes due 2029 and these costs were deferred and are amortized to interest cost over the term of the Notes. As of September 30, 2021, $25.3 million of unamortized deferred issuance costs was netted against the long-term debt balance on the condensed consolidated balance ~~sheet~~sheet.

Credit Facility

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

On October 16, 2020, the Company entered into the Eighth Amendment to the Amended and Restated Credit and Guaranty Agreement (the “Eighth Amendment”), which among other things, amended the Credit Facility to permit the incurrence of additional debt to finance the acquisition of Simplura (the "Simplura Acquisition"), permit borrowing under the Credit Facility to partially fund the Simplura Acquisition with limited conditions to such borrowing, increase the top interest rate margin that may apply to loans thereunder, and revise our permitted ratio of EBITDA to indebtedness. In addition, the Eighth Amendment extended the maturity date to August 2, 2023.

On September 13, 2021, the Company entered into the Ninth Amendment to the Amended and Restated Credit and Guaranty Agreement (the “Ninth Amendment”), which among other things, amended the Credit Facility to permit the incurrence of additional debt to finance the acquisition of VRI and revise certain financial covenants therein to permit the consummation of the VRI acquisition.

Effective as of the Ninth Amendment, interest on the outstanding principal amount of loans under the Credit Facility accrues, at the Company’s election, at a per annum rate equal to the greater of either LIBOR or 1.00%, plus an applicable margin, or the Base Rate as defined in the agreement plus an applicable margin respectively. The applicable margin ranges from 2.25% to 3.50% in the case of LIBOR loans and 1.25% to 2.50% in the case of the Base Rate loans, in each case, based on the Company’s consolidated leverage ratio as defined in the Credit Agreement that governs our Credit Facility. The commitment fee and letter of credit fee range from 0.35% to 0.50% and 2.25% to 3.50%, respectively, in each case based on the Company’s consolidated leverage ratio as defined in the credit agreement that governs our Credit Facility.

As of September 30, ~~2017. While~~2021, the ~~matter is not resolved, it is highly likely~~Company had no borrowings outstanding on the ~~escrow funds will be used to satisfy a portion~~Credit Facility; however, there were letters of ~~this settlement. See Note 11,~~ ~~Commitments and Contingencies, for further information.~~

~~5. Accrued Expenses~~

~~Accrued expenses consisted~~credit outstanding in the amount of ~~the following:~~

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. Restructuring and Related Reorganization Costs~~

WD Services has three redundancy programs. Two redundancy plans were approved in 2015 and have been substantially completed; a plan related to the termination of employees delivering services under an offender rehabilitation program (“Offender Rehabilitation Program”) and a plan related to the termination of employees delivering services$21.1 million. The Company’s available borrowing capacity under the ~~Company’s employability and skills training programs and certain other employees in~~Credit Facility was $203.9 million. Under the ~~United Kingdom (“UK Restructuring Program”). In addition, a redundancy plan related~~Credit Agreement, the Company has an option to the termination of employees as part of a value enhancement project ("Ingeus Futures Program") to better align costs at Ingeus with revenue and to improve overall operating performance was approved in 2016. The Company recorded severance 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 expense” in the accompanying condensed consolidated statements of income.

The initial estimate of severance and related charges for the plans 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 related to the actualization of termination benefits for specifically identified employees impacted under these plans, as well asrequest an increase in the ~~number of individuals impacted by these plans. The final identification~~amount of the ~~employees impacted by each program~~revolving credit facility from time to time (on substantially the same terms as apply to the existing facilities) in an aggregate amount of up to $75.0 million, with either additional commitments from lenders under the Credit Agreements 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 increases. The Company may not be able to access additional funds under these increase options as no lender is ~~subject~~obligated to ~~customary consultation procedures.~~participate in any such increases under the Credit Facility.

~~Summary of Severance and Related Charges~~

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

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

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

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

The total of accrued severance and related costs of $768 is reflected in “Accrued expenses” in the condensed consolidated balance sheet at September 30, 2017. The amount accrued as of September 30, 2017 is expected to be settled principally by the end of 2017.

~~7. Stockholders’ Equity~~

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

Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Non-controlling Interest Total
Shares Amount Shares Amount
Balance at December 31, 2016 17,315,661
$ 17
$ 302,010
$ 156,718
$ (33,449 ) 3,478,676
$ (125,201 ) $ (2,420 ) $ 297,675
Stock-based compensation —
—
4,636
—
—
—
—
—
4,636
Exercise of employee stock options 70,283
—
1,468
—
—
5,665
(238 ) —
1,230
Restricted stock issued 31,316
—
—
—
—
17,865
(779 ) —
(779 )
Performance restricted stock issued 3,773
—
(96 ) —
—
—
—
—
(96 )
Shares issued for bonus settlement and director stipend 25,225

1,107

—
—
—
—
1,107
Stock repurchase plan —
—
—
—
—
441,965
(17,983 ) —
(17,983 )
Conversion of convertible preferred stock to common stock 415
—
17
—
—
—
—
—
17
Foreign currency translation adjustments, net of tax —
—
—
—
6,591
—
—
(182 ) 6,409
Reclassification of translation loss realized upon sale of equity investment —
—
—
—
527
—
—
—
527
Convertible preferred stock dividends —
—
—
(3,305 ) —
—
—
—
(3,305 )
Noncontrolling interests —
—
—
—
—
—
—
295
295
Other —
—
25
—
—
—
—
—
25
Net income attributable to Providence —
—
—
14,441
—
—
—
—
14,441
Cumulative effect adjustment from change in accounting principle —
—
850
(850 ) ��
—
—
—
—
Balance at September 30, 2017 17,446,673
$ 17
$ 310,017
$ 167,004
$ (26,331 ) 3,944,171
$ (144,201 ) $ (2,307 ) $ 304,199

8.11. Stock-Based Compensation and Similar Arrangements

The Company provides stock-based compensation to employees and non-employee directors under the ~~Company’s~~Company's 2006 Long-Term Incentive Plan, ~~(“2006~~as amended and restated effective July 27, 2016 (the “Equity Incentive Plan”). ~~Typical awards issued under this plan include~~The Equity Incentive Plan allows the flexibility to grant or award stock ~~option awards,~~options, stock appreciation rights, restricted stock, ~~awards (“RSAs”) and performance based~~unrestricted stock, stock units including restricted stock units ~~(“PRSUs”). In addition, the Company has a long-term incentive plan designed to provide long-term~~and performance ~~based~~ awards to ~~certain executive officers of the Company which also falls under the 2006 Plan.~~eligible persons.

The following table reflects the amount of stock-based compensation, for share settled awards, recorded in each financial statement line item for the three months ended September 30, 2021 and 2020 and nine months ended September 30, ~~2017~~2021 and ~~2016:~~2020 (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Service expense	$	—	$	55	$	—	$	174
General and administrative expense	1,566		1,122		4,225		2,775
Total stock-based compensation	$	1,566	$	1,177	$	4,225	$	2,949

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Service expense $ 131
$ 100
$ 365
$ 280
General and administrative expense 1,434
1,135
4,221
2,858
Equity in net loss of investees 10
—
50
—
Discontinued operations, net of tax —
22
—
66
Total stock-based compensation $ 1,575
$ 1,257
$ 4,636
$ 3,204

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

At September 30, ~~2017,~~2021, the Company had ~~300,831~~270,962 stock options outstanding with a weighted-average exercise price of ~~$37.97.~~$88.03. The Company also had ~~71,193 shares of~~19,975 unvested ~~RSAs~~restricted stock awards ("RSAs") and 60,243 unvested restricted stock units ("RSUs") outstanding at September 30, ~~2017~~2021 with a weighted-average grant date fair value of ~~$44.33~~$91.08 and ~~18,298 unvested PRSUs outstanding.~~$114.19, respectively.

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

The Company also provides cash settled long-term incentive plans for executive management and key employees of its operating segments. During the three months ended June 30, 2017, the Company revised the structure of the NET Services long-term incentive plan. As a result, the Company finalized the amount payable under the plan at $2,956. The total value will be paid to the awarded participants per the terms of the original agreement and thus the remaining unamortized expense relating to this plan continues to be recognized over the remaining service period. 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 plans of the Company’s operating segments of $2,260 is reflected in “Accrued expenses” and “Other long-term liabilities” in the condensed consolidated balance sheet. At December 31, 2016, the liability for long-term incentive plans of the Company’s operating segments of $1,841 is reflected in “Other long-term liabilities” in the condensed consolidated balance sheet.

9.12. Earnings (Loss) Per Share

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


	Three months ended September 30,						Nine months ended September 30,							Three months ended September 30,				Nine months ended September 30,
	2017			2016			2017			2016				2021		2020		2021		2020
Numerator:													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)													Net income (loss)	$	(7,570)	$	38,805	$	24,943	$	91,901
Dividends on convertible preferred stock outstanding													Dividends on convertible preferred stock outstanding	—		—		—		(1,171)
Dividends paid pursuant to the Conversion Agreement													Dividends paid pursuant to the Conversion Agreement	—		(27)		—		(817)
Consideration paid in excess of preferred cost basis pursuant to the Conversion Agreement													Consideration paid in excess of preferred cost basis pursuant to the Conversion Agreement	—		(3,186)		—		(52,137)
Income allocated to participating securities													Income allocated to participating securities	—		(246)		—		(3,213)
Net income (loss) available to common stockholders	$	11,962		$	(745	)	$	8,927		$	3,697		Net income (loss) available to common stockholders	$	(7,570)	$	35,346	$	24,943	$	34,563

Continuing operations	$	11,978		$	2,046		$	14,927		$	3,405		Continuing operations	$	(7,462)	$	35,461	$	25,175	$	35,181
Discontinued operations	(16		)	(2,791		)	(6,000		)	292			Discontinued operations	(108)		(115)		(232)		(618)
	$	11,962		$	(745	)	$	8,927		$	3,697
Net income (loss) available to common stockholders													Net income (loss) available to common stockholders	$	(7,570)	$	35,346	$	24,943	$	34,563

Denominator:													Denominator:
Denominator for basic earnings per share -- weighted-average shares	13,581,662			14,523,408			13,612,764			14,823,757			Denominator for basic earnings per share -- weighted-average shares	13,993,438		14,026,039		14,102,371		13,367,605
Effect of dilutive securities:													Effect of dilutive securities:
Common stock options	68,856			111,075			58,668			119,267			Common stock options	—		61,312		130,221		15,730
Performance-based restricted stock units	5,036			—			5,036
Restricted stock													Restricted stock	—		46,553		45,739		32,009
Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion	13,655,554			14,634,483			13,676,468			14,943,024			Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion	13,993,438		14,133,904		14,278,331		13,415,344

Basic earnings (loss) per share:													Basic earnings (loss) per share:
Continuing operations	$	0.88		$	0.14		$	1.10		$	0.23		Continuing operations	$	(0.53)	$	2.53	$	1.79	$	2.63
Discontinued operations	—			(0.19		)	(0.44		)	0.02			Discontinued operations	(0.01)		(0.01)		(0.02)		(0.05)
	$	0.88		$	(0.05	)	$	0.66		$	0.25
Basic earnings (loss) per share													Basic earnings (loss) per share	$	(0.54)	$	2.52	$	1.77	$	2.58
Diluted earnings (loss) per share:													Diluted earnings (loss) per share:
Continuing operations	$	0.88		$	0.14		$	1.09		$	0.23		Continuing operations	$	(0.53)	$	2.51	$	1.76	$	2.62
Discontinued operations	—			(0.19		)	(0.44		)	0.02			Discontinued operations	(0.01)		(0.01)		(0.02)		(0.05)
	$	0.88		$	(0.05	)	$	0.65		$	0.25
Diluted earnings (loss) per share													Diluted earnings (loss) per share	$	(0.54)	$	2.50	$	1.74	$	2.57

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

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


	Three months ended September 30,		Nine months ended September 30,			Three months ended September 30,		Nine months ended September 30,
	2017	2016	2017	2016		2021	2020	2021	2020
Stock options to purchase common stock	33,890	33,957	56,528	33,957	Stock options to purchase common stock	49,158	3,481	53,550	170,076
Convertible preferred stock	803,285	803,398	803,360	803,457	Convertible preferred stock	—	38,851	—	487,576

Issuer Purchases of Equity Securities

~~10.~~

On March 8, 2021, the Board of Directors authorized a stock repurchase program under which the Company may repurchase up to $75.0 million in aggregate value of the Company’s Common Stock through December 31, 2021, unless terminated earlier. Through September 30, 2021, 269,407 shares were repurchased under the program for $39.0 million.

13. Income Taxes

The Company’s effective tax rate ~~from~~for continuing operations for the three and nine months ended September 30, ~~2017~~2021 was ~~16.7%~~34.1% and ~~28.8%,~~24.0% respectively. The ~~Company’s~~ effective tax rate ~~from~~for continuing operations for the three and nine months ended September 30, ~~2016~~2020 was ~~55.6%~~27.0% and ~~64.9%~~17.6%, respectively. ~~The~~For the nine months ended September 30, 2021, the effective tax ~~rates~~rate was higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes and certain non-deductible expenses. For the nine months ended September 30, 2020, the effective tax rate was lower than the U.S. federal statutory rate of 21.0%primarily due to the favorable impact of the CARES Act on the Company’s 2018 U.S. net operating losses ("NOLs").

During 2019, the Company received refunds from the Internal Revenue Service (“IRS”) totaling $30.8 million resulting from the loss on the sale of our workforce development segment ("WD Services segment") in 2018. As a result of the size of the refunds received, in October 2019, the IRS commenced a Joint Committee Review of the refunds. The review was completed in the third quarter of 2021 with no material adjustments being made.

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

As of September 30, 2021, the Company has received all of the $27.3 million receivable for the 2018 U.S. NOL carryback. This $27.3 million was also subject to the IRS Joint Committee Review, which was completed in the third quarter of 2021 with no material adjustments being made.

14. Commitments and Contingencies

Legal proceedings

In the ordinary course of business, the Company may from time to time be or become involved in various lawsuits. Unless otherwise expressly stated, our management does not expect any ongoing lawsuits involving the Company to have a material impact on the business, liquidity, financial condition, or results of operations of the Company.

On August 6, 2020, LogistiCare Solutions, LLC, the Company’s subsidiary now known as ModivCare Solutions, LLC (“ModivCare Solutions”), was served with a putative class action law suit filed against it by Mohamed Farah, the owner of transportation provider Dalmar Transportation, in the Western District of Missouri, seeking to represent all non-employee transportation providers contracted with ModivCare Solutions. The lawsuit alleges claims under the Fair Labor Standards Act of 1938, as amended (the “FLSA”), and the Missouri Minimum Wage Act, and asserts that all transportation providers to ModivCare Solutions in the putative class should be considered ModivCare Solutions’ employees rather than independent contractors. On June 6, 2021, the Court conditionally certified as the putative class all current and former In Network Transportation Providers who, individually or through their companies, were issued 1099 payments from ModivCare Solutions for providing non-emergency medical transportation services for ModivCare Solutions for the previous three years. Notice of the proposed collective class was issued on October 5, 2021, and potential members of the class have until January 3, 2022 to opt-in. ModivCare Solutions believes it will be able to decertify this class action after discovery and in any event intends to defend itself vigorously with respect to this matter, believes that it is and has been in compliance in all material respects with the laws and regulations regarding the characterization of the transportation providers as independent contractors, and does not

believe that the ultimate outcome of this matter will have a material adverse effect on the Company’s business, liquidity, financial condition or results of operations.

On January 21, 2019, the United States District Court for the Southern District of Ohio unsealed a qui tam complaint, filed in December 2015, against Mobile Care Group, Inc., Mobile Care Group of Ohio, LLC, Mobile Care EMS & Transport, Inc. (collectively, the “Mobile Care Entities”) and ModivCare Solutions by Brandee White, Laura Cunningham, and Jeffery Wisier (the “Relators”) alleging that the Mobile Care Entities and indirectly ModivCare Solutions violated the federal False Claims Act by presenting claims for payment to government healthcare programs knowing that the prerequisites for such claims to be paid had not been met. The Relators seek to recover damages, fees and costs under the federal False Claims Act, including treble damages, civil penalties and attorneys’ fees. In addition, the Relators seek reinstatement to their jobs with the Mobile Care Entities. None of the Relators were employed by ModivCare Solutions. The federal government has declined to intervene against ModivCare Solutions. ModivCare Solutions filed a motion to dismiss the Complaint on April 22, 2019, but such motion was denied on October 26, 2021. ModivCare Solutions intends to file an interlocutory appeal of this ruling and believes, in any event, that the case will not have a material adverse effect on the Company’s business, liquidity, financial condition or results of operations.

In 2017, one of our Personal Care segment subsidiaries, All Metro Home Care Services of New York, Inc. d/b/a All Metro Health Care (“All Metro”), received a class action lawsuit in state court claiming that, among other things, it failed to properly pay live-in caregivers who stay in patients’ homes for 24 hours per day (“live-ins”). The Company currently pays live-ins for 13 hours per day as supported through a written opinion letter from the New York State Department of Labor (“NYSDOL”). A similar case involving this issue has been heard by the New York Court of Appeals (New York’s highest court), which on March 26, 2019, issued a ruling reversing earlier lower courts’ decisions that an employer must pay live-ins for 24 hours. The Court of Appeals agreed with the NYSDOL’s interpretation to pay live-ins 13 hours instead of 24 hours if certain conditions were being met. If the class action lawsuit on this matter is allowed to proceed, and is successful, All Metro may be liable for back wages and litigated damages going back to November 2011. All Metro intends to defend itself vigorously with respect to this matter, believes that it is and has been in compliance in all material respects with the laws and regulations covering pay for live-in caregivers, and does not believe in any event that the ultimate outcome of this matter will have a material adverse effect on the Company’s business, liquidity, financial condition or results of operations. In a companion case, a federal class action lawsuit was filed in May 2021 alleging similar claims. All Metro retained the same attorneys to represent it in both the state and federal cases. All Metro orally agreed to settle this federal matter for a de minimis amount on October 15, 2021.

15. Transactions with Related Parties

Cash-Settled Awards

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

In addition, on September 11, 2014, the Company granted 200,000 stock option equivalent units (“SOEUs”) to Coliseum at an exercise price of $43.81 per share that were fully vested. The SOEUs were accounted for as liability awards, with the recorded expense adjustment attributable to the Company’s change in stock price from the previous reporting period. On August 12, 2021, Coliseum exercised all of the SOEUs at a stock price of $182.73 per share for a total cash settlement of $27.8 million. At September 30, 2021, there were no SOEU's outstanding.

During the three and nine months ended September 30, ~~2016 exceeded~~2021, the U.S. federal statutory rate of 35% primarily due to foreign net operating losses (including equity investment losses in certain of the periods) 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 2016 versus 2017 resulting in a decrease in the effective tax rate from 2016 to 2017. Additionally, for the three and nine months ended September 30, 2017, there was no provision for income taxes related to the gain on sale of equity investment of $12,606 due to the substantial difference in tax basis versus book basis in the investment.

~~The~~ Company recorded ~~excess tax deficiencies~~expense of $2.6 million and $9.1 million respectively, for ~~the three~~all cash-settled awards, and nine months ended September 30, 2017 of $261 and $148, respectively, which increased the provision for income taxes. These excess tax deficiencies were a result of applying the guidance in ASU 2016-09 as further discussed in Note 2, ~~Significant Accounting Policies 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 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 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.

~~11. Commitments and Contingencies~~

~~Legal proceedings~~

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

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

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

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

~~Indemnifications related to Haverhill Litigation~~

The Company completed a rights offering on February 5, 2015 (the “Rights Offering”) providing all 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 and 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 and (ii) the transactions contemplated by the Standby Purchase Agreement and the 14.0% Unsecured Subordinated Note in aggregate principal amount of $65,500, except to the extent that any such losses, claims, damages, expenses and liabilities are attributable to the gross negligence, willful misconduct or fraud of such Standby Purchaser.

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,~~2020, the Company recorded expense of $2.9 million and $6.9 million respectively, for all cash-settled awards. The expense and ~~$791 and $935 of such indemnified legal expenses during the three and nine months ended September 30, 2016, respectively, which~~benefit for cash-settled awards is included inas “General and administrative ~~expenses”~~expense” in the accompanying condensed consolidated statements of ~~income. Of these amounts, $23~~operations. The liability for unexercised cash-settled share-based payment awards of $0.2 million 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$19.4 million at September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, respectively, ~~with a corresponding liability amount recorded to~~is reflected in “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 representations and warranties made by the Company in the 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, 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 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 the Company have entered into a memorandum of understanding regarding a settlement of an indemnification claim by Molina with respect to the Rodriguez Litigation~~expenses 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.

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; however, certain fundamental representations survive through the 36th month following the closing date. The covenants and agreements of the parties to be performed prior to the closing survive through the 15th month following the closing date, and all other covenants and agreements survive 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.~~

~~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-termcurrent liabilities” in the condensed consolidated balance sheets. ~~The estimated amount~~At September 30, 2021, the Company had 1,344 SEUs outstanding.

16. Subsequent Events

Management has evaluated subsequent events through November 5, 2021, the date which the financial statements were available to be ~~reimbursed to SPCIC~~issued. All subsequent events requiring recognition as of September 30, ~~2017~~2021 have been incorporated into these financial statements and ~~December 31, 2016 was $6,098 and $5,265, respectively, and is classified~~there are no subsequent events that require disclosure, other than the updated status on the legal matters, as ~~“Other receivables" and “Other assets” in the condensed consolidated balance sheets.~~

~~Deferred Compensation Plan~~

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

~~12. Transactions with Related Parties~~

~~The Company incurred legal expenses under an indemnification agreement with the Standby Purchasers as further~~ discussed in Note ~~11,~~ 14 Commitments and Contingencies. Convertible preferred stock dividends earned by the Standby Purchasers 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, the Company made a $566 loan to Mission Providence. The loan was repaid during the three months ended September 30, 2017.~~

~~13. Discontinued Operations~~

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

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 and 2016.~~

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 )

General and administrative expenses for the three months ended September 30, 2017 includes legal expenses of $26. General and administrative expenses for the nine months ended September 30, 2017 includes an accrual of $9,000 for an estimated settlement of indemnified claims related to the sale of the Human 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 $9,310 for the three and nine months ended September 30, 2016 respectively, and is included in “Interest expense, net” in the table above.

~~Cash Flow Information~~

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

Nine months ended September 30, 2016

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

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

~~14. Segments~~

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

~~NET Services – Nationwide provider of non-emergency medical transportation programs for state governments and managed care organizations.~~

~~WD Services – Global provider of employment preparation and placement and legal offender rehabilitation services to eligible participants of government sponsored programs.~~

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

Effective October 19, 2016, pursuant to the Matrix Transaction, the Company no longer owns a controlling interest 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 a discontinued operation, it is not reflected in the Company’s segment disclosures. However, the Company accounts for 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.

The following tables set forth certain financial information from continuing operations attributable to the Company’s business segments for the three and nine months ended September 30, 2017 and 2016:

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

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

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

Three months ended September 30, 2016
NET Services WD Services
Matrix
Investment

Corporate and
Other
Total
Service revenue, net $ 317,280
$ 94,960
$ —
$ 31
$ 412,271
Service expense 293,919
84,051
—
518
378,488
General and administrative expense 2,860
6,780
—
7,680
17,320
Depreciation and amortization 3,051
3,497
—
122
6,670
Operating income (loss) $ 17,450
$ 632
$ —
$ (8,289 ) $ 9,793

Equity in net gain (loss) of investee $ —
$ (1,517 ) $ —
$ —
$ (1,517 )

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

Corporate and
Other
Total
Service revenue, net $ 987,662
$ 229,332
$ —
$ —
$ 1,216,994
Service expense 927,082
199,665
—
(2,269 ) 1,124,478
General and administrative expense 8,879
20,944
—
23,882
53,705
Depreciation and amortization 9,763
9,695
—
258
19,716
Operating income (loss) $ 41,938
$ (972 ) $ —
$ (21,871 ) $ 19,095

Equity in net gain (loss) of investee $ —
$ (1,419 ) $ 428
$ —
$ (991 )

Nine months ended September 30, 2016
NET Services WD Services
Matrix
Investment

Corporate and
Other
Total
Service revenue, net $ 917,157
$ 275,293
$ —
$ (24 ) $ 1,192,426
Service expense 846,311
247,797
—
903
1,095,011
General and administrative expense 8,483
23,236
—
20,829
52,548
Depreciation and amortization 8,858
10,912
—
288
20,058
Operating income (loss) $ 53,505
$ (6,652 ) $ —
$ (22,044 ) $ 24,809

Equity in net gain (loss) of investee $ —
$ (5,693 ) $ —
$ —
$ (5,693 )

~~Geographic Information~~

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

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

~~15. Subsequent Events~~

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

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

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes for the three and nine months ended September 30, ~~2017~~2021 and ~~2016,~~2020, as well as our audited consolidated financial statements and accompanying notes and management’s discussion and analysis of financial condition and results of operations included in our Form 10-K for the year ended December 31, ~~2016.~~2020. For purposes of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to Q3 ~~2017~~2021 and Q3 ~~2016~~2020 mean the three months ended September 30, ~~2017~~2021 and the three months ended September 30, ~~2016,~~2020, respectively, and references to YTD ~~2017~~2021 and YTD ~~2016~~2020 mean the nine months ended September 30, ~~2017~~2021 and the nine months ended September 30, ~~2016,~~2020, respectively.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 3b-6 promulgated thereunder, including statements related to the Company’s strategies or expectations about revenues, liabilities, results of operations, cash flows, ability to fund operations, profitability, ability to meet financial covenants, contracts or market opportunities. These statements are predictive in nature and are frequently identified by the use of terms such as “may,” “will,” “should,” “expect,” “believe,” “estimate,” “intend,” and similar words indicating possible future expectations, events or actions. In addition, statements that are not historical statements of fact should also be considered forward-looking statements. Such forward-looking statements are based on current expectations, assumptions, estimates and projections about our business and our industry, and are not guarantees of our future performance. These statements are subject to a number of known and unknown risks, uncertainties and other factors, many of which are beyond our ability to control or predict, that may cause actual events to be materially different from those expressed or implied herein. Among such risks, uncertainties and other factors are those summarized under the caption “Summary Risk Factors” in Part I, and described in further detail under the caption “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, for the fiscal year ended December 31, 2020. Hyperlinks to such sections of our Annual Report are contained in the text included within the quotation marks.

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

Overview of ~~our business~~Our Business

~~Providence, through its subsidiaries~~ModivCare is a technology-enabled healthcare services company that provides a suite of integrated supportive care solutions for public and ~~other companies in which it holds interests,~~private payors and their patients. Its value-based solutions address the social determinants of health, or SDoH, enable greater access to care, reduce costs, and improve outcomes. ModivCare is ~~primarily engaged in the provision of healthcare and workforce development services. The subsidiaries and other companies in which we hold interests comprise the following segments:~~

~~Non-Emergency Transportation Services (“NET Services”) – Nationwide~~a provider of non-emergency medical transportation, ~~programs for state governments~~or NEMT, personal care, and ~~managed~~remote patient monitoring, or RPM, solutions. The technology-enabled operating model includes NEMT core competencies in risk underwriting, contact center management, network credentialing, claims management and non-emergency medical transport management. Additionally, its personal care ~~organizations.~~services include placements of non-medical personal care assistants, home health aides and nurses primarily to Medicaid patient populations in need of care monitoring and assistance performing daily living activities in the home setting, including senior citizens and disabled adults. ModivCare’s remote patient monitoring services include personal emergency response systems, vitals monitoring and data-driven patient engagement solutions.

~~Workforce Development Services (“WD Services”) – Global provider~~

ModivCare’s solutions help health plans manage risks, close care gaps, reduce costs, and connect members to care. Through the combination of ~~employment preparation~~its historical NEMT business, its in-home personal care business that consists of Simplura Health Group and ~~placement~~Care Finders Total Care LLC, and ~~legal offender rehabilitation services~~its recent addition of the remote patient monitoring business through its acquisition of VRI Intermediate Holdings, LLC, or VRI, ModivCare has united four complementary healthcare businesses that

serve similar, highly vulnerable patient populations. For additional information about our business and operating segments, please see Note 1 and Note 4 to ~~eligible participants of government sponsored programs.~~the accompanying unaudited financial statements.

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~~is expected to increase demand for healthcare services and transportation and, accordingly, in-home personal care services;

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

•increasing demand for in-home care provision, driven by cost pressures on traditional reimbursement models and technological advances enabling remote ~~engagement;~~engagement, including telehealth and similar internet-based health related services;

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

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

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

~~the results~~Impact of the ~~referendum on~~COVID-19 Pandemic

Since March of 2020, the ~~UK’s exit from~~COVID-19 pandemic has impacted the ~~European Union and related political and economic uncertainty in the UK; and~~

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 of both the extent of the provisions that may be repealedCompany’s business, as well as its patients, communities, and employees. The Company’s priorities during the ~~details~~COVID-19 pandemic remain protecting the health and safety of ~~any potential replacement legislation~~its employees and patients, maximizing the availability of its services and products to support the SDoH, and the operational and financial stability of its business.

Grant Income. For the nine months ended September 30, 2021, the Company received distributions of the CARES Act PRF of approximately $3.5 million targeted to offset lost revenue and expenditures incurred in connection with the COVID-19 pandemic, which is currently recorded as grant income. The PRF payments are ~~uncertain at~~subject to certain restrictions and are subject to recoupment if not used for designated purposes. As a condition to receiving distributions, providers must agree to certain terms and conditions, including, among other things, that the funds are being used for lost revenues and unreimbursed COVID-19 related expenses as defined by HHS. All recipients of PRF payments are required to comply with the reporting requirements described in the terms and conditions and as determined by HHS. The Company recognizes grant payments as grant income when there is reasonable assurance that it has complied with the conditions associated with the grant. Grant income recognized by the Company is presented in grant income in the accompanying consolidated statements of operations. HHS guidance related to PRF grant funds is still evolving and subject to change. The Company is continuing to monitor the reporting requirements as they evolve.

The CARES Act also provides for certain federal income and other tax changes, including the deferral of the employer portion of Social Security payroll taxes. The Company has deferred payment of approximately $20.8 million related to the deferral of employer payroll taxes as of September 30, 2021 under the CARES Act. Of this ~~time. Enactment~~amount, approximately 50% is due in December of ~~adverse legislation, regulation or agency guidance, may reduce~~2021 and 50% is due in December of 2022; therefore, $10.4 million is recorded in accrued expenses, and $10.4 million is recorded in other long-term liabilities.

As a result of the ~~demand for~~COVID-19 pandemic, our ~~services, our ability to conduct some or all~~NEMT Segment has experienced a decreased number of trips beginning in March 2020. As many of our ~~business and/~~contracts are capitated, our revenues did not experience a decrease to the level of our transportation costs, resulting in a positive impact to our gross margin. However, certain of our contracts contain risk corridor or ~~reimbursement rates for services performed within~~profit rebate provisions, which result in a possible refund to our ~~segments.~~payors if our gross margin exceeds certain pre-determined

Historically, our segments have grown through organic expansion into new markets and service lines, organic expansion within existing markets and service lines, increases in the number of members served underlimits. For these contracts, we have recognized a contract payable in relation to revenues that have been ~~awarded,~~received, however are unearned due to the ~~securing~~possibility of ~~new contracts,~~payback. It is possible we could experience higher transportation costs in the future as we are currently seeing trip volumes increase to levels higher than those pre-pandemic in certain regions of the country. See further discussion of this at Note 5, Revenue Recognition.

Since March 2020 and ~~acquisitions. As we~~primarily as a result of the COVID pandemic, our Personal Care Segment business has experienced and is expected to continue to ~~focus~~experience a material reduction in the volume of service hours and visits. Volume has been reduced as patients put services on hold due to infection concerns, and/or because they had the alternative of receiving care from family members and others working remotely or furloughed from their jobs.Cases have also been lost and new case referrals slowed as referral sources faced disruption from the various restrictions and “stay at home” orders. Our personal care service volumes are not expected to recover to pre-pandemic levels until the vaccines are more universally applied in the markets where we provide our ~~attention and capital on our domestic, healthcare services operations ("U.S. Healthcare Services"), we may pursue~~services. While these depressed volumes will continue to result in lower than expected revenue, at least in 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),~~near term, 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 2017be challenged 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 costswage pressures related to ~~merger~~minimum wage increases and ~~acquisition activities, including third-party costs, whether the transaction~~a narrowing caregiver labor pool that is ~~completed or not.~~currently being supplemented by unemployment benefits and further being impacted by a federal vaccine mandate.

Critical ~~accounting estimates~~Accounting Estimates and ~~policies~~Policies

~~As of September 30, 2017, there has~~There have been no ~~change in~~significant changes to our critical accounting policies ~~other than~~in our unaudited condensed consolidated financial statements from our Form 10-K for ~~stock-based compensation and recoverability of goodwill, as discussed below.~~the year ended December 31, 2020. For further discussion of our critical accounting policies, see management’s discussion and analysis of financial condition and results of operations contained in our Form 10-K for the year ended December 31, ~~2016.~~2020.

~~Stock-Based Compensation~~Composition of Results of Operations

~~Our primary forms~~The following results of ~~employee stock-based compensation are stock option awards~~operations include the accounts of ModivCare Inc. and ~~restricted stock awards,~~our subsidiaries for the three and nine months ended September 30, 2021.

Revenues

Service revenue, net. Service revenue, net represents the revenue recognized from transportation management services through our NEMT segment, from personal care services through our Personal Care segment and from remote monitoring services through our RPM segment.

Grant Income

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

Operating Expenses

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

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

Depreciation and Amortization Expense. Depreciation within this caption includes infrastructure items such as computer hardware and software, office equipment and leasehold improvements. Amortization expense is generated primarily from amortization of our intangible assets, including ~~certain awards which vest based upon performance conditions. We measure the value~~Customer Relationships, Payor Network, Trade Names and a New York LHCSA Permit.

Other Expenses (Income)

Interest Expense, Net. Interest expense consists principally of ~~stock option awards~~interest payments on the ~~date~~Company’s outstanding borrowings under the Credit Facility, Senior Unsecured Notes and amortization of ~~grant at fair value using~~deferred financing fees. Refer to the ~~appropriate valuation techniques, including the Black-Scholes~~“Liquidity 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~~Capital Resources” section below for further discussion of these outstanding borrowings.

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

Income Tax Expense (Benefit). The Company is ~~typically the vesting period. The pricing models require various highly judgmental assumptions including volatility and expected option term. If any of the assumptions used~~subject to federal taxation in the ~~models change significantly, stock-based compensation expense may differ materially~~United States and state taxation 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 periodvarious jurisdictions in which ~~tax windfalls or shortfalls occur. The adoption also impacted the presentation of cash flows and the computation of earnings per share.~~we operate.

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. Ouroperating segments reflect the manner in which our operations are organized and reviewed by management ~~along~~and our ~~segment lines.~~ chief operating decision maker.

We operate in ~~two principal~~four reportable business segments: ~~NET Services~~NEMT, Personal Care, RPM and ~~WD Services.~~the Matrix Investment. Prior to November 17, 2020, our primary operating segment was NEMT, which provides non-emergency medical transportation services. Our Personal Care segment is composed of the operations from two acquisitions: Simplura on November 18, 2020, which operates in the non-medical personal care service industry; and Care Finders on September 14, 2021, a personal care service provider with operations concentrated in the Northeast, with a scaled presence in New Jersey, Pennsylvania, and Connecticut. On September 22, 2021, we acquired VRI, resulting in the establishment of our RPM segment. VRI is a provider of remote patient monitoring solutions. 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 principal business~~our NEMT, Personal Care and RPM segments 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~~and the segment. Indirect expenses, including unallocated corporate functions and expenses, such as executive, finance, accounting, human resources, insurance administration, internal audit, process improvement, information technology and legal, as well as theoperating results of our ~~captive insurance company (the “Captive”)~~NEMT segment also include our activities related to executive, accounting, finance, internal audit, tax, legal and ~~elimination entries recorded~~certain strategic and corporate development functions for each segment. See Note 4, Segments, in ~~consolidation are reflected~~our accompanying condensed consolidated financial statements for further information on our segments.

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

Q3 ~~2017~~2021 compared to Q3 ~~2016~~2020

Consolidated Results. The following table sets forth results of operations and the percentage of ~~consolidated total revenues~~Service revenue, net represented by items in our unaudited condensed consolidated statements of ~~income~~operations for Q3 ~~2017~~2021 and Q3 ~~2016~~2020 (in thousands):

Three months ended September 30,
2017 2016
$
Percentage
of Revenue
$
Percentage
of Revenue
Service revenue, net 409,517
100.0 % 412,271
100.0 %

Operating expenses:
Service expense 378,032
92.3 % 378,488
91.8 %
General and administrative expense 18,629
4.5 % 17,320
4.2 %
Depreciation and amortization 6,547
1.6 % 6,670
1.6 %
Total operating expenses 403,208
98.5 % 402,478
97.6 %

Operating income 6,309
1.5 % 9,793
2.4 %

Non-operating expense:
Interest expense, net 302
0.1 % 338
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 %
Income from continuing operations before income taxes 17,953
4.4 % 8,420
2.0 %
Provision for income taxes 2,989
0.7 % 4,678
1.1 %
Income from continuing operations, net of tax 14,964
3.7 % 3,742
0.9 %
Discontinued operations, net of tax (16 ) — % (2,791 ) 0.7 %
Net income 14,948
3.7 % 951
0.2 %
Net loss attributable to noncontrolling interest (95 ) — % (301 ) 0.1 %
Net income attributable to Providence 14,853
3.6 % 650
0.2 %


	Three months ended September 30,
	2021				2020
	Amount		% of Revenue		Amount		% of Revenue
Service revenue, net	$	493,059	100.0	%	$	320,619	100.0	%
Grant income	—		—	%	—		—	%

Operating expenses:
Service expense	399,272		81.0	%	235,543		73.5	%
General and administrative expense	68,054		13.8	%	34,441		10.7	%
Depreciation and amortization	12,608		2.6	%	7,301		2.3	%

Total operating expenses	479,934		97.3	%	277,285		86.5	%

Operating income	13,125		2.7	%	43,334		13.5	%

Other expenses (income):
Interest expense, net	17,702		3.6	%	379		0.1	%

Equity in net loss (income) of investee	6,748		1.4	%	(10,325)		(3.2)	%



Income (loss) from continuing operations before income taxes	(11,325)		(2.3)	%	53,280		16.6	%
Provision (benefit) for income taxes	(3,863)		(0.8)	%	14,360		4.5	%
Income (loss) from continuing operations, net of tax	(7,462)		(1.5)	%	38,920		12.1	%
Loss from discontinued operations, net of tax	(108)		—	%	(115)		—	%
Net income (loss)	$	(7,570)	(1.5)	%	$	38,805	12.1	%

Service revenue, ~~net.~~ ~~Consolidated service~~net. Service revenue, net for Q3 ~~2017 decreased $2.8~~2021 increased $172.4 million, or ~~0.7%~~54%, compared to Q3 ~~2016. Revenue~~2020. Service revenue, net, for ~~Q3 2017~~our NEMT segment increased by $52.4 million, primarily due to higher trip volume when compared to Q3 ~~2016 included a decrease~~2020, as trip volume was depressed in the prior year due to the impact of COVID-19. Service revenue, ~~attributable~~net, further increased incrementally by $120.1 million due to ~~WD Services~~the acquisitions of ~~$10.3 million. This decrease~~Simplura, Care Finders and VRI. See our results of operations, segments, for further discussion.

Grant Income. In the third quarter of 2021, the Company did not receive distributions of the CARES Act PRF, however management expects to receive distributions in ~~revenue was partially offset by an increase in revenue attributable to NET Services~~the fourth quarter of ~~$7.5 million. Excluding the favorable effects of changes in currency exchange rates, consolidated service revenue decreased 0.8%~~2021.

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


	Three months ended September 30,
	2021				2020
	Amount		% of Revenue		Amount		% of Revenue
Purchased services	$	256,750	52.1	%	$	191,503	59.7	%
Payroll and related costs	131,977		26.8	%	34,213		10.7	%
Other service expenses	10,545		2.1	%	9,827		3.1	%
Total service expense	$	399,272	81.0	%	$	235,543	73.5	%

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

~~Total operating expenses.~~ ~~Consolidated operating expenses for Q3 2017~~2021 increased ~~$0.7~~$163.7 million, or ~~0.2%~~70%, compared to Q3 ~~2016. Operating expenses for Q3 2017 compared~~2020 due to ~~Q3 2016 included~~higher purchased services of $65.2 million related to an increase in ~~expenses attributable to NET Services of $10.8 million~~transportation costs and ~~an increase~~associated payroll costs in ~~expenses attributable to Corporate~~our contact centers for our NEMT segment. Payroll and ~~Other of $0.5 million. This increase in operating expenses was partially offset~~related costs increased by a ~~decrease~~further $97.8 million, primarily related to incremental costs of $93.1 million in ~~operating expenses attributable~~the Personal Care segment due to ~~WD Services of $10.6 million.~~the Simplura acquisition in November 2020 and Care Finders in September 2021.

~~Operating income.~~ ~~Consolidated operating income~~General and administrative expense. General and administrative expense for Q3 ~~2017 decreased $3.5~~2021 increased $33.6 million, or ~~35.6%~~98%, compared to Q3 ~~2016.~~2020, related to an increase of $17.7 million in our NEMT segment, primarily related to transaction costs for the Care Finders and VRI acquisitions. The ~~decrease~~increase was ~~primarily~~further attributable to ~~a decrease in operating income in~~$15.7 million of incremental costs related to the addition of the Personal Care segment. See our results of operations, segments, for further discussion.

Depreciation and amortization. Depreciation and amortization for Q3 ~~2017 as~~2021 increased $5.3 million or 73% compared to Q3 ~~2016 at NET Services~~2020, primarily as a result 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.amortization related to intangible assets brought on under the Simplura acquisition. See Note 3, Acquisitions.

Interest expense, net. ~~Consolidated interest~~ Interest expense, net, for Q3 ~~2017~~2021 and Q3 ~~2016 remained relatively consistent.~~2020 was $17.7 million and $0.4 million, respectively. Interest expense increased as a result of the activity related to the $500.0 million Senior Notes due 2025 and the $500 million Senior Notes 2029 that were issued on November 4, 2020 and August 24, 2021, respectively. We incurred $8.1 million and $2.5 million of interest expense related to the Senior Notes due 2025 and the Senior Notes due 2029 in Q3 2021, respectively. We further incurred a bridge loan commitment fee of $6.6 million related to the VRI acquisition in Q3 2021.

Equity in net ~~(gain) loss~~(loss) income 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) income of investee for Q3 2021 was a loss of ~~investees for Q3 2017~~$6.7 million as a result of ~~$0.5 million primarily related to~~ our ~~equity in~~proportionate share of the net loss ~~for Mission Providence~~ of ~~$0.5 million.~~Matrix. See further discussion at the Matrix ~~was close to break-even on a net income basis~~segment in ~~Q3 2017. Included in Matrix’s~~our results ~~are depreciation and amortization~~ of $8.5 million, interest expense of $3.7 million, equity compensation of $0.6 million, management fees paid to certain of Matrix’s shareholders of $0.6 million and merger and acquisition related diligence costs of $0.3 million.operations - segments section.

~~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 (benefit) for income taxes. Our effective tax rate from continuing operations for Q3 ~~2017~~2021 and Q3 ~~2016~~2020 was ~~16.7%~~a benefit of 34.1% and ~~55.6%~~a provision of 27.0%, respectively. ~~The~~For Q3 2021, the effective tax rate ~~exceeded~~on the tax benefit was higher than the U.S. ~~federal statutory~~Federal Statutory rate of ~~35% for Q3 2016~~21.0% primarily due to ~~foreign net operating losses (including equity investment losses) for which~~state taxes and favorable adjustments related to stock options and tax credits. For Q3 2020, the ~~future income~~effective tax ~~benefit currently cannot be recognized, losses in foreign jurisdictions with~~rate on the tax ~~rates lower~~provision was higher than the U.S. Federal Statutory rate of ~~35%,~~21.0% primarily due to state income taxes and certain non-deductible expenses. ~~Foreign net operating losses for which no tax benefit can be provided were higher in Q3 2016 versus Q3 2017 resulting in a decrease in the effective tax rate~~

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

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

~~Discontinued~~discontinued operations, net of tax. ~~Discontinued~~ Loss from discontinued operations, net of tax, includes the activity ofrelated to our former 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. See Note 13, ~~Discontinued Operations,~~ ~~to our condensed consolidated financial statements for additional information.~~

~~Net 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~~2021 compared to YTD ~~2016~~2020

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 YTD ~~2017~~2021 and YTD ~~2016~~2020 (in thousands):


	Nine months ended September 30,									Nine months ended September 30,
	2017				2016					2021				2020
	$		Percentage of Revenue		$		Percentage of Revenue			Amount		% of Revenue		Amount		% of Revenue
Service revenue, net	1,216,994		100.0	%	1,192,426		100.0	%	Service revenue, net	$	1,421,117	100.0	%	$	970,166	100.0	%
Grant income									Grant income	3,500		0.2	%	—		—	%

Operating expenses:									Operating expenses:
Service expense	1,124,478		92.4	%	1,095,011		91.8	%	Service expense	1,139,170		80.2	%	764,310		78.8	%
General and administrative expense	53,705		4.4	%	52,548		4.4	%	General and administrative expense	179,271		12.6	%	86,435		8.9	%

Depreciation and amortization	19,716		1.6	%	20,058		1.7	%	Depreciation and amortization	36,667		2.6	%	17,199		1.8	%
Total operating expenses	1,197,899		98.4	%	1,167,617		97.9	%	Total operating expenses	1,355,108		95.4	%	867,944		89.5	%

Operating income	19,095		1.6	%	24,809		2.1	%	Operating income	69,509		4.9	%	102,222		10.5	%

Non-operating expense:
Other expenses (income):									Other expenses (income):
Interest expense, net	983		0.1	%	1,239		0.1	%	Interest expense, net	34,412		2.4	%	2,118		0.2	%
Equity in net loss of investees	991		0.1	%	5,693		0.5	%
Gain on sale of equity investment	(12,606	)	1.0	%	—		—	%
Loss (gain) on foreign currency transactions	600		—	%	(1,332	)	0.1	%

Equity in net loss (income) of investee									Equity in net loss (income) of investee	1,978		0.1	%	(12,200)		(1.3)	%

Income from continuing operations before income taxes	29,127		2.4	%	19,209		1.6	%	Income from continuing operations before income taxes	33,119		2.3	%	112,304		11.6	%
Provision for income taxes	8,391		0.7	%	12,466		1.0	%	Provision for income taxes	7,944		0.6	%	19,785		2.0	%
Income from continuing operations, net of tax	20,736		1.7	%	6,743		0.6	%	Income from continuing operations, net of tax	25,175		1.8	%	92,519		9.5	%
Discontinued operations, net of tax	(6,000	)	0.5	%	332		—	%
Loss from discontinued operations, net of tax									Loss from discontinued operations, net of tax	(232)		—	%	(618)		(0.1)	%
Net income	14,736		1.2	%	7,075		0.6	%	Net income	$	24,943	1.8	%	$	91,901	9.5	%
Net (income) loss attributable to noncontrolling interest	(295	)	—	%	433		—	%
Net income attributable to Providence	14,441		1.2	%	7,508		0.6	%

Service revenue, net. Consolidated service revenue, net, for YTD ~~2017~~2021 increased ~~$24.6~~$451.0 million, or ~~2.1%~~46%, compared to YTD ~~2016. Revenue~~2020. Service revenue, net, for ~~YTD 2017~~the NEMT segment increased by $111.0 million, primarily due to higher trip volume when compared to YTD ~~2016 included an increase~~2020, as trip volume was depressed in the prior year due to the impact of COVID-19. Service revenue, ~~attributable~~net,

further increased incrementally by $339.9 million due to ~~NET Services~~the acquisitions of ~~$70.5 million. This increase in revenue was partially offset by a decrease in revenue attributable to WD Services~~Simplura, Care Finders and VRI. See our results of ~~$46.0 million. Excluding the effects of changes in currency exchange rates, consolidated service revenue increased 3.1%~~operations, segments, for further discussion.

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


	Nine months ended September 30,
	2021				2020
	Amount		% of Revenue		Amount		% of Revenue
Purchased services	$	725,060	51.0	%	$	622,685	64.2	%
Payroll and related costs	379,740		26.7	%	108,792		11.2	%
Other operating expenses	34,370		2.4	%	32,833		3.4	%
Total service expense	$	1,139,170	80.2	%	$	764,310	78.8	%

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

~~Total operating expenses.~~ ~~Consolidated operating expenses for YTD 2017~~2021 increased ~~$30.3~~$374.9 million, or ~~2.6%~~49%, compared to YTD ~~2016. Operating expenses for YTD 2017 compared~~2020 due to ~~YTD 2016 included~~higher purchased services of $102.4 million related to an increase in ~~expenses attributable to NET Services of $82.1 million. This increase~~transportation costs and associated payroll costs in ~~operating expenses was partially offset~~our contact centers for our NEMT segment. Payroll and related costs increased by a ~~decrease~~further $270.9 million, primarily related to incremental costs of $265.1 million in ~~operating expenses attributable~~the Personal Care segment due to ~~WD Services of $51.6 million~~the Simplura acquisition in November 2020 and ~~a decrease~~Care Finders in ~~operating expenses attributable to Corporate~~September 2021.

General and ~~Other of $0.1 million.~~

~~Operating income.~~ ~~Consolidated operating income~~administrative expense. General and administrative expense for YTD ~~2017 decreased $5.7~~2021 increased $92.8 million, or ~~23.0%~~107%, compared to YTD ~~2016.~~2020, related to an increase of $47.3 million in our NEMT segment, primarily related to transaction costs for the Care Finders and VRI acquisitions, as well as value enhancement projects. The ~~decrease~~increase was ~~primarily~~further attributable to ~~a decrease in operating income attributable~~$45.3 million of incremental costs related to ~~NET Services~~the addition of ~~$11.6~~the Personal Care segment. See our results of operations, segments, for further discussion.

Depreciation and amortization. Depreciation and amortization for YTD 2021 increased $19.5 million asor 113% compared to YTD ~~2016. This decrease~~2020 primarily as a result of intangibles brought on under the NMT and Simplura acquisitions in ~~operating income was partially offset by a decrease in WD Services operating loss~~Q2 and Q4 of ~~$5.7 million and a decrease in Corporate and Other operating loss of $0.2 million.~~2020, respectively. See Note 3 Acquisitions.

Interest expense, net. Consolidated interest expense, net for YTD ~~2017 decreased $0.3~~2021 increased $32.3 million ~~or 20.7%,~~ compared to YTD ~~2016.~~2020. Interest expense increased as a result of the activity related to the $500.0 million Senior Notes due 2025 and the $500 million Senior Notes due 2029, that were issued on November 4, 2020 and August 24, 2021, respectively. We incurred $24.2 million and $2.5 million of interest expense related to the Senior Notes due 2025 and the Senior Notes due 2029 in the nine months ended September 30, 2021, respectively. We further incurred a bridge loan commitment fee of $6.6 million related to the VRI acquisition in Q3 of 2021.

Equity in netloss (income) of ~~investees.~~investee. Our equity in net loss of ~~investees~~investee for YTD ~~2017~~2021 of ~~$1.0~~$2.0 million ~~includes an equity in~~was as a result of our proportionate share of the net loss ~~for Mission Providence~~ of ~~$1.4 million, partially offset by equity~~Matrix. See further discussion at the Matrix segment in ~~net gain~~our results 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.operations - segments section.

~~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~~2021 and YTD ~~2016 was 28.8%~~2020 were 24.0% and ~~64.9%~~17.6%, respectively. The YTD 2021 effective tax rate ~~exceeded~~was higher than the U.S. federal statutory rate of ~~35% for YTD 2016~~21% 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~~For YTD ~~2016 versus YTD 2017 resulting in a decrease in~~2020, the effective tax rate was lower than the U.S. federal statutory rate of 21% primarily due to the favorable impact of the CARES Act on the Company's 2018 U.S. NOLs.

Loss from ~~YTD 2016 to YTD 2017. Additionally, there was no provision for income taxes~~discontinued operations, net of tax. Loss from discontinued operations, net of tax, includes the activity related to our former WD Services segment.

Results of Operations - Segments

The following tables set forth certain financial information from continuing operations attributable to the ~~gain~~Company’s business segments (in thousands):

NEMT Segment


	For the Three months ended September 30,						For the Nine months ended September 30,
	2021			2020			2021			2020
	Amount		% of Segment Revenue	Amount		% of Segment Revenue	Amount		% of Segment Revenue	Amount		% of Segment Revenue
Service revenue, net	$	372,992	100%	$	320,619	100%	$	1,081,168	100%	$	970,166	100%
Service expense	304,398		82%	235,543		73%	869,470		80%	764,310		79%
General and administrative expense	52,118		14%	34,441		11%	133,706		12%	86,435		9%
Depreciation and amortization	7,496		2%	7,301		2%	21,744		2%	17,199		2%
Operating income	$	8,980	2%	$	43,334	14%	$	56,248	5%	$	102,222	11%

The non-emergency medical transportation (“NEMT”) segment, which operates under the brands ModivCare Solutions and Circulation, is the largest manager of NEMT programs for state governments and managed care organizations ("MCOs") in the U.S; and includes the Company’s activities for executive, accounting, finance, internal audit, tax, legal and certain strategic and development functions.

Service revenue, net. Service revenue, net, increased by $52.4 million and 16%, from the third quarter of 2020 to the third quarter of 2021. This increase is primarily attributable to $36.0 million of revenue related to increased trip volume and $19.0 million of revenue related to contracts from the NMT acquisition that took place in the second quarter of 2020. Service revenue, net increased by $111.0 million and 11%, from the nine months ended September 30, 2020 to the nine months ended September 30, 2021, primarily attributable to $88.1 million of revenue from contracts acquired in the NMT acquisition and $42.9 million related to higher trip volume. Trip volume increased for both the quarter to date and year to date period ended September 30, 2021 when compared to 2020, as trip volume was depressed in the prior year due to the impact of COVID-19. While a majority of our contacts are capitated and we receive monthly payments on ~~sale~~a per member/fixed basis in return for full or partial risk of ~~equity investment~~transportation volumes, we have certain contracts that limit profit to within a certain corridor and once we reach the maximum profit level we discontinue recognizing revenue and instead build a liability to return back to the customer upon reconciliation at a later date. Other contracts that are structured as fee-for-service also experienced positive impacts to revenue due to higher trip volumes.

Service expense. Service expense for our NEMT segment primarily consists of ~~$12.6~~transportation costs paid to third party service providers, salaries of employees within our contact centers and operations centers, and occupancy costs. Service expense increased by $68.9 million and 29% for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, primarily related to an increase in transportation costs of $65.2 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~~higher trip volume. Service expense increased by $105.2 million and 14% 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 Services segment was a loss of $6.0 million, which primarily related2021, as compared to the accrual of a contingent liability of $9.0 million related to the settlement of indemnification claims and associated legal costs of $0.6 million, partially offset by a related tax benefit. For YTD 2016, discontinued operations, net of tax for our Human Services segment was a net loss of $5.0 million, and discontinued operations, net of tax for our HA Services segment was net income of $5.4 million. 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~~

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

Three Months Ended September 30,
2017 2016
$
Percentage of
Revenue
$
Percentage of
Revenue
Service revenue, net 324,824
100.0 % 317,280
100.0 %

Service expense 304,454
93.7 % 293,919
92.6 %
General and administrative expense 2,899
0.9 % 2,860
0.9 %
Depreciation and amortization 3,286
1.0 % 3,051
1.0 %
Operating income 14,185
4.4 % 17,450
5.5 %

~~Service revenue, net.~~ Service revenue, net for NET Services for Q3 2017 increased $7.5 million, or 2.4%, compared to Q3 2016. The increase was primarily related to net increased revenue from existing contracts of $19.2 million,nine months ended September 30, 2020, 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):~~

Three Months Ended September 30,
2017 2016
$
Percentage of
Revenue
$
Percentage of
Revenue
Purchased services 250,282
77.1 % 241,884
76.2 %
Payroll and related costs 40,753
12.5 % 41,832
13.2 %
Other operating expenses 13,299
4.1 % 10,130
3.2 %
Stock-based compensation 120
0.0 % 73
0.0 %
Total service expense 304,454
93.7 % 293,919
92.6 %

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

~~Purchased services as a percentage of revenue increased from 76.2% in Q3 2016 to 77.1% in Q3 2017 primarily attributable~~ to an increase in ~~utilization across certain contracts, including multiple managed care contracts in California, and the impact~~transportation costs 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~~$102.4 million, 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.higher trip volume.

General and administrative expense. General and administrative expense ~~in Q3 2017 remained constant as compared to Q3 2016. As a percentage~~primarily consists of ~~revenue, general~~salaries for administrative employees that indirectly support the operations, occupancy costs, marketing expenditures, insurance, and ~~administrative expense remained constant at 0.9%.~~

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

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

Nine Months Ended September 30,
2017 2016
$
Percentage of
Revenue
$
Percentage of
Revenue
Service revenue, net 987,662
100.0 % 917,157
100.0 %

Service expense 927,082
93.9 % 846,311
92.3 %
General and administrative expense 8,879
0.9 % 8,483
0.9 %
Depreciation and amortization 9,763
1.0 % 8,858
1.0 %
Operating income 41,938
4.2 % 53,505
5.8 %

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

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

Nine Months Ended September 30,
2017 2016
$
Percentage of
Revenue
$
Percentage of
Revenue
Purchased services 766,303
77.6 % 694,934
75.8 %
Payroll and related costs 122,784
12.4 % 122,117
13.3 %
Other operating expenses 37,584
3.8 % 29,032
3.2 %
Stock-based compensation 411
0.0 % 228
0.0 %
Total service expense 927,082
93.9 % 846,311
92.3 %

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

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

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

~~General and administrative expense.~~professional fees. General and administrative expense ~~in YTD 2017~~ increased ~~$0.4~~by $17.7 million ~~or 4.7%,~~and 51% for the three months ended September 30, 2021, as compared to ~~YTD 2016, due~~the three months ended September 30, 2020, related to ~~increased facility~~$11.6 million for acquisition costs ~~resulting from the overall growth of our operations. As a percentage of revenue, general~~for VRI and Care Finders, $3.2 million for personnel expense and $1.5 million for temporary labor. General and administrative expense ~~remained constant at 0.9%.~~

~~Depreciation~~increased by $47.3 million and ~~amortization.~~ ~~Depreciation and amortization increased $0.9 million primarily due~~55% for the nine months ended September 30, 2021, as compared to the ~~addition of long-lived assets relating to information technology projects. As a percentage of revenue, depreciation and amortization remained constant at 1.0%.~~

~~WD Services~~

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

Three Months Ended September 30,
2017 2016
$
Percentage of
Revenue
$
Percentage of
Revenue
Service revenue, net 84,693
100.0 % 94,960
100.0 %

Service expense 73,581
86.9 % 84,051
88.5 %
General and administrative expense 6,980
8.2 % 6,780
7.1 %
Depreciation and amortization 3,166
3.7 % 3,497
3.7 %
Operating income 966
1.1 % 632
0.7 %

~~Service revenue, net.~~ Service revenue, net for Q3 2017 decreased $10.3 million, or 10.8%, compared to Q3 2016. Excluding the favorable effects of changes in currency exchange rates, service revenue decreased 11.2% in Q3 2017 compared to Q3 2016. This decrease was 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 yearsnine months 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 WD Services segment included the following for Q3 2017 and Q3 2016 (in thousands):~~

Three Months Ended September 30,
2017 2016
$
Percentage of
Revenue
$
Percentage of
Revenue
Payroll and related costs 41,575
49.1 % 47,854
50.4 %
Purchased services 21,946
25.9 % 26,004
27.4 %
Other operating expenses 10,046
11.9 % 10,166
10.7 %
Stock-based compensation 14
0.0 % 27
0.0 %
Total service expense 73,581
86.9 % 84,051
88.5 %

~~Service expense in Q3 2017 decreased $10.5 million, or 12.5%, compared to Q3 2016. Payroll and related costs decreased~~September 30, 2020, primarily as a result of the ending of referrals under the segment’s primary employability program 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$22.9 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~~transaction costs and ~~administrative expense.~~ ~~General and administrative expense in Q3 2017 increased $0.2~~value enhancement projects, $8.7 million ~~compared to Q3 2016 due primarily due to increased rent~~ related to ~~facilities used in our offender rehabilitation program.~~software, $6.6 million related to personnel expense and $3.7 million related to legal expense.

~~Depreciation and amortization.~~Depreciation and amortization expense. Depreciation and amortization expense increased by $0.2 million and 3% for ~~Q3 2017 decreased $0.3 million~~the three months ended September 30, 2021, as compared to ~~Q3 2016, primarily~~the three months ended September 30, 2020 due to consistent PPE expenditures. Depreciation and amortization expense increased by $4.5 million and 26% for the ~~asset impairment charges incurred during the fourth quarter of 2016, which decreased the value of our intangible assets and certain property and equipment.~~

~~WD Services segment financial results are~~nine months ended September 30, 2021, as ~~follows for YTD 2017 and YTD 2016 (in thousands):~~

Nine Months Ended September 30,
2017 2016
$
Percentage of
Revenue
$
Percentage of
Revenue
Service revenue, net 229,332
100.0 % 275,293
100.0 %

Service expense 199,665
87.1 % 247,797
90.0 %
General and administrative expense 20,944
9.1 % 23,236
8.4 %
Depreciation and amortization 9,695
4.2 % 10,912
4.0 %
Operating loss (972 ) -0.4 % (6,652 ) -2.4 %

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

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

Nine Months Ended September 30,
2017 2016
$
Percentage of
Revenue
$
Percentage of
Revenue
Payroll and related costs 130,538
56.9 % 162,542
59.0 %
Purchased services 39,949
17.4 % 53,210
19.3 %
Other operating expenses 29,136
12.7 % 31,993
11.6 %
Stock-based compensation 42
0.0 % 52
0.0 %
Total service expense 199,665
87.1 % 247,797
90.0 %

Service expense in YTD 2017 decreased $48.1 million, or 19.4%, compared to YTD 2016. Payroll and related costs decreased primarily as a result of declining referrals under the segment’s primary employability program in the UK as well as redundancy plans that have better aligned headcount with service delivery volumes resulting in a decrease of payroll and related costs as a percentage of revenue. Payroll and related costs include $1.1 million and $5.2 million in YTD 2017 and YTD 2016, respectively, of termination benefits related to redundancy plans. Purchased services decreased in YTD 2017 compared to YTD 2016 primarilySeptember 30, 2020, as a result of a ~~decline~~full nine months of amortization on the NMT intangibles in ~~client referrals under our primary employability program~~2021, as compared to only five months of amortization in 2020.

Personal Care Segment


	For the Three months ended September 30,			For the Nine months ended September 30,
	2021			2021
	Amount		% of Segment Revenue	Amount		% of Segment Revenue
Service revenue, net	$	118,503	100%	$	338,385	100%
Grant income	—		—%	3,500		1%
Service expense	94,107		79%	268,933		79%
General and administrative expense	15,720		13%	45,349		13%
Depreciation and amortization	4,912		4%	14,723		4%
Operating income	$	3,764	3%	$	12,880	4%

Our Personal Care segment was established in November 2020 with the acquisition of Simplura and expanded in September 2021 with the acquisition of Care Finders. Our personal care segment’s services include placements of non-medical personal care assistants, home health aides and nurses, primarily to Medicaid patient populations in need of care monitoring and assistance performing daily living activities in the ~~UK, which resulted~~home setting, including senior citizens and disabled adults. As both of these acquisitions took place after the third quarter of 2020, comparable figures for the prior year are not provided.

Service revenue, net. Service revenue, net, from MCO contracts accounted for 55% and 54% of service revenue, net, for the three and nine months ended September 30, 2021, respectively, while U.S. state Medicaid program contracts accounted for 40% of service revenue, net for the three and nine months ended September 30, 2021. The remainder of the Personal Care segment revenue is derived from private pay and other contracts.

Grant Income. In the nine months ended September 30, 2021, the Company received distributions of the CARES Act PRF of approximately $3.5 million targeted to offset lost revenue and unreimbursed expenditures incurred in ~~a decline in~~connection with the ~~use~~COVID-19 pandemic. The Company did not receive any distributions from the CARES Act PRF during the three months ended September 30, 2021.

Service expense. Service expense for our personal care segment primarily consists of ~~outsourced services.~~salaries for the employees providing the personal care services and it typically trends with the number of hours worked. For both the three and nine months ended September 30, 2021, service expense for the Personal Care segment includes $7.0 million related to the Care Finders acquisition, with the remainder related to the Simplura acquisition. Services expense is 79% of service revenue, net, for the three months and nine months ended September 30, 2021.

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~~primarily consists of salaries for administrative employees that indirectly support 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~~occupancy costs, marketing expenditures, insurance, and professional service costs incurred at the holding company level, at the Captive, and elimination entries to account for inter-segment transactions. Corporate and Other financial results are as follows for Q3 2017 and Q3 2016 (in thousands):

Three Months Ended September 30,
2017 2016
$ $
Service revenue, net —
31

Service expense (3 ) 518
General and administrative expense 8,750
7,680
Depreciation and amortization 95
122
Operating loss (8,842 ) (8,289 )

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

fees. General and administrative expense ~~includes stock-based compensation~~ for the ~~HoldCo LTIP~~Personal Care segment includes $1.3 million related to the Care Finders acquisition, with the remainder being related to the Simplura acquisition. General and administrative expense is 13% of ~~$1.0 million~~service revenue, net for the three months and ~~$0.9~~nine months ended September 30, 2021.

Depreciation and amortization expense. Depreciation and amortization expense consists primarily of amortization expense on the intangible assets brought on under the Simplura acquisition of $4.8 million for ~~Q3 2017~~the three months ended September 30, 2021 and ~~Q3 2016, respectively. No shares will be distributed~~$14.3 million for the nine months ended September 30, 2021. Depreciation and amortization expense is 4% of service revenue, net, for the three and nine months ended September 30, 2021.

RPM Segment

Our Remote Patient Monitoring segment was established in September 2021 with the acquisition of VRI. VRI is a provider of remote patient monitoring solutions and manages a comprehensive suite of services, including personal emergency response systems, vitals monitoring and data-driven patient engagement solutions. As the RPM segment consists of only nine days of activity related to the current period, and no activity for the prior period, the amounts were not material and therefore a separate table with respect to those results has been omitted until future periods.

Matrix Segment


	For the Three months ended September 30,				For the Nine months ended September 30,
	2021		2020		2021		2020
Equity in net income (loss) of investee	$	(6,748)	$	10,325	$	(1,978)	$	12,200
Equity investment	$	134,353	$	141,292	$	134,353	$	141,292

The company holds a 43.6% minority interest in CCHN Group Holdings, Inc., and its subsidiaries, which operates under the ~~HoldCo LTIP unless~~Matrix Medical Network brand, which we refer to as “Matrix”. Matrix maintains a national network of community-based clinicians who deliver in-home and on-site services, and a fleet of mobile health clinics that provide community-based care with advanced diagnostic capabilities and enhanced care options.

Equity in net income (loss) of investee changed from income of $10.3 million for the ~~volume weighted average~~three months ended September 30, 2020 to a loss of ~~Providence’s stock price~~$6.7 million for the three months ended September 30, 2021. This change is primarily attributable to the Clinical Solutions business unit revenue, which declined by $73.7 million due to the winding down of COVID-19 testing and screening. For the nine months ended September 30, equity in net income of investee changed from income of $12.2 million in 2020 to a loss of $2.0 million for the same period in 2021. While revenue over ~~a 90-day~~this period ~~ending on December 31, 2017 exceeds $56.79.~~increased by $24.1 million due to higher membership and an increase in visits to the home, operating expenses increased by $75.7 million, related to increased hours worked by the care providers, as well as increased hourly costs due to wage pressures and hazard pay.

~~Corporate and Other financial results are as follows for YTD 2017~~Matrix reported that its QTD and YTD ~~2016 (in thousands):~~

Nine Months Ended September 30,
2017 2016
$ $
Service revenue, net —
(24 )

Service expense (2,269 ) 903
General and administrative expense 23,882
20,829
Depreciation and amortization 258
288
Operating loss (21,871 ) (22,044 )

~~Operating loss.~~ ~~Corporate~~net income was negatively impacted by its Clinical Solutions business, which had a decrease in revenue due to a faster than expected vaccination rollout and ~~Other operating loss~~winding down of COVID testing, which was offset by the launch of its clinical trials business in ~~YTD 2017 decreased by $0.2 million, or 0.8%, as compared to YTD 2016. This decrease was primarily~~the third quarter of 2020. Additionally, Matrix reported increased revenue and income related to a ~~reduction in insurance loss reserves in 2017 due to favorable claims history~~clinical solutions product offering following the October 2020 acquisition of ~~our Captive reinsurance programs, which is included in “Service expense” as well as decreased accounting, legal~~Biocerna LLC, a diagnostic company that, among other tests, provides rapid COVID-19 test kits.

Seasonality

Our NEMT segment's quarterly operating income 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~~flows normally fluctuate as a result of ~~a more significant increase~~seasonal variations 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 costsour business, principally due to ~~activities associated with our increased focus on strategic initiatives.~~

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

~~Seasonality~~

Our quarterly operating results and operating cash flows normally fluctuate due in part to seasonal factors, uneven demand for services and the timing of new contracts, which impact the amount of revenues earned and expenses incurred. NET Services experiences fluctuations inhigher demand during the summer season.

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

Our RPM segment’s quarterly 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 performanceincome and cash flows ~~between quarters and for comparative periods. It is expected that future contracts will be structured~~do not normally fluctuate as a result of seasonal variations 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.business.

Liquidity and capital resources

Short-term capital requirements consist primarily of recurring operating expenses, ~~and~~ new 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).~~Facility.

Cash flow from operating activities during the nine months ended September 30, 2021 was our primary source of cash during YTD 2017. Additionally, YTD 2017 included $15.8 million in proceeds from the sale of our equity investment in Mission Providence which is included in cash provided by investing activities.$174.7 million. Our balance of cash and cash equivalents, including restricted cash, was ~~$92.2~~$126.7 million and ~~$72.3~~$183.4 million at September 30, ~~2017~~2021 and December 31, ~~2016, respectively, including $33.8 million and $21.4 million held in foreign countries,~~2020, 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.

We had restricted cash of $7.1 million and $14.1 million at September 30, 2017 and December 31, 2016, respectively, primarily related to contractual obligations and activities of our captive insurance subsidiary. These restrictedRestricted cash amounts are not included in our balance of cash and cash ~~equivalents.~~equivalents in the condensed consolidated balance sheets, although they are included in the cash, cash equivalents and restricted cash balance on the accompanying unaudited condensed consolidated statements of cash flows. At September 30, ~~2017 and~~2021, we had no borrowings outstanding under our Credit Facility; however, we had letters of credit outstanding of $21.1 million. At December 31, ~~2016,~~2020, 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.~~acquisitions and possible refinancing activity. 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,~~financing on terms acceptable to us at 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.time or at all.

The cash flow statement for all periods presented includes both continuing and discontinued operations. Discontinued operations for YTD 2016 includes the activity of our Human Services and HA Services segments. Income from discontinued operations totaled $0.3 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.

YTD ~~2017~~2021 cash flows compared to YTD ~~2016~~2020

Operating activities. Cash provided by operating activities was ~~$36.9~~$174.7 million and $287.2 million for YTD ~~2017,~~2021 and YTD 2020, respectively. Cash flows from operating activities decreased by $112.5 million due to a decrease ~~of $8.3 million compared with YTD 2016. YTD 2017 and YTD 2016~~in cash ~~flow from operations was driven~~provided by net income of ~~$14.7~~$67.0 million and ~~$7.1 million, respectively, non-cash adjustments to reconcile net income to net~~a further decrease in cash provided by ~~operating activities of $8.0 million and $37.1 million, respectively, and~~ changes in working capital of ~~$14.2~~$69.8 million, partially offset by an increase in cash due to increased amortization expense of $17.6 million and ~~$1.1 million, respectively. The change~~an increase in ~~adjustments to reconcile net income to net~~ cash provided by operating activities was due primarily to the impact of the disposition of HA Services, resulting in decreased depreciation, amortization and deferred taxes in YTD 2017 as compared to YTD 2016, as well as the gain on sale of Mission Providence of $12.6 million in YTD 2017. The change in working capital is primarily driven by the following:

Accounts receivable generated a cash outflow for YTD 2017 of $10.6 million as compared to an outflow of $22.1 million for YTD 2016. The decrease in cash outflow of $11.5 million is primarily attributable to NET Services due to the ~~timing~~change in our equity method investment of ~~collections as well as an outflow of $1.4 million of HA Services in YTD 2016.~~

~~Prepaid expenses and other generated a cash inflow of $7.5 million in YTD 2017, as compared to a cash outflow of $9.9 million in YTD 2016.~~$14.2 million. The ~~increase in cash inflow of $17.4 million was primarily attributable~~working capital changes were related to a decrease in ~~prepayments in WD Services in relation to certain contracts and a decrease in the prepayment of insurance costs and income taxes.~~

~~Accounts payable and accrued expenses generated a~~ cash outflow of $3.4 million in YTD 2017, as compared to a cash inflow of $32.5 million in YTD 2016. The decrease in cash inflow of $35.9 million is due primarily to the impact of NET Services accrued contract payments of $10.1 million, reduced accruals at WD Services of $3.9 million in YTD 2017 as compared to YTD 2016, including the impact of redundancy plans, timing differences on tax payments, as well as the disposition of HA Services, which generated cash inflow of $5.8 million in YTD 2016. Partially offsetting these impacts is the impact of the increase in the accrued settlement related to our former Human Services segment of $9.0 million during YTD 2017 as compared to an increase of $6.0 million in YTD 2016.

Accrued transportation costs of NET Services generated a cash inflow of $28.8 million in YTD 2017, as compared to a cash inflow of $31.9 million in YTD 2016. The decrease in cash inflow of $3.1 million is due primarily to the timing of payments.

~~Income taxes payable on sale of business for YTD 2016 includes a cash outflow of $30.2 million~~ related to the ~~sale~~change in accounts receivable of ~~our Human Services segment.~~

~~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$89.6 million and a decrease in cash related to the change in accounts payable and other accrued expenses of $25.9 million, partially offset by an increase in cash provided by an increase in accrued contract payables of $63.6 million.

Investing activities. Net cash used in investing activities of $681.1 million in YTD 2021 increased by $598.6 million as compared to the YTD 2020 net cash used in investing activities of $82.5 million, primarily due to $589.6 million more spent on acquisitions in 2021 than the related period in 2020. The increase in the use of cash was also related to an increase in purchase of property, plant and equipment of ~~$18.6~~$9.1 million. ~~YTD 2016 included purchases of property and equipment of $8.0 million by our discontinued operations.~~

Financing activities. Net cash provided by financing activities of $449.7 million in YTD 2021 changed by $529.4 million as compared to net cash used in financing activities YTD 2020 of ~~$22.3~~$79.6 million. The change was primarily due to an increase in proceeds from debt of $463.0 million, primarily as a result of the $500.0 million Senior Notes issued August 24, 2021, partially offset by an increase in cash paid to repurchase common stock of $28.9 million for YTD ~~2017 decreased $9.9 million~~2021, as compared to YTD 2016. During YTD 2017, we repurchased $34.5 million less 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.2020.

Obligations and commitments

Senior Unsecured Notes. On November 4, 2020, the Company issued $500.0 million in aggregate principal amount of 5.875% senior unsecured notes due on November 15, 2025 (the “Senior Notes due 2025”). Additionally on August 24, 2021, the Company issued $500 million in aggregate principal amount of 5.000% senior unsecured notes due on October 1, 2029 (the “Senior Notes due 2029”). The Senior Notes due 2025 and the Senior Notes due 2029 were issued pursuant to two indentures, dated November 4, 2020 and August 24, 2021, respectively, between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. The Senior Notes due 2025 relate to the Company’s acquisition of Simplura and the Senior Notes due 2029 relate to the Company’s acquisition of VRI.

The Senior Notes due 2025 and the Senior Notes due 2029 (collectively, the "Notes") are senior unsecured obligations and rank senior in right of payment to all of the Company's future subordinated indebtedness, rank equally in right of payment with all of the Company's existing and future senior indebtedness, are effectively subordinated to any of the Company's existing and future secured indebtedness, including indebtedness under the Credit ~~facility.~~ WeFacility, to the extent of the value of the assets securing such indebtedness, and are structurally subordinated to all of the existing and future liabilities (including trade payables) of each of the Company’s non-guarantor subsidiaries.

The Company will pay interest on the Senior Notes due 2025 at 5.875% per annum until maturity. The Company will further pay interest on the Senior Notes due 2029 at 5.000% per annum until maturity. Interest is payable semi-annually in arrears on May 15 and November 15 of each year, with the first interest payment date being May 15, 2021 on the Senior Notes due 2025. Additionally, interest is payable on April 1 and October 1 of each year, with the first interest payment date being April 1, 2022 for the Senior Notes due 2029. Principal payments are not required until the maturity date on November 15, 2025 and October 1, 2029 when 100% of the outstanding principal will be required to be repaid on the Senior Notes due 2025 and the Senior Notes due 2029, respectively.

Credit Facility. The Company is a party to the amended and restated credit and guaranty agreement, dated as of August 2, 2013 (as amended, the “Credit Agreement”), with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, and the other lenders party thereto. ~~The~~On May 6, 2020, the Company entered into the Seventh Amendment to the Amended and Restated Credit and Guaranty Agreement ~~provides us with a $200.0 million~~(the “Seventh Amendment”) which, among other things, extended the maturity date to August 1, 2021, expanded the amount available under the revolving credit facility (the “Credit Facility”)~~, including a subfacility of $25.0~~ from $200.0 million to $225.0 million, and increased the sub-facility for letters of ~~credit. As of September 30, 2017, we had no borrowings and seven letters of~~ credit ~~in the amount of $11.0~~from $25.0 million ~~outstanding under the revolving credit facility. At September 30, 2017, our available credit under the revolving credit facility was $189.0~~to $40.0 million. Under the Credit Agreement, the Company has an option to request an increase in the amount of the revolving credit facility from time to time (on substantially the same terms as apply to the existing facilities) in an aggregate amount of up to $75.0 million with either additional commitments from lenders under the Credit Agreement at such time or new commitments from financial institutions acceptable to the administrative agent in its reasonable discretion, so long as no default or event of default exists at the time of any such increase. The Company may not be able to access additional funds under this increase option as no lender is obligated to participate in any such increase under the Credit Facility. The Credit Facility matures on August 2, 2018.

Interest on the outstanding principal amount of the loans accrues, 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 ranges 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. Interest on the loans is payable quarterly in arrears. In addition, the Company is obligated to pay a quarterly commitment fee based on a percentage of the unused portion of each lender’s commitment under the Credit Facility and quarterly letter of credit fees based on a percentage of the maximum amount available to be drawn under each outstanding letter of credit.

On October 16, 2020, the Company entered into the Eighth Amendment to the Amended and Restated Credit and Guaranty Agreement (the “Eighth Amendment”), which among other things, amended the Credit Facility to permit the incurrence of additional debt to finance the acquisition of Simplura, permit borrowing under the Credit Facility to partially fund the Simplura Acquisition with limited conditions to such borrowing, increase the top interest rate margin that may apply to loans thereunder, and revise our permitted ratio of EBITDA to indebtedness. In addition, the Eighth Amendment extended the maturity date to August 2, 2023. See Note 3, Acquisitions, for further information on the Simplura acquisition.

margin, or the Base Rate as defined in the agreement plus an applicable margin. The applicable margin ranges from 2.25% to 3.50% in the case of LIBOR loans and 1.25% to 2.50% in the case of the Base Rate loans, in each case, based on the Company’s consolidated leverage ratio as defined in the Credit Agreement that governs our Credit Facility. The commitment fee and letter of credit fee range from ~~0.25%~~0.35% to 0.50% and 2.25% to ~~3.25%~~3.50%, respectively, in each case based on the Company’s consolidated leverage ~~ratio.~~ratio as defined in the credit agreement that governs our Credit Facility.

~~The Company’s obligations~~As of September 30, 2021, the Company had no borrowings outstanding under the Credit Facility are guaranteed by all of the Company’s present and future domestic subsidiaries, excluding certain domestic subsidiaries which include the Company’s insurance captives. The Company’s 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 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.Facility.

The Credit Agreement contains customary affirmative and negative covenants and events of default. The negative covenants include restrictions on ~~the Company’s~~our ability to, among other things, incur additional indebtedness, create liens, make investments, give guarantees, pay dividends, repurchase shares, sell assets, and merge and consolidate. ~~The Company is~~We are subject to financial covenants, including consolidated net leverage and consolidated interest coverage covenants. ~~The Company~~As of September 30, 2021, our consolidated net leverage ratio may not be greater than 5.00:1.00 as of the end of any fiscal quarter and our consolidated interest coverage ratio may not be less than 3.00:1.00 as of the end of any fiscal quarter. Pursuant to the Ninth Amendment, our consolidated net leverage ratio was increased to 5.00:1.00 as of the Ninth Amendment Effective Date through June 30, 2022, decreasing to 4.50:1.00 as of September 30, 2022 and each fiscal quarter thereafter.

We were in compliance with all covenants under the Ninth Amended Credit Agreement as of September 30, ~~2017.~~2021.

~~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., Coliseum Capital Co-Invest, L.P. and Blackwell Partners, LLC (collectively, the “Standby Purchasers”), pursuant to the Standby Purchase Agreement between the Standby Purchasers and the Company, the Company issued 805,000 shares of Preferred Stock, of which 803,232 shares are outstanding as of September 30, 2017. 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” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. 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.

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

Cash dividends are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, and, if declared, will begin to accrue on the first day of the applicable dividend period. Paid in kind (“PIK”) dividends, if applicable, will accrue and be cumulative on the same schedule as set forth above for cash dividends and will also be compounded at the applicable annual rate on each applicable subsequent dividend date. PIK dividends are paid upon the occurrence of a liquidation event, conversion or redemption in accordance with the terms of the Preferred Stock. Cash dividends were declared for the nine months ended September 30, 2017 and totaled $3.3 million.

~~Reinsurance and Self-Funded Insurance Programs~~

~~Reinsurance~~

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

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

Further, SPCIC had restricted cash of $6.8 million and $13.8 million at September 30, 2017 and December 31, 2016, respectively, which was restricted to secure the reinsured claims losses of SPCIC under the historical automobile, general and professional liability and workers’ compensation reinsurance programs.

~~Health Insurance~~

We offer our NET Services’, certain WD Services’ and corporate employees an option to participate in a self-funded health insurance program. The liability for the self-funded health plan of $2.4 million and $3.0 million as of September 30, 2017 and December 31, 2016, respectively, was recorded in “Reinsurance liability and related reserve” in our condensed consolidated balance sheets.

Off-Balance Sheet Arrangements

There have been no material changes to the Off-Balance Sheet Arrangements discussion previously disclosed in our audited consolidated financial statements contained in ~~the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.~~

~~Forward-Looking Statements~~

This Quarterly Report on Form 10-Q contains certain statements that may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements related to the Company’s strategies or expectations about revenues, liabilities, results of operations, cash flows, ability to fund operations, profitability, ability to meet financial covenants, contracts or market opportunities. The Company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission (the “SEC”), in materials delivered to stockholders and in press releases. In addition, the Company’s representatives may from time to time make oral forward-looking statements. In certain cases, you may identify forward looking-statements by words such as “may”, “will”, “should”, “could”, “expect”, “plan”, “project”, “intend”, “anticipate”, “believe”, “seek”, “estimate”, “predict”, “potential”, “target”, “forecast”, “likely”, the negative of such terms or comparable terminology. In addition, statements that are not historical statements of fact should also be considered forward-looking statements. These forward-looking statements are based on the Company’s current expectations, assumptions, estimates and projections about its business and industry, and involve risks, uncertainties and other factors that may cause actual events to be materially different from those expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the risks disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016 and our other filings with the SEC.~~2020.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. The Company is under no obligation to (and expressly disclaims any such obligation to) update any of the information in any forward-looking statement if such forward-looking statement later turns out to be inaccurate, whether as a result of new information, future events or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~Foreign currency~~We have exposure to interest rate risk

~~As of~~ mainly related to our Credit Facility, which has variable interest rates that may increase on the principal amounts outstanding thereunder from time to time. We did not have any amounts outstanding on our Credit Facility at September 30, 2017, we conducted business in eleven countries outside the U.S. As a result, our cash flows and earnings are subject to fluctuations due to changes in foreign currency exchange rates. We do not currently hedge against the possible impact of currency fluctuations. During YTD 2017 we generated $217.4 million of our net operating revenues from operations outside the U.S. As we expand further into international markets, we expect the risk from foreign currency exchange rates to increase.2021.

A 10% adverse change in the foreign currency exchange rate from British Pounds to U.S. dollars would have a $14.4 million negative impact on consolidated revenue and a negligible impact on net income. A 10% adverse change in other foreign currency exchange rates would not have a significant impact on our financial results.

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

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures

The Company, under the supervision and with the participation of its management (including its principal executive officer and principal financial officer), evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of September 30, ~~2017.~~2021. Based upon this evaluation, the Company’s principal executive and financial officers have concluded that such disclosure controls and procedures were effective to provide reasonable assurance that ~~(i)~~ information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and ~~(ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is~~ accumulated and communicated to the Company’s management, including its principal executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal ~~controls~~control over financial reporting

The principal executive and financial officers also conducted an evaluation of whether any changes in the Company’s internal control over financial reporting occurred during the quarter ended September 30, ~~2017~~2021 that have materially affected or which are reasonably likely to materially affect such control. Such officers have concluded that no such changes have occurred.

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

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

~~On June 15, 2015, a putative stockholder class action derivative complaint was filed~~From time-to-time, we may become involved in legal proceedings arising in the ~~Court~~ordinary course of ~~Chancery~~our business. We record accruals for outstanding legal matters when it is believed to be probable that a loss will be incurred and the amount can be reasonably estimated. Management, following consultation with legal counsel, does not expect the ultimate disposition of any or a combination of any such ongoing or anticipated matters to have a material adverse effect on our business, financial condition or operating results. We cannot predict with certainty, however, the potential for or outcome of any litigation. Regardless of the ~~State~~outcome of ~~Delaware (the “Court”), captioned Haverhill Retirement System v. Kerley et al., C.A. No. 11149-VCL. For further information~~any particular litigation and the merits of any particular claim, litigation can have a material adverse impact on ~~this legal proceeding, please see Item 3,~~ ~~Legal Proceedings~~,us due to, among other reasons, any injunctive relief granted which could inhibit our ability to operate our business, amounts paid as damages or in ~~the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,~~settlement of any such matter, diversion of management resources and ~~Part II, Item 1,~~ ~~Legal Proceedings, in the Company’s Quarterly Reports on Form 10-Q for the periods ended March 31, 2017~~defense costs. Interested parties should refer to Note 14, Commitments and ~~June 30, 2017.~~

On September 28, 2017, the Court approved a proposed settlement agreement among the parties that provides for a settlement amount of $10.0 million less plaintiff’s legal fees and expenses (the “Settlement Amount”)Contingencies, ~~with 75% of the Settlement Amount to be paid~~ to the ~~Company and 25%~~financial statements included in this report for information concerning other potential contingent liabilities matters that do not rise to the level of ~~the Settlement Amount to be paid to holders~~materiality for purposes of the Company’s common stock other than certain excluded parties. The Company expects to receive a payment of approximately $5.0 million. As this amount is considered a gain contingency, the Company has not recorded a receivable for this amount as of September 30, 2017.disclosure hereunder.

Item 1A. Risk Factors.

~~There~~The risks described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”) could materially and adversely affect our business, financial condition, and results of operations, and could cause the trading price of our common stock to decline. The discussion of the risks included under that caption in our Annual Report remains current in all material respects, and there have been no material changes from the risk factors disclosed in the ~~Company’s~~ Annual ~~Report on Form 10-K for the year ended December 31, 2016.~~

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

~~Issuer Purchases of Equity Securities~~

Report. The ~~following table provides information with respect to common stock repurchased by us during the three months ended September 30, 2017:~~

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

—

~~______________~~


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


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

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

~~Dividends~~

Werisk factors that we have ~~not paid any cash dividends on our common stock and currently~~discussed do not ~~expect~~identify all risks that we face; our operations could also be affected by factors that are not presently known to ~~pay dividends on~~us or that we currently consider to be immaterial to our ~~common stock. In addition,~~operations. Due to risks and uncertainties, known and unknown, our ~~ability to pay dividends on our common stock is limited by the terms of our Credit Agreement and our preferred stock. The payment~~past financial results may not be a reliable indicator of future ~~cash dividends, if any, will~~performance and historical trends should not be reviewed periodically by the Board and will depend upon, among other things, our financial condition, funds from operations, the level of our capital and development expenditures, any restrictions imposed by presentused to anticipate results or trends in future ~~debt or equity instruments, and changes in federal tax policies, if any.~~ periods.

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

~~None.~~

~~Item 4. Mine Safety Disclosures.~~

~~Not applicable.~~

~~Item 5. Other Information.~~

~~None.~~

Item 6. Exhibits.

EXHIBIT INDEX


Exhibit Number		Description
2.1+		Agreement and Plan of Merger, dated as of July 25, 2021, by and among Care Finders Total Care LLC, ModivCare Inc., Socrates Health Holdings, LLC, Saints Merger Sub, LLC, and Shareholder Representative Services LLC. (Incorporated by reference to exhibit 2.1 to the registrant’s current report on Form 8-K filed with the SEC on July 26, 2021.)

~~Exhibit~~ ~~Number~~ 2.2+		~~Description~~ Securities Purchase Agreement, dated as of August 2, 2021, by and among VRI Ultimate Holdings, LLC, VRI Intermediate Holdings, LLC ModivCare Inc. and Victory Health Holdings, LLC. (Incorporated by reference to exhibit 2.1 to the registrant’s current report on Form 8-K filed with the SEC on August 3, 2021.)

4.1		~~31.1~~Senior Notes Indenture dated as of August 24, 2021, between ModivCare Escrow Issuer, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee. (Incorporated by reference to exhibit 10.1 to the registrant’s current report on Form 8-K filed with the SEC on August 24, 2021.)*

10.1		Commitment Letter, dated as of August 2, 2021, by and among ModivCare Inc., Deutsche Bank Securities Inc and Jefferies Finance LLC. (Incorporated by reference to exhibit 10.1 to the registrant’s current report on Form 8-K filed with the SEC on August 3, 2021.)

10.2		Consent Agreement, dated as of August 6, 2021, among ModivCare Inc., the guarantors party thereto, the lenders party thereto and Bank of America, N.A., as Administrative Agent. (Incorporated by reference to exhibit 10.1 to the registrant’s current report on Form 8-K filed with the SEC on August 9, 2021.)

10.3		Ninth Amendment to Credit Agreement dated as of September 13, 2021, among ModivCare Inc., the guarantors party thereto, the lenders party thereto and Bank of America, N.A., as Administrative Agent. (Incorporated by reference to exhibit 10.1 to the registrant’s current report on Form 8-K filed with the SEC on September 14, 2021.)

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

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

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

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

~~101. INS~~101.INS*		~~XBRL~~Inline XBR Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*
~~101.SCH~~	Inline XBRL Schema Document

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

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

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

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




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


*			Filed herewith.
**			Furnished herewith.
+			Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The descriptions of the omitted schedules and exhibits are contained within the filed agreement. ModivCare hereby agrees to furnish a copy of any omitted schedule or exhibit to the SEC upon request.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			ModivCare Inc.

Date: November 4, 2021			~~THE PROVIDENCE SERVICE CORPORATION~~By:	/s/ Daniel E. Greenleaf

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

Date: November ~~8, 2017~~4, 2021			By:	/s/ ~~David C. Shackelton~~L. Heath Sampson
				~~David C. Shackelton~~ L. Heath Sampson Chief Financial Officer
				(Principal Financial Officer)



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



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



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



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



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



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

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



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

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



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

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



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

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

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

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



	Nine months ended September 30, 2016

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

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



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

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



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

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

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

Total	162			—