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~~June 30, ~~2019~~2020


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

For the transition period from to

Commission File Number 001-34221

The Providence Service Corporation

(Exact name of registrant as specified in its charter)


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

1275 Peachtree Street

Sixth Floor

Atlanta

Georgia

30309

(Address of principal executive offices)

(Zip Code)

(404) 888-5800

(Registrant’s telephone number, including area code)

N/A

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

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


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

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

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

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


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

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

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

As of ~~November 4, 2019,~~August 3, 2020, there were ~~outstanding 12,899,438~~outstanding 14,050,275 shares (excluding treasury shares of ~~5,081,434)~~ 5,285,085) of the registrant’s Common Stock, $0.001 par value per share.

TABLE OF CONTENTS


			Page

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets – ~~September~~June 30, ~~2019~~2020 (unaudited) and December 31, ~~2018~~2019	4

	Unaudited Condensed Consolidated Statements of Operations – Three and ~~nine~~Six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~	5

	~~Unaudited Condensed Consolidated Statements of Comprehensive Income – Three and nine months ended September 30,~~ 2019 ~~and 2018~~	6

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity – Three and ~~nine~~Six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	7

	Unaudited Condensed Consolidated Statements of Cash Flows – ~~Nine~~Six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	9

	Notes to the Unaudited Condensed Consolidated Financial Statements – ~~September~~June 30, ~~2019~~2020	1111

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2927

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3836

Item 4.	Controls and Procedures	3836

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	4038

Item 1A.	Risk Factors	4038

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4039







Item 6.	Exhibits	4241

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

The Providence Service Corporation

Condensed Consolidated Balance Sheets

(in thousands except share and per share data)

September 30, 2019 December 31, 2018
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 40,637 $ 5,678
Accounts receivable, net of allowance of $3,516 in 2019 and $1,854 in 2018 198,232 147,756
Other receivables 3,435 4,846
Prepaid expenses and other 11,435 44,167
Restricted cash 833 1,482
Current assets of discontinued operations 322 7,051
Total current assets 254,894 210,980
Operating lease right-of-use assets 20,266 —
Property and equipment, net 21,968 22,965
Goodwill 135,216 135,216
Intangible assets, net 21,470 26,146
Equity investment 154,532 161,503
Other assets 12,196 9,949
Restricted cash, less current portion — 2,886
Total assets $ 620,542 $ 569,645
Liabilities, redeemable convertible preferred stock and stockholders’ equity
Current liabilities:
Current portion of operating lease liabilities $ 6,742 $ —
Current portion of long-term obligations 308 718
Accounts payable 7,614 8,828
Accrued expenses 32,654 39,191
Accrued transportation costs 112,410 84,889
Deferred revenue 231 562
Reinsurance and related liability reserves 4,636 5,438
Current liabilities of discontinued operations 1,246 3,257
Total current liabilities 165,841 142,883
Long-term debt, less current portion 122 353
Operating lease liabilities, less current portion 14,786 —
Other long-term liabilities 17,926 14,970
Deferred tax liabilities 24,339 23,049
Long-term liabilities of discontinued operations 639 —
Total liabilities 223,653 181,255
Commitments and contingencies (Note 13)
Redeemable convertible preferred stock
Convertible preferred stock, net: Authorized 10,000,000 shares; $0.001 par value; 799,969 and 801,606, respectively, issued and outstanding; 5.5%/8.5% dividend rate
77,234 77,392
Stockholders’ equity
Common stock: Authorized 40,000,000 shares; $0.001 par value; 17,967,996 and 17,784,769, respectively, issued and outstanding (including treasury shares) 18 18
Additional paid-in capital 346,034 334,744
Retained earnings 190,857 187,127
Treasury shares, at cost, 5,081,434 and 4,970,093 shares, respectively (217,254) (210,891)
Total stockholders’ equity 319,655 310,998
Total liabilities, redeemable convertible preferred stock and stockholders’ equity $ 620,542 $ 569,645


	June 30, 2020		December 31, 2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	41,786	$	61,365
Accounts receivable, net of allowance of $8,162 in 2020 and $5,933 in 2019	170,063		180,416
Other receivables	7,320		3,396
Prepaid expenses and other	23,409		10,942
Restricted cash	3,213		153
Current assets of discontinued operations	89		155
Total current assets	245,880		256,427
Operating lease right-of-use assets	19,864		20,095
Property and equipment, net	20,793		23,243
Goodwill	135,216		135,216
Intangible assets, net	92,242		19,911
Equity investment	131,974		130,869
Other assets	8,365		11,620


Total assets	$	654,334	$	597,381
Liabilities, redeemable convertible preferred stock and stockholders’ equity
Current liabilities:

Current portion of finance lease liabilities	$	199	$	308
Accounts payable	8,293		9,805
Current portion of operating lease liabilities	7,016		6,730
Accrued expenses	90,695		38,733
Accrued transportation costs	84,054		87,063
Deferred revenue	689		227
Self-funded insurance programs	8,864		5,890
Current liabilities of discontinued operations	1,504		1,430
Total current liabilities	201,314		150,186
Finance lease liabilities, less current portion	—		45
Operating lease liabilities, less current portion	13,886		14,502
Long-term contract payables	26,079		—
Other long-term liabilities	12,950		15,029
Deferred tax liabilities	34,348		22,907

Total liabilities	288,577		202,669
Commitments and contingencies (Note 13)
Redeemable convertible preferred stock
Convertible preferred stock, net: Authorized 10,000,000 shares; $0.001 par value; 54,882 and 798,788, respectively, issued and outstanding; 5.5%/8.5% dividend rate	5,299		77,120
Stockholders’ equity
Common stock: Authorized 40,000,000 shares; $0.001 par value; 19,254,090 and 18,073,763, respectively, issued and outstanding (including treasury shares)	19		18
Additional paid-in capital	402,433		351,529
Retained earnings	185,917		183,733

Treasury shares, at cost, 5,285,085 and 5,088,782 shares, respectively	(227,911)		(217,688)
Total stockholders’ equity	360,458		317,592
Total liabilities, redeemable convertible preferred stock and stockholders’ equity	$	654,334	$	597,381

See accompanying notes to the unaudited condensed consolidated financial statements

The Providence Service Corporation

Unaudited Condensed Consolidated Statements of Operations

(in thousands except share and per share data)


		Three months ended September 30,						Nine months ended September 30,							Three months ended June 30,				Six months ended June 30,
		2019		2018		2019		2018			2020		2019		2020		2019
Service revenue, net	Service revenue, net	$	393,385	$	343,771	$	1,125,111	$	1,024,203	Service revenue, net	$	282,256	$	363,911	$	649,547	$	731,726

Operating expenses:	Operating expenses:									Operating expenses:
Service expense	Service expense	356,271		313,511		1,042,717		934,367		Service expense	196,106		345,948		528,767		686,446
General and administrative expense	General and administrative expense	15,979		17,045		52,241		53,081		General and administrative expense	31,199		16,860		51,994		36,262
Asset impairment charge		—		—		—		678
Depreciation and amortization	Depreciation and amortization	4,148		3,780		12,976		11,107		Depreciation and amortization	6,108		4,353		9,898		8,827

Total operating expenses	Total operating expenses	376,398		334,336		1,107,934		999,233		Total operating expenses	233,413		367,161		590,659		731,535

Operating income		16,987		9,435		17,177		24,970
Operating income (loss)										Operating income (loss)	48,843		(3,250)		58,888		191

Other expenses (income):	Other expenses (income):									Other expenses (income):
Interest expense, net	Interest expense, net	188		250		793		808		Interest expense, net	1,498		301		1,739		604
Other income	Other income	(66)		—		(199)		—		Other income	—		(66)		—		(132)
Equity in net loss of investee		3,188		1,587		6,159		4,106
Equity in net (gain) loss of investee										Equity in net (gain) loss of investee	(4,425)		1,315		(1,875)		2,971
Income (loss) from continuing operations before income taxes										Income (loss) from continuing operations before income taxes	51,770		(4,800)		59,024		(3,252)
Provision (benefit) for income taxes										Provision (benefit) for income taxes	14,471		(1,391)		5,425		(1,157)
Income (loss) from continuing operations, net of tax										Income (loss) from continuing operations, net of tax	37,299		(3,409)		53,599		(2,095)
(Loss) income from discontinued operations, net of tax										(Loss) income from discontinued operations, net of tax	(301)		1,697		(503)		966
Net income (loss)										Net income (loss)	$	36,998	$	(1,712)	$	53,096	$	(1,129)

Gain on remeasurement of cost method investment		—		(6,577)		—		(6,577)
Income from continuing operations before income taxes		13,677		14,175		10,424		26,633
Provision for income taxes		5,097		3,880		3,940		6,951
Income from continuing operations, net of tax		8,580		10,295		6,484		19,682
(Loss) income from discontinued operations, net of tax		(426)		(2,964)		540		(18,026)
Net income		8,154		7,331		7,024		1,656
Net loss from discontinued operations attributable to non-controlling interest		—		(177)		—		(285)
Net income attributable to Providence		$	8,154	$	7,154	$	7,024	$	1,371
Net (loss) income available to common stockholders (Note 11)										Net (loss) income available to common stockholders (Note 11)	$	(12,819)	$	(2,810)	$	1,920	$	(3,314)

Net income (loss) available to common stockholders (Note 11)		$	6,104	$	5,224	$	3,230	$	(1,939)

Basic earnings (loss) per common share:
Basic (loss) earnings per common share:										Basic (loss) earnings per common share:
Continuing operations	Continuing operations	$	0.50	$	0.61	$	0.21	$	1.24	Continuing operations	$	(0.96)	$	(0.35)	$	0.19	$	(0.33)
Discontinued operations	Discontinued operations	(0.03)		(0.20)		0.04		(1.39)		Discontinued operations	(0.02)		0.13		(0.04)		0.07
Basic earnings (loss) per common share		$	0.47	$	0.41	$	0.25	$	(0.15)
Basic (loss) earnings per common share										Basic (loss) earnings per common share	$	(0.98)	$	(0.22)	$	0.15	$	(0.26)

Diluted earnings (loss) per common share:
Diluted (loss) earnings per common share:										Diluted (loss) earnings per common share:
Continuing operations	Continuing operations	$	0.50	$	0.60	$	0.21	$	1.23	Continuing operations	$	(0.96)	$	(0.35)	$	0.19	$	(0.33)
Discontinued operations	Discontinued operations	(0.03)		(0.20)		0.04		(1.38)		Discontinued operations	(0.02)		0.13		(0.04)		0.07
Diluted earnings (loss) per common share		$	0.47	$	0.40	$	0.25	$	(0.15)
Diluted (loss) earnings per common share										Diluted (loss) earnings per common share	$	(0.98)	$	(0.22)	$	0.15	$	(0.26)

Weighted-average number of common shares outstanding:	Weighted-average number of common shares outstanding:									Weighted-average number of common shares outstanding:
Basic	Basic	12,993,934		12,865,777		12,956,222		12,992,403		Basic	13,077,596		12,973,496		13,032,931		12,937,054
Diluted	Diluted	13,004,449		12,927,122		12,977,598		13,069,140		Diluted	13,077,596		12,973,496		13,059,699		12,937,054

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,
2019 2018 2019 2018
Net income $ 8,154 $ 7,331 $ 7,024 $ 1,656
Net loss attributable to non-controlling interest — (177) — (285)
Net income attributable to Providence 8,154 7,154 7,024 1,371
Other comprehensive loss:
Foreign currency translation adjustments, net of tax — (882) — (2,924)
Reclassification of translation loss realized upon sale of subsidiary and equity investment, respectively — 627 — 627
Other comprehensive loss — (255) — (2,297)
Comprehensive income (loss) 8,154 7,076 7,024 (641)
Comprehensive loss attributable to non-controlling interest — (203) — (356)
Comprehensive income (loss) attributable to Providence $ 8,154 $ 6,873 $ 7,024 $ (997)

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

The Providence Service Corporation

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands except share data)


		Nine Months Ended September 30, 2019																						Six months ended June 30, 2020

		Common Stock					Additional Paid-In		Retained		Treasury Stock								Common Stock				Additional Paid-In	Retained		Treasury Stock
		Shares	Amount		Capital		Earnings			Shares	Amount		Total			Shares	Amount		Capital		Earnings		Shares	Amount			Total
Balance at December 31, 2018		17,784,769	$	18	$	334,744	$	187,127		4,970,093	$	(210,891)	$	310,998
Stock-based compensation		—	—		2,103		—			—	—		2,103
Exercise of employee stock options		57,022	—		2,557		—			—	—		2,557
Restricted stock issued		25,357	—		—		—			3,459	(217)		(217)
Shares issued for bonus settlement and director stipends		599	—		—		—			—	—		—

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

Net income attributable to Providence		—	—		—		582			—	—		582
Balance at March 31, 2019		17,867,747	$	18	$	339,404	$	186,622		4,973,552	$	(211,108)	$	314,936
Stock-based compensation		—	—		1,289		—			—	—		1,289
Exercise of employee stock options		67,931	—		3,826		—			—	—		3,826
Restricted stock issued		7,088	—		—		—			2,419	(155)		(155)
Shares issued for bonus settlement and director stipends		202	—		—		—			—	—		—
Preferred stock conversion		4,104	—		157		—			—	—		157
Convertible preferred stock dividends⁽¹⁾		—	—		—		(1,098)			—	—		(1,098)
Net loss attributable to Providence		—	—		—		(1,712)			—	—		(1,712)
Balance at June 30, 2019		17,947,072	$	18	$	344,676	$	183,812		4,975,971	$	(211,263)	$	317,243
Balance at December 31, 2019															Balance at December 31, 2019	18,073,763	$	18	$	351,529	$	183,733	5,088,782	$	(217,688)		$	317,592
Net income															Net income	—	—		—		16,098		—	—			16,098
Stock-based compensation	Stock-based compensation	—	—		855		—			—	—		855		Stock-based compensation	—	—		1,005		—		—	—			1,005
Exercise of employee stock options	Exercise of employee stock options	17,755	—		503		—			—	—		503		Exercise of employee stock options	39,111	—		2,054		—		—	—			2,054
Restricted stock issued	Restricted stock issued	2,313	—		—		—			42	(3)		(3)		Restricted stock issued	79,029	—		—		—		626	(37)			(37)
Shares issued for bonus settlement and director stipends	Shares issued for bonus settlement and director stipends	856	—		—		—			—	—		—		Shares issued for bonus settlement and director stipends	701	—		38		—		—	—			38
Stock repurchase plan	Stock repurchase plan	—	—		—		—			105,421	(5,988)		(5,988)		Stock repurchase plan	—	—		—		—		142,821	(7,299)			(7,299)
Preferred stock conversion		—	—		—		—			—	—		—
Conversion of convertible preferred stock to common stock															Conversion of convertible preferred stock to common stock	40	—		2		—		—	—			2
Convertible preferred stock dividends⁽¹⁾	Convertible preferred stock dividends⁽¹⁾	—	—		—		(1,109)			—	—		(1,109)		Convertible preferred stock dividends ⁽¹⁾	—	—		—		(1,095)		—	—			(1,095)
Net income attributable to Providence		—	—		—		8,154			—	—		8,154
Balance at September 30, 2019		17,967,996	$	18	$	346,034	$	190,857		5,081,434	$	(217,254)	$	319,655

Balance at March 31, 2020															Balance at March 31, 2020	18,192,644	$	18	$	354,628	$	198,736	5,232,229	$	(225,024)		$	328,358
Net income															Net income	—	—		—		36,998		—	—			36,998
Stock-based compensation															Stock-based compensation	—	—		691		—		—	—			691
Exercise of employee stock options															Exercise of employee stock options	129,722	—		9,275		—		—	—			9,275
Restricted stock forfeited															Restricted stock forfeited	(8,496)	—		—		—		—	—			—

Shares issued for bonus settlement and director stipends															Shares issued for bonus settlement and director stipends	487	—		38		—		—	—			38
Stock repurchase plan															Stock repurchase plan	—	—		—		—		52,856	(2,887)			(2,887)
Conversion of convertible preferred stock to common stock															Conversion of convertible preferred stock to common stock	14,166	—		546		—		—	—			546
Redemption of convertible preferred stock pursuant to Conversion Agreement															Redemption of convertible preferred stock pursuant to Conversion Agreement	—	—		—		(42,954)		—	—			(42,954)
Conversion of convertible preferred stock to common stock pursuant to Conversion Agreement															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)															Convertible preferred stock dividends (1)	—	—		—		(866)		—	—			(866)
Balance at June 30, 2020															Balance at June 30, 2020	19,254,090	$	19	$	402,433	$	185,917	5,285,085	$	(227,911)		$	360,458

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


	Six months ended June 30, 2019

	Common Stock					Additional Paid-In		Retained		Treasury Stock
	Shares	Amount		Capital		Earnings			Shares	Amount		Total
Balance at December 31, 2018	17,784,769	$	18	$	334,744	$	187,127		4,970,093	$	(210,891)	$	310,998
Net income	—	—		—		582			—	—		582
Stock-based compensation	—	—		2,103		—			—	—		2,103
Exercise of employee stock options	57,022	—		2,557		—			—	—		2,557
Restricted stock issued	25,357	—		—		—			3,459	(217)		(217)
Shares issued for bonus settlement and director stipends	599	—		—		—			—	—		—


Convertible preferred stock dividends ⁽²⁾	—	—		—		(1,087)			—	—		(1,087)





Balance at March 31, 2019	17,867,747	$	18	$	339,404	$	186,622		4,973,552	$	(211,108)	$	314,936
Net loss	—	—		—		(1,712)			—	—		(1,712)
Stock-based compensation	—	—		1,289		—			—	—		1,289
Exercise of employee stock options	67,931	—		3,826		—			—	—		3,826
Restricted stock issued	7,088	—		—		—			2,419	(155)		(155)

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

Conversion of convertible preferred stock to common stock	4,104	—		157		—			—	—		157
Convertible preferred stock dividends⁽²⁾	—	—		—		(1,098)			—	—		(1,098)





Balance at June 30, 2019	17,947,072	$	18	$	344,676	$	183,812		4,975,971	$	(211,263)	$	317,243

⁽²⁾ Cash dividends on redeemable convertible preferred stock of $1.36 ~~$1.37,~~ and ~~$1.38~~$1.37 per share were distributed to convertible preferred stockholders for the three months ended March 31, 2019 and June 30, 2019, ~~and September 30, 2019,~~ respectively.

~~The Providence Service Corporation~~

~~Unaudited Condensed Consolidated Statements of Stockholders’ Equity - continued~~

~~(in thousands except share data)~~

Nine Months Ended September 30, 2018
Accumulated
Other
Common Stock Additional
Paid-In Retained Comprehensive
Loss, Net of Treasury Stock Non-
Controlling
Shares Amount Capital Earnings Tax Shares Amount Interest Total
Balance at December 31, 2017 17,473,598 $ 17 $ 313,955 $ 204,818 $ (25,805) 4,126,132 $ (154,803) $ (2,165) $ 336,017
Stock-based compensation — — 993 — — — — — 993
Exercise of employee stock options 212,789 1 8,819 — — — — — 8,820
Restricted stock issued 20,904 — — — — 3,778 (237) — (237)
Shares issued for bonus settlement and director stipends 2,715 — 150 — — — — — 150
Stock repurchase plan — — — — — 583,027 (36,930) — (36,930)
Convertible preferred stock dividends ⁽²⁾
— — — (1,089) — — — — (1,089)
Foreign currency translation adjustments, net of tax — — — — 1,926 — — (81) 1,845
Non-controlling interest — — — — — — — 296 296
Other — — 49 — — — — — 49
Net income attributable to Providence — — — 5,430 — — — — 5,430
Cumulative effect adjustment from change in accounting principle, net of tax — — — 5,710 — — — — 5,710
Balance at March 31, 2018 17,710,006 18 $ 323,966 $ 214,869 $ (23,879) 4,712,937 $ (191,970) $ (1,950) $ 321,054
Stock-based compensation — — 3,446 — — — — — 3,446
Exercise of employee stock options 53,004 — 2,842 — — — — — 2,842
Restricted stock issued 6,085 — (320) — — 129 (9) — (329)
Performance restricted stock issued 3,110 — (109) — — — — — (109)
Shares issued for bonus settlement and director stipends 318 — — — — — — — —
Stock repurchase plan — — — — — 255,692 (18,823) — (18,823)
Conversion of convertible preferred stock to common stock 2,608 — 105 (5) — — — — 100
Convertible preferred stock dividends⁽²⁾
— — — (1,101) — — — — (1,101)
Foreign currency translation adjustments, net of tax — — — — (3,967) — — 126 (3,841)
Other — — 79 — — — — (188) (109)
Net loss attributable to Providence — — — (11,215) — — — — (11,215)
Balance at June 30, 2018 17,775,131 18 $ 330,009 $ 202,548 $ (27,846) 4,968,758 $ (210,802) $ (2,012) $ 291,915
Stock-based compensation — — 1,907 — — — — — 1,907
Exercise of employee stock options 500 — 8 — — — — — 8
Restricted stock issued 2,395 — — — — 141 (10) — (10)
Shares issued for bonus settlement and director stipends 543 — — — — — — — —
Conversion of convertible preferred stock to common stock 1,077 — 42 (2) — — — — 40
Convertible preferred stock dividends⁽²⁾
— — — (1,111) — — — — (1,111)
Foreign currency translation adjustments, net of tax — — — — (883) — — 27 (856)
Reclassification of translation loss realized upon sale of foreign subsidiary — — — — 627 — — — 627
Other — — (19) — — — — 176 157
Net income attributable to Providence — — — 7,154 — — — — 7,154
Balance at September 30, 2018 17,779,646 $ 18 $ 331,947 $ 208,589 $ (28,102) 4,968,899 $ (210,812) $ (1,809) $ 299,831

⁽²⁾ ~~Cash dividends on redeemable convertible preferred stock of $1.36, $1.37, and $1.37 per share were distributed to convertible preferred stockholders for the three months ended March 31, 2018, June 30, 2018, and September 30, 2018, respectively.~~

See accompanying notes to the unaudited condensed consolidated financial statements

The Providence Service Corporation

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


		Nine months ended September 30,							Six months ended June 30,
		2019		2018			2020		2019
Operating activities	Operating activities					Operating activities
Net income		$	7,024	$	1,656
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)						Net income (loss)	$	53,096	$	(1,129)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:						Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	Depreciation	8,300		14,217		Depreciation	4,564		5,710
Amortization	Amortization	4,676		6,100		Amortization	5,334		3,117
Asset impairment charge		—		9,881
Provision for doubtful accounts	Provision for doubtful accounts	533		1,615		Provision for doubtful accounts	2,229		281
Stock-based compensation	Stock-based compensation	4,247		6,209		Stock-based compensation	1,772		3,392
Deferred income taxes	Deferred income taxes	1,993		(602)		Deferred income taxes	11,441		(1,346)
Amortization of deferred financing costs and debt discount	Amortization of deferred financing costs and debt discount	272		408		Amortization of deferred financing costs and debt discount	136		201
Equity in net loss of investee		6,159		4,026
Equity in net (gain) loss of investee						Equity in net (gain) loss of investee	(1,875)		2,971
Reduction of right of use assets						Reduction of right of use assets	4,373		5,093
Loss on disposal of assets						Loss on disposal of assets	216		—

Gain on remeasurement of cost method investment				(6,577)
Other non-cash charges (credits)		—		(115)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable		(44,374)		(31,514)
Accounts receivable and other receivables						Accounts receivable and other receivables	8,206		(7,389)
Prepaid expenses and other	Prepaid expenses and other	27,669		14,243		Prepaid expenses and other	(13,119)		(3,680)

Reinsurance and related liability reserve		2,511		(548)
Income taxes on gain from sale of business						Income taxes on gain from sale of business	173		8,223
Self-funded insurance programs						Self-funded insurance programs	615		(1,235)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(9,384)		(26,251)		Accounts payable and accrued expenses	50,324		9,775
Accrued transportation costs	Accrued transportation costs	27,522		30,888		Accrued transportation costs	(3,010)		2,936
Deferred revenue	Deferred revenue	(486)		(1,468)		Deferred revenue	462		(433)
Operating lease and other long-term liabilities		3,407		304
Long-term contract payables and other long-term liabilities						Long-term contract payables and other long-term liabilities	22,251		(3,416)
Net cash provided by operating activities	Net cash provided by operating activities	40,069		22,472		Net cash provided by operating activities	147,188		23,071
Investing activities	Investing activities					Investing activities
Purchase of property and equipment	Purchase of property and equipment	(7,302)		(13,194)		Purchase of property and equipment	(2,330)		(4,277)
Acquisition, net of cash acquired	Acquisition, net of cash acquired	—		(42,067)		Acquisition, net of cash acquired	(77,665)		—
Dispositions, net of cash sold		—		(5,862)

Proceeds from note receivable		—		3,130

Net cash used in investing activities	Net cash used in investing activities	(7,302)		(57,993)		Net cash used in investing activities	(79,995)		(4,277)
Financing activities	Financing activities					Financing activities
Proceeds from debt						Proceeds from debt	162,000		12,000
Repayment of debt						Repayment of debt	(162,000)		(12,000)
Preferred stock conversion payment						Preferred stock conversion payment	(82,769)		—
Preferred stock dividends	Preferred stock dividends	(3,295)		(3,302)		Preferred stock dividends	(1,961)		(2,185)
Repurchase of common stock, for treasury	Repurchase of common stock, for treasury	(6,363)		(56,009)		Repurchase of common stock, for treasury	(10,186)		(372)
Proceeds from common stock issued pursuant to stock option exercise	Proceeds from common stock issued pursuant to stock option exercise	6,885		12,413		Proceeds from common stock issued pursuant to stock option exercise	11,329		6,383
Performance restricted stock surrendered for employee tax payment		—		(429)
Repayment of debt		(12,000)		—
Proceeds from debt		12,000		36,000
Capital lease payments and other		(641)		(2,529)
Net cash used in financing activities		(3,414)		(13,856)
Effect of exchange rate changes on cash		—		19
Restricted stock surrendered for employee tax payment						Restricted stock surrendered for employee tax payment	(37)		—
Other financing activities						Other financing activities	(154)		(566)
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(83,778)		3,260
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	29,353		(49,358)		Net change in cash, cash equivalents and restricted cash	(16,585)		22,054
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	12,367		101,606		Cash, cash equivalents and restricted cash at beginning of period	61,673		12,367
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	41,720	$	52,248	Cash, cash equivalents and restricted cash at end of period	$	45,088	$	34,421

See accompanying notes to the unaudited condensed consolidated financial statements

The Providence Service Corporation

Supplemental Cash Flow Information

(in thousands)

Nine Months Ended
September 30,
Supplemental cash flow information 2019 2018
Cash paid for interest $ 1,090 $ 767
Cash (received) paid for income taxes, net of refunds $ (30,456) $ 11,477
Purchase of equipment through capital lease obligation $ — $ 724
Acquisitions:
Purchase price $ — $ 54,700
Less:
Cash acquired — (1,302)
Restricted cash acquired — (110)
Value of existing ownership in Circulation — (9,577)
Purchase consideration payable — (1,644)
Acquisitions, net of cash acquired $ — $ 42,067


	Six months ended June 30,
Supplemental cash flow information	2020		2019
Cash paid for interest	$	1,669	$	852
Cash paid for income taxes, net of refunds	$	1,967	$	1,992
Assets acquired under operating leases	$	4,144	$	1,282

See accompanying notes to the unaudited condensed consolidated financial statements

The Providence Service Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

~~September~~June 30, ~~2019~~2020

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

1. Organization and Basis of Presentation

Description of Business

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

During ~~2018,~~2019, the Company ~~announced an organizational consolidation plan ("Organizational Consolidation") to integrate substantially~~consolidated all activities and functions performed at the corporate holding company level into its NET Services ~~segment.~~segment (“Organizational Consolidation”). As a result of the Organizational Consolidation, ~~was substantially complete beginning January 1, 2019, our former Corporate~~the Company incurred restructuring and ~~Other segment was combined with the NET Services segment.~~related organization costs. See Note 8, Restructuring and Related Reorganization Costs,~~and Note 16,~~ ~~Segments,~~ for further information.

Basis of Presentation

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

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

The Company has made estimates relating to the reporting of assets and liabilities, revenues and expenses and certain disclosures in the preparation of these condensed consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates. Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2019.~~2020. Management has evaluated events and transactions that occurred after the balance sheet date and through the date these condensed consolidated financial statements were filed with the SEC and considered the effect of such events in the preparation of these condensed consolidated financial statements.

The condensed consolidated balance sheet at December 31, ~~2018~~2019 included in this Form 10-Q has been derived from audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements. The 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, ~~2018.~~2019.

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

Uncertainties due to COVID-19

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

The Company’s condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and reported amounts of revenue and expenses. It is possible that these assumptions and estimates may materially change.

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which includes modifications to the limitation on business interest expense and net operating loss provisions, and provides a delay in the payment of employer federal payroll taxes during 2020 after the date of enactment. Due to the favorable impact of the CARES Act on the Company’s 2018 U.S. net operating losses ("NOLs"), the effective tax rate of 9.2% was lower than the U.S. federal statutory rate of 21.0% for the six months ended June 30, 2020. The 28.0% effective tax rate for the three months ended June 30, 2020 was not impacted by the CARES Act. See Note 12, Income Taxes, for further information.

Reclassifications

~~In conjunction with~~During the ~~change~~six months ended June 30, 2020, the Company has separately classified the reduction of right-of-use assets in its consolidated statement of cash flows and conformed the ~~Company’s organizational structure as described in Note 16,~~ ~~Segments, we reclassified certain costs between “General and administrative expense” and “Service expense” on our accompanying condensed consolidated statements of operations as summarized below:~~

Three Months Ended September 30, 2018
As Previously Reported⁽¹⁾
Reclassifications As Reported
Service expense $ 320,697 $ (7,186) $ 313,511
General and administrative expense 9,859 7,186 17,045

Nine Months Ended September 30, 2018
As Previously Reported ⁽¹⁾
Reclassifications As Reported
Service expense $ 955,523 $ (21,156) $ 934,367
General and administrative expense 31,925 21,156 53,081

⁽¹⁾ ~~Adjusted for discontinued operations, as described in Note 15.~~prior period.

2. Significant Accounting Policies and Recent Accounting Pronouncements

The Company adopted the following accounting pronouncements during the ~~nine~~six months ended ~~September~~June 30, ~~2019:~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~ ~~(“ASU 2016-02”). ASU 2016-02 introduced FASB Accounting Standards Codification Topic 842 (“ASC 842”), which replaced ASC 840,~~ ~~Leases. In July 2018, the FASB issued ASU No. 2018-10,~~ ~~Codification Improvements to Topic 842 (Leases)~~ ~~(“ASU 2018-10”), which provides narrow amendments to clarify how to apply certain aspects of the new lease standard. Additionally, in July 2018, the FASB issued ASU No. 2018-11,~~ ~~Leases (Topic 842): Targeted Improvements~~ ~~(“ASU 2018-11”). ASU 2018-11 provides a new transition method and a practical expedient for separating components of a leasing contract.~~

The Company has not entered into significant lease agreements in which it is the lessor; however, the Company does have lease agreements in which it is the lessee. Under ASC 842, lessees are required to recognize a lease liability and right-of-use (“~~ROU~~”) asset for all leases (with the exception of short-term leases) at the lease commencement date. Effective January 1, 2019, the Company adopted this guidance, applied the modified retrospective transition method and elected the transition option to use the effective date as the date of initial application. The Company recognized the cumulative effect of the transition adjustment on the condensed consolidated balance sheet as of the effective date and did not provide any new lease disclosures for periods before the effective date. With respect to the practical expedients, the Company elected the package of transitional-related practical expedients and the practical expedient not to separate lease and non-lease components. At January 1, 2019, the Company recorded $23,165 and $24,491 of additional ROU leased assets and liabilities, respectively, on its condensed consolidated balance sheet. The adoption did not have a material impact on the statement of operations. See Note 9, ~~Leases, for further information.~~

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The Company adopted this new rule in the quarter ended March 31, 2019 by including the condensed consolidated statements of stockholders’ equity.

~~Recent accounting pronouncements that the Company has yet to adopt are as follows:~~2020:

In June 2016, the FASB issued ~~ASU~~Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”). The amendments in ASU 2016-13 ~~will supersede or clarify~~superseded much of the existing guidance for reporting credit losses for assets held at amortized cost basis and available for sale debt securities. The amendments in ASU 2016-13 ~~affect~~affected loans, debt

securities, trade receivables, net investments in leases, ~~off balance~~off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The Company adopted ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company does not expecton January 1, 2020. As of the ~~adoption of~~quarter ended June 30, 2020, this guidance ~~will~~did not have a material impact on ~~its~~the condensed consolidated financial statements or ~~disclosures.~~disclosures nor is it expected to have a material impact in the future.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”)~~. ASU 2018-13 removes certain disclosures, modifies certain disclosures~~ which removed, modified, and added additional ~~disclosures.~~disclosures related to fair value measurements. The ~~standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted.~~Company adopted ASU 2018-13 ~~requires certain disclosures to be applied~~ on ~~a retrospective basis and others on a prospective basis. The Company does not expect~~January 1, 2020. As of the ~~adoption of~~quarter ended June 30, 2020, this guidance ~~will~~did not have an impact on the condensed consolidated financial statements or disclosures nor is it expected to have a material impact ~~on its consolidated financial statements or disclosures.~~in the future.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”). ASU 2018-15 ~~will align~~aligned the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The ~~standard is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The~~ Company ~~has~~ elected to apply athe prospective transition approach and ~~will~~ therefore ~~apply~~applied the transition requirements to any eligible costs incurred after adoption. The Company adopted ASU 2018-15 on January 1, 2020. As of June 30, 2020, the Company has not incurred any material implementation costs associated with new service contracts since the date of adoption.

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

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

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

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

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies ASC 740, Income Taxes, to reduce complexity in certain areas of accounting for income taxes. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company is currently evaluating the impact ASU 2019-12 will have on its condensed consolidated financial statements.

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

In March 2020, the FASB issued ASU 2020-04, Facilitation of ~~any material costs~~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 ~~incurred subsequent~~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 ~~adoption date. However,~~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 ~~will continue to evaluate~~is currently evaluating the impact of ASU ~~2018-15~~2020-04 will have on its condensed consolidated financial statements ~~until adoption.~~or disclosures; however, does not expect the adoption to have a material impact.

3. Revenue Recognition

Disaggregation of Revenue

The following table summarizes disaggregated revenue from contracts with customers by contract ~~type for NET Services:~~type:

Three months ended September 30, 2019 Three Months Ended September 30, 2018
State Medicaid agency contracts $ 196,891 $ 183,661
Managed care organization contracts 196,494 160,110
Total Service revenue, net $ 393,385 $ 343,771
Capitated contracts $ 334,549 $ 297,808
Non-capitated contracts 58,836 45,963
Total Service revenue, net $ 393,385 $ 343,771

Nine months ended September 30, 2019 Nine months ended September 30, 2018
State Medicaid agency contracts $ 551,632 $ 544,409
Managed care organization contracts 573,479 479,794
Total Service revenue, net $ 1,125,111 $ 1,024,203
Capitated contracts $ 947,811 $ 869,203
Non-capitated contracts 177,300 155,000
Total Service revenue, net $ 1,125,111 $ 1,024,203


	Three months ended June 30, 2020		Three months ended June 30, 2019
State Medicaid agency contracts	$	151,545	$	177,773
Managed care organization contracts	130,711		186,138

Total Service revenue, net	$	282,256	$	363,911

Capitated contracts	$	253,858	$	308,690
Non-capitated contracts	28,398		55,221

Total Service revenue, net	$	282,256	$	363,911


	Six months ended June 30, 2020		Six months ended June 30, 2019
State Medicaid agency contracts	$	332,276	$	354,741
Managed care organization contracts	317,271		376,985

Total Service revenue, net	$	649,547	$	731,726

Capitated contracts	$	554,582	$	613,262
Non-capitated contracts	94,965		118,464

Total Service revenue, net	$	649,547	$	731,726

During the three months ended ~~September~~June 30, 2020 and 2019, ~~and 2018, NET Services~~the Company recogniz~~ed $15,332 a~~e~~nd $1,956,~~d negative $3,619 and positive $236 of service revenue respectively, from ~~contractual~~ adjustments relating to performance obligations satisfied in previous periods to which the customer agreed. During the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019, ~~and 2018, NET Services~~the Company recogniz~~ed $8,460 a~~end ~~$5,685~~,d negative $3,476 and $39, of service revenue respectively, from contractual adjustments relating to performance obligations satisfied in previous periods to which the customer agreed.

Related Balance Sheet Accounts

The following table provides information about accounts receivable, net:


		September 30, 2019		December 31, 2018			June 30, 2020		December 31, 2019
Accounts receivable	Accounts receivable	$	139,897	$	101,340	Accounts receivable	$	122,349	$	124,868
NET Services’ reconciliation contract receivable		61,851		48,270
Reconciliation contracts receivable						Reconciliation contracts receivable	55,876		61,481
Allowance for doubtful accounts	Allowance for doubtful accounts	(3,516)		(1,854)		Allowance for doubtful accounts	(8,162)		(5,933)
		$	198,232	$	147,756
Accounts receivable, net						Accounts receivable, net	$	170,063	$	180,416

The following table provides information about other accounts included on the accompanying condensed consolidated balance sheets:

September 30, 2019 December 31, 2018
Accrued contract payments, included in “accrued expenses”
$ 7,672 $ 9,756
Deferred revenue, current 231 562
Deferred revenue, long-term, included in “other long-term liabilities”
808 963


	June 30, 2020		December 31, 2019
Accrued contract payables, current, included in “Accrued expenses”	$	52,811	$	15,706
Long-term contract payables	26,079		—
Deferred revenue, current	689		227
Deferred revenue, long-term, included in “Other long-term liabilities”	725		758

During the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019, the Company recognized $121 and $386 of deferred revenue as of December 31, 2019 and 2018, ~~$434 and $11,602 of deferred revenue, respectively, was recognized.~~

respectively.

4. Cash, Cash Equivalents and Restricted Cash

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


		September 30, 2019		September 30, 2018			June 30, 2020		June 30, 2019
Cash and cash equivalents	Cash and cash equivalents	$	40,637	$	47,492	Cash and cash equivalents	$	41,786	$	29,804
Restricted cash, current	Restricted cash, current	833		1,624		Restricted cash, current	3,213		1,832
Current assets of discontinued operations	Current assets of discontinued operations	250		—		Current assets of discontinued operations	89		889
Restricted cash, less current portion	Restricted cash, less current portion	—		3,132		Restricted cash, less current portion	—		1,896
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	41,720	$	52,248	Cash, cash equivalents and restricted cash	$	45,088	$	34,421

Restricted cash as of June 30, 2020 primarily relates to a security reserve obtained as part of the National MedTrans, LLC acquisition. Restricted cash as of June 30, 2019 primarily relates to amounts held in trusts for reinsurance claims losses under the Company’s now dissolved captive insurance operation for historical workers’ compensation, general and professional liability and auto liability reinsurance ~~programs.~~programs, as well as amounts restricted for withdrawal under our self-insured medical and benefits plans. See Note 15, Acquisition, for further information on the security reserve. The wholly-owned captive insurance subsidiary, Social Services Providers Captive Insurance Company ("SPCIC"), was dissolved during the six months ended June 30, 2020. Current assets of discontinued operations principally reflect the cash position of WD Services operations in Saudi Arabia, which ~~was not sold as part of~~ the ~~WD Services sale. Such cash will be used to fund the shut-down costs of this operation as needed.~~ Company is winding down. See Note ~~15,~~16, Discontinued Operations, for further information on the WD Services sale.

5. Equity Investment

As of ~~both September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company owned a 43.6% non-controlling interest in Matrix. ~~Pursuant to a shareholder’s agreement, affiliates~~Affiliates of Frazier Healthcare Partners hold rights necessary to control the fundamental operations of Matrix. The Company accounts for this investment in Matrix under the equity method of ~~accounting with the~~accounting. The Company’s share of Matrix’s income or ~~loss~~losses are recorded as “Equity in net (gain) loss of investee” in the accompanying condensed consolidated statements of ~~operations.~~operations and the investment basis is recorded as "Equity Investment" in the accompanying condensed consolidated balance sheets. During the year ended December 31, 2019, Matrix recorded asset impairment charges of $55,056. NaN impairment was recorded during the six months ended June 30, 2020.

The carrying amount of the assets included in the Company’s condensed consolidated balance sheets and the maximum loss exposure related to the Company’s interest in Matrix as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 totaled ~~$154,532~~$131,974 and ~~$161,503,~~$130,869, respectively.

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


		September 30, 2019		December 31, 2018			June 30, 2020		December 31, 2019
Current assets	Current assets	$	70,888	$	61,565	Current assets	$	97,897	$	64,221
Long-term assets	Long-term assets	694,604		719,450		Long-term assets	630,009		631,007
Current liabilities	Current liabilities	31,342		27,619		Current liabilities	49,852		31,256
Long-term liabilities	Long-term liabilities	366,491		373,159		Long-term liabilities	361,529		351,380

Three Months ended September 30, 2019 Three months ended September 30, 2018
Revenue $ 71,663 $ 70,522
Operating (loss) income (2,640) 1,492
Net loss (6,906) (4,351)

Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018
Revenue $ 210,807 $ 216,361
Operating (loss) income (542) 5,330
Net loss (15,054) (13,736)


	Three months ended June 30, 2020		Three months ended June 30, 2019
Revenue	$	90,667	$	72,161
Operating income	15,258		1,543
Net income (loss)	8,892		(3,661)

	Six months ended June 30, 2020		Six months ended June 30, 2019
Revenue	$	151,971	$	139,144
Operating income	13,585		2,098
Net income (loss)	2,535		(8,148)

6. Prepaid Expenses and Other

Prepaid expenses and other were comprised of the following:


		September 30, 2019		December 31, 2018			June 30, 2020		December 31, 2019
Prepaid income taxes	Prepaid income taxes	$	2,488	$	35,207	Prepaid income taxes	$	11,490	$	2,942
Prepaid insurance	Prepaid insurance	1,862		1,308		Prepaid insurance	3,679		1,317

Prepaid rent	Prepaid rent	861		828		Prepaid rent	797		868

Other prepaid expenses	Other prepaid expenses	6,224		6,824		Other prepaid expenses	7,443		5,815
Total prepaid expenses and other	Total prepaid expenses and other	$	11,435	$	44,167	Total prepaid expenses and other	$	23,409	$	10,942

7. Accrued Expenses

Accrued expenses consisted of the following:


		September 30, 2019		December 31, 2018			June 30, 2020		December 31, 2019
Accrued compensation		$	10,076	$	11,050
NET Services accrued contract payments		7,672		9,756
Accrued compensation and related liabilities						Accrued compensation and related liabilities	$	16,969	$	8,941
Accrued contract payables, current						Accrued contract payables, current	52,811		15,706

Accrued cash settled stock-based compensation	Accrued cash settled stock-based compensation	3,325		3,719		Accrued cash settled stock-based compensation	7,127		3,282

Other accrued expenses	Other accrued expenses	11,581		14,666		Other accrued expenses	13,788		10,804
Total accrued expenses	Total accrued expenses	$	32,654	$	39,191	Total accrued expenses	$	90,695	$	38,733

8. Restructuring and Related Reorganization Costs

~~On April 11, 2018, the~~The Company ~~announced the~~completed an Organizational Consolidation ~~to transfer all job responsibilities previously performed by employees of the holding company to LogistiCare and to close~~during 2019 where it closed the corporate offices in Stamford, Connecticut and Tucson, Arizona. The Company adopted an employee retention plan designed to retain the holding company level employees during the transition. The employee retention plan became effective on April 9, 2018 and provided for certain payments and benefits to those employees if they remained employed with the Company through a retention date established for each individual, subject to a fully executed retention letter. The Organizational Consolidation was completed during the second quarter of 2019.

A total o~~f $613~~of $1,344 and ~~$3,714~~$3,355 in restructuring and related costs was incurred during the three and ~~nine~~six months ended ~~September~~June 30, 2019, respectively, related to the Organizational Consolidation. These costs include, respectively, ~~$145~~$823 and ~~$2,356~~$2,217 of r~~etention~~retention and personnel costs, $0 $89 and ~~$282~~$279 of stock-based compensation expense, $0$93 and ~~$237~~$236 of depreciation and ~~$468~~$339 and ~~$839~~$623 of other costs, primarily related to recruiting and legal costs. These costs are recorded as “General and administrative expense” and “Depreciation and amortization” in the accompanying condensed consolidated statements of operations.

A ~~total~~total of ~~$12,522~~$13,060 in restructuring and related costs was incurred on a cumulative basis through ~~September 30,~~December 31, 2019 related to the Organizational Consolidation. These costs include ~~$7,454~~$7,516 of retention and personnel costs, ~~$2,013~~$2,035 of stock-based compensation expense, $673 of depreciation and ~~$2,382~~$2,836 of other costs, primarily related to recruiting and l~~egal~~legal costs. The current year restructuring and related costs are recorded as “General and administrative expense” and “Depreciation and amortization” in the accompanying condensed consolidated statements of operations.

The summary of the liability for restructuring and related reorganization costs is as follows:


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

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

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

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

9. Debt

January 1, 2019 Costs
Incurred Cash Payments and Adjustments September 30, 2019
Retention and personnel liability $ 1,956 $ 2,356 $ (4,312) $ —
Other liability 398 842 (1,240) —
Total $ 2,354 $ 3,198 $ (5,552) $ —

January 1, 2018 Costs
Incurred Cash Payments September 30, 2018
Retention and personnel liability $ — $ 2,038 $ (111) $ 1,927
Other liability — 1,265 (786) 479
Total $ — $ 3,303 $ (897) $ 2,406

~~The total restructuring liability at December 31, 2018 includes $2,124 classified as “Accrued expenses” and $230 classified as “Accounts payable” in the condensed consolidated balance sheets.~~

9. ~~Leases~~

~~Effective January 1, 2019, as described more fully in Note 2,~~ ~~Significant Accounting Policies and Recent Accounting Pronouncements~~, the Company adopted ASC 842 and recognized lease obligations and associated ROU assets for its existing non-cancelable operating leases. The Company has non-cancelable operating leases primarily associated with office space, related office equipment and other facilities.

The leases expire in various years and generally provide for renewal options. In the normal course of business, management expects that these leases will be renewed or replaced by leases on other properties.

Certain operating leases provide for increases in future minimum annual rental payments based on defined increases in the Consumer Price Index, subject to certain minimum increases. Several of these lease agreements contain provisions for periods in which rent payments are reduced. The total amount of rental payments due over the lease term is recorded as rent expense on a straight-line basis over the term of the lease.

~~A summary of all lease classifications in our condensed consolidated balance sheet is as follows:~~

~~Leases~~

~~Classification~~

~~September 30, 2019~~

~~Assets~~

~~Operating lease assets~~

~~Operating lease ROU assets~~

~~20,266~~

~~Finance lease assets~~

~~Property and equipment, net~~ ⁽¹⁾

~~603~~

~~Total leased assets~~

~~20,869~~

~~Liabilities~~

~~Current:~~

~~Operating~~

~~Current portion of operating lease liabilities~~

~~6,742~~

~~Finance~~

~~Current portion of long-term obligations~~

~~308~~

~~Long-term:~~

~~Operating~~

~~Operating lease liabilities, less current portion~~

~~14,786~~

~~Finance~~

~~Long-term obligations, less current portion~~

~~122~~

~~Total lease liabilities~~

~~21,958~~

⁽¹⁾~~Finance leased assets have an accumulated amortization of $338.~~

~~As of September 30, 2019, maturities of lease liabilities are as follows:~~

Operating Leases Finance Leases Total
Remainder of 2019 $ 2,715 $ 81 $ 2,796
2020 8,452 322 8,774
2021 5,845 27 5,872
2022 4,869 — 4,869
2023 2,891 — 2,891
Thereafter 2,215 $ — 2,215
Total lease payments $ 26,987 $ 430 $ 27,417
Less: interest and accretion (5,459) — (5,459)
Present value of minimum lease payments $ 21,528 $ 430 $ 21,958
Less: current portion (6,742) (308) (7,050)
Long-term portion $ 14,786 $ 122 $ 14,908

~~As of December 31, 2018, maturities of lease liabilities are as follows:~~

Operating Leases Finance Leases Total
2019 $ 8,825 $ 718 $ 9,543
2020 6,452 308 6,760
2021 4,594 45 4,639
2022 3,801 — 3,801
2023 1,767 — 1,767
Thereafter 1,600 — 1,600
Total lease payments $ 27,039 $ 1,071 $ 28,110

~~Lease terms and discount rates are as follows:~~


	~~September 30, 2019~~
~~Weighted-average remaining lease term (years):~~
~~Operating lease costs~~	~~3.68~~
~~Finance lease cost~~	~~1.34~~
~~Weighted-average discount rate:~~
~~Operating lease costs~~	~~5.3~~	%
~~Finance lease cost~~	~~3.3~~	%

~~For the three and nine months ended September 30, 2019, our operating lease costs were $2,674~~ and ~~$7,877 and are included in "General and administrative expense” on our accompanying condensed consolidated statements of operations. A summary of other lease information is as follows:~~

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Financing cash flows from finance leases $ (75) $ (641)
Operating cash flows from operating leases (2,753) (7,956)
Amortization of operating leased ROU assets to the operating lease liability 2,523 7,986
ROU assets obtained through operating lease liabilities 3,488 4,770

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 $200,000 to $225,000, and increased the sub-facility for letters of credits from $25,000 to $40,000. Interest on the loans is payable quarterly in arrears. In addition, the Company is obligated to pay a quarterly commitment fee based on a percentage of the unused portion of each lender’s commitment under the Credit Facility and quarterly letter of credit fees based on a percentage of the maximum amount available to be drawn under each outstanding letter of credit.

As of June 30, 2020, the Company had 0 borrowings outstanding on the Credit Facility; however, had letters of credit outstanding in the amount of $13,551. The Company’s available credit under the Credit Facility was $211,449. Under the Credit Agreement, the Company has an option to request an increase in the 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 $75,000 with either additional commitments from lenders under the Credit Agreement at such time or new commitments from financial institutions acceptable to the administrative agent in its reasonable discretion, so long as no default or event of default exists at the time of any such increase. The Company may not be able to access additional funds under this increase option as no lender is obligated to participate in any such increase under the Credit Facility.

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

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

The Credit Agreement contains customary affirmative and negative covenants and events of default. The negative covenants include restrictions on the Company’s ability to, among other things, incur additional indebtedness, create liens, make investments, give guarantees, pay dividends, sell assets, and merge and consolidate. The Company is subject to financial covenants, including consolidated net leverage and consolidated interest coverage covenants. The Company’s consolidated net leverage ratio may not be greater than 3.00:1.00 as of the end of any fiscal quarter and the Company’s consolidated interest coverage ratio may not be less than 3.00:1.00 as of the end of any fiscal quarter. The Company was in compliance with all covenants as of June 30, 2020.

10. Stock-Based Compensation and Similar Arrangements

The Company provides stock-based compensation to employees and non-employee directors under the Company’s 2006 Long-Term Incentive Plan (“2006 Plan”). ~~Typical awards issued under this plan include~~The 2006 Plan allows the flexibility to grant or award stock ~~option awards,~~options, stock appreciation rights, restricted stock, ~~awards (“RSAs”),~~unrestricted stock, stock units including restricted stock units ~~("RSUs")~~ and performance ~~based restricted stock units (“PRSUs”).~~awards to eligible persons.

The following table reflects the amount of stock-based compensation, for ~~continuing operations, for~~ share settled grants or awards, recorded in each financial statement line item for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
General and administrative expense $ 855 $ 1,927 $ 4,247 $ 6,209
Equity in net loss (income) of investee — (24) — 137
Total stock-based compensation $ 855 $ 1,903 $ 4,247 $ 6,346


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Service expense	$	54	$	161	$	119	$	326
General and administrative expense	675		1,128		1,653		3,066
Total stock-based compensation	$	729	$	1,289	$	1,772	$	3,392

On September 20, 2019, the Company granted 46,865 RSUs and 88,264 stock options to executive management and key employees of the Company at a price of $58.84, which was the closing price of the Company’s common stock on the grant date. The RSUs and options will vest over 3.5 years with (i) 33.3% of the options vesting on March 15, 2021, (ii) 33.3% of the options vesting on March 15, 2022, and (iii) 33.4% of the options vesting on March 15, 2023. There are a few employee exceptions to the vesting schedule. For these employees, the RSUs and options are subject to vesting over the period designated in the respective employee’s agreements. As there is no expiration date, the RSUs can be exercised at any point in the future subject to the vesting period designation in the employee’s agreements. The options have an expiration date of September 20, 2024.

At ~~September~~June 30, ~~2019,~~2020, the Company had ~~620,859 stock~~500,109 stock options outstanding with a weighted-average exercise price of ~~$62.72.~~ $64.73. The Company also had ~~49,295~~57,122 unvested ~~RSAs~~restricted stock awards ("RSAs") and ~~46,865 RSUs~~44,412 unvested restricted stock units ("RSUs") outstanding at ~~September~~June 30, ~~2019~~2020 with a weighted-average grant date fair value of$62.66 and ~~$61.95 and $58.84, respectively.~~$62.24,

~~Awards Granted to the Interim Chief Executive Officer~~

spectively.

On February 1, 2019, the Company entered into an agreement for a base salary and the eligibility of a cash bonus with R. Carter Pate for his continued employment as the Company’s Interim CEO through December 31, 2019. In addition, the agreement granted Mr. Pate an award of 23,317 shares of restricted stock (the “Restricted Shares”), representing a value of $1,500 based on the closing price per share of the Company’s stock on the grant date. The Restricted Shares will vest if Mr. Pate remains employed with the Company through December 31, 2019. If the Company terminates Mr. Pate’s employment during 2019 because his services are no longer required, the Restricted Shares will vest and Mr. Pate will be entitled to the remaining unpaid portion of his 2019 base salary and payment of the 2019 bonus in an amount based on actual achievement of the performance measures. If a change in control of the Company occurs during 2019, the Restricted Shares will vest and Mr. Pate will be entitled to the remaining unpaid portion of his 2019 base salary and payment of the 2019 bonus at the target level.

Cash-Settled Awards

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 months ended ~~September~~June 30, ~~2019~~2020 and ~~September 30, 2018,~~2019, the Company recorded ~~$371~~ expense of $4,560 and income of $1,762 of stock-based compensation ~~expense and recorded a benefit of $2,191~~ for cash-settled awards, respectively. During the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~September 30, 2018,~~2019, the Company ~~reco~~r~~rded $203~~ ecorded expense of $3,997 and income of$573of stock-based compensation ~~benefit and recorded expense of $1,435~~ for cash-settled awards, respectively. The ~~expense~~benefit and ~~benefit~~expense for cash-settled awards is included as “General and administrative expense” in the accompanying condensed consolidated statements of operations. As the instruments are accounted for as liability awards, the income or expense recorded for the three and ~~nine~~six months ended ~~September~~June 30, 2020 and 2019 ~~and 2018 is almost entirely~~are attributable to the Company’s change in stock price from the previous reporting period. The liability for unexercised cash-settled share-based payment awards of ~~$3,325 and $3,719~~$7,127 and $3,282 at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, is reflected in “Accrued expenses” in the condensed consolidated balance sheets. At ~~September~~June 30, ~~2019,~~2020, the Company hahad 3,862 SEUs and ~~d 4,234~~200,000 ~~SEUs and 200,000~~ stock option equivalent units outstanding.

Long-Term Incentive Plans

In connection with the acquisition of Circulation during 2018, the Company established a management incentive plan (“MIP”) intended to motivate key employees of Circulation. During the three months ended March 31, 2019, the MIP was amended to remove the previously included performance requirements and to provide for a total fixed payment of $12,000 to the group of MIP participants. During the year ended December 31, 2019, the MIP was further amended to a total fixed payment of $2,720. The payout date is within 30 days following the finalization of the Company’s audited financial statements for the fiscal year ending December 31, 2021 and ~~the payout~~ is subject to the participant remaining employed by the Company through December 31, 2021, except for certain termination scenarios. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company has accrued ~~$3,769 an~~$1,595 and ~~$1,441,~~$1,108, respectively, related to the MIP, ~~and~~which is reflected in “Other long-term liabilities” in the condensed consolidated balance sheets.

Preferred Stock Conversion

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

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


	Dollar Value		Share Count
Balance at January 1, 2020	$	77,120	798,788
Conversion to common stock	(572)		(5,666)
Conversion to common stock pursuant to Conversion Agreement	(37,256)		(369,120)
Preferred stock redemption pursuant to Conversion Agreement	(37,256)		(369,120)
Reduction of unamortized issuance cost	3,263		—
Balance at June 30, 2020	$	5,299	54,882

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

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

11. Earnings (Loss) Per Share

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


		Three months ended September 30,						Nine months ended September 30,							Three months ended June 30,				Six months ended June 30,
		2019		2018		2019		2018			2020		2019		2020		2019
Numerator:	Numerator:									Numerator:
Net income attributable to Providence		$	8,154	$	7,154	$	7,024	$	1,371
Less dividends on convertible preferred stock		(1,109)		(1,113)		(3,295)		(3,310)
Less income allocated to participating securities		(941)		(817)		(499)		—
Net income (loss) available to common stockholders		$	6,104	$	5,224	$	3,230	$	(1,939)
Net income (loss)										Net income (loss)	$	36,998	$	(1,712)	$	53,096	$	(1,129)
Dividends on convertible preferred stock outstanding										Dividends on convertible preferred stock outstanding	(76)		(1,098)		(1,171)		(2,185)
Dividends paid pursuant to the Conversion Agreement										Dividends paid pursuant to the Conversion Agreement	(790)		—		(790)		—
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	(48,951)		—		(48,951)		—
Income allocated to participating securities										Income allocated to participating securities	—		—		(264)		—
Net (loss) income available to common stockholders										Net (loss) income available to common stockholders	$	(12,819)	$	(2,810)	$	1,920	$	(3,314)

Continuing operations	Continuing operations	$	6,473	$	7,787	$	2,762	$	16,087	Continuing operations	$	(12,518)	$	(4,507)	$	2,423	$	(4,280)
Discontinued operations	Discontinued operations	(369)		(2,563)		468		(18,026)		Discontinued operations	(301)		1,697		(503)		966
Net income (loss) available to common stockholders		$	6,104	$	5,224	$	3,230	$	(1,939)
Net (loss) income available to common stockholders										Net (loss) income available to common stockholders	$	(12,819)	$	(2,810)	$	1,920	$	(3,314)

Denominator:	Denominator:									Denominator:
Denominator for basic earnings per share -- weighted-average shares	Denominator for basic earnings per share -- weighted-average shares	12,993,934		12,865,777		12,956,222		12,992,403		Denominator for basic earnings per share -- weighted-average shares	13,077,596		12,973,496		13,032,931		12,937,054
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Common stock options	Common stock options	10,515		61,345		21,376		76,737		Common stock options	—		—		10,347		—

Restricted stock										Restricted stock	—		—		16,421		—
Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion	Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion	13,004,449		12,927,122		12,977,598		13,069,140		Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion	13,077,596		12,973,496		13,059,699		12,937,054

Basic earnings (loss) per share:
Basic (loss) earnings per share:										Basic (loss) earnings per share:
Continuing operations	Continuing operations	$	0.50	$	0.61	$	0.21	$	1.24	Continuing operations	$	(0.96)	$	(0.35)	$	0.19	$	(0.33)
Discontinued operations	Discontinued operations	(0.03)		(0.20)		0.04		(1.39)		Discontinued operations	(0.02)		0.13		(0.04)		0.07
Basic earnings (loss) per share		$	0.47	$	0.41	$	0.25	$	(0.15)
Diluted earnings (loss) per share:
Basic (loss) earnings per share										Basic (loss) earnings per share	$	(0.98)	$	(0.22)	$	0.15	$	(0.26)
Diluted (loss) earnings per share:										Diluted (loss) earnings per share:
Continuing operations	Continuing operations	$	0.50	$	0.60	$	0.21	$	1.23	Continuing operations	$	(0.96)	$	(0.35)	$	0.19	$	(0.33)
Discontinued operations	Discontinued operations	(0.03)		(0.20)		0.04		(1.38)		Discontinued operations	(0.02)		0.13		(0.04)		0.07
Diluted earnings (loss) per share		$	0.47	$	0.40	$	0.25	$	(0.15)
Diluted (loss) earnings per share										Diluted (loss) earnings per share	$	(0.98)	$	(0.22)	$	0.15	$	(0.26)

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

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

The following weighted-average 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,				Three months ended June 30,			Six months ended June 30,
		2019	2018		2020	2019	2020	2019
Stock options to purchase common stock	Stock options to purchase common stock	420,846	358,310	Stock options to purchase common stock	597,842	560,849	604,394	587,282
Convertible preferred stock	Convertible preferred stock	799,969	801,935	Convertible preferred stock	633,454	801,391	715,657	801,498

Nine months ended
September 30,
2019 2018
Stock options to purchase common stock 499,611 333,030
Convertible preferred stock 800,983 802,762

12. Income Taxes

The Company’s effective tax rate ~~from~~for continuing operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~37.3%~~28.0% and ~~37.8%~~9.2%, respectively. The effective tax rate ~~from~~for continuing operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~27.4%~~29.0% and ~~26.1%~~35.6%, respectively. ~~These~~For the six months ended June 30, 2020, the effective tax ~~rates were higher~~rate was substantially 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. NOLs. For the six months ended June 30, 2019, the effective tax rate was higher than the U.S. federal statutory rate of 21.0% primarily due to state income ta~~xes~~taxes and ~~certain non-deductible expenses offset, in part, by~~ the favorable impact of stock option deductions. ~~For 2018, the impact of these items was partially offset by no income tax provision being recorded on the gain on remeasurement of cost method investment of $6,577.~~

During 2019, the Company received refunds from the Internal Revenue Service (“IRS”) totaling $30,756 resulting from the ~~carryback of losses from~~loss on the 2018 ~~sale of its~~ workforce development ~~segment. The IRS subsequently informed~~segment sale. As a result of the ~~Company that its 2015-2018 tax returns will be examined. This examination began~~size of the refunds received, in October 2019, ~~and will include~~the IRS commenced a ~~mandated~~mandatory review by a joint committee of ~~Congress due~~Congress. The review is still ongoing.

The 2017 Tax Reform Act reduced the U.S. corporate income tax rate from 35% to 21% and provided that U.S. NOLs incurred after 2017 could only be carried forward to offset future taxable income. Pursuant to the ~~size~~CARES Act, which was enacted on March 27, 2020, the Company carried its 2018 NOLs back five years. As a result, during the six months ended June 30, 2020, the Company recorded a $27,692 receivable for the 2018 U.S. NOL carryback, and an $10,984 tax benefit from the favorable carryback tax rate of 35% compared to a carryforward tax rate of 21%. The Company also recorded an additional income tax payable of $3,753 for 2019 as a result of the ~~refund received.~~2018 NOL being carried back instead of carried forward.

As discussed in Note ~~15,~~16, Discontinued Operations, the Company transferred its operations in Saudi Arabia to its contractual counterparties on January 1, 2019. In connection with the dissolution of its Saudi Arabia legal entity, the Company is protesting withholding tax and income tax assessments for the years 2012 through 2017. The Company does not believe ~~this~~the ultimate determination of the assessments will have a material adverse effect on its financial condition or results of discontinued operations.

13. Commitments and Contingencies

~~Debt~~

On July 12, 2019, the Company and certain of its subsidiaries entered into the Sixth Amendment to the Amended and Restated Credit and Guaranty Agreement (the “Amendment”), amending the Amended and Restated Credit and Guaranty Agreement dated as of August 2, 2013 (as amended to date, the “Credit Agreement”), by and among the Company, the guarantors from time to time party thereto, the lenders from time to time party thereto and Bank of America, N.A. as administrative agent. The Amendment extended the maturity date of the Credit Agreement to August 2, 2020. ~~As of September 30, 2019, the Company had 0 amounts outstanding under the Credit Agreement.~~

Legal proceedings

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

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 ~~was~~were employed by LogistiCare. Prior to January 21, 2019, LogistiCare had no knowledge of the complaint. The federal government has declined to intervene against LogistiCare. The Company filed a motion to dismiss the Complaint on April 22, 2019, and believes that the case will not have a material adverse effect on its business, financial condition or results of operations.

On March 1, 2019, Meher Patel filed suit against the Company in the Superior Court of the State of California, Tuolumne County, on behalf of herself and as a class action on behalf of others similarly situated, asserting violations under the California Labor Code relating to the alleged failure by LogistiCare to comply with certain applicable state wage and related employment requirements, as well as claims of breach of contract and breach of the implied covenant of good faith and fair dealing. ~~The plaintiff seeks to recover an unspecified amount of damages and penalties, as well as certification as~~This matter has been resolved in a class action. On September 6, 2019, Ms. Patel amended her complaint to add Provado Mobile Health, a Company subsidiary, as a party to the suit. No amounts have been accrued for any potential losses under this matter, as management cannot reasonably predict the outcome of the litigation or any potential losses. The Company and its subsidiary intend to defend the litigation vigorously. Although the outcome of such matter is inherently uncertain and may be materially adverse, based on current information, the Companymanner that does not ~~expect~~materially impact the ~~case to have a material adverse effect on the Company’s business, financial condition or results of operations.~~Company.

In Lynch v. Ride Plus et al.al., a putative class action lawsuit ~~pending~~filed in the Superior Court for the County of San Diego, California, a former Ride Plus driver ~~has~~(trade name for Provado Mobile Health, a Company subsidiary) sought to represent all Ride Plus drivers in California on claims identical to the Patel action. This matter has been resolved in a manner that ~~they were misclassified~~does not materially impact the Company.

On April 1, 2019, a purported class action was filed against LogistiCare in Texas alleging that the Company’s policy with respect to timekeeping for hourly employees constituted violations of the federal Fair Labor Standards Act (“FLSA”), as ~~independent contractors~~well as wage and ~~that, among other things, they were not paid minimum wages, overtime wages, meal period premiums~~hour laws in South Carolina and ~~rest period premiums.~~Texas. Plaintiffs filed a motion for conditional certification on a nationwide basis, which LogistiCare contested. The court granted the conditional certification motion on January 22, 2020. The Company ~~has not yet been served with~~filed an appeal of the ~~complaint but intends~~conditional certification order and plans to vigorously ~~defend~~contest the ~~claims.~~allegations on the merits as the plaintiffs have mischaracterized the method by which employees clock in to work. At this early stage in the litigation, it is impossible to predict with any certainty whether ~~plaintiff will succeed in getting the court to certify a class, whether she and the class~~plaintiffs will prevail on their claims, or what they might recover.

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

Indemnifications

The Company provided certain standard indemnifications in connection with the sale of the Human Services segment to Molina Healthcare Inc. (“Molina”) effective November 1, 2015. Certain representations made by the Company in the related Membership Interest Purchase Agreement (the “Purchase Agreement”) including tax representations, survive until the expiration of applicable statutes of limitation. Molina and the Company entered into a settlement agreement regarding indemnification claims by Molina with respect to Rodriguez v. Providence Community Corrections (the “Rodriguez Litigation”), a complaint filed in the District Court for the Middle District of Tennessee, Nashville Division, against Providence Community Corrections, Inc. (“PCC”), an entity sold under the Purchase Agreement. ~~The~~In 2019, the Company ~~expects to recover~~recovered a portion of the settlement through insurance ~~coverage, although this cannot be assured.~~coverage.

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

The Company has provided certain standard indemnifications in connection with the sale of substantially all of its WD Services segment to Advanced Personnel Management Global Pty Ltd of Australia (“APM”), which closed on December 21, 2018. The non-title warranties made by the Company in the related Share Purchase Agreement survive for 18 months following the closing date, and the title-related warranties and tax warranties survive five years from the closing ~~date.~~date (i.e., December 21, 2023). The Company is not aware of any indemnification liabilities with respect to the former WD Services segment that require accrual at ~~September~~June 30, ~~2019.~~2020.

On May 9, 2018, the Company entered into a registration indemnification agreement with Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Blackwell Partners, LLC - Series A and Coliseum Capital Co-Invest, L.P. (collectively, the “Coliseum Stockholders”), who as of ~~September~~June 30, ~~2019~~2020 collectively held ~~approximatel~~y ~~9.5%~~approximately 12.9% of the Company’s outstanding common stock and ~~approximately 95.7%~~approximately 50.4% of the Company’s outstanding Preferred Stock, pursuant to which the Company has agreed to indemnify the Coliseum Stockholders, and the Coliseum Stockholders have agreed to indemnify the

Company, against certain matters relating to the registration of the selling stockholders’ securities for resale under the Securities Act of 1933, as amended (the “Securities Act”).

14. Transactions with Related Parties

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

Convertible preferred stock dividends earned by the Coliseum Stockholders during the ~~three~~six months ended ~~September~~June 30, 2020 and 2019 totaled $1,878 and ~~2018 totaled~~ ~~$1,062 in both periods. Convertible preferred stock~~$2,089, respectively, including accrued dividends ~~earned by~~paid pursuant to the ~~Coliseum Stockholders during the nine months ended September 30, 2019 and 2018 totaled $3,151 in~~ ~~both periods.~~Conversion Agreement.

15. Acquisitions

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

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

The consideration paid for the acquisition is as follows:


	Value
Consideration paid	$	80,000
Transaction 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:


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

16. Discontinued Operations

On December 21, 2018, the Company completed the sale of substantially all of the operating subsidiaries of its WD Services segment to APM and APM UK Holdings Limited, an affiliate of APM, except for the segment’s employment services operations in Saudi Arabia. The Company’s contractual counterparties in Saudi Arabia, including an entity owned by the Saudi Arabian government, assumed these operations beginning January 1, 2019. The Company is winding down its Saudi Arabian entity.

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

On November 1, 2015, the Company completed the sale of its Human Services segment. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the Company recorded additional expenses related to the Human Services segment, principally related to previously disclosed legal ~~proceedings.~~proceedings and professional fees.

Results of Operations

The following tables summarize the results of operations classified as discontinued operations ~~net of tax,~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

Three Months Ended September 30, 2019
Human Services
Segment WD Services
Segment Total Discontinued
Operations
Operating expenses:
General and administrative (income) expense $ (12) $ 480 $ 468
Total operating (income) expense (12) 480 468
Operating income (loss) 12 (480) (468)
Income (loss) from discontinued operations before income taxes 12 (480) (468)
(Provision) benefit for income taxes (3) 45 42
Income (loss) from discontinued operations, net of tax $ 9 $ (435) $ (426)


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


Operating expenses:

General and administrative expense	$	211	$	164	$	375


Total operating expense	211		164		375
Operating loss	(211)		(164)		(375)





Loss from discontinued operations before income taxes	(211)		(164)		(375)

Benefit for income taxes	33		41		74
Loss from discontinued operations, net of tax	$	(178)	$	(123)	$	(301)

Nine Months Ended September 30, 2019
Human Services
Segment WD Services
Segment Total Discontinued
Operations
Operating expenses:
General and administrative expense (income) $ 205 $ (1,617) $ (1,412)
Total operating expense (income) 205 (1,617) (1,412)
Operating (loss) income (205) 1,617 1,412
(Loss) income from discontinued operations before income taxes (205) 1,617 1,412
Benefit (provision) for income taxes 50 (922) (872)
(Loss) income from discontinued operations, net of tax $ (155) $ 695 $ 540


	Six months ended June 30, 2020
	Human Services Segment		WD Services Segment		Total Discontinued Operations


Operating expenses:
General and administrative expense	$	334	$	310	$	644
Total operating expense	334		310		644
Operating loss	(334)		(310)		(644)

Loss from discontinued operations before income taxes	(334)		(310)		(644)
Benefit for income taxes	64		77		141
Loss from discontinued operations, net of tax	$	(270)	$	(233)	$	(503)

Three Months Ended September 30, 2018
   Human Services
Segment WD Services
Segment Total Discontinued
Operations
Service revenue, net $ — $ 77,548 $ 77,548
Operating expenses:
  Service expense — 70,911 70,911
  General and administrative expense (721) 6,344 5,623
  Depreciation and amortization — 2,861 2,861
Total operating (income) expenses (721) 80,116 79,395
Operating income (loss) 721 (2,568) (1,847)
Other income (expense):
  Other expense — (669) (669)
  Interest expense, net — (97) (97)
  Gain on foreign currency transactions — 178 178
  Equity in net gain of investee — 29 29
Income (loss) from discontinued operations before income taxes 721 (3,127) (2,406)
Provision for income taxes (179) (379) (558)
Income (loss) from discontinued operations, net of tax $ 542 $ (3,506) $ (2,964)

Nine Months Ended September 30, 2018
   Human Services
Segment WD Services
Segment Total Discontinued
Operations
Service revenue, net $ — $ 214,956 $ 214,956
Operating expenses:
  Service expense — 192,390 192,390
  General and administrative expense (645) 21,969 21,324
  Asset impairment charge — 9,203 9,203
  Depreciation and amortization — 9,210 9,210
Total operating (income) expenses (645) 232,772 232,127
Operating income (loss) 645 (17,816) (17,171)
Other income (expense):
  Other expense — (669) (669)
  Interest expense, net — (109) (109)
  Gain on foreign currency transactions — 807 807
  Equity in net gain of investee — 80 80
Income (loss) from discontinued operations before income taxes 645 (17,707) (17,062)
Provision for income taxes (160) (804) (964)
Income (loss) from discontinued operations, net of tax $ 485 $ (18,511) $ (18,026)


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


Operating expenses:

General and administrative expense (income)	$	72	$	(2,805)	$	(2,733)


Total operating expenses (income)	72		(2,805)		(2,733)
Operating (loss) income	(72)		2,805		2,733






(Loss) income from discontinued operations before income taxes	(72)		2,805		2,733

Benefit (provision) for income taxes	17		(1,053)		(1,036)
(Loss) income from discontinued operations, net of tax	$	(55)	$	1,752	$	1,697


	Six months ended June 30, 2019
	Human Services Segment		WD Services Segment		Total Discontinued Operations
Operating expenses:
General and administrative expense (income)	$	217	$	(2,097)	$	(1,880)
Total operating expense (income)	217		(2,097)		(1,880)
Operating (loss) income	(217)		2,097		1,880

(Loss) income from discontinued operations before income taxes	(217)		2,097		1,880
Benefit (provision) for income taxes	53		(967)		(914)
(Loss) income from discontinued operations, net of tax	$	(164)	$	1,130	$	966

Assets and liabilities

The following table summarizes the carrying amounts of the major classes of assets and liabilities of discontinued operations in the condensed consolidated balance sheets as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. Amounts represent the accounts of WD Services operations in Saudi Arabia, which were not sold as part of the WD Services sale.


		September 30,		December 31,			June 30,		December 31,
		2019		2018			2020		2019
Cash and cash equivalents	Cash and cash equivalents	$	250	$	2,321	Cash and cash equivalents	$	89	$	155
Accounts receivable, net of allowance of $0 in 2019 and $3,460 in 2018		—		4,316

Prepaid expenses and other		72		414

Current assets of discontinued operations	Current assets of discontinued operations	$	322	$	7,051	Current assets of discontinued operations	$	89	$	155

Accounts payable	Accounts payable	$	22	$	486	Accounts payable	$	41	$	16
Accrued expenses	Accrued expenses	1,224		2,771		Accrued expenses	1,463		1,414

Current liabilities of discontinued operations	Current liabilities of discontinued operations	$	1,246	$	3,257	Current liabilities of discontinued operations	$	1,504	$	1,430

Deferred tax liabilities		$	639	$	—
Noncurrent liabilities of discontinued operations		$	639	$	—

Cash Flow Information

~~The following table presents~~There were $644 in cash flow ~~information of the discontinued operations~~payments related to operating expenses for WD Services and Human Services Segment for the ~~nine~~six months ended ~~September~~June 30, ~~2019 and 2018:~~

2020. There were $646 in payments related to income taxes for WD Services Segment for the six months ended June 30, 2019.

~~Nine Months Ended September 30, 2019~~

~~WD Services Segment~~

~~Cash flow information from discontinued operating activities:~~

~~Deferred income taxes~~

~~639~~

~~Nine Months Ended September 30, 2018~~

~~WD Services Segment~~

~~Cash flow information from discontinued operating activities:~~

~~Depreciation~~

~~5,300~~

~~Amortization~~

~~3,910~~

~~Stock-based compensation~~

~~Deferred income taxes~~

~~(1,256)~~

~~Cash flows from discontinued investing activities:~~

~~Purchase of property and equipment~~

~~4,611~~

~~16.~~17. Segments

Effective January 1, 2019, the Company substantially completed its Organizational Consolidation changing from a holding company that previously owned a portfolio of companies to an operating company structure that provides NET services and has an investment in Matrix. As a result, beginning January 1, 2019, the

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

•NET Services - which operates primarily under the brands LogistiCare and Circulation, is the largest manager of NET programs for state governments and MCOs in the U.S and includes the Company’s activities for executive, accounting, finance, internal audit, tax, legal, certain strategic and development functions and the ~~Company’s~~Company's now dissolved captive insurance company.

•Matrix Investment - which consists of a minority investment in Matrix, provides a broad array of assessment and care management services that improve health outcomes for individuals and financial performance for health plans. Matrix’s national network of community-based clinicians ~~deliver~~delivers in-home and on-site services while its fleet of mobile health clinics ~~provide~~provides community-based care with advance diagnostic capabilities.

~~We have reclassified prior period segment amounts to conform to the current presentation, which are summarized as follows:~~

Three Months Ended September 30, 2018

As Previously Reported⁽¹⁾
Segment Reclassification Other Reclassification (Note 1) As Reported
General and administrative^:
  NET Services $ 3,904 $ 5,955 $ 7,186 $ 17,045
  Corporate and Other 5,955 (5,955) — —
Depreciation and amortization:
  NET Services 3,543 237 — 3,780
  Corporate and Other 237 (237) — —
Operating income (loss)^:
  NET Services 15,627 (6,192) — 9,435
  Corporate and Other (6,192) 6,192 — —

⁽¹⁾ ~~Adjusted for discontinued operations, as described in Note 15.~~

Nine Months Ended September 30, 2018

As Previously Reported ⁽¹⁾
Segment Reclassification Other Reclassification (Note 1) As Reported
General and administrative:
  NET Services $ 9,121 $ 22,802 $ 21,158 $ 53,081
  Corporate and Other 22,802 (22,802) — —
Service expense
  Net Services 955,796 (271) (21,158) 934,367
  Corporate and Other (271) 271 — —
Depreciation and amortization:
  NET Services 10,548 559 — 11,107
  Corporate and Other 559 (559) — —
Operating income (loss):
  NET Services 48,060 (23,090) — 24,970
  Corporate and Other (23,090) 23,090 — —

The following tables set forth certain financial information from continuing operations attributable to the Company’s business segments:


	Three months ended June 30, 2020
	NET Services		Matrix Investment		Total
Service revenue, net	$	282,256	$	—	$	282,256
Service expense	196,106		—		196,106
General and administrative expense	31,199		—		31,199

Depreciation and amortization	6,108		—		6,108

Operating income	$	48,843	$	—	$	48,843

Equity in net gain of investee	$	—	$	4,425	$	4,425
Investment in equity method investee	$	—	$	131,974	$	131,974
Total assets (continuing operations)	$	522,271	$	131,974	$	654,245


	Six months ended June 30, 2020
	NET Services		Matrix Investment		Total
Service revenue, net	$	649,547	$	—	$	649,547
Service expense	528,767		—		528,767
General and administrative expense	51,994		—		51,994

Depreciation and amortization	9,898		—		9,898

Operating income	$	58,888	$	—	$	58,888

Equity in net gain of investee	$	—	$	1,875	$	1,875
Investment in equity method investee	$	—	$	131,974	$	131,974
Total assets (continuing operations)	$	522,271	$	131,974	$	654,245

Three months ended September 30, 2019
NET Services Matrix
Investment Total
Service revenue, net $ 393,385 $ — $ 393,385
Service expense 356,271 — 356,271
General and administrative expense 15,979 — 15,979
Depreciation and amortization 4,148 — 4,148
Operating income $ 16,987 $ — $ 16,987
Equity in net loss of investee $ — $ (3,188) $ (3,188)
September 30, 2019
Total assets (continuing operations) $ 465,688 $ 154,532 $ 620,220

Nine Months Ended September 30, 2019
NET Services Matrix
Investment Total
Service revenue, net $ 1,125,111 $ — $ 1,125,111
Service expense 1,042,717 — 1,042,717
General and administrative expense 52,241 — 52,241
Asset impairment charge — — —
Depreciation and amortization 12,976 — 12,976
Operating income $ 17,177 $ — $ 17,177
Equity in net loss of investee $ — $ (6,159) $ (6,159)


	Three months ended June 30, 2019
	NET Services		Matrix Investment		Total
Service revenue, net	$	363,911	$	—	$	363,911
Service expense	345,948		—		345,948
General and administrative expense	16,860		—		16,860

Depreciation and amortization	4,353		—		4,353
Operating loss	$	(3,250)	$	—	$	(3,250)

Equity in net loss of investee	$	—	$	(1,315)	$	(1,315)
Investment in equity method investee	$	—	$	157,948	$	157,948
Total assets (continuing operations)	$	443,703	$	157,948	$	601,651

Three months ended September 30, 2018
NET Services Matrix
Investment Total
Service revenue, net $ 343,771 $ — $ 343,771
Service expense 313,511 — 313,511
General and administrative expense 17,045 — 17,045
Asset impairment charge — — —
Depreciation and amortization 3,780 — 3,780
Operating income $ 9,435 $ — $ 9,435
Equity in net loss of investee $ — $ (1,587) $ (1,587)


	Six months ended June 30, 2019
	NET Services		Matrix Investment		Total
Service revenue, net	$	731,726	$	—	$	731,726
Service expense	686,446		—		686,446
General and administrative expense	36,262		—		36,262

Depreciation and amortization	8,827		—		8,827
Operating income	$	191	$	—	$	191

Equity in net loss of investee	$	—	$	(2,971)	$	(2,971)
Investment in equity method investee	$	—	$	157,948	$	157,948
Total assets (continuing operations)	$	443,703	$	157,948	$	601,651

2726

Nine Months Ended September 30, 2018
NET Services Matrix
Investment Total
Service revenue, net $ 1,024,203 $ — $ 1,024,203
Service expense 934,367 — 934,367
General and administrative expense 53,081 — 53,081
Asset impairment charge 678 — 678
Depreciation and amortization 11,107 — 11,107
Operating income $ 24,970 $ — $ 24,970
Equity in net loss of investee $ — $ (4,106) $ (4,106)

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

The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, as well as our consolidated financial statements and accompanying notes and management’s discussion and analysis of financial condition and results of operations included in our Form 10-K for the year ended December 31, ~~2018.~~2019. For purposes of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to Q3Q2 2020 and Q2 2019 ~~and Q3 2018~~ mean the three months ended ~~September~~June 30, ~~2019~~2020 and the three months ended ~~September~~June 30, ~~2018,~~2019, respectively, and references to YTD ~~2019~~2020 and YTD ~~2018~~2019 mean the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively.

Overview of Our Business

~~We own~~The Providence Service Corporation ("Providence") is a ~~subsidiary~~Delaware corporation that was formed in 1996 and ~~an investment primarily engaged in the provision of healthcare services in the United States. The Company’s NET Services segment, whichprimarily operates under the brands LogistiCare and Circulation,~~ is the largest manager of non-emergency medical transportation (“NET”) programs for state governments and managed care organizations (“MCOs”) in the United States (“U.S.”). primarily through its brands LogistiCare and Circulation. In addition, ~~the~~our NET Services segment includes the Company’s activities related to executive, accounting, finance, internal audit, tax, legal, certain strategic and corporate development functions and the ~~results of the Company’s~~Company's now dissolved captive insurance company. ~~During 2018, the Company announced an Organizational Consolidation plan (~~“~~Organizational Consolidation~~”) to integrate substantially all activities and functions performed at the corporate holding company level into its wholly-owned subsidiary, LogistiCare Solutions LLC ("LogistiCare"). Effective January 1, 2019, the consolidation was substantially complete. LogistiCare will retain its name and continue to be headquarteredOur headquarters is in Atlanta, GA and ~~the Company will continue to be named The Providence Service Corporation and be~~we are listed on NASDAQ under the ticker symbol ~~“PRSC”~~"PRSC". ~~See Note 8,~~ ~~Restructuring and Related Reorganization Costs,~~ ~~and Note 16, Segments,~~ ~~in our condensed consolidated financial statementsfor further information on the Organizational Consolidation.~~

~~Our Matrix Investment segment consists of~~Providence also owns a minority investment in CCHN Group Holdings, Inc. and its subsidiaries (“Matrix”). Matrix is a nationwide provider of a broad array of assessment and care management services that improve health outcomes for individuals and financial performance for health plans. Matrix’s national network of community-based clinicians ~~deliver~~delivers in-home and on-site services while its fleet of mobile health clinics ~~provide~~provides community-based care with ~~advance~~advanced diagnostic capabilities. These solutions combined with Matrix’s advanced engagement approach, ~~helps~~help health plans manage risks, close care gaps and connect members to care.

Business Outlook and Trends

Our performance is affected by a number of trends that drive the demand for our services. In particular, the markets in which we operate are exposed to various trends such as healthcare industry and demographic dynamics. Over the long term, we believe there are numerous factors that could affect growth within the industries in which we operate, including:

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

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

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

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

•MCOs that provide Medicare Advantage plans are increasingly offering non-emergency medical transportation services as a supplemental benefit in accordance with current social trends;

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

•enactment of adverse legislation, regulation or agency guidance, or litigation challenges to the Patient Protection and Affordable Care Act, state Medicaid programs, or other governmental programs may reduce the eligibility or demand for our services, our ability to conduct some or all of our business and/or reimbursement rates for services performed within our segments; ~~and~~

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

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

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

•an increase in trip volume once restrictions related to COVID-19 are modified or lifted.

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

Critical Accounting Estimates and Policies

~~As discussed in Note 2,~~ ~~Significant Accounting Policies and Recent Accounting Pronouncements, and Note 9,~~ ~~Leases~~,There have been no significant changes to our critical accounting policies in our condensed consolidated financial statements ~~as of January 1, 2019,~~from our Form 10-K for the ~~Company adopted a new standard on leases. Other than this standard, there have been no significant changes in our critical accounting policies to our condensed consolidated financial statements.~~year ended December 31, 2019. For further discussion of our critical accounting policies, see management’s discussion and analysis of financial condition and results of operations contained in our Form 10-K for the year ended December 31, ~~2018.~~

2019.

Results of Operations

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

We operate in one principal business segment, NET Services. Our investment in Matrix is also a reportable segment referred to as the “Matrix Investment”. Segment results are based on how our chief operating decision maker manages our business, makes operating decisions and evaluates operating performance. The operating results of our principal business segment include revenue and expenses incurred by the segment, as well as ~~effective January 1, 2019, the Company’s~~our activities ~~that include~~related to executive, accounting, finance, internal audit, tax, legal, certain strategic and corporate development functions and the results of ~~the Company’s~~our captive insurance ~~company.~~company through the date of dissolution. See Note ~~16,~~17, Segments, in our condensed consolidated financial statements for further information on our ~~change in~~ segments.

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

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

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

•On November 1, 2015, the Company completed the sale of its Human Services segment. In addition to the results through the sale date, the Company has recorded additional expenses related to legal proceedings associated with an indemnified legal matter.

3028

~~Q3 2019~~

Q2 2020 compared to ~~Q3 2018~~Q2 2019

Consolidated Results. The following table sets forth results of operations and the percentage of ~~consolidated total revenues~~Service revenue, net represented by items in our condensed consolidated statements of operations for Q3Q2 2020 and Q2 2019 ~~and Q3 2018~~ (in thousands):

Three months ended September 30,
2019 2018
$ Percentage
of Revenue $ Percentage
of Revenue
Service revenue, net 393,385 100.0 % 343,771 100.0 %
Operating expenses:
Service expense 356,271 90.6 % 313,511 91.2 %
General and administrative expense 15,979 4.1 % 17,045 5.0 %
Depreciation and amortization 4,148 1.1 % 3,780 1.1 %
Total operating expenses 376,398 95.7 % 334,336 97.3 %
Operating income 16,987 4.3 % 9,435 2.7 %
Other expenses (income):
Interest expense, net 188 — % 250 0.1 %
Other income (66) — % — — %
Equity in net loss of investee 3,188 0.8 % 1,587 0.5 %
Gain on remeasurement of cost method investment — — % (6,577) -1.9 %
Income from continuing operations before income taxes 13,677 3.5 % 14,175 4.1 %
Provision for income taxes 5,097 1.3 % 3,880 1.1 %
Income from continuing operations, net of tax 8,580 2.2 % 10,295 3.0 %
Loss from discontinued operations, net of tax (426) (0.1) % (2,964) (0.9) %
Net income 8,154 2.1 % 7,331 2.1 %
Net income from discontinued operations attributable to non-controlling interest — — % (177) (0.1) %
Net income attributable to Providence 8,154 2.1 % 7,154 2.1 %


	Three months ended June 30,
	2020				2019
	$	Percentage of Revenue		$	Percentage of Revenue
Service revenue, net	282,256	100.0	%	363,911	100.0	%

Operating expenses:
Service expense	196,106	69.5	%	345,948	95.1	%
General and administrative expense	31,199	11.1	%	16,860	4.6	%
Depreciation and amortization	6,108	2.2	%	4,353	1.2	%

Total operating expenses	233,413	82.7	%	367,161	100.9	%

Operating income (loss)	48,843	17.3	%	(3,250)	(0.9)	%

Other expenses (income):
Interest expense, net	1,498	0.5	%	301	0.1	%
Other income	—	—	%	(66)	—	%
Equity in net (gain) loss of investee	(4,425)	-1.6	%	1,315	0.4	%



Income (loss) from continuing operations before income taxes	51,770	18.3	%	(4,800)	(1.3)	%
Provision (benefit) for income taxes	14,471	5.1	%	(1,391)	(0.4)	%
Income (loss) from continuing operations, net of tax	37,299	13.2	%	(3,409)	(0.9)	%
(Loss) income from discontinued operations, net of tax	(301)	(0.1)	%	1,697	0.5	%
Net income (loss)	36,998	13.1	%	(1,712)	(0.5)	%

Service revenue, ~~net.~~net. Service revenue, net for ~~NET Services for Q3 2019 increased $49.6~~Q2 2020 decreased $81.7 million, or ~~14.4%~~22.4%, compared to ~~Q3 2018. The increase in Q3 2019 was~~Q2 2019. Service revenue decreased primarily due to lower volume related to secured rate adjustments which included retroactive revenue benefits, a new state contract in West Virginia and new MCO contracts in Minnesota and Louisiana, and higher utilization across multiple not at-riskcertain profit corridor and reconciliation ~~contracts. These increases were partially offset by the impact~~contracts as a result of COVID-19 and other factors, as well as $12.6 million for contracts we no longer serve, including MCO contracts in Minnesota, California, Louisiana and New York. These decreases were partially offset by $8.4 million of revenue as a ~~state contract in Rhode Island and an MCO contract in California.~~result of the National MedTrans (“NMT”) acquisition.

Service expense, net. Service expense ~~for our NET Services segment included the following for Q3 2019 and Q3 2018~~components are shown below (in thousands):


		Three Months Ended September 30,											Three months ended June 30,
		2019				2018						2020			2019
		$	Percentage of Revenue		$	Percentage of Revenue			$	Percentage of Revenue		$	Percentage of Revenue
Purchased services	Purchased services	303,840	77.2	%	262,669	76.4	%	Purchased services	151,504	53.7	%	297,360	81.7	%
Payroll and related costs	Payroll and related costs	40,531	10.3	%	39,033	11.4	%	Payroll and related costs	33,459	11.9	%	37,437	10.3	%
Other operating expenses	Other operating expenses	11,900	3.0	%	11,809	3.4	%	Other operating expenses	11,088	3.9	%	11,086	3.0	%

Stock-based compensation								Stock-based compensation	55	—	%	65	—	%
Total service expense	Total service expense	356,271	90.6	%	313,511	91.2	%	Total service expense	196,106	69.5	%	345,948	95.1	%

Service expense for Q2 2020 decreased $149.8 million, or 43.3%, compared to Q2 2019 primarily due to lower purchased transportation costs and associated payroll costs in our contact centers. Transportation and payroll costs decreased as a result of lower utilization across multiple contracts due to the COVID-19 pandemic and efficiency initiatives.

3129

~~Service expense for Q3 2019 increased $42.8 million, or 13.6%, compared to Q3 2018~~ ~~due primarily to higher purchased transportation costs. Transportation costs increased as a result of both higher utilization across multiple contracts and higher per unit cost.~~

General and administrative expense. General and administrative expense for ~~Q3 2019 decreased $1.1~~Q2 2020 increased $14.3 million, or ~~6.3%~~85.0%, compared to ~~Q3 2018.~~Q2 2019. The ~~decrease~~increase was primarily ~~due~~a result of $6.3 million related to ~~retention~~cash-settled equity awards, $3.8 million related to our NMT transition services agreement, employee-related compensation including salaries, incentives and health insurance, software and hardware expense and stock-based compensation. These increases were partially offset by employee-related compensation associated with the Organizational Consolidation ~~recorded~~that was incurred in ~~Q3 2018 and cost savings generated as part of the Organizational Consolidation. These decreases were partially offset by an increase~~Q2 2019 that was not incurred in ~~cash settled stock-based compensation expense of $2.6 million, primarily as a result of an increase in the Company’s stock price during the comparative periods.~~Q2 2020.

Depreciation and amortization. Depreciation and amortization for ~~Q3 2019~~Q2 2020 increased ~~$0.4~~$1.8 million or 40.3% compared to ~~Q3 2018~~ Q2 2019 primarily ~~due to an increase in~~as a result of additional amortization of $2.1 million associated with intangible assets ~~associated with~~purchased in the ~~Circulation acquisition and fixed assets, partially offset by lower depreciation at NET services.~~NMT acquisition.

Interest expense, net. Consolidated interest expense, net, for Q3Q2 2020 and Q2 2019 ~~and Q3 2018~~ was ~~$0.2~~$1.5 million and $0.3 million, ~~respectively,~~respectively. The increase in Q2 2020 was primarily ~~as a result~~related to our proactive decision to borrow $162.0 million under our Credit Facility at the end of ~~credit facility administration costs.~~Q1 2020 to increase our financial flexibility due to COVID-19. As of June 30, 2020, we fully repaid our Credit Facility.

Equity in net (gain) loss of investee. Our equity in net ~~loss~~gain of investee for Q3Q2 2020 of $4.4 million and net loss of $1.3 million for Q2 2019 ~~of $3.2 million~~ was a result of our proportional share of the net ~~loss~~income (loss) of Matrix. ~~During Q3 2019, Matrix had~~Matrix's increase in Q2 2020 net income was related to the launch of a new Employee Health and Wellness product developed for companies maintaining critical operations during COVID-19. Included in Matrix's standalone ~~net loss~~Q2 2020 results were severance cost and transaction costs of ~~$6.9~~$1.5 million ~~which included $11.3 million~~and COVID-19 related costs of ~~depreciation and amortization, $6.2 million of interest expense, and $2.0 million of an income tax benefit.~~

~~For Q3 2018, our equity in net loss of investee of $1.6 million was a result of our proportional share of the net loss of Matrix.~~$4.9 million. Included in Matrix’s standalone ~~Q3 2018~~Q2 2019 results were ~~depreciation~~integration and ~~amortization~~transaction related costs of ~~$9.6 million, interest expense of $6.2 million, and an income tax benefit of $0.4~~$0.3 million.

Provision for income taxes. ~~The Company’s~~Our effective tax rate from continuing operations for Q3Q2 2020 and Q2 2019 was 28.0% and ~~Q3 2018 was 37.3% and 27.4%~~29.0%, respectively. ~~These~~ For Q2 2020 and Q2 2019, the effective tax ~~rates from continuing operations were~~rate was higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes, and certain non-deductible expenses offset, in part, by the favorable impact of stock option deductions, and no income tax provision in 2018 on the gain on remeasurement of cost method investment of $6.6 million.taxes.

Loss from discontinued operations, net of tax. Loss from discontinued operations, net of tax, includes the activity related to our former WD Services and Human Services segments. See Note ~~15,~~16, Discontinued Operations, to our condensed consolidated financial statements for additional information.

For ~~Q3 2019,~~Q2 2020, the loss from discontinued operations, net of tax, for our former WD Services segment was ~~$0.4~~$0.1 million, which includes the income and expense related to the wind-down of the WD Services entity in Saudi Arabia. The operations in Saudi Arabia, including personnel, leased facilities and certain assets necessary to provide the employment services, were transferred to a third party as of January 1, 2019, and thus we are no longer providing services in Saudi Arabia. For Q2 2020, the loss from discontinued operations, net of tax, for our former Human Services segment was $0.2 million primarily related to accounting, professional, and legal fees.

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

YTD 2020 compared to YTD 2019

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


	Six months ended June 30,
	2020				2019
	$	Percentage of Revenue		$	Percentage of Revenue
Service revenue, net	649,547	100.0	%	731,726	100.0	%

Operating expenses:
Service expense	528,767	81.4	%	686,446	93.8	%
General and administrative expense	51,994	8.0	%	36,262	5.0	%
Depreciation and amortization	9,898	1.5	%	8,827	1.2	%
Total operating expenses	590,659	90.9	%	731,535	100.0	%

Operating income	58,888	9.1	%	191	—	%

Other expenses (income):
Interest expense, net	1,739	0.3	%	604	0.1	%
Other income	—	—	%	(132)	—	%
Equity in net (gain) loss of investees	(1,875)	-0.3	%	2,971	0.4	%



Income (loss) from continuing operations before income taxes	59,024	9.1	%	(3,252)	(0.4)	%
Provision (benefit) for income taxes	5,425	0.8	%	(1,157)	(0.2)	%
Income (loss) from continuing operations, net of tax	53,599	8.3	%	(2,095)	(0.3)	%
(Loss) income from discontinued operations, net of tax	(503)	(0.1)	%	966	0.1	%


Net income (loss)	53,096	8.2	%	(1,129)	(0.2)	%

Service revenue, net. Consolidated service revenue, net for YTD 2020 decreased $82.2 million, or 11.2%, compared to YTD 2019. Service revenue decreased primarily due to lower volume related to certain profit corridor and reconciliation contracts as a result of COVID-19 in addition to $31.4 million for contracts we no longer serve, including MCO contracts in California, Louisiana, New York and Minnesota. These decreases were partially offset by $8.4 million of revenue as a result of the NMT acquisition.

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


	Six months ended June 30,
	2020				2019
	$	Percentage of Revenue		$	Percentage of Revenue
Purchased services	431,182	66.4	%	585,986	80.1	%
Payroll and related costs	74,579	11.5	%	78,569	10.7	%
Other operating expenses	22,887	3.5	%	21,763	3.0	%
Stock-based compensation	119	—	%	128	—	%
Total service expense	528,767	81.4	%	686,446	93.8	%

Service expense for YTD 2020 decreased $157.7 million, or 23.0%, compared to YTD 2019 as a result of lower purchased transportation costs and associated payroll costs in our contact centers. Transportation costs decreased as a result of lower utilization across multiple contracts due to the COVID-19 pandemic as well as efficiency initiatives. Other operating

expenses increased by $1.1 million primarily as a result of higher bad debt expense, auto insurance and legal fees, partially offset by lower contact center recruiting costs and travel expense.

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

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

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

Equity in net (gain) loss of investee. Our equity in net gain of investee for YTD 2020 of $1.9 million and net loss of $3.0 million for YTD 2019 was a result of our proportional share of the net income/loss in Matrix. Matrix's increase in YTD 2020 net income was related to the launch of a new Employee Health and Wellness product developed for companies maintaining critical operations during COVID-19. Included in Matrix's standalone YTD 2020 results were severance costs and transaction costs of $2.7 million and COVID-19 related costs of $5.1 million. Included in Matrix’s standalone YTD 2019 results were integration and transaction related costs of $1.8 million.

Provision for income taxes. Our effective tax rate from continuing operations for YTD 2020 and YTD 2019 was 9.2% and 35.6%, respectively. For YTD 2020, the effective tax rate was substantially lower than the U.S. federal statutory rate of 21.0% primarily due to the favorable impact of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) on our U.S. net operating losses. For YTD 2019, the effective tax rate was higher than the U.S. federal statutory rate of 21.0% primarily due to state income taxes and certain non-deductible expenses offset, in part, by the favorable impact of stock option deductions.

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

For YTD 2020, the loss from discontinued operations, net of tax, for our former WD Services segment was $0.2 million, which includes the income and expense related to the wind-down of the WD Services entity in Saudi Arabia. The operations in Saudi Arabia, including personnel, leased facilities and certain assets necessary to provide the employment services, were transferred to a third party as of January 1, 2019, and thus we are no longer providing services in Saudi Arabia. For YTD 2020, the loss from discontinued operations, net of tax, for our former Human Services segment was $0.3 million.

For YTD 2020, the income from discontinued operations, net of tax, for our former WD Services segment was $1.1 million. The income includes administrative costs related to the wind-down of the WD Services entity in Saudi Arabia. The operations in Saudi Arabia, including personnel, leased facilities and certain assets necessary to provide the employment services, were transferred to a third party as of January 1, 2019, and thus the Company is no longer providing services in Saudi Arabia. For ~~Q3 2019,~~YTD 2020, the loss from discontinued operations, net of tax, for our former Human Services segment was ~~nil.~~

For Q3 2018, the loss on discontinued operations, net of tax, primarily for our former WD Services segment was $3.5 million, which was offset by income, net of tax, for our former Human Services segment of $0.5 million.

~~Net loss attributable to non-controlling interests.~~ For Q3 2018, net loss from discontinued operations attributable to non-controlling interests primarily related to a minority interest held by a third-party operating partner in our company servicing the offender rehabilitation contract within our historical WD Services segment.

~~YTD 2019 compared to YTD 2018~~

The following table sets forth results of operations and the percentage of consolidated total revenues represented by items in our condensed consolidated statements of operations for YTD 2019 and YTD 2018 (in thousands):

Nine months ended September 30,
2019 2018
$ Percentage of Revenue $ Percentage of Revenue
Service revenue, net 1,125,111 100.0 % 1,024,203 100.0 %
Operating expenses:
Service expense 1,042,717 92.7 % 934,367 91.2 %
General and administrative expense 52,241 4.6 % 53,081 5.2 %
Asset impairment charge — — % 678 0.1 %
Depreciation and amortization 12,976 1.2 % 11,107 1.1 %
Total operating expenses 1,107,934 98.5 % 999,233 97.6 %
Operating income 17,177 1.5 % 24,970 2.4 %
Other expenses (income):
Interest expense, net 793 0.1 % 808 0.1 %
Other income (199) — % — — %
Equity in net loss of investee 6,159 0.5 % 4,106 0.4 %
Gain on remeasurement of cost method investment — — % (6,577) (0.6) %
Income from continuing operations before income taxes 10,424 0.9 % 26,633 2.6 %
Provision for income taxes 3,940 0.4 % 6,951 0.7 %
Income from continuing operations, net of tax 6,484 0.6 % 19,682 1.9 %
Income (loss) from discontinued operations, net of tax 540 — % (18,026) (1.8) %
Net income 7,024 0.6 % 1,656 0.2 %
Net loss attributable to noncontrolling interest — — % (285) — %
Net income attributable to Providence 7,024 0.6 % 1,371 0.1 %

~~Service revenue, net.~~ ~~Consolidated service revenue, net for YTD 2019 increased $100.9 million, or 9.9%, compared to YTD 2018.~~ ~~The increase in YTD 2019~~ was primarily related to secured rate adjustments which included retroactive revenue benefits, a new state contract in West Virginia and new MCO contracts in Minnesota and Louisiana, and higher utilization across multiple not at-risk and reconciliation contracts. These increases were partially offset by the impact of contracts we no longer serve, including a state contract in Rhode Island and an MCO contract in California.

~~Service expense, net.~~ ~~Service expense for our NET Services segment included the following for YTD 2019 and YTD 2018 (in thousands):~~

Nine Months Ended September 30,
2019 2018
$ Percentage of
Revenue $ Percentage of
Revenue
Purchased services 890,039 79.1 % 785,513 76.7 %
Payroll and related costs 119,100 10.6 % 114,682 11.2 %
Other operating expenses 33,578 3.0 % 34,172 3.3 %
Total service expense 1,042,717 92.7 % 934,367 91.2 %

~~Service expense for YTD 2019 increased $108.4 million, or 11.6%, compared to YTD 2018 due primarily to higher purchased transportation costs and operational payroll and related costs.~~ ~~Transportation costs increased as a result of both higher utilization across multiple contracts and higher per unit cost.~~

~~General and administrative expense.~~ ~~General and administrative expense for YTD 2019 decreased $0.8 million or 1.6%, compared to YTD 2018.~~ ~~The decrease was due primarily to less retention expense and cost savings as a result of Organizational Consolidation.~~

~~Asset impairment charge.~~ During YTD 2018, the Company incurred an asset impairment charge of $0.7 million in relation to the decision to abandon specific development work intended to synchronize data across applications of the proprietary LCAD Nextgen system as a result of the acquisition of Circulation and its technology platform.

~~Depreciation and amortization.~~ Depreciation and amortization for YTD 2019 increased $1.9 million or 16.8% compared to YTD 2018 primarily due to an increase in intangibles associated with the Circulation acquisition and fixed assets, partially offset by lower depreciation on fixed assets of legacy NET services.

~~Interest expense, net.~~ ~~Consolidated interest expense, net was $0.8 million for both YTD 2019 and YTD 2018, as a result of borrowing and credit facility administration costs.~~

~~Equity in netlossof investee.~~ Our equity in net loss of investee for YTD 2019 of $6.2 million includes our proportional share of the net loss of Matrix. During YTD 2019, Matrix had a standalone net loss of $15.1 million, which included $33.7 million of depreciation and amortization, $19.0 million of interest expense, and $4.5 million of a tax benefit.

Our equity in net loss of investee for YTD 2018 of $4.1 million includes our proportional share of the net loss of Matrix. During YTD 2018, Matrix had a standalone net loss of $13.7 million, which included depreciation and amortization of $28.0 million, interest expense of $22.5 million, and an income tax benefit of $3.4 million.

~~Provision for income taxes.~~ ~~Our effective tax rates from continuing operations for YTD 2019 and YTD 2018 were 37.8% and 26.1%, respectively~~. These effective tax rates from continuing operations were higher than the U.S. federal statutory rate of 21.0% primarily due to, state income taxes and certain non-deductible expenses offset, in part, by the favorable impact of stock option deductions, and no income tax provision in 2018 on the gain on remeasurement of cost method investment of $6.6 million.

~~Income (loss) from discontinued operations, net of tax.~~ ~~Income (loss) from discontinued operations, net of tax, includes the activity related to our former WD Services and Human Services segments. See Note 15,~~ ~~Discontinued Operations, to our condensed consolidated financial statements for additional information.~~

~~For YTD 2019, the income from discontinued operations, net of tax, for our former WD Services segment was~~ ~~$0.7 million as a result of cash distribution from WD Services to the Company, partially offset by~~ costs related to the wind-down of the WD Services entity in Saudi Arabia. The operations in Saudi Arabia, including personnel, leased facilities and certain assets necessary to provide the employment services, were transferred to a third party as of January 1, 2019, and thus the Company is no longer providing services in Saudi Arabia. Loss from discontinued operations, net of tax, for our former Human Services segment was $0.2 million.

For YTD 2018, the loss from discontinued operations, net of tax, primarily for our former WD Services segment was $18.5 million, which was offset by income, net of tax, for our former Human Services segment of $0.5 million.

~~Net loss attributable to non-controlling interests.~~ For YTD 2018, net loss attributable to non-controlling interests related to a minority interest held by a third-party operating partner in our company servicing the offender rehabilitation contract within our historical WD Services segment. There was no such loss in YTD 2019.

Seasonality

~~While revenue is generally fixed, primarily as a result of the capitated nature of the majority of our contracts, service expense varies based on the utilization of our services. The~~Our quarterly operating income and cash flows ~~of NET Services~~ normally fluctuate as a result of seasonal variations in ~~the~~our business, principally due to lower transportation demand during the winter season and higher demand during the summer season.

Liquidity and capital resources

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

Cash flow from operating activities during the six months ended June 30, 2020 was $147.2 million. Our balance of cash and cash equivalents was ~~$40.6~~$41.8 million and ~~$5.7~~$61.4 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Additionally, we had restricted cash of ~~$0.8~~$3.2 million and ~~$4.4~~$0.2 million at ~~September~~June 30, ~~2019~~2020 and December 31, 2018, respectively, primarily related to contractual obligations and activities of our captive insurance subsidiary. As we wind down our captive insurance subsidiary our restricted cash balance has declined over time.2019, respectively. Restricted cash amounts are not included in our balance of cash and cash equivalents in the condensed consolidated balance sheets, although they are included in the cash, cash equivalents and restricted cash balance on the accompanying condensed consolidated statements of cash flows. At ~~both September~~June 30, ~~2019 and~~2020, we had no borrowings outstanding under our Credit Facility; however, we had letters of credit outstanding of $13.6 million. At December 31, ~~2018,~~2019, we had no amounts outstanding under ~~our~~the Credit Facility.

We may, from time to time, access capital markets to raise equity or debt financing for various business reasons, including acquisitions. We may also raise debt financing to fund future repurchases of our common stock. The timing, term, size, and pricing of any such financing will depend on investor interest and market conditions, and there can be no assurance that we will be able to obtain any such financing.

The cash flow statements for all periods presented include both continuing and discontinued operations. Discontinued operations include the activity of our historical WD Services and Human Services segments. The ~~income~~loss from discontinued operations, net of tax, was ~~$0.5~~$0.5 million for ~~YTD 2019~~the six months ended June 30, 2020 and the loss from discontinued operations, net of tax, was ~~$18.0~~$1.0 million for ~~YTD 2018.~~the six months ended June 30, 2019.

YTD ~~2019~~2020 cash flows compared to YTD ~~2018~~2019

Operating activities. Cash provided by operating activities was ~~$40.1~~$147.2 million and $23.1 million for YTD ~~2019, an~~ ~~increase~~ ~~of $17.6 million as compared with YTD 2018.~~2020 and YTD 2019, ~~and YTD 2018 cash flow~~respectively. Cash flows from ~~operations were driven~~operating activities increased by ~~net income of $7.0~~$124.1 million ~~and $1.7 million, respectively, non-cash adjustments~~due to ~~reconcile net income to net~~an increase in cash provided by ~~operating activities of $26.2 million and $35.2 million, respectively, and changes in~~ working capital of ~~positive $6.9 million and negative $14.3 million, respectively.~~$61.1 million. The ~~change~~increase in working capital was ~~primarily driven by the following:~~

•~~Accounts receivable required a~~ ~~cash outflow~~ ~~for YTD 2019 of $44.4 million as compared to an outflow of $31.5 million for YTD 2018. The increase in cash outflow of $12.9 million was primarily attributable~~related to an increase in ~~revenue~~accounts payable, accrued expenses, and ~~in the timing~~long-term contract payables of ~~collections from~~$66.2 million primarily related to liability reserves on certain profit corridor and reconciliation contracts due to lower activity as a ~~limited number~~result of ~~payers.~~

•~~Prepaid expense~~COVID-19, and lower accounts receivable and other ~~required a cash inflow for YTD 2019~~receivables of ~~$27.7 million as compared to an inflow of $14.2 million for YTD 2018.~~$15.6 million. The increase in cash inflow of $13.4 million is primarily due refunds received from the Internal Revenue Service (“IRS”) totaling $30.8 million resulting from the carryback of losses from the 2018 sale of its workforce development segment for U.S. tax payments made previously in 2015 and 2018. Thisthese working capital items was offset by a decrease in cash associated with $9.4 million in prepaid assets, an $8.1 million decrease in income taxes on gain from sale of a business, and a $5.9 million decrease in our accrued transportation liability. The remaining increase in the cash flow from operating activities was a result of the increase in net income of $54.2 million primarily from higher operating income and an increase in deferred income taxes of $12.8 million due to ~~our discontinued WD Services segment whereby our YTD 2019 cash flows do not include cash inflows for WD Services' contract assets and costs to fulfill contracts.~~

•~~Accounts payable and accrued expenses required~~ ~~a cash outflow for~~ ~~YTD 2019~~the favorable impact of ~~$9.4 million as compared to~~the CARES Act. This was partially offset by an ~~outflow of $26.3 million for YTD 2018. The decrease~~increase in ~~cash outflow of $16.9 million is due primarily to the timing of vendor payments and also because YTD 2019~~ ~~does not include cash inflows for WD Services' accounts payable and accrued expenses to be paid.~~

•~~Accrued transportation costs of NET Services generated a cash inflow of $27.5~~equity income by $4.8 million in ~~YTD 2019, as compared to a cash inflow of $30.9 million in YTD 2018. The~~ ~~decrease in cash inflow~~ ~~of $3.4 million is due primarily to higher purchased service expense and timing of payments.~~Matrix.

Investing activities. Net cash used in investing activities of ~~$7.3~~$80.0 million in YTD ~~2019~~ ~~decreased by $50.7~~2020 increased by $75.7 million as compared to YTD ~~2018. The decrease was primarily~~ ~~attributable to the $42.1 million cash outflow for~~2019 as a result of the acquisition of ~~Circulation in 2018 anda decrease in the purchase of property and equipment in 2019 of $5.9 million as compared to 2018.~~ ~~Also, YTD 2018 included proceeds received on a note receivable related to the sale of a building in 2016.~~NMT.

Financing activities. Net cash used in financing activities of ~~$3.4~~$83.8 million in YTD ~~2019~~ ~~decreased~~ ~~$10.4~~2020 increased $87.0 million as compared to YTD ~~2018. During YTD 2018, we repurchased $56.0 million of our common stock compared~~2019. The cash outflow was primarily due to ~~$6.4~~$92.6 million in cash paid related to the preferred stock conversion transaction and repurchase of common stock. See Note 10, Stock-Based Compensation and Similar Arrangements, for further information on the preferred stock transaction. YTD ~~2019. There~~2020 was ~~also repayment~~partially offset by an increase in cash provided by financing activities of ~~debt in YTD 2019 of $12~~$4.9 million ~~and $24 million less borrowings in YTD 2019 as~~

~~compared~~related to ~~YTD 2018. Additionally, as a partial offset, in YTD 2018,~~ proceeds from common stock issued pursuant to stock option exercises ~~was $5.5 million more than in YTD 2019.~~during the comparative periods.

Obligations and commitments

Credit ~~Facility.~~Facility. We are party to the amended and restated credit and guaranty agreement, dated as of August 2, 2013 (as amended, the “Credit Agreement”), with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, and the other lenders party thereto. On May 6, 2020, we entered into the Seventh Amendment to the Amended and Restated Credit and Guaranty Agreement (the “Seventh Amendment”). The ~~Credit Agreement provides us with a $200.0 million~~Seventh Amendment extended the maturity date to August 1, 2021, expanded the amount available under the revolving credit facility (the “Credit Facility”)~~, including a~~ from $200.0 million to $225.0 million, and increased the sub-facility ~~of $25.0 million~~ for letters of ~~credit. As of September 30, 2019, we had no borrowings outstanding; however, we had letters of credit outstanding in the amount of $13.0~~credits from $25.0 million to $40.0 million. ~~As of September 30, 2019, our available credit under the Credit Facility was $187.0 million.~~

On July 12, 2019, the Company and certain of its subsidiaries entered into an amendment to the Credit Agreement, by and among the Company, the guarantors from time to time party thereto, the lenders from time to time party thereto and Bank of America, N.A. as administrative agent. The Amendment extended the maturity date of the Credit Agreement to August 2, 2020.

Under the Credit Agreement, the Company has an option to request an increase in the amount of the revolving credit facility or in a term loan facility from time to time (on substantially the same terms as apply to the existing facility) 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. We may from time to time incur additional indebtedness, obtain additional financing or refinance existing indebtedness subject to market conditions and our financial condition.

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

Interest on the outstanding principal amount of any loans accrues, at our election, at a per annum rate equal to LIBOR, plus an applicable margin or the base rate 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 our consolidated leverage ratio as defined in the Credit Agreement. Interest on any loans is payable quarterly in arrears. In addition, we are obligated to pay a quarterly commitment fee based on a percentage of the unused portion of each lender’s commitment under the Credit Facility and quarterly letter of credit fees based on a percentage of the maximum amount available to be drawn under each outstanding letter of credit.

As of June 30, 2020, we had no borrowings outstanding on the Credit Facility; however, had letters of credit outstanding in the amount of $13.6 million. Our available credit under the Credit Facility was $211.4 million. Under the Credit Agreement, we have an option to request an increase in the amount of the revolving credit facility from time to time (on substantially the same terms as apply to the existing facilities) in an aggregate amount of up to $75.0 million with either additional commitments from lenders under the Credit Agreement at such time or new commitments from financial institutions acceptable to the administrative agent in its reasonable discretion, so long as no default or event of default exists at the time of any such increase. We may not be able to access additional funds under this increase option as no lender is obligated to participate in any such increase under the Credit Facility.

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

As of June 30, 2020, interest on the outstanding principal amount of loans accrues, at our election, at a per annum rate equal to the greater of either LIBOR or 1.00%, plus an applicable margin, or the base rate as defined in the agreement plus an applicable margin. The applicable margin ranges from 2.25% to 3.00% in the case of LIBOR loans and 1.25% to 2.00% in the case of the base rate loans, in each case, based on our consolidated leverage ratio as defined in the Credit Agreement. The commitment fee and letter of credit fee range from ~~0.25%~~0.35% to 0.50% and 2.25% to ~~3.25%~~3.00%, respectively, in each case based on our consolidated leverage ~~ratio. Our current commitment fee and letter~~ratio as defined in the Credit Agreement. As of ~~credit rates are 0.25% and 2.25%, respectively.~~June 30, 2020, the all-in interest rate was 3.88%.

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

Our obligations under the Credit Facility are guaranteed by all of our present and future domestic ~~subsidiaries, excluding certain domestic subsidiaries, such as, our insurance captive.~~subsidiaries. Our obligations ~~under, and each guarantor’s obligations under its guaranty of, the Credit Facility~~ are secured by a first priority lien on substantially all of our ~~respective~~ assets ~~other than our equity investment in Matrix, including a pledge of 100% of the issued and outstanding stock of our domestic subsidiaries,~~ excluding our ~~insurance captive.~~interest in Matrix.

The Credit Agreement contains customary affirmative and negative covenants and events of default. The negative covenants include restrictions on our ability to, among other things, incur additional indebtedness, create liens, make investments, give guarantees, pay dividends, repurchase shares, sell assets, and merge and consolidate. We are subject to financial covenants, including consolidated net leverage and consolidated interest coverage covenants. ~~The Company’s~~Our consolidated net leverage ratio may not be greater than 3.00:1.00 as of the end of any fiscal quarter and ~~the Company’s~~our consolidated interest coverage ratio may not be less than 3.00:1.00 as of the end of any fiscal quarter. We were in compliance with all covenants as of ~~September~~June 30, ~~2019.~~2020.

Preferred Stock. Following (i) the completion of a rights offering in February 2015, under which certain holders of our Common Stock exercised subscription rights to purchase Preferred Stock, and (ii) the purchase of Preferred Stock by Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Blackwell Partners, LLC - Series A and Coliseum Capital Co-Invest, L.P. (collectively, the “Coliseum Stockholders”), pursuant to the Standby Purchase Agreement between the Coliseum Stockholders and ~~the Company, the~~ ~~Company~~us, we issued 805,000 shares of Preferred Stock, of which ~~799,969 shares~~ 54,882 shares are outstanding as of ~~September~~June 30, ~~2019.~~ 2020.

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

For further information regarding these transactions, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and capital resources – ~~Obligations~~Obligations and commitments – ~~Rights Offering”~~Preferred Stock” in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 and Note 10, Stock-Based Compensation and Similar Arrangements, in the current Form 10-Q. We may pay a noncumulative cash dividend on each share of Preferred Stock, when, as and if declared by a committee of our Board, ~~of Directors (“Board”),~~ at the rate of 5.5% per annum on the liquidation preference then in effect. On or before the third business day immediately preceding each fiscal quarter, we determine our intention whether or not to pay a cash

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~~six months ended ~~September~~June 30, 2020 and 2019 totaling $2.0 million and ~~2018 totaled $3.3~~$2.2 million, ~~in both periods.~~respectively.

Reinsurance and Self-Funded Insurance Programs

Reinsurance

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

At ~~September~~June 30, ~~2019,~~ 2020, based on an independent actuarial report, the net cumulative ~~reserve~~reserves for expected losses since inception of these historical automobile, general and professional liability and workers’ compensation reinsurance programs ~~was $0.1~~were$1.4 million ~~$0.4~~, $1.0 million and ~~$1.6~~$2.4 million, respectively. Based on an independent actuarial report, our expected losses related to workers’ compensation, automobile and general and professional liability in excess of our liability under our associated historical reinsurance programs at September 30, 2019 was $2.7 million. We recorded a corresponding receivable from third-party insurers and liability at September 30, 2019 for these expected losses, which would be paid by third-party insurers to the extent losses are incurred.

Further, we had restricted cash of ~~of $0.8~~$0.1 million a~~nd $4.4~~ and $0.2 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018, respectively, which was restricted~~2019, related to ~~secure the~~collateral for reinsured claims losses under the historical automobile, general and professional liability and workers’ ~~compensation~~compensation reinsurance programs.

Health Insurance

We offer our employees an option to participate in a self-funded health insurance program. The liability for the self-funded health plan of ~~$2.1~~$2.0 million and ~~$2.2~~$1.9 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, was recorded in ~~“Reinsurance and related liability reserves”~~“Self-funded insurance programs” in our condensed consolidated balance sheets.

Off-Balance Sheet Arrangements

There have been no material changes to the Off-Balance Sheet Arrangements discussion previously disclosed in our audited consolidated financial statements contained in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2018 other than the adoption of ASC 842, effective January 1, 2019, whereby the Company recorded $23.2~~

million and $24.5 million of additional leased assets and liabilities, respectively, on its condensed consolidated balance sheet. The adoption did not have a material impact on the statement of operations. See Note 9, ~~Leases, for further information.~~2019.

Forward-Looking Statements

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

ability to control or predict, which may cause actual events to be materially different from those expressed or implied herein, including but not limited to: the early termination or non-renewal of contracts; our ability to successfully respond to governmental requests for proposal; our ability to fulfill our contractual obligations; our ability to identify and successfully complete and integrate acquisitions; our ability to identify and realize the benefits of strategic initiatives; the loss of any of the significant payors from whom we generate a significant amount of our revenue; our ability to accurately estimate the cost of performing under certain capitated contracts; our ability to match the timing of the costs of new contracts with its related revenue; the outcome of pending or future litigation; our ability to attract and retain senior management and other qualified employees; our ability to successfully complete recent divestitures or business termination; the accuracy of representations and warranties and strength of related indemnities provided to us in acquisitions or claims made against us for representations and warranties and related indemnities in our dispositions; our ability to effectively compete in the marketplace; inadequacies in or security breaches of our information technology systems, including our ability to protect private data; the impact of COVID-19 on us (including: the duration and scope of the pandemic; governmental, business and individuals’ actions taken in response to the pandemic; economic activity and actions taken in response; the effect on our clients and client demand for our services; and the ability of our clients to pay for our services); seasonal fluctuations in our operations; impairment of long-lived assets; the adequacy of our insurance coverage for automobile, general liability, professional liability and workers’ compensation; damage to our reputation by inaccurate, misleading or negative media coverage; our ability to comply with government healthcare and other regulations; changes in budgetary priorities of government entities that fund our services; failure to adequately comply with patient and service user information regulations; possible actions under Medicare and Medicaid programs for false claims or recoupment of funds for noncompliance; changes in the regulatory landscape applicable to Matrix; changes to our estimated income tax liability from audits or otherwise; our ability to meet restrictive covenants in our credit agreement; restrictions in the terms of our preferred stock; the costs of complying with public company reporting obligations; and the accuracy of our accounting estimates and assumptions

The Company has provided additional information about these risks and uncertainties ~~include, but are not limited to, the risks disclosed~~ in our Annual Report on Form 10-K for the year ended December 31, ~~2018 and~~2019, our ~~other~~subsequent filings with the ~~SEC.~~SEC, and in this filing.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We have exposure to interest rate risk mainly related to our Credit Facility, which has variable interest rates that may increase. We did not have any amounts outstanding on our Credit Facility at ~~September~~June 30, ~~2019.~~2020.

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~~June 30, ~~2019.~~2020. Based upon this evaluation, the Company’s principal executive and financial officers have concluded that such disclosure controls and procedures were effective to provide reasonable assurance that (i) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal 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~~June 30, ~~2019~~2020 that have materially affected or which are reasonably likely to materially affect such control. ~~Except as set forth below, there were~~Such officers have concluded that no such changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financing reporting.

~~During the first quarter of 2019, the Company implemented new internal controls and processes related to its adoption of ASC 842.~~have occurred.

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

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

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

On January 21, 2019, the United States District Court for the Southern District of Ohio unsealed a qui tam complaint, filed in December 2015, against Mobile Care Group, Inc., Mobile Care Group of Ohio, LLC, Mobile Care EMS & Transport, Inc. and LogistiCare Solutions, LLC (“LogistiCare”) by Brandee White, Laura Cunningham, and Jeffery Wisier (the “Relators”) alleging violations of the federal False Claims Act by presenting claims for payment to government healthcare programs 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 ~~was~~were employed by LogistiCare. Prior to January 21, 2019, LogistiCare had no knowledge of the complaint. The federal government has declined to intervene against LogistiCare. ~~The Company~~We filed a motion to dismiss the Complaint on April 22, 2019. Although the outcome of such matter is inherently uncertain and may be materially adverse, based on current information, we do not expect the case to have a material adverse effect on ~~its~~our business, financial condition or results of operations.

On March 1, 2019, Meher Patel filed suit against ~~the Company~~us in the Superior Court of the State of California, Tuolumne County, on behalf of herself and as a class action on behalf of others similarly situated, asserting violations under the California Labor Code relating to the alleged failure by LogistiCare to comply with certain applicable state wage and related employment requirements, as well as claims of breach of contract and breach of the implied covenant of good faith and fair dealing. ~~The plaintiff seeks to recover an unspecified amount of damages and penalties, as well as certification as~~This matter has been resolved in a class action. On September 6, 2019, Ms. Patel amended her complaint to add Provado Mobile Health, a Company subsidiary, as a party to the suit. No amounts have been accrued for any potential losses under this matter, as management cannot reasonably predict the outcome of the litigation or any potential losses. The Company and its subsidiary intend to defend the litigation vigorously. Although the outcome of such matter is inherently uncertain and may bemanner that does not materially ~~adverse, based on current information, we do not expect the case to have a material adverse effect on our business, financial condition or results of operations.~~impact us.

On April 1, 2019, a purported class action was filed against LogistiCare in Texas alleging that the Company’s policy with respect to timekeeping for hourly employees constituted violations of the federal Fair Labor Standards Act (“FLSA”), as ~~independent contractors~~well as wage and ~~that, among other things, they were not paid minimum wages, overtime wages, meal period premiums~~hour laws in South Carolina and ~~rest period premiums.~~Texas. Plaintiffs filed a motion for conditional certification on a nationwide basis, which LogistiCare contested. The ~~Company has not yet been served with~~court granted the ~~complaint but intends~~conditional certification motion on January 22, 2020. We filed an appeal of the conditional certification order and plan to vigorously ~~defending~~contest the ~~claims.~~allegations on the merits as the plaintiffs have mischaracterized the method by which employees clock in to work. At this early stage in the litigation, it is impossible to predict with any certainty whether ~~plaintiff will succeed in getting the court to certify a class, ether she and the class~~plaintiffs will prevail inon their claims, or what they might recover.

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

Item 1A. Risk Factors.

There have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019, except as discussed below.

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

We could be negatively impacted by the widespread outbreak of an illness or any other communicable disease, or any other public health crisis that results in economic and trade disruptions, including the disruption of global supply chains. In December 2019, an outbreak of a new strain of coronavirus began in Wuhan, Hubei Province, China. In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. COVID-19, as well as measures taken by governmental authorities and private actors to limit the spread of this virus, has and is likely to continue to interfere with the ability of our employees, suppliers, transportation providers and other business providers to carry out their assigned tasks at ordinary levels of performance relative to the conduct of our business which may cause us to materially curtail certain of our business operations. While we are monitoring the impact of COVID-19 on our business and financial results at this time, we are unable to accurately predict the extent to which the coronavirus pandemic impacts our business, operations and financial results. Such impact will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic, including, potential shifting of governmental policies away from programs that call for the types of services we provide; the impact of the pandemic on economic activity and actions taken in response; the effect on our members and member demand for our services; our ability to provide our services, including as a result of travel restrictions, disruptions in our contact centers related to COVID-19, people working from home, and the willingness of our employees to return to our contact centers as “shelter in place” and other related “stay at home restrictions” are lifted or modified; issues with respect to our employees’ health, working hours and/or ability to perform their duties; increased costs to the Company in response to these changing conditions and to protect the health and safety of our employees; and the ability of our payors to pay for our services. Furthermore, any failure to appropriately respond, or the perception of an inadequate response, could cause reputational harm and/or subject us to claims and litigation.

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

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

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

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

Issuer Purchases of Equity Securities

~~The following table provides information with respect to common stock repurchased by us during the three months ended September 30, 2019:~~

Period Total Number
of Shares (or Units) of
Common Stock
Purchased (1) Average Price
Paid per
Share (or Unit) Total Number of
Shares (or Units) of Common Stock
Purchased as Part of
Publicly Announced
Plans or Program Maximum Dollar Value (or Approximate Dollar Value) of
Shares (or Units) that May Yet Be Purchased
Under the Plans or Program (000’s) (2)
Month 1:
July 1, 2019
to
July 31, 2019 $ — — $ —
Month 2:
August 1, 2019
to
August 31, 2019 69,113 $ 57.06 69,113 $ 96,043
Month 3:
September 1, 2019
to
September 30, 2019 36,308 $ 55.96 36,308 $ 94,012
Total 105,421 105,421

~~______________~~

~~(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 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. On November 2, 2017, our Board approved the extension of the Company’s prior stock repurchase program, authorizing the Company to engage in a 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 our Common Stock through December 31, 2018. Subsequently, on March 29, 2018, our Board authorized an increase in the amount available for stock repurchases under the Company’s existing stock repurchase program by $77.8 million, and extended the existing stock repurchase program through June 30, 2019.

A total of 1.8 million shares have been repurchased since the Board originally approved the repurchase program on October 26, 2016. The share repurchases were made through a combination of open market repurchases (including Rule 10b5-1 plans), privately negotiated transactions, accelerated share repurchase transactions and other derivative transactions. As of June 30, 2019, this repurchase program expired.

~~On August 6, 2019,~~11, 2020, the Board authorized a new stock repurchase program under which the Company may repurchase up to ~~$100.0~~$75.0 million in aggregate value of the Company’s Common Stock, subject to the consent of the holders of a majority of the Company’s Series A convertible preferred stock, through December 31, ~~2019,~~2020, unless terminated earlier. Since ~~August 6, 2019, an additional 105,421~~March 11, 2020, 195,677 shares were ~~repurchased.~~

repurchased under the program. The following table provides information with respect to common stock repurchased by us during the six months ended June 30, 2020:

4139


Period	Total Number of Shares (or Units) of Common Stock Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) of Common Stock Purchased as Part of Publicly Announced Plans or Program	Maximum Dollar Value (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Program (000’s)

Share value authorized for repurchase					$	75,000

Repurchase Activity:
March 1, 2020
to
March 31, 2020	142,821	$	51.11	142,821	$	67,701

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

May 1, 2020
to
May 30, 2020	6,401	$	55.64	6,401	$	64,813

June 1, 2020
to
June 30, 2020	—	$	—	—	$	—

Total	195,677			195,677

Item 6. Exhibits.

EXHIBIT INDEX


Exhibit Number						Description
10.1*						Equity Purchase Agreement dated as of May 6, 2020, by and among National MedTrans, LLC, Specialty Benefits, LLC, and LogistiCare Solutions, LLC

~~10.1+~~10.2						Seventh Amendment to the Amended and Restated Credit and Guaranty Agreement dated May 6, 2020 among the Providence Service Corporation, the guarantors party thereto, the lenders party thereto and B ank of Americ a N.A. as Administrative Agent (Incorporated by reference to an exhibit to the registrant’s current report on Form ~~of Restricted Stock Agreements.~~8-K filed with the SEC on May 7, 2020)

~~10.2+~~10.3						~~Form of~~Preferred Stock ~~Option Agreements.~~
~~10.3+~~						~~Employment~~Conversion Agreement, dated ~~August~~June 8, ~~2019, by and~~2020, among The Providence Service Corporation ~~Logisticare Solutions, LLC~~ and ~~Kathryn Stalmack~~the other signatory parties thereto (Incorporated by reference to an exhibit to the registrant’s current report on Form 8-K filed with the SEC on June 8, 2020)

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

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

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

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

101.INS						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						XBRL Schema Document

101.CAL						XBRL Calculation Linkbase Document

101.LAB						XBRL Label Linkbase Document

101.PRE						XBRL Presentation Linkbase Document

101.DEF						XBRL Definition Linkbase Document


+			~~Management contract of compensatory plan or arrangement.~~
*			Filed herewith.

SIGNATURES

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


	THE PROVIDENCE SERVICE CORPORATION

Date: ~~November 7, 2019~~August 6, 2020	By:	/s/ ~~R. Carter Pate~~Daniel E. Greenleaf
		~~R. Carter Pate~~Daniel E. Greenleaf ~~Interim~~ Chief Executive Officer
		(Principal Executive Officer)

Date: ~~November 7, 2019~~August 6, 2020	By:	/s/ Kevin Dotts
		Kevin Dotts Chief Financial Officer
		(Principal Financial Officer)

4342


	Nine Months Ended September 30, 2018
								Accumulated Other
	Common Stock					Additional Paid-In		Retained		Comprehensive Loss, Net of	Treasury Stock						Non- Controlling
	Shares	Amount		Capital		Earnings		Tax		Shares	Amount		Interest		Total
Balance at December 31, 2017	17,473,598	$	17	$	313,955	$	204,818	$	(25,805)	4,126,132	$	(154,803)	$	(2,165)	$	336,017
Stock-based compensation	—	—		993		—		—		—	—		—		993
Exercise of employee stock options	212,789	1		8,819		—		—		—	—		—		8,820
Restricted stock issued	20,904	—		—		—		—		3,778	(237)		—		(237)
Shares issued for bonus settlement and director stipends	2,715	—		150		—		—		—	—		—		150
Stock repurchase plan	—	—		—		—		—		583,027	(36,930)		—		(36,930)

Convertible preferred stock dividends ⁽²⁾	—	—		—		(1,089)		—		—	—		—		(1,089)
Foreign currency translation adjustments, net of tax	—	—		—		—		1,926		—	—		(81)		1,845

Non-controlling interest	—	—		—		—		—		—	—		296		296
Other	—	—		49		—		—		—	—		—		49
Net income attributable to Providence	—	—		—		5,430		—		—	—		—		5,430
Cumulative effect adjustment from change in accounting principle, net of tax	—	—		—		5,710		—		—	—		—		5,710
Balance at March 31, 2018	17,710,006	18		$	323,966	$	214,869	$	(23,879)	4,712,937	$	(191,970)	$	(1,950)	$	321,054
Stock-based compensation	—	—		3,446		—		—		—	—		—		3,446
Exercise of employee stock options	53,004	—		2,842		—		—		—	—		—		2,842
Restricted stock issued	6,085	—		(320)		—		—		129	(9)		—		(329)
Performance restricted stock issued	3,110	—		(109)		—		—		—	—		—		(109)
Shares issued for bonus settlement and director stipends	318	—		—		—		—		—	—		—		—
Stock repurchase plan	—	—		—		—		—		255,692	(18,823)		—		(18,823)
Conversion of convertible preferred stock to common stock	2,608	—		105		(5)		—		—	—		—		100
Convertible preferred stock dividends⁽²⁾	—	—		—		(1,101)		—		—	—		—		(1,101)
Foreign currency translation adjustments, net of tax	—	—		—		—		(3,967)		—	—		126		(3,841)


Other	—	—		79		—		—		—	—		(188)		(109)
Net loss attributable to Providence	—	—		—		(11,215)		—		—	—		—		(11,215)

Balance at June 30, 2018	17,775,131	18		$	330,009	$	202,548	$	(27,846)	4,968,758	$	(210,802)	$	(2,012)	$	291,915
Stock-based compensation	—	—		1,907		—		—		—	—		—		1,907
Exercise of employee stock options	500	—		8		—		—		—	—		—		8
Restricted stock issued	2,395	—		—		—		—		141	(10)		—		(10)

Shares issued for bonus settlement and director stipends	543	—		—		—		—		—	—		—		—

Conversion of convertible preferred stock to common stock	1,077	—		42		(2)		—		—	—		—		40
Convertible preferred stock dividends⁽²⁾	—	—		—		(1,111)		—		—	—		—		(1,111)
Foreign currency translation adjustments, net of tax	—	—		—		—		(883)		—	—		27		(856)
Reclassification of translation loss realized upon sale of foreign subsidiary	—	—		—		—		627		—	—		—		627
Other	—	—		(19)		—		—		—	—		176		157
Net income attributable to Providence	—	—		—		7,154		—		—	—		—		7,154
Balance at September 30, 2018	17,779,646	$	18	$	331,947	$	208,589	$	(28,102)	4,968,899	$	(210,812)	$	(1,809)	$	299,831


	Nine Months Ended September 30,
Supplemental cash flow information	2019		2018
Cash paid for interest	$	1,090	$	767
Cash (received) paid for income taxes, net of refunds	$	(30,456)	$	11,477
Purchase of equipment through capital lease obligation	$	—	$	724
Acquisitions:
Purchase price	$	—	$	54,700
Less:
Cash acquired	—		(1,302)
Restricted cash acquired	—		(110)
Value of existing ownership in Circulation	—		(9,577)
Purchase consideration payable	—		(1,644)
Acquisitions, net of cash acquired	$	—	$	42,067


	Three Months Ended September 30, 2018
	As Previously Reported⁽¹⁾		Reclassifications		As Reported
Service expense	$	320,697	$	(7,186)	$	313,511
General and administrative expense	9,859		7,186		17,045


	Nine Months Ended September 30, 2018
	As Previously Reported ⁽¹⁾		Reclassifications		As Reported
Service expense	$	955,523	$	(21,156)	$	934,367
General and administrative expense	31,925		21,156		53,081


	Three months ended September 30, 2019		Three Months Ended September 30, 2018
State Medicaid agency contracts	$	196,891	$	183,661
Managed care organization contracts	196,494		160,110

Total Service revenue, net	$	393,385	$	343,771

Capitated contracts	$	334,549	$	297,808
Non-capitated contracts	58,836		45,963

Total Service revenue, net	$	393,385	$	343,771


	September 30, 2019		December 31, 2018
Accrued contract payments, included in “accrued expenses”	$	7,672	$	9,756
Deferred revenue, current	231		562
Deferred revenue, long-term, included in “other long-term liabilities”	808		963


	January 1, 2019		Costs Incurred		Cash Payments and Adjustments		September 30, 2019

Retention and personnel liability	$	1,956	$	2,356	$	(4,312)	$	—
Other liability	398		842		(1,240)		—
Total	$	2,354	$	3,198	$	(5,552)	$	—


	January 1, 2018		Costs Incurred		Cash Payments		September 30, 2018

Retention and personnel liability	$	—	$	2,038	$	(111)	$	1,927
Other liability	—		1,265		(786)		479
Total	$	—	$	3,303	$	(897)	$	2,406


	Operating Leases		Finance Leases		Total
Remainder of 2019	$	2,715	$	81	$	2,796
2020	8,452		322		8,774
2021	5,845		27		5,872
2022	4,869		—		4,869
2023	2,891		—		2,891
Thereafter	2,215		$	—	2,215
Total lease payments	$	26,987	$	430	$	27,417
Less: interest and accretion	(5,459)		—		(5,459)
Present value of minimum lease payments	$	21,528	$	430	$	21,958
Less: current portion	(6,742)		(308)		(7,050)
Long-term portion	$	14,786	$	122	$	14,908


	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019

Financing cash flows from finance leases	$	(75)	$	(641)
Operating cash flows from operating leases	(2,753)		(7,956)
Amortization of operating leased ROU assets to the operating lease liability	2,523		7,986

ROU assets obtained through operating lease liabilities	3,488		4,770


	Three Months Ended September 30, 2018
	As Previously Reported⁽¹⁾		Segment Reclassification		Other Reclassification (Note 1)		As Reported
General and administrative^:
NET Services	$	3,904	$	5,955	$	7,186	$	17,045
Corporate and Other	5,955		(5,955)		—		—
Depreciation and amortization:
NET Services	3,543		237		—		3,780
Corporate and Other	237		(237)		—		—
Operating income (loss)^:
NET Services	15,627		(6,192)		—		9,435
Corporate and Other	(6,192)		6,192		—		—