06902 (Address of principal executive offices) (Zip Code) Accelerated filer ☒ Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐ Emerging growth company ☐ Condensed Consolidated Balance Sheets – Unaudited Condensed Consolidated Statements of Income – Three and Unaudited Condensed Consolidated Statements of Cash Flows – Notes to the Unaudited Condensed Consolidated Financial Statements – Item 1A. June 30, December 31, 2017 2016 (Unaudited) Current assets: Cash and cash equivalents Accounts receivable, net of allowance of$6,295 in 2017 and $5,901 in 2016 Other receivables Prepaid expenses and other Restricted cash Total current assets Property and equipment, net Goodwill Intangible assets, net Equity investments Other assets Restricted cash, less current portion Deferred tax asset Total assets Liabilities, redeemable convertible preferred stock and stockholders' equity Current liabilities: Current portion of long-term obligations Accounts payable Accrued expenses Accrued transportation costs Deferred revenue Reinsurance and related liability reserves Total current liabilities Long-term obligations, less current portion Other long-term liabilities Deferred tax liabilities Total liabilities Commitments and contingencies (Note 11) Reedeemable convertible preferred stock Convertible preferred stock, net: Authorized 10,000,000 shares;$0.001 par value; 803,398 and 803,398 issued and outstanding;5.5%/8.5% dividend rate Stockholders' equity Common stock: Authorized 40,000,000 shares; $0.001 parvalue; 17,433,365 and 17,315,661 issued and outstanding(including treasury shares) Additional paid-in capital Retained earnings Accumulated other comprehensive loss, net of tax Treasury shares, at cost, 3,944,009 and 3,478,676 shares Total Providence stockholders' equity Noncontrolling interest Total stockholders' equity Total liabilities, redeemable convertible preferred stock and stockholders' equity Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 Service revenue, net Operating expenses: Service expense General and administrative expense Depreciation and amortization Total operating expenses Operating income Other expenses: Interest expense, net Equity in net (gain) loss of investees Loss (gain) on foreign currency transactions Income from continuing operationsbefore income taxes Provision for income taxes Income from continuing operations, net of tax Discontinued operations, net of tax Net income (loss) Net loss (income) attributable to noncontrollinginterests Net income (loss) attributable to Providence Net income (loss) available to commonstockholders (Note 9) Basic earnings (loss) per common share: Continuing operations Discontinued operations Basic earnings (loss) per common share Diluted earnings (loss) per common share: Continuing operations Discontinued operations Diluted earnings (loss) per common share Weighted-average number of commonshares outstanding: Basic Diluted Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 Net income (loss) Net loss (income) attributable toto noncontrolling interest Net income (loss) attributable to Providence Other comprehensive income (loss): Foreign currency translation adjustments,net of tax Other comprehensive income (loss): Comprehensive income (loss) Comprehensive income (loss) attributable tononcontrolling interest Comprehensive income (loss) attributableto Providence Six months ended June 30, 2017 2016 Operating activities Net (loss) income Adjustments to reconcile net income to net cashprovided by operating activities: Depreciation Amortization Provision for doubtful accounts Stock-based compensation Deferred income taxes Amortization of deferred financing costs and debt discount Equity in net loss of investees Other non-cash charges (credits) Changes in operating assets and liabilities, net of effectsof acquisitions: Accounts receivable Prepaid expenses and other Reinsurance and related liability reserve Accounts payable and accrued expenses Income taxes payable on sale of business Accrued transportation costs Deferred revenue Other long-term liabilities Net cash provided by operating activities Investing activities Purchase of property and equipment Net increase (decrease) in short-term investments Equity investments Loan to joint venture Restricted cash for reinsured claims losses and other Net cash used in investing activities Financing activities Preferred stock dividends Repurchase of common stock, for treasury Proceeds from common stock issued pursuant to stock option exercise Performance restricted stock surrendered for employee tax payment Repayment of long-term debt Proceeds from long-term debt Capital lease payments and other Net cash used in financing activities Effect of exchange rate changes on cash Net change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental cash flow information: Cash paid for interest Cash paid for income taxes June 30, 2017 December 31, 2016 Current assets Long-term assets Current liabilities Long-term liabilities Three months ended June 30, 2017 Revenue Operating income Net income Six months ended June 30, 2017 Revenue Operating income Net loss The Company Equity Investments Other Assets Accrued Expenses Maximum Exposure to Loss June 30, 2017 December 31, 2016 June 30, 2017 December 31, 2016 Current assets Long-term assets Current liabilities Long-term liabilities Three months ended June 30, 2017 2016 Revenue Operating income (loss) Net income (loss) Six months ended June 30, 2017 2016 Revenue Operating loss Net loss June 30, December 31, 2017 2016 Prepaid income taxes Escrow funds Prepaid insurance Prepaid taxes and licenses Note receivable Prepaid rent Deposits held for leased premises and bonds Other Total prepaid expenses and other June 30, December 31, 2017 2016 Accrued compensation NET Services accrued contract payments Accrued settlement Income taxes payable Other Total accrued expenses January 1, 2017 Costs Incurred Cash Payments Foreign Exchange Rate Adjustments June 30, 2017 Ingeus Futures' Program Offender Rehabilitation Program UK Restructuring Program Total January 1, 2016 Costs Incurred Cash Payments Foreign Exchange Rate Adjustments June 30, 2016 Offender Rehabilitation Program UK Restructuring Program Total Accumulated Additional Other Non- Common Stock Paid-In Retained Comprehensive Treasury Stock controlling Shares Amount Capital Earnings Loss Shares Amount Interest Total Balance at December 31, 2016 Stock-based compensation Exercise of employee stockoptions Restricted stock issued Performance restrictedstock issued Shares issued for bonussettlement and directorstipend Stock repurchase plan Foreign currency translationadjustments, net of tax Convertible preferred stockdividends Noncontrolling interests Other Net income attributable toProvidence Cumulative effect adjustmentfrom change in accountingprinciple Balance at June 30, 2017 Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 Service expense General and administrative expense Equity in net loss of investees Discontinued operations, net of tax Total stock-based compensation Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 Numerator: Net income (loss) attributable to Providence Less dividends on convertible preferred stock Less income allocated to participating securities Net income (loss) available to common stockholders Continuing operations Discontinued operations Denominator: Denominator for basic earnings per share --weighted-average shares Effect of dilutive securities: Common stock options Performance-based restricted stock units Denominator for diluted earnings per share -- adjustedweighted-average shares assumed conversion Basic earnings (loss) per share: Continuing operations Discontinued operations Diluted earnings (loss) per share: Continuing operations Discontinued operations Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 Stock options to purchase common stock Convertible preferred stock Additionally, for the three and nine months ended September 30, 2017, there was no provision for income taxes related to the gain on sale of equity investment of $12,606 due to the substantial difference in tax basis versus book basis in the investment. 2017. Three months ended June 30, 2017 Six months ended June 30, 2017 Human Services Segment HA Services Segment Total Discontinued Operations Human Services Segment HA Services Segment Total Discontinued Operations Operating expenses: General and administrative expense Total operating expenses Loss from discontinued operations beforeincome taxes Income tax benefit Discontinued operations, net of tax Three months ended June 30, 2016 Six months ended June 30, 2016 Human Services Segment HA Services Segment Total Discontinued Operations Human Services Segment HA Services Segment Total Discontinued Operations Service revenue, net Operating expenses: Service expense General and administrative expense Depreciation and amortization Total operating expenses Operating income Other expenses: Interest expense, net Income from discontinued operationsbefore income taxes Provision for income taxes Discontinued operations, net of tax Six months ended June 30, 2016 Cash flows from discontinued operating activities: Depreciation Amortization Cash flows from discontinued investing activities: Purchase of property and equipment Three months ended June 30, 2017 NET Services WD Services Matrix Investment Corporate and Other Total Service revenue, net Service expense General and administrative expense Depreciation and amortization Operating income (loss) Equity in net gain (loss) of investee Three months ended June 30, 2016 NET Services WD Services Matrix Investment Corporate and Other Total Service revenue, net Service expense General and administrative expense Depreciation and amortization Operating income (loss) Equity in net gain (loss) of investee Six months ended June 30, 2017 NET Services WD Services Matrix Investment Corporate and Other Total Service revenue, net Service expense General and administrative expense Depreciation and amortization Operating income (loss) Equity in net gain (loss) of investee Six months ended June 30, 2016 NET Services WD Services Matrix Investment Corporate and Other Total Service revenue, net Service expense General and administrative expense Depreciation and amortization Operating income (loss) Equity in net gain (loss) of investee Consolidated Results. The following table sets forth results of operations and the percentage of consolidated total revenues represented by items in our unaudited condensed consolidated statements of income for Three months ended June 30, 2017 2016 $ Percentage of Revenue $ Percentage of Revenue Service revenue, net Operating expenses: Service expense General and administrative expense Depreciation and amortization Total operating expenses Operating income Non-operating expense: Interest expense, net Equity in net (gain) loss of investees Loss (gain) on foreign currency transactions Income from continuing operations beforeincome taxes Provision for income taxes Income from continuing operations, net of tax Discontinued operations, net of tax Net income Net loss attributable to noncontrolling interest Net income attributable to Providence Six months ended June 30, 2017 2016 $ Percentage of Revenue $ Percentage of Revenue Service revenue, net Operating expenses: Service expense General and administrative expense Depreciation and amortization Total operating expenses Operating income Non-operating expense: Interest expense, net Equity in net loss of investees Loss (gain) on foreign currency transactions Income from continuing operations beforeincome taxes Provision for income taxes Income from continuing operations, net of tax Discontinued operations, net of tax Net (loss) income Net (income) loss attributable to noncontrolling interest Net (loss) income attributable to Providence award at the grant date. Three Months Ended June 30, 2017 2016 $ Percentage of Revenue $ Percentage of Revenue Service revenue, net Service expense General and administrative expense Depreciation and amortization Operating income Three Months Ended June 30, 2017 2016 Percentage of Revenue Percentage of Revenue Purchased services Payroll and related costs Other operating expenses Stock-based compensation Total service expense Six Months Ended June 30, 2017 2016 $ Percentage of Revenue $ Percentage of Revenue Service revenue, net Service expense General and administrative expense Depreciation and amortization Operating income Six Months Ended June 30, 2017 2016 $ Percentage of Revenue $ Percentage of Revenue Purchased services Payroll and related costs Other operating expenses Stock-based compensation Total service expense initiatives in YTD 2017. Three Months Ended June 30, 2017 2016 $ Percentage of Revenue $ Percentage of Revenue Service revenue, net Service expense General and administrative expense Depreciation and amortization Operating loss Three Months Ended June 30, 2017 2016 $ Percentage of Revenue $ Percentage of Revenue Payroll and related costs Purchased services Other operating expenses Stock-based compensation Total service expense Six Months Ended June 30, 2017 2016 $ Percentage of Revenue $ Percentage of Revenue Service revenue, net Service expense General and administrative expense Depreciation and amortization Operating loss Six Months Ended June 30, 2017 2016 $ Percentage of Revenue $ Percentage of Revenue Payroll and related costs Purchased services Other operating expenses Stock-based compensation Total service expense Three Months Ended June 30, 2017 2016 $ $ Service revenue, net Service expense General and administrative expense Depreciation and amortization Operating loss Six Months Ended June 30, 2017 2016 $ $ Service revenue, net Service expense General and administrative expense Depreciation and amortization Operating loss On November 2, 2017, the Company’s Board of Directors approved the extension of the Company’s existing stock repurchase program, authorizing the Company to engage in a common stock repurchase program to repurchase up to $69.6 million (the amount remaining from the $100.0 million repurchase amount authorized in 2016) in aggregate value of the Company’s common stock through December 31, 2018. (c) Limitations on the effectiveness of controls Proceedings. Period Total Number of Shares of Common Stock Purchased (1) Average Price Paid per Share Total Number of Shares of Common Stock Purchased as Part of Publicly Announced Plans or Program Maximum Dollar Value of Shares of Common Stock that May Yet Be Purchased Under the Plans or Program (2) Month 1: April 1, 2017 April 30, 2017 Month 2: May 1, 2017 May 31, 2017 Month 3: June 1, 2017 June 30, 2017 Total 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. On October 26, 2016, our Board authorized a new repurchase program, under which the Company may repurchase up to $100.0 million in aggregate value of the Company’s common stock during the twelve-month period following October 26, 2016. As of 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: By: /s/ James M. Lindstrom (Principal Executive Officer) Date: By: /s/ David C. Shackelton (Principal Financial Officer)☒☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 JuneSeptember 30, 2017☐☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware86-0845127Delaware 86-0845127 (I.R.S. EmployerIdentification No.) Large accelerated filer ☐ August 4,November 3, 2017, there were outstanding 13,501,63713,305,502 shares (excluding treasury shares of 3,944,171) of the registrant’s Common Stock, $0.001 par value per share.Page JuneSeptember 30, 2017 (unaudited) and December 31, 2016 sixnine months ended JuneSeptember 30, 2017 and 2016 Unaudited Condensed Consolidated Statements of Comprehensive Income – Three and sixnine months ended JuneSeptember 30, 2017 and 2016 SixNine months ended JuneSeptember 30, 2017 and 2016 JuneSeptember 30, 2017 25 40 42 42 Assets $ 56,583 $ 72,262 172,189 162,115 8,545 12,639 47,445 37,895 1,461 3,192 286,223 288,103 47,761 46,220 120,818 119,624 46,799 49,124 160,601 161,363 9,788 8,397 6,455 10,938 4,431 1,510 $ 682,876 $ 685,279 $ 1,918 $ 1,721 18,101 22,177 105,464 102,381 83,812 72,356 24,469 20,522 4,857 8,639 238,621 227,796 1,131 1,890 24,750 22,380 55,141 57,973 319,643 310,039 77,565 77,565 17 17 307,934 302,010 153,266 156,718 (29,023 ) (33,449 ) (144,193 ) (125,201 ) 288,001 300,095 (2,333 ) (2,420 ) 285,668 297,675 $ 682,876 $ 685,279 September 30,
2017 December 31,
2016 (Unaudited) Assets Current assets: Cash and cash equivalents $ 92,178 $ 72,262 Accounts receivable, net of allowance of $5,765 in 2017 and $5,901 in 2016 175,162 162,115 Other receivables 5,555 12,639 Prepaid expenses and other 39,083 37,895 Restricted cash 1,198 3,192 Total current assets 313,176 288,103 Property and equipment, net 48,191 46,220 Goodwill 121,555 119,624 Intangible assets, net 45,750 49,124 Equity investments 157,067 161,363 Other assets 12,911 8,397 Restricted cash, less current portion 5,902 10,938 Deferred tax asset 4,436 1,510 Total assets $ 708,988 $ 685,279 Liabilities, redeemable convertible preferred stock and stockholders' equity Current liabilities: Current portion of long-term obligations $ 1,528 $ 1,721 Accounts payable 19,921 22,177 Accrued expenses 103,397 102,381 Accrued transportation costs 101,195 72,356 Deferred revenue 17,421 20,522 Reinsurance and related liability reserves 4,881 8,639 Total current liabilities 248,343 227,796 Long-term obligations, less current portion 566 1,890 Other long-term liabilities 23,968 22,380 Deferred tax liabilities 54,363 57,973 Total liabilities 327,240 310,039 Commitments and contingencies (Note 11) Redeemable convertible preferred stock Convertible preferred stock, net: Authorized 10,000,000 shares; $0.001 par value; 803,232 and 803,398 issued and outstanding; 5.5%/8.5% dividend rate 77,549 77,565 Stockholders' equity Common stock: Authorized 40,000,000 shares; $0.001 par value; 17,446,673 and 17,315,661 issued and outstanding (including treasury shares) 17 17 Additional paid-in capital 310,017 302,010 Retained earnings 167,004 156,718 Accumulated other comprehensive loss, net of tax (26,331 ) (33,449 ) Treasury shares, at cost, 3,944,171 and 3,478,676 shares (144,201 ) (125,201 ) Total Providence stockholders' equity 306,506 300,095 Noncontrolling interest (2,307 ) (2,420 ) Total stockholders' equity 304,199 297,675 Total liabilities, redeemable convertible preferred stock and stockholders' equity $ 708,988 $ 685,279 $ 407,983 $ 398,119 $ 807,477 $ 780,154 377,036 367,846 746,446 716,521 18,048 16,711 35,076 35,228 6,900 6,849 13,169 13,388 401,984 391,406 794,691 765,137 5,999 6,713 12,786 15,017 329 407 681 902 (1,530 ) 1,459 530 4,176 463 (775 ) 400 (850 ) 6,737 5,622 11,175 10,789 2,879 3,997 5,402 7,789 3,858 1,625 5,773 3,000 (117 ) 2,370 (5,984 ) 3,123 3,741 3,995 (211 ) 6,123 174 628 (200 ) 735 $ 3,915 $ 4,623 $ (411 ) $ 6,858 $ 2,434 $ 3,104 $ (3,037 ) $ 4,108 $ 0.19 $ 0.07 $ 0.22 $ 0.09 (0.01 ) 0.14 (0.44 ) 0.18 $ 0.18 $ 0.21 $ (0.22 ) $ 0.27 $ 0.19 $ 0.07 $ 0.22 $ 0.09 (0.01 ) 0.14 (0.44 ) 0.18 $ 0.18 $ 0.21 $ (0.22 ) $ 0.27 13,553,704 14,893,595 13,628,572 14,975,582 13,607,576 15,019,312 13,687,183 15,098,945 Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Service revenue, net $ 409,517 $ 412,271 $ 1,216,994 $ 1,192,426 Operating expenses: Service expense 378,032 378,488 1,124,478 1,095,011 General and administrative expense 18,629 17,320 53,705 52,548 Depreciation and amortization 6,547 6,670 19,716 20,058 Total operating expenses 403,208 402,478 1,197,899 1,167,617 Operating income 6,309 9,793 19,095 24,809 Other expenses: Interest expense, net 302 338 983 1,239 Equity in net (gain) loss of investees 460 1,517 991 5,693 Gain on sale of equity investment (12,606 ) — (12,606 ) — Loss (gain) on foreign currency transactions 200 (482 ) 600 (1,332 ) Income from continuing operations before income taxes 17,953 8,420 29,127 19,209 Provision for income taxes 2,989 4,678 8,391 12,466 Income from continuing operations, net of tax 14,964 3,742 20,736 6,743 Discontinued operations, net of tax (16 ) (2,791 ) (6,000 ) 332 Net income 14,948 951 14,736 7,075 Net loss (income) attributable to noncontrolling interests (95 ) (301 ) (295 ) 433 Net income attributable to Providence $ 14,853 $ 650 $ 14,441 $ 7,508 Net income (loss) available to common stockholders (Note 9) $ 11,962 $ (745 ) $ 8,927 $ 3,697 Basic earnings (loss) per common share: Continuing operations $ 0.88 $ 0.14 $ 1.10 $ 0.23 Discontinued operations — (0.19 ) (0.44 ) 0.02 Basic earnings (loss) per common share $ 0.88 $ (0.05 ) $ 0.66 $ 0.25 Diluted earnings (loss) per common share: Continuing operations $ 0.88 $ 0.14 $ 1.09 $ 0.23 Discontinued operations — (0.19 ) (0.44 ) 0.02 Diluted earnings (loss) per common share $ 0.88 $ (0.05 ) $ 0.65 $ 0.25 Weighted-average number of common shares outstanding: Basic 13,581,662 14,523,408 13,612,764 14,823,757 Diluted 13,655,554 14,634,483 13,676,468 14,943,024 $ 3,741 $ 3,995 $ (211 ) $ 6,123 174 628 (200 ) 735 3,915 4,623 (411 ) 6,858 3,225 (6,841 ) 4,426 (8,332 ) 3,225 (6,841 ) 4,426 (8,332 ) 6,966 (2,846 ) 4,215 (2,209 ) 264 551 (87 ) 645 $ 7,230 $ (2,295 ) $ 4,128 $ (1,564 ) Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Net income $ 14,948 $ 951 $ 14,736 $ 7,075 Net loss (income) attributable to noncontrolling interest (95 ) (301 ) (295 ) 433 Net income attributable to Providence 14,853 650 14,441 7,508 Other comprehensive income (loss): Foreign currency translation adjustments, net of tax 2,165 (2,808 ) 6,591 (11,140 ) Reclassification of translation loss realized upon sale of equity investment 527 — 527 — Other comprehensive income (loss): 2,692 (2,808 ) 7,118 (11,140 ) Comprehensive income (loss) 17,640 (1,857 ) 21,854 (4,065 ) Comprehensive loss (income) attributable to noncontrolling interest (26 ) (266 ) (113 ) 378 Comprehensive income (loss) attributable to Providence $ 17,614 $ (2,123 ) $ 21,741 $ (3,687 ) $ (211 ) $ 6,123 9,245 11,518 3,924 17,632 1,082 1,938 3,021 1,947 (6,733 ) (10,094 ) 349 1,053 530 4,176 401 (806 ) (8,949 ) (6,531 ) (3,485 ) (25,909 ) (4,874 ) 2,784 (1,716 ) 44,052 - (28,337 ) 11,456 12,119 2,896 1,448 2,325 4,642 9,261 37,755 (10,745 ) (23,636 ) 300 (9 ) - (6,381 ) (566 ) - 6,216 3,849 (4,795 ) (26,177 ) (2,191 ) (2,197 ) (18,754 ) (32,534 ) 1,028 787 (96 ) - - (15,500 ) - 22,500 (738 ) (47 ) (20,751 ) (26,991 ) 606 (533 ) (15,679 ) (15,946 ) 72,262 84,770 $ 56,583 $ 68,824 $ 714 $ 6,083 $ 7,736 $ 45,265 Nine months ended September 30, 2017 2016 Operating activities Net (loss) income $ 14,736 $ 7,075 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 13,802 17,039 Amortization 5,914 24,140 Provision for doubtful accounts 1,258 2,196 Stock-based compensation 4,586 3,204 Deferred income taxes (7,062 ) (15,446 ) Amortization of deferred financing costs and debt discount 516 1,573 Equity in net loss of investees 991 5,693 Gain on sale of equity investment (12,606 ) — Other non-cash charges (credits) 555 (1,279 ) Changes in operating assets and liabilities: Accounts receivable (10,647 ) (22,116 ) Prepaid expenses and other 7,517 (9,900 ) Reinsurance and related liability reserve (4,924 ) 984 Accounts payable and accrued expenses (3,407 ) 32,530 Income taxes payable on sale of business — (30,153 ) Accrued transportation costs 28,839 31,935 Deferred revenue (4,537 ) (7,460 ) Other long-term liabilities 1,399 5,242 Net cash provided by operating activities 36,930 45,257 Investing activities Purchase of property and equipment (15,293 ) (33,928 ) Net increase from short-term investments 300 242 Equity investments — (6,381 ) Cost method investments (3,000 ) — Loan to joint venture (566 ) — Repayment of loan from joint venture 576 — Proceeds from sale of equity investment 15,823 — Restricted cash for reinsured claims losses and other 7,029 4,917 Net cash provided by (used in) investing activities 4,869 (35,150 ) Financing activities Preferred stock dividends (3,305 ) (3,309 ) Repurchase of common stock, for treasury (18,763 ) (53,214 ) Proceeds from common stock issued pursuant to stock option exercise 1,528 4,099 Performance restricted stock surrendered for employee tax payment (96 ) — Repayment of long-term debt — (23,250 ) Proceeds from long-term debt — 43,500 Capital lease payments and other (1,711 ) (47 ) Net cash used in financing activities (22,347 ) (32,221 ) Effect of exchange rate changes on cash 464 (39 ) Net change in cash and cash equivalents 19,916 (22,153 ) Cash and cash equivalents at beginning of period 72,262 84,770 Cash and cash equivalents at end of period $ 92,178 $ 62,617 Supplemental cash flow information: Cash paid for interest $ 776 $ 8,873 Cash paid for income taxes $ 14,804 $ 50,037 Prepaid financing and subsidiary stock issuance costs $ — $ 1,049 Accrued unfunded future equity investment capital contributions $ — $ 1,590 Purchase of equipment through capital lease obligation $ — $ 809 JuneSeptember 30, 2017 is a holding company, which owns interests in, through its subsidiaries and other companies that arein which it owns interests, is primarily engaged in the provision of healthcare and workforce development services for public and private sector entities seeking to control costs and promote positive outcomes. The subsidiaries and other companies in which the Company holds interests comprise the following segments:●Non-Emergency Transportation Services (“NET Services”) – Nationwide provider of non-emergency medical transportation programs for state governments and managed care organizations.●Workforce Development Services (“WD Services”) – Global provider of employment preparation and placement and legal offender rehabilitation services to eligible participants of government sponsored programs.●Matrix Investment – Minority interest in nationwide provider of in-home care optimization and management solutions, including comprehensive health assessments, to members of managed care organizations, accounted for as an equity method investment.sixnine months ended JuneSeptember 30, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017. Management has evaluated events and transactions that occurred after the balance sheet date and through the date these unaudited condensed consolidated financial statements were filed, and considered the effect of such events in the preparation of these unaudited condensed consolidated financial statements.sixnine months ended JuneSeptember 30, 2016. See Note 13,Discontinued Operations,for further information. See Note 2,Significant Accounting Policies and Recent Accounting Pronouncements, for additional information on other reclassifications.sixnine months ended JuneSeptember 30, 2017:(“ (“ASU 2016-07”). ASU 2016-07 eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU 2016-07 instead specifies that the investor should add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and apply the equity method of accounting as of the date the investment became qualified for equity method accounting. ASU 2016-07 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 and should be applied prospectively. The Company adopted ASU 2016-07 on January 1, 2017. The adoption of ASU 2016-07 had no impact on the Company’s financial statements or disclosures.(“ (“ASU 2016-09”). ASU 2016-09 is intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including income tax consequences, classification of awards as either equity or liabilities and classification in the statement of cash flows. For public companies, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted ASU 2016-09 on January 1, 2017, and elected to recognize forfeitures as they occur. As a result, the Company recorded a cumulative effect adjustment of $850 to retained earnings as of January 1, 2017. Upon adoption, all excess tax benefits and tax deficiencies related to employee share-based payments are recognized through income tax expense prospectively. For the three and nine months ended JuneSeptember 30, 2017, the Company recorded excess tax deficiencies of $97$261 and $148, respectively, as an increase to the provision for income taxes. For the six months ended June 30, 2017, the Company recorded excess tax benefits of $113 as a reduction to the provision for income taxes. The Company excluded the related tax benefits when applying the treasury stock method for computing diluted shares outstanding on a prospective basis resulting in a decrease in diluted weighted average shares outstanding of 16,1964,779 and 8,7877,451 shares, respectively, for the three and sixnine months ended JuneSeptember 30, 2017.$258$276 and an increase of $258$276 in cash flows used in financing activities in the condensed consolidated statement of cash flows for the sixnine months ended JuneSeptember 30, 2016. Additionally, ASU 2016-09 requires that employee taxes paid when an employer withholds shares for tax-withholding purposes be reported as financing activities in the consolidated statements of cash flows, which is how the Company has historically classified these amounts.(“ (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company adopted ASU 2017-01 on April 1, 2017. The adoption of ASU 2017-01 had no impact on the Company’s financial statements or disclosures.(“ (“ASU 2017-04”).ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test. As a result, under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This guidance is effective prospectively for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The Company adopted ASU 2017-04 on April 1, 2017. The adoption of ASU 2017-04 had no impact on the Company’s financial statements or disclosures.(“ (“ASU 2014-09”).ASU 2014-09 introduced FASB Accounting Standards Codification Topic 606 (“ASC 606”), which will replace most currently applicable existing revenue recognition guidance and is intended to improve and converge with internationalstandardsinternational standards the financial reporting requirements for revenue from contracts with customers. The core principle of ASU 2014-09 is that an entity shouldrecognizeshould recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09also2014-09 also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from customer contracts, including significantjudgmentssignificant judgments and changes in judgments. ASU 2014-09 allows for adoption either on a full retrospective basis to each prior reporting period presented or on amodifieda modified retrospective basis with the cumulative effect of initially applying the new guidance recognized at the date of initial application, which will beeffectivebe effective for the Company beginning January 1, 2018.●the effect of specified clauses on the term of many of the Company’s contracts with customers;●the nature of the promises in many of the Company’s contracts with customers to perform integrated services over a period of time;●whether and how much variable consideration to include when determining the transaction prices for its contracts with customers;●whether any of the Company’s customer contracts require performance over a series of distinct service periods and the impact on determining and allocating the transaction price; and●the manner in which the Company will measure its progress towards fully satisfying its performance obligations, including a determination of whether the Company may be able to use certain practical expedients.therefore, the Company has not yet determined with certainty the impact of applying ASC 606. However,however, management does not believe the impact of ASC 606 on its financial statements will be significant based on the procedures performed to date.323)(“323) (“ASU 2017-03”). ASU 2017-03 expands required qualitative disclosures when registrants cannot reasonably estimate the impact that adoption of an ASU will have on the financial statements. Such qualitative disclosures would include a comparison of the registrant’s new accounting policies, if determined, to current accounting policies, a description of the status of the registrant’s process to implement the new standard and a description of the significant implementation matters yet to be addressed by the registrant. Other than enhancements to the qualitative disclosures regarding future adoption of new ASUs, adoption of the provisions of this standard is not expected to have any impact on the Company’s consolidated financial statements.(“ (“ASU 2017-09”). ASU 2017-09 provides guidance about which changes to the terms of a share-based payment award should be accounted for as a modification. A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do not change, and the classification as an equity or liability instrument does not change. This guidance is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. The adoption of ASU 2017-09 is not expected to have a material impact on the Company’s consolidated financial statements.ownsowned a 46.8% noncontrolling interest in Matrix. As of September 30, 2017, the Company owned a 46.6% noncontrolling interest in Matrix. Pursuant to a Shareholder’s Agreement, affiliates of Frazier Healthcare Partners hold rights necessary to control the fundamental operations of Matrix. The Company accounts for this investment in Matrix under the equity method of accounting and the Company’s share of Matrix’s income or losses are recorded as “Equity in net (gain) loss of investees” in the accompanying condensed consolidated statements of income.JuneSeptember 30, 2017 and December 31, 2016 totaled $157,124$156,883 and $157,202, respectively. $ 43,479 $ 28,589 604,598 614,841 35,236 25,791 274,426 281,348 $ 60,852 5,942 1,619 $ 116,707 6,950 (238 ) September 30, 2017 December 31, 2016 Current assets $ 50,015 $ 28,589 Long-term assets 598,842 614,841 Current liabilities 39,273 25,791 Long-term liabilities 270,816 281,348 Three months ended
September 30, 2017Revenue $ 58,639 Operating income 3,159 Net loss (537 ) Nine months ended
September 30, 2017Revenue $ 175,346 Operating income 10,109 Net loss (775 ) hashad a 60% ownership interest in Mission Providence, and hashad rights to 75% of Mission Providence’s distributions of cash or profit surplus twice per calendar year.determined it has a variable interest in Mission Providence. However, it does not have unilateral power to direct the activities that most significantly impact Mission Providence’s economic performance, which include budget approval, business planning, the appointment of key officers and liquidation and distribution of share capital. As a result, the Company is not the primary beneficiary of Mission Providence. The Company accountsaccounted for this investment under the equity method of accounting and the Company’s share of Mission Providence’s income or losses iswas recorded as “Equity��Equity in net (gain) loss of investees” in the accompanying condensed consolidated statements of income. Cash contributions made to Mission Providence in exchange for its equity interests are included in the condensed consolidated statements of cash flows as “Equity investments.”following table summarizesrelated gain on sale of Mission Providence totaling $12,606 is recorded as “Gain on sale of equity investment” in the accompanying condensed consolidated statements of income. The carrying amountsamount of the assets and liabilities included in the Company’s condensed consolidated balance sheet and the maximum loss exposure related to the Company’s interest in Mission Providence as of June 30, 2017 andwas $4,021 at December 31, 2016: $ 3,326 $ 576 $ - $ 3,902 $ 4,021 $ - $ - $ 4,021 Other Assets is comprised of a loan to Mission Providence, which was made during the three months ended March 31, 2017. 2016. $ 816 $ 4,640 10,530 10,473 10,658 12,844 - 1,655 $ 10,493 $ 9,708 639 (2,709 ) 577 (1,945 ) $ 19,880 $ 17,126 (1,166 ) (7,794 ) (1,283 ) (5,568 ) December 31, 2016 Current assets $ 4,640 Long-term assets 10,473 Current liabilities 12,844 Long-term liabilities 1,655 Three months ended September 30, 2017 2016 Revenue $ 10,244 $ 9,349 Operating loss (599 ) (2,903 ) Net loss (651 ) (2,059 ) Nine months ended September 30, 2017 2016 Revenue $ 30,125 $ 26,475 Operating loss (1,765 ) (10,697 ) Net loss (1,934 ) (7,627 ) $ 1,701 $ 1,467 10,000 10,000 2,402 3,153 2,479 3,570 3,177 3,130 3,447 2,013 2,674 2,609 21,565 11,953 $ 47,445 $ 37,895 September 30,
2017 December 31,
2016Prepaid income taxes $ 3,819 $ 1,467 Escrow funds 10,000 10,000 Prepaid insurance 2,778 3,153 Prepaid taxes and licenses 2,526 3,570 Note receivable 3,201 3,130 Prepaid rent 2,727 2,013 Deposits held for leased premises and bonds 2,744 2,609 Other 11,288 11,953 Total prepaid expenses and other $ 39,083 $ 37,895 JuneSeptember 30, 2017. While the matter is not resolved, it is highly likely the escrow funds will be used to satisfy a portion of this settlement. See Note 11,Commitments and Contingencies, for further information.The increase in “Other” in the table above from December 31, 2016 to June 30, 2017 primarily relates to the timing of prepaid program costs for WD Services. $ 21,704 $ 23,050 32,146 32,836 15,000 6,000 1,545 372 35,069 40,123 $ 105,464 $ 102,381 September 30,
2017 December 31, 2016 Accrued compensation $ 24,058 $ 23,050 NET Services accrued contract payments 26,504 32,836 Accrued settlement 15,000 6,000 Income taxes payable — 372 Other 37,835 40,123 Total accrued expenses $ 103,397 $ 102,381 ongoing redundancy programs: a redundancy plan approved in 2016 related to the termination of employees as part of a value enhancement project (“Ingeus Futures’ Program”) to better align costs at Ingeus with revenue and to improve overall operating performance; and twoprograms. Two redundancy plans were approved in 2015 includingand have been substantially completed; a plan related to the termination of employees delivering services under an offender rehabilitation program (“Offender Rehabilitation Program”) and a plan related to the termination of employees delivering services under the Company’s employability and skills training programs and certain other employees in the UKUnited Kingdom (“UK Restructuring Program”). In addition, a redundancy plan related to the termination of employees as part of a value enhancement project ("Ingeus Futures Program") to better align costs at Ingeus with revenue and to improve overall operating performance was approved in 2016. The Company recorded severance and related charges of $859$1,117 and $4,608$4,741 during the sixnine months ended JuneSeptember 30, 2017 and 2016, respectively, relating to the termination benefits for employee groups and specifically identified employees impacted by these plans. The severance charges incurred are recorded as “Service expense” in the accompanying condensed consolidated statements of income.sixnine months ended JuneSeptember 30, 2017 and 2016 related to the actualization of termination benefits for specifically identified employees impacted under these plans, as well as an increase in the number of individuals impacted by these plans. The final identification of the employees impacted by each program is subject to customary consultation procedures. $ 2,486 $ 836 $ (2,341 ) $ 130 $ 1,111 1,380 52 (1,295 ) 18 155 50 (29 ) - 2 23 $ 3,916 $ 859 $ (3,636 ) $ 150 $ 1,289 $ 6,538 $ 4,174 $ (2,204 ) $ (753 ) $ 7,755 2,059 434 (1,956 ) (96 ) 441 $ 8,597 $ 4,608 $ (4,160 ) $ (849 ) $ 8,196 January 1,
2017 Cash Payments September 30, 2017 Ingeus Futures' Program $ 2,486 $ 1,186 $ (3,086 ) $ 158 $ 744 Offender Rehabilitation Program 1,380 (40 ) (1,357 ) 17 — UK Restructuring Program 50 (29 ) — 3 24 Total $ 3,916 $ 1,117 $ (4,443 ) $ 178 $ 768 January 1,
2016 Cash Payments September 30, 2016 Offender Rehabilitation Program $ 6,538 $ 4,204 $ (6,075 ) $ (906 ) $ 3,761 UK Restructuring Program 2,059 537 (2,379 ) (103 ) 114 Total $ 8,597 $ 4,741 $ (8,454 ) $ (1,009 ) $ 3,875 $1,289$768 is reflected in “Accrued expenses” in the condensed consolidated balance sheet at JuneSeptember 30, 2017. The amount accrued as of JuneSeptember 30, 2017 is expected to be settled principally by the end of 2017.sixnine months ended JuneSeptember 30, 2017: 17,315,661 $ 17 $ 302,010 $ 156,718 $ (33,449 ) 3,478,676 $ (125,201 ) $ (2,420 ) $ 297,675 - - 3,061 - - - - - 3,061 60,233 - 968 - - 5,665 (238 ) - 730 28,923 - - - - 17,703 (771 ) - (771 ) 3,773 - (96 ) - - - - - (96 ) 24,775 1,107 - - - - 1,107 - - - - - 441,965 (17,983 ) - (17,983 ) - - - - 4,426 - - (113 ) 4,313 - - - (2,191 ) - - - - (2,191 ) - - - - - - - 200 200 - - 34 - - - - - 34 - - - (411 ) - - - - (411 ) - - 850 (850 ) - - - - - 17,433,365 $ 17 $ 307,934 $ 153,266 $ (29,023 ) 3,944,009 $ (144,193 ) $ (2,333 ) $ 285,668 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Non-controlling Interest Total Shares Amount Shares Amount Balance at December 31, 2016 17,315,661 $ 17 $ 302,010 $ 156,718 $ (33,449 ) 3,478,676 $ (125,201 ) $ (2,420 ) $ 297,675 Stock-based compensation — — 4,636 — — — — — 4,636 Exercise of employee stock options 70,283 — 1,468 — — 5,665 (238 ) — 1,230 Restricted stock issued 31,316 — — — — 17,865 (779 ) — (779 ) Performance restricted stock issued 3,773 — (96 ) — — — — — (96 ) Shares issued for bonus settlement and director stipend 25,225 1,107 — — — — 1,107 Stock repurchase plan — — — — — 441,965 (17,983 ) — (17,983 ) Conversion of convertible preferred stock to common stock 415 — 17 — — — — — 17 Foreign currency translation adjustments, net of tax — — — — 6,591 — — (182 ) 6,409 Reclassification of translation loss realized upon sale of equity investment — — — — 527 — — — 527 Convertible preferred stock dividends — — — (3,305 ) — — — — (3,305 ) Noncontrolling interests — — — — — — — 295 295 Other — — 25 — — — — — 25 Net income attributable to Providence — — — 14,441 — — — — 14,441 Cumulative effect adjustment from change in accounting principle — — 850 (850 ) ��� — — — — Balance at September 30, 2017 17,446,673 $ 17 $ 310,017 $ 167,004 $ (26,331 ) 3,944,171 $ (144,201 ) $ (2,307 ) $ 304,199 sixnine months ended JuneSeptember 30, 2017 and 2016: $ 110 $ 66 $ 234 $ 180 1,445 1,247 2,787 1,724 13 - 40 - - 22 - 43 $ 1,568 $ 1,335 $ 3,061 $ 1,947 Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Service expense $ 131 $ 100 $ 365 $ 280 General and administrative expense 1,434 1,135 4,221 2,858 Equity in net loss of investees 10 — 50 — Discontinued operations, net of tax — 22 — 66 Total stock-based compensation $ 1,575 $ 1,257 $ 4,636 $ 3,204 $1,042$1,014 and $2,084$3,098 for the three and sixnine months ended JuneSeptember 30, 2017, respectively, related to the Company’s 2015 Holding Company LTI Program (the “HoldCo LTIP”).HoldCo LTIP. Stock-based compensation, for share settled awards, includes $842$921 and $1,462$2,383 for the three and sixnine months ended JuneSeptember 30, 2016, respectively, related to the HoldCo LTIP. No shares will be distributed under the HoldCo LTIP unless the volume weighted average of Providence’s stock price over a 90-day period ending on December 31, 2017 is greater than $56.79.JuneSeptember 30, 2017, the Company had 290,781300,831 stock options outstanding with a weighted-average exercise price of $37.56.$37.97. The Company also had 73,95071,193 shares of unvested RSAs outstanding at JuneSeptember 30, 2017 with a weighted-average grant date fair value of $44.40$44.33 and 18,298 unvested PRSUs outstanding.sixnine months ended JuneSeptember 30, 2017, respectively, the Company recorded $564$380 and $1,231$1,611 of stock-based compensation expense for cash settled awards. During the three and sixnine months ended JuneSeptember 30, 2016, respectively, the Company recorded $847$422 and $117$305 of stock-based compensation benefitexpense for cash settled awards. The expense and benefit for cash settled awards is included as “General and administrative expense” in the accompanying condensed consolidated statements of income. As the awards are cash settled, a significant amount of the expense recorded for the three and sixnine months ended JuneSeptember 30, 2017 and 2016 is attributable to the Company’s increase or decrease in stock price from the previous reporting period. The liability for unexercised cash settled share-based payment awards of $2,789$3,168 and $1,764 at JuneSeptember 30, 2017 and December 31, 2016, respectively, are reflected in “Accrued expenses” in the condensed consolidated balance sheets. At JuneSeptember 30, 2017, the Company had 6,671 SEUs and 200,000 stock option equivalent units outstanding.As of June 30, 2017, unamortized compensation expense is $971. The total value will be paid to the awarded participants per the terms of the original agreement and thus the remaining unamortized expense relating to this plan will continuecontinues to be recognized over the remaining service period. As of September 30, 2017, unamortized compensation expense is $696. For the three and sixnine months ended JuneSeptember 30, 2017, a creditexpenses of $401$274 and expense of $144,$419, respectively, are included as “Service expense” in the condensed consolidated statements of income related to these plans. For the three and sixnine months ended JuneSeptember 30, 2016, $979$1,157 and $1,994,$3,151, respectively, of expense are included as “Service expense” in the condensed consolidated statements of income related to these plans. At JuneSeptember 30, 2017, the liability for long-term incentive plans of the Company’s operating segments of $1,985$2,260 is reflected in “Accrued expenses” and “Other long-term liabilities” in the condensed consolidated balance sheet. At December 31, 2016, the liability for long-term incentive plans of the Company’s operating segments of $1,841 is reflected in “Other long-term liabilities” in the condensed consolidated balance sheet. $ 3,915 $ 4,623 $ (411 ) $ 6,858 (1,102 ) (1,099 ) (2,191 ) (2,198 ) (379 ) (420 ) (435 ) (552 ) $ 2,434 $ 3,104 $ (3,037 ) $ 4,108 $ 2,551 $ 1,016 $ 2,947 $ 1,355 (117 ) 2,088 (5,984 ) 2,753 $ 2,434 $ 3,104 $ (3,037 ) $ 4,108 13,553,704 14,893,595 13,628,572 14,975,582 48,836 125,717 53,575 123,363 5,036 - 5,036 13,607,576 15,019,312 13,687,183 15,098,945 $ 0.19 $ 0.07 $ 0.22 $ 0.09 (0.01 ) 0.14 (0.44 ) 0.18 $ 0.18 $ 0.21 $ (0.22 ) $ 0.27 $ 0.19 $ 0.07 $ 0.22 $ 0.09 (0.01 ) 0.14 (0.44 ) 0.18 $ 0.18 $ 0.21 $ (0.22 ) $ 0.27 Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Numerator: Net income attributable to Providence $ 14,853 $ 650 $ 14,441 $ 7,508 Less dividends on convertible preferred stock (1,114 ) (1,111 ) (3,305 ) (3,309 ) Less income allocated to participating securities (1,777 ) (284 ) (2,209 ) (502 ) Net income (loss) available to common stockholders $ 11,962 $ (745 ) $ 8,927 $ 3,697 Continuing operations $ 11,978 $ 2,046 $ 14,927 $ 3,405 Discontinued operations (16 ) (2,791 ) (6,000 ) 292 $ 11,962 $ (745 ) $ 8,927 $ 3,697 Denominator: Denominator for basic earnings per share -- weighted-average shares 13,581,662 14,523,408 13,612,764 14,823,757 Effect of dilutive securities: Common stock options 68,856 111,075 58,668 119,267 Performance-based restricted stock units 5,036 — 5,036 Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion 13,655,554 14,634,483 13,676,468 14,943,024 Basic earnings (loss) per share: Continuing operations $ 0.88 $ 0.14 $ 1.10 $ 0.23 Discontinued operations — (0.19 ) (0.44 ) 0.02 $ 0.88 $ (0.05 ) $ 0.66 $ 0.25 Diluted earnings (loss) per share: Continuing operations $ 0.88 $ 0.14 $ 1.09 $ 0.23 Discontinued operations — (0.19 ) (0.44 ) 0.02 $ 0.88 $ (0.05 ) $ 0.65 $ 0.25 46,478 33,957 144,811 33,957 803,398 803,455 803,398 803,486 Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 Stock options to purchase common stock 33,890 33,957 56,528 33,957 Convertible preferred stock 803,285 803,398 803,360 803,457 sixnine months ended JuneSeptember 30, 2017 was 42.7%16.7% and 48.3%28.8%, respectively. The Company’s effective tax rate from continuing operations for the three and sixnine months ended JuneSeptember 30, 2016 was 71.1%55.6% and 72.2%64.9%, respectively. The effective tax rates for these periodsthe three and nine months ended September 30, 2016 exceeded the U.S. federal statutory rate of 35% primarily due to foreign net operating losses (including equity investment losses in certain of the periods) for which the future income tax benefit currently cannot be recognized, losses in foreign jurisdictions with tax rates lower than the U.S. rate of 35%, state income taxes and certain non-deductible expenses. Foreign net operating losses for which no tax benefit can be provided were higher in 2016 versus 2017 resulting in a decrease in the effective tax rate from 2016 to 2017.of $97 for the three and nine months ended JuneSeptember 30, 2017 of $261 and $148, respectively, which increased the provision for income taxes, and excess tax benefits of $113 for the six months ended June 30, 2017, which reduced the provision for income taxes. These excess tax deficiencies and benefits were a result of applying the guidance in ASU 2016-09 as further discussed in Note 2,Significant Accounting Policies and Recent Accounting Pronouncements.Pronouncements.January 20,September 28, 2017, the special litigation committee created by the Company’s Board of Directors advised the Court that the parties to the litigation and the special litigation committee had reached an agreement in principle to settle all of the claims in the litigation.The parties have entered intoapproved a proposed settlement agreement which has been submitted toamong the Court for approval. The proposed settlement agreementparties that provides for a settlement amount of $10,000 less plaintiff’s legal fees and expenses (the “Settlement Amount”), with 75% of the Settlement Amount less plaintiff’s legal fees and expenses to be paid to the Company and 25% of the Settlement Amount to be paid to holders of the Company’s common stock. A court hearingstock other than certain excluded parties. The Company expects to considerreceive a payment of approximately $5,000. As this amount is considered a gain contingency, the proposed settlementCompany has been schedulednot recorded a receivable for this amount as of September 28,30, 2017.ReportReports on Form 10-Q for the periodperiods ended March 31, 2017 and June 30, 2017.non-transferrablenon-transferable right to purchase their pro rata share of $65,500 of convertible preferred stock at a price equal to $100.00 per share (“Preferred Stock”). Stockholders exercised subscription rights to purchase 130,884 shares of the Company's Preferred Stock. Pursuant to the terms and conditions of the Standby Purchase Agreement (the “Standby Purchase Agreement”) between Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Coliseum Capital Co-Invest, L.P. and Blackwell Partners, LLC (collectively, the “Standby Purchasers”) and the Company, the remaining 524,116 shares of the Company’s Preferred Stock were purchased by the Standby Purchasers at the $100.00 per share subscription price. The Company has indemnified the Standby Purchasers from and against any and all losses, claims, damages, expenses and liabilities relating to or arising out of (i) any breach of any representation, warranty, covenant or undertaking made by or on behalf of the Company in the Standby Purchase Agreement and (ii) the transactions contemplated by the Standby Purchase Agreement and the 14.0% Unsecured Subordinated Note in aggregate principal amount of $65,500, except to the extent that any such losses, claims, damages, expenses and liabilities are attributable to the gross negligence, willful misconduct or fraud of such Standby Purchaser.$143$21 and $275$296 of such indemnified legal expenses related to the Haverhill Litigation during the three and sixnine months ended JuneSeptember 30, 2017, respectively, and $38$791 and $144$935 of such indemnified legal expenses during the three and sixnine months ended JuneSeptember 30, 2016, respectively, which is included in “General and administrative expenses” in the condensed consolidated statements of income. Of these amounts, $92$23 and $208$231 for the three and sixnine months ended JuneSeptember 30, 2017, respectively, and $38$360 and $144$504 for the three and sixnine months ended JuneSeptember 30, 2016, respectively, were indemnified legal expenses of related parties. Other legal expenses of the Company related to the Haverhill Litigation are covered under the Company’s insurance policies, subject to applicable deductibles and customary review of the expenses by the carrier. The Company recognized related benefit of $3 and expense of $0 and $11$8 for the three and sixnine months ended JuneSeptember 30, 2017, respectively, and no related expense of $107 for the three and sixnine months ended JuneSeptember 30, 2016. While the carrier typically remits payment directly to the respective law firm, the Company accrues for the cost and records a corresponding receivable for the amount to be paid by the carrier. The Company has recognized an insurance receivable of $1,167$903 and $1,645 in “Other receivables” in the condensed consolidated balance sheets at JuneSeptember 30, 2017 and December 31, 2016, respectively, with a corresponding liability amount recorded to “Accrued expenses”. survived through the 15th month following the closing date, and ended on February 1, 2017. However, claims made prior to February 1, 2017 by the purchaser of the Human Services segment against these representations and warranties may survive until the claims are settled. In addition, certain representations, including tax representations, survive until the expiration of applicable statutes of limitation, and healthcare representations survive until the third anniversary of the closing date. The Company received indications from the purchaser of the Human Services segment prior to the February 1, 2017 deadline regarding potential indemnification claims. One such potential indemnification claim relates toRodriguez v. Providence Community Corrections (the “Rodriguez Litigation”), a complaint filed in the District Court for the Middle District of Tennessee, Nashville Division (the “Rodriquez Litigation”“Rodriguez Court”), against Providence Community Corrections, Inc. (“PCC”), an entity sold under the Purchase Agreement. Molina announced inIn September 2016 that2017, the parties to the Rodriguez Litigation acceptedsubmitted a mediation proposalproposed settlement to the Rodriguez Court for settlementapproval pursuant to which PCC would pay the plaintiffs $14,000, andapproximately $14,000. In October 2017, the parties are in the processRodriguez Court denied preliminary approval of finalizing the settlement agreement which remains subjectand requested that the parties provide additional information. In October 2017, the parties submitted an amended motion for the Rodriguez Court to court approval.approve the proposed settlement.are in discussionshave entered into a memorandum of understanding regarding a settlement of an indemnification claim by Molina with respect to the Rodriguez Litigation and other matters. As of JuneSeptember 30, 2017, the accrual is $15,000 with respect to an estimate of loss for potential indemnification claims. The Company expects to recover a substantial portion of the settlement through insurance coverage, although this cannot be assured.Litigation is inherently uncertain and the actual losses incurred in the event that the related legal proceedings were to result in unfavorable outcomes could have a material adverse effect on the Company’s business and financial performance.As of June 30, 2017, Matrix has certain malpractice claims that arose prior to the Company’s purchase of Matrix. The Company believes it is reasonably possible that a loss has occurred; however, it is not able to reliably estimate the amount of such loss. Although the Company does not believe that the aggregate amount of liability reasonably possible with respect to these matters would have a material adverse effect on its financial results, litigation is inherently uncertain and the actual losses incurred in the event that the Company’s legal proceedings were to result in unfavorable outcomes could have a material adverse effect on the Company’s business and financial performance. JuneSeptember 30, 2017.JuneSeptember 30, 2017 and December 31, 2016, the Company had reserves of $8,693$8,309 and $11,195, respectively, for the automobile, general and professional liability and workers’ compensation reinsurance policies, net of expected receivables for losses in excess of SPCIC’s historical insurance limits. The gross reserve as of JuneSeptember 30, 2017 and December 31, 2016 of $14,776$14,407 and $16,460, respectively, is classified as “Reinsurance liability reserves” and “Other long-term liabilities” in the condensed consolidated balance sheets. The estimated amount to be reimbursed to SPCIC as of JuneSeptember 30, 2017 and December 31, 2016 was $6,083$6,098 and $5,265, respectively, and is classified as “Other receivables’receivables" and “Other assets” in the condensed consolidated balance sheets.JuneSeptember 30, 2017. The deferred compensation plan is unfunded, and benefits are paid from the general assets of the Company. The total of participant deferrals, which is reflected in “Other long-term liabilities” in the condensed consolidated balance sheets, was $1,755$1,718 and $1,430 at JuneSeptember 30, 2017 and December 31, 2016, respectively.sixnine months ended JuneSeptember 30, 2017 totaled $1,050$1,062 and $2,089,$3,151, respectively. Convertible preferred stock dividends earned by the Standby Purchasers during the three and sixnine months ended JuneSeptember 30, 2016 totaled $1,047$1,059 and $2,095,$3,154, respectively.balance as of Juneloan was repaid during the three months ended September 30, 2017 of $576 is included within “Prepaid expenses and other” in the Company’s condensed consolidated balance sheet.sixnine months ended JuneSeptember 30, 2017, the Company recorded additional expenses related to the Human Services segment, principally related to legal proceedings as described in Note 11,CommitmentCommitments and ContingencesContingencies, related to an indemnified legal matter.sixnine months ended JuneSeptember 30, 2016. Following the Matrix Transaction, the Company has a continuing involvement with Matrix through its 46.8% ownership interest in Matrix, which is accounted for as an equity method investment.Matrix’s pretax income for the three months ended Juneinvestment. As of September 30, 2017, totaled $2,284 and itsthe Company holds a 46.6% ownership interest in Matrix. Matrix’s pretax loss for the sixthree and nine months ended JuneSeptember 30, 2017 was $314.totaled $582 and $896, respectively. There have been no cash inflows or outflows from or to Matrix subsequent to the closing of the Matrix Transaction, other than the payment of working capital adjustments and management fees associated with its ongoing relationship with Matrix, of which $529$841 was received during the sixnine months ended JuneSeptember 30, 2017. $312$259 and $185 are included in “Other receivables” in the condensed consolidated balance sheets at JuneSeptember 30, 2017 and December 31, 2016, respectively, related to management fees receivable.sixnine months ended JuneSeptember 30, 2017 and 2016. $ 190 $ - $ 190 $ 9,596 $ - $ 9,596 190 - 190 9,596 - 9,596 (190 ) - (190 ) (9,596 ) - (9,596 ) 73 - 73 3,612 - 3,612 $ (117 ) $ - $ (117 ) $ (5,984 ) $ - $ (5,984 ) Three months ended September 30, 2017 Nine months ended September 30, 2017 Operating expenses: General and administrative expense $ 26 $ — $ 26 $ 9,622 $ — $ 9,622 Total operating expenses 26 — 26 9,622 — 9,622 Loss from discontinued operations before income taxes (26 ) — (26 ) (9,622 ) — (9,622 ) Income tax benefit 10 — 10 3,622 — 3,622 Discontinued operations, net of tax $ (16 ) $ — $ (16 ) $ (6,000 ) $ — $ (6,000 ) JuneSeptember 30, 2017 includes legal expenses of $190.$26. General and administrative expenses for the sixnine months ended JuneSeptember 30, 2017 includes an accrual of $9,000 for an estimated settlement of indemnified claims related to the sale of the Human Services segment, as well as related legal expenses of $596.$622. See Note 11,Commitments and Contingencies, for additional information. $ - $ 52,272 $ 52,272 $ - $ 102,864 $ 102,864 - 36,963 36,963 - 74,753 74,753 - 662 662 - 1,318 1,318 - 7,965 7,965 - 15,762 15,762 - 45,590 45,590 - 91,833 91,833 - 6,682 6,682 - 11,031 11,031 - 3,029 3,029 - 6,170 6,170 - 3,653 3,653 - 4,861 4,861 - 1,283 1,283 - 1,738 1,738 $ - $ 2,370 $ 2,370 $ - $ 3,123 $ 3,123 Three months ended September 30, 2016 Nine months ended September 30, 2016 Service revenue, net $ — $ 52,557 $ 52,557 $ — $ 155,421 $ 155,421 Operating expenses: Service expense — 38,703 38,703 — 113,455 113,455 General and administrative expense 7,463 1,505 8,968 7,463 2,823 10,286 Depreciation and amortization — 5,359 5,359 — 21,121 21,121 Total operating expenses 7,463 45,567 53,030 7,463 137,399 144,862 Operating income (loss) (7,463 ) 6,990 (473 ) (7,463 ) 18,022 10,559 Other expenses: Interest expense, net — 3,134 3,134 — 9,304 9,304 Income (loss) from discontinued operations before income taxes (7,463 ) 3,856 (3,607 ) (7,463 ) 8,718 1,255 Income tax benefit (provision) 2,428 (1,612 ) 816 2,428 (3,351 ) (923 ) Discontinued operations, net of tax $ (5,035 ) $ 2,244 $ (2,791 ) $ (5,035 ) $ 5,367 $ 332 sale of the Matrix Transaction. The total allocated interest expense was $3,031$3,136 and $6,174$9,310 for the three and sixnine months ended JuneSeptember 30, 2016 respectively, and is included in “Interest expense, net” in the table above.sixnine months ended JuneSeptember 30, 2016: $ 2,667 13,095 $ 5,415 Nine months ended September 30, 2016 Cash flows from discontinued operating activities: Depreciation $ 3,661 Amortization $ 17,460 Cash flows from discontinued investing activities: Purchase of property and equipment $ 8,020 The Company is a holding company, which owns interests inthat arein which it holds interests, is primarily engaged in the provision of healthcare and workforce development services. The subsidiaries and other companies in which the Company holds interests comprise the following segments:●NET Services – Nationwide provider of non-emergency medical transportation programs for state governments and managed care organizations.●WD Services – Global provider of employment preparation and placement and legal offender rehabilitation services to eligible participants of government sponsored programs.●Matrix Investment – Minority interest in nationwide provider of in-home care optimization and management solutions, including comprehensive health assessments, to members of managed care organizations, accounted for as an equity method investment.sixnine months ended JuneSeptember 30, 2017 and 2016: $ 338,805 $ 69,178 $ - $ - $ 407,983 316,435 62,882 - (2,281 ) 377,036 3,089 6,919 - 8,040 18,048 3,326 3,489 - 85 6,900 $ 15,955 $ (4,112 ) $ - $ (5,844 ) $ 5,999 $ - $ 440 $ 1,090 $ - $ 1,530 $ 308,915 $ 89,289 $ - $ (85 ) $ 398,119 285,446 82,073 - 327 367,846 2,785 8,585 - 5,341 16,711 2,931 3,836 - 82 6,849 $ 17,753 $ (5,205 ) $ - $ (5,835 ) $ 6,713 $ - $ (1,459 ) $ - $ - $ (1,459 ) Three months ended September 30, 2017 NET Services WD Services Total Service revenue, net $ 324,824 $ 84,693 $ — $ — $ 409,517 Service expense 304,454 73,581 — (3 ) 378,032 General and administrative expense 2,899 6,980 — 8,750 18,629 Depreciation and amortization 3,286 3,166 — 95 6,547 Operating income (loss) $ 14,185 $ 966 $ — $ (8,842 ) $ 6,309 Equity in net gain (loss) of investee $ — $ (459 ) $ (1 ) $ — $ (460 ) Three months ended September 30, 2016 NET Services WD Services Total Service revenue, net $ 317,280 $ 94,960 $ — $ 31 $ 412,271 Service expense 293,919 84,051 — 518 378,488 General and administrative expense 2,860 6,780 — 7,680 17,320 Depreciation and amortization 3,051 3,497 — 122 6,670 Operating income (loss) $ 17,450 $ 632 $ — $ (8,289 ) $ 9,793 Equity in net gain (loss) of investee $ — $ (1,517 ) $ — $ — $ (1,517 ) Nine months ended September 30, 2017 NET Services WD Services Total Service revenue, net $ 987,662 $ 229,332 $ — $ — $ 1,216,994 Service expense 927,082 199,665 — (2,269 ) 1,124,478 General and administrative expense 8,879 20,944 — 23,882 53,705 Depreciation and amortization 9,763 9,695 — 258 19,716 Operating income (loss) $ 41,938 $ (972 ) $ — $ (21,871 ) $ 19,095 Equity in net gain (loss) of investee $ — $ (1,419 ) $ 428 $ — $ (991 ) $ 662,839 $ 144,638 $ - $ - $ 807,477 622,627 126,084 - (2,265 ) 746,446 5,980 13,964 - 15,132 35,076 6,477 6,529 - 163 13,169 $ 27,755 $ (1,939 ) $ - $ (13,030 ) $ 12,786 $ - $ (960 ) $ 430 $ - $ (530 ) $ 599,876 $ 180,332 $ - $ (54 ) $ 780,154 552,392 163,745 - 384 716,521 5,622 16,456 - 13,150 35,228 5,807 7,415 - 166 13,388 $ 36,055 $ (7,284 ) $ - $ (13,754 ) $ 15,017 $ - $ (4,176 ) $ - $ - $ (4,176 ) Nine months ended September 30, 2016 NET Services WD Services Total Service revenue, net $ 917,157 $ 275,293 $ — $ (24 ) $ 1,192,426 Service expense 846,311 247,797 — 903 1,095,011 General and administrative expense 8,483 23,236 — 20,829 52,548 Depreciation and amortization 8,858 10,912 — 288 20,058 Operating income (loss) $ 53,505 $ (6,652 ) $ — $ (22,044 ) $ 24,809 Equity in net gain (loss) of investee $ — $ (5,693 ) $ — $ — $ (5,693 ) 83.1%82.1% and 78.0% of service revenue, net for the sixnine months ended JuneSeptember 30, 2017 and 2016, respectively. Foreign service revenue, net, totaled 16.9%17.9% and 22.0% of service revenue, net for the sixnine months ended JuneSeptember 30, 2017 and 2016, respectively.JuneSeptember 30, 2017 and December 31, 2016, $84,702,$99,352, or 23.3%26.0%, and $76,579, or 20.4%, respectively, of the Company’s net assets were located in countries outside of the U.S.sixnine months ended JuneSeptember 30, 2017 and 2016, as well as our consolidated financial statements and accompanying notes and management’s discussion and analysis of financial condition and results of operations included in our Form 10-K for the year ended December 31, 2016. For purposes of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to Q2Q3 2017 and Q2Q3 2016 mean the three months ended JuneSeptember 30, 2017 and the three months ended March 31,September 30, 2016, respectively, and references to YTD 2017 and YTD 2016 mean the sixnine months ended JuneSeptember 30, 2017 and the sixnine months ended JuneSeptember 30, 2016, respectively.The Service Corporation is a holding company which owns interests inthrough its subsidiaries and other companies that arein which it holds interests, is primarily engaged in the provision of healthcare and workforce development services. The subsidiaries and other companies in which we hold interests comprise the following segments:●Non-Emergency Transportation Services (“NET Services”) – Nationwide provider of non-emergency medical transportation programs for state governments and managed care organizations.●Workforce Development Services (“WD Services”) – Global provider of employment preparation and placement and legal offender rehabilitation services to eligible participants of government sponsored programs.●Matrix Investment – Minority interest in nationwide provider of in-home care optimization and management solutions, including comprehensive health assessments, to members of managed care organizations, accounted for as an equity method investment.●an aging population, which will increase demand for healthcare services;●a movement towards value-based, versus fee for service, care and budget pressure on governments, both of which may increase the use of private corporations to provide necessary and innovative services;●increasing demand for in-home care provision, driven by cost pressures on traditional reimbursement models and technological advances enabling remote engagement;●technological advancements, which may be utilized by us to improve service and lower costs and by others, which may increase industry competitiveness;●changes in UK government policy, such as decreased volumes in future welfare-to-work programs, specifically through the UK’s Work and Health Programme, which will have a reduced scope and reduced funding compared with the prior programs;●the results of the referendum on the UK’s exit from the European Union and related political and economic uncertainty in the UK; and●the U.S. federal government's expressed intent to repeal the Patient Protection and Affordable Care Act and replace such law with an alternative proposal. The details of both the extent of the provisions that may be repealed as well as the details of any potential replacement legislation are uncertain at this time. Enactment of adverse legislation, regulation or agency guidance, may eliminate or reduce the demand for our business, our ability to conduct some or all of our business and/or reimbursement rates for services performed within our segments.and the securing of new contracts, and acquisitions. WeAs we continue to selectively identifyfocus our attention and capital on our domestic, healthcare services operations ("U.S. Healthcare Services"), we may pursue the acquisition of attractive businesses that are complementary to our business strategies.U.S. Healthcare Services. In addition, as demonstrated inevidenced by the 2016 with the Matrix Transaction (as defined below), we may also enter into strategic partnerships if we feel this provides the best opportunity to maximize shareholder value. The pursuit of our strategy may also result in the disposition of current or future investments, as demonstrated in 2017 with our sale of our equity investment in Mission Providence and in 2015 with the sale of our Human Services segment,segment. In coming to these determinations, we also may enter into strategic partnerships or dispose of current or future investments, basedbase our decisions on a variety of factors, including the availability of alternative opportunities to deploy capital, maximize shareholder value or other strategic considerations.JuneSeptember 30, 2017, there has been no change in our critical accounting policies, other than for stock-based compensation and recoverability of goodwill, as discussed below. For further discussion of our critical accounting policies, see management’s discussion and analysis of financial condition and results of operations contained in our Form 10-K for the year ended December 31, 2016.Goodwill. In accordance with ASC 350,Intangibles-Goodwill and Other,, we review goodwill for impairment annually, or more frequently, if events and circumstances indicate that an asset may be impaired. Such circumstances could include, but are not limited to: (1) the loss or modification of significant contracts, (2) a significant adverse change in legal factors or in business climate, (3) unanticipated competition, (4) an adverse action or assessment by a regulator, or (5) a significant decline in the Company’s stock price. We perform the annual goodwill impairment test for all reporting units as of October 1.(“ (“ASU 2017-04”) effective April 1, 2017.ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test. Instead, if we deem it necessary to perform the quantitative goodwill impairment test in an annual or interim period, we recognize an impairment charge equal to the excess, if any, of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.Q2Q3 2017 compared to Q2Q3 2016Q2Q3 2017 and Q2Q3 2016 (in thousands): 407,983 100.0 % 398,119 100.0 % 377,036 92.4 % 367,846 92.4 % 18,048 4.4 % 16,711 4.2 % 6,900 1.7 % 6,849 1.7 % 401,984 98.5 % 391,406 98.3 % 5,999 1.5 % 6,713 1.7 % 329 0.1 % 407 0.1 % (1,530 ) -0.4 % 1,459 0.4 % 463 0.1 % (775 ) -0.2 % 6,737 1.7 % 5,622 1.4 % 2,879 0.7 % 3,997 1.0 % 3,858 0.9 % 1,625 0.4 % (117 ) 0.0 % 2,370 0.6 % 3,741 0.9 % 3,995 1.0 % 174 0.0 % 628 0.2 % 3,915 1.0 % 4,623 1.2 % Three months ended September 30, 2017 2016 $ $ Service revenue, net 409,517 100.0 % 412,271 100.0 % Operating expenses: Service expense 378,032 92.3 % 378,488 91.8 % General and administrative expense 18,629 4.5 % 17,320 4.2 % Depreciation and amortization 6,547 1.6 % 6,670 1.6 % Total operating expenses 403,208 98.5 % 402,478 97.6 % Operating income 6,309 1.5 % 9,793 2.4 % Non-operating expense: Interest expense, net 302 0.1 % 338 0.1 % Equity in net (gain) loss of investees 460 0.1 % 1,517 0.4 % Gain on sale of equity investment (12,606 ) 3.1 % — — % Loss (gain) on foreign currency transactions 200 — % (482 ) 0.1 % Income from continuing operations before income taxes 17,953 4.4 % 8,420 2.0 % Provision for income taxes 2,989 0.7 % 4,678 1.1 % Income from continuing operations, net of tax 14,964 3.7 % 3,742 0.9 % Discontinued operations, net of tax (16 ) — % (2,791 ) 0.7 % Net income 14,948 3.7 % 951 0.2 % Net loss attributable to noncontrolling interest (95 ) — % (301 ) 0.1 % Net income attributable to Providence 14,853 3.6 % 650 0.2 % Q2Q3 2017 increased $9.9decreased $2.8 million, or 2.5%0.7%, compared to Q2Q3 2016. Revenue for Q2Q3 2017 compared to Q2Q3 2016 included a decrease in revenue attributable to WD Services of $10.3 million. This decrease in revenue was partially offset by an increase in revenue attributable to NET Services of $29.9 million. This increase in revenue was partially offset by a decrease in revenue attributable to WD Services of $20.1$7.5 million. Excluding the favorable effects of changes in currency exchange rates, consolidated service revenue increased 3.8%decreased 0.8% for Q2Q3 2017 compared to Q2Q3 2016.Q2Q3 2017 increased $10.6$0.7 million, or 2.7%0.2%, compared to Q2Q3 2016. Operating expenses for Q2Q3 2017 compared to Q2Q3 2016 included an increase in expenses attributable to NET Services of $31.7$10.8 million and an increase in expenses attributable to Corporate and Other of $0.1$0.5 million. This increase in operating expenses was partially offset by a decrease in operating expenses attributable to WD Services of $21.2$10.6 million.Q2Q3 2017 decreased $0.7$3.5 million, or 10.6%35.6%, compared to Q2Q3 2016. The decrease was primarily attributable to a decrease in operating income in Q2Q3 2017 as compared to Q2Q3 2016 at NET Services of $1.8$3.3 million and an increase in Corporate and Other operating loss of $0.6 million. This decrease in operating income was partially offset by a decreasean increase in WD Services operating lossincome of $1.1$0.3 million.Q2Q3 2017 decreased $0.1 million, or 19.2%, compared to Q2 2016.and Q3 2016 remained relatively consistent.iswas sold effective September 29, 2017, was part of WD Services, and began providing services in July 2015. We recordrecorded 75% of Mission Providence’s profit or loss in equity in net (gain) loss of investees. We began reporting Matrix as an equity investment effective October 19, 2016, upon the completion of the Matrix Transaction, and record 46.8%our share of Matrix’s profit or loss in net (gain) loss of investees. Our equity in net gainloss of investees for Q2Q3 2017 of $1.5$0.5 million primarily related to our equity in net loss for Mission Providence andof $0.5 million. Matrix of $0.4 million and $1.1 million, respectively. Includedwas close to break-even on a net income basis in Mission Providence’s results are restructuring and redundancy costs of $0.3 million and depreciation and amortization of $1.0 million.Q3 2017. Included in Matrix’s results are transaction bonusesdepreciation and other transaction related costsamortization of $0.5$8.5 million, interest expense of $3.7 million, equity compensation of $0.6 million, management fees paid to certain of Matrix’s shareholders of $0.7 million, depreciation and amortization of $8.1 million, interest expense of $3.7$0.6 million and tax expensemerger and acquisition related diligence costs of $0.7$0.3 million.$0.5$0.2 million and foreign currency gain of $0.8$0.5 million for Q2Q3 2017 and Q2Q3 2016, respectively, were primarily due to translation adjustments of our foreign subsidiaries.Q2Q3 2017 and Q2Q3 2016 was 42.7%16.7% and 71.1%55.6%, respectively. The effective tax rate exceeded the U.S. federal statutory rate of 35% for these periodsQ3 2016 primarily due to foreign net operating losses (including equity investment losses) for which the future income tax benefit currently cannot be recognized, losses in foreign jurisdictions with tax rates lower than the U.S. rate of 35%, state income taxes, and certain non-deductible expenses. Foreign net operating losses for which no tax benefit can be provided were higher in Q2Q3 2016 versus Q2Q3 2017 resulting in a decrease in the effective tax rate from Q2Q3 2016 to Q2Q3 2017. Q2 2017 also includedAdditionally, there is no provision for income taxes related to the gain on sale of equity investment of $12.6 million due to the substantial difference in tax basis versus book basis in the investment. of $0.1 million related to stock-based compensation as an increase tofor the three months ended September 30, 2017 of $0.3 million which increased the provision for income taxes as a result of applying the guidance in ASU 2016-09.taxes. The adoption of ASU 2016-09 will subjectsubjects our tax rate to quarterly volatility from the effects of stock award exercises and vesting activities, including the adverse impact on our income tax provision for awards which result in a tax deduction less than the amount recorded for financial reporting purposes based upon fair value of the award at the grant date.Q2Q3 2017, discontinued operations, net of tax for our Human Services segment was break-even. For Q3 2016, discontinued operations, net of tax for our Human Services segment was a loss of $0.1 million. For Q2 2016,$5.0 million, and discontinued operations, net of tax for our HA Services segment was net income of $2.4$2.2 million. See Note 13,Discontinued Operations, to our condensed consolidated financial statements for additional information. 807,477 100.0 % $ 780,154 100.0 % 746,446 92.4 % 716,521 91.8 % 35,076 4.3 % 35,228 4.5 % 13,169 1.6 % 13,388 1.7 % 794,691 98.4 % 765,137 98.1 % 12,786 1.6 % 15,017 1.9 % 681 0.1 % 902 0.1 % 530 0.1 % 4,176 0.5 % 400 0.0 % (850 ) -0.1 % 11,175 1.4 % 10,789 1.4 % 5,402 0.7 % 7,789 1.0 % 5,773 0.7 % 3,000 0.4 % (5,984 ) -0.7 % 3,123 0.4 % (211 ) 0.0 % 6,123 0.8 % (200 ) 0.0 % 735 0.1 % (411 ) -0.1 % $ 6,858 0.9 % Nine months ended September 30, 2017 2016 $ Percentage of Revenue $ Percentage of Revenue Service revenue, net 1,216,994 100.0 % 1,192,426 100.0 % Operating expenses: Service expense 1,124,478 92.4 % 1,095,011 91.8 % General and administrative expense 53,705 4.4 % 52,548 4.4 % Depreciation and amortization 19,716 1.6 % 20,058 1.7 % Total operating expenses 1,197,899 98.4 % 1,167,617 97.9 % Operating income 19,095 1.6 % 24,809 2.1 % Non-operating expense: Interest expense, net 983 0.1 % 1,239 0.1 % Equity in net loss of investees 991 0.1 % 5,693 0.5 % Gain on sale of equity investment (12,606 ) 1.0 % — — % Loss (gain) on foreign currency transactions 600 — % (1,332 ) 0.1 % Income from continuing operations before income taxes 29,127 2.4 % 19,209 1.6 % Provision for income taxes 8,391 0.7 % 12,466 1.0 % Income from continuing operations, net of tax 20,736 1.7 % 6,743 0.6 % Discontinued operations, net of tax (6,000 ) 0.5 % 332 — % Net income 14,736 1.2 % 7,075 0.6 % Net (income) loss attributable to noncontrolling interest (295 ) — % 433 — % Net income attributable to Providence 14,441 1.2 % 7,508 0.6 % $27.3$24.6 million, or 3.5%2.1%, compared to YTD 2016. Revenue for YTD 2017 compared to YTD 2016 included an increase in revenue attributable to NET Services of $63.0$70.5 million. This increase in revenue was partially offset by a decrease in revenue attributable to WD Services of $35.7$46.0 million. Excluding the effects of changes in currency exchange rates, consolidated service revenue increased 5.1%3.1% for YTD 2017 compared to YTD 2016.$29.6$30.3 million, or 3.9%2.6%, compared to YTD 2016. Operating expenses for YTD 2017 compared to YTD 2016 included an increase in expenses attributable to NET Services of $71.3$82.1 million. This increase in operating expenses was partially offset by a decrease in operating expenses attributable to WD Services of $41.0$51.6 million and a decrease in operating expenses attributable to Corporate and Other of $0.7$0.1 million.$2.2$5.7 million, or 14.9%23.0%, compared to YTD 2016. The decrease was primarily attributable to a decrease in operating income in attributable to NET Services of $8.3$11.6 million as compared to YTD 2016. This decrease in operating income was partially offset by a decrease in WD Services operating loss of $5.3$5.7 million and a decrease in Corporate and Other operating loss of $0.8$0.2 million.$0.2$0.3 million, or 24.5%20.7%, compared to YTD 2016.$0.5$1.0 million includes an equity in net loss for Mission Providence of $1.0$1.4 million, partially offset by equity in net gain of Matrix of $0.4 million. Included in Mission Providence’sMatrix’s results are restructuring and redundancy costs of $1.3 million and depreciation and amortization of $2.0 million. Included in Matrix’s results are$24.6 million, interest expense of $11.0 million, transaction bonuses and other transaction related costs of $3.5 million, equity compensation of $1.3$1.9 million, management fees paid to Matrix’s shareholders of $1.2$1.8 million, depreciationmerger and amortizationacquisition diligence related costs of $16.2 million, interest expense of $7.3$0.3 million and income tax benefit of $0.1 million.$0.4$0.6 million and foreign currency gain of $0.9$1.3 million for YTD 2017 and YTD 2016, respectively, were primarily due to translation adjustments of our foreign subsidiaries.48.3%28.8% and 72.2%64.9%, respectively. The effective tax rate exceeded the U.S. federal statutory rate of 35% for these periodsYTD 2016 primarily due to foreign net operating losses (including equity investment losses) for which the future income tax benefit currently cannot be recognized, losses in foreign jurisdictions with tax rates lower than the U.S. rate of 35%, state income taxes, and certain non-deductible expenses. Foreign net operating losses for which no tax benefit can be provided were higher in YTD 2016 versus YTD 2017 resulting in a decrease in the effective tax rate from YTD 2016 to YTD 2017. YTD 2017 also includedAdditionally, there was no provision for income taxes related to the gain on sale of equity investment of $12.6 million due to the substantial difference in tax basis versus book basis in the investment.benefitsdeficiencies related to stock-based compensation for the nine months ended September 30, 2017 of $0.1 million which reducedincreased the provision for income taxes astaxes. The adoption of ASU 2016-09 subjects our tax rate to quarterly volatility from the effects of stock award exercises and vesting activities, including the adverse impact on our income tax provision for awards which result in a resulttax deduction less than the amount recorded for financial reporting purposes based upon fair value of applying the guidance in ASU 2016-09.$3.1$5.4 million. See Note 13,Discontinued Operations, to our condensed consolidated financial statements for additional information.Q2Q3 2017 and Q2Q3 2016 (in thousands): 338,805 100.0 % 308,915 100.0 % 316,435 93.4 % 285,446 92.4 % 3,089 0.9 % 2,785 0.9 % 3,326 1.0 % 2,931 0.9 % 15,955 4.7 % 17,753 5.7 % Three Months Ended September 30, 2017 2016 $ $ Service revenue, net 324,824 100.0 % 317,280 100.0 % Service expense 304,454 93.7 % 293,919 92.6 % General and administrative expense 2,899 0.9 % 2,860 0.9 % Depreciation and amortization 3,286 1.0 % 3,051 1.0 % Operating income 14,185 4.4 % 17,450 5.5 % Q2Q3 2017 increased $29.9$7.5 million, or 9.7%2.4%, compared to Q2Q3 2016. The increase was primarily related to net increased revenue from existing contracts of $27.6$19.2 million, due to the net impact of membership and rate changes, including final agreement on a rate adjustment related to increased utilization activity underand the release of previously accrued revenue hold-backs based on certain contract performance requirements on a significant contract, in addition to the impact of new contracts which contributed $23.8$18.8 million of revenue for Q2 2017, including new managed care organization contracts in California, Florida and New York.Q3 2017. These increases were partially offset by the impact of contracts we no longer serve, including a contract with the state of New York, which resulted in a decrease in revenue of $21.5$30.5 million. Q2Q3 2017 and Q2Q3 2016 (in thousands): $ $ 263,563 77.8 % 235,745 76.3 % 39,648 11.7 % 39,702 12.9 % 13,092 3.9 % 9,926 3.2 % 132 0.0 % 73 0.0 % 316,435 93.4 % 285,446 92.4 % Three Months Ended September 30, 2017 2016 $ $ Purchased services 250,282 77.1 % 241,884 76.2 % Payroll and related costs 40,753 12.5 % 41,832 13.2 % Other operating expenses 13,299 4.1 % 10,130 3.2 % Stock-based compensation 120 0.0 % 73 0.0 % Total service expense 304,454 93.7 % 293,919 92.6 % Q2Q3 2017 increased $31.0$10.5 million, or 10.9%3.6%, compared to Q2 2016. The increase in service expense wasQ3 2016 due primarily attributable to the impact of the new managed care organization contracts in California, Floridahigher purchased services and New York. other operating costs, partially offset by decreased payroll and related costs.76.3%76.2% in Q2Q3 2016 to 77.8%77.1% in Q2Q3 2017 primarily attributable to an increase in utilization across certain contracts, including multiple managed care contracts and contract start-up costs in California, and Florida. The higherthe impact of new managed care organization contracts in certain markets being at a lower margin than previous contracts. These increases were partially offset by initiatives aimed at better aligning the rates we pay to our transportation provider partners with local market conditions and the fees paid to us by our customers. In addition, the impact of Hurricane Irma resulted in decreased utilization was in part driven by increased Medicaid reimbursement in New Jersey for certain medical services, which in turn increased demand for transportation services.Ascontracts.payroll and related costs decreased from 12.9%13.2% in Q2Q3 2016 to 11.7%12.5% in Q2Q3 2017 due to efficiencies gained from multiple process improvement initiatives, including those aimed at lowering payroll expense across our reservation and operation center networks, as well as a decrease in incentive compensation, including the impact of establishing the final amounts for a historical NET Services’ long-term incentive plan as well as plan participation rates, which resulted in a decrease in expense of $1.4 million as compared to Q2 2016.compensation. Other operating expenses increased for Q2Q3 2017 as compared to Q2Q3 2016 primarily attributable to $1.4an incremental $1.5 million of value enhancement and related costs incurred for external resources used in the design and implementation of NET Services member experience and value enhancement initiatives, as well as increased software and hardware maintenance costs associated with new technology initiatives.Q2Q3 2017 increased $0.3 million, or 10.9%,remained constant as compared to Q2 2016, due to increased facility costs resulting from the overall growth of our operations.Q3 2016. As a percentage of revenue, general and administrative expense remained constant at 0.9%.$0.4$0.2 million primarily due to the addition of long-lived assets relating to information technology projects. As a percentage of revenue, depreciation and amortization increased slightly from 0.9% for Q2 2016 toremained constant at 1.0% for Q2Q3 2016 and Q3 2017. 662,839 100.0 % 599,876 100.0 % 622,627 93.9 % 552,392 92.1 % 5,980 0.9 % 5,622 0.9 % 6,477 1.0 % 5,807 1.0 % 27,755 4.2 % 36,055 6.0 % Nine Months Ended September 30, 2017 2016 $ $ Service revenue, net 987,662 100.0 % 917,157 100.0 % Service expense 927,082 93.9 % 846,311 92.3 % General and administrative expense 8,879 0.9 % 8,483 0.9 % Depreciation and amortization 9,763 1.0 % 8,858 1.0 % Operating income 41,938 4.2 % 53,505 5.8 % $63.0$70.5 million, or 10.5%7.7%, compared to YTD 2016. The increase was primarily related to net increased revenue from the impact of new contracts which contributed $52.5 million of revenue for YTD 2017, including new managed care organization contracts in California, Florida and New York, in addition to an increase in revenue from existing contracts totaling $47.2of $68.3 million, due to the net impact of membership and rate changes, including final agreement on a rate adjustment related to increased utilization activity underand the release of previously accrued revenue hold-backs based on certain contract performance requirements on a significant contract.contract, in addition to the impact of new contracts, including new managed care organization contracts in Florida and New York, which contributed $70.5 million of revenue for YTD 2017. These increases were partially offset by the impact of contracts we no longer serve, including a contract with the state of New York, which resulted in a decrease in revenue of $36.7$68.3 million. 516,020 77.8 % 453,050 75.5 % 82,031 12.4 % 80,285 13.4 % 24,286 3.7 % 18,902 3.2 % 290 0.0 % 155 0.0 % 622,627 93.9 % 552,392 92.1 % Nine Months Ended September 30, 2017 2016 $ $ Purchased services 766,303 77.6 % 694,934 75.8 % Payroll and related costs 122,784 12.4 % 122,117 13.3 % Other operating expenses 37,584 3.8 % 29,032 3.2 % Stock-based compensation 411 0.0 % 228 0.0 % Total service expense 927,082 93.9 % 846,311 92.3 % $70.2$80.8 million, or 12.7%9.5%, compared to YTD 2016. 2016 due primarily to higher purchased services and other operating costs, with a slight increase in payroll and related costs.75.5%75.8% in YTD 2016 to 77.8%77.6% in YTD 2017 primarily attributable to an increase in utilization across multiple contracts and contract start-up costs in California and Florida.contracts. The higher utilization was in part driven by increased Medicaid reimbursement in New Jersey for certain medical services, which in turn increased demand for transportation services, as well asservices; increased utilization across multiple managed care contracts in California; and lower cancellation rates across multiple contracts, which we believe was primarily due to milder winter weather conditions during the first quarter of 2017.As2017, although we did experience lower utilization for contracts in Q3 2017 due in part to the impact of the Hurricane Irma.payroll and related costs decreased from 13.4%13.3% in YTD 2016 to 12.4% in YTD 2017 due to efficiencies gained from multiple process improvement initiatives, including those aimed at lowering payroll expense across our reservation and operation center networks, as well as a decrease in incentive compensation including the impact of establishing the final amounts for a NET Services’ long-term incentive plan.compensation. Other operating expenses increased for YTD 2017 as compared to YTD 2016 primarily attributable to $2.7an incremental $3.5 million of value enhancement and related costs incurred for external resources used in the design and implementation of NET Services member experience and value enhancement initiatives.6.4%4.7%, as compared to YTD 2016, due to increased facility costs resulting from the overall growth of our operations. As a percentage of revenue, general and administrative expense remained constant at 0.9%.$0.7$0.9 million primarily due to the addition of long-lived assets relating to information technology projects. As a percentage of revenue, depreciation and amortization remained constant at 1.0%.Q2Q3 2017 and Q2Q3 2016 (in thousands): 69,178 100.0 % 89,289 100.0 % 62,882 90.9 % 82,073 91.9 % 6,919 10.0 % 8,585 9.6 % 3,489 5.0 % 3,836 4.3 % (4,112 ) -5.9 % (5,205 ) -5.8 % Three Months Ended September 30, 2017 2016 $ $ Service revenue, net 84,693 100.0 % 94,960 100.0 % Service expense 73,581 86.9 % 84,051 88.5 % General and administrative expense 6,980 8.2 % 6,780 7.1 % Depreciation and amortization 3,166 3.7 % 3,497 3.7 % Operating income 966 1.1 % 632 0.7 % Q2Q3 2017 decreased $20.1$10.3 million, or 22.5%10.8%, compared to Q2Q3 2016. Excluding the favorable effects of changes in currency exchange rates, service revenue decreased 16.7%11.2% in Q2Q3 2017 compared to Q2Q3 2016. This decrease was primarily related to the anticipated ending of referrals under the segment’s primary employability program in the UK, as well as decreased revenue under our offender rehabilitation program due to $5.4 million of revenue recognized in Q3 2016 related to the finalization of a contractual adjustment for the prior contract years ended March 31, 2015 and 2016.acrossin health services in the UK and various employability contracts outside the UK, including Saudi Arabia, France, Australia and Germany.Q2Q3 2017 and Q2Q3 2016 (in thousands): 43,992 63.6 % 57,808 64.7 % 9,215 13.3 % 12,713 14.2 % 9,661 14.0 % 11,559 12.9 % 14 0.0 % (7 ) 0.0 % 62,882 90.9 % 82,073 91.9 % Three Months Ended September 30, 2017 2016 $ $ Payroll and related costs 41,575 49.1 % 47,854 50.4 % Purchased services 21,946 25.9 % 26,004 27.4 % Other operating expenses 10,046 11.9 % 10,166 10.7 % Stock-based compensation 14 0.0 % 27 0.0 % Total service expense 73,581 86.9 % 84,051 88.5 % Q2Q3 2017 decreased $19.2$10.5 million, or 23.4%12.5%, compared to Q2Q3 2016. Payroll and related costs decreased primarily as a result of the ending of referrals under the segment’s primary employability program in the UK as well as multiple redundancy plans across the WD Services operations that have begun to better alignaligned headcount with service delivery volumes, resulting in a decrease of payroll and related costs as a percentage of revenue. Payroll and related costs include $0.3 million and $3.4$0.1 million in Q2Q3 2017 and Q2Q3 2016, respectively, of termination benefits related to multiple redundancy plans. Purchased services decreased in Q2Q3 2017 compared to Q2Q3 2016 primarily as a result of the ending of client referrals under our primary employability program in the UK, which resulted in a decline in the use of outsourced services.Q2Q3 2017 decreased $1.7increased $0.2 million compared to Q2Q3 2016 due primarily due to office closures associated with restructuring of the UK operations, as well as lowerincreased rent for certain offices associated with therelated to facilities used in our offender rehabilitation program.Q2Q3 2017 decreased $0.3 million compared to Q2Q3 2016, primarily due to the asset impairment charges incurred during the fourth quarter of 2016, which decreased the value of our intangible assets and certain property and equipment. 144,638 100.0 % 180,332 100.0 % 126,084 87.2 % 163,745 90.8 % 13,964 9.7 % 16,456 9.1 % 6,529 4.5 % 7,415 4.1 % (1,939 ) -1.3 % (7,284 ) -4.0 % Nine Months Ended September 30, 2017 2016 $ $ Service revenue, net 229,332 100.0 % 275,293 100.0 % Service expense 199,665 87.1 % 247,797 90.0 % General and administrative expense 20,944 9.1 % 23,236 8.4 % Depreciation and amortization 9,695 4.2 % 10,912 4.0 % Operating loss (972 ) -0.4 % (6,652 ) -2.4 % $35.7$46.0 million, or 19.8%16.7%, compared to YTD 2016. Excluding the effects of changes in currency exchange rates, service revenue decreased 12.9%12.3% in YTD 2017 compared to YTD 2016. This decrease was primarily related to the anticipated decline of referrals under the segment’s primary employability program in the UK, as well as decreased revenue under our offender rehabilitation program. These decreases were partially offset by increases across various employability contracts outside the UK, including in Australia, Saudi Arabia, France and Germany.Germany, as well as increased revenue from our health services contract in the UK. YTD 2017 includes the impact of $5.2 million of revenue recognized under the offender rehabilitation program related to the finalization of a contractual adjustment for the contract year ended March 31, 2017.2017, whereas YTD 2016 includes $5.4 million of revenue recognized under the offender rehabilitation program related to the finalization of a contractual adjustment for the prior contract years ended March 31, 2015 and 2016. 88,963 61.5 % 114,687 63.6 % 18,004 12.4 % 27,206 15.1 % 19,089 13.2 % 21,827 12.1 % 28 0.0 % 25 0.0 % 126,084 87.2 % 163,745 90.8 % Nine Months Ended September 30, 2017 2016 $ $ Payroll and related costs 130,538 56.9 % 162,542 59.0 % Purchased services 39,949 17.4 % 53,210 19.3 % Other operating expenses 29,136 12.7 % 31,993 11.6 % Stock-based compensation 42 0.0 % 52 0.0 % Total service expense 199,665 87.1 % 247,797 90.0 % $37.7$48.1 million, or 23.0%19.4%, compared to YTD 2016. Payroll and related costs decreased primarily as a result of declining referrals under the segment’s primary employability program in the UK as well as multiple redundancy plans that have begun to better alignaligned headcount with service delivery volumes resulting in a decrease of payroll and related costs as a percentage of revenue. Payroll and related costs include $0.9$1.1 million and $4.6$5.2 million in YTD 2017 and YTD 2016, respectively, of termination benefits related to redundancy plans as well as $0.2 million in YTD 2017 for the termination of an executive of one of the operations.plans. Purchased services decreased in YTD 2017 compared to YTD 2016 primarily as a result of a decline in client referrals under our primary employability program in the UK, which resulted in a decline in the use of outsourced services.$2.5$2.3 million compared to YTD 2016 due to office closures associated with restructuring of the UK operations, as well as lower rent for certain offices associated with the offender rehabilitation program.offices.$0.9$1.2 million compared to YTD 2016, primarily due to the asset impairment charges incurred during the fourth quarter of 2016, which decreased the value of our intangible assets and certain property and equipment.Q2Q3 2017 and Q2Q3 2016 (in thousands): - (85 ) (2,281 ) 327 8,040 5,341 85 82 (5,844 ) (5,835 ) Three Months Ended September 30, 2017 2016 $ $ Service revenue, net — 31 Service expense (3 ) 518 General and administrative expense 8,750 7,680 Depreciation and amortization 95 122 Operating loss (8,842 ) (8,289 ) Q2Q3 2017 increased slightlyby $0.6 million or 6.7% as compared to Q2Q3 2016. This increase was primarily related to a $1.4$2.0 million increase in cash settled stock-based compensation expenseprofessional costs due to activities associated with our increased focus on strategic initiatives, as well as a result of the$0.6 million increase in compensation, including the Company’s stock price during Q2 2017 as compared to a decline in the Company’s stock price during Q2 2016 along with an increasetiming impact of $1.1 million of legal and consulting costs. This increase wasaccruals for incentive compensation. These increases were partially offset by a reductiondecreases in legal and accounting fees and lower costs in the Company's captive insurance loss reservesprogram due to the Company ceasing to write new policies under the captive in Q2 2017, due to favorable claims history of our Captive reinsurance programs, which is includeddrove the decrease in “Service expense”.$0.8$0.9 million for Q2Q3 2017 and Q2Q3 2016, respectively. No shares will be distributed under the HoldCo LTIP unless the volume weighted average of Providence’s stock price over a 90-day period ending on December 31, 2017 exceeds $56.79. - (54 ) (2,265 ) 384 15,132 13,150 163 166 (13,030 ) (13,754 ) Nine Months Ended September 30, 2017 2016 $ $ Service revenue, net — (24 ) Service expense (2,269 ) 903 General and administrative expense 23,882 20,829 Depreciation and amortization 258 288 Operating loss (21,871 ) (22,044 ) $0.7$0.2 million, or 5.3%0.8%, as compared to YTD 2016. This decrease was primarily related to a reduction in insurance loss reserves in 2017 due to favorable claims history of our Captive reinsurance programs, which is included in “Service expense” as well as decreased accounting, legal and professional fees included in “General and administrative expense”. This decrease was partially offset by an increase in cash settled stock-based compensation expense of $1.3 million, primarily as a result of ana more significant increase in the Company’s stock price in YTD 2017 as compared to a decline in the Company’s stock price in YTD 2016, an increase in stock settled stock-based compensation expense of $1.1$1.4 million, primarily related to an increase in expense for the HoldCo LTIP and a benefit recorded in YTD 2016 for performance based units, with no corresponding benefit in YTD 2017, as well as an increase of $1.1$3.6 million of legal and consulting costs.professional costs due to activities associated with our increased focus on strategic initiatives.$2.1$3.1 million and $1.5$2.4 million for YTD 2017 and YTD 2016, respectively. No shares will be distributed under the HoldCo LTIP unless the volume weighted average of Providence’s stock price over a 90-day period ending on December 31, 2017 exceeds $56.79.$56.6$92.2 million and $72.3 million at JuneSeptember 30, 2017 and December 31, 2016, respectively, including $18.1$33.8 million and $21.4 million held in foreign countries, respectively. The September 30, 2017 foreign cash balance includes the proceeds from the sale of Mission Providence. Such cash held in foreign countries is generally used to fund foreign operations, although it may also be used to repay intercompany indebtedness existing between Providence and its foreign subsidiaries.$7.9$7.1 million and $14.1 million at JuneSeptember 30, 2017 and December 31, 2016, respectively, primarily related to contractual obligations and activities of our captive insurance subsidiary. These restricted cash amounts are not included in our balance of cash and cash equivalents. At JuneSeptember 30, 2017 and December 31, 2016, we had no amounts outstanding under our Credit Facility.Cash flows Operating activities.We generated net cash flows Discontinued operations for YTD 2016 includes the activity of our Human Services and HA Services segments. Income from operating activities of $9.3discontinued operations totaled $0.3 million for YTD 2017. These cash flows2016. Significant non-cash items of our discontinued operations in YTD 2016 included a net loss of $0.2 million, including $5.8 million of net income related to continuing operations and $6.0 million of net loss related to discontinued operations. Non-cash items included $9.2$3.7 million of depreciation expense $3.9and $17.5 million of amortization expense, $3.0expense. Our discontinued operations also purchased property and equipment totaling $8.0 million in stock-based compensation expense,during YTD 2016.$0.5YTD 2016 cash flow from operations was driven by net income of $14.7 million in equity inand $7.1 million, respectively, non-cash adjustments to reconcile net lossincome to net cash provided by operating activities of investees. Changes$8.0 million and $37.1 million, respectively, and changes in working capital includeof $14.2 million and $1.1 million, respectively. The change in adjustments to reconcile net income to net cash provided by operating activities was due primarily to the following significant items:impact of the disposition of HA Services, resulting in decreased depreciation, amortization and deferred taxes in YTD 2017 as compared to YTD 2016, as well as the gain on sale of Mission Providence of $12.6 million in YTD 2017. The change in working capital is primarily driven by the following:●$11.5 million source of cash due to the increase in accrued transportation costs of NET Services. This increase was primarily related to increased utilization of transportation services.●$8.9 million use of cash due to the increase in accounts receivable attributable to an increase in NET Services’ accounts receivable of $4.2 million and an increase in WD Services’ accounts receivable of $4.8 million. These fluctuations primarily resulted from the timing of payments from a limited number of significant payers within each segment.●$9.0 million increase in the accrual of a contingent liability in the first quarter of 2017 related to the settlement of indemnification claims.Investing activities.Netused in investing activities totaled $4.8outflow for YTD 2017 of $10.6 million as compared to an outflow of $22.1 million for YTD 2017. During2016. The decrease in cash outflow of $11.5 million is primarily attributable to NET Services due to the period, $10.7timing of collections as well as an outflow of $1.4 million of cash was used to purchase property and equipment primarily related to information technology purchases to support the growth of our operating segments. The Company also loaned $0.6 million to Mission Providence, one of the Company’s equity method investees,HA Services in YTD 2017. These2016.outflows were partially offset byinflow of $7.5 million in YTD 2017, as compared to a cash outflow of $9.9 million in YTD 2016. The increase in cash inflow of $17.4 million was primarily attributable to a decrease in prepayments in WD Services in relation to certain contracts and a decrease in the restrictedprepayment of insurance costs and income taxes.Captiveincrease in the accrued settlement related to our former Human Services segment of $6.2$9.0 million during YTD 2017 as compared to an increase of $6.0 million in YTD 2016.releasetiming of collateralpayments.irrevocable standby lettersYTD 2016 includes a cash outflow of credit$30.2 million related to secure reinsured claims losses,the sale of our Human Services segment.amountpurchase of cash required to be held in trust for reinsurance claim payments,property and the paymentequipment of claims from the restricted cash account.$18.6 million. YTD 2016 included purchases of property and equipment of $8.0 million by our discontinued operations.totaled $20.8of $22.3 million forin YTD 2017.2017 decreased $9.9 million as compared to YTD 2016. During the period, cash paid forYTD 2017, we repurchased $34.5 million less of our common stock repurchasesthan in YTD 2016. Partially offsetting this decrease in cash outflows was a decrease in net proceeds from debt during YTD 2017 as compared to YTD 2016 of $20.3 million as well as a decrease in proceeds from common stock issued pursuant to our $100.0 million stock repurchase program totaled $18.0 million and we paid convertible preferred stock dividendsoption exercises of $2.2$2.6 million.JuneSeptember 30, 2017, we had no borrowings and seven letters of credit in the amount of $11.0 million outstanding under the revolving credit facility. At JuneSeptember 30, 2017, our available credit under the revolving credit facility was $189.0 million. Under the Credit Agreement, the Company has an option to request an increase in the amount of the revolving credit facility from time to time (on substantially the same terms as apply to the existing facilities) in an aggregate amount of up to $75.0 million with either additional commitments from lenders under the Credit Agreement at such time or new commitments from financial institutions acceptable to the administrative agent in its reasonable discretion, so long as no default or event of default exists at the time of any such increase. The Company may not be able to access additional funds under this increase option as no lender is obligated to participate in any such increase under the Credit Facility.The Credit Facility matures on August 2, 2018.JuneSeptember 30, 2017.803,398803,232 shares are outstanding as of JuneSeptember 30, 2017. For further information regarding these transactions, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and capital resources – Obligations and commitments – Rights Offering”in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. We may pay a noncumulative cash dividend on each share of Preferred Stock, when, as and if declared by a committee of our Board of Directors (“Board”), at the rate of 5.5% per annum on the liquidation preference then in effect. On or before the third business day immediately preceding each fiscal quarter, we determine our intention whether or not to pay a cash dividend with respect to that ensuing quarter and give notice of our intention to each holder of Preferred Stock as soon as practicable thereafter.sixnine months ended JuneSeptember 30, 2017 and totaled $2.2$3.3 million.JuneSeptember 30, 2017, the cumulative reserve for expected losses since inception of these historical automobile, general and professional liability and workers’ compensation reinsurance programs was $2.0$1.8 million, $0.9$0.8 million and $5.9$5.7 million, respectively. Based on an independent actuarial report, our expected losses related to workers’ compensation, automobile and general and professional liability in excess of our liability under our associated historical reinsurance programs at JuneSeptember 30, 2017 was $6.1 million. We recorded a corresponding receivable from third-party insurers and liability at JuneSeptember 30, 2017 for these expected losses, which would be paid by third-party insurers to the extent losses are incurred.$7.6$6.8 million and $13.8 million at JuneSeptember 30, 2017 and December 31, 2016, respectively, which was restricted to secure the reinsured claims losses of SPCIC under the historical automobile, general and professional liability and workers’ compensation reinsurance programs.$2.0$2.4 million and $3.0 million as of JuneSeptember 30, 2017 and December 31, 2016, respectively, was recorded in “Reinsurance liability and related reserve” in our condensed consolidated balance sheets.containedincontained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.risksdisclosedrisks disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016 and our other filings with the SEC.JuneSeptember 30, 2017, we conducted business in teneleven countries outside the U.S. As a result, our cash flows and earnings are subject to fluctuations due to changes in foreign currency exchange rates. We do not currently hedge against the possible impact of currency fluctuations. During YTD 2017 we generated $136.8$217.4 million of our net operating revenues from operations outside the U.S. As we expand further into international markets, we expect the risk from foreign currency exchange rates to increase.$8.7$14.4 million negative impact on consolidated revenue and a $2.3 million negativenegligible impact on net income. A 10% adverse change in other foreign currency exchange rates would not have a significant impact on our financial results.JuneSeptember 30, 2017. 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.JuneSeptember 30, 2017 that have materially affected or which are reasonably likely to materially affect such control. Such officers have concluded that no such changes have occurred.Proceedings.ReportReports on Form 10-Q for the periodperiods ended March 31, 2017 and June 30, 2017.January 20,September 28, 2017, the special litigation committee created by the Company’s Board of Directors advised the Court that the parties to the litigation and the special litigation committee had reached an agreement in principle to settle all of the claims in the litigation.The parties have entered intoapproved a proposed settlement agreement which has been submitted toamong the Court for approval. The proposed settlement agreementparties that provides for a settlement amount of $10,000$10.0 million less plaintiff’s legal fees and expenses (the “Settlement Amount”), with 75% of the Settlement Amount less plaintiff’s legal fees and expenses to be paid to the Company and 25% of the Settlement Amount to be paid to holders of the Company’s common stock. A court hearingstock other than certain excluded parties. The Company expects to considerreceive a payment of approximately $5.0 million. As this amount is considered a gain contingency, the proposed settlementCompany has been schedulednot recorded a receivable for this amount as of September 28,30, 2017.JuneSeptember 30, 2017: to - $ - - $ 69,624,167 to 24 $ 46.97 - $ 69,624,167 to - $ - - $ 69,624,167 24 - Period Month 1: July 1, 2017 to July 31, 2017 47 $ 50 — $ 69,624,167 Month 2: August 1, 2017 to August 31, 2017 115 $ 51.54 — $ 69,624,167 Month 3: September 1, 2017 to September 30, 2017 — $ — — $ 69,624,167 Total 162 — (1) (2) JuneSeptember 30, 2017, a total of 770,808 shares were purchased through this plan for $30.4 million, including commission payments.AgreementandAgreement and our preferred stock. The payment of future cash dividends, if any, will be reviewed periodically by the Board and will depend upon, among other things, our financial condition, funds from operations, the level of our capital and development expenditures, any restrictions imposed by present or future debt or equity instruments, and changes in federal tax policies, if any.Not applicable.See Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q.Description Certification pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer. Certification pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer. 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. 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 XBRL Instance 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 * Filed herewith. SIGNATURES August 9,November 8, 2017 August 9,November 8, 2017 EXHIBIT INDEXExhibitNumberDescription31.1*Certification pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer.31.2*Certification pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer.32.1*Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer.32.2*Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer.101. INSXBRL Instance Document101.SCHXBRL Schema Document101.CALXBRL Calculation Linkbase Document101.LABXBRL Label Linkbase Document101.PREXBRL Presentation Linkbase Document101.DEFXBRL Definition Linkbase Document*Filed herewith.45