Providence Service Corporation Reports Fourth Quarter and Full Year 2018


Highlights for the Fourth Quarter of 2018:

  • Revenue from continuing operations of $360.8 million, a 9.1% increase from the fourth quarter of 2017, resulting from growth in NET Services
  • Loss from continuing operations, net of tax, of $1.5 million, or $0.20 per diluted common share
  • Adjusted Net Income of $17.2 million, a 60.3% increase from the fourth quarter of 2017, Adjusted EPS of $1.08, a 77.0% increase from the fourth quarter of 2017
  • Adjusted EBITDA of $27.3 million, a 30.3% increase from the fourth quarter of 2017
  • Completed the sale of WD Services with proceeds used to pay down short-term debt
  • Matrix delivered $65.7 million of revenue and an Operating loss of $6.5 million.  Year over year revenue growth was primarily attributable to the acquisition of HealthFair

Highlights for the Full Year 2018:

  • Revenue from continuing operations of $1.38 billion, a 5.1% increase from 2017
  • Income from continuing operations, net of tax, of $18.2 million, or $0.92 per diluted common share
  • Adjusted Net Income of $44.9 million, a 59.4% increase from 2017; Adjusted EPS of $2.69, a 78.1% improvement on prior year
  • Adjusted EBITDA of $72.8 million, a 22.3% increase from 2017

STAMFORD, Conn., Feb. 28, 2019 (GLOBE NEWSWIRE) -- The Providence Service Corporation (the “Company” or “Providence”) (Nasdaq: PRSC), today reported financial results for the three and twelve months ended December 31, 2018.

“2018 has been a year of transformation for Providence while at the same time, continuing to deliver positive financial performance," stated Carter Pate, Interim Chief Executive Officer. He continued, "We finished the year strong with LogistiCare delivering Adjusted EBITDA margins of 8.6% for the quarter driven mostly by expected seasonality.  We had started the year by setting out a path to better focus our resources on the opportunities available to LogistiCare through our organizational consolidation of our Arizona and Connecticut offices into LogistiCare's Atlanta office which is substantially complete and our strategic alternatives process for WD Services segment which resulted in a sale. 2019 will be another year of transformation as we continue to integrate Circulation and roll-out the new technology platform across LogistiCare’s existing operations.  Matrix continues its own transformation with the integration of HealthFair.”

Fourth Quarter 2018 Results

For the fourth quarter of 2018, the Company reported revenue of $360.8 million, an increase of 9.1% from $330.6 million in the fourth quarter of 2017.  The new revenue standard that the Company adopted in the first quarter of 2018 resulted in a negative impact to revenue of $4.3 million in the fourth quarter of 2018 versus the prior standard.

Loss from continuing operations, net of tax, in the fourth quarter of 2018 was $1.5 million, or $0.20 per diluted common share, compared to income from continuing operations net of tax of $38.0 million, or $2.35 per diluted common share, in the fourth quarter of 2017. Loss from continuing operations, net of tax, in the fourth quarter of 2018 includes an impairment charge of $13.5 million related to in-process software in NET Services resulting from the decision to adopt the technology acquired in the Circulation transaction, compared to income in the fourth quarter of 2017, which included a tax benefit due to the impact of the Tax Cuts and Jobs Act (the “Tax Reform Act”) of $29.5 million in total, including a significant component included in equity income related to Matrix. The loss and income from continuing operations, net of tax, in the fourth quarters of 2018 and 2017 include restructuring and related charges of $4.4 million and $3.1 million, respectively. Loss from continuing operations, net of tax, in the fourth quarter of 2018 also includes $5.4 million of transaction costs including amounts related to the acquisition of Circulation.

Adjusted Net Income in the fourth quarter of 2018 was $17.2 million, or $1.08 per diluted common share, compared to $10.7 million, or $0.61 per diluted common share, in the fourth quarter of 2017.

Adjusted EBITDA was $27.3 million in the fourth quarter of 2018, compared to $21.0 million in the fourth quarter of 2017 with margins of 7.6% and 6.3% respectively.

Sale of WD Services

On December 21, 2018, the Company announced that it had completed the sale of substantially all of the operating subsidiaries of its WD Services segment to Advanced Personnel Management Global Pty Ltd of Australia ("APM"), except for the segment’s employment services operations in Saudi Arabia. The Saudi Arabian government assumed these operations beginning January 1, 2019.

At closing, the Company received total cash consideration of $46.5 million from APM, with the buyer retaining cash on the balance sheet of $21.0 million. Transaction fees and bonuses were $6.7 million. In addition, the Company expects to realize cash tax benefits of approximately $51.9 million from the transaction, including $0.6 million realized as of year-end and approximately $33.7 million in tax refunds or offsets to tax payments otherwise due by the fourth quarter of 2019. The remaining cash tax benefit of $17.6 million is expected to be realized as an offset to tax payments over the following three years, based upon the Company’s current estimate of taxable income.

WD Services has been classified as discontinued operations for all periods, including a loss on sale of $1.1 million in the fourth quarter of 2018 recorded upon the closing of the transaction. The loss includes a reclassification of cumulative (foreign currency) translation adjustment of $29.4 million.

During the fourth quarter, the Company paid off the $36.0 million of borrowings outstanding under the revolving credit facility at the end of the third quarter, with net proceeds from the transaction and other cash on hand.

Organizational Consolidation

Our organizational consolidation is substantially complete with the hiring of two senior finance positions in early 2019. Two members of the Company's former executive team exited the Company on December 31, 2018 as planned. The remainder of our Stamford, CT and Tucson, AZ based corporate teams will exit the Company by the end of the second quarter of 2019 as planned.

Segment Results

For analysis purposes, the Company provides revenue, expenses, operating income (loss), income (loss) from continuing operations, net of taxes, and Adjusted EBITDA on a segment basis.  Segment results include revenue and expenses incurred by each segment, as well as an allocation of certain direct expenses incurred by Corporate and Other on behalf of the segment.  No direct cash expenses were incurred by Corporate on behalf of the Matrix Investment segment.  The activities reflected in Corporate and Other include executive, accounting, finance, internal audit, tax, legal, public reporting and corporate development functions and the results of the Company’s captive insurance company.

NET Services

NET Services revenue was $360.8 million for the fourth quarter of 2018, an increase of 9.1% from $330.6 million in the fourth quarter of 2017.  Operating income was $10.2 million, or 2.8% of revenue, in the fourth quarter of 2018, compared to $23.8 million, or 7.2% of revenue, in the fourth quarter of 2017.  Included in NET Services operating income in the fourth quarters of 2018 and 2017 were $0.9 million and $1.4 million, respectively, of restructuring and related charges. Operating Income in the fourth quarter of 2018 also reflects transaction charges related to the Circulation acquisition of $2.0 million and an impairment charge of $13.5 million related to in-process IT software resulting from the decision to adopt the technology acquired in the Circulation transaction.  NET Services Adjusted EBITDA was $31.2 million, or 8.6% of revenue, in the fourth quarter of 2018, compared to $28.7 million, or 8.7% of revenue, in the fourth quarter of 2017.  Fourth quarter 2018 revenue includes a negative impact of $4.3 million from the adoption of the new revenue recognition standard, as the accounting for one contract changed from a gross basis to net basis.  This change had no impact on operating income or Adjusted EBITDA.

The quarter-over-quarter increase in NET Services revenue was primarily due to the impact of new contracts, including managed care organization (“MCO”) contracts in Indiana and Illinois and a new state contract in West Virginia, net increased revenue from existing contracts due to the net positive impact of membership and rate changes together with revenue from the acquisition of Circulation at the end of the third quarter of 2018. These increases were partially offset by the impact of contracts we no longer serve, including a state contract in Connecticut and certain MCO contracts in Louisiana. Adjusted EBITDA increased in the fourth quarter of 2018 due to the impact of the revenue increase noted above together with the benefit of securing rates in states such as California that better reflect the level of utilization. Adjusted EBITDA margin was marginally lower as, despite the above, the prior year had the benefit of a significant expense reserve being released upon the finalization of a contract amendment with a state customer.

Corporate and Other

Corporate and Other incurred a $10.9 million operating loss in the fourth quarter of 2018 compared to an operating loss of $9.6 million in the fourth quarter of 2017.  Included within Corporate and Other operating loss in the fourth quarter of 2018 were restructuring and related costs of $3.5 million related to the consolidation of the holding company structure into LogistiCare and transaction costs of $3.4 million. Fourth quarter 2017 included restructuring cost of $1.7 million related to severance of the former CEO and income related to a litigation settlement of $5.3 million. Corporate and Other Adjusted EBITDA was negative $3.8 million in the fourth quarter of 2018 compared to negative $7.7 million in the fourth quarter of 2017.

The decrease in Corporate and Other's Adjusted EBITDA loss was primarily due to a decrease in cash settled stock-based compensation expense of $2.2 million as a result of a reduction in the Company’s stock price in the fourth quarter of 2018 compared to an increase in the fourth quarter of 2017, together with reductions across remaining corporate expenses.

Matrix Investment (Equity Investment)

For the fourth quarter of 2018, Providence recorded a loss in equity earnings of $2.1 million related to its Matrix Investment compared to income of $13.0 million for the fourth quarter of 2017 which included a beneficial impact from the Tax Cuts and Jobs Act (the “Tax Reform Act”).

As Providence’s interest in Matrix is accounted for as an equity method investment, the following numbers are not included within the Company’s consolidated results of operations. For the fourth quarter of 2018, Matrix’s revenue was $65.7 million, an increase of 25.1% from $52.5 million in the fourth quarter of 2017.  Matrix’s operating loss was $6.5 million for the fourth quarter of 2018, compared to operating income of $1.8 million, for the fourth quarter of 2017.  Included within Matrix’s operating loss in the fourth quarter of 2018 were $0.6 million of management fees paid to Matrix shareholders and integration costs of $2.2 million related to the February 2018 acquisition of HealthFair. Included within Matrix's operating income in the fourth quarter of 2017 were $0.5 million of management fees paid to Matrix shareholders and acquisition costs of $0.4 million.

Matrix's net loss was $6.2 million for the fourth quarter of 2018, compared to net income of $27.4 million for the fourth quarter of 2017. Matrix’s Adjusted EBITDA was $12.5 million, or 18.9% of revenue, for the fourth quarter of 2018, compared to $11.6 million, or 22.1% of revenue, in the fourth quarter of 2017. Matrix net income in 2017 includes a tax benefit due to the impact of the Tax Reform Act of $13.6 million (that also resulted in an additional $3.4 million of tax for Providence).  Net loss in 2018 reflects the operations of HealthFair, which performed below expectations, as previously discussed.

The year-over-year revenue growth for the fourth quarter of 2018 was related to the growth in volumes in Matrix's core in-home assessment business, pricing in line with the prior year and the addition of revenue from mobile visits due to the acquisition of HealthFair in the February 2018. Adjusted EBITDA increased year over year but the decline in Adjusted EBITDA margin was primarily due to the lower than anticipated HealthFair mobile visit volume. We anticipate continued challenges in 2019 as the Matrix leadership continues its integration of HealthFair.

As of December 31, 2018, Matrix had cash of $23.9 million and $328.4 million of term loan debt outstanding under its credit facility, which was entered into in February 2018 in conjunction with the HealthFair acquisition. As of December 31, 2018, Providence's ownership interest in Matrix was 43.6%.

Investor Presentation and Conference Call

Providence will hold a conference call to discuss its financial results on Thursday, February 28, 2019 at 8:00 a.m. ET.  An investor presentation has been prepared to accompany the conference call and can be found on the Company’s website (investor.prscholdings.com.). To access the call, please dial:

US toll-free: 1 (844) 244 3865
International: 1 (518) 444 0681
Passcode: 5259676

Replay (available until March 7, 2019):
US toll-free: 1 (855) 859 2056
International: 1 (404) 537 3406
Passcode: 5259676

You may also access the conference call via webcast at investor.prscholdings.com, where the call also will be archived.

About Providence

The Providence Service Corporation owns subsidiaries and investments primarily engaged in the provision of healthcare services in the United States. For more information, please visit prscholdings.com.

Non-GAAP Financial Measures and Adjustments

In addition to the financial results prepared in accordance with U.S. generally accepted accounting principles (GAAP), this press release includes EBITDA and Adjusted EBITDA for the Company and its operating segments, and Adjusted Net Income and Adjusted EPS for the Company, which are performance measures that are not recognized under GAAP.  EBITDA is defined as income (loss) from continuing operations, net of taxes, before: (1) interest expense, net, (2) provision (benefit) for income taxes and (3) depreciation and amortization. Adjusted EBITDA is calculated as EBITDA before certain items, including (as applicable): (1) restructuring and related charges, including costs related to our corporate reorganization, (2) equity in net earnings or losses of investees, (3) certain litigation related expenses, settlement income or other negotiated settlements relating to certain matters from prior periods, (4) certain transaction and related costs and (5) asset impairment charges. Adjusted Net Income is defined as income (loss) from continuing operations, net of tax, before certain items, including (1) restructuring and related charges, (2) equity in net earnings or losses of investees, (3) certain litigation related expenses, settlement income or other negotiated settlements relating to certain matters from prior periods, (4) intangible amortization expense, (5) gain or loss on sale of equity investments, (6) the non-recurring impact of the Tax Cuts and Jobs Act, (7) excess tax charges associated with long-term incentive plans, (8) the impact of adjustments on noncontrolling interests, (9) certain transaction and related costs, (10) the income tax impact of such adjustments and (11) asset impairment charges.  Adjusted EPS is calculated as Adjusted Net Income less (as applicable): (1) dividends on convertible preferred stock and (2) income allocated to participating stockholders, divided by the diluted weighted-average number of common shares outstanding.  We utilize these non-GAAP performance measures, which exclude certain expenses and amounts, because we believe the timing of such expenses is unpredictable and not driven by our core operating results, and therefore render comparisons with prior periods as well as with other companies in our industry less meaningful.  We believe such measures allow investors to gain a better understanding of the factors and trends affecting the ongoing operations of our business.  We consider our core operations to be the ongoing activities to provide services from which we earn revenue, including direct operating costs and indirect costs to support these activities.  In addition, our net earnings in equity investees are excluded from these measures, as we do not have the ability to manage these ventures, allocate resources within the ventures, or directly control their operations or performance.

Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently. In addition, there are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies, and exclude expenses that may have a material impact on our reported financial results. The presentation of non-GAAP financial information is not meant to be considered in isolation from or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.  We urge you to review the reconciliations of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measure to evaluate our business.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “believe,” “demonstrate,” “expect,” “estimate,” “forecast,” “anticipate,” “should” and “likely” and similar expressions identify forward-looking statements. In addition, statements that are not historical should also be considered forward-looking statements. Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of the date the statement was made. Such forward-looking statements are based on current expectations that involve a number of known and unknown risks, uncertainties and other factors which may cause actual events to be materially different from those expressed or implied by such forward-looking statements. These factors include, but are not limited to, our continuing relationship with government entities and our ability to procure business from them, our ability to manage growing and changing operations, the implementation of healthcare reform law, government budget changes and legislation related to the services that we provide, our ability to renew or replace existing contracts that have expired or are scheduled to expire with significant clients, and other risks detailed in Providence’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2018.  Providence is under no obligation to (and expressly disclaims any such obligation to) update any of the information in this press release if any forward-looking statement later turns out to be inaccurate whether as a result of new information, future events or otherwise.

Investor Relations Contact                                                                                                                              
Laurence Orton  – SVP Finance                                              
(203) 307-2800




 
 
The Providence Service Corporation
Unaudited Condensed Consolidated Statements of Operations
(in thousands except share and per share data)
         
  Three months ended December 31, Twelve months ended December 31,
  2018 2017 2018 2017
Service revenue, net $360,762  $330,558  $1,384,965  $1,318,220 
         
Operating expenses:        
  Service expense 329,078  298,814  1,284,603  1,223,627 
  General and administrative expense 14,174  13,974  46,098  43,491 
  Asset impairment charge 13,497    14,175   
  Depreciation and amortization 4,706  3,597  15,813  13,618 
Total operating expenses 361,455  316,385  1,360,689  1,280,736 
Operating income (loss) (693) 14,173  24,276  37,484 
         
Other expenses:        
  Interest expense, net 976  278  1,783  1,204 
  Other gain   (5,363)   (5,363)
  Equity in net (gain) loss of investees 2,052  (13,017) 6,158  (13,445)
  (Gain) on remeasurement of cost method investment     (6,577)  
Income (loss) from continuing operations before income taxes (3,721) 32,275  22,912  55,088 
Provision (benefit) for income taxes (2,267) (5,733) 4,684  4,003 
Income (loss) from continuing operations, net of tax (1,454) 38,008  18,228  51,085 
Discontinued operations, net of tax (19,026) 1,074  (37,053) 2,735 
Net income (loss) (20,480) 39,082  (18,825) 53,820 
Net loss (income) of discontinued operations attributable to noncontrolling interests 130  (156) (156) (451)
Net income (loss) attributable to Providence $(20,350) $38,926  $(18,981) $53,369 
         
Net income (loss) available to common stockholders $(21,462) $33,046  $(25,257) $42,636 
         
Basic earnings (loss) per common share:        
Continuing operations $(0.20) $2.37  $0.92  $2.99 
Discontinued operations (1.47) 0.07  (2.87) 0.15 
Basic earnings (loss) per common share $(1.67) $2.44  $(1.95) $3.14 
         
Diluted earnings (loss) per common share:        
Continuing operations $(0.20) $2.35  $0.92  $2.97 
Discontinued operations (1.47) 0.07  (2.86) 0.15 
Diluted earnings (loss) per common share $(1.67) $2.42  $(1.94) $3.12 
         
Weighted-average number of common        
  shares outstanding:        
  Basic 12,867,169  13,570,615  12,960,837  13,602,140 
  Diluted 12,867,169  13,664,727  13,033,247  13,673,314 


 
 
 
The Providence Service Corporation
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
     
  December 31, 2018 December 31, 2017
Assets
Current assets:    
  Cash and cash equivalents $5,678  $52,798 
  Accounts receivable, net of allowance 147,756  110,208 
  Other current assets (1) 50,495  29,299 
  Current assets of discontinued operations (2) 7,051  104,024 
Total current assets 210,980  296,329 
Property and equipment, net 22,965  37,672 
Goodwill and intangible assets, net 161,362  109,380 
Equity investments 161,503  169,699 
Other long-term assets (3) 15,436  17,182 
Noncurrent assets of discontinued operations (2)   73,828 
Total assets $572,246  $704,090 
     
Liabilities, redeemable convertible preferred stock and stockholders' equity
Current liabilities:    
  Current portion of long-term obligations $718  $2,400 
  Other current liabilities (4) 138,908  162,887 
  Current liabilities of discontinued operations (2) 3,257  61,643 
Total current liabilities 142,883  226,930 
Long-term obligations, less current portion 353  584 
Other long-term liabilities (5) 40,620  55,448 
Noncurrent liabilities of discontinued operations (2)   7,565 
Total liabilities 183,856  290,527 
     
Mezzanine and stockholder's equity    
Convertible preferred stock, net 77,392  77,546 
Stockholders' equity 310,998  336,017 
Total liabilities, redeemable convertible preferred stock and stockholders' equity $572,246  $704,090 
         

(1) Comprised of other receivables, restricted cash and prepaid expenses and other.
(2) Comprised of assets or liabilities primarily related to WD Services' former Saudi Arabian operation
(3) Comprised of restricted cash, less current portion, deferred tax assets and other assets.
(4) Comprised of accounts payable, accrued expenses, accrued transportation costs, deferred revenue and reinsurance and related liability reserves.
(5) Includes deferred tax liabilities and other long-term liabilities.


 
 
 
The Providence Service Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands) (1)
     
  Twelve months ended December 31,
  2018 2017
Operating activities
Net income (loss) $(18,825) $53,820 
  Depreciation and amortization 27,677  26,469 
  Stock-based compensation 8,993  7,543 
  Asset impairment charge 23,378   
  Equity in net (gain) loss of investees 6,072  (12,054)
  Gain on sale of equity investment   (12,377)
  Gain on remeasurement of cost method investment (6,577)  
  Other non-cash items 5,676  (20,646)
  Loss on sale of business, net of tax 1,831   
  Changes in working capital (40,326) 12,289 
Net cash provided by operating activities 7,899  55,044 
Investing activities    
Purchase of property and equipment (17,521) (19,923)
Acquisitions, net of cash acquired (43,711)  
Dispositions, net of cash sold 12,780   
Proceeds from note receivable 3,130   
Loan to joint venture   10 
Proceeds from sale of equity investment   15,593 
Other investing activities   (2,700)
Net cash used in investing activities (45,322) (7,020)
Financing activities    
Preferred stock dividends (4,413) (4,418)
Repurchase of common stock, for treasury (56,088) (29,364)
Other financing activities 8,946  (6)
Net cash used in financing activities (51,555) (33,788)
Effect of exchange rate changes on cash (261) 978 
Net change in cash and cash equivalents (89,239) 15,214 
Cash, cash equivalents and restricted cash at beginning of period 101,606  86,392 
Cash, cash equivalents and restricted cash at end of period (2) $12,367  $101,606 
         

(1) Includes both continuing and discontinued operations.
(2) Includes restricted cash of $4.4 million at December 31, 2018 and restricted cash of $6.3 million at December 31, 2017.


 
 
 
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Segment Information and Adjusted EBITDA
(in thousands) (Unaudited)
   
  Three months ended December 31, 2018
 NET Services Matrix Investment Corporate and Other Total Continuing Operations
Service revenue, net$360,762  $  $  $360,762 
         
Operating expenses:       
  Service expense329,232    (154) 329,078 
  General and administrative expense3,307    10,867  14,174 
  Asset impairment charge13,497      13,497 
  Depreciation and amortization4,478    228  4,706 
Total operating expenses350,514    10,941  361,455 
         
Operating income (loss)10,248    (10,941) (693)
         
Other expenses:       
  Interest expense, net19    957  976 
  Equity in net (gain) loss of investees  2,052    2,052 
Income (loss) from continuing       
  operations, before income tax10,229  (2,052) (11,898) (3,721)
Provision (benefit) for income taxes2,241  (780) (3,728) (2,267)
Income (loss) from continuing operations, net of taxes7,988  (1,272) (8,170) (1,454)
         
Interest expense, net19    957  976 
Provision (benefit) for income taxes2,241  (780) (3,728) (2,267)
Depreciation and amortization4,478    228  4,706 
         
EBITDA14,726  (2,052) (10,713) 1,961 
         
Asset impairment charge (1)13,497      13,497 
Restructuring and related charges (2)935    3,489  4,424 
Transaction costs (3)2,026    3,391  5,417 
Equity in net (gain) loss of investees  2,052    2,052 
Other    (8) (8)
         
Adjusted EBITDA$31,184  $  $(3,841) $27,343 
                

(1) Impairment related to decision not to proceed with NET Services in-process "Next Generation" IT project due to acquisition of Circulation technology.
(2) Restructuring and related charges include value enhancement initiative implementation costs of $587 and severance costs of $348 within NET Services and organizational consolidation costs of $3,489 within Corporate and Other.
(3) Transaction costs related to the acquisition of Circulation by NET Services and certain Corporate transaction related expenses.


  
  
  
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Segment Information and Adjusted EBITDA
(in thousands) (Unaudited)
  
 Three months ended December 31, 2017
 NET Services Matrix
Investment
 Corporate and Other Total  Continuing Operations
Service revenue, net$330,558  $  $  $330,558 
        
Operating expenses:       
  Service expense300,344    (1,530) 298,814 
  General and administrative expense2,901    11,073  13,974 
  Depreciation and amortization3,513    84  3,597 
Total operating expenses306,758    9,627  316,385 
        
Operating income (loss)23,800    (9,627) 14,173 
        
Other expenses:       
  Interest expense, net20    258  278 
  Other gain    (5,363) (5,363)
  Equity in net (gain) loss of investees  (13,017)   (13,017)
Income (loss) from continuing       
  operations, before income tax23,780  13,017  (4,522) 32,275 
Provision (benefit) for income taxes7,796  3,322  (16,851) (5,733)
Income (loss) from continuing operations, net of taxes15,984  9,695  12,329  38,008 
        
Interest expense, net20    258  278 
Provision (benefit) for income taxes7,796  3,322  (16,851) (5,733)
Depreciation and amortization3,513    84  3,597 
        
EBITDA27,313  13,017  (4,180) 36,150 
        
Restructuring and related charges (1)1,404    1,716  3,120 
Equity in net (gain) loss of investees  (13,017)   (13,017)
Litigation income (2)    (5,273) (5,273)
        
        
Adjusted EBITDA$28,717  $  $(7,737) $20,980 
                

(1) Restructuring and related charges include value enhancement implementation initiative costs of $1,404 for NET Services and $1,716 of severance and other costs related to the former CEO of Providence within Corporate and Other.
(2) Litigation income related to the settlement of a putative stockholder class action derivative complaint, which is more fully described in the Company's Form 10-K.    


 
 
 
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Segment Information and Adjusted EBITDA
 (in thousands) (Unaudited)
  
 Twelve months ended December 31, 2018
 NET Services Matrix Investment Corporate and Other Total Continuing Operations
Service revenue, net$1,384,965  $  $  $1,384,965 
        
Operating expenses:       
  Service expense1,285,029    (426) 1,284,603 
  General and administrative expense14,247    31,851  46,098 
  Asset impairment charge14,175      14,175 
  Depreciation and amortization15,026    787  15,813 
Total operating expenses1,328,477    32,212  1,360,689 
        
Operating income (loss)56,488    (32,212) 24,276 
        
Other expenses:       
  Interest expense, net47    1,736  1,783 
  Equity in net (gain) loss of investees  6,158    6,158 
  Gain on remeasurement of cost method       
   investment    (6,577) (6,577)
Income (loss) from continuing operations,       
  before income tax56,441  (6,158) (27,371) 22,912 
Provision (benefit) for income taxes14,092  (1,564) (7,844) 4,684 
Income (loss) from continuing operations, net of taxes42,349  (4,594) (19,527) 18,228 
        
Interest expense, net47    1,736  1,783 
Provision (benefit) for income taxes14,092  (1,564) (7,844) 4,684 
Depreciation and amortization15,026    787  15,813 
        
EBITDA71,514  (6,158) (24,848) 40,508 
        
Asset impairment charge (1)14,175      14,175 
Restructuring and related charges (2)3,185    8,361  11,546 
Transaction costs (3)3,623    3,608  7,231 
Equity in net (gain) loss of investees  6,158    6,158 
Gain on remeasurement of cost method       
  investment (4)    (6,577) (6,577)
Litigation income    (226) (226)
        
Adjusted EBITDA$92,497  $  $(19,682) $72,815 
                

(1) Impairment related to decision not to proceed with NET Services in-process "Next Generation" IT project due to acquisition of Circulation technology.
(2) Restructuring and related charges include value enhancement initiative implementation costs of $2,837 and severance costs of $348 for NET Services and organizational consolidation costs of $8,361 within Corporate and Other.
(3) Transaction costs related to the acquisition of Circulation by NET Services and certain Corporate transaction related expenses.
(4) Gain on re-measurement of the Company's initial cost method investment in Circulation, upon acquisition of all of remaining equity


 
 
 
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Segment Information and Adjusted EBITDA
 (in thousands) (Unaudited)
  
 Twelve months ended December 31, 2017
 NET Services Matrix
Investment
 Corporate and Other Total  Continuing Operations
Service revenue, net$1,318,220  $  $  $1,318,220 
        
Operating expenses:       
  Service expense1,227,426    (3,799) 1,223,627 
  General and administrative expense11,779    31,712  43,491 
  Depreciation and amortization13,275    343  13,618 
Total operating expenses1,252,480    28,256  1,280,736 
        
Operating income (loss)65,740    (28,256) 37,484 
        
Other expenses:       
  Interest expense, net69    1,135  1,204 
  Other income    (5,363) (5,363)
  Equity in net (gain) loss of investees  (13,445)   (13,445)
Income (loss) from continuing       
  operations, before income tax65,671  13,445  (24,028) 55,088 
Provision (benefit) for income taxes24,018  3,483  (23,498) 4,003 
Income (loss) from continuing operations, net of taxes41,653  9,962  (530) 51,085 
        
Interest expense, net69    1,135  1,204 
Provision (benefit) for income taxes24,018  3,483  (23,498) 4,003 
Depreciation and amortization13,275    343  13,618 
        
EBITDA79,015  13,445  (22,550) 69,910 
        
Restructuring and related charges (1)6,318    1,716  8,034 
Equity in net (gain) loss of investees  (13,445)   (13,445)
Litigation income (2)    (4,969) (4,969)
        
        
Adjusted EBITDA$85,333  $  $(25,803) $59,530 
                

(1) Restructuring and related charges include $214 of former CEO departure costs and value enhancement implementation initiative costs of $6,104 for NET Services and $1,716 of severance and other costs related to the former CEO of Providence within Corporate and Other.
(2) Litigation income related to the settlement of a putative stockholder class action derivative complaint, which is more fully described in the Company's Form 10-K.
               

  

The Providence Service Corporation
Summary Financial Information of Equity Investment in Matrix Medical Network (1)
(in thousands)
(Unaudited)
     
 Three months ended December 31, Twelve Months Ended December 31, 
 2018 2017 2018 2017 
Revenue$65,746  $52,536  $282,067  $227,872  
Operating expense (2)57,073  41,881  240,134  182,489  
Depreciation and amortization15,150  8,883  43,119  33,512  
Operating income (loss)(6,477) 1,772  (1,186) 11,871  
         
Other expense (income)        
Interest expense3,506  3,823  25,942 (3)14,818  
Provision (benefit) for income taxes(3,758) (29,492) (7,166) (29,613) 
Net income (loss)(6,225) 27,441  (19,962) 26,666  
         
Interest43.6% 46.6% 43.6% 46.6% 
Net income (loss) - Equity Investment(2,714) 12,796  (8,703) 12,434  
Management fee and other662
 (4)221 (5)2,545 (6)1,011 (7)
Equity in net gain (loss) of investee$(2,052) $13,017  $(6,158) $13,445  
         
Net Debt (8)304,425        
         

(1) The results of equity method investments are excluded from the calculation of Providence's Adjusted EBITDA and Adjusted Net Income.
(2) Excludes depreciation and amortization.
(3) Includes $3,748 of expense related to the acceleration of deferred financing fees upon debt refinancing.
(4) Includes amounts relating to management fees due from Matrix to Providence of $257 as well as other adjustments.
(5) Includes amounts relating to management fees due from Matrix to Providence of $247 less Providence share-based compensation expense of $26.
(6) Includes amounts relating to management fees due from Matrix to Providence of $2,301 less Providence share-based compensation expense of $137 as well as other adjustments.
(7) Includes amounts relating to management fees due from Matrix to Providence of $1,087 less Providence share-based compensation expense of $76.
(8) Represents cash of $23,925 and debt of $328,350 on Matrix's standalone balance sheet as of December 31, 2018.

 

    
    
    
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA: Matrix Medical Network (1)(2)(5)
(in thousands) (Unaudited)
    
 Three months ended December 31, Twelve Months Ended December 31,
 2018 2017 2018 2017
Revenue$65,746  $52,536  $282,067  $227,872 
Operating expense (3)57,073  41,881  240,134  182,489 
Depreciation and amortization15,150  8,883  43,119  33,512 
Operating income (loss)(6,477) 1,772  (1,186) 11,871 
        
Interest expense3,506  3,823  25,942  14,818 
Provision (benefit) for income taxes(3,758) (29,492) (7,166) (29,613)
Net income(6,225) 27,441  (19,962) 26,666 
        
Depreciation and amortization15,150  8,883  43,119  33,512 
Interest expense3,506  3,823  25,942  14,818 
Provision (benefit) for income taxes(3,758) (29,492) (7,166) (29,613)
EBITDA8,673  10,655  41,933  45,383 
Matrix management transaction bonuses  12    2,679 
Management fees (4)550  529  4,887  2,331 
Acquisition costs  412  2,341  412 
Integration costs2,231    6,524   
Transaction costs1,004  6  1,010  857 
Adjusted EBITDA$12,458  $11,614  $56,695  $51,662 
        

(1) Matrix's Adjusted EBITDA is not included within Providence's Adjusted EBITDA in any period presented.
(2) Providence accounts for its proportionate share of Matrix's results using the equity method.
(3) Excludes depreciation and amortization.
(4) Management fees in the first twelve months of 2018 include fees earned in association with the acquisition of HealthFair.
(5) 2018 includes the results of HealthFair since the date of acquisition on February 16, 2018.


 
 
 
The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Adjusted Net Income and Adjusted Net Income per Common Share:
(in thousands, except share and per share data)
(Unaudited)
    
 Three months ended December 31, Twelve months ended December 31,
 2018 2017 2018  2017
Income from continuing operations, net of tax$(1,454) $38,008  $18,228  $51,085 
        
Asset impairment charge (1)13,497    14,175   
Restructuring and related charges (2)4,569  3,120  11,984  8,034 
Transaction costs (3)5,417    7,231   
Equity in net (gain) loss of investees2,052  (13,017) 6,158  (13,445)
Gain on remeasurement of cost method investment    (6,577)  
Intangible amortization expense1,565  730  3,755  2,920 
Litigation (income) expense, net (4)(8) (5,273) (226) (4,969)
Impact of Tax Reform Act  (19,304)   (19,304)
Tax adjustment for 2015 Holding Company LTI Program  3,590    3,590 
Tax effected impact of adjustments(8,438) 2,878  (9,849) 253 
        
Adjusted Net Income17,200  10,732  44,879  28,164 
        
Dividends on convertible preferred stock(1,112) (1,114) (4,420) (4,419)
Income allocated to participating securities(2,174) (1,240) (5,438) (3,063)
        
Adjusted Net Income available to common stockholders$13,914  $8,378  $35,021  $20,682 
        
Adjusted EPS$1.08  $0.61  $2.69  $1.51 
        
Diluted weighted-average number of common shares outstanding12,926,598  13,664,727  13,033,247  13,673,314 
            

(1) Asset impairment charge of $13,497 in the current quarter related to decision not to proceed with NET Services' in-process "Next Generation" IT project due to acquisition of Circulation technology.
(2) Restructuring and related charges are comprised of employee separation costs as well as third-party consulting and implementation costs related to NET Services' LogistiCare various value initiatives and costs related to the consolidation of the holding company activities into LogistiCare including $436 of accelerated depreciation related to corporate property, plant & equipment for the twelve months ended December 31, 2018.  See the above Segment Information and Adjusted EBITDA tables for a detailed breakdown of the restructuring and related charges for each time period presented.
(3) Transaction costs related to the acquisition of Circulation, Inc. in NET Services and certain other Corporate transaction related expenses.
(4) Income or expense related to defense cost and final settlement for a putative stockholder class action derivative complaint, which is more fully described in the Company's Form 10-K.  

 
 
 
The Providence Service Corporation
Segment-Level Impact of ASC 606 Adoption
(in thousand) (Unaudited)

The following table summarizes the impact that the adoption of ASC 606, Revenue from Contracts with Customers, had on the Company's results for the three and twelve months ended December 31, 2018:

       
    Three Months Ended December 31, 2018 Three Months
Ended December 31, 2017 (1)
Segment Caption Historical
US GAAP
 ASC 606 Adjustment As Reported As Reported
NET Services (2) Revenue $365,084  $(4,322) $360,762  $330,558 
  Adjusted EBITDA 31,184    31,184  28,717 
           
Corporate and Other Revenue        
  Adjusted EBITDA (3,841)   (3,841) (7,737)
           
Total Continuing Operations Revenue $365,084  $(4,322) $360,762  $330,558 
  Adjusted EBITDA 27,343    27,343  20,980 
    7.5%   7.6% 6.3%
              
              
     Twelve Months Ended December 31, 2018 Twelve Months
Ended December 31, 2017 (1)
Segment  Caption Historical
US GAAP
 ASC 606 Adjustment As Reported As Reported 
 NET Services (2) Revenue $1,400,453  $(15,488) $1,384,965  $1,318,220 
  Adjusted EBITDA 92,497   92,497  85,333 
              
Corporate and Other Revenue       
  Adjusted EBITDA (19,682)  (19,682  (25,803
              
Total Continuing Operations Revenue $1,400,453  $ (15,488 $1,384,965   $1,318,220  
  Adjusted EBITDA 72,815     72,815   59,530  
    5.2%   5.3 4.5
              

(1) The Company adopted ASC 606 using the modified retrospective method resulting in an opening retained earnings adjustment of $5,710, primarily related to the WD Services segment, now classified as discontinued operations.  Prior periods are not adjusted for the new revenue standard.
(2) NET Services 2018 revenue was impacted by a change to recognize revenue for one contract on a net basis. There is no margin impact for this adjustment.