Exhibit 99.1

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

The following unaudited pro forma condensed combined financial statements combine the Company’s historical consolidated financial information, the consolidated financial statements of Ingeus and Matrix. This unaudited pro forma condensed combined financial information gives effect to the acquisitions of Ingeus and Matrix as if the acquisitions had been consummated at January 1, 2013 for the unaudited pro forma condensed combined statements of income for twelve months ended December 31, 2013, twelve months ended June 30, 2014 and the six months ended June 30, 2014. The unaudited pro forma condensed combined balance sheet at June 30, 2014 gives effect to the acquisition of Matrix as if the acquisition had been consummated on that date. The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting.

The Company’s historical financial information was derived from its audited consolidated financial statements for the year ended December 31, 2013 (as filed on Form 10-K with the Securities and Exchange Commission on March 14, 2014) and the Company’s unaudited consolidated financial statements for the six months ended June 30, 2014 (as filed on a Form 10-Q with the Securities and Exchange Commission on August 8, 2014). The Company’s historical financial statements used in preparing the unaudited pro forma financial data are summarized and should be read in conjunction with its historical financial statements and risk factors, all of which are included in the filings with the Securities and Exchange Commission noted above.

Ingeus Limited’s historical financial information was derived from its consolidated audited financial statements for the year ended December 31, 2013 and its unaudited consolidated financial statements as of May 30, 2014 and for the period from January 1, 2014 to May 30, 2014. Ingeus Limited’s historical financial statements used in preparing the unaudited pro forma financial data are summarized and should be read in conjunction with its historical financial statements and notes thereto contained herein.

Ingeus UK Limited’s historical financial information was derived from its consolidated audited financial statements for the year ended December 31, 2013 and its unaudited consolidated financial statements as of May 30, 2014 and for the period from January 1, 2014 to May 30, 2014. Ingeus UK Limited’s historical financial statements used in preparing the unaudited pro forma financial data are summarized and should be read in conjunction with its historical financial statements and notes thereto contained herein.

Matrix’s historical financial information was derived from its consolidated audited financial statements for the year ended December 31, 2013 and its unaudited consolidated financial statements as of and for the six months ended June 30, 2014. Matrix’s historical financial statements used in preparing the unaudited pro forma financial data are summarized and should be read in conjunction with its historical financial statements and notes thereto contained herein.

The unaudited pro forma adjustments, which are based upon available information and upon certain assumptions that the Company believes are reasonable, are described in the accompanying notes. The Company is providing the unaudited pro forma condensed combined financial information for illustrative purposes only. The companies may have performed differently had they been combined during the periods presented. You should not rely on the unaudited pro forma condensed combined financial information as being indicative of the historical results that would have been achieved had the companies actually been combined during the periods presented or the future results that the combined companies will experience. The unaudited pro forma condensed combined statements of income do not give effect to any cost savings or operating synergies expected to result from the acquisitions or the costs to achieve such cost savings or operating synergies.

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THE PROVIDENCE SERVICE CORPORATION

PRO FORMA CONDENSED COMBINED BALANCE SHEET—UNAUDITED

JUNE 30, 2014

(In Thousands)

 

		Historical
		Providence Service Corporation				Matrix				Pro Forma Adjustments								Pro Forma Combined
Assets
Current assets:
Cash and cash equivalents		$	123,000			$	26,722			$	341,000				[4a	]
											(360,000	)			[4b	]
											(6,000	)			[4c	]
											(26,722	)			[4g	]		$	98,000
Accounts receivable, net			134,973				16,816												151,789
Other current assets			40,926				8,226				(388	)			[4d	]
											(1,184	)			[4h	]			47,580
Total current assets			298,899				51,764				(53,294	)							297,369
Goodwill			175,521				3,767				271,663				[4e	]			450,951
Intangible assets, net			112,304				857				187,999				[4f	]			301,160
Other non-current assets			76,265				16,968				11,000				[4a	]
											(1,293	)			[4d	]			102,940
Total assets		$	662,989			$	73,356			$	416,075							$	1,152,420
Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term obligations		$	2,250			$	1,875			$	(1,875	)			[4g	]		$	2,250
Accrued expenses			81,376				20,810				(52	)			[4d	]
											(1,269	)			[4a	]
											(1,269	)			[4c	]			99,596
Accrued transportation costs			68,516				—												68,516
Other current liabilities			67,951				299												68,250
Total current liabilities			220,093				22,984				(4,465	)							238,612
Long-term obligations, less current portion			189,350				72,188				355,000				[4a	]
											(72,188	)			[4g	]			544,350
Other non-current liabilities			76,755				2,850				79,524				[4h	]			159,129
Total liabilities			486,198				98,022				357,871								942,091
Stockholders’ equity:
Common stock and APIC			214,210				32,766				(32,766	)			[4g	]
											40,000				[4i	]			254,210
Accumulated deficit			(20,682	)			(57,432	)			(1,731	)			[4a	]
											(4,731	)			[4c	]
											57,432				[4g	]			(27,144	)
Accumulated other comprehensive income			959																959
Treasury shares, at cost			(17,663	)															(17,663	)
Total Providence stockholders’ equity			176,824				(24,666	)			58,204								210,362
Non-controlling interest			(33	)															(33	)
Total stockholders’ equity			176,791				(24,666	)			58,204								210,329
Total liabilities and stockholders’ equity		$	662,989			$	73,356			$	416,075							$	1,152,420

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

 

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THE PROVIDENCE SERVICE CORPORATION

PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2014

UNAUDITED

(In Thousands)

 

		Historical
		Providence Service Corporation				Ingeus (Note 2)				Matrix				Ingeus IFRS to US GAAP Adjustments						Ingeus Pro Forma Adjustments						Matrix Pro Forma Adjustments						Pro Forma Combined
Revenues:
Non-emergency transportation services		$	414,373			$	—			$	—																					$	414,373
Human services			190,148				—				—																						190,148
Workforce development services			28,835				139,445				—			$	9,472			[5a]															177,752
Health assessment services			—				—				93,564																						93,564
Total revenues			633,356				139,445				93,564				9,472						—						—						875,837
Operating expenses
Cost of non-emergency transportation services			371,627				—				—																						371,627
Client service expense			173,112				—				—																						173,112
Workforce development service expense			24,423				112,621				—									$	3,260			[6a]									140,304
Health assessment service expense			—				—				69,070															$	(698	)		[4j]			68,372
General and administrative			29,780				8,896				986				191			[5b]			(4,168	)		[6b]									35,685
Depreciation and amortization			8,871				4,595				3,067				(245	)		[5b]			(1,559	)		[6c]		$	(136	)		[4k]
							—														2,984			[6d]			10,443			[4l]			28,020
Total operating expenses			607,813				126,112				73,123				(54	)					517						9,609						817,120
Operating income (loss)			25,543				13,333				20,441				9,526						(517	)					(9,609	)					58,717
Other expense (income)
Interest expense, net			2,846				24				2,338				(62	)		[5b]			(51	)		[6e]			(2,296	)		[4m]
																					1,016			[6f]			11,479			[4n]
																					51			[6g]			894			[4o]			16,239
Total other expense (income)			2,846				24				2,338				(62	)					1,016						10,077						16,239
Income (loss) before income taxes			22,697				13,309				18,103				9,588						(1,533	)					(19,686	)					42,478
Provision for income taxes			9,738				3,290				7,602				2,559			[5c]			57			[6h]			(8,327	)		[4p]			14,919
Net income (loss)		$	12,959			$	10,019			$	10,501			$	7,029					$	(1,590	)				$	(11,359	)				$	27,559
Earnings per share (basic)		$	0.93																													$	1.77
Earnings per share (diluted)		$	0.91																													$	1.74
Weighted-average common shares outstanding
Basic			14,006,944																		596,915			[6i]			946,722			[4q]			15,550,581
Diluted			14,306,898																		596,915			[6i]			946,722			[4q]			15,850,535

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

 

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THE PROVIDENCE SERVICE CORPORATION

PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE TWELVE MONTHS ENDED JUNE 30, 2014

UNAUDITED

(In Thousands)

 

		Historical												Ingeus IFRS to US GAAP Adjustments						Ingeus Pro Forma Adjustments						Matrix Pro Forma Adjustments						Pro Forma Combined
		Providence Service Corporation				Ingeus (Note 2)				Matrix
Revenues:
Non-emergency transportation services		$	793,602			$	—			$	—																					$	793,602
Human services			364,477				—				—																						364,477
Workforce development services			28,835				314,893				—			$	13,756			[5a]															357,484
Health assessment services			—				—				186,079																						186,079
Total revenues			1,186,914				314,893				186,079				13,756						—						—						1,701,642
Operating expenses
Cost of non-emergency transportation services			722,441				—				—																						722,441
Client service expense			330,922				—				—																						330,922
Workforce development service expense			24,423				249,362				—									$	7,173			[6a]									280,958
Health assessment service expense			—				—				152,894															$	(1,221	)		[4j]			151,673
General and administrative			53,230				19,512				2,046				191			[5b]			(4,168	)		[6b]									70,811
Depreciation and amortization			16,279				10,145				5,498				(514	)		[5b]			(3,514	)		[6c]			(363	)		[4k]
																					6,564			[6d]			20,886			[4l]			54,980
Asset impairment charge											1,524																						1,524
Total operating expenses			1,147,295				279,019				161,962				(323	)					6,055						19,302						1,613,309
Operating income (loss)			39,619				35,874				24,117				14,079						(6,055	)					(19,302	)					88,333
Other expense (income)
Interest expense, net			6,300				132				3,205				(164	)		[5b]			(138	)		[6e]			(3,046	)		[4m]
																					2,258			[6f]			22,966			[4n]
																					114			[6g]			1,789			[4o]			33,417
Other expense (income)			525																														525
Total other expense (income)			6,825				132				3,205				(164	)					2,234						21,709						33,942
Income (loss) before income taxes			32,794				35,742				20,912				14,243						(8,289	)					(41,011	)					54,391
Provision for income taxes			12,951				10,191				9,310				3,928			[5c]			(1,123	)		[6h]			(17,348	)		[4p]			17,910
Net income (loss)		$	19,843			$	25,551			$	11,602			$	10,315					$	(7,166	)				$	(23,663	)				$	36,481
Earnings per share (basic)		$	1.43																													$	2.37
Earnings per share (diluted)		$	1.40																													$	2.32
Weighted-average common shares outstanding
Basic			13,865,649																		596,915			[6i]			946,722			[4q]			15,409,286
Diluted			14,193,041																		596,915			[6i]			946,722			[4q]			15,736,678

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

 

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THE PROVIDENCE SERVICE CORPORATION

PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2013

UNAUDITED

(In Thousands)

 

		Historical
		Providence Service Corporation				Ingeus (Note 2)				Matrix				Ingeus IFRS to US GAAP Adjustments						Ingeus Pro Forma Adjustments						Matrix Pro Forma Adjustments						Pro Forma Combined
Revenues:
Non-emergency transportation services		$	770,246			$	—			$	—																					$	770,246
Human services			352,436				—				—																						352,436
Workforce development services			—				340,946				—			$	10,078			[5a]															351,024
Health assessment services			—				—				165,036																						165,036
Total revenues			1,122,682				340,946				165,036				10,078						—						—						1,638,742
Operating expenses
Cost of non-emergency transportation services			710,428				—				—																						710,428
Client service expense			309,623				—				—																						309,623
Workforce development service expense			—				269,778				—									$	7,824			[6a]									277,602
Health assessment service expense			—				—				147,582															$	(1,114	)		[4j]			146,468
General and administrative			48,633				21,141				2,002																						71,776
Depreciation and amortization			14,872				9,927				4,346				(286	)		[5b]			(3,056	)		[6c]			(496	)		[4k]
																					7,160			[6d]			20,886			[4l]			53,353
Asset impairment charge			492				—				1,696																						2,188
Total operating expenses			1,084,048				300,846				155,626				(286	)					11,928						19,276						1,571,438
Operating income (loss)			38,634				40,100				9,410				10,364						(11,928	)					(19,276	)					67,304
Other expense (income)
Interest expense, net			6,894				(512	)			930				489			[5b]			(234	)		[6e]			(813	)		[4m]
																					2,472			[6f]			22,966			[4n]
																					125			[6g]			1,789			[4o]			34,106
Other expense (income)			525																														525
Total other expense (income)			7,419				(512	)			930				489						2,363						23,942						34,631
Income (loss) before income taxes			31,215				40,612				8,480				9,875						(14,291	)					(43,218	)					32,673
Provision for income taxes			11,777				11,792				4,663				2,862			[5c]			(2,221	)		[6h]			(18,281	)		[4p]			10,592
Net income (loss)		$	19,438			$	28,820			$	3,817			$	7,013					$	(12,070	)				$	(24,937	)				$	22,081
Earnings per share (basic)		$	1.44																													$	1.47
Earnings per share (diluted)		$	1.41																													$	1.44
Weighted-average common shares outstanding
Basic			13,499,885																		596,915			[6i]			946,722			[4q]			15,043,522
Diluted			13,809,874																		596,915			[6i]			946,722			[4q]			15,353,511

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

 

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THE PROVIDENCE SERVICE CORPORATION

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(In Thousands Except Share Data)

1. Description of the transactions and basis of presentation

Description of the Transaction

On September 17, 2014, The Providence Service Corporation (“Providence”), announced that it entered into an Agreement and Plan of Merger (the “Merger Agreement”), dated as of September 17, 2014, by and among Providence, Matrix Acquisition Co., a newly formed wholly owned subsidiary of Providence (“Merger Sub”), CCHN Group Holdings, Inc. (“CCHN”) and the Holders’ Representative named therein, pursuant to which, upon satisfaction of the terms and conditions set forth in the Merger Agreement, at the closing of the transactions contemplated by the Merger Agreement (the “Closing”), CCHN will merge with and into Merger Sub, with CCHN continuing as the surviving company and as a wholly-owned subsidiary of Providence (the “Merger”), and the separate existence of Merger Sub will cease. At the Closing, subject to the escrow arrangements described in the Merger Agreement, each share of CCHN then outstanding immediately prior to the Closing and each vested option of CCHN then outstanding immediately prior to the Closing will be converted into the right to receive a merger consideration in the form of cash and shares of Providence, representing approximately $360,000 in cash and 946,722 shares of Providence with a value of $40,000 as of September 17, 2014, in the aggregate. Providence has received debt financing commitments for the transactions contemplated by the Merger Agreement.

CCHN is the parent company of Community Care Health network, Inc. (d/b/a Matrix Medical Network) (“Matrix”). Matrix is a pioneer in the prospective health risk assessment market for Medicare Advantage health plans and risk bearing providers with a national footprint across 33 states. The acquisition expands Providence’s clinical capabilities and home based services into the medical field with the addition of operations which include approximately 700 nurse practitioners.

The Merger Agreement contains customary representations and warranties of the parties and customary covenants regarding the conduct of business by CCHN and its subsidiaries (including Matrix) prior to the Closing and other typical matters. Following the Closing, Providence will have certain rights to indemnification for breaches of representations and warranties and other matters as specified therein, subject to baskets, caps and other limitations set forth therein. To supplement the indemnification provided by CCHN’s former equity holders, Providence has obtained representation and warranty insurance in connection with the Merger Agreement

The Merger Agreement is subject to termination under customary circumstances, including if the Closing is not consummated on or prior to February 11, 2015, by the nonbreaching party: (1) if Providence, on the one hand, or CCHN on the other hand, breach their representations and warranties under certain circumstances; (2) by either Providence or CCHN if any governmental authority issues a judgment, order, decree or other ruling permanently enjoining, or otherwise prohibiting the transactions contemplated by the Merger Agreement, and such judgment, order, decree or other ruling shall have become final and non-appealable; (3) by Providence if CCHN does not provide evidence that its stockholders have approved the transactions contemplated by the Merger Agreement by the second business day following the date of the Merger Agreement; and (4) by CCHN if a Marketing Period (as defined in the Merger Agreement) relating to the financing of the transaction has ended and certain other conditions have been met. Providence has agreed to pay CCHN an $18,000 fee if the Merger Agreement is terminated under certain circumstances.

Of the shares of Providence being issued as part of the stock consideration for the Merger, 50% will be subject to a one-year lock-up agreement and the remaining 50% will be subject to a two-year lock up agreement.

The Merger is expected to close in the fourth quarter of 2014, subject to customary regulatory approvals and closing conditions, including the performance by the parties of their respective obligations under the Merger Agreement and the material accuracy of each party’s representations and warranties set forth therein.

 

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Basis of Presentation

The unaudited pro forma condensed consolidated financial statements have been prepared based on the Company’s historical financial information and the historical financial information of Ingeus and Matrix giving effect to the acquisitions and related adjustments described in these notes. Certain note disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted as permitted by the SEC rules and regulations.

These unaudited pro forma condensed combined financial statements are not necessarily indicative of the results of operations that would have been achieved had the acquisitions actually taken place at the dates indicated and do not purport to be indicative of future financial position or operating results.

2. Ingeus historical financial information

The tables below present the historical financial information for Ingeus Limited and Ingeus UK Limited in their reporting currencies, elimination adjustments, translation adjustments to US dollars and a combined total for Ingeus in US dollars. Ingeus was acquired on May 30, 2014 (May 31, 2014, in Australia), and as such, the information in the schedules below represent the activity for the period from January 1, 2014 to May 30, 2014, the period from July 1, 2013 to May 30, 2014, and the year ended December 31, 2013. The period from May 31, 2014 through June 30, 2014 was included in the Providence consolidated results as of June 30, 2014, and accordingly is not displayed in the schedules below.

INGEUS COMBINED HISTORICAL STATEMENT OF INCOME

FOR THE PERIOD FROM JANUARY 1, 2014 TO MAY 30, 2014

UNAUDITED

(In Thousands)

 

		Ingeus Limited (AUD)				Ingeus UK Limited (GBP)				Elimination Adjustments (AUD)				Elimination Adjustments (GBP)				Translation Adjustments (USD) (1)				Ingeus (USD)
Revenues:
Workforce development services		$	36,099			£	65,713			$	(3,053	)		£	—			$	40,686			$	139,445
Total revenues			36,099				65,713				(3,053	)			—				40,686				139,445
Operating expenses
Workforce development service expense			34,791				50,325				(3,008	)			(37	)			30,550				112,621
General and administrative			3,813				3,260				—				—				1,823				8,896
Share of profit of equity-accounted investee			(6,557	)			—				6,557				—				—				—
Depreciation and amortization			1,270				2,066				—				—				1,259				4,595
Total operating expenses			33,317				55,651				3,549				(37	)			33,632				126,112
Operating income (loss)			2,782				10,062				(6,602	)			37				7,054				13,333
Other expense (income)
Interest expense, net			56				(29	)			(45	)			37				5				24
Total other expense (income)			56				(29	)			(45	)			37				5				24
Income (loss) before income taxes			2,726				10,091				(6,557	)			—				7,049				13,309
Provision (benefit) for income taxes			(438	)			2,216				—				—				1,512				3,290
Net income (loss)		$	3,164			£	7,875			$	(6,557	)		£	—			$	5,537			$	10,019

 

(1)	AUD to USD translation rate of 0.91 applied and GBP to USD translation rate of 1.6644 applied.

 

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INGEUS COMBINED HISTORICAL STATEMENT OF INCOME

FOR THE PERIOD FROM JULY 1, 2013 TO MAY 30, 2014

UNAUDITED

(In Thousands)

 

		Ingeus Limited (AUD)				Ingeus UK Limited (GBP)				Elimination Adjustments (AUD)				Elimination Adjustments (GBP)				Translation Adjustments (USD) (2)				Ingeus (USD)
Revenues:
Workforce development services		$	79,124			£	153,498			$	(6,874	)		£	—			$	89,145			$	314,893
Total revenues			79,124				153,498				(6,874	)			—				89,145				314,893
Operating expenses
Workforce development service expense			75,961				114,903				(6,804	)			(102	)			65,404				249,362
General and administrative			8,563				7,201				—				—				3,748				19,512
Share of profit of equity-accounted investee			(17,762	)			—				17,762				—				—				—
Depreciation and amortization			2,746				4,709				—				—				2,690				10,145
Total operating expenses			69,508				126,813				10,958				(102	)			71,842				279,019
Operating income (loss)			9,616				26,685				(17,832	)			102				17,303				35,874
Other expense (income)
Interest expense, net			148				(65	)			(70	)			102				17				132
Total other expense (income)			148				(65	)			(70	)			102				17				132
Income (loss) before income taxes			9,468				26,750				(17,762	)			—				17,286				35,742
Provision for income taxes			151				6,205				—				—				3,835				10,191
Net income (loss)		$	9,317			£	20,545			$	(17,762	)		£	—			$	13,451			$	25,551

 

(2)	AUD to USD translation rate of 0.9162 applied and GBP to USD translation rate of 1.6202 applied.

 

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INGEUS COMBINED HISTORICAL STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2013

UNAUDITED

(In Thousands)

 

		Ingeus Limited (AUD)				Ingeus UK Limited (GBP)				Elimination Adjustments (AUD)				Elimination Adjustments (GBP)				Translation Adjustments (USD) (3)				Ingeus (USD)
Revenues:
Workforce development services		$	85,396			£	169,707			$	(7,412	)		£	—			$	93,255			$	340,946
Total revenues			85,396				169,707				(7,412	)			—				93,255				340,946
Operating expenses
Workforce development service expense			80,051				127,106				(7,253	)			313				69,561				269,778
General and administrative			9,028				7,929				—				—				4,184				21,141
Share of profit of equity-accounted investee			(20,788	)			—				20,788				—				—				—
Depreciation and amortization			2,846				4,585				—				—				2,496				9,927
Total operating expenses			71,137				139,620				13,535				313				76,241				300,846
Operating income (loss)			14,259				30,087				(20,947	)			(313	)			17,014				40,100
Other expense (income)
Interest expense, net			204				(42	)			(159	)			(313	)			(202	)			(512	)
Total other expense (income)			204				(42	)			(159	)			(313	)			(202	)			(512	)
Income (loss) before income taxes			14,055				30,129				(20,788	)			—				17,216				40,612
Provision for income taxes			640				7,142				—				—				4,010				11,792
Net income (loss)		$	13,415			£	22,987			$	(20,788	)		£	—			$	13,206			$	28,820

 

(3)	AUD to USD translation rate of 0.9678 applied and GBP to USD translation rate of 1.5643 applied.

3. Purchase accounting

The acquisitions of Ingeus and Matrix are being accounted for as a business acquisition using the acquisition method of accounting in accordance with ASC 805, Business Combinations, whereby the assets acquired and liabilities assumed were recognized based on their estimated fair values on the acquisition date. Fair value measurements have been applied based on assumptions that market participants would use in the pricing of the asset or liability.

The fair values of assets acquired and liabilities assumed included in the accompanying unaudited pro forma condensed combined financial statements are based on a preliminary evaluation of their fair value and may change when the final valuation of certain intangible assets and acquired working capital is determined. Upon completion of purchase accounting, the Company may make additional adjustments, and the valuations for the assets acquired and liabilities assumed could change from those used in the pro forma condensed combined statements of operations.

 

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Ingeus Acquisition

The preliminary purchase price of Ingeus is calculated as follows:

 

Cash purchase of Ingeus common stock		$	93,945
Fair value of contingent cash consideration			47,755
Total estimated purchase price		$	141,700

The table below presents a summary of Ingeus’ net assets based upon a preliminary estimate of their respective fair values:

 

Working capital		$	10,595
Property and equipment			10,234
Other assets			2,707
Intangible assets			67,600
Goodwill			62,235
Other liabilities			(11,671	)
Total		$	141,700

The amount allocated to intangibles represents acquired developed technology, trademarks and trade names and customer relationships. Amortization of the acquired developed technology will be recognized over an estimated remaining useful life of five years, the value of the trademarks and trade names will be amortized over ten years and the value of the acquired customer relationships will be amortized over ten years.

Matrix Acquisition

The preliminary purchase price of Matrix is calculated as follows:

 

Cash purchase of Matrix common stock		$	360,000
Equity consideration			40,000
Total estimated purchase price		$	400,000

The table below presents a summary of Matrix’s net assets based upon a preliminary estimate of their respective fair values:

 

Working capital		$	2,413
Property and equipment			15,475
Other assets			200
Intangible assets			188,856
Goodwill			275,430
Other liabilities			(82,374	)
Total		$	400,000

The amount allocated to intangibles represents acquired developed technology, trademarks and trade names and customer relationships. Amortization of the acquired developed technology will be recognized over an estimated remaining useful life of five years, the value of the trademarks and trade names will be amortized over ten years and the value of the acquired customer relationships will be amortized over ten years.

 

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4. Matrix pro forma adjustments and assumptions

 

a)	Reflects cash borrowings of $341,000 (net of financing costs of $14,000) on the revolving credit facility, new term loan and bond issuance.

 

b)	Reflects the cash portion of the purchase price paid to acquire all of Matrix’s outstanding common stock.

 

c)	Reflects the payment of transaction costs of approximately $6,000, net of tax.

 

d)	Reflects the write-off of Matrix’s historical deferred financing costs of $1,681 and accrued interest of $52 in connection with the debt retirement.

 

e)	Adjustment to eliminate Matrix’s historical goodwill of $3,767 and record additional goodwill of $275,430 for the difference between the preliminary estimate of the fair value of the assets and liabilities acquired and the total estimated purchase price.

 

f)

Reflects the pro forma impact of the recognized intangible assets. The preliminary estimate of fair value of intangible assets acquired includes developed technology of $20,000 with a useful life of five years, trademarks and trade names of $50,000 with a useful life of ten years and customer relationships of $118,856 with a useful life of ten years. Adjustments were made to eliminate Matrix’s historical intangible assets of $857.

 

g)	Reflects the elimination of Matrix’s historical net equity of $(24,666) as a result of the acquisition, as well as Matrix’s retirement of outstanding debt of $74,063, net of cash of $26,722, at the closing date.

 

h)	Reflects the adjustment to deferred tax assets and liabilities resulting from the pro forma adjustments to stock based compensation and intangible assets.

 

i)	Reflects the issuance of 946,722 shares for the equity portion of the purchase price paid to acquire all of Matrix’s outstanding common stock.

 

j)	Reflects elimination of Matrix’s historical stock compensation expense.

 

k)	Reflects elimination of Matrix’s historical amortization expense for intangible assets.

 

l)	Reflects the addition of intangible asset amortization expense for the acquired intangible assets.

 

m)	Reflects elimination of Matrix’s historical interest expense due to the retirement of existing debt as a result of the acquisition.

 

n)

The pro forma adjustment to interest expense represents the assumed interest expense at a blended interest rate of 6.2% associated with the borrowings on the revolving credit facility of $25,000, new term loan in the amount of $130,000 due in August 2018 and issuance of $200,000 in bonds due in 2021. Additionally included is an adjustment to reflect the interest rate spread of 2.75% instead of 2.25% on all existing debt.

 

o)	Reflects the Company’s amortization of deferred financing related to the modification of the credit facility and the bond issuance.

 

p)	The pro forma adjustment to income tax expense represents the estimated income tax impact of the pro forma adjustments, assuming the Providence historical tax rate for the six months ending June 30, 2014.

 

q)	Pro forma Earnings per Share (EPS), diluted, includes the effect of issuing 946,722 shares of common stock as part of the purchase price consideration.

 

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5. IFRS to US GAAP adjustments and assumptions

 

a)	Reflects adjustments to revenue required to record attachment fee, outcome fee and sustainment fee income in accordance with US GAAP.

 

b)	Reflects the elimination of benefits and expenses related to lease dilapidation accruals required under IFRS.

 

c)	Reflects the tax impact of IFRS to US GAAP adjustments.

6. Ingeus pro forma adjustments and assumptions

 

a)	Reflects the expense for the cash component of a compensatory agreement and the expense related to the 596,915 shares of the Company’s common stock issued in association with employment agreements of key Ingeus executives that vest over a four year period.

 

b)	Reflects acquisition expenses eliminated from 2014 as pro forma presentation assumes Ingeus acquisition occurred on January 1, 2013.

 

c)	Reflects elimination of Ingeus’ historical amortization expense for intangible assets.

 

d)	Reflects the addition of intangible asset amortization expense for the acquired intangible assets.

 

e)	Reflects elimination of Ingeus’ historical interest expense due to the retirement of existing debt as a result of the acquisition.

 

f)	The pro forma adjustment to interest expense represents the assumed interest expense associated with the borrowings on the revolving credit facility of $99,802 due in August 2018. The estimated interest expense was based on the historical 1 Month LIBOR Rate plus 2.25%.

 

g)	Reflects the Company’s amortization of deferred financing related to the modification of the Amended and Restated Credit Agreement on May 28, 2014.

 

h)	The pro forma adjustment to income tax expense represents the estimated income tax impact of the pro forma adjustments.

 

i)	Pro forma Earnings per Share (EPS), basic and diluted, includes the addition of 596,915 common shares which were issued in conjunction with employment agreements of key Ingeus executives.

 

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7. Reconciliation of net income to Adjusted EBITDA

The following tables reflect reconciliations of the pro forma net income for the six months ended June 30, 2014, the year ended December 31, 2013 and the twelve months ended June 30, 2014 and the Adjusted EBITDA for the respective periods.

 

		Six Months Ended June 30,				Year ended December 31,				Twelve Months Ended June 30,
		2014				2013				2014
		(in thousands)
Net income		$	27,559			$	22,081			$	36,481
Interest expense, net			16,239				34,106				33,417
Provision for income taxes			14,919				10,592				17,910
Depreciation and amortization			28,020				53,353				54,980
EBITDA			86,737				120,132				142,788
Loss on extinguishment of debt			—				525				525
Optionholder dividend (1)			—				10,282				10,282
Stock based compensation expense			3,900				9,078				8,233
Severance			457				1,723				2,178
Loss on impairment and other			—				2,188				1,524
Acquisition earnout (2)			—				1,616				646
Acquisition related costs			157				—				157
Seller related expenses			60				191				131
Adjusted EBITDA		$	91,311			$	145,735			$	166,464

 

(1)	In 2013, Matrix completed a dividend recapitalization and certain payments were considered compensation.

 

(2)	Payments of earnout consideration related to 2012 acquisition for which no further earnout payments are due.

 

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