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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 


FORM 10-Q 

  


(Mark One)

 

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

   
 

For the quarterly period ended March 31, 2015

 

OR

 

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

   
  For the transition period from              to             

 

Commission File Number 001-34221

 

 


  

The Providence Service Corporation

(Exact name of registrant as specified in its charter)

 

 


 

 

Delaware

 

86-0845127

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

     

64 East Broadway Blvd.,

Tucson, Arizona

 

85701

(Address of principal executive offices)

 

(Zip Code)

 

(520) 747-6600

(Registrant’s telephone number, including area code)

 

 


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

 

 
1

 

 

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

 

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

 

 

Large accelerated filer ☐

Accelerated filer ☒

     

 

Non-accelerated filer ☐ (Do not check if a smaller reporting company)

Smaller reporting company ☐

 

 

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

 

As of May 6, 2015, there were outstanding 16,037,711 shares (excluding treasury shares of 1,029,294 of the registrant’s Common Stock, $0.001 par value per share.

 

 
2

 

 

TABLE OF CONTENTS

 

 

Page

   

PART I—FINANCIAL INFORMATION

 
     

Item 1.

Financial Statements

  4
     
 

Condensed Consolidated Balance Sheets – March 31, 2015 (unaudited) and December 31, 2014

  4
     
 

Unaudited Condensed Consolidated Statements of Income – Three months ended March 31, 2015 and 2014

  5
     
  Unaudited Condensed Consolidated Statements of Comprehensive Income – Three months ended March 31, 2015 and 2014 6
     
 

Unaudited Condensed Consolidated Statements of Cash Flows – Three months ended March 31, 2015 and 2014

  7
     
 

Notes to Unaudited Condensed Consolidated Financial Statements – March 31, 2015

  8
     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  19
     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29
     

Item 4.

Controls and Procedures

  30
   

PART II—OTHER INFORMATION

 
     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

  31
     

Item 6.

Exhibits

  32

 

 
3

 

 

PART I—FINANCIAL INFORMATION

 

Item 1.

Financial Statements.

 

The Providence Service Corporation

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

   

March 31,

   

December 31,

 
   

2015

   

2014

 
    (Unaudited)          
Assets                

Current assets:

               

Cash and cash equivalents

  $ 170,130     $ 160,406  

Accounts receivable, net of allowance of $6,449 in 2015 and $6,034 in 2014

    198,644       151,344  

Other receivables

    6,724       6,866  

Prepaid expenses and other

    36,323       46,157  

Restricted cash

    2,633       3,807  

Deferred tax assets

    5,729       6,066  

Total current assets

    420,183       374,646  

Property and equipment, net

    58,689       57,148  

Goodwill

    353,995       355,641  

Intangible assets, net

    328,289       340,673  

Other assets

    22,053       22,373  

Restricted cash, less current portion

    15,349       14,764  

Total assets

  $ 1,198,558     $ 1,165,245  

Liabilities and stockholders' equity

               

Current liabilities:

               

Current portion of long-term obligations

  $ 27,125     $ 25,188  

Note payable to related party

    -       65,500  

Accounts payable

    34,626       48,061  

Accrued expenses

    137,682       121,857  

Accrued transportation costs

    73,322       55,492  

Deferred revenue

    14,678       12,245  

Reinsurance liability reserve

    6,880       11,115  

Total current liabilities

    294,313       339,458  

Long-term obligations, less current portion

    476,898       484,525  

Other long-term liabilities

    30,139       26,609  

Deferred tax liabilities

    91,386       93,239  

Total liabilities

    892,736       943,831  

Commitments and contingencies (Note 11)

               

Mezzanine equity

               

Convertible preferred stock, net: Authorized 10,000,000 shares; $0.001 par value; 805,000 and 0 issued and outstanding; 5.5%/8.5% dividend rate

    76,894       -  

Stockholders' equity

               

Common stock: Authorized 40,000,000 shares; $0.001 par value; 17,060,002 and 16,870,285 issued and outstanding (including treasury shares)

    17       17  

Additional paid-in capital

    268,438       261,155  

Accumulated deficit

    (7,129 )     (13,366 )

Accumulated other comprehensive loss, net of tax

    (14,051 )     (8,756 )

Treasury shares, at cost, 1,029,294 and 1,014,108 shares

    (18,407 )     (17,686 )

Total Providence stockholders' equity

    228,868       221,364  

Non-controlling interest

    60       50  

Total stockholders' equity

    228,928       221,414  

Total liabilities and stockholders' equity

  $ 1,198,558     $ 1,165,245  

  

See accompanying notes to unaudited condensed consolidated financial statements

 

 
4

 

 

The Providence Service Corporation

Unaudited Condensed Consolidated Statements of Income

(in thousands, except share and per share data)

 

   

Three months ended

 
   

March 31,

 
   

2015

   

2014

 
                 

Service revenue

  $ 505,795     $ 289,403  
                 

Operating expenses:

               

Service expense

    443,868       259,937  

General and administrative expense

    24,684       13,617  

Depreciation and amortization

    14,900       3,728  

Total operating expenses

    483,452       277,282  

Operating income

    22,343       12,121  
                 

Other expenses:

               

Interest expense, net

    6,007       1,585  

Loss on equity investment

    2,483       -  

Loss on foreign currency translation

    319       41  

Income before income taxes

    13,534       10,495  

Provision for income taxes

    7,297       4,208  

Net income

  $ 6,237     $ 6,287  
                 

Net income available to common stockholders (Note 9)

  $ 5,093     $ 6,287  
                 

Earnings per common share:

               

Basic

  $ 0.32     $ 0.45  

Diluted

  $ 0.32     $ 0.44  
                 

Weighted-average number of common shares outstanding:

               

Basic

    15,976,050       13,801,456  

Diluted

    16,145,176       15,257,557  

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 
5

 

 

The Providence Service Corporation

Unaudited Condensed Consolidated Statements of Comprehensive Income

(in thousands)

 

   

Three months ended

 
   

March 31,

 
   

2015

   

2014

 
                 

Net income

  $ 6,237     $ 6,287  

Other comprehensive loss:

               

Foreign currency translation adjustments, net of tax

    (5,295 )     (264 )

Comprehensive income

  $ 942     $ 6,023  

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 
6

 

 

The Providence Service Corporation

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

 

   

Three months ended March 31,

 
   

2015

   

2014

 

Operating activities

               

Net income

  $ 6,237     $ 6,287  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation

    5,089       2,103  

Amortization

    9,811       1,625  

Provision for doubtful accounts

    599       557  

Stock based compensation

    2,864       408  

Deferred income taxes

    (1,512 )     (1,333 )

Amortization of deferred financing costs

    539       214  

Excess tax benefit upon exercise of stock options

    (1,989 )     (323 )

Loss on equity investment

    2,483       -  

Other non-cash charges

    319       35  

Changes in operating assets and liabilities:

               

Accounts receivable

    (49,699 )     (12,534 )

Other receivables

    77       984  

Restricted cash

    (106 )     (111 )

Prepaid expenses and other

    6,364       6,049  

Reinsurance liability reserve

    (1,121 )     (1,950 )

Accounts payable and accrued expenses

    14,083       8,862  

Accrued transportation costs

    17,830       (98 )

Deferred revenue

    2,879       131  

Other long-term liabilities

    631       (3,060 )

Net cash provided by operating activities

    15,378       7,846  

Investing activities

               

Purchase of property and equipment

    (6,394 )     (2,723 )

Acquisitions, net of cash acquired

    (1,665 )     -  

Net increase (decrease) in short-term investments

    (5 )     (5 )

Restricted cash for reinsured claims losses

    694       1,525  

Net cash used in investing activities

    (7,370 )     (1,203 )

Financing activities

               

Proceeds from issuance of preferred stock, net of issuance costs

    80,667       -  

Preferred stock dividends

    (594 )     -  

Repurchase of common stock, for treasury

    (721 )     (470 )

Proceeds from common stock issued pursuant to stock option exercise

    2,199       506  

Excess tax benefit upon exercise of stock options

    1,989       323  

Repayment of long-term debt

    (71,312 )     -  

Payment of contingent consideration

    (7,496 )     -  

Other

    13       (2 )

Net cash provided by financing activities

    4,745       357  

Effect of exchange rate changes on cash

    (3,029 )     (155 )

Net change in cash

    9,724       6,845  

Cash at beginning of period

    160,406       98,995  

Cash at end of period

  $ 170,130     $ 105,840  
                 

Supplemental cash flow information:

               

Cash paid for interest

  $ 4,439     $ 619  

Cash paid for income taxes

  $ 1,713     $ 2,216  

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 
7

 

 

The Providence Service Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2015

 

(in thousands, except share and per share data)

 

 

1. Basis of Presentation, Description of Business and Recent Accounting Pronouncements

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements (the “consolidated financial statements”) include the accounts of The Providence Service Corporation (“the Company,” “our,” “we” and “us”) and its wholly-owned subsidiaries. Investments in non-consolidated investees over which the Company exercises significant influence but does not control are accounted for under the equity method.

 

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included. In order to conform to the current year presentation, prior year amounts have been reclassified to show service revenue as one line item, services expense as one line item, and loss on foreign currency translation as a component of other expenses. Additionally, the Company’s legacy workforce development businesses have been reclassified from the Human Services segment to the Workforce Development Services segment.

 

The Company has made a number of estimates relating to the reporting of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2015. Management has evaluated events and transactions that occurred after the balance sheet date and through the date these consolidated financial statements were issued, and considered the effect of such events in the preparation of these consolidated financial statements.

 

The consolidated balance sheet at December 31, 2014 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. The consolidated financial statements contained herein should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

 

Description of Business

 

The Company provides and manages health and human services through non-emergency transportation, community and behavioral health, workforce development and health assessment offerings. At March 31, 2015, the Company operated in four segments, Non-Emergency Transportation Services (“NET Services”), Human Services, Workforce Development Services (“WD Services”) and Health Assessment Services (“HA Services”). The NET Services segment manages transportation networks and arranges for client transportation to health care related facilities and services for state or regional Medicaid agencies, managed care organizations (“MCOs”) and commercial insurers. In the Human Services segment, counselors, social workers and behavioral health professionals work with clients, primarily in the client’s home or community, who are eligible for government assistance due to income level, disabilities or court order. The WD Services segment provides outsourced employability and legal offender rehabilitation case management services, primarily to the eligible participants in government sponsored programs. The HA Services segment primarily provides comprehensive health assessments (“CHAs”), for members enrolled in Medicare Advantage (“MA”) health plans, in patient’s homes or nursing facilities.

 

 
8

 

 

Recent Accounting Pronouncements

 

In November 2014, the FASB issued Accounting Standards Update (“ASU”) No 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity (“ASU 2014-16”). This update requires an entity to determine the nature of the host contract by considering the economic characteristics and risks of the entire hybrid financial instrument issued in the form of a share, including the embedded derivative feature that is being evaluated for separate accounting from the host contract when evaluating whether the host contract is more akin to debt or equity. In evaluating the stated and implied substantive terms and features, the existence or omission of any single term or feature does not necessarily determine the economic characteristics and risks of the host contract. Although an individual term or feature may weigh more heavily in the evaluation on the basis of facts and circumstances, an entity should use judgment based on an evaluation of all the relevant terms and features. ASU 2014-16 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, early adoption is permitted. The Company adopted ASU 2014-16 effective January 1, 2015 and applied the literature to determine the accounting for its convertible preferred stock.

 

 

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the amendments is permitted for financial statements that have not been previously issued. The amendments should be applied on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. This ASU will impact the Company’s financial statements as the Company has approximately $4,867 of debt issuance costs at March 31, 2015 that are classified as “Other assets” in the accompanying condensed consolidated balance sheet. The result of the application of this guidance would be to reduce the “Other assets” balance, with a corresponding reduction to “Long-term obligations, less current portion” in the condensed consolidated balance sheet. The Company expects to adopt ASU 2015-03 on January 1, 2016.

 

 

2. Concentrations

 

Contracts with domestic governmental agencies and other domestic entities that contract with governmental agencies accounted for approximately 61.2% and 78.5% of the Company’s domestic revenue for the three months ended March 31, 2015 and 2014, respectively. Contracts with foreign governmental agencies and other foreign entities that contract with governmental agencies accounted for approximately 95.5% of the Company’s foreign revenue for the three months ended March 31, 2015. The Company’s international presence was not material for the three months ended March 31, 2014. Additionally, approximately 52.6% of our WD Services revenue for the three months ended March 31, 2015 was generated from one foreign payer.

 

At March 31, 2015, approximately $37,811, or 12.4%, of the Company’s net assets were located in countries outside of the US.

 

3. Equity Investment

 

The Company entered into a joint venture agreement in November 2014 to form Mission Providence Pty Ltd (“Mission Providence”).  Mission Providence will deliver employment services in various regions in Australia.  The Company has a 60% ownership in Mission Providence, and has rights to 75% of Mission Providence’s distributions of cash or profit surplus twice per calendar year.  The Company provided and will continue to provide capital contributions to Mission Providence in exchange for its equity interests.

 

The Company 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, and as a result, the Company is not the primary beneficiary of Mission Providence. The Company accounts for this investment under the equity method of accounting and the Company’s share of Mission Providence’s losses are recorded as “Loss on equity investment” in the accompanying condensed consolidated statements of income.

 

At March 31, 2015, the Company had a negative investment in Mission Providence totaling $2,092, which is included in “Accrued expenses” in the accompanying condensed consolidated balance sheet. Under the terms of the joint venture agreement, the Company is required to make financial contributions based on the capital needs of Mission Providence. Currently, the Company has committed to contributing $14,637 in the second quarter of 2015, and may commit to additional investment beyond its current commitment.

 

 
9

 

 

4. Fair Value Measurements

 

The Company determines the fair value of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Below are the three levels of inputs that may be used to measure fair value:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

The Company may be required to pay additional consideration under certain acquisition agreements based on the achievement of certain earnings targets by the acquired businesses. Acquisition-related contingent consideration is initially measured and recorded at fair value as an element of consideration paid in connection with an acquisition with subsequent adjustments recognized in other operating expenses in the condensed consolidated statements of income. The Company determines the fair value of acquisition-related contingent consideration, and any subsequent changes in fair value using a discounted probability-weighted approach. This approach takes into consideration Level 3 unobservable inputs including probability assessments of expected future cash flows over the period in which the obligation is expected to be settled and applies a discount factor that captures the uncertainties associated with the obligation. Changes in these unobservable inputs could significantly impact the fair value of the obligation recorded in the accompanying condensed consolidated balance sheets and operating expenses in the condensed consolidated statements of income. The fair value of the Company’s contingent consideration was $2,623 at March 31, 2015, which is included in “Other long-term liabilities” in the condensed consolidated balance sheets. The fair value of the Company’s contingent consideration was $10,549 at December 31, 2014, of which $7,767 is included in “Accrued expenses” and $2,782 is included in “Other long-term liabilities” in the condensed consolidated balance sheets. The decrease in the contingent consideration since December 31, 2014 is attributable to payments totaling $7,496 made in the first quarter of 2015 and changes in the foreign currency translation rate.

 

 
10

 

 

5. Long-Term Obligations and Note Payable to Related Party

 

          The Company’s long-term obligations were as follows:

 

 

   

March 31,

   

December 31,

 
   

2015

   

2014

 
                 

$240,000 revolving loan (previously $165,000; amended May 28, 2014), LIBOR plus 2.25% - 3.25% (effective rate of 3.22% at March 31, 2015) through August 2018 with interest payable at least once every three months

  $ 201,700     $ 201,700  

$250,000 term loan, LIBOR plus 2.25% - 3.25% (effective rate of 3.26% at March 31, 2015), with principal payable quarterly beginning March 31, 2015 and interest payable at least once every three months through August 2018

    245,313       250,000  

$60,000 term loan, LIBOR plus 2.25% - 3.25% (effective rate of 3.26% at March 31, 2015), with principal payable quarterly beginning December 31, 2014 and interest payable at least once every three months, through August 2018

    57,750       58,875  

14.0% unsecured related party, subordinated bridge note with principal due September 30, 2018 and interest payable quarterly

    -       65,500  

2.0% unsecured, subordinated note to former stockholder of acquired company, principal and interest due May 2016

    600       600  
      505,363       576,675  

Less unamortized discount on debt

    1,340       1,462  
      504,023       575,213  

Less current portion

    27,125       90,688  

Total long-term obligations, less current portion

  $ 476,898     $ 484,525  

 

 

           The carrying amount of the long-term obligations approximated their fair value at March 31, 2015 and December 31, 2014. The fair value of the Company’s long-term obligations was estimated based on interest rates for the same or similar debt offered to the Company having same or similar remaining maturities and collateral requirements.

 

Related party unsecured subordinated bridge note

 

On October 23, 2014, the Company issued to Coliseum Capital Management, LLC and certain of its affiliates (“Coliseum”), a related party, a 14.0% Unsecured Subordinated Note in aggregate principal amount of $65,500 (the “Note”) due September 30, 2018. The Note was repaid in full on February 11, 2015, with the proceeds from a registered rights offering (“Rights Offering”) and a related standby purchase agreement.

 

 
11

 

 

6. Stock-Based Compensation Arrangements

 

           The Company issues both option awards and restricted stock to employees and non-employee directors. Option awards and restricted stock vest commensurate with the respective award agreements. The fair value expense of option awards was estimated on the date of grant using the Black-Scholes option pricing formula and amortized over the option’s vesting periods, and the fair value of unvested restricted stock grants was determined based on the closing market price of the Company’s common stock on the date of grant. The following table summarizes the stock option activity:

 

 

   

For the three months ended March 31, 2015

 
   

Number of Shares Under Option

   

Weighted-average Exercise Price

 

Balance at beginning of period

    813,622     $ 30.77  

Exercised

    (135,057 )     16.29  

Outstanding at March 31, 2015

    678,565     $ 33.66  

 

 

The following table summarizes the activity of the shares and weighted-average grant date fair value of the Company’s unvested restricted common stock:

 

 

   

For the three months ended March 31, 2015

 
   

Shares

   

Weighted-average Grant Date Fair Value

 

Non-vested balance at beginning of period

    688,262     $ 37.71  

Granted

    19,598       52.03  

Vested

    (54,660 )     17.47  

Forfeited or cancelled

    (250 )     15.50  

Non-vested at March 31, 2015

    652,950     $ 39.84  

 

 

7. Convertible Preferred Stock, Net

 

The Company completed a Rights Offering, on February 5, 2015, providing all of the Company’s existing common stock holders the non-transferrable right to purchase their pro rata share of $65,500 of convertible preferred stock at a price equal to $100 per share. The convertible preferred stock is convertible into shares of Providence’s common stock at a conversion price equal to $39.88 per share, which was the closing price of the Company’s common stock on the NASDAQ Global Select Market on October 22, 2014.

 

Stockholders exercised subscription rights to purchase 130,884 shares of the Company's convertible 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 per share subscription price. The Company received $65,500 in aggregate gross proceeds from the consummation of the Rights Offering and Standby Purchase Agreement. Additionally, on March 12, 2015, the Standby Purchasers exercised their right to purchase an additional 150,000 shares of the Company’s convertible preferred stock at $105 per share and at the same conversion price as the Rights Offering.

 

The Company may pay a noncumulative cash dividend on each share of convertible preferred stock, when, as and if declared by its board of directors, at the rate of five and one-half percent (5.5%) per annum on the liquidation preference then in effect. On or before the third business day immediately preceding each fiscal quarter, the Company must determine its intention whether or not to pay a cash dividend with respect to that ensuing quarter and will give notice of our intention to each holder of convertible preferred stock as soon as practicable thereafter.

 

 
12

 

 

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

 

Cash dividends are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing on April 1, 2015, and, if declared, will begin to accrue on the first day of the applicable dividend period. Paid in kind (“PIK”) dividends, if applicable, will accrue and be cumulative on the same schedule as set forth above for cash dividends and will also be compounded at the applicable annual rate on each applicable subsequent dividend date. PIK dividends are paid upon the occurrence of a liquidation event, conversion or redemption in accordance with the terms of the convertible preferred stock. Cash dividends totaling $594 were paid to preferred stockholders on April 1, 2015.

 

The convertible preferred stock is accounted for as mezzanine equity as it could be redeemed upon certain change in control events that are not solely in the control of the Company. Dividends are recorded in stockholders equity and consist of the 5.5%/8.5% dividend. Additionally, mezzanine equity includes a discount on preferred stock related to beneficial conversion features that arose due to the closing price of the Company’s common stock being higher than conversion price of the convertible preferred stock on the commitment date. The amortization of this discount is recorded in stockholders’ equity.

 

Convertible preferred stock, net at March 31, 2015 consisted of the following:

 

Original issue price of convertible preferred stock

  $ 81,250  

Less: Issuance costs

    (3,531 )

Less: Discount on beneficial conversion feature

    (825 )

Total convertible preferred stock, net

  $ 76,894  

  

 
13

 

 

8. Stockholders’ Equity

 

The following table reflects changes in common stock, additional paid-in capital, accumulated deficit, accumulated other comprehensive loss and treasury stock for the three months ended March 31, 2015:

 

 

                                   

Accumulated

                 
                   

Additional

           

Other

                 
   

Common Stock

   

Paid-In

   

Accumulated

   

Comprehensive

   

Treasury Stock

 
   

Shares

   

Amount

   

Capital

   

Deficit

   

Loss

   

Shares

   

Amount

 

Balance at December 31, 2014

    16,870,285     $ 17     $ 261,155     $ (13,366 )   $ (8,756 )     1,014,108     $ (17,686 )

Stock-based compensation

    -       -       2,864       -       -       -       -  

Exercise of employee stock options, including net tax windfall of $1,989

    135,057       -       4,188       -       -       -       -  

Restricted stock issued

    54,660       -       -       -       -       15,186       (721 )

Foreign currency translation adjustments

    -       -       -       -       (5,295 )     -       -  

Beneficial conversion feature related to preferred stock

    -       -       1,071       -       -       -       -  

Convertible preferred stock dividends

    -       -       (594 )     -       -       -       -  

Amortization of convertible preferred stock discount

    -       -       (246 )     -       -       -       -  

Net income

    -       -       -       6,237       -       -       -  
                                                         

Balance at March 31, 2015

    17,060,002     $ 17     $ 268,438     $ (7,129 )   $ (14,051 )     1,029,294     $ (18,407 )

 

 
14

 

 

9. Earnings Per Share

 

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

 

 

   

Three months ended

 
   

March 31,

 
   

2015

   

2014

 

Numerator:

               

Net income

  $ 6,237     $ 6,287  

Less dividends on convertible preferred stock

    (594 )     -  

Less amortization of convertible preferred stock discount

    (246 )     -  

Less income allocated to participating securities

    (304 )     -  

Net income available to common stockholders, basic

    5,093       6,287  
                 

Effect of interest related to the Senior Notes

    -       499  

Net income available to common stockholders, diluted

  $ 5,093     $ 6,786  

Denominator:

               

Denominator for basic earnings per share -- weighted-average shares

    15,976,050       13,801,456  

Effect of dilutive securities:

               

Common stock options and restricted stock awards

    169,126       299,784  

Performance-based restricted stock units

    -       17,172  

Senior Notes

    -       1,139,145  

Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion

    16,145,176       15,257,557  
                 

Basic earnings per share

  $ 0.32     $ 0.45  

Diluted earnings per share

  $ 0.32     $ 0.44  

 

 

For the three months ended March 31, 2015 and 2014, employee stock options to purchase 300,000 and 198,261 shares of common stock, respectively, were not included in the computation of diluted earnings per share as the exercise price of these options was greater than the average fair value of the common stock for the period and, therefore, the effect of these options would have been antidilutive. For the three months ended March 31, 2015, 381,000 shares of convertible preferred stock were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

 

10. Income Taxes

 

           The Company’s effective tax rate from continuing operations for the three months ended March 31, 2015 and 2014 was 53.9% and 40.1%, respectively. For both periods, the Company’s effective tax rate was higher than the United States federal statutory rate of 35.0%, due primarily to state income taxes as well as non-deductible expenses. Non-deductible expenses for the three months ended March 31, 2015 included the loss on equity investment.

 

11. Commitments and Contingencies

 

The Company is involved in various claims and legal actions arising in the ordinary course of business, many of which are covered in whole or in part by insurance. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.

 

The Company has two deferred compensation plans for management and highly compensated employees. These deferred compensation plans are unfunded; therefore, 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 accompanying condensed consolidated balance sheets, was approximately $1,337 and $1,432 at March 31, 2015 and December 31, 2014, respectively.

 

 
15

 

  

12. Transactions with Related Parties

 

On October 23, 2014, the Company issued to Coliseum, a related party, a 14.0% Unsecured Subordinated Note in aggregate principal amount of $65,500. Interest from the issuance date to, but excluding, the 120th day after the issuance date, was paid in cash in the amount of $3,015 on the issuance of the Note. Coliseum held approximately 15% of our outstanding common stock as of October 23, 2014 and is the Company’s largest shareholder. Additionally, Christopher Shackelton, who serves as the Company’s Chairman of the board of directors, is also a Managing Partner at Coliseum Capital Management, LLC.

 

The Note was repaid in full on February 11, 2015, with the proceeds from a registered Rights Offering and related standby purchase commitment described above, which allowed all of the Company’s existing common stock holders the non-transferrable right to purchase their pro rata share of $65,500 of convertible preferred stock at a price of $100 per share, as further described above.

 

In connection with the anticipated Rights Offering, on October 23, 2014, the Company entered the Standby Purchase Agreement with the Standby Purchasers, pursuant to which the Standby Purchasers agreed to purchase, substantially simultaneously with the completion of the Rights Offering, in the aggregate, all of the available preferred stock not otherwise sold in the Rights Offering following the exercise of the subscription privileges of holders of the Company’s common stock. As consideration for entering into the Standby Purchase Agreement, on October 23, 2014, the Company paid the Standby Purchasers a fee of $2,947, which is included in “Convertible Preferred Stock, Net” in the condensed consolidated balance sheet at March 31, 2015. In addition the Standby Purchasers had the additional right, exercisable within 30 days following the completion of the Rights Offering, to purchase additional preferred stock valued at $15,000 at a price per share equal to 105% of the Subscription Price, which was exercised on March 12, 2015.

 

13. Acquisitions

 

On October 23, 2014, the Company acquired all of the outstanding equity of CCHN Group Holdings, Inc. (“Matrix”), the parent company of Community Care Health Network, Inc. (dba Matrix Medical Network ), pursuant to an Agreement and Plan of Merger, dated as of September 17, 2014. There have been no changes to the estimated purchase price or estimated fair values of assets acquired and liabilities assumed since December 31, 2014. The fair value estimates as of December 31, 2014 represent the preliminary fair value estimates as the valuation of intangible assets has not been finalized.

 

 
16

 

 

Pro forma information

 

The amounts of Ingeus Limited and its wholly-owned subsidiaries (“Ingeus”), which the Company acquired on May 30, 2014, and Matrix revenue and net income included in the Company’s condensed consolidated statements of income for the three months ended March 31, 2015, and the pro forma revenue and net income of the combined entity had the acquisition dates been January 1, 2014, are:

 

 

   

Three months ended March 31,

 
   

2015

   

2014

 

Ingeus results included in the Company's condensed consolidated statements of income:

               

Revenue

  $ 100,954     $ -  

Net loss

  $ (3,746 )   $ -  
                 

Matrix results included in the Company's condensed consolidated statements of income:

               

Revenue

  $ 57,432     $ -  

Net income

  $ 3,846     $ -  
                 

Consolidated Pro forma:

               

Revenue

  $ 505,795     $ 429,368  

Net income

  $ 6,237     $ 17,453  

Diluted earnings per share

  $ 0.32     $ 1.07  

 

The pro forma information above for the three months ended March 31, 2014 includes the elimination of acquisition related costs, adjustments for compensation and stock-based compensation expense related to employment agreements effective upon consummation of the acquisitions, additional interest expense on the debt issued to finance the acquisitions, amortization and depreciation expense based on the estimated fair value and useful lives of intangible assets and property and equipment and related tax effects. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been affected on January 1, 2014.

 

 

14. Business Segments

 

The Company’s operations are organized and reviewed by management along its service lines. The Company operates in four segments, Human Services, NET Services, WD Services and HA Services. Human Services includes government sponsored home and community based counseling, foster care and not-for-profit management services. NET Services includes managing the delivery of non-emergency transportation services. WD Services includes workforce development, case management and outsourced employability programs. HA Services provides CHAs for MA health plans in enrolled members’ homes or nursing facilities.

 

Historically, the Company reported its segment activities under a full absorption method, where all corporate direct and indirect costs were allocated to the reporting segments. The Company began analyzing the results of the segments exclusive of the allocation of indirect corporate costs on January 1, 2015. Corporate costs that represent a direct expense of a segment continue to be allocated to the respective segment. The segment results for the quarter ended March 31, 2014 have been restated to reflect management’s current internal method of segment reporting. The Corporate and Other column includes certain general and administrative costs that are not directly attributable to a specific segment, such as executive, accounting, technology, legal and other costs, as well as consolidation and elimination amounts and the activities of the Company’s wholly-owned captive insurance subsidiary. Additionally, beginning January 1, 2015, oversight of the Company’s legacy workforce development businesses (those that existed prior to the acquisition of Ingeus) was transferred to the management of the WD Services segment. The financial results of these legacy workforce development businesses have been reclassified from the Human Services segment to the WD Services segment in the table below.

 

 
17

 

 

The following table sets forth certain financial information attributable to the Company’s business segments for the three months ended March 31, 2015 and 2014.

 

 

   

Three Months Ended March 31, 2015

 
   

NET Services

   

Human Services

   

WD Services

   

HA Services

   

Corporate and Other

   

Total

 

Revenues

  $ 254,760     $ 86,187     $ 107,618     $ 57,432     $ (202 )   $ 505,795  

Service expense

    229,247       77,540       94,244       43,213       (376 )     443,868  

General and administrative expense

    2,497       4,980       7,225       523       9,459       24,684  

Depreciation and amortization

    2,277       1,847       3,316       7,182       278       14,900  

Operating income (loss)

  $ 20,739     $ 1,820     $ 2,833     $ 6,514     $ (9,563 )   $ 22,343  
                                                 

Total assets

  $ 272,952     $ 113,838     $ 249,580     $ 505,649     $ 56,539     $ 1,198,558  

 

   

Three Months Ended March 31, 2014

 
   

NET Services

   

Human Services

   

WD Services

   

HA Services

   

Corporate and Other

   

Total

 

Revenues

  $ 198,077     $ 84,102     $ 7,448     $ -     $ (224 )   $ 289,403  

Service expense

    175,230       78,907       6,419       -       (619 )     259,937  

General and administrative expense

    1,950       4,936       504       -       6,227       13,617  

Depreciation and amortization

    1,761       1,579       131       -       257       3,728  

Operating income (loss)

  $ 19,136     $ (1,320 )   $ 394     $ -     $ (6,089 )   $ 12,121  
                                                 

Total assets

  $ 249,472     $ 103,729     $ 17,974     $ -     $ 63,547     $ 434,722  

 

 
18

 

 

Item 2.

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

 

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes for the three months ended March 31, 2015 and 2014, 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, 2014. For purposes of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to Q1 2015 and Q1 2014 mean the three months ended March 31, 2015 and the three months ended March 31, 2014, respectively.

 

Overview of our business

 

We arrange for and manage non-emergency transportation (“NET”) services and provide behavioral health and other human services, workforce development (“WD”) services and health assessment (“HA”) services. In response to the large and growing population of eligible beneficiaries of government sponsored services, increasing pressure on governments to control costs and increasing acceptance of privatized human services and managed care solutions, we have grown both organically and through strategic acquisitions, including the acquisitions of Ingeus Limited and its wholly-owned subsidiaries (“Ingeus”) and CCHN Group Holdings, Inc. and its wholly-owned subsidiaries (“Matrix”) during the second and fourth quarters, respectively, of 2014.

 

 

Critical accounting estimates and policies

 

As of March 31, 2015, there has been no change in our accounting policies or the underlying assumptions or methodologies used to fairly present our financial position, results of operations and cash flows for the periods covered by this report. 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, 2014.

 

Results of operations

 

Segment reporting. Our operations are organized and reviewed by management along our service lines. We operate in four segments, Human Services, NET Services, WD Services and HA Services. Human Services includes government sponsored home and community based counseling, foster care and not-for-profit management services. NET Services includes managing the delivery of non-emergency transportation services. WD Services includes workforce development, case management and outsourced employability programs. HA Services provides comprehensive health assessments (“CHAs”) for Medicare Advantage (“MA”) health plans in enrolled members’ homes or nursing facilities.

 

Historically, we reported our segment activities under a full absorption method, where all corporate direct and indirect costs were allocated to the reporting segments. We began analyzing the results of the segments exclusive of the allocation of indirect corporate costs on January 1, 2015. Corporate costs that represent a direct expense of a segment continue to be allocated to the respective segment. The segment results for the first quarter of 2014 have been restated to reflect management’s current internal method of segment reporting. The Corporate and Other information includes certain general and administrative costs that are not directly attributable to a specific segment, such as executive, accounting, technology, legal and other costs, as well as consolidation and elimination amounts and the activities of our wholly-owned captive insurance subsidiary. Additionally, beginning January 1, 2015, oversight of our legacy workforce development businesses (those that existed prior to the acquisition of Ingeus) was transferred to the management of the WD Services segment. The financial results of these legacy workforce development businesses have been reclassified from the Human Services segment to the WD Services segment in the table below.

 

 
19

 

 

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 the periods presented (in thousands):

 

 

 

 

Three months ended

March 31,

 

 

 

2015

 

 

2014

 

 

 

 $

 

 

%

 

 

$

 

 

%

 

Service revenue

 

 

505,795

 

 

 

100.0

 

 

 

289,403

 

 

 

100.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service expense

 

 

443,868

 

 

 

87.8

 

 

 

259,937

 

 

 

89.8

 

General and administrative expense

 

 

24,684

 

 

 

4.9

 

 

 

13,617

 

 

 

4.7

 

Depreciation and amortization

 

 

14,900

 

 

 

2.9

 

 

 

3,728

 

 

 

1.3

 

Total operating expenses

 

 

483,452

 

 

 

95.6

 

 

 

277,282

 

 

 

95.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

22,343

 

 

 

4.4

 

 

 

12,121

 

 

 

4.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-operating expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

6,007

 

 

 

1.2

 

 

 

1,585

 

 

 

0.6

 

Loss on equity investment

 

 

2,483

 

 

 

0.5

 

 

 

-

 

 

 

-

 

Loss on foreign currency translation

 

 

319

 

 

 

0.1

 

 

 

41

 

 

 

-

 

Income before income taxes

 

 

13,534

 

 

 

2.6

 

 

 

10,495

 

 

 

3.6

 

Provision for income taxes

 

 

7,297

 

 

 

1.4

 

 

 

4,208

 

 

 

1.4

 

Net income

 

 

6,237

 

 

 

1.2

 

 

 

6,287

 

 

 

2.2

 

 

  

Service revenue. Consolidated service revenue for Q1 2015 increased $216.4 million, or 74.8%, compared to Q1 2014. Revenue for Q1 2015 included revenue from Ingeus totaling $101.0 million and revenue from Matrix totaling $57.4 million. The acquisitions of Ingeus and Matrix occurred in May 2014 and October 2014, respectively. Additionally, the NET Services and Human Services segments experienced increases in revenue as further discussed below.

 

Total operating expenses. Consolidated operating expenses for Q1 2015 increased $206.2 million, or 74.4%, compared to Q1 2014. Operating expenses for Q1 2015 included expenses from Ingeus totaling $98.3 million and expenses for Matrix totaling $50.9 million. Additionally, NET purchased service expenses increased $42.7 million in Q1 2015 as compared to Q1 2014 as further discussed below.

 

Operating income. Consolidated operating income increased by approximately $10.2 million from Q1 2014 to Q1 2015. The increase was primarily attributable to Matrix’s operating income of approximately $6.5 million, and Ingeus’s operating income of approximately $2.6 million in Q1 2015. Increased profitability of our NET Services and Human Services segments, as further discussed below, also positively impacted consolidated operating income.

 

Interest expense, net. Our current and long-term debt obligations have increased from approximately $123.5 million at March 31, 2014 to $504.0 million at March 31, 2015. The increase in our interest expense for Q1 2015 as compared to Q1 2014 primarily resulted from the increase in outstanding debt incurred primarily to fund our acquisitions of Ingeus and Matrix.

 

Loss on equity investments. The loss on equity investments relates primarily to our investment in Mission Providence, a joint venture in Australia. Mission Providence has incurred start-up and administrative costs to date, and expects to begin delivering services in the second quarter of 2015.

 

Loss on foreign currency translation. Loss on foreign currency of approximately $0.3 million and $0.1 million for Q1 2015 and Q1 2014, respectively, was primarily due to translation adjustments on intercompany transactions with our foreign subsidiaries.

 

 
20

 

 

Provision for income taxes. Our effective tax rate for Q1 2015 and Q1 2014 was 53.9% and 40.1%, respectively. Our effective tax rate was higher than the United States federal statutory rate of 35.0% for Q1 2015 and Q1 2014 due primarily to state taxes as well as various non-deductible expenses. Q1 2015 non-deductible expenses included the loss on equity investment relating to the Mission Providence joint venture in Australia, which had a significant impact on the effective tax rate.

 

Segment Results. The following analysis includes discussion on each of our segments. Certain corporate costs have been allocated to the operating segments below which represent costs that directly relate to a specific segment. All other corporate costs, eliminations and the results of our wholly-owned captive insurance subsidiary are included below in “Corporate and Other”.

 

 

NET Services

 

NET Services segment financial results were as follows (in thousands):

 

 

 

 

Three Months Ended March 31,

 

 

 

2015

   

2014

 

 

 

 

 $

 

 

Percentage of Revenue

 

 

 

 

 

Percentage of Revenue

 

Service revenue

 

$

254,760

 

 

 

100.0

%

 

$

198,077

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service expense

 

 

229,247

 

 

 

90.0

%

 

 

175,230

 

 

 

88.5

%

General and administrative expense

 

 

2,497

 

 

 

1.0

%

 

 

1,950

 

 

 

1.0

%

Depreciation and amortization

 

 

2,277

 

 

 

0.9

%

 

 

1,761

 

 

 

0.9

%

Operating income

 

$

20,739

 

 

 

8.1

%

 

$

19,136

 

 

 

9.7

%

 

Service revenue. Our NET Services segment revenues increased by $56.7 million during Q1 2015, a 28.6% increase compared to Q1 2014. The increase was primarily related to new contracts in Rhode Island, Maine and Texas and increased membership in certain states. The increase in revenue was partially offset by the elimination of our contracts in Mississippi and Connecticut.

 

Service expense. Service expense for our NET Services segment included the following for Q1 2015 and Q1 2014 (in thousands):

 

  

 

 

Three Months Ended March 31,

 

 

 

2015

   

2014

 

 

 

 

 $ 

 

 

Percentage of Revenue

 

 

 

 $ 

 

 

Percentage of Revenue

 

Payroll and related costs

 

$

33,713

 

 

 

13.2

%

 

$

24,624

 

 

 

12.4

%

Purchased services

 

 

186,650

 

 

 

73.3

%

 

 

143,945

 

 

 

72.7

%

Other operating expenses

 

 

8,554

 

 

 

3.4

%

 

 

6,448

 

 

 

3.3

%

Stock-based compensation

 

 

330

 

 

 

0.1

%

 

 

213

 

 

 

0.1

%

Total service expense

 

$

229,247

 

 

 

90.0

%

 

$

175,230

 

 

 

88.5

%

 

 

The increase in service expense is primarily attributable to the increase in purchased transportation services. The increase in purchased services as a percentage of revenue is primarily a result of an increase in utilization, partially attributable to less severe winter weather in Q1 2015 versus Q1 2014. Additionally, utilization has been affected by increased use by the Patient Protection and Affordable Care Act population as they become more familiar with the availability of NET services.

 

General and administrative expense. Our NET Services segment’s general and administrative expenses included approximately $2.5 million and $2.0 million for Q1 2015 and Q1 2014, respectively, of facility costs, which have increased due to the overall growth of our operations, including the opening of a new call center in Arizona in December 2014.

 

Depreciation and amortization expense. Our NET Services segment’s depreciation and amortization expenses increased by approximately $0.5 million, yet remained constant at approximately 0.9% of revenue.

 

 
21

 

 

Human Services

 

Human Services segment financial results were as follows (in thousands):

 

 

 

 

Three Months Ended March 31,

 

 

 

2015

   

2014

 

 

 

 

$  

 

 

Percentage of Revenue

 

 

 

$  

 

 

Percentage of Revenue

 

Service revenue

 

$

86,187

 

 

 

100.0

%

 

$

84,102

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service expense

 

 

77,540

 

 

 

90.0

%

 

 

78,907

 

 

 

93.8

%

General and administrative expense

 

 

4,980

 

 

 

5.8

%

 

 

4,936

 

 

 

5.9

%

Depreciation and amortization

 

 

1,847

 

 

 

2.1

%

 

 

1,579

 

 

 

1.9

%

Operating income (loss)

 

$

1,820

 

 

 

2.1

%

 

$

(1,320

)

 

 

-1.6

%

 

Service revenue. Our Human Services segment revenues increased by $2.1 million during Q1 2015, a 2.5% increase compared to Q1 2014. The increase was primarily attributable to $5.5 million of revenue derived from two human services entities that were acquired in 2014, as well as revenue growth of approximately $2.2 million related to expansion in Maine, new sites opened in Pennsylvania and the growth of foster care services in Tennessee. These increases were offset by a decrease of approximately $5.9 million related to the termination of the Texas foster care contract in 2014.

 

Service expense. Service expense for our Human Services segment included the following for Q1 2015 and Q1 2014 (in thousands):

 

 

 

 

Three Months Ended March 31,

 

 

 

2015

   

2014

 

 

 

 

 $ 

 

 

Percentage of Revenue

 

 

 

 $ 

 

 

Percentage of Revenue

 

Payroll and related costs

 

$

61,807

 

 

 

71.7

%

 

$

57,372

 

 

 

68.2

%

Purchased services

 

 

5,009

 

 

 

5.8

%

 

 

11,504

 

 

 

13.7

%

Other operating expenses

 

 

10,691

 

 

 

12.4

%

 

 

10,071

 

 

 

12.0

%

Stock-based compensation

 

 

33

 

 

 

0.0

%

 

 

(40

)

 

 

0.0

%

Total service expense

 

$

77,540

 

 

 

90.0

%

 

$

78,907

 

 

 

93.8

%

 

 

Our Human Services segment service expense decreased by $1.4 million during Q1 2015, a 1.7% decrease compared to Q1 2014. The decrease was primarily attributable to a decrease of $6.7 million in service expense related to the termination of the Texas foster care contract in 2014, as well as cost savings attributable to the continued consolidation of certain regional back offices and the rationalization of certain administrative functions. This decrease was partially offset by the additional service expense of approximately $4.8 million related to the two human services entities that were acquired in 2014.

 

General and administrative expense. Our Human Services segment’s general and administrative expenses are primarily comprised of facilities costs. General and administrative costs were generally flat in Q1 2015 compared to Q1 2014.

 

Depreciation and amortization expense. Our Human Services segment’s depreciation and amortization expenses for Q1 2015 increased approximately $0.3 million compared to Q1 2014 which is primarily attributable to the depreciation and amortization expense related to the two human services entities that were acquired in 2014.

 

 
22

 

 

WD Services

 

WD Services segment information for Q1 2014 has been recast to include our legacy workforce development businesses (those that existed prior to the acquisition of Ingeus and were previously included in the Human Services segment) as part of the WD Services segment. WD Services segment financial results were as follows (in thousands):

 

 

 

 

Three Months Ended March 31,

 

 

 

2015

   

2014

 

 

 

 

$  

 

 

Percentage of Revenue

 

 

 

$  

 

 

Percentage of Revenue

 

Service revenue

 

$

107,618

 

 

 

100.0

%

 

$

7,448

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service expense

 

 

94,244

 

 

 

87.6

%

 

 

6,419

 

 

 

86.2

%

General and administrative expense

 

 

7,225

 

 

 

6.7

%

 

 

504

 

 

 

6.8

%

Depreciation and amortization

 

 

3,316

 

 

 

3.1

%

 

 

131

 

 

 

1.8

%

Operating income

 

$

2,833

 

 

 

2.6

%

 

$

394

 

 

 

5.3

%

 

Service revenue. Our WD Services segment revenues increased by $100.2 million from Q1 2014 to Q1 2015. The increase was attributable to the acquisition of Ingeus on May 30, 2014, which contributed $101.0 million of revenue for Q1 2015.

 

Service expense. Service expense for our WD Services segment included the following for Q1 2015 and Q1 2014 (in thousands):

 

 

 

 

Three Months Ended March 31,

 

 

 

2015

   

2014

 

 

 

 

 $ 

 

 

Percentage of Revenue

 

 

 

$  

 

 

Percentage of Revenue

 

Payroll and related costs

 

$

66,562

 

 

 

61.9

%

 

$

4,111

 

 

 

55.2

%

Purchased services

 

 

16,194

 

 

 

15.0

%

 

 

307

 

 

 

4.1

%

Other operating expenses

 

 

9,916

 

 

 

9.2

%

 

 

2,001

 

 

 

26.9

%

Stock-based compensation

 

 

1,572

 

 

 

1.5

%

 

 

-

 

 

 

0.0

%

Total service expense

 

$

94,244

 

 

 

87.6

%

 

$

6,419

 

 

 

86.2

%

 

The increase in service expense in Q1 2015 compared to Q1 2014 was primarily related to the acquisition of Ingeus in May 2014. Service expense for Ingeus totaled approximately $86.3 million in Q1 2015, and includes approximately $1.5 million in stock-based compensation related to the amortization of the fair value of restricted stock awards issued in connection with the acquisition.

 

General and administrative expense. Our WD Services segment’s general and administrative expenses included approximately $7.2 million and $0.5 million for Q1 2015 and Q1 2014, respectively, of facility costs. The increase is due primarily to the acquisition of Ingeus.

 

Depreciation and amortization expense. Our WD Services segment’s depreciation and amortization expenses for Q1 2015 increased by approximately $3.2 million compared to Q1 2014. This increase was primarily attributable to the depreciation and amortization expenses related to Ingeus.

 

 
23

 

 

HA Services

 

HA Services segment financial results were as follows (in thousands):

 

 

   

Three Months Ended March 31,

 
   

2015

   

2014

 
       $    

Percentage of Revenue

       $    

Percentage of Revenue

 

Service revenue

  $ 57,432       100.0 %   $ -       0.0 %
                                 

Service expense

    43,213       75.2 %     -       0.0 %

General and administrative expense

    523       0.9 %     -       0.0 %

Depreciation and amortization

    7,182       12.5 %     -       0.0 %

Operating income

  $ 6,514       11.3 %   $ -       0.0 %

 

Service revenue. Our HA Services segment revenues in Q1 2015 were comprised of revenues from Matrix, which we acquired in October 2014.

 

Service expense. Service expense for our HA Services segment included the following for Q1 2015 and Q1 2014 (in thousands):

 

 

   

Three Months Ended March 31,

 
   

2015

   

2014

 
       $    

Percentage of Revenue

       $    

Percentage of Revenue

 

Payroll and related costs

  $ 35,112       61.1 %   $ -       0.0 %

Purchased services

    227       0.4 %     -       0.0 %

Other operating expenses

    7,864       13.7 %     -       0.0 %

Stock-based compensation

    10       0.0 %     -       0.0 %

Total service expense

  $ 43,213       75.2 %   $ -       0.0 %

 

 

General and administrative expense. Our HA Services segment’s general and administrative expenses included approximately $0.5 million of facility costs in Q1 2015.

 

Depreciation and amortization expense. Our HA Services segment’s depreciation and amortization expenses include approximately $6.5 million of amortization of intangible assets acquired in the Matrix acquisition.

 

 
24

 

 

Corporate and Other

 

Our Corporate and Other financial results were as follows (in thousands):

 

 

   

Three Months Ended March 31,

 
   

2015

   

2014

 
       $    

Percentage of Revenue

         

Percentage of Revenue

 

Service revenue

  $ (202 )     100.0 %   $ (224 )     100.0 %
                                 

Service expense

    (376 )     186.1 %     (619 )     276.3 %

General and administrative expense

    9,459       -4682.7 %     6,227       -2779.9 %

Depreciation and amortization

    278       -137.6 %     257       -114.7 %

Operating loss

  $ (9,563 )     4734.2 %   $ (6,089 )     2718.3 %

 

 

Operating loss. Corporate and Other operating loss increased by approximately $3.5 million in Q1 2015 as compared to Q1 2014. This increase was primarily attributable to the increase in general and administrative expenses of approximately $3.2 million in Q1 2015 as compared to Q1 2014. The increase in expense from Q1 2014 to Q1 2015 was primarily attributable to increased stock compensation expense for cash settled awards of approximately $2.0 million, increased stock compensation for share settled awards of approximately $0.7 million, increased accounting and auditing fees of approximately $1.0 million and increased payroll and related costs of approximately $0.5 million. These increases were partially offset by a decrease in acquisition costs of approximately $1.8 million. No other line items had a significant impact on the operating loss.

 

 Seasonality

 

Our quarterly operating results and operating cash flows normally fluctuate as a result of seasonal variations in our business. Our NET Services operating segment experiences fluctuations in demand for its non-emergency transportation services during the summer, winter and holiday seasons. Due to higher demand in the summer months and lower demand in the winter and holiday seasons, coupled with a primarily fixed revenue stream based on a per member, per month payment structure, our NET Services operating segment normally experiences lower operating margins in the summer season and higher operating margins in the winter and holiday seasons.

 

In our Human Services operating segment, lower client demand for its home and community based services during the holiday and summer seasons generally results in lower revenue during those periods. Our operating expenses related to the Human Services operating segment do not vary significantly with these changes in revenue. As a result, our Human Services operating segment typically experiences lower operating margins during the holiday and summer seasons.

 

In our HA and WD Services operating segments, our revenues typically do not experience a consistent seasonal pattern.

 

Liquidity and capital resources 

 

Short-term capital requirements consist primarily of recurring operating expenses, new contract start-up costs, commitments to fund investments and debt service requirements. We expect to meet these requirements through available cash on hand, the generation of cash from our operating segments and availability under our revolving credit facility.

 

Cash flow from operating activities was our primary source of cash in Q1 2015. Our balance of cash and cash equivalents was approximately $170.1 million and $160.4 million at March 31, 2015 and December 31, 2014, respectively. Approximately $75.9 million of cash was held in foreign countries at March 31, 2015, and is not available to fund domestic operations unless the funds are repatriated. The repatriation of funds would be subject to certain taxes and fees that are prohibitive, and as such, we do not currently intend to repatriate funds held internationally. We had restricted cash of approximately $18.0 million and $18.6 million at March 31, 2015 and December 31, 2014, respectively, related to contractual obligations and activities of our captive insurance subsidiaries and other subsidiaries. At March 31, 2015 and December 31, 2014, our total debt was approximately $504.0 million and $575.2 million, respectively.

 

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

 

 
25

 

 

Cash flows

 

Operating activities. We generated net cash flows from operating activities of approximately $15.4 million for Q1 2015. These cash flows included net income of approximately $6.2 million plus net non-cash depreciation, amortization, amortization of deferred financing costs, provision for doubtful accounts, stock-based compensation, deferred income taxes and other items of approximately $18.2 million. The balance of the cash provided by operating activities is primarily due to the net effect of changes in other working capital items, including the following significant items:

 

 

approximately $49.7 million related to the increase in accounts receivable attributable to new contracts related to our WD Services segment and increased accounts receivable for two customers in our NET Services segment,

 

 

approximately $14.1 million related to the increase in accounts payable and accrued expense primarily due to increased accrued liabilities in our WD Services segment which were offset by decreases in our NET Services and HA Services segments, and

 

 

approximately $17.8 million due to the increase in accrued purchased transportation related to new contracts, as well as higher utilization in existing contracts, in our NET Services segment.

 

Investing activities. Net cash used in investing activities totaled approximately $7.4 million for Q1 2015. Approximately $6.4 million was used to purchase property and equipment to support the growth of our operations and approximately $1.7 million was used for the final settlement of purchase price adjustments related to the Ingeus acquisition. The $1.7 million of purchase price adjustments were reflected in the consolidated balance sheets as of December 31, 2014.

 

Financing activities. Net cash provided by financing activities totaled approximately $4.7 million for Q1 2015. Cash provided by financing activities included approximately $80.7 million of net proceeds from the issuance of preferred stock and $2.2 million of cash received from employee stock option exercises. Cash used in financing activities included the repayment of our note payable to a related party totaling $65.5 million, scheduled debt payments under our credit facility of approximately $5.8 million and the payment of contingent consideration related to the Ingeus acquisition of approximately $7.5 million.

 

Obligations and commitments

 

Credit facility. On August 2, 2013, we entered into an Amended and Restated Credit Agreement with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, SunTrust Bank, as syndication agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated and SunTrust Robinson Humphrey, Inc., as joint lead arrangers and joint book managers and other lenders party thereto. The Amended and Restated Credit Agreement provided us with a senior secured credit facility, or the Credit Facility, in aggregate principal amount of $225.0 million, comprised of a $60.0 million term loan facility and a $165.0 million revolving credit facility. The Credit Facility includes sublimits for swingline loans and letters of credit in amounts of up to $10.0 million and $25.0 million, respectively. On August 2, 2013, we borrowed the entire amount available under the term loan facility and $16.0 million under our revolving credit facility and used the proceeds thereof to refinance certain of our existing indebtedness.

 

Under the Credit Facility we have an option to request an increase in the amount of the revolving credit facility and/or the term loan 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 Amended and Restated Credit Agreement at such time or new commitments from financial institutions acceptable to the administrative agent in its reasonable discretion, so long as no default or event of default exists at the time of any such increase. We may not be able to access additional funds under this increase option as no lender is obligated to participate in any such increase under the Credit Facility.

 

 
26

 

 

The Credit Facility matures on August 2, 2018. We may prepay the Credit Facility in whole or in part, at any time without premium or penalty, subject to reimbursement of the lenders’ breakage and redeployment costs in connection with prepayments of London Interbank Offering Rate, or LIBOR, loans. The unutilized portion of the commitments under the Credit Facility may be irrevocably reduced or terminated by us at any time without penalty.

 

Our obligations under the Credit Facility are guaranteed by all of our present and future domestic subsidiaries, excluding certain domestic subsidiaries, which include our insurance captives and not-for-profit subsidiaries. Our obligations under, and each guarantor’s obligations under its guaranty of, the Credit Facility are secured by a first priority lien on substantially all of our respective assets, including a pledge of 100% of the issued and outstanding stock of our domestic subsidiaries and 65% of the issued and outstanding stock of our first tier foreign subsidiaries.

 

On May 28, 2014 we entered into the first amendment (the “First Amendment”) to our Credit Facility. The First Amendment provided for, among other things, an increase in the aggregate amount of the revolving credit facility from $165.0 million to $240.0 million and other modifications in connection with the consummation of the acquisition of Ingeus.

 

On October 23, 2014, we entered into the Second Amendment to the Amended and Restated Credit and Guaranty Agreement and Consent (the “Second Amendment”) to amend the Credit Facility to (i) add a new term loan tranche in aggregate principal amount of up to $250.0 million to partly finance the acquisition of Matrix, (ii) provide the consent of the required lenders to consummate the acquisition of Matrix, (iii) permit incurrence of additional debt (including the Note, described below) to fund the acquisition of Matrix, (iv) add an excess cash flow mandatory prepayment provision and (v) such other amendments which are beneficial to us and provide greater flexibility for our future operations.

 

Interest on the outstanding principal amount of the loans accrues, at our election, at a per annum rate equal to LIBOR, plus an applicable margin or the base rate plus an applicable margin. The applicable margin ranges from 2.25% to 3.25% in the case of LIBOR loans and 1.25% to 2.25% in the case of the base rate loans, in each case, based on our consolidated leverage ratio as defined in the Amended and Restated Credit Agreement. Interest on the loans is payable quarterly in arrears. The interest rate applied to our term loan at March 31, 2015 was 3.26%. In addition, we are obligated to pay a quarterly commitment fee based on a percentage of the unused portion of each lender’s commitment under the revolving credit facility and quarterly letter of credit fees based on a percentage of the maximum amount available to be drawn under each outstanding letter of credit. The commitment fee and letter of credit fee ranges from 0.25% to 0.50% and 2.25% to 3.25%, respectively, in each case, based on our consolidated leverage ratio.

 

The $60.0 million term loan is subject to quarterly amortization payments, commencing on December 31, 2014, so that the following percentages of the term loan outstanding on the closing date plus the principal amount of any term loans funded pursuant to the increase option are repaid as follows: 7.5% between December 31, 2014 and September 30, 2015, 10.0% between December 31, 2015 and September 30, 2016, 12.5% between December 31, 2016 and September 30, 2017, 11.25% between December 31, 2017 and June 30, 2018 and the remaining balance at maturity.

 

The $250.0 million term loan is subject to quarterly amortization payments, commencing on March 31, 2015, so that the following percentages of the term loan outstanding on the closing date plus the principal amount of any term loans funded pursuant to the increase option are repaid as follows: 5.625% between March 31, 2015 and September 30, 2015, 10.0% between December 31, 2015 and September 30, 2016, 12.5% between December 31, 2016 and September 30, 2017, 11.25% between December 31, 2017 and June 30, 2018 and the remaining balance at maturity.

 

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

 

 
27

 

  

The Amended and Restated Credit Agreement contains customary affirmative and negative covenants and events of default. The negative covenants include restrictions on our ability to, among other things, incur additional indebtedness, create liens, make investments, give guarantees, pay dividends, sell assets and merge and consolidate. We are subject to financial covenants, including consolidated net leverage and consolidated fixed charge covenants. We were in compliance with all covenants as of March 31, 2015.

 

We had $201.7 million of borrowings outstanding under the revolving credit facility as of March 31, 2015. $25.0 million of the revolving credit facility is available to collateralize certain letters of credit. As of March 31, 2015, there were nine letters of credit in the amount of approximately $10.4 million collateralized under the revolving credit facility. At March 31, 2015, our available credit under the revolving credit facility was $27.9 million.

 

Contingent obligations. Under The Providence Service Corporation Deferred Compensation Plan, as amended, or Deferred Compensation Plan, eligible employees and independent contractors of a participating employer (as defined in the Deferred Compensation Plan) may defer all or a portion of their base salary, service bonus, performance-based compensation earned in a period of 12 months or more, commissions and, in the case of independent contractors, compensation reportable on Form 1099. The Deferred Compensation Plan is unfunded and benefits are paid from our general assets. We also maintain a 409(A) Deferred Compensation Rabbi Trust Plan for highly compensated employees of our NET Services segment. Benefits are paid from our general assets under this plan.

 

Reinsurance and Self-Funded Insurance Programs

 

Reinsurance

 

           We reinsure a substantial portion of our automobile, general and professional liability and workers’ compensation costs under reinsurance programs through our wholly-owned captive insurance subsidiary, Social Services Providers Captive Insurance Company, or SPCIC. At March 31, 2015, the cumulative reserve for expected losses since inception of these automobile, general and professional liability and workers’ compensation costs reinsurance programs was approximately $1.0 million, $3.2 million and $9.8 million, respectively. In addition, based on an independent actuarial report, our expected losses related to workers’ compensation and general and professional liability in excess of our liability under our associated reinsurance programs at March 31, 2015 was approximately $5.9 million. Further, SPCIC had restricted cash of approximately $16.9 million and $17.5 million at March 31, 2015 and December 31, 2014, respectively, which was restricted to secure the reinsured claims losses of SPCIC under the automobile, general and professional liability and workers’ compensation reinsurance programs.

 

           Historically, we also provided reinsurance for policies written by a third party insurer for general liability, automobile liability, and automobile physical damage coverage to certain members of the network of subcontracted transportation providers and independent third parties under our NET Services segment through Provado Insurance Services, Inc. (“Provado”).  While Provado did not renew its insurance agreement in February 2011 and no longer assumes liabilities for new policies, it will continue to administer existing policies for the foreseeable future and resolve remaining and future claims related to those policies. The cumulative reserve for expected losses of this reinsurance program at March 31, 2015 was approximately $0.6 million.

 

Health Insurance

 

           We offer our NET Services segment and Human Service segment employees an option to participate in a self-funded health insurance program. The liability for the self-funded health plan of approximately $2.0 million as of March 31, 2015 and December 31, 2014, was recorded in “Reinsurance liability reserve” in our condensed consolidated balance sheets.

 

 
28

 

  

Forward-Looking Statements

 

Certain statements contained in this quarterly report on Form 10-Q, such as any statements about our confidence or strategies or our expectations about revenues, liabilities, results of operations, cash flows, ability to fund operations, profitability, ability to meet financial covenants, contracts or market opportunities, constitute forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These forward-looking statements are based on our current expectations, assumptions, estimates and projections about our business and our industry. You can identify forward-looking statements by the use of words such as “may,” “should,” “will,” “could,” “estimates,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future,” and “intends” and similar expressions which are intended to identify forward-looking statements.

 

The forward-looking statements contained herein are not guarantees of our future performance and are subject to a number of known and unknown risks, uncertainties and other factors disclosed in our annual report on Form 10-K for the year ended December 31, 2014. Some of these risks, uncertainties and other factors are beyond our control and difficult to predict and could cause our actual results or achievements to differ materially from those expressed, implied or forecasted in the forward-looking statements.

 

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained above and throughout this report. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. We do not intend to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

Foreign currency risk

 

As of March 31, 2015, we conducted business in eleven countries outside the US. As such, our cash flows and earnings are subject to fluctuations from changes in foreign currency exchange rates. We do not currently hedge against the possible impact of currency fluctuations. For Q1 2015, we used 11 functional currencies and generated approximately $103.6 million of our net operating revenues from operations outside the US. As we expand further into international markets, we expect the risk from foreign currency exchange rates to increase.

 

A 10% adverse change in the foreign currency exchange rate from the Great British Pound to the US Dollar would have a $9.0 million impact on revenue, but would not significantly impact net income. A 10% adverse change in other foreign currency exchange rates would not have a significant impact on the revenue or operating results of the Company.

 

Interest rate and market risk

 

As of March 31, 2015, we had borrowings under our term loans of $275.9 million and borrowings under our revolving line of credit of $201.7 million. Borrowings under the Credit Agreement accrued interest at LIBOR plus 3.00% per annum as of March 31, 2015. An increase of 1% in the LIBOR rate would cause an increase in interest expense of up to $14.5 million over the remaining term of the Amended and Restated Credit Agreement, which expires in 2018.

 

We assess the significance of interest rate market risk on a periodic basis and may implement strategies to manage such risk as we deem appropriate.

 

 
29

 

 

Item 4.

Controls and Procedures.

 

(a) Evaluation of disclosure controls and procedures

 

The Company, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act as of the end of the period covered by this report (March 31, 2015) (“Disclosure Controls”). Based upon the Disclosure Controls evaluation, the principal executive officer and principal financial officer have concluded that the Disclosure Controls were effective in reaching a reasonable level of 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 Securities and Exchange Commission’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 principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Changes in internal controls

 

The principal executive officer and principal financial officer also conducted an evaluation of the Company’s internal control over financial reporting (“Internal Control”) to determine whether any changes in Internal Control occurred during the quarter ended March 31, 2015 that have materially affected or which are reasonably likely to materially affect Internal Control. Based on that evaluation, there has been no such change during the quarter ended March 31, 2015.

 

(c) Limitations on the Effectiveness of Controls

 

Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations of its internal controls to enhance, where necessary, its procedures and controls.

 

 
30

 

 

PART II—OTHER INFORMATION

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

 Issuer Purchases of Equity Securities

 

          The following table provides information with respect to common stock repurchased by us during the three months ended March 31, 2015:

 

                   

Total Number of

         
   

Total Number

           

Shares of Common Stock

   

Maximum Number of

 
   

of Shares of

   

Average Price

   

Purchased as Part of

   

Shares of Common Stock

 
   

Common Stock

   

Paid per

   

Publicly Announced

   

that May Yet Be Purchased

 

Period

 

Purchased

   

Share

   

Plans or Program

   

Under the Plans or Program (2)

 

Month 1:

                               

January 1, 2015

                               

to

                               

January 31, 2015

    1,572     $ 36.62       -       243,900  
                                 

Month 2:

                               

February 1, 2015

                               

to

                               

February 28, 2015

    1,180     $ 40.22       -       243,900  
                                 

Month 3:

                               

March 1, 2015

                               

to

                               

March 31, 2015

    12,434     $ 49.63       -       243,900  
                                 

Total

    15,186     $ 47.55       -       243,900  

 


 

(1)

The shares repurchased were acquired from employees in connection with the settlement of income tax and related benefit withholding obligations arising from vesting of restricted stock grants.

 

 

(2)

Our board of directors approved a stock repurchase program in February 2007 for up to one million shares of our common stock. As of March 31, 2015, we spent a cumulative amount of approximately $14.4 million to purchase 756,100 shares of our common stock on the open market under this program.

 

Dividends

 

Our existing debt agreement restricts the payment of dividends by the Company on its common stock.

 

 
31

 

 

Item 6.

Exhibits.

 

Exhibit
Number

 

Description

     

10.1(1)

 

Employment Agreement, dated January 14, 2015, by and between The Providence Service Corporation and James Lindstrom.

     

10.2(2)

 

Employment and Separation Agreement, dated February 2, 2015, by and between The Providence Service Corporation and Robert E. Wilson.

     

**10.3

 

Form of 2015 Performance Restricted Stock Unit Agreements

     

31.1

 

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. 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.

(1)

 

Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on January 21, 2015.

     

(2)

 

Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on February 6, 2015.

     

  

 
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SIGNATURES

 

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

 

     
 

THE PROVIDENCE SERVICE CORPORATION

     

Date: May 11, 2015

By:

/s/ Warren S. Rustand

   

Warren S. Rustand

Chief Executive Officer and Director

   

(Principal Executive Officer)

     

Date: May 11, 2015

By:

/s/ James Lindstrom

   

James Lindstrom

Chief Financial Officer

   

(Principal Financial and Accounting Officer)

 

 
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EXHIBIT INDEX

 

 

Exhibit
Number
  Description
     
     

10.1(1)

 

Employment Agreement, dated January 14, 2015, by and between The Providence Service Corporation and James Lindstrom.

     

10.2(2)

 

Employment and Separation Agreement, dated February 2, 2015, by and between The Providence Service Corporation and Robert E. Wilson.

     

**10.3

 

Form of 2015 Performance Restricted Stock Unit Agreements

     

31.1

 

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. 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.
     
(1)   Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on January 21, 2015.
     
(2)   Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on February 6, 2015.

 

 

 

 

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