10-Q

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 June 30, 2017

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.)

700 Canal Street, Third Floor Stamford, Connecticut	06902
(Address of principal executive offices)	(Zip Code)

(203) 307-2800

(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

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          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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☐
Emerging growth company ☐

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

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

As of August 4, 2017, there were outstanding 13,501,637 shares (excluding treasury shares of 3,944,171) of the registrant’s Common Stock, $0.001 par value per share.

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TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets – June 30, 2017 (unaudited) and December 31, 2016	4
	Unaudited Condensed Consolidated Statements of Income – Three and six months ended June 30, 2017 and 2016	5
	Unaudited Condensed Consolidated Statements of Comprehensive Income – Three and six months ended June 30, 2017 and 2016	6
	Unaudited Condensed Consolidated Statements of Cash Flows – Six months ended June 30, 2017 and 2016	7
	Notes to the Unaudited Condensed Consolidated Financial Statements – June 30, 2017	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	43
Item 6.	Exhibits	43

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PART I—FINANCIAL INFORMATION

Item 1.   Financial Statements.

The Providence Service Corporation

Condensed Consolidated Balance Sheets

(in thousands except share and per share data)

	June 30,			December 31,
	2017			2016
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	56,583		$	72,262
Accounts receivable, net of allowance of $6,295 in 2017 and $5,901 in 2016		172,189			162,115
Other receivables		8,545			12,639
Prepaid expenses and other		47,445			37,895
Restricted cash		1,461			3,192
Total current assets		286,223			288,103
Property and equipment, net		47,761			46,220
Goodwill		120,818			119,624
Intangible assets, net		46,799			49,124
Equity investments		160,601			161,363
Other assets		9,788			8,397
Restricted cash, less current portion		6,455			10,938
Deferred tax asset		4,431			1,510
Total assets	$	682,876		$	685,279
Liabilities, redeemable convertible preferred stock and stockholders' equity
Current liabilities:
Current portion of long-term obligations	$	1,918		$	1,721
Accounts payable		18,101			22,177
Accrued expenses		105,464			102,381
Accrued transportation costs		83,812			72,356
Deferred revenue		24,469			20,522
Reinsurance and related liability reserves		4,857			8,639
Total current liabilities		238,621			227,796
Long-term obligations, less current portion		1,131			1,890
Other long-term liabilities		24,750			22,380
Deferred tax liabilities		55,141			57,973
Total liabilities		319,643			310,039
Commitments and contingencies (Note 11)
Reedeemable convertible preferred stock
Convertible preferred stock, net: Authorized 10,000,000 shares; $0.001 par value; 803,398 and 803,398 issued and outstanding; 5.5%/8.5% dividend rate		77,565			77,565
Stockholders' equity
Common stock: Authorized 40,000,000 shares; $0.001 par value; 17,433,365 and 17,315,661 issued and outstanding (including treasury shares)		17			17
Additional paid-in capital		307,934			302,010
Retained earnings		153,266			156,718
Accumulated other comprehensive loss, net of tax		(29,023	)		(33,449	)
Treasury shares, at cost, 3,944,009 and 3,478,676 shares		(144,193	)		(125,201	)
Total Providence stockholders' equity		288,001			300,095
Noncontrolling interest		(2,333	)		(2,420	)
Total stockholders' equity		285,668			297,675
Total liabilities, redeemable convertible preferred stock and stockholders' equity	$	682,876		$	685,279

See accompanying notes to the unaudited condensed consolidated financial statements

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The Providence Service Corporation

Unaudited Condensed Consolidated Statements of Income

(in thousands except share and per share data)

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Service revenue, net	$	407,983		$	398,119		$	807,477		$	780,154
Operating expenses:
Service expense		377,036			367,846			746,446			716,521
General and administrative expense		18,048			16,711			35,076			35,228
Depreciation and amortization		6,900			6,849			13,169			13,388
Total operating expenses		401,984			391,406			794,691			765,137
Operating income		5,999			6,713			12,786			15,017
Other expenses:
Interest expense, net		329			407			681			902
Equity in net (gain) loss of investees		(1,530	)		1,459			530			4,176
Loss (gain) on foreign currency transactions		463			(775	)		400			(850	)
Income from continuing operations before income taxes		6,737			5,622			11,175			10,789
Provision for income taxes		2,879			3,997			5,402			7,789
Income from continuing operations, net of tax		3,858			1,625			5,773			3,000
Discontinued operations, net of tax		(117	)		2,370			(5,984	)		3,123
Net income (loss)		3,741			3,995			(211	)		6,123
Net loss (income) attributable to noncontrolling interests		174			628			(200	)		735
Net income (loss) attributable to Providence	$	3,915		$	4,623		$	(411	)	$	6,858
Net income (loss) available to common stockholders (Note 9)	$	2,434		$	3,104		$	(3,037	)	$	4,108
Basic earnings (loss) per common share:
Continuing operations	$	0.19		$	0.07		$	0.22		$	0.09
Discontinued operations		(0.01	)		0.14			(0.44	)		0.18
Basic earnings (loss) per common share	$	0.18		$	0.21		$	(0.22	)	$	0.27
Diluted earnings (loss) per common share:
Continuing operations	$	0.19		$	0.07		$	0.22		$	0.09
Discontinued operations		(0.01	)		0.14			(0.44	)		0.18
Diluted earnings (loss) per common share	$	0.18		$	0.21		$	(0.22	)	$	0.27
Weighted-average number of common shares outstanding:
Basic		13,553,704			14,893,595			13,628,572			14,975,582
Diluted		13,607,576			15,019,312			13,687,183			15,098,945

See accompanying notes to the unaudited condensed consolidated financial statements

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The Providence Service Corporation

Unaudited Condensed Consolidated Statements of Comprehensive Income

(in thousands)

	Three months ended June 30,					Six months ended June 30,
	2017		2016			2017			2016
Net income (loss)	$	3,741	$	3,995		$	(211	)	$	6,123
Net loss (income) attributable to to noncontrolling interest		174		628			(200	)		735
Net income (loss) attributable to Providence		3,915		4,623			(411	)		6,858
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax		3,225		(6,841	)		4,426			(8,332	)
Other comprehensive income (loss):		3,225		(6,841	)		4,426			(8,332	)
Comprehensive income (loss)		6,966		(2,846	)		4,215			(2,209	)
Comprehensive income (loss) attributable to noncontrolling interest		264		551			(87	)		645
Comprehensive income (loss) attributable to Providence	$	7,230	$	(2,295	)	$	4,128		$	(1,564	)

See accompanying notes to the unaudited condensed consolidated financial statements

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The Providence Service Corporation

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

	Six months ended June 30,
	2017			2016
Operating activities
Net (loss) income	$	(211	)	$	6,123
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		9,245			11,518
Amortization		3,924			17,632
Provision for doubtful accounts		1,082			1,938
Stock-based compensation		3,021			1,947
Deferred income taxes		(6,733	)		(10,094	)
Amortization of deferred financing costs and debt discount		349			1,053
Equity in net loss of investees		530			4,176
Other non-cash charges (credits)		401			(806	)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(8,949	)		(6,531	)
Prepaid expenses and other		(3,485	)		(25,909	)
Reinsurance and related liability reserve		(4,874	)		2,784
Accounts payable and accrued expenses		(1,716	)		44,052
Income taxes payable on sale of business		-			(28,337	)
Accrued transportation costs		11,456			12,119
Deferred revenue		2,896			1,448
Other long-term liabilities		2,325			4,642
Net cash provided by operating activities		9,261			37,755
Investing activities
Purchase of property and equipment		(10,745	)		(23,636	)
Net increase (decrease) in short-term investments		300			(9	)
Equity investments		-			(6,381	)
Loan to joint venture		(566	)		-
Restricted cash for reinsured claims losses and other		6,216			3,849
Net cash used in investing activities		(4,795	)		(26,177	)
Financing activities
Preferred stock dividends		(2,191	)		(2,197	)
Repurchase of common stock, for treasury		(18,754	)		(32,534	)
Proceeds from common stock issued pursuant to stock option exercise		1,028			787
Performance restricted stock surrendered for employee tax payment		(96	)		-
Repayment of long-term debt		-			(15,500	)
Proceeds from long-term debt		-			22,500
Capital lease payments and other		(738	)		(47	)
Net cash used in financing activities		(20,751	)		(26,991	)
Effect of exchange rate changes on cash		606			(533	)
Net change in cash and cash equivalents		(15,679	)		(15,946	)
Cash and cash equivalents at beginning of period		72,262			84,770
Cash and cash equivalents at end of period	$	56,583		$	68,824
Supplemental cash flow information:
Cash paid for interest	$	714		$	6,083
Cash paid for income taxes	$	7,736		$	45,265

See accompanying notes to the unaudited condensed consolidated financial statements

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The Providence Service Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

June 30, 2017

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

1. Organization and Basis of Presentation

Description of Business

The Providence Service Corporation (“we”, the “Company” or “Providence”) is a holding company, which owns interests in subsidiaries and other companies that are primarily engaged in the provision of healthcare and workforce development services for public and private sector entities seeking to control costs and promote positive outcomes. The subsidiaries and other companies in which the Company holds interests comprise the following segments:

● Non-Emergency Transportation Services (“NET Services”) – Nationwide provider of non-emergency medical transportation programs for state governments and managed care organizations.

● Workforce Development Services (“WD Services”) – Global provider of employment preparation and placement and legal offender rehabilitation services to eligible participants of government sponsored programs.

● Matrix Investment – Minority interest in nationwide provider of in-home care optimization and management solutions, including comprehensive health assessments, to members of managed care organizations, accounted for as an equity method investment.

Basis of Presentation

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

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

The Company has made estimates relating to the reporting of assets and liabilities, revenues and expenses and certain disclosures to prepare these unaudited condensed consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017. Management has evaluated events and transactions that occurred after the balance sheet date and through the date these unaudited condensed consolidated financial statements were filed, and considered the effect of such events in the preparation of these unaudited condensed consolidated financial statements.

The condensed consolidated balance sheet at December 31, 2016 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP for complete financial statements. The unaudited condensed consolidated financial statements contained herein should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

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

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Reclassifications

We have reclassified certain amounts relating to our prior period results to conform to our current period presentation. On October 19, 2016, affiliates of Frazier Healthcare Partners purchased a 53.2% equity interest in CCHN Group Holdings, Inc. and its subsidiaries (“Matrix”) with Providence retaining a 46.8% equity interest (the “Matrix Transaction”). Prior to the closing of the Matrix Transaction, the financial results of Matrix were included in the Company’s Health Assessment Services (“HA Services”) segment. Operating results for this segment are reported as discontinued operations, net of tax in the condensed consolidated statements of income for the three and six months ended June 30, 2016. See Note 13, Discontinued Operations, for further information. See Note 2, Significant Accounting Policies and Recent Accounting Pronouncements, for additional information on other reclassifications.

2. Significant Accounting Policies and Recent Accounting Pronouncements

The Company adopted the following accounting pronouncements during the six months ended June 30, 2017:

In November 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), which changes how deferred taxes are classified on organizations’ balance sheets. The ASU eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments apply to all organizations that present a classified balance sheet. For public companies, the amendments are effective for financial statements issued for annual periods beginning after December 16, 2016, and interim periods within those annual periods. The Company adopted ASU 2015-17 retrospectively on January 1, 2017, which resulted in the reclassification of the December 31, 2016 deferred tax assets-current balance of $6,825 and non-current deferred tax assets of $2,493 to long-term deferred tax liabilities in the amount of $9,318.

In March 2016, the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting (“ASU 2016-07”). ASU 2016-07 eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU 2016-07 instead specifies that the investor should add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and apply the equity method of accounting as of the date the investment became qualified for equity method accounting. ASU 2016-07 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 and should be applied prospectively. The Company adopted ASU 2016-07 on January 1, 2017. The adoption of ASU 2016-07 had no impact on the Company’s financial statements or disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 is intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including income tax consequences, classification of awards as either equity or liabilities and classification in the statement of cash flows. For public companies, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted ASU 2016-09 on January 1, 2017, and elected to recognize forfeitures as they occur. As a result, the Company recorded a cumulative effect adjustment of $850 to retained earnings as of January 1, 2017. Upon adoption, all excess tax benefits and tax deficiencies related to employee share-based payments are recognized through income tax expense prospectively. For the three months ended June 30, 2017, the Company recorded excess tax deficiencies of $97 as an increase to the provision for income taxes. For the six months ended June 30, 2017, the Company recorded excess tax benefits of $113 as a reduction to the provision for income taxes. The Company excluded the related tax benefits when applying the treasury stock method for computing diluted shares outstanding on a prospective basis resulting in a decrease in diluted weighted average shares outstanding of 16,196 and 8,787 shares, respectively, for the three and six months ended June 30, 2017.

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The Company elected to apply the change in classification of cash flows resulting from excess tax benefits or deficiencies on a retrospective basis. This resulted in an increase in cash flows provided by operating activities of $258 and an increase of $258 in cash flows used in financing activities in the condensed consolidated statement of cash flows for the six months ended June 30, 2016. Additionally, ASU 2016-09 requires that employee taxes paid when an employer withholds shares for tax-withholding purposes be reported as financing activities in the consolidated statements of cash flows, which is how the Company has historically classified these amounts.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company adopted ASU 2017-01 on April 1, 2017. The adoption of ASU 2017-01 had no impact on the Company’s financial statements or disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test. As a result, under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This guidance is effective prospectively for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The Company adopted ASU 2017-04 on April 1, 2017. The adoption of ASU 2017-04 had no impact on the Company’s financial statements or disclosures.

Updates to the recent accounting pronouncements as disclosed in the Company’s Form 10-K for the year ended December 31, 2016 are as follows:

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 introduced FASB Accounting Standards Codification Topic 606 (“ASC 606”), which will replace most currently applicable existing revenue recognition guidance and is intended to improve and converge with international standards the financial reporting requirements for revenue from contracts with customers. The core principle of ASU 2014-09 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-09 allows for adoption either on a full retrospective basis to each prior reporting period presented or on a modified retrospective basis with the cumulative effect of initially applying the new guidance recognized at the date of initial application, which will be effective for the Company beginning January 1, 2018.

The Company has developed an adoption plan, assembled a cross-functional project team and is in the process of assessing the impacts of applying ASC 606 to the Company’s financial statements, information systems and internal controls. The Company has performed detailed reviews of a significant number of its existing contracts with customers. These reviews have focused on several key considerations which could impact the Company's accounting and reporting under the new standard:

● the effect of specified clauses on the term of many of the Company’s contracts with customers;

● the nature of the promises in many of the Company’s contracts with customers to perform integrated services over a period of time;

● whether and how much variable consideration to include when determining the transaction prices for its contracts with customers;

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● whether any of the Company’s customer contracts require performance over a series of distinct service periods and the impact on determining and allocating the transaction price; and

● the manner in which the Company will measure its progress towards fully satisfying its performance obligations, including a determination of whether the Company may be able to use certain practical expedients.

Management’s assessment is ongoing; therefore, the Company has not yet determined with certainty the impact of applying ASC 606. However, management does not believe the impact on its financial statements will be significant based on the procedures performed to date.

In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323) (“ASU 2017-03”). ASU 2017-03 expands required qualitative disclosures when registrants cannot reasonably estimate the impact that adoption of an ASU will have on the financial statements. Such qualitative disclosures would include a comparison of the registrant’s new accounting policies, if determined, to current accounting policies, a description of the status of the registrant’s process to implement the new standard and a description of the significant implementation matters yet to be addressed by the registrant. Other than enhancements to the qualitative disclosures regarding future adoption of new ASUs, adoption of the provisions of this standard is not expected to have any impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 provides guidance about which changes to the terms of a share-based payment award should be accounted for as a modification. A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do not change, and the classification as an equity or liability instrument does not change. This guidance is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. The adoption of ASU 2017-09 is not expected to have a material impact on the Company’s consolidated financial statements.

There were no other significant updates to the new accounting guidance not yet adopted by the Company as disclosed in its Form 10-K for the year ended December 31, 2016.

 3. Equity Investment

Matrix

Prior to the closing of the Matrix Transaction on October 19, 2016, the financial results of Matrix were included in the Company’s HA Services segment. Subsequent to the closing of the Matrix Transaction, the Company owns a 46.8% noncontrolling interest in Matrix. Pursuant to a Shareholder’s Agreement, affiliates of Frazier Healthcare Partners hold rights necessary to control the fundamental operations of Matrix. The Company accounts for this investment in Matrix under the equity method of accounting and the Company’s share of Matrix’s income or losses are recorded as “Equity in net (gain) loss of investees” in the accompanying condensed consolidated statements of income.

The carrying amount of the assets included in the Company’s condensed consolidated balance sheet and the maximum loss exposure related to the Company’s interest in Matrix as of June 30, 2017 and December 31, 2016 totaled $157,124 and $157,202, respectively.

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

	June 30, 2017		December 31, 2016
Current assets	$	43,479	$	28,589
Long-term assets		604,598		614,841
Current liabilities		35,236		25,791
Long-term liabilities		274,426		281,348

	Three months ended June 30, 2017
Revenue	$	60,852
Operating income		5,942
Net income		1,619

	Six months ended June 30, 2017
Revenue	$	116,707
Operating income		6,950
Net loss		(238	)

See Note 13, Discontinued Operations, for Matrix’s 2016 results of operations.

Mission Providence

The Company entered into a joint venture agreement in November 2014 to form Mission Providence Pty Ltd (“Mission Providence”). Mission Providence delivers employment preparation and placement services in Australia. The Company has a 60% ownership interest in Mission Providence, and has rights to 75% of Mission Providence’s distributions of cash or profit surplus twice per calendar year.

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. 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 income or losses is recorded as “Equity in net (gain) loss of investees” in the accompanying condensed consolidated statements of income. Cash contributions made to Mission Providence in exchange for its equity interests are included in the condensed consolidated statements of cash flows as “Equity investments.”

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The following table summarizes the carrying amounts of the assets and liabilities included in the Company’s consolidated balance sheet and the maximum loss exposure related to the Company’s interest in Mission Providence as of June 30, 2017 and December 31, 2016:

	Equity Investments		Other Assets		Accrued Expenses		Maximum Exposure to Loss
June 30, 2017	$	3,326	$	576	$	-	$	3,902
December 31, 2016	$	4,021	$	-	$	-	$	4,021

Other Assets is comprised of a loan to Mission Providence, which was made during the three months ended March 31, 2017. Summary financial information for Mission Providence on a standalone basis is as follows:

	June 30, 2017		December 31, 2016
Current assets	$	816	$	4,640
Long-term assets		10,530		10,473
Current liabilities		10,658		12,844
Long-term liabilities		-		1,655

	Three months ended June 30,
	2017		2016
Revenue	$	10,493	$	9,708
Operating income (loss)		639		(2,709	)
Net income (loss)		577		(1,945	)

	Six months ended June 30,
	2017			2016
Revenue	$	19,880		$	17,126
Operating loss		(1,166	)		(7,794	)
Net loss		(1,283	)		(5,568	)

 4.    Prepaid Expenses and Other

Prepaid expenses and other were comprised of the following: 

	June 30,		December 31,
	2017		2016
Prepaid income taxes	$	1,701	$	1,467
Escrow funds		10,000		10,000
Prepaid insurance		2,402		3,153
Prepaid taxes and licenses		2,479		3,570
Note receivable		3,177		3,130
Prepaid rent		3,447		2,013
Deposits held for leased premises and bonds		2,674		2,609
Other		21,565		11,953
Total prepaid expenses and other	$	47,445	$	37,895

Escrow funds represent amounts related to potential indemnification claims from the sale of the Human Services segment, which was completed on November 1, 2015. The Company has accrued $15,000 as a contingent liability for the settlement of potential indemnification claims, which is included in “Accrued expenses” in the condensed consolidated balance sheet as of June 30, 2017. While the matter is not resolved, it is highly likely the escrow funds will be used to satisfy a portion of this settlement. See Note 11, Commitments and Contingencies, for further information.

The increase in “Other” in the table above from December 31, 2016 to June 30, 2017 primarily relates to the timing of prepaid program costs for WD Services.

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5.    Accrued Expenses

Accrued expenses consisted of the following:

	June 30,		December 31,
	2017		2016
Accrued compensation	$	21,704	$	23,050
NET Services accrued contract payments		32,146		32,836
Accrued settlement		15,000		6,000
Income taxes payable		1,545		372
Other		35,069		40,123
Total accrued expenses	$	105,464	$	102,381

6.    Restructuring and Related Reorganization Costs

WD Services has three ongoing redundancy programs: a redundancy plan approved in 2016 related to the termination of employees as part of a value enhancement project (“Ingeus Futures’ Program”) to better align costs at Ingeus with revenue and to improve overall operating performance; and two redundancy plans approved in 2015, including a plan related to the termination of employees delivering services under an offender rehabilitation program (“Offender Rehabilitation Program”) and a plan related to the termination of employees delivering services under the Company’s employability and skills training programs and certain other employees in the UK (“UK Restructuring Program”).  The Company recorded severance and related charges of $859 and $4,608 during the six months ended June 30, 2017 and 2016, respectively, relating to the termination benefits for employee groups and specifically identified employees impacted by these plans. The severance charges incurred are recorded as “Service expense” in the accompanying condensed consolidated statements of income.

The initial estimate of severance and related charges for the plans was based upon the employee groups impacted, average salary and benefits, and redundancy benefits pursuant to the existing policies. Additional charges above the initial estimates were incurred for the redundancy plans during the six months ended June 30, 2017 and 2016 related to the actualization of termination benefits for specifically identified employees impacted under these plans, as well as an increase in the number of individuals impacted by these plans. The final identification of the employees impacted by each program is subject to customary consultation procedures.

Summary of Severance and Related Charges

	January 1, 2017		Costs Incurred			Cash Payments			Foreign Exchange Rate Adjustments		June 30, 2017
Ingeus Futures' Program	$	2,486	$	836		$	(2,341	)	$	130	$	1,111
Offender Rehabilitation Program		1,380		52			(1,295	)		18		155
UK Restructuring Program		50		(29	)		-			2		23
Total	$	3,916	$	859		$	(3,636	)	$	150	$	1,289

	January 1, 2016		Costs Incurred		Cash Payments			Foreign Exchange Rate Adjustments			June 30, 2016
Offender Rehabilitation Program	$	6,538	$	4,174	$	(2,204	)	$	(753	)	$	7,755
UK Restructuring Program		2,059		434		(1,956	)		(96	)		441
Total	$	8,597	$	4,608	$	(4,160	)	$	(849	)	$	8,196

The total of accrued severance and related costs of $1,289 is reflected in “Accrued expenses” in the condensed consolidated balance sheet at June 30, 2017. The amount accrued as of June 30, 2017 is expected to be settled principally by the end of 2017.

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7.    Stockholders’ Equity

The following table reflects changes in common stock, additional paid-in capital, retained earnings, accumulated other comprehensive loss, treasury stock and noncontrolling interest for the six months ended June 30, 2017:

											Accumulated
					Additional						Other								Non-
	Common Stock				Paid-In			Retained			Comprehensive			Treasury Stock					controlling
	Shares		Amount		Capital			Earnings			Loss			Shares		Amount			Interest			Total
Balance at December 31, 2016		17,315,661	$	17	$	302,010		$	156,718		$	(33,449	)		3,478,676	$	(125,201	)	$	(2,420	)	$	297,675
Stock-based compensation		-		-		3,061			-			-			-		-			-			3,061
Exercise of employee stock options		60,233		-		968			-			-			5,665		(238	)		-			730
Restricted stock issued		28,923		-		-			-			-			17,703		(771	)		-			(771	)
Performance restricted stock issued		3,773		-		(96	)		-			-			-		-			-			(96	)
Shares issued for bonus settlement and director stipend		24,775				1,107						-			-		-			-			1,107
Stock repurchase plan		-		-		-			-			-			441,965		(17,983	)		-			(17,983	)
Foreign currency translation adjustments, net of tax		-		-		-			-			4,426			-		-			(113	)		4,313
Convertible preferred stock dividends		-		-		-			(2,191	)		-			-		-			-			(2,191	)
Noncontrolling interests		-		-		-			-			-			-		-			200			200
Other		-		-		34			-			-			-		-			-			34
Net income attributable to Providence		-		-		-			(411	)		-			-		-			-			(411	)
Cumulative effect adjustment from change in accounting principle		-		-		850			(850	)		-			-		-			-			-
Balance at June 30, 2017		17,433,365	$	17	$	307,934		$	153,266		$	(29,023	)		3,944,009	$	(144,193	)	$	(2,333	)	$	285,668

8.    Stock-Based Compensation and Similar Arrangements

The Company provides stock-based compensation to employees and non-employee directors under the Company’s 2006 Long-Term Incentive Plan (“2006 Plan”). Typical awards issued under this plan include stock option awards, restricted stock awards (“RSAs”) and performance based restricted stock units (“PRSUs”). In addition, the Company has a long-term incentive plan designed to provide long-term performance based awards to certain executive officers of the Company which also falls under the 2006 Plan.

The following table reflects the amount of stock-based compensation, for share settled awards, recorded in each financial statement line item for the three and six months ended June 30, 2017 and 2016:

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Service expense	$	110	$	66	$	234	$	180
General and administrative expense		1,445		1,247		2,787		1,724
Equity in net loss of investees		13		-		40		-
Discontinued operations, net of tax		-		22		-		43
Total stock-based compensation	$	1,568	$	1,335	$	3,061	$	1,947

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Stock-based compensation, for share settled awards, includes $1,042 and $2,084 for the three and six months ended June 30, 2017, respectively, related to the Company’s 2015 Holding Company LTI Program (the “HoldCo LTIP”). Stock-based compensation, for share settled awards, includes $842 and $1,462 for the three and six months ended June 30, 2016, respectively, related to the HoldCo LTIP. No shares will be distributed under the HoldCo LTIP unless the volume weighted average of Providence’s stock price over a 90-day period ending on December 31, 2017 is greater than $56.79.

At June 30, 2017, the Company had 290,781 stock options outstanding with a weighted-average exercise price of $37.56. The Company also had 73,950 shares of unvested RSAs outstanding at June 30, 2017 with a weighted-average grant date fair value of $44.40 and 18,298 unvested PRSUs outstanding.

The Company also grants stock equivalent unit awards (“SEUs”) and stock option equivalent units that are cash settled awards and are not included as part of the 2006 Plan. During the three and six months ended June 30, 2017, respectively, the Company recorded $564 and $1,231 of stock-based compensation expense for cash settled awards. During the three and six months ended June 30, 2016, respectively, the Company recorded $847 and $117 of stock-based compensation benefit for cash settled awards. The expense and benefit for cash settled awards is included as “General and administrative expense” in the accompanying condensed consolidated statements of income. As the awards are cash settled, a significant amount of the expense recorded for the three and six months ended June 30, 2017 and 2016 is attributable to the Company’s increase or decrease in stock price from the previous reporting period. The liability for unexercised cash settled share-based payment awards of $2,789 and $1,764 at June 30, 2017 and December 31, 2016, respectively, are reflected in “Accrued expenses” in the condensed consolidated balance sheets. At June 30, 2017, the Company had 6,671 SEUs and 200,000 stock option equivalent units outstanding.

The Company also provides cash settled long-term incentive plans for executive management and key employees of its operating segments. During the three months ended June 30, 2017, the Company revised the structure of the NET Services long-term incentive plan. As a result, the Company finalized the amount payable under the plan at $2,956. As of June 30, 2017, unamortized compensation expense is $971. The total value will be paid to the awarded participants per the terms of the original agreement and thus the expense relating to this plan will continue to be recognized over the service period. For the three and six months ended June 30, 2017, a credit of $401 and expense of $144, respectively, are included as “Service expense” in the condensed consolidated statements of income related to these plans. For the three and six months ended June 30, 2016, $979 and $1,994, respectively, of expense are included as “Service expense” in the condensed consolidated statements of income related to these plans. At June 30, 2017, the liability for long-term incentive plans of the Company’s operating segments of $1,985 is reflected in “Accrued expenses” and “Other long-term liabilities” in the condensed consolidated balance sheet.  At December 31, 2016, the liability for long-term incentive plans of the Company’s operating segments of $1,841 is reflected in “Other long-term liabilities” in the condensed consolidated balance sheet.

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9.    Earnings Per Share

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

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Numerator:
Net income (loss) attributable to Providence	$	3,915		$	4,623		$	(411	)	$	6,858
Less dividends on convertible preferred stock		(1,102	)		(1,099	)		(2,191	)		(2,198	)
Less income allocated to participating securities		(379	)		(420	)		(435	)		(552	)
Net income (loss) available to common stockholders	$	2,434		$	3,104		$	(3,037	)	$	4,108
Continuing operations	$	2,551		$	1,016		$	2,947		$	1,355
Discontinued operations		(117	)		2,088			(5,984	)		2,753
	$	2,434		$	3,104		$	(3,037	)	$	4,108
Denominator:
Denominator for basic earnings per share -- weighted-average shares		13,553,704			14,893,595			13,628,572			14,975,582
Effect of dilutive securities:
Common stock options		48,836			125,717			53,575			123,363
Performance-based restricted stock units		5,036			-			5,036
Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion		13,607,576			15,019,312			13,687,183			15,098,945
Basic earnings (loss) per share:
Continuing operations	$	0.19		$	0.07		$	0.22		$	0.09
Discontinued operations		(0.01	)		0.14			(0.44	)		0.18
	$	0.18		$	0.21		$	(0.22	)	$	0.27
Diluted earnings (loss) per share:
Continuing operations	$	0.19		$	0.07		$	0.22		$	0.09
Discontinued operations		(0.01	)		0.14			(0.44	)		0.18
	$	0.18		$	0.21		$	(0.22	)	$	0.27

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

The following weighted average shares were not included in the computation of diluted earnings per share as the effect of their inclusion would have been anti-dilutive:

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Stock options to purchase common stock		46,478		33,957		144,811		33,957
Convertible preferred stock		803,398		803,455		803,398		803,486

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10.    Income Taxes

The Company’s effective tax rate from continuing operations for the three and six months ended June 30, 2017 was 42.7% and 48.3%, respectively. The Company’s effective tax rate from continuing operations for the three and six months ended June 30, 2016 was 71.1% and 72.2%, respectively. The effective tax rates for these periods exceeded the U.S. federal statutory rate of 35% primarily due to foreign net operating losses (including equity investment losses in certain of the periods) for which the future income tax benefit currently cannot be recognized, losses in foreign jurisdictions with tax rates lower than the U.S. rate of 35%, state income taxes and certain non-deductible expenses. Foreign net operating losses for which no tax benefit can be provided were higher in 2016 versus 2017 resulting in a decrease in the effective tax rate from 2016 to 2017.

The Company recorded excess tax deficiencies of $97 for the three months ended June 30, 2017, which increased the provision for income taxes, and excess tax benefits of $113 for the six months ended June 30, 2017, which reduced the provision for income taxes. These excess tax deficiencies and benefits were a result of applying the guidance in ASU 2016-09 as further discussed in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements.

11.    Commitments and Contingencies

Legal proceedings

On June 15, 2015, a putative stockholder class action derivative complaint was filed in the Court of Chancery of the State of Delaware (the “Court”), captioned Haverhill Retirement System v. Kerley et al., C.A. No. 11149-VCL (“Haverhill Litigation”).

On January 20, 2017, the special litigation committee created by the Company’s Board of Directors advised the Court that the parties to the litigation and the special litigation committee had reached an agreement in principle to settle all of the claims in the litigation. The parties have entered into a proposed settlement agreement which has been submitted to the Court for approval. The proposed settlement agreement provides for a settlement amount of $10,000 less plaintiff’s legal fees and expenses (the “Settlement Amount”), with 75% of the Settlement Amount less plaintiff’s legal fees and expenses to be paid to the Company and 25% of the Settlement Amount to be paid to holders of the Company’s common stock. A court hearing to consider the proposed settlement has been scheduled for September 28, 2017.

For further information regarding this legal proceeding please see Note 19, Commitments and Contingencies, in the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and Note 11, Commitments and Contingencies, in the unaudited condensed consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2017.

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

Indemnifications related to Haverhill Litigation

The Company completed a rights offering on February 5, 2015 (the “Rights Offering”) providing all of the Company’s existing common stockholders the non-transferrable right to purchase their pro rata share of $65,500 of convertible preferred stock at a price equal to $100.00 per share (“Preferred Stock”). Stockholders exercised subscription rights to purchase 130,884 shares of the Company's Preferred Stock. Pursuant to the terms and conditions of the Standby Purchase Agreement (the “Standby Purchase Agreement”) between Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Coliseum Capital Co-Invest, L.P. and Blackwell Partners, LLC (collectively, the “Standby Purchasers”) and the Company, the remaining 524,116 shares of the Company’s Preferred Stock were purchased by the Standby Purchasers at the $100.00 per share subscription price. The Company has indemnified the Standby Purchasers from and against any and all losses, claims, damages, expenses and liabilities relating to or arising out of (i) any breach of any representation, warranty, covenant or undertaking made by or on behalf of the Company in the Standby Purchase Agreement and (ii) the transactions contemplated by the Standby Purchase Agreement and the 14.0% Unsecured Subordinated Note in aggregate principal amount of $65,500, except to the extent that any such losses, claims, damages, expenses and liabilities are attributable to the gross negligence, willful misconduct or fraud of such Standby Purchaser.

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The Company has also indemnified other third parties from and against any and all losses, claims, damages, expenses and liabilities arising out of or in connection with the Company’s acquisition of CCHN Group Holdings, Inc. (operating under the tradename Matrix, and formerly included in our HA Services segment) in October 2014 and related financing commitments, except to the extent that any such losses, claims, damages, expenses and liabilities are found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence, bad faith or willful misconduct of such third parties, or a material breach of such third parties’ obligations under the related agreements.

The Company recorded $143 and $275 of such indemnified legal expenses related to the Haverhill Litigation during the three and six months ended June 30, 2017, respectively and $38 and $144 of such indemnified legal expenses during the three and six months ended June 30, 2016, respectively, which is included in “General and administrative expenses” in the condensed consolidated statements of income. Of these amounts, $92 and $208 for the three and six months ended June 30, 2017, respectively and $38 and $144 for the three and six months ended June 30, 2016, respectively, were indemnified legal expenses of related parties. Other legal expenses of the Company related to the Haverhill Litigation are covered under the Company’s insurance policies, subject to applicable deductibles and customary review of the expenses by the carrier. The Company recognized related expense of $0 and $11 for the three and six months ended June 30, 2017, respectively and no related expense for the three and six months ended June 30, 2016. While the carrier typically remits payment directly to the respective law firm, the Company accrues for the cost and records a corresponding receivable for the amount to be paid by the carrier. The Company has recognized an insurance receivable of $1,167 and $1,645 in “Other receivables” in the condensed consolidated balance sheets at June 30, 2017 and December 31, 2016, respectively, with a corresponding liability amount recorded to “Accrued expenses”.

Other Indemnifications

The Company has provided certain standard indemnifications in connection with the sale of the Human Services segment to Molina Healthcare Inc. (“Molina”) effective November 1, 2015. All representations and warranties made by the Company in the Membership Interest Purchase Agreement (the “Purchase Agreement”) to sell the Human Services segment survived through the 15th month following the closing date, and ended on February 1, 2017. However, claims made prior to February 1, 2017 by the purchaser of the Human Services segment against these representations and warranties may survive until the claims are settled. In addition, certain representations, including tax representations, survive until the expiration of applicable statutes of limitation, and healthcare representations survive until the third anniversary of the closing date. The Company received indications from the purchaser of the Human Services segment prior to the February 1, 2017 deadline regarding potential indemnification claims. One such potential indemnification claim relates to Rodriguez v. Providence Community Corrections, a complaint filed in the District Court for the Middle District of Tennessee, Nashville Division (the “Rodriquez Litigation”), against Providence Community Corrections, Inc. (“PCC”), an entity sold under the Purchase Agreement. Molina announced in September 2016 that the parties to the Rodriguez Litigation accepted a mediation proposal for settlement pursuant to which PCC would pay the plaintiffs $14,000, and the parties are in the process of finalizing the settlement agreement, which remains subject to court approval.

Molina and the Company are in discussions regarding a settlement of an indemnification claim by Molina with respect to the Rodriguez Litigation and other matters. As of June 30, 2017, the accrual is $15,000 with respect to an estimate of loss for potential indemnification claims. The Company expects to recover a substantial portion of the settlement through insurance coverage, although this cannot be assured.

Litigation is inherently uncertain and the actual losses incurred in the event that the related legal proceedings were to result in unfavorable outcomes could have a material adverse effect on the Company’s business and financial performance.

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The Company has provided certain standard indemnifications in connection with its Matrix stock subscription transaction whereby Mercury Fortuna Buyer, LLC (“Subscriber”), Providence and Matrix entered into a stock subscription agreement (the “Subscription Agreement”), dated August 28, 2016.  The representations and warranties made by the Company in the Subscription Agreement survive through the 15th month following the closing date; however, certain fundamental representations survive through the 36th month following the closing date.  The covenants and agreements of the parties to be performed prior to the closing survive through the 15th month following the closing date, and all other covenants and agreements survive until the expiration of the applicable statute of limitations in the event of a breach, or for such lesser periods specified therein. 

As of June 30, 2017, Matrix has certain malpractice claims that arose prior to the Company’s purchase of Matrix. The Company believes it is reasonably possible that a loss has occurred; however, it is not able to reliably estimate the amount of such loss. Although the Company does not believe that the aggregate amount of liability reasonably possible with respect to these matters would have a material adverse effect on its financial results, litigation is inherently uncertain and the actual losses incurred in the event that the Company’s legal proceedings were to result in unfavorable outcomes could have a material adverse effect on the Company’s business and financial performance. The Company is not aware of any indemnification liabilities with respect to Matrix that require accrual at June 30, 2017.

Loss Reserves for Certain Reinsurance Programs

The Company historically reinsured a substantial portion of its automobile, general and professional liability and workers’ compensation costs under reinsurance programs through the Company’s wholly-owned subsidiary, Social Services Providers Captive Insurance Company (“SPCIC”), a licensed captive insurance company domiciled in the State of Arizona. As of May 16, 2017, SPCIC did not renew the expiring reinsurance policies. SPCIC will continue to resolve claims under the historical policy years.

The Company utilizes a report prepared by an independent actuary to estimate the gross expected losses related to historical automobile, general and professional and workers’ compensation liability reinsurance policies, including the estimated losses in excess of SPCIC’s insurance limits, which would be reimbursed to SPCIC to the extent such losses were incurred.  As of June 30, 2017 and December 31, 2016, the Company had reserves of $8,693 and $11,195, respectively, for the automobile, general and professional liability and workers’ compensation reinsurance policies, net of expected receivables for losses in excess of SPCIC’s historical insurance limits.  The gross reserve as of June 30, 2017 and December 31, 2016 of $14,776 and $16,460, respectively, is classified as “Reinsurance liability reserves” and “Other long-term liabilities” in the condensed consolidated balance sheets.  The estimated amount to be reimbursed to SPCIC as of June 30, 2017 and December 31, 2016 was $6,083 and $5,265, respectively, and is classified as “Other receivables’ and “Other assets” in the condensed consolidated balance sheets.

Deferred Compensation Plan

The Company has one deferred compensation plan for highly compensated employees of NET Services as of June 30, 2017. The deferred compensation plan is unfunded, and benefits are paid from the general assets of the Company. The total of participant deferrals, which is reflected in “Other long-term liabilities” in the condensed consolidated balance sheets, was $1,755 and $1,430 at June 30, 2017 and December 31, 2016, respectively.

12.    Transactions with Related Parties

The Company incurred legal expenses under an indemnification agreement with the Standby Purchasers as further discussed in Note 11, Commitments and Contingencies. Convertible preferred stock dividends earned by the Standby Purchasers during the three and six months ended June 30, 2017 totaled $1,050 and $2,089, respectively. Convertible preferred stock dividends earned by the Standby Purchasers during the three and six months ended June 30, 2016 totaled $1,047 and $2,095, respectively.

During the three months ended March 31, 2017, the Company made a loan to Mission Providence. The balance as of June 30, 2017 of $576 is included within “Prepaid expenses and other” in the Company’s condensed consolidated balance sheet.

13.  Discontinued Operations

On November 1, 2015, the Company completed the sale of the Human Services segment. During the three and six months ended June 30, 2017, the Company recorded additional expenses related to the Human Services segment, principally related to legal proceedings as described in Note 11, Commitment and Contingences, related to an indemnified legal matter.

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Effective October 19, 2016, the Company completed the Matrix Transaction. Prior to the closing of the Matrix Transaction, the financial results of Matrix were included in the Company’s HA Services segment, which has been reflected as a discontinued operation for the three and six months ended June 30, 2016. Following the Matrix Transaction, the Company has a continuing involvement with Matrix through its 46.8% ownership interest in Matrix, which is accounted for as an equity method investment. Matrix’s pretax income for the three months ended June 30, 2017 totaled $2,284 and its pretax loss for the six months ended June 30, 2017 was $314. There have been no cash inflows or outflows from or to Matrix subsequent to the closing of the Matrix Transaction, other than the payment of working capital adjustments, and management fees associated with its ongoing relationship with Matrix, of which $529 was received during the six months ended June 30, 2017. $312 and $185 are included in “Other receivables” in the condensed consolidated balance sheets at June 30, 2017 and December 31, 2016, respectively, related to management fees receivable.

Results of Operations

The following tables summarize the results of operations classified as discontinued operations, net of tax, for the three and six months ended June 30, 2017 and 2016.

	Three months ended June 30, 2017								Six months ended June 30, 2017
	Human Services Segment			HA Services Segment		Total Discontinued Operations			Human Services Segment			HA Services Segment		Total Discontinued Operations
Operating expenses:
General and administrative expense	$	190		$	-	$	190		$	9,596		$	-	$	9,596
Total operating expenses		190			-		190			9,596			-		9,596
Loss from discontinued operations before income taxes		(190	)		-		(190	)		(9,596	)		-		(9,596	)
Income tax benefit		73			-		73			3,612			-		3,612
Discontinued operations, net of tax	$	(117	)	$	-	$	(117	)	$	(5,984	)	$	-	$	(5,984	)

General and administrative expenses for the three months ended June 30, 2017 includes legal expenses of $190. General and administrative expenses for the six months ended June 30, 2017 includes an accrual of $9,000 for an estimated settlement of indemnified claims related to the sale of the Human Services segment, as well as related legal expenses of $596. See Note 11, Commitments and Contingencies, for additional information.

21 

	Three months ended June 30, 2016						Six months ended June 30, 2016
	Human Services Segment		HA Services Segment		Total Discontinued Operations		Human Services Segment		HA Services Segment		Total Discontinued Operations
Service revenue, net	$	-	$	52,272	$	52,272	$	-	$	102,864	$	102,864
Operating expenses:
Service expense		-		36,963		36,963		-		74,753		74,753
General and administrative expense		-		662		662		-		1,318		1,318
Depreciation and amortization		-		7,965		7,965		-		15,762		15,762
Total operating expenses		-		45,590		45,590		-		91,833		91,833
Operating income		-		6,682		6,682		-		11,031		11,031
Other expenses:
Interest expense, net		-		3,029		3,029		-		6,170		6,170
Income from discontinued operations before income taxes		-		3,653		3,653		-		4,861		4,861
Provision for income taxes		-		1,283		1,283		-		1,738		1,738
Discontinued operations, net of tax	$	-	$	2,370	$	2,370	$	-	$	3,123	$	3,123

Interest expense, net

The Company allocated interest expense, including amortization of deferred financing fees, to discontinued operations based on the portion of debt that was required to be repaid with the proceeds from the sale of the Matrix Transaction. The total allocated interest expense was $3,031 and $6,174 for the three and six months ended June 30, 2016, respectively, and is included in “Interest expense, net” in the table above.

Cash Flow Information

The following table presents depreciation, amortization and capital expenditures of the discontinued operations for the six months ended June 30, 2016:

	Six months ended June 30, 2016
Cash flows from discontinued operating activities:
Depreciation	$	2,667
Amortization		13,095
Cash flows from discontinued investing activities:
Purchase of property and equipment	$	5,415

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14.    Segments

The Company is a holding company, which owns interests in subsidiaries and other companies that are primarily engaged in the provision of healthcare and workforce development services. The subsidiaries and other companies in which the Company holds interests comprise the following segments:

● NET Services – Nationwide provider of non-emergency medical transportation programs for state governments and managed care organizations.

● WD Services – Global provider of employment preparation and placement and legal offender rehabilitation services to eligible participants of government sponsored programs.

● Matrix Investment – Minority interest in nationwide provider of in-home care optimization and management solutions, including comprehensive health assessments, to members of managed care organizations, accounted for as an equity method investment.

Effective October 19, 2016, pursuant to the Matrix Transaction, the Company no longer owns a controlling interest in Matrix, which historically constituted the HA Services segment as further discussed in Note 13, Discontinued Operations. As the HA Services segment, through October 19, 2016, is presented as a discontinued operation, it is not reflected in the Company’s segment disclosures.  However, the Company accounts for its noncontrolling interest in Matrix from October 19, 2016 through present as an equity method investment, which solely comprises the Matrix Investment in the table below.

The following tables set forth certain financial information from continuing operations attributable to the Company’s business segments for the three and six months ended June 30, 2017 and 2016:

	Three months ended June 30, 2017
	NET Services		WD Services			Matrix Investment		Corporate and Other			Total
Service revenue, net	$	338,805	$	69,178		$	-	$	-		$	407,983
Service expense		316,435		62,882			-		(2,281	)		377,036
General and administrative expense		3,089		6,919			-		8,040			18,048
Depreciation and amortization		3,326		3,489			-		85			6,900
Operating income (loss)	$	15,955	$	(4,112	)	$	-	$	(5,844	)	$	5,999
Equity in net gain (loss) of investee	$	-	$	440		$	1,090	$	-		$	1,530

	Three months ended June 30, 2016
	NET Services		WD Services			Matrix Investment		Corporate and Other			Total
Service revenue, net	$	308,915	$	89,289		$	-	$	(85	)	$	398,119
Service expense		285,446		82,073			-		327			367,846
General and administrative expense		2,785		8,585			-		5,341			16,711
Depreciation and amortization		2,931		3,836			-		82			6,849
Operating income (loss)	$	17,753	$	(5,205	)	$	-	$	(5,835	)	$	6,713
Equity in net gain (loss) of investee	$	-	$	(1,459	)	$	-	$	-		$	(1,459	)

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	Six months ended June 30, 2017
	NET Services		WD Services			Matrix Investment		Corporate and Other			Total
Service revenue, net	$	662,839	$	144,638		$	-	$	-		$	807,477
Service expense		622,627		126,084			-		(2,265	)		746,446
General and administrative expense		5,980		13,964			-		15,132			35,076
Depreciation and amortization		6,477		6,529			-		163			13,169
Operating income (loss)	$	27,755	$	(1,939	)	$	-	$	(13,030	)	$	12,786
Equity in net gain (loss) of investee	$	-	$	(960	)	$	430	$	-		$	(530	)

	Six months ended June 30, 2016
	NET Services		WD Services			Matrix Investment		Corporate and Other			Total
Service revenue, net	$	599,876	$	180,332		$	-	$	(54	)	$	780,154
Service expense		552,392		163,745			-		384			716,521
General and administrative expense		5,622		16,456			-		13,150			35,228
Depreciation and amortization		5,807		7,415			-		166			13,388
Operating income (loss)	$	36,055	$	(7,284	)	$	-	$	(13,754	)	$	15,017
Equity in net gain (loss) of investee	$	-	$	(4,176	)	$	-	$	-		$	(4,176	)

Geographic Information

 Domestic service revenue, net, totaled 83.1% and 78.0% of service revenue, net for the six months ended June 30, 2017 and 2016, respectively. Foreign service revenue, net, totaled 16.9% and 22.0% of service revenue, net for the six months ended June 30, 2017 and 2016, respectively.

At June 30, 2017 and December 31, 2016, $84,702, or 23.3%, and $76,579, or 20.4%, respectively, of the Company’s net assets were located in countries outside of the U.S.

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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 and six months ended June 30, 2017 and 2016, as well as our consolidated financial statements and accompanying notes and management’s discussion and analysis of financial condition and results of operations included in our Form 10-K for the year ended December 31, 2016. For purposes of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to Q2 2017 and Q2 2016 mean the three months ended June 30, 2017 and the three months ended March 31, 2016, respectively, and references to YTD 2017 and YTD 2016 mean the six months ended June 30, 2017 and the six months ended June 30, 2016, respectively.

Overview of our business

The Providence Service Corporation is a holding company which owns interests in subsidiaries and other companies that are primarily engaged in the provision of healthcare and workforce development services. The subsidiaries and other companies in which we hold interests comprise the following segments:

● Non-Emergency Transportation Services (“NET Services”) – Nationwide provider of non-emergency medical transportation programs for state governments and managed care organizations.

● Workforce Development Services (“WD Services”) – Global provider of employment preparation and placement and legal offender rehabilitation services to eligible participants of government sponsored programs.

● Matrix Investment – Minority interest in nationwide provider of in-home care optimization and management solutions, including comprehensive health assessments, to members of managed care organizations, accounted for as an equity method investment.

Business Outlook and Trends

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

● an aging population, which will increase demand for healthcare services;

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

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

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

● changes in UK government policy, such as decreased volumes in future welfare-to-work programs, specifically through the UK’s Work and Health Programme, which will have a reduced scope and reduced funding compared with the prior programs;

● the results of the referendum on the UK’s exit from the European Union and related political and economic uncertainty in the UK; and

● the U.S. federal government's expressed intent to repeal the Patient Protection and Affordable Care Act and replace such law with an alternative proposal. The details of both the extent of the provisions that may be repealed as well as the details of any potential replacement legislation are uncertain at this time. Enactment of adverse legislation, regulation or agency guidance, may eliminate or reduce the demand for our business, our ability to conduct some or all of our business and/or reimbursement rates for services performed within our segments.

Historically, our segments have grown through organic expansion into new markets and service lines, organic expansion within existing markets and service lines, increases in the number of members served under contracts we have been awarded, and the securing of new contracts and acquisitions. We continue to selectively identify and pursue the acquisition of attractive businesses that are complementary to our business strategies. In addition, as demonstrated in 2016 with the Matrix Transaction (as defined below) and in 2015 with the sale of our Human Services segment, we also may enter into strategic partnerships or dispose of current or future investments, based on a variety of factors, including availability of alternative opportunities to deploy capital, maximize shareholder value or other strategic considerations.

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Critical accounting estimates and policies

As of June 30, 2017, there has been no change in our critical accounting policies, other than for stock-based compensation and recoverability of goodwill, as discussed below. For further discussion of our critical accounting policies, see management’s discussion and analysis of financial condition and results of operations contained in our Form 10-K for the year ended December 31, 2016.

Stock-Based Compensation

Our primary forms of employee stock-based compensation are stock option awards and restricted stock awards, including certain awards which vest based upon performance conditions. We measure the value of stock option awards on the date of grant at fair value using the appropriate valuation techniques, including the Black-Scholes and Monte Carlo option-pricing models. We recognize the fair value as stock-based compensation expense on a straight-line basis over the requisite service period, which is typically the vesting period. The pricing models require various highly judgmental assumptions including volatility and expected option term. If any of the assumptions used in the models change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period.

As a result of the adoption of Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), effective January 1, 2017, we no longer record stock-based compensation expense net of estimated forfeitures and the tax effects of awards are treated as discrete items in the period in which tax windfalls or shortfalls occur. The adoption also impacted the presentation of cash flows and the computation of earnings per share.

The adoption of ASU 2016-09 will subject our tax rate to quarterly volatility from the effects of stock award exercises and vesting activities, including the adverse impact on our income tax provision for awards which result in a tax deduction less than the amount recorded for financial reporting purposes based upon the fair value of the award at the grant date. For example, no shares will be distributed under the Company’s 2015 Holding Company LTI Program (the “HoldCo LTIP”) unless the volume weighted average of Providence’s stock price over a 90-day period ending on December 31, 2017 exceeds $56.79. If this market condition is not satisfied, a significant tax shortfall will result, causing an adverse impact on our tax provision.

Recoverability of Goodwill

Goodwill. In accordance with ASC 350, Intangibles-Goodwill and Other, we review goodwill for impairment annually, or more frequently, if events and circumstances indicate that an asset may be impaired. Such circumstances could include, but are not limited to: (1) the loss or modification of significant contracts, (2) a significant adverse change in legal factors or in business climate, (3) unanticipated competition, (4) an adverse action or assessment by a regulator, or (5) a significant decline in the Company’s stock price. We perform the annual goodwill impairment test for all reporting units as of October 1.

First, we perform qualitative assessments for each reporting unit to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment suggests that it is more likely than not that the fair value of a reporting unit is less than its carrying value amount, we then perform a quantitative assessment and compare the fair value of the reporting unit to its carrying value.

We adopted ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”) effective April 1, 2017. ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test. Instead, if we deem it necessary to perform the quantitative goodwill impairment test in an annual or interim period, we recognize an impairment charge equal to the excess, if any, of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

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Results of operations

Segment reporting. Our operations are organized and reviewed by management along our segment lines. We operate in two principal business segments: NET Services and WD Services. Our investment in CCHN Group Holdings, Inc. and its subsidiaries (“Matrix”) is also a reportable segment referred to as the “Matrix Investment”.

On October 19, 2016, affiliates of Frazier Healthcare Partners purchased a 53.2% equity interest in Matrix, with Providence retaining a 46.8% equity interest (the “Matrix Transaction”), resulting in our ownership of a noncontrolling interest in our historical Health Assessment Services (“HA Services”) segment. The HA Services segment results of operations for the periods through October 19, 2016 are separately discussed in the “Discontinued operations, net of tax” section set forth below. The results of operations for periods subsequent to October 19, 2016 are separately discussed in the “Equity in net loss of investees” section set forth below. Additionally, effective November 1, 2015, we completed the sale of our Human Services segment. The Human Services segment results of operations are separately discussed in the “Discontinued operations, net of tax” section set forth below. Subsequent to the sale of our Human Services segment, we have incurred additional expenses in certain periods related to the settlement of indemnification claims and associated legal costs, which are recorded to “Discontinued operations, net of tax”.

Segment results are based on how our chief operating decision maker manages our business, makes operating decisions and evaluates operating performance. The operating results of the two principal business segments include revenue and expenses incurred by the segment, as well as an allocation of certain direct expenses incurred by our corporate division on behalf of the segment. Indirect expenses, including unallocated corporate functions and expenses, such as executive, finance, accounting, human resources, insurance administration, internal audit, process improvement, information technology and legal, as well as the results of our captive insurance company (the “Captive”) and elimination entries recorded in consolidation are reflected in “Corporate and Other”.

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Q2 2017 compared to Q2 2016

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 Q2 2017 and Q2 2016 (in thousands):

	Three months ended June 30,
	2017						2016
	$			Percentage of Revenue			$			Percentage of Revenue
Service revenue, net		407,983			100.0	%		398,119			100.0	%
Operating expenses:
Service expense		377,036			92.4	%		367,846			92.4	%
General and administrative expense		18,048			4.4	%		16,711			4.2	%
Depreciation and amortization		6,900			1.7	%		6,849			1.7	%
Total operating expenses		401,984			98.5	%		391,406			98.3	%
Operating income		5,999			1.5	%		6,713			1.7	%
Non-operating expense:
Interest expense, net		329			0.1	%		407			0.1	%
Equity in net (gain) loss of investees		(1,530	)		-0.4	%		1,459			0.4	%
Loss (gain) on foreign currency transactions		463			0.1	%		(775	)		-0.2	%
Income from continuing operations before income taxes		6,737			1.7	%		5,622			1.4	%
Provision for income taxes		2,879			0.7	%		3,997			1.0	%
Income from continuing operations, net of tax		3,858			0.9	%		1,625			0.4	%
Discontinued operations, net of tax		(117	)		0.0	%		2,370			0.6	%
Net income		3,741			0.9	%		3,995			1.0	%
Net loss attributable to noncontrolling interest		174			0.0	%		628			0.2	%
Net income attributable to Providence		3,915			1.0	%		4,623			1.2	%

Service revenue, net. Consolidated service revenue, net for Q2 2017 increased $9.9 million, or 2.5%, compared to Q2 2016. Revenue for Q2 2017 compared to Q2 2016 included an increase in revenue attributable to NET Services of $29.9 million. This increase in revenue was partially offset by a decrease in revenue attributable to WD Services of $20.1 million. Excluding the effects of changes in currency exchange rates, consolidated service revenue increased 3.8% for Q2 2017 compared to Q2 2016.

Total operating expenses. Consolidated operating expenses for Q2 2017 increased $10.6 million, or 2.7%, compared to Q2 2016. Operating expenses for Q2 2017 compared to Q2 2016 included an increase in expenses attributable to NET Services of $31.7 million and an increase in expenses attributable to Corporate and Other of $0.1 million. This increase in operating expenses was partially offset by a decrease in operating expenses attributable to WD Services of $21.2 million.

Operating income. Consolidated operating income for Q2 2017 decreased $0.7 million, or 10.6%, compared to Q2 2016. The decrease was primarily attributable to a decrease in operating income in Q2 2017 as compared to Q2 2016 at NET Services of $1.8 million. This decrease in operating income was partially offset by a decrease in WD Services operating loss of $1.1 million.

Interest expense, net. Consolidated interest expense, net for Q2 2017 decreased $0.1 million, or 19.2%, compared to Q2 2016.

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Equity in net (gain) loss of investees. Equity in net (gain) loss of investees primarily relates to our investments in Mission Providence and Matrix. Mission Providence, which is part of WD Services, began providing services in July 2015. We record 75% of Mission Providence’s profit or loss in equity in net (gain) loss of investees. We began reporting Matrix as an equity investment effective October 19, 2016, upon the completion of the Matrix Transaction, and record 46.8% of Matrix’s profit or loss in net (gain) loss of investees. Our equity in net gain of investees for Q2 2017 of $1.5 million primarily related to Mission Providence and Matrix of $0.4 million and $1.1 million, respectively. Included in Mission Providence’s results are restructuring and redundancy costs of $0.3 million and depreciation and amortization of $1.0 million. Included in Matrix’s results are transaction bonuses and other transaction related costs of $0.5 million, equity compensation of $0.6 million, management fees paid to Matrix’s shareholders of $0.7 million, depreciation and amortization of $8.1 million, interest expense of $3.7 million and tax expense of $0.7 million.

Loss (gain) on foreign currency transactions. The foreign currency loss of $0.5 million and foreign currency gain of $0.8 million for Q2 2017 and Q2 2016, respectively, were primarily due to translation adjustments of our foreign subsidiaries.

Provision for income taxes. Our effective tax rate from continuing operations for Q2 2017 and Q2 2016 was 42.7% and 71.1%, respectively. The effective tax rate exceeded the U.S. federal statutory rate of 35% for these periods primarily due to foreign net operating losses (including equity investment losses) for which the future income tax benefit currently cannot be recognized, losses in foreign jurisdictions with tax rates lower than the U.S. rate of 35%, state income taxes, and certain non-deductible expenses. Foreign net operating losses for which no tax benefit can be provided were higher in Q2 2016 versus Q2 2017 resulting in a decrease in the effective tax rate from Q2 2016 to Q2 2017. Q2 2017 also included tax deficiencies of $0.1 million related to stock-based compensation, as an increase to the provision for income taxes as a result of applying the guidance in ASU 2016-09. The adoption of ASU 2016-09 will subject our tax rate to quarterly volatility from the effects of stock award exercises and vesting activities, including the adverse impact on our income tax provision for awards which result in a tax deduction less than the amount recorded for financial reporting purposes based upon fair value of the award at the grant date.

Discontinued operations, net of tax. Discontinued operations, net of tax, includes the activity of our former Human Services segment and our former HA Services segment, composed entirely of our 100% equity interest in Matrix until the completion of the Matrix Transaction on October 19, 2016. For Q2 2017, discontinued operations, net of tax for our Human Services segment was a loss of $0.1 million. For Q2 2016, discontinued operations, net of tax for our HA Services segment was net income of $2.4 million. See Note 13, Discontinued Operations, to our condensed consolidated financial statements for additional information.

Net loss attributable to noncontrolling interests. Net loss attributable to noncontrolling interests primarily relates to a minority interest held by a third-party operating partner in our company servicing the offender rehabilitation contract in our WD Services segment.

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YTD 2017 compared to YTD 2016

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 YTD 2017 and YTD 2016 (in thousands):

	Six months ended June 30,
	2017						2016
	$			Percentage of Revenue			$			Percentage of Revenue
Service revenue, net		807,477			100.0	%	$	780,154			100.0	%
Operating expenses:
Service expense		746,446			92.4	%		716,521			91.8	%
General and administrative expense		35,076			4.3	%		35,228			4.5	%
Depreciation and amortization		13,169			1.6	%		13,388			1.7	%
Total operating expenses		794,691			98.4	%		765,137			98.1	%
Operating income		12,786			1.6	%		15,017			1.9	%
Non-operating expense:
Interest expense, net		681			0.1	%		902			0.1	%
Equity in net loss of investees		530			0.1	%		4,176			0.5	%
Loss (gain) on foreign currency transactions		400			0.0	%		(850	)		-0.1	%
Income from continuing operations before income taxes		11,175			1.4	%		10,789			1.4	%
Provision for income taxes		5,402			0.7	%		7,789			1.0	%
Income from continuing operations, net of tax		5,773			0.7	%		3,000			0.4	%
Discontinued operations, net of tax		(5,984	)		-0.7	%		3,123			0.4	%
Net (loss) income		(211	)		0.0	%		6,123			0.8	%
Net (income) loss attributable to noncontrolling interest		(200	)		0.0	%		735			0.1	%
Net (loss) income attributable to Providence		(411	)		-0.1	%	$	6,858			0.9	%

Service revenue, net. Consolidated service revenue, net for YTD 2017 increased $27.3 million, or 3.5%, compared to YTD 2016. Revenue for YTD 2017 compared to YTD 2016 included an increase in revenue attributable to NET Services of $63.0 million. This increase in revenue was partially offset by a decrease in revenue attributable to WD Services of $35.7 million. Excluding the effects of changes in currency exchange rates, consolidated service revenue increased 5.1% for YTD 2017 compared to YTD 2016.

Total operating expenses. Consolidated operating expenses for YTD 2017 increased $29.6 million, or 3.9%, compared to YTD 2016. Operating expenses for YTD 2017 compared to YTD 2016 included an increase in expenses attributable to NET Services of $71.3 million. This increase in operating expenses was partially offset by a decrease in operating expenses attributable to WD Services of $41.0 million and a decrease in operating expenses attributable to Corporate and Other of $0.7 million.

Operating income. Consolidated operating income for YTD 2017 decreased $2.2 million, or 14.9%, compared to YTD 2016. The decrease was primarily attributable to a decrease in operating income in attributable to NET Services of $8.3 million as compared to YTD 2016. This decrease in operating income was partially offset by a decrease in WD Services operating loss of $5.3 million and a decrease in Corporate and Other operating loss of $0.8 million.

Interest expense, net. Consolidated interest expense, net for YTD 2017 decreased $0.2 million, or 24.5%, compared to YTD 2016.

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Equity in net loss of investees. Our equity in net loss of investees for YTD 2017 of $0.5 million includes an equity in net loss for Mission Providence of $1.0 million, partially offset by equity in net gain of Matrix of $0.4 million. Included in Mission Providence’s results are restructuring and redundancy costs of $1.3 million and depreciation and amortization of $2.0 million. Included in Matrix’s results are transaction bonuses and other transaction related costs of $3.5 million, equity compensation of $1.3 million, management fees paid to Matrix’s shareholders of $1.2 million, depreciation and amortization of $16.2 million, interest expense of $7.3 million and income tax benefit of $0.1 million.

Loss (gain) on foreign currency transactions. The foreign currency loss of $0.4 million and foreign currency gain of $0.9 million for YTD 2017 and YTD 2016, respectively, were primarily due to translation adjustments of our foreign subsidiaries.

Provision for income taxes. Our effective tax rates from continuing operations for YTD 2017 and YTD 2016 was 48.3% and 72.2%, respectively. The effective tax rate exceeded the U.S. federal statutory rate of 35% for these periods primarily due to foreign net operating losses (including equity investment losses) for which the future income tax benefit currently cannot be recognized, losses in foreign jurisdictions with tax rates lower than the U.S. rate of 35%, state income taxes, and certain non-deductible expenses. Foreign net operating losses for which no tax benefit can be provided were higher in YTD 2016 versus YTD 2017 resulting in a decrease in the effective tax rate from YTD 2016 to YTD 2017. YTD 2017 also included excess tax benefits of $0.1 million which reduced the provision for income taxes as a result of applying the guidance in ASU 2016-09.

Discontinued operations, net of tax. Discontinued operations, net of tax, includes the activity of our former Human Services segment and our former HA Services segment, composed entirely of our 100% equity interest in Matrix until the completion of the Matrix Transaction on October 19, 2016. For YTD 2017, discontinued operations, net of tax for our Human Services segment was a loss of $6.0 million, which primarily related to the accrual of a contingent liability of $9.0 million related to the settlement of indemnification claims and associated legal costs of $0.6 million, partially offset by a related tax benefit. For YTD 2016, discontinued operations, net of tax for our HA Services segment was net income of $3.1 million. See Note 13, Discontinued Operations, to our condensed consolidated financial statements for additional information.

Net (income) loss attributable to noncontrolling interests. Net (income) loss attributable to noncontrolling interests primarily relates to a minority interest held by a third-party operating partner in our company servicing the offender rehabilitation contract in our WD Services segment.

Segment Results. The following analysis includes discussion of each of our segments.

NET Services

NET Services segment financial results are as follows for Q2 2017 and Q2 2016 (in thousands):

	Three Months Ended June 30,
	2017					2016
	$		Percentage of Revenue			$		Percentage of Revenue
Service revenue, net		338,805		100.0	%		308,915		100.0	%
Service expense		316,435		93.4	%		285,446		92.4	%
General and administrative expense		3,089		0.9	%		2,785		0.9	%
Depreciation and amortization		3,326		1.0	%		2,931		0.9	%
Operating income		15,955		4.7	%		17,753		5.7	%

Service revenue, net. Service revenue, net for NET Services for Q2 2017 increased $29.9 million, or 9.7%, compared to Q2 2016.  The increase was primarily related to net increased revenue from existing contracts of $27.6 million, due to the net impact of membership and rate changes, including a rate adjustment related to increased utilization activity under a significant contract, in addition to the impact of new contracts which contributed $23.8 million of revenue for Q2 2017, including new managed care organization contracts in California, Florida and New York. These increases were partially offset by the impact of contracts we no longer serve, including a contract with the state of New York, which resulted in a decrease in revenue of $21.5 million.   

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Service expense, net. Service expense for our NET Services segment included the following for Q2 2017 and Q2 2016 (in thousands):

	Three Months Ended June 30,
	2017					2016
	$		Percentage of Revenue			$		Percentage of Revenue
Purchased services		263,563		77.8	%		235,745		76.3	%
Payroll and related costs		39,648		11.7	%		39,702		12.9	%
Other operating expenses		13,092		3.9	%		9,926		3.2	%
Stock-based compensation		132		0.0	%		73		0.0	%
Total service expense		316,435		93.4	%		285,446		92.4	%

Service expense for Q2 2017 increased $31.0 million, or 10.9%, compared to Q2 2016. The increase in service expense was primarily attributable to the impact of the new managed care organization contracts in California, Florida and New York. Purchased services as a percentage of revenue increased from 76.3% in Q2 2016 to 77.8% in Q2 2017 primarily attributable to an increase in utilization across multiple contracts and contract start-up costs in California and Florida. The higher utilization was in part driven by increased Medicaid reimbursement in New Jersey for certain medical services, which in turn increased demand for transportation services.

As a percentage of revenue, payroll and related costs decreased from 12.9% in Q2 2016 to 11.7% in Q2 2017 due to efficiencies gained from process improvement initiatives and a decrease in incentive compensation, including the impact of establishing the final amounts for a historical NET Services’ long-term incentive plan as well as plan participation rates, which resulted in a decrease in expense of $1.4 million as compared to Q2 2016. Other operating expenses increased for Q2 2017 as compared to Q2 2016 primarily attributable to $1.4 million of value enhancement and related costs incurred for external resources used in the design and implementation of NET Services member experience and value enhancement initiatives.

General and administrative expense. General and administrative expense in Q2 2017 increased $0.3 million, or 10.9%, as compared to Q2 2016, due to increased facility costs resulting from the overall growth of our operations. As a percentage of revenue, general and administrative expense remained constant at 0.9%.

Depreciation and amortization. Depreciation and amortization increased $0.4 million primarily due to the addition of long-lived assets relating to information technology projects. As a percentage of revenue, depreciation and amortization increased slightly from 0.9% for Q2 2016 to 1.0% for Q2 2017.

NET Services segment financial results are as follows for YTD 2017 and YTD 2016 (in thousands):

	Six Months Ended June 30,
	2017					2016
	$		Percentage of Revenue			$		Percentage of Revenue
Service revenue, net		662,839		100.0	%		599,876		100.0	%
Service expense		622,627		93.9	%		552,392		92.1	%
General and administrative expense		5,980		0.9	%		5,622		0.9	%
Depreciation and amortization		6,477		1.0	%		5,807		1.0	%
Operating income		27,755		4.2	%		36,055		6.0	%

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Service revenue, net. Service revenue, net for NET Services for YTD 2017 increased $63.0 million, or 10.5%, compared to YTD 2016.  The increase was primarily related to net increased revenue from the impact of new contracts which contributed $52.5 million of revenue for YTD 2017, including new managed care organization contracts in California, Florida and New York, in addition to an increase in revenue from existing contracts totaling $47.2 million due to the net impact of membership and rate changes, including a rate adjustment related to increased utilization activity under a significant contract. These increases were partially offset by the impact of contracts we no longer serve, including a contract with the state of New York, which resulted in a decrease in revenue of $36.7 million.  

Service expense, net. Service expense for our NET Services segment included the following for YTD 2017 and YTD 2016 (in thousands):

	Six Months Ended June 30,
	2017					2016
	$		Percentage of Revenue			$		Percentage of Revenue
Purchased services		516,020		77.8	%		453,050		75.5	%
Payroll and related costs		82,031		12.4	%		80,285		13.4	%
Other operating expenses		24,286		3.7	%		18,902		3.2	%
Stock-based compensation		290		0.0	%		155		0.0	%
Total service expense		622,627		93.9	%		552,392		92.1	%

Service expense for YTD 2017 increased $70.2 million, or 12.7%, compared to YTD 2016. The increase in service expense was primarily attributable to the impact of new managed care organization contracts in California, Florida and New York. Purchased services as a percentage of revenue increased from 75.5% in YTD 2016 to 77.8% in YTD 2017 primarily attributable to an increase in utilization across multiple contracts and contract start-up costs in California and Florida. The higher utilization was in part driven by increased Medicaid reimbursement in New Jersey for certain medical services, which in turn increased demand for transportation services, as well as lower cancellation rates across multiple contracts, which we believe was primarily due to milder winter weather conditions during the first quarter of 2017.

As a percentage of revenue, payroll and related costs decreased from 13.4% in YTD 2016 to 12.4% in YTD 2017 due to efficiencies gained from process improvement initiatives and a decrease in incentive compensation including the impact of establishing the final amounts for a NET Services’ long-term incentive plan. Other operating expenses increased for YTD 2017 as compared to YTD 2016 primarily attributable to $2.7 million of value enhancement and related costs incurred for external resources used in the design and implementation of NET Services member experience and value enhancement initiatives.

General and administrative expense. General and administrative expense in YTD 2017 increased $0.4 million, or 6.4%, as compared to YTD 2016, due to increased facility costs resulting from the overall growth of our operations. As a percentage of revenue, general and administrative expense remained constant at 0.9%.

Depreciation and amortization. Depreciation and amortization increased $0.7 million primarily due to the addition of long-lived assets relating to information technology projects. As a percentage of revenue, depreciation and amortization remained constant at 1.0%.

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WD Services

WD Services segment financial results are as follows for Q2 2017 and Q2 2016 (in thousands):

	Three Months Ended June 30,
	2017						2016
	$			Percentage of Revenue			$			Percentage of Revenue
Service revenue, net		69,178			100.0	%		89,289			100.0	%
Service expense		62,882			90.9	%		82,073			91.9	%
General and administrative expense		6,919			10.0	%		8,585			9.6	%
Depreciation and amortization		3,489			5.0	%		3,836			4.3	%
Operating loss		(4,112	)		-5.9	%		(5,205	)		-5.8	%

Service revenue, net. Service revenue, net for Q2 2017 decreased $20.1 million, or 22.5%, compared to Q2 2016. Excluding the effects of changes in currency exchange rates, service revenue decreased 16.7% in Q2 2017 compared to Q2 2016. This decrease was primarily related to the anticipated ending of referrals under the segment’s primary employability program in the UK, partially offset by increases across various employability contracts outside the UK, including Saudi Arabia, France and Germany.

Service expense. Service expense for our WD Services segment included the following for Q2 2017 and Q2 2016 (in thousands):

	Three Months Ended June 30,
	2017					2016
	$		Percentage of Revenue			$			Percentage of Revenue
Payroll and related costs		43,992		63.6	%		57,808			64.7	%
Purchased services		9,215		13.3	%		12,713			14.2	%
Other operating expenses		9,661		14.0	%		11,559			12.9	%
Stock-based compensation		14		0.0	%		(7	)		0.0	%
Total service expense		62,882		90.9	%		82,073			91.9	%

Service expense in Q2 2017 decreased $19.2 million, or 23.4%, compared to Q2 2016. Payroll and related costs decreased primarily as a result of the ending of referrals under the segment’s primary employability program in the UK as well as multiple redundancy plans across the WD Services operations that have begun to better align headcount with service delivery volumes, resulting in a decrease of payroll and related costs as a percentage of revenue. Payroll and related costs include $0.3 million and $3.4 million in Q2 2017 and Q2 2016, respectively, of termination benefits related to multiple redundancy plans. Purchased services decreased in Q2 2017 compared to Q2 2016 primarily as a result of the ending of client referrals under our primary employability program in the UK, which resulted in a decline in the use of outsourced services.

General and administrative expense. General and administrative expense in Q2 2017 decreased $1.7 million compared to Q2 2016 due to office closures associated with restructuring of the UK operations, as well as lower rent for certain offices associated with the offender rehabilitation program.

Depreciation and amortization. Depreciation and amortization for Q2 2017 decreased $0.3 million compared to Q2 2016, primarily due to the asset impairment charges incurred during the fourth quarter of 2016, which decreased the value of our intangible assets and certain property and equipment.

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WD Services segment financial results are as follows for YTD 2017 and YTD 2016 (in thousands):

	Six Months Ended June 30,
	2017						2016
	$			Percentage of Revenue			$			Percentage of Revenue
Service revenue, net		144,638			100.0	%		180,332			100.0	%
Service expense		126,084			87.2	%		163,745			90.8	%
General and administrative expense		13,964			9.7	%		16,456			9.1	%
Depreciation and amortization		6,529			4.5	%		7,415			4.1	%
Operating loss		(1,939	)		-1.3	%		(7,284	)		-4.0	%

Service revenue, net. Service revenue, net for YTD 2017 decreased $35.7 million, or 19.8%, compared to YTD 2016. Excluding the effects of changes in currency exchange rates, service revenue decreased 12.9% in YTD 2017 compared to YTD 2016. This decrease was primarily related to the anticipated decline of referrals under the segment’s primary employability program in the UK, partially offset by increases across various employability contracts outside the UK, including Saudi Arabia, France and Germany. YTD 2017 includes the impact of $5.2 million of revenue recognized under the offender rehabilitation program related to the finalization of a contractual adjustment for the contract year ended March 31, 2017.

Service expense. Service expense for our WD Services segment included the following for YTD 2017 and YTD 2016 (in thousands):

	Six Months Ended June 30,
	2017					2016
	$		Percentage of Revenue			$		Percentage of Revenue
Payroll and related costs		88,963		61.5	%		114,687		63.6	%
Purchased services		18,004		12.4	%		27,206		15.1	%
Other operating expenses		19,089		13.2	%		21,827		12.1	%
Stock-based compensation		28		0.0	%		25		0.0	%
Total service expense		126,084		87.2	%		163,745		90.8	%

Service expense in YTD 2017 decreased $37.7 million, or 23.0%, compared to YTD 2016. Payroll and related costs decreased primarily as a result of declining referrals under the segment’s primary employability program in the UK as well as multiple redundancy plans that have begun to better align headcount with service delivery volumes resulting in a decrease of payroll and related costs as a percentage of revenue. Payroll and related costs include $0.9 million and $4.6 million in YTD 2017 and YTD 2016, respectively, of termination benefits related to redundancy plans as well as $0.2 million in YTD 2017 for the termination of an executive of one of the operations. Purchased services decreased in YTD 2017 compared to YTD 2016 primarily as a result of a decline in client referrals under our primary employability program in the UK, which resulted in a decline in the use of outsourced services.

General and administrative expense. General and administrative expense in YTD 2017 decreased $2.5 million compared to YTD 2016 due to office closures associated with restructuring of the UK operations, as well as lower rent for certain offices associated with the offender rehabilitation program.

Depreciation and amortization. Depreciation and amortization for YTD 2017 decreased $0.9 million compared to YTD 2016, primarily due to the asset impairment charges incurred during the fourth quarter of 2016, which decreased the value of our intangible assets and certain property and equipment.

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Corporate and Other

Corporate and Other includes the headcount and professional service costs incurred at the holding company level, at the Captive, and elimination entries to account for inter-segment transactions. Corporate and Other financial results are as follows for Q2 2017 and Q2 2016 (in thousands):

	Three Months Ended June 30,
	2017			2016
	$			$
Service revenue, net		-			(85	)
Service expense		(2,281	)		327
General and administrative expense		8,040			5,341
Depreciation and amortization		85			82
Operating loss		(5,844	)		(5,835	)

Operating loss. Corporate and Other operating loss in Q2 2017 increased slightly as compared to Q2 2016. This increase was primarily related to a $1.4 million increase in cash settled stock-based compensation expense as a result of the increase in the Company’s stock price during Q2 2017 as compared to a decline in the Company’s stock price during Q2 2016 along with an increase of $1.1 million of legal and consulting costs. This increase was partially offset by a reduction in insurance loss reserves in Q2 2017 due to favorable claims history of our Captive reinsurance programs, which is included in “Service expense”.

General and administrative expense includes stock-based compensation for the HoldCo LTIP of $1.0 million and $0.8 million for Q2 2017 and Q2 2016, respectively. No shares will be distributed under the HoldCo LTIP unless the volume weighted average of Providence’s stock price over a 90-day period ending on December 31, 2017 exceeds $56.79.

Corporate and Other financial results are as follows for YTD 2017 and YTD 2016 (in thousands):

	Six Months Ended June 30,
	2017			2016
	$			$
Service revenue, net		-			(54	)
Service expense		(2,265	)		384
General and administrative expense		15,132			13,150
Depreciation and amortization		163			166
Operating loss		(13,030	)		(13,754	)

Operating loss. Corporate and Other operating loss in YTD 2017 decreased by $0.7 million, or 5.3%, as compared to YTD 2016. This decrease was primarily related to a reduction in insurance loss reserves in 2017 due to favorable claims history of our Captive reinsurance programs, which is included in “Service expense” as well as decreased accounting and professional fees included in “General and administrative expense”. This decrease was partially offset by an increase in cash settled stock-based compensation expense of $1.3 million, primarily as a result of an increase in the Company’s stock price in YTD 2017 as compared to a decline in the Company’s stock price in YTD 2016, an increase in stock settled stock-based compensation expense of $1.1 million, primarily related to an increase in expense for the HoldCo LTIP and a benefit recorded in YTD 2016 for performance based units, with no corresponding benefit in YTD 2017, as well as an increase of $1.1 million of legal and consulting costs.

General and administrative expense includes stock-based compensation for the HoldCo LTIP of $2.1 million and $1.5 million for YTD 2017 and YTD 2016, respectively. No shares will be distributed under the HoldCo LTIP unless the volume weighted average of Providence’s stock price over a 90-day period ending on December 31, 2017 exceeds $56.79.

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Seasonality

Our quarterly operating results and operating cash flows normally fluctuate due in part to seasonal factors, uneven demand for services and the timing of new contracts, which impact the amount of revenues earned and expenses incurred. NET Services experiences fluctuations in demand during the summer and winter seasons. Due to historically higher demand in the summer months, lower demand during the winter, and a primarily fixed revenue stream based on a per-member, per-month payment structure, NET Services normally experiences lower operating margins during the summer season and higher operating margins during the winter. WD Services is impacted by both the timing of commencement and expiration of major contracts. Under many of WD Services’ contracts, we invest significant sums of money in personnel, leased office space, purchased or developed technology, and other costs, and generally incur these costs prior to commencing services and receiving payments. This results in significant variability in financial performance and cash flows between quarters and for comparative periods. It is expected that future contracts will be structured in a similar fashion. In addition, under the majority of WD Services’ contracts, the Company relies on its customers, which include government agencies, to provide referrals, for whom the Company can provide services and earn revenue. The timing and magnitude of referrals can fluctuate significantly, leading to volatility in revenue.

Liquidity and capital resources

Short-term capital requirements consist primarily of recurring operating expenses and new contract start-up costs, including workforce restructuring costs. We expect to meet any cash requirements through available cash on hand, cash generated from our operating segments, and borrowing capacity under our Credit Facility (as defined below).

Cash flow from operating activities was our primary source of cash during YTD 2017. Our balance of cash and cash equivalents was $56.6 million and $72.3 million at June 30, 2017 and December 31, 2016, respectively, including $18.1 million and $21.4 million held in foreign countries, respectively. Such cash held in foreign countries is generally used to fund foreign operations, although it may also be used to repay intercompany indebtedness existing between Providence and its foreign subsidiaries.

We had restricted cash of $7.9 million and $14.1 million at June 30, 2017 and December 31, 2016, respectively, primarily related to contractual obligations and activities of our captive insurance subsidiary. At June 30, 2017 and December 31, 2016, we had no amounts outstanding under our Credit Facility.

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

The cash flow statement for all periods presented includes both continuing and discontinued operations.

Cash flows

         Operating activities. We generated net cash flows from operating activities of $9.3 million for YTD 2017. These cash flows included a net loss of $0.2 million, including $5.8 million of net income related to continuing operations and $6.0 million of net loss related to discontinued operations. Non-cash items included $9.2 million of depreciation expense, $3.9 million of amortization expense, $3.0 million in stock-based compensation expense, and $0.5 million in equity in net loss of investees. Changes in working capital include the following significant items:

● $11.5 million source of cash due to the increase in accrued transportation costs of NET Services. This increase was primarily related to increased utilization of transportation services.

● $8.9 million use of cash due to the increase in accounts receivable attributable to an increase in NET Services’ accounts receivable of $4.2 million and an increase in WD Services’ accounts receivable of $4.8 million. These fluctuations primarily resulted from the timing of payments from a limited number of significant payers within each segment.

● $9.0 million increase in the accrual of a contingent liability in the first quarter of 2017 related to the settlement of indemnification claims.

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Investing activities. Net cash used in investing activities totaled $4.8 million for YTD 2017. During the period, $10.7 million of cash was used to purchase property and equipment primarily related to information technology purchases to support the growth of our operating segments. The Company also loaned $0.6 million to Mission Providence, one of the Company’s equity method investees, in YTD 2017. These cash outflows were partially offset by a decrease in the restricted cash of the Captive of $6.2 million due to the release of collateral for irrevocable standby letters of credit to secure reinsured claims losses, a decrease in the amount of cash required to be held in trust for reinsurance claim payments, and the payment of claims from the restricted cash account.

Financing activities. Net cash used in financing activities totaled $20.8 million for YTD 2017. During the period, cash paid for common stock repurchases pursuant to our $100.0 million stock repurchase program totaled $18.0 million and we paid convertible preferred stock dividends of $2.2 million.

Obligations and commitments

Credit facility. We are party to the amended and restated credit and guaranty agreement, dated as of August 2, 2013 (as amended, the “Credit Agreement”), with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, and the other lenders party thereto. The Credit Agreement provides us with a $200.0 million revolving credit facility (the “Credit Facility”), including a subfacility of $25.0 million for letters of credit. As of June 30, 2017, we had no borrowings and seven letters of credit in the amount of $11.0 million outstanding under the revolving credit facility. At June 30, 2017, our available credit under the revolving credit facility was $189.0 million. Under the Credit Agreement, the Company has an option to request an increase in the amount of the revolving credit facility from time to time (on substantially the same terms as apply to the existing facilities) in an aggregate amount of up to $75.0 million with either additional commitments from lenders under the Credit Agreement at such time or new commitments from financial institutions acceptable to the administrative agent in its reasonable discretion, so long as no default or event of default exists at the time of any such increase. The Company may not be able to access additional funds under this increase option as no lender is obligated to participate in any such increase under the Credit Facility. The Credit Facility matures on August 2, 2018.

Interest on the outstanding principal amount of the loans accrues, at the Company’s election, at a per annum rate equal to LIBOR, plus an applicable margin, or the base rate as defined in the agreement plus an applicable margin. The applicable margin ranges from 2.25% to 3.25% 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 the Company’s consolidated leverage ratio as defined in the Credit Agreement. Interest on the loans is payable quarterly in arrears. In addition, the Company is obligated to pay a quarterly commitment fee based on a percentage of the unused portion of each lender’s commitment under the Credit Facility and quarterly letter of credit fees based on a percentage of the maximum amount available to be drawn under each outstanding letter of credit. The commitment fee and letter of credit fee range from 0.25% to 0.50% and 2.25% to 3.25%, respectively, in each case, based on the Company’s consolidated leverage ratio.

The Company’s obligations under the Credit Facility are guaranteed by all of the Company’s present and future domestic subsidiaries, excluding certain domestic subsidiaries which include the Company’s insurance captives. The Company’s 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 the Company’s respective assets, including a pledge of 100% of the issued and outstanding stock of the Company’s domestic subsidiaries, excluding the Company’s insurance captives, and 65% of the issued and outstanding stock of the Company’s first tier foreign subsidiaries.

The Credit Agreement contains customary affirmative and negative covenants and events of default. The negative covenants include restrictions on the Company’s ability to, among other things, incur additional indebtedness, create liens, make investments, give guarantees, pay dividends, sell assets, and merge and consolidate. The Company is subject to financial covenants, including consolidated net leverage and consolidated interest coverage covenants. The Company was in compliance with all covenants as of June 30, 2017.

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Preferred Stock. Following (i) the completion of a rights offering in February 2015, under which certain holders of our Common Stock exercised subscription rights to purchase Preferred Stock, and (ii) the purchase of Preferred Stock by certain of 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”), pursuant to the Standby Purchase Agreement between the Standby Purchasers and the Company, the Company issued 805,000 shares of Preferred Stock, of which 803,398 shares are outstanding as of June 30, 2017. For further information regarding these transactions, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and capital resources – Obligations and commitments – Rights Offering” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. We may pay a noncumulative cash dividend on each share of Preferred Stock, when, as and if declared by a committee of our Board of Directors (“Board”), at the rate of 5.5% per annum on the liquidation preference then in effect. On or before the third business day immediately preceding each fiscal quarter, we determine our intention whether or not to pay a cash dividend with respect to that ensuing quarter and give notice of our intention to each holder of Preferred Stock as soon as practicable thereafter.

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

Cash dividends are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, and, if declared, will begin to accrue on the first day of the applicable dividend period. Paid in kind (“PIK”) dividends, if applicable, will accrue and be cumulative on the same schedule as set forth above for cash dividends and will also be compounded at the applicable annual rate on each applicable subsequent dividend date. PIK dividends are paid upon the occurrence of a liquidation event, conversion or redemption in accordance with the terms of the Preferred Stock. Cash dividends were declared for the six months ended June 30, 2017 and totaled $2.2 million.

 Reinsurance and Self-Funded Insurance Programs

Reinsurance

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

At June 30, 2017, the cumulative reserve for expected losses since inception of these historical automobile, general and professional liability and workers’ compensation reinsurance programs was $2.0 million, $0.9 million and $5.9 million, respectively. Based on an independent actuarial report, our expected losses related to workers’ compensation, automobile and general and professional liability in excess of our liability under our associated historical reinsurance programs at June 30, 2017 was $6.1 million. We recorded a corresponding receivable from third-party insurers and liability at June 30, 2017 for these expected losses, which would be paid by third-party insurers to the extent losses are incurred.

Further, SPCIC had restricted cash of $7.6 million and $13.8 million at June 30, 2017 and December 31, 2016, respectively, which was restricted to secure the reinsured claims losses of SPCIC under the historical automobile, general and professional liability and workers’ compensation reinsurance programs.

Health Insurance

We offer our NET Services’, certain WD Services’ and corporate employees an option to participate in a self-funded health insurance program. The liability for the self-funded health plan of $2.0 million and $3.0 million as of June 30, 2017 and December 31, 2016, respectively, was recorded in “Reinsurance liability and related reserve” in our condensed consolidated balance sheets.

Off-Balance Sheet Arrangements

There have been no material changes to the Off-Balance Sheet Arrangements discussion previously disclosed in our audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

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Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain statements that may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements related to the Company’s strategies or expectations about revenues, liabilities, results of operations, cash flows, ability to fund operations, profitability, ability to meet financial covenants, contracts or market opportunities. The Company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission (the “SEC”), in materials delivered to stockholders and in press releases. In addition, the Company’s representatives may from time to time make oral forward-looking statements. In certain cases, you may identify forward looking-statements by words such as “may”, “will”, “should”, “could”, “expect”, “plan”, “project”, “intend”, “anticipate”, “believe”, “seek”, “estimate”, “predict”, “potential”, “target”, “forecast”, “likely”, the negative of such terms or comparable terminology. In addition, statements that are not historical statements of fact should also be considered forward-looking statements. These forward-looking statements are based on the Company’s current expectations, assumptions, estimates and projections about its business and industry, and involve risks, uncertainties and other factors that may cause actual events to be materially different from those expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the risks disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016 and our other filings with the SEC.

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

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

Foreign currency risk

As of June 30, 2017, we conducted business in ten countries outside the U.S. As a result, our cash flows and earnings are subject to fluctuations due to changes in foreign currency exchange rates. We do not currently hedge against the possible impact of currency fluctuations. During YTD 2017 we generated $136.8 million of our net operating revenues from operations outside the U.S. As we expand further into international markets, we expect the risk from foreign currency exchange rates to increase.

A 10% adverse change in the foreign currency exchange rate from British Pounds to U.S. dollars would have a $8.7 million negative impact on consolidated revenue and a $2.3 million negative impact on net income. A 10% adverse change in other foreign currency exchange rates would not have a significant impact on our financial results.

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

Item 4.    Controls and Procedures.

(a) Evaluation of disclosure controls and procedures

The Company, under the supervision and with the participation of its management (including its principal executive officer and principal financial officer), evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act as of June 30, 2017. Based upon this evaluation, the Company’s principal executive and financial officers have concluded that such disclosure controls and procedures were effective to provide reasonable assurance that (i) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal controls

The principal executive and financial officers also conducted an evaluation of whether any changes in the Company’s internal control over financial reporting occurred during the quarter ended June 30, 2017 that have materially affected or which are reasonably likely to materially affect such control. Such officers have concluded that no such changes have occurred.

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(c) Limitations on the effectiveness of controls

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

PART II—OTHER INFORMATION

Item 1.    Legal Proceedings.

On June 15, 2015, a putative stockholder class action derivative complaint was filed in the Court of Chancery of the State of Delaware (the “Court”), captioned Haverhill Retirement System v. Kerley et al., C.A. No. 11149-VCL. For further information on this legal proceeding, please see Item 3, Legal Proceedings, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, and Part II, Item 1, Legal Proceedings, in the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2017.

On January 20, 2017, the special litigation committee created by the Company’s Board of Directors advised the Court that the parties to the litigation and the special litigation committee had reached an agreement in principle to settle all of the claims in the litigation. The parties have entered into a proposed settlement agreement which has been submitted to the Court for approval. The proposed settlement agreement provides for a settlement amount of $10,000 less plaintiff’s legal fees and expenses (the “Settlement Amount”), with 75% of the Settlement Amount less plaintiff’s legal fees and expenses to be paid to the Company and 25% of the Settlement Amount to be paid to holders of the Company’s common stock. A court hearing to consider the proposed settlement has been scheduled for September 28, 2017.

Item 1A. Risk Factors.

There have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

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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 June 30, 2017:

Period	Total Number of Shares of Common Stock Purchased (1)		Average Price Paid per Share		Total Number of Shares of Common Stock Purchased as Part of Publicly Announced Plans or Program		Maximum Dollar Value of Shares of Common Stock that May Yet Be Purchased Under the Plans or Program (2)
Month 1:
April 1, 2017
to
April 30, 2017		-	$	-		-	$	69,624,167
Month 2:
May 1, 2017
to
May 31, 2017		24	$	46.97		-	$	69,624,167
Month 3:
June 1, 2017
to
June 30, 2017		-	$	-		-	$	69,624,167
Total		24				-

______________

(1) Includes shares repurchased from employees in connection with the settlement of income tax and related benefit withholding obligations arising from vesting of restricted stock grants.

(2) On October 26, 2016, our Board authorized a new repurchase program, under which the Company may repurchase up to $100.0 million in aggregate value of the Company’s common stock during the twelve-month period following October 26, 2016. As of June 30, 2017, a total of 770,808 shares were purchased through this plan for $30.4 million, including commission payments.

Dividends

We have not paid any cash dividends on our common stock and currently do not expect to pay dividends on our common stock.  In addition, our ability to pay dividends on our common stock is limited by the terms of our Credit Agreement and our preferred stock.  The payment of future cash dividends, if any, will be reviewed periodically by the Board and will depend upon, among other things, our financial condition, funds from operations, the level of our capital and development expenditures, any restrictions imposed by present or future debt or equity instruments, and changes in federal tax policies, if any.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

42

Item 5. Other Information.

None.

Item 6.   Exhibits.

See Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q.

43

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: August 9, 2017	By:	/s/ James M. Lindstrom
		James M. Lindstrom Chief Executive Officer and Director
		(Principal Executive Officer)
Date: August 9, 2017	By:	/s/ David C. Shackelton
		David C. Shackelton Chief Financial Officer
		(Principal Financial Officer)

44

EXHIBIT INDEX

Exhibit Number	Description
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.

45

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, James M. Lindstrom, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The Providence Service Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2017

/s/ James M. Lindstrom

James M. Lindstrom

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, David C. Shackelton, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The Providence Service Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2017

/s/ David C. Shackelton

David C. Shackelton

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

THE PROVIDENCE SERVICE CORPORATION

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of The Providence Service Corporation (the “Company”) does hereby certify with respect to the Quarterly Report of the Company on Form 10-Q for the quarter ended June 30, 2017 (the “Report”) that, to the best of such officer’s knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 9, 2017	/s/ James M. Lindstrom
	James M. Lindstrom Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.2

THE PROVIDENCE SERVICE CORPORATION

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of The Providence Service Corporation (the “Company”) does hereby certify with respect to the Quarterly Report of the Company on Form 10-Q for the quarter ended June 30, 2017 (the “Report”) that, to the best of such officer’s knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 9, 2017	/s/ David C. Shackelton
	David C. Shackelton Chief Financial Officer (Principal Financial Officer)

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Aug. 04, 2017
Document Information [Line Items]
Entity Registrant Name	PROVIDENCE SERVICE CORP
Entity Central Index Key	0001220754
Trading Symbol	prsc
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		13,501,637
Document Type	10-Q
Document Period End Date	Jun. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Assets
Cash and cash equivalents	$ 56,583	$ 72,262
Accounts receivable, net of allowance of $6,295 in 2017 and $5,901 in 2016	172,189	162,115
Other receivables	8,545	12,639
Prepaid expenses and other	47,445	37,895
Restricted cash	1,461	3,192
Total current assets	286,223	288,103
Property and equipment, net	47,761	46,220
Goodwill	120,818	119,624
Intangible assets, net	46,799	49,124
Equity investments	160,601	161,363
Other assets	9,788	8,397
Restricted cash, less current portion	6,455	10,938
Deferred tax asset	4,431	1,510
Total assets	682,876	685,279
Liabilities, redeemable convertible preferred stock and stockholders' equity
Current portion of long-term obligations	1,918	1,721
Accounts payable	18,101	22,177
Accrued expenses	105,464	102,381
Accrued transportation costs	83,812	72,356
Deferred revenue	24,469	20,522
Reinsurance and related liability reserves	4,857	8,639
Total current liabilities	238,621	227,796
Long-term obligations, less current portion	1,131	1,890
Other long-term liabilities	24,750	22,380
Deferred tax liabilities	55,141	57,973
Total liabilities	319,643	310,039
Commitments and contingencies (Note 11)
Common stock: Authorized 40,000,000 shares; $0.001 par value; 17,433,365 and 17,315,661 issued and outstanding (including treasury shares)	17	17
Additional paid-in capital	307,934	302,010
Retained earnings	153,266	156,718
Accumulated other comprehensive loss, net of tax	(29,023)	(33,449)
Treasury shares, at cost, 3,944,009 and 3,478,676 shares	(144,193)	(125,201)
Total Providence stockholders' equity	288,001	300,095
Noncontrolling interest	(2,333)	(2,420)
Total stockholders' equity	285,668	297,675
Total liabilities, redeemable convertible preferred stock and stockholders' equity	682,876	685,279
Convertible Preferred Stock [Member]
Liabilities, redeemable convertible preferred stock and stockholders' equity
Convertible preferred stock, net: Authorized 10,000,000 shares; $0.001 par value; 803,398 and 803,398 issued and outstanding; 5.5%/8.5% dividend rate	$ 77,565	$ 77,565

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Accounts receivable allowance	$ 6,295	$ 5,901
Common stock, shares authorized (in shares)	40,000,000	40,000,000
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares issued (in shares)	17,433,365	17,315,661
Common stock, shares outstanding (in shares)	17,433,365	17,315,661
Treasury shares, shares (in shares)	3,944,009	3,478,676
Convertible Preferred Stock [Member]
Convertible Preferred Stock, Shares Authorized (in shares)	10,000,000	10,000,000
Convertible Preferred Stock, Par Value (in dollars per share)	$ 0.001	$ 0.001
Convertible Preferred Stock, Shares Issued (in shares)	803,398	803,398
Convertible Preferred Stock, Shares Outstanding (in shares)	803,398	803,398
Convertible Preferred Stock [Member] | Cash Dividends [Member]
Convertible Preferred Stock, Dividend Rate	5.50%	5.50%
Convertible Preferred Stock [Member] | Paid-in-kind Dividends [Member]
Convertible Preferred Stock, Dividend Rate	8.50%	8.50%

XML

Unaudited Condensed Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Revenue	$ 407,983	$ 398,119	$ 807,477	$ 780,154
Operating expenses:
Service expense	377,036	367,846	746,446	716,521
General and administrative expense	18,048	16,711	35,076	35,228
Depreciation and amortization	6,900	6,849	13,169	13,388
Total operating expenses	401,984	391,406	794,691	765,137
Operating income	5,999	6,713	12,786	15,017
Other expenses:
Interest expense, net	329	407	681	902
Equity in net loss of investees	(1,530)	1,459	530	4,176
Loss (gain) on foreign currency transactions	463	(775)	400	(850)
Income from continuing operations before income taxes	6,737	5,622	11,175	10,789
Provision for income taxes	2,879	3,997	5,402	7,789
Income from continuing operations, net of tax	3,858	1,625	5,773	3,000
Discontinued operations, net of tax	(117)	2,370	(5,984)	3,123
Net income (loss)	3,741	3,995	(211)	6,123
Net loss (income) attributable to noncontrolling interests	174	628	(200)	735
Net income (loss) attributable to Providence	3,915	4,623	(411)	6,858
Net income (loss) available to common stockholders (Note 9)	$ 2,434	$ 3,104	$ (3,037)	$ 4,108
Basic earnings (loss) per common share:
Continuing operations (in dollars per share)	$ 0.19	$ 0.07	$ 0.22	$ 0.09
Discontinued operations (in dollars per share)	(0.01)	0.14	(0.44)	0.18
Basic earnings (loss) per common share (in dollars per share)	0.18	0.21	(0.22)	0.27
Diluted earnings (loss) per share:
Continuing operations (in dollars per share)	0.19	0.07	0.22	0.09
Discontinued operations (in dollars per share)	(0.01)	0.14	(0.44)	0.18
Diluted earnings (loss) per common share (in dollars per share)	$ 0.18	$ 0.21	$ (0.22)	$ 0.27
Weighted-average number of common shares outstanding:
Basic (in shares)	13,553,704	14,893,595	13,628,572	14,975,582
Diluted (in shares)	13,607,576	15,019,312	13,687,183	15,098,945

XML

Unaudited Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Net income (loss)	$ 3,741	$ 3,995	$ (211)	$ 6,123
Net loss (income) attributable to noncontrolling interests	174	628	(200)	735
Net income (loss) attributable to Providence	3,915	4,623	(411)	6,858
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax	3,225	(6,841)	4,426	(8,332)
Other comprehensive income (loss):	3,225	(6,841)	4,426	(8,332)
Comprehensive income (loss)	6,966	(2,846)	4,215	(2,209)
Comprehensive income (loss) attributable to noncontrolling interest	264	551	(87)	645
Comprehensive income (loss) attributable to Providence	$ 7,230	$ (2,295)	$ 4,128	$ (1,564)

XML

Unaudited Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Operating activities
Net (loss) income	$ (211)	$ 6,123
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	9,245	11,518
Amortization	3,924	17,632
Provision for doubtful accounts	1,082	1,938
Stock-based compensation	3,021	1,947
Deferred income taxes	(6,733)	(10,094)
Amortization of deferred financing costs and debt discount	349	1,053
Equity in net loss of investees	530	4,176
Other non-cash charges (credits)	401	(806)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(8,949)	(6,531)
Prepaid expenses and other	(3,485)	(25,909)
Reinsurance and related liability reserve	(4,874)	2,784
Accounts payable and accrued expenses	(1,716)	44,052
Income taxes payable on sale of business		(28,337)
Accrued transportation costs	11,456	12,119
Deferred revenue	2,896	1,448
Other long-term liabilities	2,325	4,642
Net cash provided by operating activities	9,261	37,755
Investing activities
Purchase of property and equipment	(10,745)	(23,636)
Net increase (decrease) in short-term investments	300	(9)
Equity investments		(6,381)
Loan to joint venture	(566)
Restricted cash for reinsured claims losses and other	6,216	3,849
Net cash used in investing activities	(4,795)	(26,177)
Financing activities
Preferred stock dividends	(2,191)	(2,197)
Repurchase of common stock, for treasury	(18,754)	(32,534)
Proceeds from common stock issued pursuant to stock option exercise	1,028	787
Performance restricted stock surrendered for employee tax payment	(96)
Repayment of long-term debt		(15,500)
Proceeds from long-term debt		22,500
Capital lease payments and other	(738)	(47)
Net cash used in financing activities	(20,751)	(26,991)
Effect of exchange rate changes on cash	606	(533)
Net change in cash and cash equivalents	(15,679)	(15,946)
Cash and cash equivalents at beginning of period	72,262	84,770
Cash and cash equivalents at end of period	56,583	68,824
Supplemental cash flow information:
Cash paid for interest	714	6,083
Cash paid for income taxes	$ 7,736	$ 45,265

XML

Note 1 - Organization and Basis of Presentation

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]

1.

Organization and Basis of Presentation

Description of Business

The Providence Service Corporation (“we”, the “Company” or “Providence”) is a holding company, which owns interests in subsidiaries and other companies that are primarily engaged in the provision of healthcare and workforce development services for public and private sector entities seeking to control costs and promote positive outcomes. The subsidiaries and other companies in which the Company holds interests comprise the following segments:

● Non-Emergency Transportation Services (“NET Services”) – Nationwide provider of non-emergency medical transportation programs for state governments and managed care organizations.

● Workforce Development Services (“WD Services”) – Global provider of employment preparation and placement and legal offender rehabilitation services to eligible participants of government sponsored programs.

● Matrix Investment – Minority interest in nationwide provider of in-home care optimization and management solutions, including comprehensive health assessments, to members of managed care organizations, accounted for as an equity method investment.

Basis of Presentation

The Company follows accounting standards set by the Financial Accounting Standards Board (“FASB”). The FASB establishes accounting principles generally accepted in the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. References to GAAP issued by the FASB in these footnotes are to the FASB

Accounting Standards Codification

(“ASC”), which serves as the single source of authoritative non-SEC accounting and reporting standards to be applied by non-governmental entities. All amounts are presented in United States (“U.S.”) dollars, unless otherwise noted.

The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information, and with the instructions to Form

10

-Q and Article

10

of Regulation S-

X.

Accordingly, they do

not

include all the information and disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for the fair presentation of the results of the interim periods have been included.

The Company has made estimates relating to the reporting of assets and liabilities, revenues and expenses and certain disclosures to prepare these unaudited condensed consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates. Operating results for the

three

and

six

months ended

June 30, 2017

are

not

necessarily indicative of the results that

may

be expected for the fiscal year ending

December 

31,

2017.

Management has evaluated events and transactions that occurred after the balance sheet date and through the date these unaudited condensed consolidated financial statements were filed, and considered the effect of such events in the preparation of these unaudited condensed consolidated financial statements.

The condensed consolidated balance sheet at

December 

31,

2016

has been derived from the audited financial statements at that date, but does

not

include all the information and footnotes required by GAAP for complete financial statements. The unaudited condensed consolidated financial statements contained herein should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form

10

-K for the year ended

December 

31,

2016.

The Company holds investments that are accounted for using the equity method. The Company does

not

control the decision-making process or business management practices of these affiliates. While the Company has access to certain information and performs certain procedures to review the reasonableness of information, the Company relies on management of these affiliates to provide accurate financial information prepared in accordance with GAAP. The Company receives audit reports relating to such financial information from the affiliates’ independent auditors on an annual basis. The Company is

not

aware of any errors in or possible misstatements of the financial information provided by its equity affiliates that would have a material effect on the Company’s condensed consolidated financial statements.

Reclassifications

We have reclassified certain amounts relating to our prior period results to conform to our current period presentation. On

October 19, 2016,

affiliates of Frazier Healthcare Partners purchased a

53.2%

equity interest in CCHN Group Holdings, Inc. and its subsidiaries (“Matrix”) with Providence retaining a

46.8%

equity interest (the “Matrix Transaction”). Prior to the closing of the Matrix Transaction, the financial results of Matrix were included in the Company’s Health Assessment Services (“HA Services”) segment.

Operating results for this segment are reported as discontinued operations, net of tax in the condensed consolidated statements of income for the

three

and

six

months ended

June 30, 2016.

See Note

13,

Discontinued Operations,

for further information

.

See Note

2,

Significant Accounting Policies and Recent Accounting Pronouncements

, for additional information on other reclassifications.

XML

Note 2 - Significant Accounting Policies and Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

2.

Significant Accounting Policies and Recent Accounting Pronouncements

The Company adopted the following accounting pronouncements during the

six

months ended

June 30, 2017:

In

November 2015,

the FASB issued Accounting Standards Update (“ASU”)

No.

2015

-

17,

Income Taxes (Topic

740

): Balance Sheet Classification of Deferred Taxes

(“ASU

2015

-

17”

), which changes how deferred taxes are classified on organizations’ balance sheets. The ASU eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments apply to all organizations that present a classified balance sheet. For public companies, the amendments are effective for financial statements issued for annual periods beginning after

December 16, 2016,

and interim periods within those annual periods. The Company adopted ASU

2015

-

17

retrospectively on

January 1, 2017,

which resulted in the reclassification of the

December 31, 2016

deferred tax assets-current balance of

$6,825

and non-current deferred tax assets of

$2,493

to long-term deferred tax liabilities in the amount of

$9,318.

In

March 2016,

the FASB issued ASU

No.

2016

-

07,

Investments - Equity Method and Joint Ventures (Topic

323

): Simplifying the Transition to the Equity Method of Accounting

(“ASU

2016

-

07”

). ASU

2016

-

07

eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU

2016

-

07

instead specifies that the investor should add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and apply the equity method of accounting as of the date the investment became qualified for equity method accounting. ASU

2016

-

07

is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2016

and should be applied prospectively. The Company adopted ASU

2016

-

07

on

January 1, 2017.

The adoption of ASU

2016

-

07

had

no

impact on the Company’s financial statements or disclosures.

In

March 2016,

the FASB issued ASU

No.

2016

-

09,

Compensation - Stock Compensation (Topic

718

): Improvements to Employee Share-Based Payment Accounting

(“ASU

2016

-

09”

). ASU

2016

-

09

is intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including income tax consequences, classification of awards as either equity or liabilities and classification in the statement of cash flows. For public companies, the amendments are effective for annual periods beginning after

December 15, 2016,

and interim periods within those annual periods. The Company adopted ASU

2016

-

09

on

January 1, 2017,

and elected to recognize forfeitures as they occur. As a result, the Company recorded a cumulative effect adjustment of

$850

to retained earnings as of

January 1, 2017.

Upon adoption, all excess tax benefits and tax deficiencies related to employee share-based payments are recognized through income tax expense prospectively. For the

three

months ended

June 30, 2017,

the Company recorded excess tax deficiencies of

$97

as an increase to the provision for income taxes. For the

six

months ended

June 30, 2017,

the Company recorded excess tax benefits of

$113

as a reduction to the provision for income taxes. The Company excluded the related tax benefits when applying the treasury stock method for computing diluted shares outstanding on a prospective basis resulting in a decrease in diluted weighted average shares outstanding of

16,196

and

8,787

shares, respectively, for the

three

and

six

months ended

June 30, 2017.

The Company elected to apply the change in classification of cash flows resulting from excess tax benefits or deficiencies on a retrospective basis. This resulted in an increase in cash flows provided by operating activities of

$258

and an increase of

$258

in cash flows used in financing activities in the condensed consolidated statement of cash flows for the

six

months ended

June 30, 2016.

Additionally, ASU

2016

-

09

requires that employee taxes paid when an employer withholds shares for tax-withholding purposes be reported as financing activities in the consolidated statements of cash flows, which is how the Company has historically classified these amounts.

In

January 2017,

the FASB issued ASU

No.

2017

-

01,

Business Combinations (Topic

805

):

Clarifying the Definition of a Business

(“ASU

2017

-

01”

). ASU

2017

-

01

clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU

2017

-

01

is effective for annual periods beginning after

December 15, 2017,

including interim periods within those periods. The Company adopted ASU

2017

-

01

on

April 1, 2017.

The adoption of ASU

2017

-

01

had

no

impact on the Company’s financial statements or disclosures.

In

January 2017,

the FASB issued ASU

No.

2017

-

04,

Intangibles-Goodwill and Other (Topic

350

):

Simplifying the Test for Goodwill Impairment

(“ASU

2017

-

04”

)

.

ASU

2017

-

04

removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step

two

of the goodwill impairment test. As a result, under ASU

2017

-

04,

an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the impairment loss recognized should

not

exceed the total amount of goodwill allocated to that reporting unit. This guidance is effective prospectively for fiscal years beginning after

December 15, 2019.

Early adoption is permitted for interim or annual goodwill impairment tests performed after

January 1, 2017.

The Company adopted ASU

2017

-

04

on

April 1, 2017.

The adoption of ASU

2017

-

04

had

no

impact on the Company’s financial statements or disclosures.

Updates to the recent accounting pronouncements as disclosed in the Company’

s Form

10

-K for the year ended

December 31, 2016

are as follows:

In

May 2014,

the FASB issued ASU

No.

2014

-

09,

Revenue from Contracts with Customers (Topic

606

)

(“ASU

2014

-

09”

)

.

ASU

2014

-

09

introduced FASB Accounting Standards Codification Topic

606

(“ASC

606”

), which will replace most currently applicable existing revenue recognition guidance and is intended to improve and converge with internationalstandards the financial reporting requirements for revenue from contracts with customers. The core principle of ASU

2014

-

09

is that an entity shouldrecognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU

2014

-

09

also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from customer contracts, including significantjudgments and changes in judgments. ASU

2014

-

09

allows for adoption either on a full retrospective basis to each prior reporting period presented or on amodified retrospective basis with the cumulative effect of initially applying the new guidance recognized at the date of initial application, which will beeffective for the Company beginning

January 1, 2018.

The Company has developed an adoption plan, assembled a cross-functional project team and is in the process of assessing the impacts of applying ASC

606

to the Company’s financial statements, information systems and internal controls. The Company has performed detailed reviews of a significant number of its existing contracts with customers. These reviews have focused on several key considerations which could impact the Company's accounting and reporting under the new standard:

● the effect of specified clauses on the term of many of the Company’s contracts with customers;

● the nature of the promises in many of the Company’s contracts with customers to perform integrated services over a period of time;

● whether and how much variable consideration to include when determining the transaction prices for its contracts with customers;

● whether any of the Company’s customer contracts require performance over a series of distinct service periods and the impact on determining and allocating the transaction price; and

● the manner in which the Company will measure its progress towards fully satisfying its performance obligations, including a determination of whether the Company may be able to use certain practical expedients.

Management’s assessment is ongoing; therefore, the Company has

not

yet determined with certainty the impact of applying ASC

606.

However, management does

not

believe the impact on its financial statements will be significant based on the procedures performed to date.

In

January 2017,

the FASB issued ASU

No.

2017

-

03,

Accounting Changes and Error Corrections (Topic

250

) and Investments - Equity Method and Joint Ventures (Topic

323

)

(“ASU

2017

-

03”

). ASU

2017

-

03

expands required qualitative disclosures when registrants cannot reasonably estimate the impact that adoption of an ASU will have on the financial statements. Such qualitative disclosures would include a comparison of the registrant’s new accounting policies, if determined, to current accounting policies, a description of the status of the registrant’s process to implement the new standard and a description of the significant implementation matters yet to be addressed by the registrant. Other than enhancements to the qualitative disclosures regarding future adoption of new ASUs, adoption of the provisions of this standard is

not

expected to have any impact on the Company’s consolidated financial statements.

In

May 2017,

the FASB issued ASU

No.

2017

-

09,

Compensation–Stock Compensation (Topic

718

):

Scope of Modification Accounting

(“ASU

2017

-

09”

). ASU

2017

-

09

provides guidance about which changes to the terms of a share-based payment award should be accounted for as a modification. A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do

not

change, and the classification as an equity or liability instrument does

not

change. This guidance is effective for fiscal years beginning after

December 15, 2017.

Early adoption is permitted. The adoption of ASU

2017

-

09

is

not

expected to have a material impact on the Company’s consolidated financial statements.

There were

no

other significant updates to the new accounting guidance

not

yet adopted by the Company as disclosed in its Form 

10

-K for the year ended

December 31, 2016.

XML

Note 3 - Equity Investment

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

 

3.

Equity Investment

Matrix

Prior to the closing of the Matrix Transaction on

October 19, 2016,

the financial results of Matrix were included in the Company’s HA Services segment. Subsequent to the closing of the Matrix Transaction, the Company owns a

46.8%

noncontrolling interest in Matrix. Pursuant to a Shareholder’s Agreement, affiliates of Frazier Healthcare Partners hold rights necessary to control the fundamental operations of Matrix. The Company accounts for this investment in Matrix under the equity method of accounting and the Company’s share of Matrix’s income or losses are recorded as “Equity in net (gain) loss of investees” in the accompanying condensed consolidated statements of income.

The carrying amount of the assets included in the Company’s condensed consolidated balance sheet and the maximum loss exposure related to the Company’s interest in Matrix as of

June 30, 2017

and

December 31, 2016

totaled

$157,124

and

$157,202,

respectively.

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

	June 30, 2017		December 31, 2016
Current assets	$	43,479	$	28,589
Long-term assets		604,598		614,841
Current liabilities		35,236		25,791
Long-term liabilities		274,426		281,348

	Three months ended June 30, 2017
Revenue	$	60,852
Operating income		5,942
Net income		1,619

	Six months ended June 30, 2017
Revenue	$	116,707
Operating income		6,950
Net loss		(238	)

See Note

13,

Discontinued Operations

, for Matrix’s

2016

results of operations.

Mission Providence

The Company entered into a joint venture agreement in

November 2014

to form Mission Providence Pty Ltd (“Mission Providence”). Mission Providence delivers employment preparation and placement services in Australia. The Company has a

60%

ownership interest in Mission Providence, and has rights to

75%

of Mission Providence’s distributions of cash or profit surplus twice per calendar year.

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. 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 income or losses is recorded as “Equity in net (gain) loss of investees” in the accompanying condensed consolidated statements of income. Cash contributions made to Mission Providence in exchange for its equity interests are included in the condensed consolidated statements of cash flows as “Equity investments.”

The following table summarizes the carrying amounts of the assets and liabilities included in the Company’s consolidated balance sheet and the maximum loss exposure related to the Company’s interest in Mission Providence as of

June 30, 2017

and

December 31, 2016:

	Equity Investments		Other Assets		Accrued Expenses		Maximum Exposure to Loss
June 30, 2017	$	3,326	$	576	$	-	$	3,902
December 31, 2016	$	4,021	$	-	$	-	$	4,021

Other Assets is comprised of a loan to Mission Providence, which was made during the

three

months ended

March 31, 2017.

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

	June 30, 2017		December 31, 2016
Current assets	$	816	$	4,640
Long-term assets		10,530		10,473
Current liabilities		10,658		12,844
Long-term liabilities		-		1,655

	Three months ended June 30,
	2017		2016
Revenue	$	10,493	$	9,708
Operating income (loss)		639		(2,709	)
Net income (loss)		577		(1,945	)

	Six months ended June 30,
	2017			2016
Revenue	$	19,880		$	17,126
Operating loss		(1,166	)		(7,794	)
Net loss		(1,283	)		(5,568	)

XML

Note 4 - Prepaid Expenses and Other

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Prepaid Expenses and Other Assets Disclosure [Text Block]

4.

    Prepaid Expenses and Other

Prepaid expenses and other were comprised of the following: 

	June 30,		December 31,
	2017		2016
Prepaid income taxes	$	1,701	$	1,467
Escrow funds		10,000		10,000
Prepaid insurance		2,402		3,153
Prepaid taxes and licenses		2,479		3,570
Note receivable		3,177		3,130
Prepaid rent		3,447		2,013
Deposits held for leased premises and bonds		2,674		2,609
Other		21,565		11,953
Total prepaid expenses and other	$	47,445	$	37,895

Escrow funds represent amounts related to potential indemnification claims from the sale of the Human Services segment, which was completed on

November 1, 2015.

The Company has accrued

$15,000

as a contingent liability for the settlement of potential indemnification claims, which is included in “Accrued expenses” in the condensed consolidated balance sheet as of

June 30, 2017.

While the matter is

not

resolved, it is highly likely the escrow funds will be used to satisfy a portion of this settlement. See Note

11,

Commitments and Contingencies

, for further information.

The increase in “Other” in the table above from

December 31, 2016

to

June 30, 2017

primarily relates to the timing of prepaid program costs for WD Services.

XML

Note 5 - Accrued Expenses

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

5.

    Accrued Expenses

Accrued expenses consisted of the following:

	June 30,		December 31,
	2017		2016
Accrued compensation	$	21,704	$	23,050
NET Services accrued contract payments		32,146		32,836
Accrued settlement		15,000		6,000
Income taxes payable		1,545		372
Other		35,069		40,123
Total accrued expenses	$	105,464	$	102,381

XML

Note 6 - Restructuring and Related Reorganization Costs

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Restructuring and Related Activities Disclosure [Text Block]

6.

    Restructuring and Related Reorganization Costs

WD Services has

three

ongoing redundancy programs: a redundancy plan approved in

2016

related to the termination of employees as part of a value enhancement project (“Ingeus Futures’ Program”) to better align costs at Ingeus with revenue and to improve overall operating performance; and

two

redundancy plans approved in

2015,

including a plan related to the termination of employees delivering services under an offender rehabilitation program (“Offender Rehabilitation Program”) and a plan related to the termination of employees delivering services under the Company’s employability and skills training programs and certain other employees in the UK (“UK Restructuring Program”).  The Company recorded severance and related charges of

$859

and

$4,608

during the

six

months ended

June 30, 2017

and

2016,

respectively, relating to the termination benefits for employee groups and specifically identified employees impacted by these plans. The severance charges incurred are recorded as “Service expense” in the accompanying condensed consolidated statements of income.

The initial estimate of severance and related charges for the plans was based upon the employee groups impacted, average salary and benefits, and redundancy benefits pursuant to the existing policies. Additional charges above the initial estimates were incurred for the redundancy plans during the

six

months ended

June 30, 2017

and

2016

related to the actualization of termination benefits for specifically identified employees impacted under these plans, as well as an increase in the number of individuals impacted by these plans. The final identification of the employees impacted by each program is subject to customary consultation procedures.

Summary of Severance and Related Charges

	January 1, 2017		Costs Incurred			Cash Payments			Foreign Exchange Rate Adjustments		June 30, 2017
Ingeus Futures' Program	$	2,486	$	836		$	(2,341	)	$	130	$	1,111
Offender Rehabilitation Program		1,380		52			(1,295	)		18		155
UK Restructuring Program		50		(29	)		-			2		23
Total	$	3,916	$	859		$	(3,636	)	$	150	$	1,289

	January 1, 2016		Costs Incurred		Cash Payments			Foreign Exchange Rate Adjustments			June 30, 2016
Offender Rehabilitation Program	$	6,538	$	4,174	$	(2,204	)	$	(753	)	$	7,755
UK Restructuring Program		2,059		434		(1,956	)		(96	)		441
Total	$	8,597	$	4,608	$	(4,160	)	$	(849	)	$	8,196

The total of accrued severance and related costs of

$1,289

is reflected in “Accrued expenses” in the condensed consolidated balance sheet at

June 30, 2017.

The amount accrued as of

June 30, 2017

is expected to be settled principally by the end of

2017.

XML

Note 7 - Stockholders' Equity

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

7.

    Stockholders’ Equity

The following table reflects changes in common stock, additional paid-in capital, retained earnings, accumulated other comprehensive loss, treasury stock and noncontrolling interest for the

six

months ended

June 30, 2017:

											Accumulated
					Additional						Other								Non-
	Common Stock				Paid-In			Retained			Comprehensive			Treasury Stock					controlling
	Shares		Amount		Capital			Earnings			Loss			Shares		Amount			Interest			Total
Balance at December 31, 2016		17,315,661	$	17	$	302,010		$	156,718		$	(33,449	)		3,478,676	$	(125,201	)	$	(2,420	)	$	297,675
Stock-based compensation		-		-		3,061			-			-			-		-			-			3,061
Exercise of employee stock options		60,233		-		968			-			-			5,665		(238	)		-			730
Restricted stock issued		28,923		-		-			-			-			17,703		(771	)		-			(771	)
Performance restricted stock issued		3,773		-		(96	)		-			-			-		-			-			(96	)
Shares issued for bonus settlement and director stipend		24,775				1,107						-			-		-			-			1,107
Stock repurchase plan		-		-		-			-			-			441,965		(17,983	)		-			(17,983	)
Foreign currency translation adjustments, net of tax		-		-		-			-			4,426			-		-			(113	)		4,313
Convertible preferred stock dividends		-		-		-			(2,191	)		-			-		-			-			(2,191	)
Noncontrolling interests		-		-		-			-			-			-		-			200			200
Other		-		-		34			-			-			-		-			-			34
Net income attributable to Providence		-		-		-			(411	)		-			-		-			-			(411	)
Cumulative effect adjustment from change in accounting principle		-		-		850			(850	)		-			-		-			-			-
Balance at June 30, 2017		17,433,365	$	17	$	307,934		$	153,266		$	(29,023	)		3,944,009	$	(144,193	)	$	(2,333	)	$	285,668

XML

Note 8 - Stock-based Compensation and Similar Arrangements

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

8.

    Stock-Based Compensation and Similar Arrangements

The Company provides stock-based compensation to employees and non-employee directors under the Company’s

2006

Long-Term Incentive Plan (

“2006

Plan”). Typical awards issued under this plan include stock option awards, restricted stock awards (“RSAs”) and performance based restricted stock units (“PRSUs”). In addition, the Company has a long-term incentive plan designed to provide long-term performance based awards to certain executive officers of the Company which also falls under the

2006

Plan.

The following table reflects the amount of stock-based compensation, for share settled awards, recorded in each financial statement line item for the

three

and

six

months ended

June 30, 2017

and

2016:

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Service expense	$	110	$	66	$	234	$	180
General and administrative expense		1,445		1,247		2,787		1,724
Equity in net loss of investees		13		-		40		-
Discontinued operations, net of tax		-		22		-		43
Total stock-based compensation	$	1,568	$	1,335	$	3,061	$	1,947

Stock-based compensation, for share settled awards, includes

$1,042

and

$2,084

for the

three

and

six

months ended

June 30, 2017,

respectively, related to the Company’s

2015

Holding Company LTI Program (the “HoldCo LTIP”). Stock-based compensation, for share settled awards, includes

$842

and

$1,462

for the

three

and

six

months ended

June 30, 2016,

respectively, related to the HoldCo LTIP.

No

shares will be distributed under the HoldCo LTIP unless the volume weighted average of Providence’s stock price over a

90

-day period ending on

December 31, 2017

is greater than

$56.79.

At

June 30, 2017,

the Company had

290,781

stock options outstanding with a weighted-average exercise price of

$37.56.

The Company also had

73,950

shares of unvested RSAs outstanding at

June 30, 2017

with a weighted-average grant date fair value of

$44.40

and

18,298

unvested PRSUs outstanding.

The Company also grants stock equivalent unit awards (“SEUs”) and stock option equivalent units that are cash settled awards and are

not

included as part of the

2006

Plan. During the

three

and

six

months ended

June 30, 2017,

respectively, the Company recorded

$564

and

$1,231

of stock-based compensation expense for cash settled awards. During the

three

and

six

months ended

June 30, 2016,

respectively, the Company recorded

$847

and

$117

of stock-based compensation benefit for cash settled awards. The expense and benefit for cash settled awards is included as “General and administrative expense” in the accompanying condensed consolidated statements of income. As the awards are cash settled, a significant amount of the expense recorded for the

three

and

six

months ended

June 30, 2017

and

2016

is attributable to the Company’s increase or decrease in stock price from the previous reporting period. The liability for unexercised cash settled share-based payment awards of

$2,789

and

$1,764

at

June 30, 2017

and

December 31, 2016,

respectively, are reflected in “Accrued expenses” in the condensed consolidated balance sheets. At

June 30, 2017,

the Company had

6,671

SEUs and

200,000

stock option equivalent units outstanding.

The Company also provides cash settled long-term incentive plans for executive management and key employees of its operating segments. During the

three

months ended

June 30, 2017,

the Company revised the structure of the NET Services long-term incentive plan. As a result, the Company finalized the amount payable under the plan at

$2,956.

As of

June 30, 2017,

unamortized compensation expense is

$971.

The total value will be paid to the awarded participants per the terms of the original agreement and thus the expense relating to this plan will continue to be recognized over the service period. For the

three

and

six

months ended

June 30, 2017,

a credit of

$401

and expense of

$144,

respectively, are included as “Service expense” in the condensed consolidated statements of income related to these plans. For the

three

and

six

months ended

June 30, 2016,

$979

and

$1,994,

respectively, of expense are included as “Service expense” in the condensed consolidated statements of income related to these plans. At

June 30, 2017,

the liability for long-term incentive plans of the Company’s operating segments of

$1,985

is reflected in “Accrued expenses” and “Other long-term liabilities” in the condensed consolidated balance sheet.  At

December 31, 2016,

the liability for long-term incentive plans of the Company’s operating segments of

$1,841

is reflected in “Other long-term liabilities” in the condensed consolidated balance sheet.

XML

Note 9 - Earnings Per Share

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Earnings Per Share [Text Block]

9.

    Earnings Per Share

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

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Numerator:
Net income (loss) attributable to Providence	$	3,915		$	4,623		$	(411	)	$	6,858
Less dividends on convertible preferred stock		(1,102	)		(1,099	)		(2,191	)		(2,198	)
Less income allocated to participating securities		(379	)		(420	)		(435	)		(552	)
Net income (loss) available to common stockholders	$	2,434		$	3,104		$	(3,037	)	$	4,108
Continuing operations	$	2,551		$	1,016		$	2,947		$	1,355
Discontinued operations		(117	)		2,088			(5,984	)		2,753
	$	2,434		$	3,104		$	(3,037	)	$	4,108
Denominator:
Denominator for basic earnings per share -- weighted-average shares		13,553,704			14,893,595			13,628,572			14,975,582
Effect of dilutive securities:
Common stock options		48,836			125,717			53,575			123,363
Performance-based restricted stock units		5,036			-			5,036
Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion		13,607,576			15,019,312			13,687,183			15,098,945
Basic earnings (loss) per share:
Continuing operations	$	0.19		$	0.07		$	0.22		$	0.09
Discontinued operations		(0.01	)		0.14			(0.44	)		0.18
	$	0.18		$	0.21		$	(0.22	)	$	0.27
Diluted earnings (loss) per share:
Continuing operations	$	0.19		$	0.07		$	0.22		$	0.09
Discontinued operations		(0.01	)		0.14			(0.44	)		0.18
	$	0.18		$	0.21		$	(0.22	)	$	0.27

Income allocated to participating securities is calculated by allocating a portion of net income attributable to Providence, less dividends on convertible stock, to the convertible preferred stockholders on a pro-rata as converted basis; however, the convertible preferred stockholders are

not

allocated losses.

The following weighted average shares were

not

included in the computation of diluted earnings per share as the effect of their inclusion would have been anti-dilutive:

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Stock options to purchase common stock		46,478		33,957		144,811		33,957
Convertible preferred stock		803,398		803,455		803,398		803,486

XML

Note 10 - Income Taxes

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

10.

    Income Taxes

The Company’s effective tax rate from continuing operations for the

three

and

six

months ended

June 30, 2017

was

42.7%

and

48.3%,

respectively. The Company’s effective tax rate from continuing operations for the

three

and

six

months ended

June 30, 2016

was

71.1%

and

72.2%,

respectively. The effective tax rates for these periods exceeded the U.S. federal statutory rate of

35%

primarily due to foreign net operating losses (including equity investment losses in certain of the periods) for which the future income tax benefit currently cannot be recognized, losses in foreign jurisdictions with tax rates lower than the U.S. rate of

35%,

state income taxes and certain non-deductible expenses. Foreign net operating losses for which

no

tax benefit can be provided were higher in

2016

versus

2017

resulting in a decrease in the effective tax rate from

2016

to

2017.

The Company recorded excess tax deficiencies of

$97

for the

three

months ended

June 30, 2017,

which increased the provision for income taxes, and excess tax benefits of

$113

for the

six

months ended

June 30, 2017,

which reduced the provision for income taxes. These excess tax deficiencies and benefits were a result of applying the guidance in ASU

2016

-

09

as further discussed in Note

2,

Significant Accounting Policies and Recent Accounting Pronouncements

.

XML

Note 11 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

11.

    Commitments and Contingencies

Legal proceedings

On

June 15, 2015,

a putative stockholder class action derivative complaint was filed in the Court of Chancery of the State of Delaware (the “Court”), captioned Haverhill Retirement System v. Kerley et al., C.A.

No.

 

11149

-VCL (“Haverhill Litigation”).

On

January 

20,

2017,

the special litigation committee created by the Company’s Board of Directors advised the Court that the parties to the litigation and the special litigation committee had reached an agreement in principle to settle all of the claims in the litigation.

The parties have entered into a proposed settlement agreement which has been submitted to the Court for approval. The proposed settlement agreement provides for a settlement amount of

$10,000

less plaintiff’s legal fees and expenses (the “Settlement Amount”), with

75%

of the Settlement Amount less plaintiff’s legal fees and expenses to be paid to the Company and

25%

of the Settlement Amount to be paid to holders of the Company’s common stock. A court hearing to consider the proposed settlement has been scheduled for

September 28, 2017.

For further information regarding this legal proceeding please see Note

19,

Commitments and Contingencies

, in the audited consolidated financial statements included in the Company’s Annual Report on Form

10

-K for the year ended

December 

31,

2016

and Note

11,

Commitments and Contingencies

, in the unaudited condensed consolidated financial statements included in the Company’s Quarterly Report on Form

10

-Q for the period ended

March 31, 2017.

In addition to the matter described above, in the ordinary course of business, the Company is a party to various lawsuits. Management does

not

expect these lawsuits to have a material impact on the liquidity, results of operations, or financial condition of Providence.

Indemnifications related to Haverhill Litigation

The Company completed a rights offering on

February 5, 2015 (

the “Rights Offering”) providing all of the Company’s existing common stockholders the non-transferrable right to purchase their pro rata share of

$65,500

of convertible preferred stock at a price equal to

$100.00

per share (“Preferred Stock”). Stockholders exercised subscription rights to purchase

130,884

shares of the Company's Preferred Stock. Pursuant to the terms and conditions of the Standby Purchase Agreement (the “Standby Purchase Agreement”) between Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Coliseum Capital Co-Invest, L.P. and Blackwell Partners, LLC (collectively, the “Standby Purchasers”) and the Company, the remaining

524,116

shares of the Company’s Preferred Stock were purchased by the Standby Purchasers at the

$100.00

per share subscription price. The Company has indemnified the Standby Purchasers from and against any and all losses, claims, damages, expenses and liabilities relating to or arising out of (i) any breach of any representation, warranty, covenant or undertaking made by or on behalf of the Company in the Standby Purchase Agreement and (ii) the transactions contemplated by the Standby Purchase Agreement and the

14.0%

Unsecured Subordinated Note in aggregate principal amount of

$65,500,

except to the extent that any such losses, claims, damages, expenses and liabilities are attributable to the gross negligence, willful misconduct or fraud of such Standby Purchaser.

The Company has also indemnified other

third

parties from and against any and all losses, claims, damages, expenses and liabilities arising out of or in connection with the Company’s acquisition of CCHN Group Holdings, Inc. (operating under the tradename Matrix, and formerly included in our HA Services segment) in

October 2014

and related financing commitments, except to the extent that any such losses, claims, damages, expenses and liabilities are found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence, bad faith or willful misconduct of such

third

parties, or a material breach of such

third

parties’ obligations under the related agreements.

The Company recorded

$143

and

$275

of such indemnified legal expenses related to the Haverhill Litigation during the

three

and

six

months ended

June 30, 2017,

respectively and

$38

and

$144

of such indemnified legal expenses during the

three

and

six

months ended

June 30, 2016,

respectively, which is included in “General and administrative expenses” in the condensed consolidated statements of income. Of these amounts,

$92

and

$208

for the

three

and

six

months ended

June 30, 2017,

respectively and

$38

and

$144

for the

three

and

six

months ended

June 30, 2016,

respectively, were indemnified legal expenses of related parties. Other legal expenses of the Company related to the Haverhill Litigation are covered under the Company’s insurance policies, subject to applicable deductibles and customary review of the expenses by the carrier. The Company recognized related expense of

$0

and

$11

for the

three

and

six

months ended

June 30, 2017,

respectively and

no

related expense for the

three

and

six

months ended

June 30, 2016.

While the carrier typically remits payment directly to the respective law firm, the Company accrues for the cost and records a corresponding receivable for the amount to be paid by the carrier. The Company has recognized an insurance receivable of

$1,167

and

$1,645

in “Other receivables” in the condensed consolidated balance sheets at

June 30, 2017

and

December 31, 2016,

respectively, with a corresponding liability amount recorded to “Accrued expenses”.

Other Indemnifications

The Company has provided certain standard indemnifications in connection with the sale of the Human Services segment to Molina Healthcare Inc. (“Molina”) effective

November 1, 2015.

All representations and warranties made by the Company in the Membership Interest Purchase Agreement (the “Purchase Agreement”) to sell the Human Services segment survived through the

15th

month following the closing date, and ended on

February 1, 2017.

However, claims made prior to

February 1, 2017

by the purchaser of the Human Services segment against these representations and warranties

may

survive until the claims are settled. In addition, certain representations, including tax representations, survive until the expiration of applicable statutes of limitation, and healthcare representations survive until the

third

anniversary of the closing date. The Company received indications from the purchaser of the Human Services segment prior to the

February 1, 2017

deadline regarding potential indemnification claims. One such potential indemnification claim relates to

Rodriguez v. Providence Community Corrections,

a complaint filed in the District Court for the Middle District of Tennessee, Nashville Division (the “Rodriquez Litigation”), against Providence Community Corrections, Inc. (“PCC”), an entity sold under the Purchase Agreement. Molina announced in

September 2016

that the parties to the Rodriguez Litigation accepted a mediation proposal for settlement pursuant to which PCC would pay the plaintiffs 

$14,000,

and the parties are in the process of finalizing the settlement agreement, which remains subject to court approval.

Molina and the Company are in discussions regarding a settlement of an indemnification claim by Molina with respect to the Rodriguez Litigation and other matters. As of

June 30, 2017,

the accrual is

$15,000

with respect to an estimate of loss for potential indemnification claims

. The Company expects to recover a substantial portion of the settlement through insurance coverage, although this cannot be assured.

Litigation is inherently uncertain and the actual losses incurred in the event that the related legal proceedings were to result in unfavorable outcomes could have a material adverse effect on the Company’s business and financial performance.

The Company has provided certain standard indemnifications in connection with its Matrix stock subscription transaction whereby Mercury Fortuna Buyer, LLC (“Subscriber”), Providence and Matrix entered into a stock subscription agreement (the “Subscription Agreement”), dated

August 28, 2016. 

The representations and warranties made by the Company in the Subscription Agreement survive through the

15th

month following the closing date; however, certain fundamental representations survive through the

36th

month following the closing date.  The covenants and agreements of the parties to be performed prior to the closing survive through the

15th

month following the closing date, and all other covenants and agreements survive until the expiration of the applicable statute of limitations in the event of a breach, or for such lesser periods specified therein. 

As of

June 30, 2017,

Matrix has certain malpractice claims that arose prior to the Company’s purchase of Matrix. The Company believes it is reasonably possible that a loss has occurred; however, it is

not

able to reliably estimate the amount of such loss. Although the Company does

not

believe that the aggregate amount of liability reasonably possible with respect to these matters would have a material adverse effect on its financial results, litigation is inherently uncertain and the actual losses incurred in the event that the Company’s legal proceedings were to result in unfavorable outcomes could have a material adverse effect on the Company’s business and financial performance. The Company is

not

aware of any indemnification liabilities with respect to Matrix that require accrual at

June 30, 2017.

Loss Reserves for Certain Reinsurance Programs

The Company historically reinsured a substantial portion of its automobile, general and professional liability and workers’ compensation costs under reinsurance programs through the Company’s wholly-owned subsidiary, Social Services Providers Captive Insurance Company (“SPCIC”), a licensed captive insurance company domiciled in the State of Arizona. As of

May 16, 2017,

SPCIC did

not

renew the expiring reinsurance policies. SPCIC will continue to resolve claims under the historical policy years.

The Company utilizes a report prepared by an independent actuary to estimate the gross expected losses related to historical automobile, general and professional and workers’ compensation liability reinsurance policies, including the estimated losses in excess of SPCIC’s insurance limits, which would be reimbursed to SPCIC to the extent such losses were incurred.  As of

June 30, 2017

and

December 

31,

2016,

the Company had reserves of

$8,693

and

$11,195,

respectively, for the automobile, general and professional liability and workers’ compensation reinsurance policies, net of expected receivables for losses in excess of SPCIC’s historical insurance limits.  The gross reserve as of

June 30, 2017

and

December 

31,

2016

of

$14,776

and

$16,460,

respectively, is classified as “Reinsurance liability reserves” and “Other long-term liabilities” in the condensed consolidated balance sheets.  The estimated amount to be reimbursed to SPCIC as of

June 30, 2017

and

December 31, 2016

was

$6,083

and

$5,265,

respectively, and is classified as “Other receivables’ and “Other assets” in the condensed consolidated balance sheets.

Deferred Compensation Plan

The Company has

one

deferred compensation plan for highly compensated employees of NET Services as of

June 30, 2017.

The deferred compensation plan is unfunded, and benefits are paid from the general assets of the Company. The total of participant deferrals, which is reflected in “Other long-term liabilities” in the condensed consolidated balance sheets, was

$1,755

and

$1,430

at

June 30, 2017

and

December 

31,

2016,

respectively.

XML

Note 12 - Transactions With Related Parties

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

12.

    Transactions with Related Parties

The Company incurred legal expenses under an indemnification agreement with the Standby Purchasers as further discussed in Note

11,

Commitments and Contingencies

. Convertible preferred stock dividends earned by the Standby Purchasers during the

three

and

six

months ended

June 30, 2017

totaled

$1,050

and

$2,089,

respectively. Convertible preferred stock dividends earned by the Standby Purchasers during the

three

and

six

months ended

June 30, 2016

totaled

$1,047

and

$2,095,

respectively.

During the

three

months ended

March 31, 2017,

the Company made a loan to Mission Providence. The balance as of

June 30, 2017

of

$576

is included within “Prepaid expenses and other” in the Company’s condensed consolidated balance sheet.

XML

Note 13 - Discontinued Operations

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

13.

 Discontinued Operations

On

November 1, 2015,

the Company completed the sale of the Human Services segment. During the

three

and

six

months ended

June 30, 2017,

the Company recorded additional expenses related to the Human Services segment, principally related to legal proceedings as described in Note

11,

Commitment and Contingences

, related to an indemnified legal matter.

Effective

October 19, 2016,

the Company completed the Matrix Transaction. Prior to the closing of the Matrix Transaction, the financial results of Matrix were included in the Company’s HA Services segment, which has been reflected as a discontinued operation for the

three

and

six

months ended

June 30, 2016.

Following the Matrix Transaction, the Company has a continuing involvement with Matrix through its

46.8%

ownership interest in Matrix, which is accounted for as an equity method investment.

Matrix’s pretax income for the

three

months ended

June 30, 2017

totaled

$2,284

and its pretax loss for the

six

months ended

June 30, 2017

was

$314.

There have been

no

cash inflows or outflows from or to Matrix subsequent to the closing of the Matrix Transaction, other than the payment of working capital adjustments, and management fees associated with its ongoing relationship with Matrix, of which

$529

was received during the

six

months ended

June 30, 2017.

$312

and

$185

are included in “Other receivables” in the condensed consolidated balance sheets at

June 30, 2017

and

December 31, 2016,

respectively, related to management fees receivable.

Results of Operations

The following tables summarize the results of operations classified as discontinued operations, net of tax, for the

three

and

six

months ended

June 30, 2017

and

2016.

	Three months ended June 30, 2017								Six months ended June 30, 2017
	Human Services Segment			HA Services Segment		Total Discontinued Operations			Human Services Segment			HA Services Segment		Total Discontinued Operations
Operating expenses:
General and administrative expense	$	190		$	-	$	190		$	9,596		$	-	$	9,596
Total operating expenses		190			-		190			9,596			-		9,596
Loss from discontinued operations before income taxes		(190	)		-		(190	)		(9,596	)		-		(9,596	)
Income tax benefit		73			-		73			3,612			-		3,612
Discontinued operations, net of tax	$	(117	)	$	-	$	(117	)	$	(5,984	)	$	-	$	(5,984	)

General and administrative expenses for the

three

months ended

June 30, 2017

includes legal expenses of

$190.

General and administrative expenses for the

six

months ended

June 30, 2017

includes an accrual of

$9,000

for an estimated settlement of indemnified claims related to the sale of the Human Services segment, as well as related legal expenses of

$596.

See Note

11,

Commitments and Contingencies

, for additional information.

	Three months ended June 30, 2016						Six months ended June 30, 2016
	Human Services Segment		HA Services Segment		Total Discontinued Operations		Human Services Segment		HA Services Segment		Total Discontinued Operations
Service revenue, net	$	-	$	52,272	$	52,272	$	-	$	102,864	$	102,864
Operating expenses:
Service expense		-		36,963		36,963		-		74,753		74,753
General and administrative expense		-		662		662		-		1,318		1,318
Depreciation and amortization		-		7,965		7,965		-		15,762		15,762
Total operating expenses		-		45,590		45,590		-		91,833		91,833
Operating income		-		6,682		6,682		-		11,031		11,031
Other expenses:
Interest expense, net		-		3,029		3,029		-		6,170		6,170
Income from discontinued operations before income taxes		-		3,653		3,653		-		4,861		4,861
Provision for income taxes		-		1,283		1,283		-		1,738		1,738
Discontinued operations, net of tax	$	-	$	2,370	$	2,370	$	-	$	3,123	$	3,123

Interest expense, net

The Company allocated interest expense, including amortization of deferred financing fees, to discontinued operations based on the portion of debt that was required to be repaid with the proceeds from the sale of the Matrix Transaction. The total allocated interest expense was

$3,031

and

$6,174

for the

three

and

six

months ended

June 30, 2016,

respectively, and is included in “Interest expense, net” in the table above.

Cash Flow Information

The following table presents depreciation, amortization and capital expenditures of the discontinued operations for the

six

months ended

June 30, 2016:

	Six months ended June 30, 2016
Cash flows from discontinued operating activities:
Depreciation	$	2,667
Amortization		13,095
Cash flows from discontinued investing activities:
Purchase of property and equipment	$	5,415

XML

Note 14 - Segments

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

14.

    Segments

The Company is a holding company, which owns interests in subsidiaries and other companies that are primarily engaged in the provision of healthcare and workforce development services. The subsidiaries and other companies in which the Company holds interests comprise the following segments:

● NET Services – Nationwide provider of non-emergency medical transportation programs for state governments and managed care organizations.

● WD Services – Global provider of employment preparation and placement and legal offender rehabilitation services to eligible participants of government sponsored programs.

● Matrix Investment – Minority interest in nationwide provider of in-home care optimization and management solutions, including comprehensive health assessments, to members of managed care organizations, accounted for as an equity method investment.

Effective

October 19, 2016,

pursuant to the Matrix Transaction, the Company

no

longer owns a controlling interest in Matrix, which historically constituted the HA Services segment as further discussed in Note

13,

Discontinued Operations

. As the HA Services segment, through

October 19, 2016,

is presented as a discontinued operation, it is

not

reflected in the Company’s segment disclosures.  However, the Company accounts for its noncontrolling interest in Matrix from

October 19, 2016

through present as an equity method investment, which solely comprises the Matrix Investment in the table below.

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

three

and

six

months ended

June 30, 2017

and

2016:

	Three months ended June 30, 2017
	NET Services		WD Services			Matrix Investment		Corporate and Other			Total
Service revenue, net	$	338,805	$	69,178		$	-	$	-		$	407,983
Service expense		316,435		62,882			-		(2,281	)		377,036
General and administrative expense		3,089		6,919			-		8,040			18,048
Depreciation and amortization		3,326		3,489			-		85			6,900
Operating income (loss)	$	15,955	$	(4,112	)	$	-	$	(5,844	)	$	5,999
Equity in net gain (loss) of investee	$	-	$	440		$	1,090	$	-		$	1,530

	Three months ended June 30, 2016
	NET Services		WD Services			Matrix Investment		Corporate and Other			Total
Service revenue, net	$	308,915	$	89,289		$	-	$	(85	)	$	398,119
Service expense		285,446		82,073			-		327			367,846
General and administrative expense		2,785		8,585			-		5,341			16,711
Depreciation and amortization		2,931		3,836			-		82			6,849
Operating income (loss)	$	17,753	$	(5,205	)	$	-	$	(5,835	)	$	6,713
Equity in net gain (loss) of investee	$	-	$	(1,459	)	$	-	$	-		$	(1,459	)

	Six months ended June 30, 2017
	NET Services		WD Services			Matrix Investment		Corporate and Other			Total
Service revenue, net	$	662,839	$	144,638		$	-	$	-		$	807,477
Service expense		622,627		126,084			-		(2,265	)		746,446
General and administrative expense		5,980		13,964			-		15,132			35,076
Depreciation and amortization		6,477		6,529			-		163			13,169
Operating income (loss)	$	27,755	$	(1,939	)	$	-	$	(13,030	)	$	12,786
Equity in net gain (loss) of investee	$	-	$	(960	)	$	430	$	-		$	(530	)

	Six months ended June 30, 2016
	NET Services		WD Services			Matrix Investment		Corporate and Other			Total
Service revenue, net	$	599,876	$	180,332		$	-	$	(54	)	$	780,154
Service expense		552,392		163,745			-		384			716,521
General and administrative expense		5,622		16,456			-		13,150			35,228
Depreciation and amortization		5,807		7,415			-		166			13,388
Operating income (loss)	$	36,055	$	(7,284	)	$	-	$	(13,754	)	$	15,017
Equity in net gain (loss) of investee	$	-	$	(4,176	)	$	-	$	-		$	(4,176	)

Geographic Information

 Domestic service revenue, net, totaled

83.1%

and

78.0%

of service revenue, net for the

six

months ended

June 30, 2017

and

2016,

respectively. Foreign service revenue, net, totaled

16.9%

and

22.0%

of service revenue, net for the

six

months ended

June 30, 2017

and

2016,

respectively.

At

June 30, 2017

and

December 31, 2016,

$84,702,

or

23.3%,

and

$76,579,

or

20.4%,

respectively, of the Company’s net assets were located in countries outside of the U.S.

XML

Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The Company follows accounting standards set by the Financial Accounting Standards Board (“FASB”). The FASB establishes accounting principles generally accepted in the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. References to GAAP issued by the FASB in these footnotes are to the FASB

Accounting Standards Codification

(“ASC”), which serves as the single source of authoritative non-SEC accounting and reporting standards to be applied by non-governmental entities. All amounts are presented in United States (“U.S.”) dollars, unless otherwise noted.

The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information, and with the instructions to Form

10

-Q and Article

10

of Regulation S-

X.

Accordingly, they do

not

include all the information and disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for the fair presentation of the results of the interim periods have been included.

The Company has made estimates relating to the reporting of assets and liabilities, revenues and expenses and certain disclosures to prepare these unaudited condensed consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates. Operating results for the

three

and

six

months ended

June 30, 2017

are

not

necessarily indicative of the results that

may

be expected for the fiscal year ending

December 

31,

2017.

Management has evaluated events and transactions that occurred after the balance sheet date and through the date these unaudited condensed consolidated financial statements were filed, and considered the effect of such events in the preparation of these unaudited condensed consolidated financial statements.

The condensed consolidated balance sheet at

December 

31,

2016

has been derived from the audited financial statements at that date, but does

not

include all the information and footnotes required by GAAP for complete financial statements. The unaudited condensed consolidated financial statements contained herein should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form

10

-K for the year ended

December 

31,

2016.

The Company holds investments that are accounted for using the equity method. The Company does

not

control the decision-making process or business management practices of these affiliates. While the Company has access to certain information and performs certain procedures to review the reasonableness of information, the Company relies on management of these affiliates to provide accurate financial information prepared in accordance with GAAP. The Company receives audit reports relating to such financial information from the affiliates’ independent auditors on an annual basis. The Company is

not

aware of any errors in or possible misstatements of the financial information provided by its equity affiliates that would have a material effect on the Company’s condensed consolidated financial statements.

Reclassification, Policy [Policy Text Block]

Reclassifications

We have reclassified certain amounts relating to our prior period results to conform to our current period presentation. On

October 19, 2016,

affiliates of Frazier Healthcare Partners purchased a

53.2%

equity interest in CCHN Group Holdings, Inc. and its subsidiaries (“Matrix”) with Providence retaining a

46.8%

equity interest (the “Matrix Transaction”). Prior to the closing of the Matrix Transaction, the financial results of Matrix were included in the Company’s Health Assessment Services (“HA Services”) segment.

Operating results for this segment are reported as discontinued operations, net of tax in the condensed consolidated statements of income for the

three

and

six

months ended

June 30, 2016.

See Note

13,

Discontinued Operations,

for further information

.

See Note

2,

Significant Accounting Policies and Recent Accounting Pronouncements

, for additional information on other reclassifications.

New Accounting Pronouncements, Policy [Policy Text Block]

The Company adopted the following accounting pronouncements during the

six

months ended

June 30, 2017:

In

November 2015,

the FASB issued Accounting Standards Update (“ASU”)

No.

2015

-

17,

Income Taxes (Topic

740

): Balance Sheet Classification of Deferred Taxes

(“ASU

2015

-

17”

), which changes how deferred taxes are classified on organizations’ balance sheets. The ASU eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments apply to all organizations that present a classified balance sheet. For public companies, the amendments are effective for financial statements issued for annual periods beginning after

December 16, 2016,

and interim periods within those annual periods. The Company adopted ASU

2015

-

17

retrospectively on

January 1, 2017,

which resulted in the reclassification of the

December 31, 2016

deferred tax assets-current balance of

$6,825

and non-current deferred tax assets of

$2,493

to long-term deferred tax liabilities in the amount of

$9,318.

In

March 2016,

the FASB issued ASU

No.

2016

-

07,

Investments - Equity Method and Joint Ventures (Topic

323

): Simplifying the Transition to the Equity Method of Accounting

(“ASU

2016

-

07”

). ASU

2016

-

07

eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU

2016

-

07

instead specifies that the investor should add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and apply the equity method of accounting as of the date the investment became qualified for equity method accounting. ASU

2016

-

07

is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2016

and should be applied prospectively. The Company adopted ASU

2016

-

07

on

January 1, 2017.

The adoption of ASU

2016

-

07

had

no

impact on the Company’s financial statements or disclosures.

In

March 2016,

the FASB issued ASU

No.

2016

-

09,

Compensation - Stock Compensation (Topic

718

): Improvements to Employee Share-Based Payment Accounting

(“ASU

2016

-

09”

). ASU

2016

-

09

is intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including income tax consequences, classification of awards as either equity or liabilities and classification in the statement of cash flows. For public companies, the amendments are effective for annual periods beginning after

December 15, 2016,

and interim periods within those annual periods. The Company adopted ASU

2016

-

09

on

January 1, 2017,

and elected to recognize forfeitures as they occur. As a result, the Company recorded a cumulative effect adjustment of

$850

to retained earnings as of

January 1, 2017.

Upon adoption, all excess tax benefits and tax deficiencies related to employee share-based payments are recognized through income tax expense prospectively. For the

three

months ended

June 30, 2017,

the Company recorded excess tax deficiencies of

$97

as an increase to the provision for income taxes. For the

six

months ended

June 30, 2017,

the Company recorded excess tax benefits of

$113

as a reduction to the provision for income taxes. The Company excluded the related tax benefits when applying the treasury stock method for computing diluted shares outstanding on a prospective basis resulting in a decrease in diluted weighted average shares outstanding of

16,196

and

8,787

shares, respectively, for the

three

and

six

months ended

June 30, 2017.

The Company elected to apply the change in classification of cash flows resulting from excess tax benefits or deficiencies on a retrospective basis. This resulted in an increase in cash flows provided by operating activities of

$258

and an increase of

$258

in cash flows used in financing activities in the condensed consolidated statement of cash flows for the

six

months ended

June 30, 2016.

Additionally, ASU

2016

-

09

requires that employee taxes paid when an employer withholds shares for tax-withholding purposes be reported as financing activities in the consolidated statements of cash flows, which is how the Company has historically classified these amounts.

In

January 2017,

the FASB issued ASU

No.

2017

-

01,

Business Combinations (Topic

805

):

Clarifying the Definition of a Business

(“ASU

2017

-

01”

). ASU

2017

-

01

clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU

2017

-

01

is effective for annual periods beginning after

December 15, 2017,

including interim periods within those periods. The Company adopted ASU

2017

-

01

on

April 1, 2017.

The adoption of ASU

2017

-

01

had

no

impact on the Company’s financial statements or disclosures.

In

January 2017,

the FASB issued ASU

No.

2017

-

04,

Intangibles-Goodwill and Other (Topic

350

):

Simplifying the Test for Goodwill Impairment

(“ASU

2017

-

04”

)

.

ASU

2017

-

04

removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step

two

of the goodwill impairment test. As a result, under ASU

2017

-

04,

an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the impairment loss recognized should

not

exceed the total amount of goodwill allocated to that reporting unit. This guidance is effective prospectively for fiscal years beginning after

December 15, 2019.

Early adoption is permitted for interim or annual goodwill impairment tests performed after

January 1, 2017.

The Company adopted ASU

2017

-

04

on

April 1, 2017.

The adoption of ASU

2017

-

04

had

no

impact on the Company’s financial statements or disclosures.

Updates to the recent accounting pronouncements as disclosed in the Company’

s Form

10

-K for the year ended

December 31, 2016

are as follows:

In

May 2014,

the FASB issued ASU

No.

2014

-

09,

Revenue from Contracts with Customers (Topic

606

)

(“ASU

2014

-

09”

)

.

ASU

2014

-

09

introduced FASB Accounting Standards Codification Topic

606

(“ASC

606”

), which will replace most currently applicable existing revenue recognition guidance and is intended to improve and converge with internationalstandards the financial reporting requirements for revenue from contracts with customers. The core principle of ASU

2014

-

09

is that an entity shouldrecognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU

2014

-

09

also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from customer contracts, including significantjudgments and changes in judgments. ASU

2014

-

09

allows for adoption either on a full retrospective basis to each prior reporting period presented or on amodified retrospective basis with the cumulative effect of initially applying the new guidance recognized at the date of initial application, which will beeffective for the Company beginning

January 1, 2018.

The Company has developed an adoption plan, assembled a cross-functional project team and is in the process of assessing the impacts of applying ASC

606

to the Company’s financial statements, information systems and internal controls. The Company has performed detailed reviews of a significant number of its existing contracts with customers. These reviews have focused on several key considerations which could impact the Company's accounting and reporting under the new standard:

● the effect of specified clauses on the term of many of the Company’s contracts with customers;

● the nature of the promises in many of the Company’s contracts with customers to perform integrated services over a period of time;

● whether and how much variable consideration to include when determining the transaction prices for its contracts with customers;

● whether any of the Company’s customer contracts require performance over a series of distinct service periods and the impact on determining and allocating the transaction price; and

● the manner in which the Company will measure its progress towards fully satisfying its performance obligations, including a determination of whether the Company may be able to use certain practical expedients.

Management’s assessment is ongoing; therefore, the Company has

not

yet determined with certainty the impact of applying ASC

606.

However, management does

not

believe the impact on its financial statements will be significant based on the procedures performed to date.

In

January 2017,

the FASB issued ASU

No.

2017

-

03,

Accounting Changes and Error Corrections (Topic

250

) and Investments - Equity Method and Joint Ventures (Topic

323

)

(“ASU

2017

-

03”

). ASU

2017

-

03

expands required qualitative disclosures when registrants cannot reasonably estimate the impact that adoption of an ASU will have on the financial statements. Such qualitative disclosures would include a comparison of the registrant’s new accounting policies, if determined, to current accounting policies, a description of the status of the registrant’s process to implement the new standard and a description of the significant implementation matters yet to be addressed by the registrant. Other than enhancements to the qualitative disclosures regarding future adoption of new ASUs, adoption of the provisions of this standard is

not

expected to have any impact on the Company’s consolidated financial statements.

In

May 2017,

the FASB issued ASU

No.

2017

-

09,

Compensation–Stock Compensation (Topic

718

):

Scope of Modification Accounting

(“ASU

2017

-

09”

). ASU

2017

-

09

provides guidance about which changes to the terms of a share-based payment award should be accounted for as a modification. A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do

not

change, and the classification as an equity or liability instrument does

not

change. This guidance is effective for fiscal years beginning after

December 15, 2017.

Early adoption is permitted. The adoption of ASU

2017

-

09

is

not

expected to have a material impact on the Company’s consolidated financial statements.

There were

no

other significant updates to the new accounting guidance

not

yet adopted by the Company as disclosed in its Form 

10

-K for the year ended

December 31, 2016.

XML

Note 3 - Equity Investment (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Equity Method Investments [Table Text Block]

	Equity Investments		Other Assets		Accrued Expenses		Maximum Exposure to Loss
June 30, 2017	$	3,326	$	576	$	-	$	3,902
December 31, 2016	$	4,021	$	-	$	-	$	4,021

Mission Providence [Member]

Notes Tables

Income statement and Balance sheet Disclosure [Table Text Block]

	June 30, 2017		December 31, 2016
Current assets	$	816	$	4,640
Long-term assets		10,530		10,473
Current liabilities		10,658		12,844
Long-term liabilities		-		1,655

	Three months ended June 30,
	2017		2016
Revenue	$	10,493	$	9,708
Operating income (loss)		639		(2,709	)
Net income (loss)		577		(1,945	)

	Six months ended June 30,
	2017			2016
Revenue	$	19,880		$	17,126
Operating loss		(1,166	)		(7,794	)
Net loss		(1,283	)		(5,568	)

Matrix [Member]

Notes Tables

Income statement and Balance sheet Disclosure [Table Text Block]

	June 30, 2017		December 31, 2016
Current assets	$	43,479	$	28,589
Long-term assets		604,598		614,841
Current liabilities		35,236		25,791
Long-term liabilities		274,426		281,348

	Three months ended June 30, 2017
Revenue	$	60,852
Operating income		5,942
Net income		1,619

	Six months ended June 30, 2017
Revenue	$	116,707
Operating income		6,950
Net loss		(238	)

XML

Note 4 - Prepaid Expenses and Other (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Table Text Block]

	June 30,		December 31,
	2017		2016
Prepaid income taxes	$	1,701	$	1,467
Escrow funds		10,000		10,000
Prepaid insurance		2,402		3,153
Prepaid taxes and licenses		2,479		3,570
Note receivable		3,177		3,130
Prepaid rent		3,447		2,013
Deposits held for leased premises and bonds		2,674		2,609
Other		21,565		11,953
Total prepaid expenses and other	$	47,445	$	37,895

XML

Note 5 - Accrued Expenses (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Accrued Liabilities [Table Text Block]

	June 30,		December 31,
	2017		2016
Accrued compensation	$	21,704	$	23,050
NET Services accrued contract payments		32,146		32,836
Accrued settlement		15,000		6,000
Income taxes payable		1,545		372
Other		35,069		40,123
Total accrued expenses	$	105,464	$	102,381

XML

Note 6 - Restructuring and Related Reorganization Costs (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Restructuring and Related Costs [Table Text Block]

	January 1, 2017		Costs Incurred			Cash Payments			Foreign Exchange Rate Adjustments		June 30, 2017
Ingeus Futures' Program	$	2,486	$	836		$	(2,341	)	$	130	$	1,111
Offender Rehabilitation Program		1,380		52			(1,295	)		18		155
UK Restructuring Program		50		(29	)		-			2		23
Total	$	3,916	$	859		$	(3,636	)	$	150	$	1,289

	January 1, 2016		Costs Incurred		Cash Payments			Foreign Exchange Rate Adjustments			June 30, 2016
Offender Rehabilitation Program	$	6,538	$	4,174	$	(2,204	)	$	(753	)	$	7,755
UK Restructuring Program		2,059		434		(1,956	)		(96	)		441
Total	$	8,597	$	4,608	$	(4,160	)	$	(849	)	$	8,196

XML

Note 7 - Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Stockholders Equity [Table Text Block]

											Accumulated
					Additional						Other								Non-
	Common Stock				Paid-In			Retained			Comprehensive			Treasury Stock					controlling
	Shares		Amount		Capital			Earnings			Loss			Shares		Amount			Interest			Total
Balance at December 31, 2016		17,315,661	$	17	$	302,010		$	156,718		$	(33,449	)		3,478,676	$	(125,201	)	$	(2,420	)	$	297,675
Stock-based compensation		-		-		3,061			-			-			-		-			-			3,061
Exercise of employee stock options		60,233		-		968			-			-			5,665		(238	)		-			730
Restricted stock issued		28,923		-		-			-			-			17,703		(771	)		-			(771	)
Performance restricted stock issued		3,773		-		(96	)		-			-			-		-			-			(96	)
Shares issued for bonus settlement and director stipend		24,775				1,107						-			-		-			-			1,107
Stock repurchase plan		-		-		-			-			-			441,965		(17,983	)		-			(17,983	)
Foreign currency translation adjustments, net of tax		-		-		-			-			4,426			-		-			(113	)		4,313
Convertible preferred stock dividends		-		-		-			(2,191	)		-			-		-			-			(2,191	)
Noncontrolling interests		-		-		-			-			-			-		-			200			200
Other		-		-		34			-			-			-		-			-			34
Net income attributable to Providence		-		-		-			(411	)		-			-		-			-			(411	)
Cumulative effect adjustment from change in accounting principle		-		-		850			(850	)		-			-		-			-			-
Balance at June 30, 2017		17,433,365	$	17	$	307,934		$	153,266		$	(29,023	)		3,944,009	$	(144,193	)	$	(2,333	)	$	285,668

XML

Note 8 - Stock-based Compensation and Similar Arrangements (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Disclosure of Stock-based Compensation by Line Item [Table Text Block]

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Service expense	$	110	$	66	$	234	$	180
General and administrative expense		1,445		1,247		2,787		1,724
Equity in net loss of investees		13		-		40		-
Discontinued operations, net of tax		-		22		-		43
Total stock-based compensation	$	1,568	$	1,335	$	3,061	$	1,947

XML

Note 9 - Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
Numerator:
Net income (loss) attributable to Providence	$	3,915		$	4,623		$	(411	)	$	6,858
Less dividends on convertible preferred stock		(1,102	)		(1,099	)		(2,191	)		(2,198	)
Less income allocated to participating securities		(379	)		(420	)		(435	)		(552	)
Net income (loss) available to common stockholders	$	2,434		$	3,104		$	(3,037	)	$	4,108
Continuing operations	$	2,551		$	1,016		$	2,947		$	1,355
Discontinued operations		(117	)		2,088			(5,984	)		2,753
	$	2,434		$	3,104		$	(3,037	)	$	4,108
Denominator:
Denominator for basic earnings per share -- weighted-average shares		13,553,704			14,893,595			13,628,572			14,975,582
Effect of dilutive securities:
Common stock options		48,836			125,717			53,575			123,363
Performance-based restricted stock units		5,036			-			5,036
Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion		13,607,576			15,019,312			13,687,183			15,098,945
Basic earnings (loss) per share:
Continuing operations	$	0.19		$	0.07		$	0.22		$	0.09
Discontinued operations		(0.01	)		0.14			(0.44	)		0.18
	$	0.18		$	0.21		$	(0.22	)	$	0.27
Diluted earnings (loss) per share:
Continuing operations	$	0.19		$	0.07		$	0.22		$	0.09
Discontinued operations		(0.01	)		0.14			(0.44	)		0.18
	$	0.18		$	0.21		$	(0.22	)	$	0.27

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Stock options to purchase common stock		46,478		33,957		144,811		33,957
Convertible preferred stock		803,398		803,455		803,398		803,486

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Note 13 - Discontinued Operations (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Disposal Groups, Including Discontinued Operations, Income Statement [Table Text Block]

	Three months ended June 30, 2017								Six months ended June 30, 2017
	Human Services Segment			HA Services Segment		Total Discontinued Operations			Human Services Segment			HA Services Segment		Total Discontinued Operations
Operating expenses:
General and administrative expense	$	190		$	-	$	190		$	9,596		$	-	$	9,596
Total operating expenses		190			-		190			9,596			-		9,596
Loss from discontinued operations before income taxes		(190	)		-		(190	)		(9,596	)		-		(9,596	)
Income tax benefit		73			-		73			3,612			-		3,612
Discontinued operations, net of tax	$	(117	)	$	-	$	(117	)	$	(5,984	)	$	-	$	(5,984	)

	Three months ended June 30, 2016						Six months ended June 30, 2016
	Human Services Segment		HA Services Segment		Total Discontinued Operations		Human Services Segment		HA Services Segment		Total Discontinued Operations
Service revenue, net	$	-	$	52,272	$	52,272	$	-	$	102,864	$	102,864
Operating expenses:
Service expense		-		36,963		36,963		-		74,753		74,753
General and administrative expense		-		662		662		-		1,318		1,318
Depreciation and amortization		-		7,965		7,965		-		15,762		15,762
Total operating expenses		-		45,590		45,590		-		91,833		91,833
Operating income		-		6,682		6,682		-		11,031		11,031
Other expenses:
Interest expense, net		-		3,029		3,029		-		6,170		6,170
Income from discontinued operations before income taxes		-		3,653		3,653		-		4,861		4,861
Provision for income taxes		-		1,283		1,283		-		1,738		1,738
Discontinued operations, net of tax	$	-	$	2,370	$	2,370	$	-	$	3,123	$	3,123

Disposal Groups, Including Discontinued Operations, Cash Flow Statement [Table Text Block]

	Six months ended June 30, 2016
Cash flows from discontinued operating activities:
Depreciation	$	2,667
Amortization		13,095
Cash flows from discontinued investing activities:
Purchase of property and equipment	$	5,415

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Note 14 - Segments (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three months ended June 30, 2017
	NET Services		WD Services			Matrix Investment		Corporate and Other			Total
Service revenue, net	$	338,805	$	69,178		$	-	$	-		$	407,983
Service expense		316,435		62,882			-		(2,281	)		377,036
General and administrative expense		3,089		6,919			-		8,040			18,048
Depreciation and amortization		3,326		3,489			-		85			6,900
Operating income (loss)	$	15,955	$	(4,112	)	$	-	$	(5,844	)	$	5,999
Equity in net gain (loss) of investee	$	-	$	440		$	1,090	$	-		$	1,530

	Three months ended June 30, 2016
	NET Services		WD Services			Matrix Investment		Corporate and Other			Total
Service revenue, net	$	308,915	$	89,289		$	-	$	(85	)	$	398,119
Service expense		285,446		82,073			-		327			367,846
General and administrative expense		2,785		8,585			-		5,341			16,711
Depreciation and amortization		2,931		3,836			-		82			6,849
Operating income (loss)	$	17,753	$	(5,205	)	$	-	$	(5,835	)	$	6,713
Equity in net gain (loss) of investee	$	-	$	(1,459	)	$	-	$	-		$	(1,459	)

	Six months ended June 30, 2017
	NET Services		WD Services			Matrix Investment		Corporate and Other			Total
Service revenue, net	$	662,839	$	144,638		$	-	$	-		$	807,477
Service expense		622,627		126,084			-		(2,265	)		746,446
General and administrative expense		5,980		13,964			-		15,132			35,076
Depreciation and amortization		6,477		6,529			-		163			13,169
Operating income (loss)	$	27,755	$	(1,939	)	$	-	$	(13,030	)	$	12,786
Equity in net gain (loss) of investee	$	-	$	(960	)	$	430	$	-		$	(530	)

	Six months ended June 30, 2016
	NET Services		WD Services			Matrix Investment		Corporate and Other			Total
Service revenue, net	$	599,876	$	180,332		$	-	$	(54	)	$	780,154
Service expense		552,392		163,745			-		384			716,521
General and administrative expense		5,622		16,456			-		13,150			35,228
Depreciation and amortization		5,807		7,415			-		166			13,388
Operating income (loss)	$	36,055	$	(7,284	)	$	-	$	(13,754	)	$	15,017
Equity in net gain (loss) of investee	$	-	$	(4,176	)	$	-	$	-		$	(4,176	)

XML

Note 1 - Organization and Basis of Presentation (Details Textual)	Oct. 19, 2016	Jun. 30, 2017
Matrix [Member]
Equity Method Investment, Ownership Percentage	46.80%	46.80%
Matrix [Member]
Interest in Subsidiary Subscribed for by Third Party	53.20%

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Note 2 - Significant Accounting Policies and Recent Accounting Pronouncements (Details Textual) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
	Jan. 01, 2017	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income Tax Expense (Benefit)		$ 2,879	$ 3,997	$ 5,402	$ 7,789
Accounting Standards Update 2015-17 [Member] | Reclassification from Current Tax Assets to Long-term Deferred Tax Assets and Liabilities [Member] | December 31, 2016 [Member]
Prior Period Reclassification Adjustment				6,825
Accounting Standards Update 2015-17 [Member] | Reclassification from Non-Current Tax Assets to Long-term Deferred Tax Assets And Liabilities [Member] | December 31, 2016 [Member]
Prior Period Reclassification Adjustment				2,493
Accounting Standards Update 2015-17 [Member] | Reclassification from Current and Non-Current Tax Assets to Long-term Deferred Tax Assets And Liabilities [Member] | December 31, 2016 [Member]
Prior Period Reclassification Adjustment				$ 9,318
Accounting Standards Update 2016-09 [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount		(16,196)		(8,787)
Cumulative Effect on Retained Earnings, Net of Tax	$ 850
Income Tax Expense (Benefit)		$ 97		$ (113)
Accounting Standards Update 2016-09 [Member] | Reclassification from a Decrease in Financing Acticvities Cash Flows to an Increase in Operating Activities Cash Flows [Member] | Period of Six Months Ended June 30, 2016 [Member]
Prior Period Reclassification Adjustment				$ 258

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Note 3 - Equity Investment (Details Textual) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016	Oct. 19, 2016
Equity Method Investments	$ 160,601	$ 161,363
Matrix [Member]
Equity Method Investments	$ 157,124	157,202
Equity Method Investment, Ownership Percentage	46.80%		46.80%
Mission Providence [Member]
Equity Method Investments	$ 3,326	$ 4,021
Equity Method Investment, Ownership Percentage	60.00%
Joint Venture, Rights to Cash or Profit Distributions, Percentage	75.00%

XML

Note 3 - Equity Investment - Summary of Financial Information for Matrix (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Current assets	$ 286,223		$ 286,223		$ 288,103
Current liabilities	238,621		238,621		227,796
Revenue	407,983	$ 398,119	807,477	$ 780,154
Operating income	5,999	6,713	12,786	15,017
Net income (loss)	3,915	$ 4,623	(411)	$ 6,858
Matrix [Member]
Current assets	43,479		43,479		28,589
Long-term assets	604,598		604,598		614,841
Current liabilities	35,236		35,236		25,791
Long-term liabilities	274,426		274,426		$ 281,348
Revenue	60,852		116,707
Operating income	5,942		6,950
Net income (loss)	$ 1,619		$ (238)

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Note 3 - Equity Investment - Carrying Amounts of Assets and Liabilities and Maximum Loss Exposure (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Equity Method Investments	$ 160,601	$ 161,363
Mission Providence [Member]
Maximum exposure to loss	3,902	4,021
Equity Method Investments	3,326	4,021
Mission Providence [Member] | Other Assets [Member]
Notes Receivable, Related Parties	$ 576

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Note 3 - Equity Investment - Summary of Financial Information for Mission Providence (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Current assets	$ 286,223		$ 286,223		$ 288,103
Current liabilities	238,621		238,621		227,796
Revenue	407,983	$ 398,119	807,477	$ 780,154
Operating income	5,999	6,713	12,786	15,017
Net income (loss)	3,915	4,623	(411)	6,858
Mission Providence [Member]
Current assets	816		816		4,640
Long-term assets	10,530		10,530		10,473
Current liabilities	10,658		10,658		12,844
Long-term liabilities					$ 1,655
Revenue	10,493	9,708	19,880	17,126
Operating income	639	(2,709)	(1,166)	(7,794)
Net income (loss)	$ 577	$ (1,945)	$ (1,283)	$ (5,568)

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Note 4 - Prepaid Expenses and Other (Details Textual) $ in Millions	6 Months Ended
	Jun. 30, 2017 USD ($)
Human Services [Member] | Indemnification Agreement [Member]
Loss Contingency Accrual, Provision	$ 15

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Note 4 - Prepaid Expenses and Other - Summary of Prepaid Expenses and Other (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Prepaid income taxes	$ 1,701	$ 1,467
Escrow funds	10,000	10,000
Prepaid insurance	2,402	3,153
Prepaid taxes and licenses	2,479	3,570
Note receivable	3,177	3,130
Prepaid rent	3,447	2,013
Deposits held for leased premises and bonds	2,674	2,609
Other	21,565	11,953
Total prepaid expenses and other	$ 47,445	$ 37,895

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Note 5 - Accrued Expenses - Summary of Accrued Expenses (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Accrued compensation	$ 21,704	$ 23,050
NET Services accrued contract payments	32,146	32,836
Accrued settlement	15,000	6,000
Income taxes payable	1,545	372
Other	35,069	40,123
Total accrued expenses	$ 105,464	$ 102,381

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Note 6 - Restructuring and Related Reorganization Costs (Details Textual) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Severance Costs	$ 859	$ 4,608
Restructuring Reserve	1,289	8,196	$ 3,916	$ 8,597
Employee Severance [Member] | WD Services [Member] | Ingeus Acquisition [Member]
Number of Severance Plans			3
Employee Severance [Member] | WD Services [Member] | Ingeus Acquisition [Member] | Accrued Expenses [Member]
Severance Costs	859	$ 4,608
Restructuring Reserve	$ 1,289

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Note 6 - Restructuring and Related Reorganization Costs - Summary of Severance and Related Charges (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Balance at beginning of period	$ 3,916	$ 8,597
Costs Incurred	859	4,608
Cash Payments	(3,636)	(4,160)
Foreign Exchange Rate Adjustments	150	(849)
Balance at end of period	1,289	8,196
Ingeus Futures' Program [Member]
Balance at beginning of period	2,486
Costs Incurred	836
Cash Payments	(2,341)
Foreign Exchange Rate Adjustments	130
Balance at end of period	1,111
Offender Rehabilitation Program Restructuring [Member]
Balance at beginning of period	1,380	6,538
Costs Incurred	52	4,174
Cash Payments	(1,295)	(2,204)
Foreign Exchange Rate Adjustments	18	(753)
Balance at end of period	155	7,755
IUK Restructuring [Member]
Balance at beginning of period	50	2,059
Costs Incurred	(29)	434
Cash Payments		(1,956)
Foreign Exchange Rate Adjustments	2	(96)
Balance at end of period	$ 23	$ 441

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Note 7 - Stockholders' Equity - Changes In Stockholders' Equity (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Balance			$ 297,675
Stock-based compensation			3,061
Exercise of employee stock options			730
Restricted stock issued			(771)
Shares issued for bonus settlement and director stipend			1,107
Stock repurchase plan			(17,983)
Foreign currency translation adjustments, net of tax			4,313
Convertible preferred stock dividends			(2,191)
Noncontrolling interests	$ (174)	$ (628)	200	$ (735)
Other			34
Net income (loss) attributable to Providence	3,915	$ 4,623	(411)	$ 6,858
Cumulative effect adjustment from change in accounting principle
Balance	285,668		285,668
Performance Shares [Member]
Performance Restricted Stock Issued			$ (96)
Common Stock [Member]
Balance (in shares)			17,315,661
Balance			$ 17
Stock-based compensation
Exercise of employee stock options (in shares)			60,233
Exercise of employee stock options
Restricted stock issued (in shares)			28,923
Restricted stock issued
Shares issued for bonus settlement and director stipend (in shares)			24,775
Shares issued for bonus settlement and director stipend
Stock repurchase plan (in shares)
Stock repurchase plan
Foreign currency translation adjustments, net of tax
Convertible preferred stock dividends
Noncontrolling interests
Other
Net income (loss) attributable to Providence
Cumulative effect adjustment from change in accounting principle
Balance (in shares)	17,433,365		17,433,365
Balance	$ 17		$ 17
Common Stock [Member] | Performance Shares [Member]
Performance Restricted Stock Issued (in shares)			3,773
Performance Restricted Stock Issued
Additional Paid-in Capital [Member]
Balance			302,010
Stock-based compensation			3,061
Exercise of employee stock options			968
Restricted stock issued
Shares issued for bonus settlement and director stipend			1,107
Stock repurchase plan
Foreign currency translation adjustments, net of tax
Convertible preferred stock dividends
Noncontrolling interests
Other			34
Net income (loss) attributable to Providence
Cumulative effect adjustment from change in accounting principle	850		850
Balance	307,934		307,934
Additional Paid-in Capital [Member] | Performance Shares [Member]
Performance Restricted Stock Issued			(96)
Retained Earnings [Member]
Balance			156,718
Stock-based compensation
Exercise of employee stock options
Restricted stock issued
Shares issued for bonus settlement and director stipend
Stock repurchase plan
Foreign currency translation adjustments, net of tax
Convertible preferred stock dividends			(2,191)
Noncontrolling interests
Other
Net income (loss) attributable to Providence			(411)
Cumulative effect adjustment from change in accounting principle	(850)		(850)
Balance	153,266		153,266
Retained Earnings [Member] | Performance Shares [Member]
Performance Restricted Stock Issued
AOCI Attributable to Parent [Member]
Balance			(33,449)
Stock-based compensation
Exercise of employee stock options
Restricted stock issued
Shares issued for bonus settlement and director stipend
Stock repurchase plan
Foreign currency translation adjustments, net of tax			4,426
Convertible preferred stock dividends
Noncontrolling interests
Other
Net income (loss) attributable to Providence
Cumulative effect adjustment from change in accounting principle
Balance	(29,023)		(29,023)
AOCI Attributable to Parent [Member] | Performance Shares [Member]
Performance Restricted Stock Issued
Treasury Stock [Member]
Balance (in shares)			3,478,676
Balance			$ (125,201)
Stock-based compensation
Exercise of employee stock options (in shares)			5,665
Exercise of employee stock options			$ (238)
Restricted stock issued (in shares)			17,703
Restricted stock issued			$ (771)
Shares issued for bonus settlement and director stipend (in shares)
Shares issued for bonus settlement and director stipend
Stock repurchase plan (in shares)			441,965
Stock repurchase plan			$ (17,983)
Foreign currency translation adjustments, net of tax
Convertible preferred stock dividends
Noncontrolling interests
Other
Net income (loss) attributable to Providence
Cumulative effect adjustment from change in accounting principle
Balance (in shares)	3,944,009		3,944,009
Balance	$ (144,193)		$ (144,193)
Treasury Stock [Member] | Performance Shares [Member]
Performance Restricted Stock Issued (in shares)
Performance Restricted Stock Issued
Noncontrolling Interest [Member]
Balance			(2,420)
Stock-based compensation
Exercise of employee stock options
Restricted stock issued
Shares issued for bonus settlement and director stipend
Stock repurchase plan
Foreign currency translation adjustments, net of tax			(113)
Convertible preferred stock dividends
Noncontrolling interests			200
Other
Net income (loss) attributable to Providence
Cumulative effect adjustment from change in accounting principle
Balance	$ (2,333)		(2,333)
Noncontrolling Interest [Member] | Performance Shares [Member]
Performance Restricted Stock Issued

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Note 8 - Stock-based Compensation and Similar Arrangements (Details Textual) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2017	Dec. 31, 2016
Allocated Share-based Compensation Expense	$ 1,568	$ 1,335	$ 3,061	$ 1,947
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	290,781		290,781
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price	$ 37.56		$ 37.56
Stock Equivalent Units Outstanding	6,671		6,671
Stock Option Equivalent Units Outstanding	200,000		200,000
General and Administrative Expense [Member]
Allocated Share-based Compensation Expense	$ 1,445	1,247	$ 2,787	1,724
Service Expense [Member]
Allocated Share-based Compensation Expense	110	66	234	180
HoldCo LTI Program [Member] | Scenario, Forecast [Member]
Minimum Common Stock Price For Distribution					$ 56.79
NET Services Vertical Long-term Incentive Plan [Member]
NET Services Long Term Incentive Plan Pool	2,956		2,956
NET Services Long Term Incentive Plan Unamortized Expense	971		971
NET Services Vertical Long-term Incentive Plan [Member] | Accrued Expenses and Other Long-Term Liabilities [Member]
Deferred Compensation Liability, Current and Noncurrent	1,985		1,985
NET Services Vertical Long-term Incentive Plan [Member] | Other Long-term Liabilities [Member]
Deferred Compensation Liability, Classified, Noncurrent						$ 1,841
Performance Shares [Member] | HoldCo LTI Program [Member]
Allocated Share-based Compensation Expense	$ 1,042	842	$ 2,084	1,462
Performance Shares [Member] | HoldCo LTI Program [Member] | Scenario, Forecast [Member]
Period for Weighted Average Price for Common Share					90 days
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	73,950		73,950
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value	$ 44.40		$ 44.40
Performance Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	18,298		18,298
Stock Equivalent Unit Awards and Stock Option Equivalent Units [Member] | Accrued Expenses [Member]
Deferred Compensation Share-based Arrangements, Liability, Current	$ 2,789		$ 2,789			$ 1,764
Stock Equivalent Unit Awards and Stock Option Equivalent Units [Member] | General and Administrative Expense [Member]
Allocated Share-based Compensation Expense (Benefit)	564	(847)	1,231	(117)
NET Services Vertical Long-term Incentive Plan [Member] | Service Expense [Member]
Allocated Cash-based Compensation Expense	$ (401)	$ 979	$ 144	$ 1,994

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Note 8 - Stock-based Compensation and Similar Arrangements - Stock-based Compensation Activity (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Stock-based compensation	$ 1,568	$ 1,335	$ 3,061	$ 1,947
Service Expense [Member]
Stock-based compensation	110	66	234	180
General and Administrative Expense [Member]
Stock-based compensation	1,445	1,247	2,787	1,724
Equity in Net Loss of Investee [Member]
Stock-based compensation	13		40
Discontinued Operations, Net of Tax [Member]
Stock-based compensation		$ 22		$ 43

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Note 9 - Earnings Per Share - Computation of Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Numerator:
Net income (loss) attributable to Providence	$ 3,915	$ 4,623	$ (411)	$ 6,858
Less dividends on convertible preferred stock	(1,102)	(1,099)	(2,191)	(2,198)
Less income allocated to participating securities	(379)	(420)	(435)	(552)
Net income (loss) available to common stockholders	2,434	3,104	(3,037)	4,108
Net income (loss) available to common stockholders	$ 2,434	$ 3,104	$ (3,037)	$ 4,108
Denominator for basic earnings per share -- weighted-average shares (in shares)	13,553,704	14,893,595	13,628,572	14,975,582
Effect of dilutive securities:
Denominator for diluted earnings per share -- adjusted weighted-average shares assumed conversion (in shares)	13,607,576	15,019,312	13,687,183	15,098,945
Basic earnings (loss) per common share:
Continuing operations (in dollars per share)	$ 0.19	$ 0.07	$ 0.22	$ 0.09
Discontinued operations (in dollars per share)	(0.01)	0.14	(0.44)	0.18
(in dollars per share)	0.18	0.21	(0.22)	0.27
Diluted earnings (loss) per share:
Continuing operations (in dollars per share)	0.19	0.07	0.22	0.09
Discontinued operations (in dollars per share)	(0.01)	0.14	(0.44)	0.18
(in dollars per share)	$ 0.18	$ 0.21	$ (0.22)	$ 0.27
Employee Stock Option [Member]
Effect of dilutive securities:
Common stock options (in shares)	48,836	125,717	53,575	123,363
Performance Restricted Stock Units [Member]
Effect of dilutive securities:
Performance-based restricted stock units (in shares)	5,036		5,036
Continuing Operations [Member]
Numerator:
Net income (loss) available to common stockholders	$ 2,551	$ 1,016	$ 2,947	$ 1,355
Net income (loss) available to common stockholders	2,551	1,016	2,947	1,355
Discontinued Operations [Member]
Numerator:
Net income (loss) available to common stockholders	(117)	2,088	(5,984)	2,753
Net income (loss) available to common stockholders	$ (117)	$ 2,088	$ (5,984)	$ 2,753

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Note 9 - Earnings Per Share - Antidilutive Securities Excluded From Computation of Earnings Per Share (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Employee Stock Option [Member]
Antidilutive securities (in shares)	46,478	33,957	144,811	33,957
Antidilutive Securities, Convertible Preferred Stock [Member]
Antidilutive securities (in shares)	803,398	803,455	803,398	803,486

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Note 10 - Income Taxes (Details Textual) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Effective Income Tax Rate Reconciliation, Percent	42.70%	71.10%	48.30%	72.20%
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent			35.00%	35.00%
Income Tax Expense (Benefit)	$ 2,879	$ 3,997	$ 5,402	$ 7,789
Accounting Standards Update 2016-09 [Member]
Income Tax Expense (Benefit)	$ 97		$ (113)

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Note 11 - Commitments and Contingencies (Details Textual) - USD ($)	1 Months Ended	3 Months Ended		6 Months Ended
	Sep. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016	Feb. 05, 2015
Convertible Preferred Stock, Pro Rata Share							$ 65,500,000
Rights Offering, Right to Purchase Preferred Stock, Price Per Share							$ 100
Other Noncurrent Liabilities [Member]
Deferred Compensation Arrangement with Individual, Recorded Liability		$ 1,755,000		$ 1,755,000		$ 1,430,000
Indemnification Agreement [Member] | Human Services [Member]
Loss Contingency Accrual, Provision				15,000,000
Insurance Claims [Member]
Loss Contingency Accrual, Net		8,693,000		8,693,000		11,195,000
Loss Contingency Accrual		14,776,000		14,776,000		16,460,000
Offsetting Receivable		6,083,000		6,083,000		5,265,000
Discontinued Operations, Net of Tax [Member] | Indemnification Agreement [Member] | Human Services [Member]
Loss Contingency Accrual, Provision				15,000,000
Haverhill Litigation [Member]
Indemnified Legal Expenses		143,000	$ 38,000	275,000	$ 144,000
Indemnified Legal Expense, Related Parties		92,000	38,000	208,000	144,000
Offsetting Receivable		1,167,000		1,167,000		$ 1,645,000
Haverhill Litigation [Member] | General and Administrative Expense [Member]
Legal Expense		$ 0	$ 0	$ 11,000	$ 0
Coliseum Capital Management, LLC [Member] | Unsecured Subordinated Note Issued to Coliseum [Member]
Debt Instrument, Interest Rate, Stated Percentage							14.00%
Debt Instrument, Face Amount							$ 65,500,000
Convertible Preferred Stock [Member]
Temporary Equity, Shares Issued		803,398		803,398		803,398
Non-Standby Purchasers [Member] | Convertible Preferred Stock [Member]
Temporary Equity, Shares Issued							130,884
The Standby Purchasers [Member] | Convertible Preferred Stock [Member]
Temporary Equity, Shares Issued							524,116
Rights Offering, Right to Purchase Preferred Stock, Price Per Share							$ 100
Rodriguez v. Providence Community Corrections [Member] | Indemnification Agreement [Member] | Human Services [Member]
Litigation Settlement, Amount Awarded to Other Party	$ 14,000,000
Pending Litigation [Member] | Proposed Settlement Agreement [Member]
Litigation Settlement, Amount Awarded from Other Party				$ 10,000,000
Litigation Settlement, Amount Awarded from Other Party to the Company, Percentage				75.00%
Litigation Settlement, Amount Awarded from Other Party to the Holders of Company’s Common Stock, Percentage				25.00%

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Note 12 - Transactions With Related Parties (Details Textual) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Mission Providence [Member] | Prepaid Expenses and Other Current Assets [Member]
Notes Receivable, Related Parties	$ 576		$ 576
Preferred Stock Dividends Earned by Related Party [Member] | Coliseum Capital Partners, L.P. [Member]
Related Party Transaction, Amounts of Transaction	$ 1,050	$ 1,047	$ 2,089	$ 2,095

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Note 13 - Discontinued Operations (Details Textual) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2017	Dec. 31, 2016	Oct. 19, 2016
Matrix [Member]
Equity Method Investment, Ownership Percentage	46.80%	46.80%		46.80%
Equity Method Investment, Summarized Financial Information, Pretax Income (Loss)	$ 2,284	$ (314)
Proceeds from Management Fees Received		529
Disposal Group, Including Discontinued Operation, Interest Expense	3,031	6,174
Matrix [Member] | Other Receivables [Member]
Management Fees Receivable	312	312	$ 185
Human Services [Member]
Disposal Group, Including Discontinued Operations, Settlement Accrual		9,000
Disposal Group, Including Discontinued Operation, Legal Expense	$ 190	$ 596

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Note 13 - Discontinued Operations - Summary of Operations Classified as Discontinued Operations (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Discontinued operations, net of tax	$ (117)	$ 2,370	$ (5,984)	$ 3,123
Discontinued Operations [Member]
Total operating expenses	190	45,590	9,596	91,833
Operating income		6,682		11,031
Interest expense, net		3,029		6,170
Loss from discontinued operations before income taxes	(190)	3,653	(9,596)	4,861
Income tax benefit	73	1,283	3,612	1,738
Discontinued operations, net of tax	(117)	2,370	(5,984)	3,123
Service revenue, net		52,272		102,864
Service expense		36,963		74,753
General and administrative expense	190	662	9,596	1,318
Depreciation and amortization		7,965		15,762
Human Services [Member] | Discontinued Operations [Member]
Total operating expenses	190		9,596
Operating income
Interest expense, net
Loss from discontinued operations before income taxes	(190)		(9,596)
Income tax benefit	73		3,612
Discontinued operations, net of tax	(117)		(5,984)
Service revenue, net
Service expense
General and administrative expense	190		9,596
Depreciation and amortization
HA Services [Member] | Discontinued Operations [Member]
Total operating expenses		45,590		91,833
Operating income		6,682		11,031
Interest expense, net		3,029		6,170
Loss from discontinued operations before income taxes		3,653		4,861
Income tax benefit		1,283		1,738
Discontinued operations, net of tax		2,370		3,123
Service revenue, net		52,272		102,864
Service expense		36,963		74,753
General and administrative expense		662		1,318
Depreciation and amortization		$ 7,965		$ 15,762

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Note 13 - Discontinued Operations - Cash Flow From Discontinued Operating Activities (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Depreciation	$ 9,245	$ 11,518
Amortization	$ 3,924	17,632
HA Services [Member] | Discontinued Operations [Member]
Depreciation		2,667
Amortization		13,095
Purchase of property and equipment		$ 5,415

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Note 14 - Segments (Details Textual) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
UNITED STATES | Sales Revenue, Services, Net [Member] | Geographic Concentration Risk [Member]
Concentration Risk, Percentage	83.10%	78.00%
Non-US [Member]
Net Assets	$ 84,702		$ 76,579
Non-US [Member] | Sales Revenue, Services, Net [Member] | Geographic Concentration Risk [Member]
Concentration Risk, Percentage	16.90%	22.00%
Non-US [Member] | Stockholders' Equity, Total [Member] | Geographic Concentration Risk [Member]
Concentration Risk, Percentage	23.30%		20.40%

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Note 14 - Segments - Financial Information Attributable to the Company's Business Segments (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Depreciation and amortization	$ 6,900	$ 6,849	$ 13,169	$ 13,388
Operating income (loss)	5,999	6,713	12,786	15,017
Equity in net gain (loss) of investee	1,530	(1,459)	(530)	(4,176)
Revenues	407,983	398,119	807,477	780,154
Service expense	377,036	367,846	746,446	716,521
General and administrative expense	18,048	16,711	35,076	35,228
Corporate and Eliminations [Member]
Depreciation and amortization	85	82	163	166
Operating income (loss)	(5,844)	(5,835)	(13,030)	(13,754)
Equity in net gain (loss) of investee
Revenues		(85)		(54)
Service expense	(2,281)	327	(2,265)	384
General and administrative expense	8,040	5,341	15,132	13,150
NET Services [Member] | Operating Segments [Member]
Depreciation and amortization	3,326	2,931	6,477	5,807
Operating income (loss)	15,955	17,753	27,755	36,055
Equity in net gain (loss) of investee
Revenues	338,805	308,915	662,839	599,876
Service expense	316,435	285,446	622,627	552,392
General and administrative expense	3,089	2,785	5,980	5,622
WD Services [Member] | Operating Segments [Member]
Depreciation and amortization	3,489	3,836	6,529	7,415
Operating income (loss)	(4,112)	(5,205)	(1,939)	(7,284)
Equity in net gain (loss) of investee	440	(1,459)	(960)	(4,176)
Revenues	69,178	89,289	144,638	180,332
Service expense	62,882	82,073	126,084	163,745
General and administrative expense	6,919	8,585	13,964	16,456
Matrix Investment [Member] | Operating Segments [Member]
Depreciation and amortization
Operating income (loss)
Equity in net gain (loss) of investee	1,090		430
Revenues
Service expense
General and administrative expense