Alison Ziegler - IR Chris Shackelton - Chairman James Lindstrom - CEO David Shackelton - CEO.

Mitra Ramgopal - Sidoti.

Good day, ladies and gentlemen, and welcome to the second quarter 2015 Providence Service Corporation Earnings Conference Call. My name is Denise and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

[Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now turn the conference over to Alison Ziegler from Cameron Associates. Please proceed..

Thanks. Denise. Good morning, everyone, and thank you for joining us this morning for Providence's conference call and webcast to discuss key management changes and our financial results for the three months ended June 30, 2015. On the call from Providence today is Chris Shackelton, Chairman of the Board, Jim Lindstrom and David Shackelton.

Before we begin, please note that we have arranged for a replay of this call. This replay will be available approximately one hour after the call's conclusion and will remain available until August 14. The replay number is 888-286-8010 or 617-801-6888 with the passcode 80558015. This call is also being webcast live with a replay available.

To access the webcast, go to www.provcorp.com and look under the Event Calendar on the Investor Information tab. Before we get started, I'd like to remind everyone of the Safe Harbor statement included in the press release, and that the cautionary statements apply to today's conference call as well.

During the course of this call, the company may make projections or other forward-looking statements regarding future events or the company's beliefs about its financial results for 2015 and beyond. We wish to caution you that such statements are just predictions, and involve risks and uncertainties. Actual results may differ materially.

Factors which may affect actual results are detailed in the company's recent filings with the SEC, including the company's Annual Report on Form 10-K for the year ended December 31, 2014 as well as subsequent filings.

The company's forward-looking statements are subject to change and are based on current expectations that involve a number of known and unknown risks, uncertainties and other factors which may cause actual events to be materially different from those expressed or implied by such forward-looking statements.

These statements speak only as of the date of this webcast, August 7, 2015. The company is under no obligation to and expressly disclaims any such obligation to update any of the information presented if any forward looking statement later turns out to be inaccurate, whether as a result of new information, future events or otherwise.

In addition to the financial results prepared in accordance with Generally Accepted Accounting Principles or GAAP stated in the press release and provided throughout our call today, the company has also provided EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS non-GAAP measurements, which present its earnings on a pro forma basis.

During this call, the company will also discuss certain pro forma financial measures giving effect to the results of certain recent acquisitions as if they had occurred at the beginning of fiscal 2014, which is also a non-GAAP presentation.

EBITDA, adjusted EBITDA, and the pro forma financial measures discussed are measurements not determined in accordance with or an alternative for Generally Accepted Accounting Principles, and may be different from non-GAAP measures used by some companies.

A definition, calculation, and reconciliation to the most comparable GAAP measures for EBITDA, and adjusted EBITDA can be found in our press release.

A definition, calculation, and reconciliation to the most comparable GAAP measures for the pro forma financial measures provided can be found on our website, www.provcorp.com and in our current report on Form 8-K filed with the SEC on August 6th.

The items excluded or included in the non-GAAP measures pertain to certain items that are considered to be material, so that exclusion or inclusion of the items would in management's belief enhance a reader's ability to measure overall operating performance and compare the results of the company's business after excluding or including these items with other companies within its industry.

Finally, for simplicity, we will be speaking in US dollars when referring to such things as contracts and revenues. Amounts translated from other currencies, including the British pound have been translated at the exchange rates in effect for the corresponding time period. As such, these amounts may differ in future periods.

I'd now like to turn the call over to Providence's Chairman, Chris Shackelton. Go ahead, Chris..

Thank you, Alison, good morning everyone. I'm joining the call this morning to share some exciting news for Providence. As I'm sure you saw on our press release, the Board has concluded its CEO search, and I'm pleased to announce that Jim Lindstrom has been named the new President and CEO of the Providence Service Corporation.

Jim will immediately take over the responsibilities that I have held as Interim CEO, Jim will also be joining the Board of Directors and I will continue as Chairman of the Board.

After a disciplined and invasive search process, it was clear that Jim's unique background as a proven public company CEO and a successful investor lined up extremely well with the capabilities we were looking for in our next CEO.

Specifically, the Board was impressed with Jim's experience, thoughtfully restoring shareholder capital for sustainable long term returns. A key differentiator for Providence is our ability to attract elite leaders with compelling acquisitions.

To these points Jim has demonstrated the ability to recruit and empower industry leading talent with responsibility, autonomy and accountability, which in turn have driven notable success from the company's he has worked with.

Furthermore, his cultural and organizational priorities have attracted like-minded business sellers who value these same important characteristics. As the shareholder of Providence appreciate Jim's eagerness to invest personally in Providence shares through additional purchases which will be disclosed over the next week.

As Interim CEO, I've been able to work alongside Jim on a daily basis and have seen firsthand the strength of his leadership, strategic and operational acumen, and importantly his character and commitment to the mission and values of our company.

I am confident that these attributes will enable Jim to thrive as our CEO, a partnership with our vertical CEOs, delivering long term value to our clients, peers, and shareholders. Now, I'm proud to hand the call over to our new CEO, Jim Lindstrom..

Thank you, Chris that was a very kind introduction. First, let me just say, hello, how honored I'm to be appointed the next CEO of Providence. And most importantly, I'd really like to thank our thousands of team members of Providence for all their hard work and being so welcoming to me since joining Providence last January.

Our team members belong with Chris Shackelton, our vertical CEOs, and their leadership teams, and let's not forget our corporate team, as well, have really built, put a strong foundation over the past few years.

It's not only a foundation that's built on solid business models but also when focused on a core set of values, and the long term focus that differentiates us in many of our markets.

So before we get into a few highlights from the quarter, before I get to spend a few minutes of our strategy; first, lot of business are in a variety of end markets and they have a diverse set of characteristics, one of our common motivation at Providence is the difference that we are making in people's lives, and the fact that we are delivering mission critical services on a personal level and providing solutions to our clients around the globe.

Our customers value these services because we back them up with operational excellence and integrity. This is evidenced by our many long term partnerships and revenue streams. In a service business like ours, these partnerships only happen because of great leaders and their great people at Providence.

So one of my most important priority is ensuring that we continue to develop, attract and power, and hold accountable some of the most elite talent in our industry.

And when you combine this with our scale, our technology capabilities, and a reputation in many of our markets we think our verticals will continue to be the leaders in their respective markets. With respect to individual vertical strategies, we're excited to announce that we'll be holding in Investor Day in New York City on September 18th.

At the Investor Day, most of our time will be spend showcasing our vertical CEOs and their businesses. In addition into their strategic thinking, each vertical CEO will present on business model specifics, market dynamics and trends, competitive landscapes, and growth opportunities. We've also spend time on priorities at the holding company level.

So you will hear our thoughts on overall growth rates, margins, how we think about capital deployment and examples of what we're doing with the verticals to improve their intrinsic value over the long term.

I think it's important to mention that one of the examples where the Board and the holding company team has been spending a lot of time over the past few months is on our long term incentive structure for vertical leadership and the holding company teams.

And as we communicate the specifics of the structures in an 8-K next week, at our Investor Day, you will see a very clear line that we're delivering superior performance encouraging an ownership mindset and subsequently building long term intrinsic value for our shareholders.

I've worked for, and followed some of the best investors, capital allocators, and owner operators over the last 20 years, and it seems similar structures contribute to impressive results. I believe that these structures together with the right strategic focus and capital management can be quite powerful.

So moving onto the second quarter, let me start by saying that on the back of a strong Q1 we are pleased to see another strong quarter, and our second quarter results really did exceed our internal expectations across the Board. To moving onto the segments, I'll start with workforce development services or WD services as we called in our 10-K.

WD is comprised of NGS, Mission Providence, and our North America Employment Service Subsidiaries.

So at the moment most of our revenue and activity is centered around three major long term partnerships; the UK work program, our Mission Providence joint venture, and a reducing re-funding partnership that we refer to RRP, which is a partnership with the Ministry of Justice in the UK.

These partnerships consist of contracts that represent the majority of WD's revenue and earnings power over the next few years. During the quarter, both the RFP partnership and the Mission Providence JV continued their launch activity, and the work program continued to slower this activity, answers its final phases in 2016 and 2017.

Operationally all these partnerships performed well overall but as I mentioned before, you measure the performance of these contracts over the years and not quarters.

Regarding the work program, you should know that we put in place a project team to begin focusing on the expected renewal of the work program contract although a new RFP has not yet been released, we believe that we are about 9 to 12 months away from the re-tender.

Within our smaller entities, we are seeing a mixed level of operational performance where we're seeing particular strength in certain operations under leaders like Jaon [ph], who is making significant headway with our private sector clients in South Korea.

We are excited to highlight more of these smaller but valuable entities at our Analyst Day in September.

Finally, we look forward to introducing the leaders of this segment, New York City, in September where they will focus further on explaining the business and offering our strategic insights into the portfolio partnerships and also how we are all looking at scaling into new and existing markets.

Moving to NET services or LogistiCare, as many of you know it. Herman Schwarz and his team delivered another quarter of phenomenal revenue growth driven by new contracts and increased membership. And as expected, EBITDA margins decreased year-over-year due to increased utilization over the summer period.

As we spoke about previously, two of NET services larger contracts, New Jersey and South Carolina, are up for renewal in the near term. The New Jersey RPF has not been released yet but we are expected to coming out in the coming weeks. The South Carolina RFP was released and we are in the process of responding to it.

We do not have a timeframe when the award will be made but we do expect competition on these contracts, we believe we offer the best solutions for our clients. Some of the best evidence for the effectiveness of our solutions is, as we look over the long term LogistiCare's compound annual growth rate of revenue which is about 13% since 2008.

So Herman, Albert [ph] and their team has done a phenomenal job of delivering unique solutions to their clients over the long term. Lastly on NETs strategic front, our focus on technology investment and differentiation is picking up with the key hiring of a new Chief Information Officer who will lead our technology initiatives.

Obviously, we will know more into this via Analyst Day in September as well. At HA Services, our assessment business, Walt Cooper and his team, delivered another impressive quarter, similar to Q1 of this year, the strong Q2 result was due to Matrix successfully pulling forward volume from the second half of the year.

Importantly, we are also seeing increased customer diversity and operational excellence. In addition, we continue to make incremental progress expanding our assessment product into adjacent market such as the commercial and pediatrics markets.

While these adjacent markets are still relatively small compared to our core market, we believe they will represent longer term growth avenues for HA Services.

In addition, although it's still early and the population size is relatively small, our chronic care pilot we launched last quarter is so far delivering positive results in terms of decreased top rates and ER visits.

Finishing with Human Services, Mike Fidgeon and his team are doing an excellent job transforming the operations of the business, is demonstrated by the substantial margin improvement in the first half of 2015 versus last year.

Mike and his team had made substantial program standardizing service delivery and increasing provider productivity for example.

Other examples of initiatives focused on increasing provide productivity include the continued rolling out of clinical and billing EHR systems, the implementation of new pay models in certain markets, and the recent launch of talent acquisition and management tools that are significantly improving our retention numbers.

On the top line, while Q2 was down slightly versus prior year, underlying organic growth was strong, removing the negative impact of the Texas Foster Care contract that we choose to exit at the end of last year, as well as the positive impact of Bolton acquisitions that occurred in the second half of last year, revenue was up approximately 3%.

In summary, the strong first half performance at Human Services has increased our optimism in their second half performance and our long term goals of 6.5% EBITDA margins. So finally, as I move into the CEO role, I'm also very pleased to announce that David Shackelton will be taking over the CFO position on an Interim basis.

Our audit chair saw the best in our release yesterday that David has provided key and vital leadership in the transformation of Providence including overseeing acquisitions, supporting the transition to a holding company, and working closely with our verticals on strategy, reporting and financial planning.

And personally, he has been a true partner to myself and also other key players and managers within the Providence team. So let me now turn the call over to David..

Thank you, Jim. To start, I'd like to remind everyone there are couple of changes instead of last quarter to how we report results. First, we are now only allocating corporate costs or holding company costs that are directly attributable to a segment. Indirect corporate cost stay within the corporate category.

Second, because oversight of our legacy employment services operations in the U.S. and Canada has moved from Human Services to WD Services, the results of these operations are now included within WD Services.

New to this quarter, we now have an equity investment line on our cash flow statement to more clearly breakout the capital contributions to our JV investment and Mission Providence. And new to this quarter's conference call, we are speaking to performance at the segment level as opposed to the operating company or brand level.

For example, instead of talking to performance at NGS, we are referring to WD Services which is inclusive of NGS, Mission Providence and our legacy workforce development operations in the U.S. and Canada.

Now turning to this quarter's performance, revenue and adjusted EBITDA were $508.3 million and $36 million respectively, including the results of Matrix, as was acquired on June 30, 2014, pro forma LTM revenue and adjusted EBITDA were $1.9 billion and $135 million respectively.

This EBITDA figure is down a bit from last quarter, primarily due the year-over-year decreases in WD services which was down primarily due to contract start-up costs. Diluted EPS available to common shareholders in Q2 2015 was $0.26, or $0.67 on an adjusted basis, compared to Q2 2014's adjusted diluted EPS available to common shareholders of $0.74.

Now moving into segment results, revenue at NET Services was up 25.1% for the quarter versus prior year. First half revenue was up 26.8% versus prior year. This growth is the result of new contracts on both the state and MCA level, as well as increased membership under existing contracts.

As we move into second half of the year, we don't expect year-over-year revenue growth rate to be quite as robust as we begin to lapse the start date of certain of our contracts that we began in 2014.

Margins at NET Services continue to creep down due to increased utilization and increased customer services cost, trends that we see continuing into the latter half of the year. The Q2 increase in utilization on a year-over-year basis is due to new members becoming more familiar with NET benefit.

On a quarter-over-quarter basis, less severe weather also contributed to increased utilization and that's margin contraction.

Moving to WD Services, adjusted EBITDA in Q2 2015 was $1.4 million which includes the $1.1 million loss on our equity investment and Mission Providence, and excludes $1.5 million related to the amortization of the fair value of restricted stock awards issued in connection with the acquisition of NGS.

This performance for the quarter at WD Services was better than originally anticipated to delays and reductions in certain contract startup costs, as well as additional complementary revenue sources associated with RRP contract. The largest contracts are of cost that are being turned more slowly than originally anticipated.

Our IT implementation cost on the RRP contract. WD Services delivery models across contracts incorporate sophisticated technology infrastructures, thus IT costs are a large component of most contract implementations.

Importantly, these cost delays did not impact the Go-Live date of the contract, we've already begun to see clients generate revenue, nor have the delays impacted the revenue we expect to generate from the contract in 2015 or over the life of the contract.

Losses at Mission Providence were also less than previously anticipated to lower than expected startup costs. On my PRRP contract, this is not timing related but an overall reduction versus our original expectations. Again, anticipated revenues have not been impacted.

Mission Providence successfully opened more than 60 sites and began serving clients on July 1st of this year, a very significant milestone for Greg Ashmead and his team. By next week, over 32,000 clients will have been signed upto services by Mission Providence, a very impressive number in start.

Despite the reduction in startup cost in the quarter, our full year view on WD Services financial performance has not changed significantly.

Delayed startup cost should be utilized later in the year, a national contract in France is also incurring its own startup cost and anticipated volumes for a handful of smaller contracts are coming in lower than previously expected.

Moving to HA Services, like Q1, Q2 was strong, with revenues of $55.4 million and adjusted EBITDA of $13.5 million, which represents a 24.3% of EBITDA margin. Year-to-date HA Services has generated $112.8 million in revenue and $27.1 million in adjusted EBITDA.

Although as expected, pricing has come down since last year, productivity improvements and fixed cost leveraging about direct and indirect costs are allowing to hold margins relatively flat, despite the expected contraction in pricing.

The volumes from the second half of the year into the first half of the year, as Jim mentioned earlier, improved the economies of scale for HA Services in the first half of the year. Because the volumes maybe lower in the second half of the year, these scale benefits may not as great.

In addition, a shift in our customer base while increasing customer diversity is requiring us to shift our geographic footprint which is putting some pressure on productivity. However, we are continuing to identify and implement positive ROI capital investments that are helping to offset some of this pressure.

Finishing up on the segment reporting with Human Services where the management continued outperform along multiple dimensions, excluding the impact of both, our decision to exit the Texas Foster Care contract and Bolton acquisitions last year organic revenue growth is solid, particularly in California, Arizona and Main.

Due to substantial realignment in productivity initiatives, Human Services adjusted EBITDA margins improved by over 300 basis points in the first half of 2015 versus last year. In Q2 the Human Services management team also took steps to optimize the oral chart and refresh reporting structures, both of which are already beginning to produce results.

In addition to centralizing the crucial Human Services infrastructure and the hiring of new Head of HR, Bar Bête [ph] was promoted to SVP of Operations, and our extreme line regional VP reporting promote operational best practices and overseas performance modeling on a national level.

And finally before wrapping up, I'll catch on a few consolidated level items. G&A for the second quarter of 2015 was 4.6% which is approximately 10 basis points lower than prior year.

However, after backing out last year's acquisition cost, as well as expenses related to the stock award modification this year, G&A for Q2 2015 was approximately 50 basis points higher than prior year.

As we indicated on last quarter's earnings call, we are quite conscious of G&A costs and they are a focus area for us as we are developing and rolling out our 2016 budget.

Our effective tax rate for Q2 2015 was 55.9%, similarly last quarter we are reporting a high effective tax rate because we aren't deducting a loss on the Mission Providence equity investment. Net interest expense for the quarter was $4.5 million, a level that should be fairly consistent for Q3 and Q4.

CapEx for the quarter was $6.7 million of $13.1 million year-to-date, we expect CapEx to pick up in the back half of the year. With that, Jim and I would like to open up the line of questions..

[Operator Instructions] And our first question comes from Bob Labret [ph] from CJS Securities. Please proceed..

Hi, good morning. This is actually Larry calling in for Bob. Jim, first of all congratulations on your appointment to CEO and also on another very good quarter.

Just – first question on WD Services, could you maybe help us just quantify a little bit on the time, how much of the startup cost were actually pushed out in the quarter and I think previously you have discussed about a $30 million total number of RRP and Mission Providence, it sounds like – perhaps that's a little bit lower, can you maybe give us some color on that?.

Hi, Larry, this is David Shackelton. So, as you pointed out our contract startup costs were lower than we originally expected in the first half of the year, that's too both delays and overall reductions.

So as in previous comments, we have estimated that for both the RRP contract and the Mission Providence JV, investment startup would be approximately in the $30 million for the year. We're now – our revised expectation is to see startup cost for the year, approximately the $20 million to $25 million range.

However, there is still quite a bit of volatility in those numbers and the timing of that often quite difficult to pin down exactly ..

In terms of LogistiCare, you gave us a good update on the contract renewals in New Jersey and South Carolina, could you remind us are there any new bid opportunities coming up in the near future or only significant contracts that are close to expire?.

Sure. Yes, I mean do tracker pipeline very closely and say, I characterize it this way, there is a handful of contracts that we're bidding on across the U.S.

with primarily MCO but a couple of state contracts as well, I'd say none of them sort of go to the level of New Jersey or a South Caroline in terms of revenue size, there have been the lower Tiers I put that under $50 million and less..

Okay.

And HR Services, can you maybe just give us a little more of your thoughts on consolidation in the industry, obviously Human I think is about to be purchased, and any impact or expected impact on Matrix?.

Sure, so there are two deals going on; Eddins [ph] buying Humana and Aetna buying CIGNA. All four of those are some of the top Medicare advantage plans by membership, that's four out of the six. We work with a few of those have been named, I think it's been mentioned before that.

We do work with Humana, they are our largest customers, we work with Aaetna. So the way things are shaking out we've tracked it very closely until everything was announced, we had permutations running off all the different combinations that were rumored in the press.

And we think, bits from what we're seeing right now, we're in fairly good shape, we have good relationships with all the parties that are getting in together.

United is one that we don't work with and they were rumored to one of the acquirers and it turns out that they are not, so we think we have – we're in pretty good shape but again these things take at least a year or two to really work out and sometimes the target management team ends up dominating the area that we're working with.

So – we really, it's tough to say we really won't know, but we thinking that we're in solid shape..

Just lastly, sort of updated view on your priorities for free cash flow, you've obviously had a pretty active couple of years on the acquisition front, are you still just doing acquisitions aggressively or has paid down a debt, more of a priority in the near term? Thanks..

Sure, it's really been on the paydown debt, we've had a lot of work to do, we do have a holding company structure, there has been a lot of work to do integration wise with Matrix and more so on NGS just because it's the international footprint.

We run a pretty thin staff here at corporate, so I think we haven't really focused too much on acquisitions since I've been here. I think we're going to probably start ramping up that activity over the next 6 to 12 months as our free cash flow pays down to a debt level that we're probably more comfortable with over the longer term.

We're also going through a strategic planning process, right now with all of our verticals, and as part of that, the acquisition evaluation and strategy is a big part of that. We really look to our vertical CEOs to really try to come up with what we think can be some of the best ideas, certainly the best proprietary ideas as we look at investment.

So we'll talk about it more at the Investor Day, but I would certainly wouldn't expect anything in the near term..

Okay, great. Thank you very much..

[Operator Instructions] Our next question comes from Mitra Ramgopal with Sidoti. Please proceed..

Good morning. First question on the WD segment, you talked about something's affecting the overall results there as relative to time being, maybe some volumes not as high as expected and also the startup costs could move around a little.

As you look at that segment, when do you think we will feel comfortable in terms of getting a good feel for the overall business in terms of the visibility?.

Well, I don't recall us saying anything about volumes – meanwhile I think overall on the major contracts, we're very satisfied with the operational execution.

In terms of our comfort with the business, we're very comfortable, as we've gone back it looked that and evaluated the track record of NGS, for instance on the work program overtime which we just actually did again with Chris Shackelton over at London a few weeks ago. We feel very good with their bidding and estimate process.

However, because of the structure of the contracts, because we are dealing with people who – we're looking to get them into employment over the long term, what we're doing today can actually take a year or two years to really show up in our financial results.

So while we are confident that operationally we are doing everything very well, we won't have, sort of – obviously, clear financial results for a year or two. We can be – as we've said before, we think of this as 8% to 10% EBITDA margin business overtime.

I'd say that continues to be the case, and when we see overtime we think of it over three year average.

So obviously we're below that this year and there has to be some years where we obviously performed better than that and we think that will coincide with the ramp up of the volumes in Mission Providence, and also when we get through the transition cost that we're incurring at in the RRP contract.

So, I wish I could give you a clear answer, I think it literally helped when we get in front of everybody in September to understand the complex dynamics of each contract but in general, we feel very comfortable.

Mitra, just to clarify, the comments regarding volumes at WD Services, those were not related to RRP or Mission Providence where we're off to a good, we feel like we're off to a good start.

They were in reference to some very – I guess we consider minor contracts in the portfolio, as well as, the work program as expected is starting to whine down, so volumes are starting to come down as expected..

Thanks for clearing that up. Also on the Matrix side of the business, I mean look at that, in terms of your expectations over the 12-months plus.

Are you seeing any benefits yet in terms of healthcare reform helping you and maybe if you could talk a little on the competitive side if you're seeing any prices there?.

Sure. We have seen definitely competition in the core market, there are some solid competitors out there. We obviously think that we are providing the best solution for the client.

Some of the things that we mentioned in terms of some adjacent solutions that – to some of our clients like pediatric assessments, providing what we think is a more comprehensive healthcare assessment, the ability to ramp up faster due to the density of our operations and some of our states we think is a clear advantage.

So there is definitely price pressure, we think the rate of price pressure has slowed. There is definitely competition but as you will see at the Investor Day we think that we'll continue to provide the best solution for our clients..

Okay, thanks. Just switching quickly on the LogistiCare business, I mean we continue to see some really nice growth there.

Anything in particular you are doing differently – basically generate the kind of gains you're seeing or is it pretty much – a pretty moderate penetrated market that you will continue to take care?.

On LogistiCare, the revenues – I mean this is one area where healthcare reform is benefiting us, the membership grade, the Medicaid rolls are increasing. So if you look at some of our existing contracts, like New Jersey and Michigan, we are benefiting from increased membership.

But then we also – in 2014 we did begin some new contracts in the first half of the year, so as we enter the second half of the year we'll already have lapsed those start dates, so the revenue growth isn't expected to be quite as strong..

Okay, thanks.

And then finally again, Jim, I know as you look at the company since joining it, it's certainly a lot of change over the last 18 months but is your plan basically to sort of just build out on pretty much what you've come into and we should sort of expect the business to look very much the way it is today in terms of the four segments at least for now?.

Yes, that's right.

We think we have four great segments, four great verticals, four great leadership teams, we're obviously working with each of them through the strategic planning process right now and first and foremost as we think about capital allocation, as we generate extra cash flow it would be great to – and some great growth rates in some of these verticals.

We like to put capital back into the businesses that we have because they are ones that we're obviously most comfortable with and we see some pretty good opportunities out there. So while we're – I'd say we're open to it, a fifth vertical.

We're very selective and we have not spend a lot of time on it since I've been here and I think it will be – it could be a year, it could be two years, if we're going to be pretty selective about it..

Okay, thanks again for taking the questions..

Thank you..

Our next question comes from Mike [ph] with Barrington Research. Please proceed..

Good morning. First of all, Jim, congratulations on the new gig, and a few questions. I guess the first question, with increasing membership, I was wondering if you guys could give a update on the current revenue run rates associated with the New Jersey and South Carolina NET contracts..

Mike, this is David. We no longer speak about our contracts on that level of detail. I think we have mentioned in the past that the New Jersey, it's quite a significant contract for us currently, so it's a plus $100 million revenue contract, and then South Carolina is smaller than New Jersey.

And I think in our filings we actually present the percent of revenue that the New Jersey contract represented..

Okay. And – I haven't gone through the recent filing.

So that's disclosed as of this past quarter?.

Yes, it's disclosed as of the past quarter..

All right, perfect.

And then I guess staying with that subject, what's your best guess in terms of decisions on each of those contracts, the timing of decisions?.

Let me just correct David, I don't think – I think that's actually in the 10-K, it's not updated in the Qs of New Jersey..

Sorry, yes it's in the 10-K.

So on the timing – we are in the process of responding to and asking questions on the South Carolina contract, our RFP, that – there is no date that is out there, we are – we think that we're still working on it through the spring of 2016, so it is going to take a while, probably several months because we find out the answer but we really don't know an exact date.

And I guess that it could be a few months, it could be five months. And then on New Jersey, and we keep think it's coming any day but we have been saying that to ourselves for a month or two. So, unfortunately I can't give you a better answer than that..

Is there a day for New Jersey set as far as when that might be decided ultimately or like is that year end or is it into next year sometime?.

They haven't disclosed particular date when they want to sign a contract. We have – we technically didn't extend it on our current contract into next year but we don't know when the RFP is actually coming out or what the terms of an RFP will be, we don't know the competitive dynamics around that RFP yet.

And even when the RFP is released, the actual start date can move around..

Okay, I agree.

And then earlier in the call, you guys referenced increasing customer diversity inside of the health assessment business but I didn't catch, did you guys actually say that you had signed some new contracts there or what were you actually saying there?.

Yes, we're – I think it's a combination of new customers that we're consistently adding, and we're also adding some new adjacent services like the pediatric assessments which from a revenue perspective isn't huge yet but we are piloting.

And then just increased volumes coming from the existing smaller contracts that we have or planned, so we're seeing – as we go into the second half of the year some fairly good run up from those smaller contracts..

Okay, great. And then two more, real quick on Human Services, you guys are making some progress there.

I was just wondering, I know you guys have looked or have been in the process of looking pretty hard at your contracts and the margins and what's acceptable, what's not acceptable, I guess my question is, how far into that, are you guys nearing completion of really reviewing what you want to hold onto and what you want to continue with and any renegotiations, any commentary around that?.

Yes, we typically don't see lot of negotiating of contracts on Human Services, Human Services tend to be contracts that are for one year or evergreen basis, there is also lot of licenses. I think we referred to in the past as hunting and fishing licenses.

In terms of where we are and taking a hard look at our current contract lines of businesses, something that we refer to as proving our portfolio which Texas was a – the Texas Foster Care contract was a good example.

I think we are fairly far along in the process of examining the Human Services business, I mean we don't – we don't expect anything as large as the Texas Foster Care contract to be pruned away at this time.

We always have obviously different, some service lines in some markets that generate lower margins or at times negative margins but there is currently no plans for any major movements such as/or to the extent of Texas..

Okay, great.

And then just last one, earlier you said that G&A would be a focus area for the company, I think you guys characterize it in terms of 2016 budgeting but just thinking longer term, maybe even three years plus down the road, I mean what do you guys think is an appropriate level in terms of percentage of revenue that, that line item should – I mean, could it be some four or three to five years down the road or what should it be?.

Yes, I think characterizing it as sub-four over the next few years I think is accurate, we – as Jim mentioned, we run pretty lean at the holding company level, and our management team at each are also very focused on G&A and as we continue to grow revenue and continue to be more and more cost conscious on the G&A side, there will be both fixed cost leveraging and I think again, dropping down below 4% is something that we believe is true..

Alright, great..

Mike, I'd just add that in the 10-K I just called it out, New Jersey was the 2014 17% of NET Services revenue, 15.3% in 2013 and 15.2% in 2012. And there is – I'd say it's fairly consistent with that this year..

Perfect, that's really helpful. Thanks guys, really good quarter, thanks..

Thank you..

[Operator Instructions] With no further questions, I will now turn the call back over to management for any closing remarks. Please proceed..

Great, thank you for your participation. We're obviously very excited about Providence and we look forward to talking and seeing all of you, hopefully at the Investor Day in September. Thanks..

This concludes today's conference, you may now disconnect. Have a great day everyone..