Bryan Wong - IR Jim Lindstrom - CEO David Shackleton - CFO.

Bob Labick - CJS Securities Mike Petusky - Barrington Research.

Good day, ladies and gentlemen, and welcome to Third Quarter 2016 Providence Service Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time.

[Operator Instructions] And as a reminder, this conference is being recorded. I would like to introduce your host for today’s conference Mr. Bryan Wong. Sir, you may begin..

Good morning, and thank you for joining Providence’s third quarter 2016 conference call and webcast. On the call from Providence today is Jim Lindstrom, CEO; and David Shackleton, CFO. We have arranged for a replay for this call, which will be available approximately one-hour after today’s call, on our website www.prscholdings.com.

A replay will also be available until November 23th by dialing 855-859-2056, or 404-537-3406 and using the passcode 7757402. During this call, Mr. Lindstrom and Mr. Shackleton will be referencing the presentation that can be found on our Investor Relations portion of our website under the events calendar.

And in our current portion, current report on Form 8-K furnished to the SEC earlier today. Before we get started, I’d like to remind everyone that during the course of this call, the Company’s management may make statements which may be characterized as forward-looking statements under the Private Securities Litigation Reform Act.

These statements involve risks, uncertainties, and other factors which may cause actual results or events to differ materially Information regarding these factors is contained in yesterday's press release and the company's filings with the SEC.

The company will also discuss certain non-GAAP financial measures in an effort to provide additional information to investors. A definition, calculation, and reconciliation to the most comparable GAAP measures can be found in our press release and our current report on Form 8-K furnished to the SEC on August 1st, 2016.

Finally, for simplicity, we will be speaking in U.S. dollars when referring to such things as contracts and revenue. Amounts translated from other currencies, including the British pound have been translated at the exchange rates in effect for the corresponding time period. I'd now like to turn the call over to Jim Lindstrom..

Great. Thanks, Brian, and thank you all of you for joining today. I'd also like to thank our thousands of colleagues around the world for helping to make a difference in over 25 million lives this year. And quite amazing scale and reach of our organization.

So today, we'll walk you through the quarterly highlights and give you some thoughts on our strategic outlook. We put together a slide deck for a few reasons. First, we're not doing an Investor Day this year and we plan on, I am probably dealing with next year. Second, Providence has changed quite a bit over the last year.

Third, we have some industry challenges in WD services that we can shed additional light on and we have some great opportunity in LogistiCare and Matrix, which at logistic care as we'll convey as also offset by a short-term challenge. So, turning to page five in the deck. On our strategic highlights since the last Investor Day.

So, it was a little over one year ago when I became CEO and we had our Investor Day. Since then, we've undergone quite a transformation. To look back, we have repaid almost $500 million in debt and now we have over $100 million of cash on the balance sheet.

We sold our largely fee-for-service behavioral health business and created shareholder value through that sale and sales of majority stake in our Matrix business. While at the same time improving Matrix's diversification potential in a new strategic partnership with Frazier Healthcare.

In our WD segment, we've been actively working to reduce our capital exposure to markets that do not meet our return profile, while honoring our client commitments and most importantly respecting the needs of the populations we serve as our services are critical to many in their daily lives.

Lastly, we have increasingly turned our attention in capital towards any key services or LogistiCare, a scalable asset life business.

Supplementing some previous work this spring in summer, Providence and LogistiCare work together to increase our attention and investment on supplementing our industry leadership capabilities and risk return profile through a variety of operational improvement programs.

Many programs that many of us had implemented before at Matrix or other organizations. However, the scale and magnitude of what we're implementing in LogistiCare will have a significant positive impact on the organization.

So, turning to page six, our focus on Q3 was as usual creating intrinsic value on a per share basis through operational excellence and disciplined capital allocation. I am pleased to report our results this quarter with 9% year-over-year revenue growth and adjusted EBITDA growing $17 million, up 50% from the third quarter of last year.

And if you include Matrix, adjusted EBITDA grew to over $30 million. Our most significant strategic achievement during the quarter was the announcement of our entry into the Matrix Medical strategic partnership. Just quickly, we purchased Matrix for $393 million in late 2014.

In 2015 after seeing a client acquire a small competitor and witnessing the start of MCO consolidation, we initiated our value enhancement strategy, which included the launch of ancillary services, investment in our sales capability and chronic care initiatives, pushing our IT investment, and finally driving operational efficiencies to maintain margins.

This strategy was realized for shareholders through the valuation of almost $538 million in the new partnership with Frazier, where we realized proceeds of $380 million and retained the 47% ownership stake. Looking forward, the most significant area of focus, which I mentioned on the last call is actually on LogistiCare.

Since the end of the second quarter though, we have been notified that we successfully rebid our existing Missouri contract. We won multiple new MCO contracts and successfully appealed the South Carolina Award. Unfortunately, we were notified late last week that we lost our New York City Medicaid contract.

The contract went to a small local New York based firm and we understand the decision was based entirely due to price. We have lost on price before and sometimes these contracts come back to us after our customers realized the service issues that can come with unsustainable low prices.

While we still believe that dynamic to potentially be true, it is a strategic imperative that we are lowering our cost structure and improving our service delivery. Please note that this New York City contract and a few others that we recently lost are higher margin than our overall portfolio margin profile.

They will not materially affect our 2016 financials. However, we will provide you our preliminary thoughts on the 2017 impact of these contract losses and also give you the benefits that we see coming in our value enhancement program. Turning to page seven.

The Providence portfolio, so if you were to look at this a little over a year ago, you would have seen four segments as potential areas for value creation. We still have four areas or four buckets, but the composition has changed.

In summary, in LogistiCare, we see long-term value creation primarily by being the tech-enabled service leader in the NET industry. We're the new partner of Matrix, we see increased confidence in our ability to grow and diversify the business, targeting 20 plus percent EBITDA margins in high single-digit revenue growth.

As many of you know in GS or WD services continues to undergo industry challenges, which have created contract challenges and thus our outlook for 2017 is tepid. Finally, with no debt, we have capital return to shareholders via buyback from a disciplined manner and also towards high quality acquisitions within the U.S.

healthcare area or the new high quality verticals. As you will see in today’s strategic discussion, we are actively pursuing value enhancement strategies to create value, including taking the appropriate measures to reduce our cost base, invest and diversify profitable growth.

Please note that we will provide some commentary on 2017, that you should know that we have not completed our budgeting processes and our commentary is preliminary and subject to change. So, turning to page nine. The evolving industry landscape. So, starting with our U.S. healthcare service businesses, we wanted to update you on the industry landscape.

New industry changes first of all with lots of talk about ride sharing. As you will see in a few slides, we have implemented ride sharing pilots both in-house and with a potential partner and see it as a part of our solution for certain part of the populations we serve.

We also continue to see a focus on keeping the ageing and sick in their homes for as long as possible increasing the transportation needs. With MCOs playing a bigger part in Medicaid management, compliance, service and the focused-on member outcomes has becoming a bigger part of industry focus.

Approximately 37% of NET services revenue now comes from MCO contracts some of which are actually approaching the scale of our mid-sized state contracts. NET services new entering capacity has been minimal and nurse practitioner talent remains tight.

As competitors evolve in the chronic care and in home management, we are seeing those competitors who have move rapidly into the space show uneven results. So, we do remain disciplined in that area. Finally, the tie between assessments and care optimization particularly in a capitated environment is becoming increasingly important.

So, moving to page 10. Despite the news on the loss contracts recently, we continue to believe that we are the leader in the NET sector with many of the largest state and MCO contracts in the U.S.

We remain focused on saving our state MCO clients’ money, reducing their risks and also investing in strategic initiatives to improve quality and efficiency to accommodate in evolving set of requirements.

Looking forward, we currently have 20 work streams in progress that we expect to complete over the 18 to 24 months to maintain our leadership position. Once completed we expect the initiatives to result in annual savings of over $30 million.

While our operational plan is fairly specific, the savings is a rough estimate as some of this will be given back to clients in the form of margin or benefit us to increase wins. Turning to page 11. So, a bit more on the strategic initiatives and then we'll start with the call center excellence area.

So, from the hiring process to the reservation request through oversight reporting, we are reviewing most of our processes. For example, on hiring, we’re now working with our leading RPO partner to improve our hiring process and reduce our turnover.

On our reservation request stability, we now have finance available, which make it easier to book a trip. When people call, we are also investing in robust call center technology to have calls answered faster.

On trip monitoring, we have developed new tools to provide each network fleet with real-time vehicle location systems, which tracks drivers, vehicles and trips to be a real-time VPS to optimize on-time performance, provide visibility to riders, transportation providers at our operational centers.

This system is already active in seven states, California, New Jersey, Florida, Kansas, Missouri, New Mexico and Hawaii. On oversight reporting, we are giving more feedback channels so we can funnel more rides to our best transportation providers. Again, reducing price and improving outcomes.

It is also important to note that much of this comes, thanks to our increased IT investment over the last year or two and the development of our proprietary software, LCAD and Next Gen [ph] which will be deployed in early 2017. So, moving to page 12 in the transportation network.

So, as I just mentioned on trip monitoring, our new AVL rollout provides real-time insight into our network. In Q1 2017, we will enhance our network capacity planning by adding predictive analytics to help identify when and where member demand will occur, so we can anticipate fluctuations and deploy appropriate resources.

We will continue to roll this out 2017 to over 30,000 vehicles in our credential network, which will positively impact the second half of the year and beyond.

On costs, we’re also implementing real-time cost software and new processes to make sure our best and most cost-efficient providers are rewarded with additional trips, which can help bring down the variation in pricing, our current dynamic that we see in our expense line.

Finally, another area where we are evolving LogistiCare through the introduction of a ride share strategy. Our in-house ride share model allows us to offer a differentiated product for members, while expanding LogistiCare’s reach in a very cost efficient way.

Our ride share services operate in a similar manner to other app-based clinical on-demand transportation services, but have the advantage of drivers who are also experienced and certified healthcare professionals. We see a large unmet need for services like this particularly in acute care elderly populations.

We have already seen how effective these partnerships can be through pilot programs in two states to provide members with the slow cost, fast response, transportational offering. Finally, we also continue to evaluate additional third party ride share partnerships and look to provide more robust update in the near future.

So, turning to how this translates into our service expense line. So, while we have given you a high-level amount of potential savings, we wanted to point out to you where this savings has targeted.

And again, we are in the midst of our budgeting process, so these targets can change up or down and we also anticipate that we will give some of the savings back to our customers and also with a lower cost-based and improved service, we will benefit from new business growth.

All of this is just too early to predict in any major way and with any certainty. So, turning to page 14 in our outlook for U.S. healthcare services industry, it’s important to keep in mind that we remain leaders in each of our niches.

This is where we aim to bolster our capabilities over the next 12 to 24 months and over the next 12 months in LogistiCare.

We will seek to find ways to improve ourselves in marketing, improve our client insight to prevent additional losses like we just saw in New York City, to expanding the complementary services and offerings, more of which we will communicate in 2017. Moving on to workforce development in page 15.

So, I’d like to remind you that most of the service system we offer today are focused on employment services for governments and what continues to be a low unemployment environment, made more challenging by both fiscal and social pressures that have intensified over the last year.

While we see a lot of need in certain areas of the unemployed population particularly those areas with mental and physical health challenges or with those whose jobs have been replaced by technology and need training.

Unfortunately, those needs are not being met with increased financial resources by many governments, which is pressuring our WD segment at the moment. We are moving too quickly offer new health and training services. However, we are moving in a disciplined manner and some of these new opportunities are still emerging.

So, turning to page 17 and a strategic outlook for WD services. So, we have a variety of operations that remain stable and growing and a few larger contracts, which will impact our financials and moderate our previous expectations for 2017.

The UK work program and also France remain challenge due to high employment which means lower volumes for employment programs. On France, please note that we are working with aggressively to mitigate the continued losses in the operation. We hope to report significant progress on the year-end call with regard to this effort.

Looking forward and more significantly, the departments who work in pensions announced in October to schedule in set of annual values for the successor to Ingeus largest contract to work in Health Program.

Unfortunately, we previously expected the work in Health Program to start early in 2017 and generate $50 million to $75 million in annual revenues, assuming we have in our market share.

While the commencement of the program is expected to start in late 2017 now, the overall market size has been reduced to 69 million pounds, which put our market share at approximately $10 million to $15 million per year. Please note that our existing work program contracts will roll off through the year 2019.

Additionally, our probationary services contract which has been 2014 and commenced in 2015 is under pressure due to industry wide challenges. Such as a decline in volumes for those underwritten 2014 and a probationer mix that is impacted our revenue profile.

Because these challenges in our industry-wide phenomena partially due to this being the first generation of the program here have been discussions to restructure the payment structure. A joint report by the UK government entity in October reported on these challenges and call for restructuring of the contract.

And there are formal process has not yet been launched and Ministry of Justice has indicated their intention to do a full review of the contract by March of 2017. So, we would except to begin engaging with the Ministry of Justice by the end of this year. We hope to share more news with you on our fourth quarter conference call.

In the meantime, we are preparing for reduction in revenues in its program in 2017 unless changes are made by the MOJ. On a positive note, please note that our businesses outside of these major programs are expected to grow 5% to 10% in 2017 with acceptable overall margins.

Our UK Youth Program and our new Health Program continue to grow and perform well and our business development team is building a pipeline of smaller contracts more closely align with our disciplined and diversified approach to growth.

Unfortunately, growth in these newer programs will not away the effects of these two major programs, which will result in a revenue decline in 2017 for Ingeus. Despite the decline, Jack Sawyer, our CEO is taking an appropriate step to improve profitability in margin and look for ways to improve our delivery and capabilities.

With the new interim CFO and supplemental resources recruited from some industry leading providers, we are reducing our cost base and then appropriate attraction and our investment behind programs with demonstrated historical profitability to emerge from 2017 with a diversified sustainable business.

I’ll now turn it rest the time over to David for an in-depth look at our Q3 financials..

Thanks, Jim. I'll start with page 19. As mentioned earlier on October 19th, we consider a strategic partnership with Frazier Healthcare in the ownership and operation of Matrix which constitute our HA Services segment. Approximately 380 million in proceeds, these $325 million to pay down debt and put $55 million of cash to our balance sheet.

Thus, on a pro forma basis as of 9:30, we had no debt and over $100 million in cash. Note that Matrix is now presented in [indiscernible].

Beginning with our 10-K, we will begin accounting for our 28% ownership as an unconsolidated equity investment with financial results falling through the gain in equity investing lines on our P&L, as we currently deal with our other JV investment.

We are also no longer including the results of our JV investments in the calculation of adjusted EBITDA and adjusted EPS as we not control the events [ph]. Thus, to the extent of adjusted EBITDA or adjusted EPS is utilized for valuation purposes, I encourage you to make sure you separately count to the value of our excess investments.

Moving to page 20. We see that Matrix or HA Services had a very strong quarter, and adjusted EBITDA increased to $13.2 million in the third quarter of 2016 from $11.9 million in third quarter of last year, driven by 250 basis points of margin expansion due to ongoing operational and efficiency initiatives.

Moving into 2017, we expect revenue growth to accelerate under the strategic partnership entered into with Frazier Healthcare. Moving to our third quarter results from continuing operations on page 21, revenue was $412.5 million, an 8.7% increase from the third quarter of 2015. Excluding FX, we were up 12%. Turning to page 22.

Income from continuing operations, net of tax was $3.5 million or $0.13 per diluted common share compared to a loss of $4.2 million or negative $0.33 last year. Adjusted net income was $6.9 million or $0.35 per diluted common share, compared to $4 million or $0.16 of last year. Turning to page 23.

Segment level adjusted EBITDA was $24.8 million or 6% of revenue compared to $17.2 million or 4.5% of revenue last year. Corporate another adjusted EBITDA which is not included in segment level adjusted EBITDA was negative $7.3 million versus negative $5.7 million last year.

Excluding insurance claim reversal last year corporate holding company cost would have been down on a year-over-year basis. Turning to page 24. We see that cash earnings or cash flow from operations before the impact of working capital was a positive $10.7 million.

Working capital in the quarter was a $1.4 million use of cash, yielding $9.3 million of cash earnings after working capital. Year-to-date cash earnings after working capital has been $75 million. On CapEx, our year-to-date spend excluding disc [ph] ops is approximately $25.9 million.

We currently estimate full year CapEx from continuing operations will be approximately $32 million. Of this $32 million approximately $14 million is related to new project specific CapEx within WD Services, primarily related to our new offender rehabilitation program in the UK and new employability programs in France.

In 2017, we expect new projects related CapEx to drop significantly within WD services. However, this will be partially offset by implementation CapEx for NET Services, member experience and value enhancement initiatives. Moving to page 25. The purpose of this page is to provide an update and how we are spending your capitals so far this year.

I spoke about CapEx from the last slide. This year, I’ll emphasize the attractive opportunities to deploy capital towards technology that we are seeing within any key services, including technology related to the implementation of the member experience and value enhancement initiatives.

Omnis Investments we are expecting a payback period of less than two years. On share repurchases. Since beginning repurchasing shares in Q4 of last year and through the day, we spend approximately $92 million towards such as 2.1 million shares or approximately 13% of the common shares outstanding when we began making repurchases.

KB&R [ph] believes that buying back our shares continue to be an attractive use of your capital, our board has approved a new $100 million stock repurchase program. As it has been the case with our historical buybacks, we intend to take a conservative multi-year approach in all future buybacks. And then on acquisitions.

Although our M&A team which includes Jim and myself have continued to spend time searching for acquisitions, we have been primarily focused on organic value creation and have not yet identified any actual targets that meet our acquisition criteria and whose risk return profile is superior to share repurchases.

We will continue to seek acquisition opportunities, but we are determined to stay disciplined when applying your capital at the higher end of the risk return spectrum. Before turning the page and assessing segment results.

I’ll note that in addition to Q3, and in addition to a Q3 performance recap, I will also be providing some clarity into the remainder of 2016 as well as some very preliminary high level insight into 2017.

While we don’t typically provide an outlook into following year performance, especially when our budgeting process still remains opened as it does now, we decided to do so given the recent movement in NET services contract portfolio and additional information about current and expected future contracts within WD services.

Now turning to page 26, we see NET's strong first half performance continued in the second half of the year with Q3 revenue up almost 15% versus last year.

Looking forward to 2017, as Jim mentioned, we learned late last week that we were unsuccessful in renewing our contract in New York City to provide ASO transportation services in the city's Five Boroughs [ph]. Although, we are currently evaluating our ability to protest this loss.

Because this contract as well as other contracts we've recently lost have higher margins than our other existing contracts, including those we have successfully renewed or won this year. We expect adjusted EBITDA margins to contract by approximately 100 to 125 basis points in 2017.

However, we do expect our member experience and value enhancing initiatives to offset approximately 50 basis points of this contract mix driven margin pressure for a net negative impact to adjusted EBITDA margins of 50 to 75 basis points in 2017.

As Jim mentioned, we expect the member experience and value enhancement initiatives ultimately generate over $30 million in annual savings. Although it will take 12 to 18 months to reach this level of annual savings, we will need to invest $10 million to $15 million in implementation OpEx and CapEx over the next nine to 12 months.

These implementation costs are excluded from the 50 to 75 basis points of net margin contraction, I just mentioned. So, on an unadjusted basis our margins may appear a bit lower. Moving to WD services on page 27. Also, not on the page, revenue did decline 7.4% in Q3. However, excluding the impact of FX, revenue increased 4.8%.

This constant currency growth was driven by year-over-year growth in our used and finished chip services partially offset by declining referrals under the work program, as well as the decline in revenue from our [indiscernible] program primarily due to in an unfavorable mix and the intensity of offender rehabilitation being referred to us.

Adjusted EBITDA for the quarter was $4.3 million or 4.5% of revenue versus $0.5 million or 0.4% of revenue last year. These 400 basis points of margin improvement was primarily due to the redundancy program initiated at the end of 2015 in the UK.

For the full year, we are now expecting WD services' adjusted EBITDA margins to be around 5%, excluding the approximately $5 million of EBITDA losses associated with our French operations and winding down of operations in Sweden and Poland.

Including France, Sweden and Poland, we expect full year adjusted EBITDA margins of approximately 2.5% to 3% and revenues of approximately $350 million. Note that this margin range could trends higher if we receive additional contract adjustment payments related to major programs in the UK as we did in Q3.

In 2017, we currently expect combined work program and offender rehabilitation revenue continue to increase by approximately $70 million potentially offset by modest net growth elsewhere of approximately $10 million to $15 million.

Note that any improvements to our offender rehabilitation program revenue due to contract changes by a Ministry of Justice could partially offset this revenue decline.

Margin-wise, it is still too early to tell, but we do anticipate, we do not anticipate any major improvements in 2017 despite the fact that we working hard to increase our cost infrastructure and position the business for growth in margin expansion in 2018 and beyond.

These steps will likely result in restructuring charges which we are not yet prepared to quantify being taken in 2017 within the WD services segment. That concludes the financial section of the presentation. And I will now turn the call back over to Jim..

Great. Thank you, David. So, in close on page 28, I just want to reiterate that we are laser-focused on successfully carrying out our plans we have discussed today, including our newly announced member experience initiative.

We will be more competitive, we will be more efficient, we will continue to innovate to reduce costs and provide a better member experience. And as we come closer to the end of the year, we do maintain an optimistic view and are optimistic that we can continue to create intrinsic value on a per share basis over the long-term.

Finally, I know this is been a bit of a long call and longer than our usual earnings call and we won't get every question. So, please reach out to us directly or stop by our office with any additional questions or ideas. I now open it up to questions.

Operator?.

[Operator Instructions]. And our first question comes from the line of Bob Labick of CJS Securities. Your line is now open..

Good morning..

Good morning..

A lot of information there for us. Back up with the New York City please, just first easy one potentially.

The loss of New York has had a greater impact than the gain coming back on South Carolina not margin wise, but dollar wise in terms of EBITDA?.

Yes, it does..

Okay. And so, and also is the winning bidder in New York competing in New Jersey. I know you, and then any update on New Jersey I guess right now and I'll just keep going in this pass..

We don't have any update on New Jersey. And no, they're not competing in New Jersey, they are only as we know they're only serving actually in New York City..

Okay.

And you said it was on right, and so just how long that contract or will you be rebidding it for few years on lower price or what are your expectations there?.

I believe it's a three-year contract and we will be rebidding it..

Okay.

And how much roughly of the 2016 EBITDA is out for bid into 2017?.

We don't have that on an EBITDA basis. I can tell you on a revenue basis it's roughly, now this is assuming that we here from New Jersey this year, it's roughly a third of the overall revenue. It's approximately $275 million to $300 million or over the less..

Okay.

And the biggest chunks there is the Virginia one or what's as much detail on?.

No, Virginia is one in current..

Yeah, so Virginia is one. Now we have multiple contracts in Virginia but there is some revenue in Virginia coming up for rebid. Also, Georgia, Philadelphia and Connecticut. And that was including in that $260 million to $270 million that was including South Carolina because we do expect that to be rebidding that now in 2017..

There are also other states that are coming up that we don't have like Mississippi, Indiana, Arkansas, potentially the rest of Pennsylvania and West Virginia..

Okay.

So, those are effectively new bid opportunities for you?.

Exactly..

Okay, great. And then shifting over to WD services, what's the medium or long-term outlook. And then the rationale for staying in that, I know it's a tough question. But given the human capital cost, management cost and then also the capital cost that you put into this so far.

Just give us the medium to long-term outlook as to why this is worth the effort to keep going down this path for recently it's breakeven or loss?.

Well we are subject to government contracts in terms of, and we're dealing with some populations such as in the probationary services where we are vital to delivering that service. So, in terms of us holding it, we're fulfilling everything that we have to fulfill, most importantly.

Anywhere where we can wind down contracts that are unprofitable, we are doing that like we've done in Sweden and Poland. So, we are getting pretty aggressive on that.

If you're expect or also asking about strategically, it would sell the business, we can't comment on that publicly, but I think if you look at what we’ve done to-date over the past year, we do look at this from an investment point of view as well and that there is no reason why we’re not looking at this business the same way, but everything that you’ve mentioned those challenges we’re living and breathing every day particularly around the human capital, there is a high cost to this business.

So, I think our thinking is aligned. But again, there’s only so much I can say on a call..

Understood, yeah, And just a last one, I’ll sort of - but just to - I think you’ve mentioned, but just to make sure I got it or we got it, the value enhancement initiatives over how long - how much of the 50 basis points that we’ll see next year and it’s like the vast majority of the benefits in ‘18 or how to kind of put that all together and when that post could I understand it it’s difficult obviously to say because we’re going lower prices we can therefore win more and that kind of stuff when is the actual work done in terms of value enhancement initiative? And then obviously, whatever you give back to clients to get back in lower cost to get more revenue is understand but just trying to see that the process go on?.

Yes, so we’ve already started some of the implementation started planning for this earlier this year, moving using resources from third party, but the bulk of the implementation is going to take place in 2017 and as I mentioned that’s going to drive next year $10 million to $15 million of implementation cost and that will come in the form of OpEx and CapEx.

We won’t see the majority of the benefits, however until 2018, in 2017, I’d mentioned that we expect to get 50, approximately 50 basis points margin expansion from the initiatives which would help into offset the change in our contract mix, change in the margin profile for contracts which if you apply 50 basis points to our current year the expected revenue at somewhere around $5 million to $10 million of benefit in 2017.

So again, the majority of the benefit is going to kick in 2018 and by the end of 2018 we feel we should be run rating annual savings should be run rating over $30 million..

And just to reiterate as we went through a bunch of specific examples in here some of the items out of the 20 work streams that we have none of this is rocket science in terms of what we’re doing, it is 20 work streams across 20 different call centers and working with a lot of transportation providers, so again we feel pretty confident about it.

We’ve done a lot of work in terms of design and planning so we’re pretty excited about it..

Perfect, great. Thank you very much..

Thank you. And our next question comes from Shane [ph] of Avondale Partners. Your line is now open..

Good morning.

When the work program cuts were initially announced, it was looking like the work Health Program be a €120 million to €130 million annually what was behind the change to whereas $69 million annually for the whole program?.

So, they had a report in October where they actually went up better and I think it’s publicly available on the DWP website where they actually spelled out in the provision documents, just to move downward and what they attributed to, if you look to our slide we basically took some other reasons around on employment directly from the report again that’s also on the website and that’s mostly related to the employment statistics..

Okay.

And that doesn’t include any kind of benefit from Scotland, is that correct?.

That’s correct..

Okay..

And there may be supplemental revenue contributed to the program by municipalities within UK, but we’re less certain on those figures that we’re just speaking to the core work health program..

Sure. That makes sense. And then moving to the Matrix when you put out the press release regarding the updated deal terms there, it said part of the reason for the change was due to - desired to change capital structure so that Matrix can do more M&A.

just generally you know what kind of opportunities you and Frazier seeing on that front?.

So, the activity has picked up, I’d say there are smaller actually one that came in over the summer but they are preliminary and on the smaller side, I’d also say that there are more limited in terms of I think competitive nature around them and potentially have some good both sales and cost synergies.

So, I think what we’re seeing is, we’re quite enthused about, but again I think we’re in one process and who knows how it turns out or not..

I appreciate. And then just lastly, what’s the number of rebids coming up in the NET Services segment, are you seeing kind of the continued trend to more aggressive pricing on the part of your competitors or these kind of more one-off type situations..

Well, the one situation that we've referred today, we feel it like was a one-off situation but because it was a higher margin contract. However, the move towards MCOs will continue to have overall pressure but I think we’re all on the same - feeling the same pressure as our few competitors that are out there.

So, I think it is an overall trend, but I don’t think that the competitive dynamic as we just saw on New York City, where we obviously, loss will continue..

Thanks for the question. I’ll get back in the queue..

Thank you..

Thank you. And our next question comes from the line of Mike Petusky of Barrington Research. Your line is now open..

Hi, quick question.

So, when you talked about the loss of New York City, I thought I heard other - but I didn’t hear others specifically - can you speak to that?.

Yes, so when we say others so there is New York City and then we have mentioned before the state of Nevada, which is smaller and then a small handful of MCO contracts..

Okay. So, when you kind of balance that of against when you get back in South Carolina what kind of the that revenue mark between that those two pieces of business coming in [indiscernible]..

So, when we consider our contract losses as well as how that offset by recent contracts wins and renewals and kind of discrete membership and pricing increases in certain markets, it does come out as - on the revenue side about to watch, but again the margin mix is different between the contracts that we will - in the contracts that we won or retain..

And just to be clear that is if you think about that for 2017 that is preliminary that’s based on what we won or what we’re about to sign, hopefully very near-term and doesn’t include some of these additional contracts that we mentioned earlier that could be new additions..

And again, we are rebidding as is - as we do normally every year, that rebidding of a portion of our portfolio, it’s a little bit above the average just because - if you include New Jersey in there..

If New Jersey doesn’t get awarded this year..

Do you guys have any sense of whether that's likely to be [indiscernible] any thoughts at all?.

I don’t think we can comment on it at this point. On the extension front..

Okay.

So, on the timing of the business that you guys will have off the bid 75 is to 300, can you just talk about the timing of some of the bigger ones there within your or do you know some of the other ones that you have sided or they mid-year or they towards end of the year? Can you speak to that?.

Yeah, I would say if you average it out, it would be closer to me here. So, we wouldn’t feel that full impact starting day one. It would seem our midyear toward the renewed contract with [indiscernible]..

Okay. That’s what I’m going to and then last one on this side….

I just also ask about but it’s also going to enable us, we’ve already starting to include some of these initiatives in our RFPs and so it will give us little more time over the first quarter to continue rollout some of these initiatives which we think we’ll make us competitively stronger in those RFPs as well.

Right.

And then on the new one that guys sighted West Virginia, Mississippi, Arkansas, how much either if you have chunks of revenue associated with some other bigger ones or how much revenue is associated with those new possibilities?.

If we look at our pipeline, I’m not going to go into specific revenue for specific contracts. So, if you look at the potential additional revenue from new state and MCO contract, it is approximately a 100 million..

And then switching over to Matrix, the margins there we’re again really strong and I think you guys a normal you want to try to talk in banner and signal be conservative in the third quarter.

Can you just I guess speak to that and just speak to either thinking about that is this is margin going forward?.

Sure, we continue to be surprise as well frankly. So, I think to the upside and so two things are driving it. We think one is our - frankly our process improvement team, which is pretty large in the business in terms of size and people, they touch us continues to drive down direct and indirect costs per CHA.

And in terms of pricing we’ve always talked about prices coming down. However, our teams continually sort of are rolling out additional solutions. So, most recent one is we are starting to pilot a diabetes in home service, that’s part that we can tack on to our assessment. And so, that’s helping keep margins a little bit higher as well..

Certainly, would your hope be that kind of you could keep segment margins there above 20% or foreseeable future or is there even more upside than that..

We don’t see them coming significantly down, anytime soon, other factors that are playing into it are nurse practitioners talent, as I mentioned is tough. And so, we’ve - our model has worked pretty well in terms of keeping turnover down and creating a good model for - to attract nurse practitioners.

Our nationwide structure as well, so we can ramp up very quickly in the new markets and the MCOs like that, we’ve also been with the new sales structure going out to smaller regional players.

And Mike Lancel [ph] and the team, Michael just came on last year earlier this year, sorry I have been doing a great job with some of the smaller clients as well. So, we don’t see any sort of short-term change in that margin, but as always we are acting like we are getting pressure down in terms of how we are running the business, that’s all.

I would also say the kind of - some of care management programs that they are undertaking could cause margin around the edge to fluctuate and there is quarters of investment and as Jim mentioned towards the end of the year looking to launch three more care direct programs, which is our care management, which should not significant investment margin.

.

Okay. All right. Last one, and you may have touched on this and I may have missed it a ton of information, appreciate that. But on mission Providence, I think there was an expectation at some way on year end that would turn profitable.

Is that - I don't know - does that earlier, is that still kind of the estimate - it's guesstimate there or think that?.

So, we are still hopeful that towards the end of the year, it will turn profitable. I think it's still frankly it's uncertain, it's still pretty challenged industry. In Australia, we actually have team from Providence and from Ingeus there right now. We are working with management on operational efficiencies, we believe there today.

And I will say some of the initiative work that we did over this summer or going into this summer has starting to pay off. And so, some of the early metrics around for example job placements per advisor, which is a key one for us has started to exceed our expectations a little bit. I mean it's only been a few months.

But we are doing a little bit better there than we expect. And so, it might not be December, but I feel like we're starting to see some light there..

Okay, and just a real quick one.

I think also you've talked about maybe the sales infrastructures and plans have you guys been able kind of do anything there and that's kind of in same place to run 90 days ago?.

So, that's another area where we have deployed Providence teams as well. And I should say that Providence team is quite small. Make it sound like we have 20 people; we're talking about under five and working again with Ingeus there.

And that one is just because of the regulatory environment as I'm sure a lot of people on the phone know it's a bit more difficult to work through. But it is, I would say we're working as aggressively as possible and help to have more news on the year end call. But I can't say much more than that at this point..

Michael also to point out that we are attempting to provide a bit more. Although we are not including our JV investments in adjusted EBITDA or adjusted EPS anymore. We are attempting to provide a bit more disclosure and insight into our JVs including Mission Providence.

So, in our press release for example, we've started including a couple of more tables that should hopefully help..

Yeah, absolutely. Great detail of profitable greatly, appreciate it. Thank you..

Thank you. And I am showing no further questions at this time. I would like to now turn the call over to Mr. Jim Lindstrom for closing remarks..

Great. Thank you, everybody for the time. We appreciate running up to an hour now everybody's commitment to learning more about the business today. And as always please feel free to reach out directly to us or come out and visit us in Sanford to talk more about the business. So, thank you. Have a great day..

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day..