Good day, ladies and gentlemen, and welcome to the Third Quarter 2018 Providence Service Corporation Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded..

I would now like to introduce your host for today's conference, Mr. Laurence Orton, Interim CAO and SVP of Finance. Sir, you may begin. .

Thanks, Lauren. Good morning, everybody. Yes, this is Laurence Orton, CAO and SVP of Finance for Providence. So thank you all for joining Providence's Third Quarter 2018 Conference Call and Webcast..

With me today on the conference from Providence are Carter Pate, Interim Chief Executive Officer; Kevin Dotts, who is our Chief Financial Officer; and Bill Severance, who is the Executive Vice President of Finance..

As I usually remind people, during this call, Mr. Pate and Mr. Dotts will be referencing the presentation that can be found on our investor website under the Event Calendar and in the Form 8-K, which was furnished with the SEC this morning..

And before we get started, I would just like to remind everybody that during the course of today's call, the company's management will make certain statements characterized as forward-looking statements under the Private Securities Litigation Reform Act.

These statements involve risks and 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, and a definition of these non-GAAP measures and reconciliation to the most comparable GAAP measures can be found in our press release, the investor presentation and that Form 8-K..

And finally, we have arranged for a replay of this call, which will be available approximately 1 hour after the call ends on our website, or it can be accessed via the phone numbers listed in our press release..

So now I'd like to turn the call over to Providence's interim CEO, Carter Pate. .

Well, thank you, Laurence, and good morning, everyone. Thank you for joining us for our third quarter earnings call. It's my pleasure to introduce Kevin Dotts on this call. Now Kevin joined us in August as the CFO for Providence and LogistiCare and has already had the opportunity to talk to several of you in the investor community.

Today, he will walk us through the numbers related to the third quarter. .

I'd also like to mention that Bill Severance, who served as the interim CFO, is also here in the room with us here in Atlanta. And I would like to thank Bill for his support during what has been a very busy period here at Providence.

Now Bill will continue to support me in many of our initiatives over the coming months, one of which continuing to support the transition of the holding company activities to LogistiCare..

Now before I turn to the business performance for the quarter, I want to highlight 2 extremely positive recent events. Firstly, as previously announced on September 21, we completed the acquisition of Circulation.

We believe Circulation's technology will be transformative to LogistiCare's operations and is uniquely placed to help us deliver cost savings across our call centers and at the same time significantly improve the membership experience. I'll talk in much more detail about the benefits of this exciting acquisition in my remarks about NET Services..

Secondly, I'm also very excited about the announcement we made just last night that we included in our earnings release. On 7 November, we signed a definitive share purchase agreement to sell substantially all of our WD Services segment to Advanced Personnel Management Global, or we refer to it as APM of Australia.

The transaction excludes Saudi Arabia, which I'll come back to in just a moment. .

The headline transaction proceeds are $46.1 million, which includes the cash on the balance sheet of approximately $19 million. Now in addition to these transaction proceeds, this transaction also unlocks significant cash tax benefits for Providence, which we estimate as an additional $25 million to $50 million of value.

We expect to realize the benefit over the next 3 to 5 years, and the Saudi Arabian operations will not transfer to APM, as I previously said. However, we've already begun exploring options with the Saudi government that would have us no longer providing services in the country by the end of this year..

Now we anticipate closing the WD Services transaction by the end of this year, and I want to put on the record my thanks to the Ingeus global workforce and leadership team for their positive contributions made to Providence since 2014.

The divestiture of WD Services is another milestone in our organizational consolidation plan, which I covered earlier this year, and the efforts to focus our attention and our capital on the U.S. Healthcare Services market..

I will now turn to this quarter's financial results as well as talking to you about Circulation in much more detail..

Now if you have your investor presentation in front of you, on Page 3, I'm happy to talk to you about a much more positive quarter this time around. On a consolidated basis, revenue increased by 2.9% this quarter compared to prior year.

The negative effect from the new revenue standard was a little more muted this quarter, with a negative impact of about $1.6 million. Foreign exchange also had a moderate negative impact in our WD Services segment of $0.6 million.

And if I back these out, on a like-for-like basis, consolidated revenue grew by 3.3%, with LogistiCare growing at a very encouraging 7%, excluding revenue recognition..

Now segment adjusted EBITDA was $26.4 million for the quarter, compared to $24.3 million in the prior year. And while LogistiCare was closer to the margin we expect, WD Services was primarily impacted by a delay of signing a contract in Saudi Arabia.

Adjusted EBITDA for Providence in total was $20.6 million compared to $15.7 million in the third quarter of 2017. And we are nearly 12% ahead on a year-to-date basis..

Adjusted EPS of $0.63 was extremely strong for the quarter and represents a 91% increase in the same period last year. And on a year-to-year -- year-to-date basis, we are now 40% higher than 2017..

Now I'm going to turn to Page 4 in the deck. LogistiCare grew reported revenue by 5.8% in the quarter.

But if you back out the change in accounting due to their new revenue standard, LogistiCare achieved the 7% year-over-year growth that I just previously mentioned to you, which was certainly helped by some of our more recent contract wins, such as the State of West Virginia..

Now as we indicated in our earnings comment last quarter, we were expecting LogistiCare's adjusted EBITDA margins to improve sequentially, and they did, finishing the quarter at 6.1%, which is also in line with margins in the third quarter of 2017. .

Now Kevin is going to explain in more detail the pickups that were in that comparative margin for last year, and I'll also let Kevin to explain the positive actions that we've been taking during this quarter in response to the compressed margin, which we saw in Q2. .

Now I want to focus on the most significant event of the quarter, the NET Services, and that is LogistiCare's acquisition of Circulation..

Let me just briefly recap on what Circulation is. For investors new to this story, before talking about how the technology can help deliver significant synergy benefits to LogistiCare's existing operations. Now we made that initial investment in Circulation in the third quarter of 2017. And Jeff Felton, LogistiCare's CEO, then took a seat on the board.

What was interesting to us as this story developed was that the Circulation team, led by Robin Heffernan, had developed a HIPAA-compliant platform of technology-enabled logistic solutions and analytics for managing nonemergency transportation across health care that was rapidly establishing itself as the disruptive technology in the sector.

The user interfaces are more contemporary, intuitive and in line with what consumers are now accustomed to via the well-known ridesharing companies..

We also believe that the technology is uniquely placed to help us deliver cost savings across our 20-plus operations and call centers throughout the United States. Call volume and call duration are both significant drivers of our cost base today.

And what the Circulation technology enables is a reduction in that call time and the number of calls via a streamlined user interface and increased level of self-service for both members and their families..

This will include reservation calls made by customers, reservation calls made by the facilities, ride assist calls as well as after-hour calls and calls from the transportation providers.

Now beyond the reduction in contact time, the platform will also allow us to improve the levels of automation and trip assignment, automate eligibility verification and further yield back-office improvements such as digitization and the automation of claims processing. .

Based on these features, we are targeting run rate synergies of at least $25 million within the next 24 months across the operations. This is not a big bang kind of implementation to technology.

Instead, we have an integration roadmap that lays out how we will achieve these synergies, and it follows a path of implementing the technology across a number of states at a time depending on the size or nature of the contracts. But as we become more adept at the implementation process, we expect that rate to actually accelerate.

Our plan is to have the technology up and running in our first state by April of next year. .

Now further, we also believe that the improved member and facility experience from the technology can help drive incremental growth in our LogistiCare's core markets of state Medicaid, Medicaid MCO and Medicare Advantage. .

And finally, the acquisition helps to extend our total addressable market to a broader set of healthcare rides served by Circulation today. Now we believe that the combined market opportunity here that we can address for healthcare transportation is conservatively estimated at a $12 billion market..

It is with great pleasure that I can tell you the Circulation team is staying in place and will work lockstep with LogistiCare on our central mission of reducing transportation as a barrier to health care..

Now let me round out my comments on NET Services by saying a few words about our previously communicated value-enhancement plans. And I'm going to try to help investors understand how we can look at those in light of the Circulation acquisition and the synergies we expect to achieve from that transaction..

Now our original value-enhancement programs primarily became focused on driving a reduction in the per-unit cost of transportation, which was a necessary evolution of this business.

By the end of 2018, we will be close to the rate of savings we envisioned 2 years ago, but this is a dynamic business, and some of the transportation savings are being reinvested and shared with our customers as we've previously discussed on prior calls. Thus, the savings do not have a one-to-one correlation with improved margins.

In addition, we are constantly adapting to the many changing trends that drive our utilization together with our customers looking for improvements in efficiency and costs, both of which can mask those savings..

While the initial set of value-enhancement programs also included activities that related to the contact centers, progress was slower on this front. Contact center savings have a more durable impact on margins, and Circulation helps us both amplify those savings and take a leap forward in terms of the timing and cost to deliver such benefits..

So when you take into account that we expect to deliver run rate synergies of at least $25 million within the next 24 months, together with our ongoing effort to control transportation costs, we speak to these efforts collectively in terms of margin improvement as we go forward.

I believe this is a much clearer way to communicate our success to investors..

Kevin will discuss shortly our current margin expectations for 2018 with the rollout and application of the Circulation technology and the resulting synergies that we have identified with this will significantly enhance margins. And by 2021, our view is that LogistiCare will be delivering margins north of 8.5%. .

Now I sincerely hope that I've conveyed my excitement about this acquisition to investors and how this fortifies our position in the industry by combining the market-leading technology with our market-leading scale and also presents a fantastic opportunity to look beyond our current service offerings in the $26 billion addressable healthcare ecosystem.

I look forward to bring you updates over future quarters..

Now let's move on to WD Services. Of course, the big news was the announcement of our agreement to sell WD Services, which we worked extremely hard over the past weeks and months and are extremely pleased to announce this.

For the results, if you turn to Page 5, revenues are down year-on-year, but in addition to the well-documented wind-down of the U.K. Work Programme, we also completed the sale of our French subsidiary in early July, and this has led to around $5 million less revenues than last year, although this had little impact on year-over-year adjusted EBITDA.

We also had a $2.1 million pickup on revenue rec, which Kevin will explain, and a small negative impact from FX rates this time around..

Now in Saudi Arabia. Our contract expired in July of this year. We have not signed a new contract and though -- and thus no revenue was recognized for the period August to September 2018. This is an important fact as we exit Saudi Arabia that we are done with contracting.

We generated adjusted EBITDA of $3.7 million in the quarter compared to $4.6 million in 2017. For this quarter, we saw some favorability from the new revenue standard based on the favorable revenue I just highlighted, but the major drivers continue to be the wind-down of that legacy U.K. Work Programme, offset by the new U.K.

Work and Health Program and our programs related to diabetes prevention..

During the third quarter, the MOJ signed the agreement that we previously discussed on earlier calls related to our offender rehabilitation program, and that has now gone into effect..

Since the last time we updated you and upon finalization of that agreement, there were some additional changes that led to a slightly more favorable outcome in terms of the size of the potential penalty. This led to a small benefit in the quarter.

And again, I want to reiterate how important it was to have this negotiated -- negotiation completed and behind us. That was a long 6 months getting that done..

Let's turn now to Matrix investment. I'll touch briefly on this. As the in-home business of Matrix continues to grow at a very encouraging rate, revenue was up 8% in Q3. And to date, the in-home business has had a very successful year for adding new clients and new membership. The Matrix team has exceeded their goals on both fronts.

Additionally, much of that growth has been diversified beyond Medicare Advantage, expanding into Medicaid, commercial and quality visits. We have also seen progress with HealthFair, as we said last quarter. The near-term focus has been more around alignment of the operations and cost base to this year's expected level of membership.

More fundamentally, though, the Matrix team has made good progress on establishing some of those relationships with the payers that had led to the delay in volume since the acquisition. And so the management team continues to believe in the growth proposition here. On a year-to-date basis, membership is, in fact, up year-over-year..

Now having grown the membership on both sides of the business, the focus for the Matrix team is now on converting that membership into even more visits. Generally, there is a lower conversion rate in the areas outside our core Medicare business, such as Medicaid or commercial and -- due to the nature of the membership.

But what excites the Matrix team the most is pursuing additional yield is that they can now offer clients a choice of in-home or a mobile setting, which allows us to differentiate ourselves significantly from our competitors. Even a small change in yield can have a beneficial impact on the financial performance of Matrix..

Now in summarizing my comments on Matrix, the team continues to make substantial progress. And despite some of those early setbacks in terms of expected membership levels in HealthFair, we believe that we continue to have optimism going forward..

Now a little bit about the organizational consolidation. I think I said at the top of my comments that we are doing this call for the first time from Atlanta, where we are doing our organizational consolidation. We took important steps toward this goal when we hired Kevin Dotts as the CFO of LogistiCare and Providence.

Kevin comes to us with a wealth of both public company and technology experience having been a sitting CFO at several high-tech growth companies over a number of years.

With Kevin on board here in Atlanta, we have continued to make good progress on our planned actions related to the organizational consolidation, and we remain confident we will achieve $10 million of run rate savings once the plan is complete in Q2 of next year..

Having introduced Kevin, I'm now going to turn the call over to him as he walks us through the Q3 financials in greater detail.

Kevin?.

Thanks, Carter. As Carter already said, this was a good quarter for Providence with much sequential improvement from Q2. I'll start on Page 4 of the presentation and focus my commentary on the segments as Carter has already taken you through our consolidated results and some of our strategic initiatives..

Starting with NET Services. NET revenue increased 5.8% in Q3 2018 to $343.8 million. As we have discussed, the new revenue recognition standard in 1 contract, which is now being reported on a net basis, the impact of the new rules is a reduction in reported revenue of $3.7 million. And so on an apples-to-apples basis, revenue growth was a strong 7%.

The change in presentation has no impact on adjusted EBITDA..

The key revenue drivers in Q3 were new contracts, including managed care organization, MCO contracts, in Indiana and Illinois and the new state contract in West Virginia that we announced last quarter. This contract started up very smoothly and revenue for its first quarter was in line with our expectations.

We also saw the benefit of state contracts for additional regions in Texas. And quarter-over-quarter, there was a favorable benefit of increased revenue from existing contracts due to the net impact of membership and rate changes.

These increases were partially offset by the impact of contracts we no longer serve, including the state contract in Connecticut and certain MCO contracts in Florida and Louisiana..

Adjusted EBITDA was $20.9 million in the quarter, an increase of $1.2 million, and margins were 6.1% in Q3 of 2018, which were exactly in line with last year.

While on the surface it looks like there isn't any margin growth on a year-over-year basis, there were some significant pickups in our margin last year, including rebates and holdbacks, that we were able to recognize upon finalizing a new long-term contract with one of our most significant customers.

Hence, the margin this year has demonstrated underlying improvement compared to Q3 of 2017..

It's also important to talk about the sequential margin improvement that we demonstrated. The team at LogistiCare spent a significant amount of time during the third quarter analyzing the impacts to our costs that we saw during the second quarter.

In addition to our ongoing focus on transportation rate reduction, some of this -- some of that analysis led to other measures being implemented, such as ensuring that there were less overruns under certain new contracts or that the mode of transportation selected was more efficient.

As we have discussed, there is also the revenue side of the equation, which can take a little longer to bring back into alignment, and we have made the first steps on this during the quarter. But finalizing any agreements, as we have said, can take a number of quarters to achieve..

Before I provide any guidance for the balance of the year, let me talk about Circulation because, as you know, this was purchased by LogistiCare and, as we go forward, will be reported in the NET Services segment, rather than on a stand-alone basis..

Circulation has been in existence for only a couple of years, and as such, it has not achieved breakeven. And so for the fourth quarter, it will be dilutive to NET Services and impact the guidance we previously have given..

We have previously guided to a full year adjusted EBITDA margin of in the low 6% range, and our Q3 performance was in line with this guidance. We still believe the full year will be in this range despite the addition of Circulation, which is mildly dilutive and will impact us by approximately 200 basis points..

As Carter mentioned, we believe that, as we start implementing the technology from Circulation, we will start to see the benefits to the P&L account. And we plan to be implemented in our first state as soon as the end of Q1 2019. And so I anticipate Circulation to be accretive in the second half of the year..

WD Services. Moving to WD Services on Page 5. Revenue for Q3 2018 was $77.5 million, a headline decrease of 8.4% or $7.2 million.

In order to compare a true like-for-like change, we now have to strip out the impact of the positive revenue recognition standard of $2.1 million, a negative fluctuation in foreign exchange rates of $600,000, and finally, the fact that we sold the French subsidiary at the start of this quarter, which led to a reduction of $5.4 million..

Taking all of this into account, the revenue decline was a lot less significant at just over $3 million..

The declines we did have were as expected from continuing wind-down of legacy U.K. Work Programme offset by the steady ramp-up of a replacement work and health program and continued growth in our diabetes prevention contract.

We also had a favorable impact from the new revenue standard this quarter of $2 million, and this was because we have a program we refer to as youth services, which is focused on youth development camps, in the third quarter of the year.

Under the new standard, we were not able to recognize as much revenue earlier in the year or until we had actually run the events..

In Saudi Arabia, we also saw delays in signing our next contract and so were unable to recognize revenue for the last 2 months of the quarter..

While talking about our operations in Saudi Arabia, we have also reported a $1.8 million settlement for certain receivables which were significantly aged due to the issues with the implementation of a new payment system by the Saudi Arabian authorities back in 2017 and had resulted in a protracted process for collection.

The company agreed to a payment discount in order to collect the receivable and avoid further delays in generating cash from the contract. Since the balance sheet date, we have received the cash. .

WD Services reported adjusted EBITDA for the quarter was $3.7 million compared to the adjusted EBITDA of $4.6 million last year due to revenue fluctuations noted above. The adjusted EBITDA margin of 4.8% is below the prior year margin of 5.5%..

As Carter mentioned, yesterday we signed an agreement to sell WD Services segment, excluding Saudi Arabia. Going forward, we expect the business to be accounted for as a discontinued operation. As a reminder, we do not allocate corporate costs to WD, nor are there transactions between our WD Services and NET Services.

So this potential change in presentation would not impact how we have previously presented NET or corporate, nor have an impact on a go-forward basis..

Corporate. For corporate, we incurred an adjusted EBITDA loss of $4 million in Q3 of 2018, which is $4.6 million lower than prior year. The major driver was a decrease in expense for cash settled awards of $2.6 million due to the pullback in our stock price we saw in the quarter when compared to a marginal increase in the same quarter last year..

During Q3 2018, we incurred $1.9 million of costs related to the organizational consolidation, including $1.6 million of noncash costs. Our current estimate of the total cost is approximately $9 million, with approximately 1/3 representing noncash costs..

For the full year, we still expect adjusted EBITDA at corporate to be approximately negative $25 million, excluding organizational consolidation implementation costs, which we currently estimate at approximately $7 million to $8 million for 2018..

Matrix. Lastly, on Page 6. Regarding our Matrix investment, let me remind investors that Matrix is treated as an equity investment and therefore, we don't consolidate its revenue or adjusted EBITDA with Providence.

Matrix closed the HealthFair acquisition during Q1 of 2018, and the information on Page 6 only includes the results of HealthFair since February 2018, with none of the information being presented as pro forma..

From a Providence income statement perspective, we recorded an equity loss of $1.6 million compared to breakeven last year. The equity loss on the income statement last year related to Mission Providence.

The increase in the loss is primarily related to the level of integration costs that were incurred in the quarter for the ongoing integration of HealthFair..

When we look at Matrix in total during Q3 of 2018, Matrix revenue was $70.5 million, an increase of 20% from 2017, again on a non-pro forma basis.

And even though the bulk of this headline increase relates to the acquisition of HealthFair, I reiterate that the core in-home assessment business performed very well, growing revenue over 8% when compared to the prior year due to increased volumes, primarily due to new customers as we continue to diversify the markets that we serve..

Revenue from mobile assessments, which commenced as part of the HealthFair acquisition, continues to lag behind the expectations at this time of the -- at the time of the acquisition due to a slower ramp in contracts, resulting in a delay in the receipt of membership lists, and thus, the delivery of mobile assessments.

But as Carter said, there has been progress in building the membership level..

Adjusted EBITDA margins for Matrix of 19.4% were negatively impacted by the slower ramp-up of contracts for mobile assessments, but progress was made on rightsizing the cost base to this year's expected level of volume..

Turning to the income statement. I will mention one significant item on our GAAP income statement, and that is the gain of $6.6 million that we recognized in Q3 related to the acquisition of Circulation. We made an initial investment in Circulation in 2017, which was at a lower price than our acquisition of the entire company.

Under the accounting rules for step acquisitions, we were required to fair value our initial investment, resulting in the book gain..

Turning to balance sheet and capital allocation. The more significant changes in our balance sheet for the quarter also relate to the acquisition of Circulation. As with all business combinations, the purchase price is allocated to the various assets and liabilities, including the fair value of acquired intangible assets.

Based on our preliminary valuation, approximately $15.7 million of purchase consideration has been assigned to intangible assets, including $14 million assigned to technology, which we will be amortized -- which will be amortized over 5 years, and goodwill of approximately $40 million.

Once again, the valuation is preliminary at this time, given that we closed the deal just prior to quarter-end..

Investors will also note that we do not have -- that we do have drawn against our revolver, and this is related to the Circulation acquisition. We financed the acquisition through a mix of cash on hand and a $36 million draw on our revolver facility.

We anticipate paying the revolver down over time from cash generated from operations, but in the meantime, we are still left with over $150 million of undrawn capacity..

Lastly on Page 9, our share count, common plus preferred on an as-converted basis as of 9/30/18, is $14.8 million -- 14.8 million shares, excuse me. In the quarter, we did not repurchase any shares as we focused on our capital allocation priorities on the Circulation acquisition and the sale of WD Services.

Our current buyback capacity is approximately $81 million..

With that, I will now open up the line for Q&A.

Operator?.

[Operator Instructions] And our first question comes from Bob Labick with CJS Securities. .

Yes. So I wanted to start with perhaps the biggest news, and that's Circulation, which certainly does seem very exciting.

Can you talk about maybe early customer reception from your existing customers or contacts that may want to move over to the platform? Have there been any new potential wins as a result of getting this platform? And just tell us how your customers are thinking about this. .

Well, the -- I'll kick off, and then I'll let Kevin if either -- if either of you have any comment. But the reception was better than I could have dreamed for. There was a real need for this technology solution as the -- LogistiCare continues to evolve is it's been the leader for 20-something years now.

But with the technology component of this, this is a fast-moving sector, and LogistiCare needed this technology solution because, I will tell you, the substantial portion of our calls are handled by the 20-plus operation call centers in the United States. And this is very, very labor-intensive.

Average call, I think we've discussed on prior calls, is over 6 minutes in trying to book a reservation, trying to make sure that they are qualified for the ride, trying to arrange the ride. The substantial amount of automation to a self-service model is going to actually just have a dramatic change on this business.

The reservation calls made by the customers, made by the facilities, all these calls that come in of "where is my ride", after-hour calls, calls coming in from the transportation providers themselves, all of this will culminate in the automation of these trip assignments.

The automation of the eligibility verification will have dramatic improvement in the back-office improvement and digitization automation of the claim processing. Now to your question about what are we doing is -- the team is as seamlessly integrated as I've seen in acquisition. Robin has given Jeff the leadership that I thought she would.

They have integrated and come up with a plan for a layout of the network efficiency, the call center efficiency and then the contract transition. They jumped out of the starting gate pretty fast. They've already got one of our contracts up and running. That's being rolled out this quarter.

They are rolling out, I believe, 3 more contracts, including a state in Q1. So we're off to a good start. And I think we talked in the opening dialogue about what we think the savings will be over the next 24 months. But they came out of the starting gate pretty fast.

And it's been as good an integration as I've seen with tremendous cooperation with the Circulation and great receptiveness by the LogistiCare team.

Kevin, would you add anything else to that?.

Yes, just 2 points and -- just to reinforce exactly what you said. I think, from the customer side, it's been very well received. And I think with regard to both the -- the customers being very interested in how that Circulation platform is going to come in and work with the LogistiCare already -- contracts that are in place.

And the other thing I would just mention is that the employees, I think, are incredibly excited about the opportunity on a go-forward basis. So I think it's going to be very positive then on both sides, for customers as well as the company. .

Yes. Just to add a comment, Bob, the -- Robin was telling me the other day that she's actually got -- the demand is so great for conversion once people see this platform and see the automation side, that she's got them waiting in queues to convert the contracts. So we're working our way through it. We've got a good plan.

I have an incredibly high degree of confidence in Robin and Jeff's leadership team to execute on this. So we're pretty excited if it's not coming through the phone. It's quite an advance for LogistiCare to have this acquisition integrated. .

That sounds great and I appreciate the details.

And just half-step back on that, what are the implementation risks? Are you running redundantly with the call centers and with Circulation as you go through the contracts? And is that potentially part of the initial dilution that once that rolls off you get the cost savings? Or how do you perceive the risks? And how are you trying to mitigate those potential risks?.

Yes, sure. I think we're going through kind of very, very detailed plans. I think we continue to manage a lot of the contracts on the existing platform and then begin to feather in, where we can, the new platform that Circulation brings to the table. Obviously, Circulation is already delivering on that platform in many states.

We're going through some additional testing on scale and some things of that nature to make sure that it can continue to scale up and build the capacity that we're looking.

So there's -- continues to be focus on basically the implementation to make sure that we don't kind of drop something in there that isn't working and as well that the platform will continue to scale by all the expectations.

There was that testing that was done prior to the acquisition that we had a third-party do that assessment, and then we're continuing to stress test it on a go-forward basis to make sure it's doing everything that we need it to do. .

Bob, they were very thoughtful in the selection of the contracts, obviously picking the smallest ones first so that if there was a hiccup or a conversion issue, they -- it could be caught very quickly. But they're about quickly to go from crawling to walking to running.

But they -- it is an incremental approach, a very measured approach as we convert these so that we don't have a misstep that could have a setback in the quarter. But a very deliberate, very thoughtful rollout.

Starting small with the smallest contracts, and we'll work ourselves up to conversion of a state here by -- probably by the end of Q1, we'll be ready to take on the much larger conversions. .

Great. No, that's very exciting. Sticking with LogistiCare in the quarter. Versus our expectations, the margin recovery was certainly faster than expected. So maybe if you could just give us a sense of kind of the key drivers for the rebound in the margin recovery and -- versus Q2 I'm talking here.

And then how sustainable those improvements are going forward. .

Sure. So Bob, this is Kevin again. So I think there was a fair amount of pickup that -- we talked about it in certain contracts that have kind of come on board. And those are net favorable to contracts that we are not supporting year-over-year. So I think there is favorability there. The transportation cost is paying off every month as we track this.

We are seeing our transportation costs dropping. And so it is just kind of that focus on execution. I think we are, as Carter mentioned, we're pivoting a little at this point and focusing now on our productivity within our contact centers. And I think that will be kind of the next step.

Some of that just comes from, I'll call it, structural operational excellence and rigor that we've identified and some execution of just good practices. And then I think the Circulation platform, as that comes into play, will have benefits that will primarily focus on that contact center.

And we said the contact center is the cost that you want to focus on because that's going to have the most stability, but as well it has the benefits that we've talked about as far as everything that you would expect from the technology, where is my ride, understanding pickup, drop off and things of that nature.

And that will also have even further transportation benefits. .

Okay. Great. And then last one on LogistiCare. I think you said, despite the outperformance, you're going to stick with the low 6% range guidance because of the impact of the initial dilution of Circulation. You said something about 200 basis points.

Is that a Q4 impact? Or could you just help us clarify that please?.

Sure, Bob. I would say that basically, as you would expect normally in the fourth quarter, there is some seasonality, and we get a little bit of margin expansion. And we were just saying that that margin expansion into Q4 for seasonality will be somewhat haircut by a couple of hundred basis points as we bring in Circulation.

Because again, while it has got revenue and it is growing revenue, it's basically -- it doesn't have the scale yet to be EBITDA positive. But we reinforced that we would be in that low 6 range for our margin rates, our EBITDA margin rates. .

Okay. Great. And then jumping to Matrix. It sounds like the core operations for in-home are doing great.

Can you talk a little bit about what changed versus original expectations at HealthFair? And how -- where you are in the integration? And what we should expect in 2019?.

I think, as we talked about previously, the membership just wasn't there for HealthFair. And so it's taken us a long time to get back up to speed. A lot of this year has been about repairing those relationships, making sure we have the membership for next year. So that's the real focus. I think, as we look to that, we do think we're set up properly.

We did realign the costs. But look, there's work to be done. So that's going to be something that the team is extremely focused on..

I would just add, one tactical basis I think things like where they will be, some of the healthcare calls are now going to be coordinated with the existing Matrix contract centers, will be kind of an opportunity for them, a point of productivity. .

Yes. But as we said, Bob, I mean, the core in-home business is really doing well. Volumes are up. Yield is better. So even with all this focus on HealthFair, the core business continues to do very, very well. So we're excited about that. The team continues to be extremely excited about the opportunity of providing the combined service offering.

And we definitely think that the repair job that was done this year, building these relationships. So once you kind of miss the cycle at the beginning of the year, you kind of go through a year of not having that membership, but we definitely feel positioned to capitalize on that next year. .

Okay. Super. On WDI -- one quick clarification, but just really want to say congratulations. Obviously, a culmination of a lot of work this year, so that's great. Regarding -- I think -- as it came out this morning, I think you mentioned it in the script, $46 million plus the potential of tax recovery? Just wanted a clarification on that. .

Yes. So in total, we said, net of some fees on the transaction, it would be a $46 million benefit. And I think we're signaling that there's probably, over the next 3 to 5 years, a $25 million to $50 million kind of tax -- cash tax benefit that we would realize. .

That's super. And then last one. I'll get back in queue. But you discussed the corporate consolidation down to Atlanta and you guys are all down there right now. It sounds like you're on track for the $10 million savings once complete. Just remind us where you all are on the path.

How long it should take until we start seeing some of those savings in the P&L. .

So there will be -- certainly, there will -- you'll start seeing some reductions already as we exit 2018. And then there will be individuals that will be leaving over the next 6 months through June of 2019, Bob. And then they're looking to sublease 2 areas, as I mentioned, Stanford as well as the Tucson offices. Those are in progress.

So you're going to start seeing that savings kind of coming through. But by the time we reach June, really, it's a $10 million run rate basis that you'll see going from July forward. .

Thank you. And this does conclude today's question-and-answer session. I would now like to turn the call back over to Mr. Carter Pate for any closing remarks. .

No. Thank you all for listening in today. I would be remiss if I didn't call out my team both in London as well as here that it's not often you get the announcement of a sale like this timed with your earnings call. That -- this past week has been an enormous heavy lift.

As you know, APM is out of Australia, so you could only imagine the long nights and early mornings that it took to make this all happen so that we could culminate and give you the good news on this earnings call. It's quite a quarter. I salute all the employees and the management team that delivered this.

We're quite excited about what the future holds with Circulation and looking forward to this next quarter. So stay tuned, and thank you all for calling in. .

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day..