Acquisitions

12 Months Ended

Dec. 31, 2019

During 2017, the Company made an equity investment in Circulation, which was accounted for as a cost method investment. On September 21, 2018, the Company’s subsidiary, LogistiCare, acquired all of the outstanding equity of Circulation, which offers a full suite of logistics solutions to manage non-emergency transportation across all areas of healthcare, powered by its HIPAA-compliant digital platform. Circulation enables administration of transportation benefits, proactively monitors for fraud, waste and abuse, and integrates all transportation capabilities (e.g. outsourced transportation, owned fleets, and other medical logistics services), while emphasizing patient convenience and satisfaction. Circulation’s proprietary platform simplifies ordering, improves reliability and efficiency, and reduces transportation spend. The Company believes the acquisition advances the Company's central mission of reducing transportation as a barrier to healthcare and will help deliver a differentiated user experience and provide a core technology and analytics platform that better positions the Company for growth.

The purchase price was comprised of cash consideration of $45,123 paid to Circulation’s equity holders (including holders of vested Circulation stock options), other than Providence. Per the terms of the Agreement and Plan of Merger (the “merger agreement”), dated as of September 14, 2018, by and among LogistiCare, the Company, Catapult Merger Sub, a wholly-owned subsidiary of LogistiCare (“Merger Sub”), Circulation and Fortis Advisors LLC, as the representative of Circulation’s equity holders, Providence assumed certain unvested Circulation stock options under similar terms and conditions to the existing option awards previously issued by Circulation. The merger agreement also required $1,000 to be paid three years after the closing date of the transaction to each of the two co-founders of Circulation subject to their continued employment or provision of consulting services to the Company. This requirement was reduced in 2019 to one co-founder of

Circulation as the other co-founder is no longer with the Company. The value of the options assumed and co-founder hold back is accounted for as compensation, over the relevant vesting period, as such amounts are tied to future service conditions.

The Company’s initial investment in Circulation was $3,000 in July 2017 to acquire a minority interest. As a result of the transactions pursuant to the merger agreement, the fair value of this pre-acquisition interest increased to $9,577, and thus the Company recognized a gain of $6,577. This gain was recorded as “Gain on remeasurement of cost method investment” on the Company’s consolidated statement of operations for the year ended December 31, 2018. The Company determined the fair value of its pre-acquisition equity interest by multiplying the number of shares it held in Circulation pre-acquisition by the per-share consideration validated by reference to the total merger consideration agreed to with other unrelated equity holders in Circulation.

The Company incurred acquisition and related costs for this acquisition of $1,729 during the year ended December 31, 2018. These expenses were primarily included in general and administrative expenses in the consolidated statements of operations.

The purchase price of Circulation was calculated as follows:


Cash purchase of common stock	$	45,123
Providence’s acquisition date fair value equity interest in Circulation	9,577
Total consideration	$	54,700

The table below presents Circulation’s net assets at the date of acquisition based upon the final estimate of respective fair values:


Cash	$	1,302
Accounts receivable	996
Other assets	216
Property and equipment	49
Intangibles	15,700
Goodwill	40,001
Deferred taxes, net	(2,199)
Accounts payable and accrued liabilities	(1,244)
Deferred revenue	(69)
Other non-current liabilities	(52)
Total of assets acquired and liabilities assumed	$	54,700

None of the acquired goodwill is deductible for tax purposes.

The fair value of intangible assets was as follows:

Type

Life

Value

Customer relationships

Amortizable

3 years

1,400

Trademarks and trade names

Amortizable

3 years

200

Developed technology

Amortizable

5 years

14,100

15,700

The amounts of Circulation’s revenue and net income included in the Company’s consolidated statement of operations for the year ended December 31, 2018, and the unaudited pro forma revenue and net (loss) income attributable to Providence of the combined entity had the acquisition date been January 1, 2017, were:


	Year Ended December 31, 2018
Actual Circulation:
Revenue	$	2,205
Net loss	(2,108)

	Year Ended December 31,
	2018		2017
Pro forma:
Revenue	$	1,388,203	$	1,319,195
Net (loss) income attributable to Providence	(21,541)		49,097
Diluted (loss) earnings per share	$	(2.11)	$	2.85

The pro forma information above for the year ended December 31, 2018 included the elimination of acquisition related costs. Adjustments for all periods included expensing the incentive for two co-founders to be paid upon continuing employment, amortization expense based on the estimated fair value and useful lives of intangible assets and related tax effects. The pro forma financial information was not necessarily indicative of the results of operations that would have occurred had the transaction been affected on January 1, 2017.