Providence Service Corporation Reports Q3 2012 Results

            Providence Service Corporation Reports Q3 2012 Results

Third Quarter Highlights:

- Revenue rose 19% over last year's third quarter to $280.3 million

- Net cash provided by operations totaled $22.8 million

- Diluted EPS of $0.09 per share includes $0.19 non-cash impairment charge to
intangible assets related to operations in British Columbia

- Adjusted EBITDA (non-GAAP) increased 19% to $12.9 million

PR Newswire

TUCSON, Ariz., Nov. 7, 2012

TUCSON, Ariz., Nov. 7, 2012 /PRNewswire/ -- The Providence Service Corporation
(Nasdaq: PRSC) today announced its financial results for the third quarter
ended September 30, 2012.    

For the third quarter of 2012, the Company reported revenue of $280.3 million,
an increase of 19.0% from $235.6 million in the comparable period in 2011. 
Revenue from Providence's non-emergency transportation (NET) services segment
grew 34.4% to $196.3 million in the third quarter from $146.0 million in the
prior year period, benefiting from new contract wins and program expansions in
certain NET markets.  Revenue from the social services segment declined 6.2%
to $84.0 million from $89.5 million in the third quarter of 2011.  Social
services revenue was impacted primarily by select workforce development
reductions in the U.S. and Canada.

Included in the third quarter results is an estimated non-cash $2.5 million
asset impairment charge, or $0.19 per share, related to certain intangible
assets of the Company's Canadian subsidiary.  This charge resulted from an
interim impairment test that was triggered by a recent reorganization of the
service delivery system in British Columbia that required the subsidiary to
rebid all of its contracts.  With changes in funding streams, increased
competition as well as a decrease in the number of services funded in this
market, Providence was not able to retain the level of business it enjoyed
prior to the reorganization in British Columbia. 

The Company will finalize its third quarter impairment and perform its annual
impairment analysis during the fourth quarter of this fiscal year which could
result in additional impairment.  The non-cash charge for the intangible asset
impairment did not impact the Company's cash balance, debt covenant compliance
or ongoing financial performance.

Providence reported net income of $1.2 million, or $0.09 per diluted share, in
the third quarter of 2012 compared to net income of $2.0 million, or $0.15 per
diluted share, in the third quarter of 2011.  In addition to the $0.19 per
diluted share asset impairment charge, also impacting the third quarter 2012
results were higher than expected expenses due to increased healthcare claims
activity under the Company's self-funded employee health plan of approximately
$1.0 million, or $0.03 per diluted share.  Adjusted EBITDA (non-GAAP) for the
third quarter of 2012 was $12.9 million, up 19% from $10.8 million in the same
period last year.  A reconciliation of net income to Adjusted EBITDA
(non-GAAP) is presented below. 

Providence's direct social service client census was approximately 51,000 at
September 30, 2012 compared to 57,100 at September 30, 2011.  Total direct
contracts numbered 574 at September 30, 2012 compared to 595 at September 30,
2011.  The decrease in the number of contracts was primarily due to the
expiration of contracts related to our home based educational tutoring
business which resulted from waivers granted under the No Child Left Behind
Act.  The Company had approximately 14.8 million individuals eligible to
receive services under its NET contracts at September 30, 2012 an increase of
43% from approximately 10.4 million at September 30, 2011. 

For the first nine months of 2012, the Company reported revenue of $819.4
million, an increase of 17.3% from $698.7 million in the first nine months of
2011.  Revenue from Providence's NET services segment grew 28.8% to $549.8
million in the first nine months of 2012 from $427.0 million in the prior year
period.  Revenue from the social services segment decreased 1.0% to $269.5
million, down from $271.7 million for the first nine months of 2011.

Net income was $5.6 million, or $0.42 per diluted share, in the first nine
months of 2012.  This compares to net income of $14.0 million, or $1.05 per
diluted share, in the first nine months of 2011 which included a non-cash
charge of approximately $2.5 million, or $0.11 per share, related to the
write-off of unamortized deferred financing fees of its senior credit facility
offset by the $2.7 million, or $0.20 per share, gain related to a June 2011
acquisition.  Adjusted EBITDA (non-GAAP) for the first nine months of 2012 was
$37.2 million compared to $43.4 million in the same period last year.  A
reconciliation of net income to Adjusted EBITDA (non-GAAP) is presented
below. 

At September 30, 2012, the Company had unrestricted cash and cash equivalents
of $63.8 million.  During the first nine months of 2012, the Company generated
a total of $39.9 million in cash from operations, of which it used $3.5
million in the third quarter to repurchase 293,600 shares of common stock.  At
September 30, 2012, the Company had long term liabilities of $152.8 million,
down from $164.0 million at September 30, 2011.

"We have invested $8 million in our NET business related to 14 new contract
wins," said Fletcher McCusker, Chairman and CEO.  "Of this investment, nearly
forty percent represented start-up costs incurred prior to any revenues being
recognized and over sixty percent represented capital investment that will be
depreciated.  This investment spending is expected to produce approximately
$170 million of annual recurring revenue, or approximately $850 million over
the next five years.  While it has been a challenging year to budget, it has
been a benchmark year in terms of market share gained and competitive
position."  

"In our Social Services segment, we renewed substantially all of our
contracts.  The net decline was primarily due to the expiration of 28 tutoring
contracts due to changes in the No Child Left Behind Act, which represents a
relatively minor dollar amount.  With the exception of Canada and Arizona,
which is negotiating with Medicaid on restoring some of its cuts, the rest of
our business looks relatively stable.  We secured a $6 million workforce
development contract in Wisconsin and also won a new five year $28 million
annual child welfare privatization bid for a contract in a southern state. 
The terms of this contract are currently being negotiated and we anticipate
that we will begin providing services in 2013.  We expect revenue of just over
$13 million in the first year under this contract." 

Conference Call
Providence will hold a conference call at 11:00 a.m. EST (9:00 a.m. Arizona
and MST and 8:00 a.m. PST) Thursday, November 8, 2012 to discuss its financial
results and corporate developments.  Interested parties are invited to listen
to the call live over the Internet at http://investor.provcorp.com or
http://www.earnings.com. The call is also available by dialing (800) 659-1966
or for international callers (617) 614-2711 and by using the passcode
17828607.  A replay of the teleconference will be available on
http://investor.provcorp.com.  A replay will also be available until November
15, 2012 by dialing (888) 286-8010 or (617) 801-6888, and using passcode
32681979.

About Providence

The Providence Service Corporation, through its owned and managed entities,
provides home and community based social services and non-emergency
transportation services management to government sponsored clients under
programs such as welfare, juvenile justice, Medicaid and corrections. 
Providence is different from many of its competitors in that it provides its
social services primarily in the client's own home or in community based
settings versus treatment facilities or hospitals and provides its NET
management services through local transportation providers rather than owning
its own fleet of vehicles.  The Company provides a range of services through
its direct entities to approximately 51,000 clients through 574 active
contracts at September 30, 2012, with an approximate 14.8 million individuals
eligible to receive the Company's non-emergency transportation services. 
Combined, the Company has an approximately $1 billion book of business
including managed entities.

Non-GAAP Presentation
In addition to the financial results prepared in accordance with generally
accepted accounting principles (GAAP) provided throughout this press release,
the Company has provided EBITDA and Adjusted EBITDA, non-GAAP measurements,
which present its earnings on a pro forma basis. Providence's management
utilizes these non-GAAP measurements as a means to measure overall operating
performance and to better compare current operating results with other
companies within its industry.  Details of the excluded items and a
reconciliation of the non-GAAP financial measures to the most comparable GAAP
financial measure are presented in the table below. The non-GAAP measures do
not replace the presentation of our GAAP financial results. The Company has
provided this supplemental non-GAAP information because the Company believes
it provides meaningful comparisons of the results of Providence's operations
for the periods presented in this press release. The non-GAAP measures are not
in accordance with, or an alternative for GAAP and may be different from pro
forma measures used by some companies.  The items excluded in the non-GAAP
measures pertain to certain items that are considered to be material so that
exclusion of the items would, in management's belief, enhance a reader's
ability to compare the results of the Company's business after excluding these
items.

Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Words such as "believe,"
"demonstrate," "expect," "estimate," "forecast," "anticipate," "should" and
"likely" and similar expressions identify forward-looking statements. In
addition, statements that are not historical should also be considered
forward-looking statements. Readers are cautioned not to place undue reliance
on those forward-looking statements, which speak only as of the date the
statement was made. Such forward-looking statements are based on current
expectations that involve a number of known and unknown risks, uncertainties
and other factors which may cause actual events to be materially different
from those expressed or implied by such forward-looking statements. These
factors include, but are not limited to the global credit crisis, capital
market conditions, the implementation of the healthcare reform law, state
budget changes and legislation and other risks detailed in Providence's
filings with the Securities and Exchange Commission, including its Annual
Report on Form 10-K for the fiscal year ended December 31, 2011 and Quarterly
Report on Form 10-Q for the quarter ended March 31, 2012. Providence is under
no obligation to (and expressly disclaims any such obligation to) update any
of the information in this press release if any forward-looking statement
later turns out to be inaccurate whether as a result of new information,
future events or otherwise.

--financial tables to follow--

 

The Providence Service Corporation
Consolidated Statements of Income
(in thousands except share and per share data)
(UNAUDITED)
                         Three months ended         Nine months ended
                         September 30,              September 30,
                         2012           2011        2012          2011
Revenues:
  Home and community     $      72,259  $           $    235,007  $    236,259
based services                           77,679
  Foster care services   8,394          8,598       25,113        25,518
  Management fees        3,297          3,229       9,406         9,909
  Non-emergency          196,335        146,046     549,844       426,982
transportation services
                         280,285        235,552     819,370       698,668
Operating expenses:
  Client service         73,462         75,970      230,200       226,190
expense
  Cost of non-emergency  183,248        137,551     520,866       395,887
transportation services
  General and            12,069         12,690      38,599        37,027
administrative expense
  Asset impairment       2,506          -           2,506         -
charge
  Depreciation and       4,018          3,402       11,254        9,979
amortization
Total operating          275,303        229,613     803,425       669,083
expenses
Operating income         4,982          5,939       15,945        29,585
Other (income) expense:
  Interest expense       1,990          2,204       5,806         8,266
  Loss on                -              -           -             2,463
extinguishment of debt
  Gain on bargain        -              -           -             (2,711)
purchase
  Interest income        (25)           (53)        (109)         (161)
Income before income     3,017          3,788       10,248        21,728
taxes
Provision for income     1,859          1,837       4,631         7,742
taxes
Net  income              $              $           $             $    
                          1,158          1,951       5,617         13,986
Earnings per share:
  Basic                  $              $           $             $        
                          0.09           0.15        0.42          1.06
  Diluted                $              $           $             $        
                          0.09           0.15        0.42          1.05
Weighted-average number
of common shares
  outstanding:
  Basic                  13,263,826     13,255,367  13,277,191    13,238,043
  Diluted                13,342,614     13,307,177  13,388,355    13,316,459

 

 

 

The Providence Service Corporation
Consolidated Balance Sheets
(in thousands except share and per share data)
                                         September 30,       December 31,
                                         2012                2011
Assets                                   (Unaudited)         (Audited)
Current assets:
    Cash and cash equivalents            $           63,757  $          43,184
    Accounts receivable, net of
allowance of $3.7 million in
     2012 and $5.8 million in 2011       93,243              87,163
    Management fee receivable            2,689               3,537
    Other receivables                    2,110               1,601
    Restricted cash                      3,300               4,654
    Prepaid expenses and other           18,517              15,989
    Deferred tax assets                  345                 1,965
Total current assets                     183,961             158,093
Property and equipment, net              30,582              28,563
Goodwill                                 113,947             113,737
Intangible assets, net                   51,468              59,474
Restricted cash, less current portion    10,953              10,882
Other assets                             11,010              8,304
Total assets                             $         401,921   $        379,053
Liabilities and stockholders' equity 
Current liabilities:
    Current portion of long-term         $           12,500  $          10,000
obligations
    Accounts payable                     3,780               4,461
    Accrued expenses                     34,402              30,654
    Accrued transportation costs         64,557              47,657
    Deferred revenue                     5,833               2,194
    Reinsurance liability reserve        13,101              11,921
Total current liabilities                134,173             106,887
Long-term obligations, less current      128,000             140,493
portion
Other long-term liabilities              13,724              9,740
Deferred tax liabilities                 11,082              12,910
Total liabilities                        286,979             270,030
Commitments and contingencies
Stockholders' equity:
       Common stock:  Authorized
40,000,000 shares; 
         $0.001 par value; 13,725,901
and 13,621,951
         issued and outstanding          14                  14
(including treasury shares) 
    Additional paid-in capital           179,793             176,172
    Retained deficit                     (55,944)            (61,561)
    Accumulated other comprehensive      (788)               (1,128)
loss, net of tax
    Treasury stock, at cost, 928,478     (15,094)            (11,435)
and 623,576 shares
  Total Providence stockholders' equity  107,981             102,062
    Non-controlling interest             6,961               6,961
Total stockholders' equity               114,942             109,023
Total liabilities and stockholders'      $         401,921   $        379,053
equity 

 

 

 

The Providence Service Corporation
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
                                                     Nine months ended
                                                     September 30, 
                                                     2012       2011
Operating activities
Net income                                           $   5,617  $  13,986
Adjustments to reconcile net income to net cash 
  provided by operating activities:
  Depreciation                                       5,578      4,200
  Amortization                                       5,676      5,779
  Amortization of deferred financing costs           865        1,401
  Loss on extinguishment of debt                     -          2,463
  Gain on bargain purchase                           -          (2,711)
  Provision for doubtful accounts                    1,418      2,378
  Deferred income taxes                              (420)      (429)
  Stock based compensation                           3,586      2,733
  Excess tax benefit upon exercise of stock options  (60)       (3)
  Asset impairment charge                            2,506      -
  Other                                              (33)       705
  Changes in operating assets and liabilities:
    Accounts receivable                              (10,304)   (2,423)
    Management fee receivable                        849        2,001
    Other receivables                                (509)      1,941
    Restricted cash                                  14         (183)
    Prepaid expenses and other                       (3,556)    (3,194)
    Reinsurance liability reserve                    1,773      609
    Accounts payable and accrued expenses            3,040      (97)
    Accrued transportation costs                     16,901     5,331
    Deferred revenue                                 3,639      (2,758)
    Other long-term liabilities                      3,357      193
Net cash provided by operating activities            39,937     31,922
Investing activities
Purchase of property and equipment, net              (7,565)    (8,675)
Acquisition of businesses, net of cash acquired      (190)      (5,279)
Restricted cash for contract performance             1,269      1,436
Purchase of short-term investments, net              452        (86)
Net cash used in investing activities                (6,034)    (12,604)
Financing activities
Repurchase of common stock for treasury              (3,658)    (51)
Proceeds from common stock issued pursuant to 
  stock option exercise                              258        33
Excess tax benefit upon exercise of stock options    60         3
Proceeds from long-term debt                         -          115,000
Repayment of long-term debt                          (9,993)    (144,311)
Debt financing costs                                 (53)       (2,652)
Capital lease payments                               (20)       (11)
Net cash used in financing activities                (13,406)   (31,989)
Effect of exchange rate changes on cash              76         (84)
Net change in cash                                   20,573     (12,755)
Cash at beginning of period                          43,184     61,261
Cash at end of period                                $ 63,757   $  48,506

 

 

 

The Providence Service Corporation
Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA
(in thousands)
                                   Three months ended    Nine months ended
                                   September 30,         September 30, 
                                   2012       2011       2012       2011
Net income                         $   1,158  $   1,951  $   5,617  $ 13,986
Interest expense, net              1,965      2,151      5,697      8,105
Provision for income taxes         1,859      1,837      4,631      7,742
Depreciation and amortization      4,018      3,402      11,254     9,979
EBITDA                             9,000      9,341      27,199     39,812
Asset impairment charge (a)        2,506      -          2,506      -
Stock based compensation           1,086      924        3,586      2,733
Start-up costs (b)                 258        555        3,295      1,079
Strategic alternatives costs (c)   2          -          593        -
Loss on extinguishment of debt (d) -          -          -          2,463
Gain on bargain purchase (e)       -          -          -          (2,711)
Adjusted EBITDA                    $ 12,852   $ 10,820   $ 37,179   $ 43,376

          

Notes:
   Due to the impact of a reorganization of the service delivery system in
   British Columbia, Canada during the nine months ended September 30, 2012
a) that required the Company's WCG International subsidiary to rebid all of
   its contracts, the Company recorded an asset impairment charge totaling
   approximately $2.5 million related to its intangible assets for the three
   and nine months ended September 30, 2012.
b) Represents expenses to implement NET programs pursuant to new contract wins
   during 2011 and 2012. 
   Represents costs incurred related to the Company's review of strategic
   alternatives arising from unsolicited proposals to take the Company
c) private.  The Company terminated this review in June 2012 upon determining
   that a continued focus on the Company's operations was the best alternative
   to maximize shareholder value.
   Represents a loss on extinguishment of debt resulting from the write-off of
d) deferred financing fees related to the Company's credit facility that was
   repaid in full in March 2011.
   Represents a gain associated with the Company's acquisition of The ReDCo
e) Group, Inc. in 2011 where the fair value of the acquired entity's net
   assets exceeded the purchase price of said entity.

 

SOURCE The Providence Service Corporation

Website: http://www.provcorp.com
Contact: Fletcher McCusker - Chairman and CEO, The Providence Service
Corporation, +1-520-747-6600; or Alison Ziegler, Cameron Associates,
+1-212-554-5469