EX-99.1 2 d434354dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

 

LOGO

PROVIDENCE SERVICE CORPORATION

 

AT THE COMPANY

Fletcher McCusker – Chairman and CEO

520-747-6600

  

AT CAMERON ASSOCIATES

Alison Ziegler 212-554-5469

FOR IMMEDIATE RELEASE

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

TUCSON, ARIZONA – November 7, 2012 — 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.

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64 E. Broadway Blvd. Tucson, Arizona 85701 Tel 520/747-6600 Fax 520/747-6605 www.provcorp.com


Providence Service Corporation

Page 2

 

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.

 

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Providence Service Corporation

Page 3

 

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—


Providence Service Corporation

Page 4

 

The Providence Service Corporation

Consolidated Statements of Income

(in thousands except share and per share data)

(UNAUDITED)

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
     2012     2011     2012     2011  

Revenues:

        

Home and community based services

   $ 72,259      $ 77,679      $ 235,007      $ 236,259   

Foster care services

     8,394        8,598        25,113        25,518   

Management fees

     3,297        3,229        9,406        9,909   

Non-emergency transportation services

     196,335        146,046        549,844        426,982   
  

 

 

   

 

 

   

 

 

   

 

 

 
     280,285        235,552        819,370        698,668   

Operating expenses:

        

Client service expense

     73,462        75,970        230,200        226,190   

Cost of non-emergency transportation services

     183,248        137,551        520,866        395,887   

General and administrative expense

     12,069        12,690        38,599        37,027   

Asset impairment charge

     2,506        —          2,506        —     

Depreciation and amortization

     4,018        3,402        11,254        9,979   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     275,303        229,613        803,425        669,083   
  

 

 

   

 

 

   

 

 

   

 

 

 

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 extinguishment of debt

     —          —          —          2,463   

Gain on bargain purchase

     —          —          —          (2,711

Interest income

     (25     (53     (109     (161
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     3,017        3,788        10,248        21,728   

Provision for income taxes

     1,859        1,837        4,631        7,742   
  

 

 

   

 

 

   

 

 

   

 

 

 

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   

 

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Providence Service Corporation

Page 5

 

The Providence Service Corporation

Consolidated Balance Sheets

(in thousands except share and per share data)

 

     September 30,
2012
    December 31,
2011
 
     (Unaudited)     (Audited)  

Assets

    

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 obligations

   $ 12,500      $ 10,000   

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 portion

     128,000        140,493   

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 (including treasury shares)

     14        14   

Additional paid-in capital

     179,793        176,172   

Retained deficit

     (55,944     (61,561

Accumulated other comprehensive loss, net of tax

     (788     (1,128

Treasury stock, at cost, 928,478 and 623,576 shares

     (15,094     (11,435
  

 

 

   

 

 

 

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’ equity

   $ 401,921      $ 379,053   
  

 

 

   

 

 

 

 

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Providence Service Corporation

Page 6

 

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   
  

 

 

   

 

 

 

 

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Providence Service Corporation

Page 7

 

The Providence Service Corporation

Reconciliation of Non-GAAP Financial Measures

Adjusted EBITDA

(in thousands)

 

     Three months ended
September 30,
     Nine months ended
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:

 

a) Due to the impact of a reorganization of the service delivery system in British Columbia, Canada during the nine months ended September 30, 2012 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.
c) Represents costs incurred related to the Company’s review of strategic alternatives arising from unsolicited proposals to take the Company 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.
d) Represents a loss on extinguishment of debt resulting from the write-off of deferred financing fees related to the Company’s credit facility that was repaid in full in March 2011.
e) Represents a gain associated with the Company’s acquisition of The ReDCo Group, Inc. in 2011 where the fair value of the acquired entity’s net assets exceeded the purchase price of said entity.

 

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