Exhibit 99.1
PROVIDENCE SERVICE CORPORATION
| | |
AT THE COMPANY Fletcher McCusker – Chairman and CEO Kate Blute – Director of Investor and Public Relations 520/747-6600 | | AT CAMERON ASSOCIATES Alison Ziegler 212-554-5469 |
FOR IMMEDIATE RELEASE
Providence Service Corporation Releases Third Quarter Results
| | • | | Results include $141 million non-cash asset impairment charge |
| | • | | Improvements beginning to be seen with government payers |
TUCSON, ARIZONA –November 5, 2008 —The Providence Service Corporation (Nasdaq: PRSC) today announced results for the third quarter of 2008 ended September 30, 2008. Included in the results is an estimated non cash $141.0 million, or $11.07 per share, asset impairment charge related to the Company’s goodwill and certain of its intangible assets. This resulted from an interim impairment test that was triggered by a sustained decline in the Company’s stock price and changes in the current spending environment as noted below. The magnitude of the charge is related to the deterioration in the market for mergers and acquisitions, which has seen dramatically lower valuations for comparable companies. The Company will perform its annual impairment analysis during the fourth quarter of this fiscal year, which could result in an adjustment in the estimated asset impairment charge. This non cash item is excluded from the financial covenant calculations related to the Company’s credit agreement, and the Company was in compliance with its financial covenants as of September 30, 2008.
For the third quarter of 2008, the Company reported revenue of $167.0 million, an increase of approximately 162% from $63.7 million for the comparable period in 2007. Revenue from Providence’s social services segment grew approximately 14% to $72.7 million in the third quarter from the prior year period and the revenue from its non-emergency transportation (NET) services segment, which the Company acquired in December 2007, totaled $94.3 million in the 2008 period.
The Company reported an operating loss of $138.1 million and a net loss of $140.8 million, or $11.17 per diluted share, in the quarter ended September 30, 2008 which includes the $141.0 million ($11.07 per share) asset impairment charge. Uncertainty in the state payer environment as well as related budgetary decisions also contributed to the loss for the 2008 period. In the year ago period, the Company reported operating income of $5.5 million and net income of $3.2 million, or $0.27 per diluted share. Providence’s direct client census was approximately 48,800 at September 30, 2008, up from approximately 46,000 at September 30, 2007, and the Company had over six million individuals eligible to receive services under its NET contracts at September 30, 2008. The Company had 535 direct contracts at September 30, 2008 up from 455 at September 30, 2007.
Managed entity revenue, which represents revenue of the not-for-profit social services organizations the Company provides management and/or administrative services to in return for a negotiated management fee, increased 13.2% to $61.6 million for the quarter ended September 30, 2008 from $54.4 million for the prior year period. Managed entity revenue is presented to provide investors with an additional measure of the size of the operations under Providence’s management or administration and can help investors understand trends in management fee revenue. Managed client census was approximately 25,000 at September 30, 2008 as compared to approximately 24,000 at September 30, 2007. Contracts of managed entities increased to 335 from 318 year over year.
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5524 E. Fourth Street • Tucson, Arizona 85711 •Tel 520/747-6600 •Fax 520/747-6605 •www.provcorp.com
Providence Service Corporation
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For the first nine months of 2008, revenue increased approximately 175% to $513.7 million from $186.5 million for the year ago period. Providence’s social services segment grew 22.9% to $229.2 million with the NET service revenue comprising the remaining $284.5 million. The Company reported an operating loss of $117.0 million for the nine month period, which includes the estimated $141.0 million non cash asset impairment charge, compared to operating income of $16.8 million in the first nine months of 2007. The Company reported a net loss of $133.7 million, or $10.67 per diluted share, for the nine month period ended September 30, 2008 compared to net income of $10.1 million, or $0.85 per fully diluted share, for the nine months ended September 30, 2007. Managed entity revenue was $185.9 million and $165.1 million in the first nine months of 2008 and 2007, respectively.
At September 30, 2008, the Company had cash and cash equivalents of $36.8 million. Net cash from operating activities during the nine months ended September 30, 2008 was $12.5 million. In addition, the Company repaid approximately $6.5 million of its long-term debt during that period.
Looking ahead, the social services segment has seen performance improvement and resolution momentum with many of the payers that were identified as problematic in the second quarter. In California, several pieces of new business have been won which should offset any potential reductions from the Governor’s 10% cuts. In British Columbia, Providence has elected to seek mediation to try and resolve the rate and contractual dispute previously reported. The business in North Carolina has increased its contribution margin from the second quarter to the third quarter and Pennsylvania is beginning to adopt the Mercer recommendations discussed last quarter. Our largest payer in Arizona has extended last year’s rate through June 30, 2009 and indicated that resolution to the supplemental funds opportunity for the Company will not likely occur until March 2009.
In the NET segment, as previously indicated, we are still negotiating with a significant payer who has withheld a substantial rate increase that would be retroactive to January 1, 2008. Additionally, other NET payers are currently considering rate increases, although it is too early for the Company to comment on any timing for the resolution of these requested rate increases.
“We are working hard and making progress getting these budget issues behind us to position the Company for 2009,” said Fletcher McCusker, Chairman and CEO. “We have good momentum now with earlier problem payers, we are communicating our issues with our NET payers in a very difficult economic environment and we have new business coming on line for 2009 in Georgia, Illinois, Indiana and in South Carolina, where we are not necessarily in control of the timing. We have almost $37 million of cash and are paying down our senior debt. In addition, Congress has begun hearings to consider a Medicaid stimulus package which was approved in 2003 under similar circumstances.”
Guidance
As stated in its October 22, 2008 press release, the Company expects to report a net loss for the year as a result of its asset impairment charge and, combined with continued uncertainties in its business, has withdrawn its guidance for 2008. Positive events which could contribute to the Company’s financial results, however, could come from delayed new business procurements that could be worth up to approximately $60 million in revenue annually and possible payer rate adjustments. However in the current economic environment, it is uncertain if and when any of the above will occur.
Conference Call
Providence will hold a conference call to discuss its results on Wednesday, November 5, 2008 at 11:00 a.m. EST (9:00 a.m. Arizona and MST and 8:00 a.m. PST). 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 (888) 713-4216, or for international callers (617) 213-4868 and by using the passcode 89509569. Participants may pre-register for the call athttps://www.theconferencingservice.com/prereg/key.process?key=PYQEWATN6. Pre-registrants will be issued a pin number to use when dialing into the live call which will provide quick access to the conference by bypassing the operator upon connection.
A replay of the teleconference will be available on http://investor.provcorp.com and http://www.earnings.com. A replay will also be available until November 12, 2008 by dialing (888) 286-8010 or (617) 801-6888, and using passcode 94181478.
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Providence Service Corporation
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About Providence
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 does not own or operate beds, treatment facilities, hospitals or group homes, preferring to provide services in the client’s own home or other community setting. The Company provides a range of services through its direct and managed entities to over 74,000 clients through 870 contracts at September 30, 2008, with an estimated six million individuals eligible to receive the Company’s non-emergency transportation services related to its LogistiCare operations. Combined, the Company has a nearly $1 billion book of business including managed entities.
Certain statements herein, such as any statements about Providence’s confidence or strategies or its expectations about revenues, results of operations, profitability, earnings per share, contracts, collections, award of contracts, acquisitions and related growth, growth resulting from initiatives in certain states, effective tax rate or market opportunities, constitute “forward-looking statements” within the meaning of the private Securities Litigation Reform Act of 1995. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause Providence’s actual results or achievements to be materially different from those expressed or implied by such forward-looking statements. These factors include, but are not limited to, reliance on government-funded contracts, risks associated with government contracting, risks involved in managing government business, legislative or policy changes, challenges resulting from growth or acquisitions, adverse media and legal, economic and other risks detailed in Providence’s filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2007. Words such as “believe,” “demonstrate,” “expect,” “estimate,” “anticipate,” “should” and “likely” and similar expressions identify 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. Providence undertakes no obligation to update any forward-looking statement contained herein.
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Providence Service Corporation
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The Providence Service Corporation
Consolidated Statements of Operations
(in thousands except share and per share data)
(UNAUDITED)
| | | | | | | | | | | | | | | | |
| | | Three months ended
September 30, | | | Nine months ended
September 30, | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
Revenues: | | | | | | | | | | | | | | | | |
Home and community based services | | $ | 59,654 | | | $ | 51,761 | | | $ | 190,935 | | | $ | 153,227 | |
Foster care services | | | 7,494 | | | | 7,022 | | | | 22,012 | | | | 18,545 | |
Management fees | | | 5,537 | | | | 4,951 | | | | 16,205 | | | | 14,729 | |
Non-emergency transportation services | | | 94,312 | | | | — | | | | 284,535 | | | | — | |
| | | | | | | | | | | | | | | | |
| | | 166,997 | | | | 63,734 | | | | 513,687 | | | | 186,501 | |
Operating expenses: | | | | | | | | | | | | | | | | |
Client service expense | | | 59,540 | | | | 50,311 | | | | 183,196 | | | | 144,707 | |
Cost of non-emergency transportation services | | | 91,151 | | | | — | | | | 264,858 | | | | — | |
General and administrative expense | | | 10,206 | | | | 6,807 | | | | 31,971 | | | | 21,784 | |
Asset impairment charge | | | 141,000 | | | | — | | | | 141,000 | | | | — | |
Depreciation and amortization | | | 3,173 | | | | 1,166 | | | | 9,659 | | | | 3,202 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | 305,070 | | | | 58,284 | | | | 630,684 | | | | 169,693 | |
| | | | | | | | | | | | | | | | |
| | | | |
Operating (loss) income | | | (138,073 | ) | | | 5,450 | | | | (116,997 | ) | | | 16,808 | |
| | | | |
Other (income) expense: | | | | | | | | | | | | | | | | |
Interest expense | | | 4,914 | | | | 479 | | | | 14,910 | | | | 812 | |
Interest income | | | (211 | ) | | | (335 | ) | | | (810 | ) | | | (977 | ) |
| | | | | | | | | | | | | | | | |
(Loss) income before income taxes | | | (142,776 | ) | | | 5,306 | | | | (131,097 | ) | | | 16,973 | |
| | | | |
(Benefit) provision for income taxes | | | (1,982 | ) | | | 2,108 | | | | 2,555 | | | | 6,879 | |
| | | | | | | | | | | | | | | | |
Net (loss) income | | $ | (140,794 | ) | | $ | 3,198 | | | $ | (133,652 | ) | | $ | 10,094 | |
| | | | | | | | | | | | | | | | |
| | | | |
(Loss) earnings per share: | | | | | | | | | | | | | | | | |
Basic | | $ | (11.17 | ) | | $ | 0.27 | | | $ | (10.67 | ) | | $ | 0.86 | |
Diluted | | $ | (11.17 | ) | | $ | 0.27 | | | $ | (10.67 | ) | | $ | 0.85 | |
| | | | |
Weighted-average number of common shares outstanding: | | | | | | | | | | | | | | | | |
Basic | | | 12,600,257 | | | | 11,654,434 | | | | 12,523,255 | | | | 11,689,302 | |
Diluted | | | 12,600,257 | | | | 12,053,284 | | | | 12,523,255 | | | | 11,928,636 | |
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Providence Service Corporation
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The Providence Service Corporation
Consolidated Balance Sheets
(in thousands except share and per share data)
| | | | | | | | |
| | | September 30,
2008 | | | December 31,
2007 | |
| | | (Unaudited) | | | (Audited) | |
Assets | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 36,785 | | | $ | 35,379 | |
Accounts receivable-billed, net of allowance of $2.1 million in 2008 and $2.6 million in 2007 | | | 73,924 | | | | 65,852 | |
Accounts receivable—unbilled | | | 1,533 | | | | 2,250 | |
Management fee receivable | | | 6,919 | | | | 10,166 | |
Other receivables | | | 3,265 | | | | 2,524 | |
Notes receivable | | | 538 | | | | 563 | |
Notes receivable from related party | | | — | | | | 1,734 | |
Restricted cash | | | 7,192 | | | | 8,842 | |
Prepaid expenses and other | | | 11,988 | | | | 9,554 | |
Deferred tax assets | | | 6,801 | | | | 5,094 | |
| | | | | | | | |
Total current assets | | | 148,945 | | | | 141,958 | |
Property and equipment, net | | | 12,183 | | | | 11,562 | |
Notes receivable, less current portion | | | 218 | | | | 880 | |
Goodwill | | | 151,250 | | | | 280,710 | |
Intangible assets, net | | | 81,341 | | | | 98,254 | |
Restricted cash, less current portion | | | 5,200 | | | | 6,461 | |
Other assets | | | 13,243 | | | | 12,158 | |
| | | | | | | | |
Total assets | | $ | 412,380 | | | $ | 551,983 | |
| | | | | | | | |
Liabilities and stockholders’ equity | | | | | | | | |
Current liabilities: | | | | | | | | |
Current portion of long-term obligations | | | 12,194 | | | $ | 8,950 | |
Accounts payable | | | 4,419 | | | | 14,035 | |
Accrued expenses | | | 35,808 | | | | 36,448 | |
Accrued transportation costs | | | 34,860 | | | | 24,576 | |
Deferred revenue | | | 3,748 | | | | 4,062 | |
Reinsurance liability reserve | | | 8,213 | | | | 8,344 | |
| | | | | | | | |
Total current liabilities | | | 99,242 | | | | 96,415 | |
Long-term obligations, less current portion | | | 226,737 | | | | 236,469 | |
Other long-term liabilities | | | 3,686 | | | | 190 | |
Deferred tax liabilities | | | 23,577 | | | | 30,600 | |
| | | | | | | | |
Total liabilities | | | 353,242 | | | | 363,674 | |
Non-controlling interest | | | 7,649 | | | | 7,649 | |
Commitments and contingencies | | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Common stock: Authorized 40,000,000 shares; $0.001 par value; 12,929,004 and 12,756,392 issued and outstanding (including treasury shares) | | | 13 | | | | 13 | |
Additional paid-in capital | | | 164,119 | | | | 159,177 | |
Common stock subscription receivable | | | — | | | | (715 | ) |
Retained (deficit) earnings | | | (101,301 | ) | | | 32,351 | |
Accumulated other comprehensive income, net of tax | | | 2 | | | | 1,093 | |
| | | | | | | | |
| | | 62,833 | | | | 191,919 | |
Less 615,743 and 612,026 treasury shares, at cost | | | 11,344 | | | | 11,259 | |
| | | | | | | | |
Total stockholders’ equity | | | 51,489 | | | | 180,660 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 412,380 | | | $ | 551,983 | |
| | | | | | | | |
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Providence Service Corporation
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Consolidated Statements of Cash Flows
(in thousands)
(UNAUDITED)
| | | | | | | | |
| | | Nine months ended
September 30, | |
| | | 2008 | | | 2007 | |
Operating activities | | | | | | | | |
Net (loss) income | | $ | (133,652 | ) | | $ | 10,094 | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | | | | |
Depreciation | | | 3,413 | | | | 1,006 | |
Amortization | | | 6,246 | | | | 2,196 | |
Amortization of deferred financing costs | | | 2,051 | | | | 125 | |
Provision for doubtful accounts | | | 1,299 | | | | 155 | |
Deferred income taxes | | | (845 | ) | | | (183 | ) |
Stock based compensation | | | 2,076 | | | | 1,474 | |
Excess tax benefit upon exercise of stock options | | | (174 | ) | | | (540 | ) |
Asset impairment charge | | | 141,000 | | | | — | |
Other | | | 35 | | | | 100 | |
Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | | | | |
Billed and unbilled accounts receivable, net | | | (7,745 | ) | | | (1,417 | ) |
Management fee receivable | | | (1,581 | ) | | | (2,520 | ) |
Other receivable | | | (614 | ) | | | (2,165 | ) |
Restricted cash | | | (334 | ) | | | — | |
Reinsurance liability reserve | | | 2,117 | | | | 1,294 | |
Prepaid expenses and other | | | (7,574 | ) | | | (3,328 | ) |
Accounts payable and accrued expenses | | | (3,229 | ) | | | (34 | ) |
Accrued transportation costs | | | 10,283 | | | | — | |
Deferred revenue | | | (327 | ) | | | 727 | |
Other long-term liabilities | | | 71 | | | | — | |
| | | | | | | | |
Net cash provided by operating activities | | | 12,516 | | | | 6,984 | |
Investing activities | | | | | | | | |
Purchase of property and equipment, net | | | (3,588 | ) | | | (1,072 | ) |
Acquisition of businesses, net of cash acquired | | | (854 | ) | | | (9,225 | ) |
Acquisition earn out payments | | | (6,671 | ) | | | (8,299 | ) |
Restricted cash for contract performance | | | 3,246 | | | | (937 | ) |
Purchase of short-term investments, net | | | (115 | ) | | | (237 | ) |
Collection of notes receivable | | | 3,135 | | | | 455 | |
| | | | | | | | |
Net cash used in investing activities | | | (4,847 | ) | | | (19,315 | ) |
Financing activities | | | | | | | | |
Repurchase of common stock, for treasury | | | (85 | ) | | | (10,960 | ) |
Proceeds from common stock issued pursuant to stock option exercise | | | 469 | | | | 1,857 | |
Excess tax benefit upon exercise of stock options | | | 174 | | | | 540 | |
Proceeds from long-term debt | | | — | | | | 18,750 | |
Repayment of long-term debt | | | (6,488 | ) | | | (895 | ) |
Debt financing costs | | | (89 | ) | | | (34 | ) |
Capital lease payments | | | — | | | | — | |
| | | | | | | | |
Net cash (used in) provided by financing activities | | | (6,019 | ) | | | 9,258 | |
| | | | | | | | |
Effect of exchange rate changes on cash | | | (244 | ) | | | 94 | |
| | | | | | | | |
Net change in cash | | | 1,406 | | | | (2,979 | ) |
Cash at beginning of period | | | 35,379 | | | | 40,703 | |
| | | | | | | | |
Cash at end of period | | $ | 36,785 | | | $ | 37,724 | |
| | | | | | | | |
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