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Providence Service Corporation Announces 35% Revenue Growth with Third Quarter Results; Increases Revenue Guidance for 2007

Third Quarter Highlights:

- Total revenue grew 35% to $63.7 million

- 100% contract renewal for 11 consecutive annual cycles

- Entered Canada with workforce initiative acquisition

- Diluted earnings per share of $0.27 in line with guidance

TUCSON, Ariz., Nov. 6 /PRNewswire-FirstCall/ -- The Providence Service Corporation (Nasdaq: PRSC) today announced financial results for the third quarter ended September 30, 2007.

For the third quarter of 2007, the Company reported revenue of $63.7 million, an increase of 35% from $47.1 million for the comparable period in 2006 and up sequentially from $62.3 million in the second quarter of 2007 despite the seasonal loss of approximately $1.0 million per month of school based revenue. Operating income was $5.5 million in the quarter, a 27% increase over $4.3 million in the year ago period. Net income was $3.2 million, or $0.27 per diluted share, in the quarter ended September 30, 2007, in line with guidance issued in conjunction with the release of second quarter results. In the year ago quarter ended September 30, 2006, net income was $2.7 million, or $0.22 per diluted share. Providence's direct client census grew to over 46,000 at September 30, 2007 from nearly 22,000 at September 30, 2006. The number of direct contracts increased to 455 at September 30, 2007 from 341 at September 30, 2006. The Company continued to report 100% contract renewal for the period, although certain contracts that renewed beginning on July 1 were consolidated, leading to the decline in the number of direct contracts from June 30, 2007, but not the associated census.

Managed entity revenue, which represents reven

Proceeds from long-term debt 18,750 -

Repayment of long-term debt (895) (17,384)

Debt financing costs (34) (86)

Net cash provided by financing activities 9,258 50,332

Effect of exchange rate changes on cash 94 -

Net change in cash (2,979) 31,221

Cash at beginning of period 40,703 8,994

Cash at end of period $37,724 $40,215

ue 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% to $54.4 million for the quarter ended September 30, 2007 from $48.0 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 grew to nearly 24,000 at September 30, 2007 as compared to approximately 23,000 at September 30, 2006. Contracts of managed entities grew from 300 to 318 year over year.

For the first nine months of 2007, revenue increased 37% to $186.5 million from $135.9 million for the year ago period. Operating income gained 17% to $16.8 million for the nine month period compared to $14.4 million in the first nine months of 2006. Net income was $10.1 million, or $0.85 per diluted share, for the nine month period ended September 30, 2007 compared to net income of $8.7 million, or $0.76 per fully diluted share, for the nine months ended

September 30, 2006. Managed entity revenue was $165.1 million and $137.2 million in the first nine months of 2007 and 2006, respectively.

"This quarter's performance was in line with where we thought we would be and we remain on track for the full year," said Fletcher McCusker Chairman and CEO. "We are thrilled with our 100% contract renewal rate in the quarter and our performance getting contracts negotiated and signed during the July fiscal year transition. We are happy to report that we have renewed all of our school based business and added approximately $2 million of additional organic growth from the July procurement cycle. Also, since the end of the last quarter we acquired substantially all of the assets of Family & Children's Services, Inc. in Pennsylvania and acquired WCG International Consultants Ltd in Canada, the integration of which are going as planned. And today we announced the signing of a merger agreement and arrangement of financing for our largest acquisition ever, which we believe will create a significant platform for growth in 2008 and beyond."


As a result of additional organic growth from the July procurement cycle and the recently completed acquisition of Family & Children's Services which will add an additional $2 million to revenue on a quarterly basis, Providence is increasing its fourth quarter and full year revenue guidance for 2007 to $70 million and $256 million respectively versus its prior guidance of $68 million-$69 million and $251 million-$253 million. (Previous guidance reflected approximately $6 million-$8 million in incremental contract business as a result of the July procurement cycle, the renewal of 100% of all existing contracts that cycle July 1 and additional revenue from WCG.) The Company is also reaffirming its earnings guidance of $0.33-$0.34 per diluted share for the fourth quarter and $1.17-$1.19 for the full year. The Company does not anticipate any material revenue or earnings impact in 2007 from the LogistiCare acquisition which is pending Federal Trade Commission antitrust review. Diluted shares outstanding in the fourth quarter of 2007 are estimated at 12,200,000.

The Company currently expects 2008 revenue to be approximately $310 million with EPS of $1.38-$1.40 based upon current contracted business, not including any unannounced contracts or acquisitions. Including the acquisition of LogistiCare, the combined company is estimated to have revenue of approximately $673 million in 2008 and EPS of $1.45 to $1.50. The Company expects to finalize its budget for 2008 and update full year guidance early in the year after its January government renewal cycle and the Hart, Scott Rodino review of its LogistiCare acquisition.

Conference Call

Providence will hold a conference call at 11:00 a.m. EST (9:00 a.m. Arizona and MST, 8:00 a.m. PST) on Wednesday, November 7, 2007 to discuss its financial results and corporate developments. Interested parties are invited to listen to the call live over the Internet at or The call is also available by dialing (866) 356- 3377, or for international callers (617) 597-5392 and by using the passcode 31969599. A replay of the teleconference will be available on and A replay will also be available until November 14, 2007 by dialing (888) 286-8010 or (617) 801- 6888, and using passcode 25466512.

Providence Service Corporation, through its owned and managed entities, provides home and community based social services to government sponsored clients under programs such as welfare, juvenile justice, Medicaid and corrections. Providence operates no beds, treatment facilities, hospitals, or group homes preferring to provide services in the client's own home or other community setting. Through its owned and managed entities, Providence maintains 773 government contracts in 35 states and the District of Columbia as of September 30, 2007.

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. 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.

The Providence Service Corporation

Consolidated Statements of Income

(in thousands except share and per share data)


Three months ended Nine months ended

September 30, September 30,

2007 2006 2007 2006


Home and community

based services $51,761 $37,152 $153,227 $106,673

Foster care services 7,022 5,842 18,545 16,099

Management fees 4,951 4,057 14,729 13,147

63,734 47,051 186,501 135,919

Operating expenses:

Client service expense 50,311 36,404 144,707 102,042

General and


expense 6,807 5,461 21,784 16,997

Depreciation and

amortization 1,166 904 3,202 2,453

Total operating expenses 58,284 42,769 169,693 121,492

Operating income 5,450 4,282 16,808 14,427

Other (income) expense:

Interest expense 479 103 812 721

Interest income (335) (431) (977) (922)

Income before income taxes 5,306 4,610 16,973 14,628

Provision for income taxes 2,108 1,862 6,879 5,916

Net income $3,198 $2,748 $10,094 $8,712

Earnings (loss) per common


Basic $0.27 $0.23 $0.86 $0.78

Diluted $0.27 $0.22 $0.85 $0.76

Weighted-average number of

common shares outstanding:

Basic 11,654,434 12,163,022 11,689,302 11,241,294

Diluted 12,053,284 12,297,948 11,928,636 11,464,874

The Providence Service Corporation

Consolidated Balance Sheets

(in thousands except share and per share data)

September 30, December 31,

2007 2006

Assets (Unaudited) (Audited)

Current assets:

Cash and cash equivalents $37,724 $40,703

Accounts receivable-billed, net

of allowance of $1.2 million

and $5.3 million 44,720 36,148

Accounts receivable - unbilled 1,506 2,134

Management fee receivable 9,391 7,342

Other receivables 3,047 881

Restricted cash 3,237 2,300

Prepaid expenses and other 8,038 4,284

Notes receivable 393 975

Deferred tax assets 1,261 966

Total current assets 109,317 95,733

Property and equipment, net 4,045 2,784

Notes receivable, less current portion 895 739

Goodwill 64,239 56,656

Intangible assets, net 32,054 29,037

Restricted cash, less current portion 6,211 6,211

Other assets 1,412 1,175

Total assets $218,173 $192,335

Liabilities and stockholders' equity

Current liabilities:

Accounts payable 2,702 $2,902

Accrued expenses 16,262 21,588

Deferred revenue 1,518 791

Reinsurance liability reserve 4,280 2,986

Current portion of long-term obligations 3,750 332

Total current liabilities 28,512 28,599

Deferred tax liabilities 4,000 4,061

Long-term obligations, less current portion 15,056 619

Total Liabilities 47,568 33,279

Non-Controlling Interest 7,649 -

Stockholders' equity:

Common stock: Authorized 40,000,000

shares; $0.001 par value; 12,309,804

and 12,171,127 issued and outstanding

(including treasury shares) 12 12

Additional paid-in capital 145,251 141,381

Accumulated other comprehensive income 896 -

Retained earnings 28,056 17,962

181,864 159,355

Less 612,026 and 146,905 treasury shares,

at cost 11,259 299

Total stockholders' equity 170,605 159,056

Total liabilities and stockholders' equity $218,173 $192,335

The Providence Service Corporation

Consolidated Statements of Cash Flows

(in thousands)


Nine months ended

September 30,

2007 2006

Operating activities

Net income $10,094 $8,712

Adjustments to reconcile net income

to net cash provided by (used in) operating


Depreciation 1,006 774

Amortization 2,196 1,679

Amortization of deferred financing costs 125 113

Deferred income taxes (183) 56

Stock based compensation 1,474 290

Excess tax benefit upon exercise of stock

options (540) (1,840)

Reserve on note receivable 100 -

Changes in operating assets and liabilities,

net of effects of acquisitions:

Billed and unbilled accounts receivable,

net (1,262) (11,672)

Management fee receivable (2,520) (157)

Other receivable (2,165) (37)

Reinsurance liability reserve 1,294 1,445

Prepaid expenses and other (3,328) 147

Accounts payable and accrued expenses (34) (1,234)

Deferred revenue 727 510

Net cash provided by (used in) operating

activities 6,984 (1,214)

Investing activities

Purchase of property and equipment (1,072) (716)

Acquisition of businesses, net of cash

acquired (9,225) (13,566)

Acquisition earn out payments (8,299) -

Restricted cash for contract performance (937) (3,390)

Purchase of short-term investments, net (237) (81)

Working capital advances to third party - (195)

Collection of notes receivable 455 51

Net cash used in investing activities (19,315) (17,897)

Financing activities

Repurchase of common stock (10,960) -

Proceeds from common stock issued pursuant

to stock option exercise 1,857 6,369

Excess tax benefit upon exercise of stock

options 540 1,840

Proceeds from common stock offering, net - 59,593

SOURCE Providence Service Corporation
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