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Providence Service Corporation Releases Second Quarter Results

TUCSON, Ariz., Aug. 6 /PRNewswire-FirstCall/ -- The Providence Service Corporation (Nasdaq: PRSC) today announced results for the second quarter of 2008 ended June 30, 2008.

For the second quarter of 2008, the Company reported revenue of $173 million, an increase of approximately 178% from $62.3 million for the comparable period in 2007. Revenue from Providence's social services segment grew approximately 26% to $78.4 million in the second 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 $94.6 million. Operating income grew approximately 68% to $10.1 million in the second quarter as compared to $6.0 million recorded in the year ago period. Net income was $3.4 million, or $0.27 per diluted share, in the quarter ended June 30, 2008, in line with the Company's recently revised guidance. In the year ago quarter, net income was $3.6 million, or $0.30 per diluted share. As stated in the Company's release on July 29, 2008, lower than expected revenue and earnings per diluted share was largely due to delays related to payer concerns over their 2008-2009 fiscal budgets. Providence's direct client census was approximately 52,000 at June 30, 2008, up from approximately 46,000 at June 30, 2007, and the Company had over six million individuals eligible to receive services under its NET contracts at June 30, 2008. The Company had 531 direct contracts at June 30, 2008 up from 515 at June 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 9.2% to $62on

Consolidated Statements of Cash Flows

(in thousands)


Six months ended

June 30,

2008 2007

Operating activities

Net income $7,142 $6,895

Adjustments to reconcile net income

to net cash provided by operating


Depreciation 2,313 614

Amortization 4,173 1,423

Amortization of deferred financing

costs 1,201 91

Deferred income taxes (484) (91)

Stock based compensation 1,163 1,017

Excess tax benefit upon exercise of

stock options (185) -

Other 22 100

Changes in operating assets and

liabilities, net of effects

of acquisitions:

Billed and unbilled accounts

receivable, net (1,289) (2,623)

Management fee receivable (792) (1,474)

Other receivable (1,346) (2,212)

Restricted cash 457 -

Reinsurance liability reserve 2,094 278

Prepaid expenses and other (5,300) (1,622)

Accounts payable and accrued

expenses 3,667 (1,033)

Accrued transportation costs (798) -

Deferred revenue (522) (16)

Other long-term liabilities 51 -

Net cash provided by operating

activities 11,567 1,347

Investing activities

Purchase of property and equipment,

net (2,075) (555)

Acquisition of businesses, net of

cash acquired (537) (469)

Acquisition earn out payments (6,671) (8,300)

Restricted cash for contract

performance 2,536 1,031

Purchase of short-term investments,

net (45) (155)

Collection of notes receivable 2,873 87

Net cash used in investing activities (3,919) (8,361)

Financing activities

Repurchase of common stock, for

treasury (55) (10,960)

Proceeds from common stock issued

pursuant to stock option exercise 469 296

Excess tax benefit upon exercise of

stock options 185 255

Proceeds from long-term debt - 7,500

Repayment of long-term debt (4,325) (349)

Debt financing costs (89) (8)

Net cash used in financing activities (3,815) (3,266)

Effect of exchange rate changes on

cash (141) -

Net change in cash 3,692 (10,280)

Cash at beginning of period 35,379 40,703

Cash at end of period $39,071 $30,423

.7 million for the quarter ended June 30, 2008 from $57.4 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 grew to nearly 26,000 at June 30, 2008 as compared to approximately 24,500 at June 30, 2007. Contracts of managed entities grew from 323 to 344 year over year.

For the first six months of 2008, revenue increased approximately 182% to $346.7 million from $122.8 million for the year ago period. Providence's social services segment grew 27% to $156.5 million with the NET service revenue comprising the remaining $190.2 million. Operating income increased approximately 85% to $21.1 million for the six month period compared to $11.4 million in the first six months of 2007. Net income was $7.1 million, or $0.56 per diluted share, for the six month period ended June 30, 2008 compared to net income of $6.9 million, or $0.58 per fully diluted share, for the six months ended June 30, 2007. Managed entity revenue was $124.1 million and $110.7 million in the first six months of 2008 and 2007, respectively.

"In our history, we have never experienced the level of payer confusion and anxiety over annual budgets that we have seen in the last several weeks," said Fletcher McCusker, CEO. "Even in certain states that are no longer in session debating budgets, funds for the agencies that pay for the Company's services have yet to be allocated and other states, such as North Carolina and Pennsylvania, have implemented reductions of authorized services and utilization constraints and have sought outside consultants, chiefly Mercer Health and Benefits LLC ("Mercer"), to help make recommendations about their service and funding delivery system. While this affects a small number of our 43 state markets, it is having a material impact on our business in the short term. However, we believe the long term prospects for our business remain strong as evidenced by the renewal of substantially all of our existing service contracts, pending new procurements, and more states and their consultants favoring our high quality and cost-effective model of care."

The following is an overview of the specific payer issues that resulted in the Company reducing its 2008 guidance in late July.

-- Pennsylvania has recently initiated steps to reduce expenses which include reductions of authorized services and utilization constraints and has hired Mercer to look at ways the state could save money. The Mercer report , which can be viewed at, recommends the state shift funds from its out of home care programs, principally residential treatment for youth, and initiate more community based services. The state has formed several committees to review these recommendations. Providence believes this evolution will favor its model of care and validates its decision to work through the near term budget issues.

-- North Carolina similarly has hired Mercer after audit reports revealed that the state's community based costs were significantly higher than budgeted. Numerous providers were audited in North Carolina and many, unlike Providence, were required to return money to the state. Mercer has recommended that North Carolina consider consolidating the number of management entities which authorize care and oversee service providers as part of an effort to contain costs and improve the quality of care in this state. This report can be viewed at

-- British Columbia has taken steps to strictly enforce revenue caps on a per client basis.

-- Arizona, while experiencing continued in-migration of Medicaid eligible clients, has yet to release its behavioral health budget for next year.

-- California, as widely reported, has yet to resolve its budget debate and the governor recently took steps to reduce employee costs and force the legislature to finalize the state's 2008-2009 budget.

-- Our LogistiCare subsidiary, likewise, is experiencing delays in budgeted rate and ramp up for NET services.

2008 Guidance

As stated in its July 29, 2008 press release, collectively these issues caused the Company to reduce its prior 2008 revenue guidance from $673 million to a projected $650 million and reduce earnings per share projections for the second half of 2008 by $0.37.

The Company expects diluted earnings per share in the second half of 2008 to be no less than $0.45 with a greater percentage of these earnings coming in the fourth quarter due to traditional summer seasonality and payer budgeting delays. The resulting floor for estimated 2008 earnings of $1.00 - $1.01 per diluted share is down from prior Company guidance of $1.45 to $1.50. Upside to this guidance could come from delayed new business procurements that could be worth up to approximately $100 million in revenue annually, possible payer rate adjustments, potential increased business and/or retroactive rate increases. However in the current economic environment it is uncertain if any of the above will occur in 2008.

The Company will outline the issues and opportunities in each market in greater detail on its upcoming earnings conference call.

Conference Call

Providence will hold a conference call at 11:00 a.m. EDT (9:00 a.m. MDT, 8:00 a.m. Arizona and PDT) on Thursday, August 7, 2008. Interested parties are invited to listen to the call live over the Internet at or The call is also available by dialing (888) 713-4213, or for international callers (617) 213-4865 and by using the passcode 11366304. Participants may pre-register for the call at 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 and A replay will also be available until August 14, 2008 by dialing (888) 286-8010 or (617) 801-6888, and using passcode 83942965.

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 nearly 78,000 clients through nearly 950 contracts at June 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.

The Providence Service Corporation

Consolidated Statements of Income

(in thousands except share and per share data)


Three months ended Six months ended

June 30, June 30,

2008 2007 2008 2007


Home and community based

services $65,385 $51,436 $131,281 $101,466

Foster care services 7,566 5,882 14,518 11,522

Management fees 5,425 4,993 10,668 9,778


transportation services 94,649 - 190,223 -

173,025 62,311 346,690 122,766

Operating expenses:

Client service expense 62,172 47,593 123,656 94,395

Cost of non-emergency

transportation services 87,459 - 173,706 -

General and

administrative expense 10,100 7,659 21,766 14,977

Depreciation and

amortization 3,166 1,028 6,486 2,036

Total operating expenses 162,897 56,280 325,614 111,408

Operating income 10,128 6,031 21,076 11,358

Other (income) expense:

Interest expense 4,709 222 9,995 333

Interest income (241) (280) (599) (643)

Income before income taxes 5,660 6,089 11,680 11,668

Provision for income taxes 2,222 2,513 4,538 4,772

Net income $3,438 $3,576 $7,142 $6,896

Earnings per share:

Basic $0.27 $0.31 $0.57 $0.59

Diluted $0.27 $0.30 $0.56 $0.58

Weighted-average number of

common shares


Basic 12,519,527 11,585,996 12,484,331 11,707,025

Diluted 12,693,880 11,778,785 12,677,379 11,864,204

The Providence Service Corporation

Consolidated Balance Sheets

(in thousands except share and per share data)

June 30, December 31,

2008 2007

Assets (Unaudited) (Audited)

Current assets:

Cash and cash equivalents $39,071 $35,379

Accounts receivable-billed, net

of allowance of $2.6 million 67,461 65,852

Accounts receivable - unbilled 1,793 2,250

Management fee receivable 10,957 10,166

Other receivables 3,977 2,524

Notes receivable 573 563

Notes receivable from related party - 1,734

Restricted cash 7,119 8,842

Prepaid expenses and other 14,664 9,554

Deferred tax assets 928 5,094

Total current assets 146,543 141,958

Property and equipment, net 11,271 11,562

Notes receivable, less current portion 445 880

Goodwill 277,162 280,710

Intangible assets, net 94,198 98,254

Restricted cash, less current portion 5,192 6,461

Other assets 12,677 12,158

Total assets $547,488 $551,983

Liabilities and stockholders' equity

Current liabilities:

Current portion of long-term

obligations $11,113 $8,950

Accounts payable 12,468 14,035

Accrued expenses 25,285 36,448

Accrued transportation costs 23,778 24,576

Deferred revenue 3,546 4,062

Reinsurance liability reserve 8,383 8,344

Total current liabilities 84,573 96,415

Long-term obligations, less

current portion 229,981 236,469

Other long-term liabilities 3,478 190

Deferred tax liabilities 29,661 30,600

Total liabilities 347,693 363,674

Non-controlling interest 7,649 7,649

Commitments and contingencies

Stockholders' equity:

Common stock: Authorized

40,000,000 shares; $0.001 par

value; 12,924,506 and 12,756,392

issued and outstanding

(including treasury shares) 13 13

Additional paid-in capital 163,217 159,177

Common stock subscription

receivable - (715)

Retained earnings 39,493 32,351

Accumulated other comprehensive

income, net of tax 738 1,093

203,461 191,919

Less 614,209 and 612,026 treasury

shares, at cost 11,315 11,259

Total stockholders' equity 192,146 180,660

Total liabilities and stockholders'

equity $547,488 $551,983

The Providence Service Corporati

SOURCE Providence Service Corporation
Copyright©2008 PR Newswire.
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