Providence Service Corporation Reports Q1 2014 Results

First Quarter Highlights:
- Net income totaled $6.3 million with diluted EPS of $0.44
- Adjusted EBITDA increased 7.8% to $18.1 million
- Announced agreement to purchase Ingeus Limited

PR Newswire

TUCSON, Ariz., May 7, 2014 /PRNewswire/ -- The Providence Service Corporation (PRSC) today announced its financial results for the first quarter ended March 31, 2014.   

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First Quarter 2014 Results
For the first quarter of 2014, the Company reported revenue of $289.4 million, an increase of 2.8% from $281.5 million in the first quarter of 2013.  Revenue from Providence's Non-emergency Transportation (NET) services segment grew 2.6% to $198.1 million in the first quarter of 2014 from $193.1 million in the first quarter of 2013.  The increase was due primarily to overall membership increases and expansion in certain markets and new contracts in Maine and Utah.  The increase in revenue was partially offset by the termination of contracts in Wisconsin in 2013 and the transition of the Connecticut contract from "at risk" to "administrative services only."  Revenue from the Human Services segment increased 3.4% to $91.3 million from $88.4 million in the first quarter of 2013, primarily related to contributions from the foster care contract in Texas which was fully implemented by the end of the quarter.

Net income was $6.3 million, or $0.44 per diluted share, in the first quarter of 2014 compared to net income of $6.7 million, or $0.49 per diluted share, in the first quarter of 2013.  Net income in the first quarter of 2014 included approximately $1.8 million in acquisition related costs associated with the pending acquisition of Ingeus Limited, a market leading global employment company.  EBITDA (non-GAAP) for the first quarter of 2014 was $15.8 million compared to $16.8 million in the first quarter of 2013.  Adjusted EBITDA (non-GAAP) for the first quarter of 2014, which backs out acquisition related fees as well as termination related payments increased 7.8% to $18.1 million compared to $16.8 million in the first quarter of 2013.  A reconciliation of net income to EBITDA and Adjusted EBITDA is presented below. 

The Company had approximately 17.6 million individuals eligible to receive services under its NET Services contracts at March 31, 2014, an increase of 4.6% from approximately 16.8 million at March 31, 2013.  Providence's direct Human Services client census at March 31, 2014 was approximately 57,400, up 5.2% from 54,500 at March 31, 2013. 

During the first quarter of 2014, the Company generated a total of $7.8 million in cash from operations.  At March 31, 2014, the Company had unrestricted cash and cash equivalents of $105.8 million as well as approximately $142.3 million available for borrowing under the 2013 amended and restated senior secured credit facility.  Long-term obligations at March 31, 2014 were $123.5 million.

"We finished the first quarter of 2014 with solid financial results," said Warren Rustand, Chief Executive Officer.  "Our NET Services segment saw improved margins compared to the first quarter of 2013 as a result of expanded business, favorable transportation utilization rates resulting from inclement weather patterns on the eastern seaboard, negotiated rate adjustments and the exit from certain less profitable markets."

"Our Human Services segment continued to experience revenue growth in the first quarter of 2014 due primarily to the Texas foster care contract that began in 2013.  However, reduced client service volumes in several eastern markets due to the same severe weather factors, as well as weak margins in certain other markets, pressured results in the first quarter of 2014.  We are aggressively addressing these markets and are committed to a heightened focus on margin improvement over the course of the next several months."

"Looking ahead, we are excited about opportunities for growth in 2014.  In addition to a robust pipeline of tuck-in acquisitions that could strengthen our market position in selected geographic domestic markets, we announced an agreement to acquire Australia-based Ingeus Limited.  The transaction, anticipated to close during the second quarter of 2014, complements our existing businesses, expands our footprint into new markets, diversifies our customer base, and enhances our workforce development expertise.  Over time, this combination will expand our capabilities and reach.  What makes us most excited about the combination with Ingeus is the international growth potential in workforce development and the great strategic and cultural fit for our company."

Conference Call
Providence will hold a conference call at 11:00 a.m. EDT (8:00 a.m. PDT/MST) Thursday, May 8, 2014 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.  The call is also available by dialing (866) 515-2910, or for international callers (617) 399-5124, and by using the passcode 15230798. A replay of the teleconference will be available on http://investor.provcorp.com. A replay will also be available until May 15, 2014 by dialing (888) 286-8010 or (617) 801-6888 and using passcode 34840827.

About Providence
The Providence Service Corporation provides or manages the delivery of home and community based human services and NET management services to primarily government sponsored clients under programs such as welfare, juvenile justice, Medicaid and corrections.  Providence is unique in that it provides or manages its human services primarily in the client's own home or in community based settings rather than in hospitals or other treatment facilities and provides its NET management services through local transportation providers rather than an owned fleet of vehicles.  The Company provides a range of services through its direct entities to approximately 57,400 clients at March 31, 2014, with approximately 17.6 million individuals eligible to receive the Company's non-emergency transportation services.  The Company had over $1.1 billion in revenues in 2013.

Non-GAAP Presentation
In addition to the financial results prepared in accordance with US generally accepted accounting principles (GAAP) provided throughout this press release, the Company has provided EBITDA and Adjusted EBITDA, non-GAAP measurements. 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 non-GAAP measures used by some other companies.

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, 2013. 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



March 31,



2014


2013

Revenues:





  Non-emergency transportation services


$      198,077


$         193,133

  Human services


91,326


88,354

Total revenues


289,403


281,487






Operating expenses:





  Cost of non-emergency transportation services


175,230


176,684

  Client service expense


84,748


75,517

  General and administrative expense


13,617


12,452

  Depreciation and amortization


3,728


3,729

Total operating expenses


277,323


268,382

Operating income 


12,080


13,105






Other expense:





  Interest expense, net


1,585


1,751

Income before income taxes


10,495


11,354

Provision for income taxes


4,208


4,676

Net  income 


$          6,287


$             6,678






Earnings per share:





  Basic


$            0.45


$               0.51

  Diluted


$            0.44


$               0.49






Weighted-average number of common shares





  outstanding:





  Basic


13,801,456


13,148,717

  Diluted


15,257,577


14,507,367

 

The Providence Service Corporation

Consolidated Balance Sheets

(in thousands except share and per share data)

(UNAUDITED)



March 31,


December 31,



2014


2013

Assets





Current assets:





    Cash and cash equivalents


$  105,840


$           98,995

    Accounts receivable, net of allowance of 





      $3.9 million in 2014 and $4.2 million in 2013


100,275


88,315

    Other receivables


5,624


6,607

    Prepaid expenses and other


8,560


11,831

    Restricted cash


2,883


3,772

    Deferred tax assets


2,932


2,152

Total current assets


226,114


211,672

Property and equipment, net


33,321


32,709

Goodwill


113,154


113,263

Intangible assets, net


41,831


43,476

Other assets


8,869


11,681

Restricted cash, less current portion


11,433


11,957

Total assets


$  434,722


$         424,758

Liabilities and stockholders' equity 





Current liabilities:





    Current portion of long-term obligations


$    49,000


$           48,250

    Accounts payable


5,314


3,904

    Accrued expenses


59,916


52,484

    Accrued transportation costs


54,864


54,962

    Deferred revenue


3,818


3,687

    Reinsurance liability reserve


7,694


10,778

Total current liabilities


180,606


174,065

Long-term obligations, less current portion


74,500


75,250

Other long-term liabilities


13,313


15,359

Deferred tax liabilities


8,894


9,447

Total liabilities


277,313


274,121

Commitments and contingencies 





Stockholders' equity





    Common stock: authorized 40,000,000 shares; $0.001 par





       value; 14,556,544 and 14,477,312 issued and outstanding 





       (including treasury shares) 


15


14

    Additional paid-in capital


195,581


194,363

    Accumulated deficit


(27,354)


(33,641)

    Accumulated other comprehensive loss, net of tax


(1,683)


(1,419)

    Treasury shares, at cost, 973,564 and 956,442 shares


(16,111)


(15,641)

  Total Providence stockholders' equity


150,448


143,676

     Non-controlling interest


6,961


6,961

Total stockholders' equity 


157,409


150,637

Total liabilities and stockholders' equity


$  434,722


$         424,758

 

The Providence Service Corporation

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)



Three months ended



March 31,



2014


2013

Operating activities





Net income


$     6,287


$   6,678

Adjustments to reconcile net income to net cash 





  provided by operating activities:





  Depreciation 


2,103


1,934

  Amortization


1,625


1,795

  Provision for doubtful accounts


557


558

  Stock based compensation


408


918

  Deferred income taxes


(1,333)


(21)

  Amortization of deferred financing costs 


214


264

  Excess tax benefit upon exercise of stock options


(323)


(158)

  Other non-cash charges


35


22

  Changes in operating assets and liabilities, net of effects





    of acquisitions:





    Accounts receivable


(12,534)


8,905

    Other receivables


984


10

    Restricted cash


(111)


(410)

    Prepaid expenses and other


6,049


(287)

    Reinsurance liability reserve


(1,950)


(1,948)

    Accounts payable and accrued expenses


8,862


11,349

    Accrued transportation costs


(98)


(2,059)

    Deferred revenue


131


2,322

    Other long-term liabilities


(3,060)


(71)

Net cash provided by operating activities


7,846


29,801

Investing activities





Purchase of property and equipment


(2,723)


(1,438)

Net increase in short-term investments


(5)


(8)

Restricted cash for reinsured claims losses


1,525


46

Net cash used in investing activities


(1,203)


(1,400)

Financing activities





Repurchase of common stock, for treasury


(470)


(384)

Proceeds from common stock issued pursuant to stock 





  option exercise


506


1,878

Excess tax benefit upon exercise of stock options


323


158

Repayment of long-term debt


-


(2,750)

Capital lease payments


(2)


(3)

Net cash provided by (used in) financing activities


357


(1,101)

Effect of exchange rate changes on cash


(155)


(83)

Net change in cash


6,845


27,217

Cash at beginning of period


98,995


55,863

Cash at end of period


$ 105,840


$ 83,080

 

The Providence Service Corporation

Reconciliation of Non-GAAP Financial Measures

Adjusted EBITDA

(in thousands)

(Unaudited)






Three months ended 


March 31,


2014


2013





Net income

$    6,287


$    6,678





Interest expense, net

1,585


1,751

Provision for income taxes

4,208


4,676

Depreciation and amortization

3,728


3,729





EBITDA

15,808


16,834





Acquisition related costs

1,829


-

Payments related to termination of




  executive officers, net (a)

511


-





Adjusted EBITDA 

$  18,148


$  16,834



(a)

Net of benefit of forfeiture of stock based compensation.

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