Providence Service Corporation Reports Q3 2013 Results

Third Quarter Highlights:
- Net income rose to $3.5 million
- Diluted EPS increased to $0.25
- Adjusted EBITDA was $11.7 million
- Quarter benefitted from improved NET margins

PR Newswire

TUCSON, Ariz., Nov. 6, 2013 /PRNewswire/ -- The Providence Service Corporation (PRSC) today announced its financial results for the third quarter ended September 30, 2013.   

For the third quarter of 2013, the Company reported revenue of $276.7 million, a decrease of 1% from $280.3 million in the comparable period of 2012.  Revenue from Providence's Non-emergency Transportation (NET) services segment decreased 2% to $192.0 million in the third quarter from $196.3 million in the prior year period.  The decrease was due primarily to the transition of the Connecticut contract from "at risk" to "administrative services only", and the voluntary termination of the Wisconsin contracts effective July 31, 2013. This decrease was partially offset by increased revenue related to continued expansion in California, membership growth in the New York City administrative contracts, and favorable rate adjustments in other states. Revenue from the Human Services segment, formerly known as the Social Services segment, increased 1% to $84.7 million from $84.0 million in the third quarter of 2012, primarily related to the impact of a new workforce development contract in Wisconsin which began in 2013.

Net income was $3.5 million, or $0.25 per diluted share, in the third quarter of 2013 compared to net income of $1.2 million, or $0.09 per diluted share in the prior year period.  The increase in net income was due primarily to improved margins in the NET Services segment. In addition, the results for third quarter of 2012 included an asset impairment charge of approximately $2.5 million, before taxes, related to our Canadian operations.  EBITDA (non-GAAP) for the third quarter of 2013 was $11.2 million compared to $9.0 million in the same period last year.  Adjusted EBITDA (non-GAAP) for the third quarter of 2013 was $11.7 million compared to $11.5 million in the same period last year.  A reconciliation of net income to EBITDA and Adjusted EBITDA is presented below. 

The Company had approximately 16.0 million individuals eligible to receive services under its NET contracts at September 30, 2013, an increase of 8% from approximately 14.8 million at September 30, 2012.  Providence's direct Human Service client census was approximately 55,700, up 9% from 50,900 at September 30, 2012. 

For the first nine months of 2013, the Company reported revenue of $845.8 million, an increase of 3% from $819.4 million in the first nine months of 2012.  Revenue from Providence's NET services segment grew 6% to $583.0 million in the first nine months of 2013 from $549.8 million in the prior year period.  Revenue from the Human Services segment decreased 2% to $262.8 million, down from $269.5 million in the first nine months of 2012.

Net income was $16.1 million, or $1.17 per diluted share, in the first nine months of 2013.  This is an increase from net income of $5.6 million, or $0.42 per diluted share, in the first nine months of 2012.  EBITDA (non-GAAP) for the first nine months of 2013 was $43.2 million, representing a 59% increase from $27.2 million in the same period last year.  Adjusted EBITDA (non-GAAP) for the first nine months of 2013 was $44.2 million, representing an increase of 46% from $30.3 million in the same period last year.  A reconciliation of net income to EBITDA and Adjusted EBITDA is presented below. 

During the first nine months of 2013, the Company generated a total of $45.7 million in cash from operations.  At September 30, 2013, the Company had unrestricted cash and cash equivalents of $91.1 million as well as approximately $142.3 million available for borrowing under the recently amended and restated senior secured credit facility. Long-term obligations at September 30, 2013 were $123.5 million.

"We continue to show solid financial results year to date in 2013," said Warren Rustand, Chief Executive Officer. "Growth and profitability were driven by our NET Services segment, which is benefitting from the full period impact of new contract awards that began during 2012, as well as the termination of, or changes to, contracts that were not meeting our financial expectations." 

"Our Human Services segment experienced modest revenue growth in the third quarter due to a new workforce development contract that started up in 2013, as well as stabilization of the business following contract terminations related to our Canadian and tutoring businesses.  We will continue to focus our attention on expanding and improving the performance of our Human Services segment through operating efficiencies and both organic and acquisitive growth." 

"Overall, we are pleased with the progress the Company has made in 2013 to date and remain committed to initiatives that we set forth at the beginning of the year, primarily related to improving efficiencies.  As we look toward 2014 and beyond, we continue to believe that the impact of Medicaid expansion under the Affordable Care Act will create opportunities for us to serve a substantially larger population of currently underserved citizens.  Beyond Medicaid expansion, we continue to believe that general health care market trends, which include growing awareness of the need to coordinate physical and behavioral health care services and the importance of facilitated non-emergency access to preventative services, will position Providence to benefit from systemic market changes in the future."

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 7, 2013 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 (800) 510-0146 or for international callers (617) 614-3449 and by using the passcode 94634423. A replay of the teleconference will be available on http://investor.provcorp.com. A replay will also be available until November 14, 2013 by dialing (888) 286-8010 or (617) 801-6888, and using passcode 49143112.

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 55,700 clients at September 30, 2013, with approximately 16.0 million individuals eligible to receive the Company's non-emergency transportation services.  The Company had over $1.1 billion in revenues in 2012.

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, 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 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, 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--

The Providence Service Corporation

Consolidated Statements of Income

(in thousands except share and per share data)

(UNAUDITED)












Three months ended


Nine months ended



September 30,


September 30,



2013


2012


2013


2012

Revenues:









  Human services


$      84,702


$      83,950


$    262,809


$    269,526

  Non-emergency transportation services


192,011


196,335


583,028


549,844



276,713


280,285


845,837


819,370










Operating expenses:









  Client service expense


76,881


73,462


228,695


230,200

  Cost of non-emergency transportation services


177,049


183,248


536,664


520,866

  General and administrative expense


11,082


12,069


36,265


38,599

  Asset impairment charge


-


2,506


492


2,506

  Depreciation and amortization


3,725


4,018


11,188


11,254

Total operating expenses


268,737


275,303


813,304


803,425

Operating income 


7,976


4,982


32,533


15,945










Other (income) expense:









  Interest expense


1,916


1,990


5,407


5,806

  Loss on extinguishment of debt


525


-


525


-

  Interest income


(40)


(25)


(92)


(109)

Income before income taxes


5,575


3,017


26,693


10,248

Provision for income taxes


2,048


1,859


10,612


4,631

Net  income 


$        3,527


$        1,158


$      16,081


$        5,617










Earnings per share:









  Basic


$          0.26


$          0.09


$          1.20


$          0.42

  Diluted


$          0.25


$          0.09


$          1.17


$          0.42










Weighted-average number of common shares outstanding:

















  Basic


13,674,467


13,263,826


13,411,204


13,277,191

  Diluted


14,049,329


13,342,614


13,711,124


13,388,355

    

The Providence Service Corporation

Consolidated Balance Sheets

(in thousands except share and per share data)




September 30,


December 31,



2013


2012

Assets


(Unaudited)



Current assets:





    Cash and cash equivalents


$                 91,103


$             55,863

    Accounts receivable, net of allowance of $4.4 million for 2013 and $3.7 million for 2012


91,245


98,628

    Management fee receivable


2,309


2,662

    Other receivables


1,683


1,920

    Restricted cash


3,837


1,787

    Prepaid expenses and other


19,577


14,807

    Deferred tax assets


130


532

Total current assets


209,884


176,199

Property and equipment, net


30,886


30,380

Goodwill


113,345


113,915

Intangible assets, net


44,250


49,651

Restricted cash, less current portion


14,198


10,953

Other assets


12,318


10,639

Total assets


$               424,881


$           391,737

Liabilities and stockholders' equity 





Current liabilities:





    Current portion of long-term obligations


$                 47,500


$             14,000

    Accounts payable


4,543


4,569

    Accrued expenses


48,766


32,976

    Accrued transportation costs


56,410


61,316

    Deferred revenue


5,263


7,055

    Reinsurance liability reserve


13,159


12,713

Total current liabilities


175,641


132,629

Long-term obligations, less current portion


76,000


116,000

Other long-term liabilities


15,736


13,527

Deferred tax liabilities


11,683


10,894

Total liabilities


279,060


273,050

Commitments and contingencies





Stockholders' equity:





    Common stock:  Authorized 40,000,000 shares; $0.001 par value; 14,426,603  and 13,785,947 issued and

    outstanding (including treasury shares) 


14


14

    Additional paid-in capital


192,547


180,778

    Accumulated deficit


(36,998)


(53,079)

    Accumulated other comprehensive loss, net of tax


(1,155)


(893)

    Treasury stock, at cost, 952,776  and 928,478 shares


(15,548)


(15,094)

  Total Providence stockholders' equity


138,860


111,726

    Non-controlling interest


6,961


6,961

Total stockholders' equity 


145,821


118,687

Total liabilities and stockholders' equity 


$               424,881


$           391,737

         

     

The Providence Service Corporation

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)



Nine months ended



September 30, 



2013


2012

Operating activities





Net income 


$        16,081


$       5,617

Adjustments to reconcile net income to net cash provided by operating activities:





  Depreciation 


5,802


5,578

  Amortization


5,386


5,676

  Amortization of deferred financing costs 


746


865

  Loss on extinguishment of debt


525


-

  Provision for doubtful accounts


2,570


1,418

  Deferred income taxes


1,395


(420)

  Stock based compensation


2,402


3,586

  Excess tax benefit upon exercise of stock options


(999)


(60)

  Asset impairment charge


492


2,506

  Other


352


(33)

  Changes in operating assets and liabilities:





    Accounts receivable


5,033


(10,304)

    Management fee receivable


105


849

    Other receivables


237


(509)

    Restricted cash


(255)


14

    Prepaid expenses and other


(6,031)


(3,556)

    Reinsurance liability reserve


2,720


1,773

    Accounts payable and accrued expenses


15,744


3,040

    Accrued transportation costs


(4,906)


16,901

    Deferred revenue


(1,792)


3,639

    Other long-term liabilities


52


3,357

Net cash provided by operating activities


45,659


39,937

Investing activities





Purchase of property and equipment, net


(6,413)


(7,565)

Acquisition of businesses, net of cash acquired


-


(190)

Restricted cash for reinsured claims losses


(5,040)


1,269

Purchase of short-term investments, net


(23)


452

Net cash used in investing activities


(11,476)


(6,034)

Financing activities





Repurchase of common stock for treasury


(454)


(3,658)

Proceeds from common stock issued pursuant to stock option exercise


9,244


258

Excess tax benefit upon exercise of stock options


999


60

Proceeds from long-term debt


76,000


-

Repayment of long-term debt


(82,500)


(9,993)

Debt financing costs


(2,083)


(53)

Capital lease payments


(8)


(20)

Net cash provided by (used in) financing activities


1,198


(13,406)

Effect of exchange rate changes on cash


(141)


76

Net change in cash


35,240


20,573

Cash at beginning of period


55,863


43,184

Cash at end of period


$        91,103


$     63,757

         

     

The Providence Service Corporation

Reconciliation of Non-GAAP Financial Measures

Adjusted EBITDA

(in thousands)

(Unaudited)












Three months ended 


Nine months ended 



September 30,


September 30,



2013


2012


2013


2012










Net income

$   3,527


$   1,158


$ 16,081


$   5,617










Interest expense, net

1,876


1,965


5,315


5,697

Provision for income taxes

2,048


1,859


10,612


4,631

Depreciation and amortization

3,725


4,018


11,188


11,254










EBITDA

11,176


9,000


43,196


27,199










Asset impairment charge

-


2,506


492


2,506

Loss on extinguishment of debt

525


-


525


-

Strategic alternatives costs

-


2


-


593










Adjusted EBITDA 

$ 11,701


$ 11,508


$ 44,213


$ 30,298

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