Business Stabilizing Beginning in December 2008; First Quarter 2009
Earnings Guidance a Minimum of $0.23 per diluted share
TUCSON, Ariz., March 13 /PRNewswire-FirstCall/ -- -- The Providence
Service Corporation (Nasdaq: PRSC) today announced preliminary operating
results for the fourth quarter and calendar year ended December 31, 2008. The
operating results do not yet consider the impact of the required year end
impairment of goodwill testing.
Due to the complexities of the process associated with goodwill impairment
testing for 16 reporting units, the Company requires additional time to
complete its impairment analysis and calculations. Based upon the dramatic
reduction in the Company's market capitalization from September 30, 2008 to
December 31, 2008, as well as the continued deterioration of the mergers and
acquisitions market (which saw dramatically lower valuations placed on
comparable companies sold) during that period and the negative effects of the
economic downturn, the Company expects to take a non-cash asset impairment
charge in the fourth quarter of between approximately $35.0 million and $60.0
million, which will be in addition to the $141.0 million impairment charge
recorded by the Company at September 30, 2008. As a result of the foregoing,
the Company expects to file a Form 12b-25 with the SEC signifying that it
intends to postpone the filing of its Annual Report on Form 10-K for the year
ended December 31, 2008. In the interim, rather than delay the announcement
of year end results pending the completion of its impairment analysis, the
Company has elected to release its year end results that are unaffected by
impairment considerations. Once the impairment analysis is complete, the
Company will follow these preliminary results with its final year end results.
Fourth Quarter 2008 Preliminary Results (Unaudited)
For the fourth quarter of 2008, the Company reported revenue of
approximately $178.0 million, an increase of approximately 80% from $98.7
million for the comparable period in 2007. Revenue from Providence's social
services segment grew to approximately $81.4 million in the fourth quarter
compared to $75.8 million in the prior year period while revenue from its
non-emergency transportation (NET) services business, which the Company
acquired in December 2007, totaled approximately $96.6 million in the fourth
quarter of 2008 compared to $22.9 million in the 2007 period.
Without giving effect to the substantial asset impairment charge that the
Company expects to record in the fourth quarter, the Company would have
reported a loss before income tax of approximately $7.9 million in the quarter
ended December 31, 2008. Included in the loss before income tax is a $5.8
million expense for the vesting acceleration of all previously awarded and
unvested stock options and restricted stock awards that was recognized by the
Company in the fourth quarter of 2008. By expensing these options and
restricted stock awards in 2008 rather than in future periods (the vesting
period is typically three years), the Company estimates that it will avoid
recognizing approximately $3.0 million of stock-based compensation expense in
2009. In the quarter ended December 31, 2007, the Company reported income
before tax of $7.1 million.
Providence's direct client census was approximately 62,800 at December 31,
2008, up from approximately 52,600 at December 31, 2007 and up from
approximately 48,000 at September 30, 2008, and the Company had over six
million individuals eligible to receive services under its NET contracts at
December 31, 2008. The Company had 716 direct contracts at December 31, 2008
up from 638 at December 31, 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,
decreased 5% to approximately $57.0 million for the quarter ended December 31,
2008 from approximately $59.9 million for the prior year period. The decrease
in managed entity revenue from period to period was primarily attributable to
the Company's acquisition and consolidation of substantially all of the assets
in Illinois and Indiana of Camelot Community Care, Inc., a managed entity, on
September 30, 2008. 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 24,500 at
December 31, 2008 as compared to approximately 23,600 at December 31, 2007.
Contracts of managed entities increased to 323 from 320 year over year.
Full Year Preliminary 2008 Results (Unaudited)
For the full 2008 year, revenue increased approximately 143% to
approximately $691.7 million from $285.2 million for the year ago period.
Providence's social services segment grew 18.4% to approximately $310.6
million with the NET service revenue comprising the remaining $381.1 million.
Without giving effect to the additional non-cash asset impairment charge that
the Company expects to record in the fourth quarter, which will result in the
Company's reporting of a substantial net loss for the year, the Company would
have reported operating loss of approximately $120.4 million for 2008,
compared to operating income of $25.7 million for 2007, and a loss before
income tax of approximately $139.0 million for 2008 compared to income before
income tax of $24.1 million for 2007. Managed entity revenue was
approximately $242.9 million and $225.0 million for 2008 and 2007,
respectively.
Providence also recently announced that it has signed an amended credit
agreement with its senior debt holders related to its $173 million senior term
loan. The agreement reset the Company's financial covenant targets for the
fourth quarter of 2008, thereby eliminating any potential default for covenant
violations at December 31, 2008, and is also designed to reset the Company's
financial covenant targets (and provide for a number of other favorable
covenant calculation adjustments) for all of 2009. The decision was made to
amend the credit agreement, rather than just negotiate a covenant default
waiver for the fourth quarter of 2008, in an effort to facilitate a full year
of anticipated covenant coverage without regard to any potential debt
repayments related to the possible sale of assets.
"Over the summer and fall of 2008, Providence was incredibly challenged by
the economic downturn and its affect on our payers," said Fletcher McCusker,
Chairman and CEO. "Dependent entirely upon government funds, the Company had
to diplomatically balance helping our payers through a very difficult period
and maintaining our high standards of care with, at times, our need to
challenge our payers regarding potential rate reductions, withheld funds and
rationed care, all new payer behaviors we saw for the first time in the
Company's history. While the Company still grew in 2008 over 2007, we did not
perform at forecasted levels. This put our covenants in jeopardy as these
covenants were set around our typical growth and our guidance, which was
released in November 2007 when the economy was still robust.
"As we 'missed' our financial expectations, withdrew guidance and warned
of covenant challenges with our lenders, our stock saw dramatic selling
pressure that reduced our market capitalization from approximately $400
million in the first quarter of 2008 to under $25 million by the end of 2008,
which, when combined with the decline in the mergers and acquisitions market,
has caused us to incur significant non-cash impairment losses.
"In the meantime, our ability to manage the delicate balance between the
needs of our payers and the needs of the Company, maintain our long-term and
favorable relationships with our payers and lobby for increased business began
to pay off in December, as evidenced by the dramatic increase in our census
and our recent announcement of two new contract wins. We have also taken
several steps to increase our profitability by decreasing the Company's
operating expenses, including freezing salaries and reducing certain benefits,
trimming our fixed salaried work force and eliminating potential 2009
earnings-based management bonuses. In addition, we successfully renegotiated
our lender covenants, which would have otherwise been in default at year end.
As a result of the foregoing, we believe we have turned the corner and that
our first quarter is off to an excellent start. We are also optimistic that
our historic budget visibility will return as states plan for the fiscal year
that begins July 1, 2009 and believe that we are positioned to benefit from
recent changes in Washington, including the economic stimulus package which
grants $87 billion to the states for Medicaid, and the renewal of the State
Children's Health Insurance Program (SCHIP)."
Guidance
The Company anticipates revenue of between approximately $170.0 million
and $180.0 million for the first quarter of 2009 with estimated diluted
earnings per share of at least $0.23. This is based upon unaudited actual
January and preliminary February results. Diluted shares outstanding in the
first quarter of 2009 are estimated at approximately 14.8 million. Guidance
for the first quarter of 2009 includes, among other expenses, approximately
$1.5 million in costs and expenses related to the amended credit agreement
(including arrangement, legal, accounting and other expenses) and
approximately $300,000 in legal and other fees related to the now abandoned
consent solicitation.
Rescheduled Conference Call
As a result of the delay in the release of its final results, the Company
is postponing the conference call to discuss its results and corporate
developments for the fourth quarter and full year ended December 31, 2008 that
was previously scheduled for Monday, March 16, 2009 to Monday, March 23, 2009.
The conference call will take place at 11:00 a.m. EDT (9:00 a.m. MDT and 8:00
a.m. Arizona and PDT). 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)
680-0865, or for international callers (617) 213-4853 and by using the
passcode 13037270. Participants may pre-register for the call at
https://www.theconferencingservice.com/prereg/key.process?key=PNFWPX49Y.
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 March 30, 2009 by dialing (888) 286-8010 or (617) 801-6888,
and using passcode 43351992.
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 87,000 clients through 1,039 contracts at
December 31, 2008, with an estimated 6.3 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 latest Form 10-K. 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.
SOURCE Providence Service Corporation
-0- 03/13/2009
/CONTACT: Company, Fletcher McCusker, Chairman and CEO, or Kate Blute,
Director of Investor and Public Relations, both of Providence Service
Corporation, +1-520-747-6600; or Alison Ziegler of Cameron Associates,
+1-212-554-5469, for Providence Service Corporation/
/Web Site: http://www.provcorp.com /
(PRSC)
CO: Providence Service Corporation
ST: Arizona
IN: FIN
SU: ERP
PR
-- LA83852 --
7002 03/13/2009 23:51 EDT http://www.prnewswire.com
