Providence Service Corporation Reports 2014 Results

TUCSON, Ariz., March 16, 2015 /PRNewswire/ -- The Providence Service Corporation (Nasdaq: PRSC) today announced its financial results for the fourth quarter and year ended December 31, 2014.  Included in the results are the acquired operations of Ingeus and Matrix Medical Network from May 31, 2014 and October 24, 2014, respectively. 

Fourth Quarter 2014 Results
For the fourth quarter of 2014, the Company reported consolidated revenue of $453.6 million, an increase of 63.8% from $276.8 million in the comparable period of 2013.  This included $117.6 million of revenue contributed by Ingeus and Matrix.  Excluding this revenue from acquired businesses, consolidated revenue was $336.0 million, an increase of 21.4% from the year ago period. 

General and administrative (G&A) expense as a percentage of revenue decreased to 1.9% in the fourth quarter of 2014 from 4.5% in fourth quarter of 2013.  Fourth quarter 2014 G&A benefited from a $16.3 million reversal in the fair value of contingent consideration payable to the sellers of certain of our acquisitions and included $6.8 million in acquisition and financing costs. 

Fourth quarter 2014 results also included a $6.9 million asset impairment charge, a $1.5 million expense related to the amortization of the fair value of restricted stock awards issued in connection with the acquisition of Ingeus, $1.0 million related to integration and restructuring charges, and $4.5 million of financing fees related to the bridge financing commitment that were deferred and recognized in interest expense. 

Adjusted EBITDA (non-GAAP) for the fourth quarter of 2014 was $27.5 million compared to $11.1 million in the same period last year.  A reconciliation of net income to EBITDA and Adjusted EBITDA is presented below. 

The Company reported net income of $7.1 million, or $0.45 per diluted share, in the fourth quarter of 2014 compared to net income of $3.4 million, or $0.24 per diluted share, in the prior year period. 

Full-Year 2014 Results
For the full year of 2014, the Company reported consolidated revenue of $1.5 billion, an increase of 31.9% from $1.1 billion in 2013.  This included $222.6 million of revenue contributed by Ingeus and Matrix.  Excluding this revenue from acquired businesses, consolidated revenue was $1.3 billion, an increase of 12.1% from the year ago period. 

General and administrative expense as a percentage of revenue remained constant at 4.3% in 2014 and 2013.  2014 G&A was positively impacted by a $16.3 million reversal in the fair value of contingent consideration payable to the sellers of certain of our acquisitions and included $14.8 million in acquisition and financing costs. 

2014 results also included a $6.9 million asset impairment charge, a $3.4 million expense related to the amortization of the fair value of restricted stock awards issued in connection with the acquisition of Ingeus, $2.8 million related to integration and restructuring charges, and $4.5 million of financing fees related to the bridge financing commitment that were deferred and recognized in interest expense.         

Adjusted EBITDA (non-GAAP) for 2014 was $84.0 million, an increase of 51.9% from $55.3 million last year.  A reconciliation of net income to EBITDA and Adjusted EBITDA is presented below. 

Net income was $20.3 million, or $1.35 per diluted share, in 2014, compared to $19.4 million, or $1.41 per diluted share, in 2013. 

Warren Rustand, Chief Executive Officer, stated, "With solid organic growth and profitability, and the completion of two significant strategic acquisitions in 2014, we have assembled a portfolio of businesses that span the healthcare and social service continuum and diversify our profit stream.  In 2015, we expect to focus on disciplined growth, providing unique solutions to our clients and increasing our investment in our verticals in order to pursue our goal of creating long term intrinsic value for our shareholders.  More specifically, in 2015 we will be increasing capital expenditures to $35 to $45 million, led by investments in the scalable areas of our businesses, in order to drive top line growth and operational efficiency.  Finally, we also intend to invest significant capital in Ingeus in order to support the standing up of new contracts that we expect to create long term value for our shareholders." 

Segment Results
For analysis purposes, net sales, costs of services and operating income on a comparable basis are provided for Providence's four segments for the three month and twelve month periods ended December 31, 2014, or alternatively for the periods that Providence owned the segment.  All segment results include an allocation of Providence Service Corporation corporate overhead costs.  As a result, the operating income of all segments is impacted by increases in general and administrative expenses due to acquisition, financing, integration, and restructuring related costs that are recorded at corporate.    

Non-emergency Transportation (NET) Services
Revenue from Providence's NET Services segment increased 30.3% to $243.9 million in the fourth quarter from $187.2 million in the prior year period.  NET Services expenses were $222.3 million in the fourth quarter, or 91.2% of NET Services revenue compared to expenses of $173.8 million or 92.8% of NET Services revenue in the fourth quarter of 2013.  NET Services operating income increased 85.2% to $14.3 million in the fourth quarter from $7.7 million in the prior year period.  NET Services operating income in the fourth quarter included the allocation from corporate of approximately $1.4 million in acquisition, financing, integration, and restructuring costs.

NET Services revenue grew 14.8% to $884.3 million in 2014 from $770.2 million in the prior year.  NET Services expenses were $800.2 million in 2014, or 90.5% of NET Services revenue, compared to $710.4 million, or 92.2% of NET Services revenue, in 2013 due primarily to lower utilization of transportation services than historical trends.  NET Services operating income increased 49.5% to $56.8 million in 2014 from $38.0 million in 2013.  NET Services operating income for the year was burdened by the allocation from corporate of approximately $3.7 million in acquisition, financing, integration, and restructuring costs.

NET Services revenue was favorably impacted by new contracts and expansion in certain markets, while the cost of transportation as a percentage of non-emergency transportation services revenue decreased due primarily to lower utilization of transportation services than historical trends. 

Human Services     
Revenue from the Human Services segment increased 2.8% to $92.1 million from $89.6 million in the fourth quarter of 2013.  Client service expense was $83.9 million in the fourth quarter of 2014, or 91.1% of Human Services revenue, compared to $80.9 million, or 90.3% of revenue in 2013.  Human Services operating loss was $8.5 million in the fourth quarter compared to a loss of $1.6 million in the prior year period.  Human Services operating loss in the fourth quarter included the allocation from corporate of approximately $2.7 million in acquisition, financing, integration, and restructuring costs as well as an asset impairment charge of $6.9 million.

Human Services revenue increased 6.2% to $374.2 million in 2014 from $352.4 million in 2013.  Client service expense was $343.3 million in 2014, or 91.7% of Human Services revenue compared $309.6 million, or 87.9% of revenue in 2013.  Human Services operating income decreased to a loss of $19.6 million in 2014 from income of $0.6 million in 2013.  Human Services operating loss for the year included the allocation from corporate of approximately $7.7 million in acquisition, financing, integration, and restructuring costs as well as an asset impairment charge of $6.9 million.  In addition, Human Services results for the year were negatively impacted by litigation charges of $1.4 million related to our Nevada operations.  This litigation charge has not been included as an adjustment in our presentation of Adjusted EBITDA.

Our Human Services revenue benefited from new and expanded contracts, including the Texas foster care contract that began in 2013, as well as two small tuck-in acquisitions.  Higher than expected expenses in our Texas foster care contract, which contributed to $3.8 million of losses in operating income in 2014, led us to exit this contract in 2014. 

Workforce Development (WD) Services

WD Services revenue was $74.3 million in the fourth quarter and relates entirely to the Ingeus business that was acquired May 30, 2014.  WD Service expense was $69.0 million in the quarter, or 92.9% of WD revenue.  WD Services operating income was $10.0 million in the fourth quarter of 2014 and included a $1.5 million expense related to the amortization of the fair value of restricted stock awards issued in connection with the acquisition of Ingeus.  WD Services operating income for the quarter also included the allocation from corporate of approximately $1.5 million in acquisition, financing, integration, and restructuring costs as well as a benefit of $16.1 million related to the reduction in contingent consideration liabilities.

WD Services revenue was $179.3 million for 2014.  WD Services expense was $160.2 million in 2014, or 89.3% of WD revenue.  WD Services operating income was $6.0 million in 2014 and included a $3.4 million expense related to the amortization of the fair value of restricted stock awards issued in connection with the acquisition of Ingeus.  WD Services operating income for the year also included the allocation from corporate of approximately $4.0 million in acquisition, financing, integration, and restructuring costs as well as a benefit of $16.1 million related to the reduction in contingent consideration liabilities.  Our WD Services operating results fluctuate from period to period based upon contract milestones and start-up costs associated with new contracts.

Health Assessment (HA) Services

HA Services revenue, primarily derived from providing comprehensive health assessments, was $43.3 million for the fourth quarter and full year period and was comprised of revenue from Matrix, acquired on October 23, 2014.  HA Service expense was $35.2 million, or 81.2% of HA Services revenue.  HA Services operating loss was $0.9 million in the fourth quarter and full year of 2014.  HA Services operating loss in the fourth quarter and full year included the allocation from corporate of approximately $2.2 million in acquisition, financing, integration, and restructuring costs.

Goodwill Impairment and Changes in Acquisition Related Fair Value Measurements

In conjunction with our annual review of goodwill impairment as of December 31, 2014, we performed an impairment analysis and determined that goodwill was impaired for two of our Human Services segment reporting units.  The goodwill impairment in the Maple Star reporting unit was attributable to declines in forecasted referrals, leading to a decline in projected future cash flows of the entity. We recorded an impairment charge of $3.8 million related to the Maple Star reporting unit.  The impairment for the second reporting unit was attributable to lower than expected performance during 2014 in the Providence of Idaho reporting unit, as well as lower than expected projections in future years. An impairment charge of $2.8 million was recorded related to the Providence of Idaho reporting unit. 

The Company periodically reviews the fair value measurement of contingent consideration related to certain acquisitions, as the Company may be required to pay additional consideration based on the achievement of certain earnings targets. Acquisition-related contingent consideration was initially measured and recorded at fair value as an element of consideration paid in connection with the acquisition. Subsequent changes in the estimated fair value of the contingent consideration that relate to events occurring subsequent to the date of the acquisition are recorded in operating income over the period in which the obligation is expected to be settled. As previously mentioned, the Company recorded a gain of $16.3 million within 2014 G&A expense due to a decline in the estimated fair value of contingent consideration.  We anticipate periodic reviews of this fair value measurement and may experience increases or decreases in the measurement as our outlook changes.  We anticipate that this outlook will be impacted by the anticipated performance of significant projects, which we continuously evaluate, particularly as they emerge from their start-up phases.

Conference Call

Providence will hold a conference call at 11:00 a.m. EDT (8:00 a.m. PDT/MST) Tuesday, March 17, 2015 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 (877) 415-3183, or for international callers (857) 244-7326, and by using the passcode 18601508.  A replay of the teleconference will be available on http://investor.provcorp.com. A replay will also be available until March 24, 2015 by dialing (888) 286-8010 or (617) 801-6888 and using passcode 52088848.

About Providence

Providence is a Tucson, Arizona-based company that provides and manages government sponsored human services, innovative global employment services, comprehensive health assessment and care management services, and non-emergency transportation services.  It offers: (1) non-emergency transportation management services to state Medicaid programs, local government agencies, hospital systems, health maintenance organizations, private managed care organizations and commercial insurers, as well as to individuals with limited mobility, people with limited means of transportation, people with disabilities and Medicaid members (2) home- and community-based counseling services, which include home-based and intensive home-based counseling, workforce development, substance abuse treatment services, school support services and correctional services; (3) foster care and therapeutic foster care services; (4) case management, referral and monitoring services; (5) social improvement, employment and welfare services to various international government bodies and corporations; and (6) in-home comprehensive health assessment and care management services primarily to Medicare Advantage programs.  Providence is unique in that it provides and manages its human services primarily in the client's own home or in community based settings, rather than in hospitals or treatment facilities and provides its non-emergency transportation services clients through local transportation providers rather than an owned fleet of vehicles.

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, our continuing relationship with government entities and our ability to procure business from them, our ability to manage growing and changing operations, 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, 2014.  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--

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SOURCE The Providence Service Corporation