Providence Service Corporation Reports Fourth Quarter and Fiscal Year 2015 Results

TUCSON, AZ--(Marketwired - March 10, 2016) - The Providence Service Corporation (NASDAQ: PRSC), a holding company whose subsidiaries provide critical healthcare and workforce development services, today reported financial results for the fourth quarter and year ended December 31, 2015.

James Lindstrom, Chief Executive Officer, stated, "In 2015, Providence achieved many strategic milestones, refining our strategy from having four separate verticals to pursuing market leadership on two fronts -- US Healthcare Services and Global Workforce Development. Our solid foundation positions us well to realize many of our previously expressed goals in 2016 and to drive enhanced growth and value."

Fourth Quarter 2015 Results

For the fourth quarter of 2015, the Company reported consolidated revenue of $424.9 million, an increase of 15.4% from $368.3 million in 2014. On a pro forma basis, assuming ownership of Matrix for all of the fourth quarter of 2014, consolidated revenue increased 10.2%. 

Loss from continuing operations, net of tax, in the fourth quarter of 2015 was $25.7 million, or $1.68 per diluted common share, compared to income from continuing operations, net of tax, in the fourth quarter of 2014 of $11.4 million, or $0.73 per diluted common share. Adjusted Net Income (non-GAAP), in the fourth quarter of 2015 was $9.7 million, or $0.48 per diluted common share, compared to $6.0 million, or $0.38 per diluted common share in 2014. As expected, loss from continuing operations, net of tax, in the fourth quarter of 2015 included a $3.0 million loss on WD Services' equity investment in Mission Providence, which will likely continue to incur losses through the first half of 2016 as the Australian joint venture ramps operations.

Adjusted EBITDA (non-GAAP) for the fourth quarter of 2015 was $21.9 million, compared to $24.6 million in 2014. The negative impact of Mission Providence to Adjusted EBITDA (non-GAAP) in the fourth quarter of 2015 was $3.4 million. 

A reconciliation of income (loss) from continuing operations, net of tax, to Adjusted EBITDA and Adjusted Net Income and the calculation of Adjusted EPS are presented below. Beginning in the fourth quarter of 2015, the Company began including in the calculation of Adjusted EBITDA and Adjusted Net Income expenses related to restricted shares and cash placed into escrow accounts at the time of the Ingeus acquisition as well as redundancy costs associated with WD Services. The Company has updated the 2015 and 2014 quarterly and full year presentations of Adjusted EBITDA and Adjusted Net Income and the calculation of Adjusted EPS to be consistent with these changes. 

Full-Year 2015 Results

For the year ended December 31, 2015, the Company reported consolidated revenue of $1.7 billion, an increase of 49.2% from $1.1 billion in 2014. On a pro forma basis, assuming ownership of Ingeus and Matrix for all of 2014, consolidated revenue increased 16.4%. 

Loss from continuing operations, net of tax, in 2015 was $18.6 million, or $1.45 per diluted common share, compared to income from continuing operations, net of tax, in 2014 of $23.9 million, or $1.59 per diluted common share. Adjusted Net Income (non-GAAP) in 2015 was $41.2 million, or $2.03 per diluted common share, versus $30.5 million, or $2.03 per diluted common share in 2014. As expected, loss from continuing operations, net of tax, for the full year 2015 included a $11.0 million loss on WD Services' equity investment in Mission Providence.

Adjusted EBITDA (non-GAAP) for 2015 was $103.5 million compared to $74.0 million in 2014. The negative impact of Mission Providence to Adjusted EBITDA (non-GAAP) in 2015 was $13.6 million. 

"Within US Healthcare Service, NET Services expanded its eligible membership base by over 15% to almost 25 million individuals, surpassing $1.0 billion in annual sales in the process, while HA Services expanded its Medicare, Medicaid, and commercial volumes in addition to launching CareDirect, a strategic care management offering," added Lindstrom. "On the Global Workforce Development front, WD Services made significant investments in three key projects to further position itself as a global leader in the design and delivery of innovative and socially beneficial services to the government sector. Looking forward, we remain well positioned to continue our earnings growth into 2016 and beyond."

In addition to the impact of Mission Providence, the fourth quarter and fiscal year 2015 results included a number of additional significant items within WD Services, the impact of which are as follows:

• Expenses related to restricted shares and cash placed into escrow at the time of the Ingeus acquisition, including an accelerated amount of $20.9 million triggered when two sellers of Ingeus separated from the company - Q4 $20.9 million; FY $26.8 million
• WD Services redundancy costs related to service delivery redesign under a large new program and the realignment of headcount with service volumes under programs nearing their end dates - Q4 $9.6 million; FY $12.2 million
• Ingeus transaction related expenses - Q4 and FY $2.4 million
• Costs to wind down WD Services' operations in Sweden - Q4 and FY $0.3 million
• Reduction in the fair value of Ingeus contingent consideration - Q4 and FY $2.5 million benefit. The fourth quarter of 2014 reflects a similar benefit of $16.1 million.

Segment Results

For analysis purposes, revenue, expenses, operating income, income (loss) from continuing operations, net of taxes, and Adjusted EBITDA (non-GAAP) are provided for our two US Healthcare Services segments and one Global Workforce Development segment for the three and twelve month periods ended December 31, 2015 and 2014. Segment results include revenue and expenses incurred by the segment, as well as an allocation of direct expenses incurred by Corporate on behalf of the segment. Indirect expenses, including unallocated corporate functions and expenses, such as executive, finance, human resources, information technology and legal, as well as the results of our captive insurance company and elimination entries recorded in consolidation are reflected in Corporate and Other.

US Healthcare Services

NET Services

NET Services revenue was $280.4 million for the fourth quarter of 2015, an increase of 15.0% compared to 2014. Operating income was $17.3 million, or 6.2% of revenue, in the fourth quarter of 2015, compared to $17.1 million, or 7.0% of revenue in 2014. Adjusted EBITDA (non-GAAP) was $19.7 million in the fourth quarter of 2015 compared to $19.3 million in 2014.

NET Services revenue was $1.1 billion for the full year 2015, an increase of 22.5% compared to 2014. Operating income increased 5.2% to $71.2 million in 2015 from $67.7 million in the prior year. Adjusted EBITDA (non-GAAP) increased $5.2 million, or 6.9%, to $80.7 million in 2015 from $75.4 million in the prior year. 

NET Services 2015 revenue was favorably impacted by new state and MCO contacts as well as increased membership and favorable rate adjustments under certain existing contracts. As anticipated, service costs as a percentage of revenue increased in 2015 due to higher utilization by the Medicaid expansion population.

HA Services

HA Services fourth quarter and full year comparative results are significantly impacted by the acquisition of Matrix in October 2014. 

HA Services revenue increased to $51.7 million in the fourth quarter of 2015 from $43.3 million in 2014. On a pro forma basis, assuming ownership of Matrix for all of the fourth quarter of 2014, HA Services revenue decreased by $9.0 million or 14.8% in the fourth quarter of 2015. Operating income was $4.9 million in the fourth quarter of 2015 compared to operating income of $2.1 million in 2014. Adjusted EBITDA (non-GAAP) was $12.5 million in the fourth quarter of 2015 compared to $8.4 million in 2014.

For full year 2015, HA Services revenue increased to $217.4 million from $43.3 million in 2014. On a pro forma basis, assuming ownership of Matrix for all of 2014, HA Services revenue increased by 2.9% in 2015. Operating income in 2015 was $22.1 million compared to operating income of $2.1 million in 2014. Included in operating income in 2015 was $2.1 million of expenses related to cash placed into escrow at the time of the Matrix acquisition. Adjusted EBITDA (non-GAAP) was $51.6 million in 2015 compared to $8.4 million in 2014.

The increase in HA Services revenue in 2015 was due to increased volumes delivered to the majority of clients, partially offset by volume declines with a single large customer as well as a slight decline in average pricing.

Global Workforce Development

WD Services

WD Services revenue for the fourth quarter of 2015 was $92.7 million, an increase of 14.3% compared to 2014. WD Services incurred an operating loss of $37.8 million in the fourth quarter of 2015 compared to operating income of $13.9 million in 2014. Adjusted EBITDA (non-GAAP) was negative $7.1 million in the fourth quarter of 2015 compared to positive $2.7 million in 2014. As discussed above, WD Services' expense included certain items in the fourth quarter of 2015 that are excluded in our Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS calculations. 

WD Services full year comparative results are significantly impacted due to the acquisition of Ingeus in May 2014. For full year 2015, WD Services revenue was $395.1 million, compared to $208.8 million for 2014. On a pro forma basis, assuming ownership of Ingeus for all of 2014, WD Services revenue increased by 9.4% in 2015. Operating loss was $42.4 million for 2015 compared to operating income of $17.5 million in 2014. Adjusted EBITDA (non-GAAP) was negative $3.2 million in 2015 compared to positive $15.2 million in 2014. As discussed above, WD Services expense included certain items in 2015 that are excluded in our Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS calculations. 

The increase in WD Services revenue for the full year 2015 was primarily due to a new offender rehabilitation program that began in 2015, partially offset by an expected decline in volumes under the segment's primary employability program in the United Kingdom. The decline in Adjusted EBITDA for the full year 2015 was primarily due to start-up and transition costs on new contracts, including $13.6 million related to the Mission Providence joint venture. 

Non-GAAP Financial Measures and Adjustments
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, Adjusted EBITDA, Adjusted Net Income, and Adjusted diluted EPS, all from continuing operations, 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.

Conference Call
Providence will hold a conference call at 8:00 a.m. EST Friday, March 11, 2016 to discuss its financial results and corporate developments. Interested parties are invited to listen to the call live over the Internet at http://investor.prscholdings.com. The call is also available by dialing (855) 548-8661, or for international callers (412) 455-6143, and by using the passcode 63053175. A replay of the teleconference will be available on http://investor.prscholdings.com. A replay will also be available until March 18, 2016 by dialing (855) 859-2056 or (404) 537-3406 and using passcode 63053175.

About Providence
The Providence Service Corporation is a holding company whose subsidiaries provide critical healthcare and workforce development services, comprised of non-emergency transportation services, workforce development services, legal offender rehabilitation services, health assessment services, and care management services in the United States and abroad. For more information, please visit prscholdings.com.

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 and subsequent filings. 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.