The Providence Service Corporation - Form 8-K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of Earliest Event Reported): November 10, 2003

 


 

The Providence Service Corporation

(Exact name of registrant as specified in its charter)

 

Delaware   000-50364   86-0845127

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

 

5524 East Fourth Street, Tucson, Arizona   85711
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (520) 747-6600

 

N/A

(Former name, former address, and former fiscal year, if changed since last report)

 



ITEM 7.   FINANCIAL STATEMENTS AND EXHIBITS

 

  (c) Exhibits:

 

  99.1 Earnings release issued by The Providence Service Corporation on November 10, 2003.

 

 

ITEM 9.   OTHER EVENTS AND REGULATION FD DISCLOSURE AND

 

ITEM 12.   RESULTS OF OPERATIONS AND FINANCIAL CONDITION

 

The following information is being provided pursuant to Item 9 – Other Events and Regulation FD Disclosure and Item 12 – Results of Operations and Financial Condition. Such information, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

On November 10, 2003, The Providence Service Corporation (“Providence”) issued an earnings release reporting its results for the three and nine months ended September 30, 2003. A copy of this earnings release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

 

The earnings release contains non-GAAP financial measures. For purposes of SEC Regulation G, a non-GAAP financial measure is a numerical measure of a registrant’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the registrant; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. In this regard, GAAP refers to generally accepted accounting principles in the United States of America. Pursuant to the requirements of Regulation G, Providence has provided reconciliations within the earnings release of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

 

The non-GAAP financial measures used by Providence are:

 

  net income available to common stockholders, excluding expenses related to Providence’s initial public offering (“IPO”);

 

  diluted earnings per share, excluding IPO related expenses;

 

  projected net income available to common stockholders, excluding IPO related expenses; and

 

  projected diluted earnings per share, excluding IPO related expenses.

 

These non-GAAP financial measures are most directly comparable to the following GAAP financial measures, respectively:

 

  net loss available to common stockholders;

 

  diluted loss per share;

 

  projected net loss available to common stockholders; and

 

  projected diluted loss per share.

 

Providence has provided these non-GAAP measurements, which present its earnings on a pro forma basis excluding certain expenses related to its IPO, because these expenses had a significant effect on its financial performance for the periods presented in this document as a result of its IPO. Providence has provided this supplemental non-GAAP information because it believes this information provides useful information to investors and meaningful comparisons of the results of its operations for the periods presented in this document. The non-GAAP measures do not replace the presentation of its GAAP financial results. The items excluded in the non-GAAP measures pertain to certain items that are considered to be material so that exclusion of the items would, in management’s belief, enhance a reader’s ability to compare the results of its business after excluding these items. The non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from pro forma measures used by other companies.


SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

           

THE PROVIDENCE SERVICE CORPORATION

Date:

 

November 10, 2003

     

By:

 

/s/    Michael N. Deitch        


               

Michael N. Deitch

               

Chief Financial Officer

Earnings release issued by The Providence Service Corporation on Nov. 10, 2003

Exhibit 99.1

 

[LOGO]

 

PROVIDENCE SERVICE CORPORATION

 

AT THE COMPANY

  AT FRB|Weber Shandwick
Fletcher McCusker – Chairman and CEO   Alison Ziegler – General Information
Kate Blute – Director of Investor and Public Relations   Susan Garland – Analyst Information
520/747-6600   212/445-8300

 

FOR IMMEDIATE RELEASE

 

Providence Service Corporation Reports

Third Quarter Financial Results

 

Highlights:

 

  Revenue grew by 33% over same quarter last year

 

  Client census grew to 12,756 from 10,680 a year ago, a 19% increase

 

  Total direct contracts and contracts of managed entities increased by 28% from 150 to 192 over same quarter last year

 

TUCSON, ARIZONA – November 10, 2003 – The Providence Service Corporation (Nasdaq: PRSC) today announced financial results for the third quarter and nine months ended September 30, 2003.

 

For the third quarter of 2003, including IPO related expenses, the net loss available to common stockholders was $3.4 million, or ($0.70) per diluted share. Excluding IPO related expenses (see reconciliation), net income available to common stockholders was $1.0 million, or $0.16 per diluted share for the current quarter. Net income available to common stockholders, excluding IPO related expenses, grew to $1.0 million from $313,000 for the third quarter in 2002 and earnings per diluted share, excluding IPO related expenses, rose to $0.16 from $0.08 for the comparable period last year. Revenue was $14.8 million for the quarter, an increase of 33% from $11.1 million for the comparable period in 2002.

 

For the first nine months of 2003, including IPO related expenses, the net loss available to common stockholders was $2.2 million, or ($0.73) per diluted share. Excluding IPO related expenses (see reconciliation), net income available to common stockholders for the nine month period was $2.1 million, or $0.42 per diluted share. Net income available to common stockholders, excluding IPO related expenses, grew to $2.1 million from $908,000 for the same period last year and earnings per diluted share, excluding IPO related expenses, increased to $0.42 from $0.27 for the first nine months of 2002. Revenue increased 42% to $42.9 million from $30.2 million for the prior-year period.

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5524 E. Fourth Street Ÿ Tucson, Arizona 85711 Ÿ Tel 520–747-6600 Ÿ Fax 520/747–6605 Ÿ www.provcorp.com


Providence Service Corporation Reports Third Quarter Financial Results

Page 2

 

Providence’s direct client census grew to 5,171 at September 30, 2003, a 28% increase from 4,040 at September 30, 2002. Managed client census grew 14% to 7,585 at September 30, 2003 as compared to 6,640 at September 30, 2002. The number of direct contracts increased from 105 at September 30, 2002 to 126 at September 30, 2003. Contracts of managed entities grew from 45 to 66 over the same period. Managed revenue, which represents revenue of the not-for-profit social services organizations the Company manages in return for a negotiated management fee, increased to $15.5 million for the three months ended September 30, 2003 from $12.6 million for the same period one year ago. For the nine months ended September 30, 2003, managed revenue increased to $45.8 million from $33.9 in the year ago period. Managed revenue is presented to provide investors with an additional measure of the size and depth of the operations under Providence’s direction and can help investors understand trends in management fee revenue.

 

Reflected in the current quarter’s diluted earnings (loss) per share amount was a reduction in the Company’s valuation allowance for certain deferred tax assets that resulted in a benefit in the Company’s tax provision equal to $0.04 per share.

 

Fletcher McCusker, Chairman and Chief Executive Officer of Providence, commented, “The successful completion of our IPO on August 22, 2003 represented a major milestone in our Company’s history. As a result, we have a stronger balance sheet and with our unique community-based delivery model, we are well positioned to benefit from the growing trend toward the privatization of social services.”

 

“Our ability to provide creative alternatives to institutional care and generate savings to state governments led to continued strong year-over-year revenue growth and solid profitability for the third quarter excluding IPO related expenses,” continued Mr. McCusker. “Our growth was primarily driven by volume increases related to new contracts as well as our focused effort to pursue referrals in strategic geographic areas. During the quarter, we successfully negotiated for a 46% increase in our annual contract rate with the Community Partnership of Southern Arizona and since the quarter end, Providence or its managed entities were selected by three districts as part of the privatization of Florida’s child welfare program under the state’s Community-Based Care Initiative.”

 

“Based on September 2003 revenue of $5.1 million, we currently expect fourth quarter 2003 revenue to be in a range of $15.0 to $15.4 million, which translates to full year 2003 revenues of $58.0 to $58.4 million. We also anticipate a net loss available to common stockholders of between ($0.25) to ($0.24) per diluted share for 2003, which includes the IPO related expenses incurred in the third quarter. Excluding these expenses, we anticipate net income available to common stockholders of $0.54 to $0.55 cents per diluted share for 2003. Looking out to 2004, while certain positive events have occurred that could potentially benefit our results, including the Ft. Myers contract recently awarded to Camelot Community Care, one of the not-for-profit entities we manage, we are still negotiating approximately $10 million of potential new business on behalf of Camelot Community Care in three other Florida cites, as well as approximately $12 million of potential new contracts on our own behalf in other states. As a result, since these potential contracts are still in the negotiation stage and there is no assurance that we or any of our managed entities will ultimately be awarded any of these potential contracts, we have determined to postpone providing our guidance for 2004 until the results of these negotiations are known and the details of our 2004 pipeline activity become clearer,” concluded Mr. McCusker.

 

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Providence Service Corporation Reports Third Quarter Financial Results

Page 3

 

Providence will hold a conference call at 11:00 a.m. ET on Tuesday, November 11 to discuss its financial results and corporate developments. Interested parties are invited to listen to the call live over the Internet at www.provcorp.com or www.fulldisclosure.com or by dialing (800) 240-2430. International callers should dial (303) 205-1500. A replay of the teleconference will be available on www.provcorp.com and www.fulldisclosure.com. A replay will also be available until November 18, 2003 by dialing (800) 405-2236 or (303) 590-3000, and using passcode 556329.

 

Providence Service Corporation, through its owned and managed entities, provides home and community based social services to government sponsored clients under programs such as welfare, juvenile justice, Medicaid and corrections. Providence operates no beds, treatment facilities, hospitals, or group homes preferring to provide services in the client’s own home or other community setting. Through its owned and managed entities, Providence maintains 192 government contracts in 17 states located along the eastern seaboard, and in the Midwest and Sunbelt regions.

 

In addition to the financial results prepared in accordance with generally accepted accounting principles (GAAP) provided throughout this document, we have provided certain non-GAAP measurements, which present our earnings on a pro forma basis excluding certain expenses related to our Initial Public Offering (IPO). Details of the excluded items and a reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures are presented in the table below. The non-GAAP measures do not replace the presentation of our GAAP financial results. We have provided this supplemental non-GAAP information because we believe it provides meaningful comparisons of the results of our operations for the periods presented in this press release. The non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from pro forma measures used by other companies. The items excluded in the non-GAAP measures pertain to certain items that are considered to be material so that exclusion of the items would, in management’s belief, enhance a reader’s ability to compare the results of our business after excluding these items.

 

Certain statements herein, such as any statements about Providence’s confidence or strategies or its expectations about revenues, results of operations, profitability, contracts 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

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Providence Service Corporation Reports Third Quarter Financial Results

Page 4

 

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 other filings with the Securities and Exchange Commission. 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.

 

—financial tables to follow—


Providence Service Corporation Reports Third Quarter Financial Results

Page 5

 

The Providence Service Corporation

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except per share data)

 

    

Three months ended

September 30,


    Nine months ended
September 30,


 
     2003

    2002

    2003

    2002

 

Revenues:

                                

Home and community based services

   $ 10,872     $ 8,202     $ 30,958     $ 23,332  

Foster care services

     2,425       2,282       7,574       4,927  

Management fees

     1,537       653       4,396       1,906  
    


 


 


 


       14,834       11,137       42,928       30,165  

Operating expenses:

                                

Client service expense

     11,394       9,248       33,015       24,944  

General and administration expense

     1,548       838       4,384       2,662  

Depreciation and amortization

     202       190       688       533  
    


 


 


 


Total operating expenses

     13,144       10,276       38,087       28,139  

Operating income

     1,690       861       4,841       2,026  

Other (income) expense:

                                

Interest expense, net

     381       417       1,487       1,039  

Write-off of deferred financing costs

     412       —         412       —    

Put warrant accretion

     631       —         631       —    

Equity in earnings of unconsolidated affiliate

     (23 )     (66 )     (156 )     (184 )
    


 


 


 


Income before income taxes

     289       510       2,467       1,171  

(Benefit) provision for income taxes

     122       100       962       (27 )
    


 


 


 


Net income

     167       410       1,505       1,198  

Preferred stock dividends

     3,556       97       3,749       290  
    


 


 


 


Net income (loss) available to common stockholders

   $ (3,389 )   $ 313     $ (2,244 )   $ 908  
    


 


 


 


Earnings (loss) per common share:

                                

Basic

   $ (0.70 )   $ 0.15     $ (0.73 )   $ 0.46  
    


 


 


 


Diluted

   $ (0.70 )   $ 0.08     $ (0.73 )   $ 0.27  
    


 


 


 


Weighted-average number of common shares outstanding:

                                

Basic

     4,856       2,029       3,082       1,950  
    


 


 


 


Diluted

     4,856       4,581       3,082       4,113  
    


 


 


 


 

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Providence Service Corporation Reports Third Quarter Financial Results

Page 6

 

The Providence Service Corporation

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share information)

 

    

September 30,

2003


   

December 31,

2002


 

Assets

                

Current assets:

                

Cash and cash equivalents

   $ 16,168     $ 1,019  

Accounts receivable, net

     8,875       6,227  

Held-to-maturity investments

     3,960       —    

Management fees receivable

     3,244       1,455  

Prepaid expenses and other

     684       250  

Deferred tax asset

     628       628  
    


 


Total current assets

     33,559       9,579  

Property and equipment, net

     1,801       1,119  

Note receivable from not-for-profit affiliate

     461       461  

Intangible assets, net

     1,048       348  

Goodwill

     15,777       12,188  

Other assets

     807       1,099  
    


 


Total Assets

   $ 53,453     $ 24,794  
    


 


Liabilities and stockholders’ equity (deficit)

                

Current liabilities:

                

Accounts payable

   $ 1,475     $ 1,614  

Accrued expenses

     5,314       4,085  

Current portion of capital lease obligations

     98       114  

Current portion of long-term obligations

     715       3,571  
    


 


Total current liabilities

     7,602       9,384  

Capital lease obligations, less current portion

     193       87  

Long-term obligations, less current portion

     3,032       10,744  

Put warrant obligation

     —         3,569  

Mandatory redeemable convertible preferred stock

     —         5,652  

Stockholders’ equity (deficit)

                

Common stock

     8       2  

Additional paid-in capital

     51,807       2,301  

Accumulated deficit

     (9,071 )     (6,827 )
    


 


       42,744       (4,524 )

Less—treasury shares, at cost

     118       118  
    


 


Total stockholders’ equity (deficit)

     42,626       (4,642 )
    


 


Total liabilities and stockholders’ equity (deficit)

   $ 53,453     $ 24,794  
    


 


 

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Providence Service Corporation Reports Third Quarter Financial Results

Page 7

 

The Providence Service Corporation

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

 

    

Nine months ended

September 30,


 
     2003

    2002

 

Operating Activities

                

Net income

   $ 1,505     $ 1,198  

Adjustments to reconcile net income to net cash used in operating activities:

                

Depreciation and amortization

     688       533  

Amortization of deferred financing costs and discount on investment

     45       —    

Stock compensation

     131       —    

Write-off of deferred financing upon retirement of debt

     412       —    

Put warrant accretion

     631       —    

Equity in earnings of unconsolidated affiliate

     (157 )     (184 )

Changes in operating assets and liabilities, net of effects of acquisitions:

                

Trade accounts receivable

     (2,648 )     (1,279 )

Management fees receivable

     (1,094 )     (987 )

Accounts payable and accrued expenses

     169       468  

Other assets

     (541 )     76  
    


 


Net cash used in operating activities

   $ (859 )   $ (175 )

Investing activities

                

Acquisition of business, net of cash acquired

     (2,149 )     (7,928 )

Purchase of investments

     (3,956 )     —    

Increase in property and equipment

     (824 )     (137 )

Distributions received from unconsolidated affiliate

     126       127  
    


 


Net cash used in investing activities

     (6,803 )     (7,938 )

Financing Activities

                

Proceeds from long-term debt

     3,350       7,000  

Repayments of long-term debt

     (12,727 )     (132 )

Net proceeds/(payments) on revolver

     (3,289 )     2,068  

Payments of capital leases

     (131 )     (141 )

Debt financing cost

     (137 )     (510 )

Proceeds from common stock offering, net

     36,816       —    

Payment of preferred stock dividends

     (1,071 )     —    
    


 


Net cash provided by financing activities

     22,811       8,285  

Net increase in cash

     15,149       172  

Cash at beginning of period

     1,019       759  
    


 


Cash at end of period

   $ 16,168     $ 931  
    


 


 

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Providence Service Corporation Reports Third Quarter Financial Results

Page 8

 

The Providence Service Corporation

Reconciliation of Non-GAAP Financial Measures

Diluted Earnings Per Share Excluding IPO Related Expenses

(in thousands, except per share data)

 

    

Three months ended

September 30,

2003


   

Nine months ended

September 30,

2003


 

Numerator:

                

Net loss available to common stockholders

   $ (3,389 )   $ (2,244 )

Add:

                

IPO consent fee to preferred stockholders

     3,500       3,500  

Settlement of put warrant

     631       631  

Write-off of deferred financing charges (net of tax)

     251       251  
    


 


Numerator for basic earnings per share—income available to common stockholders excluding IPO related expenses

     993       2,138  

Effect of dilutive securities:

                

Preferred stock dividends and convertible notes

     82       365  
    


 


Numerator for diluted earnings per share—income available to common stockholders excluding IPO related expenses after assumed conversions

   $ 1,075     $ 2,503  
    


 


Denominator:

                

Denominator for basic earnings per share—weighted-average shares

     4,856       3,082  

Effect of dilutive securities:

                

Preferred stock conversion

     1,030       1,532  

Warrants

     411       611  

Convertible debt

     315       468  

Common stock options

     277       276  
    


 


Dilutive potential common shares

     2,033       2,887  
    


 


Denominator for diluted earnings per share, excluding IPO related expenses—adjusted weighted-average shares and assumed conversion

     6,889       5,969  
    


 


Diluted earnings per share, excluding IPO related expenses

   $ 0.16     $ 0.42  
    


 


 

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Providence Service Corporation Reports Third Quarter Financial Results

Page 9

 

The Providence Service Corporation

Reconciliation of Non-GAAP Financial Measures

Projected Diluted Earnings Per Share Excluding IPO Related Expenses

(in thousands, except per share data)

 

     Range

 

Numerator:

                

Projected net loss available to common stockholders

     (1,118 )     (1,064 )

Add:

                

IPO consent fee paid to preferred stockholders

     3,500       3,500  

Settlement of put warrant

     631       631  

Write-off of deferred financing charges (net of tax)

     251       251  
    


 


Numerator for basic earnings per share—projected income available to common stockholders excluding IPO related expenses

     3,264       3,318  

Effect of dilutive securities:

                

Preferred stock dividends and convertible notes

     365       365  
    


 


Numerator for diluted earnings per share—projected income available to common stockholders excluding IPO related expenses and adjusted for assumed conversions

   $ 3,629     $ 3,683  

Denominator:

                

Denominator for basic earnings per share—weighted-average shares

     4,432       4,432  

Effect of dilutive securities:

                

Preferred stock conversion

     1,149       1,149  

Warrants

     459       459  

Convertible debt

     351       351  

Common stock options

     282       282  
    


 


Dilutive potential common shares

     2,241       2,241  
    


 


Denominator for projected diluted earnings per share—adjusted weighted-average shares and assumed conversion

     6,673       6,673  
    


 


Projected diluted earnings per share excluding IPO related expenses

   $ 0.54     $ 0.55  
    


 


 

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