Providence Service Corporation Announces Third Quarter 2009 Financial Results

November 4, 2009

- Total 2009 senior debt reduction of approximately $25 million through October

TUCSON, Ariz., Nov. 4 /PRNewswire-FirstCall/ -- The Providence Service Corporation (Nasdaq: PRSC) today announced its financial results for the third quarter ended September 30, 2009.

For the third quarter of 2009, the Company reported revenue of $206.8 million, an increase of 24% from $167.0 million for the comparable period in 2008. Revenue from Providence's social services segment grew 13% to $82.2 million in the third quarter from the prior year period and revenue from its non-emergency transportation (NET) services segment grew 32% to $124.6 million in the third quarter from the prior year period. The Company reported operating income of $9.8 million and net income of $4.4 million, or $0.34 per diluted share, in the quarter ended September 30, 2009, which includes the previously announced $1.4 million ($0.11 per diluted share) tax benefit. The non-recurring tax benefit is primarily attributed to the recent true up of the Company's 2008 income tax provision with the actual 2008 federal and state tax returns filed in 2009. In the year ago period, the Company reported an operating loss of $138.1 million and a net loss of $140.8 million, or $11.17 per diluted share, which included a $141.0 million ($11.07 per share) asset impairment charge. At September 30, 2009, Providence's direct client census was approximately 52,600, up from approximately 48,800 at September 30, 2008, and the Company had an estimated 7.3 million individuals eligible to receive services under its NET contracts, up from approximately 6.3 million at September 30, 2008. The Company had 568 direct contracts at September 30, 2009 up from 535 at September 30, 2008.

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 15% to $52.4 million for the quarter ended September 30, 2009 from $61.6 million for the prior year period. The decrease in managed entity revenue from period to period was primarily attributable to the effect of the Company's renegotiation of the terms of various contracts with managed entities and the Company's September 2008 acquisition and consolidation of substantially all of the assets in Illinois and Indiana of Camelot Community Care, Inc., a former managed entity. 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 decreased to approximately 21,600 at September 30, 2009 as compared to approximately 25,000 at September 30, 2008 and contracts of managed entities decreased from 335 to 275 year over year.

For the first nine months of 2009, revenue increased 14% to $585.4 million from $513.7 million for the year ago period. Revenue from Providence's social services segment grew 11% to $255.1 million in the first nine months of 2009 from the prior year period and revenue from its NET services segment grew 16% to $330.3 million in the first nine months of 2009 from the prior year period. The Company reported operating income of $38.8 million and net income of $15.6 million, or $1.18 per diluted share, for the first nine months of 2009. Included in the first nine months of 2009 was $1.1 million in costs associated with the Company's proxy contest and an unanticipated, non-recurring tax benefit of $1.4 million resulting from the Company's true up of its 2008 income tax provision with the actual 2008 federal and state tax returns filed in 2009. This compares to an operating loss of $117.0 million and a net loss of $133.7 million, or $10.67 per diluted share, in the first nine months of 2008, which included a $141.0 million non-cash asset impairment charge. Managed entity revenue was $164.8 million and $185.9 million in the first nine months of 2009 and 2008, respectively.

At September 30, 2009, the Company had cash and cash equivalents of $58.3 million. Over $43 million in cash from operations has been generated year to date, $24 million in the third quarter alone. On the strength of its strong cash flow, in October, as previously announced, the Board of Directors authorized a total voluntary prepayment on its senior debt of $20 million, which will be completed in the fourth quarter, with the goal of reducing senior debt to approximately $132 million by year end.

"We continue to have solid operating performance in what continues to be a very challenging state budgetary environment," commented Fletcher McCusker, Chairman and CEO. "The benefits of our programs and services have been prioritized by federal and state policy makers and federal courts have prevented states from making arbitrary cuts to Medicaid. As we diligently work to maintain and increase our payer base, we are more and more being looked upon as part of the solution to the continuing economic crisis for our government payers. In addition to the cost-effectiveness of our programs, our client outcomes have never been better, which is further differentiating us in this market."

Guidance

For the fourth quarter of 2009, the Company continues to anticipate revenue of between $209 and $215 million and diluted earnings per share of $0.33 to $0.35. For the full year, with the inclusion of a non-recurring tax benefit of $1.4 million, or $0.11 per diluted share, earnings per diluted share should be in the range of $1.51 to $1.53 on revenue of $794 million to $800 million. For the fourth quarter and full year 2008, the Company reported revenue of $178 million and $692 million, respectively, and operating losses after non-cash asset impairment charges in both periods.

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 5, 2009, 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 or http://www.earnings.com. The call is also available by dialing (888) 713-4218, or for international callers (617) 213-4870 and by using the passcode 12900831. Participants may pre-register for the call at https://www.theconferencingservice.com/prereg/key.process?key=PFRAXYPTR. 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 November 12, 2009 by dialing (888) 286-8010 or (617) 801-6888, and using passcode 96986021.

About Providence

The 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 74,000 clients through 843 active contracts at September 30, 2009, with an estimated 7.3 million individuals eligible to receive the Company's non-emergency transportation services. Combined, the Company has a nearly $1 billion book of business including managed entities.

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," "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, 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, 2008. 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 Operations
                   (in thousands except share and per share data)
                                  (UNAUDITED)

                                Three months ended      Nine months ended
                                   September 30,          September 30,
                                 2009        2008       2009        2008
    Revenues:

      Home and community
       based services          $69,333     $59,654    $216,525    $190,935
      Foster care services       9,162       7,494      27,555      22,012
      Management fees            3,690       5,537      11,018      16,205
      Non-emergency
       transportation
       services                124,638      94,312     330,269     284,535
                               -------      ------     -------     -------
                               206,823     166,997     585,367     513,687

    Operating expenses:
      Client service
       expense                  68,410      59,540     204,767     183,196
      Cost of non-emergency
       transportation
       services                113,848      91,151     298,892     264,858
      General and
       administrative
       expense                  11,207      10,206      33,155      31,971
      Asset impairment
       charge                        -     141,000           -     141,000
      Depreciation and
       amortization              3,566       3,173       9,746       9,659
                                 -----       -----       -----       -----
    Total operating
     expenses                  197,031     305,070     546,560     630,684
                               -------     -------     -------     -------
    Operating income
     (loss)                      9,792    (138,073)     38,807    (116,997)

    Other (income)
     expense:
      Interest expense           5,258       4,914      15,970      14,910
      Interest income              (96)       (211)       (275)       (810)
                                   ---        ----        ----        ----
    Income (loss) before
     income taxes                4,630    (142,776)     23,112    (131,097)
    Provision (benefit)
     for income taxes              182      (1,982)      7,537       2,555
                                   ---      ------       -----       -----
    Net income (loss)           $4,448   $(140,794)    $15,575   $(133,652)
                                ======  ==========     =======  ==========

    Earnings (loss) per
     share:
      Basic                      $0.34     $(11.17)      $1.19     $(10.67)
      Diluted                    $0.34     $(11.17)      $1.18     $(10.67)

    Weighted-average
     number of common
     shares outstanding:
      Basic                 13,132,920  12,600,257  13,122,827  12,523,255
      Diluted               13,218,428  12,600,257  13,199,498  12,523,255

                        The Providence Service Corporation
                           Consolidated Balance Sheets
                 (in thousands except share and per share data)

                                                 September 30,  December 31,
                                                      2009          2008
    Assets                                        (Unaudited)    (Audited)
    Current assets:
        Cash and cash equivalents                   $58,287       $29,364
        Accounts receivable-billed,
         net of allowance of
         $2.5 million in 2009
         and $3.4 million in 2008                    81,855        72,617
        Accounts receivable -
         unbilled                                       318           424
        Management fee receivable                     7,399         7,703
        Other receivables                             3,568         3,149
        Notes receivable                                  -           468
        Restricted cash                               7,015         7,804
        Prepaid expenses and other                   15,908        15,378
        Deferred tax assets                           2,500         4,757
                                                      -----         -----
    Total current assets                            176,850       141,664
    Property and equipment, net                      11,411        11,983
    Notes receivable, less current portion                -           132
    Goodwill                                        113,597       112,770
    Intangible assets, net                           75,746        81,556
    Restricted cash, less current portion             5,942         5,207
    Other assets                                     11,480        12,351
                                                     ------        ------
    Total assets                                   $395,026      $365,663
                                                   ========      ========
    Liabilities and stockholders' equity
    Current liabilities:
        Current portion of long-term
         obligations                                $18,637       $14,265
        Accounts payable                              3,588         3,005
        Accrued expenses                             31,658        27,233
        Accrued transportation costs                 40,744        32,051
        Deferred revenue                              9,381         3,375
        Current portion of interest
         rate swap                                      930         1,431
        Reinsurance liability reserve                 9,792         8,847
                                                      -----         -----
    Total current liabilities                       114,730        90,207
    Long-term obligations, less current portion     208,400       223,494
    Other long-term liabilities                       4,717         3,975
    Deferred tax liabilities                         11,339        10,096
                                                     ------        ------
    Total liabilities                               339,186       327,772
    Commitments and contingencies
    Stockholders' equity:
           Common stock:  Authorized
            40,000,000 shares;
            $0.001 par value; 13,503,259
            and 13,462,356
            issued and outstanding
            (including treasury shares)                  14            13
        Additional paid-in capital                  170,306       169,699
        Retained deficit                           (107,679)     (123,254)
        Accumulated other
         comprehensive loss, net of
         tax                                         (2,378)       (4,449)
        Treasury stock, at cost,
         619,768 shares                             (11,384)      (11,384)
                                                    -------       -------
      Total Providence
       stockholders' equity                          48,879        30,625
        Non-controlling interest                      6,961         7,266
                                                      -----         -----
    Total stockholders' equity                       55,840        37,891
                                                     ------        ------
    Total liabilities and
     stockholders' equity                          $395,026      $365,663
                                                   ========      ========

                         The Providence Service Corporation
                       Consolidated Statements of Cash Flows
                                  (in thousands)
                                   (UNAUDITED)

                                                       Nine months ended
                                                         September 30,
                                                       2009        2008

    Operating activities
    Net income (loss)                                $15,575   $(133,652)
    Adjustments to reconcile net income (loss)
     to net cash provided by operating activities:
      Depreciation                                     3,499       3,413
      Amortization                                     6,247       6,246
      Amortization of deferred financing costs         2,340       2,051
      Provision for doubtful accounts                  3,404       1,299
      Deferred income taxes                            3,117        (845)
      Stock based compensation                           181       2,076
      Excess tax benefit upon exercise of stock
       options                                           (93)       (174)
      Asset impairment charge                              -     141,000
      Other                                              327          35
      Changes in operating assets and
       liabilities, net of effects
       of acquisitions:
        Billed and unbilled accounts receivable      (11,051)     (7,745)
        Management fee receivable                        303      (1,581)
        Other receivables                               (743)       (614)
        Restricted cash                                  190        (334)
        Reinsurance liability reserve                  1,175       2,117
        Prepaid expenses and other                      (466)     (7,574)
        Accounts payable and accrued expenses          4,330      (3,229)
        Accrued transportation costs                   8,693      10,283
        Deferred revenue                               5,951        (327)
        Other long-term liabilities                      143          71
                                                         ---          --
    Net cash provided by operating activities         43,122      12,516
    Investing activities
    Purchase of property and equipment, net           (2,790)     (3,588)
    Acquisition of businesses, net of cash
     acquired                                           (513)       (854)
    Acquisition of management agreement                 (100)          -
    Acquisition earn out payments                          -      (6,671)
    Restricted cash for contract performance            (135)      3,246
    Purchase of short-term investments, net             (158)       (115)
    Collection of notes receivable                       600       3,135
                                                         ---       -----
    Net cash used in investing activities             (3,096)     (4,847)
    Financing activities
    Repurchase of common stock, for treasury               -         (85)
    Proceeds from common stock issued pursuant
     to stock option exercise                             73         469
    Excess tax benefit upon exercise of stock
     options                                              93         174
    Repayment of long-term debt                      (10,721)     (6,488)
    Debt financing costs                                (791)        (89)
    Capital lease payments                               (65)          -
                                                         ---           -
    Net cash used in financing activities            (11,411)     (6,019)
                                                     -------      ------
    Effect of exchange rate changes on cash              308        (244)
                                                         ---        ----
    Net change in cash                                28,923       1,406
    Cash at beginning of period                       29,364      35,379
                                                      ------      ------
    Cash at end of period                            $58,287     $36,785
                                                     =======     =======

SOURCE The Providence Service Corporation