The Providence Service Corporation (PRSC)

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The Providence Service Corporation (PRSC)

F3Q08 Earnings Call

November 5, 2008 11:00 am ET


Allison Vigler - Cameron Associates

Fletcher Jay McCusker - Chairman of the Board & Chief Executive Officer

Michael N. Deitch - Chief Financial Officer, Vice President, Secretary & Treasurer

John L. Shermyen - Chief Executive Officer, LogistiCare Solutions, LLC

Craig A. Norris - Chief Operating Officer


Robert J. Labick, CFA – CJS Securities

Kevin Campbell – Avondale Partners LLC

Jack Shirk – SunTrust

Rick Doty – Columbia Management



Welcome to the Providence Service Corporation third quarter results conference call. My name is Kamisha and I will be your operator for today. At this time all participants are in listen only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes. I would now like to turn the call over to Miss Allison Vigler from Cameron Associates.

Allison Vigler

Thank you for joining us this morning for Providence's conference call and webcast to discuss its financial results for the third quarter ended September 30, 2008. You should have all received a copy of the press release last night. If you would like to be added to our email list please call Devin Rhoades at Cameron Associates at 212-554-5461. Before we begin please note that we have arranged for a replay of this call.

The replay will be available approximately one hour after the call's conclusion and will remain available until November 12th. The replay number is 888-286-8010 with the pass code 94181478. This call is also being webcast live with a replay available. To access the webcast go to and look under the event calendar on the IR page.

Before we get started I’d like to remind everyone of the Safe Harbor statement included in the press release and that the cautionary statements apply to today’s conference call as well. During the course of this call the company will make projections or other forward-looking statements regarding future events or the company's beliefs about its revenues and earnings for 2008.

We wish to caution you that such statements are just predictions and involve risks and uncertainties. Actual results may differ materially. Factors which may affect results are detailed in the company's filings with the SEC. The company's forecasts are dynamic and subject to change. Therefore these forecasts speak only as of the date of this webcast, November 5th, 2008. The company may choose from time to time to update them and if they do will disseminate the updates to the investing public.

I'd now like to turn the call over to Fletcher McCusker, Chairman and CEO.

Fletcher Jay McCusker

In Tucson today with me is Michael Deitch, our CFO; Craig Norris, our Chief Operating Officer; John Shermyen is on the line in Atlanta. Immediately after the call I’m on my way to New York for the SunTrust Robinson Humphrey conference tomorrow. These are indeed challenging times in a very challenging market especially for leveraged companies.

It’s important for you to remember that most of our services are mandated by Congress and although state and local governments can make and have made some short term decisions that affect us ultimately we believe the Federal courts and/or Medicaid will intervene to assure beneficiaries receive mandated services. In past recessions namely 2003 as money tightened states allocated even more dollars to community based social services.

Also in that year Congress passed a $20 billion Medicaid Supplemental. So far the current Administration has ignored state pleas to intervene in Medicaid. Medicaid enrollment is going up from 55 million to 57 million people. People are enrolling into poverty support programs now and more desperate than ever many without a home, without a car, without a job.

We are more optimistic now that Congress has begun hearings to look at a Medicaid stimulus package. The Center on Budget and Policy Priorities has suggested $50 billion which is now in the Ways and Means Committee in Congress. When California cut Medicaid rates this year the state was immediately sued in Federal court.

As is typical, that court found in favor of the Medicaid beneficiary and ordered the state to reverse its decision in order to comply with the Federal mandates. The Governor determined to implement his 10% across the board cuts has attempted to avoid that ruling through the budget process and the plaintiffs have now asked for a hearing for the Judge to clarify her order. We expect that to occur in December.

The state budget crises came upon our payers very rapidly this year as real estate was devalued, property transfer taxes diminished and finally sales tax revenues declined. Challenged states were faced with unforeseen deficits. In California the largest state with the largest deficit the Governor attempted to unilaterally impose a 10% across the board cut.

The Governor and the state legislature could not agree upon a budget which ultimately was reached with a compromise on the 10% across the board cut. Immediately upon signing the budget the Governor vetoed an additional $500 million of social services programs primarily for the elderly. We have seen two other states and one Canadian province take steps to reduce expenses beginning in Q2 for us this year.

Since then we have seen California increase our business which is typically what happens when money tightens. Unfortunately the unknown aspect of the budget and consequential lack of visibility has kept payers on the sidelines. Pennsylvania has now accepted the Mercer recommendations and it appears they are increasing community based services.

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