The Providence Service Corporation (PRSC)

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Providence Service Corp. (PRSC)

Q1 2008 Earnings Call

May 8, 2008 11:00 am ET


Alison Ziegler - Investor Relation

Fletcher McCusker - Chairman and Chief Executive Officer

Michael Deitch - Chief Financial Officer

Craig Norris - Chief Operating Officer


Bob Labick - CJS Securities

Mark Hughes - SunTrust Bank

Greg William - Sidoti & Co

Richard Close - Jefferies

Jason Gold - Aurarian

Kevin Campbell - Avondale Partners

Kevin Ellich - RBC Capital Markets

Tony Lisa - Vanrossi

Richard Close - Jefferies & Co



Good day ladies and gentlemen and welcome to the First Quarter 2008 Providence Service Corporation Earnings Call. My name is Carissa and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of this conference. (Operator Instructions). I would now like to turn the presentation over to your host for today's call, Ms. Alison Ziegler, of Cameron Associates. Please proceed.

Ms. Alison Ziegler - Investor Relation

Thank you, good morning everyone and thank you for joining us this morning for Providence's conference call and webcast to discuss its financial results for the first quarter ended March 31, 2008. You should have all received the copy of the press release last night. If you would like to be added to our email list, please contact 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 May 15th.

Replay number is 888-286-8010 with the passcode 82974931. This call is also being webcast live with a replay. To access the webcast, go to, and look under the event calendar on the IR page.

Before we get started, I would like to remind everyone of the Safe Harbor statement included in the press release, and that the cautionary statements apply to the 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 actual 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 at May 8, 2008. The company may choose from time to time to update them, and if they do, we'll disseminate the updates to the investing public.

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

Fletcher McCusker - Chairman and Chief Executive Officer

Alison, thank you and good morning everyone. Here in Tucson today are Michael Deitch, our CFO; Craig Norris, our Chief Operating Officer. In Atlanta today is John Shermyen, CEO of our NET Division LogistiCare as well as Tom Oram, their CFO. These are incredible and challenging times for us. Our revenue has nearly tripled. We now have over 1000 government contracts most all of them will cycle July 1st. Our core social services client count is now over 80,000 clients. While much of our quarter-over-quarter growth can be attributed to the LogistiCare acquisition, we are also enjoying solid organic growth in our home-based services even in these very trying economic times. In previous recessions we have flourished as states look to more to innovation and cost saving programs than they otherwise might without the consistent economic pressure. We continue to view our Company and its programs as part of the solution to these economic issues not part of the problem.

Most of the questions I get as I travel are related to the economy and its effect or probable effect on our payer organizations which remember are all local and state government. What we have stated and continue to say is that so long as state and local payers have discretion over the allocation of funds, we believe we will disproportionately benefit from these tight budgets. We will be better able to speak precisely to the impact of the current recession after our July 1st contract cycle date.

As we sit here today, however, we fully expect to renew every one of our 1000 plus contracts. We only have one or two that have expressed any concern over rate or volume. The demographic pressure placed on state government continues to exacerbate our payers. The executive budget office estimates that Medicaid will grow by over 2 million enrollees in 2008. We have seen some rumblings in a couple of states, namely California, where Governor Schwarzenegger has proposed a 10% across the board cut This is the first time we've seen a gubernatorial proposal for an across the board remedy. Historically state leadership prefers to deal with deficit issues by prioritizing funds. The Governor's plan would impact the a book of business in California. But I will tell you that his plan's not going very well at the State Legislature. They have programs that fund us through Proposition 63 are exempt from this plan. In fact we have received a 10% increase in those funds. And at the same time California is proposing cuts we are winning new business in the state at a level that would more offset any loss revenue. It's important to remember that California for us is also a cost plus state. So if our $20 million book at business is cut by $2 million there. The contribution impact to us is only a $140,000.

Likewise there are a highly public issues in North Carolina that have frozen business growth there for us as the state sorts out its explosive unregulated growth in the outsource sector. Last year North Carolina allowed any provider to open up a community based program in there home based budget grew 10 times. Of 300 audited providers the state has asked for money back from 297 of them. We are pleased to say that we are not on that list.

North Carolina has consequently hired Mercer to review the situation that now public Mercer plan suggest that the state consolidate the provider market. We have won our second largest contract recently announced in El Paso. During the recession we have added over 5000 clients to our base business during the first quarter. We hear no congressional traction regarding the regarding the Medicaid cuts. The CMS proposed rule change regarding the transportation benefit does not affect us. We have built in buffers to the rising fuel costs. I think all this to say that we like the way we are positioned for a recession we will know precisely in a month or so our contract renewal rate. But we expect to grow our business consistently with our 20% historical growth.

The most recent quarter is representative of what we believe what we are capable of during an economic slowdown, continued organic growth, great collections, increased client volume from the reassignment of clients away from other providers and little or no margin pressure.

Except for about $350,000 on anticipated audit costs primarily as a result of our acquisition of LogistiCare, we would have been ahead of our earnings plan. As you know we are ahead our plan on the revenue side. We have moved to KPMG that announcement for this quarter given the size and complexity of our international business derivative accounting and segment reporting.

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