The Providence Service Corp. Reports Operating Results (10-Q)

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Aug 09, 2012
The Providence Service Corp. (PRSC, Financial) filed Quarterly Report for the period ended 2012-06-30.

The Providence Service Corporation has a market cap of $165.2 million; its shares were traded at around $10.65 with a P/E ratio of 13.6 and P/S ratio of 0.2.

Highlight of Business Operations:

Payroll and related costs. Our payroll and related costs increased from Q2 2011 to Q2 2012 because we added over 600 new employees in connection with the acquisition of ReDCo, which resulted in an increase in payroll and related costs of approximately $4.4 million for Q2 2012 as compared to Q2 2011. In addition, we experienced increased healthcare claims activity under our self-funded employee health plan, which resulted in increased expense of approximately $587,000 for Q2 2012 as compared to Q2 2011. These increases were partially offset by decreased payroll and related costs in Texas and Canada as a result of contract terminations. As a percentage of revenue, excluding NET Services revenue, payroll and related costs increased from 59.2% for Q2 2011 to 63.7% for Q2 2012 primarily due to the impact of higher payroll and related costs of ReDCo relative to its revenue contribution.

Purchased services. We subcontract with a network of providers for a portion of the workforce development services we provide throughout British Columbia. In addition, we incur a variety of other support service expenses in the normal course of business including foster parent payments, pharmacy payments and out-of-home placements. Included in Q2 2012 were decreased costs resulting from contract terminations in Canada of approximately $1.3 million, other support services of approximately $157,000 and foster parent payments of approximately $470,000, as compared to Q2 2011. Purchased services, as a percentage of revenue, excluding NET Services revenue, decreased from 9.1% for Q2 2011 to 7.3% for Q2 2012 due to the impact of nominal additional purchased services expense incurred by ReDCo relative to the revenue contributed by this acquired business.

Purchased services. We subcontract with a network of providers for a portion of the workforce development services we provide throughout British Columbia. In addition, we incur a variety of other support service expenses in the normal course of business including foster parent payments, pharmacy payments and out-of-home placements. Included in YTD 2012 were decreased costs resulting from contract terminations in Canada of approximately $1.4 million, other support services of approximately $496,000 and decreased foster parent payments of approximately $801,000, as compared to YTD 2011. Purchased services, as a percentage of revenue, excluding NET Services revenue, decreased from 9.3% for YTD 2011 to 7.7% for YTD 2012 due to the impact of nominal additional purchased services expense incurred by ReDCo relative to the revenue contributed by this acquired business.

Other operating expenses. The acquisition of ReDCo added approximately $2.0 million to other operating expenses for YTD 2012 as compared to YTD 2011, which was partially offset by decreased costs associated with Texas and Canada operations due to contract terminations. As a result, other operating expenses, as a percentage of revenue, excluding NET Services revenue, decreased from 13.3% for YTD 2011 to 13.1% for YTD 2012.

The increase in corporate administrative expenses for YTD 2012 as compared to YTD 2011 was primarily a result of an increase of approximately $1.7 million in rent and related charges, of which approximately $971,000 related to the ReDCo acquisition. Additionally, stock compensation expense related to restricted stock awards increased from Q2 2011 to Q2 2012 due primarily to the accelerated vesting of restricted stock grants due to the death of a company director. Corporate administrative costs also included expenses of approximately $591,000 related to our consideration of strategic alternatives, which resulted in increased expense for YTD 2012 as compared to YTD 2011. As a percentage of revenue, general and administrative expense decreased from 5.3% for YTD 2011 to 4.9% for YTD 2012.

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