PRSC
#Good day, ladies and gentlemen, welcome to the Providence Service Corporation first-quarter 2016 earnings conference call.
(Operator Instructions) As a reminder, this conference call may be recorded.
I would now like to turn the conference over to <UNK> <UNK>.
You may begin.
Good morning and thank you for joining Providence's conference call and webcast to discuss first-quarter 2016 results.
On the call from Providence today is <UNK> <UNK>, Chief Executive Officer; and <UNK> <UNK>, Chief Financial Officer.
We have arranged for a replay for this call, which will be available approximately one-hour after today's conclusion, on our website www.PRSCholdings.com.
A replay will also be available until May 20th by dialing 855-859-2056, or 404-537-3406 and using the passcode 1349659.
Before we get started, I would like to remind everyone that during the course of this call, the Company may make comments which may be characterized as forward-looking statements under the Private Securities Litigation Reform Act.
Those statements involve risks, uncertainties, and other factors which may cause actual results or events to differ materially.
Information regarding these factors is inc---+ is contained in yesterday's press release and the Company's filings with the SEC.
The Company may also discuss certain non-GAAP financial measures in an effort to provide additional information to investors.
The definition, calculation, and reconciliation to the most comparable GAAP measures can be found in our press release and our current report on Form 8-K furnished to the SEC on May 5, 2016.
Finally, for simplicity, we will be speaking in US dollars when referring to such things as contracts and revenue.
Amounts translated from other currencies such as the British pound have been translated at the exchange rates in effect for the corresponding time period.
I'd like now to turn the call over to <UNK> <UNK>, CEO.
All right, thank you, <UNK>.
And thank you all for joining today's call.
And most importantly, thank you to my colleagues for another solid quarter across Providence.
So as you will hear today, our focus really continues to be on operational excellence.
And as a result, maximizing the intrinsic value of our businesses.
And while we are also looking at the deploying capital in acquisitions, valuations remain high.
And as a result, we are deploying capital by buying PRSC stock.
We believe that the combination of minimizing share count growth, or hopefully reducing it, while we're increasing our business's intrinsic value is a win-win for our clients, colleagues, and long-term shareholders.
So within our US healthcare services sector, we had another quarter of solid performance with margins consistent with long-term trends.
Despite this, our teams are acting with urgency in a few strategic areas which I have mentioned before.
For example, Matrix, which was acquired in October 2014, they operated with a talented but very limited sales force until Q4 2015.
Upon becoming CEO in two ---+ in Q3 of last year, I worked with Walt Cooper and the Matrix team to increase our focus on building these sales resources.
The result of this specific investment for Matrix is an enhanced team with a business development pipeline that has grown to include over 100 sales targets, largely generated over the last few months.
While not all of these targets will likely be converted into 2016 volumes, what makes Matrix unique is the availability to respond to all of these targets with a unique network of over 1,000 nurse practitioners, not all of whom are employed but are available at a moment's notice.
Also part of what makes Matrix unique is our operations group.
Our operations group makes it possible for our NPs to respond quickly to client needs in a low-cost manner.
Finally, I would like to mention that our care direct offering continues to make meaningful progress with a recent verbal award and accelerating pipeline growth.
At NET services, or LogistiCare, our leadership team was enhanced through the addition of both call center and logistics experts who are focused on workforce optimization and transportation provider management.
Through a variety of initiatives in these very large buckets, we expect to enhance our service levels and our s---+ extend our strategic lead over the next 6 to 24 months.
On the sales and contract side, we recently picked up two new MCO contracts in Iowa and California on April 1st and our pipeline remains in good shape with several additional MCO opportunities.
On existing contracts being rebid, our initial protest in South Carolina was denied but we have since filed an appeal.
And in New Jersey and Missouri, we have submitted our RFP responses and are awaiting the award announcements.
Moving to workforce development, which is largely comprised of the May 2014 acquisition of Ingeus, EBITDA before Mission Providence turned prof---+ positive this quarter.
Led by solid operational performance in our work program, and with both areas of outperformance and challenges within our offender rehabilitation program, or RP, adjusted EBITDA before Mission Providence losses was $2.9 million.
Mission Providence is a joint venture that was formed in late 2014, commenced operations in July in ---+ July 2015 and is still considered to be in its startup phase.
It als---+ you should also know that it is accounted for in the equity in net loss of investee line on our income statement.
As previously reported, volumes remain under expectations at Mission Providence.
The Mission Providence underwriting process, which occurred in 2014, did not anticipate this lower level of volumes.
And as a result, our infrastructure is currently out of alignment with volumes.
Over the remainder of the year, we expect this misalignment to be corrected.
However, we unfortunately do not anticipate break-even profitability until the fourth quarter of 2016.
Our WD Services leadership team is working closely with the joint venture management team to implement an improved delivery model, drawing heavily upon their experience with the work program in the UK.
Jack Sawyer, whom I appointed global CEO of workforce development in the fourth quarter of 2015, is reacting with urgency to the opportunities and challenges ahead of him and his team.
Strategically, we announced the closure of our Polish business on top of the closure of our Swedish business in Q4 of 2015.
While our Polish and Swedish teams served their clients very successfully and we thank them for their service, we found it increasingly difficult to justify investments into markets without appropriate growth prospects and client diversification.
We have no further plans to close any additional businesses within WD Services at this time.
However, as with any project-based business or any business within the Providence portfolio, we will maintain a vigilant focus on where we deploy our scarce resources.
On the business development side at WD Services, the leadership team is working on revising the project bidding governance framework.
Having led a multi-year period of financial improvement at IESC, another project-based business, I appreciate that underwriting, as in the investment business, is key to any long-term contract evaluation because you have to live with the results of that evaluation for years.
However, when the evaluation is done right by industry experts who underwrite for unexpected challenges, profitability and returns can be good over the long term.
To that end, we recently named a new head to the business development department who has extensive experience working in the UK outsourcing sector over the past 15 years.
Our pipeline is building again in our core UK employment services market and we are pleased to announce that we were recently notified that we won two contracts related to diabetes prevention in the UK.
We anticipate launching those contracts this summer and using them as strategic beach heads into additional more traditional healthcare service offerings over the next few years.
Moving onto capital.
We continue to wait for the fat pitches in terms of acquisitions.
In the meantime, we are continuing to repurchase PRSC shares.
So as you can tell, we continue to be very focused on our long-term priority of creating intrinsic per ---+ value on a per-share basis.
Financially, this means maintaining or reducing our share count.
Operationally, this means working with our leadership teams to optimize our portfolio of businesses.
The combination of which can be quite powerful over a multi-year period for our clients, colleagues, and long-term shareholders.
Thank you for your support.
And I will now hand it over to <UNK>.
Thank you, <UNK>.
Thank you all for participating in the call today.
And we will now turn it over to questions.
Thanks, <UNK>.
Sure, yes.
And chronic care, care direct, population health, these are all terms that are, I guess, quite popular in the healthcare arena these days.
And can mean a lot to a lot of different people.
Obviously, a lot of excitement around it.
And it's all around sort of the movement towards caring for people in the home.
Particularly those with sort of chronic conditions or where there's some sort of post-acute or in-home intensive need.
And so where we try to leverage our experience is obviously around the nurse practitioner, since we have a network of over 1,000 of them.
We have 800 of them on staff at any point.
We also have a particular level of density in certain areas.
And so we have a few pilots going on right now.
We've just been verbally awarded another on the West Coast.
Our pilots are on the East Coast.
And we not only use our nurse practitioners who can go into the home.
But they also can go into facilities as well.
And we work ---+ we actually build a team outside of the NPs as well.
So that might include social workers, RNs, and preve---+ provide more of a holistic approach to sort of that in-home care management.
So that can, I guess, on the ---+ there's huge sort of interest, as I said, in this.
It is, I think, moving slower as an industry.
We've looked at a lot of acquisitions in this area that could enhance our technology or the resources that we have.
And I think what we've learned is a lot of opportunity, not a huge amount of track record or experience.
And as, you know, sort of you take on risk in terms of pricing because a lot of the clients are actually trying to shift off risk.
I think we're very cognizant of as you take on multi-year contracts potentially with some of these populations.
that underwriting is very important and track record is important.
And so to pay a high price in terms of acquisitions to acquire this additional resource is something that we are pretty disciplined about.
And as we try to grow the business, we'll grow it in a fairly disciplined manner.
So again, it's not making a huge financial impact this year.
And I don't think it'll ramp up too quickly.
But we do see it as sort of an area for huge potential over the next sort of three or four years.
Sure.
Yes.
And I think it's important to recognize that over the past six or seven years, growing at a CAGR of 15%, 16%, the LogistiCare team has done a phenomenal job at meeting the clients' expectations and growing the business very quickly.
I think with the addition of a few key leaders, <UNK> McGean is one.
He joined as COO just a few months ago.
Ed Ringer joined in the middle of last year as CIO.
I think ---+ and myself and Matt Umscheid, we spent more time with the leadership team.
I think the ability to enhance certain areas and make some investments around IT in particular around workforce management systems, is one that most call centers sort of have sort of deep resources in.
That's one area where we can probably enhance ourselves.
Our operations.
There's a whole transportation optimization area.
We spend ---+ it's pretty clear what we spend from our income statement on transportation.
So any ways that we could utilize technology or work with our transportation providers to improve our service levels there.
And hopefully then our operational efficiency and then profits after that I think is the big area of opportunity.
I think we're still in the early innings in terms of assessing it.
I think we really, you know, not only Ed and <UNK> and Herman and the list goes on.
But there are additional people that we're adding to help sort of assess the opportunity, frame it up, determine ---+ I mean, we have mult---+ a lot of pages of a lot of smaller potential initiatives.
But we're in that phase of: All right, how do we actually roll these out.
What's the cost benefit.
So I think this is definitely a six- to 12-month focus with benefits ranging ---+ they could start rolling in fairly quickly.
We've seen a few areas that around KPIs that have started to improve a little bit.
But we probably won't be seeing the full impact of this for 12, 18, 24 months.
So, sorry I can't give more.
We'll definitely share more as we progress through the year.
And get some more clarity around what the opportunities could be.
Great.
Well, I ---+ that was the only question that we have in ---+ that we had in the queue.
So thank you, <UNK>, for that.
And we appreciate everyone's time.
And if you have any questions, feel free to reach out to <UNK> or myself.
Thanks again for your support.
Bye-bye.
Thank you.
