Providence Service Corporation (Ingeus) Quarterly financial results

The Providence Service Corporation (NASDAQ:PRSC) held a conference call with investment analysts on their quarterly results. The transcript is available via seekingalpha.com.

An extract of Ingeus-relevant parts is below:

Moving on to our Workforce Development segment, which is now comprised of Ingeus and Human Services, former workforce development operations in the US and Canada. Our CEOs of Ingeus UK and Ingeus International, Jack Sawyer and Greg Ashmead and their respective teams were quite busy on the new business front this quarter. In the UK, Jack and his team are focused on rolling out of our reducing re-offending partnership contract, which is performing in-line with our initial expectations. We have also referred to this contract as the MOJ contract in the past.

On the International side, Greg and his team are generating strong backlogs in France, South Korea, Saudi Arabia and obviously Australia through our joint venture. To expand a bit on Australia for a moment, as Warren mentioned, Ingeus formed a JV with a non-profit incumbent employment services provider that has proven to be a great partner for us as we re-enter the Australian Employment Services market. Given the number of regions we won in Australia, our annual revenues from the contract are expected to be in-line with many of our mid-tier sized contracts on the cross-profits. Most of these contracts generate $50 million to $75 million per year of revenue. One key difference is the fact that we have a partner in this initiative and we will incur start-up costs similar to other Ingeus contracts. In 2015, we expect this expense to be just under $15 million. Strategically we are pleased with our mix-up regions in the Mission Providence win, which includes Sydney and we look forward to working with our JV partner and the Australian government and the provision of world-class employment services to the citizens of Australia.

Financially, this segment generated adjusted EBITDA of $5.2 million in Q1 2015. This adjusted EBITDA included incentive fees of $4.7 million related to 2014 activity on a major contract. We do not expect to recognize additional incentive fees related to this contract until Q1 2016. Consistent with previous comments, we expect to incur $30 million in start-up costs for RRP as we have referred to it previously, our MOJ contract and Mission Providence initiatives for the full-year 2015 [ph]. Again, these start-up costs are in-line with the lifecycle characteristics of Ingeus’ contracts we described earlier on our prior earnings call. Understanding these characteristics is crucial for understanding Ingeus’ financial performance.

As a quick refresher, Ingeus’ contracts are long-term in nature, typically five to seven years with significant year-to-year variability in revenue and profitability. Due to such characteristics as upfront start-up costs, contracted changes and base service fees over the life of the contract and payments based upon long-term performance. As a result, we believe NGS’ performance should be measured over a multi-year time horizon and not year-to-year and certainly not quarter-to-quarter.

With our recent success in converting our backlog into signed contracts, we expect the next few quarters at NGS to be largely focused on execution within the UK, France, Saudi Arabia, Australia, and other countries where we’re experiencing strong growth.