Providence has $40 million in cash and a $40 million credit line, McCusker said.
"There is no solvency issue with the company," he said.
(full article below).....
Tucson-based Providence stock falls 72.6%
Friday October 24, 2008 04:16:06 EDT
Oct 24, 2008 (The Arizona Daily Star - McClatchy-Tribune Information Services via COMTEX News Network) --
Shares in Tucson-based Providence Service Corp. plunged more than 70 percent Thursday after an analyst downgraded the stock. The company had warned Wednesday that it would post a substantial loss this year.
Providence shares closed Thursday at $1.26, down $3.35 or nearly 73 percent, in trading on the Nasdaq Stock Market. The company hit a 52-week high of $33.50 per share last October.
SunTrust Robinson Humphrey, an investment banking service, downgraded Providence's stock from a "buy" to "neutral."
Providence CEO Fletcher McCusker said the company is facing delays in payments and in contractual rate increases by several states, including California, that are struggling with their budgets amid the economic slump.
Providence warned of the budgeting problems earlier this year, but those issues are now weighing heavily on investors amid the current market downturn, McCusker said.
"As states react to their own budget crises, they're creating quite a panic on Wall Street," he said, adding that his company's reliance on government funding had been seen as a strength in the past.
Providence, which employs 11,000 workers nationwide, provides mainly in-home counseling and other services for state and local governments.
Medicaid pays for two-thirds of the cost of many of the services Providence provides, with the states providing the other third, but McCusker said some states have been balking at paying despite receiving Medicaid funding.
"They've drawn that money down; they've got to spend it and pay providers," he said.
Providence on Wednesday said that it expects to report a substantial loss when it reports third-quarter financial results in early November, due to an expected write-down to the value of Atlanta-based LogistiCare Inc., a non-emergency transportation company Providence acquired last year.
Providence also withdrew its earnings forecast for 2008, but said it also expects a substantial loss for the year. Various external factors, including contract talks with state and local governments that buy its services, make it difficult to project earnings, the company said.
LogistiCare, which Providence acquired for $220 million in cash, is suffering funding delays but plays into the company's current stock woes in another way.
The purchase boosted Providence's long-term debt to about $240 million at the end of the second quarter, according to regulatory filings.
McCusker said Wall Street also is penalizing "highly leveraged" companies, though Providence is in a good financial position despite its challenges.
Providence has $40 million in cash and a $40 million credit line, McCusker said.
"There is no solvency issue with the company," he said.
McCusker said Wall Street also is reacting to the company's withdrawal of its financial forecast and an earlier downward revision.
