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Providence Service Corporation Sees Budget Clarity Improving Toward Year End With Budget Issues Impacting Second Quarter and Balance of 2008

Wednesday, July 30, 2008 General News J E 4
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TUCSON, Ariz., July 29 The Providence ServiceCorporation (Nasdaq: PRSC) today announced that primarily due to budgetaryissues impacting certain of the state and local government agencies that fundthe services the Company provides, diluted earnings per share for the secondquarter ending June 30, 2008 are expected to be approximately $0.26 to $0.28per diluted share compared to prior guidance of between $0.36 and $0.38 perdiluted share. Second quarter revenue for 2008 is expected to beapproximately $173 million compared to prior guidance of $174-175 million.The Company is also revising its prior guidance for the balance of 2008 due tothe delay of non-emergency transportation (NET) contract implementation andawards caused by state budget issues as well as the implementation ofexpenditure reduction plans in a few states and Canada that are negativelyimpacting the social services segment.

Among the specific issues impacting financial results for the secondquarter of 2008, the Company recently learned that one payer that hashistorically provided incentive payments for services rendered through itsJune 30 fiscal year has elected to withhold an incentive payment ofapproximately $1.5 million, that the Company anticipated receiving in thesecond quarter, in order to brace for 2009 fiscal year issues.

All but a few states have finalized 2008-2009 budgets, with threeadditional states announcing unexpected new business procurement opportunitiesfor the transportation segment, likely in 2009. Two of the previously delayedprocurement announcements are expected in the near term. These awards weredelayed while the states focused on budget issues. The social servicessegment has now renewed 100% of its contracts in its delayed procurement cyclebut will experience considerable short term pressure in a handful of statesand Canada, with one major procurement expected in the short term.

Among other actions that will impact the Company's revenues and earningsfor the remainder of 2008 include: North Carolina has curtailed in-homeexpense while the state finalizes its review of the Mercer Report and AuditorReport that recommends that the state dramatically reduce the number ofbehavioral health providers. Providence, as one of only three providers thatdid not have audit issues, expects to eventually gain market share however, inthe short term the state has tightened the budget allocation. BritishColumbia has begun to cap provider revenue per client as the province dealswith similar economic issues. In addition, Pennsylvania has begun to limitauthorized services to all providers in order to save money. California isstill debating a 10% across the board cut which, if implemented, would reducethe Company's revenue derived from that state. The Company estimates that theimpact on its 2008 operating income related to across the board budget issuesis approximately $5.0 million, or approximately $0.24 per diluted share.

The NET segment has managed through the fuel cost increase maintaining thesame average cost per trip in June that the Company experienced in November.This has been achieved through the flexibility, innovation and loyalty of ourcontracted provider base together with Company initiatives to enhance routingefficiency. However, the delays in finalizing state budgets delayed thebudgeted rate and ramp up for this segment resulting in anticipated decreasedoperating income for 2008 of approximately $2.8 million, or approximately$0.13 per diluted share.

"We have come through this unprecedented and difficult season worse thanhoped for, but given the circumstances in each state a lot better off thanmany other businesses," said Fletcher McCusker, Chairman and CEO. "The longterm prospects of our business remain good and we believe the budgetarypressures being experienced by our payers should benefit us over time aspayers turn to us as the less costly, q
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