Hanger Inc (HNGR) 2009 Q4 法說會逐字稿

Good morning. My name is Michelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Hanger Orthopedic Group's year-end results conference call. (Operator Instructions). Mr. Kirk, you may begin your conference.

Thank you, Michelle. Good morning and welcome to Hanger Orthopedic Group's discussion of our fourth-quarter and year-end results.

Before starting our discussion, let me ask Tom Hofmeister, our Chief Accounting Officer and IR Director, to review with you our declaration on forward-looking statements.

Thank you, Tom. During this call, management will make forward-looking statements relating to the Company's results of operations. The United States Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for certain forward-looking statements.

Statements related to future results of operations reflect the views of management. However, various risks, uncertainties, and contingencies could cause the actual results or performance to differ materially from those expressed in or implied by these statements.

These include the Company's ability to enter into or derive benefit from managed-care contracts, the demand for the Company's orthotic and prosthetic services and products, and other factors identified in the Company's periodic reports on Form 10-K and 10-Q, which are filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events, or otherwise.

Now I will turn the call back over to Tom Kirk.

Thanks, Tom. A couple of the highlights from this past quarter. Overall, we grew consolidated sales compared to fourth quarter of last year by 10.6%, and that's in spite of some of the challenging economic and unemployment conditions that we face these days.

These sales, combined with cost management, yielded $0.37 earnings per share, which equates to a 42.3% growth over last year's fourth-quarter EPS. This makes the 16th consecutive quarter where we've met or exceeded first-call estimates. The performance of our business enabled us to increase our guidance throughout the year.

Now I'll turn it over to George, who will review our financial results and our balance-sheet changes in detail.

Thank you, Tom. Good morning, everyone, and thank you for joining us today.

Q4 was really a superb quarter for a number -- from a number of perspectives. The important takeaways are as follows. First of all, we exceeded Street estimates, which called for $0.31, by $0.06. Sales growth accelerated to 10.6%, compared to 7.6% in Q3, and we continued to control our expenses, delivering a 120 basis-point increase in EBITDA margins and a 160 basis-point improvement in operating margins.

Our comm rate decreased, compared to the prior year, by 60 basis points, due principally to a $2.1 million favorable adjustment in inventory. We typically take our annual full physical account in the fourth quarter. That adjustment put our comm in line with our budget for the year.

Other operating expenses remained under control with actual expenses below our internal budget, giving our strong sales and profits or our variable compensation, which is included in this caption, was about $800,000 higher than last year. Part of the reason for the improved leverage was bad-debt expense, which trended down to 1.8% for the quarter, compared to 2.2% for the prior year and 2.4% in our budget.

We remain proud of our track record of collections in a difficult environment, and I'll talk more about our AR in a moment.

Our depreciation and amortization and interest was about $700,000 below last year. Our tax rate was slightly lower than prior quarter's rate of 40%, at 37.9% for the quarter.

All the factors I have just discussed led to an $0.11, or 42.3%, increase in EPS for the quarter. The results were towards the high end of the range discussed in our pre-release.

Moving on to the year, the trends on the income statement for the year were, in the most cases, very similar to the fourth quarter. Our cost of materials at 30% of sales equaled our internal budget and was 10 basis points higher than last year, due principally to a higher mix of distribution sales. Our rate at patient care actually decreased by 20 basis points, after recording the $2.1 million favorable adjustment that I discussed a moment ago.

Personnel costs in total have decreased as a percentage of sales by 50 basis points from 35.3% last year to 34.8% this year. So we are getting excellent leverage out of our workforce. Other operating expenses declined as a percentage of sales as well, by 20 basis points. So we've done a good job of keeping the lid on our expenses.

We reported EPS of $1.13 for the year, which is an increase of $0.27, or 31.4%. All told, we raised our guidance three times this year from our initial guidance of $0.96 to $0.98, and beat the high end of our original guidance by $0.15 in a difficult environment.

Moving onto the balance sheet and the cash flow, our AR, despite the $19.6 million increase in sales in the quarter, only increased by $5.6 million compared to last year. DSOs dropped to 50 days, which is a one-day improvement compared to December of 2008. AR over 120 days was $13.2 million, or 10.7% of total AR, which is the lowest percentage it has ever been.

The quality of our receivables has continued to improve this year every quarter, and we are comfortable with our reserve for doubtful accounts. Our collections remain strong, and we've not encountered any material slowdown in collections related to the downturn in our economy.

Inventory increased by $5.3 million to $91.3 million from $86 million at 12-31-08. Our inventory turns improved to 4.4 times from 4.0 times a year ago. Our sales backlog remains strong at quarter end and our inventory, we believe, is at an appropriate level to serve our patients.

CapEx for the quarter was $8.5 million, which was $1.3 million higher than last year. For the year, we've expended $21.2 million, compared to $19.2 million in 2008.

Cash flow from operations for the quarter was excellent at $26.9 million, an $8.5 million improvement over last year. For the year, cash flow from operations was $73.1 million, a $19.9 million improvement compared to 2008. The improvement was due to a combination of our earnings growth and working capital management. And also you should keep in mind that when you look at our cash balances, we did repay our $15.3 million draw on the revolver this year and we still increased our ending cash balance.

Looking at our liquidity, the Company currently has total liquidity of $148.5 million, comprised of $84.6 million in cash and $63.9 million in availability on our revolver. Total leverage per our bank calculation decreased to 2.78 times, the lowest it has ever been since the 1999 NovaCare acquisition.

Talking about our move to Austin, as disclosed in the press release we will be moving our corporate headquarters to Austin, Texas. We expect to complete the move in the third quarter of this year. Both Tom Kirk and I and other members of senior management have done this before, and we do not expect the move to impact our operations.

We expect to record the charges that were discussed in the press release in each of the first three quarters of 2010. They will be segregated within the operating income and will be pro-formed out of our earnings.

Moving on to guidance, we are establishing guidance on this call for 2010. We expect net sales to be in a range of $815 million to $825 million. That's a growth range of 7.2% to 8.5%. Our goal will be to improve our EBITDA leverage by 20 to 40 basis points, which was the same goal we had in 2009, and obviously we were able to exceed that.

Our full-year EPS guidance for the year is between -- a range between $1.27 and $1.29. That's a growth rate of up to 14%. We expect cash flow from operations to be in a range of $60 million to $70 million, which is slightly less than 2009, as we do not expect to get as large a benefit from AR in 2010 because we do expect our DSOs to remain stabilized in a range of about 50 days.

That completes my comments. I'm going to turn the call back over to Tom Kirk, our Chief Executive Officer.

Thanks, George. I'll add a little color on some of the business drivers from an operations perspective that came to bear during this past quarter.

HPO, our patient-care division, achieved a $10.8 million increase, or 6.6% same-center sales growth rate for the quarter, compared to Q4 of last year, 2008. We estimate that approximately 2% to 2.5% of this increase can be attributed to price resulting from the rollout of the fee-schedule increases from 2007, 2008, and 2009, with the balance attributable to volume and mix, and in this quarter we estimate those to be approximately 50-50 in terms of their contribution.

The other programs that impacted volume and mix are the following. First, the continued improvement in our Linkia book of business. Let me remind you again that HPO is the primary vehicle for the delivery of most of the services under the Linkia contracts.

On an overall basis, the revenue from the Linkia-designated contracts was up by 10.6% for the quarter and 9.9% for the year. So they continue to achieve high marks.

Second, educating our referral sources on the enhanced, lifelike features of our high-performing products, such as microprocessor prosthetic arms, hands, knees, and feet components. For Q4 and for the year, the revenues from these product lines were up almost 20% compared to the comparable period last year.

Third factor contributing to our growth was our patient evaluation clinics, which produced approximately a 33% incremental revenue for the quarter, compared to the Q4 of last year, and an 11% increase in the number of clinics that we've -- excuse me, with an 11% increase in the number of clinics that we held in this quarter, we generated a 50% increase in revenue as compared to 2008.

And fourth, our sales, marketing, and public relations efforts by our practitioners and those that support them in identifying opportunities specific to their local businesses, such as the opening of satellite offices and the launching of specialty marketing programs.

The conditions in which we are operating continue to be taxing. Right now, the percentage of unemployment stands at 9.7%. That's up from 7.2% at the end of 2008. And during the fourth quarter, this statistic went up over 10%.

Our practitioners and our administrators are working with our patients to identify other sources of assistance on their co-insurance and co-pays. But we continue to see that this is going to extend for the next several quarters until we see a gradual reduction in this level of unemployment.

We've been working very hard to influence the pending legislative changes on the federal health-care reform. Our efforts have been in concert with the Amputee Coalition of America and the American Orthotic & Prosthetic Association. We have sponsored amputee visits to the Capitol to meet with Senators and Congressional representatives, and as I mentioned, the last time we had a major session back on September 16, in which we brought in more than 40 amputees to try and meet with members of the Senate Finance Committee.

During the quarter, we did secure the 18th state, and that was Illinois for state parity, and there are over 20 states that have parity legislation in progress, and we'll be working on those throughout the year.

Now, let's discuss SPS. Their off-site sales were up approximately $2.4 million, or 12.1%, compared to the fourth quarter of 2008. SPS has added a new product line to its product portfolio on a solo basis during the quarter, and this one-stop shopping, combined with their outstanding customer service, allowed them to continue double-digit growth rates for the quarter and to hit 9.1% for the year.

SureFit continues to make progress on improving their marketing, sales, and infrastructure processes. We added a new line of shoe designs to our product portfolio, and we've also hired a new general manager to help guide the Company's sales, marketing, manufacturing, and design efforts, and we are in the process of adding additional field personnel.

Now let's turn to Linkia. They continue to execute their dual mission of building volume while negotiating a fair price for the services and the value they provide to their customers. Payors tell us that they recognize the value that Linkia brings to them, in helping them control costs while ensuring good clinical care and high levels of customer satisfaction.

Their sales, as I mentioned before, were up over 10% for the quarter and about -- almost 10% for the year, clearly a validation of their offering. Their external network has now increased to over 325 independent O&P members.

In addition, Linkia is advancing on the piloting of other services that they could incorporate into their model to provide benefit to the payors. On the marketing side, they're continuing to have discussions and negotiations with key national and large regional healthcare management companies, as well as the firms that are active in the worker's compensation area.

Let's turn our attention now to Innovative Neurotronics. Innovative Neurotronics' sales were up 78% in Q4, compared with Q4 of 2008. On an enterprise basis, they finished up the year with sales of about $7 million, and at year end, they were operating at about a $9 million run rate.

I am delighted to inform you that we have completed the first clinical trial and have begun the enrollment in the second, more comprehensive trial that we reported to you at the end of last quarter.

I'm happy to report that in our first study, WalkAide demonstrated statistically significant improvement in walking speed over the comparable technology, which would be an AFO.

Our second study, which is the one we've just launched, we call that In Stride. It is going to be a much larger, multicenter, randomized clinical trial. While it took a while longer to initiate this revised trial than originally planned, we feel that we are a lot more knowledgeable and confident that this trial is designed to provide the type of data needed to support reimbursement.

In the past year, we've spent several months working closely with CMS to be sure that the In Stride trial was designed appropriately to support reimbursement and to provide meaningful clinical endpoints. The In Stride trial is an IDE-designed and improved trial. It's based upon an enrollment of 1,100 patients at 30 sites throughout the U.S..

At the current time, we anticipate having our first site up and running this month, and our plan is to complete all site activations by Q3. In terms of an overall timeline, we anticipate complete patient enrollment in the first half of 2011, but this will be dependent upon site enrollment and, naturally with 30 sites, we're working very, very diligently to make sure that we can get that enrollment up as quickly as possible.

Once enrollment is achieved, we will submit to the appropriate regulatory agencies and peer publications. We anticipate hitting the midpoint by the end of this year and, as I mentioned before, we should have total enrollment in 2011 and we anticipate submitting all of our data to the FDA and CMS in the second half of 2011.

We're also continuing to work with certain patient advocate groups and research hospitals, such as NIH, who have expressed interest in launching new studies on indications that are germane to their membership. This dual track of public and private is the same progression that we went through to gain reimbursement on MPKs and other O&P devices.

And I've reported to you in the past that we do have our reimbursement desk up and operating. We've added additional staff, and the purpose of this desk is to be an advocate for our patients, and by submitting their claims for validation and authorization to third-party insurance companies. We have seen that in some cases it takes as many as three appeals before we actually get the final approval, and to date we've submitted almost 1,100 claims and we've received -- about 25% of those have been approved and the other 75% are in the process. We've only had one claim rejected. So, we're really gaining some good traction there.

And finally, a few words on our acquisition program. In 2010, we are targeting to complete acquisitions which would have about $20 million of annualized sales. That's comparable to what we did in 2009. And as we have said in the past, the strategy is to look for tuck-in candidates that have strategic value to us in the form of location, quality practitioners, and/or favorable product mix.

I'm proud of our ability to grow the top line, despite this challenging environment. In addition, we have contained and, in some cases, actually reduced costs without sacrificing clinical or operational excellence. And we expect to continue these efforts into 2010, and we are cautiously optimistic about the economy and the speed with which it will turn around.

Thank you very much, and now I'd like to turn it back over to Michelle to open it up for questions.

(Operator Instructions). David MacDonald, SunTrust Robinson Humphrey.

Just one quick question on the WalkAide. Once you actually submit the data to CMS, what's kind of the process then? How long does it take them to review it and then potentially make some type of decision? I assume you've been working with them pretty closely, so would you expect that decision to come fairly quickly after the data is submitted?

Yes, we would. We are -- it is a governmental agency and they don't adhere to a strict timeframe. But certainly, we would anticipate within 90 days after submission to have some kind of a decision back.

Okay, and then, just given some of the sales growth you are seeing, how are you guys doing on sales folks? Is there any need for additional salespeople or any areas where you think adding some salespeople could even further accelerate things?

This is with respect to the WalkAide, David?

No, really just across the entire book of business.

We don't see the need to add additional sales folks. Each business, of course, is self-sustaining and operates independently, and once a need is recognized we will go in and add a new business development manager, if it's our patient-care business.

We do with SPS have in mind trying to expand our presence in the Midwest and that may result in our bringing in another salesperson there. Our Innovative Neurotronics business has approximately 10 regional sales specialists throughout the U.S.. Their focus is on supporting the orthotist (technical difficulty) and also working in the rehabilitation community, and that's -- I think they're in pretty good shape.

So on an as-needed basis, we may need one or two, but for the most part I think we're in good shape.

Okay, and then just last question, have you guys seen any changes in terms of managed-care pricing? Should we consider -- continue to think about low single digits in terms of what you guys will be able to squeeze out of managed care on a pricing update basis annually?

We haven't seen any change yet. I think the managed care industry is still trying to figure out what federal health-care reform is going to be about and how it will impact them.

I would expect that the kind of increases that we'll see from them would be in the 1% to 3% annual increase per year. So much is dependent upon our ability to add value to them in terms of reducing their administrative costs, so I think if you were to budget 1% to 3% that would be pretty safe.

Larry Solow, CJS Securities.

Could you just give us a little breakdown on your 2010 guidance, your assumptions behind same-store sales, effective price increases, and acquisitions?

Larry, it's George. First of all, in terms of comp-store sales at our patient-care centers, we expect them to be in a range of 3% to 5%, which is about a point less than the guidance we gave last year, and the reason for that is we expect our price component, which was about 2% in 2009, to be closer to 1% in 2010, simply because of the fact that we are getting zero from the government, which is about 40% of our book of business. So, that's price and that is comp.

We expect to have roughly high single digits to 10% in terms of increase at SPS, and in terms of acquisitions, we are going to get a little more boost this year from the 2009 acquisitions since we did a fairly large one in December. But as Tom mentioned, we do expect to continue to target to bring in about $10 million in annualized sales this year in terms of new acquisitions. That is not part of our guidance, but that extra little bump from the late acquisitions in 2009 is in our guidance.

Got you. And then, in terms of WalkAide, it doesn't sound like you have significant expectations in it for 2010. Is there an actual number we can put on that or -- ?

We expect to be in a $10 million to $12 million range, which, when you look at our run rate in fourth quarter, we think is pretty reasonable, and that's part of our overall guidance.

Got you, and then just a follow-up on that. Are you seeing -- it sounds like you're maybe getting a little more traction on the private pay approval for WalkAide. Any more color to that, and obviously it's a case-by-case basis, but do you think a lot of the approvals won't -- obviously, I assume, would become much easier with government reimbursement. I know that you are on two separate tracks, but consider that you're now putting a lot of -- your assumptions are for significant growth in 2010, so is there an inflection point that it will eventually reach or will it really have to wait until you think this trial is over?

In terms of the commercial book of business, even if we were to get CMS approval tomorrow on the commercial side, they would consider the device to be experimental, and we would have to go through this process that Tom described where we take claims on behalf of patients to the various payors.

Certainly as we are successful in appeals, that creates kind of a snowballing effect. I shouldn't talk about snowballs in D.C.. I think we have big snowballs here right now. The -- and that helps us overall in terms of the commercial book of business. It certainly won't hurt us in terms of the CMS that will, I'm sure, add to the evidence that we have as we complete the trials.

Okay. CapEx is a -- it popped a little bit up versus 2008 on a full-year basis. Do you think the $20 million number going forward is a good starting point for annual CapEx?

What I would start with is about $22 million, and then it could go a bit higher, depending on our progress with our new billing system, our new paperless office billing system that we are pursuing.

We're getting towards a decision point on that, and depending on when we start moving forward with that, we could expend some additional funds on that. It's kind of a one-time expense, obviously, in terms of CapEx, and what I'll do is we're going to keep our eye on that, so I would -- we're giving guidance of about $22 million for this year and we'll let you know if we think that program is going to accelerate.

Okay, and then just last question. Your stock comp, I know at least through three quarters, was sort of like $5.5 million versus, like, $3.5 million last year. I don't know what it was in Q4 for the 123(R), but is that going to continue to trend up, do you think, or has it sort of leveled off at around $1.5 million, $2 million a quarter, or anything on that? And do you have the Q4 number?

Tom, do you -- Tom Hofmeister is going to look that number up, see if we have it. We'll answer you off-line if we don't have it here.

We will get back to him off-line.

But what I'd say is that number is going to go down a little bit because we did have, with our chairman, Ben Sable, retiring at the end of June, that did accelerate the expense, and we also had a director who is going to retire off the Board in May and that caused some acceleration. So you can expect that expense to go down a bit in 2010.

Thanks a lot, guys, and good quarter. Good guidance, too.

Dawn Brock, Kaufman Brothers, L.P.

Excellent quarter. Congratulations, guys. For the most part, all of my questions have been answered. Except I just want to double check and ask you how the maintenance codes are tracking right now. You've obviously done a phenomenal job on the same-center growth. I just wanted to look into the breakdown of kind of device sales versus maintenance codes.

We are tracking almost comparable to the, like, the last four or five quarters. We've not seen any increase in those, and it's certainly something, as you know, that we've watched because that is a key indicator for us in terms of our people trying to delay or stretch out the replacement of a device. But there's been no change that would indicate that that is the case.

And the second question is more maintenance. And it's nonoperating, but, George, how do you expect the one-time kind of relocation expenses to layer into the first three quarters?

We don't expect a lot in the first quarter. Basically, the two big pieces, severance will be expensed over the period of time from the announcement of the move until the last day the employee works for the Company. So that will spread over Q1, Q2, and Q3. We do expect to be out of the facility, largely, in Bethesda by the end of Q3.

You should see the heaviest expense in Q2 and Q3 because that's when people will start moving. And those expenses are booked as incurred.

The expense related to the remaining lease liability in this facility will be booked when the last person leaves the facility and it's abandoned, and that will be either -- that will either happen right at the end of Q3 or it's possible it could slide into the first month of Q4.

So the heaviest should be in Q2 and Q3, and there is a possibility we will have that one item hit Q4. They will all be reported on a separate line and given pro forma treatment.

Excellent. And lastly, maybe just two seconds on the reason for going to Austin. I know you guys have put a little bit into the press release on the 12th, but if you could just give us a little bit more color, that would be great.

Sure, Dawn. Well, we faced the situation here in our current building where we lost the ability to stay in our current space. Our landlord -- we had an option to renew for five years, and the landlord actually went and took the period after that five years and leased it out to another company that's in this building for the next 15 years.

So as a result, and that was a very large tenant that has over 100,000 square feet, we knew that based on that that we had to move, and we started to investigate alternative sites around the Washington/Maryland area here. And as we looked at those, we thought, well, why not just open it up and see if there were other venues that might offer us a good corporate home and a higher quality of life for our employees.

So we went through a very comprehensive study looking at over 25 cities. We finally came down to Austin. We feel that Austin will give us sufficient room for future growth. It is a very conducive environment to business, and we think that it's going to be a big plus to our employees in terms of shortening their commute, their cost of living, and their (technical difficulty).

So as we step back, we think we get three things. We get growth, we get a good business environment with lower costs, and we get a higher quality of living for our employees. When you put all those together, it's a big big win for us. We're -- as we look out over the future, we're anticipating that we should be able to achieve, once we get to steady state, probably $2.5 million to $3.5 million of cost savings per year.

Thank you very much time. We appreciate it. Again, great quarter, guys.

Daniel Owczarski, Avondale Partners.

Congratulations as well. Tom, can you talk a little bit about the mix in the same-center sales? It sounds like that's up compared to historically what you've achieved. Number one, is that the case? And number two, are there specific products, geographies? I know you talked about patient evaluation clinics. Does that help the mix? Why the big -- the larger impact there?

I think the biggest reason would be for our high-performing products, our microprocessor kinds of products, and I wish I could pinpoint the impetus for that increase. It's throughout the country.

I think part of it is that we have sort of changed the mind of our practitioners in that as someone comes in, they are now initially giving them a complete evaluation, almost qualifying them into the products.

And I think this is due to the fact that the product family of the microprocessor products is now much larger. Years ago, it was just a C-Leg. Now it's a C-Leg and a Compact and a Rio and a Plie, and so you really have a device that is suitable for all levels of functionality and activity, bringing, of course, higher degrees of mobility.

So, I would attribute that mix to the broad family of products, to our practitioners being very familiar and comfortable with that broad family of products, and trying to look out for our patients' needs, and that's really what has been driving it. And it's not localized in any region and it's not localized in terms of any specific product. It's just across the board.

I'd add to what Tom said, one of the things that really impressed me, and I think it bodes well for us in the future, is in the past, we'd have a couple of markets that were down maybe mid- to high single digits and we'd have others that were very high.

And this year, we only had one market that was -- that did not increase their sales. And they were down only 0.4 of a point, and we had very strong comp growth throughout the rest of our markets. So I think the market leaders really did a fabulous job and they're in good shape going into 2010.

And then, also, Tom, thinking back about a year ago or so, I thought that there was some discussion -- I don't know if it was CMS or someone else really focusing on accreditation, licensing, so that the people that were doing these fittings were properly licensed and certified and all that. Did that help you volume-wise? Maybe taking out some of the lower end stuff, moving that into your practitioners, or anything like that?

Not really. We are still active on that legislation. When the Senate and the Congress were looking at federal health-care reform, they decided that they weren't going to allow any bills to move forward independent of the overall health-care reform.

So that bill that you're talking about, which is the Medicare Improvement Act, or custom orthotics and prosthetics, is still out there. And we are still promoting that, but it's one of the things that we want to try to get accomplished in 2010. So, to date, we've not seen the benefit of any of that legislation because it hasn't passed. So we can't attribute any of the higher sales to that specific piece of legislation. But it is still something that we want to go after, obviously.

Okay, and then just last, first quarter, usually it's seasonally slow for you guys. Is the weather even compounding what we should be looking at for thinking about the first quarter here?

It's seasonally a slow quarter for us. With regard to the weather, certainly this weather has impacted the entire country. It's not just an isolated storm that went from California all the way across the country, and I would expect, in terms of when you look at your models, that Q1, we're probably going to be looking for a penny or two beat, and I wouldn't think it's reasonable to expect us to be beat prior-year by $0.03 or $0.04, especially given the fact that we'll probably lose a couple of days net across the country with all the different kinds of screwy weather that we've been encountering.

Mike Petusky, Noble Financial Group.

Great job this year. I know we're just into 2010, Tom, but I was wondering, do you have any early sense of what 2011 pricing might be in terms of CMS? What you guys are expecting, looking for, hearing might be the case in 2011?

Well, the driver on that price increase is really the CPI-U, so we would be looking to probably see something around the inflation level. It seems like inflation is -- has moderated a great deal, but I guess I'd be anticipating something in the 1% to 3% range.

No talk of any price freeze or anything like that?

Haven't heard any of that. And we're certainly trying to stay close to that.

In terms of Linkia, you guys have done a nice job there the last few years. Are there any key contract renewals or anything we should be thinking about there in terms of 2010?

There's no monumental ones, I think, if I understand where you're going, that would be pivotal or have great significance. These things renew, as you know, on a one- to three-year basis and there's nothing outstanding in 2010 or 2011 that would interrupt, I think, the 10% level of growth that we've seen thus far.

Terrific. And then, just shifting over to WalkAide, you guys have -- to me, it seems like the momentum has certainly increased in terms of getting positive coverage decisions in terms of the commercial business. What's going on there? Are you getting them more on the MS side or is there any -- are there any trends?

It seems like you guys are getting better and better in terms of converting these and getting these claims moved through the process. Can you just talk about what's going on there and where you're having some success?

It's not localized into any specific indications. We advocate for our patients across all of them. So we have MS, we have stroke, CP, so it's pretty much across the board and it's not focused on any specific carrier. We've been getting reimbursement from all of the carriers.

So, it is sort of a building trend that our expectation, and I think someone said it a little bit earlier, was that as we build momentum with these third parties, we will hopefully see it get a little bit easier because we won't be having to going out to third and fourth appeals to try to get these things done. People will know and understand the device, and then it's simply a matter of how that device relates to a specific patient's needs. So, with time, we expect that it should get a little bit easier, and certainly once we get the second clinical trials done, that should help us quite a bit, too.

What level of reimbursement are you getting in those positive coverage decisions?

It's ranging anywhere from about $4,000 up to $7,500.

And just last question on WalkAide, and maybe I'm the only person on this call that doesn't know this, but I'm willing to put it out there anyway. What are the specific endpoints in the In Stride trial that you guys need to show some statistical significance on?

We're looking at velocity. We are looking at oxygen consumption, which you know is metabolic costs. What we would expect to see there is that our patients can walk faster at an equivalent or less metabolic cost.

Stability is something that we're always interested in. That helps quite a bit, and they have a designation called IDF domains in which they are -- there are about 20 indicators for activities of daily living, and we will be measuring those as well. I could send you some of the information on it if you are interested in the specific endpoints.

Yes, if you could send it to me and not to the other folks, that would be great.

Steve Anderson, Venator Capital Management.

I guess the other advantage to Austin is you won't have to dig yourself out, hopefully.

That's right. We won't have three-foot snowfalls.

I had one follow-up question to Mike's there. You're seeing reimbursement levels in the successful ones of $4,000 to $7,500. Do you have an average yet?

I guess if I were to say, it's probably close to $5,000 -- $4,800 to $5,000 would be a good average.

Can you just remind me what the electrodes go for on an annual basis?

On an annual basis?

Yes.

About $600.

Per person?

Per person, yes. You have to get two sets a month.

And life span, I guess you've had a few of these out here for a while now. What type of life span are you seeing on them or expecting to see on them?

On the device itself?

Yes.

We haven't -- the ones -- they're still out there. We have not had any come back because they've failed, so it is all solid state, so as long as the patient uses the device according to the prescribed norms, there's no reason it should break. You do have to replace the batteries occasionally, but that's about it.

But we are looking at something like a five- to 10-year lifespan on these products?

That's probably realistic, yes.

Thank you very much. Great quarter.

Greg Williams, Sidoti & Company.

Just a couple quick questions. I guess with the WalkAide trial, I guess last quarter we talked and the trial was slated for six to 12 months, and with the 2011, second-half 2011 submission, I guess there's sort of a delay, and I was wondering what new information has come out in the last three, four months versus today that just that the second trial is a more comprehensive, more complex than originally thought?

Well, as I mentioned, it took us a while longer than we originally anticipated to work with FDA to get the IDE number and to work with CMS to make sure that the endpoints and the trial was one that they would sign up for, which they have done.

They are actually sponsoring the trial and it's no longer a manufacturer's trial as the first one was. It now is under the guidance of CMS, and the lead institution is the Cleveland Clinic. So, that took us a while longer than we thought. I guess we continued to learn what it's like to work with the government. It takes -- whatever you think it's going to take, it takes a little bit longer.

The protocols that came out of that trial are all set and the reason that we are seeing it be a bit longer is that we were probably a little bit conservative in our estimate of how fast we could load that trial up with 1,000 or 1,100 people. You can sit here with 30 different sites and say, well, can we get three a month, can we get five a month, and we're trying to be pretty conservative here in just seeing how long it will take to load it up, and then how long it will be once they're in there. That part we at least know, in terms of how long it would take them.

So it's probably just having been burnt once with the trial that we went through, we're being exceptionally cautious in this one. And that's probably the big reason for the time.

Yes, and Greg, I think we had been saying for some time that the full trial would definitely go into 11 -- the full 1,100.

Okay. Sounds good. And George, just a question on cash-flow philosophy and paying down debt. Can you remind us again, I think you restricted by the Term B loan in terms of paying down debt? And the second question to that is obviously interest rates are favorable and you swapped last year. I assume you're not going to be hedging interest rates this year, correct?

Well, the swap that we have in place is a three-year swap that expires in 2011, in June of 2011.

The -- but looking at our overall philosophy, if you go back to when the financial markets really kind of were in a mess, we thought it was best for the Company to maintain retain its cash because if we did use that cash to pay down the Term B, we can't get the cash back. We can't regain that liquidity.

And we thought the most important thing was to be able to assure ourselves and our shareholders that we can fulfill our operating needs in terms of financing. And then you throw on top of that, considering the fact that we're only paying about 2.5% on the variable piece of the Term B, we don't get a lot of benefit from paying down the debt.

Now, we do have a call beginning June 1 on the bonds, and we will look seriously at our capital structure at that point and determine if there is a better, more affordable structure that we can look at that gives us the ability to pay down debt and still have the liquidity we want and need going forward. So, we will be looking at that. And if the markets stay the way they are, we'll probably be talking to you folks about that after Q1.

Sounds good.

Your final question comes from Larry Solow, CJS Securities.

Quick follow-up. On the -- assuming you didn't get any price increase in 2011, would there be -- there's still a small tail left from the lag on the private side of contracts or would pricing be flat even in 2011?

Well, we'd have a small tail because we estimate that it takes about three years for that tail to go through and you get one-third, one-third, and one-third, so we would still have a small tail from the price increases that we were able to pick up in 2009 and the latter half of 2008.

Okay, and then the tax rate. 40% is still a good rate going forward, do you think?

Yes, we do.

And then, I think you had mentioned maybe a quarter or two back that you may have some news on other products by WalkAide, [an advantof]. Anything? I'm sure there are some things in the works. Anything we may be hearing in the near future or -- ?

We -- last week, we had our annual education fair, and during that fair we introduced a new vacuum suction system. Innovative Neurotronics is the manufacturer of that, and that goes on prosthetic patients, and the good news about that is that there is an existing code and it bills out for about $4,000.

And that is a much better way to actually suspend a socket on an amputee, so we are actively training all of our folks on that and we -- the promotion has already started. So, that's -- and then, of course, we're looking at other alternative products in the functional electrical stimulation family, but it's too soon to talk about those yet.

We do have one final question from Bryan Sekino from Barclays Capital.

Just a final question, a follow-up of what you just mentioned. That device, I guess, is it -- you mentioned it has a code. So is it being currently reimbursed for, I guess, the patients currently using the device?

Yes.

Okay, and so that's adding a little bit of revenue in 2010?

That would be correct.

Okay, and what portion of, I guess, that $10 million to $12 million for WalkAide, I guess, is that included in there?

No, that's a separate item of revenue, and it's a device that any -- pretty much any below-the-knee amputee can use. So, it's got pretty good potential from a standpoint of revenue enhancement, and that would be included in the three and a half -- I'm sorry, 3% to 5% comp-sales guidance we are giving on HPO because that's where the device would be sold.

There are no further questions at this time.

Thank you very much, Michelle, and I want to thank all of you for joining us this morning. I look forward to speaking with you at the end of April, after our first quarter. Stay out of the snow. Thanks, bye.

This concludes today's conference call. You may now disconnect.