Hanger Inc (HNGR) 2010 Q1 法說會逐字稿

Good morning. My name is Christopher and I'll be your conference operator today. At this time I would like to welcome everyone to the Hanger Orthopedic Group first quarter results conference call. All lines have been placed on mute to prevent background noise. After the speakers' remarks there will be a question and answer session.

(Operator Instructions). I would now like to turn the call over to Tom Kirk, President and CEO of Hanger Orthopedic.

Good morning and welcome to Hanger Orthopedic Group's discussion of our first-quarter results. Before starting the discussion let me ask Tom Hofmeister, our Chief Accounting Officer and Director of Investor Relations, 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. United States Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements. Statements relating to future results of operations reflect the views of management.

However various risks, uncertainties, contingencies could cause 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 and arrive at derive benefits from managed care contracts, the demand for the company's orthotic and prosthetic services or products, and other factors identified in the company's periodic reports on Form 10-K and Form 10-Q 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.

Thanks Tom. Overall the first quarter contains several noteworthy points. We grew consolidated sales over the first quarter of last year by 5.4% in spite of some difficulties due to adverse weather and the continuing unemployment conditions. This sales performance combined with cost management yielded $0.16 earnings per share excluding with the costs associated with our relocation. This equates to a 14.3% growth over last year's first quarter.

Now, I would like to add that the relocation is tracking on plan and we still anticipate a moving date of about mid-August. This quarter makes the 17th consecutive quarter where we have met or exceeded First Call estimates.

Now I will turn it over to George, our Chief Financial Officer who will review our financial results and balance sheet changes in detail.

Thank you Tom. Good morning everyone and thank you for joining us. I will comment on the income statement first. Q1 was another solid quarter for the company. The important takeaways on our operations are as [possible].

We met Street estimates, as Tom mentioned, reporting $0.16 excluding relocation cost. Our operating income increased by 7.5% and our margin improved by 20 basis points excluding relocation cost. You may recall that our operating margins actually declined 10 basis points last year in the first quarter, so we are pleased with these results and it puts us in position in good position for the balance of the year.

Our sales increased by 5.4%. Patient Care made up a significant portion of the increase with a 3.6% increase in same center sales. And our distribution segment reported a 4.3% increase. Our [COM] rate of 30.1% is comparable to the prior quarter and the rate for the full-year after the physical inventory adjustment, so we're in good shape there.

We continue to do a credible job of managing our expenses. Personnel and other operating costs are in line or below our budgeted expectations. Operating expenses only increased $900,000 from Q1 2009 in fact, and that is including costs associated with some acquisitions that were made late in the year.

As discussed on our year-end call, we're in the process of moving the corporate headquarters from Bethesda, Maryland to Austin, Texas. In this quarter we incurred $2.1 million of employee termination and other relocation related expenses. These expenses are nonrecurring and are shown on a separate line in our income statement. I will talk more about the move in a couple of minutes.

D&A and interest was about $200,000 below last year. Our tax rate was consistent with prior periods at 40%. All the factors I just discussed led to a 14% increase in pro forma EPS for the quarter. So we're happy with our results.

Moving on to the balance sheet, our AR decreased $6.2 million from year end and our DSOs dropped to 46 days, a four-day improvement compared to year-end. And that is the lowest we've ever reported. The quality of our receivables is excellent and we're comfortable with our reserve for doubtful accounts. Our collections remain strong.

Our inventory increased by $1.8 million to $93.1 million from $91.3 million at the end of last year. Inventory turns improved slightly to 4.3 times from 4.2 times one year ago. Our sales backlog remains strong at quarter end and our inventory is at appropriate levels to serve our patients.

Capital additions for the quarter were $7.9 million which is $5.1 million higher than last year. During Q1 2010 we did accelerate some equipment purchases in order to take advantage of special pricing. As I mentioned, during the 2009 year-end conference call our capital additions could be in the $28 million to $30 million range this year depending on the status of the development of our new billing system.

Cash flow used in operations for the quarter was $12.1 million. That is an $8.4 million increase over last year. The increase in cash used was due to normal working capital expenditures.

Keep in mind that during the first quarter of every year we do not generate cash from operations due to Q1 being a seasonally low sales quarter, and a quarter in which we pay out our variable incentive compensation for the prior year.

Looking at our liquidity, the company currently has total liquidity of $127.6 million. That is comprised of $64.1 million in cash and $63.5 million in availability on our revolver. Total leverage for our bank calculation remains below three times at 2.99. You should expect our leverage to increase slightly in the first two or three quarters of this year as we record the expenses related to our corporate relocation.

Moving on to the Austin move, the move is underway and on schedule. We have begun construction on our new office space which is on scheduled to open, as Tom mentioned, in August. We opened our temperate space in March and we are in the process of hiring and transferring personnel. We expect to record the charges that were discussed in the press release through the third quarter of 2010.

Now moving on to guidance, we're confident about the balance of our year and we're reaffirming guidance for 2010. We expect net sales in a range of $815 million to $825 million. That is a growth rate of 7.2 to 8.5%. Our goal will be to improve pro forma EBITDA leverage by 20 to 40 basis points in 2010, and as I mentioned we got off to a good start in Q1.

Our full-year EPS guidance include -- excluding the cost of relocating our corporate offices, $1.27 to $1.29 which is a growth rate of up to 14%. That concludes my comments and now I'm going to turn the call back over to Tom.

Thanks George. I'll add a little color on the business drivers from an operations perspective. Our Patient Care segment achieved a $5.4 million increase or 3.6% same center sales growth rate for the quarter compared to Q1 of last year. We estimate that approximately 1 to 1.5% of this increase can be attributed to price resulting from the rollout of the fee schedule increases we received in 2008 and 2009. The balance is attributable to volume and mix and we estimate that that is about a 50/50 split.

The programs we have in place that drive the 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 delivery of the most of the services under Linkia contracts. On an overall basis the revenue from the Linkia design contract is up 9.2% for the quarter.

Second, on our patient evaluation clinics, which in this quarter produced about $3 million in incremental revenues. And then of course is when we ask our patients to come back in, we provide them with education and counseling on their fit and functionality of their devices.

And third are 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 certain kinds of marketing programs. I would like to add that they really did a fantastic job in this in quarter getting all of our patients in, in spite of some really nasty weather conditions. So we were able to schedule them and get them in before the end of the quarter.

The percentage of unemployment currently stands at 9.7%, up from 8.6% at the end of Q1 from last year. The good news is that the administration and Congress have extended unemployment benefits and health insurance. Our practitioners and our administrators are working with the patients to identify other sources of assistance for their coinsurance and co-pays.

And we have been working very diligently on the recently passed healthcare legislation. Our efforts have been in concert with the Amputee Coalition of America and the American Orthotic and Prosthetic Association. There are a series of pluses and minuses associated with this new legislation.

Right from the beginning it does admit over 30 million new potential patients into the system without rejection for pre-existing conditions, which is a huge positive (inaudible) of patient population. Now there are other conditions regarding reimbursement and competition which are yet to be defined.

During this quarter we did secured the 19th state, Utah, on state parity and there are over 20 states that have parity legislation in process. We'll keep you advised as the healthcare reform becomes a little bit clearer on those terms that I mentioned regarding reimbursement and competition.

Now let's discuss SPS. Their upside sales were up approximately $900,000 or 4.3% compared to the first quarter of 2009. During Q1 SPS added a new product line to its product portfolio on a solo basis, and this one-stop shopping that they can offer to the independent customers combined with their outstanding customer service allow them to continue to grow.

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 expect to introduce new scanning technology to the podiatric and the orthotic markets later this year.

We hired a new general manager last fall and he is settled into place and he will be driving these new changes.

Now let's turn to Linkia. They continue to execute their dual mission of building volume while negotiating a fair price for services and the value they provide to their customers. Payers tell us that they recognize the value that Linkia brings to them in helping them to control costs while ensuring good clinical care and high levels of customer satisfaction. Their sales, as I mentioned before up 9.2% for the quarter, clearly a validation of the value of their offer.

In addition, Linkia is advancing the piloting of other services that they could incorporate into their model to provide extra benefit to the payers. On the marketing side they are continuing discussions and negotiations with key national and large regional health care management companies as well as the firms in the Workman's Compensation segment.

Now, let's turn our attention to Innovative Neurotronics. Their sales were up 43% above sales from Q1 of 2009. As discussed in February, we're continuing to work with outside research institutions to assist them in gaining IRB approval for our second clinical trial.

The [In Stride] trial is an IDE designed and approved trial to enroll 1100 patients in 30 sites throughout the US. We've activated two of the 30 sites and are working to activate the rest. We expect to start patient enrollment this quarter and we will keep you informed as we reach major milestones.

Finally, a few words on our acquisition program. In 2010 were targeting to complete acquisitions which would have about $20 million of annualized sales. This is comparable to prior years. 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 service mix.

I'm proud of our ability to grow the top line despite the challenging environment that we saw in the first quarter. In addition, we've contained and in some cases reduced costs without sacrificing clinical and operational excellence. We expect these efforts to continue throughout the year.

Now, let me turn it over to Chris and we'll be happy to take any questions that you may have.

(Operator Instructions) David McDonald, SunTrust.

Good morning. Couple of questions on the corporate headquarter move. Can you talk about any senior positions or seats that haven't been filled? And George will there be any tax benefits? When we think about 2011 taxes, will those come down because the state tax I assume would be lower?

The -- to answer the tax question and I will pass it over to Tom for the question on our headcount. Our tax rate remains the same in the 40% range. Moving to Texas won't necessarily make a large change in our tax rate since we're moving our corporate headquarters and most of those costs are already allocated out in the various states where we have operations. So it should be somewhat of a non-event.

And Dave with respect to personnel, all but two of our senior executives are going to be making the move. For those two that is the VP of HR and our Chief Information Officer. We've identified and hired a replacement Chief Information Officer. He is on board land is in the transition right now working with our former Chief Information Officer. She has agreed to stay on an assist us for a couple of months through this transition.

In terms of the VP of HR we have identified the leading candidate and he has accepted, but has not made an official announcement yet. So we will certainly let you know once that announcement comes out. We would expect that to occur in a couple of weeks.

Okay. Guys, can you give a little bit more detail on what you're seeing on the private pay side with [Blockade]? Are you guys are still having basically close to 100% hit rate in terms of these claims that are being kicked back and then appealed etc.? And are you seeing any incremental traction with some your payers on that side, on the private pay side?

Yes. We're still seeing that high success rate albeit after a lengthy procedure. Sometimes it can be up to four iterations, four different appeals. And in one case a large insurance company did come to us and said it's too expensive for us to incur the legal expenses of defending each one of these. Why don't we get together and negotiate a fair price for this device?

So, as we had expected throughout this process, it's one of demonstrating the efficacy of the device. And it's one of making the argument in terms of your patient, being an advocate for the patient. And that's what's led to the large success rate.

We've processed over 1000 claims. And as I said it takes some time. Roughly about 25% of those have been authorized. We expect to get the other 75%. It just takes time.

Final question on Linkia. I realize there's an enormous lead time to kind of nail down a contract there, so I'm not sure how much visibility you have here. But should we expect maybe an incremental contract or two there at some point in 2010? Or is that a little too squishy at this point?

I think that's a fair expectation. Linkia, as I mentioned in my comments, is in discussion with other insurance companies. So while they all may not be blockbusters, we'll take them all, if you will, big or small.

So, with the 9.2% growth rate, that comes from two sources. One is picking up some new business where people are trimming their network. And so we have a preferred contract and we get more of that insurance company's business, as well is picking up new business by adding new insurance companies into the Linkia roster.

So, it's a valid expectation that we'll pick up a little additional business as we go through the year.

Thanks guys.

Brian Sekino, Barclays.

I was wondering if you could tell me a little bit about your bad debt in the quarter, if there was any additional pressure on co-pays.

The bad debt for the quarter ran right at 2%, which is a shade under where we budgeted and also it's about 20 bips below where we ended up last year. So we did not see any increased pressure on co-pays. We still had strong collections. As I mentioned the DSOs came down. And overall the AOR looks pretty healthy.

Great, thanks. And on the level of growth you showed for -- in the SPS, I guess it was 4.3, right? Is that something we can expect at that level for the remainder of 2010 in your guidance?

We think the growth rate should be a little higher than the 4.3, still in the single digits but in the 7 to 9% range would be more reasonable. SPS, like many other companies, impacted again by weather and people managing their inventory. So they're coming back into form so we would expect their growth rate to go up.

The first quarter is traditionally always the slow quarter in O&P simply because it's difficult for patients to get around, and this certainly was no exception with the kind of weather that we had.

I would say SPS was probably more impacted than HPO. HPO can reschedule patients. The [short bid] sales are in SPS's number and if a podiatrist is closed he probably is more likely to lose a sale than we would be in O&P.

Okay. And then just one last question here would be, you guys have been very vocal about the process related to your managed care contracts, how they will roll every three years and you get those Medicare prices as they -- each of the past three years. Is that still the case going on? Are you seeing any pressure from potential -- the payers because their margins are under pressure themselves? I just wanted to know if you can still count on that same dynamic.

The negotiations with the payers are always spirited of course. They're looking to maximize their profits, which means to reduce their cost of care. But I would say it hasn't increased, so it's pretty much the same as it has always been.

One of the things that we're watching very closely is what's the impact of this new healthcare legislation going to have on these insurance companies. We look at Massachusetts and we look at California and there you see it does put pressure on the insurance companies. And it really depends on the ability to get -- for the insurance companies to get healthy people into the system. And of course that is mandated under this new legislation.

So not only do they have to take people with existing conditions, they also are dependent upon their ability to get in healthy people to offset that as sort of the pool mentality if you will. How that plays out we'll be watching very closely because we would expect to see that reflected in the negotiations with them.

So at the end of the day one of the things about orthotics and prosthetics is it's a good solid business. People need the care, so we don't think either the government or the insurance company wants to eliminate the provision of this kind of benefit because it is absolutely necessary. So we'll be watching that very closely but we have not seen any change to date.

Thanks for taking my call.

Larry Solow, CJS Securities.

And this is Fred Buonocore, calling in for Larry who had a conflict this morning. My first question is, were you able to quantify the impact of weather in the quarter?

For the most part we think we captured most of the patients, as I mentioned. Our practitioners did an excellent job of trying to get them rescheduled and back in.

When we look at a region like the mid-Atlantic, here in Virginia and Maryland area, severely hit there for several weeks where we had facilities that were completely closed. We think that we've captured most of that business, but frankly it's very difficult to say that with absolute certainty. I think based on the numbers and the way that we saw the revenues in January, February and March, I think we're able to pick it all up.

It wouldn't surprise me to say that there's still a few folks that are out there that we'll be bringing in, in April, but it's not going to be a material amount.

Got it. So it's fair to say you've seen a pickup in activity since the January/February timeframe?

February was a very difficult month with the weather and March was a very good month. So, we were able to get those patients rescheduled. For a while we were open on some Saturdays and in the evenings in some practices just to facilitate availability for our patients.

As it relates to just the economic pickup we're starting to see, are you starting to feel any benefit from that?

We wish we could announce results like some of the other firms who are doing their first quarter announcements, but the nature of our business is probably -- it's a lot steadier. It doesn't lend itself to big swings up and down.

So, the thing we're watching and that's why quoted it, is the unemployment percentage. When people go back to work, they get their insurance coverage, that could make a difference. But for the most part, the extension by the government of health benefits has really helped out quite a bit.

And a credit to our practitioners and administrators for helping our patients. Where co-pays and coinsurance payments were required, they've really worked with them to try and find other organizations to assist them in meeting that financial responsibility. But, we won't get a big bang like some of the other ones, but certainly as the unemployment goes down we'll all feel a lot better.

That make sense. You cited a couple of areas where healthcare reform could be a benefit to you. What about as it relates to the excise tax that some of the manufactures of the components you use will be facing in a couple of years? Do you expect to have them passing those costs along to you?

It's certainly going to be a topic for negotiation. But that 2.3% tax on Class 1 items will have to be absorbed in the system somewhere. It was regretful that they did move from the Class 2 level and dropped it down to Class 1, so that the providers of some of these O&P devices will be included in that. That certainly is going to be a debate between the purchaser and the seller.

So we'll have to figure out how it gets absorbed into the system one way or another. It remains to be seen. I guess that is all we can say at this time.

Very good. Thank you very much. I appreciate it.

Dawn Brock, Kaufman Brothers.

I've got a couple of questions. Tom in your prepared remarks you talked about the advancement of piloting of new services in Linkia. Could you just give us a little more detail around that?

A couple of things we're looking at, some of the insurance companies have asked Linkia to take a look at mastectomy as an area where perhaps we could use the Linkia network or an established a mastectomy network where Linkia would manage it. So that's one we're looking into.

There's another service that they've asked us to perform for them and we have that in pilot. And that is where we review invoices that the insurance company receives to make sure that all of these charges on those invoices, this is coming out of the rehab area, particularly O&P that all of those charges are valid, and they work together.

For example, you certainly would not expect to see a brace on a person patient that just received a microprocessor knee. So it's to correct any kinds of errors that may be present and we would certainly do that as a service, but we would get paid for it. So those are the two big ones we're looking at.

The second one is on the mix in HPO with regard to volume. In the fourth quarter and really throughout all of 2009, you had a really high-quality replacement volume. Did you see that same trend in the first quarter? Or is that something that really does progress throughout the year and with kind of the rollout of more patient evaluation clinics?

It's the latter. As those clinics go up, the purpose of those clinics is to make sure that the integrity of the devices correct and to make sure that they can function at the maximum level. When there is a deficiency in either of those, or perhaps there is some new technology that they can and should have that would be medically necessary as determined by their doctor, that is when we would request them to go back to the doctor, get a prescription and then come on back and see us for that device.

Throughout the year naturally with nicer weather we can hold more clinics and that gives us more opportunity to see all of those patients. What we say is throughout the year we expect each one of our patient care centers to have at least one of our patient evaluation and education clinics. So that will be building.

We didn't do very many in February simply because scheduling those and trying to get patients in was not a good use of their time, and also subjected to some of the patients to a little more danger than they should have to have in the winter time.

Understood. The 3.4 to 3.6% same center revenue growth number was really on kind of more normalized replacement from a mix perspective. So, I got it. That's great.

The last thing is, George, would you consider giving us an update on the callable notes and maybe any plans you guys have?

Well, as everyone knows, our end of quarter notes are callable on June 1 and we are looking at that very closely right now and do expect, given current market conditions, we'll be doing something with that. But we don't have anything ready to announce yet.

Okay, I appreciate it. Thank you very much.

Daniel Owczarski, Avondale Partners.

Thanks and good morning. You talked a little bit about spirited discussions that you're having with the privates. And I was going to ask you about Linkia and whether these discussions was discounts that you're contracting today, if they're similar discounts that you have been given in the past.

I'm just trying to feel if you're able to maybe negotiate a little bit more favorable deals to offset some of the CMS flattening out. Or just how are those discounts specifically? Do they track with historical or are you able to overcome some of the pressures on the public side?

They're pretty much in line with historical, Dan. By spirited I didn't mean to imply that they were different than they have been in the past. But it always is an interesting exchange when you start talking about discounts, because we know the two parties face the situation from opposite sides.

Linkia has been successful in getting some price increases. Just last year we had three increases. So that is helping us offset some of the CMS, but it's very difficult when CMS accounts for roughly 40% of your volume and you're getting a 5% price increase. It's very difficult to offset that.

But nevertheless, Linkia has been able to get some price increases and every little bit helps, as we've talked about in here. We're picking up 1 to 1.5% price in our revenue which is the roll through of some of those prior contracts. Both at CMS and the insurance companies, because we see those on a three-year cycle.

So, nothing outside the norm at present. As I mentioned before, we're watching very closely to see what impact the healthcare legislation may have on this whole area.

And then to stay with Linkia, did you give a number of how many independents are part of the Linkia network and how that is trending versus historical, are you building that?

It's pretty much constant. We reported 326 the last time and I think we might be up a few more above that, but pretty much constant and that is by design.

We work with each of the insurance companies to understand their -- I guess you might want to call it their member benefit strategy. In other words, how much service they want in a given area per how many members they have in an area. Once we hit that point there's really no reason to bring in other care providers because the work is fully accounted for, and that is part of the blue beauty of the Linkia model.

We want to reserve it for what we call our platinum providers. And so it is reserved for the best that are out there, so we can deliver that high-quality service. The short answer is pretty much constant around 330.

Mike Petusky, Noble Research.

A few questions around WalkAide (inaudible). The hard number on WalkAide and Innovative I know you said up 43%. What was the actual revenue number?

For the quarter? About 1.2 I think. Excuse me, 1.7.

In terms of that large insurer you mentioned maybe looking at making a -- if I'm overstating this, please correct me, but I heard you say they may be looking at an institutional coverage decision. Do you have any sense of -- I mean it's possible, but by the next conference call you will actually be able to say we have gotten this nailed down and identified that insurer? Or will that be more slow moving?

Well, I don't want to speak for the Linkia folks, but certainly in the second or third quarter we would hope to have someone else on board. I think you are referring to the question that was asked before, would we expect to sign up any new Linkia contract (multiple speakers)

I'm sorry, Tom. Actually I was referring to -- I thought you had said that regarding WalkAide.

Oh. I did say that and we are in discussions with that insurance company on a negotiated rate for WalkAide and would hopefully get that thing settled by midyear.

And I guess if you're optimistic you can get it settled that quickly, you have probably had some price talk at this point?

That has been the -- yes, that's been the nature of the discussion. Rather than spend money on lawyers to go back and forth, why don't we just agree on a price? And so (multiple speakers)

Understanding that the pricing might not be as attractive as what you're maybe getting at CMS, is it at least in the ballpark?

Reasonably so. It's not over till it's over. I think for right now the key thing to keep in mind is, for those devices where we are obtaining reimbursement on average it's been about from 4500 to about 4800 on average. So it's a very attractive price point.

Of course as time goes on we expect to see the volume come up and naturally there will be some discussion around how, with that increased volume, can you give me a little bit of a break on the price? But we're not at that point yet.

We're doing almost 5000 each.

I understand I'm going to ask you to speculate a little bit here, but if you were to nail down some kind of institutional coverage decision with this insurer, is this insurer the type of insurer that other insurers I guess would look at and say why don't we also talk with Hanger and work this out? I guess essentially what I'm asking is, are you optimistic? Or have you thought about maybe this could be a catalyst for other positive institutional coverage decisions?

That's the goal certainly. When we look from a historical perspective at other devices like microprocessors this was the same way that they proceeded. So, that would certainly be our hope. But I don't want to speak for any insurance company that is out there. But we would try to work with them so that their membership could enjoy the benefits of this device at a price that is acceptable to them and us.

Last one on WalkAide quickly, last conference call I think you said there had been 1100 clams out there and you had gotten positive coverage decisions roughly on 25% of them and this time you roughly said the same thing. Do you have any hard numbers kind of updated numbers on how many claims you actually have out there?

It's about the same since the last time.

Is there any reason that number has not gone up at all?

It's different claims as claims process through.

Okay.

It's a moving average. Of course the goal is to speed them through that process so you don't have 1100 of them sitting out there. In an ideal world we would like to have zero sitting out there and they would just get authorized as they came up.

Let me ask it this way. How many positive coverage decisions have you gotten since the last time we got together?

A couple hundred.

Last question, I think last time we talked about your pricing expectation for CMS for 2011 based on the CPI. It is still 1 to 3%? Is that still what you're thinking or has anything changed on that?

That is current thinking. We know the long-term average is about 2%. We're still waiting to see how the healthcare legislation and reform could impact all of this.

We know the CPIU is the driver, but there some other pluses and minuses in this. I mentioned there were some reimbursement considerations in the middle of that legislation. So we're still waiting to see how those (inaudible) play out.

So some of that could come in as early as 2011 potentially?

We certainly would be hoping to get a price increase in 2011. We didn't receive one in 2010. The long-term industry, we feel that we are productivity personified here because the long-term increase in CPI use since they've gone on to this system is over 100%. And yet our industry has been able to recapture only about 36 or 37%.

So we have had to find ways to improve productivity and take costs out of the equation. You just never know. I don't want to speak for government.

Fair enough, thank you.

There are no further questions at this time.

Okay, well, I would like to thank you all for joining us this morning. I wish you a good second quarter and we look forward to talking with you at the end of July when we report our results from the second quarter. Thank you.

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