ModivCare Inc (MODV) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first quarter 2005 Providence Service Corporation conference call. My name is Anthony and I will be you coordinator for today. [OPERATOR INSTRUCTIONS] I would now like to turn the presentation over to your host for today’s call, Miss Alison Ziegler, of Cameron Associates. Please proceed, ma’am.

Thank you. Good morning everyone, and thank you for joining us this morning for Providence’s conference call and webcast for its financial results for the first quarter ending March 31, 2005. You should have all received a copy of the press release yesterday. If you did not, please call Sandra Spennato (ph) at Cameron Associates at 212-554-5461, and she will send one out and confirm your name on our fax or e-mail list. Before we begin, please note that we have arranged for a tape replay of this call, which may be accessed by telephone. This replay will be available approximately 1 hour after the call’s conclusion, and will remain available until May 12. The replay number is 888-286-8010 with the pass code 83929314. This call is also being webcast live with a replay available. To access the webcast, go to www.provcorp.com and look under the event calendar on the IR page.

Before we get started, I’d like to remind everyone of the Safe Harbor statement included in the press release, and that the cautionary statements apply to today’s conference call as well. During the course of this call, the Company will make projections or other forward-looking statements regarding future events or the Company’s beliefs about its revenues and earnings for 2005. We wish to caution you that such statements are just predictions and involve risks and uncertainties. Actual results may differ materially. Factors which may affect results are detailed in the Company’s filings with the SEC. The Company’s forecasts are dynamic and subject to change. Therefore, these forecasts speak only as of the date of this webcast, May 5, 2005. The Company may choose from time to time to update them, and if they do, will disseminate the updates to the investing public. I would now like to turn the call over to Fletcher McCusker, Chairman and CEO. Go ahead, Fletcher.

Alison, thank you. Good morning, everyone and happy 05/05/05. With me today is Michael Deitch, our CFO and Craig Norris, our COO and as usual, all three of us will be available for questions following our portion of the call.

As you can tell from our release, we ended up a little better than expected in Q1, even after booking $593,000 of audit and stocks expense. You remember from the last call that we will no longer amortize those expenses and book all of those into the first quarter. Quarter over, quarter growth remains very strong for us with revenue growing 74% and net income up 90% as indicated in our release.

Our quarter to quarter, increases from the fourth quarter last year are consistent with how we view our growth for 2005. Our direct and managed contracts have grown from 312 at the end of the year to 320 at the end of first quarter. Our total client census has increased from 29,066 the end of the year to 31,706 today, a 9% increase in just one quarter.

As of this date, we have received no termination notices or rate reduction notices. We are through the 60-day notice period for any of those contracts that have 60-day notice provisions. Obviously, June 1st is our 30-day notice provision, so it’s too early to tell on those contracts. But, we have no indication that any expect to terminate.

We have had one small contract in Texas, a $65,000 block purchase that converted in this renewal season to an hourly rate. But, all other contracts, all 320, appear to be headed for renewal. Our 7 not-for-profit management entities are performing very well, probably the best ever, producing over $380,000 of income above and beyond our management fee expenses collectively in Q1. And, as Michael will indicate here in a few minutes, Day Sales Outstanding for this sector continue to come down.

The Congressional budget is now done, and for those programs that affect us, Congress has approved a 6.3% increase for 2006. This is The Government’s fiscal year that starts in October. This is a little bit less than authorized under the legal mandates for those programs, which is Congress’s prerogative, obviously. But, those programs, particularly Medicaid, substance abuse treatment prevention, foster care, continue to be supported by both sides of the aisle.

Unusually so, Congress did not approve individual program budgets. But, they approved these overall increases and then referred them back to various subcommittees to finalize the budget between now and beginning of the government’s fiscal year. In years past, we expect this trend to continue; therefore, you see a lot of our economy and authority drifting down to the individual states then, in terms of how they allocate their government managing dollars. And I will now, let Michael give you the financial details for the quarter.

Thanks, Fletcher and good morning everyone. Our first quarter 2005 revenues totaled $32 million, up from $18.5 million for the first quarter of 2004, a 74% increase. 40% of the increase was from organic growth. 34% of the increase was from the Aspen and Pottsville acquisitions. First quarter operating income totaled $3.5 million, which was 11% of our revenue. This compares with $1.9 million, and about 10% of revenues, for the first quarter of last year.

First quarter net income totaled almost $2.1 million, which was 6.5% of our revenue. This compares with $1.1 million, and 6% of revenue for the first quarter of last year.

First quarter diluted earnings per share totaled 22 cents, compared with 13 cents for the first quarter of last year. The end of our first quarter, our day sales outstanding from home and community bank services and foster care services was 75 days, down slightly from 80 days at the end of our fourth quarter in 2004. Our management fee Day Sales Outstanding was 177 days at March 31, 2005, down from 184 days at December 31, 2004. At the end of our first quarter, we had $13 million in cash and nothing drawn on our $10 million working capital facility or our $10 million acquisition borrowing facility. With that, I’ll turn the call over to Craig Norris, our COO.

Thanks, Michael. Good morning. As Fletcher indicated, our operations have started off strong in 2005. Our programs are seeing nice momentum in every region of the country. We are continuing to expand our regional leadership teams. To position ourselves for continued expansion and acquisition activity. Recently, we added Therapeutic Foster Care Services in Northern California under a new management agreement with Triad Community Services. This now establishes our state-wide presence in California as well as a new product line within the state. We are also continuing to participate in the Clinton County planning meetings in the recently passed proposition. It’s our hope that funding will be rolling out, hopefully, in the second half of this fiscal year.

In Washington, D.C., we added our first adult contract for intensive community based services. We are seeing nice diversification in this market, and demand for our programs remains very high. One year since beginning our privatization business in Florida, we are in the process of renewing our second year contracts. We have seen strong outcomes in this privatization effort, and this experience will position us for other markets.

We ended Q1 2005 between our owned and managed entities with a combined total of 31,706 clients in care across 160 local sites and 21 states and the District of Columbia. Compared to Q1 of 2004, this represents a total census increase of 16,697 clients. Overall, our Therapeutic Foster Care census has also grown by 745 clients since the same quarter of 2004. In the same period, we have added 59 new local offices from which to expand the reach of our business. Combined, we have now over 3700 employees servicing 320 contracts. This represents an increase in contracts of 115 compared to Q1 of 2004.

Since Q1 of 2004, we have also added close to 1900 employees. Overall, I am very pleased with the start of our year and look forward to a remaining strong year. Let me turn it back over to Fletcher.

Thank you very much. We really appreciate the great job everyone’s doing in operations. As stated in our release, we are reaffirming our 2005 outlook of 96 cents, roughly 75 cents for the remainder of the year. I think we’ve said probably before that we always expect Q3 to be our best quarter. Again, this is before any unannounced contract wins or acquisitions. We would expect to see both occur over the course of the year. We have elected not to guide through those kinds of events. And with that, Anthony, I will open the line now for questions.

[OPERATOR INSTRUCTIONS] Our first question comes from Bob Labick from CJS Securities. Please proceed.

Good morning. I understand you don’t want to include it in your guidance, but you could give us an update just on the acquisition pipeline. What’s been going on out there? How’s it been competition-wise, etc.?

We are seeing some competitive landscape companies like ResCare and Mentor, Maximus and others are competing with us in some of the deals that we’re involved with, for the most part, that has not been an issue for us, Bob. We remain very busy, very active in M&A. We, as you know, passed on the one deal in the fourth quarter of last year, but because we don’t announce letters of intent, we have elected only to announce deals as we close them. You know, I would say that we remain busy, and to repeat my comment I made earlier, that we fully expect that we would be announcing the closing of some transactions here in the next few months.

Okay, great. In the same vein, while it’s not in guidance, could you just give us an update on what expectations should be for the July cycle?

Yes. Most of the July cycle we’ve included in our guidance. Remember, we’re guiding you to about $30 million of new business in 2005. Most of that is business that we’ve anticipated or have some strong indication from our government payers that that would be included in their budgets.

Historically, a pipeline for us, and it was a little bit confusing last year, represents business that we had not previously guided you to. In other words, unannounced contract opportunities, new proposals, our potential sole source agreements and again, we only announce them if they are material and, by our definition, that means it’s over $2 million. As you can see from the most recent quarter, we added 8 contracts just since Christmas. None of those we would have considered pipeline activities because they were not large enough Bob to fall within that definition. So, we do not have enough information today to definitively say that we have $5 million in the pipeline or $10 million in the pipeline, or $0 in the pipeline. We can say that we remain very active in a number of geographies regarding business that we do not have in our forecast, but at this point, we don’t have enough definitive information to speculate about the volume or size of it.

Our next question comes from Mark Hughes from Sun Trust. Please proceed.

Thank you very much. What is the difference between last year and this year in terms of the pipeline? I hear what you’re saying that you’re seeing good, strong growth, but you don’t that great of visibility on a magnitude of the pipeline. Why different this year?

Last year, Mark, we had a number of contracts of scale right around this time of the year that I think last year our announced pipelines, like $13.5 million, which represented maybe 6 or 7 contracts or negotiations. While we have that kind of activity this year, none of them would represent a contract of $2 million or larger, and since we don’t announce it, we don’t call it pipeline. So, I think what you can take away from this is, you know, we remain optimistically busy, but for the most part, it’s our garden-variety million dollars or less kind of contract, which we have not historically guided through as pipeline business.

Why is there are fewer bigger opportunities?

You’re just exactly right. In Florida was, you know, is an anomaly. We believe, in terms of the size of those contracts - - you know, our Arizona contract was relatively large, but other than that, out of those 320 contracts, they obviously average under a million dollars. And, we have contracts that range from $150,000 to $1 million or $1.5 million. Remember, our payer is county government, and by that, because of its nature, our contracts tend to be typically smaller and much more diverse than if we were dealing with the state government, or obviously, with the federal government. So, our bread and butter business Mark is small, county driven, authorized by the county procurement officer contracts and we don’t have really as of this point anything that we believe is probable that we either haven’t guided to, or is bigger than $2 million.

Right. So, that’s still to say that you could have good success this time around, and it would come in ahead of your guidance, there’s just nothing big enough to be able to break out separately?

That’s exactly right. At this point, we don’t have anything that we would indicate as probable. Remember, we also treat pipeline – - A lot of companies treat pipeline as everything they’re negotiating on. We identify pipeline as only those things that are probable to us. And over $2 million in size. So, I think what we’re trying to indicate today is, as of today, other than those contracts we have included in our guidance, which is $130 million in revenue over the $97 we did last year. We don’t have anything that would today rise to our definition of pipeline business.

Right. But if you aggregate all those smaller opportunities, and you take those into account, those get you to your guidance.

That’s exactly right.

Right. But those would not get you beyond the guidance when you aggregate this new opportunity or the new opportunities?

Between calls, if something arises where we can identify it as a finalist, or we can ask to be a best and final bidder, or we have been invited to sole source in contract and it is over $2 million, then we would provide a pipeline release Mark, that would begin to attract that activity, and again, unless it’s over $2 million, we wouldn’t announce.

Right. I want to ask this question. The 9% sequential increase in census that you described in your comments, Fletcher, is there any reason to think we - - that is an unusual pace? I mean, should you be able to continue to add or increase your census count. I know you can’t make commitments, but is there any reason why this quarter was an anomaly that you shouldn’t be able to increase your census at similar rates over a coming period?

No, in fact, you know, as we stated, again, the biggest census spike we see will be in Q3. That’s, you know - - if you look at our census, it increases - - Last year in that quarter, it was more like 16%, so we tend to see a ramp up early in the contract year, Mark, which is July 1st. The government’s first quarter our third, and then it kind of wraps up over the remaining quarters. A 9 or 10% number in our Q1 is really pretty good because that means there’s still lingering demand from our July renewals, and we would expect to see that - - you know those kinds of numbers except again in 3, we would expect that census increase to be bigger.

Right. And just so I am clear on this, my recollection is that when you had given guidance previously, you had said with the contracts you have got in hand, our guidance is 96 cents, if there is any additional pipeline business in the middle of the year or any acquisitions, then those would be additive. But I think the expectation was that there would be some degree of pipeline activity in the middle of the year, and that that was an upside opportunity. But it seems like you’re suggesting that that upside opportunity in the midst of the year is not available to us.

I think you’re reading more into that. The only difference between our pipeline this year, Mark, and last year, is that the negotiations and the conversations we’re having represent single source business that’s less than $2 million a year. We fully expect to see, and we are obviously engaged in a number of ongoing dialogues about new business opportunities or new contracts. As you can tell even from Q4 to Q1, we added an additional 8 contracts that we could have identified all 8 of those as pipeline, however, they did not rise to be of our definition of pipeline that is they represented more than a $2 million contract. So, part of the issue may be, in terms of the Company’s limits on its pipeline activity, you know, being a $2 million, $2 million plus contract. Obviously, we could have at the beginning of the year, said we are pursuing these 8 contracts that amount up to X dollars, but none of them were big enough really, Mark, that we don’t historically announce, and if we don’t announce it, then we don’t treat it as pipeline.

Right. So 9% population growth in one quarter is pretty good stuff. Nobody can complain about and you don’t see any reason why this quarter would be unusual and in fact, the third quarter ought to be a little bit stronger is that fair?

That’s a fair statement. We are seeing no pressure on any of our units or census declines in fact, as Craig indicated we are seeing quite the contrary, really pretty much everywhere and we continue it to be invited to bid on and negotiate these smaller volume contracts which has represented our business forte over the last years. It is unusual in fact it is certainly the minority of our contracts are bigger than $2 million. So what makes it hard to model our business you know is it creates what we believe is a great diversity in that direct contracts represent 160 locations now and they average between $0.5 million and $1 million.

Okay. All right great. Thanks for indulging me I appreciate it.

Our next question comes from Patrick Swindle from Avondale Partners. Please proceed.

In looking at the census round the direct clients in this first quarter relative to the fourth, would all of that census be associated with the new contracts that came online or will that also come from growth on existing contracts as well?

Most of the organic growth from Q4 to Q1 is our existing business. The contracts we added really are more in the ramp up stage so most debts from existing operation.

All right. You talked a bit about budget improvement expectations. Can you talk a little bit about in terms of those increases in areas where you’re participating, how much of that increase is coming from -- would come in the expectation of increased client growth versus rate increases on the individual business segments?

We would expect Patrick, that even though the federal increase is 6.3% we would not see that kind of increase in terms of a rate increase. That has not been the historical pattern. Remember the Medicaid budget is $192 billion, so 6% of that is still billions of dollars -- some $8 billion. Most of that will be used as match to states that pull that down and then they have the economy Patrick, to negotiate the cost of living increases with their provider base. We still have penciled into our guidance, a point and a half Michael. I think 1.5 to 2% in terms of our cost of living increase. The phenomenon that the states are still dealing with Patrick, is that while they have a 6% increase in dollars, they probably have a 20% in clientele. So that money is still not going be able to be stretched far enough to meet the demand, particularly in the states where we offer it. So for the most part, what we think we’re going to continue to see certainly through this congressional budget, which is October of ’07, is increased client and census demand.

Right. And then I guess to clarify something. On the census growth that you saw during 1Q, most or virtually all of that was organic, did relate to the new contracts it came in growth on existing contracts. There is really nothing from a budgetary standpoint that would cause us to believe that census should not continue to growth under existing contracts without any new contracts coming online. Is that a fair statement?

That’s a fair global statement. Now remember we’re in 160 locations that you’re trying to generalize and the federal budget is a good benchmark for that and is a good trend for all of us to watch. If you saw some leveling of the federal budget or some decreases in the federal budget, you could expect some decreases correspondingly in the state and county budgets. The good news about the budget cycle is the feds go first, the President’s work is done, the congressional work is done and they provided for a 6.3% increase in the federal dollars that are used to match these programs. So we would expect therefore, that you would see states address their own needs on an individual basis knowing that they have increased federal dollars. So we don’t translate that Patrick into any kind of rate pressure or a census decline given these super trends that we manage, that we monitor which includes particularly Medicaid enrollment, which as you know is the highest it has ever been. So we don’t see anything as relieving the pressure valves if you will, in terms of this increasing a client sense.

Okay. On the provider network management revenues during quarter, obviously the first half of this year is going to be impacted by the Rio Grande contract. As we go into the second half should we expect those revenues to return more to the $2.8, $2.9 million run rate range?

That’s the way we budget it.

Yeah about $2.6, Patrick.

$2.6 okay. And then last question on the acquisition front. You had mentioned that the environment has been increasingly competitive. In terms of the multiples, have you seen the multiples move outside of your target ranges?

Yes, we’ve seen -- we’ve competed with acquisitions that we know competitors are offering eight or in one case ten times traded EBITDA. Interestingly enough in that situation the sellers stayed and favored us given that our multiples are -- the high end of our multiples range as stated is still 6 times trading EBITDA. So we have a board meeting coming up this month Patrick, but we’re not recommending as management that we have to compete with these new bidders in terms of profits, that because of the way we manage these businesses and maintain the legacy of the small proprietary businesses. We have not elected to increase the valuation model that we use.

Patrick let me back up. Got you it is 1.6, 1.5’s and 1.6 rather than 2.6 on the Rio Grande residence. Please forgive me.

He was talking about all of them.

Yeah, I was referring to the total revenue from -- So you did say that over the next few months there should be an expectation that we could see continued -- renewed acquisition activity indicating that there are still opportunities within your target multiple ranges.

Yes. Numerous.

Our next question comes from Bob [Poole] from [Brickland] Capital. Please proceed.

Very nice job. Would I be right in thinking Fletcher that in your -- I know you are -- I’m pretty sure you were employed in government at various times in your career. Am I right that you’ve never been elected to office.

That’s correct. Nor would I choose to be.

I know you seem to have a hard time making any promises to the voters. Sort of back on that subject, let me just clarify a couple of things. The $30 million number that you referenced earlier was that -- I thought that was -- I thought what you said was -- was you’re sort of best guess of what you would pick up in this cycle and that amount was in your guidance?

Let’s talk just a minute about how we develop our budget and how that translates into guidance. We ask each one of our 160 locations Bob, to develop their budget according to our calendar year, which obviously is the December closing. In that context, they meet with their various county payers and identify things like rate, census demand, hourly demand. Because you know even though the government budget is on a July cycle, they have to anticipate their needs too. So when we roll off all these budgets, what we have is a pretty good outlook for what the plan is for us for the calendar year that we had forecasted. That includes as you suggested contract increases, rate increases or census demand that would come to us as of July 1st. So our $130 million revenue forecast includes what we know today; is not our best guess, but in fact what has been indicated to us in concert with our government payers. What we have historically identified as pipeline as Mark Hughes suggested is upside to that number. Is business that has come to us since we’ve published our budget, proposals that we’re bidding on that were not know to us in January when we published the budget or sole source contracts with different payers who have invited us in. And we have always had that kind of activity happening to us.

Last year, we elected to identify the dollar amount of that activity for those contracts that were large enough to represent scale and we tracked them for you. The difference this year is we still have that kind of buzz but they don’t represent these larger multi-million dollar kinds of contracts.

I think the thing that I’m struggling with is when I take 4 times 32 being a simple, minded kind of guy that I am. 4 x 32 is 128. You did 32 in the first quarter. In the third quarter you know and let’s assume the June quarter is flat, which I don’t think is a good assumption but let’s just say that. Then in the September quarter, I see you have three things going on: one is you get the cost of living increases, two is new contracts and three would be increases in census that you referenced earlier. There is not a whole lot of room in the guidance for increases from any of those if 4 x 32 is almost where you are today?

We’ve got to what we know rather than to what we speculate. We can assure you that we have developed a budget in concert with our payers that leads us to be pretty confident with our guidance. What we haven’t done Bob is take any type of speculative assumptions and say okay last year you know our census increased in July was 16% so let’s assume that in Q3. So I think it is safe to say that we’re trying to guide conservatively and be predictable as opposed to a reach types of guidance particularly when you’re dealing with government entities.

Okay, fair enough, and clearly the voters in PRSC stock are supporting you reasonably well. And then just the final question which is kind of related but moves down to the earnings line. If I read your release right you had $500,000 of Sarbanes-Oxley in the first quarter which -- without -- which is approximately 3 cents. Okay, so sort of without Sarbanes-Oxley the first quarter was a 25 cent quarter. I’m not saying that Sarbanes-Oxley doesn’t count okay, but if you did 25 cent quarters for the rest of the year which again is making an assumption of flatness that doesn’t necessarily seem valid to me, you know even there you are getting 97 cents -- what might I be missing there?

You’re missing any upside that we haven’t announced and again until we have some comfort that it’s probable we don’t announce it and you’re missing any acquisition activity, which we are confident will occur but again we haven’t guided to it because we can’t quantify.

Yeah, I was wondering if I was missing anything to the downside as opposed to the upside.

The downside Bob would occur in contract terminations, and we’re obligated to announce those regardless of scale. So the next, you know, the last month and the next few weeks are crucial in terms of downsize to our budget, because we assume and we’ve developed our guidance that 100% of our contracts will be renewed. So if indeed someone were to terminate with us or reduce their rate or reduce their census, we would have down size in that guidance.

Okay, well I think in the long run you will definitely be rewarded for your approach. So, good job and keep it up.

Our next question is a follow-up question from Mark Hughes. Please proceed.

Thank you. What were the audit costs in the first quarter of last year, do you have those, Michael?

We spread them out so--?

Well, our audit fee for last year was about 304. Let me make sure I get the right year.

’03.

I’m just trying to think what the comp was versus this 593 in expenses in the first quarter roughly what might have you expensed in the 1st quarter of last year.

We really if we had accrued it all up as of December of ’03, Mark, so there was very little in January of ’03.

Our total operating costs in ’03 by – about 200,000.

May/January of ’04. Our total audit costs last year says the ’03 were about 135,000. This year the audit costs solely were about 150,000 or so. It’s Sarbanes Oxley related.

Which you had none of in ’03. So, take a quarter of 200 roughly, Mark, probably is a good guess. You know, you had about $50,000 as opposed to $600,000.

So, the 593 is almost all incremental?

That’s right. And you won’t see it in the remaining quarters. So, we’re going to book it now in the future all in Q1.

Yes. Does it make sense in terms of guidance, just to have a – this is our guidance for the year, if we do better from a contract prospective then we’ll outperform our guidance and --?

What we did last year, Mark, and I’m sensing some frustration maybe, I don’t know. We amended our guidance last year 6 times, and we amended that as we knew information that affected the guidance. So, the policy has been to guide to what we know and change that guidance as what we know changes, as opposed to really corner ourselves into some speculative guidance and then not be able to achieve it. So, our expectation is as we develop acquisition activity or as we develop sole source contracts, we will amend our guidance accordingly. Also on the down side, if we were to have a contract terminated, we obviously would amend our guidance accordingly.

Right, exactly. Okay, and then Craig you talked about good outcomes in Florida, perhaps positioning the company for opportunities elsewhere. Is there much real activity elsewhere? Are you able to take these results, are you knocking on doors and getting any response?

Yes, for example, North Carolina is a state that is going through, what I would call similar privatization efforts, and we’ve been able to use some of our experience and even our references in the Florida business in our efforts in North Carolina. So, we see several other states that are talking about these initiatives. I think the more we can represent ourselves as the experts, we’re going to have a leg up.

I think we said historically, Mark, that we’ve always used Florida as a radical approach to privatization and we don’t really expect that any other state will follow suit as dramatically as Governor Bush has. But a number of states are looking at components of the Florida program, which we have talked about, like North Carolina, like Pennsylvania, like Texas, who are looking at taking pieces of what Florida has done and implementing them. But we think that it would be highly unusual to see another state, certainly in the next couple of years, adopt a very aggressive total privatization model that Florida has adhered to.

Right, exactly.

Okay, thank you.

[OPERATOR INSTRUCTIONS] Our next question comes from Richard Close from Jefferies and Company. Please proceed.

Hi, guys, congratulations. A quick couple of questions. I was wondering if you can just, and I apologize if you’ve said this, I’ve been on and off the call, so I apologize, but if you could just give us some sort of details with respect to the pipeline. Is there any one service area that is doing especially well right now? And then outside of the pipeline, are there any other service areas you want to develop in the near future?

Yes, let me answer that a little bit differently so I don’t just repeat myself. Our core business, Richard, and the business we see the most demand on is our home based counseling delivery service. We expect and continue to see unsolicited requests to introduce that. We are invited into states that are struggling with their budget. That is typically the lead program for us in any new conversations. Foster care is growing a little bit. But for the most part for us to achieve foster care growth, we are taking existing market share away from some other foster care provider. Now, the organic growth that we see in the management side of our business is new. There really isn’t anybody else proposing to manage these large not-for-profit social service programs. And our growth is all organic in where we see the most demand on our business is on the home-based side. So what we continue to see is kind of pipeline activity or not-for-profit organizations that are approaching us, are in dialog with us about managing their business. And as Craig indicated, and it speaks to our earlier pipeline conversations, we signed a management contract with a not-for-profit based in Sacramento in this last quarter. However, it was not material enough for us to announce. We addressed it in these calls, but otherwise we would be issuing a press release literally every day, because we have 325 contracts. Most of our pipeline represents opportunities that are small. You know, a contract here, a contract there, a management contract. None of them singularly amount to more than $2 million on an individual contract basis. So, we have a positive outlook regarding our pipeline, but not to the point where we have elected to announce any of it because primarily of scale.

Yes, that’s great. Some commentary on acquisitions, and I apologize if you have talked about this again, but if you could just give us an update on what the environment is on the acquisition front maybe size of targets, you know, any different services areas, any different states, or stuff like that?

The word our lawyers like me to use is “robust.” What that should indicate to you is that there are numerous opportunities. Most of them are small. It is rare that we see companies, target acquisition companies that have scale. So most of the companies that we are talking to are $5 million to $10 million of revenue and, Richard, our prices holding that is 6 times trailing EBITDA what we’re in the hunt for. We haven’t elected to go over that mark. Do we have any board authority to pay more than that. So, for the most part, we are in dialog with a number of smaller operators. And if you look at our acquisition history, they are targeted toward new geography. We got into California through an acquisition. We got into Pennsylvania through an acquisition. We grew in Indiana through an acquisition. So, our energy right now is spent into states where we do not have a presence or communities where we do not have a presence, so we have media geographic reach within our price range. And as we did discuss earlier, if you missed it, we are seeing some competitive activity now from some of the other companies you follow like ResCare, Maximus or Cornell, the private company Mentor, and others that are now interested in consolidation in our space. So far that’s not affected our ability to attract or close a deal.

Our next question is a follow-up question from Patrick Swindle. Please proceed.

With the Aspen acquisition you all made last year, you moved into the drug court area and added the Choices Program. You mentioned at the time that there would be the opportunity to potentially cross sell that into other markets. Have you all had any initial success in translating that new service area into other markets?

We are in a number of conversations, Patrick, with drug courts or programs that want to develop the drug courts. None of them would be of size enough to represent more than a $2 million contract and they would be effective in July, but we fully expect that we be adding some drug core business leveraging off of Las Vegas. But it’s not going be big. We’re not going to build a division this year out of that product line. We’re not going to take the world over from that. But we do see opportunities to encroach and leverage off of that business. But it’s going to be small contracts here or there that represent kind of pilot programs in the drug core business.

We have a follow-up question from Richard Close. Please proceed.

Yes, Michael, I was wondering if you could talk to us a little bit about DSO’s and do you have targets on where you want DSO’s? Maybe some additional details there?

Well, the management fees, I’ve said in the past, 180 days or less, would fit the bill for me. You’re not going to get much more mileage out of the home base and foster care, DSO, you know. It’s going to be probably 70 to 75. And that’s all just good. I am very comfortable where we are right now.

We have a follow-up question from Mark Hughes. Please proceed.

Thank you. Give me one second, I’ll think of my question.

You lied, Mark.

I know. Just a second, I’m sorry. I’ll try to get back in the queue, otherwise I’ll give you a call.

[OPERATOR INSTRUCTIONS] Mr. McCusker, we have no further questions, sir. I will turn it back to you for closing remarks.

Thank you, very much. Thank you everyone for joining us today. As you gather, our outlook today is that we will continue to be driven by increasing population and eligible beneficiaries. States will remain autonomous and how they balance this need versus the funds that are being made available to them. So in the short term, we expect to continue to be the beneficiary of these dynamics. And as always, if we didn’t get to any questions you had today; please call myself or Michael at any time. And I will talk to you all next quarter. Thank you and have a good day.

Thank you for your participation in today’s conference. This concludes the presentation. You may not disconnect. Everyone have a wonderful day.