ModivCare Inc (MODV) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2006 Providence Service Corporation earnings conference call. My name is Cheryl and I will be your audio coordinator for today. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to your hostess for today's call, Ms. Alison Ziegler from Cameron Associates.

Thanks, Cheryl. Good morning, everyone, and thank you for joining us this morning for Providence's conference call and webcast for its financial results for the second quarter ended June 30, 2006. You should have all received a copy of the press release yesterday. If you did not, please call Devin Rhodes at Cameron Associates at 212-554-5461, and she will send one out and confirm your name on our e-mail list.

Before we begin, please note that we have arranged for a taped replay of this call which may be accessed by telephone. This replay will be available approximately one hour after the call's conclusion and will remain available until August 17th. The replay number is 888-286-8010 with the passcode 32826789. 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 revenue and earnings for 2006. 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 actual 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, August 10, 2006. The Company may choose from time to time to update them, and if they do, we will disseminate the updates to the investing public.

I would now like to turn the call over to Fletcher McCusker, Chairman and CEO.

Alison, thank you very much. Just a note for our listeners, this month will be the third anniversary of our IPO in August of 2003, and Alison has introduced us every quarter save one when she was delivering her twins. So we forgive her for that and, Alison, thank you very much. In Tucson today is Michael Deitch, our CFO, and Craig Norris, our COO. All of us will be available following our scripted remarks for your questions.

We view this as a very solid quarter for the Company. With the slowness evidenced last year behind us, we are again experiencing the kind of growth the Company is known for; 30% revenue growth, 30% growth in our managed entities, which remember is 100% organic; 14% organic growth excluding any bonuses or consulting fees. Our census is up 36% to now 43,425 clients. Remember a client for us is a pure Social Security number, someone that has been referred to us by a government payer.

We are also seeing solid sequential growth that is consistent with our forecast, with a 6.5% increase in revenue and a 7.5% increase sequentially in our client group. For our tenth year in a row now, we have been offered to renew 100% of all of our contracts that were effective July 1st. We believe this is a remarkable and an unmatched privatization achievement, and we are seeing significant bidding activity beyond that in California. And at least one large procuring state, Texas, now has accelerated its privatization opportunities.

We are precisely on our forecast with the exception of some denominator changes in expenses related to stock comp. Remember prior to this quarter, our guidance did not include stock compensation expense. We are going to talk about our guidance here in a minute, and these unbudgeted expenses associated with the significant Texas proposal.

I will let Michael walk you through our results, and Greg will talk about operations.

Thanks, Fletcher, and good morning, everyone. In our second quarter of 2006, revenue totaled $45.8 million, up from $35.2 million for the first quarter of 2005, a 30% increase. 14% of this increase was from organic growth; 16% of the increase was from companies we acquired in Georgia, Kentucky, Tennessee, Missouri, North Carolina, and Nevada since the second quarter of 2005.

For the three months ended June 30, 2006, as compared to the three months ended June 30, 2005, home-based revenue grew 23%. We grew 11% organically and 12% from acquisitions. Foster care revenue grew 58%; 26% organically and 32% from acquisitions. Management fee revenue grew 72%; 34% organically and 38% from acquisitions. Second-quarter operating income totaled $5.3 million, which was 11.6% of our revenue. This compares with $4 million and 11.5% of revenue for the second quarter of last year.

Second-quarter net income totaled approximately $3.3 million, which was 7.3% of our revenue. This was an increase of 40% and compares with almost $2.4 million and 6.8% of revenue for the second quarter of last year. First-quarter diluted earnings per share totaled $0.28 on nearly 12 million diluted shares outstanding, compared with $0.24 for the second quarter of last year on approximately 9.8 million diluted shares outstanding at that time.

During our second quarter, we recognized $48,000 of stock compensation expense. We project that in Q3 and Q4 of this year, stock compensation expense will total approximately $151,000 in each quarter based upon the restricted stock and stock options granted in June 2006. The $151,000 amount assumes no additional stock compensation grants this year.

At the end of our second quarter, our Days Sales Outstanding from home and community-based services and foster-care services was 80 days, up from 71 days at the end of our first quarter this year. The primary reason for this increase is the amount due from our payer here in Arizona who is consistently behind processing our encounter activity on which our ultimate reimbursement is based.

Our management fee Days Sales Outstanding was 174 days at June 30, 2006, up from 157 days at March 31, 2006, but still under our 180-day target. The reason for the increase was twofold. Florida Medicaid is outsourcing reimbursement administrative functions to Medicaid HMOs, primarily Amerigroup, ValueOptions, and WellCare. This has extended the collection time for one of the large not-for-profit entities we manage from an average of 7 days after billing to over 30 days. This has in turn slowed the management fee receivable collection time to Providence. These payer changes accounted for approximately $800,000 of increase in our management fee receivables.

In addition, another large not-for-profit entity we manage that is located in Pennsylvania experienced a June 30th year-end collection slowdown due to normal payer reconciliation activities at the payers' year-end. The units of service provided by the not-for-profit organization exceeded their monthly 112 reimbursement amount. This accounted for approximately $280,000 of increase in our management fee receivable from last quarter.

During our second quarter, we raised our general and professional liability deductible to $1 million, up from $250,000. Due to our favorable claims history for this line of coverage, management believes it was prudent to do so. By increasing the deductible, our captive insurance company was required to increase its restricted cash by $3.4 million under our reinsurance program. We anticipate insurance expense savings in future periods, assuming claims activity remains at historical levels.

Also during our second quarter, we experienced an increase in general and administrative expense of $538,000 over the first quarter. Approximately $430,000 was related to the acquisition of WD Management, LLC on April 25th. We also had bidding expenses, increased occupancy expenses for new locations, annual port and proxy printing expenses, stock compensation expense, and increased medical claims expense over Q1. These expense increases were offset by a net reduction in audit and accounting fees.

Our use of cash from operating activities totaled almost $7.6 million for the second quarter. Approximately $5 million relates to the growth in accounts receivable, $1.6 million of which was from our large payer here in Arizona. $1.2 million was due to a change of payer in Nevada, and the balance from internal growth as well as normal slower payer remittances at our payers' year-end.

In addition, we have overpaid our year-to-date federal income tax liability, primarily due to the tax deductibility of stock options exercised in Q2. These exercises were not anticipated when the Company initially determined its estimated tax payments. These option exercises were the primary reason we now have a prepaid income tax asset of approximately $2.6 million, which is recorded in the prepaid expenses and other line item on our balance sheet.

Furthermore, at June 30, 2006, we had $1.7 million owed to us from our professional liability and workers' compensation insurance carriers that will be collected this month. This amount is recorded in the other receivables line item on our balance sheet.

At the end of our second quarter, we had $45 million in cash. All of our debt owing to our lender, CIT Healthcare Finance, totaling approximately $18.4 million at March 31, 2006 was paid off in April 2006, with the proceeds of our follow-on offering that closed on April 17, 2006.

With that, I'll turn the call over to Craig Norris, our COO.

Thank you, Michael. For the quarter, we ended with a total combined census of 43,425 clients. These clients are being served from 240 local offices in 33 states and the District of Columbia. Compared to Q2 of 2005, this represents a total census increase of 11,464 clients. Combined between our owned and managed entities, we have over 5800 employees serving 600 government contracts. This represents an increase in 269 contracts as compared to Q1 of 2005.

This week, of course, we announced the closing of the Innovative Employment Solutions arm of Ross Medical Education Center. This is a workforce development job training organization providing job readiness and job placement assistance to disadvantaged clients. This acquisition serves Michigan, West Virginia, New York, and Pennsylvania, and combined with our other operations in Pennsylvania as well as Missouri, we have now significantly expanded our presence into the workforce development arena.

We are excited about this continued diversification and our further expansion into the Northeast, and we look forward to growing the workforce development division. Thank you, I'll turn it back to Fletcher.

Thank you very much. We will end our scripted remarks here with an update on our guidance. Since the acceleration of our options in December of 2005, all of our guidance has been without any stock compensation resulting from the new regulations. Our shareholders overwhelmingly approved a new plan in May, and we have since issued options and restricted stock to key employees, the majority of which are middle managers.

It is important to note I have received none of this stock, nor have any of the board members received any. We have issued 88,000 shares since May, and we will probably issue some later in the event that we might have an acquisition where we want to offer some equity opportunities for incoming employees. Consequently, our guidance will be adjusted for stock comp. If you remember, our original guidance for 2006 pre-deal, we guided to $1.25 a share. The follow-on offering in May diluted our guidance to $1.20 a share.

We announced the Ross acquisition, as Craig suggested, as accretive $0.02 this year, $0.05 next year. So consequently, our pre-stock comp guidance would be $1.22, approximating the $1.25 that we originally guided to. Stock comp, as you know, is a very complicated regulated formula that affects not only the denominator but our income taxes, as well as the employee compensation line items through the interplay between the estimated value of the grant, divesting period, and the number and type of shares that we issue.

You will see a significant disclosure on this calculation in our Q, but to make a long story short, we currently estimate that stock comp as Michael suggested will cost us $0.03 per diluted share in 2006. That would include Qs 2, 3, 4. Consequently, our post-stock comp guidance for 2006 would be $1.19 based on the current share count. So $1.22 pre-stock comp, $1.19 with stock comp included. So I think we've clarified that, hopefully, to your satisfaction and we will answer any questions in that regard as it relates to our guidance.

With that, operator, let's go ahead and open the line for questions.

(OPERATOR INSTRUCTIONS) Rob Labick, CJS Securities.

Congratulations on a strong quarter. First question I just wanted to ask, it appears that San Antonio has put out for bid foster care, privatization. Could you update us or give us a sense of that program and its size, and on the size of Texas in general as they move forward towards privatization?

Thank you. We don't talk specifically about a payer or a payer's bidding activity. I think globally we have talked about Texas and its acceleration in the privatization arenas. If you will remember, Texas passed legislation last year that would require them to privatize by 2011. We had expressed in some earlier public remarks that there was no way to really gauge how quickly counties were going to move toward this. San Antonio indeed is one county that has accelerated their activity, and I think it is available in the public domain that they issued an RFP earlier this summer.

We are restricted, in fact, Bob, in our procurement activity from specifically talking about a payer or trying to handicap any bid that we might be involved with. So we won't be able to do that as it relates to Texas, but clearly we see Texas as the next Florida in terms of privatization initiatives, of which they are of major scale. Florida, if you'll remember, our garden variety contract is a couple million dollars a year. They are typically annually renewed.

The exception to that has been Florida, where we enjoy contracts up to as high as $35 million a year, and they are multi-year awards. The Texas model is more similar to the Florida model in that these are large, single vendor type awards and are multi-year contracts. So we would expect that some time in Q3, you'll have kind of the first evidence of the announcement of awards in Texas. And clearly, we intend to be a player in that regard and really won't be able to say much more until we see what the payers' intentions are regarding that procurement activity.

Okay. We'll look forward to hearing more about that. Could you update us -- obviously, you just announced a nice acquisition and it seems like it will be accretive this and next year. On your last call you had mentioned you potentially could make up all $0.05 this year in acquisitions, which would suggest more acquisitions to come.

What does the pipeline look like? Is that still feasible? Should we expect additional acquisitions next year, or how does the pipeline stand?

Our activity, development activity, acquisition activity remains very busy. We have two dedicated attorneys internally now to deal side. We have people that are exclusively finders for us. Bob, we get a lot of unsolicited invitations to look at deals. These are problematic deals to close. I think we've talked about that. We are often looking at very small companies that have not been audited, and we do an extensive amount of due diligence in our acquisitions up to and including conversations with the payers when we get close to closing to make sure there will be no disruption of the contract volume.

So the one thing that we cannot do and have not been able to do and I want to encourage you not to do is to try and predict when we might close on anything. We remain committed to closing one a quarter. I think we have been on track with that since we've gone public. So yes, we believe we will have additional activity in 2006. Our guidance does not contemplate this. I don't think your model does, Bob.

Some analysts have included some acquisition activity in their model, but we discourage that the extent we really can't control the timing of these events. But our intent, as you suggested, is to make up the deal acquisition through the follow-on by using this acquisition activity to offset that, and it is still our intent.

Terrific. Just shifting over to cash flow, first, Mike, thank you very much for detailing the use in the quarter. Could you help us out in terms of your expectations for the year for cash flow for operations and the timings of recovery of some of these changes that you outlined? Just overall expectations, cash flow from operations for the year.

Gladly. I anticipate, of course, we're going to be positive cash flow for the year. I expect our management fees will be reduced total. We will, of course, collect the amount we have with our insurers, that $1.7 million. I expect -- well, I have been here nine years, and every June 30th and for every December 30th for that matter, our payers seem to be slower remitting to us. So that is their natural year-end, and then at Christmas time they seem to take some time off.

So I certainly expect a very nice turnaround in this area and positive cash flow for the year, of course.

Great. Thank you very much, and we look forward to seeing you at our conference next week, Fletcher.

Patrick Swindle, Avondale Partners.

First of all, Michael, in looking at G&A on a going-forward basis, would you expect the stock compensation to flow through the G&A line or the operating expense line? Should we expect that we're, for the most part, steady-state with more normal growth going forward in G&A?

When the equity awards are granted to people in the field who work with clients, then that expense shows up in the client service expense line. If it has to do with some people who work in the management fees area or here at corporate or a board or whatever, then that would show up in the G&A line. You did note we increased G&A by WD. I expect that it should be pretty well steady-state, Patrick.

But there is nothing that should materially increase or decrease the run rate relative to the second quarter.

Well, we do hope in Q3 and 4 that we get some leverage from our new healthcare provider, United Healthcare. We switched carriers here effective July 1st, and we hope our healthcare claims expense goes down somewhat, and we should get some leverage there.

As Michael suggested, Patrick, most of that jump in this quarter was due to the acquisition that included a number of administrative personnel that came over with it. So it is unusual that you would see that kind of spike, and we don't currently have any replicative kind of acquisition in the pipeline. So we would not expect that you'd see an unusual spike as a result of acquisition activity. So it should be more normal.

Okay. Fletcher, you mentioned with guidance that the current guidance does not assume any additional grants of either restricted stock or options will occur this year. Is it possible that we could see additional grants, or do you expect that we would not see any until the following year?

The only time you might see additional grants is in the event that we do an acquisition, and as part of the recruitment of those key people, Patrick, we would offer some equity to incoming management or incoming key staff. Generally, internally, our comp committee and board looks at stock comp once a year, and we have gone through that process as it relates to our existing and current staff, including myself. So you should not see any other options unless we were to get into a situation where he had a key person that we wanted to recruit and we would offer some stock comp in that.

Then clearly, the acquisition itself should be accretive enough to where it would not affect guidance again. It would be offset by the accretion of the deal. So yes, we should be good with this -- it is to the penny guidance, so we haven't created real cushion for ourselves, as Michael suggested. We know exactly what the stock comp will be in Qs 3 and 4, and we will not offer additional grants unless it is through an acquisition.

Okay. But to the extent you are discussing accretion related to an acquisition, that would include the option expense -- or restricted stock expense if there were to be any associated with that.

That is exactly right.

Perfect. Craig, in talking about the opportunity in the workforce services area, when you look out at that market, it would appear that there are a couple of relatively large players and that you have, I would say, a pretty broad swath of providers below that. Would you expect that you're going to be growing that business primarily organically from here, or are there other acquisition opportunities that would allow you to enter other markets as well?

I think that our first step was really getting a presence in that arena, which we have now done both in Missouri and with this recent acquisition. We have done a little bit of this already in Pennsylvania. I think our goal now is to take this product line, this reputation that we have now acquired basically, and go to some of our existing markets and start understanding what the opportunities are in those areas.

I think growing this business on the workforce development side when you had no presence in it was going to be very, very difficult. But now that we have experience in this product where we can leverage the reputation, the relationships from states where we do it, I think we will have a much better opportunity to begin growing this in our other operations.

I don't think this happens overnight, because I think these are a lot of long-term providers that are typically in this space. But I think now at least we have an opportunity to begin having those conversations in areas where we previously would never have entered into this market.

How do you guys think about the margins of that business versus your core home- and community-based business?

Typically, the margins in these businesses are cost reimbursed type margins, so they are relatively fixed. That can vary, but I see them of the similar nature 10% to 11% of our current contracts that we see out there under the workforce development.

Our entry into this market, Patrick, I think is worth talking a little bit about. I think as you know our primary focus over the last several years has been on the social services side for our clients, helping them become a productive family, dealing with their issues as it relates to interrelationships. We have done work in what we would call employment readiness, but ultimately I think the goal for our client base, of course, is to enter the workforce. And we have been -- referred our clients over to one of these workforce development organizations to train and place them in a productive job situation. So we see this as a very nice fit to our lines of business.

We would hope to be able to add this product in every market where we operate, so that ultimately we are viewed by the payer as a one-stop kind of provider where we are also doing the social services; we are engaged in the tutoring aspects of the No-Child-Left-Behind Act, and that ultimately we are responsible for helping find our families and the adult members of our client base a job. It is a comparable reimbursement methodology. It is a measurable methodology in that the payers looks to job placement success as one of the benchmarks in renewing these contracts.

I think it is no secret that generally, the payers of this are disenchanted with many of the current providers, so we do see an opportunity to enter this market both in the terms of de novo growth where we might bid competitively and through these kind of strategic acquisitions where it makes sense to add this service to our existing social services bid.

Thank you.

Mark Hughes, SunTrust.

Fletcher or Craig, could you talk about what you see at the start of the new state fiscal year here in terms of census increases in new contracts?

Mark, we see this summer pretty much as business as usual for us. This summer is not unlike the environment three years ago when we went public where we have strong demand organically for our services. Remember, we don't have a lot of upside on rate. We would expect a very small cost of living increase. I think what is in our guidance, Michael, is one point, maybe 1.5 points. So again, there is not a lot of upside for us in terms of rate. But we do see normalized census demands, given the issues we had in Q3 of 2005, with some of the congressional hiccups that we all dealt with.

There is no pressure from Congress on these budgets. There is huge in-migration issues into many of our states, California and Nevada, Arizona, Colorado, Florida, of course, who are struggling with this continued in-migration of clients. So we see the kind of normalized census demand that we have had which usually spike in Q3.

Now, one of the things that is going to make your job a little harder is we also now have seasonality in some of our programs, namely A to Z and CBH, which are educationally funded, which go dormant in the summer. So you'll see our contract number drop off and you'll see our clients, to the extent they're educational clients, drop off as a result of that activity.

So if you're modeling us on a client per contract or a client per revenue basis, we probably just made that harder for you to do because of the seasonality now built into the educational side of our business. But in terms of the social services side and the workforce development side, we see the same kind of consistent demand we've seen every year except for last year.

Any outlook in terms of organic growth? Historically, you've talked 20% area. This is sort of 14 to 15 in the last couple of quarters. What might we think about going forward?

Well, we have guided to $184 million this year over 145, which is right at 20% growth. Most of that is loaded in Qs 3 and 4. If you look at our own guidance, we are dead-on in terms of anticipating growth in this quarter sequentially over Q1. So clearly we are saying in so many words that we expect census increases in 3 and 4, which contribute to the bottom line.

Remember what I said about rate. Very little of our revenue increase is going to be rate related, and you'll see our guidance jump I think to $0.30 and then $0.35. That is entirely census driven, Mark, and picking up this little COLA as we suggested, and then we do have some G&A savings built into our forecast in the last half, primarily through the changes in our insurance program by going to a higher retention or exposure level in reducing our premiums in that regard. So that is really what makes up the difference for us in 3 and 4 versus 1 and 2.

You compare your expectations as you stand now versus this time last year when I think some of those population numbers, it was more difficult because of the budgeting environment. Would you expect the sequential improvement to be better this year than it was last year?

Again, we expect sequential improvement in our revenue base, particularly as the educational programs come back online in September. So you will see relative small sequential growth probably from 2 to 3, is the way we have anticipated it if you're looking at pure census numbers and revenue numbers because of the seasonality of our educational lines now.

But once they come back online in September, which is I think reflected in our guidance, we expect most of this growth to be September forward in '06.

Does that say better this year than last year?

Yes, that is better. There is none of the kind of chaos that we were experiencing this time last year as it relates to Congress. Congress is on a traditional schedule for budgeting. Our states are back on their traditional schedules for contracting. There is no kind of anxiety in any of our programs.

There are some issues with Medicare. If you follow companies that are Medicare funded, you know that they are facing a 5% fee reduction, but we have not seen anything like that in the programs that fund us; Medicaid, prevention, state tax, foster care dollars, any of those kind of things. So we expect a normal growth pattern to the extent, remember, our growth is rationed by our payers, but we believe it will be consistent with our forecast.

One final question. In Texas, are we looking at sort of, at least for this first go-round, a single opportunity for a contract for administrator, or do we have kind of a subcontracting opportunity as well to provide direct services?

Well, until Texas actually procures, we can only tell you what we think might happen. Texas has eight regions -- 11 regions that will be bidding for this activity. Each one of those contracts is anticipated to be larger than anything we've seen in Florida. Now, we have seen situations where payers will advertise a $50 million contract and then award 5, $10 million contracts. So we really can't predict ultimately how Texas will embrace the model, but the Texas legislation does contemplate a large administrator for each one of these regions.

It is also conceivable as we've seen in Florida that you could have contracts across multiple regions, as we enjoy in Florida, where we are in seven regions. So our thinking of the Texas opportunity is that we intend to bid as an independent administrator singularly in each one of these regions that invite us to do that.

Now they may award one contract to a single winner. They may award multiple contracts and split the business up. That may differ, Mark, drastically from region to region. What San Antonio County does does not obligate Tarrant County or any other county to do it likewise. These counties have a lot of discretion in terms of how -- the regions have a lot of discretion in terms of how they roll out this plan. But right now, the local conversations -- and we have spent a lot of time in Texas -- are that they are looking for a single, large, experienced administrator to manage large-volume contracts. The San Antonio contract, for example, would extend to 28 counties. So that is the lay of the land today, and we really won't know until the procurement process is completed how Texas intends to roll out this privatization.

One final quick question. How much revenue did you get out of the Florida opportunity, and then what was the total opportunity in total?

I'm going to shoot off my hip here in that regard, so if I miss numbers, I will get back to you. But the opportunity was $1.5 billion. We probably ended up with something in the neighborhood of 75, maybe $80 million total. So again, these are going to a wide variety of providers. We are only the lead agent in one of those Florida contracts. We are a participant provider in the other six again, so the nature of those bids to the extent they said President and other states, you may see awards for a company like ours at the provider level that would be very small.

You could see us at the syndicate level, which would be little larger. Or you could see us as the administrator, which would be quite substantial. Our lead agency contract in Florida is a $35 million a year multiyear award, so again we don't really know -- Florida now we understand how it works, but it was an evolving process that was to some degree unpredictable until you went through it. And we see Texas very similarly in terms of they have privatization legislation and a lot of discretion at the county and regional level in terms of how they procure providers.

Thank you.

(OPERATOR INSTRUCTIONS) Richard Close, Jefferies & Co.

This is Dmitri Usanov. I'm calling for Richard Close. My question is in your 10-Q, you're saying that in the District of Columbia your community-based services revenues declined by $782,000. And I was just wondering if -- how do you see your operations in the District of Columbia going forward?

That is a good question. We're happy to address that. The one market that we have been disappointed with since we went public is D.C. and our presence in D.C. It is chaotic, it is confusing. It is hard to identify who is in charge. The District is basically in receivership and has had significant turnover of administrative personnel. Most providers, if you look at the providers in our comp group, have deserted D.C. because of contracting issues, payments issues, chaos, and procurement generally.

Primarily at my insistence, we remain in D.C. I believe morally we are obligated to do provide services in the nation's capital. You can literally throw a rock from many of our clients' neighborhood and hit the dome of the capital of the United States, and I think it is shameful that providers desert this population because of regulatory or bureaucratic issues.

So our intent is to ride the wave with D.C. and what you might expect from that is unpredictable. One year, it may be up; the next year, it may be down. Payment processes slow as administrative changes happen or they design a new way to pay their bills, and it has been a rocky road probably for anybody that has participated in social services in the district.

We remain committed to do that and believe that we are strong enough elsewhere to absorb any kind of problems that they might present to us. Ultimately, I have to believe that Congress or someone is going to intervene in the district and stabilize that environment and stabilize the procurement process and clearly be an incumbent provider. If and when that happens t is important to us, so we will continue to report to you these kind of issues. Hopefully, sometimes the news will be good, but you can expect given its history that D.C. will continue to be a chaotic market.

I understand. Also, can you please give some more detail again on receivables? Why did they go up again?

Accounts receivable?

Accounts receivable, yes.

Up about $5 million; $1.6 million of that was due to our payer here in Arizona. Nevada, the change of payer to First Health, $1.2 million. Internal growth and normal year-end slowdown of our payers for their year-ends, about $2.2 million.

I understand. Thank you.

[Kurt Schneckenberg], [Kurker] Capital.

My question has been answered. Thank you.

This concludes our question-and-answer session. I will return the call to Fletcher McCusker for closing comments.

Thank you and thank you, everyone. To summarize quickly, we continue to see solid growth for us. Again, remember, our growth is rationed to the extent that our payers dictate and demand that. We do not see some of the congressional and government confusion that we saw in the fall of last year.

We have a number of consolidation opportunities with little or no competition emerging, a robust bidding environment now developing in two of the country's largest states, namely California and Texas. And again, 100% renewal of our contracts and very predictable metrics when you understand the kind of spike in G&A. So it is pretty much business as usual for us here.

I am on my way to New York, as Bob suggested, for the CJS Conference. Again, Michael, Craig, and I are happy to take questions offline if you did not hear an answer to your question today. And we would encourage you to visit us if you are out and about. We have had shareholders and analysts visit us recently in California and in Virginia and in Maine, and our staff are used to that and we always welcome that. So if you would like to do that, you can coordinate that with Kate in my office and we are happy to host you in any of our sites.

Thank you very much, and we will see many of you next week in New York. Thanks again.

Ladies and gentlemen, this concludes our presentation. Thank you for your participation. You may now disconnect. Good day.