ModivCare Inc (MODV) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first-quarter 2007 Providence Service Corporation's earnings conference call. My name is Francis and I will be your operator for today. As this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes. I will now like to turn the call over to Ms. Alison Ziegler with Cameron Associates. Please proceed.

Thank you, Francis. 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 ended March 31, 2007. You should have all received a copy of the press release last night. If you did not, please call Devin Rhoades 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 May 16th. The replay number is 888-286-8010 with the passcode 95982099. This call is also being webcast live with the replay available. To access the webcast, go to www.provcorp.com and look under the event calendar on the IR page or alternatively www.earnings.com.

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 2007. We wish to caution you that such statements are just predictions and involve risks and uncertainties. Actual results may differ materially. Factors which may effect 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, May 9, 2007. 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'd now like to turn the call over to Fletcher McCusker, Chairman and CEO. Go ahead, Fletcher.

Thank you very much, Alison and good morning, everyone. We are in Tucson today. Michael Deitch, our CFO, is here, as well as Craig Norris, our COO. As usual, we will take your questions as soon as we finish our scripted remarks.

We are pleased obviously with our first-quarter results having said publicly that we thought it would be a strong quarter. We benefited from probably three positive trends. We are a little ahead of budget operationally. We did benefit from a slightly lower than forecast tax rate and of course, the stock repurchase program has reduced our sharecount.

Our visibility for 2007 is good with numerous growth opportunities and we believe the risk profile of our business moving forward has been reduced with regard to certain contracts. Externally, the democratic Congress appears to be pro-social services. Wherein the last couple of years, we have dodged bullets coming from the federal budget balancing. The Democrats are proposing a 5% increase to the line items that states use to match our service dollars.

We've had some major contracts take effect January 1st, which is unusual for us. Both had to be ramped up immediately, demonstrating again our capabilities to our payers. We now are approaching 1000 contracts. We have received no notice of terminations for the contracts that cycle July 1st. Nor have we received any notice of non-renewal from any of our payers.

Our quarterly revenue of over $60 million is a record for us. Combined with our managed organizations, our annual book of business is rapidly approaching $500 million. We still see significant momentum in privatization of social services coming from California, North Carolina, Pennsylvania, Texas and most recently here in Arizona. The new Phoenix request for proposal that is expected to be announced last week will require that more of their services be outsourced to private providers. As an incumbent provider in each of these states, we expect to benefit from these trends.

The Texas argument over privatization should end this month. The attempts by the union and state employees there to repeal privatization have not been successful. There is competing legislation in the House and the Senate, both privatization. But the House version would be more advantageous for us. These differences will have to be settled in a conference committee within the next couple of weeks. If nothing passes, Senate Bill 6, the legislation from the last session would remain law and as you know, is the most aggressive privatization piece of legislation in the country.

We continue to encourage investors and shareholders not to speculate on the outcome of Texas as demonstrated by the last several months. This is highly emotional and highly politicized and its outcome is still highly unpredictable.

I'll let Michael now walk you through the specifics of our quarter.

Thanks, Fletcher. In our first quarter of 2007, revenue totaled $60 million, up from $43 million for the first quarter of 2006, a 40.5% increase. Organic growth amounted to a 27% increase with the remaining 13.5% increase due to companies we acquired in Georgia, Michigan, Missouri and Pennsylvania since the first quarter of 2006.

For the three months ended March 31, 2007 as compared to the three months ended March 31, 2006, Home Based revenue grew 47%. We grew 34% organically and 13% through acquisitions. Foster Care revenue grew 20%, all organically. Management fee revenue grew approximately $520,000 in the first quarter year over year.

First-quarter operating income totaled $5.3 million, which was 8.8% of our revenue. This compares with $4.8 million and about 11% of revenue from the first quarter of last year. First-quarter net income totaled $3.3 million, which was 5.5% of our revenue. This compares with $2.6 million and 6.1% of revenue for the first quarter of last year.

First-quarter diluted earnings per share totaled $0.28 with approximately 12 million diluted shares outstanding compared with $0.26 and approximately 10 million diluted share outstanding for the first quarter of last year.

In our first quarter, we've recognized approximately $500,000 of expense for our 2006 audit and Sarbanes-Oxley compliance costs. At the end of our first quarter, our days sales outstanding from Home and Community-Based services and Foster Care services was 81 days and virtually unchanged from December 31, 2006.

Through the quarter, we had start-up contracts in North Carolina and California, which are lagging in their initial payment to us and we are waiting to receive our National Provider Identification Number as required by HIPAA in order to process some of our billing in North Carolina.

Management fees days outstanding was 156 days at March 31, 2007, up from 152 days at December 31, 2006. Through the quarter, we allowed one of the not-for-profit entities we manage to age their management fee due to us one additional month.

At the end of our first quarter, we had almost $31 million in cash after repurchasing 442,000 shares of our common stock during the first quarter of 2007 in the open market for a total of approximately $10.4 million.

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

Thank you, Michael. For the quarter, we ended with a total combined census between our owned and managed entities of 75,346 clients. These clients are being served from 319 local offices in 37 states and the District of Colombia. Compared to Q1 of 2006, this represents a total census increase of 34,991 clients. Approximately 21,000 of these clients came from the MAXIMUS acquisition of their Correctional Services unit. We have also added 107 new local offices in the same period. Combined between our owned and managed entities, we have over 7400 employees serving 905 government contracts. This represents an increase of 295 contracts as compared to Q1 of 2006.

Overall, this was a good quarter for us operationally with solid performance from our core services and nice momentum in our School-Based programs, tutoring and the recently ramped up business in North Carolina and California.

Our District of Columbia operation continues to experience strong turnaround and is currently ahead of budget expectations. Our payers are pleased with our clinical performance and our program outcomes and we expect all of our contracts to be renewed in July. Thank you. I will turn it back to Fletcher.

Craig, thank you very much. Nice job, nice quarter. As stated in our release, we expect quarterly revenue to run about $60 million a quarter for 2007. This is a run rate guidance for us due to the new contracts that came online as Craig said in January. We will not experience the Sarbanes-Oxley and audit expense in Q2 that Michael just described to you, so we expect to see a $0.01 or $0.02 pickup in earnings per share in Q2. We will guide to Q3 and Q4 sometime later in the current quarter after some of these major contracts are better known.

Our current revenue guidance which we are reaffirming assumes 100% contract renewal, but does not include any unannounced contracts nor does it include any acquisition activity. We closed on a small acquisition in Q1 and remain on pace, dedicated with enough targets to anticipate closing on one a quarter.

With that operator, we will open the line now for questions.

(OPERATOR INSTRUCTIONS). Bob Labick, CJS Securities.

Good morning. Congratulations on another strong quarter.

Thank you, Robert.

First question -- I wanted to ask -- you highlighted strength in North Carolina and California in the press release and discussed it a little bit. Could you give us some more detail towards the opportunity there? Maybe what the relative size or expectations of sales are now combined for the two for '07 and then where they could be two, three years from now? Just give us a sense of the opportunities in these states.

You are asking for a lot on a public call. Let me see if I can -- what the lawyers will let me answer. If you remember the history a little bit of California, that is the result of the proposition there, Proposition 63. We won a number of new contracts over the late summer and fall. Bob, they were designed to be implemented January 1st. So we had an unusual out-of-cycle boost if you will from the California contracts. Those will be reprocured this summer.

The initial estimates from Proposition 63 revenue for the current contract year were about $200 million. They expect that to double next year. It is allocated to the counties on a population basis. We contract in the five most populated California counties, so you would expect that each of these counties would benefit from the increased appropriation that is automatically tied to income tax.

What we don't know is what those counties intend to do with that. They could increase existing contractors. They could give us a rate increase, a volume increase. They could recompete for contracts competitively. At this point, we can't tell you -- we don't how that is going to play out over the summer months. They are operating again on a January cycle. So that -- we will know more of that probably in late summer, early fall.

North Carolina, you will remember, the state has authorized statewide implementation after a successful pilot. We were the only home-based provider in the pilot program. Our initial contract there was not competitively procured and represents maybe a fourth of the opportunity in North Carolina. Again, we have not seen any activity yet from that state because it also is cycled on a January start date. So both of those states cycle usually in January. We do expect increased opportunities from both of those, but probably for calendar '08.

Great. That was very helpful. In terms of SG&A, you showed good cost containment in the quarter. I was wondering was there any incremental spending for Texas in order to potentially -- just for work down there from you guys for Texas for Q1 or for Q2?

Marginal in this quarter, Bob, maybe $20,000 or so. Nothing that is going to move the needle. We have really diminished our travel in and out of Texas. We do have some PR lobbying activities on the ground there. With the legislative session in full force, it is very difficult to call on anyone that might impact legislation. So we are pretty much letting it take its course. There shouldn't be a lot of expense from us going forward regardless of the outcome there.

Got it. My last question and I will get back in queue, obviously with the legislation session ongoing there, you have backed off a little from Texas. Has this enabled you to continue to look at the acquisition pipeline and can you give us just an update on the acquisition pipeline out there and what it looks like for you?

Well, the good news is there most of the distractions in Texas were mine and Chris Card, our regional VP from the Southeast and we don't have a whole lot to do with acquisitions other than the psychology of the romance and then participating in the closing process. All of our due diligence, legal work, accounting work is still handled internally. So that did not deter our mission.

Once again, let me remind you, we cannot predict nor do we control really the timing of these transactions. We have elected not to announce letters of intent. We will only announce a transaction as we close and fund it. So indeed, we stay relatively busy in that. We see no diminishment of the targets for that activity. They still tend to be small. We still expect, Bob, we can close one a quarter, but you may see us go -- I think last year, we might have gone six months and then closed two in the quarter. So it is not entirely predictable and we have encouraged you not to include that in the model because we can't control the closing schedule.

Great. Thanks for the update. Congratulations. I will get back in queue.

Thanks.

Mark Hughes, SunTrust Robinson Humphrey.

Thank you. In California, any reason you shouldn't be competitive at least for kind of similar volumes to what you got this year?

Yes, there is a good reason because we were probably too successful last year and what we have seen, Mark, historically is that if we win more than our fair share of business, there is provider and competitor backlash to that and we would not be surprised as we saw in Florida where we bid on seven contracts and won all seven that there was some disgruntled competitors as a result of that. We would not expect to be able to maintain the five of eight kind of track record if there is competitive activity because of the provider politics. But we would expect to win our share of those, but probably not to the extent we did in the first (inaudible).

Yes. It seems like this is a bigger denominator though I guess, but I hear what you are saying.

Bigger denominator, bigger state and thousands of providers. So it is incredibly political in terms of how counties choose providers, which is why we like a competitive environment. I think we have said publicly before, we tend to write pretty good proposals. We score pretty well on competitive procurement. So if the thing is totally above board, normally we will do very well in that environment.

When you enter into the politics of that, we don't have the status of some of these incumbent providers and clearly decisions as Texas indicates sometimes are made for political reasons and normally we are one down in a political environment because of our for-profit status.

Right. How about just general pipeline of business for the June 30 procurement, how do those stack up? And then a little more detail on Arizona, what is the potential size of the business there, timing, etc.?

We are not a direct bidder in Phoenix. Arizona, you will remember, is divided into 7 regions. This is the Maricopa County contract that is being rebid. It is about a $500 million a year contract. The incumbent provider is Value Options. They have enjoyed this contract I think for three years. The state has elected to rebid it. In the design of the RFP, Mark, they called for more services to be outsourced to subcontract providers as opposed to being provided for by the managed care entity itself.

So the system change there is really what we will benefit from. There are a number of bidders. I don't believe that has been disclosed publicly. We do believe they intend to announce that award next week and it is designed to be effective July 1st and after the awardee is identified, of course, then we would negotiate a subcontract. At this point, there is no way really to appreciate the impact of that or the size of that or how we might benefit from that. Our current encouragement there comes from the redesign of the proposal itself.

Right. How about more generally speaking, the pipeline of business for July 1st?

The states that we have mentioned that we consistently talk about, we expect more than kind of the single digit opportunities that we should see out of the appropriations process. Short of California, Arizona, Texas, Pennsylvania and North Carolina, we would expect the rest of our growth to be in the 7% to 8% kind of range.

Okay. And then one final question -- you have mentioned that the House version of the privatization in Texas included -- was more advantageous. Is that to say that the current version that is being considered includes a pilot in San Antonio?

Well, it is hard to track on a day-to-day basis because it is moving so fast. Any legislative activity in Texas -- we understand unless they elect to extend their session, which they have never done in the last zillion years, they have to be done with their legislative activity by the 23rd. So committees are rapidly trying to form amendments. Amendments are being drafted, circulated through legislative council. The Senate bill version has passed, so all of the action right now, all of the activity is in the House. It is almost impossible to monitor on a daily basis and we just encourage people to wait and see what happens.

We have also continued to say if something good happens in Texas today, don't go buy stock on that basis because something bad could happen in session tomorrow. So this is an incredible process. It is highly politicized. The unions have reengaged. And the outcome again is unpredictable. They would have to get something done, passed and to the Governor by the end of the session of course or Senate Bill 6 will remain the effective law.

Thank you.

Kevin Campbell, Avondale Partners.

Good morning. I was hoping perhaps you guys could give a little bit more color on the organic growth and I know you mentioned in the press release California and North Carolina, but was it more broad based than that and if you could perhaps touch on that a little bit, that would be great.

Hey, Kevin, Michael here and welcome as our analyst.

Thank you.

Core states, Virginia did well, Arizona did well, mentioned California and Nevada did very well, so really -- Pennsylvania -- really our anchor states we rely on month in and month out, larger states contributed to our organic growth.

I think it is also safe to say that this is prime time for the tutoring business right. So we have seen significant organic growth, Kevin, in A to Z company that provides the tutoring programs under the No Child Left Behind Act too. So between those anchor states and A to Z, that is where the organic growth is coming from.

Okay. Great. And regarding the share repurchase program, are you guys -- you look like you're about halfway through with that. Is there any thoughts on potentially expanding that beyond the current program?

That would require Board approval. We have not asked for that. We have authority up to one million shares. We will be quiet during the period of our trading window, which is 30 days from now and then our continued activity and that kind of depends on the accretive value of the program. What we have told shareholders, Kevin, is that when the stock was at $20, it was more accretive to repurchase our shares than it would have been to use a similar amount of cash toward our own acquisition strategy.

As the share price has improved, at some point, we cross over the line when that money is better spent, which is the reason we raised it toward our acquisition target. So my guess is it is dependent on stock price. I don't imagine that we would ask for additional authority. It may be that we slow down if the stock price is where it is or better when the window closes.

Okay. And then finally, you had mentioned the tax rate and it being a little bit lower than you expected. Should we assume that 40.5% going forward or should we -- will it tick back up to the 41%? And what was the reason for the lower rate?

We estimate it, KPMG calculates it. So it is not really something we have a lot of control over. But it is 500 basis points lower than our forecast and unless they change their calculation, it will stay that way all year. Now, we would keep -- for our own purposes, we are going to keep it where it is just so we have some cushion to the tax rate.

Great. Thank you.

Greg Williams, Sidoti.

Good morning, guys. You mentioned in the Value Options Arizona contracts, $500 million a year. I assume you are summing up all seven regions for the $500 million?

No, that is just the Maricopa County contract itself. It is a very large contract, one of the largest managed behavior health contracts in the country. It is designed to be a five-year agreement, so it is a multibillion dollar award. So you see the big competitors typically in that kind of bidding environment. We do not bid directly on that kind of managed care business, Greg. That takes actuarial risk. You have to post huge bonds. We have let the big players like Magellan, [Sentine], Value Options and those guys go after that kind of business and then we operate in those environments as a subcontractor, typically on a fee-for-service basis. But that indeed is, to the winner, a $500 million annual contract, which they are only allowed to spend I think 15% or -- how much, Craig, can they spend on administrative --?

I think they can only have a 3% profit margin.

Right. So and then there is some portion of that that is allowed as overhead. So most of that will be outsourced to the private sector and to multiple providers, Greg, and the new proposal provides that the actual winner of that proposal will not be able to deliver direct services themselves. So that is really the catalyst for any upside we would have in [Phoenix].

Any idea as maybe a percentage of the entire contract would be outsourced to home-based operators?

No. That is going to be up to the winner.

Okay. And when they do announce the winner let's say next week, how does the process work from there? Do you guys then bid for subcontracting or they just negotiate with you guys directly?

That is identified in their proposal. In our experience, it has been competitively procured, so once the awardee is announced, they negotiate and finalize their contract and then some time around the beginning of that contract, which would be July 1st, they would issue their own request for proposals and ask providers to compete competitively for that business. That has been the history of that. I am not certain if they are actually required to do that, but it does seem to provide some political balance to the provider politics that we often discuss when you go through a competitive proposal.

Okay. In terms of the 7/1 bidding cycle, it sounds like it looks good from a renewal front. How about the pricing front? How does the pricing look on these renewals?

Some of that is going to be tied into the Congress budget, which right now is the best it has been for us in three years. The last two Congressional sessions, they have actually tried to reduce, cut back or freeze provider rates. The current Congress is talking about a cost of living increase. Right now, that is budgeted at 5%. How that survives the Congress, we don't know, but typically for us, that is the high side of our rate increase opportunity.

Greg, normally it is a point, point and a half, 2% kind of max. We have not enjoyed that in the last couple of years because of the Congressional budget issues at Congress. So my guess is we would see some cost of living increase this year, but it will not -- can't he more than 5%. More likely it would be less than half of that.

Okay, great. One last question. I'm sorry. I think I might've missed it, Michael. What did you say the auditing fees were that you incurred in the first quarter and are any of those going to bleed into the second quarter?

Auditing and Sarbanes-Oxley all-in were about $0.5 million in Q1. I think we have got $22,000 or $25,000 for our quarterly review budgeted.

Great. Thanks for your help, guys. No further questions.

Thank you, Greg.

Richard Close, Jefferies.

Yes, really quickly I guess as a follow-up there on the auditing fees and SarbOx, what was that last year in the first quarter?

Maybe $100,000 higher, Richard. As we gain experience with Sarbanes-Oxley, those fees are coming down thankfully.

Okay. So it was $100,000 higher last year versus this year in the first quarter?

There about.

Okay. Moving on I guess to organic growth, obviously with the new contracts that came on in California and North Carolina driving an acceleration in organic growth, North Carolina and California all hit the home-base and community division, right?

Yes.

Yes.

Okay. Now I guess we have had our differences in the past with respect to organic growth and the calculation thereof. Were there any acquisitions in the robust number that you reported?

The one acquired entity was in management fees, Richard.

Okay. So that is -- and you said the home-base and community was 34% organic growth, was that correct? Or was I wrong there?

Total 47%, 34% organic 13% through acquisition.

Okay, great. And then with respect to Texas, obviously you guys have your finger on the pulse or whatever the saying is with respect to that, but let's say something does pass or gets moved through, what is your opinion in terms of how Texas goes from -- once this legislative session ends, will they -- let's say the bills are passed that are currently pending and then San Antonio goes to a pilot, would you suspect that they would go back to the original procurement that was supposed to be decided on September 30 or will we start a whole procurement process again?

There are three scenarios there, Richard, that you can't really handicap at this point. If nothing passes, the current session, the enabling law is Senate Bill 6 passed in the 79th Texas legislature that had specific time frames to roll out 11 regions. They would now be two behind the legislative timeline for those procurements. So our guess there is and the reason they have officially got the San Antonio procurement on hold, they would rapidly finish that one and then move onto the next one because they are obligated to under the law.

Depending on other current scenarios in the session, if they pass some amendment to the Senate Bill 6, that does not provide for the independent administrator. That would require a new procurement, an entirely new request for proposal, new respondents and new scoring, etc. If they provide that San Antonio could be part of that as a pilot then they still most likely would honor the current procurement because to not do so would cost them a year or a year and a half just in terms of cycling and judging and RFP.

So depending on again what happens, you could see an entire -- everything that has been done thrown out and the state start over again. You could see it basically put on hold everywhere but San Antonio or you could see that they aggressively have to procure now at least two of the 11 regions.

Okay, great. That is extremely helpful. And then just getting back -- if we look at 2006, obviously there were some ups and downs and different items that you guys faced throughout the year. One would have been the I guess not being able to recognize revenue on contracts that were I guess carryovers or renewals, however you want to classify it. But you were unable to recognize revenue with respect to some contracts that you been providing services on. Can you sort of give us an update with respect to that? Have you been able to recognize that revenue? Where does that stand and do you expect that to continue to be a sort of trend in 2007?

I will let Michael respond to the second half of that, Richard, then I will come back to the first half.

Richard, you will see deferred revenue at our balance sheet date about -- 800,000 -- 600,000 or so of that is related to the Corrections business we purchased from MAXIMUS. So virtually all, yes, have been recognized. And while I have got you on the phone, Richard, I made a mistake earlier. I looked at the wrong numbers on my piece of paper in front of me and I can tell you that in the Home-Based revenue, we did have the acquired growth, 13% came from Ross Education Services, the Corrections division we purchased from MAXIMUS in [Race Town] that we bought in the first quarter of this year. So hope that clears that up.

Okay. But with respect to the -- with respect -- you didn't necessarily include the growth off of the acquired businesses as part of organic growth I guess.

No, you taught us that lesson last year.

Sorry about that. With respect to -- so do we -- so all the deferred revenue from those contracts, those contracts are signed now, you are recognizing revenue on that. Would we expect come third quarter of this year maybe to mute the sequential transition or sequential growth that historically you've experienced?

I would like to think that we are educable in that regard. This is an issue almost entirely related to Sarbanes-Oxley and the incredible tightness that that process has as it looks at our multiple contracts. Remember, we are approaching almost 1000 contracts now. For that contract to be effective and recognizable, it requires a signature of both parties, a term, a rate and its collection must be reasonably assured.

So with the issue we had in Q3 of last year is we were missing some information from payers that would have allowed us to recognize that. For example, we might have had an e-mail that some county says congratulations, we have renewed your contract. However, if we had not received the actual renewal, that in and of itself was not recognizable.

We also learned last summer that having received the cash, even if that contract was paying, Richard, it still was not recognizable revenue because you were missing a component in the file. We have gone to great lengths since then to educate our payers about the problems their nonchalance creates for us around the renewal period.

We have also dedicated staff to the recycling of these contracts and made it a point specifically of our operating staff that we cannot afford to be nonchalant about the renewals of these contracts. The good news is even with our pushback to payers, they have all been very responsive generally about making sure the Is are dotted and the Ts are crossed. So we would hope that we go into this renewal season without some of the kind of issues we had this time last year, which basically if we got an e-mail or a telephone call or something from somebody that says we have renewed you, we consider that a renewal. We are not going to do that this year.

Okay. You got -- the good thing going for you is you are going to have easier comps this year. With respect to just one final one I guess, DC, how are you performing there? I guess last year you had some challenges, but how is DC looking?

Hi, Richard. This is Craig. DC is doing well. A lot of our challenges were a result of some of the system changes that they were going through in the district. Those seemed to have slowed down now. And they have changed -- they have actually reverted some of the system back to how it was a while ago when it was most beneficial to us. So that was the big reason in DC and some of the changes in the authorizations and types of services and those things have changed as of this year and our team has been quite productive in having a good quarter.

And we have been paid too, right? We don't have any AR issues.

So it is not a drag on earnings at this point?

It is in fact ahead of budget.

Awesome. And then just a point of clarification is on the tax rate, I wasn't I guess too sure of what the answer was. Should we be modeling a 41.5% tax rate?

I am modeling the 41%, Richard.

Okay. That's fine. Thank you very much. Congratulations.

Richard, thanks.

(OPERATOR INSTRUCTIONS). Mark Hughes, SunTrust Robinson Humphrey.

Thank you. What was the equity comp in the quarter?

About $600,000, wasn't it?

450,000 I think, Mark. I can check.

Yes, I think that's right.

Okay. How much was it in this quarter last year?

None. $100,000 or less.

Got you.

It wasn't much.

And then you talked about one acquisition per quarter. What size generally are you looking at in the pipeline?

Most of the businesses we look at are under $10 million in revenue, $5 million to $10 million is kind of our average target. We have not seen anything of scale. Occasionally we come across a business one-off that might $20 million or $30 million. But most of them, Mark, range between $0.5 million of revenue and $5 million of revenue. They tend to be maybe $0.01 or $0.02 accretive when annualized.

So they have some accretive effect, but moreover, it gives us incumbency. If you look at the acquisition history post deal, we have been able to dramatically improve our targets once we get in there and start operating them. So we won't do one that is dilutive. It may be marginally accretive or neutral, but again we are looking to the future as an incumbent primarily when we vie new geography.

Mark, this is Michael. If you look on our cash flow statement, you will see $453,000 of stock comp for the quarter.

Okay. And then Fletcher, I think you had suggested kind of 7% to 8% growth related to new potential business. Was that new contract wins or would that incorporate the increase in cost of living?

Most of that is what we would define as same-store growth. It is a combination both of increased volume and increased rate. And if you separate out the states that have more than normal momentum, i.e. California, Texas, Pennsylvania, etc., what we typically see through the appropriations process, Mark, over the last 10 years, is something between 5% and 9% organic growth, which is -- some portion of that, maybe a third of that is rate and two-thirds of that is volume.

Okay. So your anticipation now is that would be similar.

Yes.

And some of that volume would be increased same contract volume plus new contracts?

New contracts within the same state, but maybe a different county or a different community.

Right.

We view that as same-store growth.

Got you. And then the 5% potential cost of living increase, given the more favorable Congressional environment, I guess given the diversification of your contract, some of the these different states and some of these different payers, are they all governed by those Congressional mandates or is that making more money available and so you have confidence that they will increase their reimbursement?

It is more the latter, Mark. It would be highly unusual that if Congress provided a 5% increase we would see a 5% cost of living increase. The 5% increase goes to the state, to the payers. A lot of that of course gets sucked up into their own administrative costs and overhead. So they are not obligated to pass that on to the providers, but I think it is more of an indication of the momentum change given that we have had budget cut issues in the last two Congressional sessions. You would hope that our payers could afford to be a little more generous if in fact their budgets have been increased. So it is cause and effect. We can't quantify it until we go through it, but we would never really expect to see 5% from anyone.

Right. Okay. Thank you.

There are no further questions at this time. I would like to turn the call back over to Mr. Fletcher McCusker, Chief Executive Officer, for closing remarks.

Thank you and thank you, everyone for participating in the call. We do expect to be on the road some this summer in New York a couple of times between now and August. We have a planned trip to Boston in some non-deal roadshow activity. So we will be by and see many of you. We would also encourage you to visit our operations when you travel. We have seen a number of shareholders here in Tucson and visiting other parts of our operations. If you are interested in that, please call Kate in my office and by way of a reminder, our annual meeting will occur here in Tucson on May 24th and we will see you all probably this summer. Thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a good day.