ModivCare Inc (MODV) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2007 Providence Service Corporation earnings conference call. My name is Dan and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Alison Ziegler. Please proceed.

Good morning. Thank you and welcome, everyone. Thanks for joining us this went for Providence's conference call and webcast to discuss its financial results for the fourth quarter and year ended December 31, 2007.

You should have all received a copy of the press release last night. If you would like to be added to our e-mail list, please contact Devin Rhoades at Cameron Associates at 212-554-5461.

Before we begin, please note that we have arranged for a replay of this call. The replay will be available approximately one hour after the call's conclusion and will remain available until March 20. The replay number is 888-286-8010 with the pass code 348-28-565. 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. Or alternatively, www.earnings.com.

Before we get started, I would like to remind everyone of the Safe Harbor statement included in today's press release and that the cautionary statements apply to the 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 2008. 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, March 13, 2008. 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. Go ahead, Fletcher.

Good morning, everyone. Thank you, Alison. Michael and I just figured out this is our 13th conference call. This is indeed our 10th anniversary as a Company. We have been, of course, a public company for five years since August of 2003.

Good morning, from Tucson. With me today is Michael Deitch, our CFO; and Craig Norris, our Chief Operating Officer. John Shermyen and the Tom Oram from LogistiCare will not be on the call today. We figured with just three weeks of them in this current quarter, that we can deal with the integration-type questions and steer you away from the procurement questions. They will both be on the call after the full first quarter of '08.

We are very pleased to be here today talking about a very successful 2007. 10 years ago our revenue was $2.5 million. We are forecasting for 2008 almost a $1 billion book of business with our managed entities. There has not been a single year that we have not had revenue and earnings growth. We have never lost a government contract, which still is an amazing statistic in our business.

And we are pleased to say with year-end '07, we've had five years of Sarbanes-Oxley compliance. We're very proud of our achievements in our [stack], and particularly proud of my colleagues in the room today who have been with us since the beginning of time.

Before we talk about our quarterly numbers, we would like to direct you to our website, www.provcorp.com, to read the recently released Vanderbilt study. We partnered with Vanderbilt three years ago to develop a five-year review of our clients and gauge our effectiveness over an elongated period of time. No one in our business has committed to a five-year client study. Vandy has released the first data from that study, now in its third year, and the results are really quite remarkable, indicating that we are successful 81% of the time over a three-year period with these clients.

We believe this study will continue to differentiate our services and our capabilities.

Now for the serious part, our nearly $100 million of Q4 revenue is a 77% increase over the same period last year. Of that, about $23 million of that is attributable to LogistiCare, which closed on December 7. They are on a run rate of about $30 million a month, which is consistent with our previously-issued 2008 guidance.

Our social services segment produced $76 million of revenue in the same quarter, an increase of 36%, which is very similar to our historical compound annual growth. Our contracts are up; our clients are up.

We get a lot of questions regarding the economy, the recession, the cost of fuel. Historically it's important to remember that those are typically drivers in our business. When economic times are tight, we see Medicaid enrollment go up. We see child abuse increase. We see crime increase. We see more eligible people in the system at a time even when state dollars are tighter or flat.

That has historically been a driver for our business; and that is part and parcel why we believe we had a good fourth quarter and headed into a good 2008.

Our Days Sales Outstanding is down. Cash flow is up. We're not hearing any pressure on our rates coming into the renewal season. We are buffered to a decrease from the increase in fuel costs, in that neither LogistiCare or Providence are direct users of gasoline. And the population of people eligible for our services continues to grow dramatically.

Michael, I will let you give them the highlights.

Thanks, Fletcher. In our fourth quarter of 2007, we once again set company records for revenue, net income, and cash flow from operations. Revenue for the fourth quarter totaled $98.7 million, up from $55.9 million for the fourth quarter of 2006, a 76% increase. 14% of this increase was from organic growth. 62% of the increase was from companies we acquired in Georgia, Oregon, Pennsylvania, and Canada since the fourth quarter of 2006.

For the three months ended December 31, 2007, as compared to the three months ended December 31, 2006, home-based revenue grew 40%. We grew 16% organically and 24% from acquisition.

Foster care revenues grew 22%, 7% of which was organic and 15% was from the acquisition of Maple Star Oregon.

Management fee revenue grew 13%, all organically.

For the year ended December 31, 2007, as compared to the year ended December 31, 2006, our revenue grew from almost $192 million to $285 million, an almost 49% increase. 27% of that increase was organic and 22% was acquired.

For the year ended December 31, 2007, as compared to 2006, home-based revenue grew 42%, 32% organically and 10% was acquired. Foster care revenues grew 17%, 7% organic and 10% acquired. Management fees grew 12%, all organic.

Our 2007 fourth-quarter operating income totaled $8.9 million, which was 9% of our revenue for that quarter. In the fourth quarter of last year, operating income totaled approximately $1 million.

Fourth-quarter 2007 net income totaled almost $4.3 million, which was 4.4% of our revenue for that quarter. This compares with almost $670,000 and 1.2% of revenue for the fourth quarter of last year.

Fourth-quarter diluted earnings per share totaled $0.35 on approximately 12.1 million diluted shares outstanding, compared with $0.05 for the fourth quarter of last year on approximately 12.3 million diluted shares outstanding at that time.

At the end of our fourth quarter, our Days Sales Outstanding from home- and community-based services and foster care services was 71 days, down from 76 days at the end of our third quarter of this year.

LogistiCare's Days Sales Outstanding was 24 days. Since LogistiCare is prospectively paid on the majority of their revenue, we anticipate that their DSO will always be below 30 days.

You will note that our accounts receivable balance has grown almost $22 million in Q4 from Q3. LogistiCare added $21 million to this increase.

At December 31, 2006, our management fee DSO was 186 days, over our 180-day target. This increase was primarily due to one of the not-for-profit entities we manage acquiring four companies using a combination of bank financing, seller notes, and increasing their management fee payable to us by approximately $1.4 million. These acquisitions should increase Providence's management fee revenue in future months.

During the fourth quarter, we generated $11.2 million in cash provided by operations, which was a record for us. At the end of our fourth quarter, we had $35 million in cash.

During the fourth quarter, we closed a $70 million convertible debt offering as well as a $173 million senior secured term loan, both of which were used to finance the LogistiCare acquisition. The convertible debt has a 6.5% fixed interest rate.

With respect to the senior secured term loan, on February 25, 2008, we executed an interest rate swap transaction for a notional amount of $86.5 million, effectively fixing the interest rate at 6.526% for two years on that notional amount. For the analysts that our modeling us, I am using an interest rate of 6.59% for the remaining $86.5 million balance of the term loan.

We have chosen three-month LIBOR, which will now float with the changes in LIBOR. Effectively, we have now limited our downside risk to about 50% of our term debt, with the remaining 50% debt subject to interest rate variability. Overall, I believe we have instituted a prudent and conservative interest rate risk strategy.

Also for the analysts that are modeling us, I'm projecting a 12.8 million diluted share count for Q1 and Q2 of 2008.

Currently, the earnings per share effect of the convertible debt on share count is antidilutive and therefore not considered in the calculation of diluted earnings per share. The potential additional shares totaling 1,678,740 shares related to the convertible debt and related pro forma interest adjustment necessary to calculate diluted EPS is being considered but not being projected at this time.

Finally, with respect to Q1 and Q2 of 2008, I am projecting an effective income tax rate of 41%. With that, I will turn the call over to Craig Norris, our Chief Operating Officer.

Thank you, Michael. For the quarter, we ended with a total combined census between our owned and managed entities of 76,195 clients. Compared to Q4 of 2006, this represents a total census increase of over 5,000 clients. In addition, over 5 million individuals are eligible to receive services under our Non Emergency Transportation program through LogistiCare. All clients are being served from 410 local offices in 38 states, the District of Columbia, and Canada. We have added 104 new local offices during the same period of time.

Combined between our owned and managed entities we have over 9,500 employees serving [950] government contracts. This represents an increase of 90 contracts as compared to Q4 of 2006.

So far, our integration efforts with LogistiCare have gone well. We have been focusing on-back office integration, office colocating in California. We have brought together our human resource teams, our risk management departments. We have been working with LogistiCare's public affairs department; and our executives have had several retreats since the acquisition late in the fourth quarter.

Our local management teams are beginning to collaborate across the local and regional markets. We've been very impressed with the local management team and leadership of LogistiCare and look forward to continuing to work with them. We are in the initial stages of beginning to identify possible program development initiatives as we move forward.

Recently we just announced a strategic agreement with OptumHealth Behavioral Solutions, a UnitedHealth Group affiliate. We're looking to partner with their public sector business lines. Presently we're working with them to create programs for the adult aging and disabled populations, with a focus on supporting these clients in their homes and communities. Our geographic presence across the country offers us a unique partnership opportunity with Optum.

Recently, as Fletcher stated, we have reported strong program outcomes arising from our ongoing five-year program evaluation with Vanderbilt University. These outcomes point toward our commitment to quality and positive client outcomes. We are grateful to our employees for their ongoing efforts and believe this is important to our continued accountability to our payors.

In addition, the outcome study with Vanderbilt does require extra work from staff and management, and it is a commitment we're going to continue to make to prove our outcomes. But it is a lot of extra work, but it's worth the results.

Overall, the operations had a good year both in terms of budget performance and client outcomes. One of our most important outcomes is the stability of our leadership team at all levels in the organization. Thank you, Fletcher.

Thank you very much. It is a great year operationally. Fundamentally we are very strong.

Let me comment a little bit on our guidance. Then we will be ready to take your questions. I think you know we previously announced revenue and earnings guidance for 2008 for the combined Company of $670 million of revenue and an EPS range of $1.35 to $1.40. We contemplate the LogistiCare contribution is about $0.08 accretive to the stand-alone Providence business.

Q1 is consistent with that forecast, a little ahead of the Street consensus, before the executive bonuses which I will talk about here in a minute. About $170 million of revenue, $0.30 after the net effect of the bonus.

We have a number of procurements in play, some we can comment on publicly. You have seen some press on some of our procurement activity. Others obviously we can't and won't comment. We should expect Q2 to look a lot like Q1, without the impact of the bonuses obviously.

July is a contract renewal period for us. We would be able to have some announced wins or losses and hopefully some information on the cost of living increase that is currently being debated across each one of our states' respective legislatures.

We expect some continued summer seasonality to impact our third quarter, primarily as a result of our school-based businesses; and a typically strong fourth quarter.

Regarding the bonuses that were announced with our press release, our Comp Committee sets our salaries. That is a bonus for the people in this room. In 10 years, we have never had an annual bonus. The Compensation Committee engaged Mercer recently to conduct a salary survey for our top executives, and they determined that we're at the 25th percentile of pay compared to our some 20 public company peer group.

Obviously, this became quite a concern for our Board, given the success of the Company and the opportunities that develop time to time for our management. As a result, the Comp Committee declared this bonus, utilizing the market interest rate drop to fund them without affecting our forecast, and move us to the 50th percentile in the Mercer study.

You should view this as a onetime parity pledge. If you look to our filings you will see that our future bonuses are tied to the Company not only achieving plan, but achieving plan plus the accrual that would be required to pay any bonus.

Finally, you will notice we filed a shelf registration. We are prohibited by the SEC from talking about that or taking any questions regarding that. We have said publicly that we have no intent to raise money in the short term; that we are committed to the integration of the LogistiCare transaction.

With that, Dan, you can open the line for questions.

(OPERATOR INSTRUCTIONS) Bob Labick from CJS Securities.

Good morning and congratulations on a strong quarter and year.

Thank you, Bob.

First question. Just wanted to ask, obviously you had a very strong cash flow quarter. Given the cash flow characteristics of a LogistiCare, next year should be strong as well.

Could you walk us through priorities for cash flow? Is this going to be debt paydown, or is it still acquisition? Then update us on the acquisition pipeline or timing, if you're just going to sit back for six months and do this integration. Just talk through those issues, please.

Our agreement with CIT, Bob, actually requires us to pay down 75% of our excess cash, Michael? Or --?

I think that is correct. Plus, we have amortization (multiple speakers).

So not only is the principal amortized, but then any excess cash, Bob, we are required to pay, I think, 75% of that to the lender. So the entire intent of our ability to generate cash will be to delever the business.

Okay, great. Then, just traditionally you have done the one acquisition a quarter on average. Is there a pause to do this integration right now? Or how should we view that going forward?

We have said publicly that we would go quiet in that regard through Q1. We remain in contact with our pipeline, and we continue to generate new interest in that activity. But we do feel obligated to focus on LogistiCare.

So you wouldn't see any acquisition in the near term. If we are feeling comfortable with LogistiCare, it's safe to assume that we would get back to that tuck-in strategy starting in Q2.

Great. Then just looking ahead to the July procurement cycle, could you just remind us which states are up on that cycle versus January cycle? Specifically I can't remember if s Florida is July or January; but update us on the potential management contracts in Florida.

Then broadly the size and opportunity in this July cycle, and when we might find out. Is it we find out in June, or might we find out in May? Or more timing on that.

Okay, almost all of the Providence business now cycles in July. California this time last year cycled in January. They granted their providers an across the board rate increase rather than to rebid competitively.

I think if you've seen the papers, there are two regional proposals in Florida right now that are being reviewed for a July start date, and then our traditional kind of renewal business on our side.

In the LogistiCare pipeline that we have discussed publicly, is some six states bidding in the neighborhood of $150 million of annualized business.

The predictability and timing on our side is a little easier to discuss, Bob, in that our bids tend to be on pretty small contracts. When they have a July 1 start date they usually start July 1; and once the award has been announced, we can usually handicap the impact to revenue and earnings.

LogistiCare's contracts are much larger, multi-year kind of contracts. It's not unusual to see that kind of competitive activity protested. So, many times after an award is announced the losing bidders have an opportunity to protest the award. That could add 60 days or 90 days to the start date, not unlike what we saw occur in Phoenix with Magellan and Value Options.

So one of the reasons we haven't included any of that in our guidance -- and encouraged you guys not to include any of that in your models -- is that even with the announcement of an award, we don't necessarily know when it's going to start or in fact a protest will be successful.

So we will continue to announce what we view as material wins for us; that is any contract over $2 million. As Craig suggested to you, we have nearly 100 contracts this year that we didn't enjoy last year. You can assume from that that most of them are smaller than $2 million. We only announce -- otherwise, we would be issuing a press release every other week, so we tend to stay to just material announcements.

And you should see some of that, win or lose, on our side between now and July; and you will begin to get some color on the LogistiCare pipeline within about the same time frame.

Great, thank you very much.

Kevin Ellich from RBC Capital Markets.

Good morning and thanks for taking my questions. Starting off with the Non Emergency Transportation business, is there anything over the last three months that looks better or worse than what you knew about when the deal closed?

Boy, you start right off with the good ones, don't you? I would say we have been incredibly impressed, as Craig suggested, with the program, the staff, the payor loyalty.

I think it's important to note, Kevin, that this was viewed as a change of control by their payers, so many of them had to consent to the merger. So we do have kind of the payor weigh in and how they view the combined Company. We've had a lot of early integration success, a lot of camaraderie. That is probably better than expected.

Had we had our druthers we would not have closed on December 7, because it not only was our first close, it was an annual and audited close. So from the time we closed until today, we've been undergoing two simultaneous audits, two audit firms, a Sarbanes-Oxley review, and it's been quite intense.

I'm pleased to say, however, that all that is behind us. So I think the only issue that was a surprise to us was the intensity required on all of our parts -- the LogistiCare staff, the auditing teams, our independent auditors, and Michael's staff -- on just getting the work done.

But there have been no negative surprises in that process, other than the work that was required to complete it.

Kevin, the gas question comes up a lot with us. I think some people still don't understand or appreciate the LogistiCare model. With the rising cost of fuel, you see a direct impact from that in asset-based companies -- airlines, transportation companies, trucking companies, cab companies. LogistiCare is a little better buffered from that in that they are not putting direct fuel into company-owned vehicles.

They contract with their driver networks on a per-trip basis within a geographic grid; and it's the driver's responsibility to pay for the fuel. So indeed as fuel goes up we get pressure from the driver network; but it's not an immediate kind of cause-and-effective relationship.

Many of the LogistiCare contracts, we are pleased to say, have some opportunity to go back and negotiate with the states. So the only kind of economic change that we've seen since we closed this is some increase in the cost of gas. We've not seen that play out currently in terms of any pressure on earnings per-share or their contribution. But if that continues over an extended period of time, it might.

Of course, the pipeline is the very exciting part of that to us. A number of states have embraced their model. LogistiCare has a 90% hit rate in competitive activity, and they are bidding on an incredible volume of business. So that is really the upside we saw in the acquisition.

Our ability to delever was the opportunities they're going to have in the '08 procurement cycle. Nothing has changed in that regard.

Okay. Then could you talk a little bit about the contract announcement with OptumHealth? What do you think the possibility is of providing transportation services to Medicare beneficiaries at some point?

Great strategic questions. We've never signed a national agreement with a managed care company. We typically negotiate market-by-market agreements.

I think what United and Optum saw in us was a company that was capable of mobilizing to their needs across all of their markets.

We are prioritizing with them where they want us to start. So we would expect the economic impact of this to be small in the early months, as we feel each other out and identify where their priorities are. But they indeed have over 1 million lives in these public sector programs. So we do see this as a huge opportunity.

We wouldn't be surprised at some point in the future, Kevin, if this is our largest contract. The second half of your question was -- remind me.

No, no. That was pretty much it. I just wanted what the -- if there was a possibility of providing transportation services to the Medicare population.

LogistiCare is involved in a couple of Medicare pilots. Right now, Medicare does not reimburse for the transportation benefit. We do expect that to open up.

Typically in the Medicare system if the pilot is successful, they generally do move to authorize the benefit. I think organizations like United and others have anticipated some changes in the delivery system for people my age, who do not intend to grow old in a nursing home. And I think transportation is going to be a huge part of our independence, along with a home-based delivery system.

So we do see Medicare as part of our future. It's probably too early to tell; but if you're monitoring trends, it seems to be very positive to us that Medicare is at least engaged in a pilot to demonstrate the opportunities that transportation has to reduce out-of-home care.

Okay. Then with the combined Providence/LogistiCare entity, how does that effect your concentration to any specific contract or payor? Do you have greater than 10% concentration to anybody?

Michael, I'll defer to you. I don't believe we do, Kevin. The market is so large that even between the two of us, we represent 1% of the market.

The transportation market is about $2.5 billion. LogistiCare has less than $400 million of that today.

Our market is into the $100 billion; and we have about the same amount on our side.

We were in 15 of their 17 states, so combined, I would say probably in Virginia, in Florida and some other states. But even then, that book of business is probably not $50 million or $60 million out of a multibillion dollar state budget.

So I would say we have no saturation issues. Michael, is there any single contract that --?

Nothing comes to mind that is a 10%.

I think we disclosed the Arizona contract in our filings, Kevin. I think that is about 6% of our revenue now and that would be our largest contract.

Okay. Then just one last question again on the transport business. It looks like a competitor just signed a deal with a Medicaid managed care provider for transportation services in Michigan. Was this one of the contract you guys were looking at?

I can't answer that. I will find out and get back to you.

Thank you.

Mark Hughes from SunTrust.

Thank you very much. Any meaningful seasonality in the LogistiCare as we model the quarters out?

Well, they have never had this size and scale, but they have had some history of summer seasonality. So we are going to watch that.

That is one of the reasons we didn't want to guide to the rest of the year, Mark, because we don't fully appreciate the impact of their summer at their current run rate.

Got you. Then, G&A in the fourth quarter came in at a pretty nice clip. I.e., a low clip. What do you expect going forward in terms of run rate?

Hang on, Mark, just a second. G&A 4.5% to 5% combined. The reason it's down, Mark, is because LogistiCare is being accounted for and treated just like any other acquisition in that the majority of their costs go into client service expense.

Right. Now the 4.5% to 5%, I guess G&A relative to revenue was about 9% in the first quarter.

In terms of income models, we're pretty consistent in our guidance there. We believe we will stay in the 9.5% range, Mark; and LogistiCare at about 7% op income margins. So we will segment these businesses when we report, but we will show the combined SG&A. We do get the benefit of bigger revenue base without a lot of incremental corporate expense, so it will come down.

But our costs have not come down, but we do have the opportunity to integrate them incrementally. We have not added any corporate positions, have we Michael, in this integration?

Not yet.

You are anticipating maybe a couple in accounting.

Maybe one in accounting and one in communication.

Yes, so we're talking about adding maybe two people, Mark, over the year to integrate $400 million of revenue.

Mark, I would urge you, when you see the 10-K on Friday, in the financial statement footnotes, to look at the segment reporting footnote. You will see where our business, LogistiCare's business, and the corporate costs are displayed.

Okay, thank you.

Richard Close from Jefferies.

Yes, congratulations on a very good year. Just a point of clarification, Michael. What was the G&A? Was that 4.5% to 5% of revenue?

That's correct, Richard, for the year.

Forecast year.

Forecast.

Okay. Just really quick I want to go over this gas, gassing. Obviously you spent some time on it. Would the core business, and gas prices going up -- although you guys obviously do it in -- provide your services in the community -- do you get squeezed at all in terms of having to pay your counselors more? Obviously they are driving out to see the clients.

We reimburse them, Richard, on the IRS allowed reimbursement rate. So if they go up, yes, we will have some issues there. But we typically have been able to pass that on, because it rarely increases more than once a year. We can typically pass that on to our payors. So we've not had any direct impact on our side.

I think our people know that this mileage reimbursement covers the use of their vehicle. They're not going to make any money on it, and we have consistently used the IRS per-mile rate as our reimbursement.

Do you get any push back from them? Obviously, the rising gas prices is immediate, versus I guess any adjustment you would get from this IRS thing or going back to the states.

A lot of that is in how we organize the client caseload. We try and assign clients to home-based counselors within a 50-mile radius of their house. So we're not asking people from Charlottesville, Virginia, to drive to Fredericksburg to see clients.

So we are not putting a lot of miles on our cars. Our counselors are not obligated to come in to the office after every day. They fax in their notes, they fax in their billing records.

So we've done a lot of work to kind of keep the mileage requirement down by blocking clients. Of course in urban areas, we can give you -- a caseload for a counselor is about six families. And we can give you a six-family caseload that is within a few miles of each other. So we are not driving really great distances.

Okay. Then just I guess to put this to bed, on the LogistiCare side, you know, it doesn't impact them, but it impacts I guess the people that they -- or the drivers that are contracted with them. Is there any risk that all of a sudden LogistiCare might not have the -- someone might back out? A taxi group might back out just because they can't make any money off of the current per diem or something?

We asked that question during the due diligence process too, and learned that they have quite an extensive, diversified network with drivers, into the thousands. So they don't concentrate with any one large organization in a market. They prefer the smaller two or three van kind of companies.

They also have a commitment to direct volume to those people that are signed up in their network. So there are some trade-offs in terms of volume commitments, exclusivity.

LogistiCare's self-insurance program, remember Richard, is available to the driver networks. So LogistiCare can offer them pretty substantial savings on their cost of insurance.

So what we've seen happen is if fuel continues to go up you do see downstream drivers begin to whine about that, request shorter trips. They may refuse a trip or two. We've not seen a significant impact with anybody bailing because of the price of fuel.

Then LogistiCare will use that data then to go back to their payors and try and create a fuel surcharge or a rate increase based upon the cost of gasoline. So the point we were making is yes, there is pressure there. But unlike American Airlines, it doesn't impact us today.

It might have some impact to us in the future, as you suggested, regarding the availability of drivers and the potential margin issues if we don't get cost increases from our payors.

Okay. Michael, I had a couple questions. I guess if we take the LogistiCare -- well, your total revenue guidance for '07; and then the LogistiCare, back that out. I guess you're looking for about -- is that about $50 million from sort of the core Providence business year-over-year to be added? How much of that $50 million is coming from the acquisitions that you did in '07?

Oh my, Richard. I would have to go back and slice that up for you. I can tell you exactly if you will just call me.

We have guided to about $310 million over the two whatever we did this year. Craig, do you know offhand? That is probably something we will have to research.

Because it came in over the year, Richard, and I would just have to get the run rate for you and get that to you.

Okay. Well I guess maybe just generally, Fletcher, how would you characterize sort of your organic growth outlook?

We see that, Richard, consistent with what we've done year in, year out. We don't have any real pressure from any particular market where we are flat. We enjoyed a 10% rate increase in California, which is one of the states that is struggling the most with their budgetary issues.

So, it is kind of across the system increase, both in terms of rate and client census. We really don't have any flatness in any of our programs. So it's kind of our typical 20% organic growth, which is pretty much what we have modeled for 2008.

Richard, I did do that calculation. It included everybody and I got 19%, so Fletcher is right on.

But we will double check just to see how much of that is purely organic, same store versus acquired.

Yes, okay. Then with respect to -- just a real quick number question. Silly for me to ask this, but I guess if you guys come up with $1.19 in earnings in '07; it comes out to $1.21, I guess if you -- what is the difference there, the variance there?

Between basic and diluted?

Is that all it is?

I think if you take the net income and divide it by your year-end shares outstanding you get $1.21.

Yes, Richard, it is kind of screwy how we have to do diluted EPS now. It has to do with the WCG shares, the preferred shares. It is not a direct calculation anymore.

If you really want that detail I can certainly share it with you, but there is a little nuance in there on how we now calculate diluted earnings per share.

Going -- modeling for the year, Michael, what number should they use then for EPS guidance?

Well, I'm using 12,800,000, as I said in the script.

Okay, I just --.

We can help you with that off-line.

Then, there has been a lot of rumblings in North Carolina with respect to some of the social services there. I know you won a contract last year. I there anything going in North Carolina we should know about that is negative?

Read the paper. There is a lot of energy, a lot of controversy, if you will. This is a new program for the state. The state had estimated the community services budget at about $5 million. They spent $50 million, so there is a lot of intervention at the legislature, at the governor's office, at the auditor's office.

The auditor published a report that indicated a number of the providers were abusing this new service, in their opinion, and were not real careful about the eligibility, and have asked for a substantial amount of money back.

We are pleased to say that we are not on that list. So it may, in fact, become an opportunity for us as the state has to put more guidelines on eligibility and more control on the authorization.

We tend to be pretty disciplined when we authorize, recruit, and provide services to these clients. So we've done it no differently in North Carolina. But you are right, there is kind of a buzz in terms of how this program has just exploded, and how is the state is going to continue to fund it at this level.

But we are pleased to say that our services there are still pretty well thought of, and might impact -- become an opportunity for us to expand.

Just finally, you took a reserve, I guess, on the Tucson contract, if I'm not mistaken, last year in the fourth quarter. What is the current status of that contract? Are you getting paid on the stuff that you took a reserve on last year? Or just an update there.

Our CPSA contract, Richard, from '07 to '08 went from $16 million to $20 million. Those are obviously different periods, so it had no impact on the '06 reserve.

But their commitment to make us whole, we've found they do what they say. They have increased our services, increased our contract. We are paid prospectively. Our encounter levels are below now the contractual amount.

We're not being obligated to provide services above the allocation. So we are very content with that relationship today and have had no issues with it in '07.

But, they're still not paying -- they have not paid you?

Well, not in the same period. So we don't get to go back and book any. We are booking it in the current year, on a 1/12 basis. But it didn't go back against the reserve.

Okay, all right. Thanks.

Greg Williams from Sidoti & Company.

Good morning, everyone. Thanks for taking my call. In the press release, it said LogistiCare has created more demand on your services. I was hoping you can elaborate on what more demand means and maybe even quantify it, or just talk about that opportunity.

It is subtle, Greg, in that we are making inroads with their staff, with their organization, on how we can provide services to riders that are difficult to manage. We do not currently handicap nor can we predict ultimately what this will mean for both companies. But part of the synergy we saw early on was the opportunity we have to help them deal with problematic riders.

That will in fact increase referral business to us.

Okay, so that would be above and beyond the $0.08 in accretion you mentioned before?

Yes, I would not put too much weight into that for '08. It's very subtle. We're very careful not to abuse that privilege. The payor has to approve it in every situation.

But it is one of the things we identified early on as opportunities between the two companies.

Okay. Just talking again about that first-quarter bonus, so it's onetime in nature. I guess first question is, is it Providence executives, or LogistiCare, or both?

No, it's just the Providence top four. It's myself, Michael, Craig, and Fred Furman. It's pretty equally distributed. We do have to provide an 8-K under the new SEC guidelines; that will be out Friday.

It will describe -- we have to describe the comps process, their reasons behind the bonus, etc. But indeed it is onetime; it is in relationship to the Mercer salary study and the low percentile which we were operating under.

We benefited, Greg, from the windfall that we are seeing from the LIBOR savings. It's kind of the proceeds, if you will, that can fund that bonus.

Okay. This may be a silly question, but if you don't have another bonus next first quarter, won't you be back down in the 25 percentile?

Unless there are competitors go crazy, we're moving up to the percentile. If you go back and look at our salary filings, you'll see that we have had an increase in management compensation in terms of our base. We have a new bonus plan in effect that includes opportunities to increase our compensation based upon our ability to hit plan. Then we have a long-term incentive grant that you'll see us get year in, year out.

So the intent, I think, is to move us closer to our peers; but I think we fully understand that we will not get to the 100 percentile.

Of course, every year, they are probably going to increase their executive comps. So this was designed to create some parity, but it's not our design, Greg, to double or triple executive comp.

Okay. Can you talk about the opportunities and updates on the Arizona Magellan subcontracting?

Greg, you are probably the closest to that. We don't see anything immediately, Greg. But we do see opportunities there. Go ahead.

Yes, I think they're still -- this is a large system. I think they are still trying to settle up how this system is going to look, who is going to be where. It is taking a long time. That is by history how Phoenix has always -- when they have changed their authorities, they have gone through a rather long period of trying to figure out how that system is going to need to look.

So we're still hanging in there, but we don't have anything yet.

Okay. Last question, as I just look at my modeling. The [WCS] acquisition and the FPS acquisition and the core business, are they at full run rate now?

I would say yes. Every -- all the acquisitions we have are up and running full bore.

Okay. Thanks, guys.

(OPERATOR INSTRUCTIONS) Kevin Campbell from Avondale Partners.

Good morning, this is Nathan Yates standing in for Kevin. Just going back to the guidance for 2008, you know, we took guidance for 1Q and annualized that and came up with around $680 million. I was just hoping you could talk a little bit about the difference there from your guidance of $673 million.

Probably summer, Kevin. You know, we typically don't have four straight-line quarters on a run rate basis. You would see a little dip in our revenue in Q3. That is probably the difference.

Okay. Looking at D&A in 4Q we saw an uptick. Could you provide maybe an idea what we can expect in 2008 for D&A?

About 1.7% for the year.

Okay, all right. Lastly, maybe just a quick update on contract opportunities in Canada with WCG.

Too early to tell. They're on a July cycle. We are not currently bidding on anything new. We have been very well received in Canada. We believe we are doing a very good job.

It will create new opportunities, but as of s today we don't have anything to report.

Great, thank you very much.

Richard Close from Jefferies.

Yes, Michael, I just wanted to follow up on the shares outstanding. I guess you're using 12.8 million number for first quarter and second quarter. But then you said something about the 1.7 million, it is not in guidance -- or just walk us through the share count again.

Sure, Richard. I have the benefit of Q1 share count which is, rounded, 12.8 million. That is why I am using it.

On the convertible debt there is a $70 million amount out. The conversion rate is 23.982. If you do that math, it is 1.678 million shares.

To calculate EPS, Michael, you exclude the coupon; divide --

You would add back the tax effected interest and then divide by the shares. If you do that, Richard, and I have done that, you virtually get a wash, the same EPS between that calculation and the one we have now. It is less than a penny, so it's pretty close under either way.

Okay. Then you said something about the second quarter as well, if I am not mistaken. Are you assuming the same, or roughly the same share count?

Yes, sir, I am.

Okay, all right. Thank you.

At this time, there are no further questions in the queue. I would now like to turn the call back over to Mr. McCusker for closing remarks.

Dan, thank you. Thank you, everyone. We appreciate your questions. If you didn't get anything you needed answer today, please give one of us a call.

I will be at the Sidoti conference in New York the week after next; and then at the SunTrust conference in April. We are also doing some non-deal Roadshow activities, so we should be in your neighborhood. Let us know if you would like to see us.

Again, we encourage your visits to any of our programs. Avondale is hosting an investor day in Atlanta, which have been very well received. Contact them if you have any interest in that. That may be booked up.

We may well see you in one of those places soon. Again, if you have any questions, please give us a call. Thank you very much and good day.

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