ModivCare Inc (MODV) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2009 Providence Service Corporation Earnings Conference Call. My name is Lisa. I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's conference. (Operator Instructions) I would now like to turn the presentation over to your host for today's conference, Ms. Alison Ziegler of Cameron Associates. Please proceed, ma'am.

Thanks, Lisa. Good morning, everyone. Thank you for joining us this morning for Providence's conference call and webcast to discuss its financial results for the third quarter ended September 30, 2009. You should have all received a copy of the press release last night. If you would like to be added to our email list please call Devin Rhoades at Cameron Associates at 212-554-5461.

Before we begin, please note that we have arranged for a replay of this call. This replay will be available approximately one hour after the call's conclusion and will remain available until November 12. The replay number is 888-286-8010 with the pass code 96986021. 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 financial results for 2009 and beyond.

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 including the company's recent 10K. The Company's forecasts are dynamic and subject to change. Therefore these forecasts speak only as of the date of this webcast, November 5, 2009. The company may choose from time to time to update them and if they do 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. Good morning, everyone. I'm in Tucson today with Michael Deitch, our CFO, and Craig Norris, our Chief Operating Officer. On the line from Atlanta is Herman Schwarz, CEO of LogistiCare. We'll all be available to you for Q&A following our scripted remarks.

What a difference a year makes. This time last year budge managers state by state were determined to balance their budget at any cost. The Federal government was absent from the debate. We saw proposed across the board cuts, rate freezes, payment slow downs, and moreover, serious rationing of care by limiting the number of referrals made to providers.

Our transportation segment was facing increased utilization, increased cost, and rate pressure. Quarters three and four last year were the worst two quarters in the Company's history. We responded by reducing overhead, freezing salaries Company wide, accelerating our stock vesting, reducing employee benefits and holiday pay, expecting a very challenging 2009.

Following the Presidential election last year, President-Elect Obama met with this nation's governors and promised to help with Medicaid. About the same time, the Federal court intervened in California and prevent Governor Schwarzenegger from implementing his 10% across the board cuts to Medicaid providers. The first piece of legislation Obama signed was the SCHIP bill. The second piece he signed was the Medicaid stimulus, providing $90 billion of new federal money over two years. This stimulus has also prevented states from tinkering with Medicaid in order to remain stimulus eligible.

With some direction and intervention at the federal level, states stopped trying to balance their budgets on the back of Medicaid. Referrals freed up. Rates improved. Fuel costs have come down. And of course Medicaid enrollment is dramatically up, driven by the recession as well as the stimulus rules that make the recently unemployed immediately eligible for Medicaid.

Early in the year, we withdrew the sale of our transportation segment and as a result, 2009 will be a record year for us. We have dramatically reduced debt and renegotiated our credit agreement. We have returns to providing guidance with improved visibility now among our state payers. All approximately 1,000 of our social services contracts were renewed in the July cycle. And as you know, LogistiCare won a large state contract worth about $70 million a year that began in July. The NET contracts cycle around their award date and most are multiyear contracts with actuarial set rates. Our strong Q3 results were also aided by a one time tax benefit.

I'll let Michael walk you through the quarter.

Thanks, Fletcher. In our third quarter of 2009 revenue totaled $206.8 million, up from almost $167 million for the third quarter of 2008, a 23.8% increase. 19.8% of this increase was from organic growth. 4% of the increase was from acquisitions in Georgia, Illinois, and Indiana since the third quarter of last year.

For the three months ended September 30, 2009 as compared to the three months ended September 30, 2008, home based revenue grew 16.2%. 10% was organic and 6.2% was from acquisitions. Foster care revenue grew 22.3%. Acquired foster care growth of 40.8% was offset by a revenue reduction primarily due to our exit of foster care operations in Kentucky. LogistiCare transportation services revenue grew organically by 32.2%.

Third quarter operating income totaled almost $9.8 million. Last year we had a operating loss totaling $138.1 million which included an asset impairment charge totaling $141 billion. Our income tax provision for Q3 of this year is unusually low. We recorded a tax revision of approximately $182,000 or about 3.9% of income before tax. Our income tax provision usually falls within the range of approximately 39% to 40% of income before tax. The unusually low income provision primarily resulted from an income tax expense reduction of approximately $1.4 million, mostly due to the true up of actual federal and state income tax assets and liabilities as indicated on our 2008 income tax return versus our previously recorded book amounts. Most of our 2008 tax returns were completed and filed in Q3 of 2009. For those of you modeling our business and based upon consultations with our tax advisors, I'm using a 40% estimated tax rate for Q4 of 2009 and for internal budgeting purposes for next year.

Third quarter net income was $4.4 million which translated into diluted earnings per share of $0.34. Last year our $140.8 million net loss resulted in us reporting a loss per share of $11.17. At the end of our third quarter, our accounts receivable days sales outstanding was 40 days, down from 41 days at the end of Q2. Management fee DSO was 180 days at September 30, 2009. During the third quarter we generated approximately $24 million in cash provided from operations which was a record for us. Subsequent cash collection so far in Q4 have been as expected and we are seeing no material reimbursement slow down.

At the end of our third quarter, we had approximately $58.3 million in cash. We made a voluntary prepayment on our senior term debt of $15 million on October 9, 2009. We also intend to prepay another $5 million next week on Monday, November 9, which coincides with our LIBOR interest reset date under our term loan agreement. On December 31, 2009, we anticipate that our senior secured debt balance will be approximately $132 million unless we decide to prepay an additional amount before year end.

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

Thank you, Michael. Overall this was a good quarter for both the social services as well as the non-emergency transportation segments. The operations continue efficient. And we are seeing consistent budget performance on productivity levels.

For the quarter, our direct client census on the social service side was approximately 53,000 clients, an increase of approximately 4,000 clients compared to the same quarter in 2008. In addition we had over seven million individual eligible to receive services under our LogistiCare division. All of our clients are being served from 427 local offices in 42 states, the District of Columbia, and Canada. Combined between our own and managed entities, there are over 10,000 employees serving 843 government contracts.

This was a good summer for both sides of the business. We stayed efficient and grew a census ahead of last year during the same period. While summer can traditionally be a challenge, this year we did a nice job managing through the various cycles that normally confront us. We recently announced a $7 million to $8 million work force services contract won through competitive bid in the city of Detroit. These services offered will include job training, career counseling, and placement assistance. The target date to begin operations is December 1, 2009.

Overall, I'm pleased with our operational performance through three quarters and how we have continued to managed. We are presently in the middle of the budget process for 2010 and as you recall, this is a field base process where each local office develops their budget assumption and forecasts.

I'll now hand off to Herman to talk about the LogistiCare operations. Herman?

Thank you, Craig. The third quarter is typically our most difficult quarter as seasonal summer programs generate greater trip volume during July and half of August. These programs are detrimental to our gross margin as they typically involve children that during the school year use very little transportation but in these summer programs require daily transportation. While not every state covers these programs and the ones that do, every year new summer programs may be added and so our transportation expense spikes heavily during these few months.

While we anticipate the negative impact of these programs on our financials, I'm extremely pleased with the results we posted in the third quarter. As Michael indicated, our revenue was up 32% over the comparable period a year ago. This is due to the addition of our New Jersey contract that Fletcher referred to, growth in several of our HMO relationships, an increase in Medicaid membership in nearly every state contract, and coupled with a few selective contractual rate increase in state programs which had experienced very high utilization trends. In spite of the seasonal impact mentioned earlier and the increase membership, our continued focus on network management and efficiency led to a 24% relative increase in transportation expense year over year.

The New Jersey program continues to run smoothly and the state has recently requested that we fold additional counties into the program. Our Medicaid related programs added in 2009 in New Mexico and Hawaii have also stabilized and we are now beginning to assert additional gate keeping efforts to manage utilization.

We have clearly benefited in 2009 from the increased Medicaid enrollment due to the challenging economic environment. We anticipate that this enrollment will level off or grow at a significantly slower pace moving forward while overall utilization which actually dropped in 2009 will likely increase as the new enrollees begin taking advantage of the benefit.

Given the budget pressures that many of our state clients are facing, we do not anticipate being able to secure rate adjustments until the situation improves and in certain HMO agreements may face rate discussions relative to low utilization. As such, we are expecting 2010 rates to be flat but revenues to grow on the strength of registering a full year of the new business sold during 2009 and contracts implemented during 2010. For instance, just this week we have implemented a large HMO plan concentrated primarily in the Burroughs of New York City and we implement another large plan in that same general geography next week. The start up these two plans means that the initial capacity in our HMO center of excellence that we opened in Phoenix last year is now completely full and providing a positive return.

In terms of state contracts in the pipeline, Idaho has rereleased an RFP for its statewide program and we are actively preparing our response to that opportunity. We currently manage the program in Miami Dade County of Florida and recently on the retention of this business as well as submitted bid responses on several other counties that are up in that state. Finally, in Mississippi where we presently manage the statewide program, our contract is expiring in 2010 and the new RFP has already been released. We will aggressively defend that contract against competitive pressure.

As you can see, we are still very busy implementing new business and pursuing additional opportunities. Our strong performance in '09 is a function of the hard work of our dedicated and loyal associates as well as the excellent service delivery provided by our transportation suppliers. I'm very proud of how they've responded to the challenges created by new programs and increased membership this year.

I'll now turn it back over to Fletcher.

Herman, thank you very much and congratulations to you and your team on a remarkable year. Looking ahead, as you've heard, we expect 2010 to be a good revenue year for us. Remember, we've enjoyed an expense holiday in 2009 and many of those furloughed expenses will return in 2010, including the salary freeze, executive comp, stock compensation, something in the neighborhood of about $10 million. The transportation contracts cycle on the award date and most are multiyear. The two that Herman mentioned will be up for rebid in 2010.

State budgets we expect to remain tight, but we expect small social services rate increases, flat rates as Herman suggested for transportation, but continued volume increases along with the full year impact of the new business that started in July. Our field budgets are being developed on a site by site FTE by FTE basis and with that it's our intent to provide guidance for 2010 at a later date. We continue to see referral shift from out of home care to home based care and an improving rate environment and dramatically increased volume.

We really like the unique position of our Company today. We should benefit from proposed enhancements to Medicaid as well as the pressure currently on that of home providers, representing an ideological shift toward preventative and community based care, federal leadership, US court support, and unprecedented levels of federal funding. The federal government seems braced to mandate our home based delivery model which heretofore has been voluntary and covered typically under a waver program. Congress appears to be willing to put some real money behind these initiatives. Any legislation that passes will substantially increase Medicaid enrollment, providing a direct benefit for transportation and increased referral potential for social services.

With that, Lisa, we'll go ahead and open the line for questions.

(Operator Instructions) Your first question comes from the line of Kevin Ellich: with RBC Capital Markets. Please proceed.

Good morning. Thanks for taking the questions. I guess could we start off -- Michael, I'd like to start off with you. You mentioned that the LIBOR resets next week. Does it become fixed? Or can you tell us what it resets to?

We have some options when we chose our rates. Right now we're choosing a one month LIBOR and have been for several months. Every month it resets. It's about 0.2% or something.

Is that 2% with margin? With the margin on top of it?

No. You would have to add the 6.5% margin on top of that.

Thank you. And then going back to Fletcher's comment about the I think $10 million in higher G&A expense. Is that what we should think about for 2010 in terms of how G&A should trend?

That's not all G&A, Kevin. Most of that, in fact, is probably going to show up in CO budgets. Two-thirds of it or so is related to salary raises, field based costs. On a percentage basis we would expect our margins maybe to reduce by 1% overall as these expenses come back online. We're optimistic at this point that we've got enough new revenue to offset those costs so we can enjoy replacing and allowing our employees to benefit from the good year we've experienced in 2009.

Sure. So basically the 1% lower margin should be up, you guys should be able to offset that through higher revenues and maybe some other cost savings?

Clearly our margins overall, I think we said pretty much every quarter that our margins are unusually high. We don't believe they were sustainable. I think that's true in both segments. So, we would expect that on an overall percentage basis, margins will normalize in 2010. We do have, as Herman suggested, some built in growth with the annualization of business that started in July. So, you've got the opportunity when you look at 2010 run rates to add our current base, some reduction in margin, and some increase in revenue as a result of those contracts being annualized.

Okay. And then just one more financial question. With the CIT news this week, does that change anything for you guys?

They've assured us no. We've talked to them several times and the subsidiaries we are involved with are not involved in the bankruptcy filings. So, they've indicated to us that our line is still available to us and it's business as usual as far as our relationship with our lenders. We don't expect any issue that we're aware of today.

Okay. And then some questions on the transportation business. Herman mentioned there's some seasonality that you guys say. Just wondering how that seasonality impacts the margin trend throughout the year?

That seasonal impact we see every year, Kevin. So, it definitely impacts the late part of the second quarter and primarily the third quarter in that it does reduce margins in that quarter. But because those are summer programs, what happens is the kids go back to school, it kind of returns back to what we would consider to be the more normal first part of second quarter margins. So, historically in our business, first and fourth quarters are our best margin periods and second and third are our toughest.

Okay. And then could you just provide us the amount of the contracts you're bidding on in Idaho and then how much the Miami Dade contract is and the Mississippi?

I'd rather not. If I tell you that, then that gives them some indication of how we're bidding. They're not fixed fee so we have to bid on price. Those are still open RFPs. Our competitors could be listening. So, I'd rather not give you those values.

Got it. I'll hope back in the queue. Thanks, guys.

Kevin, thank you.

Your next question comes from the line of Robert Labick with CJS Securities. Please proceed.

Good morning.

Good morning, Rob.

A couple questions. Just wanted to start with LogistiCare as well. You mentioned the seasonality. We were expecting a dip in gross profit in LogistiCare in the quarter which didn't materialize. So, obviously you're running at higher margins and you have been all year. Can you talk a little bit about what you've done to increase that margin? Is utilization just down? What do you expect going forward? Are we at the high end of expectations for gross margins? Where should we look for it on a go forward basis?

The margin benefit we've gotten this year really is a function of what I alluded to in my comments which is we have gotten extreme growth and membership during 2009 and typically there's a lag between a person coming on the Medicaid and starting to utilize all their benefits. You also have to kind of keep in mind that the folks that are entering the Medicaid ranks right now are not what would be thought of as typical Medicaid members in that they're not what we call ABD -- aged, blind, and disabled. These are generally healthy people who have lost their jobs or are kind of down on their luck. So, they don't come in needing a ton of medical services. So, they don't access the benefit right away or don't even know about it until they get into the program for a while. That tends to help benefit our margins because we do earn our revenue on those folks and we're not incurring expense to take them anywhere.

As they learn about the benefit or as they stay on Medicaid longer, utilization begins to rise. That's where I would caution you to think that those margin trends are going to continue to increase or even stay where they are. We do anticipate enrollment either slowing down to almost nothing or as the economy improvement, it would actually go down which would have the opposite effect for us. We would start losing the revenue and people who stayed in and are high users would compress our margins. So, it's -- right now things have aligned positively for us given the new business we've brought on plus the membership trends. I think that's what I would attribute our good margins to in the third quarter.

Great. Thank you. As it relates to the core social services, we saw the seasonal dip in margins in the quarter, I guess probably due to education programs. Can you talk about the amount of education as you've grown that and if that is indeed the dip there and if we should expect it to go down in Q4?

Yes. Our tutoring business in the summer trails off as well as our counseling programs that we do in the schools. We do that in a number of states. That definitely comes back up starting late September, early October. There is a transition period there once kids get back into school. So, it's not just our tutoring business. We also have a number of counseling type programs in schools. Now they don't totally go dormant because we've been working on summer programs for some time. I think that's helped us a little bit here over the years to improve our summer performance because we've been developing these summer programs. They aren't all summer, but they did help us certainly do better on the social service side during the summer dip. But they'll definitely -- the school programs will definitely come back on line in the fourth quarter.

If you look at us historically, Bob, Q3 has almost always been on an EPS basis, half of what Q2 was. Except for the tax benefit, that's exactly where we ended up in this Q3 over Q2. So, we see revenue drop as these programs go dormant on the social services side. Expenses increase, as Herman suggested, on the transportation side. And its impact has been about half of our prior quarters to EPS. And we expect that trend to continue in 2010.

Okay. Great. And then one last one and I'll get back in queue. Obviously with the strong cash flow and the debt repayment and the prepayments, you look very safe. All covenants that you have on a go forward basis. Has you given thoughts to refinancing the debt at all or what other actions you might do with the capital structure in 2010?

Our board has approved a $20 million pay down and as Michael told you, Q3 was our best free cash flow quarter ever. So, we are sitting on a nice pile of cash. I think we would be very interested, Bob, in getting our leverage down under three times EBITDA. That seems to be kind of a new benchmark in this current economy for health companies. We're going to be dangerously close to that with the current debt. I think -- I would not rule out, I think is probably the way to put it, another reduction, although today we don't have anything approved.

Great. I'll get back in queue. Thanks.

Your next question comes from the line of Kevin Campbell with Avondale Partners. Please proceed.

Hi. Good morning. This is Wes Huffman speaking for Kevin Campbell this morning. I just wanted to ask a couple questions as it relates to G&A. It increased about $1.2 million sequentially. I'm wondering if you could talk just a little bit about that and what was the reason for that and what should we expect going into fourth quarter?

That should not be recurring, Wes. That's an item that our comp committees asked us to accrue for in the event the year continues to do as well as we have been to give them the opportunity to bonus some people in 2010. So, that's just a one-time accrual and SG&A should return to normal levels.

Fletcher, I'd like to jump in also, make people keep in mind that as we've added these contracts, we have also obviously added people. So, that's also driving up the G&A quarter over quarter because New Jersey, we can't do it with nobody. So, our G&A and our HR expense has grown this year as a function of the new business.

Okay. So, when we model estimates for 2010, that's not going to be -- I guess it would be spread out evenly and not lumpy or anything like that going forward?

I think on a percentage basis you could use the same kind of SG&A margins we've done historically. The increase expense in 2010 are going to be related to executive comp, the increased expenses in the field services line items are going to be the result of increases in salary. Those two things combined will clearly effect margins in 2010.

Great. That's very helpful. Could you talk a little bit about potential utilization pressures that you've seen or if you have seen in the social services segment?

There it's driven by referral volume because we're a fee for service provider. The more people that enroll into Medicaid, the more referrals are made, and you can see our organic growth by clients. A client for us, remember, is someone with a pure Social Security number, is up about 10%. So, that as Herman suggest, is almost exclusively driven by Medicaid enrollment. So, for both of us, both sides of the business, enrollment is good news. Increased enrollment increases revenue, PMPM for transportation, and it increases referral volume on the social services side. And we don't have any real challenges managing that on the social services side, Wes, because that's people. We follow an FTE to client ratio and as the clients increase, we hire up to those ratios.

Okay. One last question. Is there any way you could put a dollar figure value on LogistiCare's potential pipeline out there?

We would have to refer you to whatever's available in the public documents. Those states do have requests for proposals published. We would not comment, nor are we even allowed to comment on them during the RFP process. So, if those states have some information available, it would be public. And we can direct you to a website, Wes, or something offline. But that's the only way you're going to get it, is if the state releases it. We won't until the bids are announced.

Okay. That's very good. And for the ones that have been issued, you mentioned Idaho. What were the others?

Idaho is new business. Mississippi is a rebid. And Miami Dade County is a rebid.

Partial rebid. Partial new business opportunity in some new counties.

Okay. Great. Thank you very much.

Your next question comes from the line of Jack Sherck with SunTrust. Please proceed.

Hi. Thank you very much. I'm sorry. I missed it. What was the cash flow from operations for the quarter?

$24,048,000. $24,049,000, I'm sorry.

$24 million?

Yes.

Okay. And then with the foster care business, you said that acquisitions added 40.8%, partially offset by existing Kentucky. What was the organic growth? Do you have that?

I do but I have to look it up. You know what, Jack? Can you call me after the call and I'll look it up and give it to you?

No problem. And then last question for you, just back to an earlier question, on the client service expense moving up from 83.2 from 79.2 in Q2, it looks to be a little bit more of a seasonal uptick than usual. Is there anything else going on there or is that just a seasonal aspect?

I think it's entirely seasonal which is just related to the maintenance of overhead while revenue decreases.

Thank you very much.

(Operator Instructions) Your next question comes from the line of Rick D'Auteuil with Columbia Management. Please proceed.

Just a couple of quick updates. Which Carolina was a LogistiCare win in December? Was it South Carolina?

Yes.

I did not hear that one mentioned.

That was not a Medicaid program. That was a Department of Social Service contract that we tried in terms of kind of a work training program. And it has -- it still exists today but it has not materialized into the size of contract it was expected to. They tend to, after award they let the counties decide whether or not they wanted to use the contract that was put out by the state. So, it has not been a centralized contract like we would normally have. So, it really is not a significant contract at this point.

Okay. And this, I guess going back to Fletcher's -- that the social service side of the business, North Carolina, any thawing on rates? Or are you still in tough shape on rates there?

That's the only state in the summer cycle that's introduced a rate cut. They are attempting to cut Medicaid rates by 3% there. I think they're hoping to avoid litigation in that state by giving the secretary discretion over how the rates are implemented. We've yet to see, Rick, how that strategy will be implemented to the provider level. North Carolina, on a population basis, pro rate basis, probably has the biggest deficit challenge in the country right now, $2.5 billion, $2.8 billion deficit with their given population. So, that state is still struggling. And we do believe ultimately we can benefit from an environment like that because our costs, our services tend to be on the low cost side of the equation. But it's probably too early to tell really how that's going to play out.

That was a state that was pretty aggressive in awarding business back a couple of years ago and the thought was some of the providers really weren't qualified or had done some things that consultants said went over the line. You guys were among the few that stayed in the game as far as passing all the tests. Have you been a beneficiary of that consolidation? What's happened to all that business?

We have been, Rick. There have been providers that have gone out of business or opted out, they're not staying in the current contract environment. Our business I would say is stable there. We've got some challenges obviously as the state tries to wrestle but our programs are very well received. Our reputation there is very good and it's a state we believe in the long-term will benefit. We will benefit from. It's -- whatever's going on there is probably not material today in the grand scheme of things because it's still relatively one of our smallest states.

Okay. How about Pennsylvania? Any issues there at this point?

No. The issues there were on a rate disagreement which was settled. I think we're fine in that state. I think nothing that we're aware of other than what we've communicated regarding state issues. We continue, Rick, to watch California and we continue to watch North Carolina. Those are really the only two I would tell you to keep your eye on.

You were hoping at some point in Canada to have an opportunity to grow your business there in different provinces. What's the status of that?

We do have a new national contract. We have yet to cross over a provincial line, although our business volume there is nearly doubled. The impact of that is primarily from the federal contract, national contract. We have yet to have the opportunity to cross into any other provinces.

All the litigation there is behind you?

We still have a pending arbitration that will probably be heard regarding the contractual disputes of last year at the end of this year. It does not seem to be affecting our business or the loyalty of our payers.

Thank you.

Your last question is a follow-up from the line of Kevin Ellich with RBC Capital Markets. Please proceed.

Hey, guys. I just wanted to go back to the New Jersey transportation contract. It sounds like that's been expanded. Initially I think -- I thought it was $55 million, now up to $70 million. If they expand it further, is there additional run for upside?

The growth on that contract value is really an assumption of frankly membership growth in Medicaid in New Jersey from the time they put up the RFP using figures that were a couple years old to where they were by the time we implemented the contract. That's what's really driving that differential you're mentioning.

In terms of these counties that they're bringing on, while it'll be nice for us to have the entire state and to have all the business -- currently the way it's structured is we do certain levels of service in New Jersey, basically want they call MAV which is mobility assisted and above, so folks who are ambulatory, meaning they can walk on their own, are still handled by the counties. By bringing those folks on, it will add a very slight incremental revenue. Those folks we don't get paid very much for because they don't use it a lot. What it will do though is allow us to be much more efficient in terms of the transportation and being able to assign trips to the providers. So, it will help in terms of the management of that contract more so than driving a lot of extra revenue.

Okay. I understand. Fletcher, the last few questions were kind of about the states and the trends that you're seeing. With the elections that just happened, I was wondering if there's any changes in your thinking on the states and their ability or willingness to cut services or provide updates. Any color on that?

I think from our perspective, states are still struggling to balance budgets in a recessionary environment. Many states had some very creative ideas over the summer to raise revenue from legalizing gambling to new sin taxes to all kinds of things. They however left for the most part, except for North Carolina, the Medicaid line items along. We believe that's entirely driven by federal direction both through the stimulus which has specific strings attached to it, Kevin, in terms of access to those stimulus dollars as well as the federal court's interventions that basically restricts states from arbitrarily reducing Medicaid benefits.

So, those two things have combined in spite of the recession. Most states have dealt with us and increased volume and looked at small rate increases. The one thing I think we're hearing from our Democratic friends regarding the elections in New Jersey and Virginia is it may slow healthcare reform down. You're already beginning to hear some from the Senate that they may not get around to their bill this year. Of course that has very robust features in it for enhancements to Medicaid. The only outcome we've seen so far does not impact the current state of affairs between the federal government and state governments but it could impact the timing of and the nature of the current initiatives in both the House and the Senate.

Thanks. That's all I have.

Thank you.

If there are no more questions, I would now like to turn the presentation back over to Mr. Fletcher McCusker for final remarks.

Lisa, thank you very much. We have been blessed with unbelievable employee retention at the corporate, regional, and state levels during what is certainly the most tumultuous time in our Company's history. Everyone should be grateful to the ongoing commitment of our leadership and our employee base. I'll be on the road a lot in the coming months visiting the West Coast in November, attending the CJS Conference in January, a Jefferies Conference, and an Avondale Roundtable tomorrow, UBS in February. So, if you'd like to see us in a non-dealer environment, please call Alison to get on our calendar. We look forward to seeing you soon. Thank you very much.

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