National Research Corp (NRC) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Fourth Quarter 2007 and Year-End Results Conference Call.

During the presentations, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded Wednesday, February 13, 2008. I would now like to turn the conference over to Michael Hays, Chief Executive Officer. Please go ahead, sir.

Thank you, James, and welcome, everyone, to National Research Corporation's Fourth Quarter and Year-End 2007 Conference Call. My name is Mike Hays, the Company's CEO, and joining me on the call today is Pat Beans, our Chief Financial Officer.

Before we commence our remarks, I'd like to ask Pat to review conditions related to any forward-looking statements that might be made as part of today's call. Pat?

Thank you, Mike.

This conference call includes forward-looking statements related to the Company that involve risk and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated. Those forward-looking statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995.

For further information about the facts (sic) that could affect the Company's future results, please see the Company's filings with the Security (sic) and Exchange Commission.

With that, I'll turn it back to you, Mike.

Thank you, Pat.

Today we have more than our usual number of topics to cover with you, many of which relate to new products being rolled out here in 2008. Before I discuss these, let me turn it right back over to Pat and have him review the quarterly and year-end 2000 (sic) financials before I return to my remarks. Pat?

Thanks, Mike.

For the 12 months ended December 31, 2007, the Company achieved record revenue of 48.9 million, compared to 43.8 million in the same period in 2006, a 12% increase.

The Company's revenues for the three months ended December31, 2007 was 10.8 million, compared to 10.3million during the same period in 2006, a 5% increase. The limited growth for the quarter was impacted by the Canadian Exchange Rate, which triggered a repricing, as well as last year's federal contracts working themselves out period over period.

For the three months ended December 31, 2007, net income for the Company was 1.1 million, or $0.16 per diluted share, compared to 1 million, or $0.14 per diluted share, during 2006, a 10% increase.

For the 12 months ended December 31, 2007, record net income for the Company was 6.8 million, or $1 per basic share, which is a new Company milestone, and $0.98 per diluted share, compared to $5.9 million, or $0.86 per basic and $0.85 per diluted share for the same period in 2006, a 16% increase in earnings per share.

The net income margin was 14% for 2007, a 1% improvement from 13% in 2006.

During the fourth quarter 2007, direct expense as a percent of revenue was 47%, which is outside our model of 43 to 45%. However, for 2007, direct expense ended within our model at 45% of revenue. We expect 2008 to be within our model at 45%, similar to the full year of 2007.

During the fourth quarter of 2007, selling, general, [and] administrative costs represented 30% of the revenue, a 1-percentage point improvement compared to 31% in the fourth quarter of 2006.

For the year 2007, we were outside our model of 23 to 25% with SG&A expense at 27%, but still an improvement over 2006 at 28%. Looking at 2008, we should see SG&A expenses being leveraged against higher revenue and coming within our model.

Depreciation and amortization were 6% of revenue during the fourth quarter of 2007, improved by 1 percentage point compared to 7% in the fourth quarter of 2006. For the full year 2007, depreciation and amortization were within our model. For 2008, we expect the annualized depreciation amortization expense as a percent of total revenue to be in the middle of our model of 4.5 to 6% given continued revenue growth.

In 2008, we also expect our interest expense to be lower as we continue to reduce the bank debt.

During 2007, the Company paid down its notes payable by 8.1million. As a result, and as of today, the Company has less than $2 million of debt remaining.

Cash flow from operations for 2007 was 14.6 million, compared to 6.8 million in the year 2006. Cash flow was higher year over year partially due to the renewal of TGI, which we worked through the original purchase deferred revenue during 2006 and the first part of 2007 and the timing of billings collection and estimated tax payments.

Cash and short-term investments as of December 31, 2007 were 3.5 million.

I'll now turn it back over to Mike for additional discussions.

Thank you, Pat.

Let's focus first on sales. Net new contracts for the year 2007 increased by 23% to 14.7 million, and as noted in the earnings release, our fourth quarter sales hit a record of 5.5 million, by far outpacing our best quarterly performance ever under sales expansion.

For NRC Picker, our largest business unit, new sales are generating increases in the value of our current client relationships and, as well, adding new clients. Both of these outcomes were largely driven by our unique approach in helping organizations improve patient-centered care.

As we approach public reporting here in a month, that being March of this year, we anticipate hospitals will allocate even greater resources towards improvement once their boards and the public see for the first time side-by-side hospital ratings in each market in the country. We believe the resulting increased motivation will play, as it has been, directly into our product portfolio subscription-based improvement products.

From a sales perspective, Healthcare Market Guide started the year slow and finished strong. Two-thirds of that unit's sales were generated in the last half of 2007, and January of 2008 has shown that continued momentum.

The Healthcare Market Guide sales team has now doubled to 12 associates, which will be an -- important in executing against the rollout of a major new Healthcare Market Guide product, which I'll touch on here later in this call.

Our Payer Solutions business unit in 2007 registered very good sales growth year over year, driven by increased enrollment in Medicare Advantage among our base of very large national health plans.

The Governance Institute sales team also achieved record growth 2007 over 2006 in new memberships sold. As well, the Governance Institute's average membership value increased as a result of new products introduced in the fourth quarter of 2007.

Across the board, our sales teams are generating material increases in both market share and average contract value. We are continuing to put more feet on the street. We're also benefiting from the maturity within our existing sales teams, and adding new products to our portfolio, which provide additional opportunities.

Total contract value at year-end 2007 stood at 52.6 million, comprised almost exclusively of commercial contracts, which in and of themselves increased by 18% year over year.

In 2008, we see the macro trends across our business units continuing to be transparency, including both public reporting of performance and the increased scrutiny of healthcare governance.

On the payer side, pay for performance is increasingly being used as a tool for value-based purchasing, and Medicare Advantage enrollment remains on the upward track. It's not by chance that the new products emerging from our development pipeline in 2008 will capitalize on these trends.

Specifically related to new products -- and as you know, over the last 24 months, we have created a material and disciplined product development focus across all of our business units -- in 2008, you can expect several new products to emerge from this pipeline and be taken to market.

In fact, in March, Healthcare Market Guide will roll out what we're calling a Community Benefit Assessment Report. This report is tailored to each hospital in the top 200 markets and repackages our current Healthcare Market Guide database to address the increased pressure on hospitals from their state's attorneys general's office to justify their not-for-profit status and meet the new federal IRS Form 990 requirements.

We've received 70% acceptance in our product test phase based on our prototype report priced at $9,500 per year. While this product line extension is not anticipated to materially add to the revenue growth of the overall company, it has the clear possibility to drive the bottom line given its capitalizing on an existing data asset with limited incremental delivery cost.

On a far grander scale, late in the second quarter, Healthcare Market Guide will move to continuous data collection rather than our historic annual snapshot. This totally reengineered approach to the core Healthcare Market Guide offering will provide hospitals the ability to monitor real-time changes and effects on over 100 metrics, including consumer sentiment towards public reporting of hospital performance, brand equity, advertising tracking, and consumers' use of new sites of care delivery, such as retail clinics.

The design of the Healthcare Market Guide Picker, as it's named, also allows hospitals to add custom questions to the study throughout the year, which eliminates the only real sales objection from the only real competitive alternative.

In addition, the scope of Healthcare Market Guide Picker product will expand from covering 200 markets across the country to include continuous feedback in the 300 largest markets in the United States. This alone increases the prospect pool by more than 50%.

Ongoing data collection will also allow the smoothing of revenue recognition for the Company from once a year in the third quarter to throughout the year. The basic economics are such that the Picker will represent a 50% price increase or increase in contract value against our current subscriber base and add a similar positive impact on increasing revenue from new subscribers going forward.

Bottom line, we believe within Healthcare Market Guide, there's more robust product, which eliminates a real sales objection, a more engaged subscriber to drive even higher retention, more prospects via greater market coverage, and as noted earlier, a sales force that has doubled in size in anticipation of this rollout, is very excited for Healthcare Market Guide and the Company as a whole.

Not to be overshadowed by Healthcare Market Guide, NRC Picker has an equally exciting product rollout planned, the NRC Picker Patient-Centered Care Institute. This membership-based offering bundles together our robust improvement offerings in such a way as to enable us to sell our improvement products to hospitals that do not currently use NRC Picker for the measurement of their patient satisfaction.

This is really a big deal. To date, we have largely been limited to having to first sell a hospital on our measurement offerings in order to have a base of clients to cross-sell improvement products. Now, granted, many of our prospects that have turned into clients of late have bought both measurement and improvement. However, we know our improvement offerings have proven themselves to be the best in class, and this new packaging allows us to use this advantage to sell our subscription-based improvement offerings via the NRC Picker Patient-Centered Care Institute to all of our competitors' client bases independent of whether or not it's timely for a hospital to switch their entire measurement contract to NRC.

Tests have proven this approach subordinates a measurement-only vendor's relationship and captures over time the hospital's entire patient satisfaction measurement revenue. We believe this strategy provides us access to the entire market in a very different and very accelerated way.

As you can see, each of these new products announced today to you are somewhat strategic in nature, they have proven market acceptance, and most importantly, are built on our core competencies.

In the upcoming quarterly calls, Pat and I look forward to providing you progress on the traction we are achieving with these products that I've reviewed with you today, as well as provide additional visibility regarding other new offerings we have planned throughout the year.

James, I'd now like to open the call to questions.

Thank you. (OPERATOR INSTRUCTIONS)

And our first question comes from the line of Adam Fisher from Burnham. Please proceed.

Hey, how are you?

Good, Adam. How are you?

Sounds like a lot's going on. Can you talk a little bit about the components of the net new sales number by product line? You know, what's growing fastest, how you expect that to track into 2008, etcetera?

We typically don't break out net new sales, as you know, by individual product line, but across the board, we have seen growth without exception across all business units. Going forward into 2008, we would anticipate the same, each unit for perhaps different reasons, whether it be market trends or -- and/or increased number of feet on the street, and/or new product offerings -- should add to the sales growth in each one of the business units.

So if I kind of -- hearing you guys correctly, you expect to at least achieve your goal of 20% revenue growth, and it sounds like we could likely overshoot that?

Our revenue growth, or top-line growth, as well as bottom-line growth is that 20 to 30% range, and yes, you're reading our remarks correctly in that we believe we'll be well within that range.

Can you talk -- you know, you mentioned a little bit on the sales force productivity side, but can you talk -- can you give a little bit more insight into -- I think we were kind of working at like 50% productivity maybe middle half last year, where we are now and kind of the improvements you expect in '08?

Sure. As I think you're referring on one of the calls, we did talk about the maturity of the sales group and the fact that year over year after they've been on board, there is a material increase. I think [inaudible] around 38% increased year-over-year sales from same sales associates' or [inaudible] productivity, so we are witnessing a contribution relative to just more experience and broader relationships with their prospect pool, and we would anticipate that to continue.

Are any of -- have we recognized any sales from any of the new products? I know they're very early stage, from maybe the Healthcare Market Guide products?

No, we --

So we haven't recognized any of that yet?

I'm sorry to interrupt. No, we haven't. The first of the three products that I just reviewed with you will roll out in March of this year, that being the Healthcare Market Guide Report.

I just had thought we had -- we had had a couple beta customers in there earlier on.

There are a few that went through the product acceptance testing and have said they will buy, but we formally haven't incorporated that into a new sale yet but will.

Outside of the new kind of improvement model that we're going to roll out second half, have you seen signs of initial uptake among the customer base of our improvement tools as HCAHPS kind of comes to a head in the next couple months?

Yes, we definitely have. In fact, ironically, I was at Governance Institute conference yesterday, which, as you know, has a CEO and most board members in attendance, and it was surprising to me the increased communication and questions coming from the trustees of the hospital relative to the anticipated March public reporting. So it clearly is getting visibility throughout the organization, even at the highest levels.

And do you have specific sales member -- sales team members focused on just the improvement products, or are they all trying to sell the bundle?

Currently, as we speak today, prior to the formal rollout of the Patient-Centered Care Institute, it is a bundled product offering with our measurement. However, we are considering trying to find an area of specialization within that product portfolio to push it further faster, but that is not in place today.

Okay. I think last quarter we talked about some price increases on the TGI side. We had added some new products to the core offering, etcetera, and so -- did those go through, and have they been kind of accepted?

You're correct. We added what we call board support, which was a significant enhancement to the basic Governance Institute membership product. We did increase the price; I think it was 32%. We've gone through now four -- is it four months, Pat? -- three months' worth of new invoices to previous members with that price increase incorporated, and our retention rate is essentially non-affected. We saw a little bit of a slowdown early on in the outstanding receivables, but that's been cleaned up, and there's a little greater clarity on the invoice now. But more importantly, we have seen no, as we call it, withdrawals from the membership based on that, so we anticipate running through that here during 2008 with a similar outcome.

Just looking at '08, your revenue targets, how much -- or your revenue growth targets, how much gain are you assuming from the new products that will be released later on this year?

We haven't per se created an anticipated sales quota or goal for each one of the individual products. We're really looking at it more about continuing to provide our sales teams with more product to increase the number of opportunities and ensure that we can maintain the growth 20 to 30%. So --

So you're not necessarily adding them specifically to the budget, but the idea being that if they have more tools and more opportunities to go after different kinds of customer bases, the growth rate should accelerate?

Exactly. Depending upon the mindset and where the prospect organization is on the date we talk to them, we have found that certain ones are more accepting of one product over another on that day. And, in particular, our improvement products, we want to try to bring that to non-measurement clients because some aren't ready to switch their entire contract today but would like to take advantage of some of the improvement products. So that would be an example where we haven't created a separate line item quota for that particular product, yet it results in a more timely, shorter sales cycle as a result of having that in our bag.

Great. Okay, I have one last question. Obviously, we generated a lot of cash last year, and we paid down the vast majority of the debt. We've historically increased the dividend X% a year. Do you foresee increasing -- the increase being at a higher rate going forward given the kind of lack of ability to buy back a lot of stock recently?

The Board determines, of course, dividends on a quarterly basis, and what that decision will be next quarter, of course, will only be known next quarter. We do have as a marker -- a metric on dividends is to stay within a certain percent of previous year's net income as a payout.

Okay.

So as net income increases, so should -- assuming the dividend policy continues -- so should the dividend.

So as we add kind of cash to the balance sheet this year, assuming that the dividend kind of is within that range then, do you have other thoughts on what you'd like to -- where you'd like to allocate it?

Well, we always are looking for acquisitions. Again, as you and everyone know, that has never been kind of a core growth strategy. It's --

Right.

-- number three, but one would assume if we could find a particular target that was attractive, then cash balance would be increasing in a lesser amount of debt that would have to go against that purchased consideration. So that might be one attractive use of cash. Pat, do you have --

We still do have the authorization to buy back from the Treasury shares, and I'm -- we're actively trying to get 100,000 shares this year.

Okay.

And last year, we were not -- we did not achieve that, but we're working to -- we've improved so far year to date.

Great. Good to hear it. That's it for me. Thanks a lot.

Thank you.

(OPERATOR INSTRUCTIONS)

Our next question comes from the line of [Christina Blashak] from William Blair. Please proceed.

Good morning, guys.

Good morning.

Can you give us a little bit more color on revenues during the quarter? I know you mentioned during your prepared comments the impact of the Canadian exchange rate, as well as the federal contracts that were working their way out. Any idea of -- can you quantify that a little bit, or just [to] give us any additional color would be very helpful.

Color for the quarter or color going into the quarterly revenues in '08 or --

For the quarter and then actually going into '08 how you've seen that change and kind of rebound a little bit.

Okay. For the quarter on the Canadian exchange rate, it required a repricing once the exchange rates hit certain numbers and -- which will be -- will flow into Q1 of '08.

Okay.

And hopefully after that point, it can start flushing out some. The federal contracts was work that we had in '06 that has been going away, and so we didn't have the work in '07, and so it won't be a comparable going into '08.

Okay.

And then I'd say going into '08, looking forward a little, the one big change in comparison to history will be Healthcare Market Guide moving to an ongoing data collection, which we will then briefly recognize revenue 1/12 over the term of the membership period, very similar to some of our other subscription products, most notably the Governance Institute. So we should see a material reduction in Q3 spike. We do not anticipate that 100% of Healthcare Market Guide clients will convert to the monthly deliverable from the annual deliverable all within 2008, so there will still be a slight bump in Q3 but not nearly as noticeable.

Depending on the conversion within the second quarter, we should see some of those current Healthcare Market Guide clients' revenue recognition starting sooner in the year, that being second quarter, moving through the third quarter and fourth quarter, but because we'll roll out the product somewhere in second quarter and it is an annual subscription, we will have a significant proportion of Healthcare Market Guide revenue being deferred into '09.

Okay.

So that would be one shifting within the quarterly model you might have you -- you might want to entertain.

Sure. So this, the shift from the annual subscription to the monthly, this is the second product you mentioned -- you talked about earlier, correct?

Correct.

Okay, great.

And then, also, to follow up on that, so it sounds like you guys had some great new contracts that you were able to sign on during the quarter, and it looks like that's continuing into the first quarter of '08. Was there anything different that -- any different sales strategy, any additional cross-selling opportunities that were more successful that led to the 5.5 million contribution?

I'd like to think it was all wisdom, but I think it was just a lot of hard work on the part of the sales people.

Sure.

No, no real change in strategy.

Okay, great. Thank you.

And then moving on to expenses, I know your direct expenses and SG&A were outside of your model. Any particular reason why other -- maybe other than -- or was it simply just when you would look at margins, it's compared to a lower revenue base?

Part of the margin for the quarter would be caused -- again, some of it's by the Canadian. It's lower revenue with some same, similar fixed cost.

Okay.

And so, as I said, I think that will be corrected here in '08 --

Okay.

-- as we move forward.

On the SG&A, it's continuation of our sales expansion.

Yes, yes.

And it did go down 1 percentage point. I'd expect that to continue to come down during '08. As we leverage higher revenue, we're not going out to build more dollars in the sales expansion. We already have them budget[ed] and used. We just need the full revenue to leverage that group.

Okay, great. And then a couple other quick questions.

Can you give us an update on the cross-selling opportunity? I recall from last quarter -- I have in my notes you had an existing client base of approximately 1,100 clients, and at that time, about 90% of your clients bought from only one division and 9% from two divisions. Is this still pretty similar? What's your client base right now?

It'd be pretty similar. The actual numbers are going to be somewhat higher given new clients brought on in the following -- or in the last quarter.

Okay.

But the ratios aren't going to be any -- materially different. We are continuing to see greater activity, especially as it relates to the TGI member's CEO being brought aware of other business units, product and services. It seems to be -- the cross-selling seems to be more influential trickling down than trickling up.

Trickling -- okay, great.

And then, finally, how much did the Healthcare Market Guide contribute to revenue for this quarter? I may have missed it. You may have mentioned it before.

I don't have the quarterly number on revenue, but the annual value of Market Guide's around the $5 million number.

Around $5 million. Okay, great.

And then do you still see you [abling] to double the membership and the spend rate by 2000 -- end of 2009, or do you think actually your outlook may be a little bit better given a larger sales force now and then the introduction of new products or improved products in 2008?

I would look at it more that the additional products and additional sales force will help contribute towards doubling the number of subscribers and the spend rate of those subscribers more so than looking at aspirations beyond that.

Okay, great. Thank you very much.

Thank you.

Our next question comes from the line of Andrew Weiner from Burnham Associates Management. Please proceed.

Hi. Good morning, guys.

Good morning, Andrew.

I just wanted to put some color around the numbers and make sure I understand how we think about it. We exited the year, if I heard you correctly, at 52.6 million of annual contract value?

Correct.

Okay. And where that perhaps in '07 wasn't as relevant a number because of material -- or a more material portion was associated with government contracts that went away, that number now is almost exclusively commercial contracts where the retention rates have historically been much higher?

Correct.

Okay. And then if I think about the 14.6 million of net new contract value that you added in '07, if -- and this is a hypothetical exercise -- but if you were to just replicate that, which I assume would be a disappointment, in '08 and it was done ratably throughout the course of the year, you'd expect about half that number to be accretive to the 52.6?

That is correct with one minor exception, that being net new sales coming from Healthcare Market Guide subscription product; we would count into net new sales at the point in time that they occur. It would go into contract value, but there would be a deferral of that revenue into the follow-on year [inaudible - technical difficulty] --

Right. And [inaudible] --

[Inaudible - technical difficulty].

But that's from the new product, correct?

Correct.

Okay. So I mean -- but if I were to just then -- I guess if I do the math there and I say that you would hope the 14.6 would go up, you've got new products, you've got more sales people, you've got maturity in the sales force offsetting perhaps some of the deferral of Market Guide, that gets you to $60.3 million number, which would get you well within that 20 to 30% growth range. Is that a little bit what gives you the comfort in those comments?

Yes, exactly.

Okay.

Secondly, I had to hop off the call for a couple of seconds during the prepared remarks, and I don't want to put the cart entirely before the horse here, but I know you need to get back to your operating model in '08, but when I look at the products, both the new products you're offering and the types of products that are growing at the fastest rate, I think you've historically said they carry above -- when I think of TGI, I think of the improvement tools, I think of Market Guide -- they all have above corporate average margins, if you will. When you look out into the back half of '08 and into '09, is there an expectation that you might need to revisit your longer-term operating goals?

I think we will, and I think what we've toyed around internally is as a larger proportion of our revenue stream is coming in in a different -- very different type of product, we may need to look at having two models, one more about subscription memberships, syndicated type, and one more about our historical measurement business, which would reflect greater leverage on the membership-based subscription product revenue, but we have not introduced that by way of Pat's prepared remarks in at least today's call.

Okay, great. Thank you.

(OPERATOR INSTRUCTIONS)

Our next question comes from Daniel Lewis of Gem Partners. Please proceed.

Good morning, gentlemen.

Good morning, Dan.

Question on the competitive landscape in terms of HCAHPS and where do things stand in terms of -- you know, you guys had an early lead with your patient experience. You had a presence there already. What is going on in the marketplace vis--vis the competition?

We haven't noticeably seen any new players, which I think originally we anticipated there would be. There are a lot of organizations that have thrown their hat in the ring but to date haven't seen to gain much traction. So I think the players from a competitive landscape perspective are largely identical. It appears that we are gaining faster on the market share side than most, if not all, of the others. We are focusing disproportionately on the improvement side, where most of our competitors seemingly are staying status quo, that being leading with the measurement, so that perhaps is a slight shift vis--vis a year or so ago.

I think, generally speaking, notwithstanding the exceptions I just pointed out, I'm not sure that there's a material change in the landscape.

And in terms of the opportunities available through the HCAHPS opportunity, do you see the potential opportunities as being the same or less than you did a year-and-a-half ago? In terms of the market opportunity, the sustainability, are there any risks to the program being modified by the government, either positively or negatively, and how might that -- those things affect you?

Well, there is going to be a slight modification to HCAHPS from the federal government's standpoint insomuch that it's -- they've solidified their point of view that it will be tied to reimbursement. Or maybe another way to look at it, if you don't do HCAHPS, there's less reimbursement. So it's got more concrete traction and line of sight to a return on investment from a business perspective, so that's a slight modification although anticipated.

I don't really view CMS having anything in the hopper today that would materially enhance or take away the presence of HCAHPS, as we know it today.

I think the only shift that is becoming more tangible to us -- and again, it might be just coming off of a conference I was at yesterday, but it's pretty amazing to me that the volunteer board of trustees at hospitals are so acutely aware of this event, and that in and of itself suggests that once they, as well as the public, see a side-by-side comparison in the newspaper, the increased motivation might be increasing at an increasing rate. So I think the message is filtered in the organization, whereas a year ago, largely boards were unaware of this, but clearly today, that's not the case.

So in terms of your revenues, is mostly -- most of the growth -- outside of the acquisitions that you made, is most of the growth coming from improvement and not from measurement?

Well, it's coming from both, but I think the point of differentiation at point of sale is clearly heavy on the improvement side.

Right now, we basically bundle improvement and measurement together, so they both come as one contract, so to speak. The point of differentiation is how we help organizations improve.

Going forward, we will partially unbundle that offering, whereas do it for a greater accelerated penetration among non-measurement clients. So that may shift slightly, but improvements are point of differentiation, and it seemingly is working.

And the reaction from competitors, they're not offering improvement tools or they're just not robust?

I think everyone has followed our lead on using our language but are having a difficult time in the prospect size to put tangible deliverables behind the words.

Okay. And in terms of the, I guess, what you refer to as the disappointing growth in 2007, it's attributed to discontinuation of government contracts?

Primarily, and then in the fourth quarter is kind of an anomaly. There is an exchange rate effect in our Canadian projects, but yes.

And the -- I missed this whole discussion about discontinuation of government contracts, but the basic reason was why?

Well, over the course of the last year-and-a-half -- I guess, right, Pat? I don't --

[Inaudible].

-- two years, the recompetes on the two major federal projects we had, Department of Defense and Department of Veteran Affairs, we lost and/or they discontinued doing, and/or another competitor came in significantly less, or [there was] a combination of different reasons, but as you may recall from previous earnings discussions, we essentially elected to exit the market and focus on the commercial side, which is more robust and less price driven.

Got it. All right. Thank you.

Thank you.

There are no further questions at this time.

Thank you. Thank you, James.

Thank you all for your time today, and Pat and I again look forward to discussing traction on some of the new, as well as existing, products into our next call, which will happen post-HCAHPS reporting, which will be an interesting event to fill you in on what really happened. So take care, and I appreciate your time.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you.