Patriot National's (PN) CEO Steven Mariano on Q1 2016 Results - Earnings Call Transcript

| About: Patriot National, (PN)

Start Time: 09:00

End Time: 09:38

Patriot National, Inc. (NYSE:PN)

Q1 2016 Earnings Conference Call

May 13, 2016, 09:00 AM ET

Executives

Steven M. Mariano - Chairman, President and CEO

Thomas Shields - EVP, CFO and Treasurer

Julie MacMedan - IR

Analysts

Matt Carletti - JMP Securities

Brian Meredith - UBS Securities

Ken Billingsley - Compass Point

Mark Hughes - SunTrust Robinson Humphrey

Operator

Good morning, and welcome to the Patriot National, Inc. Q1 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Ms. Julie MacMedan, Investor Relations. Please go ahead.

Julie MacMedan

Thank you, Ericson, and welcome to everyone who have joined us for today's call to discuss Patriot National's first quarter 2016 financial results. Our earnings release, which we issued yesterday afternoon, is available on our Investor Relations Web site at ir.patnat.com under Press Releases.

I am here today with Steven Mariano, Chairman and CEO of Patriot National; and Tom Shields, Chief Financial Officer. On today's call, management will provide prepared remarks and then we will open up the call to your questions.

Before we begin, I would like to remind you that comments on today's call will include forward-looking statements. Forward-looking statements can be identified by the use of such words as estimate, anticipate, expect, believe, intend, may, will, should, seek, approximate, or plan or the negative of these words and phrases or similar words and phrases.

Forward-looking statements by their nature involve estimates, projections, goals, forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events.

Patriot National expressly disclaims any obligation or undertaking to update or revise any forward-looking statements made today to reflect any change in Patriot National expectations with regard thereto, or any other changes in events, conditions or circumstances on which any such statement is based, except as required by law. Please refer to our SEC filings and our Investor Relations Web site for additional information.

With that, I would now like to turn the call over to Steven Mariano, Chairman and CEO of Patriot National.

Steven M. Mariano

Thank you, Julie. Welcome, everyone, and thank you for joining us today. With me is Tom Shields, our Chief Financial Officer, who will cover the details of our first quarter 2016 results and our outlook for 2016. I’ll begin today by highlighting the progress we have made executing our growth strategy and how this positions us for the long-term sustainable growth and shareholder value creation.

I am pleased to report that our first quarter 2016 fee income increased 51% to a record 64.9 million, up from 43 million in the first quarter of 2015. Adjusted EBITDA increased 45% to a new high of 15.7 million and 10.8 million in the first quarter of last year. Our first quarter results were ahead of our internal operating plan and we are reaffirming our full year 2016 financial outlook of total fee income of 270 million to 280 million and adjusted EBITDA of 73 million to 78 million.

Achieving operating efficiencies is an ongoing priority for us and as planned during the first quarter, we took actions that resulted in total annualized cost savings of $7.3 million. We recognized 400,000 of the cost savings in the first quarter. For the remainder of 2016, we will continue to seek additional cost savings with more efficient operations and technology productivity gains led by our technology subsidiary, Patriot Technology Solutions.

Brand operating efficiencies have been one of our top priorities at Patriot and our key component of our long-term value creation strategy. Since our IPO, we have built a comprehensive platform that we believe is a significant competitive advantage that positions us to increase revenue, margins, profitability and ultimately shareholder returns. Today, we work with 139 insurance carriers and 4,100 insurance agencies and we offer a broad menu of products and services beyond workers' compensation.

Turning now to our growth strategy. As we said in our last quarterly call, our twofold growth strategy for 2016 is focused on increasing organic growth and cross-selling our expanded portfolio of services to enhance our platform with a few surgical acquisitions. We are on track to achieve our fee income growth goal for 2016.

First quarter organic fee income grew 12% year-over-year and we expect organic growth to continue to increase throughout the remainder of the year, as we anniversary the acquisition we completed in 2015. We expect organic fee income to grow in excess of 30% for 2015.

We are seeing considerable progress in attracting corporate customers with our Claims Investigation and Human Capital Management offering. This quarter, we added 100 million towards Albertsons, American Airlines, Dole, Hertz and Red Bull to our client list. As we stated on our last call, the acquisitions we closed in 2015 are fully integrated and performing well.

During the first quarter of 2016, we acquired Mid Atlantic which brought important insurance carrier relationships and increased our distribution network by approximately 700 agents. As we expected, our onboarding costs of just 100,000 in the first quarter were less than the 500,000 recognized in the fourth quarter of last year. This puts less improving efficiencies with the integration process.

For the remainder of 2016, we are focusing on three surgical acquisitions in insurance service base where we want to expand our national platform in certain areas like loss control and premium audits. We have a strong pipeline of candidates under consideration that are complementary and do not require a lot of capital. As we said last quarter, we do not need to raise additional capital in 2016 to achieve our financial outlook.

Technology is the cornerstone of our business and enables us to create value for our customers and our shareholders. In 2015, we strengthened our capabilities with the acquisitions of Vikaran, InsureLinx and DecisionUR. We now offer a fully integrated SaaS-based suite of solutions across the entire insurance value chain.

I’m pleased to report that we’ve had several important technology wins in the first quarter, including 3.2 million of additional contracts and the existing InsuranceExpert clients and an additional 3 million expected from contracts in process. We are also seeing strong momentum with our InsurePay automated payroll solution.

At the end of the first quarter, InsurePay now has eight national carrier contracts up from one national carrier contact when we acquired them last June and the revenue from these contracts will accelerate throughout this year. We were also awarded a new national carrier contract for DecisionUR, which provides automated utilization review solutions for injured workers.

We are focused on developing new and innovative solutions for the insurance industry. In February we launched PN ClaimsAlert, a mobile application that streamlines incident reporting for companies. We recently announced the upcoming launch of PN BidExpert, a first of its kind interactive online marketplace that bring insurance carriers, underwriters and risk managers together with loss control engineers.

We plan to build on this position as the leading technology enabled outsource solution provider for the insurance industry by continuing to deliver groundbreaking solutions like ClaimsAlert and BidExpert to our clients. We are building a robust customer pipeline for our fully integrated SaaS-based suite of solutions and expect to generate strong revenue from technology solutions in 2016.

In February, our Board formed a special committee of independent directors to evaluate strategic value creation initiatives and in March, our Board approved a $15 million share buyback program. To-date, we have repurchased 1.4 million shares under the program. The special committee has not set a timetable for the completion of their evaluation of strategic alternative and do not plan to make any public announcements unless they decide to pursue a certain specific action will conclude their review.

Alongside our Board, we are also focused on maximizing value of our shareholders. Since our IPO, we have built a comprehensive platform that we believe is a significant competitive advantage that positions us to increase revenue, margins, profitability and ultimately shareholder returns. We are enthusiastic about our outlook for 2016 and look forward to updating you on our progress.

Now, I’ll turn the call over to our CFO, Tom Shields, to discuss our quarterly results. Tom?

Thomas Shields

Thank you, Steve, and good morning, everyone. As Steve articulated, we are very pleased and started 2016 with a very strong financial performance in the first quarter having achieved a quarterly record for both total fee income and adjusted EBITDA.

And as Steve mentioned, we continue the operating expense initiatives during the first quarter by removing $7 million of annualized costs from our operations. We recognized $400,000 of the 7 million in savings related to initiatives during the first quarter.

As I have mentioned during our last earnings conference call held in February, we anticipated cost reduction initiatives in our 2016 annual financial guidance. As such, we are ahead of our plan and well in line with the financial outlook for the year.

Now, turning to total fee income for the first quarter of 2016, we reported 64.9 million reflecting an increase of 50.9% over the same year-ago period. Our organic fee income was 48.4 million and increased 12.5% over the same year-ago period as our core services and underwriting, managed care and investigation services achieved healthy growth year-over-year. Fee income from acquired businesses was 16.5 million.

Turning to adjusted EBITDA. We reported 15.7 million or 24.1% of total fee income, a quarterly record. Adjusted EBITDA also included $400,000 of unbudgeted costs related to employee retention agreements for one of our acquired businesses that was not capitalized in purchased accounting due to the service period attached to the agreement. As such, excluding the $400,000 we reported, our run rate of adjusted EBITDA was actually 16.1 million or 25% of total fee income.

Total expenses were 58.3 million for the first quarter of 2016 and included the following; the acquisition of Mid Atlantic on January 28, which resulted in two months of operating expense; severance expense of $900,000 relating to headcount reductions during the quarter as part of our operating efficiency initiative; and the employee retention agreement of $400,000 mentioned previously for a total of 1.3 million, which are reported within the salaries and related expenses of 23.6 million. Excluding these costs, the adjusted salaries and related expenses for the first quarter of 2016 were 22.3 million.

Commission expense which is typically higher in the first quarter of the year through the mix of renewals was approximately 20.3% of total fee income and below prior year of 20.7%. Non-capitalized acquisition cost was $600,000 and include due diligence, third-party evaluation and legal services as well as certain cash incentives paid under specific acquisition programs. Depreciation and amortization was 4.7 million with the majority of our quarterly costs attributable to the amortization of intangibles generated from acquired businesses. Non-cash stock-based compensation expense was 1.4 million.

Now turning to non-GAAP adjusted earnings. We reported 5.8 million or $0.21 per diluted share adjusting for the employee retention agreement of $400,000 mentioned earlier, adjusted earnings would have been 6.2 million or $0.22 per diluted share. Operating cash flow was 10.3 million in the first quarter, which equates to 66% of adjusted EBITDA. Income taxes, interest expense and capital expenditures make up the difference between adjusted EBITDA and our defined operating cash flow.

Now turning to liquidity. At March 31, 2016, we had liquidity of 61.9 million comprised of 11.8 million in cash and cash equivalents, 10.1 million remaining under our revolving credit facility and an incremental 40 million term loan available through an through an accordion feature within our existing credit facility. We believe this liquidity, coupled with our expected quarterly operating cash flow generation is sufficient for our needs.

Turning to our 2016 financial guidance. As Steve mentioned, we are reiterating the 2016 financial guidance that we have had articulated during our fourth quarter earnings conference call out in February as follows. Total fee income is expected between 270 million to 280 million. Adjusted EBITDA is expected between 73 million to 78 million. GAAP net income is expected between 24 million to 30 million with an assumed tax rate of 40%.

Adjusted earnings is expected between 28 million to 34 million. Depreciation and amortization expense is expected to approximate 18 million to 20 million. Interest expense is expected between 3.8 million to 4 million for the year. And operating cash flow is expected between 48 million to 54 million. And as a reminder, our financial guidance does not reflect any additional acquisitions beyond those announced through January 28, 2016.

In summary, we are pleased with the first quarter 2016 financial results and we are quite excited about the momentum we see ahead. With that, we will now open the call to questions. Operator?

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Matt Carletti of JMP Securities. Please go ahead.

Matt Carletti

Hi. Thanks. Good morning.

Steven M. Mariano

Good morning, Matt.

Matt Carletti

Just had a couple of questions, starting with the operating expense efficiencies, 7 million run rate, looks like 0.4 million in the first quarter. As we get into second quarter, are we at the point where that’s kind of at the full run rate of the 7 million or will that ramp more as we get towards the end of the year or a date in the future, which will hit that run rate? How do those phase in?

Thomas Shields

This is Tom. That’s correct. Basically, the 7 million was totally removed out of Q1 and as a result we did recognize the 400,000 as you mentioned, so therefore you would expect quarterly reductions of $1.1 million to occur starting in Q2.

Matt Carletti

Okay, great.

Steven M. Mariano

This is Steve. Matt, also just to further that, these are planned changes in operating efficiencies. There are more operating efficiencies coming in the quarters that are in front of us that are also planned. So this is not just one and done. There are efficiencies that come every quarter and will come every quarter through the technological advancements we’ve had and productivity with our Patriot Tech Solutions group as well as with additional operating efficiencies from the 17 or so acquisitions that were done last year driving in those efficiencies and eliminating duplications. So this is an ongoing plan, Matt, and we will see additional reductions in future quarters.

Matt Carletti

Great. And then my other question is some nice wins, some nice growth in the Patriot Technology Solutions side this quarter. I think you highlighted some in your opening comments. I guess my question is, how do the EBITDA margins in that business compare to kind of the EBITDA margins of how the book looks coming into the year just thinking about go-forward? And as that mix shifts, what should we expect?

Steven M. Mariano

Matt, this is Steve. I think this is a very good question, I’m glad you asked it, because we have really had some very good wins in the electronic payments area, our software – our InsurePay product which basically ties payroll companies along with insurance companies together and take the actual payrolls and use as electronic payments instead of checks and the old billing and collection basis. 90% of all the payments made to-date to the insurance companies were monthly insurance premiums or by checks, believe it or not. The InsurePay product that we now have eight national contracts on was in the Top 20 workers’ comp carriers. So you go to Top 20, you have eight of the Top 20 already that have been contracted through Q1. Those revenues that have started are also going to accelerate during the year. This is a huge area because we have 22 other companies in final contract negotiations for Q2 and Q3. These are big numbers and the reason being is companies have to get more efficient and be able to use ACH and electronic payments just like the rest of the world has been using for years, the insurance industry is coming to that. We have the preeminent technology software to do that. We have had great contract negotiations and great wins over the last four or five months and the margins on that business were about 50%. So, obviously, that will not only have a big bump in revenue as we move through the year but it will also have a big bump as it moves our EBITDA margins up basically because of the 50% plus margins.

Matt Carletti

Great. Thanks for the answers and congrats on a nice start to 2016.

Steven M. Mariano

Thank you, Matt.

Thomas Shields

Thanks, Matt.

Operator

Our next question comes from Brian Meredith of UBS. Please go ahead.

Brian Meredith

Thanks. Good morning, everybody.

Steven M. Mariano

Good morning.

Brian Meredith

A couple of questions here. First question, the 30% organic growth for the year, so that implies that organic growth is going to kind of pick up I guess for the remainder of the year. How should we expect it to look? Is it going to be second half weighted or does it start to pick up in the second quarter?

Thomas Shields

Hi, Brian. It’s Tom. Certainly, we do expect much healthier organic growth in Q2 over Q1 and that will continue to grow quarter-on-quarter for the remainder of the year.

Brian Meredith

Got you. But full year is 30% not by the fourth quarter.

Thomas Shields

30% for the year, that’s correct.

Brian Meredith

Okay, good. I just wanted to clarify that. And then second question here, if I look at – actually could you give an update on kind of how Global HR is doing?

Steven M. Mariano

Global HR had signed up with $4 million in new contracts in Q1. Global HR greatest business model is background checks for investing to enterprise client. Those $4 million in new contract sales will roll into Q2 and Q3, Q4. It depends upon how quick those larger companies automate the process. It usually takes several months to do that. It’s going very well. The company is doing very well and we continue to see – we’ll see 50% increase in revenue throughout the rest of this year to question, because the timing of when they start the background checks and that’s the one thing that just depends upon our onboarding between our system and the enterprise client.

Brian Meredith

Got you, great. And then, Tom, I’m just curious. I know you gave us an adjusted kind of operating cash flow number. What was the kind of actual free cash flow for the quarter? Do you have a number? I know you get it out in 10-Q?

Thomas Shields

I do. It’s actually 18.7 million.

Brian Meredith

Great, that’s helpful. And then lastly, Steve, could you give us kind of an insight into what’s going on with the workers’ comp on pricing right now? I’m hearing from some carriers, it’s getting a lot more competitive.

Steven M. Mariano

We don’t see that. We’re in all 50 states, right, so there’s always competition in certain places. I would just leave it at this macro conversation. Fixed income yield for the carriers 2.5 years ago, their old fixed income interest was at 3.7. The new money they’re putting to work now is less than 2% at 1.7%, 1.8% on the fixed income side. This is the long-tail workers’ comp tail here. They don’t have the ability to reduce pricing and I think the line is holding up a lot better than a lot of the other lines in P&C and primarily because the investment income yield do not allow the carriers to reduce their costs. So I think you’ll see pockets of things. We’ve also seen where rates have been extremely stable and the cycle has actually – almost get eliminated a little bit here in the last three or four years.

Brian Meredith

Great. And then, Steve, any new turnkey relationships in the quarter?

Steven M. Mariano

We had one turnkey during the quarter and we have three in final contract negotiations that will come out before our Q2 conversation.

Brian Meredith

Terrific. Thank you.

Steven M. Mariano

Thank you, Brian.

Thomas Shields

Thanks, Brian.

Operator

Our next question comes from Ken Billingsley of Compass Point. Please go ahead.

Ken Billingsley

Good morning. I’m not sure if you mentioned this and I didn’t catch it if you did; related party revenue. I know it’s something you’ve been shrinking. Can you talk about how much of total revenues is related party on a gross basis? And I think you’ve given a net basis as well, because I believe some of it’s been reinsured to other carriers. So maybe on a gross basis, how much of it flows through on a related party term basis?

Thomas Shields

Hi, Ken. This is Tom. GIC, we’re 60% of total fee income during the quarter. And fee income from related party just came in about 37%.

Steven M. Mariano

It primarily was a little higher. 30% was our net number in Q1. We expect that number by the end of this year to be 420%. Q1 is seasonally big for GIC because its large enterprise accounts also due in January 1. Commission rates are usually higher for that. That makes the commission rates also go a little higher for the company. But also companies just didn’t change from GIC this year on our large enterprise clients. So in Q1 that bumps up the number. We expect the number to be in the high to mid-20s in Q2 and into the rest of the year and to continue to reduce its concentration throughout the year as is planned. Last year, we were at 57% on Q1. Q1 is always biggest concentration for the year. And we ended the year at 30 and 57 in 2015. So we’re starting the year at 37 this year. So that should put us on track based on our plan to be somewhere around 19% to 20% by the end of the year.

Ken Billingsley

That number just to clarify, is that – when you say 37%, is that what’s retained by guarantee or is that include what they reinsured to other carriers as well? Is that a cumulative of the total amount that they captured and even passed on?

Thomas Shields

Ken, this is Tom. That’s what they became, that’s correct.

Steven M. Mariano

Yes, and to understand your point with guarantee, we see top about 80% of the business to reinsurers, large reinsurers and reinsurance capital, so Lloyd's of London and other big multiline companies reinsurers. Guarantee takes a very small portion of any risk. But when we talk about concentration, the concentration is really distributed across – 80% of it is distributed across 15 reinsurance companies across the world as well as agent reinsurance capital.

Ken Billingsley

And I realize it’s not part of the strategy but I guess the question I’m trying to get at is, if guarantee was not the middle man to those reinsurers, would Patriot National still have a pathway to developing those, the fee income with them if it was directly with those companies?

Steven M. Mariano

As of January, we now have 22 workers’ comp carriers including when we picked up 12 new ones in the Mid Atlantic exchange. We have virtually every top 25 workers’ comp carrier in the United States now that does business with Patriot. All of that business is – main street and other types of business, all the same business that GIC writes. And the agent and the client pick at renewal and for new business who they want to go with. We now have a choice of over seven different carriers in any state for any of our agents to choose from on a daily basis, which we didn’t have at any time prior to this year. We’ve had about 10 last year. We brought that up from 4 to 10 and then we picked up another 12 carriers. So we now have 22 workers’ comp carriers. So we expect just through the choice of our agents and our customers to have a lot more choice and to have basically a quick and easy way to get seven quotes in seven different quotes from carriers with one submission. It’s something that’s unheard of in the workers’ comp space. So we’re able to do that and obviously that will reduce concentration not just with GIC but just keep concentration across all of our carriers over time to a level we feel is reasonable.

Ken Billingsley

Okay. You talked about the strategic alternatives. Can you just comment on why you guys updated the language? It seem like the shares had rebounded fairly well from when you first announce the strategic alternatives. Can you just talk about what the reasoning was for putting out an updated paragraph with a few new words but in general it looked very similar to the prior announcement?

Steven M. Mariano

Well, I really can’t speak about other than to say that we will not be making any public announcements on the shareholder value creation initiatives and let the Board make a decision with respect to a specific action when they conclude their review. So at this point I really have nothing else to say on the matter at this point, Ken, other than if there is a specific decision or if we conclude the review at the Board level, we will then make a statement.

Ken Billingsley

Okay. And then the last question I have is and kind of related to that, is there – from an outside standpoint, is there a risk of a change of control issue regarding the disclosures in the 10-K? How are you guys addressing that following the offering that was completed or I guess the share transaction that was completed at the end of 2015?

Steven M. Mariano

No, I don’t believe so. We don’t believe that to be in any case. Obviously, there’s some legal action there, but we can’t really comment on what’s going on there, but we don’t believe there was any change in control issue here at all.

Ken Billingsley

Okay. Are there any disagreements regarding the transaction that’s outstanding related to that transaction?

Steven M. Mariano

Yes, we can’t really comment on the transaction at this point. And then your question about change of control, we don’t see any calculation that would change any control and any measure at all. So other than that, I won’t comment on that.

Ken Billingsley

Okay, very good. Thank you. Thanks for taking my questions.

Steven M. Mariano

Thank you, Ken.

Operator

We have time for one more question. This question comes from Mark Hughes of SunTrust. Please go ahead.

Mark Hughes

Thank you. Good morning. Could you talk about the claims trends, frequency, severity? What’s your sense from a macro perspective, how those are trending?

Steven M. Mariano

They’re trending very well. Our client closure rate hit an all-time high of 99.8%, which means that we’re closing – new claims coming in are being closed almost as fast as they’re coming in. Our closure rate continually over the last decade continues to beat the NCCI average workers’ comp by significant data, especially in the out years of over nine times difference when you get down to eight, nine years out. We have across all of the carriers we represent a claims exposure rate of 99.3% of our claims closed after five years. And so that really – we brought our tail down tremendously over the course of the decade and we continue to see that consistency. We are not seeing much frequency difference or severity difference other than the fact that we always continue to see medical inflation that comes from the healthcare side. We have 89% of all of our claims hit out networks when we were able to direct here and that’s about 20 points better than the average workers’ comp company in the country. So 89 of every 100 claims that come in are being directed to the correct managed care provider or occupational doctor. And because of that, that’s allowed us to close claims quicker direct to care and get the injured employee better care and get him back to work faster.

Mark Hughes

Any sort of general thoughts when we think about 2Q? I know you provided some good annual guidance when we think about the way the quarters will spread out through the year. You did an operational number, $0.21. With puts and takes that you see in front of you, what do you think on Q2 just in a very general way, how should we think about it?

Steven M. Mariano

Well, I think from the operational and sales point and I’ll talk to that and let Tom talk to you about anything else. From the sales and operational point, production from our PUI and Mid Atlantic and TriGen companies has continued to bode very well for us organically. I think as I mentioned I think was with Matt that one of the big areas that we’re seeing both the significant revenue growth and significant EBITDA enhancement is in the electronic payment, software program and InsurePay where we have had tremendous success with some of the top companies in the country. And the number of final contracts that are going online between now and the end of June are somewhere around 20 to 22 on top of those eight. We expect to have about 30 companies going into Q3 that are paying us to handle the electronic payments for them instead of using the old check writing perspective. Now that takes time because not every client with these carriers is going to move from an installed basis to electronic payments overnight. But it’s significant and it is where the industry is going because when we have actual payrolls instead of estimated payrolls, the audit process that you have to do in the end becomes very, very minor. And every insurance company in the country is starving for premium auditors and we can’t find them. So not only is this an electronic payment mechanism to get rid of checks and the old billing way, but it’s also providing for a quick easy audit solution for the major carriers. They are just having a tough time getting premium audits done because they have lack of the number of auditors needed to training. So that’s a big focus. We expect not only those areas to come but also in our managed care area, in our claims area outside of workers’ comp, we’ve had some very big wins where universities and municipalities in the Midwest and in the mountain states in Q1 and we expect the sales from that business to continue grow and that’s all high margins as well. So all of our sales units in all of our companies are doing very, very well currently and so we expect that because of that, margins will increase. And as we get through the course of Q2 into Q3, a lot more business, a lot more clients giving us a lot more revenue. And those contracts have either been signed or are in the process of being signed as we roll through each quarter.

Mark Hughes

But when we think about the Q2 revenue, I think the workers’ comp seasonality favors Q1 that you might normally – at least in that part of the business expect a step down offset by perhaps other new business?

Steven M. Mariano

The good news about our business now is that we kind of hedge in different areas while seasonality does occur, there’s no question about it. Seasonality really hasn’t been occurring in the payment processing area, the managed care area, the background and checks area. It’s not tied to January 1, Q1 calendar timeframe. So while the underwriting private business for the big enterprise accounts are January 1 focused, the rest of the business and the rest of our different business – especially the small business was not so calendar driven from Q1. And then all of our other revenue streams that are not tied to underwriting, which there are 17 other, are generating business in different quarters at different levels. So we expect that while there is some seasonality, I agree with you, that in Q1 we expect a lot of our other units to pick up steam through the rest of the year that will balance out that and generate the numbers and the forecast that we are expecting.

Mark Hughes

Thank you very much.

Steven M. Mariano

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Steve Mariano for any closing remarks.

Steven M. Mariano

Thank you very much for participating on our call today. Please give us a call if we can answer any additional questions. Have a great day.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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