Emergency Medical Services Corporation Q4 2008 Earnings Call Transcript

Emergency Medical Services Corporation (EMS)

Q4 2008 Earnings Call

February 12, 2009 11:00 am ET

Executives

Deborah Hileman - Vice President of Investor Relations

William Sanger - Chairman and Chief Executive Officer

Randy Owen - Chief Financial Officer

Analysts

Shelley Gnall - Goldman Sachs

Arthur Henderson - Jefferies & Company

Ralph Jacobi - Credit Suisse

Andreas Dirnagl - Stephens Inc.

Nathan Yates - Avondale Partners

David Bachman - Longbow Research

Jeffrey Englander - Standard & Poor's

Presentation

Operator

Good day ladies and gentlemen, and welcome to the fourth quarter 2008 Emergency Medical Services Corporation earnings conference call. My name is Damali (ph) and I will be your operator for today. (Operator’s Instructions).

I would now like to turn the presentation over to your host for today’s conference. Ms. Deborah Hileman, Vice President of Investor Relations. Please proceed.

Deborah Hileman

Thank you, operator. Good morning, I’d like to welcome everyone to EMSC’s quarterly earnings conference call, and introduce our presenters; Mr. William A. Sanger, Chairman and Chief Executive Officer, and Randy Owen, Chief Financial Officer.

Before we begin, I would like to read our Safe Harbor statement. Certain statements and information herein may be deemed to be forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995.

Forward-looking statements may include but are not limited to statements relating to our objectives, plans and strategies, and all statements, other than statements of historical facts that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. Any forward-looking statements herein are made as of the date of this conference call, and EMSC undertakes no duty to update or revise any such statements.

Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Important factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements are described in EMSC’s filings with the SEC from time-to-time, including in the section entitled ‘Risk Factors’ in the company’s most recent annual report on Form 10-K and subsequent periodic reports.

Among the factors that could cause future results to differ materially from those provided in this conference call are the impact on our revenue of changes in transport volume, mix of insured and uninsured patients, and third-party reimbursement rates and methods, the adequacy of our insurance coverage and insurance reserves, potential penalties or changes to our operations if we fail to comply with extensive and complex government regulation of our industry, both as it exists now and as it may change in the future, our ability to recruit and retain qualified physicians and other healthcare professionals, and enforce our non-compete agreements with our physicians, the loss of one or more members of our senior management team, the outcome of government investigations of certain of our business practices, our ability to generate cash flow to service our debt obligations and fund the cost of capital expenditures to maintain and upgrade our vehicle fleet and medical equipment, and the loss of existing contracts and the accuracy of our assessment of costs under new contracts.

I will now turn the call over to our Chairman and CEO, Bill Sanger.

William Sanger

Thank you, Deb. And good morning. 2008 was a record year for EMSC as we executed our strategic and operating plans with resolve and focus. For the year produced revenue growth of 10.5%, adjusted EBITDA growth of 15.9%, an EPS growth of 41.9%. During the year we decreased DSO by 11 days, driving free cash flow of $192.3 million or an increase of 162.6%.

The year was highlighted by unprecedented growth in our contracts, expansions in these services lines, and improvement in the overall operations. On the contract front, we achieved significant growth from independent healthcare facilities, communities, and through our national relationships. You may recall in early 2008, we built on our successes at AMR for national contracting and enter into agreements with HMA, or Health Management Associates, Community Health Systems, and Universal Health Services, where multiple service lines were both EmCare and AMR.

We also had an unprecedented deployment under our FEMA contract. We believe these types of relationship have positioned us to continue to grow our core businesses and more importantly has provided a platform for additional regional and national agreements.

In 2008 we were also successful in expanding into new markets and new service lines. We entered the Arizona marketplace for ambulance services, we expanded our radiology services to include tele-radiology, and we entered into the anesthesia market. With respect to operations, the improve within our clinical retention rates, expense of revenue ratios and our focus and emphasis on reducing DSO have resulting in improving operating margins and cash flow.

The fourth quarter of AMR, we started two new 911 contracts in 46 new inner-facility agreements, with expected combined revenues of approximately $21 million. Although transports for the quarter are lower than prior year, this is a result of exiting certain underperforming markets, consistent with our strategy of market factorization.

Our expansion to anesthesiology with the acquisition of clinical partners has been very successful and has served as an excellent platform for growth. Since the acquisitions, we have signed several new contracts, and believe future organic sales and acquisition opportunities from this specialty will enhance our overall growth for EMSC.

Lastly as relates to EmCare, the signing of strategic partnerships with advanced ICU to complement our hospice program with intensiveness and our partnership with EA Health to provide specialty on-call coverage for emergency departments has enabled us to offer this value-add to all of our hospital partners.

In summary, 2008 has been a year of growth, focus execution, and improved financial performance. These facts are not withstanding, 2009 will be a challenging economic environment for all. However, we will face these challenges with a renewed vigor, and a commitment to operational efficiency. At the same time, we also believe these challenges present unique opportunities for our company as communities and healthcare facilities look for solutions in the face of budget short-falls in decreasing revenues. We believe we have positioned the company as a provider of choice to deliver these solutions to communities, facilities and to the patients we serve.

I would now like to the call over to Randy. Randy?

Randy Owen

Thank you, Bill. As I discuss our performance, I will be referring to certain non-GAAP measures such as adjusted EBITDA and free cash flow, which are not considered measures of financial performance and are generally accepted accounting principles. Therefore I direct you to the reconciliations included in our earnings release on our website.

Unless otherwise noted, all comparisons refer to the fourth quarter end of December 31st, 2007. EMSC’s consolidated net revenue for the fourth quarter 2008 was $593.7 million, an increase of 10.5%. AMR net revenue was $326.5 million, a 7.1% increase. Our revenue for transport increased 9.2%, or 7.2% excluding $6 million in residual FEMA revenue as we completed our deployment in the first part of October. Revenue for transport increases were from fee schedule increases, a July 2008 increase in Medicare reimbursement per trip, and improvements in our billing and collection processes.

There’s decrease in ambulance transports of 11,600 or 1.6%, from a reduction of 17,700 transports in markets we’ve exited. Same market ambulance transports increase .4% over Q4 of ’07.

EmCare’s net revenue was $267.2 million, an increase of 15%, which includes 12.9% revenue increase from the addition of 91 net new contracts since Sept 30, 2007, including 47 anesthesiology contracts from our acquisition of clinical partners, which contributed $2.1 million the quarter in management fee revenue. The revenue increased 2.3% at our same-store contracts as a result of increases in patient encounters of one-half percent and growth in net revenue for encounter of 1.8%. Net revenue for encounter for our Core ED business was up approximately 3%

EMSC’s adjusted EBITDA for the fourth quarter was $60.2 million, an increase of 19.2%. The improvement is driven primarily by the net impact of higher rates and increased volume from net new contracts and acquisition, and a decline in expenses is a percent of net revenue.

AMR’s adjusted EBITDA for the fourth quarter of 2008 was $28.4 million, an increase of 54.1%. This increase of adjusted EBITDA was attributable primarily to the net impact of higher revenue and reduction in compensation and benefits, fuel costs, and insurance costs is a percent of net revenue. We have seen recent improvement in our deployment utilization which has positively impacted compensation and benefits as percent of revenue.

In fuel costs was 1.3 million lower than Q4 of 2007. During the quarter we did record a $900,000 insurance charge for unfavorable prior period development, compared to a $600,000 unfavorable charge in Q4 of ’07.

EmCare has generated adjusted EBITDA of 31.8 million, a decrease of .9%, primarily from an increase in insurance cost. The insurance expense in the quarter was 4.9 million higher than the prior year. In the fourth quarter of 2007, it was benefited by a $4 million change and a tiny difference in recording current period insurance cost. As it relates to prior period development, we recorded a favorable adjustment of a million dollars in Q4 ’08, compared to a favorable $600,000 in Q4 of ’07.

EMSC net income for the quarter was $20.9 million or $0.48 a diluted share, compared to net income of $13.4 million or $0.31 a diluted share, for a 54.9% increase. The improvement was primarily due to an adjusted EBITDA increase of $9.7 million, lower depreciation amortization, and interest expense and offset by higher income tax expense.

Our free cash flow, which we define as cash flow from operations, less cash from non-acquisition related investing activities, was $63.9 million during the fourth quarter, compared to $51.8 million in the same period last year. This was driven by higher adjusted EBITDA and improved cash collections at both segments. Excluding that FEMA impact, DSO decreased four days from the third quarter of 2008, both at AMR and EmCare.

Net cash used in investing activities was $44.6 million for the quarter, compared to $10.9 million provided in the fourth quarter 2007. The change is due to an increase in acquisition related funding of $27.5 million, and a change in insurance collateral funding.

Q4 of ’08 included $6.5 million in net insurance collateral funding; compared to a net reduction of $18.2 million in insurance collateral last year. Net capital spending in the quarter was $10.3 million. Net cash use in financing activities was $26 million for the quarter, compared to $45.3 million. We had net debt repayments of $21.2 million, including a discretionary payment of $20 million on our senior debt this quarter. Q4 last year included net debt repayments of $40.2 million, primarily related to our revolver. At December 31st of ’08, there were no amounts outstanding in our revolving credit facility.

For the year ended December 31st ’08 EMSC generated net revenue of $2.4 billion, an increase of 14.4% compared to last year. Net revenue in 2008 included approximately $107 million from deployments under our FEMA contract. Adjust EBITDA was $243.6 million, an increase 15.9% compared to last year. The company generated $84.4 million, or $1.97 a diluted share for the year ending December 31st ’08, compared to net income of $59.8 million or $1.39 a diluted share for 2007.

As Bill noted, our free cash flow was $192.3 million for the year ended December 31st ’08, compared to $73.2 million in the prior year. The variance is primarily related to changes in accounts receivable totaling $102.6 million, primarily related to improved cash collections in 2008. And our DSO for the year, excluding the FEMA impacted decreased 11 days.

We’re also announcing earning guidance for the year ended December 31st, 2009. We expect full-year diluted earnings per share to be between $2.05 and $2.15. Full-year adjusted EBITDA is expected to be between $248 million and $255 million. This guidance does include an expected increase in stock compensation of $3 million. It’s also important to note that this guidance does not include any future acquisitions or any extraordinary FEMA deployment.

As you recall in 2008, we had extraordinary deployments with back-to-back hurricanes. For 2009, we have budgeted FEMA revenue of approximately $10 million.

Bill?

William Sanger

Thank you, Randy. Operator, I would now like to open the call to questions.

Question-and-Answer Session

Operator

Sure. (Operator's instructions) Your first question comes from the line of Shelley Gnall with Goldman Sachs. Please proceed.

Shelley Gnall - Goldman Sachs

Hi, thanks. First set of questions will be on AMR. Just wondering about the pricing; that 7.2% revenue per transport that we saw this quarter, how sustainable is that going forward?

Randy Owen

Well I think, Shelley, we don't give out specifics in terms of going forward in terms of percent rate improvements. We do have some favorable rate increases from Medicare that went into effect in January that you're well aware of, and we are continuing to improve our billing and collection process. So, we do believe that we can continue to improve our net revenue per transport in '09 and going forward.

Shelley Gnall - Goldman Sachs

And so just to be sure that I'm clear on this, the Medicare rate update was 5%, is that right for 2009?

Randy Owen

That's correct.

Shelley Gnall - Goldman Sachs

It's already gone into effect. Okay, great. And I was wondering, can you break down for us, I think you did this last quarter, your inner facility transport growth during the quarter compared to your 911 transports?

Randy Owen

I don't have that in front of me, Shelley. We did see early in the quarter, a little softness. We talked before that we had a little softness in our same store markets on inter facilities (inaudible) was down at facilities. We saw a little softness in our emergency volume early in the quarter. We have seen that improve and did see that improve at the end of the quarter. So, our same store same market increases, as I mentioned, were 0.4% in the quarter, where in the past sometimes we've seen as high as 1-2%.

Shelley Gnall - Goldman Sachs

Okay. And then I'm just wondering, it sounds like you picked up some 911 business during the quarter, so did that also skew that revenue per transport number?

Randy Owen

No. It did not.

Shelley Gnall - Goldman Sachs

It did not? Okay. Then moving over to EmCare — I apologize, Randy, if I missed this. Did you give the number of contracts added and exited during the quarter?

Randy Owen

Yeah. Bill indicated that. We had a net 21 contracts that we added in the quarter.

Shelley Gnall - Goldman Sachs

And how many were exited?

Randy Owen

I think we had 24 adds and three exits in the quarter.

Shelley Gnall - Goldman Sachs

Okay. So that's actually a pretty low number of exits. Can you update us on the company's philosophy? I think it would be helpful, since I think what we're seeing is a lot more deterioration in the employment situation and in 2009, clearly we could be seeing millions of commercial lives become uninsured. So, I think the expectation will be we'll see a deteriorating payer mix, and I think what we heard before is that if you see an unfavorable payer mix in either of your lines of business, if you can't offset them with a subsidy, you'd be exiting the contract. I'm just wondering, have you brought in the criteria for exiting contracts in 2009 in light of this deteriorating employment scenario?

William Sanger

Well, what we've done, Shelley — we have tightened our criteria relative to working with hospitals both on a front end and also whether or not we're going to exit. So, I do believe that 2009, we will not be behind the 8-ball in the event we see changes in payer mix. We do expect to see some deterioration of payer mix certainly in '09.

Shelley Gnall - Goldman Sachs

So, I guess my question is would you be more tolerant of that in this environment or would you be willing to exit that many more contracts?

William Sanger

I would say we'll be less tolerant.

Shelley Gnall - Goldman Sachs

Okay. I appreciate that. I'm all set, thanks.

William Sanger

Thanks, Shelley.

Operator

Your next question comes from the line of Art Henderson with Jeffries & Company. Please proceed.

Arthur Henderson - Jefferies & Company

Good morning. Very nice quarter.

William Sanger

Thanks, Art.

Arthur Henderson - Jefferies & Company

A couple of questions for you. Randy, to start with, I know in your guidance here you discuss the $3 million stock compensation expense, what was the comparable number in 2008?

Randy Owen

About 2.5 billion for the full year, so that's 600,000 in Q4.

Arthur Henderson - Jefferies & Company

Okay. Good. And then you guys have done really great work on getting the DSOs down, I know that at the state level there are some states, particularly California, that are potentially withholding payment. How are you thinking about the DSO trends as you move forward and what should we be thinking about with respect to maybe those states you might be involved in that could have those issues.

Randy Owen

Yeah, Art, I think we've seen that in the past where certain states as they get toward the end of their fiscal year and they've eaten through their budget that they stop payments for two or three months, and then when their new fiscal year kicks in — and typically we've gotten paid for everything that was pending, so it tends to be more of a timing issue and if that were to happen in California — I think theirs is a July 1 or June 30 fiscal year end, I'm not 100% positive.

So, I think we probably — I would expect that we would see some of that where we'd see intermittent delays in payments. I wouldn't expect it to be that we wouldn't be able to recover those payments ultimately.

But more importantly, Art, we're seeing some significant progress. I mean, obviously as we saw in '08 in our DSO, and we still think there's room for improvement. We have a lot of efforts going on in terms of improving the process both from the front and the back end and are seeing improved not only DSO, but improved revenue from that. So, we still think there's some runway ahead on that.

Arthur Henderson - Jefferies & Company

Okay. Good to know. I guess on the AMR side, are you seeing more RFPs coming in from those municipalities looking to possibly outsource these services now in this economic environment?

William Sanger

Art, we have not necessarily see the RFPs coming out as of yet, however we are getting more calls we have in the past inquiring about the service, particularly as it relates to private-public partnerships with the fire department.

Arthur Henderson - Jefferies & Company

Okay. All right. And then last question, you guys did a lot of key acquisitions this year to position you to provide some more services in your hospital contracts. Bill, I think one of the last times you spoke, you were very excited about the opportunities in radiology services. Can you kind of give us an update on what you're seeing out there in terms of opportunities with those hospital chains as well as any sort of opportunities you may be looking at? Thanks.

William Sanger

Surely. As you know we did an acquisition in the latter part of this year of Templeton Radiology Reading, and he's one of the market leaders in the final (inaudible) read radiology business. The impetus behind acquisition was twofold. Number one, we wanted to get into the final read market for our own clientèle. As you know we service several hundred EDs that utilize this type of service.

But also, as we get into the outsourced radiology management services, it's a good compliment to the services we can offer for a hospital. Historically, we have seen a shortage of radiologists, and by the use of final read tell radiology, we can not only manage the radiology department, but also reduce the equivalent FTEs that are required to be at the facility, or as they say, the boots on the ground, and the hospital.

We're getting a lot of interest relative to the combination of the management in the final read environment, and we do expect to see growth in the '09 and in the future years as well, particularly with that as well as the radiology outsource business.

Arthur Henderson - Jefferies & Company

Thank you very much.

William Sanger

Thanks, Art.

Operator

Your next question comes from the line of Ralph Jacobi with Credit Suisse. Please proceed.

Ralph Jacobi - Credit Suisse

Great, thanks. Maybe if you could just go back and give us the mindset or how you see the hospitals in this economic environment more or less sort of willing to talk? It sounds like when then municipalities' standpoint on the AMR side — been a lot more calls coming in, just wondering on the hospital side if that's consistent? And then in terms of your existing contracts, have you seen any hospitals walk or putting pressure when you do ask for greater subsidies if unemployment trends pick up or pair mix deteriorates in your markets?

William Sanger

Ralph, let me answer the first question. We're actually seeing an increase calls, if you will, or relationships, that are ending in contracts with our existing, as well as new hospital partners. Now, clearly hospitals are under financial pressures as revenues are decreasing, but at the same time, this is when you need to have the best ER, the best anesthesiology, the best radiology departments, and it's a competitive environment. And so, we believe that this competitive environment where we're seeing a slowdown in economic downturn is going to work to our advantage for not only the ED, but across some of these services, particularly if we can reduce subsidies by being more efficient in our staffing, more efficient with our through put, more efficient with our billing processes.

Ralph Jacobi - Credit Suisse

Okay. I mean, is that an easy sell when you do go back if pair mix deteriorates to sort of want a greater subsidy with hospitals being as sort of cash strapped as they are?

William Sanger

Well, it's never an easy cell, but you have to look at what alternatives the hospital has. If a decision is we're not going to pay you the increased subsidy and we decide to leave, they're going to have to have a new group coming in, they're going to have to change out the medical staff in the ED, and that group is probably going to ask for a similar, or very similar subsidy, than what we had prior to exiting. And so I'm not going to say they're in a box, but they don't have many alternatives.

And these subsidies are not egregious subsidies. Our average subsidy is about $2-300,000.

Randy Owen

Ralph, the other thing too that we've identified and at some cases even with the subsidy pressure even in some larger facilities, they're also having discussions around what the proper staffing and the staffing mix is. And there may be some flexibility in terms of how we provide those services in terms of mix of physicians and mid-level providers that may provide some ability to make changes and reduce that cost and not have simply an increase in a subsidy.

Ralph Jacobi - Credit Suisse

Okay. And then can you remind us what percentage of your workforce is unionized, and do you see any pressures on that front?

William Sanger

About half of our clinical staff on AMR's side is unionized. Look, we're always going to have pressures, and I do think that in today's environment there's a heightened awareness of what effect a union may have on the workforce, so we do expect to see a bit more activity in '09 than we have seen in the past.

Ralph Jacobi - Credit Suisse

Okay. And then just my last one in terms of — and you may have gone through this, I may have missed it. Your fuel expectations for '09, do you sort of consider a stead state where we are today in terms of fuel? Is there a benefit to the '09 numbers just related to lower fuel cost?

Randy Owen

I think there is benefit in terms of fuel, Ralph. I think we do anticipate and if you look at what some of the analysts look at in terms of fuel and forward pricing and whatnot, there is a general expectation that fuel will increase in the future. But I do think it will be lower in '09 than it was in '08, clearly.

Ralph Jacobi - Credit Suisse

Right. And that's sort of baked into guidance at this point?

Randy Owen

Correct.

Ralph Jacobi - Credit Suisse

Okay. All right. Great. Thank you.

William Sanger

Thanks, Ralph.

Operator

Your next question comes from the line of Andreas Dirnagl with Stephens. Please proceed.

Andreas Dirnagl - Stephens Inc.

Good morning, guys. A couple of questions on a good quarter, starting maybe with Randy. Randy, just trying to sort of close the gap between your adjusted EBITDA guidance and your EPS guidance, I guess one number that certainly we've got to get a better handle on is the interest income from restricted assets, and I've noticed it's sort of crept down ever so slightly this year. A, I'm assuming that's sort of the reserves that you're required to hold with your insurance sub, and B, the question; is it more a factor of the size of those reserves or is it more a factor just of interest rates and the environment?

Randy Owen

Yeah. Andreas, it's a little of both. One, as you know, we've been successful in reducing the amount of collateral that we need in those programs. So one, the asset base is a little lower than what it was in the past would drive some of that. But also the return on some of those because we're pretty restricted and very conservative in terms of how those are invested. It's under 100 basis points, but we've seen a small drop in the actual returns that we're seeing there. It's a combination of both.

Andreas Dirnagl - Stephens Inc.

Okay. And sort of a run rate of somewhere $1.5-2 million a quarter, is that about right?

Randy Owen

Yeah. That is about right.

Andreas Dirnagl - Stephens Inc.

Okay. Great. Bill, maybe a couple of questions. I'm going to try and phrase this in a way that I can get you to answer it. Clearly the number of contracts that you exit on the EmCare side is a good indication of potentially where you've sort of invoked your 90-day clause and are not able to come to an agreement with the hospital.

My question though is, comparing now to let's say a year or two ago, are you having to invoke that 90-day clause more often? In other words, are you going back more often to renegotiate now than you perhaps did again sort of a year or two ago?

William Sanger

Not at this point. We have not see an acceleration of us having to go back and ask for additional subsidies greater than what we've seen in say, prior quarters.

Andreas Dirnagl - Stephens Inc.

Okay. But it's sort of maybe safe to assume that you wouldn't be surprised if you had to, perhaps, as we go through 2009?

William Sanger

I would not be surprised.

Andreas Dirnagl - Stephens Inc.

Okay. And then maybe just on a different topic quickly. Can you give us an update on your thoughts on the issues swirling around balanced billing in California?

William Sanger

Well, obviously those issues are pretty well resolved, and at this point in time there's no balanced billing in California. There has been some discussion of that getting traction in other states. We haven't seen that take hold as of yet. We do expect to see more states taking a look at balanced billing with the pressures from the insurance companies.

Randy Owen

And, Andreas, we did anticipate that that reduction in our '09 guidance for California —

Andreas Dirnagl - Stephens Inc.

Right — just in California?

Randy Owen

Correct.

Andreas Dirnagl - Stephens Inc.

Okay, great. Thanks a lot, guys.

Randy Owen

Thanks, Andreas.

Operator

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

Nathan Yates - Avondale Partners

Hey, guys. This is Nathan sitting in for Kevin. Thanks for taking my question. Most of them have been covered, but I was just hoping you could talk kind of generally about what you expect from the federal stimulus plan and SCHIP and what that might mean for your company and operations?

William Sanger

Not to be (inaudible), Nathan, we really are not sure. We don't expect to see any benefit from the SCHIP directly to the company, and certainly it is uncertain as to what effect the stimulus plan will have. We do hope that it will have some positive effect on state Medicaid budgets. There is an allocation obviously for state and Medicaid federal funds. We do believe that that could get some traction. We have not pegged any positives into our guidance, however, because of the uncertainty relative to the actual plan itself.

Nathan Yates - Avondale Partners

Great. Thanks for taking my question.

William Sanger

Thanks, Nathan.

Operator

Your next question comes from the line of David Bachman with Longbow Research. Please proceed.

David Bachman - Longbow Research

Hey. Good morning and congratulations on a good quarter and a good year.

William Sanger

Thanks, Dave.

David Bachman - Longbow Research

Just a couple more questions about exits. On the AMR side, just any color on — it sounds like you did leave a couple of markets, is there any kind of a geographic story there or is that just spread across the country?

William Sanger

No. As you know, we service over 2,000 communities and there are demographic changes that occur in certain communities, and if we're not hitting certain operating targets and statistics then we will go through whatever course we need to, to try to correct that. If we're unsuccessful then we will exit the markets.

But there's no particular geographic area that we're seeing.

David Bachman - Longbow Research

Okay. And then on the EmCare side, and just sort of hopefully the last question for you on exits there, but can we assume then than in your '09 guidance that — is it safe to assume that you're sort of budgeting a higher rate of exits than you saw this year?

William Sanger

It is safe to assume that we anticipate that the '09 economic conditions will be a further challenge for us.

David Bachman - Longbow Research

Okay. Fair enough. And then just some color on the national agreements, what they ended up yielding in 2008 and just any color on how those are tracking versus expectations?

William Sanger

We don't give details by contract, but they are actually exceeding our expectations and we are not only obviously providing services for ED now, we're in discussions to provide cross services which includes the new services we've started as well as ambulance services. So, I would say it's meeting or exceeding our expectations in terms of the partnership.

David Bachman - Longbow Research

Okay. And then just one last question. On the recruiting front, obviously very large recruiter of board certified physicians; are you seeing any changes there? We've heard anecdotally that perhaps just the mobility of the physician workforce may be tightening up here — a physician is sitting on a house that can't be sold, those sorts of things. Is there any risk of a constraint on future business just because of recruiting dynamics?

William Sanger

Well, I think there's two sides of this equation. Number one, obviously it may be more difficult in the future to recruit those physicians that want to leave those communities for the reasons you mentioned. However, the other side of that question is we have the best retention that we've had in the history of the company relative to our clinical physicians, our paramedics, and so forth. And so we don't have as much exit as we've had in the past. So, I think that we look to the future, I would say on balance it would be about even.

Randy Owen

And, David, it's also very common that if you get into a new contract, for example, at EmCare, that you would use a number of the providers that are there at that time. So you're typically not trying to then restaff completely with the clinicians that are serving that facility.

David Bachman - Longbow Research

Okay. Very good. Thanks.

Randy Owen

Thank you.

Operator

(Operator's instructions) Your next question comes from the line of Jeff Englander of Standard & Poor's. Please proceed.

Jeffrey Englander - Standard & Poor's

Good morning. Most of mine have been answered as well, but I'm just wondering if you can clarify at all the benefit you got from fuel prices in the quarter and give some sense — I know you talked about it just a moment ago about '09 being lower than '08, but any sense of what that's going to look like in the first quarter?

Randy Owen

Yeah, Jeff. We haven't given out specific numbers there. I mean, if you look at — again, as I mentioned, we had about a 1.3 million benefit this quarter compared to fourth quarter of '07 from a fuel standpoint. Obviously we are seeing lower fuel prices. Most of ours is diesel. I think about 85-percent of our fuel purchases are diesel and if you look at that forward curve, it does show an increase in diesel prices that maybe roughly in the $2.50-2.60 a gallon today up close to $3. So we're clearly benefiting from that. We'll see obviously what happens in the market, but are anticipating and have included in our guidance, some expected increase in pricing over the year from where it is today.

Jeffrey Englander - Standard & Poor's

Can you give us some sense of what you got for the year as an average price?

Randy Owen

Well, we don't go through that specifically, Jeff. We've not gone through that specific information, but maybe one way of looking at that in terms of spend — if you look at 2007, for example, our total fuel spend was around 32-33 million as I recall. Again, it's not a big number for us. I mean, obviously it's been volatile. And then this year, if you exclude sort of the FEMA impact, it was in the low forties range.

So, could it be closer to the '07 rate? I think that's clearly a possibility.

Jeffrey Englander - Standard & Poor's

Great. Thanks very much.

Randy Owen

You bet.

Operator

You have no further questions at this time, so I would now like to turn the call over to William Sanger for closing remarks. Please proceed.

William Sanger

Thank you, operator, and thank you, everyone, for the support of EMSC. We look forward to working with you in 2009.

Operator

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Have a great day.

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