Air Methods' CEO Discusses Q4 2012 Results - Earnings Call Transcript

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 |  About: Air Methods Corporation (AIRM)
by: SA Transcripts

Air Methods Corporation (NASDAQ:AIRM)

Q4 2012 Earnings Call

February 28, 2013 4:15 pm ET

Executives

Christine Clarke – Head-Media Relations

Aaron D. Todd – CEO, Director & Head-Media Relations

Trent J. Carman – Chief Financial Officer & Treasurer

Analysts

Bob J. Labick – CJS Securities, Inc.

Ryan Daniels – William Blair & Co. LLC

Matt J. Weight – Feltl & Co.

Kevin Campbell – Avondale Partners

Robert Rosenson – Nomura Securities

Gregory Porges – Spectra Financial Group LLC

Operator

Good afternoon. My name is Ally and I will be your conference operator today. At this time, I would like to welcome everyone to the Air Methods Reports Fourth Quarter and Fiscal Year 2012 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

I would now like to introduce your host Ms. Christine Clarke. Ma’am you may begin your conference.

Christine Clarke

Good afternoon and thank you for joining us today to review Air Methods' fourth quarter and financial year 2012 financial results. My name is Christine Clarke and I am with Air Methods Corporation. Also on the call today representing the Company are Mr. Aaron Todd, Chief Executive Officer; and Mr. Trent Carman, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session.

I would like to remind everyone, this conference call includes statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Today’s discussion may include forward-looking statements which may include, but are not limited to references to anticipated earnings from Sundance’ 2013 transport budget objectives, planned aircraft financing, user proceeds and other expectations. Also these statements are based on what we expect as of this conference call and we undertake no obligation to update these statements to reflect events or circumstances that might arise after this call.

These forward-looking statements are not guarantees of future performance and therefore investors should not place undue reliance on them. We refer all of you to our 10-K filed with the SEC for a more detailed discussion of the risks that could impact our future operating results and financial condition.

I also want to inform our listeners that during today’s call, we will make some references to non-GAAP financial measures. You will find a reconciliation of our non-GAAP measures to our GAAP results in our earnings release available in the investor section of our website.

With having said that, I would like to turn the call over to Mr. Aaron Todd, Chief Executive Officer of Air Methods Corporation.

Aaron D. Todd

Thanks Christine and thanks to all of you for joining us today. In addition to what Trent will highlight in a moment concerning our fourth quarter and year ended 2012, I wanted to draw your attention to a few notable observations. Our trailing 12 month EBITDA now exceeds $257 million, which of course excludes any EBITDA associated with the Sundance acquisition. Net cash provided from operating activities for 2012 increased to $151 million compared with $95 million in the prior year period, inclusive of the special dividend and the consideration paid for Sundance, our aggregate long-term debt and capital lease obligations less cash was $640 million or approximately 2.5 times EBITDA excluding pro forma EBITDA from Sundance.

As of December 31, 2012 the company owns free and clear over 140 aircrafts worth collectively over $240 million which can be leveraged as needed subject to limitations within our bank credit facility. The company anticipates leveraging $60 million against some of these aircraft to eliminate the current balance of its line of credit facility.

In total, the company used a $112 million of free cash during 2012 to retire 49 aircraft leases thus reducing annual lease expense by nearly $15 million. In addition, we refinanced 20 leases of promissory notes reducing annual payments by $2.3 million as well. We are especially pleased to have achieved growth in our Same-Base Transports for community-based locations during the fourth quarter, despite an increase in weather cancellations. Adjusted for variations and weather cancellations, Same-base transports would have increased 4% during the fourth quarter.

Since our last conference call, the following key events have occurred. As you all know, we completed the acquisition of Sundance Helicopters effective December 31, 2012. We believe this acquisition creates a pipeline to younger pilots who will ultimately migrate to the air medical mission, introduced in the transaction is expected to be accretive to consolidated earnings by approximately $0.10 per share in 2013.

The acquisition does not reflect an outlook for less organic growth in the air medical sector. We attributed our bid to provide air medical transport services to the Ministry of Health in Turkey during January. We were not the low bidder and we understand that the ministry is working to execute a contract with the low bidder at this time.

In 2012, we completed 1,671 community based transports via our relationship with community health systems. This compares with approximately 900 completed in 2011 from our community-based locations. Based on our current run rate, we anticipate completing a total of 2800 transports for community health systems in 2013.

We closed one base in Michigan due to low utilization at the end of December. We did not renew a traditional contract involving two aircraft in North Carolina effective February 1, 2013. On February 1, Air Methods increased its gross charges by 3.4%.

In reviewing collection rates from privately insured patients today versus one year ago, collection rates contracted by less than one-third of 1%. These rates have been lagged one year to reflect full collection results. In other words, we are seeing minimal pushback from private insurers relative to recent price increases.

While January volume was impacted by greater severity in weather, same-base transports reflect growth on a weather adjusted basis. And it is also important to note that the year-over-year comparative of January net revenue for transport is partially affected by our price increase occurring in January last year versus February this year.

Also in each of the last three years, January has seen a seasonal reduction in insured patients from 2 percentage to four percentage points of total patients transported. Thus reduction from fourth quarter level is primarily attributed to this factors.

Our United Rotorcraft Division just completed a new contract for 114 additional Black Hawk interiors with a total contract value of $44.8 million. These additional units of production will deliver beginning in 2013 through 2017.

Looking forward to 2013 and beyond as always our budget objective is to grow revenue by 10% or greater and to grow earnings per share by 20% or greater. Some key assumptions in this budget include reductions in same-base transports to 1% and 9% average net revenue per transport increase compared with 2012. We have presently identified and have incorporated into our 2013 plan to add 9 new community base locations. This would not include activity associated with conversion of hospital based locations to alternative delivery of full outsourced service delivery models.

We have received verbal notification from three hospital based customers who have seemed to convert to community based operations, involving three locations. We are just pending final contracts to accomplish this. We continue to see good growth opportunities through our strong hospital and community relationships. We will continue to align with our long-term partners to increase the probability of success and move forward to another strong year in 2013. Our 10-K will be filed tomorrow and we encourage you to review that and as you have questions, feel free to get Trent and I, to call and we will try to answer those as best we can.

With that summary, I will turn the call over to Trent.

Trent Carman

Thank you, Aaron. I will provide some details on our operating expenses for the most recent quarter. Flight center expenses for the fourth quarter of 2012 were $83.4 million, aircraft operating expenses were $40.3 million and cost of sales for United Rotorcraft were $5.1 million. For the fourth quarter 2011, the expenses were $77.9 million, $37 million and $6.3 million respectively. Earnings before interest, income taxes, depreciation and amortization were $60 million and $47.8 million for the fourth quarters of 2012 and 2011 respectively.

As Aaron previously mentioned, EBITDA for 2012 was $257 million. This compares to a $171 million for 2011. You can reconcile the EBITDA by adding interest expense, depreciation and amortization and loss on disposition of assets to income before income tax expense. On a three-month lag basis, the Company’s payer mix for the three months ended September 30, 2012 was 36% insurance, 29% Medicare, 22% Medicaid and 13% uninsured. This compares to 35% insurance, 31% Medicare, 21% Medicaid and 13% uninsured for the three months ended June 30, 2012.

For the 12 months ended September 30, 2012, the payer mix was 34% insurance, 31% Medicare, 22% Medicaid and 13% uninsured. This is virtually the same payer mix as the 12 months ended June 30, 2012.

For the 12 months ended June 30, 2012, cash collections as a percentage of our growth charge for insured patients were 76%. Cash payments as a percentage of our growth charge for Medicare and Medicaid, where 21% and 9% respectively for the same period.

The provision for uncompensated care of bad debt expense was 19% for the years ended December 31, 2012 and 2011. The provision for contractual discounts which relates to Medicare and Medicaid was 45% and 44% for the years ended December 31, 2012 and 2011 respectively.

During the fourth quarter, the company financed three new aircraft of capital leases and bought out 14 aircraft leases for approximately $25 million. At December 31, the company had 25 aircraft financed by a promissory note totaling $45 million, 182 aircraft financed via leases and 144 aircraft that were owned. This concludes the aircraft that we acquired with the Sundance acquisition. After the payment of our cash dividend in the acquisition of Sundance Helicopters we had $287.5 million and $67 million of outstanding borrowings at year-end on our bank term-loan and revolving line of credit respectively.

In 2013, we currently anticipate funding 8 new aircraft with 10 year fixed rate promissory notes; two of these aircraft will be used in our tourists and helicopters for Sundance Helicopters. The company currently intends to exercise unreleased wired auction ion 51 aircraft in 2013, the total cost of these miles will be approximately $114 million and we expect approximately $50 million of the buyouts to be funded with operating cash flow and borrowings available under our revolving line of credit and approximately $64 million to be funded with new promissory notes.

In order to take advantage of the favorable tax depreciation from the currently available for aircraft, the company intends to use more promissory notes financing and move at least financing for new aircraft purchases and lease buyouts.

At December 31, the Company’s day sales outstanding were 106; this compares to 107 at September 30 and 94 days at the end of 2011. During 2012, we entered into an arrangement with a national insurance company and as a result of the billing process through a central payments standard, we have experienced a longer payment cycle. This accounts for virtually all of the difference in our day sales outstanding. We expect an equal or improved collection percentage as a result of this arrangement.

At December 31, excluding aircraft associated with Sundance Helicopters, the company operated approximately 400 aircraft in its fleet and operated 182 basis of generated patient transport revenue, 132 basis of generated air medical services contract revenue.

With that I'll turn it over to Aaron for closing remarks.

Aaron Todd

Thanks, Trent. Actually why don't we open it up for questions now. Operator if you would queue that up, that will be great.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Bob Labick with CJS.

Bob J. Labick – CJS Securities, Inc.

Good afternoon. Congratulations on a nice quarter and year.

Aaron D. Todd

Thanks, Bob.

Bob J. Labick – CJS Securities, Inc.

First just want to start with a clarification. The net revenue per transport in Q4, Aaron, I know you kind of spoke about this a little bit, maybe you could give us more color. The net revenue was very high in Q4 and then in the January month that you gave us, it was lowered up. Q4 higher than I anticipated, Q1 was…

Aaron D. Todd

Yeah. I mean it’s a little higher in fourth quarter than I think we would have anticipated in part. I think there was a little bit of a lag in getting all the accounts qualified in the third quarter and as we continued that process into the fourth quarter, some of those accounts got qualified into higher classification accounts, private insurance, Medicare, Medicaid and that improved the payor mix profile somewhat, but we have – if you go back and look at the January month of the last three years, we’ve always seen about a 2% to 4% reduction in insured patient as a percentage of total patients transported as compared to the previous months and it just seems to be a seasonality factor that is associated with that.

Of course, payor mix is known on a 90-day lag basis I guess, conceptually that’s based up on the October transports, but that’s really what we are able to isolate it to. Now as far as the comparing January 2013 to January 2012 that’s really a factor of last year we did our increase on January 1, this year we did it on February 1, so you don’t get that. Those are price increase from last year dropped off but the price increase from this year didn’t kick-in until February 1

So that’s and then you got to be careful about looking in just one month. As you know the January net revenue per transports equaled pretty close to what the average was for the third quarter of 2012, so you’re going to get some ups and downs in that number as the accounts are adjusted actual as well, but that’s what we are able to isolate as we brought it down. We have not seen any trend deterioration in the peer mix profile of the – looking at it from several months perspective.

Bob J. Labick – CJS Securities, Inc.

Okay. And then just looking into 2013, where do you see that falling, given those two large different data points?

Aaron D. Todd

We ended our average net revenue per transport for 2012 was around – I want to say, it’s like 10,500 roughly, 10,552. We built our budget based upon 11,400 roughly. Now keep in mind, our budget drive numbers that are significantly higher than our objective of 20% growth in EPS.

So we don’t have to necessarily ship that number to drive the number, but that’s what we are, that’s the 9% I was referring to, so that’s the average we build our numbers on and that’s where we based along.

Bob J. Labick – CJS Securities, Inc.

Okay.

Aaron D. Todd

So we are not looking to drive 9% after the fourth quarter average in fact if we just tell what we did in the fourth quarter we would be right where we got in our budget for the full year, and that’s excluding obviously any price increases in the 2013 timeframe.

Bob J. Labick – CJS Securities, Inc.

Okay, great and then just shifting over to Same-Base Transports now and we kind of talked about last quarter you had the trend shift for Same-Base Transports growth excluding weather in Q3 and you said, you were happy but it was three months. Now it’s 6, I guess it’s seven months.

Aaron D. Todd

Yeah.

Bob J. Labick – CJS Securities, Inc.

Can you maybe talk about the – first congratulations, that’s great, I mean obviously the PTA has something to do with and maybe talk little about that and what else you are seeing?

Aaron D. Todd

As you know, we have said we are budgeting a negative 1% in Same-Base Transport world, but I think we know that in 2012 weather was milder than 2011. I think the total reduction in weather cancellations for the full year was around 1500 transport as I recall. Now we said we expect to see about another 1000 or so transports that we can get from the full year effect from the community health relationship.

And so those kind of offset if you will to some extend and so I think we have just build a little bit of cushion in there just to in case weather tends to be more severe in 2013 than it was in 2012, and certainly we saw that in the month of January.

Bob J. Labick – CJS Securities, Inc.

Got it, great. Well, I will hop back in queue. Thanks very much.

Aaron D. Todd

You bet.

Operator

Your next question comes from Ryan Daniels with William Blair.

Ryan Daniels – William Blair & Co. LLC

Yeah, guys, congrats for the strong end of the year and thanks for taking my question. Let me start with just a follow-up on the comments you made about trading some revolver debt for taking on new debt on the helicopters. Can you talk a little bit about the advantage there from interest expense profile, I assume that the revolvers are higher cost than what you will have by pulling money out of the owned (inaudible)?

Aaron D. Todd

We were not – it’s not, the revolver right now, there are three points…

Trent J. Carman

Revolver is less than – trade around 2%. Yeah, the revolver in the new aircraft will be about 3.5%.

Aaron D. Todd

Yeah, so it’s higher. I think what we’re trying to do we’ve got about $350 million of our debt that is variable and I think our perspective is that we want to, all things being equal to get that down to around $200 million in exposure of variable debt by the end of the year, just in case, where it start to harden.

Ryan Daniels – William Blair & Co. LLC

Okay, that makes sense. And then if we think of the earnings and revenue outlook I guess for 2013, do you have any thoughts on like cadence of the growth obviously, the Q1 was a remarkably warm period in the United States and then in Q2, we had effectively a drought. So I’m sure your weather related volumes were stronger. Do you see kind of a stronger growth or more likely kind of the 20% or more earnings growth coming in the back half of the year and the first half being a little bit more constrained given the difficult comps?

Aaron D. Todd

I think if I would look at things quarterly, interestingly, if you look at maintenance. Maintenance was very severe in the first quarter, was very mild in the second quarter of 2012 and then it was I guess kind of average for the second half, nothing too dramatic.

If you look at weather, weather was mild in the first quarter, it was more on the severe side, when you average it all in for the fourth quarter and then wasn’t. It typically isn’t but it wasn’t the major factor over the summer months or the summer quarters and so that you kind of have to factor in both of those factors, it’s to how you’re trying to be predictive at the quarterly level. It’s a very inexact science as to how those factors ebb and flow, but that’s how I would characterize 2012 is that mild weather in the first quarter, more severe in the fourth quarter of 2012, and then the second and third quarter, I wouldn’t describe as being significant one way or the other, we are up from weather standpoint.

Ryan Daniels – William Blair & Co. LLC

Okay. That’s helpful color. And then few more and I will hop off, Just…

Aaron D. Todd

One thing I would note that is that you are going to see more of the benefit of the community health in certainly in the first half of 2013, because we started to get, that really stared to kick in at the later part of the third quarter as we started to get more full implementation there. So you would see for example less benefit from the community health relationship in the fourth quarter of 2013 on a quarter-over-quarter basis.

Ryan Daniels – William Blair & Co. LLC

Okay, that’s another helpful data point. And then two more quick ones; what’s the national account with the large payer you described, can you talk about why you did it?

Aaron D. Todd

Ryan I don’t want to get too specific for competitively sensitive issues. This was a situation where we were billing at a more reasonable level and that allowed things to get paid more expeditiously, but we were able to negotiate a more central structure were if we built that centrally that we would – there would be more standardization in how those bills would get paid. And that was either equal or better than what we are getting before and we’ve been honoring that, which is good, but it has strong up to days. And we’ve done the math and it’s we believe it’s too organic to honor that relationship.

Ryan Daniels – William Blair & Co. LLC

Okay. And then the last one, just any color on the recently announced.

Aaron D. Todd

You can terminate it, both price been terminated out, well it’s nothing long-term associated with it and but we believe it’s working to our advantage and I believe it’s working to their advantage as well.

Ryan Daniels – William Blair & Co. LLC

Okay, perfect. And then just any color on the HCA announcement, it sounds like you got another preferred provider agreement down in North Florida. So what do you expect out of that relationship?

Aaron D. Todd

Yeah. Two very kind of different relationships, one is really one kind of a preferred provider relationship in Florida in Lee county and that is a good opportunity for us to provide services there and we expect that will bring enhanced utilization to and an opportunity to deliver services there.

That is different from the transfer center relationship, which is even in the mid-America region of HCA where we are facilitating the movement of patients in and out of their system on their behalf, and we’ve just begun that implementation, it’s going very well. And again, that’s predominantly to assist them to ensure that they’re making it easy for patients to flow into their system from both affiliated and non-affiliated hospitals and in return as we evolve those relationships we are hoping, because it’s a greater opportunity to be a service to them in providing air medical solutions when they needed.

Ryan Daniels – William Blair & Co. LLC

Okay, thanks guys, great.

Operator

Your next question comes from Matt Weight with Feltl & Co.

Matt J. Weight – Feltl & Co.

Good afternoon, not sure if I miss this, the slight comment you had during the quarter, give a sense of about how much of that was related to the community PTA?

Aaron D. Todd

I didn’t give it for the quarter, I gave it for the year, and do you want me to repeat that number, I don’t know but I have this quarter number before me.

Matt J. Weight – Feltl & Co.

Yeah.

Aaron D. Todd

It was for the year we completed 1,671 commute transports from our community based locations compared to 902 in 2011. I think we may have given that number at September, so you could probably subtract the two numbers, but if you wanted to call back I could certainly try to get you a fourth quarter number there.

Matt J. Weight – Feltl & Co.

That sounds fine. And then going back just to the collections, last quarter I know the issue popped up and that ended DSO dropped back down to around 100 during October in spite back up, so can you tell me again, what are your expectations for that in first quarter, where that’s going to fall and the thing lighter that and can you just confirm again you are not seeing any increase pushback in pricing?

Aaron D. Todd

Yeah. What we did was also interesting. There is a couple of things that are going to cloud this. The overall collection rate from insured patients saw a decline from the high 70% range or 80% range down to the lower 70% range or 72%, 73% and a lot of questions were is this triggering, it doesn’t mean we’re getting pushed back.

The answer is not at all, what happened is, all these price had a much lower collection and they were in the like mid-60% range. They charged a lot higher than we did, but they were in the mid-60% range because they were in a lot of states and in lot of areas where they have the blues tentative to reinvest at lower level. A lot of times they have contractual relationships that we reimbursed at better lower level.

And so what I did was, I said well, and that’s what drew the blended rate down as they came into the numbers starting August 2011 through August of 2012. When you will exclude that, looking at a year-over-year as of January 2012 versus January 2013, the collection rate from privately insured went down, I think it was like 0.3% Air Methods excluding on the slide and went down like 0.2% for on the flight year-over-year, for transports they were over a year old. And so that focus that we are not seeing that push back.

Now Omniflight, we are seeing as we have began to put them on our billing processes and have win some of their older contracts that we are starting to see improvements within their collection rates, but it’s still to early to say definitively because you really need to have almost a year, a full year from data transport to really know if you’re getting better because that tells you whether you’re going to pick up a couple of percentage points are not.

So we are starting to see a slight movement in improvement, but not, but I think it will take a while to see if we can get them up into the mid-70s, up for 70s were our efforts is whether that’s going to always be a little bit lower because they tend to operate in the Southern states.

Matt J. Weight – Feltl & Co.

Okay. And again your expectations for DSOs would be to…

Aaron D. Todd

We set a target to get them about to 100 days, but as long as we are collecting, what we were before, I mean when you give up a few days out, if we are not then obviously we are going to push back on that, but we are watching it very closely and we are – I’d always like to see right around the 100 somewhere between 95 days and 100 days, but we are not from a historical context, we are not at a level that is overly concerning, we have been inside of a 120, 125 days when I’ve been, it’s become much more concerning to me, but we did reduce it down, and then as this new relationship that really started kind of last summer has kind of matured. We have seen it, aids the accounts a little bit more, but there are no yet, the amounts are coming through in accordance with the agreement, and that’s where you seeing, so we are giving up one positive for a negative, but we think the positive outweighs the negative.

And September was a completely different issue at that time, it was an internal issue around getting all the accounts audited at a timely basis to know what the paying source was, and that’s been resolved, that was resolved during the early part of the fourth quarter. This one is more of a contractual matter and one that we are kind of still evolving within and I think we can still get up and improved upon as the centralization of this gets improved on both sides.

Matt J. Weight – Feltl & Co.

Okay. And then back to the community PPA, in those markets, have you seen any competitors exit the market now that you are gaining more shares?

Aaron D. Todd

Not really, I mean – not on a wholesale basis, you always have sometimes a competitor will take an aircraft and move it 50 miles down the road or something and some repositioned. I think everybody is still, I still think it’s a good healthy vigorous competitive landscape out there. and I don’t think we ever expected that to be the case. I think we’ve always felt content to, I don’t think we anticipate that that would be the case. I think what it has done is opened up markets that we wouldn’t have otherwise gone into, have we not have that relationship to drive volume for us.

Matt J. Weight – Feltl & Co.

Last question here then, with the Sundance acquisition, and the bid in Turkey that doesn’t sound like it was successful. Looking in terms of M&A opportunities, clearly it looks like you’re more focused outside of the [ATMS], I am assuming that’s a reflection of the minimal opportunities going forward?

Aaron D. Todd

Not necessarily, I think we obviously are, I think our key focus is evolving with the hospital around air medical program. But those we provide aviation services to and otherwise, and many of them are evolving to the alternate delivery models or risk sharing models or full outsourcing, and there is just so much activity around that. It’s unprecedented, and we just don’t want to take our eye off the ball to be focusing on M&A, when we’ve got a lot of opportunities to evolve with our existing partnerships, but our primary focus will continue to be domestic air medical; we continue to focus on those areas. I think they will more likely be at the regional and program level rather than at the national level, and certainly there may also be further opportunities within the tour operator space for all the same benefits that we articulated in our opening remarks, that having access to these pilot talent pools, and these central operations that drive high volumes, nice steady revenue streams, where we can deliver some easy synergy points around our purchasing power is also bring some nice advantages.

So we are focusing a little closer to home and maybe we did last year and I would say that our international pursuits are probably a little bit more back burner in 2013 than it might have been going into 2012.

Matt J. Weight – Feltl & Co.

Great, Thanks for the color.

Operator

(Operator Instructions) Your next question comes from Kevin Campbell with Avondale Partners.

Kevin Campbell – Avondale Partners

Hi good afternoon, thanks for taking my questions. And you could just sort of talk in general on the HCA and CHI deals, I know you don’t want to talk maybe specifics about how much potential volumes you could get from each of those arrangements given that they are sort of market sensitive, but maybe you could talk in general about all three combined the incremental volumes you might expect to get on a community base?

Aaron D. Todd

Sure. The risk of being two for both. There maybe a lot of our investors that they don’t understand what a Transfer Center Service is, many hospital systems have struggled over the years to make it easy for patients to flow from community hospitals or from affiliated hospitals into their tertiary care centers or level one level two, trauma centers, and they’ve experienced a lot of leakage. They’ve experienced a lot of difficulties in getting patients admitted, and a lot of frustration on the part of their customers, and we have been able to provide a very valuable service to these organizations, by creating an independence and bringing it outside of the hospital, a function that’s through a single call, a sending physician or sending institution and call one number and we can arrange for to ensure that beds are available, that all of the resources are standing by, that the appropriate motor transport is made available, and facilitated, so that is done every easily and that is done in accordance with the institution’s wishes. And we have found that when we do that we can often times been able to increase patient inflow for these major systems by as much as 15% to 20% because we’ve eliminated a lot of the internal conflicts of interest, we’ve eliminated a lot of the headaches associated with the logistics behind all that.

Well, obviously we get paid for these services and we generate a little return from providing these services as we should. But in addition, this also gives us the opportunity that when the phone rings and we determine that the physician or the sending institution is needing a patient transported via air, then we can offer an Air Methods transport service to the requesting party, and have the first opportunity to make that service available. So it gives us a little bit of a marketing advantage to make that an option. And it gives us a little bit of a gate keeper benefit.

So while we are not contracted by an HCA because they could care less whether we get more patients to transport on our helicopters. They really want to transfer center service, we know over time that if we are getting more patients falling into the HCA receiving centers and if the phone is ringing into the transfer center services that we operate that will have an opportunity to refer and make available our services to those individuals as an option and so it’s different from community health.

Community health truly wanted us to function as a preferred provider of air medical transport services, so it makes it a little bit more difficult to quantify what that means. We are going to be tracking how much volume we do. The reason why it’s little bit harder with HCA is mid-America is not an area where we have a lot of community based operations, but we hope that if we are successful in rolling out the transfer center services in the mid-America region of HCA that they will want us to provide that sort of service in our other regions where we do have a greater air medical transport service presence, and then we would hope that that might give us an opportunity to increase volume in those areas.

So that’s why I can’t give you a definitive answer, but that is a promise behind why we think long-term is going to be a positive for us.

Kevin Campbell – Avondale Partners

That’s helpful. The Sundance acquisition, I’m just sort of curious, does that have any effect on the pricing or should we or you model – should we model that totally separate in apart from the patient transport revenue.

Aaron D. Todd

Yeah. I used to just model it completely separate. My 20% EPS growth target and 10% top line target as we have it in our budgets did not include the Sundance in that. Sundance was driving about $50 million of revenue and that I have already mentioned our – the budget forecast is reflecting just light at about $0.10 per share.

Kevin Campbell – Avondale Partners

Okay. So that has no impact whatsoever on the pricing number that you guys gave for…

Aaron D. Todd

None whatsoever. And we will have that carefully segregated out as a separate segment, so that you don’t have to worry about the solution and the numbers. We talked about that because obviously that we didn’t want to have to be show too much competitive sensitive information on their relative to Sundance, but we know it’s important to our shareholders that they see an included number related to the Air Medical services.

Kevin Campbell – Avondale Partners

And if I can just a couple of quick modeling questions for you Trent, maintenance and fuel costs, can you give us those plus the number of bases by segment or however you break up the bases in?

Trent J. Carman

The number of bases Kevin, was 182 community bases at the end of the year, so that’s the count there, on the maintenance and the fuel – wait one second here, I will get those numbers, if you want to ask other question well…

Aaron D. Todd

There are also 132 bases that were generating revenue pursuant to medical service contracts. That we used to call HPS locations

Kevin Campbell – Avondale Partners

And that seems like a big number, a big shit. I guess last quarter I had 170 and a 140 so did you switch 8, did 8 convert from the contract basis to the medical basis or may be just sort of a change in how you are categorize that?

Aaron D. Todd

No we’ve add some of the convert, we add some that have satellite locations, and say it may have – they may have this down, but I can get to that reconciliation that’s easy enough.

Kevin Campbell – Avondale Partners

Okay.

Aaron D. Todd

What we try to do on each of our quarterly calls, is just announce what’s occurred during that quarter since the last call. So from a quarterly point of view, I will get you that reconciliation…

Kevin Campbell – Avondale Partners

Okay, and then United Rotorcraft the division had a loss for the quarter, typically it has a – small gain so maybe what’s driven that loss?

Aaron D. Todd

Yeah, we had some rework tat the end of the year and relative to some items that they discovered that they needed to, more and more compliance issues relative to paper work and stress test and those things and that aiding to their margin somewhat, and I would characterize that as an aberration and Trent, did you have anything else, any other color on that relative to….

Trent J. Carman

No, that’s exactly…

Aaron D. Todd

Yeah, I don’t think. They also had a little bit of – they were expecting some work to fit into. The other thing that hit them a little bit, it is kind of interesting, we lot of the internal work that we kind of slowed down on relative to the completions on the methods and tiers have shifted and they carried a little bit heavier overhead into the fourth quarter, so they will be prepared for the searching work that will head in 2013 relative to the Black Hawk contract and the new order for aircraft at 44 that will start to deliver in late ‘13. So that hit their margins a little bit as well.

Trent J. Carman

Kevin, the fuel was for the quarter 6.5 and the maintenance was around 29.

Kevin Campbell – Avondale Partners

29 million, okay, great. Then last question, just thought we can make it a little bit easier as we think about modeling. the pricing numbers that we have from last year were of course, before you’re going to reorder. So do you have a net revenue per transport for the first quarter of ‘12 that is sort of a pure number that we should be using that?

Aaron D. Todd

Yeah. I’ll take that. Kevin, let me see if I have. Yeah. Is this got with the government? Yeah, it’s 10,072.

Kevin Campbell – Avondale Partners

Okay. So…

Aaron D. Todd

That’s what the government contract revenue out of there. So that’s 10,072, just give me other ones for the third quarter, I mean second quarter was 10,396, and for the third quarter was 10,315.

Kevin Campbell – Avondale Partners

Okay, so as we look at your January of last year, which was 98.84?

Aaron D. Todd

Right.

Kevin Campbell – Avondale Partners

Below that average, so you saw that pick up in February and March.

Aaron D. Todd

We did.

Kevin Campbell – Avondale Partners

Okay.

Aaron D. Todd

And keep in mind, we’ll have the price increase February of this year.

Kevin Campbell – Avondale Partners

Okay, that’s all I have, thank you very much.

Aaron D. Todd

You bet.

Operator

Your next question comes from James (inaudible) with [U.S. Silent Partners Inc.].

Unidentified Analyst

Good afternoon, hello, incredible quarter and looking closer at the EBITDA that was pretty big increase where do you see that moving into your next quarter, just as to start off one of my areas that I’m looking at?

Aaron D. Todd

James, we typically don’t give guidance at a quarterly level, we’re not very good at predicting quarters as obviously as indicated by the fourth quarter number. We typically give guidance on the top line and earnings per share for the year and then with EBITDA kind of flow after that. so while we do have that forecast, it is not something that we’ve ever publicly disclosed.

Trent J. Carman

James, one of the issues just to give you some perspective or maybe the quarterly earnings per share last year for the four quarters, $0.32, $0.81, $0.71 and then $0.55. So you have quite a bit of volatility in that number there unless what they’re just referring to.

Aaron D. Todd

Some of that seasonal, some of that is the variation in the net revenue per transport that we’ve articulated as you have some seasonality in there and we have to, we true up the reserves every month using an objective methodology to insert it. We don’t ever get it pulling up of over reserve or under reserve. and so that volatility ensures that we don’t end up with a large one-time adjustment to estimates, but it makes difficult for us to give quarterly guidance.

Unidentified Analyst

That’s very understood. Next area that I’m kind of interested in is that, internally when it comes to your accounts receivable and getting the highest in patient recovery, is that contractually done or are you doing this all internal such as…

Aaron D. Todd

We almost never do contractual relationships, the one exception we’ve mentioned was not a contractual commitment relative to pricing. It was a contractual commitment relative to percentage of gross charge that we would agree to relative to that particular circumstance and it’s ordinarily not something that we do, but we evaluated situation uniquely and in that case, it made sense for us to do it. And so as a whole, we typically do not enter into contractual relationships with third-party payors.

Trent J. Carman

And the billing and collection effort is internal.

Unidentified Analyst

Okay.

Trent J. Carman

We have our own internal department to those that.

Unidentified Analyst

Okay. so it’s not farmed out right to an ADP or traumatic or that kind of relationship?

Aaron D. Todd

It is not, we do it all in-house. obviously, once we have exhausted our internal efforts, we will send accounts to collection agencies unless they have been forgiven for charitable reasons, but other than that we do it all in-house.

Unidentified Analyst

One other area is also that I think I’m looking at closely. From a governmental standpoint and from county-to-county within other air rescue programs, are you finding a lot of traction to where, for budgets and so forth that they’re starting to look towards your solutions, which are quite prevalent from a private sector point of view. Is that picking up at all or is that just the side area that you haven’t investigated as much?

Aaron D. Todd

I’m not sure. we completely understand your questions, James. I don’t think we’re seeing any recent trends relative to any of the recent events like sequestration or health care reform or any of those issues that are affecting either reimbursement or demand for service.

Unidentified Analyst

Okay, so…

Trent J. Carman

You can give me a call James after the call is lagged, we can credit, tell into what your exact question is there a little bit more.

Aaron D. Todd

The biggest concern that I guess was coming from this is that a lot of counties that run their air rescue services. We’ll try to do enter hospital transports that try to keep their systems up and going, because it’s such a very expensive proposition to run your own helicopter and normally, they connect themselves right through the sales office or that and they share the expense of the use of the helicopter, so x, y….

Trent J. Carman

As you know, they would be precluded from billing for such services unless they were compliant with FA regulations and that precludes a lot of them from being able to do so. And so no, we are not seeing a trend of the few county or municipal air medical service providers moving into the facility arena. They still mostly focus on seeing slight activity.

Unidentified Analyst

And that’s huge positive way of kind of put it higher ratings. and so my article is that I’ve done on your company is really in a sweet zone. So I called you on that…

Aaron D. Todd

Thanks, James. Appreciate your question.

Unidentified Analyst

Okay. Thank you, again.

Aaron D. Todd

Take care.

Operator

Your next question comes from Robert Rosenson with Nomura.

Robert Rosenson – Nomura Securities

Hi, good afternoon.

Aaron D. Todd

Hi, Bob.

Robert Rosenson – Nomura Securities

I’m just curious, given the past success that you have…

Aaron D. Todd

Bob, can you speak up a little? We’re just sparingly hearing you.

Robert Rosenson – Nomura Securities

Sure. Given the past success that you guys have had, why is it makes sense the start of contractual relationship at this point?

Aaron D. Todd

Again Bob, I don’t want to get into the details behind all the reasons why, I’m just telling you it is in our favor to do so, and if we can cancel it at any time, if it’s no longer in our advance to do so, but I don’t want to in this time, you get into the reasons why we chose to do that in that situation.

Robert Rosenson – Nomura Securities

Is the price any different?

Aaron D. Todd

Again, I don’t want to talk pricing on a particular contract on that have a competitive sensitivity to it.

Robert Rosenson – Nomura Securities

Got it, fair enough. Thank you.

Operator

Your next question comes from Andrew Burton, an individual investor.

Unidentified Analyst

Hi, guys. I just want to verify something you have not, I know you forget to any pushback, I just want to make absolute share, at nine other payors are panning at the same rates that you’ve been paying for last year, in terms of percentage of…

Aaron D. Todd

That’s what we said, Andrew was minimal prospect. As we looked at accounts that were old, transports over a year old. And basically, January 2012 versus January 2011, okay, because that’s the only way we could do that. But first that was 0.03% in the collection rate roughly for Air Methods and it was like 0.02% for the Army flight transports. So that would reflect to be relative to flight increases predominantly during 2011.

Now for 2012, we’re not seeing any trends towards that, but I’m not going to be able to definitely give you a percentage until those have been fully aged year, but which would be a year from now, but….

Unidentified Analyst

They haven’t given you any guidance saying, hey, we’re not going to be paying the same rates anymore?

Aaron D. Todd

No. I mean each situation is a little bit different depending on the plan that they have and those kinds of things. No, we are not seeing that.

Unidentified Analyst

Okay.

Aaron D. Todd

And keep in mind, your method is not the price leader. There are providers of service within this country that are charging 30% to 50% higher than we are. and I don’t know whether they’re collecting on that or not or to what extent, but I certainly think we’ve done a strong argument that our cost structure is within the reasonable and customary range.

Operator

And our final question comes from the line of Greg Porges with Spectra.

Gregory Porges – Spectra Financial Group LLC

Hi, good afternoon. Thank you for taking my call. If we could just focus on the Air Methods units, so we can try to get apples-to-apples. the average fee for a managed care flight, average billing for managed care flight in the most recent quarter was one?

Aaron D. Todd

Again I’m not going to give your gross pricing over on a public venue like this, but what I can’t tell you is this. At January of ‘13, for the transports excluding on the flight, they were from February of ‘11 through January of ‘12, our collection rate from privately insured patients was 75.8%.

Gregory Porges – Spectra Financial Group LLC

I just make sure I’m getting this right, of the bill submitted whether it’s $1000 or $10,000 or $100,000, you collected 75% from the managed care company, and that is on the initial payment or is that after subsequent collection attempt meaning that when you get your initial payment menu…

Aaron D. Todd

All private insured combined.

Gregory Porges – Spectra Financial Group LLC

All private insured, so that’s up to you and try to get some individual if the private include?

Aaron D. Todd

But that would include whatever I collected from the individual as a whole.

Trent J. Carman

Very deductible.

Aaron D. Todd

All in.

Gregory Porges – Spectra Financial Group LLC

Okay, fair enough.

Aaron D. Todd

And then from February of 2010 to January 2011, so the previous year I collected from private insurance 76.8%.

Gregory Porges – Spectra Financial Group LLC

So 2% rapid…

Aaron D. Todd

If you take the delta between that, it should be the pushback was 20 to 34, it’s how it worked. Now that’s, but that’s getting a couple years old if you will.

Gregory Porges – Spectra Financial Group LLC

And so I guess I have two questions. One is an easy one, and once you get the subsequent the initial payment from the managed care company, have you noticed any change in payment behavior from the individual meaning…

Aaron D. Todd

Well keep in mind; we collect so very little from individuals, whether it’d be co-pay or from uninsured that – that’s never going to be, if the insurance company ends up not paying it.

Gregory Porges – Spectra Financial Group LLC

Right.

Aaron D. Todd

We never have a strong hope that it’s going to come from the individuals.

Gregory Porges – Spectra Financial Group LLC

Well, it’s like a portion, I mean it’s some percent, right?

Aaron D. Todd

I don’t think if the insurance companies that only going to pay half, what keeps the insurance companies from on as good their process is the patient complaining about why these are not being fully covered.

Gregory Porges – Spectra Financial Group LLC

Right.

Aaron D. Todd

And being that’s reasonable and customary, it’s not because – we’re not maintaining our collection rate, because more and more is getting paid by the patient unless, unless it’s getting paid by the insurance.

Gregory Porges – Spectra Financial Group LLC

And are the managed care companies taking longer to make that initial payment to you?

Aaron D. Todd

Not typically other than the example we shared.

Gregory Porges – Spectra Financial Group LLC

Are you outsourcing all the managed care to that new collection process?

Aaron D. Todd

No, no. we’re not outsourcing any thing, any of our collections.

Gregory Porges – Spectra Financial Group LLC

No, collections I mean bill receiving, not in after bill paying and bill submitting maybe we can call?

Aaron D. Todd

The single insurance entity that after we bill centrally rather regionally, and under a certain structure we agree to do that.

Gregory Porges – Spectra Financial Group LLC

And that’s caused sort of large delta from your normal data of standing, let’s say a couple of quarters ago, 92 I mean I understand we had an administrative issue that pumped it up to October, September, and that’s key to get that high, I’m a little concerned about that?

Aaron D. Todd

Okay.

Gregory Porges – Spectra Financial Group LLC

So I’m not challenging, I’m just trying to understand how it can stay so high, where it would see to central process for one company. What percent of the billing does that company handle or is that going to be – do you submit that company your total billing?

Aaron D. Todd

I don’t have it right in front of me. I mean it would be a major provider, a major payor.

Gregory Porges – Spectra Financial Group LLC

A major payor, and so you’ve centralized to accommodate them, which makes sense, but it’s not speeding up the process, if you are going to their channels, their preferred….

Aaron D. Todd

No, it has not.

Gregory Porges – Spectra Financial Group LLC

I see. Okay. Yeah, I’d like to follow-up on that. I understand that it’s a little bit more.

Aaron D. Todd

Sure.

Gregory Porges – Spectra Financial Group LLC

When you have a change, that’d be terrific. And so, that’s great, I appreciate your time.

Aaron D. Todd

You bet.

Operator

There are no further questions at this time.

Aaron D. Todd

Very good, thank you everyone. As you can tell, there’s always questions that it’s hard to get into too much details over the phone, but we’ll do our best as you follow-up or take the new questions and we’ll try to answer them as best we can and try to be as transparent as we can be without disclosing things that will be competitively sensitive or otherwise selective in nature.

So I appreciate your participation, and again, look for 10-K that should be available sometime tomorrow when it gets filed with the SEC. Thanks again.

Operator

Ladies and gentlemen, this does conclude today’s conference call. You may now disconnect.

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