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Air Methods Corp. (NASDAQ:AIRM)

Q1 2013 Results Earnings Call

May 9, 2013 4:15 PM ET

Executives

Aaron Todd -- Chief Executive Officer

Trent Carman -- Chief Financial Officer

Christine Clarke -- Investor Relations

Mike Allen - President, Domestic Air Medical Services

Analysts

Robert Labick - CJS Securities

Ryan Daniels - William Blair

Kevin Campbell - Avondale Partners

Matt Weight - Feltl and Company

Dana Hambly – Stephens

Operator

Good afternoon. My name is Sandra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Air Methods First Quarter Earnings 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)

Thank you. Ms. Christine Clarke, you may begin your conference.

Christine Clarke

Good afternoon. And thank you for joining us today to review Air Methods' first quarter 2013 financial results. My name is Christine Clarke and I’m 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 meanings of the Private Securities Litigation Reform Act of 1995.

This conference call includes certain forward-looking statements which are subject to various risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including but not limited to the size, structure and growth of the company's Air Medical Services and United Rotorcraft Division, the collection rates for patient transports, the continuation, expansion, conversion and/or renewal of Air Medical Services contracts, the acquisition of profitable United Rotorcraft Division contracts and other flight service operations, our belief that the severity in weather and weaker payer mix had a significant influence on first quarter results, the final result of preliminary April 2013 flight volume, weather conditions across the U.S., development and changes in laws and regulations, including, without limitation, the impact of the patients, protection and affordability care act, increase regulation of the health care and aviation industry through legislative action and revised, rules and standards, and other matters set forth in the company’s public filings.

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

Aaron Todd

Thank you, Christine, and thanks to all of you for joining us today as always. In addition to what Trent will highlight in a moment concerning our first quarter 2013 results and our April 2013 flight volume, I wanted to draw attention to a few notable observations.

We’ve obviously seen an abrupt change in our same-based transport flight volume trends, from August 2012 through January 2013 our same-based transport after adjusting for weather cancelation variations increased 4%, from February through April 2013 after adjusting for weather our same-based transport have declined 9%, a 13% shift in just a few short months which suggest that weather also had an affect on call volume, as well as on canceled flights.

Our hospital-based programs are experiencing similar decline as well, suggesting that pricing variation among programs is not a primary factor in the decline in demand. While we have isolated a small percentage of the decline to increase competition in a couple of markets we have addressed this partially through base consolidation.

The decrease in net revenue per transport in the first quarter resulted from a steep decrease in percentage of privately-insured patients transported as we had previously announced.

As you know, we initially estimate payer mix in the month of transport based on most recent run rate and through up to actual payer mix once all accounts have been verified after 90 days. This accounting methodology has been consistently applied from many years. However, it resulted in a doubling effect associated with the deterioration in payer mix both to adjust the estimate to actual and to reserve at the now lower run rate.

In reviewing the longer term trends, we estimate that approximately 1% shift from private insurance to Medicare has occurred during the last 12 months on average. To address the more recent softness in demand and the recent payer mix shift, we have accelerated all planned price increases which would have occurred on May 1st, August 1st and November 1st and applied them on May 1st.

We will also evaluate need for further increases as we determine weather, first quarter weakness is merely seasonal or reflects a longer term trend. We have evaluated the historical price increases age 90 days, 180 days and 270 days, and payments to date reflect equivalent collection percentages to levels experienced at the same point a year ago. Thus to date we are not experiencing push back on our price increases.

The weakness within our United Rotorcraft Division during the first quarter was anticipated due mostly to timing associated with new military contracts and warranty work. Since our -- since over 50% of the Division’s 2012 profit was recognized during the first quarter of 2012, it makes a comparative appear more severe.

Our tour operations achieved ahead of budget expectations during the first quarter. Over 60% of their annual revenue has historically been realized during the summer quarters due largely to extended daylight hours. Due to the high fixed cost nature of the business, this causes a great majority of their profitability to be realized in quarters two and three. Despite this, the subsidiaries generated accretive results on a fully burden basis during the weakest quarter.

Since our last conference call, the following key events have occurred. Our preferred provider relationship with Community Health continues to provide strength to our community based transport volumes. During the first quarter of 2012, the prior year quarter, we completed 104 transports on their behalf. During the prior year quarter, we completed 527 transports.

We have closed or in the process of closing four underperforming basis, for three of this basis we believe that a majority of the transport have been or will be covered by nearby locations.

We have been notified or received confirmation that four hospital-based relationships involving six operating bases will convert to community-based operations. All of which are expected to convert in the next two quarters. We are presently in discussion with 12 additional hospital partners for possible conversion in addition.

We received notice that two of our hospital customers will not be renewing with us, one effective May 31st involving just one single base and one effective near the end of the year involving three bases.

Since our last call, we have opened five greenfiled locations, excuse me, since the beginning of the year we have opened five greenfiled locations year to date and anticipate opening four new bases during the next two quarters.

We are also in discussions with our existing hospital customers for new satellite bases of operation, which could include up to nine new locations during 2013 under both the traditional and risk sharing service delivery models.

Despite our challenges during the first quarter we continue to remain optimistic for feature periods for the following reasons. Severe weather was believed to be a significant contributor to both weak demand and payer mix shift and with eventual moderation should create a return to more normalized operations.

Hospitals outsourcing and greenfiled expansion opportunities continued to be strong and productive. Pricing increases continue to hold, fuel price variation is presently less severe than that experience during the first quarter. United Rotorcraft is projecting stronger performance for the remaining quarters of 2013 and Sundance is heading into its strongest seasonal period.

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

Trent Carman

Thank you, Aaron. I'll start by providing some details of our operating expenses for the most recent quarter. Flight center expenses for the first quarter of 2013 were $85.2 million, aircraft operating expenses were $37.5 million, cost of sales for United Rotorcraft were $4.5 million and Tourism operating expenses were $7.8 million. For the first quarter of 2012 these expenses were $79 million, $36.9 million, $4.4 million and zero, respectively.

Earnings before interest, income taxes, depreciation, and amortization, or what we refer to as EBITDA were $16 million and $46.6 million for the first quarters of 2013 and 2012, respectively. EBITDA for the trailing 12 months ended March 31, 2013 was $226.8 million.

This compares to $187.4 million for the 12 months ended March 31, 2012. You can reconcile EBITDA by adding interest expense, depreciation and amortization, and the 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 December 31, 2012 was 32.6% insurance, 32.9% Medicare, 21.3% Medicaid and 13.2% uninsured. This compares to 36% insurance, 29% Medicare, 22% Medicaid and 13% uninsured for the three months ended September 30, 2012.

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

The provision for uncompensated care bad debt expense was 23 -- was 23% and 19% for the three months ended March 31, 2013 and 2012, respectively. The provision for contractual discounts which relates to Medicare and Medicaid was 49% and 44% for the three months ended March 31, 2013 and 2012, respectively.

During the first quarter, the company acquired three new aircraft for approximately $10 million and funded them with promissory notes. Two of the aircraft were for Tourism operations and we bought out 20 aircraft leases for approximately $44 million. The company also entered into 13 aircraft promissory notes totaling $42 million. For the rest of 2013 we anticipate acquiring seven new aircraft costing approximately $20 million.

The company currently intends to exercise early lease buyouts on 25 leased aircraft during the remainder of 2013. The total cost of these buyouts will be approximately $57 million and we expect to finance approximately $34 million of them with new promissory notes.

The March 31 days sales outstanding calculated on an annualized three-month revenue basis were 128 days. This compares to 106 days at December 31 and 101 days at March 31, 2012. Days sales outstanding calculated on an annualized six-month revenues basis were 106 days at March 31, 2013, 106 days at December 31, 2012 and 100 days at March 31, 2012.

As we have previously discussed, during 2012 we entered into an arrangement with national insurance company and as a result of billings being processed through centralized payment center, we have experienced a longer payment cycle. This accounts for the majority of difference in the two DSO calculations. We expect an equal or improved collection percentage as a result of this arrange.

At March 31 the company operated approximately 400 aircraft in its Air Medical operations and 25 aircraft in its Tourism operations. The company operated 171 bases that generated patient transport revenue and 137 bases that generated Air Medical Services revenue.

With that, I’ll turn it over to Aaron for his closing remarks.

Aaron Todd

Thanks Trent. A couple of things I might add also, we didn’t included in the press release, but you’ll see it reflected in the Q that will be I think available tomorrow is we, the first quarter results also included a pre-tax loss on disposition of aircraft of $441,000 compared to a gain of $241,000 in the prior year. So you have about almost $700,000 flip there.

And then we also our G&A included about $600,000 of legal fees associated with our M&A activity. So just as you try to normalize those line items that will be helpful to you.

With that, we are going to open it up for questions from our analyst and we’ll take those at this time.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from the line of Robert Labick from CJS Securities.

Robert Labick - CJS Securities

Good afternoon.

Aaron Todd

Hi, Bob.

Trent Carman

Hi. Bob.

Robert Labick - CJS Securities

Hi. I just wanted to start with the patient mix shift, you obviously spoke about it and that was the big delta in the quarter, since the announcement earlier and now, how much more have you learned about the driver of the mix shift, is it a seasonality/Omniflight, north south or what else are you seeing there, what have you discovered about that?

Aaron Todd

We’ve -- as you might imagine, we’ve tried to slice and dice a lot of different ways, first we are looking at things on kind of 90 day lag basis. But so when we would look at it, we first said, well, maybe states that are -- that have, tend to have higher payer mix. The non-Sunbelt states got hit high -- harder with weather that seems to explain it in the -- in one month and then it kind of went the other way the next month.

And then, we said, well, maybe it was an inter facility versus scene flight mix. And we saw a little bit of that where when you have harsh weather it reduces the number of scene flights and scene flights tend to have higher private insurance, but they also have higher uninsured. And we saw a little bit of shift with just where we typically average about 60/40, we saw about a 1% -- 1% to 2% lower mix of scene flights to inter facility.

So it -- I can’t be definitive with you that is all seasonality associated with weather. But I think that in the past we’ve never seen a variation between summer and winter more than a percent or two in payer mix. And this year, from the strongest summer month to the weakest winter month we saw almost a 5.5% shift reduction in private insurance as a percentage of patients transported.

And so it could be that because Omniflight which we acquired in August of 2011 had a lower percentage of insured that and tended to be more in this, in the Southern states, it certainly feasible that those -- that environment had less of a seasonality effect in the ’11, ’12 winter because it was more mild than it did this year. But again, I can’t definitively give you all the math on that. I can for a month or two but not for the entire period.

Robert Labick - CJS Securities

Okay. Great. If that is the case then, I mean, I guess you probably have January's numbers now that April is down but…

Aaron Todd

Started to trend those and I would tell you that, number one, you already, you've already reserved at the -- at a historical low level and so we know that, based upon all that we can forecast at this point in time, we're not anticipating a negative true-up based upon an extrapolation if you will of what has been verified to date. But, obviously, if we knew everything then we would already have booked to the actual number.

But as we look at what has been verified in the first quarter of the transports to date and try to kind of forecast that out, we're not expecting there to be further deterioration and but it's too soon to say that we’re going to see a quick rebound and nor what I necessarily expect that, because weather in January through March wasn't obviously anything to write home about either.

Robert Labick - CJS Securities

Okay. Great. And then you commented the scene based transport shift which was also originally swift between these time periods and you said partially was competition and then couple other things. Could you just elaborate on what you are trying to address the competitive environment?

Aaron Todd

Yeah. We’ve kind of look at the total transports that went down and we isolated where we saw the great severity and then said, okay, how much of these were because we saw new competition in the market, and that only added up to a very small percentage, I think, it might have been of the total decrease, it might have only been a 10th of it. And then the rest of it was either just the ebb and flow of demand unknown reasons or weather or lower, just lower call volume attributed to the fact that the weather was severe and so the phone just wasn’t ringing.

As if for those who are on the line, we can only register a weather cancelation when the phone rings and we are unable to respond due to weather. If the weather is of a nature where its extremely cold and so people just turn out about we might be able to fly, but people just are staying in doors and you are having fewer trauma there, less miles driven, et cetera, then there may not even be an event that gives rise to the need for a transport or it maybe that there is a need for a heart patient, stroke patient. But if the weather hasn’t changed then they may not even try to initiate a call for air, they may just send that patient via ground.

What we do know is that as we have spoken with our hospital partners that the ER admissions for non-ambulatory patients has -- they have seen a depth. And so whether they are also attributing that to weather or just other factors but they -- what we're experiencing is not isolated. And so I think we’ll have a better feel as we get into the summer months as to whether or not this was truly a shift in activity that it has other factors associated with it or is truly a weather factor that is not embedded in the weather cancellations.

Robert Labick - CJS Securities

Great. And then on the preferred provider agreement with CHS, you obviously commented on a strong pickup. Is it safe to say you're still expecting the similar 2800 or so this year versus ‘17?

Aaron Todd

I mean, I think to be honest with you, I was pretty happy to get 500 knowing how terrible the first quarter was. And it was a weak quarter to begin with. I think we're right on track to hit that 2800 number and so that's going extremely well. And the other thing I'll mention, we did the acceleration of price increase to kind of give us a little bit of catch-up potential for the remainder of the year.

If we find out that any of the weakness in demand is going to be more than very short-term or seasonal in nature or the payer mix also then, we will adjust the pricing to accommodate that. I did the computation and for about every 1% increase in 1% loss, excuse me -- in same base transports, we would need to increase pricing by about 1.25% at the current participation levels.

And so if we find out that we're going to see a 4% or 5% dip in same base transports instead of what we budgeted that 1% at the beginning of the year -- for the remainder of the year, then obviously we will adjust further in future periods in order to adjust to the new reality.

Robert Labick - CJS Securities

Great. I will get back in queue and let others ask questions. Thank you.

Aaron Todd

Okay, Bob.

Operator

The next question is from Ryan Daniels from William Blair.

Ryan Daniels - William Blair

Hey guys. Thanks for taking my questions and for the color thus far. Maybe, Trent, one for you I just want to make sure I'm perfectly clear on, kind of, the pricing per transport. So it sounds like the roughly 9100 that you reported in the first quarter is the manifestation of both the lower mix and playing catch-up from over accruing in the fourth quarter. Is that the right way to think about it? So kind of a double hit?

Trent Carman

It is, Ryan. It is an adjustment from the fourth quarter when we record revenue. It is using a payer mix that's 90 days old. So then in the current quarter, you will adjust to what that actual payer mix was instead of what you reported it at. And then you use that as the proxy going forward.

Aaron Todd

About -- we calculated what that was and about $780, I think of transport was the effect of the adjustment of the original estimate to actual. And then about 550-ish or somewhere in that neighborhood was related to booking to the lower estimate for the first quarter, in other words, adjusting to the new run rate and then that left you about -- and then you would have had about $770 of transport increase from the value of the price increases. And then that leaves you a couple hundred that was just all the other variables associated with cash collections and shifts in payer mix from other months that as you get minor adjustments as you close out all the accounts.

Ryan Daniels - William Blair

Okay. So if the payer mix doesn’t decline further when you start looking at your collections, we should…

Aaron Todd

You’re not going to have this $781 hit and then you’re going to have the benefit of the price increase for a full quarter of the February increase and for two months of the main increase.

Ryan Daniels - William Blair

So you'll be above 10,000, it sounds like all else equal?

Trent Carman

Obviously, I think if you run the math, I think that's what it's going to show you. But of course, if I knew exactly what the number was, then I would tell you, because I don't have that payer mix all determined at this point. But yes, if the payer mix does not deteriorate further from what it was in the fourth quarter and if we continue to enjoy full participation as we have in the past on price increases, then yes that number would be well north of that.

Ryan Daniels - William Blair

Okay. That’s a helpful data point. And then can you give any more color on the actual price increase. I think you were thinking of maybe a 2% to 3% every three months. Should we just assume that it was at 2% to 3% times three and that was all put in the place. Is that the fair way to think about the increase?

Trent Carman

I think it’s a fair way. I think you could or you could look at kind of what we did at February and times three anywhere in that range, you’re going to be reasonably close.

Ryan Daniels - William Blair

Okay. Okay. And then final question, I also hop off, have you guys tried -- you probably looked at this over the years. So I'm assuming the answer is no. But anything to try to determine the mix more quickly? I know it's difficult to get insurance information on these patients but anything you can do with be it payers or hospitals or anything to try to actually get to their insurance coverage earlier on, so you can get a better….?

Trent Carman

One of the biggest challenges you have -- we used to try to adjust the actual after 60 days. And we kept getting too much movement. You got to remember we are only with these unlike hospitals. We are only with these patients about 20 minutes.

And often times, we are having to, after the fact, try to get all of the necessary information, making sure that the dependence truly have coverage that the -- whether it's going to be auto or whether it's going to be the health insurance, a lot of times you're dealing with those kinds of issues. So we typically -- we'll have about 84% verified after 30 days and then we get about another 7% verified between 31 and 60.

But we still have about 9% of the accounts that are still getting verified after 60 days. It doesn't sound like a lot but as you know, being off 2 or 3 percentage points on private insurance when it represents -- when private insurance represent 75% of your cash revenue, it can have a very significant effect. And so it's not that we have massive amounts that we haven't verified but until you get that last 10% in, it's dangerous to extrapolate 90%.

Ryan Daniels - William Blair

Okay. That’s fair. That’s actually helpful comment. Thanks guys.

Aaron Todd

Thanks Ryan.

Operator

Your next question comes from Kevin Campbell from Avondale Partners.

Kevin Campbell - Avondale Partners

Thanks. Trent, could you repeat your comments about the DSOs? I want to make sure I have the numbers right.

Trent Carman

Yeah. Okay. So on an annualized three months revenue and this is the community based receivables again, not all receivables, just a community base, was for the three months of ‘13, 128. At December 31, they were 106 and then at March of last year they were 101. And if you did it on a six month, so it takes some of that volatility out of having the first quarter that we had. That’d be 106 at March 31, ‘13, 106 at December 31, 2012 and 100 at March 31, 2012.

Kevin Campbell - Avondale Partners

Explain to me why the number is so much higher for this three months DSO versus the six months?

Trent Carman

Because if you annualize the revenues, so in another words, if you took the fourth -- the first quarter revenue, multiply by it four and then divide it by 365 days, you’re going to get a very small number whereas you add in the fourth quarter of 2012 and the first quarter of 2013 and multiply it by two and then divide it by 365, that numerator is a much different number. So the effect of the…

Aaron Todd

Denominator.

Trent Carman

Excuse me, the calculation is much smaller because of that or as much higher because of that, that seasonal impact for the first quarter.

Aaron Todd

What happens is, obviously, if you had 90 -- if you had -- if everybody paid at exactly at 90 days then using 90-day annualized number would make sense but because you had such one, you had the effects of the adjustments to the estimates deflating the first quarter and creating a higher revenue profile for the fourth quarter by looking at the entire six months, which was more indicative of what the six months revenue was and annualizing that, you get a fair depiction of what the true day sales are.

If you actually -- when you get the -- when you actually look at the 10-Q tomorrow, you will see that trade receivables have actually gone from $232 million to $209 million. But the day sales look high, if you’re annualizing only the first quarter revenue because it was impacted by the other factors that we’ve already previously discussed.

Kevin Campbell - Avondale Partners

Okay. That makes sense. The rate increase can you just -- without giving specifics is it in the double digits?

Aaron Todd

Just below.

Kevin Campbell - Avondale Partners

Just below. Okay. That’s helpful. As we think about that payer mix, have you thought about instead of looking sort of three month? I mean, there seems to be an element of seasonality to the payer mix. So why not look at the quarter -- four quarters ago, right up in the prior quarter. That would take into some of that same seasonality. Have you looked at that, done enough just looking at that?

Aaron Todd

I’m sorry. I want to make sure I understand your question. You mean, should we try to build in some seasonality into the way we estimate?

Kevin Campbell - Avondale Partners

Yeah. The mix.

Aaron Todd

Yeah. I think we're going to evaluate that going into the summer and fall. The challenge is, if I tried that last year, the last winter, I would have completely gone the other direction and so it's a little bit of a two-edged sword. On the one hand, you have to kind of say, which is the right year? Is it this year is the right year? Or was it the year before was the right year? Because we didn't have the same issue occurred in the year before. So, I think it looks like we're starting to get some predictability too and that really is a seasonality kind of issue then, I would agree with you. We can start to build that into our accounting estimation process.

But one of the things that's really powerful and I think important about our accounting policies is they're not subjective. They're all mathematical and formulaic, so that you can't just be arbitrary about it. And they are self-correcting. They are always based upon the most recent information. And we want to make sure that if we're going to modify that process that it is to a more accurate process and not one that actually going to increase volatility, or inject a subjective component that could create a manipulative factor that we don't want to introduce.

Kevin Campbell - Avondale Partners

And then, Trent, what were the fuel and maintenance costs for the quarter and maybe, how should we think about those, dollar wise for the year?

Trent Carman

Well, fuel should go up with obviously the flat volumes going up here, upcoming here. Bear with me one second, Bob, while I pull. I got it right here. Fuel for the quarter was around this number, $6 million bucks or $7 million, excuse me. And maintenance would be via these Q numbers.

Now, keep in mind that fuel would include the fuels from Sundance. So we would have to back up from the two operations. So we need to back that out for you and can easily do that for you.

Kevin Campbell - Avondale Partners

Will that be backed out in the Q?

Trent Carman

We’ve got the Sundance completely separated in the segment footnotes, so you can see exactly what it contributed to revenue and expenses, et cetera. But I don’t -- but we may have to give you that fuel number separated out because I think it all clumped in operating expense.

Aaron Todd

Bob -- Kevin, $29 million was the maintenance.

Trent Carman

It will be broken out. I think it’s broken out though in the MD&A.

Aaron Todd

It is.

Kevin Campbell - Avondale Partners

Okay. Great. I will look for it there.

Trent Carman

If you will just see in those numbers, Sundance was $1.2 million.

Kevin Campbell - Avondale Partners

Okay.

Trent Carman

So back that off to that number.

Kevin Campbell - Avondale Partners

And the maintenance fee, you have that in front end?

Aaron Todd

About 2.5%.

Kevin Campbell - Avondale Partners

And how should we think about maintenance for the full year?

Aaron Todd

That's a great question. As you know, maintenance in the first quarter of 2012 was very high. Then it was lower in the second quarter of '12 and then average for the rest of the year -- one could hope that we are going to be following the same pattern here in that if you think about it. When you fly fewer hours, there's a delay and when you get the benefits because you don't immediately get the benefit of lower maintenance, because there's often a delayed effect that instead of overhauling an engine in April. Now it maybe -- maybe it's not going to be until August or something because you've flown fewer hours.

So we know that over time we're going to benefit from on a maintenance perspective from having flown fewer hours. But obviously, because the hours were lower and maintenance was still slightly up, in actual dollars, the cost per hour was up dramatically. And that's not uncharacteristic, when you have lower utilization seasons that's usually when you try to get some of the more heavy maintenance items done before the higher summer season hits.

And so you do tend to see a little higher rate per hour. But I would suggest that we would hope to see moderation clearly on an hourly basis for the remainder of the year. We've got a tougher comp in the second quarter, but it maybe that we'll get the benefit of having come off of -- usually when you come off of a really heavy maintenance quarter, you usually start to get some relief in the subsequent quarter.

Kevin Campbell - Avondale Partners

Thank you very much.

Aaron Todd

Operator, do we have any other questions from many analysts?

Operator

Yeah. Our next question is from Matt Weight from Feltl and Company.

Matt Weight - Feltl and Company

Good afternoon. Aaron, if I heard you correct, are you planning on not doing any other price increases to the extent there's no improvement in mix and transports don't significantly deteriorate from here.

Aaron Todd

Okay. Let me make sure -- there was a lot of negative in there. To the extent that payer mix does not improve and volume does not improve, that we would --

Matt Weight - Feltl and Company

Volume returns to normal as well.

Aaron Todd

Volume returns to normal and payer mix proves to be just -- have been a seasonality factor. It is still possible we could adjust price additionally.

Matt Weight - Feltl and Company

Okay. And then with the movement to centralize billing for the one payer, have you seen any impact and that other than looks like maybe DSOs have creeped up?

Aaron Todd

Yeah. What it's costing us in delay in collection, we believe is worth the benefit. The benefit is worth the delay.

Matt Weight - Feltl and Company

Okay. And you started to see that flow.

Aaron Todd

We’ve been seeing it for seven months now.

Matt Weight - Feltl and Company

Okay. Very good. Talking about I think the closing floor underperforming basis, can you help quantify, is that 90% of the volume you think you can retain anything like that and then what is the cost savings?

Aaron Todd

We’ve got the President of Air Medical Service Division. We never let him talk. Mike, do you want to answer that?

Mike Allen

Sure. I think on -- there are three bases where we think we can retain the majority of the volume that we can retain about 80% of that volume based on what we’ve projected. The other one was a fixed wing and we lost on a trailing 12-month basis over a $0.5 million in direct loss at the base level, not even counting the overhead support. So that’s going to be a benefit just from the elimination of the loss being generated locally. So not only are we going to benefit from hopefully retaining the revenue base, but we are also going to be eliminating the loss associated with those bases being standalone.

Matt Weight - Feltl and Company

Okay. And then, Sundance and I may have missed this, when you were talking about it earlier. It looked like the profitability was a little light. Any color --

Aaron Todd

I’m just going to tell you where we are at on that because I don’t think it overly will distress the consolidated picture for us a little bit. We went into the year projecting about $9.5 million EBITDA. They are $1 million, leave it or not, ahead on their EBITDA projection. So we are at a $10.5 million EBITDA pace right now. So it’s very typical.

Their first quarter is always their slowest period because they get about a two week -- two to three week low right after the holidays and then you have the -- you also have the least amount of daylight in the first quarter because they only fly during the day. And so they have been -- they actually outperform their budget by a $1 million pretax. And so they -- we actually didn’t expect them to be accretive in the first quarter. And so we are actually very pleased with their performance today.

Trent Carman

So, Matt, just Aaron had mentioned this before. About 60% of their revenue is during the summer two quarters. And with their cost like ours, a lot of them are fixed with the personnel and the aircraft ownership. So, Matt, that’s where the accretion…

Aaron Todd

Another way to say that is they get 50% increase in revenue in their summer quarter -- in the second quarter from the first quarter and in the third quarter from the fourth quarter. So that when you get 50% more revenue and you got 80% plus of your costs are fixed and a disproportionate amount of that will go to the bottom line.

Matt Weight - Feltl and Company

Okay. Sounds good. And then just switching gears quickly here, thinking about next year would perform, many other operators throughout the healthcare continuum have stated there is no reason why they would accept rates other than a commercial rate on the exchange. Is there any reason to think that you guys would be any different?

Aaron Todd

Well, I think we would be even more so saying that because we provide service to those that are critically ill and injured. And so there is not a lot of relevancy to negotiation in network versus out of network designation because essentially, 100% of our services with very few exceptions are out of network.

Matt Weight - Feltl and Company

Okay. And remind me, I think both the uninsured level in Massachusetts.

Trent Carman

In Massachusetts?

Aaron Todd

All right. What? Is it 4%? By quarter. I think I have got it here.

Aaron Todd

I want to say 3%, 4% but Trent is looking it up.

Matt Weight - Feltl and Company

And as Trent looked at up, is the collection rate that you get out of managed care any different there than elsewhere?

Aaron Todd

Well, yeah, it’s higher.

Trent Carman

It’s about 6%, Matt, of our share for Massachusetts, little over 6%.

Matt Weight - Feltl and Company

The collection rate as a percentage of your growth charge is higher.

Aaron Todd

Yeah. Than other states.

Matt Weight - Feltl & Co.

Okay. That’s all I have. Thank you.

Aaron Todd

Okay. Operator, do we have any other questions from the analysts?

Operator

Your next question is from Dana Hambly from Stephens.

Dana Hambly - Stephens

Thank you. Good afternoon. I’m trying to get a sense. It sounds on the -- if the payer mix were to stay at these depressed levels, it’s clear what you can do on the pricing side. Trying to get a better understanding of what you can do on the fixed cost side over time to help maintain margins.

Aaron Todd

Well, we’ve eliminated about 12 overhead positions. That’s a little over a $1 million. We have consolidated the four bases. One of the things you can do is that if your volume shrinks to a point and everybody is experiencing the same things. Your competitors like that you can always look to consolidate, where you might have used to have four bases in an area maybe you can get by with three and still be very responsive within that community.

Certainly, when you need to have 13 FTEs in an aircraft and a facility for every base that you have that is the lion share of our cost. So there is only so much that you can do on the cost reduction side, but certainly that’s one of the more significant ones and something that we’ve already done a little bit up.

Trent Carman

Dana, just to go back to one point, we have touted this on quite a few conference calls. But from an earnings per share standpoint, buying out the age -- well the aircraft that currently are under lease is accretive. We would do changes of depreciation and the interest profile on that aircraft ownership. It doesn’t change your EBITDA profile, but from an EPS it is accretive and we’re going to continuing doing those.

I gave those numbers at first on the call. So you’re looking at a $100 million approximately of those this year. So that’s something we would do regardless of the flat volumes or regardless of the reimbursement. But we’re taking to advantage of those interest rates that are available now in the market and refinancing the fleeter or buying amount.

Aaron Todd

The other thing that Dana that’s available is, if a market isn’t generating enough volume to support a twin-engine aircraft, we can swap that out for a single engine. And it can cost you a half a million to three-quarters of a million less per year to operate a single engine as compared to a twin-engine aircraft. And so that’s also options that are available to us in certain markets that we wouldn’t generally consider doing that, but might consider doing that if softness were to become more trending in nature than seasonal.

Dena Hanley - Stephens

Okay. That’s great. Just on the volume side and I appreciate that from February to April it’s been such a sea change and probably pretty difficult to get your hands around exactly what’s going on besides the weather. Just, in general, are you seeing any shift to maybe the ground ambulance from air ambulance, obviously you are not getting as many calls anymore, could that be something permanent in the industry given the disparity of costs between the two?

Aaron Todd

That’s been going on for quite some time and those kinds of things are not going to cause that kind of an abruptness. And so while -- yeah, I mean as we went through every base, there were a couple where we had a little bit of shifting in the ground ambulance competitive environment. It would not add up to a lot. Again you are not going to -- something like that is going to have more of a gentle trickle effect over time. Those kinds of things typically do not cause a 13% downturn in a 90-day period. That kind of thing just doesn’t happen that quickly.

Dena Hanley - Stephens

Okay. That makes sense. And just last could you -- any update on HCA MidAmerica or HCA Florida how those are trending?

Aaron Todd

Not Great. We see --as you know, we’ve one-to-one relationship in Florida and are moving forward to provide service in that market. As far as the MidAmerica Transfer Center Service, we’ve been rolling that out and we’ve been very careful to make sure we’re meeting their expectations and to date we have been led to believe that they are happy with our efforts.

We always -- whenever you are dealing with hiring a lot of people to meet the needs and you are involved in training them, we are going a little bit slower than we anticipated. But I think that’s for good purpose. We also have looked at our transfer centers that we’ve been doing now for many years and looking at year-over-year how they are influencing our ability to provide air medical services that might have otherwise gone a different direction.

We, for example, in the first quarter saw about 100 additional flights in the first quarter of this year than last year just from the broad base transfer center relationships. And so we’re pleased with how that’s progressing as well.

Dena Hanley - Stephens

Thank you.

Operator

Your next question comes from Kevin Campbell from Avondale Partners.

Kevin Campbell - Avondale Partners

Thanks. Just two quick follow ups. Catholic Health Initiatives, maybe you could just give us an update on that or have you started to roll that out, is it sort of similar stage of the HCA?

Aaron Todd

I think it’s still evolving. We’re working on some transfer center services for them, but certainly nothing dramatic to report at this point.

Kevin Campbell - Avondale Partners

Okay. And you guys often talk about sort of the 10% top line 20% bottom line growth clearly with the first quarter that will be challenging. Do you think even last year off of the base at 240. Can you even get back to that 240 number this year after the first quarter or…?

Aaron Todd

I think if we were to re-baseline to kind of 1% to 2% decline in same base transport between now and the end of the year and with the acceleration of price increases, yes I think we can get back to the prior year EPS is what our forecasts are telling us. But certainly to try to, also we have 20% on top of that I think would require that plus some additional price increases on top of it and maybe even a little bit of help in the payer mix category, not just stabilization.

Kevin Campbell - Avondale Partners

Great. Thank you very much.

Aaron Todd

Yeah.

Operator

There are no further questions at this time.

Trent Carman

All right.

Aaron Todd

All right. For those who are not under the umbrella of being considered an analyst, Trent and I will be available to answer your questions and feel free to give us a call today or tomorrow and we’ll be in touch. And thank you for your participation today.

Operator

Ladies and gentlemen, this does conclude today’s conference call. Thank you for participating. At this time, you may now disconnect.

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