Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Emergency Medical Services Corporation (NYSE:EMS)

Q3 2009 Earnings Call Transcript

November 3, 2009 11:00 am ET

Executives

Deborah Hileman – VP, Corporate Communications & IR

Bill Sanger – Chairman and CEO

Randy Owen – EVP and CFO

Mark Bruning – President, American Medical Response, Inc

Analysts

Shelley Gnall – Goldman Sachs

Ralph Jacoby – Credit Suisse

Arthur Henderson – Jefferies & Co.

Sudeep Singh – Deutsche Bank

Kevin Campbell – Avondale Partners

Kevin Fischbeck – Banc of America

Andreas Dirnagl – Stephens, Inc.

Alan Fishman – Thomas Weisel Partners

Gary Taylor – Citigroup

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2009 Emergency Medical Services Corporation earnings conference call. My name is Lacy and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator instructions). As a reminder, this being recorded for replay purposes.

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

Deborah Hileman

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

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

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

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

Among the factors that could cause future results to differ materially from those provided in this conference call are the impact on our revenue of changes in transport volume, mix of insured and uninsured patients, and third-party reimbursement rates and methods, the adequacy of our insurance coverage and insurance reserves, potential penalties or changes to our operations if we fail to comply with extensive and complex government relations of our industry, both impact of potential changes in the healthcare industry, generally resulting from legislation currently under consideration, our ability to recruit and retain qualified physicians and other healthcare professionals, and enforce our non-compete agreements with our physicians.

Our ability to generate cash flow to service our debt obligation and cost of capital expenditures to maintain and upgrade our vehicle fleet and medical equipment, and the loss of one of our members of our senior management team, the outcome of government investigations of certain our business practices, our ability to successfully restructure our operations to comply with future changes in government regulations, loss of existing contracts and the accuracy of our assessment of costs under new contracts, a high level of competition in our industry, our ability to implement our business strategy, our ability to successfully integrate strategic acquisitions and our ability to comply with the terms of our settlement agreement with the government.

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

Bill Sanger

Thank you, Deb, and good morning to all. The third quarter marched another successful period for the company. It's important to note that when comparing the respective quarters that we had no FEMA hurricane deployment revenue during Q3 of 2009, whereas Q3 of 2008 included revenues of 101 million from our team of deployment for hurricanes, Gustaf and Ike.

With excluding the benefits of the 2008 hurricane revenues, EMSC revenue growth in the quarter was 15% over Q3 of 2008. Moreover, we generated $0.67 of diluted EPS. Our improved performance was primarily the result of increased sales which continues to drive contract growth in both our core businesses and our expanded services lines.

We continue to see year-over-year margin improvements not only from revenue growth, but also from improved resource utilization and achievement of other efficiencies.

For the nine months ending September 30, 2009, we have seen a 91 basis points improvement in our adjusted EBITDA margins even including last year’s FEMA hurricane revenues.

At EmCare, for the third quarter, we started 18 new contracts and exited 15 contracts. Of the 18 new contracts 10 were from our expanded service lines, which include radiology, anesthesiology, and hospitalist services. And seven of those ten were from existing clients. I have talked in the past that about our cross-selling strategy and I believe this result our prime example of our ability to capitalize on opportunities and generate incremental business with existing customers.

Overall, our net new contracts started this quarter at EmCare represents $16 million and new annualized revenue. While we believe the H1N1 outbreak contributed to the overall same-store growth our revenue growth was largely the result of new contracts. Our 28% revenue growth combined with better leverage of our provider compensation costs and other operational efficiencies resulted in an improved earnings at EmCare 54% over the same period last year.

Q3 of 2009 at AMR saw revenue growth excluding FEMA 2008 hurricane deployment revenue driven primarily by rate increases. Ambulance transport were 2% lower this quarter than the same quarter last year due to the exiting of certain underperforming markets earlier this year. While we have seen some 911 volume growth we have started 32 new inter-facility agreements. We do see softness in the interfacility transport.

Our same market transports were essentially flat with one compared to 2008 Q3. In spite of this softness the third quarter of 2009 was positively impacted by pricing changes, enhanced deployment initiatives in some of our several markets and lower fuel costs.

Randy will provide you more details on improvements we have seen at AMR.

Recently we have announced that AMR has entered into several new agreements to provide medical transportation and transportation management services. We have entered a new national medical transportation agreement with Sava Senior Care Administrative Services. Sava is a leading provider of short-term and long-term health care services and operate 185 facilities in 19 states.

Additionally, access to care, AMR’s managed transportation business entered into agreements to provide non-emergency transportation management services with HealthSpring, Inc. based in Nashville, Tennessee and Bravo Healthcare based in Baltimore, Maryland. Under these arrangements access to care while managed non-emergency medical transportation services for nearly 200,000 Medicaid Advantage members in 10 states. Lastly, we have renewed and expanded our contract with FEMA. The new agreement adds Zone III and IV which expands our coverage to the 48 contiguous states.

In closing, the company continues to generate strong free cash flow. During the quarter, we generate free cash flow of 61.2 million, increased in cash on hand to 331.1 million. We continued to believe these funds are best utilized and enhance growth in our existing business lines including targeted acquisitions.

I’d like to now turn the call over to our Randy.

Randy Owen

Thank you, Bill. As I discuss our performance, I'll be referring to certain non-GAAP measures such as adjusted EBITDA and free cash flow, which are not considered measures of financial performance under Generally Accepted Accounting Principles. Therefore, I direct you to the reconciliations included in our earnings release and on our Web site. Unless otherwise noted, all comparisons refer to the third quarter ended September 30, 2008. In comparison to 2008 results this quarter, are significantly impacted by our FEMA hurricane deployment during the third quarter of last year.

EMSC net revenue for the third quarter 2009 was $665.1 million, a 15% increase when you exclude the third quarter 2008 FEMA hurricane deployment revenue of $101.1 million. And as Bill noted, there was no FEMA hurricane deployment revenue in the third quarter of '09.

EMSC’s adjusted EBITDA for the third quarter was $72.3 million, a decrease of 1.6%. And a decrease was from the favorable impact of the FEMA hurricane deployment in 2008. As you will recall margins in the third quarter 2008 were higher than the margins in the first two quarters and the fourth quarter of '08, driven by the impact of hurricane deployment last year.

Adjusted EBITDA was positively affected in 2009 by the net impact of increased volume from net new contracts and acquisitions, higher rates and volumes on existing contracts, improvement in compensation and benefit expenses as a percentage of net revenue and lower fuel costs.

EMSC’s net income for the quarter was $28.9 million or $0.66 a diluted share, compared to net income of $28.6 million or $0.60 a diluted share in Q3 of 2008.

EmCare's net revenue was $326.3 million, an increase of 28.5%. This included a 17.8% revenue increase from the addition of 87 net new contracts since June 30, 2008, including 45 anesthesiology contracts from our acquisition of clinical partners.

Revenue increased 12.2% at same-store contracts as a result of an increase in weighted patient encounters of 7.2%, and a growth in net revenue per weighted encounter of 5%.

EmCare generated adjusted EBITDA of $40.4 million, an increase of 53.8%, and adjusted EBITDA margins improved 200 basis points to 12.4%. This improvement was primarily driven by revenue increases from new and existing contracts and by a reduction of compensation and benefit expenses as a percentage of net revenue due to higher volumes in our emergency department contracts and continued improvements in our scheduling processes and systems.

Insurance expense in the quarter was consistent with prior year. We recorded an unfavorable insurance adjustment of 1.3 million in the quarter compared to an unfavorable adjustment of 3.9 million in the third quarter 2008.

AMR net revenue was $338.8 million, and was a 4.5% increase; excluding the third quarter '08 FEMA hurricane deployment revenue. This increase in net revenue was due to higher net revenue per transport of 6.7%, offset by reduced weighted transport volume of 2.2%. Of the increase in net revenue per transport is 6.7%, 5.1% is from the impact of rate and reimbursement increases and 1.6% is from the growth in our managed transportation business over the prior year, which as you recall has no associated transports.

The 2.2% decrease in transports was from the impact of exiting certain markets earlier in the year and our same market transports were comparable to Q3 2008.

AMR’s adjusted EBITDA for the third quarter was $31.8 million, a decrease of 32.5%, and that decrease is attributable primarily to the favorable impact of FEMA hurricane deployment in 2008.

To better understand the impact of hurricane had in our 2008 performance, if we exclude the third quarter 2008 where AMR had a 11.1% EBITDA margin. AMR margins averaged 8.4% in 2008. Year-to-date 2009 margins at AMR have averaged 9.7%.

This margin improvement has been driven by the net impact of higher revenue, lower compensation costs as a percentage of revenue driven by enhanced deployment strategies, reduction in overtime costs, and lower fuel costs. Fuel rates were lower by about 4.4 million this quarter compared to Q3 of 2008.

Favorable prior period adjustments were comparable in both quarters, including a $2.1 million favorable adjustment in Q3 2009 compared to a $1.7 million favorable adjustment in Q3 2008.

EMSC's free cash flow was $61.2 million during the quarter compared to 65.5 million last year. Cash flow provided by operating activities was 68.9 million in Q3 2009.

Accounts receivable decreased 7.6 million during the third quarter, primarily from a DSO decrease of three days at both AMR and EmCare. EMSC has decreased DSO from 85 days at December 31, 2007, to 64 days at September 30, 2009.

Net cash used in investing activities was $8.9 million in the quarter, compared to $17.9 million last year. Third quarter of 2009 was positively impacted by decrease in insurance collateral of 6 million.

Net capital expenditures were $13.5 million during the third quarter of '09, compared to $11.4 million. Cash used for acquisitions during the third quarter of '09 was 1.2 million compared to 8.4 million last year.

Net cash provided by financing activities was $4 million for the quarter, compared to $5.5 million last year, and at September 30, 2009, there were no amounts outstanding under our revolving credit facility.

As an aside we have recorded a decrease in other long-term liabilities of 64 million offset by a comparable decrease in other current assets during the third quarter 2009. This was from a change in net tax assets and did not impact cash flow.

Finally, as noted in our press release we expect full year 2009 EPS and adjusted EBITDA to be at the high end of our existing guidance range. This guidance does not assume that recent EmCare same-store volumes continue at the same range for the balance of the year. Bill?

Bill Sanger

Thank you, Randy. Operator, would you please open the call to questions?

Question-and-Answer Session

Operator

Thank you (Operators instructions). Our first question will come from the line of Shelley Gnall with Goldman Sachs. Please proceed

Shelley Gnall – Goldman Sachs

Hi. Thanks for taking my questions. I guess, the first one on EmCare, the same store growth was 7% for the volumes for EmCare, can you remind us, what was it for the prior two quarters?

Randy Owen

In the second quarter, Shelley, it was about 7% as well. Q1, I don't know off the top of my head, but I think it was lower single digits. Historically, as you recall, over the long-term, we've averaged anywhere from 2% to 4% same-store volume growth.

Shelly Gnall –Goldman Sachs

Yes. And it's meaningfully higher this year because, I guess, what are the –

Randy Owen

Well, we do believe, as in the second quarter, there is some impact from the H1N1 outbreak. We've seen solid emergency room volumes. Although really, when you look at the growth at EmCare year-over-year, the majority of our growth really is from volumes from net new contracts.

Shelley Gnall – Goldman Sachs

Yes. Just the other, I mean, what other drivers might contribute to the same site volume trend that's significantly above the low single digit historical trend?

Randy Owen

Shelly, there are some seasonal changes that you typically see. But nothing else specific that I could refer you to this quarter.

Shelley Gnall – Goldman Sachs

Okay. And a question on subsidies for your contracts. Just wondering, I guess, anecdotally, we're hearing from some hospital systems that they're being, if anything, maybe even more conservative with their operating expenses and their uses of cash now. I'm just wondering, anecdotally, what are you hearing from the hospitals that are paying subsidies for the EmCare contracts? Is there any more pushback? Are you having to consider more contract exits?

Bill Sanger

Shelly, this is Bill. We certainly have seen more interest in renegotiating of subsidies. But we have not seen additional exiting of contracts as a result thereof.

Shelley Gnall – Goldman Sachs

What about for some of the new contracts that are entered into for EmCare? Are hospitals less likely to offer a subsidy now than they were maybe a year ago?

Bill Sanger

We really don't see changes as relates to single subsidies. We are seeing the opportunity to discuss cross-subsidies when there's more than one services offered to a facility.

Shelley Gnall – Goldman Sachs

Okay. And then I just have a final question on Templeton. How has that performance been tracking relative to your expectations?

Bill Sanger

We're essentially meeting our expectations as originally spelled out last year.

Shelley Gnall – Goldman Sachs

Would you provide the revenue from Templeton, or is it something you're not providing?

Bill Sanger

No. We don't, they're separate Templeton from the rest of radiology.

Shelley Gnall – Goldman Sachs

Okay. Thank you.

Operator

And our next question will come from the line of Ralph Jacoby with Credit Suisse. Please proceed.

Ralph Jacoby – Credit Suisse

Thanks. Good morning. Just a couple things here. One, I know you said you'll be at the high end of guidance. But anything in the fourth quarter we need to think about in terms of a potential pressure point that would maybe get you sort of toward the lower end than the higher end of the guidance?

Bill Sanger

No. We don't see anything unusual in Q4. The uncertainty is whether or not the H1N1 outbreak will continue into the quarter.

Ralph Jacoby – Credit Suisse

Okay. And then, obviously, we've had the final rule on the physician fee schedule, which most of us don't expect to go through. I was wondering if you had gone through some of the proposals I guess from earlier this year. Maybe remind us what the payment rates for your codes would equate to if there is a fix implemented.

Bill Sanger

The fix would be a temporary fix, of which we essentially think would be a neutral position for our physician revenues.

Ralph Jacoby – Credit Suisse

Okay.

Bill Sanger

Would be a little bit of a push on anesthesia and on the EmCare side, meaning the ED side. But we don't anticipate any large movement going into 2010 based on what we see.

Randy Owen

Yes, Ralph. I think the physician side, latest we heard is about 0.5% increase, is some of the current thinking around the physician fee schedule.

Ralph Jacoby – Credit Suisse

Right. And I know some of the codes had seen some bigger bumps. But I guess, it doesn't sound like that's what your expectations are.

Randy Owen

That is correct.

Ralph Jacoby – Credit Suisse

Okay. All right. That's fair. And then fairly sizable jump in sort of the compensation and benefits line. Just help us. What's really driving that? How should we think about it going forward? And any pressure from or incremental pressure from unions or anything like that?

Randy Owen

No, Ralph. If you recall from Q2, actually, if you look at Q1 of this year, we were a little higher than what we even are at Q3. It did come down, because we had a huge influx, obviously, of volume, especially at some of the facilities that had single-staffing from a physician perspective. So I think we saw a normal change in that. We've had a number of new starts. And so we always going to have new starts, have some increased compensation during the first three months to six months of contract starts. But nothing that concerns us from a long-term perspective.

Ralph Jacoby – Credit Suisse

Okay. And then just one last one. You talked in the past a lot about sort of 911 contracts kind of coming up for grabs. Any more of an update there? I know there was some reluctance out there causing delay in getting some of these contracts. Just wondering if you could update us there in terms of if you're still seeing that.

Bill Sanger

We're still hopeful to see before the end of this year, at least a couple large contracts go out for RFP.

Ralph Jacoby – Credit Suisse

Okay. Great.

Bill Sanger

Thanks, Ralph.

Randy Owen

Thank you, Ralph.

Operator

And our next question will come from the line of Arthur Henderson with Jefferies & Co. Please proceed.

Arthur Henderson – Jefferies & Co.

Hi. Good morning, and very nice quarter. The cash balance, obviously, you've got a lot of cash that you're sitting on. And Bill, I know you made mentioned in your remarks that you'd be looking possibly at some acquisitions. And I'm wondering if that's within the sort of lines of businesses that you're in today, or are you looking at some other opportunities outside of your core there. And then I know your senior notes come up where you can possibly buy them back to some extent, I believe, I'm probably not wording that exactly correctly, in February at 105. Are you thinking about using your cash balance to maybe buy some of those on the open market or can I get your thoughts around what you might be contemplating down the road here?

Bill Sanger

Sure, Art. As we've said in the past, we still believe the best use of capital is essentially target acquisitions. We continue to see opportunities in that marketplace. Clearly, as we get into 2010 and the opportunity opens relative to looking at our debt structure, we may consider utilizing cash for debt, if acquisitions are not plentiful in that market.

Arthur Henderson – Jefferies & Co.

Okay. And a real quick housekeeping question on the income statement. Your insurance expense was a bit lower than I had thought it was going to be. How should we be thinking about that, Randy, just kind of going forward? Are we kind of the 3.6% level kind of the range we should be thinking about there?

Randy Owen

Art. I think we've always, yes. I think if you're in that, I mean, 3.6%, it can always move around a little bit, whether it's 3.5% or 3.7%, 3.8%. We've been fairly steady in sort of that sort of mid-three kind of range. We did have a small positive favorable prior period adjustment at AMR. We had a slight negative at EmCare. But again, I think, we don't see much of those large adjustments as much anymore. I think it's stable in that range.

Arthur Henderson – Jefferies & Co.

Okay. And then, Bill, on the H1N1 opportunity, could you talk a little bit more about what that means for you and what you maybe have seen kind of going into this fourth quarter? I know things accelerated a bit in terms of the spread of H1N1. And how that might play out just in terms of demands on your emergency rooms.

Bill Sanger

Clearly, we do believe we've seen a lift in Q3 as a result of the outbreak. From what we understand, the H1N1 outbreak continues into the Q4. It's hard to say what effect that's going to have on us as we go forward. Certainly, we have more than adequate supply providers to respond to any increase that may or may not occur on a go-forward basis.

Arthur Henderson – Jefferies & Co.

Now, when someone comes into the emergency room and they get coded against a certain code that, I assume that is that sort of an average reimbursement code? Is it lower margin kind of business? I'm trying to get a sense as to how that would impact you on a margin basis.

Bill Sanger

Yes. We've basically seen all over the map, frankly. I do believe that, if we look across the book of business, it's generally the lower margin business what we consider level threes.

Randy Owen

Yes. Lower acuity, in general.

Arthur Henderson – Jefferies & Co.

Okay, okay. Last question. Any thoughts on kind of where things stand on healthcare reform and the public option, and how that may change your business positively or negatively? Thanks.

Bill Sanger

I think what we've said in the past is that we believe that any reform that may occur will probably be a positive for us. We don't know if it's going to be substantially positive or slightly positive, but we do believe we'll be a net beneficiary at the end of the day.

Arthur Henderson – Jefferies & Co.

Okay. Thanks very much.

Randy Owen

Thanks, Art.

Operator

And our next question will come from the line of Sudeep Singh with Deutsche Bank. Please proceed.

Sudeep Singh – Deutsche Bank

Hi. Good morning, guys.

Randy Owen

Good morning, Sudeep.

Sudeep Singh – Deutsche Bank

I guess, my first question, just going back to the flu, H1N1, we have heard some companies report kind of anecdotally about kind of the flu and the trends kind of continuing into October. I was just wondering if you guys can make just some broad-based comments on what you've seen so far in October as it relates to the EmCare side of the business.

Bill Sanger

Yes. We obviously can't make statements relative to Q4. I think we all understand and what we've heard is the H1N1 flu continues to challenge hospitals and emergency departments.

Sudeep Singh – Deutsche Bank

Okay. Then perhaps, maybe just isolating into the third quarter then. You mentioned earlier that the H1N1 is tied to kind of lower acuity and lower margin. Could you maybe just comment on any sort of mix shift that you saw within the quarter? Perhaps did you see some more Medicaid as a result of the flu?

Randy Owen

Yes, Sudeep. We didn't really see any significant change in the mix. Actually, there was a slight tick-up in Medicaid from a volume standpoint, probably 30 BPS. And on self-pay, again, it was about 30 BPS. So really no dramatic change in our mix and really didn't have any significant impact on our revenue per encounter, but just slight increases in those two payers.

Sudeep Singh – Deutsche Bank

Okay. So that's 30 BPS year-over-year?

Randy Owen

Well, sequential. Really, more sequential. So if you look at both medicaid and self-pay.

Sudeep Singh – Deutsche Bank

Got it. Okay. And then wanted to kind of shift over to the Clinical Partners acquisition that you did last year. I think that entered into the same store set in this quarter. Just curious –

Randy Owen

Yes. Not this one, Sudeep. It'll be a part of our same-store next quarter. Because it did occur in the third quarter last year. And so we did not include that in same store this year.

Sudeep Singh – Deutsche Bank

Okay, I see. But just curious to get your thoughts on kind of, since we're close to about a year later, how is that business progressing, kind of what's improved relative to your expectations, and kind of where do you think the opportunity is as you look towards the near-term for that particular business?

Bill Sanger

We're very confident that our anesthesia division will continue to essentially perform at or above expectations. We think it's a very good market for us and very complimentary to the services we provide to our existing client base.

Randy Owen

And we've added, Sudeep, if you'll recall, we added 45 contracts as a part of the acquisition. We have 55 now. So we've actually added almost 20% to our anesthesia contract base.

Sudeep Singh – Deutsche Bank

Are you finding that having that kind of in your toolbox is leading to some – is that kind of a lever that hospitals or a hook, I should say, that's bringing in hospitals who otherwise maybe weren't working with you on the ER side? Now that you have anesthesiology, you can kind of convert that to a multi-service?

Bill Sanger

Well, clearly, having anesthesiology in the arsenal or the portfolio of services has assisted us in cross-selling without a doubt.

Sudeep Singh – Deutsche Bank

Okay. Great. Thanks a lot.

Randy Owen

Thanks, Sudeep.

Operator

And our next question will come from the line of Kevin Campbell with Avondale Partners. Please proceed.

Kevin Campbell – Avondale Partners

Thank you. I was hoping you guys could talk a little bit more about the fleet utilization efforts and maybe where you stand there. It sounds like that's been a positive driver for you margin-wise in AMR. So I was just hoping we could get some additional color and maybe, where you think we can go from here.

Bill Sanger

Sure, Kevin. I'll have Mark Bruning speak to this, who is the President of AMR. Mark, do you want to talk a little bit about the technology utilization?

Randy Owen

The deployment efficiencies, what we've got –

Mark Bruning

Absolutely. We've been working with an organization, a company, Optima, operations research firm in New Zealand, and rolled out optimization software in Las Vegas, Nevada; and Alameda County, California; as well as looking at our next rollout in San Bernardino, California. It's really two-phased, a predict module and a live module, and we've really been in the process off implementation, and we're now really beginning to see sort of the uptick over the last couple of quarters that really allow us to utilize our resources in such a fashion to improve our on-time performance and do so in an efficient way from a unit hour utilization perspective. So we're very excited at the potential of this new software. In addition, increasing to rollout ABL and GPS which are key markets, Denver; Miami; Washington, D.C.; New Haven, Connecticut. So we'll continue aggressive rollouts in that area as well.

Randy Owen

Yes, Kevin. I think the bottom-line here is that, really from a technology standpoint, we're still at the starting point here. I mean, we've had really positive improvements in deployment from improved processes and better data management. And our operators have done a great job from that perspective. But when you look at technology, it really from our perspective is still a future opportunity as well.

Kevin Campbell – Avondale Partners

When you look at the improvement to utilization in those markets, Las Vegas and Alameda County, where you've rolled these out, obviously, I don't want you to have to give away some secrets about the actual utilization in those markets, but can you give some idea as to the percentage increase whether utilization has increased by 5%, 2%, some general sense as to the overall improvement in those markets where you have rolled it out?

Mark Bruning

Well, again, I think it's still a work in progress. Most importantly, we're seeing improved on-time performance in those markets.

Kevin Campbell – Avondale Partners

Okay. Great. Could you talk about your subsidies at the hospital level with H1N1? Are the subsidies, if you're seeing a slight increase in self-pay and Medicaid, are the subsidies tied to overall volumes and so therefore, you get an increase in a subsidy when you see more self-pay or is it really just a flat rate across the spectrum and it doesn't really matter how the volumes are changing?

Randy Owen

It varies. We have some contracts that have fixed subsidies, and some that fluctuate with volume. So I would tell you that in the quarter there has really been no significant change in sort of the subsidy levels that we've seen.

Kevin Campbell – Avondale Partners

Okay. Thank you very much.

Randy Owen

Thanks, Kevin.

Operator

And our next question will come from the line of Kevin Fischbeck with Banc of America. Please proceed.

Kevin Fischbeck – Banc of America

Okay. Thanks. Good morning.

Randy Owen

Hey, Kevin.

Kevin Fischbeck – Banc of America

Just wanted to go back sort of I guess to the cash balance question and the acquisitions. Clearly, acquisitions is a, I think a good use of cash. But how should we think about the size of the cash position right now? I mean, you guys historically have done somewhere between $50 million and $80 million of deals the last couple years. And the cash balance is well over $300 million. Are you not doing deals because looking at larger deals? Is it that the smaller deals aren't coming together as quickly as you hoped? I mean, what's driving that increase in cash balance and how should we think about that?

Bill Sanger

Well, clearly, we've told the street that generally we will supplement our organic growth with 3% to 5% top-line growth through acquisitions. And we still believe that's a good barometer to use, if you will. And as we look at the opportunity in the marketplace, I do believe we'll be leaning more towards larger acquisitions versus smaller acquisitions in the future.

Kevin Fischbeck – Banc of America

Okay. And I guess is there a number? I guess the 3% to 5% of revenue, I guess, certainly makes some sense conceptually. But is there a functional limit, I guess, as to how much in deals that we should be thinking about as far as either revenue or dollars spent when we think about what your current platform can actually handle as far as acquisitions in a given year?

Bill Sanger

I think really it's dependent upon, number one, what service the actual target acquisition would be in and how well we would integrate and how long it would take to integrate that acquisition and what is level of accretion would be. And so those factors really enter into the number of deals we do and the size of the deals we do.

Kevin Fischbeck – Banc of America

Okay. And I apologize, I might have missed it, but did you guys break out the numbers that I guess are usually in the Q about the provision for contractual discounts and compensated care in the quarter?

Randy Owen

No, we did not. That'll be a part of the Q. But again, I wouldn't expect anything significant there, Kevin. Again, our mix was we didn't have any material changes in our mix.

Kevin Fischbeck – Banc of America

Okay. And I guess, maybe, just thinking kind of longer-term next year, I know you guys aren't providing guidance. But as you think about what you have targeted in the past around volumes in both the EmCare and the AMR business and pricing, I guess kind of combining to call it 5% to 7% same-store growth. Is that still kind of a good way to think about 2010, or is there anything that you're looking at as a headwind or a tailwind into next year?

Randy Owen

Well, again, it's probably a little early to start discussing 2010 specifically. I think what we've always talked about is, when you look in the long run and you look over a several year period, that we think those are reasonable numbers to think about, when you look at sort of our existing business. So I would kind of think of it in terms of a longer-term perspective. I think that's rational.

Kevin Fischbeck – Banc of America

Okay. All right. Great. Thanks.

Randy Owen

Thanks.

Operator

And our next question will come from the line of Andreas Dirnagl with Stephens, Inc. Please proceed.

Andreas Dirnagl – Stephens, Inc.

Yes. Good morning, guys. Great quarter. Randy, maybe you can help me put together a couple of the numbers. And I'm sort of missing something here potentially. Historically, on the EmCare side, I mean, it was the real star for the past couple of quarters. Historically, Randy, I mean, you commented that you've seen sort of lower single-digit same-store volume growth in the 2% to 4% range. In the past two quarters, that's been up around the 7% range. You seem to be kind of downplaying the impact that H1N1 had on the volume. So sort of bluntly, what else is there that sort of drove the volumes up in those two quarters?

Randy Owen

I think, Andreas, when you look at it, I think the way we've framed it up is when you look at that volume, then we do believe that, obviously some of the additional same-store volume is from H1N1 outbreak. What I was referring to is when you really look at the year-over-year performance and we've had on a weighted basis, about a 22% increase in our volumes quarter-over-quarter, okay? That most of that increase quarter-over-quarter has been driven from new business, and not just from an increase in same store volume. But it clearly we do believe it had some impact, obviously, on the same-store contracts.

Andreas Dirnagl – Stephens, Inc.

So I guess, taking it into the fourth quarter, you commented that your guidance doesn't include a continuation of the increased volume at EmCare. I guess, I'm trying to figure out kind of the magnitude of the impact that, that not including that has on your guidance.

Randy Owen

Well, again, I think, if you look at that it's hard to predict, and so we've not put that into our guidance. But I think, if you think of it as historically, where we've seen sort of that 2% to 4% range in same-store, that's more how we sort of forecasted or thought about our current same-store volumes.

Andreas Dirnagl – Stephens, Inc.

Okay. So to be clear, this quarter, it was 7%. Your sort of inherent in your guidance for the next quarter is more like 2% to 4%?

Randy Owen

Yes. We've not assumed sort of that same level of same-store. Correct.

Andreas Dirnagl – Stephens, Inc.

Okay. So would that also explain the fact that sort of inherent in your guidance is, sequentially a down quarter from an EPS perspective, whereas historically it's always been worst flat, and you've actually seen an increase in the fourth quarter?

Randy Owen

Yes. I think that's fair. And there's also some seasonal changes sometimes volumes on the AMR side. Again, we don't expect any significant increases on that. And with the holidays, sometimes it's a little less than what we see in Q3. But generally, yes, and seasonal factors.

Bill Sanger

Yes, as we said earlier, the uncertainty is what's going to happen with the H1N1 whether or not that's going to continue at the level that it currently is.

Andreas Dirnagl – Stephens, Inc.

Right. I mean, so to be really clear about it, I mean, to the extent that H1N1 does continue to have an impact on the fourth quarter, you're sort of even more confident it being at the higher end, if not above the range?

Randy Owen

That's fair.

Bill Sanger

That is definitely correct.

Andreas Dirnagl – Stephens, Inc.

Okay. And then final question from me. Bill, just again, on this acquisition idea. Because I guess, it has sort of been pointed out a couple of times now that your cash balance is pretty big versus sort of your historic acquisitions. Is there any color you can give in terms of are there large players on the AMR side on a regional basis that are sort of potentially of interest? Are there large players on the EmCare side? I mean, is it going to be one of the two? Or is it just sort of a broadly, you'll see larger acquisitions?

Bill Sanger

I would say we will see larger acquisitions. Clearly, in today's environment in both the ambulance side of the business and the outsourced physicians' side of the business, we're seeing lower multiples and much more reasonable requests from those who're interested in selling.

Andreas Dirnagl – Stephens, Inc.

Okay. And so, I guess, in the past you've also said that on the EmCare side, if anything you have a preference, maybe for more specialties as opposed to ED.

Bill Sanger

That's correct.

Andreas Dirnagl – Stephens, Inc.

Okay. Great. Thank you very much.

Bill Sanger

Thank you.

Randy Owen

Thanks, Andreas.

Operator

And our next question will come from the line of Alan Fishman with Thomas Weisel Partners. Please proceed.

Alan Fishman – Thomas Weisel Partners

Hi. Thank you. I guess first just to touch on H1N1. I don't know if you discussed this. But what was the trend through the third quarter? Was it steadily accelerating? How should we think about that?

Bill Sanger

It was continuing.

Alan Fishman – Thomas Weisel Partners

Okay. Did it increase quarter-over-quarter?

Randy Owen

No, not necessarily quarter-over-quarter, Alan, because we did see some in the second quarter. I think we did see more in the latter part of the third quarter than we did early in the quarter, especially with school starting up again and what you've seen in terms of the impact to the younger population. So it was a little bit more toward the end of the third quarter.

Alan Fishman – Thomas Weisel Partners

Okay. Great. And then I guess Bill, on the same point in EmCare. Can you talk about the cross-sell opportunity? What was the size of that, given that so many of the new contracts appear to be coming from cross-sell?

Bill Sanger

Yes. If you recall, I mentioned that the net new contracts for the quarter contributed approximately $16 million of annualized revenue. That's the net, which takes into consideration not only the new starts, but also those that we have exited.

Randy Owen

What I think is important, Alan, again, what we were pleased about was the fact that if you look at the 18 that we started, 10 of those were in these service lines that we've talked about, hospitalists, radiology, and anesthesia. And of those ten, seven, or 70% of that was with existing clients.

Alan Fishman – Thomas Weisel Partners

Yes. And what was the size of the overall cross-sell? That was my question. I don't recall you all talking about that.

Randy Owen

Off the top of my head, I can't give you a specific dollar amount. But I would tell you that, in general, those contracts are similar to other contracts that we have when you look at size of facilities.

Alan Fishman – Thomas Weisel Partners

Okay. And then I guess switching to the ambulance side, can you give an update – I forget what the ambulance fee fix is looking like for 2010 in the healthcare reform bills kind of how you look at that for 2010?

Randy Owen

Yes. I think, when you look at that, there are two pieces right now that are out there. One is moving from a 80% national, 20% regional, blended fee schedule to 100% national January 1st. And we had also if you recall in July of 2008 had gotten an increase as a part of the physician fee schedule fix. That was just over 2% on a blended basis.

That is currently set to expire at the end of 2009. We obviously don't know the outcome of that. We do know that in both Senate and House bills, there is language currently in those bills to extend that 2% and 3% for, I think 18 months, maybe two-year period of time. So we don't know that, but we're hopeful that, that language will stay in those bills depending on what finally comes out of the health reform. So we do anticipate, have anticipated and have had that in our previous discussions around some drop in Medicare revenue related to moving to the national fee schedule before any mitigation of those changes.

Alan Fishman – Thomas Weisel Partners

Okay. Thank you very much.

Randy Owen

Thanks, Alan.

Operator

And our final question will come from the line of Gary Taylor with Citi. Please proceed.

Gary Taylor – Citigroup

Hi. Thanks for taking the question.

Randy Owen

Hi, Gary.

Gary Taylor – Citigroup

Just a few to clarify. On the EmCare side, the 15 exited contracts, is it still fair to assume the bulk those are ER, or was there some turnover in the other specialties, also?

Bill Sanger

The bulk is definitely ER. We certainly can have turnover in the other specialties. But just from the size point of view, the number of ED contracts we have, the majority will be the ED contracts.

Gary Taylor – Citigroup

Okay. And in the EmCare side of same-store visit 7%, I didn't catch a same-store revenue number, if you gave it.

Randy Owen

Yes. On a rate basis, Gary, it was about 5%. So the total was 12.2%. 7.2% was volume, 5% rate.

Gary Taylor – Citigroup

Okay. And I guess, kind of to beat a dead horse, on the guidance, I want to make sure maybe just ask this a little more explicitly. So if you've done $1.89 year-to-date, high end of the guidance $2.48 that implies $0.59 for the 4Q. It sounds like, obviously there's just some conservatism in terms of some of the trends have been better than you would have modeled into the year. Is there a real reason to believe that earnings are down sequentially outside of some of the conservatism on the EmCare volume side?

Bill Sanger

No, I mean, there's not a reason to believe that we're going to see sequential drops.

Gary Taylor – Citigroup

Okay. Appreciate that. Two other quick ones. On the AMR side, you talked about some weakness in the IFT's. Is that just sort of recurring competition? Is there something you could point to there? I know there's been a lot of exits by you over a number of years, but what do you attribute the softness there?

Randy Owen

Gary, I think, a couple of things. One, where we've typically seen the tie has been around census. So whether it's lower census from a nursing home perspective, again, if you look at the last year or at a hospital perspective, then lower census has traditionally impacted our inter facility transports. Clearly, we have competition. We've always had competition. So I would say that's still a fairly competitive marketplace. But I think it's more driven by census. I don't know, Mark, do you have any other thoughts on that?

Mark Bruning

No. And we've seen sort of across the country, lower elective procedures. So patients moving out of the facilities that we might have transported otherwise. We're not doing as much of that as we did before.

Randy Owen

Yes. Okay.

Gary Taylor – Citigroup

Okay. Last question. On the AMR side, can you give us the total fuel spend year-over-year?

Randy Owen

Yes. In the current quarter, Gary, it was $7.4 million. And again, it was about a little over $4 million less than last year. So I think it was closer to $12 million in the third quarter of '08.

Gary Taylor – Citigroup

Great. Thank you.

Randy Owen

Thanks, Gary.

Operator

This concludes the question and answer portion of our call. I would now like to turn the call back over to Mr. William Sanger, CEO, for closing comments.

Bill Sanger

Thank you, Operator. And thank you, everyone, for your time this morning and the support of the Company.

Operator

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day, everyone.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

This Transcript
All Transcripts