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

Air Methods Corporation (NASDAQ:AIRM)

Q1 2014 Earnings Conference Call

May 8, 2014 4:15 PM ET

Executives

Christine Clarke - IR

Aaron Todd - CEO

Trent Carman - Treasurer and CFO

Analysts

Bob Labick - CJS Securities

Ryan Daniels - William Blair & Company

Matt Weight - Feltl and Company

Richard Close - Avondale Partners

Dana Hambly - Stephens Inc.

Operator

Good afternoon ladies and gentlemen. My name is Aisha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Air Methods Report First Quarter 2014 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)

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 2014 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 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 Division, United Rotorcraft Division and the Tourism Division; the collection rates for patient transports, the continuation, expansion, conversion and/or renewal of Air Medical Service contracts, the acquisition of profitable United Rotorcraft Division contracts and other flight service operations, the final results of April 2014 flight volume and actual results of payer mix for January 2014, weather conditions across the United States, development and changes in laws and regulations, including without limitation, the impact of the Patient Protection and Affordable Care Act, increased regulation of the healthcare 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

Thanks Christine, and thanks to all of you for joining us today. As Trent will offer detail on our first quarter results in a moment, I am just going to focus my remarks on recent events that have relevancy to our future quarters and outlook.

Since our last conference call, the following key events have occurred; we have added two bases associated with hospital base program conversion since the beginning of the year. In addition, we have executed outsourcing agreements, which will result in 10 additional bases, between now and early third quarter. Seven of these bases will represent conversion of existing locations, with three bases representing new operating locations in affiliation with our hospital customers.

In addition to this activity, the company is in contract outsourcing negotiations, which we believe to have a high probability of completion for 10 additional community base locations, of which nine represent existing base operations. The company has also commenced, or has ongoing discussions with other hospital base customers, which combine with represented potential of 20 additional existing base conversions. Certainly, the level of outsourcing bias or interest from our hospital base customers is well beyond unprecedented levels.

Since the beginning of the year, we have opened two greenfield locations in Mississippi and North Carolina, and have closed six underperforming bases. During the 12 months ended March 31, 2014 however, Air Methods has commenced and is continuing operations at 17 greenfield locations which have generated nearly $7 million in aggregate contribution to-date.

We were pleased to receive verbal notification from TRICARE, that they have reversed their decision, reduced prices, and will restore previous rates retroactive to October 1, 2013. While we have budgeted for this decrease, the annual net reimbursement benefit is expected to be app $9 million versus the decreased rates.

Actual payer mix of patients transported during the fourth quarter, which was relied on to estimate first quarter payer mix, reflected the following quarter over prior year quarter fluctuations. Privately insured patients decreased 0.7% to 32% of total transports. Medicare patients increased 0.6% to 33.7% of total transports. Medicaid patients decreased 0.6%, to 20.1%, and self-pay patients increased 0.7% to 14.2% of total transports.

Preliminary estimates of actual payer mix for January 2014, which will be used to estimate April 2014 payer mix are as follows; privately insured patients decreased 2.7% compared with the prior year months, to 29.2% of total transports. Medicare patients increased 0.5% to 35%; Medicaid patients increased 2.1% to 23.5%, and self-pay patients remain unchanged at 12.3% compared to the prior year January for the one month period.

We have experienced a 43% increase in community based transports, that now originate within our transfer center services operations, representing an increase of 130 transports compared with the prior year quarter. While this does not necessarily reflect a net increase in transports, it does manifest the rate of activity associated with these value added services.

Community based transports, completed in the half of community health through our preferred provider relationship, increased from 527 transports in the first quarter of 2013, to 695 transports in the current year quarter.

While payer mix reflects greater weakness than anticipated, recent trends in patient transport volumes, hospital based program, outsourcing activities, maintenance and fuel expense trends, fiscal performance from Tourism Operations, improved fiscal performance from our United Rotocraft division and increased demand generated from transfer center and national preferred provider relationships, are all at or better than beginning of the year expectations.

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

Trent Carman

Thank you, Aaron. I will start by providing some details on our expenses for the most recent quarter.

Flight Center expenses for the first quarter of 2014 were $88.4 million. Aircraft operating expenses were $33 million. Cost of sales for United Rotocraft were $6.7 million. Tourism operating expenses were $16 million. Costs for our dispatch and billing services were $2.5 million and general and administrative expenses were $31.7 million. For the first quarter of 2013, the expenses were $85.2 million, $37.5 million, $4.5 million, $7.8 million, $1.3 million and $27.2 million respectively.

General and administrative expenses in the first quarter of 2014 include $2.1 million of expenses for our Blue Hawaiian tourism operations. These costs would not have been in the prior year quarter.

Earnings before interest, income taxes, depreciation and amortization or EBITDA were $44.7 million and $16 million for the first quarters of 2014 and 2013 respectively. EBITDA for the trailing 12 months ended March 31, 2014 was $230.9 million. You can reconcile EBITDA by adding interest expense, depreciation and amortization, netting the loss of disposition of assets to income before income tax expense.

For the 12 months ended September 30, 2013, cash collections as a percentage of our gross charge for insured patients was 75%. Cash payments as a percentage of our gross charge for Medicare and Medicaid were 18% and 7% respectively for the same period.

During the first quarter of 2014, the company bought out four aircraft leases for approximately $7 million. For the remainder of 2014, the company anticipates buying out 14 additional aircraft leases for approximately $28 million. We expect to finance majority of these buyouts, with free cash flow from operations.

During the first quarter 2014, the company made capital expenditures of $35 million. Approximately $20 million of this amount was financed during the quarter by a new aircraft promissory notes, and the capital expenditures related to new aircraft for our tourism or our Air Medical operations. Additionally, one new aircraft included in the capital expenditure amount, totaling $3.3 million was financed by a new promissory note, subsequent to the end of the quarter.

During the first quarter of 2014, the company received $5.6 million of proceeds, mostly from the sale of seven aircraft. For the remainder of 2014, we are expecting to take delivery and to finance 14 new aircraft, totaling app $52 million. We currently anticipate that all of these new aircraft will be financed by a new 10-year fixed rate promissory notes. At March 31, 2014, the backlog at our United Rotocraft division was $32 million. This revenue was expected to be earned through 2017.

On March 31, 2014, days sales outstanding calculated on an annualized six month revenue basis, were 116. This compares to 97 days at December 31, 2013, and 106 days at March 31, 2011. The increase in days sales outstanding relate primarily to claims processing issues by a private insurance company and a government insurance provider. These increases in processing times are not expected to decrease the ultimate collections on these related receivables.

On March 31, 2014, the company operated 376 aircraft in its Air Medical operations and 50 aircraft in its tourism operations. The company operated 176 bases that generated patient transport revenue for community basis. 107 bases that generated Air Medical services contract revenue, or HBS spaces.

With that, I will turn it over to Aaron for closing remarks.

Aaron Todd

Well operator, we will take questions at this time from our analyst community, and we will open it up to that.

Question-and-Answer Session

Operator

(Operator Instructions) And we do have a question from Bob Labick of CJS Securities.

Bob Labick - CJS Securities

Good afternoon.

Aaron Todd

Hey Bob.

Bob Labick - CJS Securities

Hi. So thanks for giving us a ton of detail there, I was trying to keep up with you.

Aaron Todd

I am sorry, Bob.

Bob Labick - CJS Securities

No problem. Just wanted to take a step back and start with net revenue per transport. 10.9 for the quarter was below we kind of had circled around, and again in February, when you did your Q4 call, and may be just tell us what's changed since then, was it a bigger true-up, and where mix is trending?

Trent Carman

Yeah, we had a bit of true-up. When we trued up October, November and December of 2013 in January, February and March of the first quarter respectively, October's payer mix was 34.3; November's was 32.7, which is actually a little higher than November of the previous year, but December was 30.1, which was compared to 31.5 in the December of the prior year. So while we didn't have as much spike in the summer months, that resulted in significant true-up. The effect of the true-up to the actual payer mix reduced the net revenue per transport by about $571 of transport from what would have been otherwise.

So it was -- we just saw a trail-off from October through December, and then as we mentioned on January, we continued to see that, and it is as -- we now have 90 days, where we are able to share January. We think that it's just your typical seasonality, but always hard to be for sure when you try and isolate one percentage point.

Bob Labick - CJS Securities

Right; and I mean, could that be related to, obviously in the East, the weather was absolutely horrible, January, February and probably December, I can't remember.

Aaron Todd

There is no doubt that we have higher -- a better payer mix in the northeast and then the southeast and some of the Midwestern states. Its interesting, we kind of looked at the volume in the fourth quarter by kind of major regions, and there was a slight decrease like 1% of total transports in kind of the Northeast-Southwest kind of markets, compared to the other markets. But one of the things we did isolate is, we do have -- there was a slight shift in the number of transports that have -- that are reduction in scene flights and increasing inter facility as a ratio, year-over-year in the comparative. And as you know, we tend to have higher insured on the scene flights, but then we also have higher uninsured, and so if that goes down, then that can affect it as well.

So there are certainly some of that, but we will know better as we emerge out, when usually, we start seeing things to be less affected by weather in kind of that March-April timeframe, when those months true-up, in June and July.

Bob Labick - CJS Securities

Okay. And then just probably too early to say, but I know, previously your expectations with the price increase and what not were north of 12 in net revenue per transport for the year, is that still?

Trent Carman

Here is what we had, we are right at 12 for first quarter. I think we are at 12.3 for second quarter and then 12.7 for the second half. I am not -- at this point in time, there is nothing to indicate that we should be overly concerned about the second half of the year. Certainly, April will come in less than we had anticipated because of the weaker payer mix. But so I would probably at this point say, we are probably, we would anticipate being lower in that projection, in the second quarter, as based upon what we know now. But nothing that would suggest we would be lower in the second half, mainly because there haven't been broad economic factors, that would -- should overall affect payer mix.

The one thing we do know is that, the price increases have continued to hold steady, in fact have been very steady as a percentage over the last three years from, 2011 through 2013. So w are not seeing any pushback from the -- as a collection of gross charges from the private insured patients.

Bob Labick - CJS Securities

Okay, great. And then on a number of basis, you went through a significant amount of outsourcing opportunities, some enhanced, some expected. Starting with the 176 at quarter end, and including closures that you may do as well, where do you expect the CBS?

Trent Carman

Yeah, let's just add it up. We have 10 that w know already have contractual commitments that are going to go into place. And then, we have ongoing -- let's say we get 75% of the -- those that have high probability. That would be another seven or eight. Now some of those could -- how quickly those will transition, could be anywhere from third, probably through first quarter of next year, and then of the additional 20 that are discussions, you'd have to apply your own probability on those.

In addition, we have some additional, I guess what I would call greenfield expansions. Some associated with outsourcing activities, others that we are just pursuing with existing markets. And so, there may be an additional four to six kind of range there.

So I mean, its unprecedented activity. It is -- we have six outsourced basis for all of 2013. We are already contractually committed for a total of 10 plus two, so 12 already, and with another -- another 10 that are being -- that have a high probability of having the agreements negotiated and executed in the next few months. So its really hard to predict, just because its at such a high level right now.

If you consider it this way, we have 107 hospital base locations going into 2014, and almost 40% of them either have fully committed, have verbally committed or are in discussions to outsource their operations under either the alternative delivery model, or community based service model. So its not something we have ever seen before.

Bob Labick - CJS Securities

Okay, great. I will hop back in line. Thanks very much.

Operator

Your next question comes from the line of Ryan Daniels of William Blair.

Ryan Daniels - William Blair & Company

Hey, guys. Thanks for taking the questions. Aaron first one for you on the TRICARE update. I know you said they are going to both pay you at the higher levels and do so retroactively. Was that accounted for in the Q1 pricing or is that something that will manifest, I guess once it goes into --?

Trent Carman

It was. The only reason that they have been slow just to remit on, is they are trying to figure out how to advise us to retro and submit the payments, so that they can just do it all at once. But the effect on the quarter, if you will, the catch-up effect was about $2 million pre-tax. However, on a net revenue per transport basis, the net impact was only about $30, because we start to include in the denominator of transports, partial built trips. Those are trips where you are dispatched to transport a patient and you are right, but the patient doesn't need transporting, and you're able to build the lift-off fee for those. We started to include that, and so the -- if you take the $2 million and divide it by the number of transports for the quarter, its like $157 increase in net revenue per transport. But if you take the partial build that we now include in the denominator, that reduced it by about $130 of transport.

So the net impact to the quarter was $2 million pre-tax, upside the net impact to the net revenue per transport number was around $30.

Ryan Daniels - William Blair & Company

Okay. So modest, and I assume that some of the DSO issue, based on what you just said?

Trent Carman

Actually, of the 10 day move, six days are attributed to the TRICARE payment that's pending, and the rest of it is a single insurance company that's already acknowledged. There was some discussion about a catch-up and they have agreed to and we are just waiting for the finalization of that.

Ryan Daniels - William Blair & Company

Okay, perfect. And then maybe two more. Any data you have based on January -- I know given your lag, probably not much, but of the impact of the ACA? Maybe you've looked at it differently on the states that are expanding coverage with Medicaid and seeing what you're seeing?

Trent Carman

We can look forward to February and March on some of the categories, and we are seeing Medicaid come up, there is no question about it, and the trend is for private -- for uninsured that's coming down. The real question is, what's hard to assess is the [indiscernible] and the Medicare splits, and/or how much more might be going into Medicaid. So it’s a little early to say, but we should trend what the other healthcare service companies and most of them are reporting a reduction of uninsured and increase in Medicaid and very slight effect on PINS [ph] is what I have been seeing.

Ryan Daniels - William Blair & Company

Okay. Perfect. And then last one, I think you mentioned the collection rate was 75%. I know it's been hovering right around 76%. Is that just normal noise in the calculation or --?

Trent Carman

Yeah, like a 1% shift here and there. When I looked at 2011, 2012, 2013, it was -- I think that it was pegged at 74 for all three years.

Ryan Daniels - William Blair & Company

Okay. So essentially, a little bit better. Okay, thanks guys.

Trent Carman

You bet.

Operator

Your next question comes from the line of Matt Weight with Feltl and Company.

Matt Weight - Feltl and Company

All right. Thanks for taking the questions. Aaron, I'm just trying to go back and look at the math here on the bases again. I believe in the fourth quarter you talked about having 12 signed or verbal commitments for conversions?

Aaron Todd

Correct. So we have done two already and 10 have been signed -- in other words, the agreement is in place, and the only reason that we are -- we got plan dates for when we actually transition. So all of the -- of the latest eight that I have seen relative to those 10 that have been executed, but not yet commenced operations or outsourced transition, are the latest date is early July. So between that [indiscernible]

Matt Weight - Feltl and Company

It's not 10 on top of the 12 though?

Aaron Todd

Its again on top of the two, and then we have got another 10 on top the 12, that are in active negotiations, which are deemed to have high probability of being agreed to and executed. And then we have got an additional 20, so that would bring you up to 42, that have potential of outsourcing, but are still -- there are still ongoing discussions and there hasn't been a verbal acknowledgment that this is their plans, they just are discussing actively, the possibility.

Matt Weight - Feltl and Company

Okay. Can you remind us, when there are existing hospital-based clients that are moving over, what's the EBITDA lift you typically see?

Aaron Todd

Well, I mean it depends on location. It also depends on -- sometimes they want to add bases associated with the conversion, and so that will -- that will affect it. You can look to our segment footnotes over the last two, three years and get a flavor for that. Typically, our revenue will about double, because you have got all of the healthcare services that you're providing, and the margins are usually somewhere between three to four times. We have seen them as high as five times. Obviously it can be as low as 1.5, 2 times. But three to four is probably a fair assessment.

Trent Carman

Matt on the investor presentation up on the website, its page five. There is the analytics of what the average HPS based does and what the average CPS base does, so you can use that as a general guide anyway.

Matt Weight - Feltl and Company

Got it. and then going back a little bit to mix. I think you used the word normal seasonality, which I think has been more pronounced over the past two years. Is this something that you do look at going forward, that given the exposure you have in the Southeast region, that this is what investors should expect going forward?

Aaron Todd

You know I think we have to. I mean, there has always been a 1% or 2% variation over the last three, four years. But as you know, last year was like a 4.5% variation. Thankfully, this year between third and fourth quarter, you are back to that couple percentage points. So again, why December and January were such outliers, I don't know. It certainly could be where weather affects the operations, but its hard to isolate that, because there are so many aspects to it, and when we try to do it, kind of more on a global regional basis, it wasn't overly significant, but certainly, we all know that the weather hit more in the northeast and in the States where you tend to have a more favorable payer mix.

Matt Weight - Feltl and Company

Okay. And you commented -- there was about of 571 reduction to net revenue based off of the 4Q true-up in the first quarter --?

Trent Carman

Yeah I guess I would call that the seasonality effect on -- that came in, and it would have been, certainly a lot less -- it would have been less than that, had we seen December be more closely resembling November 2013, or even December of the prior year.

Matt Weight - Feltl and Company

Okay. Even if you would add that back, I guess I was little surprised, because I know you push through a 12% price increase in January.

Trent Carman

Yeah, but you got to be careful. 12% price increase does not mean a 12% increase in the net rev, because you are only collecting it on the third of the transports that you -- that have price insurance. You can't apply the same percentage. But certainly, I mean, we were very open. We said we were at around -- we are expecting 12,000, we ended for around 11, and then you figure 571 from the seasonality factor, puts you within about 350, and the delta is that we are booking to the -- and reserving to -- or at the higher rate associated with the fourth quarter actual payer mix, and then we will see how that trues up. Obviously, when you true up ay December 2012 that you use to book March. March could easily come in quite a bit higher than that, and you could see some of that flip the other way. But we have been religious consistent on objectively applying our methodology that we have been using now over a decade.

Aaron Todd

And Matt, just a refresher for the -- for the first quarter last year, we had a very nominal decline in the net payer mix, true-up, very little in Q3, but in the second quarter, it went in our favor, $457. So just an FYI, this is not something, at least based on last year, that is a trend that continues each quarter last year second quarter was up significantly.

Trent Carman

Yeah so its -- there is no question. The other thing that causes it, when higher percentage of our cash revenue is associated with the private insurance payer mix, compared to other healthcare service providers, a little bit of movement in there can cause greater volatility in the overall result. But it's -- at this point in time, just conveying with what we are seeing, but we'd be way too early to try to articulate to pay it in the long term trend.

Matt Weight - Feltl and Company

Okay. One last question here. Tourism has definitely been a nice boost for you guys. So I'm curious, how active you are looking at additional locations?

Aaron Todd

I think we have been very open that we remain interested in continuing both organic and inorganic expansion opportunities. We like the Hawaiian and the Grand Canyon markets, because they have more of a year round ability to offer the service, as compared to some other markets. So we remain interested obviously I wouldn't be able to talk about anything specifically, it might be ongoing, other than it continues to be an area of focus. But we are also very interested in opportunities that might exist within the Air Medical acquisition or merger opportunities. Realistically right now, we are so focused on the outsourcing activities that takes a lot of collaboration, a lot of efforts and has great long term benefit, we believe for both our customers and ourselves that appropriately should be a key focus there, and the appropriate distraction.

Matt Weight - Feltl and Company

All right. And actually I just one more I wanted to squeeze in. The April update that you gave looked pretty good. Flat comp -- and I'm just curious because I know the prior-year comparison you're up against is fairly weak, I would say last year was down nearly 12% comp. How did that progress? What was the cadence like throughout the quarter last year?

Trent Carman

Well as you know, last year, interestingly from April through -- actually almost April through, I guess it was March through May, the weather cancellations actually didn't go up last year, just that we had weak volume. This year, the weather was about the same, and the flight volume was about the same. You know, it's hard to say. I mean, what we are most pleased with is, the first three months, even on a weather adjusted basis had, you know growth and certainly, April was -- when we were doing our budgets for the year, we assumed flat profile, with the only improvement being the delta in increasing weather cancellations. So we are actually ahead of our budget in flight volumes year-to-date through April, because we only assumed recovery related to a return of weather cancellations to historic levels, and so, we got that in the first quarter and April stayed exactly the same in both measures. So we are right on -- we are actually somewhat ahead of pace on our volume outlook, relative to budget.

Matt Weight - Feltl and Company

Thank you.

Operator

Your next question comes from the line of Richard Close from Avondale.

Richard Close - Avondale Partners

Yes. Thanks for taking the question. With respect to the base conversions, can you just walk us through, really your clients mindset in terms of -- when you are saying this is really unprecedented. What is -- the main things that are driving them to come into you to do these conversions? Or how are you are approaching them and sort of flushing them out?

Aaron Todd

Well, first of all, they come to us. We have long since learned, that we are here to support our customers with whatever service delivery model works best for them, to try to push that one, before they are ready would not ever be productive; and two, we always want them to know that if they are -- that they would prefer for us to be an aviation vendor or service, and definitely, we are thrilled to have those relationships. So it's not something that we have been doing.

One of the things that has dramatically increased the interest in outsourcing is that, under the alternative delivery model, we are able to keep their brand, their colors, their medical teams that we contract for, and really keep it very seamless and give them strong input and affiliation with how the program evolves. And so, that takes some of the concerns away from hospital owned program leadership and the executive suite, and program leadership that somehow this is going to affect their service or their longevity of it or the input that they wish to -- to make, as to how things would evolve going forward versus the community base model or the full independent outsource is basically -- you hire your own staff, you take care of everything and we are going to become arm's length; and that's becoming more rare. So that's one of the things that I think has increased the activity.

Healthcare reform has caused all of the executive leadership to say we need to focus on our core competencies. Many of these programs, because the hospitals do not enjoy as much strength in reimbursement because of the discount and contractual negotiations with third party payers are becoming increasingly subsidized and capital intensive and this is a wonderful opportunity for them to, if you will, have their cake and eat it too by, continuing to have their brand, their input, their complete access to the service without having to subsidize and/or devote capital to a non-core service.

Richard Close - Avondale Partners

So as a follow-up to that, as they approach you, how long does it take to get that process from the beginning to crossing the finish line? And then, if you said 40% of the bases have committed to change or are in the process of committing to change, where do you think that plateaus in terms of this dramatic transaction?

Aaron Todd

Well first of all, let me correct your remembrance of what we said. 40% are in discussions or have committed verbally or have committed contractually. Only approximately 20% have committed and/or are likely to commit, based upon verbal acknowledgement that this is what they want to do. We are not at that point. Now obviously, unless we dramatically grow our hospital-based operations, which is not likely in the current environment, the maximum, it could be used approximately 107 basis plus new greenfields. And so, when we were expecting eight to 10 a year, you might be five to seven year runway, before you would come to a core of programs that are more than content to continue to operate under a traditional HPS service delivery model.

But it's hard to answer your first question Richard, because we have literally had some hospitals call us up on a Friday saying, can you take everything over on Monday, and we have had others that have taken two-three years, to finally get to a point, where they are interested. But I really -- firm and committed to do it. But I would say that today, the average period is -- you are probably looking at six months from start to when you can begin to do that. It depends on what they are wanting to accomplish, are they wanting to change out aircraft. There is a lot of details in that. But that's probably an average, if I were just thinking about it.

Richard Close - Avondale Partners

And then just on the margin question. Just clarification on that. On the alternative service delivery, is that different margins for you guys versus the straight community base?

Trent Carman

No, we don't really differentiate. We include them both within our patient transport services division or community basis segment reporting in our SEC filings, and we don't really differentiate on that. We try to pay fair value for the staffing that we are contracting for the medical side, whether they are employees or contracted services, doesn't have an overly significant effect on the viability of the program.

Richard Close - Avondale Partners

Okay. Thank you.

Operator

And your next question comes from the line of Dana Hambly from Stephens.

Dana Hambly - Stephens Inc.

Afternoon. Thank you. Back to the TRICARE discussion, I understand the impact on the DSOs. I was just trying to -- I think you said it was the $30 in the quarter. But when do you think that will true up? Would that be in the second and third?

Trent Carman

No. Remember, the change was October 1st. So the amount that related to the three months ended March 31st is already in there, and it was in there last year. And so the only question you are talking about is, the three months ended 12/31, that all of a sudden now is going to be restored, and so that was $2 million and that did flow through the first quarter.

Dana Hambly - Stephens Inc.

Okay. All right.

Aaron Todd

Like we said, if you divide that in, it's about $157 of transport on the impact on that -- on the average net revenue per transport. But the reason why that was offset, is because we began including in the calculation, transports where we only are able to build partially and that created a dilution going the other way of about $130 and so it would be in appropriate to shave $157 off the 10,928 number, based upon not having that TRICARE catch-up in the first quarter, and that's why we didn't want the shareholders to do, by not telling you about the offsetting impact on the net rev number.

Dana Hambly - Stephens Inc.

Okay. That makes more sense. And on the -- so just looking at the second quarter revenue pre transport, I know now its going to be below your expectations. Just to play devil's advocate, if you were to carry a 29% commercially insured rate through the rest of the next couple of months. Can you estimate what the true-up or true-down would be?

Trent Carman

You know, one, I wouldn't it; just because I already know that's not going to happen, based from what I know to date. So I don't want to talk hypothetical when I already know, for example in March, that the PENS numbers are already trending higher than that. So I just -- I don't think that's fruitful for me to -- we have never given quarterly estimations. I think we have already proven that we think they are trying to [indiscernible] numbers. So they tried to debate what it might be is just, and especially speculate on it, would be even more unlikely to be helpful to our shareholders.

Dana Hambly - Stephens Inc.

I appreciate that. But second half of the year, you do still feel okay about kind of 12.7, something like that?

Aaron Todd

Well I mean, reasons for that is the price increases in place. We know that we are not getting up-to-date pushback on our pricing, and so assuming the economy, assuming that the number of insurers is not going to be lower in the second half of 2014 versus the second half of 2013, and there is nothing in the economy to suggest that, especially as the Affordable Care Act starts to get past some of the transition hiccups, I just don't see any reason at this point in time to shape that expectation. But again, we don't know until we hit it. I wouldn't have guessed that January would have come in at 29. I probably would it closer to 31.5 and it came in at 29.2 So it's hard to say.

Trent Carman

The other thing, Dana, we have the expectation certainly as TRICARE will continue through the remainder of 2014, and we'd strip that out of our expectation, when we came up with a net revenue for transport. So that will be there, at least that's --

Aaron Todd

That's a great point Trent. The 12.7 was assuming that we didn't have that TRICARE flowing there, so you will have some offset created by that.

Dana Hambly - Stephens Inc.

Okay, no that's very helpful. And then I just want to -- I'm sorry to go back to the base conversions again. But I just want to make sure I have my numbers right. Two conversions have already happened. 10 additional conversions that would happen maybe by the -- did you say early part of the third quarter?

Aaron Todd

10 additional -- the contract for 10 additional basis has already been contractually agreed to, with seven of those represent existing bases that are outsourcing and three, there will be new operating locations associated with that sourcing. So an additional 10 that we -- to give ourselves a little bit of cushion between now and early third quarter. And then again we have ongoing contract negotiations with hospital customers, that we have given a high probability of completing, that will involve 10 additional bases, nine of which are existing bases with one greenfield expansion associated with that activity.

Dana Hambly - Stephens Inc.

Okay. Is there expectation that the majority or all of them by the end of this year? Or do we spillover into next year?

Aaron Todd

You never know for certain. But because, the -- just because they are committed to doing it, you never know how long its going to take to get the contracts negotiated. You got to be sensitive to their legal departments and processes to make sure they are very comfortable that's been agreed to. I would expect that a great majority of those would be implemented before the end of the year, but it can always slip.

Dana Hambly - Stephens Inc.

Okay. And then the 20 additional on top of that. We probably should assume probably none of that this year? That would be an out year?

Trent Carman

You just never know. It would be extremely difficult to even try to guess.

Dana Hambly - Stephens Inc.

Sure. And you closed six bases so far.

Aaron Todd

We have 17 that we have opened in the last 12 months, that have not been closed. In other words, they are still operational, that were greenfield. And so we give that to help you understand, although we do have base shutdowns occasionally, it's far outweighed by the greenfield expansions that we have done, over the last 12 months.

Dana Hambly - Stephens Inc.

Did you -- were there any new greenfields open in the first quarter, or what are the plans for this year?

Aaron Todd

We announced that there were two, one in Mississippi and one in North Carolina, and so -- and we estimate -- there will be a few more. Obviously we won't get specific on those for competitive sake, but that's -- there are still lot of opportunities out there, especially where we are being invited in by systems or communities to bring our service into those markets.

Dana Hambly - Stephens Inc.

Okay. Last one, I know you're looking actively for other tourist opportunities, obviously looking into your core market. Is there anything beyond kind of those two industries that you are looking? I know in the past you talked about international, are there any other ancillary types, whether its ground, ambulance or other helicopter type businesses that you are looking at?

Aaron Todd

Obviously, alternative rotor wing services and ground ambulance vertical integration is not part of our core strategy for 2014, but certainly could begin to make sense down the road, but it's certainly not something we are focused on 2014.

Dana Hambly - Stephens Inc.

Thank you.

Aaron Todd

You bet.

Operator

And we have no more questions at this time.

Aaron Todd

Well very good. Sorry to all those members out, I wish we could just kind of send a lot of these schedules out. But unfortunately, it would take us longer to get you the information. But if threw a number by and you didn't quite get it, feel free to give Trent or I a call and we will try to make sure that everything got communicated clearly. The 10-Q will be out shortly, and you may ask some other questions after that. So thanks for tuning in this afternoon, and we will talk to you soon.

Operator

This concludes today's conference call. You may now disconnect.

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!

Source: Air Methods' (AIRM) Aaron Todd on Q1 2014 Results - Earnings Call Transcript
This Transcript
All Transcripts