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Air Methods Corporation (NASDAQ:AIRM)

Q3 2010 Earnings Conference Call

November 4, 2010 4:30 PM ET

Executives

Christine Clarke – IR

Aaron Todd – CEO

Trent Carman – CFO and Treasurer

Analysts

Bob Labick – CJS Securities

Ryan Daniels – William Blair

Kevin Ellich – RBC Capital Markets

Kevin Campbell – Avondale Partners

Andreas Dirnagl – Stephens Inc.

Operator

Good afternoon. My name is [Sarah] and I will be your conference operator today.

At this time I would like to welcome everyone to the Air Methods Reports Third Quarter 2010 Results Conference Call.

(Operator Instructions)

Ms. Clarke, you may begin your conference.

Christine Clarke

Thanks, [Sarah]. Good afternoon. Thank you for joining us today to review Air Methods’ third quarter financial results ended September 30, 2010.

As the operator indicated, my name is Christine Clarke and I am with Air Methods Corporation. Also on the call today representing the company are Mr. Aaron Todd, Chief Executive Officer, and Mr. Trent Carman, Chief Financial Officer. At the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session.

I would like to remind everyone, this conference call includes statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 products market, the collection rates for patient transports, the continuation and/or renewal of air medical service contracts, the acquisition of profitable Products division contracts and other flight service operations, the successful expansion of the community-based operations, and other matters set forth in the company’s public filing.

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.

Obviously we are very pleased with our third quarter results and growth in October flight volumes. Improvements in net reimbursement for community-based transport and improved profitability within our Products division were key factors in our earnings growth. Historical price increases, stable to slight improvement in payor mix during the quarter as compared with the second quarter, and higher percentage collections from insured patients all contributed to the continued improvement in net revenue per transport. As discussed previously, much of our beginning of the year backlog within our Products division was heavily weighted towards the second half of 2010 and thus, as expected, the benefit was realized in part during the third quarter.

As Trent will provide you shortly with our EBITDA growth during the quarter, you will continue to notice the benefit that our buyout activities of leased aircraft is having on our EBITDA growth. For the nine months ended December 30, 2010, the company has used existing cash to buy out nearly 26 million of leased aircraft. The annual reduction in lease expense is approximately 5 million associated with these capital expenditures. Even with this use of cash, our current cash position is 48 million. We anticipate more significant lease buyout opportunities during 2011 and 2012 as more aircraft become available for purchase at fixed prices.

Since the beginning of the year, our community-based operations have opened nine new locations, four of which related to conversion of hospital-based locations to community-based operations. In addition, during the fourth quarter, we will complete the conversion of a fifth location from a hospital-based service to a community-based service. Since the beginning of the year we have shut down three bases due to low demand.

Since our last conference call we have not been noticed by any of our customers of their intent not to renew their contracts. During our third quarter we began operations at two new bases on behalf of one of our hospital customers and we’ll also be opening a new satellite base for another hospital customer during the fourth quarter.

Even with the strong revenue and segment net earnings performance of our Products division during our third quarter, backlog actually increased from 21 million at the end of the second quarter to 22 million as of the end of our third quarter. We received additional orders for – involving 7 million in contracts predominantly associated with our government provided products.

The company did implement a 3% price increase on October 1, 2010. Combining this with the significant improvement in flight volume during October and the continued healthy backlog within our Products division, we are well-positioned in the current quarter to reflect continued growth in earnings.

I would also report that we recently completed a fuel hedge for all of 2011 for approximately 70% of our expected fuel usage requirements. The total cost of the premium was $419,000 which is 38% below the cost per month of our previous hedge. The hedge protects us from movements in wholesale Jet A fuel cost per gallon of greater than 20%. The 2011 strike price is $2.71 per gallon.

So with that, I will now turn the call over to Trent to give added financial detail specific to our quarterly performance, and then we’ll open it up to Q&A.

Trent Carman

Thank you, Aaron. Like I’ve done previously, let me start by providing some details on our operating expenses and divisional performance for the quarter.

Flight center expenses were 53.8 million, aircraft operating expenses were 31 million, aircraft rentals were 11.8 million, and cost of sales for our Products division were 4.4 million. General and administrative expenses were up 1.2 versus the third quarter of 2009 [ph] primarily due to some increased employee headcounts and some bonus accruals for the quarter. As a percentage of revenue, general and administrative expenses were virtually constant at 11%.

Revenue and segment net income generated by our CBS division for the quarter were 96.1 million and 27 million respectively. This compares to 81.2 million and 18.3 million respectively for the prior year quarter. Revenue and segment net income generated by our HBS division during the quarter were 50.6 million and 4.5 million respectively. This compares to 51.6 million and 5.3 million respectively for the prior year quarter.

The company benefited from some favorable tax adjustments during the quarter amounting to approximately $0.08 per share. Going forward we would expect to have an effective tax rate of between 38% and 38.5%.

Earnings before interest, income taxes, depreciation and amortization, or EBITDA, were 36 million and 26.3 million for the third quarters of 2010 and 2009 respectively. On a trailing 12 basis, our EBITDA is $83.9 million. You can reconcile EBITDA by adding interest expense, depreciation and amortization and subtracting gain on disposition of assets to income before income tax expense.

On a three-month lag basis, the company’s payor mix for the three months ended June 30, 2010 was 36% for insured patients, 29%, excuse me, for Medicare, 20% for Medicaid and 15% for uninsured. This compares to 36% for insured, 30% Medicare, 21% Medicaid and 13% uninsured for the three months ended March 31, 2010. We lag the payor mix by three months to purify the final payor mix. For the 12 months ended June 30, 2010, the payor mix was 37% for insurance, 29% for Medicare, 21% for Medicaid and 13% for uninsured.

Cash collections from our insured patients remained very strong during the quarter. For the 12 months ended March 31, 2010, cash collections as a percentage of our gross charge for these patients were 80%. This collection percentage has remained relatively constant for many quarters now.

Cash payments as a percentage of our gross charge for Medicare, Medicaid and uninsured were 32%, 14% –32% and 14% for Medicare and Medicaid and approximately 2%, excuse me, for uninsured for the 12 months ended March 31, 2010. We lagged cash collections by payor mix by six months as most all of the cash has been collected after six months from the date of transport.

Cash generated by the company during the nine months – cash generated by operations generated by the company during the nine months was 41.9 million. For the nine months, the company is 29.4 million of cash, as Aaron mentioned, to primarily fund previously leased aircraft. At the end of the quarter the company had $45.6 million of cash on the balance sheet and the company’s net debt position was $55.1 million. The company currently $49 million of availability under its revolving line of credit.

The company currently operates 297 aircraft in its fleet. Of these, 166 aircraft are in our hospital-based division and 131 are in our community-based operations. The company currently operates 112 community bases and 125 hospital bases.

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

Aaron Todd

[Sarah], I think we’re just ready to open it up for Q&A at this point.

Question-and-Answer Session

Operator

(Operator Instructions)

Your first question comes from the line of Bob Labick with CJS Securities.

Bob Labick – CJS Securities

Good afternoon. Congratulations on a great quarter.

Aaron Todd

Thanks, Bob.

Bob Labick – CJS Securities

One question to start, just the net revenue for transport was fantastic, obviously grew way our expectations, and I think yours as well, I think last call you mentioned probably in the 8,000 range, it was 8,700. Can you talk about the drivers that impacted that and what we should look for on a go-forward basis?

Aaron Todd

Well, certainly the weather has trended favorably over the last three months ended October 31. Interestingly, October, which is characteristically more kind of a swing month between summer and winter, actually had the highest volume of any month during the year. Where we had 1,400 weather cancellations last year, I think we were around 600 this year for the month of, a little over 600, for the month of October. So we’re just seeing more benign weather, so you’re kind of comparing a little bit better than average weather conditions this year with absolutely horrific weather conditions last year.

Now, November was a little bit of a more normal month for us last year, but then December was horrific, as you’ll remember. And so while we may give a little bit of that growth up in November should weather get a little bit more severe in November, you’re probably going to pick up some additional growth in December just because of how severe it was. As evidence of that, I think we did like 2,700 transports or 2,600 transports in the month of December last year and ordinarily we would expect to be north of 3,000 easily.

But definitely a very, very strong start. It’s been a long time since we’ve had 26% growth month-over-month for any reason, and it’s good to see that.

Bob Labick – CJS Securities

Absolutely, yes. The weather comp should be favorable for a while, it appears, because they’ve been so bad.

Aaron Todd

Yes, I mean from, basically, from – with the exception of November, December through February, for certain, were very, very tough comp months last year – I mean were very severe weather months, excuse me, so it will be very easy comp months for this year round. But weather can change quickly and as we learned, but it does sometimes – the volatility sometimes is in our favor as it is right now.

Bob Labick – CJS Securities

Okay, great. And then over on the net revenue per transport side, the big sequential increase, payor mix change –?

Aaron Todd

Yes, we had about – it may have been hard to glean it from Trent’s numbers, but there was about a 1% improvement in number of insured sequentially and – Trent, do you have the number on the uninsured sequentially from second to third quarter? How did that change?

Trent Carman

Well, minor, rounded to two decimal points. So it didn’t – it doesn’t show in there. But it was about just about 0.7 of a point.

Aaron Todd

It was about 0.7 of a point improvement in the uninsured as well. And as you know, those are fairly significant shifts in our favor. In addition, ironic – not ironically but thankfully, despite the significant improvement in net revenue per transport, our days sales continued to remain very low and are very – are significantly reduced year-over-year.

And the other factor is, for whatever reason, we’re collecting a higher percentage from insured patients than we were historically and we had seen some improvement there as well. I know we have – we’ve seen – historically we’ve been in the high 70s and I think we’ve had some of these months coming in the low 80s percentile range as a percentage of our gross charges. So, just kind of all the variables working in our favor.

Bob Labick – CJS Securities

Okay.

Aaron Todd

As you know, we have the July 1 price increase as well.

Bob Labick – CJS Securities

Right. And is it safe to then use the 8,700 range as the kind of new level to – on a go-forward basis or –?

Aaron Todd

Yes, you know, I think these are strong numbers. You’re always going to have quarterly volatility and these are certainly on the above average range, but you’ve also got the 3% price increase October 1. So something akin to the third quarter would be my best guess at this point.

Bob Labick – CJS Securities

Okay, great. And then on the industry-wide based consolidations, like what you’ve done in Atlanta in the past, you talked about looking into additional opportunities there. Anything on the horizon right now? Or how’s that – what’s the update on that?

Aaron Todd

Yes, I mean we are having some discussions, but I would say that the more mature opportunities that we are continuing to be approached by many of our hospital customers about alternative delivery models and risk sharing and all the way up to full outsourcing, and so that’s occupying a lot of our time right now, to make sure that we’re being attentive to their needs and desires.

Bob Labick – CJS Securities

And then last, then I’ll get back in the queue, obviously the FAA made some recommendations for us on potential changes to air medical. Could you just discuss how that – I believe you guys are in compliance with everything they’ve already said, but just to give everyone an update –?

Aaron Todd

Yes, I mean without going into all the details, we believe that we meet all of the requirements that are being contemplated by rule-making and what has been disclosed. The one change that could have a minimal effect is that when you are transporting personnel but there’s not a patient onboard, the flight and duty time will still be governed by Part 135 rules as opposed to Part 91 rules.

And what that means is our hospital-based programs have always been following Part 135 because the medical personnel on the back are not employees of the company. But within our community-based operations, there may be an occasional time when a pilot is unable to complete a flight around shift change because by the time they would return to base, they would be beyond the 14-hour limitation. In the past, or currently, if that last leg is flown after 14 hours but does not have any patients onboard, they would be able to take the flight, and under the new rules they wouldn’t be able to. But that’s a very rare occurrence and would not – I do not believe would be material in its effect on Air Methods.

Bob Labick – CJS Securities

Okay, great. Congrats again. Thanks very much.

Operator

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

Ryan Daniels – William Blair

Yes, good afternoon guys, and let me add my congrats as well for a great quarter. Let me get a couple of quick housekeeping out of the box. Trent, if you can give me the maintenance expense dollars and fuel dollars for the period, that would be helpful for the model.

Trent Carman

Maintenance and fuel, is that what you said?

Ryan Daniels – William Blair

Yes, exactly.

Trent Carman

Bear with me one second. On the fuel – this is for the total company with a little bit of it being HBS obviously. It’d be 3,515,000.

Ryan Daniels – William Blair

Okay.

Trent Carman

And then on maintenance, 23 – well, rounded, 24.

Ryan Daniels – William Blair

Twenty-four million? Okay, great.

And then I’m curious, you talked about the lease buyouts, I know that’s a very high return and attractive use of cash. Can you talk a little bit about if we will see any in the fourth quarter, and then the outlook for ‘11 and ‘12? I think you mentioned it’s potentially a bit stronger than this year, so any more color there would be helpful.

Aaron Todd

Yes, let me help you with that and Trent can kind of fine-tune the rough numbers that I’ll give you here.

Ryan Daniels – William Blair

Okay.

Aaron Todd

We only got 3 million of aircraft purchases that are available to us in the fourth quarter with, you know, usually we run between a 15% and 20% return as far as elimination of lease expense on those acquisitions. There’ll be, we’ve estimated, somewhere in the mid $48 million roughly of acquisition opportunities, so roughly almost a 50%, 60% increase in available purchases in 2011. And then we’re pushing 85 million to 90 million in purchase opportunities in 2012. And those are going to be closer to the 15% EBITDA return range, still fairly handsome returns for use of capital as far as the reduction of cash expenses. And so we, as you know, presently we have 45 million in cash, presently, we’ve been running free cash flow well in excess of 50 million, and so believe that we would have enough with free cash flow and existing treasury to be able to realize that reduction of expense and increase in EBITDA through – without having to materially change the leverage profile of the company.

Ryan Daniels – William Blair

Okay, that’s some very helpful color. And then a couple of I guess quick additional questions. Just on the union, is there any update there? I know negotiations have kind of gone through fits and starts, and just any update? And then the second question there, as a follow-on, will be, if nothing happens before January 1, is there anything that happens or do they just get kind of a typical wage increase and it’s business as usual?

Aaron Todd

Yes, I apologize, I probably should have referenced that in my opening remarks. We continue to have monthly meetings. There was a change of leadership within the union representation. And so that kind of slowed things up a little bit. But we had a meeting I believe earlier this week and we’ll continue to have monthly meetings.

I would characterize the progress to date as being frustratingly slow, not from, you know, we’re at the end of our rope, but just with some of the changes, it’s been hard to kind of get things furthered. But if nothing happens between now and the end of the year – what’s going on presently is that the anniversary date from date of hire for each pilot, they received essentially 1.5% step increase in their wages. And really everything else is status quo other than the continuation of that until such time as a new agreement can be completed or where we request to be released for mediation or the union requests to be released for mediation, each side is free to implement what they were previously proposing or considering by way of action.

Ryan Daniels – William Blair

Okay, perfect. And then, this will be my last, then I’ll hop off, just on the broader industry, if we think of the safety regs, I know you have been kind of leading the charge there all along and putting in the night vision goggles and the train awareness and the weather overlays. Is that something you think that with the smaller providers is going to put a lot of pressure on them from a capital investment standpoint? And is that something that you think could give you an opportunity over the next year or two on the consolidation front or maybe gaining some share front? Thanks.

Aaron Todd

Good question. Actually I think most of the industry, both small and large players, are embracing night vision goggles as minimum equipment. I’m not aware of any operators of significance that have not – that are not giving high priority to that, which is great to hear. Obviously we believe that we are far better off having everybody working together as competitors, yes. But anytime there’s an accident, especially those that can be prevented with these new technologies, it hurts all of us collectively. And so I think everyone is anxiously engaged in that.

HTOZ [ph] does not have as much universal – initially did not have universal commitment, but as the cost of these technologies have come down dramatically from where they were even two, three years ago, and the technology has improved, I think more and more of our competitors are joining with us in putting that technology onboard as well.

I think some of the unique aspects that we have a fairly significant differentiation is our maturation of our safety management systems and the review and rating of our status by the FAA’s SMS office. As you know, we publicly disclosed earlier I believe this year that we had exited Level 1. We are hoping to exit Level 2 out of a possible Level 4. I don’t know that you ever achieve Level 4 because it would presume that you have achieved all that you can achieve. But we even having achieved Level 1 status places us in that very elite category of not only on-demand carriers but common carriers as well relative to the Part 121 scheduled operators.

And so we are still very excited about the progress we’re making there. We have begun – we have implemented flight training devices to help simulate environments that are difficult to replicate in live settings. We have also I believe differentiated ourselves as still I believe being one – I believe we are the only major operator that staffs our operational control center with pilots, EMS pilots, that allows them to assist with the risk management in the field in the go/no-go decisions, weather management, all of those things, as compared to having just dispatchers manning those stations.

So we’re doing a lot of things. Our Director of Safety, Ed Stockhausen, was recognized for the Safety Director of the Year Award by the Air Medical Transport – at the Air Medical Transport Conference. And so we’re – I think we’re starting to truly be recognized. Certainly our accident rate is half the national average over the last five years. But given our size, we continue to focus on reducing our accident rate by an additional 80%, and so far we’re on track to achieve that at the end of the five-year period, of which we are two years into, and hope that will continue.

So we feel blessed that these technologies are available and that they are becoming more and more fully implemented. We will be fully, during next year, we will achieve full implementation of our night vision goggle operations.

Ryan Daniels – William Blair

Okay, that’s great color, so thanks a lot for that. And congrats again.

Aaron Todd

Thank you.

Operator

Your next question comes from the line of Kevin Ellich with RBC Capital Markets.

Kevin Ellich – RBC Capital Markets

Good afternoon, thanks for taking the questions. Aaron, just wondering if you could talk a little bit about the preliminary flight data for October. It looks pretty good in terms of the 26% increase and the same-day transports also looks really good. And then also just a little commentary on the cancellations, how that compares to last year?

Aaron Todd

Well, I think that was in the press release.

Kevin Ellich – RBC Capital Markets

Yes.

Aaron Todd

We did roughly, I don’t have the numbers in front of me, but Trent’s running them over. I’ll just read it off the press release. We had 3,862 transports within our community-based operations in October of this year versus 3,065 during October of last year. We’ve got a few additional bases that reflect some of that growth, but the predominant benefit has been that the weather cancellations were down by 867 cancelled flights, which is a significant improvement.

I think the thing that’s also encouraging, though, is that excluding the impact of weather, the request for transports within our community-based operations increased by 3%. And we have – we’re hoping that that is an indication that demand is starting to pick up as well. But this is a very material – will have a very material benefit to our fourth quarter results.

Now whether that continues into November and December, I can’t say. But as I mentioned before, December flights, as I recall – in fact Trent has the numbers right here. December of last year, just to give you some sensitivity analysis, December of last year we only did 2,673 transports and in November we did 3,277. So if we, even if we lose 400 or 500 flights in November and December which is not atypical given that we’re moving into the slower winter months, we’re still – we would still be dramatically higher than the prior year numbers.

Kevin Ellich – RBC Capital Markets

Do you have any data that explains the uptick that you’ve seen in requests, that 3%?

Aaron Todd

No. I mean 3% spread over the 110 plus or minus bases would be extremely difficult to isolate. And there can be many plausible explanations, one of which is when the weather is better, there’s more of the American population that are out and about, and can lead to accidents and other unfortunate events that requires air response due to a trauma situation. So it could be as simple as that the weather was warmer and more pleasant and therefore more people were out and about.

Kevin Ellich – RBC Capital Markets

Understood, okay. And then maybe could you talk a little bit, it looks like the HBS segment continues to decline. Will this – how long do you think this will continue? And is 2% kind of a good rate to use?

Aaron Todd

Keep in mind that relative to the top line, our hospital-based services division was impacted by the conversion of bases. I mean through the nine months there were four bases that converted over from the hospital-based operation to the community-based operation. So while we are better off and benefit from those conversions, the cannibalization effect on that divisional performance have to be factored in. And that reflected half of the missing amount.

In addition, we – they’re going to benefit as well by the more benign weather. I don’t have those numbers to offer you right now relative to October, but that will give them some upside as well. And there were some lost or expired contracts earlier in the year and late last year that caused that comparative. And we’ve not lost – the contracts that have not been renewed this year compared to last year is dramatically different.

So I think even with some of the effects of transitioning into community-based operations, you should see some modest growth there relative to satellite-based expansions, new contracts and annual price inflators.

Kevin Ellich – RBC Capital Markets

Okay, that’s helpful. And then I guess just one quick question for Trent. Tax rate seems to be fluctuating a little bit. Just wondering, what do you think we should use going forward? And then also the G&A continues to tick down lower than at least what I was projecting. Just wondering how much more we could see out of G&A.

Trent Carman

The tax rate for the quarter, as I mentioned, had some – we had some benefits in there that brought it down for the quarter, but you’re in the low 38 range, is what we would say on the effective income tax rate. That’s for the P&L. The payments that we are actually making to the IRS and the states, we disclosed that in the cash flow statement, that’s less, because we do currently experience some favorable depreciation with these assets that we’re buying back. So from a P&L standpoint, it’d be 38%, a little over 38%.

Kevin Ellich – RBC Capital Markets

Okay. And then the G&A, do you have any thoughts? I mean 11.2, is that kind of a good run rate to use?

Trent Carman

Yes. I mean there’s nothing unusual in this quarter, in the third quarter, that would not be going forward. No unusual charges or lack thereof. So, yes, it’s a pretty good run rate.

Aaron Todd

Actually the G&A is up year-over-year, so I mean it’s up about 1.2 million.

Trent Carman

Right.

Aaron Todd

And as Trent mentioned, some of that is because we didn’t have growth in earnings and in the first half of the year because of the difficult first quarter associated with weather, most of the growth that have now been realized has been manifested in the second and third quarters, and so you get a concentration of incentive comp and bonus accrual because it is tied to earnings growth in the current quarter. And so that’s a bit of an aberration in the third quarter. So I would probably contend that perhaps the third quarter G&A is a little on the high side.

Kevin Ellich – RBC Capital Markets

And you’re talking absolute dollars versus as a percent of revenue?

Aaron Todd

Yes. I think – yes, exactly. But it’s actually a little bit higher than we had budgeted because of those reasons.

Kevin Ellich – RBC Capital Markets

Got you. Okay. Thank you.

Trent Carman

Thanks, Kevin.

Operator

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

Kevin Campbell – Avondale Partners

Good afternoon, thanks for taking my questions. I wanted to ask first the rate increase on October 1, what sort of prompted that. Obviously you’ve had great results, so historically you’ve done that when you’ve had some periods where you had struggles for one reason or another, mix or maintenance cost or what-have-you. So why an October 1 price increase? And then secondly, what should we expect for Jan 1? Should we expect the normal say 6% or might you be doing this quarterly and do 3% on a quarterly basis –?

Aaron Todd

Yes, I appreciate the question. I anticipated receiving a question in this regard. I suppose, had we known what our October flight volumes were, we might have considered that the need to do that was less apparent. That’s not to suggest that we’re going to reverse it. But I think we are trying to build some cushion for the winter quarters, having been – being a little bit gun-shy based upon what happened to us last year with the severity of weather. So there was a little bit of that.

We’ve done some, as best we can, some benchmarking of where our pricing structure is relative to the marketplace and have determined that we have a little – while I’m not suggesting that we’re the low-cost – that we have the lowest charge structure in the industry, there are many that are charging significantly higher than us. And so in order to ensure that we were not being ultraconservative in our pricing, I think we wanted to be more measured in maybe bridging that gap a little bit.

But as far as the next year, I think we’ll be – I don’t – I think we’d be in line to do kind of what we’ve done in the past on January 1 and July 1 and the April 1, October 1 increases will be based upon current conditions at the time as to whether we do something or not. So I don’t think this necessarily is a shift in pricing philosophy, but maybe as we will describe it, a little bit of a catch-up.

Kevin Campbell – Avondale Partners

Yes. And I wanted to talk about volumes excluding the impact of weather. They still seem to be down year-over-year on a same-store basis, although maybe it’s moderated some from the last couple of quarters.

Aaron Todd

Yes. I think a little bit of that is perhaps the effect of the new bases. It’s interesting, we’ve kind of looked at this, we’re up net six bases year-to-date from January 1 to the end of September within our community-based operations, but our fleet is only up by two, so we have been able to bring efficiencies into our operation, so to the extent – and our staffing is not materially different. So to some extent, I think we’re just operating more efficiently, so to the extent that we’ve done some expansion that basically has maybe pulled some volume away from adjacent locations, and as you know, we’ve tried to adjust some of that with the closure of three bases, but that’s already netted into the six, I think that that was probably having some influence on our same-base transport.

But I agree that, Kevin, that it’s probably too soon to declare that we’re back to a growth phase within our same-base transports. I mean all of our models are still based on a flat same-base transport profile, and that’s including any improvement from more benign weather. So I think we’re fairly conservative in our projections that if we pick up any volume like we did in October, well, that’s great. But we are also mindful that if weather is kind of equal to what it was the year before, that there could still be some softness there.

Kevin Campbell – Avondale Partners

And then question about the accidents that occurred earlier in the quarter. Was there any impact related to those on results? And if so, how much, in which line item?

Aaron Todd

Trent, do you have the rough amount of the retention? I believe the retention on our worker’s comp for an event such as that is $600,000, which would have run through the third quarter operating expense and it would be included in the aircraft operations expense. So, yes, that would probably be the predominant number. There would be some out-of-pockets associated with the investigation and response, but for purposes of normalizing out the accident, it’d be about 600,000 pretax.

Trent Carman

There was no loss, Kevin, on the aircraft, it was fully insured.

Kevin Campbell – Avondale Partners

Okay.

Aaron Todd

Now as our internal investigation would suggest, that there is opportunity for subrogation by the insurance carriers of this even, obviously we need to wait for the NTSB to see if they agree with our internal investigations. But to the extent that there’s any recovery, then that $600,000 would be recovered as well if other third parties were deemed to have contributed or been a primary cause or influence on the accident.

Kevin Campbell – Avondale Partners

Congratulations on the quarter. Thank you very much.

Trent Carman

Thank you, Kevin.

Operator

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

Andreas Dirnagl – Stephens Inc.

Yes, thanks. Congratulations guys. Just quickly, Kevin asked most of my questions, but sorry guys, I missed it. Was the October price increase a 3% or 5% increase?

Trent Carman

Three percent.

Andreas Dirnagl – Stephens Inc.

It was a 3% increase. Okay, great. And, Aaron, you touched a little bit on it in terms of some of the impacts that you’re seeing on your same-base transport sort of being what I’ll kind of maybe determine or call self-inflicted competition. I’m wondering, the rest of it, would you attribute that more to sort of the economic environment, or do you think it’s –?

Aaron Todd

Andreas, I lost you there. Operator, are we still on?

Operator

Yes, we are.

Aaron Todd

Okay, very good. He fell off there. I think I understood where he’s coming from.

Certainly when our hospital-based programs choose to outsource, which represents four of the nine bases added during 2010, those have predictable demand profiles because these are bases we’ve been operating on behalf of our customers for, in some cases, many years. So those do not, without exception, do not have a cannibalistic effect on our operations. But the other five oftentimes are in adjacent locations and can have some impact.

We tried to – I believe there were two bases that we shut down here in the last two or three months that has – that I think in part should correct some of that cannibalization. But even if you modify that, there would be some softness in demand. And I don’t attribute it to any one thing. We know that competition can escalate in certain markets, but it is – the expansion rate is much slower in the last couple of years than it has been in previous years, but it can be a myriad of factors. But our – what I can say is that our demand trends have been consistent with our hospital customers have experienced. So our pricing strategies have not appeared to be a relevant factor in whether that phone rings more or less than any given month.

Andreas Dirnagl – Stephens Inc.

Great. And you did get the gist of my question. And then finally, Aaron, if you could just sort of, with all the pricing increases that have gone through, sort of remind us roughly where your gross billing per transport stands and where you consider that to be in relation to what you would consider kind of the industry average?

Aaron Todd

Andreas, that may be something that you can glean from the public filings, I think if you are pretty good at algebra and can piece together to solve for x, but I think that’s a competitively sensitive number and I would not be inclined to share on an open line like this.

Andreas Dirnagl – Stephens Inc.

Okay, but you still consider yourself sort of below the industry average?

Aaron Todd

I would say we’re probably slightly above the industry average, but certainly well below the industry leaders in pricing.

Andreas Dirnagl – Stephens Inc.

Great. Okay, thanks a lot. Great quarter.

Operator

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

Kevin Campbell – Avondale Partners

I just one more question about the lease buyout. I think I heard you say that you had 48 million in opportunities next year and 85 to 90 in 2012. But I missed the number in 2010 that – where the total opportunities –?

Aaron Todd

We did 26 year-to-date and we’ve got – and we got 4 million, excuse me, additional in the fourth quarter, which will bring us to a total of 30 million in buyouts. And the EBITDA, or, if you will, the elimination of lease expense is roughly 20% of the buyout amount or will approach 6 million by the end of the year.

Kevin Campbell – Avondale Partners

Okay. Great, thank you very much.

Operator

At this time there are no further questions.

Aaron Todd

Okay, very good. Well, thank you everyone. We just completed our board meetings here in New York and it’s a pretty blustery day. We hope the weather is better where you are. And we, again if you have any – the quarterly filing should be out here shortly, and please give Trent or I a call if you have any further clarification questions. And thanks again for joining us today.

Operator

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

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