Emergency Medical Services Corporation Q1 2008 Earnings Call Transcript

Emergency Medical Services Corporation (EMS)

Q1 2008 Earnings Call Transcript

May 6, 2008 11:00 am ET

Executives

Deborah Hileman – VP of IR

Bill Sanger – Chairman and CEO

Randy Owen – CFO and EVP

Analysts

Mike [ph] – Goldman Sachs

Brian Tanquilut – Jefferies & Co.

Nathan [ph] – Avondale Partners

David Bachman – Longbow Research

Quentin [ph] – Selegman [ph]

Jeffery Amanda [ph] – Standard & Poor's [ph]

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the EMSC first quarter 2008 earnings call. My name is Jane and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer towards the end of today's conference. (Operator instructions) I will turn the presentation over to Ms. Deborah Hileman, Vice President of Investor Relations. Please proceed, ma'am.

Deborah Hileman

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

Before we begin, I'd 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 relating 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 regulation of our industry, both as it exists now and as it may change in the future; our ability to recruit and retain qualified physicians and other healthcare professionals and enforce our non-compete agreements with our physicians; the loss of one or more members of our senior management team; the outcome of government investigations of certain of our business practices; our ability to generate cash flow to service our debt obligations and fund the cost of capital expenditures to maintain and upgrade our vehicle fleet and medical equipment; and the loss of existing contracts and the accuracy of our assessment of costs under new contracts.

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

Bill Sanger

Thank you, Deb, and good morning everyone. I'm pleased to share the results of the first quarter of 2008. This is the eighth quarter since going public in December of 2005 that we have met or exceeded consensus estimates. We believe this is the result of our ability to execute on our strategy of organic growth, national contracting, market rationalization, and margin improvements supplemented by targeted acquisitions.

In Q1 of ’08, we generated diluted earnings per share of $0.40, net revenue of $565.8 million and adjusted EBITDA of $54.4 million. Comparative diluted earnings per share increased by 29.7%, revenue by 10% and adjusted EBITDA by 12.2%, excluding the 2007 items noted in our press release.

At EmCare, we continue to demonstrate strong year-over-year growth. Total net revenue increased by 16.1% in the quarter, excluding the 2007 incremental revenue adjustments. In the quarter, we had the highest level of new contracts starts. We believe this is driven by the increased demand for outsourced hospital-based physician services, and frankly our ability to differentiate ourselves in the marketplace. This is evidenced by the success of our recently announced HMA agreement, where we started two contracts in the quarter and signed four new agreements with the company.

We are confident in our ability to enter into similar arrangements with other systems for outsource physician services. At EmCare, in the quarter, we started 21 new agreements in stop services on 15 contracts for a net annualized revenue gain of $24.2 million. In the quarter, overall patient encounters increased by 12.7% compared to the same quarter last year.

We are also pleased with the progress in reducing delays in the physician enrollment process. We’ve seen improvements in the first quarter and further reductions in our enrollment delayed AR in the month of April. Randy Owen will provide further details on the progress of our AR and DSO plan.

At AMR, we added 5 net new 911 contracts and started a number of inter-facility agreements with combined annualized revenues of approximately $9 million. We also continue to focus on national and regional agreements with insurers and providers in a fine several non-emergency transportation agreements. To our access to care subsidiary, we signed 8 new customers in nine states with combined annual revenues exceeding $8 million in membership of more than 600,000 lives.

These new customers represent a diverse range of health plans in a significant expansion of geography serviced by access to care, thus positioning us for further growth. As we’ve discussed in the past, we have supplement organic growth with acquisitions. At EmCare, our strategy is to target key players with established presence in the outsource position space. At AMR, our strategy is to target providers which allow us to grow in existing markets or to enter new markets and expand our footprint.

During the quarter, we closed on the acquisition of River Medical in Arizona for AMR, and in April, we acquired an ED Practice [ph] in Florida. Both of these acquisitions support our market expansion in Arizona and in Florida.

I’ll now turn the call over to Randy. Randy?

Randy Owen

Thank you, Bill. As I discuss our performance, I’ll be referring to certain non-GAAP measures such as adjusted EBITDA, which management uses as a measure of performance but which are not considered a measure of financial performance under generally accepted accounting principles. Therefore, I direct you to the reconciliations included in our earnings release and on our Website.

For the first quarter of 2008, EMSC’s consolidated net revenues were $565.8 million, an increase of 8.1% or 10% excluding the EmCare positive revenue adjustments of $9 million in the first quarter 2007 as noted in our press release.

Revenue adjustments in the current quarter were 0.7% of revenue compared to 2.8% in Q1’07 and well within our expected in historical range. Our EmCare segment's net revenue for the first quarter was $239.5 million, an increase of 11.3% compared to the same period last year or 16.1% excluding the Q1 2007 revenue adjustments. This included 6.3% revenue increase from the addition of 23 net new contracts since December 31, 2006.

At our same-store contracts, revenue excluding the Q1 ’07 adjustments increased 9.8%, which consists of an increase in net revenue per encounter of 4.9%, and an increase in patient encounters of 4.9%.

AMR’s net revenue of $326.3 million was 5.9% higher than the same quarter last year. Ambulance transports increased by 24,200 or 3.3% compared to the same quarter last year. Recent acquisitions contributed $16.8 million in the quarter and $41,700 transports. The restructuring and exit of certain markets reduced ambulance transports by 26,500 and transports in other markets increased by approximately 9100 or 1.3%. Revenue per weighted transport increased 2.9% over the same quarter last year.

EMSC’s adjusted EBITDA for the first quarter was $54.4 million, an increase of 0.3% compared to the same quarter last year or 12.2% excluding the impact of the first quarter 2007 items of $5.8 million. The improvement was driven by volume and revenue increases from new and existing contracts, increased volume from net new contracts and acquisitions partially offset by higher fuel costs and direct cost related to higher volumes in the quarter.

Insurance expense was slightly higher in the current quarter, compared to Q1 ’07 as the prior year’s favorable development adjustments were lower this quarter offset by a lower current year expense rate as we had anticipated.

Our guidance for 2008 taken into consideration that favorable insurance adjustments would decrease in 2008. EmCare generated adjusted EBITDA of $26 million compared to $29.3 million last year. Adjusted EBITDA grew 22.1% compared to the same quarter last year, excluding the $8 million net impact from the Q1’07 revenue adjustments. The improvement was due to the net impact of increased revenue from the 23 net new contracts we added since of ’06, and margin increases at existing contracts.

Compensation as percent of net revenue excluding the 2007 items increased slightly due to additional compensation costs as a result of a number of recent new contracts, versus historically see higher compensation in the first few months of contract or permanent positions are filled.

Operating costs were lower due to the reduced reliance on outsource radiology reads, and a classification change of about $700,000 in bank fees to G&A expense. Insurance expense was lower in Q1 2008 including a reduction of $1.1 million in prior year development trends. We recorded $0.9 million favorable adjustment in the current quarter, compared to $2 million in the same quarter last year.

AMR generated adjusted EBITDA of $28.4 million, an increase of 13.8% compared to the same quarter last year or 4.5% excluding the Q1 ’07 restructuring charges of $2.2 million. The increase in adjusted EBITDA was attributable primarily to increases in revenue on existing contracts, increase of volume from acquisitions partially offset by higher fuel costs of $2.3 million incurred in the first quarter 2008.

We had been successful in obtaining additional rate increases to mitigate fuel costs. Rate increase is secured to date for fuel cost changes have an annualized impact of approximately $4 million. Current quarter insurance reserves at AMR trended down by $500,000. Prior period development adjustments were $1.3 million lower in the current quarter for a net increase insurance expense of $800,000.

AMR recorded $1.9 million favorable adjustment this quarter compared to $3.2 million favorable adjustment in the first quarter of 2007.

EMSC net income for the quarter was $17 million or $0.40 a share, compared to net income of $16.6 million or $0.39 a share for the first quarter 2007. Diluted earnings per share actually increased $0.09 or 29.7% over the same quarter last year, excluding the net impact of the 2007 adjustments in restructuring charges.

Our free cash flow which we define as cash flow from operations, less cash for non-acquisition related investing activities was a negative $2.5 million during the first quarter, compared to a negative $9.9 million in the same quarter last year. As we noted in the press release, the first quarter is historically low as was Q1 of 2008. We paid approximately $28 million in the quarter for semi-annual bond interest and 2007 annual incentive payouts.

Operating cash flows are primarily affected by increases in accounts receivable due to higher revenue increases in the quarter, lower insurance accruals and reduction in liabilities from the payments I just noted.

EMSC DSO decreased one day from December, 31st 2007. AMR DSO decreased 2 days due to the collection of receivables previously delayed from the billing system conversion in certain markets during 2007. The billing system conversion had accounted for 6 of the 8-day increase in AMR DSO during 2007, and we are very pleased with the improvement of DSO in that area.

We expect to collect remaining net receivables related to the conversion by the end of the calendar year. And most recently our April collections were the highest we’ve seen in the last several years. At EmCare, our DSO remain the same. We continue to see delays in obtaining provider numbers from Medicare and Medicaid billing from physical intermediaries but are seeing improvement by those intermediaries and turning around provide enrollment numbers.

The additional delays equate to approximately 7 days in EmCare’s DSO. As we’ve highlighted in previous calls, we’ve not had issues with the ultimate collection of receivables due to enrollment delays as these are primarily Medicare and Medicaid billings. The balance went down about 6% in the quarter, but more importantly the composition of these amounts changed. (inaudible) accounts based on data service and saw significant decrease in the amounts held over 90 days, which was offset by an increase in current amounts on hold due to the large number of new contract starts in the last few months.

Historically, we receive payments within 60 days of when provider numbers are obtained. And most recently in April we’ve also been able to release an additional 8% of the delayed enrollment billings and collection in April were also significantly higher in what we’ve seen in recent months at EmCare.

Net cash used in investing activities was $13 million for the quarter, compared to $6 million – $6.1 million used in the first quarter 2007. The increase relates primarily to the River Medical acquisition at $13.3 million during the first quarter 2008, and the timing of capital purchases.

Net cash provided by financing activities was $3 million for the quarter ended March 31, ’08 compared to $0.4 million for the same quarter last year. And in March 31, 2008 there were no amounts outstanding in our revolving credit facility.

We are not changing our 2008 adjusted EBITDA guidance of $225 million to $230 million and diluted EPS of $1.57 to $1.63. Bill?

Bill Sanger

Thanks, Randy. Operator, I’d like to open the call now for question.

Question-and-Answer Session

Operator

Thank you, sir. (Operator instructions) And our first question is from Shelly Gnall with Goldman Sachs.

Mike – Goldman Sachs

Hi, this is actually Mike on behalf of Shelly. We have a few questions. What was the AMR’s transport volume, excluding the impact of the leap year effect?

Bill Sanger

It’s difficult to say excluding the effect of the flu. The flu primarily effects in inter-facility transports. We did have the year-over-year increase that had some degree obviously influenced by the flu. But Randy the overall increase year over year?

Randy Owen

The overall increase again was 3.3% on ambulance, and the transport is about 25,000 year over year. If you take total ambulance transports in the quarter of 752,000 you probably do the calculation of the one day from the leap year that would have a small impact to that.

Mike – Goldman Sachs

I see, thanks. And so you commented that you increased prices to make up for the higher fuel costs, we are just trying to figure out. So what expectations that your cost will built in for the original guidance and how much more of fuel increase together are projecting in the actual price increase that you guys say?

Randy Owen

We had anticipated a fuel increase this year when we had done our initial guidance and actually fuel cost even though higher as we indicated in the call where pretty close to our expectations. So, we had assumed much higher fuel increase and that that increase would continue throughout the year.

Mike – Goldman Sachs

So, you guys feel comfortable saying that current guidance is, it’s also the actual cost that would come in line versus the current guidance?

Randy Owen

Yes, yes we are. And as I noted one of our primary mitigation efforts on that is for additional rate increases and so, again we’ve secured rate increases that to date would give us an annual benefit of about $4 million, obviously not as much in the first quarter because of the timing of those but we continue to pursue rate increases many times related to mileage rates to offset the changes in fuel cost.

Mike – Goldman Sachs

I see. And one last question. How is EmCare pricing tracking with what you guys were originally expecting?

Bill Sanger

I think it’s tracking quite well. It actually is right at where we had expected the – sometimes that effects a little bit by mix of the business and so we had a little higher increase in some of our radiology encounters which impacts the mix slightly, but we are very pleased with our pricing.

Mike – Goldman Sachs

Thank you very much. Have a nice day.

Operator

Our next question is from Brian Tanquilut with Jefferies & Co.

Brian Tanquilut – Jefferies & Co.

Hi, good morning. Congratulations guys.

Bill Sanger

Good morning, Brian

Randy Owen

Thank you, Brian.

Brian Tanquilut – Jefferies & Co.

Randy, if you can just give us some sort of may be more color on where you are in terms of acquisitions. I know you did one on the EmCare side in April, what do you see in terms of the pipeline for acquisitions both on AMR and EmCare?

Bill Sanger

Brian this Bill Sanger. We continue to feel confident about our prior statements relative to supporting top line growth by approximately 3% to 5% with acquisitions. I will tell you that we do have a good pipeline, we have not at this point in time announced any acquisitions but we continue to be bullish about our ability to come into that 3% to 5% support of the top line growth through acquisitions.

Brian Tanquilut – Jefferies & Co.

Got you. Bill, while we are at it, just wondering you’ve made a push into other services within the hospital in radiology and all that stuff. If you can just give us some more updates or what you are seeing in terms of hospitals be more receptive to doing that?

Bill Sanger

Yes. The hospitals are obviously seeking more and more outsource opportunities for a host of reasons. We are having an increased demand particularly in area of radiology to manage and also implement teller-radiology services for hospitals and hospital systems. Similarly we are seeing additional requests for other outsource services such as anesthesia as well as hospitalist. Those are the primary areas in which we have been focusing our efforts and looking at opportunities.

Brian Tanquilut – Jefferies & Co.

So do you have existing anesthesia practices already?

Bill Sanger

Not at this point.

Brian Tanquilut – Jefferies & Co.

So, is that something we should expect or we should thinking about going forward?

Bill Sanger

Yes, something that we are considering.

Brian Tanquilut – Jefferies & Co.

Okay. And then on tele-radiology, I guess that’s like a night hawk service. Are you involved in that right now? And how will that be structured with the hospitals as ever you do that?

Bill Sanger

We presently have tele-radiology services that are used primarily for existing client base. Our strategy with tele-radiology is to combine it with management of a hospital-based radiology services. We find that the combination of tele-radiology and management of hospital-based services allows us to use less radiologists, which is you well know is a scarcity today, and we believe that’s the right strategy on a go-forward basis.

Brian Tanquilut – Jefferies & Co.

Got you. All right, thank you so much.

Bill Sanger

Thanks, Brian.

Operator

Your next question is from Kevin Campbell with Avondale Partners.

Nathan – Avondale Partners

Good morning. This is Nathan sitting in for Kevin. I had a quick question about EmCare, saw models come in around 11% in the first quarter, which was up year over year. But if you look back for the second through fourth quarters of 2007, we saw them come down. So, I was just hoping you would give me an idea of if this is something we can expect for lower margins in 1Q and then they come back up in the second to fourth quarters of 2008?

Randy Owen

Yes, Nathan, this is Randy. Real quick. What you see historically are two things on the EmCare side from margin perspective. One, and again this is consistent every year is in the first quarter with the restart of FICA taxes because we have highly compensated employees. We typically have a much higher level of payroll taxes in the first quarter than we do throughout the year. For example, payroll taxes between Q4 and Q1 are typically about $4 million on the EmCare side in the first quarter. Secondly, as we go throughout the year insurance expense in the first quarter is typically higher in both segments and throughout the year historically as the actuaries continue to update their analysis of our trends we have typically seen a reduction in both the current year expense and changes in the prior development that provide a reduced insurance expense later in the year contributing to better margins.

Nathan – Avondale Partners

Okay. Great. And then also on the EmCare side, revenues per patient visit they were up sequentially in the fourth quarter of ’07, then we saw them come down and this first quarter of 2008, can you just tell us a little bit about what caused that movement up in the fourth quarter and then back down in the first quarter, and may be give you expectations for the remainder of 2008?

Randy Owen

Well, to some extent Nathan, a lot of that is dependent upon on the mix of contracts that we have. Some of our increase in encounters have been in the radiology business which has a lower revenue per encounter, so that contributes to some change in the revenue for encounter. It’s also affected by just the contracts that we have and whether or not where those contracts are located. So, revenue from this it was actually just slightly ahead of what we had expected, and we expect that trend to improve slightly throughout the year.

Nathan – Avondale Partners

Great. Thank you very much.

Operator

Our next question is from David Bachman with Longbow Research.

David Bachman – Longbow Research

Good morning everyone, and congratulations on a great quarter. I guess will start with asking about the HMA contracts and agreements. Can you give us a little bit more color on those, the contracts that have already started and the agreements are those just crossed both divisions and then what’s the opportunity for seeing more of that type of preferred provider agreement [ph] going forward?

Bill Sanger

To begin with as you recall, David, we signed the agreement with HMA early part of this year of which we have signed or started six new contract, primarily on the EmCare side we’ve had a good book of business on the AMR side prior to entering to this preferred relationship with HMA. We do anticipate to see continued business coming from HMA as the national expiration of the existing relationships expire at those individual facilities. As relates to opportunity to demonstrate the value for other systems, we are quite confident about that. It’s a combination of our scale and skill that allows us to meet the needs of these facilities to report consistent data across the enterprise, and as importantly to recruit an adequate number of physicians that they are seeking.

David Bachman – Longbow Research

Okay. Great. And then a question on the AMR side just in side of fleet replenishment and so fourth scenario. I probably need to know more about than I do. Are there any major – I guess when those ambulances age out, is there a big bulk of those that we are looking for it one time here, or they just roll off pretty rabidly over time?

Randy Owen

David, this Randy. Now at this point they roll off pretty rabidly. Several years ago there was some lumpiness in terms of when purchases, in terms of ambulances were purchased a number of years ago under previous ownership, but we were really into a more normalized spend for vehicles. The average age of our fleet is just over 4.5 years. And I think we will easily get 8 years to 10 years out of an ambulance, and are effective at moving those around the country based on needs or changes in the business. So, we don’t expect any significant capital outlays for vehicles outside of the normal annual replenishment.

David Bachman – Longbow Research

Okay. And then just one last question, then I’ll hop off here. On the 911 side, are you seeing any changes in the dynamics in terms of Counties, municipalities more or less willing to privatize those services, is there anything – the economy that might be pushing the need one way or the other on that?

Bill Sanger

I don’t think we’ve seen a dramatic change, David. However, as communities are faced more and more with the inability to raise taxes, they are seeking other outsources opportunities. We don’t see a big change, however as more pressure is put upon the cities, we do expect that to accelerate.

David Bachman – Longbow Research

Okay. That’ll do it for me now. See you in next quarter.

Bill Sanger

Appreciate it.

Operator

Our next question is a follow-up question from Kevin Campbell with Avondale Partners.

Nathan – Avondale Partners

Just as a follow up to the AMR side, revenue for transport of 4% in 1Q, now is that mainly a function of mix? Can you just talk a little about that?

Randy Owen

No really it’s function of – there’s a probably a little bit of mix in terms of little higher level of emergency transports but it’s just much as anything is related to just rate increases that we have, the number of contracts obviously have a CPI in places as well as I mentioned we’ll also started to secure additional rate increases around some of the fuel cost increases that we’ve seen. So, I think it has more to do with just changes in rates than it does in mix.

Nathan – Avondale Partners

Okay. And can you provide and update thus far into the second quarter of may be expectations for transports going forward, have you guys seen any loss contracts or reduction in transports and now the flu season has come to an end?

Bill Sanger

Well, (inaudible) upon on Q2. We do obviously for talking [ph] about the fiscal year ’08 and very confident about AMR.

Nathan – Avondale Partners

Okay. And then lastly on interest expense, we saw coming around $10 million, is that something we can expect for the rest of 2008 or do you expect that to continue to decline throughout the rest of the year?

Randy Owen

No. I think you could see that to be fairly consistent as you may have seen in our 10K and you’ll see in the Q. We had entered into a swap that effectively fixed our rate on our bank debt, I think it should be about 6.3%. So, you should see it pretty consistent throughout the year.

Nathan – Avondale Partners

Great. Thank you very much.

Randy Owen

Thanks a lot.

Operator

Our next question is from Quentin [ph] with Selegman [ph].

Quentin – Selegman

Hi, Bill and Randy. How you guys doing today?

Randy Owen

(inaudible)

Quentin – Selegman

I just want to touch on the free cash flow a little bit. So, you said Q1 is usually a low quarter for you guys. It was the same thing last year. I think in ’07 you ended up having $60 million in free cash flow by the end of the year. In April, you saw receivables go down. What is your expectation for free cash flow this year? Should that be in the range of $80 million to $100 million or is that sort of under range?

Randy Owen

Quen, this is Randy. Yes, actually last year I think we ended up at about $73 million from – if I’m not mistaken on free cash flow. So, again as I said, April has been a great month for us. We don’t put out – not putting out free cash flow guidance but I guess I would answer saying we are very comfortable that we can that we’ll see positive free cash flow in the year.

Quentin – Selegman

Okay. But so the net income for you guys this year over last year is somewhat like 15%, 20% increase year over year. So, just the free cash flow fall in that line and you get their accounts receivables on top of that? Is that the way we should think about it?

Randy Owen

I think that’s a fair way to look at it, Quen.

Quentin – Selegman

Okay. And then there are a few questions about the flu season. Maybe you can just combine total transport from Q4 ’07 and Q1 ’08 and compare that over Q4 ’06 and Q1 ’07 just to normalize the flu season?

Randy Owen

Hi, Quen, this is Randy. We don’t have specific information of staffs in terms of something that’s transport or business that’s specifically related to the flu. I think as we’ve noted in the call, we didn’t have on the AMR side, we didn’t see necessarily a big increase from what we consider to be flu related. We obviously saw strong volume through the ED. If you look about 4.9% same store of growth but we don’t have specific staffs related to people coming in with complaints that is related to the flu. So, it’s a little hard to say obviously, the flu was positive but I don’t think it was a huge part of the impact this quarter.

Quentin – Selegman

Okay. Perfect. And in the press release, you didn’t mention any revenue reversal like you did in Q1 last year. Is that the case? You didn’t get any prior year adjustment to your revenue in EBITDA line?

Bill Sanger

It’s (inaudible) here. We always have – this year is about 0.7% of revenue. So, we’ve always historically had amounts that had been within 1% of our revenue stream. Last year was the one that was unusual when ended up being 2.8%. So, this year it really is back to what we had expected and what’ve always historically seen.

Quentin – Selegman

Okay. Perfect. Thanks a lot, guys.

Bill Sanger

Thanks.

Operator

Our next question is from Jeffery Amanda [ph] with Standard & Poor's [ph].

Jeffery Amanda – Standard & Poor's

Good morning, guys.

Bill Sanger

Good morning.

Randy Owen

Good morning.

Jeffery Amanda – Standard & Poor's

Can you just talk a little bit about the mechanics of the fuel cost adjustment? Is it a cost (inaudible) arrangement or if there’s a lag in there between what you are seeing and then what you are doing out, just give me a little bit of the mechanics of that.

Randy Owen

The mechanics are really that for the most part our charges we have base rate sort of mileage rate and then some other items that you can bill for in terms of other items that we’ve done at a specific transport. So, our rates historically has been more of a timing issue because we have been successful in the past as we have this year in getting increases to that fuel rate. So, typically they are not a cost plus, we have the cost and then obviously try to get rate increases from different communities around the – any changes in historically whether it’s been reimbursement related or most recently changes in fuel cost.

Jeffery Amanda – Standard & Poor's

I guess the question is there a like a quarter lag or what would the typical lag be between – when you time you realized that the cost increase and you get the rate increase?

Bill Sanger

There’s not one specific item, but I think if you thought about it in terms of sort of a quarter lag, that’s probably a fair way to look at it on average.

Jeffery Amanda – Standard & Poor's

Right. Can you give us some sense of what you are estimating for fuel costs at this level or at this point going forward?

Randy Owen

Well, I think again when we looked at our planning efforts and then doing our guidance, we knew that fuel would go up and as I said, again it was consistent with quarter one with what we had expected and we had not expected fuel to necessarily decrease in some of our original thinking. So, I guess that’s the way I would respond to that.

Jeffery Amanda – Standard & Poor's

Okay. Thanks very much.

Randy Owen

Yes. Thanks a lot.

Operator

Ladies and gentlemen, this does conclude our Q&A session for today, and I’ll now turn the call over to Mr. Sanger for closing remarks.

Bill Sanger

Thank you very much, operator. And we like to thank everyone again for the support of EMSC and your time this morning. Thank you.

Operator

Ladies and gentlemen, we thank you for your participation today. This does conclude the presentation and you may now disconnect. Have a great day.

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