Air Methods (AIRM) Q3 2016 Results - Earnings Call Transcript

|
About: Air Methods Corporation (AIRM)
by: SA Transcripts

Air Methods Corp. (NASDAQ:AIRM) Q3 2016 Earnings Call November 3, 2016 4:30 PM ET

Executives

Christine Clarke - Air Methods Corp.

Aaron D. Todd - Air Methods Corp.

Peter P. Csapo - Air Methods Corp.

Michael D. Allen - Air Methods Corp.

Analysts

Ryan S. Daniels - William Blair & Co. LLC

Bob J. Labick - CJS Securities, Inc.

Jason W. Gurda - KeyBanc Capital Markets, Inc.

Dana Hambly - Stephens, Inc.

Operator

Good afternoon. My name is Melody, and I will be your conference operator today. At this time, I would like to welcome everyone to the Air Methods Corp. Third Quarter 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.

It is now my pleasure to turn the call over to Ms. Christine Clarke. Please go ahead.

Christine Clarke - Air Methods Corp.

Good afternoon, and welcome to Air Methods Corporation's third quarter 2016 earnings call. Also on the call today representing the company are Mr. Aaron Todd, Chief Executive Officer; Mr. Peter Csapo, Chief Financial Officer; Mr. Mike Allen, President, Domestic Air Medical Services; Mr. David Doerr, President, Tourism Division; and Mr. Mike Slattery, President, United Rotorcraft.

Before we get underway, let me remind you that our earnings release and presentation slides that accompany this call are available on the Investor Relations page of the Air Methods website. The earnings release contains our cautionary statements. I want to point out that in our remarks this afternoon, we will be discussing forward-looking information, which involves a number of risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. We provide a comprehensive list of our risk factors in our SEC filings, including our 10-Q and Annual Report, which I encourage you to review.

With that having been said, I will now turn the call over to Mr. Aaron Todd.

Aaron D. Todd - Air Methods Corp.

Thanks, Christine, and thanks to all of you for joining us today. While Peter will provide details on our third quarter results, I wanted to offer some high level thoughts on the quarter as well. We made progress on a number of fronts in the quarter, most notably, on our priority of reducing DSOs at the same time we were facing softness in patient transports in our Air Medical division. As indicated in our release, same-base transports declined 8.4% year-over-year in the third quarter. We believe, this was driven by several factors including weak hospital census during the quarter, which negatively affects inter-facility transport. This was confirmed by the publicly traded hospital companies that focus on rural markets, which reported same-hospital admission declines.

Weather was also an issue as same-base cancelations increased year-over-year. Lastly, the third quarter of 2016 was up against a difficult comparison; as a reminder, the third quarter of 2015 same-base transports increased 2.4% last year. These trends were not isolated due to single market nor do we believe they're specific to Air Methods. The same-base transports at our hospital bases declined 4% year-over-year in the quarter, and 2.1% year-to-date. For comparison purposes, same-base transports at our community bases declined 2% year-to-date.

Due primarily to the low volumes in the quarter, the company believes the EBITDA in the mid-$300 million range in 2016 is no longer achievable. Management has responded aggressively to these trends. The company closed or consolidated three bases in September and seven more in October, and increased and redirected internal resources to improve same-base requests in utilization. For the markets in which we consolidated bases, we expect to retain the majority of flight volumes at adjacent or nearby bases. These changes have started to show some positive results with same-base transports increasing 1.2% in October.

There are a number of encouraging results to highlight from the quarter as well. Execution in our revenue cycle operations helped us generate record cash flow from operating activities and saw a sequential decline in DSOs of 14 days to 134 days at the end of the quarter. For comparison purposes, our DSOs declined only four days on average from the second quarter to the third quarter during the years 2011 through 2015 as part of normal seasonality. Peter will provide more details on this later.

Tri-State's performance improved from the second quarter and was slightly accretive in the third quarter taking into account the retained transports from consolidated bases. This is despite higher than average maintenance experienced in the quarter. We also are entering the seasonally stronger quarters for Tri-State and expect the improvement to continue. The company converted another hospital base in the third quarter of 2016 and remains in active discussions with customers representing nine bases for outsourcing. We added four greenfield locations in the quarter and closed or consolidated three community bases.

The Tourism business recovered in the third quarter with passenger volume increasing 2.6% and revenues growing 7.1%. The company repurchased approximately $58 million of stock in the quarter and approximately $110 million since the inception of the $200 million program announced last year. With the improvements in our revenue cycle operations and our continued expectation for reduced capital expenditures next year, we remain focused on generating strong cash flows and deploying capital in the most accretive manner for our shareholders.

Our adjusted leverage ratio is a very healthy 3.1 times EBITDA, as of quarter end despite the fact that we repurchased approximately 7.8% of outstanding shares since the inception of the program. Absent the share repurchases during the quarter, the company would have decreased its debt less cash position by an additional $58 million. As you can see there are numerous positives from the quarter.

Before I turn the call over to Peter, I want to say that while over the years Air Methods has delivered significant value to our shareholders, the board and I are not pleased with our recent performance. I want to assure investors that the board and management are taking this performance very seriously and our focus on operational improvements, increasing free cash flow, and delivering value to our shareholders. While some of the challenges we faced are related to factors not within our control such as hospital census or weather, we are doing everything we can do address the factors that are in our control and to improve our performance.

As I described earlier, we are focused on reducing costs, streamlining our operations where it makes sense, and improving base utilization and our cash collection. We are already seeing improvement in these areas highlighted by record cash flow from operating activities in the third quarter and improving same-base transports trends in October. We continue to believe in the fundamental strength of our business. We meet an essential need and are working very hard to ensure that legislators and policymakers understand the lifesaving service we provide and how the current healthcare reimbursement structure could jeopardize that service.

With that summary, I'll turn the call over to Peter.

Peter P. Csapo - Air Methods Corp.

Thank you, Aaron. Good afternoon, everybody. I'd like to start today by discussing our significant progress in reducing DSOs over the past several months, a prime area of focus. Then I'll review the third quarter financials. Finally I want to touch on a correction of an immaterial error in our prior financial statements that we disclosed in our earnings release. This correction did not affect the collectability of accounts and the ultimate cash flow generation of the company.

To be clear on the DSO baseline, the accounting correction that I will discuss in detail later, reduced our historically reported DSO numbers. The 2015 year-end DSO was reduced by six days, and the second quarter 2016 DSO was reduced by seven days. Looking further back, year-end 2013 DSO was reduced by five days, and year-end 2014 by six days.

Our DSO on a comparable basis increased eight days over the prior year third quarter, but declined 14 days sequentially since the end of the second quarter of this year, and declined 20 days since it peaked in May of this year. We discussed last quarter that driving down the DSO was the highest priority of the management team, and we are pleased with the results from the actions taken. We also believe that we are in the early phases of significantly improving the operations of our revenue cycle office, and have additional initiatives planned to address the length of our collections cycle, and improve revenue yield. In the third quarter, we were able to make significant gains in working down our backlog of commercial claims aged over 12 months as we continue to trend to equilibrium in the throughput of claims work.

We are pleased with the velocity of improvements achieved, and look forward to sustaining and improving our gains. The improvements in our DSO are reflected in our cash flows, we generated $81 million in operating cash flow in the third quarter, and $65 million in free cash flow, which nets operating cash flow against capital expenditures, but excludes the impact of lease buyouts. We generated $63 million more in operating cash flow from continued operations, and generated $94 million more free cash flow in the third quarter than in the prior year quarter. As Aaron mentioned, we used the cash to fund the buyback of $58.1 million of stock in the third quarter, and reduced our share count by 1.7 million shares. We are extremely pleased with the cash flows generated in the third quarter, and the validation of the collectability of our outstanding accounts. We want to thank our revenue cycle office, and business transformation teams for all the great work.

Now let me touch on the third quarter financial results. Our transport volumes in the quarter were low, resulting in overall revenues being flat in the third quarter from the prior year. Patient transport revenue grew 3.2% over the prior year third quarter, primarily from the addition of Tri-State base conversions and greenfield net of base closures. As expected, our AMS contract revenue declined 14.3% from the prior year quarter, as we had net 10 base conversions since the third quarter of 2015 from the hospital based to the community based business model.

Net revenue per transport declined by 3.3% in the third quarter over a difficult prior-year quarter comparison, primarily due to lower collection rate and payer mix. Net revenue per transport year-to-date through the first three quarters was flat with the prior year. Overall transports increased 6.6% over the same period, however, same base transports declined 8.4% year-over-year for the quarter. We faced challenging weather in the month of August and our overall weather cancellations were unfavorable with an increase of 1,143 cancellations year-over-year for the quarter. Our commercial payer mix, excluding the impact of Tri-State eroded approximately 60 basis points year-over-year for the quarter, while Medicare mix increased approximately 10 basis points, Medicaid decreased approximately 40 basis points and self-pay increased approximately 90 basis points. Commercial payer mix, excluding Tri-State, only declined approximately 20 basis points year-to-date.

AMS flight center and aircraft operating expenses both grew year-over-year in the quarter primarily from the addition of Tri-State, greenfields, and conversions. AMS EBITDA was down 22.5% year-over-year given the high fixed cost nature of the business and the low Air Medical volumes in the quarter. Tourism grew 7.1% over the prior-year third quarter indicating a return to growth after a challenging first half of the year. Tourism passenger volumes increased 2.6% while the revenue per passenger increased 4.4%. Tourism volumes were especially strong in Hawaii. Tourism business EBITDA grew 7.9% year-over-year in the third quarter, slightly higher than revenue growth due to the buyout of our minority interest partner.

Our United Rotorcraft business posted on external revenue decline of $3.8 million year-over-year for the third quarter due primarily to a decrease in a number of Black Hawk units completed during the quarter. This resulted in segment EBITDA decreasing from approximately $2.1 million in the third quarter of 2015 to breakeven in the third quarter of 2016.

Consolidated EBITDA from continued operations decreased 22.2% year-over-year in the third quarter, while diluted earnings per share from continued operations decreased 29.3% in the same period. The decline in EPS was greater than in EBITDA due to the higher depreciation and amortization plus interest expense in the quarter associated with the acquisition of Tri-State and investments in the fleet. Please see our press release tables or investor presentation posted on our website for a reconciliation of EBITDA to net income. Our weighted average diluted shares outstanding declined by 5.1% year-over-year from executing on our share buyback program.

Turning to our balance sheet, our debt net of cash was approximately $921 million as of September 30, 2016. Under our credit facility, we currently have approximately $180 million of delayed draw term loan and approximately $117 million of revolving line of credit available (13:50-13:55) third quarter at a floating interest rate at 2.6%.

During the third quarter, we financed one new aircraft for approximately $4 million, and we bought out two previously leased aircrafts for approximately $3 million. We sold two aircrafts generating approximately $1 million of cash proceeds. For the remainder of 2016, we currently have four new aircrafts in our capital expenditure forecast. The total cost of these aircrafts will be approximately $13 million. We did not have two of these aircrafts in our last quarter outlook, but were added to support a hospital-base contract expansion, which required two fixed-wing aircraft.

Finally, let me provide more details on the accounting correction. We have revised our prior year income statements and prior balance sheets to correct the mathematical error in our bad debt reserve calculation that has existed since the model was created. You will find details in our 10-Q that will be filed tomorrow. But at a high level, it has the following impacts to revenue, EPS, accounts receivable, and retained earnings.

No income statement change to prior reported quarters for 2016, with a $15.8 million reduction to the accounts receivable balance for the first and second quarters. First quarter of 2015 revenue was reduced by $5.2 million and EPS was reduced by $0.08. There was no impact to the income statement in the other quarters in 2015. The 2015 quarterly and year-end accounts receivable balances were reduced by the same $15.8 million reduction, as in 2016. Prior to 2015, the cumulative impact from the prior periods was a $10.5 million reduction to revenue and EPS impact of $0.16 – EPS.

You will find in 10-Q the tax affected corrections to the remainder of income statements and balance sheets for prior periods. As you can see the error accumulated from prior periods, this correction did not affect the collectability of accounts and the ultimate cash flow generation of the company. To validate this point, our net revenue per transport excluding Tri-State for the trailing 12 months is less than 0.0025% of the cash per transport for the same period.

With that, let me turn the call over to the operator to take questions from analysts. Thank you.

Question-and-Answer Session

Operator

And your first question comes from the line of Ryan Daniels.

Ryan S. Daniels - William Blair & Co. LLC

Yeah. Thanks for all the color and for taking the question. Peter, one for you quickly on the immaterial accounting error you discussed, was the $15.8 million a cumulative amount over the five-year or six-year period or was that an additional correction from 2015 that then carried into 2016? I wasn't quite clear on that.

Peter P. Csapo - Air Methods Corp.

No, it was an amount that accumulated and if you look into the investor presentation on page 13, you'll see how those balances accumulated over time, and that's why it's accumulated on the balance sheet, that's why in some periods you may have a balance sheet adjustment, but you don't have a income statement adjustment.

Aaron D. Todd - Air Methods Corp.

Yeah. And for the 12 months ended June 30, 2016, there was no P&L effect.

Ryan S. Daniels - William Blair & Co. LLC

Okay, that's helpful. Thank you. And then in regards to the nice downtick in DSOs, obviously good to see that and good to see the strong cash flow, is there anything in particular that is driving that, I know you've talked about more human talent in your revenue cycle management, getting bills out quicker, are you seeing anything else like less medical denials or you're moving more in network that expedites the collection process? Just any color there. And then second, do you think that can continue or is this a rate you're a little bit more comfortable at maintaining?

Peter P. Csapo - Air Methods Corp.

Well, a lot of it comes from really fundamental process improvements and reengineering how we are running our revenue cycle office, putting in place the right KPIs and metrics to make sure we're touching claims on a regular basis, with clear and timely follow-ups. I wouldn't say that the reduction was due to reductions in medical necessity denials or from really any payer behavior. And as I stated in my comments, we believe that we are just in the early phases of improving our rev cycle capabilities and there are a significant number of initiatives that we have planned moving forward to continue to work the DSO down.

Aaron D. Todd - Air Methods Corp.

I think our peer advocacy initiatives have also – are bearing strong fruit, as we partner with them to resolve outstanding balances.

Ryan S. Daniels - William Blair & Co. LLC

Okay. And then, maybe a final question, just thinking about cash flows in 2017. I think one of the items you mentioned last quarter that was favorable is a lot less fleet rejuvenation and probably lower CapEx. Is there any update there on what we might be thinking about for CapEx and number of new helicopters, or fixed-wing added to the fleet?

Peter P. Csapo - Air Methods Corp.

Well, we're still going through our 2017 planning process, but I think similar to the comments we made last quarter, we're looking at a range of potentially four to six aircrafts for 2017.

Aaron D. Todd - Air Methods Corp.

Which would be dramatically below the CapEx profile in 2016. So there's going to be – we started to see reductions obviously in the year-to-date period, we're going to see certainly reductions for the full year, but even with those reductions, the 2017 CapEx profile is going to be at even a greater reduction or continued reduction from 2016 levels based upon what we know to date.

Ryan S. Daniels - William Blair & Co. LLC

Okay. Perfect. Thank you, guys.

Operator

And your next question comes from the line of Bob Labick.

Bob J. Labick - CJS Securities, Inc.

Good afternoon. Thank you. Bunch of questions, but just following up on the last one, with the lower CapEx for 2017 and the strong free cash you're showing right now particularly with the collections, can you talk a little bit more about the uses of free cash capital allocation? You still have some authorization remaining on your repurchase program. What are your thoughts on that or other uses of the free cash going forward?

Aaron D. Todd - Air Methods Corp.

Obviously with the moving stock price, we are constantly evaluating whether continued repurchases, dividends, M&A, debt retirement are all relevant. And so certainly all of them are being evaluated by the board. And you're right, we've got an incredible amount of free cash flow to apply to shareholder value creation, and we'll be looking at all of those.

Bob J. Labick - CJS Securities, Inc.

Okay. Great. And then I'm sorry if I missed this, but as you're reducing the DSOs, obviously very good progress in the quarter. I think last quarter you had mentioned an expectation of getting back to flat with the end of last year. Is that still the expectation? Is there an opportunity going forward to get them below the end of last year year's level?

Aaron D. Todd - Air Methods Corp.

Yeah. We ended last year I think on the adjusted basis at 130 days, and we're at 135 days right now. We know that October was a good collection month, and so we know we'll see some reduction there. At least that's our current expectation. So we're already well within striking distance to achieve that objective.

Bob J. Labick - CJS Securities, Inc.

Okay. Great. And then on the cost side, the flight center expenses certainly were much higher as a percent of revenue and I think you've alluded to just obviously Tri-State and some conversions, so more bases and a little softer volumes. You also said you closed some bases. Could you talk a little more about that dynamic and the expectations for the profitability for base or what's driving that decision and where do you see it going with the seven closures, eight closures, or will there be more in the next few quarters?

Aaron D. Todd - Air Methods Corp.

From the third quarter of 2015 to the third quarter of 2016, when you include the Tri-State Care Flight acquisition as well as the hospital conversions and the greenfields expansion net of closures, we grew the number of bases by 17% from 200 bases to 234 bases. Community-based operations have higher fixed costs because in addition to the aircraft and the flight crews, you also have the clinical crews that add to the fixed cost in addition to all of the support staff for those kinds of operations.

So we announced in the script that I think we still had seven consolidations in October, so that's going to reduce that year-over-year comparative. The third quarter was a real outlier in the extreme nature of the decrease. It's highly unusual to have severe weather to the extent we had in an August. And then it was already a tough comp.

And so as a result, whenever you see that kind of extreme shave off the top line, an 85% of your COGS are fixed, it's going to be exaggerative to the bottom line. But the reason why the flight center expenses went up is entirely attributed to the increase in number of bases, which will be mitigated by the closures in October.

Bob J. Labick - CJS Securities, Inc.

Okay. Great. I'll get back in queue and I have a few more. Thanks.

Operator

And your next question comes from the line of Jason Gurda.

Jason W. Gurda - KeyBanc Capital Markets, Inc.

Hey. Thanks, guys. Aaron, did you say how many bases were closed in October?

Aaron D. Todd - Air Methods Corp.

Seven.

Jason W. Gurda - KeyBanc Capital Markets, Inc.

Seven.

Aaron D. Todd - Air Methods Corp.

And let me just use a better terminology, they were closed but with the purpose of consolidating volume to the adjacent bases. And therefore, the expectation is that we would retain a majority of the revenues associated with those seven bases as those transports will be facilitated by nearby bases.

Jason W. Gurda - KeyBanc Capital Markets, Inc.

And congratulations on the early progress with the DSOs. That's great to see. I didn't see a collections number in the presentation. Do you have that available?

Peter P. Csapo - Air Methods Corp.

We're no longer providing that metric. We just don't believe that that's really a useful metric and many times it's misunderstood by investors we talk to, because they don't understand that you have to take it against an increasing gross charge. So we've made the decision not to disclose it. None of the other providers that are out there disclose that metric, and we just didn't feel that it added value to continue to do that moving forward.

Aaron D. Todd - Air Methods Corp.

But one of the things we can...

Peter P. Csapo - Air Methods Corp.

I think that...

Aaron D. Todd - Air Methods Corp.

One of the things we can convey though is that the cash receipts during the third quarter were up – was it 17%? – on a per transport basis compared to the cash receipts per transport in the prior year quarter. Of course, that's reflecting the sequential decline in the DSOs, but it's also, despite the fact that there is still some increase in the DSO number year-over-year, so the cash receipts dramatically exceeded the net revenue per transport recognized during the third quarter of 2016.

Jason W. Gurda - KeyBanc Capital Markets, Inc.

Okay. I think that makes sense. I think the fact that you guys provide the DSOs for the transport business on its own provides enough clarity into what's going on there?

Aaron D. Todd - Air Methods Corp.

Yeah, go ahead.

Jason W. Gurda - KeyBanc Capital Markets, Inc.

Aaron, when you think about the flight volumes in this quarter and I've covered the company I think for about two years, two-and-a-half years. And if I look at my model, 2014, 2015, the quarterly volume trends were unusually stable relative to the volatility you've seen historically, at least the change going from quarter-to-quarter in the transport growth numbers. Do you consider what's happened this year, when starting off the year I think it was like 22% growth and then ended up this quarter at 6.6% growth. Is this more in line with what has historically happened or is this some sort of new territory?

Aaron D. Todd - Air Methods Corp.

I think if you look at the year-to-date trends with the same-base transports down 2%, that's probably more reflective of what we are experiencing recently. I think, as I mentioned, an 8.6% same-base transport declined in a single quarter, especially a third quarter, is highly irregular. I think the fact that we've seen a growth in same-base requests in October, and a return to same-base transport growth in October. Some of that was supported by more favorable weather, but still you're already seeing a moderation and a return to more typical results in October. One month does not a trend make, but I think to extrapolate an 8.6% same-base transport decline into future quarters would be I think highly conservative and not justified based upon you had a tough comp, severe weather, and it doesn't mimic the year-to-date period or historical third quarter volatility.

Jason W. Gurda - KeyBanc Capital Markets, Inc.

I was actually looking at it from a slightly different angle, which was that it looks like the same-base transports in the last couple of years have mostly been more stable than what you used to experience historically. Where if I look at the model from 2013 and 2011, there was a lot of quarterly volatility in the same-base transports where that was a rather normal occurring phenomenon it appeared to be?

Aaron D. Todd - Air Methods Corp.

Yeah. And I think (28:50).

Jason W. Gurda - KeyBanc Capital Markets, Inc.

So I just wonder if the outlying period was just that the last two years were more stable than normal?

Aaron D. Todd - Air Methods Corp.

No. The weather is going to be the biggest factor in that volatility, and so you can still, especially in the fourth quarter and first quarters, if you've got really benign weather or really severe weather, you can still have some pretty healthy volatility in that metric.

Jason W. Gurda - KeyBanc Capital Markets, Inc.

Okay. Well, thank you very much.

Operator

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

Dana Hambly - Stephens, Inc.

Hey, thanks. Good afternoon. Aaron, just to be clear, the collections on the new bills going out, there is no material change from what you've seen historically, right?

Aaron D. Todd - Air Methods Corp.

Yeah. I've got that number actually. I'm going to read it verbatim so I don't get the math incorrect. Let me just pull it up here. No. I think, you were talking about collection percentage, correct? So let me, I know it's in here.

Peter P. Csapo - Air Methods Corp.

This is the collection rate, I think. Not the collection rate but the...

Aaron D. Todd - Air Methods Corp.

Yeah, here it is.

Peter P. Csapo - Air Methods Corp.

...participation of those...

Aaron D. Todd - Air Methods Corp.

So listen to this carefully. The price increase participation rate was 73% on commercially insured accounts for 2015, from January to June, closed as of October in 2015. For the same period in 2016 we've collected 71% for all accounts in – for all transports in the first half of 2016 closed by October. So it's suggested that we're still getting meaningful participation at least in the early collected accounts off of our price increases. And so we've not – that's been pretty typical of what we've seen as we've looked at that measure in past quarters.

Dana Hambly - Stephens, Inc.

Okay. Okay, that's helpful. And then I appreciate, there're so many things that are out of your control in this business. But it does sound like you're trying to be a little more proactive. I saw you're looking to add sales resources, and maybe some other actions you could take. Could you just elaborate a little bit on that?

Aaron D. Todd - Air Methods Corp.

Okay. Mike Allen is going to address that, our President of the Air Medical Services.

Michael D. Allen - Air Methods Corp.

Yeah, Dana. This is Mike Allen. Some of the things that we've done in the last three to four months is we recently hired a VP of Sales. We've added a Key Account Manager to one of our large hospital system accounts to streamline the process of both DPL and Air Medical request. We've hired a National Director of Business Development and we've also hired some Key Regional Business Directors, especially in one region where our struggles have been greater than in others. So, those are the types of steps specific to our sales process.

We continue to upgrade our sales force, we call them business directors and business managers. They are the folks that go out into the field and work with the hospitals and the 911 and fire departments to get that phone to ring. They have been going through Integrity Selling and other professionalized sales training processes. And I think that's also one of the reasons you saw things start to stabilize over the last few years as these processes have actually – were initiated about two years ago within that force.

Aaron D. Todd - Air Methods Corp.

And I think it's also important to note that there are, I won't give the exact number, but there is a healthy number of additional bases that do have the potential of being consolidated to drive up utilization if softness were to continue. We hope that won't be the case and it certainly hasn't been the case in October, but Mike and his team are taking a very measured response, because we don't want to overreact to a single quarter that was an outlier relative to the softness in demand.

Dana Hambly - Stephens, Inc.

Yeah. I guess, what's the danger in shutting down the base?

Aaron D. Todd - Air Methods Corp.

Well, the danger is, is that you can have competitive backfills that can pull that volume away from the other bases. We are fairly comfortable that in the places where we have accomplished this that we are doing it in areas which have less potential for that, but that's always the risk. We have had five bases over the last year that we have consolidated and we've retained in all but one, in fact in all of them we've retained the majority of the volume at the adjacent bases, but there has only been one competitor enter into one of those locations. And so the risk is still there, but again, all of our competitors we presume are experiencing some of the same challenges and certainly the industry is going to have to and likely will adjust to some of these variables.

Dana Hambly - Stephens, Inc.

Okay. And last one from me on Tri-State improvement from the second quarter, but still below first and still below kind of what the expectation was, do you still expect that it would add, I forget what it was, maybe $0.20 in EPS and then going to $0.30?

Aaron D. Todd - Air Methods Corp.

Yeah. We had already shared the expectation based upon the challenges in the second quarter. We're probably on pace to be about half of the objective, but October's volume for the Tri-State Care Flight operations was in line with budget expectations, which is very reassuring. You need to remember that their busy season is the exact opposite of the country, in that they have higher flights in the winter months, as compared to the summer months. So I think we will likely see the full power of the accretion of that deal. It's been accretive year-to-date, but we think we're going to see the full effect of that in 2017, but the fourth quarter is certainly trending favorably.

Dana Hambly - Stephens, Inc.

Great. Thanks very much.

Operator

And your next question comes from the line of Ryan Daniels.

Ryan S. Daniels - William Blair & Co. LLC

Yeah. Just a quick follow-up, you made a good point on the weakness in volumes with the community providers. Can you remind us what portion of your transports are derived from inter-facility versus scene based?

Aaron D. Todd - Air Methods Corp.

It's a little less than 70% are inter-facility, and a little bit more than 30% are scene flights.

Ryan S. Daniels - William Blair & Co. LLC

And do you track, maybe you don't have this metric, but do you actually track kind of a same-store growth metric between those two, meaning with scene based, region based flight?

Aaron D. Todd - Air Methods Corp.

Mike can you give you some color on that.

Michael D. Allen - Air Methods Corp.

Yeah. We do, and we've seen a greater softness in the third quarter in our scene flight volume, although that we have seen declines on a same-base basis than our hospital base or hospital-to-hospital flights as well, but the larger decline has been in the scene flights.

Ryan S. Daniels - William Blair & Co. LLC

Okay. That's helpful. And then, Aaron, maybe one for you, last one. You've talked a little bit about the need for better pricing, and hopefully the government realizes that. I know there's been some legislation out there now for a number of years, and probably nothing's going to get done in the election year, but are you hearing about anymore momentum towards pushing forward with any government rate increases? Thanks.

Aaron D. Todd - Air Methods Corp.

I think we're gaining a lot healthier and balanced understanding on the part of lawmakers about the challenges that are associated with the severe cost shifting that is taking place due to the poor reimbursement and well below cost scenarios within Medicare. And so, I believe that the need is being recognized. We're looking to that lame-duck session to see if there might be an opportunity to attach the bills, but I would put that as a long shot, but we think we have a good opportunity in 2017 to get the legislation passed. But we still have some hurdles to clear.

Ryan S. Daniels - William Blair & Co. LLC

Okay. Great. Thank you again for the color.

Operator

And you have no audio questions at this time.

Aaron D. Todd - Air Methods Corp.

Well, again, thank you everyone. We'll generally be available in the next rest of the day and tomorrow to answer any questions you have, as you have a chance to review the 10-Q. If you may have further questions, we'll be happy to answer. And again, thanks for participating today.

Operator

Ladies and gentlemen, that does conclude today's conference call. You may now disconnect.