Air Methods CEO Discusses Q3 2010 Results – Earnings Call Transcript

Air Methods Corporation ( AIRM)

Q3 2010 Earnings Conference Call

November 4, 2010 4:30 PM ET


Christine Clarke – IR

Aaron Todd – CEO

Trent Carman – CFO and Treasurer


Bob Labick – CJS Securities

Ryan Daniels – William Blair

Kevin Ellich – RBC Capital Markets

Kevin Campbell – Avondale Partners

Andreas Dirnagl – Stephens Inc.



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.

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