EXHIBIT 99.2
The following are excerpts from the Air Methods Corporation conference call on
November 4, 2003, regarding financial results for the quarter ended September
30, 2003. The excerpts contain information to be furnished under Item 12.
.. . . .
Trent Carman:
. . . .
For the third quarter of 2003, revenue increased $38.1 million, or 132
percent, to $67 million.
Acquisition of Rocky Mountain Holdings in October 2002 accounted for $34.5
million of this increase, and six new community bases generated $3.8
million of revenue. Patient transports for the third quarter of 2003 for
our community-based operations were 7,142. This represents a 13 percent
increase over the second quarter of 2003's transport volume of 6,307 and
147 percent increase over the third quarter of 2002 transport volume of
2,890.
We experienced an increase in weather-related flight cancellations during
the third quarter of 2003. For our community-based operations open during
the third quarter of both 2003 and 2002, weather cancellations increased in
2003 by 174 transports, or 18 percent, over same-base weather cancellations
in 2002. For these same bases, patient transports during the third quarter
of 2003 were virtually the same as the second quarter of 2002.
On average, our average net revenue for transport - which is gross revenue
less Medicare/Medicaid discounts and bad-debt expense - was $4,454 for the
third quarter of 2003. This compares to $4,445 for the second quarter of
2003.
For the third quarter 2003, the company generated $2.7 million of net
income, representing 28 cents and 27 cents for basic and fully diluted
share respectively. This compares to net income for the third quarter of
2002 of $1 million, representing 10 cents per basic and fully diluted
share.
For the third quarter 2003 and 2002, bad debt - the percentage of
community-based flight revenue was 24 percent. It's important to note for
financial statement purposes, revenue in our P&L is recorded net of
applicable Medicare and Medicaid discounts.
Earnings before interest, income taxes, depreciation, and amortization were
$9.5 million for the third quarter of 2003. This represents a 180 percent
increase over the third quarter of 2002's earnings before interest, income
taxes, depreciation, and amortization of $3.4 million. It's important to
note that our calculation is net income plus interest expense plus
depreciation and amortization plus income tax expense.
The company's net position - which is the total of all indebtedness less
cash on the balance sheet of $3.2 million - was approximately $89 million
at September 30th, 2003. This compares to $89.4 million at June 30th, 2003,
and $87.9 million at December 31, 2002. At September 30th, 2003, we had
$13.1 million of excess availability under our line of credit.
At September 30th, 2003, our net current position - which is current assets
less current liabilities - was $38.2 million, which compares to $34.8
million at June 30th, 2003, and $28.6 million at December 31, 2002. At
September 30th, 2003, our trade receivables were $72.9 million, and our
allowance for doubtful accounts, $17.8 million.
Our average day sales outstanding at September 30th, 2003, based upon the
gross trade receivable balance, were 100 days. This compares to 101 days
sales outstanding at June 30th, 2003. As a result of more favorable weather
and the opening of six new bases, patient transports in October 2003
increased approximately 41 percent over October 2002. For our bases open
during October 2003 and 2002, our transports increased 23 percent.
At September 30th, 2003, the company operated a total of 175 aircraft. One
hundred and three of these were in our hospital-based operations and 72
were in our community-based operations. The company currently operates 55
community bases and has 50 hospital contracts.
.. . . .
Devlin Lander: Hi. Just a few questions. Can you give us what the operating
margins were by division?
Trent Carman: Operating margins by division for the third quarter only?
Devlin Lander: Yes.
Trent Carman: This would include all of the G&A applicable to the division - the
divisional overhead, if you will - and the flight operation expenses. For
the community-based operations - this is going to be
pre-depreciation-and-amortization, if that's OK.
Devlin Lander: Yes.
Trent Carman: - and interest. We allocate interest expense, as well, Devlin,
just so you're aware.
Devlin Lander: OK.
.. . . .
Trent Carman: Devlin, that's about 15 percent for the community-based operation
for the third quarter. For the hospital, it would be 19 percent.
Aaron Todd: Trent, can you offer those percentages relative to the segment
footnote?
Trent Carman: That's what - that's what I'm using, is the segment footnote.
Aaron Todd: Can you go ahead and show those just as - based on divisional net
income as a percentage of revenue? I think that's a meaningful measure,
as well.
Trent Carman: Segment net income - which is - as Aaron mentioned, is disclosed
in our segment footnote is - for the community-based operations is nine
percent - 9.25 percent, to be precise. And the hospital is 9.9 percent.
.. . . .
Operator: And we'll take our next question from Phil Rhodes, with MRI.
Phil Rhodes: I had two questions. The first one involved the bad-debt expense of
approximately 24 percent. And my, I guess, lack of knowledge as to what you
folks are expecting on a quarter or year-by-year basis - I just don't know
what to expect there. Is that considered to be a high number as far as you
folks are concerned?
Aaron Todd: You know, let me start off with this one, Trent, and then you can
supplement my comments. The problem with trying to peg bad debt as a
percentage of net revenues is that changes in payer mix between
Medicare/Medicaid and other results in a - one is a subtraction or a
reduction of revenue, and the other one is disclosed as a component of
bad-debt expense.
And so you're going to see a fluctuation in that percentage within a - you
know, historically, it's been at plus or minus three to five percent,
merely - partially because you do see changes in overall reimbursement
rates based upon economic environments, but you also see flip-flop in payer
mix between Medicare/Medicaid patients that are discounted against revenue
versus other patients that we are looking from reimbursement from them or
their insurance company. And that is a component of bad debt, if it goes
uncollected.
So I guess what I would say relative to the third quarter, it's exactly on
target with where we were the year before. I think we have historically
said that somewhere in that 20 to 25 percent range is typically the range
that we come in at. Every once in a while, we'll be a little lower than
that, and certainly we can come in above that range. But that is the range
that we have typically seen historically. Trent, anything to add there?
Trent Carman: Yes, the only thing there, Aaron, is, as you mentioned, the
average transport, which net of Medicare/Medicaid and the bad debt, for the
quarter, Phil, was $4,454. That compares to $4,445 with the second quarter
of 2003.
So you can see that the bad-debt percentage in the second quarter was only
17 percent, whereas it was 24 in the third quarter. Year-to-date, it's 21
percent. The important thing there, though, is the net reimbursement that
we get is approximately the same dollar amount.
Phil Rhodes: Yes. And the net reimbursement that we're talking about, and the
term "bad debt" - I think I understand a lot better about the nature of the
classification of bad debt because I think probably we're speaking - you're
speaking about a common usage of a term and I was thinking about just
people who could not, you know, pay the billings. And actually, yours is a
great deal - has a great deal to do with the adjustments due to Medicare
and Medicaid. So I do understand that a little bit better.
Trent Carman: You know, the number in the financial statement - just to clarify
that, Phil, the bad-debt expense in the P&L is only for those non-payers.
Any discount for Medicare/Medicaid is netted off on the revenue number. But
that - the number I gave you - the $4,454, that is the net after both items
are subtracted there.
Operator: And we'll take our next question from Barry Sine, with HD Brous.
.. . . .
Barry Sine: The other area that I wanted to ask a little more about is on the
product division. I notice that your revenue was somewhat consistent with
the prior quarter. And you've had a good volume of contract announcements
over the last several months. When are we likely to see - what's the timing
of some of these contracts you've already announced, when we'll see them
flow into revenue?
Trent Carman: What we've got now, Barry, is about $5.5 million of backlog, if
you will, with the product division. Those relate to the contract you're
mentioning primarily and a couple of smaller ones.
The revenue that we will recognize through our financial statements or the
time period that'll take for this $5.5 million to come through our
financials will probably be the fourth quarter and through the entire year
of next year. Some of these projects with the government have a long lead
time and many units being delivered, so they're being phased in. But you'll
see the $5.5 million between the fourth quarter of this year and then
pretty pro rata, if you will, during 2004.
Barry Sine: So if I divide that over five quarters, that's about a -
$1.1 million a quarter.
Aaron Todd: Barry, I would guess that you probably should weight it towards the
initial quarters because what'll happen is, for example, with the Black
Hawk interiors, you know, those, you know, deliver so much each month. But
you're many times doing lot fabrications, et cetera, which increases the
revenue recognition early on.
So - and then, of course, some of these deliver in that period of time - I
mean, in the fourth and first quarter. So you're - I would weight it
towards the - you should probably weight it towards the fourth and first
quarters with a tail in the second through fourth quarters of 2004.
.. . . .
Operator: And we'll take our next question from Brian Black with Lamb Partners.
Brian Black: the interest expense ticked up by, like, a quarter million bucks
versus Q2. Is that just due to a floating rate component of the credit
line, or, you know ...
.. . . .
Trent Carman: The majority of our debt, if you take a look at it, you got the
$23 million, the 12 percent interest rate, you've got a revolver which is
between 15 and $17 million at any one day, basically, and that floats with
LIBOR plus approximately two-and-a-half percent.
And then you've got the rest of the debt, excluding capital leases, which
is primarily debt on our aircraft. About half of our fleet is financed with
promissory notes; the other half, approximately, is financed via operating
leases.
But the aircraft debt is all fixed. Those have terms that range between
seven-plus-or-minus-percent all the way up to a little bit higher than
that. So the majority of our debt is in fact fixed, if you will, with
again, the exception, the PNC revolver.
Now, the reason for the increase would be due to partially the build-up in
the receivables that we've been talking about here during the second
quarter associated with the new bases. So the debt pay-downs were not,
certainly, as high as one would have expected.
.. . . .
Operator: And we'll next go to Elliot Lepler with Lepler & Levy Investments.
.. . . .
Elliot Lepler: I wonder if you could share with me how this quarter compared
with your internal budgets. I know it was a very good quarter, but it's not
clear to me whether this was an especially good quarter or a under-average
quarter or just an average quarter.
Trent Carman: I would characterize it, Elliot, that within our internal
projections or the revised budgets that we have, we don't expect to have
any real changes in the weather cancellation year over year. And as I
mentioned in my script, we had an increase of about 174 weather increases
for the community-based model that were - would not have been anticipated
internally.
The overall transports were pretty much in line excluding that. The one
line item that would probably not have been as favorable - although it
would be somewhat - wouldn't be that material, would be the repairs and
maintenance. We would have been slightly over budget there. But all in all,
it was - it was pretty close to what we were anticipating, excluding those
two items.