great IBD article
The New America
Wednesday, May 29, 2002
Ambulance Operator Takes
Acquisition Road To Accelerated
Growth
BY KIRK SHINKLE
INVESTOR'S BUSINESS DAILY
After watching its stock price hug the
ground for much of the 1990s, Air
Methods Corp. (AIRM) is finally gaining
some altitude with better earnings and a
big acquisition on the horizon.
The firm owns and operates air
ambulances in 16 states. Its fleet of 56
helicopters and 13 fixed-wing aircraft
helps make sure patients get moved from
accident sites to hospitals and treatment
centers.
It's a small cap, with only $92 million in
revenue last year. But a big acquisition is
on the horizon that might double annual
sales.
On April 16, Air Methods sent a letter of
intent to an unnamed rival. Chairman and
Chief Executive George Belsey says the
acquisition target has annual revenue
between $50 million and $100 million.
More details are expected in early June.
Rocky Mountain High?
Since there aren't many big players in
the air ambulance business, the
speculation game hasn't taken long to
heat up.
Industry watchers say a likely target is
privately held Rocky Mountain Holdings
LLC, which runs a fleet of 83 aircraft
across the U.S. and in Puerto Rico. That
32-year-old firm pioneered many of the
techniques and technology used in air
ambulances today.
Officials of Rocky Mountain Holdings
declined to comment. And Belsey
declined to name it as a target, citing
Securities and Exchange Commission
rules.
"We've been in ongoing discussions with
several people in the industry," Belsey
said. "We do believe there's going to be
consolidation in this industry. We are a
player in that. . . . It would be another
national player."
If the deal goes through, Air Methods
would be the largest air ambulance firm in
the U.S., passing rival CJ Systems
Aviation Group Inc., a unit of privately
held FSS Airholdings.
The latest deal will be the largest in a
series of buys Air Methods has made in
the last several years.
One of its acquired units, Southern
California-based Mercy Air, has expanded
into Las Vegas and St. Louis over the
last few years.
Air Method is in the early stages of
building its business using a
community-based model. It's a kind of
hub-and-spoke network that's designed
to offer regional hospitals better access
to air ambulances.
The firm has expanded into markets such
as Las Vegas and San Diego to increase
its reach while charting cost savings by
using existing communications and
aircraft maintenance networks.
The strategy has helped Air Methods
grow annual revenue per aircraft in its
regional operations to $2.5 million - more
than double the figure of a few years
ago.
Opportunity And Risk
Air Methods and its subsidiaries dispatch
helicopters to accident scenes and other
emergency situations. They can go as far
as 150 miles.
The firm provides emergency medical
crews as well as pilots and mechanics. It
handles communications and billing for
the patients it serves.
The community-based business is the
fastest-growing part of Air Methods'
business.
Last year, revenue for that segment rose
54% from a year earlier, mostly on higher
flight volume in California and Las Vegas.
As Air Methods shifts more business to
the community-based model, it also
assumes more risk.
Like hospitals, Air Methods collects from
individual patients and their insurers. So
it's exposed to bad debt risks.
Bad debt exposure during the first
quarter more than doubled from a year
ago, due in part to the recession's
impact on customers. Air Methods has
managed to weather the increase by
watching prices.
Belsey views his firm as a health care
company.
"It's a concern at the same level as
hospitals," he said. "On the back of the
aircraft are incredibly competent people
who provide a huge service to this
society. We happen to use helicopters
and aircraft."
Steady Business
In its hospital-based segment, Air
Methods contracts with hospitals to ferry
patients and medical personnel from
place to place.
The hospitals provide the medical crews,
and Air Methods provides Federal
Aviation Administration-approved
transport. It can fly whenever and
wherever the need arises.
Hospitals pay 65% of Air Methods' fees in
a standard monthly payment. The rest
comes from hourly fees. Hospitals pay
the firm whether or not they receive
payments from patients, insurers or
government health plans.
That helps offset some of the seasonality
from the community-based business.
In the first quarter, revenue for the
hospital operations rose 21% from a year
ago. Total revenue rose 32% to $26.3
million. Earnings more than tripled to 19
cents a share.
Much of the growth was driven by
favorable weather and a move to keep
maintenance costs in line.
Those are the two factors that have
helped or hurt earnings in the past.
Carl Wilk, a portfolio manager at
NorthPoint Capital, says Air Methods has
learned to manage costs and grow at the
same time.
'All Cylinders'
The company hasn't always been
successful at keeping costs in line. It
spent the mid-1990s watching its bottom
line go back and forth like a pingpong
ball.
"If you go back in its history . . . it
started showing some good earnings, but
ran into some maintenance problems
while finishing the Mercy (Air)
acquisition," Wilk said. "While they were
getting their house back in order, they
made some acquisitions and made sure
costs were in line. Probably for the last
year and a half they're firing on all
cylinders. You're seeing good earnings
growth now."
Wilk formerly worked for Munder Capital
Management, one of the largest holders
of Air Methods stock. NorthPoint also
owns a smaller number of shares.
Belsey expects growth to be partly
driven by his company's products
division, which designs and builds its own
brand of specialty medical gear and
helicopter interiors.
That business has two main contracts.
One, with the Army, calls for it to
develop systems for the Black Hawk
helicopter as a subcontractor for
Sikorsky Aircraft Corp.
Air Methods also recently won a contract
from General Dynamics Corp. (GD) to
build litter systems for the Army's medical
evacuation vehicle. |
