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YOY: YEAR OVER YEAR. DATA SOURCE: AIR METHODS.
What happened with Air Methods this quarter?
Air medical services remains the core business for Air Methods. The segment reported revenue of$252.9 million in the second quarter, up 12.6% from the prior-year period. Much of this growth, however, stemmed from the acquisition of Tri-State Care Flight. Without the impact of this acquisition, air medical-services' revenue increased by 7.6% year over year.
The company kept expenses for the air medical-services segment well under control during the second quarter. Although flight center and aircraft operations expenses increased 11.1% compared to the same quarter of 2015, a significant portion of this jump came from Tri-State. Excluding the Tri-State impact, expenses increased only 4.4% -- well below the revenue increase level.
Tourism-division revenue fell 6.4% year over year, to$32.2 million. While total revenue per passenger increased by 3.7%, the number of passengers declined by 9.7% compared to the prior-year period.
United Rotorcraft's external revenue soared66.4% from the second quarter of 2015 to $7.4 million in the same quarter this year. The aeromedical and aerospace-technologysegment still lost money in the quarter, but only by $200,000. United Rotorcraft lost $400,000 in the second quarter of 2015.
What management had to say
Air Methods CEO Aaron Todd admitted that his company's second-quarter results were below expectations, but remained positive. Todd said:
While we continued to grow the company with 11% top-line growth in the second quarter, lower than planned air medical transport and tourism passenger volumes resulted in weaker earnings growth. The accelerated training for Tri-State employees is mostly complete, resulting in improved in-service rates and transports in July. Tourism passenger volumes also have recovered in July, declining only 1.6% over the prior year. With these issues now behind us, we are still positioned to achieve our financial targets for the full year
What's next for Air Methods? Preliminary July figures provided mixed news. The company reported that total community-based transports increased 9.6% compared to July of 2015. Same-base transports, however, fell by 354 transports. Also, tourism passengers in July declined by 1.6% year over year.
Some of Air Methods' future success depends on fuel prices. While the company can't control that key component of its business, there are other areas where it does have more sway.
One thing investors will want to watch is how well Air Methods manages the assimilation of Tri-State into its core business. The faster-than-planned training related to the Tri-State acquisition hurt second-quarter results, but that could mean that the third quarter will be better.
The company's tourism unit continued to struggle, with back-to-back quarterly declines compared to prior-year periods. Air Methods announced on June 20 that David Doerr was taking the helm as president of the tourism division. Doerr has been with the company since late 2013. It's possible that new leadership could make a difference in improving the division's performance.
Air Methods is also focusing on reducing its days sales outstanding (DSO). That number has been climbing, which means the company isn't collecting revenue as quickly as it would like. Air Methods CFO Peter Csapo stated that increased resources and process improvements haven't impacted DSO yet, primarily because of timing.It seems reasonable to expect a lower DSO in the coming quarters.
Despite some challenges, Air Methods thinks it's still on track to turn in a solid performance for full-year 2016. Third-quarter results will likely show whether or not this optimism is well-founded.
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