EMS Beats, Lifts Guidance - Analyst Blog

Emergency Medical Services Corp. (EMS) reported an EPS of 54 cents in the second quarter of fiscal 2010, down 19.4% from 67 cents in the year-ago period. However, during the quarter the company recorded charges related to early debt retirement ($19 million) and a settlement of investigation ($3.1 million).

Excluding these charges, EPS came in at 84 cents, surpassing the Zacks Consensus Estimate of 77 cents. The primary reason for the improvement in EPS was a 50% decline in interest expense.

The company reported revenues of $708.8 million, an increase of 11.2% compared to the second quarter of 2009. The Zacks Consensus Estimate was $701 million.

Emergency Medical functions through two operating subsidiaries–American Medical Response (AMR), its healthcare transportation services segment and EmCare Holdings (EmCare), its outsourced hospital-based physician services segment.

The AMR segment generated revenues of $344.2 million, an increase of 2.6% compared to the year-ago period. The increase in revenues was primarily driven by an improvement in revenue per transport and growth in managed transportation business, offset partially by lower inter-facility transports due to the company’s exit from certain markets.

The EmCare segment reported revenues of $364.6 million, an increase of 20.8% compared to the year-ago quarter. The addition of 54 net new contracts since Mar 31, 2009 and increased revenues from existing contracts were responsible for the improved performance of the segment.

Although Emergency Medical‘s insurance expenses declined 8.5% to $25.94 million, compensation and benefits rose to $496.4 million, up 13.2% from the year-ago quarter. In addition, operating expenses increased 10.2% to $90.6 million while selling, general and administrative expenses were up 12.4% to $18.3 million.

Emergency Medical exited the quarter with $313.0 million in cash and cash equivalents, down from $332.9 million. The company generated free cash flows of $34.6 million. We also note that long-term debt declined 7.5% to $415.7 million compared to $449.2 million at the end of December 2009.

Guidance

In addition to posting strong quarterly results, Emergency Medical raised its guidance for 2010. Excluding onetime charges related to debt refinancing, the company expects EPS in the range of $3.20–$3.30, up from the earlier guidance of $3.10–$3.20.

Our Recommendation

We are quite optimistic about the future potential of the emergency medical services market as health authorities and government agencies are increasingly outsourcing these services for cost containment. Moreover, the increase in aging population will be a significant demand driver for healthcare services, thereby resulting in an increase in ambulance transports, emergency department visits and hospital admissions.

However, the company operates in a highly competitive environment and earns substantial revenues from programs such as Medicare and Medicaid, which are subject to regulatory challenges. We are currently Neutral on the stock which corresponds to the Zacks #3 Rank (Hold) rating.
 
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