GMR Solutions Inc. ($GMRS)

Hello, everyone. Thank you for joining us, and welcome to GMR Solutions Q1 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Krister Sorensen, Vice President of Investor Relations. Krister, please go ahead.

Thank you. Good morning, and welcome to the GMR Solutions Q1 2026 Earnings Conference Call. Joining me today are Nick Loporcaro, our Board Chair and CEO; Ted Van Horne, our President and COO; and Brian Tierney, our Executive Vice President and CFO. Before we begin, note that during this call, we may make forward-looking statements and that actual results may differ materially from those statements because of various risks and uncertainties, including those described in our most recent earnings report posted on our Investor Relations website and in the Risk Factors section in our IPO prospectus. Today's remarks also include certain non-GAAP financial measures, including adjusted EBITDA. You can find a reconciliation of these measures in our earnings release that is available on our website, investors.globalmedicalresponse.com. Unless otherwise noted, references to the quarter will be for the first quarter of 2026. I will now turn the call over to Nick.

Thanks, Krister, and thank you all for joining us today. This is our first earnings call since the successful completion of our IPO a few weeks ago, an incredible accomplishment that could not have been possible but for the dedication of our frontline and support staff as we refocused our energy on our core competency of emergency care over the past few years. With this, we saw profitability grow and our financial profile strengthen, which led us to the IPO. Now we can more publicly, no pun intended, demonstrate and educate the masses on what EMS actually delivers, and that is that we deliver health care. We are the front line of the front line. We are the tip of the spear. There is no one further upstream than we are in the emergency situation. GMR is the largest provider of emergency medical services, serving 5.5 million patients annually, covering markets that represent over 60% of the U.S. population with one or more of our solutions. Our 24,000 highly trained clinicians and fleet of ambulances and aircraft are rapidly deployed to navigate and provide essential alternate site out-of-hospital care for patients when they need us most. As a national leader of EMS, this puts us in an exceptional position to be the innovators of the practice and raise the tide for the entire industry. We accomplished this through our 911 Nurse Navigation offering, our Concierge Platform and our online ordering system, Transport.NET. Each of these innovations help take the friction out of the traditional run EMS systems and ultimately provide better patient care, more efficient operations and better hospital throughput while delivering savings to the payers in turn. With that, we are pleased to report strong financial and operational results in the first quarter of 2026. Q1 revenues were $1.46 billion, which represents 6.6% year-over-year growth and continues to highlight the strong demand for the mission-critical services that GMR provides and our strong competitive position. Q1 adjusted EBITDA was $305 million, a year-over-year improvement of 9.7% and EBITDA margin increase of 59 basis points versus the prior year quarter to 20.9%. These results reflect the continued emphasis on improving the efficiency of our integrated operating model and shared services infrastructure designed to effectively support our operators in the markets we serve. I'll note that both revenue and adjusted EBITDA came in at the top of the range we provided in the flash of the quarter in the S-1. Q1 cash CapEx and cash used in aircraft financing combined was 5.4% of total revenue compared to 4.7% in Q1 2025. GMR completed approximately 1.4 million patient encounters during the quarter. We provided ground medical services to over 1.3 million patients, which includes more than 1 million transports, along with over 28,000 calls through our 911 Nurse Navigation offer. The remaining approximately 270,000 ground patient encounters consists of interventions on scene that did not result in a transport. During the quarter, we provided Air Medical Services to over 34,000 patients. Our strong performance was driven by continued same market revenue growth, revenue from cross-selling and new markets, disciplined cost management, continued optimization of our clinical and operational platforms and an unwavering focus on service to our communities by keeping care at the center of what we do. Ted and Brian will elaborate further on the detailed drivers of the performance later in the call. I now want to provide an overview on regulatory matters. We've engaged with Congress to request that it enact new legislation requiring CMS to modernize air and ground ambulance reimbursement based on cost data that CMS is authorized to collect. GMR has highlighted to Congress and the administration the inadequate reimbursement we received from Medicare. I also raised this issue when I met with the CMS administrator, Dr. Mehmet Oz, in February. As a leader in EMS, we feel an obligation to raise our hand and move the whole industry forward. We are optimistic that bipartisan legislation will be introduced in the house soon. Last week, CMS released a proposed rule that would substantially overhaul the use of state-directed payments and supplemental payments, including intergovernmental transfers or IGT, with respect to Medicaid funding. Under the proposed rule, a state's fee-for-service Medicaid payments would be limited to between 100% and 110% of Medicare rate if the state's total payment is targeted to a subset of providers within a broader provider group. The proposed rule includes ground and air medical groups, both private and municipally run. Notably, if the payment is not targeted to a subset of providers, a type of parity analysis within a broader provider group, then the Medicare rate cap does not apply. State plans that are impacted by the proposed rule will have a transition period until 2029. Albeit not common that ground or air Medicaid payments exceed Medicare rates, we are evaluating the potential impacts of the proposed rule from all perspectives. Early analysis suggests a less than $5 million negative annual impact to GMR from the proposed rule. We are also evaluating the proposed rule impact on select municipal run systems and the sustainability of their model versus our private provider model. Overall, we remain encouraged by the progress made in both the federal and state issues, and we'll keep you updated as we learn more. I'll now turn it over to Ted to dive deeper into our performance within the quarter.

Thanks, Nick. GMR's focus remains growing our core emergent services, completing non-emergent services where they make fiscal sense and realizing efficiency through the use of innovative offerings like 911 Nurse Navigation. During the quarter, patient encounters related to emergent transports and nurse navigation increased 1.7%, while low to no reimbursing patient encounters related to non-emergent and wheelchair transports and those encounters that did not result in a transport decreased 5.2%. More specifically, total emergent transports increased 0.7% during the quarter. Same market emergent ground increased 0.5% despite a less severe, shorter than average and much shorter than prior year flu season. Same market emergent flights increased 1.9%. Our weather cancellation rate in the quarter was 17.1%, 81 basis points lower than the prior year quarter and 220 basis points lower than the previous 3-year average for the quarter. Our 911 Nurse Navigation solution continues to expand, currently serving 29 communities across the U.S. We have additional 13 markets currently in the implementation phase, which will bring our total covered lives to over 22 million. In the quarter, our nurses navigated over 28,000 911 calls, which was nearly a 47% increase over the prior year quarter. In the 911 markets, we have historically served where we implement nurse navigation, we have seen, on average, a 15% reduction in dry runs, effectively reserving ALS resources for the highest acuity patients. We have also seen a 2.5% reduction in total transports. These are transports that we would likely receive little to no reimbursement for. Our nurses navigate these calls to care options and other transport modalities that are better for the patient, better for our crews and better for the hospital systems that are plagued with overcrowded emergency departments. Together with these stakeholders, 911 Nurse Navigation allows us to find a better way to improve patient outcomes. Patient encounters that did not result in a transport decreased 0.8%. Lower reimbursing non-emergent and wheelchair patient counters decreased 7.2% and 52.8%, respectively, when compared to the prior year quarter. This is consistent with remaining focused on our core emergent services and maintaining contracts that provide appropriate reimbursement. Solutions like Concierge, which create guaranteed reimbursement from partner hospital systems for non-emergent transports are part of this strategy. With respect to labor, our crew staffing metrics continue to show trends in line with expectations. Total crew wages in the first quarter increased 3.0% year-over-year, predominantly tied to wage increases and filling open positions. Base unit cost, which reflects the year-over-year inflation in our base wages, was up 3.8% per payroll hour as expected. Our crew vacancy rate declined by 77 basis points as positive hiring continued in the quarter. We will continue to invest in our crews to ensure we can hire and retain our pilots, mechanics and clinical staff critical to the sustainability of our operations. As for new business growth, we remain bullish about our ability to win new business opportunities in our core areas of emergency medical services, growth of 911 Nurse Navigation and expanded municipal ambulance contracting. During the quarter, our revenue included approximately $20 million in new market growth. Also in the quarter, we executed new agreements totaling nearly $47 million in incremental annualized revenue. Last year's federal budget reconciliation law created a rural health transformation program that will direct $50 billion over the next 5 years towards state-led efforts to transform how they deliver and finance health care in rural areas. Since passage of the law, we have engaged with officials from nearly every state to share ideas about how GMR and the EMS community can play an even bigger role in ensuring access to quality health care in rural and frontier areas. We are responding to active RFPs from several states and engaging directly in contracting discussions with others. With rural health care under pressure as a result of hospital closures, EMS providers can and should be part of the solution to these challenges across the country. We stand ready to help states solve these challenges as part of our national growth strategy. I will now turn it over to Brian, who will provide more detail on the financials.

Thanks, Ted. As Nick mentioned, we had strong performance in the first quarter. In the first quarter of 2026, GMR reported net revenue of $1.46 billion, which is a 6.6% increase year-over-year. Compared to the same quarter in 2025, Q1 emergent air volumes were up 1.1%, emergent ground transports increased 0.6%, while non-emergent ground transports were down 7.2%. Overall emergent air requests decreased 0.8%, but flights were impacted by favorable weather, resulting in a capture rate increase of approximately 87 basis points to 45.1%. We estimate that the favorable weather impacted revenue by approximately $11 million compared to the prior year quarter. Net revenue per transport increased 7.9% compared to the prior year quarter. Revenue performance was driven by a positive mix shift from non-emergent to emergent transports and strong underlying air and ground NRT improvements on a like-for-like basis, driven by strong collections performance in our normal collection cycle. As expected, we saw a decrease in collections from older dates of service associated with the initial implementation of the No Surprises Act, Independent Dispute Resolution process, or IDR. During the quarter, we collected about $7 million from IDR-related transports performed in 2022 through 2024, a decrease of nearly $24 million from similarly mature dates of service during the prior year. Separately, during the quarter, we did benefit from roughly $16 million in collections from 2024 dates of service related to the implementation of California's state surprise medical billing legislation. Recall that the federal IDR process applies to air transports, while state balance billing laws generally require payers for fully insured state plans to pay either the locally set ground ambulance rate or a multiple of Medicare. Following the implementation of the California bill on January 1, 2024, select payers underpaid the required local rates. While it took us time, we were successful in collecting on the correct rates in the first quarter of 2026. In the first quarter, we did not see the expected negative impact on payer mix as a percentage of TransForce from the implementation of the One Big Beautiful Bill Act, which was expected to decrease Medicaid mix or the expiration of the Affordable Care Act exchange subsidies, which were expected to decrease commercial mix. However, when closing April, we did start to see some of these impacts appear, perhaps as a result of the timing of recognition by the payers of member exchange premiums. We will continue to closely monitor payer mix and have included some degradation in our guidance going forward. Our DSO for the quarter decreased 3 days to 76 days from 79 days in the same quarter last year. We continue to monitor our DSO metric to ensure the reasonableness of our estimates of revenue and AR. Regarding payer mix, payer mix by net transport revenue for the quarter was 57% commercial, 25% Medicare, 9% Medicaid, 7% from other third-party payers and 2% self-pay. Payer mix by net transport revenue for Q1 2025 was 56% commercial, 26% Medicare, 9% Medicaid, 7% from other third-party payers and 2% self-pay. Contributing to the mix shift are the higher rates that we are able to drive for out-of-network and in-network payers as a result of the No Surprises Act. We are winning IDR disputes at a rate over 90%, and we utilize the amounts we are winning through the No Surprises Act adjudication process as reference points when renegotiating expiring air contracts with lower reimbursing in-network payers or when bringing new payers in network. During the quarter, effective February 1, we signed an agreement that brought our largest out-of-network payer in-network at reasonable rates and terms, which is expected to reduce our IDR adjudications by roughly 12%. This helps bring the percentage of our commercial air transports that are in network to nearly 70%. Complementary revenue decreased 1.2% or roughly $0.5 million, primarily driven by a small FEMA deployment last year for floods in Kentucky. Excluding this, our complementary revenue grew 4.7%. Now turning to expenses. Total operating expense increased 4.1% to $1.24 billion in the quarter compared to $1.19 billion for the same period in 2025. Employee wages, benefits and taxes increased by 4.8% to $770 million. True wages increased 3.0%, driven primarily by expected wage increases. Maintenance, fuel and other direct expenses increased by 6.1% to $119 million. The increase was primarily driven by fuel and the timing of medical supplies purchases. Fuel costs began to rise in early March due to the Iran conflict. Historically, our fuel expense is about 2% of total revenue and only about 1% is tied to the commodity price. With fuel being a small portion of our total expense and managed through bulk purchase and fuel card discount programs, we have historically not hedged our commodity exposure. On a go-forward basis, we may consider paying for the certainty that fuel hedging provides as a potential option to further limit our exposure, and we will keep you informed of our progress in this area. Insurance expense, which increased by $9.3 million or 27.6% to $43 million, driven primarily by increased professional liability-related claims and third-party premium expenses. Other operating expenses, which include outside services and general and administrative expenses increased 5.7% to $228.1 million. Outside services increased $1.3 million or 3.1%. General and administrative expenses increased $11.0 million or 6.3%, primarily driven by increased system integration and enhancement expenses, software licensing and development and freight expense. Depreciation and amortization expense was relatively flat versus prior year and acquisition integrations and other charges decreased to $3.6 million compared to $4.3 million for the same prior year period due to reduced fees associated with previously divested business units. Interest expense decreased 26.8% to $83.2 million as a result of the refinancing completed in September 2025. The net result is that net income increased 179.9% to $106.3 million compared to $38 million and adjusted EBITDA increased 9.7% to $305 million compared to $278 million for the same prior year period. Adjusted EBITDA margin finished the quarter at 20.9%. Shifting to CapEx, cash flows and liquidity. Cash used for CapEx and aircraft financings was 5.4% of revenue for the first quarter of 2026 compared to 4.7% of revenue for the first quarter of 2025. The increase was primarily driven by the timing of CapEx purchases in the prior year. GMR finished the first quarter with $426.1 million in cash and cash equivalents and an undrawn ABL with $692 million of cash borrowing capacity after letters of credit. On March 6, we reduced the preferred equity holdings by $250 million using cash. Through the proceeds of our IPO and cash on hand, we improved our leverage position by more than $1.15 billion in total debt reduction and preferred equity redemption, resulting in an approximately $46 million reduction in annualized term loan interest expense and a $73 million reduction in annualized preferred equity dividend accrual. Following the IPO, Moody's and S&P upgraded our credit ratings from B, B2 to B+, B1, respectively. The upgrade by Moody's triggered a 25 basis point interest rate step down on GMR's existing term loan facility. This results in a $7.4 million reduction in annualized interest expense after considering the debt reductions I just mentioned. All credit enhancements combined resulted in a more than $125 million reduction in annualized financing costs. Net leverage after the IPO was approximately 3.5x. We expect strong cash flows to drive this below 3.3x by year-end and have line of sight to 3.0x in 2027. Moving on to our full year 2026 guidance, which includes actual results through Q1. We have set our revenue target at a range of $5.89 billion to $6.18 billion, our adjusted EBITDA target at a range of $1.135 billion to $1.195 billion and the target for our total cash used for CapEx and aircraft financing between 5.1% and 5.3% of total revenue. This 2026 guidance reflects a return to more normal collection timing following the IDR-related collections on older dates of service in 2025. It also includes expectations of a degraded payer mix by volume from the implementation of the One Big Beautiful Bill Act and elimination of the ACA exchange subsidies that we saw start to appear in April. We have also incorporated higher fuel costs as a result of the Iran conflict and lower interest expense resulting from the new capital structure and lower upgraded rate. Adjusting for these items and in the long term, we expect GMR to grow top line revenue at mid-single-digit plus, resulting from same market low single-digit volume and low to mid-single-digit rate growth, our ability to cross-sell in existing markets and opportunities to expand in new markets. We anticipate high single-digit plus adjusted EBITDA growth, adjusted EBITDA margins around 20% and cash for CapEx and aircraft financing to be just above 5% of revenue. And now I will turn it over to the operator to open for any questions.

[Operator Instructions] Your first question comes from the line of Benjamin Rossi with JPMorgan.

Can you just unpack the ACA attrition impact that you experienced during 1Q? And then give us some of the details on some of the benefits that you got from ACA-related volumes during 2025. And then as you think about that expected embedded growth within your initial guidance, what are you factoring for ACA volumes for 2026?

Benjamin, it's Nick. Thanks for the question. I'll hand it over to Brian in a second. So in first Q, we actually saw little, if no impact on ACA and the One Big Beautiful Bill Act on -- even on the Medicaid. I think what Brian is alluding to is we're -- we factored in some, but I'll let him expand on that as well.

Yes. Thanks, Ben. Yes, we saw about a 1% mix shift out of commercial into other payers during the -- as we closed April. So now 1 month does not a trend make, but we had expected to see some of this really in the first quarter. And so we baked that into our guidance as we go forward. Total exchange and One Big Beautiful Bill Act impact that's in our guidance for the year, really for the last 9 months, is in that $25 million to $30 million total range. So that's what we had expected. As we think about '25 and before, again, we had not really seen any movement even as in the run-up across the end of '25 as folks were trying to figure out where they were going to get their health insurance.

Yes. And Benjamin, we're still digging into this, but there's 2 indicators that we've noticed. One in-house is that we had a significant increase of our employee base join our own benefits plan, which we suspect may have been on ACA exchange type plans. The other is, and we experienced this in the past as well, where if you're on a gold plan on an exchange plan and you go down to a bronze plan, that doesn't impact our reimbursement or our billing. So again, more to dig in there as we get through Q2 and probably more to provide once we get to our Q2 report out.

Great. I appreciate the added details there. I guess just flipping topics to fuel impact during 1Q. When thinking about the macro impact to oil prices and jet fuel, could you quantify the dollar impact in 1Q from higher prices versus your initial budgeted expectations coming into the year and maybe explain how fuel procurement mechanics flow through your P&L?

Sure. For January, February, we were actually slightly better on a rate perspective, really wasn't until March that we saw the increased fuel prices. I guess they started things in Iran right at the very, very end of February. It was about $3 million total for March based on what flowed through the P&L. As we look forward within our guidance, we've used the latest -- what we used at the time was about -- WTI was about $98. I think WTI this morning is about $92. But when we built our forecast at $98, it added about $25 million or $30 million to the P&L from an expense perspective as well. From how it flows through our P&L, just normally, I mean, we've got -- you can think of fuel in 2 parts. There's the commodity exposure, which is kind of what we've talked about. And then there's the cost to get it from the refinery through a distribution network to our vehicles in some way, shape or form. Roughly half of our expense is associated with commodity price and roughly half is associated with what we call into plane getting it from the refinery to the vehicles. As we think we put in our S-1 as well as I think I mentioned on this call, it's roughly 1% of revenue is associated with the commodity price.

Our next question comes from the line of Elizabeth Anderson with Evercore.

I was curious about your IDR commentary. I think you said $7 million impact and maybe $24 million difference versus last year. For those who are trying to sort of understand how that flows through the rest of the year, would you say that, that magnitude is sort of similar in terms of how you would estimate we should think about the future quarters in 2026?

Thanks, Elizabeth. So we saw a little bit more of the collections from the early dates of service related to IDR really hit across second, third and fourth quarter. So it will be probably in order of magnitude, maybe 50% to 100% higher than what we saw in the first quarter from a delta perspective. We have really not seen those collections from those really old dates of service flow through here in 2026. Most of it got cleared out in 2025. And we're really back to more our normal IDR collection cycle.

Got it. That's very helpful. And can you tell us at that point, does that sort of mean that sort of the -- can you clarify if that impetus means that like you would expect more commercial -- additional commercial payers to sort of come on network as a result of that, that should sort of smooth out going forward? Are you still seeing continued interest from those payers going in network given your high win rates in the IDR process? Or do you think that we should just sort of view that as roughly stable going forward?

So we've got 2 different things here. The comments -- the previous comments were really on cash collections from that -- those really old dates of service. From an in-network perspective, we continue to have really good conversations with a lot of payers. We did bring our largest out-of-network payer in network during the first quarter. We have signed a number of agreements, both with some very small out-of-network payers, but then re-upped with some other payers as well in the quarter. I think it really comes down to the approach of the payers. We'd love to get them all in network at appropriate rates and terms. Many we have great conversations with. Some are more challenged and those are probably the same payers that are challenged with others as well. But I think we're going to continue to drive the in-network payers or the payers in network as much as we possibly can. Again, in-network, out-of-network is really only an emergent air ambulance rate component, and we're just under 70% in-network on the commercial air ambulance flights, and we look forward to driving that further up.

Yes. Elizabeth, this is Nick. Just a couple of things to maybe provide more clarity around IDR. As Brian said, we're hovering right now around that 70% in network. We think if you look at the current commercial payer mix, we have over 600 payers. There's a long tail of smaller ones there. We probably top out at 80% when we'll be successful bringing on a couple of larger ones in network. The -- one of the mysteries or one of the things I'll demystify is just because you're out of network doesn't mean you automatically go to IDR. We settle with a lot of the smaller ones that may only have 4 claims a year with us on air intervention. So one, we continue to bring down the IDR volume, the IDR amount that we need to settle. The other is there's a lot of scrutiny around NSA. We believe when you look at our business, and it's one of the items I spoke to Dr. Oz about, we -- there's a reason we win north of 90% consistently. It's pretty clear cut when it comes to medical necessity. So I anticipate we'll get further positive momentum around this item.

Your next question comes from the line of Andrew Mok with Barclays.

Can you walk us through the underlying assumptions on air transport volumes embedded in guidance, including same base growth as well as the pace and contribution from new air bases?

Yes. Thanks, Andrew. From a same base volume perspective, I think as we've mentioned, we expect in the long term to be that low single-digit, 1% to 2% range, both across all of our transport volumes, specifically for air as we thought about 2026. We're towards the top end of that range from just a normal core growth in the business. But on top of that, we also do have weather normalization for the year. If you recall, we had a really poor weather across really all of the -- certainly the back half of 2025 and have really expected to see and have seen thus far more normal weather. So that drives that percentage up a little bit higher. From a rate perspective, again, across all of GMR, we expect that low to mid-single digit, 2%, 3%, 4% rate growth to continue. We've seen that for a while. We continue to see that. We actually outpaced that in the first quarter. So we will expect to see some mix shift. That includes air and ground. As we just talked about, we do have a little bit of headwind from the OBBA and exchanges, but feel really good sitting in that low to mid-single-digit rate growth overall.

On the regulatory front, there's been a few developments in recent weeks. First, CMS expanded Medicaid supplemental payment reform to include emergency transport and air ambulance. And second, CMS finalized some operational changes to the IDR process. Can you walk us through your preliminary thinking on both and help size any impact to the business?

Yes. Craig (sic) [ Andrew ], it's Nick, and I'll let Brian again add some extra color. I think what we've mentioned in the script here, right now, we're looking at less than $5 million impact on the states where this is applicable. The flip side of that, and we've nuanced it a little bit, is we actually think there's potential for share gains for us. When you look at the public provider model versus our model, we believe there's going to be significant pressure placed on them. So we think there's some share opportunities for us.

Thanks, Nick. Yes, that's on the Medicaid captive Medicare rate. From the IDR stuff that just came out, we're actually -- I think this is going to be very positive for us from a processing perspective. We don't know that it's going to have a material impact on the financials, but the processing will certainly be easier. It also does require the payers to go through a few more steps as they go through the process to make sure they hit those on time. The administrative fee does go from $150 to $15. And so that will have a small impact on us overall, but feel very good about the structural direction that they're taking this.

And it is only a proposed rule right now, just for clarity. So I think it will be open to further debate.

That's on the Medicaid side, yes.

Our next question comes from the line of Craig Hettenbach with Morgan Stanley.

So Nick, just given your operating experience across several leading health care service organizations, what are some of the key attributes that distinguish Global Medical Response Solutions and kind of where the company is positioned in the market to provide care?

Thanks, Daniel (sic) [ Craig ]. Look, a couple of things. One, if you think about some of the data points we put out here, we currently offer a service in communities that represent over 60% of the U.S. population. So think about that as approximately 200 million Americans that all dial 911 when they have a perceived medical emergency. And more often than not, we're at the other end of that call or the ability to catch that call and navigate those individuals not only to the right site of care, but the right type of care and a lot of times, we can administer that care. So that in and of itself, in a prior life, when I led a value-based care company, one of the limitations of those models is you have to get a payer contract, get lives attributed to you and then build volume. In this case, we already have 200 million Americans residing in those communities that we serve. Two, the underpinnings of this is we're an essential service. People don't only want what we do, they need it. Our positioning and what we've been able to do, GMR and representing EMS is be able to demonstrate that when you look at the clinical strength and the individuals we have in delivering that care, what we've embarked on over the last several years is tying what we do from a clinical protocols perspective to the clinical outcomes. And this information loop that's tied to the health systems we work with, how we translate that back to the payer community. And today, I would tell you, we get a modest reimbursement for payers with some of these innovative models. There's a lot more benefit that I think we can capture in sharing where the overall value of that is. So I think that's a significant differentiator on how we're positioned. We talk about our size and our scale, how we can continue to innovate, which comes with the ability to invest there. I've mentioned in the past, we have a full-time government affairs team on the Hill from a state perspective. So we can continue to educate lawmakers and payers, one, as we continue to iterate on what it is we're delivering. Does that help with your question, Daniel (sic) [ Craig ]?

It does. And then just a follow-up question for Brian. You kind of walked through some puts and takes around weather and different impacts to the business. Just more broadly, where you sit today in the year, how you think the year is shaping up relative to prior years in terms of just confidence level of your full year targets?

Feel good. We're very -- we were -- from a volume perspective, we were really right where we expected. Flu was a little bit softer in the first quarter than historical. But if you adjust for that, everything else is pretty good. We continue to see a little bit of shift away from non-emergent where if the contract doesn't make sense, then we will not continue to do that, but that's a pretty minor shift. The emergent ground business continues to do well. The air business did very well, up 1.9% same base growth in the first quarter. A little bit of that was weather. Again, we had mentioned weather, expected just to more normalize for the year. All expenses are pretty much where we had expected them to be or slightly better outside of the fuel and then fuel-related things like our freight charges, I think we mentioned in the first quarter were up, that's where we move aircraft parts around. Those were up again it's related to fuel. But I feel good about where we sit today relative to our expectations and then relative to our guidance.

Our last question comes from the line of Daniel Grosslight with Citi.

Post your IPO, you're now levered at around 3.5x. I'm curious how this changes your capacity and appetite for acquisitions. I think you ranked it as #3 in terms of priorities behind debt repayment. But I guess the question is, when do you get more comfortable making acquisitions? And how does your M&A pipeline currently look?

So from a high level, a healthy pipeline. We've probably got what I would call a dozen or so viable targets. One of the commitments we've made to ourselves and to the investor community is if we are to pursue any M&A, one, it will be very focused, disciplined around our core offering, would need to be highly accretive, and we're looking for some arbitrage value there as well. So still testing the market. And examples would be where it either complements a ground services area where there's a good air operator and we could scale up and integrate quickly or vice versa, some adjacent markets where we could use the current established team to expand in geographies in close proximity. So we've got a couple of those targets. I'll let Brian expand on our comfort level. As we mentioned, feeling really good about where we are and our ability to continue to deleverage and if the right opportunities pop up, take advantage of that M&A as well.

Yes. So in our guidance, there is no M&A. So we'll start there, although we do have a really good pipeline, really good conversations. In our history, we -- both legacy Air and legacy Ground business had done a ton of M&A. That's really how we grew back pre-merger in 2018. And so feel very comfortable doing it with the right -- as Nick just mentioned, we're going to do the right stuff, the stuff that's accretive. So we'll see as we work through these 10 or 12 targets that we have. And I think the other piece is, as we've signaled to the market, we're interested in doing this. So this market has kind of been frozen really since COVID, but it's now started to thaw in part because I think we've said that, hey, we're open to this at this point in time. So we've got strong free cash flow. We feel very good about our ability to use that cash to delever. And then in the right opportunity, a lot of these are going to be small tuck-in opportunities. We'll see how that makes sense, but feel good about it.

Yes. Makes sense. And Brian, on the $16 million from the California state legislation catch-up, I'm curious if you can help us think through how much of that is air versus ground catch-up. And then as we look forward for the rest of the year, how should we think about potential additional catch-up payments and what's baked into your guidance for that?

Yes. So that is 100% ground. The federal has the air for the surprise medical billing IDR process. The states have gone in and put -- and that's -- they're filling in with ground. What that -- we like these state bills because they require the payers to pay the locally published rates. This is -- this California bill started in January of 2024. And the state of California was supposed to publish all of the local rates at that time. And to this date, they have yet to do that. So the payers picked, I guess, a rate that they liked or a lower rate. It took us a while to get them to pay the right rates. We've got that process down. So really, the first quarter was this big catch-up of about $16 million from those older periods. That's baked into our go-forward NRTs, but that's just a minor or a small increase overall. So you're really not going to see kind of this big lump that like you saw in the first quarter.

We have reached the end of the Q&A session. I will now turn the call back to Nick for closing remarks.

Thank you, Christine. So thank you again for joining our inaugural public company earnings call today. We really appreciate it. As you can see, we remain excited to see how our continued focus, operational discipline and execution over the past several quarters have positioned us to continue to be the innovators of EMS, which will drive our future growth and success. We remain highly confident in our path forward. Our ability to achieve this would not be possible without our exceptional frontline staff, support personnel and regional leaders. I'd like to thank you all for your continued support and wish you a wonderful day.

This concludes today's call. Thank you for attending. You may now disconnect.