Rural/Metro hopes new strategy fires up share price
The company's financial emergency is past history
by Barry Cohen

SCOTTSDALE-Rural Metro (Nasdaq: RURL) might be off the critical list but the company is still nursing its way back to fiscal health.

Shares of the Scottsdale based provider of medical transportation and fire services have risen from just more than $1 to more than $7 in the past two years. That's still a long way from the $40 per share the stock was commanding during the company's gravy days in the mid '90s, when it was on an acquisition binge.

Borrowing heavily to add to its portfolio helped Rural /Metro establish a national presence but it also contributed heavily to the company's stock taking a tumble.

When Jack Brucker in early 2000 took over as president and chief executive officer he began a restructuring effort that included shedding several operations the company had acquired, including those in South America and in Canada.

Rural/Metro's strategy these days is focused on expanding its business in communities where it already has a foothold and entering markets that meet its stringent criteria.

A good example of the latter is Salt Lake City, according to Liz Merritt, director of investor relations.

Rural/Metro's Southwest Ambulance subsidiary recently began providing the city 9 1 1 emergency medical transportation services under a four year contract.

"The optimal size of a market for us is between 50,000 and 200,000 people, with a high growth rate and a favorable payer mix, and Salt Lake City meets all those criteria," said Merritt. "Moreover, our strongest business model gives us a 9 1 1 contract to build upon."

To help regain investor favor, Rural/Metro is also paying down a staggering debt load that has given the company negative shareholder's equity for the past five years.

Since March 2005, Rural/ Metro has made $28 million in unscheduled loan payments toward its $300 million debt, saving $2 million in interest.

California based securities analyst Solomon Kamolodine said Rural/Metro's immunity to swings in the economy and the country's aging population are among several factors that make the company an attractive investment.

Nearly six of every 10 Rural/Metro customers are 55 and older, according to Rural Metro's investor literature.

Lowering debt also is important with potential customers because municipal prospects looking for 9 1 1 or fire services want to be sure their vendors are financially solid.

Rural/Metro's financial condition was certainly on the mind of Carefree Mayor Ed Morgan during negotiations with the company.

"It weighed on our decision over the past year and a half and that's why we asked that Rural/Metro Southwest Division President Barry Landon be included in our meetings," Morgan said.

Confident that the company is on solid financial footing, Carefree last month signed a five year contract for Rural / Metro to provide fire protection services to the town.

Earlier this year Rural/Metro suffered a blow when Paradise Valley ended a five decade relationship with the company, opting to switch its contract for fire and emergency service to Phoenix. In 2005, Scottsdale replaced Rural/Metro with its own fire department.

Because of the company's strong cash flow, Kamolodine said Rural/Metro could be of interest to a private equity group.

However, many private investment groups might be scared off by Rural/Metro's large debt, Kamolodine said.

Another potential suitor could come from the industry, specifically one of the companies that provides air emergency transportation, he added.

Investors are looking forward to mid September when Rural/Metro reports fourth quarter and year end results. One thing they'll be eying is the company's collections.

A computer glitch in the state's Medicaid system delayed payments to Rural Metro in the third quarter.
Reach the reporter at barry@thedesertadvocate.com