EX-99.1 2 dex991.htm PRESS RELEASE Press release

Exhibit 99.1

 

LOGO

 

CONTACT:    Liz Merritt, Rural/Metro Corporation (investors)
     (480) 606-3337
     Jeff Stanlis, Hayden Communications (media)
     (602) 476-1821

 

For immediate release

 

RURAL/METRO REPORTS 44.1% GROWTH IN OPERATING INCOME,

11.7% GROWTH IN NET REVENUE FOR FISCAL 2006 SECOND QUARTER

 

SCOTTSDALE, Ariz. (Feb. 9, 2006) – Rural/Metro Corporation (NASDAQ Capital Market: RURL), a leading provider of medical transportation and private fire protection services, announced today financial results for its fiscal 2006 second quarter ended December 31, 2005.

 

Jack Brucker, President and Chief Executive Officer, said, “Our second-quarter results reflect continued strength in operating performance and efficiencies, as we achieve consistent growth in revenues, expansion of operating income and margins, and progress toward our deleveraging goals.”

 

The company reported second-quarter net revenue of $141.5 million, an increase of 11.7 percent compared to net revenue of $126.6 million for the prior year’s second quarter. For the six months ended December 31, 2005, net revenue was $280.2 million, an increase of 11.0 percent compared to net revenue of $252.5 million for the first six months of the prior year.

 

Second-quarter medical transportation and related services net revenue increased $12.9 million, or 11.5 percent, to $124.3 million, compared to $111.4 million in the same period for fiscal 2005. For the six-month period, medical transportation and related services net revenue increased $24.9 million, or 11.2 percent, to $246.5 million, compared to net revenue of $221.6 million for the first six months of the prior year.

 

Same-service-area medical transportation revenue growth for the three and six months ended December 31, 2005 accounted for $9.9 million and $19.2 million of the increases, respectively, while the balances were from revenue generated under new contracts in Salem, Oregon; Tacoma, Washington; Roswell, New Mexico; and Orlando, Florida. The company’s recent 911 contract win in Salt Lake City begins April 3, 2006 and is expected to begin contributing to results during the fourth quarter ending June 30, 2006. Rate increases for the three- and six-month periods contributed approximately 62 percent of the growth in medical transportation revenue, and greater transport volume contributed approximately 38 percent.


Second-quarter fire and other services net revenue grew by $2.0 million, or 13.2 percent, to $17.2 million, compared to $15.2 million in the same period of the prior fiscal year. Of the second-quarter increase, fire subscription revenue increased $0.6 million as a result of rate increases and revenue associated with new fire subscribers totaled $0.5 million. Rate increases related to master fire contracts totaled $0.4 million, and other revenue increased $0.5 million due to revenue associated with Hurricane Rita and Katrina relief efforts.

 

For the six-month period, fire and other services revenue increased $2.8 million, or 9.1 percent, to $33.7 million, compared to $30.9 million for the same period in the prior year. Of the year-to-date increase, fire subscription revenue increased $2.0 million, and master fire fees increased $0.7 million.

 

Second-quarter fiscal 2006 operating income was up 44.1 percent to $13.6 million, or 9.6 percent of net revenue, compared to operating income of $9.4 million, or 7.5 percent of net revenue, for the second quarter of fiscal 2005. For the six-month period, operating income grew 39.0 percent to $28.2 million, or 10.1 percent of net revenue, compared to $20.3 million, or 8.0 percent of net revenue, in the same period of the prior year.

 

In the second quarter of fiscal 2006, the company’s provision for income taxes increased $2.2 million over the prior year, from $0.3 million in fiscal 2005 to $2.5 million in fiscal 2006. For the six months ended December 31, 2005, the company recorded a $6.2 million income tax provision, compared to $0.3 million for the same period in fiscal 2005. The company’s effective income tax rate on a quarterly and year-to-date basis was 41.9 percent and 46.4 percent, respectively. Non-cash deferred income tax expense recognized during the three and six months ended December 31, 2005 was $2.1 million and $5.3 million, respectively. Cash payments for income taxes for the three and six months ended December 31, 2005 were $40,000 and $0.4 million, respectively, and consisted primarily of federal alternative minimum taxes and state income taxes.

 

Net income for the second quarter was $2.8 million, or $0.11 per fully diluted share, which included the $2.5 million income tax provision described above. This compared to net income of $3.1 million, or $0.13 per diluted share for the same period of the prior year, which included a $0.3 million income tax provision. For the six months ended December 31, 2005, net income was $6.3 million, or $0.25 per fully diluted share, which included an income tax provision of $6.2 million. This compares to fiscal 2005 year-to-date net income of $7.5 million, or $0.32 per diluted share, which included a $0.3 million income tax provision.

 

At December 31, 2005, the company had 25.3 million average diluted shares outstanding, compared to 24.0 million for the same period of the prior year, with the increase in outstanding shares applicable to the number of options exercised and an increase in the average share price during the period.

 

Mr.Brucker said, “In the second quarter, we achieved additional improvements in payroll and employee benefits as a percentage of net revenue, reporting a decrease to 48.8 percent from 52.6 percent in the same prior-year period, primarily due to a total of $2.6 million in positive adjustments to our workers’ compensation claims. We have devoted significant resources to enhancing our risk management, claims management, and workplace safety programs and believe we will continue to experience the benefit of these efforts in the future. These initiatives go hand-in-hand with our continuing efforts to improve the utilization of our work force.”

 

2


The provision for doubtful accounts as a percentage of consolidated net revenue for the three and six months ended December 31, 2005 was 17.7 percent and 17.4 percent, respectively, compared to 15.5 percent and 16.0 percent, respectively, for the same period of the prior year. The provision for doubtful accounts as a percentage of net medical transportation revenue for the three and six months ended December 31, 2005 was 20.8 percent and 20.6 percent, respectively, compared to 19.0 percent and 19.4 percent, respectively, for the same prior-year periods.

 

The increase in the provision for doubtful accounts was due primarily to a slight rise in the overall uncollectible percentage driven by shifts in payer mix in certain markets where the company made the strategic decision to expand its 911 operations. “Our approach to bad debt remains consistent as we continuously weigh potential exposure to unpaid claims against opportunities to expand and solidify market share, better leverage our base of fixed costs, and ultimately produce better operating margins,” Mr. Brucker said.

 

Other operating expenses for the three months ended December 31, 2005 decreased as a percent of consolidated net revenue to 21.8 percent, compared to 22.4 percent for the same prior-year period. Second-quarter expenses included a $1.3 million increase in professional fees related to Sarbanes-Oxley Section 404 compliance, a $0.6 million increase in fuel expenses caused by an overall increase in the price of fuel and additional transports, a $0.4 million increase in vehicle maintenance expenses due to an increase in the number of vehicles, and a $0.4 million increase in contractual service and franchise fees due to the increased number of transports. These expenses were partially offset by a decrease of $1.2 million in general liability insurance costs.

 

Other operating expenses for the six months ended December 31, 2005 increased slightly as a percent of consolidated net revenue to 21.9 percent, from 21.5 percent. This increase was primarily due to a $3.2 million increase in professional fees related to Sarbanes-Oxley Section 404 compliance, a $1.5 million increase in fuel expenses, and a $1.4 million increase in contractual service and franchise fees. These increases were partly offset by a $2.4 million decrease in general liability insurance costs.

 

Fiscal 2006 second-quarter EBITDA was $15.4 million, representing an increase of 13.0 percent over EBITDA of $13.6 million for the same period in fiscal 2005. For the six months ended December 31, 2005, EBITDA was $32.9 million, representing an increase of 15.1 percent over EBITDA of $28.6 million for the same prior-year period. EBITDA margins (defined as EBITDA to net revenue) for the three and six months were 10.9 percent and 11.7 percent, respectively.

 

The company regards EBITDA, which is widely used by analysts, investors, creditors, and other interested parties, as relevant and useful information. The company provides this information to permit additional analysis of its ability to meet future debt service, capital expenditures, and working capital requirements. Additionally, the company’s management uses this information to evaluate the performance of its operating units. EBITDA is not intended to represent cash provided by operating activities as defined by generally accepted accounting principles, and it should not be considered as an indicator of operating performance or an alternative to cash provided by operating activities as a measure of liquidity. The company has provided a reconciliation of net income to EBITDA in the attached tables.

 

Mr. Brucker continued, “We are pleased by the level of continued growth we have achieved in both of our business lines, as well as our ability to efficiently manage expenses, achieve margin expansion, and maintain solid cash-flow performance. Second-quarter net/net average patient charge, which is our best approximation of cash collected per transport, reached an all-time high of $343. We believe this trend confirms the effectiveness of our ongoing efforts to improve

 

3


revenue quality through targeted market growth and to enhance documentation quality, among other strategies.”

 

On December 27, 2005, the company successfully amended its Term Loan B credit agreement to provide, among other features, additional flexibility to apply the net proceeds of any equity issuance to repurchase its 12.75% Senior Discount Notes due 2016 or its 9.875% Senior Subordinated Notes due 2015 provided that following any redemption, the company’s total leverage ratio does not exceed 4.0 to 1.0.

 

On February 7, 2006, the company made an unscheduled principal payment of $9.0 million on its Term Loan B.

 

Michael Zarriello, Senior Vice President and Chief Financial Officer, said, “In the past nine months, we have reduced the principal balance of our senior Term Loan B to $112.0 million through a total of $23 million in voluntary principal payments, representing annual interest savings of $1.6 million, based on current rates. We are pleased to have improved our total leverage to 5.0x from 5.7x and our operating company leverage to 4.0x from 4.8x since the refinancing was completed in March 2005 and remain committed to our deleveraging goals.”

 

Trends in key operating statistics for the quarter ended December 31, 2005 are summarized as follows:

 

    Medical transports increased by 12,428 transports, or 4.8 percent, over the prior year, as a result of an overall aging population, increases in population density where the company has significant operations and increased patient travel between specialized treatment facilities. Additionally, new contracts in Orlando, Florida; Salem, Oregon; and Roswell, New Mexico, accounted for approximately 55 percent of the growth in medical transports.

 

    Net/Net Average EMS Patient Charge (APC) increased 5.1 percent to $343, from $326 for the same period of the prior year. The company considers APC to be the best approximation of cash collected per transport. This second-quarter increase is primarily the result of rate escalators or other general rate increases that are contained or allowed in contracts to provide medical transportation services, as well as a change in payer mix in select markets.

 

    Average Days’ Sales Outstanding (“DSO”) was 51 days, up six days from the prior year. The increase from December 31, 2004 to December 31, 2005 was primarily due to the fiscal 2005 exit from fixed-fee contracts in Scottsdale, Arizona and Fort Worth, Texas, which contributed to a three-day increase in DSO, as well as differences in the timing of revenue growth as compared to the growth in average account receivable balances. A slowdown in processing by certain government intermediaries primarily due to their implementation of new billing platforms, as well as the consolidation of certain of the company’s billing centers, coupled with a 7.3 percent increase in transports in the month of December 2005 also contributed to the increase in DSO at December 31, 2005.

 

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Following is a presentation of certain of the company’s key operating statistics. Medical transports and net/net EMS APC statistics have been adjusted to eliminate discontinued operations. DSO has not been adjusted to eliminate discontinued operations.

 

    

Q2 ’05

(12/31/04)


  

Q3 ’05

(3/31/05)


   Q4 ’05
(6/30/05)


  

Q1 ’06

(9/30/05)


  

Q2 ’06

(12/31/05)


Medical Transports (1)

     258,433      272,871      267,218      270,293      270,861

Net/Net EMS APC (2)

   $ 326    $ 331    $ 336    $ 339    $ 343

DSO (QTD) (3)

     45      43      46      48      51

 

(1) Medical transports from continuing operations are defined as actual emergency and non-emergency patient transports.

 

(2) Net/Net EMS APC is defined as gross medical transport revenue less provisions for discounts applicable to Medicare, Medicaid and other third-party payers and doubtful accounts divided by emergency and non-emergency transports from continuing operations.

 

(3) Average DSO is defined as average accounts receivable divided by consolidated net revenue per day, as calculated on a year-to-date basis.

 

About Rural/Metro

 

Rural/Metro Corporation provides emergency and non-emergency medical transportation, fire protection, and other safety services in 22 states and approximately 365 communities throughout the United States. For more information, visit the company’s web site at www.ruralmetro.com.

 

The company will discuss these results in a conference call today beginning at 9 a.m. Mountain/11 a.m. Eastern. To access the conference call, dial (800) 289-0507 (domestic), or (913) 981-5540 (international). The call also will be broadcast live on the company’s web site at www.ruralmetro.com. A telephone replay will be available from noon Eastern through midnight Feb. 10, 2006. The access the replay, dial (888) 203-1112. From international locations, dial (719) 457-0820. The required pass code to access the replay is 4723483. An archived webcast also will be available for 90 days following the call at www.ruralmetro.com.

 

This press release contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include, among others, the company’s ability to collect its accounts receivable; competitors’ actions; litigation and regulatory matters; and the company’s ability to sustain operating cash flow, secure new contracts, retain existing contracts, and improve earnings and operating margins. Additional factors that could affect the company are described in its Form 10-K for the year ended June 30, 2005 under the caption “Risk Factors” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section, and other factors as described from time to time in the company’s SEC filings. The company disclaims any obligation to update its forward-looking statements.

 

5


RURAL/METRO CORPORATION

CONSOLIDATED BALANCE SHEET

(unaudited)

(in thousands, except share data)

 

     December 31,
2005


    June 30,
2005


 

ASSETS

                

Current assets:

                

Cash and cash equivalents

   $ 1,485     $ 17,688  

Short-term investments

     7,600       —    

Accounts receivable, net

     84,878       71,986  

Inventories

     12,748       12,743  

Deferred tax assets

     10,832       10,110  

Prepaid expenses and other

     7,081       9,449  
    


 


Total current assets

     124,624       121,976  

Property and equipment, net

     44,761       41,402  

Goodwill

     39,344       39,344  

Deferred tax assets

     69,575       75,551  

Insurance deposits

     7,258       9,037  

Other assets

     24,702       26,818  
    


 


Total assets

   $ 310,264     $ 314,128  
    


 


LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY (DEFICIT)

                

Current liabilities:

                

Accounts payable

   $ 14,485     $ 14,738  

Accrued liabilities

     35,670       42,327  

Deferred revenue

     19,745       19,429  

Current portion of long-term debt

     781       1,497  
    


 


Total current liabilities

     70,681       77,991  

Long-term debt, net of current portion

     301,805       305,478  

Other liabilities

     27,257       27,846  
    


 


Total liabilities

     399,743       411,315  
    


 


Minority interest

     1,771       1,456  
    


 


Stockholders’ equity (deficit):

                

Preferred stock, $0.01 par value, 2,000,000 shares authorized, zero shares issued and outstanding at both December 31, 2005 and June 30, 2005

     —         —    

Common stock, $0.01 par value, 40,000,000 shares authorized, 24,396,238 and 24,117,499 shares issued and outstanding at December 31, 2005 and June 30, 2005, respectively

     244       241  

Additional paid-in capital

     153,349       152,305  

Treasury stock, 96,246 shares at both December 31, 2005 and June 30, 2005

     (1,239 )     (1,239 )

Accumulated deficit

     (243,604 )     (249,950 )
    


 


Total stockholders’ equity (deficit)

     (91,250 )     (98,643 )
    


 


Total liabilities, minority interest and stockholders’ equity (deficit)

   $ 310,264     $ 314,128  
    


 



RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

For The Three Months Ended December 31, 2005 and 2004

(unaudited)

(in thousands, except per share amounts)

 

     2005

    % of
Net revenue


    2004

    % of
Net revenue


 

Net revenue

   $ 141,461     100.0 %   $ 126,621     100.0 %
    


       


     

Operating expenses:

                            

Payroll and employee benefits

     69,096     48.8 %     66,540     52.6 %

Provision for doubtful accounts

     25,009     17.7 %     19,684     15.5 %

Depreciation and amortization

     2,846     2.0 %     2,541     2.0 %

Other operating expenses

     30,878     21.8 %     28,417     22.4 %

Loss on sale of assets

     35     —         5     —    
    


       


     

Total operating expenses

     127,864     90.4 %     117,187     92.5 %
    


       


     

Operating income

     13,597     9.6 %     9,434     7.5 %

Interest expense

     (7,748 )   (5.5 %)     (7,513 )   (5.9 %)

Interest income

     172     0.1 %     48     0.0 %
    


       


     

Income from continuing operations before income taxes and minority interest

     6,021     4.3 %     1,969     1.6 %

Income tax provision

     (2,524 )   (1.8 %)     (260 )   (0.2 %)

Minority interest

     (153 )   (0.1 %)     337     0.3 %
    


       


     

Income from continuing operations

     3,344     2.4 %     2,046     1.6 %

Income (loss) from discontinued operations

     (577 )   (0.4 %)     1,011     0.8 %
    


       


     

Net income

   $ 2,767     2.0 %   $ 3,057     2.4 %
    


       


     

Income per share:

                            

Basic -

                            

Income from continuing operations

   $ 0.14           $ 0.09        

Income (loss) from discontinued operations

     (0.03 )           0.05        
    


       


     

Net income

   $ 0.11           $ 0.14        
    


       


     

Diluted -

                            

Income from continuing operations

   $ 0.13           $ 0.09        

Income (loss) from discontinued operations

     (0.02 )           0.04        
    


       


     

Net income

   $ 0.11           $ 0.13        
    


       


     

Average number of common shares outstanding - Basic

     24,330             22,241        
    


       


     

Average number of common shares outstanding - Diluted

     25,298             24,022        
    


       


     


RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

For The Six Months Ended December 31, 2005 and 2004

(unaudited)

(in thousands, except per share amounts)

 

     2005

    % of
Net revenue


    2004

    % of
Net revenue


 

Net revenue

   $ 280,225     100.0 %   $ 252,531     100.0 %
    


       


     

Operating expenses:

                            

Payroll and employee benefits

     137,551     49.1 %     132,063     52.3 %

Provision for doubtful accounts

     48,741     17.4 %     40,442     16.0 %

Depreciation and amortization

     5,599     2.0 %     5,377     2.1 %

Other operating expenses

     61,430     21.9 %     54,347     21.5 %

(Gain) loss on sale of assets

     (1,307 )   (0.5 %)     3     —    
    


       


     

Total operating expenses

     252,014     89.9 %     232,232     92.0 %
    


       


     

Operating income

     28,211     10.1 %     20,299     8.0 %

Interest expense

     (15,256 )   (5.4 %)     (14,831 )   (5.9 %)

Interest income

     325     0.1 %     176     0.1 %
    


       


     

Income from continuing operations before income taxes and minority interest

     13,280     4.7 %     5,644     2.2 %

Income tax provision

     (6,168 )   (2.2 %)     (336 )   (0.1 %)

Minority interest

     (315 )   (0.1 %)     28     0.0 %
    


       


     

Income from continuing operations

     6,797     2.4 %     5,336     2.1 %

Income (loss) from discontinued operations

     (451 )   (0.2 %)     2,138     0.8 %
    


       


     

Net income

   $ 6,346     2.3 %   $ 7,474     3.0 %
    


       


     

Income per share:

                            

Basic -

                            

Income from continuing operations

   $ 0.28           $ 0.24        

Income (loss) from discontinued operations

     (0.02 )           0.10        
    


       


     

Net income

   $ 0.26           $ 0.34        
    


       


     

Diluted -

                            

Income from continuing operations

   $ 0.27           $ 0.23        

Income (loss) from discontinued operations

     (0.02 )           0.09        
    


       


     

Net income

   $ 0.25           $ 0.32        
    


       


     

Average number of common shares outstanding - Basic

     24,281             22,100        
    


       


     

Average number of common shares outstanding - Diluted

     25,280             23,351        
    


       


     


RURAL/METRO CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

For The Six Months Ended December 31, 2005 and 2004

(unaudited)

(in thousands)

 

     2005

    2004

 

Cash flows from operating activities:

                

Net income

   $ 6,346     $ 7,474  

Adjustments to reconcile net income to net cash provided by operating activities -

                

Provision for doubtful accounts

     50,827       42,079  

Deferred income taxes

     5,254       —    

Depreciation and amortization

     5,720       5,928  

Accretion of 12.75% Senior Discount Notes

     3,349       —    

Insurance adjustments

     (2,387 )     (636 )

(Gain) loss on sale of property and equipment

     (1,307 )     3  

Amortization of deferred financing costs

     1,100       1,339  

Earnings (losses) of minority shareholder

     315       (28 )

Stock based compensation

     16       —    

Amortization of debt discount

     —         13  

Tax benefit from the exercise of stock options

     —         129  

Change in assets and liabilities -

                

Accounts receivable

     (63,719 )     (44,152 )

Inventories

     (5 )     (279 )

Prepaid expenses and other

     2,368       159  

Insurance deposits

     1,779       2,791  

Other assets

     1,738       622  

Accounts payable

     (2,359 )     (4,313 )

Accrued liabilities

     (6,196 )     (8,184 )

Deferred revenue

     316       358  

Other liabilities

     380       (3,211 )
    


 


Net cash provided by operating activities

     3,535       92  
    


 


Cash flows from investing activities:

                

Purchases of short-term investments

     (37,700 )     —    

Sales of short-term investments

     30,100       —    

Capital expenditures

     (9,096 )     (6,994 )

Proceeds from the sale of property and equipment

     1,559       81  
    


 


Net cash used in investing activities

     (15,137 )     (6,913 )
    


 


Cash flows from financing activities:

                

Repayment of debt

     (7,738 )     (610 )

Book overdraft

     2,261       —    

Distributions to minority shareholders

     (155 )     —    

Tax benefit from the exercise of stock options

     436       —    

Issuance of common stock

     595       1,168  
    


 


Net cash (used in) provided by financing activities

     (4,601 )     558  
    


 


Decrease in cash and cash equivalents

     (16,203 )     (6,263 )

Cash and cash equivalents, beginning of period

     17,688       16,372  
    


 


Cash and cash equivalents, end of period

   $ 1,485     $ 10,109  
    


 



RURAL/METRO CORPORATION

RECONCILIATION OF EBITDA TO CASH FLOW

PROVIDED BY OPERATING ACTIVITIES

(unaudited)

(in thousands)

 

     Three Months Ended
December 31,


    Six Months Ended
December 31,


 
     2005

    2004

    2005

    2004

 

Net income

   $ 2,767     $ 3,057     $ 6,346     $ 7,474  

Add back:

                                

Depreciation and amortization

     2,907       2,691       5,720       5,928  

Interest expense

     7,748       7,513       15,256       14,831  

Interest income

     (172 )     (48 )     (325 )     (176 )

Income tax provision

     2,165       428       5,887       523  
    


 


 


 


EBITDA

     15,415       13,641       32,884       28,580  

Increase (decrease):

                                

Interest expense

     (7,748 )     (7,513 )     (15,256 )     (14,831 )

Interest income

     172       48       325       176  

Income tax provision

     (2,165 )     (428 )     (5,887 )     (523 )

Provision for doubtful accounts

     26,396       20,491       50,827       42,079  

Deferred income taxes

     2,088       —         5,254       —    

Accretion of 12.75% Senior Discount Notes

     1,709       —         3,349       —    

Insurance adjustments

     (2,387 )     (636 )     (2,387 )     (636 )

Amortization of deferred financing costs

     665       669       1,100       1,339  

Earnings (losses) of minority shareholder

     153       (337 )     315       (28 )

(Gain) loss on sale of property and equipment

     35       5       (1,307 )     3  

Stock based compensation

     7       —         16       —    

Amortization of debt discount

     —         7       —         13  

Tax benefit from the exercise of stock options

     —         129       —         129  

Changes in operating assets and liabilities

     (35,798 )     (21,111 )     (65,698 )     (56,209 )
    


 


 


 


Net cash (used in) provided by operating activities

   $ (1,458 )   $ 4,965     $ 3,535     $ 92