Prospect Medical Holdings, Inc. (NYSE Amex: PZZ)
(�Prospect�), which owns and operates five community hospitals and
manages the medical care of approximately 183,000 HMO enrollees in
southern California, today announced financial results for its
fiscal 2009 second quarter ended March 31, 2009. Results for all
periods exclude the Antelope Valley entities since their sale on
August 1, 2008, and pre-sale results have been classified as
discontinued operations in the consolidated financial
statements.
Results for the second quarter of fiscal 2009 continued to
reflect the benefits of management�s ongoing initiatives to reduce
costs throughout the organization, improve operating efficiencies,
and strengthen the balance sheet. Consolidated operating margins
during the fiscal 2009 second quarter improved by approximately 6%
from the same period one year ago. Adjusted EBITDA increased 41.4%
to $14.0 million and net income attributable to common shareholders
improved by approximately $4.8 million from the prior year period.
Holding Company operating expenses declined by approximately 24%
through the first six months of fiscal 2009 compared to the first
half of fiscal 2008. Second quarter improved results were after
higher interest expense of $6.6 million during the second quarter
of fiscal 2009, an increase of $1.3 million from the second quarter
of fiscal 2008. Prospect continues to timely pay all of its
scheduled interest and principal payments, together with
supplemental principal payments, as it prioritizes debt reduction.
The Company generated positive cash flow from operations of $5.0
million through the first six months of fiscal 2009, ending the
quarter with cash, cash equivalents and investments of $32.2
million.
FISCAL 2009 SECOND QUARTER
RESULTS
Consolidated revenues for the second quarter of fiscal 2009 rose
3.6% to $86.1 million from $83.1 million in the same period last
year. A 17.0% increase in revenue from the Hospital Services
segment offset a 5.0% decrease in revenues at the IPA Management
segment.
Operating income for the second quarter of fiscal 2009 increased
81.8% to $11.6 million from $6.4 million in the same period last
year.
During the second quarter of fiscal 2009, interest expense rose
to $6.6 million from $5.3 million in the same period last year, due
to higher rates following the May 2008 credit agreement amendments,
�make-whole� interest payments to the Company�s lenders when LIBOR
falls below certain levels, and default interest discussed under
�Classification of Debt� below. Non-cash gains related to changes
in the fair market value of the Company�s interest rate swap
arrangements totaled $955,000 during the second quarter of fiscal
2009 as compared to no such gain or loss in the comparable prior
year period.
Net income attributable to common shareholders for the fiscal
2009 second quarter rose to $3.5 million or $0.17 per diluted share
on approximately 20.7 million weighted average diluted shares
outstanding, from a net loss of $1.3 million, or $0.11 per diluted
share, on approximately 11.8 million weighted average diluted
shares outstanding. The net loss attributable to common
shareholders for the second quarter of fiscal 2008 included $2.0
million of non-cash, preferred stock dividends. There were no such
dividends in the second quarter of fiscal 2009.
Adjusted EBITDA for the second quarter of fiscal 2009 increased
41.4% to $14.0 million from $9.9 million in the same period last
year. For the trailing twelve month period ended March 31, 2009,
Adjusted EBITDA was $47.8 million (see accompanying reconciliation
tables in this release).
SEGMENT RESULTS
IPA Management
The IPA Management segment includes the results of Prospect�s
legacy IPA operations and ProMed, which was acquired on June 1,
2007.
� �
($ in 000s) (unaudited)
Three Months Ended
March 31,
Six Months Ended
March 31,
2009 �
2008
2009 �
2008 � Total managed
care revenues $ 48,159 $ 50,681 $ 96,290 $ 101,249 Total managed
care cost of revenues �
36,956 �
40,208 �
74,567 �
81,476 Gross margin 11,204
10,473 21,723 19,773 � General and administrative 7,479 7,497
14,675 15,007 Depreciation and amortization �
884 �
877 �
1,755 �
1,729 Total
non-medical expenses 8,364 8,374 16,430 16,736 � Income from
unconsolidated joint venture �
595
�
694
�
947
�
1,169
� Operating income
$ 3,435 $
2,793 $ 6,240 $
4,206 �
Managed care revenues for the second quarter of fiscal 2009
decreased by approximately $2.5 million, or 5.0%, compared with the
second quarter of fiscal 2008. This decrease reflects the combined
impact of ProMed�s cancellation of certain unprofitable Medi-Cal
contracts and lower HMO enrollment, partially offset by higher
capitation rates.
Gross margin improved to 23.2% from 20.7% in the second quarter
of fiscal 2008, due primarily to the unprofitable contract
cancellations referenced above and improved claims expense
management.
General and administrative (�G&A�) expenses for the second
quarter of fiscal 2009 remained unchanged at $7.5 million.
Income from unconsolidated joint ventures amounted to
approximately $0.6 million in the second quarter of fiscal 2009 as
compared to approximately $0.7 million in the second quarter of
fiscal 2008 due to slight changes in enrollment and share of
hospital costs.
Operating income for the second quarter of fiscal 2009 rose 23%
to $3.4 million from $2.8 million in the second quarter of fiscal
2008 due to the combination of factors referenced above.
Hospital
Services
Prospect�s Hospital Services segment consists of Alta�s four
community-based hospitals in southern California. Prospect acquired
Alta in August 2007.
� �
($ in 000s) (unaudited) Three Months Ended
March 31,
Six Months Ended
March 31,
� �
2009 2008 2009
2008 � Net hospital services patient revenues $
37,908 $ 32,396 $ 73,230 $ 59,682 Operating expenses: Hospital
operating expenses 22,858 20,967 45,003 38,968 General and
administrative 3,050 2,912 6,217 5,535 Depreciation and
amortization �
936 �
1,023 �
1,827 �
2,065 Total operating expenses �
26,843 �
24,902 �
53,048 �
46,568 � Operating income
$
11,065 $ 7,494
$ 20,183 $
13,114 �
Net hospital services revenues for the second quarter of fiscal
2009 increased by 17% to $37.9 million from $32.4 million in the
same period last year, primarily reflecting the higher Medi-Cal
contribution, plus smaller increases in all other payor categories.
A 9.1% increase in the average length of patients� stay was the
primary driver of a 4.4% increase in adjusted patient days during
the current year quarter, to 25,600. This increase in adjusted
patient days, combined with an 11.2% increase in net inpatient
revenue per patient day to $1,478, account for the majority of the
revenue increase.
Total hospital operating expenses increased to $26.8 million for
the fiscal 2009 second quarter, given the increase in patient days,
but declined to 70.8% of revenues from 76.9% of revenues in the
same period last year as a result of efficiencies attained when
operating at the higher volumes.
Hospital operating income for the second quarter of fiscal 2009
rose 47.6% to $11.1 million, from $7.5 million in the second
quarter of fiscal 2008, due to the combination of factors
referenced above.
Brotman Medical
Center
As previously announced, Prospect increased its ownership in
Brotman Medical Center (�Brotman�) from approximately 33% to
approximately 72%, effective April 14, 2009. Founded in 1924 and
based in Culver City, California, Brotman is a 420-bed acute care
hospital that offers a wide range of inpatient and outpatient
services, including a 24-hour emergency room, rehabilitation,
psychiatric care and chemical dependency services. Effective April
14, 2009, Prospect will begin consolidating Brotman into its
financial statements and expects to publish stand alone Brotman
audited and unaudited financial statements and pro forma financial
information by no later than June 30, 2009. Accordingly, Prospect
results through the second quarter of fiscal 2009 exclude
Brotman.
Classification of
Debt
The Company has met all interest and principal payment
obligations on its long-term debt since inception of the loans.
However, as previously disclosed, on March�19, 2009 the Company
received notices from its lenders asserting that the Company was in
default of a requirement to sell certain operating assets by a
specified date. Additionally, on April 17, 2009, the Company
received notices from its lenders asserting that the Company�s
April 14, 2009 increase in ownership of Brotman violated certain
provisions of the amended credit agreements. The Company has
contested both assertions. Based on the notices of asserted
default, the Company has classified all related debt and associated
interest rate swap liability as current at March 31, 2009.
The Company is in discussions with its lenders to seek
resolution of these matters. However, there can be no assurance
that these matters will be resolved on a basis favorable to the
Company. The lenders also began assessing default interest
(additional 2% per annum) effective with the first asserted event
of default of March 19, 2009.
Prospect has formally engaged an investment banking firm to
undertake a refinancing of the current debt. Notwithstanding
current market conditions, based on the Company�s sustained
performance and cash flow generation, the Company is optimistic
that it will be able to complete a refinancing - on more attractive
terms and with a capital partner more aligned with, and supportive
of, the Company�s strong performance and disciplined future
expansion plans.
Use of Adjusted
EBITDA
Adjusted EBITDA (earnings before interest, taxes, depreciation
and amortization and other amounts considered by management to be
non-recurring) is not a measure of financial performance under
generally accepted accounting principles (�GAAP�). Management
believes Adjusted EBITDA, in addition to operating income, net
income and other GAAP measures, is a useful indicator of the
Company�s financial and operating performance and its ability to
generate cash flows from operations that are available for taxes,
capital expenditures and debt service. Investors should recognize
that Adjusted EBITDA might not be comparable to similarly-titled
measures of other companies. This measure should be considered in
addition to, and not as a substitute for, or superior to, any
measure of performance prepared in accordance with GAAP.
Reconciliations of Adjusted EBITDA amounts to the most directly
comparable GAAP measures for each of the quarterly periods in
fiscal 2008 and fiscal 2009 are included in the financial
information provided as part of this release.
Conference Call
Management will host a conference call on Tuesday, May 19, 2009
at 1:00 pm ET / 10:00 am PT, to discuss these results. Interested
parties may participate in the call by dialing (866) 267-2584
(Domestic) or (706) 634-4739 (International) approximately 10
minutes before the call is scheduled to begin and ask to be
connected to the Prospect Medical Holdings conference call.
The conference call will be broadcast live over the internet at
the following link:
http://investor.shareholder.com/media/eventdetail.cfm?eventid=69081&CompanyID=PROSPECT&e=1&mediaKey=FD1088B6F9BDB79FFAEA6E426404E661
To listen to the live call on the internet, go to the website at
least 15 minutes early to register, download and install any
necessary audio software. If you are unable to participate in the
live call, the conference call will be archived and can be accessed
for approximately 30 days.
ABOUT PROSPECT MEDICAL
HOLDINGS
Prospect Medical Holdings operates five community-based
hospitals in the greater Los Angeles area and manages the medical
care of approximately 183,000 individuals enrolled in HMO plans in
Southern California, through a network of approximately 14,000
specialist and primary care physicians.
This press release contains forward-looking statements.
Additional written or oral forward-looking statements may be made
by Prospect from time to time, in filings with the Securities and
Exchange Commission, or otherwise. Statements contained herein that
are not historical facts are forward-looking statements. Investors
are cautioned that forward-looking statements, including the
statements regarding anticipated or expected results, involve risks
and uncertainties which may affect the Company's business and
prospects, including those outlined in Prospect's Form 10-K filed
on December 29, 2008, as well as risks and uncertainties arising
from Prospect's acquisition of Alta and ProMed, and the debt
incurred by Prospect in connection with those acquisitions. Any
forward-looking statements contained in this press release
represent our estimates only as of the date hereof, or as of such
earlier dates as are indicated, and should not be relied upon as
representing our estimates as of any subsequent date. While we may
elect to update forward-looking statements at some point in the
future, we specifically disclaim any obligation to do so, even if
our estimates change.
� �
Prospect Medical Holdings,
Inc.
Condensed Consolidated
Statements of Operations
($ in 000s, except per share
data)
(Unaudited)
�
Three months ended March 31, Six
months ended March 31,
2009 �
2008
2009 �
2008 Revenues:
Managed care revenues $ 48,159 $ 50,681 $ 96,290 $ 101,249 Net
hospital services revenues �
37,908 � �
32,396 � �
73,231 � �
59,682
� Total revenues 86,067 83,077 169,521 160,931 � Operating
expenses: Managed care cost of revenues 36,956 40,208 74,567 81,476
Hospital operating expenses 22,858 20,967 45,003 38,968 General and
administrative 13,380 14,281 25,765 26,935 Depreciation and
amortization �
1,823 � �
1,907 � �
3,589 � �
3,808 � Total operating
expenses 75,016 77,363 148,924 151,187 � Operating income from
unconsolidated joint venture �
595 � �
694 � �
947 � �
1,169 �
Operating income 11,646 6,408 21,544 10,913 Other (income) expense:
Investment income (20 ) (149 ) (68 ) (443 ) Interest expense and
amortization of deferred financing costs 6,576 5,294 12,714 9,493
(Gain) loss in value of interest rate swap arrangements �
(955 ) �
- � �
8,713 � �
877 � Total other (income)
expense, net 5,601 5,145 21,359 9,927 � � Income from continuing
operations before income taxes 6,045 1,263 184 986 Provision for
income taxes �
2,496 � �
456 � �
76 � �
355 � Income from continuing
operations before minority interest 3,549 807 108 631 Minority
interest �
1 � �
3 � �
4 � �
8 � Income from continuing operations 3,548 804 104
623 Loss from discontinued operations, net of tax �
-
� �
(76 ) �
- � �
(392
) Net income before preferred dividend 3,548 728 104
231 Dividend to preferred stockholders �
- � �
(1,983 ) �
- � �
(3,865 ) Net income (loss) attributable
to common stockholders
$ 3,548 �
$ (1,255 ) $
104 �
$ (3,634
) � Per share data: Net income (loss) per share
attributable to common stockholders: Basic
$
0.17 � $
(0.11 ) $
0.01 � $
(0.31 ) Diluted
$ 0.17 � $
(0.11
) $
0.01 � $
(0.31
) � Weighted average shares outstanding Basic �
20,508,444 � �
11,782,567 � �
20,508,444 � �
11,747,942 � Diluted �
20,679,247 � �
11,782,567 � �
20,681,522 � �
11,747,942 � � � �
Prospect Medical Holdings,
Inc.
Condensed Consolidated Balance
Sheets
($ in 000s)
�
March 31, September 30, 2009
(unaudited)
2008
ASSETS
Current assets: Cash and cash equivalents $ 31,533 $ 33,583
Investments, primarily restricted certificates of deposit 664 637
Patient accounts receivable, net of allowance for doubtful accounts
of $4,617and $3,891 at March 31, 2009 and September 30, 2008 22,571
18,314 Government program receivables 2,853 4,365 Risk pool
receivables - 338 Other receivables 2,751 2,599 Third party
settlements 1,137 216 Notes receivable current portion 204 224
Refundable income taxes, net 728 2,654 Deferred income taxes, net
5,788 5,788 Prepaid expenses and other current assets �
4,674 � � 4,236 � Total current assets �
72,904 �
72,954
� Property, improvements and equipment: Land and land improvements
18,501 18,452 Buildings 22,413 22,233 Leasehold improvements 1,912
1,505 Equipment 10,623 10,628 Furniture and fixtures � 913 � � 913
� 54,362 53,730 Less accumulated depreciation and amortization �
(9,375 ) � (7,911 ) Property, improvements and equipment, net
44,987 45,820 Notes receivables, long term portion 237 238 Deposits
and other assets 2,222 778 Deferred financing costs, net 594 661
Goodwill 128,877 128,877 Other intangible assets, net � 45,615 � �
47,740 � Total assets $ 295,436 � $ 297,068 � �
LIABILITIES AND SHAREHOLDERS�
EQUITY
Current liabilities: Accrued medical claims and other
healthcare costs payable $ 19,374 $ 20,480 Accounts payable and
other accrued liabilities 11,227 16,296 Accrued salaries, wages and
benefits 12,853 11,257 Income taxes payable 1,998 - Current portion
of capital leases 403 341 Debt, due on demand 137,832 12,100
Interest rate swap liability 14,726 - Other current liabilities �
689 � � 107 � Total current liabilities 199,103 60,581 Long-term
debt, less current portion - 131,921 Deferred income taxes 21,129
24,434 Malpractice reserve 786 786 Capital leases, net of current
portion 380 442 Interest rate swap liability - 6,013 Other
long-term liabilities � 15 � � - � Total liabilities � 221,413 � �
224,176 � Minority interest 85 81 Total shareholders� equity �
73,937 � � 72,811 � Total liabilities and shareholders� equity $
295,436 � $ 297,068 � �
Adjusted EBITDA
Reconciliation
(Unaudited) ($ in
millions)
A reconciliation of Adjusted EBITDA (also referred to as
�Normalized EBITDA� in Management discussions) to the most directly
comparable GAAP measure in accordance with SEC Regulation G
follows, for each of the quarters of fiscal 2008 and fiscal
2009.
� � � � � �
Q1 08 Q2 08
Q3 08 Q4 08 Q1
09 Q2 09 � Operating income � per
earnings release (1) $ 4.1 $ 6.4 $ 4.1 $ 8.7 $ 9.9 $ 11.6
Depreciation and amortization 1.9 1.9 1.9 2.1 1.8 1.8 Prior CEO
severance 1.3 � Other adjustments (2) �
2.4 �
1.6 �
2.9 �
0.8 �
0.3 �
0.6 � � Adjusted EBITDA - Quarterly
$ 8.4 $ 9.9
$ 10.2 $ 11.6
$ 12.0 $ 14.0 �
� Adjusted EBITDA � Trailing Twelve Month (TTM)
$
40.1 $ 47.8 � � Net Debt:
Adjusted TTM EBITDA Ratio: Ending Debt $ 137.8 Less: Ending cash,
cash equivalents and investments �
(32.2 ) Ending Net
Debt
$ 105.6 � Net Debt: Adjusted TTM
EBITDA Ratio �
2.21 � � � � � � (1) � � Operating
income for all of fiscal 2008 is not intended to be identical to
the sum of the quarterly operating income per prior earnings
releases due primarily to classification of the results of
discontinued operations. � (2) Comprised of amounts considered by
management to be non-recurring, including certain legacy IPA costs,
special investigation costs, restatement costs and lender charges.
The majority of the Q4 08 and Q1 09 items, and approximately half
of Q2 09 items, represent charges for stock-based compensation.
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