PROSPECT MEDICAL HOLDINGS INC 
By Prospect Medical Holdings, Inc. (NASDAQ: PZZ) (?Prospect? or the ?Company?) today announced financial results for its fiscal 2010 third quarter ended June 30, 2010.
Prospect's third quarter results reflected the continued success of an operating platform that emphasizes quality care, revenue diversification, cost-effectiveness and cash generation. The Company believes that its diversified revenue model is well suited to today's healthcare market, being highly flexible and efficient, and positions the Company to capitalize on changes anticipated for Accountable Care Organizations under the Patient Protection and Affordable Care Act.
The Hospital Services segment increased revenues by 4.6%, with operating profit increasing by 65.0% over the prior year. Revenues of $47.4 million at the Medical Group were stable compared to the fiscal 2009 third quarter, while operating income was $3.3 million, up slightly from $3.2 million in the prior year quarter. Lower commercial enrollment given current unemployment levels was offset by continuing cost efficiencies and an increase in the number of more profitable Senior lives.
2010 fiscal year-to-date cash flow from operations was $15.1 million, an increase of 25.1% over the prior year. Cash and investments totaled $54.4 million at June 30, 2010 and the Company's $15 million revolving credit facility remained undrawn.
Adjusted EBITDA rose to a third quarter record $14.6 million for the fiscal 2010 third quarter and to $59.5 million for the trailing twelve months (?TTM?) ended June 30, 2010, also a record. The Company's net debt: Adjusted TTM EBITDA continued to strengthen to 2.1 at June 30, 2010. See reconciliation tables at the back of this release.
As previously announced, effective June 28, 2010 Prospect was added to the list of public companies that comprise the Russell 2000® Index, following the Russell Investment Group's annual reconstitution of these indexes.
Prospect will continue to focus on further improving same-store operating performance, cross-fertilizing growth between its Hospital and Medical Group segments, and entering into additional Global Capitation and other value-enhancing arrangements. The Company will also use its available cash to pursue acquisitions where significant value can be created by applying the Company's proven operating model and management approach.
CONSOLIDATED RESULTS OVERVIEW
Consolidated revenues for the fiscal 2010 third quarter rose 2.3% to $116.9 million from $114.3 million in the same period last year.
Consolidated operating income for the fiscal 2010 third quarter rose to a record $12.1 million from $6.7 million in the same period last year, primarily driven by a $4.8 million increase in operating income at the Hospital Services segment.
Net income attributable to common stockholders for the fiscal 2010 third quarter was $2.8 million, or $0.12 per diluted share on approximately 23.1 million diluted shares outstanding. This compared to a net loss attributable to common stockholders of $0.2 million, or $0.01 per diluted share, on approximately 20.5 million diluted shares outstanding for the fiscal 2009 third quarter.
SEGMENT RESULTS
Hospital Services
Prospect's Hospital Services segment consists of the Company's five hospitals in Southern California, including Brotman since April 14, 2009.
| ($ in 000s, unaudited) |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||
| 2010 |
| 2009 |
| 2010 |
| 2009 | |||||||
| Net hospital services revenues | $ | 69,540 | $ | 66,470 | $ | 209,490 | $ | 139,701 | ||||||
| Operating expenses: | ||||||||||||||
| Hospital operating expenses | 52,347 | 51,278 | 154,630 | 96,281 | ||||||||||
| General and administrative | 3,845 | 6,595 | 14,644 | 12,813 | ||||||||||
| Depreciation and amortization | 1,255 | 1,270 | 3,679 | 3,098 | ||||||||||
| Total operating expenses | 57,447 | 59,143 | 172,953 | 112,192 | ||||||||||
| Operating income | $ | 12,093 | $ | 7,327 | $ | 36,537 | $ | 27,509 | ||||||
Fiscal 2010 third quarter Hospital Services revenues increased by 4.6% to $69.5 million, primarily reflecting same store growth in the current year period.
Hospital operating income for the fiscal 2010 third quarter rose 65.0% to $12.1 million from $7.3 million in the fiscal 2009 third quarter, through a combination of profitable revenue growth and operational efficiencies.
Medical Groups
Prospect's Medical Groups provide multi-specialty healthcare management services to approximately 176,000 individuals enrolled in HMO plans in southern California, through networks of primary care and specialist physicians.
| ($ in 000s, unaudited) |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||
| 2010 |
| 2009 |
| 2010 |
| 2009 | |||||||
| Total medical group revenues | $ | 47,367 | $ | 47,848 | $ | 140,175 | $ | 144,138 | ||||||
| Total medical group cost of revenues | 37,422 | 36,968 | 111,130 | 111,535 | ||||||||||
| Gross margin | 9,945 | 10,880 | 29,045 | 32,603 | ||||||||||
| General and administrative | 6,315 | 7,286 | 19,454 | 21,961 | ||||||||||
| Depreciation and amortization | 820 | 889 | 2,547 | 2,644 | ||||||||||
| Total non-medical expenses | 7,135 | 8,175 | 22,001 | 24,605 | ||||||||||
| Income from unconsolidated joint venture | 482 | 535 | 1,514 | 1,482 | ||||||||||
| Operating income | $ | 3,292 | $ | 3,240 | $ | 8,558 | $ | 9,480 | ||||||
Medical Group revenues for the fiscal 2010 third quarter were $47.4 million compared to $47.8 million in the prior year period, through a combination of lower commercial enrollment levels given current unemployment levels, offset by increases in senior membership, the Medical Group Segment's most profitable line of business.
Medical Group operating income for the fiscal 2010 third quarter was $3.3 million, compared to operating income of $3.2 million in the fiscal 2009 third quarter, which increase was due primarily to further efficiencies and consolidation of certain administrative functions among Medical Groups.
Use of Adjusted EBITDA
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) 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 Prospect's financial and operating performance and its ability to generate cash flows from operations that are available for interest, taxes and capital expenditures. 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 presented are included in the financial information provided as part of this release.
RECENT MERGER AGREEMENT
As further described in the Form 8-K filed with the SEC on Monday, August 16, 2010, on that date the Company entered into a definitive merger agreement to be acquired in a merger transaction for $8.50 per share in cash by an entity sponsored by Leonard Green & Partners, L.P. Certain stockholders of the Company will also participate as post-merger stockholders in the acquiring entity.
CONFERENCE CALL
The Company will not be having a Management conference call to discuss fiscal third-quarter results.
ABOUT PROSPECT MEDICAL HOLDINGS
Prospect Medical Holdings owns and operates five community-based hospitals in the greater Los Angeles area, and manages the provision for healthcare services of HMO enrollees in Southern California, through its network of specialist and primary care physicians. Prospect Medical Holdings' website can be found at www.prospectmedicalholdings.com.
FORWARD-LOOKING STATEMENTS
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 (?SEC?) 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 21, 2009, Form 10-Q filed on August 16, 2010 and other filings. 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.
ADDITIONAL INFORMATION ABOUT THE MERGER AND WHERE TO FIND IT
In connection with the proposed merger, Prospect expects to file with the SEC a proxy statement and other materials. INVESTORS AND STOCKHOLDERS ARE ADVISED TO READ THE PROXY STATEMENT AND THESE OTHER MATERIALS WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT PROSPECT AND THE PROPOSED MERGER. Once filed with the SEC, the proxy statement and such other documents will be available without charge at www.sec.gov and on Prospect's website at www.prospectmedicalholdings.com under ?SEC Filings,? or by directing such request to Linda Hodges at (714)-796-4271.
PARTICIPANTS IN THE SOLICITATION
Prospect and its directors, executive officers and other members of its management and employees may be deemed to be participants in the solicitation of proxies from the stockholders of Prospect in connection with the proposed merger. Information concerning the interests of these directors, executive officers and other members of Prospect's management and employees in the proposed merger will be included in Prospect's proxy statement referenced above. Information regarding Prospect's directors and executive officers is also available in its Annual Report on Form 10-K for the year ended September 30, 2009 and in its proxy statement for its 2010 Annual Meeting of Stockholders, which documents are on file with the SEC. These documents are available without charge at the SEC's website at www.sec.gov and from Prospect as described above.
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| CONDENSED CONSOLIDATED STATEMENTS OF | ||||||||||||||||||||||||||||||||||||||||
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| Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||
| 2010 |
| 2009 |
| 2010 |
| 2009 | |||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||||||||||
| Net Hospital Services revenues | $ | 69,540 | $ | 66,470 | $ | 209,490 | $ | 139,701 | ||||||||||||||||||||||||||||||||
| Medical Group revenues | 47,367 | 47,848 | 140,175 | 144,138 | ||||||||||||||||||||||||||||||||||||
| Total revenues | 116,907 | 114,318 | 349,665 | 283,839 | ||||||||||||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
| Hospital operating expenses | 52,347 | 51,278 | 154,630 | 96,281 | ||||||||||||||||||||||||||||||||||||
| Medical Group cost of revenues | 37,422 | 36,968 | 111,130 | 111,535 | ||||||||||||||||||||||||||||||||||||
| General and administrative | 13,435 | 17,740 | 43,564 | 43,505 | ||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 2,078 | 2,162 | 6,236 | 5,751 | ||||||||||||||||||||||||||||||||||||
| Total operating expenses | 105,282 | 108,148 | 315,560 | 257,072 | ||||||||||||||||||||||||||||||||||||
| Operating income from unconsolidated joint venture | 482 | 535 | 1,514 | 1,482 | ||||||||||||||||||||||||||||||||||||
| Operating income | 12,107 | 6,705 | 35,619 | 28,249 | ||||||||||||||||||||||||||||||||||||
| Other (income) expense: | ||||||||||||||||||||||||||||||||||||||||
| Interest expense and amortization of deferred | ||||||||||||||||||||||||||||||||||||||||
| financing costs, net | 7,109 | 8,648 | 21,208 | 21,294 | ||||||||||||||||||||||||||||||||||||
| (Gain) loss on interest rate swap arrangements | - | (3,694) | Share
© Business Wire - 2010
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