Prospect Medical Holdings Issues Interim Letter to Shareholders
14 Novembre 2008 - 12:39AM
Business Wire
Samuel S. Lee, Chairman and Chief Executive Officer of Prospect
Medical Holdings, Inc. (NYSEAlternextUS: PZZ) today issued an
Interim Letter to Shareholders: Dear Fellow Shareholder: As you are
aware, Fiscal 2008 was an eventful period for Prospect Medical
Holdings (�Prospect�), filled with challenges, and the Company�s
successes in addressing them. The purpose of this interim letter is
to summarize these previously disclosed events and their associated
resolutions, update investors on various aspects of our corporate
strategy, and convey our optimism for the future of Prospect. I was
named Chief Executive Officer (�CEO�) of Prospect in March 2008 and
Chairman in May 2008. I joined Prospect following the Company�s
acquisition of Alta Hospitals System, LLC (�Alta�) in August 2007,
and continue as Alta�s CEO. I am also one of Prospect�s largest
shareholders. Financial Results Summary for the Nine Months Ended
June 30, 2008 As we previously reported to you, revenues rose by
more than 150% to $241.8 million from $95.6 million in the same
period last year. This increase was due primarily to a $91.1
million contribution from Alta and a $60.6 million revenue
contribution from ProMed Healthcare (�ProMed�), which we acquired
in June 2007 and now operates within our IPA Management business.
Operating income rose to $15.0 million from an operating loss of
$382,000 in the comparable prior year period, reflecting
contributions from Alta and ProMed, offset by sub-optimal results
at Prospect�s Legacy IPA business. Our performance suggests
"normalized" EBITDA for the first nine months of Fiscal 2008 of
approximately $29 million. We provided an EBITDA reconciliation in
our August 12, 2008 press release, showing that reported EBITDA
during the nine month periods presented had risen almost six fold,
from approximately $1.8 million in the 2007 period, to almost $11
million in the 2008 period. It is important to further note, that
the EBITDA reconciliation amount for the 2008 period was after
deducting approximately $18 million in unusual and/or one time
items that are not expected to recur, going forward. These
non-recurring items included approximately $8.3 million related to
debt extinguishment, $5.8 million related to preferred stock
dividends, $1.3 million related to prior CEO severance and
significant audit, legal and lender costs associated with
successfully concluding the one-time financial reporting and credit
agreement matters discussed in prior press releases. I am pleased
with the significant efforts put forth in concluding each of these
matters and with this level of EBITDA performance. We reported a
net loss of $9.1 million, after consideration of the $18 million in
non-recurring items discussed above, and $16.1 million in interest
expense. At our August Shareholders� Meeting, the conversion of all
preferred shares into Prospect common stock was approved and, as a
result, these dividends were cancelled, the liability was
reclassified to equity and, any future P&L impact was
eliminated. Operating Initiatives To combat the challenges from
this past year, Prospect undertook a number of substantive actions
since March of this year to improve operating efficiencies at
Prospect�s Holding Company and Prospect�s Legacy IPA operations,
and rationalize costs. We have: addressed and completed all matters
related to: (1) SEC filings; (2) AMEX listing; (3) DMHC regulatory
filings; (4) Lender deliverables; and (5) Credit amendments;
stabilized and strengthened the business unit and management team
at Alta, ProMed, Prospect IPA, and Prospect; restructured the
senior management team and added seasoned professionals in the
areas of Finance, Operations, Business Development and Compliance;
restructured the Company�s Board of Directors (from 9 to 5);
retained a new audit firm effective September 2, 2008; completed
the sale of the Antelope Valley entities effective August 1, 2008,
a non-strategic asset, and utilized net proceeds of $4.2MM to pay
down debt; stabilized and strengthened the operating and financial
reporting components of our two operating segments; reduced first
lien debt principal by $8.4MM; continued to meet all monthly
financial and administrative covenants with no exception. In sum,
Prospect has performed fully and as committed, while significantly
strengthening its credit profile. Financial Position Prospect has
become a company of significantly greater size, scale, and, we
believe, potential than at any time in its history. We generated
$6.2 million in operating cash flow for the nine months ended June
30, 2008, and our balance sheet at that date included cash and
equivalents of $26.4 million, an increase of approximately $4.8
million from September 30, 2007. This financial position is
noteworthy when one considers that a significant portion of the
Company�s operating cash flow was utilized in paying down our
long-term debt, and prior period one-time and/or unusual costs and
expenses. At June 30, 2008, long-term debt totaled $149 million.
Quarterly principal payments on this debt amounted to $3.75 million
during the nine months ended June 30, 2008 and we have made
additional principal payments of $5.8 million since that date.
During this same time our cash position has continued to rise.
Strategic Initiatives for FY 2009 Working closely with our
dedicated and talented team of professionals, we have created a
culture of action, accountability, foresight, and urgency. Getting
to this point has consumed much of our attention. However, we have
now positioned Prospect to more competitively, efficiently, and
profitably pursue the opportunities inherent in our markets. In
that regard, over the next year we will continue to focus on
improving our core operating platform, which will include potential
cross-fertilization opportunities among our two operating segments,
and drive further improvement at our IPA operations. The continued
elevation of our credit profile through cash management and debt
repayment will remain a top priority, and we will continue to
explore ways to reduce our debt and interest exposure. We also
intend to closely monitor developments out of Washington, D.C.
under a new administration. Healthcare is a complex issue and it is
premature to speculate on specific legislation. However, the
cornerstone of President-elect Obama�s plan � expanded Medicaid
eligibility, mandated coverage, government subsidies to defray the
cost of purchasing insurance � suggest that more Americans will be
covered under some type of insurance plan. As always, our
enthusiasm is tempered by an acknowledgment that there is still
work to be done, and an understanding of the dynamic and
competitive nature of our markets. We expect to issue financial
results for the fourth quarter and fiscal year ended September 30,
2008 towards the end of December, and I look forward to providing
you with a further update at that time. On behalf of the Company�s
management, employees, and Board of Directors, I want to thank our
investors for their continued support. Sincerely, Samuel S. Lee
Chairman and Chief Executive Officer ABOUT PROSPECT MEDICAL
HOLDINGS Prospect Medical Holdings operates four community-based
hospitals in the greater Los Angeles area and manages the medical
care of individuals enrolled in HMO plans in Southern California,
through a network of approximately 14,000 specialist and primary
care physicians. This Letter to Shareholders 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 June 2, 2008 and
its Form 10-Q filed on August 12, 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 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. EBITDA (earnings before interest, taxes,
depreciation and amortization) is not a measure of financial
performance under generally accepted accounting principles
(�GAAP�). Management believes EBITDA, in addition to operating
profit, 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 taxes
and capital expenditures. Investors should recognize that 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 EBITDA amounts
to the most directly comparable GAAP measures for the nine-month
period ended June 30, 2008 are available in the Company�s third
quarter press release dated August 12, 2008.
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