Prospect Medical Holdings, Inc. (NYSE Amex: PZZ)
(“Prospect”), which owns and operates five hospitals and manages
the medical care of HMO enrollees in southern California, today
announced financial results for its fiscal 2009 third quarter ended
June 30, 2009. Results for all periods exclude the Antelope Valley
entities since their sale on August 1, 2008, with prior results
reflected as discontinued operations. Results for the fiscal 2009
periods include Brotman Medical Center (“Brotman”), following
Prospect’s April 14, 2009 acquisition of a majority ownership
position in Brotman.
This quarter’s results reflect the Company’s further
strengthened financial and operating position, following
initiatives to improve core operations, operating blueprint,
management culture and future growth platforms. During the fiscal
2009 third quarter, the Company recorded strong performances at
each of its business segments. The Company continued its model of
delivering high quality care, while reducing administrative costs
and improving efficiencies throughout the organization. In
combination, these actions allowed the Company to produce another
strong quarterly performance, notwithstanding this being non-peak
season for the Hospital Segment.
Over the last approximately 18 months, Prospect’s initiatives
have included:
- the July 29th closing of a $160
million senior secured notes offering – a major step forward in
improving the Company’s capital structure -- which had the
immediate effect of lowering Prospect’s borrowing rate by
approximately 6% per year, eliminating various financial and
administrative covenants, and removing significant costs and
distractions. In addition to the interest rate savings, these more
favorable terms provide flexibility for future growth and enable
Prospect to devote its entire focus to strengthening operations.
The absence of required principal payments also allows the Company
to retain incremental after-tax free cash flows of approximately
$12 million per year;
- the July 29th payoff of all
amounts due under the Company’s interest rate swap arrangements
(required under the prior debt facilities), which had contributed
significantly to the prior cost of borrowing, and been a source of
considerable earnings volatility;
- operational turnaround and
increased ownership stake at Brotman, a 420-bed acute care hospital
in Culver City, California, by instituting many of the same
principles and discipline that have substantially improved the
results of Prospect’s other businesses. The leadership of Prospect
and Brotman accomplished a significant EBITDA turnaround, going
from losing approximately $1 million per month, to now projecting
profitability for the first time in many years;
- further strengthened and
broadened the management team, across all disciplines; and
- further diversified the
Company’s portfolio of services, revenue streams, payers, and
geography
The Company is confident that its current operating model will
successfully align with prospective healthcare reforms being
legislated in Washington, DC. Prospect’s success has been
deliberately built on providing quality acute and preventative care
through its physician network and hospital operations, supported by
a platform of effective expense and utilization management.
FISCAL 2009 THIRD QUARTER
RESULTS
Consolidated revenues for the third quarter of fiscal 2009 rose
41.5% to $114.3 million from $80.9 million in the same period last
year. Hospital Services revenues rose 111.6% to $66.5 million,
including a $4.9 million revenue increase at Alta’s four hospitals
and a $30.1 million quarterly contribution from Brotman. Revenues
at the IPA Management segment decreased to $47.8 million from $49.4
million in the third quarter of fiscal 2008, the result of slightly
higher unemployment and cancellation of certain unprofitable
Medi-Cal contracts.
Operating income for the third quarter of fiscal 2009 increased
65.4% to $6.7 million from $4.1 million in the fiscal 2008 third
quarter.
During the third quarter of fiscal 2009, interest expense was
$8.7 million as compared to $6.6 million in the same period last
year, due to increased rates and the assessment of default interest
by the Company’s prior lenders, together with interest on Brotman
debt. Non-cash gain related to changes in the fair market value of
the Company’s interest rate swap arrangements totaled $3.7 million
during the third quarter of fiscal 2009 as compared to a $4.9
million gain in the third quarter of fiscal 2008.
Net loss attributable to common stockholders for the fiscal 2009
third quarter was $0.2 million, or $0.01 per diluted share on
approximately 20.5 million weighted average diluted shares
outstanding, compared to a net loss of $5.5 million, or $0.46 per
diluted share, on approximately 11.8 million weighted average
diluted shares outstanding.
Adjusted EBITDA for the third quarter of fiscal 2009 increased
25% to $12.8 million from $10.2 million in the same period last
year. For the trailing twelve month (TTM) period ended June 30,
2009, Adjusted EBITDA was $50.4 million. Brotman contributed
approximately $0.1 million to the quarterly and TTM periods (see
accompanying reconciliation tables in this release).
SEGMENT RESULTS
Hospital
Services
Prospect’s Hospital Services segment consists of Alta’s four
community-based hospitals in southern California (acquired in
August 2007) plus the operations of Brotman. To facilitate
same-store, year-over-year comparison, Brotman results have been
separately identified in the following tables.
Three Months Ended June 30
2009 2008
Alta
Brotman
Consolidated
($ in 000s) (unaudited) Net hospital services
revenues $ 36,332 $ 30,138 $ 66,470 $ 31,413 Operating expenses:
Hospital operating expenses 23,243 28,035 51,278 20,764 General and
administrative 3,264 3,333 6,597 3,219 Depreciation and
amortization
1,007 263
1,270 1,020 Total
operating expenses
27,514
31,631 59,145
25,003 Operating income (loss)
$
8,820 $ (1,493
) $ 7,327 $
6,410
Nine Months Ended June 30
2009 2008
Alta
Brotman
Consolidated
($ in 000s) (unaudited) Net hospital services
revenues $ 109,563 $ 30,138 $ 139,701 $ 91,096 Operating expenses:
Hospital operating expenses 68,246 28,035 96,281 59,732 General and
administrative 9,480 3,333 12,813 8,755 Depreciation and
amortization
2,834 263
3,098 3,085 Total
operating expenses
80,560
31,631 112,192
71,572 Operating income (loss)
$
29,003 $ (1,493
) $ 27,509 $
19,524
Net hospital services revenues for the third quarter of fiscal
2009 increased by 111.6% to $66.5 million from $31.4 million in the
same period last year, primarily reflecting the inclusion of
Brotman in the 2009 quarter. On a “same-store” basis, higher
revenues were attributable to further increases in Medicare and
Medi-Cal admissions at the Company’s Alta hospitals.
Total hospital operating expenses increased to $59.1 million for
the fiscal 2009 third quarter, due primarily to costs associated
with the higher volumes at the Company’s Alta hospitals, as well as
approximately $31.6 million due to inclusion of Brotman in the
current quarter.
Hospital operating income for the third quarter of fiscal 2009
rose 14.3% to $7.3 million from $6.4 million in the third quarter
of fiscal 2008, which increase was comprised of a $2.4 million
increase at the Company’s existing Alta hospitals, offset by a $1.5
million quarterly operating loss for Brotman.
IPA Management
($ in 000s) (unaudited)
Three Months Ended
June 30,
Nine Months Ended
June 30,
2009
2008
2009
2008
Total managed care revenues $ 47,848 $ 49,448 $ 144,138 $
150,697 Total managed care cost of revenues
36,968 38,973
111,535 120,448 Gross margin
10,880 10,475 32,603 30,249 General and administrative 7,286
7,263 21,961 22,265 Depreciation and amortization
889 879 2,644
2,609 Total non-medical expenses 8,175 8,142
24,605 24,874 Income from unconsolidated joint venture
535
955
1,482
2,124
Operating income
$ 3,240
$ 3,288 $ 9,480
$ 7,499
Managed care revenues for the third quarter of fiscal 2009
decreased by approximately $1.6 million, or 3.2%, compared with the
third quarter of fiscal 2008 with slightly higher unemployment and
cancellation of certain unprofitable Medi-Cal contracts.
Gross margin increased to 22.7% from 21.1% in the third quarter
of fiscal 2008, due primarily to a more profitable mix of business
and continued cost management.
General and administrative (“G&A”) expense for the third
quarter of fiscal 2009 were unchanged at $7.3 million compared to
the third quarter of fiscal 2008.
Income from unconsolidated joint venture amounted to
approximately $0.5 million in the third quarter of fiscal 2009 as
compared to approximately $1.0 million in the third quarter of
fiscal 2008 due to positive risk pool income in the 2008
period.
IPA operating income for the third quarter of fiscal 2009
decreased 1.5% to $3.2 million from $3.3 million in the third
quarter of fiscal 2008 as a result of the above-referenced
items.
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 for 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 2009 are included in the financial information
provided as part of this release.
Conference Call
Management will host a conference call on Thursday, August 20,
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=71761&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 178,000 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 and other SEC 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.
Prospect Medical Holdings,
Inc.
Condensed Consolidated
Statements of Operations
($ in 000s, except per share
data)
(Unaudited)
Three months ended
June 30,
Nine months ended
June 30,
2009
2008
2009
2008
Revenues: Net hospital services revenues $ 66,470 $ 31,413 $
139,701 $ 91,096 Managed care revenues
47,848
49,448
144,138 150,697
Total revenues 114,318 80,861 283,839 241,793 Operating
expenses: Hospital operating expenses 51,278 20,764 96,281 59,732
Managed care cost of revenues 36,968 38,973 111,535 120,448 General
and administrative 17,740 16,122 43,505 43,057 Depreciation and
amortization
2,162
1,903 5,751
5,712 Total operating expenses 108,148 77,762
257,072 228,949 Operating income from unconsolidated joint
venture
535 955
1,482 2,124
Operating income 6,705 4,054 28,249 14,968 Other (income)
expense: Investment income (33 ) (81 ) (101 ) (523 ) Interest
expense and amortization of deferred financing costs 8,682 6,562
21,396 16,055 (Gain) loss in value of interest rate swap
arrangements (3,694 ) (4,948 ) 5,019 (4,072 ) Loss on debt
extinguishment
―
8,309 ―
8,309 Total other (income) expense, net
4,954 9,842 26,313 19,769 Income (loss) from
continuing operations before income taxes 1,751 (5,788 ) 1,936
(4,801 ) Provision (benefit) for income taxes
1,989 (2,083 )
2,065 (1,728
) Loss from continuing operations before minority
interest (237 ) (3,705 ) (129 ) (3,073 ) Minority interest
1 3
5 12 Loss from
continuing operations (238 ) (3,708 ) (134 ) (3,085 ) Income (loss)
from discontinued operations, net of tax
―
188 ―
(203 ) Net loss before preferred dividend
(238 ) (3,520 ) (134 ) (3,288 ) Dividend to preferred stockholders
― (1,932 )
― (5,797 ) Net
loss attributable to common stockholders
$
(238 ) $ (5,452
) $ (134 )
$ (9,085 ) Per share
data: Net loss per share attributable to common stockholders: Basic
$ (0.01 ) $
(0.46 ) $ (0.01
) $
(0.77 ) Diluted
$ (0.01 ) $
(0.46 ) $ (0.01
) $
(0.77 ) Weighted
average shares outstanding Basic
20,520
11,783 20,152
11,759 Diluted
20,520 11,783
20,152 11,759
Prospect Medical Holdings,
Inc.
Condensed Consolidated Balance
Sheets
($ in 000s)
June 30,
September 30,
2009
2008
(unaudited)
ASSETS
Current assets: Cash and cash equivalents $ 31,587 $ 33,583
Restricted cash 1,745 ― Investments, primarily restricted
certificates of deposit 665 637 Patient accounts receivable, net of
allowance for doubtful accounts of $11,509 and $3,891 at June 30,
2009 and September 30, 2008 39,307 18,314 Government program
receivables 3,606 4,365 Risk pool receivables 194 338 Other
receivables 1,222 2,598 Third party settlements 2,990 217 Notes
receivable current portion 62 224 Refundable income taxes, net ―
2,654 Deferred income taxes, net 5,788 5,788 Inventories 4,185
1,460 Prepaid expenses and other current assets
4,479 2,776 Total
current assets
95,830
72,954 Property, improvements and
equipment: Land and land improvements 31,028 18,452 Buildings
27,047 22,233 Leasehold improvements 2,028 1,505 Equipment 20,140
10,628 Furniture and fixtures
913
912 81,156 53,730 Less accumulated depreciation
and amortization
(13,219 )
(7,911 ) Property, improvements and
equipment, net 67,937 45,819 Notes receivables, long term portion
371 238 Deposits and other assets 391 778 Deferred financing costs,
net 3,045 662 Goodwill 150,046 128,877 Other intangible assets, net
44,553 47,740
Total assets
$ 362,174
$ 297,068
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current liabilities: Accrued medical claims and other
healthcare costs payable $ 17,863 $ 20,480 Accounts payable and
other accrued liabilities 28,548 16,296 Accrued salaries, wages and
benefits 22,745 11,257 Due to government payer 13,834 ― Income
taxes payable 64 ― Payable to Creditors’ Trust 1,000 ― Current
portion of capital leases 1,137 341 Current portion of long-term
debt 900 12,100 Interest rate swap liability – current 11,032 ―
Other current liabilities
693
107 Total current liabilities 97,816 60,581
Long-term debt, net of current portion 160,399 131,921 Deferred
income taxes 26,522 24,433 Malpractice reserve 2,706 786 Capital
leases, net of current portion 542 442 Interest rate swap liability
– non-current
― 6,013
Total liabilities
287,985
224,176 Minority interest 86 81 Total
shareholders’ equity
74,103
72,811 Total liabilities and shareholders’
equity
$ 362,174 $
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 Q3 09 Operating
income – per earnings release (1) $ 4.1 $ 6.4 $ 4.1 $ 8.7 $ 9.9 $
11.6 $ 6.7 Depreciation and amortization 1.9 1.9 1.9 2.1 1.8 1.8
2.2 Prior CEO severance
1.3 Stock based compensation (2) 1.3 0.3 0.3 0.2 All other
adjustments (3)
2.4 1.6
2.9 (0.5 )
0.3 3.7
Adjusted EBITDA – Quarterly (4)
$
8.4 $ 9.9 $
10.2 $ 11.6
$ 12.0 $ 14.0
$ 12.8
Adjusted EBITDA – Trailing Twelve
Month (TTM)
$ 40.1 $
50.4 Net Debt: Adjusted TTM EBITDA
Ratio: Ending Debt $ 161.3
Less: Ending cash, equivalents and
investments
(34.0 ) Ending Net Debt
$ 127.3 Net Debt: Adjusted TTM
EBITDA Ratio
2.5
(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)
Stock-based compensation charges during the first three quarters of
fiscal 2008 were less than $50,000 per quarter; as such do not
appear on this reconciliation, where amounts have been rounded to
the nearest $100,000.
(3)
Comprised of amounts considered by management to be non-recurring,
including certain legacy IPA costs, special investigation costs,
restatement costs, prior lender costs, and certain Brotman one-time
costs.
(4)
Brotman contributed approximately $0.1 million during Q3 09.
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