Prospect Medical Holdings Reports Fiscal 2009 Second Quarter Financial Results

Conference Call Scheduled for Tuesday, May 19th at 1:00 pm ET / 10:00 am PT

Q2 2009 Highlights Compared to Q2 2008

* Revenues increased to $86.1 million from $83.1 million

* Operating income up 81.8% to $11.6 million

*

* Operating margin rose to 13.5% from 7.7%

* Net income attributable to common shareholders of $3.5 million, or $0.17 per
diluted share, from net loss of $1.3 million, or $0.11 per diluted share

* Adjusted EBITDA increased 41.4% to $14.0 million

* Net operating cash flow of $5.0 million, from $1.4 million

* Cash, cash equivalents, and investments of $32.2 million at March 31, 2009

LOS ANGELES--(Business Wire)--
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 Six Months Ended
March 31, 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 Six Months Ended
March 31, 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 Holdingsoperates 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 Six months ended
March 31, 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 2008
(unaudited)
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 $4,617 22,571 18,314
and $3,891 at March 31, 2009 and September 30, 2008
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.

Prospect Medical Holdings, Inc.
Linda Hodges, 714-796-4271
Vice President
Linda.hodges@prospectmedical.com
-or-
Investor Relations:
The Equity Group Inc.
Devin Sullivan, 212-836-9608
dsullivan@equityny.com

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