Highlights
-- Q4 2007 revenues rose 117.8% to $71.7 million and FY 2007
revenues increased 33.0% to $180.7 million, with both periods
reflecting contributions of the Alta and ProMed acquisitions,
partially offset by decreases in IPA enrollment and hospital
risk pool revenue at Prospect's legacy IPA operation
-- Q4 and full year 2007 results are net of a $38.8 million,
non-cash, pre-tax write down of goodwill and identifiable
intangibles relating to Prospect's legacy IPA operation,
amounting to $3.67, and $4.57, per diluted share for Q4 and
full year 2007, respectively
-- Company expects to file all delayed SEC filings by June 16,
2008
SANTA ANA, Calif.--(Business Wire)--
Prospect Medical Holdings, Inc. (AMEX: PZZ) ("Prospect"), which
manages the medical care of approximately 241,000 HMO enrollees and
operates four community hospitals in southern California, today
announced financial results for its fiscal 2007 fourth quarter and
fiscal year ended September 30, 2007 (see attached tables). These
results include the operations of the two acquired entities since
their respective dates of acquisition; specifically the ProMed
Entities ("ProMed"), which Prospect acquired on June 1, 2007, and Alta
Hospitals System, LLC (f/k/a Alta Healthcare System, Inc.) ("Alta"),
which Prospect acquired on August 8, 2007.
CONSOLIDATED RESULTS OVERVIEW
Consolidated revenues for the fourth quarter of fiscal 2007 rose
117.8% to $71.7 million from $32.9 million in the same period last
year. This was due primarily to a $15.6 million contribution from Alta
and a $22.9 million contribution from ProMed, as compared to no such
contributions in the same period last year. The operating loss for the
fiscal 2007 fourth quarter was $38.2 million as compared to operating
income of $2.2 million in the fourth quarter of fiscal 2006. The net
loss for the fourth quarter of fiscal 2007 was $33.3 million, or $3.14
per diluted share, as compared to net income of $1.3 million, or $0.15
per diluted share, in the fourth quarter of 2006. The 2007 net loss
amounts are after the non-cash, non-recurring $38.8 million goodwill
and identifiable intangibles write-down described below.
Consolidated revenues for the full year of fiscal 2007 rose 33.0%
to $180.7 million from $135.8 million last year, due primarily to a
$15.6 million contribution from Alta and a $30.5 million contribution
from ProMed, as compared to no such contributions last year. This
increase was offset by a $1.2 million decrease in Prospect's legacy
IPA operation. The operating loss for fiscal 2007 was $38.1 million as
compared to operating income of $8.3 million in fiscal 2006. The net
loss for fiscal 2007 was $33.5 million, or $3.94 per diluted share, as
compared to net income of $4.9 million, or $0.60 per diluted share, in
fiscal 2006. The 2007 net loss amounts are after the non-cash,
non-recurring $38.8 million goodwill and identifiable intangibles
write-down described below.
The operating and net losses for the fiscal 2007 fourth quarter
and full year included non-cash charges totaling $38.8 million,
amounting to $3.67 per diluted share in Q4 and $4.57 per diluted share
for fiscal 2007, comprised of write-downs of $38.0 million in goodwill
and $0.8 million in identifiable intangibles related to the legacy
Prospect portion of the IPA Management segment.
Exclusive of the $38.8 million in charges, operating and net
income for the fiscal 2007 fourth quarter would have been $573,000 and
$5,500,000, respectively, while operating and net income for all of
fiscal 2007 would have been $689,000 and $5,300,000, respectively.
During fiscal 2007, Alta and ProMed performed as expected,
generating higher revenues and income as compared to the prior year.
Prospect continued to make significant investments in its core IPA
operation, consistent with its reputation for service, accessibility
and efficiency. These investments, while considered essential to the
Company's strategy, did lower current year margins as compared to the
prior year. Key fiscal 2008 IPA initiatives include revenue
management; claims management; membership retention and growth; and
increasing the number of capitated specialist providers. Finally, the
Company has taken a variety of steps to strengthen Alta's internal
controls, including in those areas that gave rise to the restatement
of Alta's 2006 financial statements, and is addressing and correcting
any existing weaknesses as part of ongoing efforts to improve its
control environment.
SEGMENT RESULTS
Following the acquisitions of ProMed and Alta, Prospect is now
organized into the following primary reportable segments: "IPA
Management," consisting of 11 legacy Prospect IPAs and two legacy
Management Services Organizations ("MSOs"), two ProMed IPAs and one
ProMed MSO; and "Hospital Services," consisting of Alta's four
community based hospitals in southern California.
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IPA Management
---------------------------------
($ in 000s)
Three Months
Ended Year Ended
September 30 September 30
----------------- ------------------
2007 2006 2007 2006
--------- ------- --------- --------
Total Revenues $ 56,163 $32,941 $165,070 $135,796
Operating Expenses:
Managed care cost of revenue 46,947 23,326 131,045 97,184
General and administrative 10,483 7,327 36,208 30,205
Depreciation and amortization 1,340 517 2,622 1,513
Goodwill and intangibles
impairment 38,776 -- 38,776 --
--------- ------- --------- --------
Total Operating Expenses 97,546 31,170 208,651 128,902
Operating Income from
Unconsolidated Joint Venture 349 402 2,663 1,400
Operating (Loss) Income $(41,034) $ 2,173 $(40,918) $ 8,294
*T
Higher revenues for the fourth quarter and fiscal year ended
September 30, 2007 were due primarily to the June 1, 2007 acquisition
of ProMed. For the 2007 fourth quarter and fiscal year, ProMed
contributed $22.9 million and $30.5 million in revenues, respectively.
There were no such contributions during fiscal 2006. Revenues for the
2007 fourth quarter and fiscal year were also positively impacted by
$1.1 million and $3.3 million, respectively, due to the reassignment
of revenues under the CalOptima contract from the AMVI/Prospect Joint
Venture directly to Prospect Medical Group, and higher
pay-for-performance revenues for the delivery of quality medical care.
These increases were slightly offset by lower hospital risk pool
revenue, decreased enrollment, and lower capitation rates for senior
members under Medicare's risk adjusted payment methodology.
Total IPA operating expenses increased by 212.9% in the fourth
quarter of fiscal 2007 and by 61.8% for the full year compared to the
respective prior year periods, and were comprised of the following:
-- Higher managed care cost of revenue for the fiscal 2007 fourth
quarter and fiscal year, the result of the ProMed acquisition,
which Prospect owned during the last four months of fiscal
2007, as well as higher per member per month medical costs,
offset by enrollment declines in Prospect's legacy IPA
business.
-- Higher general and administrative expenses ("G&A") for the
fiscal 2007 fourth quarter and fiscal year due primarily to
increases in staffing, and increased audit, legal,
Sarbanes-Oxley Act compliance and information technology
consulting costs. Higher G&A was also due, in part, to the
acquisition of ProMed, which increased these expenses by
approximately $1.4 million in the fiscal 2007 fourth quarter
and by approximately $1.9 million for all of fiscal 2007.
Exclusive of the ProMed acquisition, as a percentage of
revenue, G&A increased to approximately 27.2% for the fiscal
2007 fourth quarter from 22.2% for the fourth quarter of 2006,
and to 25.5% for the full year 2007 from 22.2% for fiscal
2006.
-- Depreciation and amortization increased primarily as a result
of increased amortization of intangible assets acquired in
connection with the ProMed acquisition, as well as
depreciation expense associated with increased capital
expenditures.
-- During the fourth quarter of fiscal 2007, Prospect, together
with its outside valuation experts, determined that the
current and future operating cash flows of its legacy IPA
operation, inclusive of the costs of managing that operation,
indicated the need to write down goodwill and identifiable
intangibles in that legacy Prospect unit. As a result of these
analyses, goodwill and identifiable intangibles in the legacy
Prospect reporting unit were determined to be impaired and
written down by a total of $38.8 million.
Income from unconsolidated joint venture increased as a result of
increased profitability from the participation in the CalOptima
OneCare program for Medicare/MediCal eligible beneficiaries during
fiscal 2007.
The operating losses in the IPA segment for the fiscal 2007 fourth
quarter and full year were due primarily to the $38.8 million in
pre-tax, non-cash impairment charges described above and, to a lesser
extent, a decline in members, higher claims per member rates, and
higher general and administrative costs.
Hospital Services
Following the acquisition of Alta, and for the period August 8,
2007 through September 30, 2007, Prospect's Hospital Services segment
reported revenue of $15.6 million, operating expenses of $12.8
million, and operating income of $2.8 million. Prospect did not have a
Hospital Services segment during the fiscal 2006 period.
UPCOMING EVENTS
-- Prospect expects to file its Form 10-Q for the three months
ended December 31, 2007 and Form 10-Q for the three months
ended March 31, 2008 by June 16, 2008.
-- As previously announced, Prospect has been notified that the
AMEX has conditionally accepted the Company's plan for
regaining compliance with the exchange's continued listing
requirements and has extended the compliance period to July
28, 2008. As detailed in previous announcements, following the
filings, as outlined above, and the meeting of certain other
terms and conditions, Prospect believes it will be compliant
with the continued listing requirements of the AMEX and will
qualify for its common stock to resume trading.
-- Prospect management will host an investor conference call
following the filing of its second quarter Form 10-Q at a date
and time that will be announced prior to the call.
-- With the Form 10-K to be filed on June 2, 2008, Prospect will
begin preparing its 2007 Proxy Statement, together with other
related materials, in preparation for its (previously
postponed) Annual Meeting, which Prospect expects to be held
within the next few months.
ABOUT THE COMPANY
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 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 to be filed on June
2, 2008, as well as risks and uncertainties arising from Prospect's
acquisition of Alta and ProMed, the debt incurred by Prospect in
connection with those acquisitions, and the ability of the Company to
regain compliance with the AMEX's continued listing requirements. 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.
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Prospect Medical Holdings, Inc.
Consolidated Statements of Operations
($ in 000s)
Three months ended Fiscal Year Ended
September 30, September 30,
------------------ -------------------
2007 2006 2007 2006
--------- ------- --------- ---------
Revenues:
Managed care revenues $ 56,164 $32,941 $165,070 $135,796
Hospital operating
revenues 15,583 - 15,583 -
--------- -------- --------- ---------
Total revenues 71,747 32,941 180,653 135,796
Operating expenses:
Managed care cost of
revenues 46,947 23,326 131,045 97,184
Hospital operating
expenses 10,699 - 10,699 -
General and
administrative 12,052 7,327 37,777 30,205
Depreciation and
amortization 1,824 517 3,107 1,513
Impairment of goodwill
and identifiable
intangibles 38,776 - 38,776 --
--------- -------- --------- ---------
Total operating expenses 110,298 31,170 221,404 128,902
Operating income from
unconsolidated joint venture 349 402 2,664 1,400
--------- -------- --------- ---------
Operating income (loss) (38,202) 2,173 (38,087) 8,294
Other income (expense):
Investment income 288 254 1,097 913
Interest expense and
amortization of debt
discounts and fees (3,988) (291) (5,257) (1,107)
Loss on interest rate swap (868) -- (868) -
--------- -------- --------- ---------
Total other (expense) (4,568) (37) (5,029) (194)
--------- -------- --------- ---------
Income (loss) before income
taxes (42,770) 2,136 (43,116) 8,100
Provision (benefit) for income
taxes (9,520) 880 (9,649) 3,194
--------- -------- --------- ---------
Net income (loss) before
minority interest (33,250) 1,255 (33,467) 4,907
Minority interest (4) (1) (10) ( 17)
--------- -------- --------- ---------
Net income (loss) $(33,254) $ 1,254 $(33,477) $ 4,890
========= ======== ========= =========
Net earnings (loss) per common
share:
Basic $ (3.14) $ 0.18 $ (3.94) $ 0.71
========= ======== ========= =========
Diluted $ (3.14) $ 0.15 $ (3.94) $ 0.60
========= ======== ========= =========
Weighted average shares
outstanding:
Basic 10,575 7,096 8,489 6,913
========= ======== ========= =========
Diluted 10,575 8,295 8,489 8,107
========= ======== ========= =========
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Prospect Medical Holdings, Inc.
Consolidated Balance Sheet
($ in 000s)
September 30,
----------------
2007 2006
-------- -------
ASSETS
-----------------------------------------------------
Current assets:
Cash and cash equivalents $ 21,599 $16,623
Investments, primarily restricted
certificates of deposit 637 836
Patient accounts receivable, net of allowance
for doubtful accounts of $4,447 at September
30, 2007 15,840 --
Government program receivables 4,274 -
Risk pool receivables 179 1,419
Other receivables, net of allowances of $509
and $632 at September 30, 2006 and 2007 2,559 1,917
Notes receivable, current portion 59 176
Refundable income taxes 5,041 2,493
Deferred income taxes, net 3,395 658
Prepaid expenses and other current assets 3,816 646
-------- -------
Total current assets 57,399 24,768
-------- -------
Property, improvements and equipment, net of
accumulated depreciation and amortization
of $5,094 at September 30, 2007 and $4,000 at
September 30, 2006 48,294 1,286
Notes receivables, less current portion 490 414
Deposits and other assets 914 613
Deferred financing costs 7,431 101
Goodwill 129,122 37,838
Other intangible assets, net 51,989 1,637
-------- -------
Total assets $295,639 $66,657
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
-----------------------------------------------------
Current liabilities:
Accrued medical claims and other health care
costs payable $ 22,639 $11,400
Accounts payable and other accrued
liabilities 14,972 6,861
Third-party settlements 1,034 -
Accrued salaries, wages and benefits 6,898 1,331
Current portion of capital leases 356 -
Current portion of long-term debt 8,000 5,300
Other current liabilities 1,252 -
-------- -------
Total current liabilities 55,151 24,892
-------- -------
Deferred income taxes 28,669 1,146
Malpractice reserve 645 -
Long-term debt, less current portion 138,750 6,700
Capital leases, net of current portion 644 -
Interest rate swap liability 1,934 -
Other long-term liabilities 231 34
-------- -------
Total liabilities 226,024 32,772
-------- -------
Minority interest 79 82
Total shareholders' equity 69,536 33,803
-------- -------
Total liabilities and shareholders' equity $295,639 $66,657
======== =======
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Prospect Medical Holdings, Inc.
Linda Hodges, 714-796-4271
Executive Vice President
Linda.hodges@prospectmedical.com
or
Investor Relations:
The Equity Group Inc.
Devin Sullivan, 212-836-9608
dsullivan@equityny.com
Copyright Business Wire 2008
