Prospect Medical Holdings Reports Fiscal 2009 Second Quarter Financial Results

Business Wire, May 18, 2009

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 -- 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.

[Table Omitted]

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.