Prospect Medical Holdings Reports Fiscal 2009 Second Quarter Financial Results

Business Wire, May 18, 2009

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.

[Table Omitted]

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.