Prospect Medical Holdings Reports Fiscal 2008 First Quarter Results

Prospect Medical Holdings, Inc. (AMEX: PZZ) ("Prospect”), which manages the medical care of approximately 237,000 HMO enrollees and operates four community hospitals in southern California, today announced financial results for its fiscal 2008 first quarter ended December 31, 2007. 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 first quarter of fiscal 2008 rose 136% to $82.3 million from $34.8 million in the same period last year. Higher revenues primarily reflected a $27.3 million contribution from Alta and a $22.6 million contribution from ProMed. Operating income for the first quarter of fiscal 2008 rose to $4.1 million from $587,000 in the first quarter of fiscal 2007, due primarily to the operations of Alta and ProMed. Interest expense and amortization of deferred financing costs rose to $4.3 million in the fiscal 2008 first quarter from $267,000 in the first quarter of fiscal 2007, due to debt associated with the acquisitions of ProMed and Alta. Following a non-cash dividend to preferred stockholders of $1.9 million, as compared to no such dividend in the same period last year, the net loss attributable to common stockholders for the fiscal 2008 first quarter was $2.4 million, or $0.20 per share, compared to net income of $334,000, or $0.04 per share, in the comparable period one year ago. SEGMENT RESULTS IPA Management   ($ in 000s) (unaudited) Three Months Ended December 31, 2007   2006   Total managed care revenues $ 54,975 $ 34,828 Total managed care cost of revenues   44,389     26,036 Gross margin 10,586 8,792   General and administrative 11,690 8,077 Depreciation and amortization   1,202     392 Total non-medical expenses 12,892 8,469   Income from unconsolidated joint venture   475     264   Operating (loss) income $ (1,831 ) $ 587 Higher revenues for the first quarter of fiscal 2008 were due primarily to a $22.6 million revenue contribution from ProMed as compared to no such contribution in the first quarter of fiscal 2007, a $1.2 million increase due to the reassignment of revenues under the CalOptima contract from the AMVI/Prospect Joint Venture directly to Prospect Medical Group and slightly higher hospital risk pool revenue, offset by decreased enrollment. Higher managed care cost of revenue for the fiscal 2008 first quarter was primarily the result of the ProMed acquisition, as well as higher physician salaries, offset by lower enrollment in Prospect’s legacy IPA business. Higher general and administrative ("G&A”) expenses for the fiscal 2008 first quarter was primarily due to the inclusion of ProMed in the current period, which added approximately $1.7 million, as well as increases in staffing, and increased costs related to audit, legal and Sarbanes-Oxley Act compliance associated with the larger enterprise in 2008. Depreciation and amortization increased primarily as a result of increased amortization of intangible assets related to the acquisition of ProMed. Income from unconsolidated joint venture increased as a result of higher profitability from the participation in the CalOptima OneCare program for Medicare/MediCal eligible beneficiaries. Hospital Services Prospect’s "Hospital Services” segment consists of Alta’s four community based hospitals in southern California. Prospect acquired Alta in August 2007. Prospect did not have a Hospital Services segment during the first quarter of fiscal 2007. ($ in 000s) (unaudited) Three Months Ended December 31, 2007 Net patient revenues $ 27,286 Operating expenses: Hospital operating expenses 18,001 General and administrative 2,624 Depreciation and amortization   725 Total operating expenses   21,350   Operating income $ 5,936 SEC FILINGS UPDATE Prospect expects to file its Form 10-Q for the three months ended March 31, 2008 by June 16, 2008. 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 filed on June 2, 2008 and its Form 10-Q filed on June 9, 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.   Prospect Medical Holdings, Inc.   Condensed Consolidated Statements of Operations ($ in 000s, except per share data) (unaudited)   Three months ended December 31,   2007       2006   Revenues: Managed care revenues $ 54,975 $ 34,828 Hospital operating revenues   27,286     -   Total revenues 82,261 34,828   Operating expenses: Managed care cost of revenues 44,389 26,036 Hospital operating expenses 18,001 - General and administrative 14,314 8,077 Depreciation and amortization   1,927     392   Total operating expenses 78,631 34,505   Operating income from unconsolidated joint venture   475     264   Operating income 4,105 587 Other income (expense): Investment income 294 242 Interest expense and amortization of deferred financing costs (4,296 ) (267 ) Loss on interest rate swaps   (877 )   -   Total expense, net   (4,879 )   (25 )     Income (loss) before income taxes (774 ) 562 Provision (benefit) for income taxes   (282 )   226   Net income (loss) before minority interest (492 ) 336 Minority interest   5     2   Net income (loss) $ (497 ) $ 334 Dividend to preferred stockholders   (1,882 )   -     Net income (loss) attributable to common stockholders   (2,379 )   334     Net income per common share: Basic $ (0.20 ) $ 0.05   Diluted $ (0.20 ) $ 0.04     Weighted average shares outstanding: Basic   11,714     7,273   Diluted   11,714     8,420     Prospect Medical Holdings, Inc. Condensed Consolidated Balance Sheets ($ in 000s)       December 31, September 30, 2007 2007 (Unaudited)   ASSETS Current assets: Cash and cash equivalents $ 21,349 $ 21,599 Investments, primarily restricted certificates of deposit 637 637 Patient accounts receivable, net of allowance for doubtful accounts of $4,780 and $4,447 at December 31 and September 30, 2007 2007 and September 30, 2007 15,985 15,840 Government program receivables 1,404 4,274 Risk pool receivables - 179 Other receivables, net of allowances of $735 and $632 at December 31, 2007 and September 30, 2007 3,652 2,559 Notes receivable, current portion 60 59 Refundable income taxes 5,111 5,041 Deferred income taxes, net 3,395 3,395 Prepaid expenses and other current assets   4,125     3,816   Total current assets   55,718     57,399     Property, improvements and equipment: Land and land improvements 18,499 18,493 Buildings 22,310 22,233 Leasehold improvements 2,185 2,013 Equipment 9,995 9,652 Furniture and fixtures   998     998   53,987 53,389 Less accumulated depreciation and amortization   (5,959 )   (5,094 ) Property, improvements and equipment, net 48,028 48,295 Notes receivables, less current portion 429 490 Deposits and other assets 932 914 Deferred financing costs, net 6,570 7,430 Goodwill 129,137 129,122 Other intangible assets, net   50,927     51,989   Total assets $ 291,741   $ 295,639     LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accrued medical claims and other health care costs payable $ 21,438 $ 22,639 Accounts payable and other accrued liabilities 11,306 14,972 Third-party settlements 360 1,034 Accrued salaries, wages and benefits 6,048 6,898 Current portion of capital leases 339 356 Current portion of long-term debt 10,000 8,000 Other current liabilities   4,395     1,251   Total current liabilities 53,886 55,150 Long-term debt, less current portion 137,500 138,750 Deferred income taxes 26,813 28,669 Malpractice reserve 645 645 Capital leases, net of current portion 577 644 Interest rate swap liability 5,821 1,934 Other long-term liabilities   231     232   Total liabilities   225,473     226,024   Minority interest 85 79 Total shareholders’ equity   66,183     69,536   Total liabilities and shareholders’ equity $ 291,741   $ 295,639