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IPC The Hospitalist Company Reports Record Fourth Quarter and Full Year 2008 Results
Date:3/2/2009

NORTH HOLLYWOOD, Calif., March 2 /PRNewswire-FirstCall/ -- IPC The Hospitalist Company, Inc. (Nasdaq: IPCM), a leading national hospitalist physician group practice, today announced financial results for the fourth quarter and full year ended December 31, 2008.

Fourth Quarter 2008 Highlights:

  • Net revenue increased 30% to $68.3 million for the fourth quarter, with same-market area net revenue growth of 19%
  • Patient encounters increased 27% quarter-over-quarter to 754,000
  • Income from operations rose 69% quarter-over-quarter to $6.9 million
  • Net income increased to $4.6 million, or $0.28 per pro-forma diluted share for the quarter

Full Year 2008 Highlights:

  • Net revenue increased 32% to $251.2 million for the year, with same-market net revenue growth of 20%
  • Patient encounters increased 30% year-over-year to 2.8 million
  • Income from operations rose 63% year-over-year to $22.5 million, as operating margin increased to 9.0% from 7.3%
  • Net income increased to $13.6 million, or $0.88 per pro-forma diluted share for the year
  • Percentage of self-pay patient encounters decreased to 7% in 2008 from 10% in the prior year

Adam D. Singer, M.D., Chief Executive Officer, stated, "We ended our first year as a public company continuing to generate strong revenue and earnings growth. Revenues grew at least 30% in each quarter of 2008 over the comparable prior year quarter and 32% for the full 2008 year over 2007. Our operating earnings increased 69% for the fourth quarter and 63% for the full year. With less than 5% of our encounters coming from elective in-patient stays and the decrease in our self-pay patient encounters to 7% of our business, we are well positioned, given the current macroeconomic issues, as the largest pure-play provider of hospitalist medicine as we enter 2009."

Dr. Singer added, "During the year, we completed ten acquisitions, demonstrating the strength of our strategy to expand in new and existing markets. We entered two new markets with acquisitions in New England and Southeast Florida. We also completed eight in-market acquisitions in Texas, Florida, Arizona and Missouri that strengthened our existing market foothold. Our acquisition pipeline remains robust in this highly fragmented industry, and we will continue to look for opportunities across the hospitalist sector."

Fourth Quarter 2008

IPC's fourth quarter 2008 patient encounters rose 27% to 754,000, compared to 594,000 in the same period last year. The Company recorded fourth quarter 2008 net revenue of $68.3 million, a 30% increase from $52.6 million for the fourth quarter of 2007. Of the $15.7 million increase in net revenue, $9.3 million, or 59%, was attributed to same-market areas. The remainder of the growth was from acquisitions in new markets. Fourth quarter 2008 same-market area net revenue grew 19% and same-market area patient encounters rose 15%. The increase in same-market area net revenue was primarily due to an increase in patient encounters from new hospitalists either hired or added from in-market acquisitions and increased revenue from hospital contracts. In addition, patient revenue per encounter revenue increased by 1.2% due to improved billing and collection processes.

Physician practice salaries and other expenses for the fourth quarter of 2008 were $48.9 million, compared to $36.9 million in the fourth quarter of 2007. Physician practice expenses as a percentage of net revenue increased to 71.5%, compared to 70.1% for the same period of the prior year. The increase in physician costs as a percentage of revenue was the result of new practices under development.

The Company recorded reductions of $1.0 million and $0.8 million for the fourth quarters of 2008 and 2007, respectively, in current year professional liability claims reserve estimates. The final 2008 and 2007 year end actuarial loss projections were less than the interim actuarial loss projections for the year due to favorable trends in the ratio of claims to the number of encounters and reductions in the estimates of the ultimate costs per claim.

General and administrative expenses for the fourth quarter of 2008 were $12.0 million, compared to $11.3 million for the fourth quarter of 2007. General and administrative expenses as a percentage of net revenue declined to 17.5% for the fourth quarter of 2008, compared to 21.4% for the fourth quarter of 2007, as the Company continues to leverage these costs over a larger revenue base.

Income from operations for the fourth quarter of 2008 increased 69% to $6.9 million, compared to $4.1 million for the fourth quarter of 2007. The Company's operating margin rose to 10.0% for the fourth quarter of 2008, compared to 7.7% for the fourth quarter of 2007. The increase in operating margin was the result of the reduction in general and administrative expenses as a percentage of net revenue as the Company continues to leverage its administrative costs over a larger revenue base as it grows its existing practices and continues to acquire new practices.

The effective tax rate for the three months ended December 31, 2008 was 32.2%, compared to 42.0% for the three months ended December 31, 2007, excluding the impact of various tax benefits recorded in the fourth quarter. The fourth quarter 2008 effective tax rate includes a new state enterprise zone tax credit of $0.5 million. Excluding the enterprise zone tax credit, the effective tax rate would have been approximately 41%. The effective tax rate differed from the statutory U.S. federal rate of 35.0% due primarily to state income taxes. Without regard to tax legislation that may be passed in 2009, the Company expects its 2009 effective income tax rate to be approximately 40%.

Fourth quarter 2008 net income was $4.6 million, or $0.28 per pro-forma diluted share, compared to $2.8 million, or $0.24 per pro-forma diluted share, for the fourth quarter of 2007.

Year Ended December 31, 2008

The Company recorded approximately 2.8 million patient encounters in 2008, an increase of 30% compared to 2007, and ended the year with 659 hospitalists, providing services in more than 445 facilities. For the year ended December 31, 2008, IPC reported net revenue of $251.2 million, an increase of 32% from $190.0 million for 2007. Same-market net revenue increased 20% year-over-year. Income from operations was $22.5 million compared to $13.8 million for 2007, resulting in an operating margin of 9.0% for 2008 compared to 7.3% for 2007. General and administrative expenses decreased to 17.8% of net revenue compared to 19.9% for the prior year. Net income for the year was $13.6 million, or $0.88 per pro-forma diluted share, compared to a net loss of $0.9 million, or a loss of $0.08 per pro-forma diluted share, in 2007. The comparable period of 2007 included a loss of $8.8 million due to the change in the fair value of preferred stock warrant liabilities.

During 2008, IPC generated cash flow from operations of $14.4 million. The Company used $29.9 million to acquire ten hospitalist physician practices and made earn-out payments attributable to practices acquired in 2008 and prior years. Days sales outstanding decreased by 9 days to 60 as of December 31, 2008 compared to 69 as of December 31, 2007. The percentage of encounters related to self-pay patients decreased to 7% for 2008 compared to 10% for 2007.

Recent Developments

In January, the Company announced an in-market acquisition in St. Louis, Missouri.

Guidance

For the full year 2009, the Company expects revenue to be in the range of $300 million to $305 million and earnings per diluted share to be in the range of $1.01 to $1.11. The Company has provided this outlook based on the following assumptions: (i) an estimated 4.6% increase in the weighted average reimbursement rates for services provided to Medicare patients; (ii) continued growth in same-market areas whether from new hires or in-market acquisitions; (iii) a 40% effective tax rate; and (iv) 16.3 million weighted average diluted shares outstanding for the year. Not included in the assumptions are (i) new market acquisitions; (ii) increased general and administrative expenses as a result of the requirement of FASB Statement 141(R) to expense external costs associated with acquisitions that close subsequent to December 31, 2008; and (iii) gains or losses related to changes in estimates of earn-outs related to acquisitions that close subsequent to December 31, 2008 as required by FASB Statement 141(R).

Conference Call Information

IPC The Hospitalist Company will host an investor conference call to review the quarterly results at 5:00 p.m. ET (2:00 p.m. PT) today. To participate in the conference call, please dial 877-874-1588 (USA) or 719-325-4765 (International). In addition, a dial-up replay of the conference call will be available beginning March 2, 2009 at 8:00 p.m. ET (5:00 p.m. PT) and ending on March 16, 2009. The replay telephone number is 888-203-1112 (USA) or 719-457-0820 (International) Replay Passcode: 4458108. A live webcast of the call will also be available from the Investor Relations section on the corporate website at http://www.hospitalist.com. A webcast replay can be accessed on the corporate website beginning March 2, 2009 at approximately 8:00 p.m. ET (5:00 p.m. PT) and will remain available until March 16, 2009 at 11:59 p.m.

About IPC The Hospitalist Company

IPC The Hospitalist Company, Inc. (Nasdaq: IPCM) is a leading national hospitalist physician group practice focused on the delivery of hospitalist medicine services. IPC's physicians and affiliated providers manage the care of hospitalized patients in coordination with primary care physicians and specialists. The Company provides its hospitalists with the comprehensive training, information technology, and management support systems necessary to improve the quality and reduce the cost of inpatient care in the facilities it serves. For more information, visit the IPC website at www.hospitalist.com.

Safe Harbor Statement

Certain statements and information in this press release may be deemed to be "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Forward-looking statements in this press release may include, but are not limited to, those statements set forth under the section titled "Guidance" regarding projected operating results, revenues, earnings, and IPC's growth opportunities and strategy. Forward-looking statements are often characterized by terminology such as "believe", "hope", "may", "anticipate", "should", "intend", "plan", "will", "expect", "estimate", "project", "positioned", "strategy" and similar expressions. Any forward-looking statements are necessarily based on a variety of estimates and assumptions which, though considered reasonable by the Company, may not be realized and are inherently subject to significant business, economic, competitive, industry, regulatory, market and financial uncertainties and contingencies, many of which are and will be beyond IPC's control. Important risks and uncertainties that could cause actual results, developments and business decisions to differ materially from those contemplated by any forward-looking statements are described in IPC's most recent Annual Report on Form 10-K, including the section titled "Risk Factors" and actual results could differ materially from those anticipated in forward-looking statements.

In particular the following risks and uncertainties may have such an impact:

  • failure to comply with complex and intensive government regulation of our industry;
  • the adequacy of our insurance coverage and insurance reserves;
  • our ability to recruit and retain qualified physicians;
  • our ability to successfully integrate new acquisitions;
  • the effect of changes in rates or methods of third-party reimbursement; and
  • the high level of competition in our industry.

IPC undertakes no obligation following the date of this press release to update or revise any such statements or projections whether as a result of new information, future events, or otherwise.

    Contacts:                           Stephanie Carrington/Amy Glynn
    Devra Shapiro                       The Ruth Group
    IPC The Hospitalist Company, Inc.   (646) 536-7017/7023
    (818) 766-3502                      scarrington@theruthgroup.com
                                        aglynn@theruthgroup.com

                           IPC The Hospitalist Company, Inc.
                             Consolidated Balance Sheets
                         (in thousands, except for share data)

                                                          As of December 31,

                                                         2007          2008

    Assets
    Current assets:
        Cash and cash equivalents                      $6,976       $37,394
        Accounts receivable, net                       39,494        44,474
        Prepaid expenses and other current assets      10,203         8,081

    Total current assets                               56,673        89,949
    Furniture and equipment, net                        2,189         2,452
    Goodwill                                           34,754        63,893
    Other intangible assets, net                          808         2,905
    Deferred tax assets, net                            2,952         3,492

    Total assets                                      $97,376      $162,691


    Liabilities
    Current liabilities:
        Accounts payable and accrued liabilities       $4,667        $4,664
        Accrued compensation                           12,382        11,232
        Payables for practice acquisitions                292         2,476
        Medical malpractice and self-insurance
         reserves, current portion                        951           539
        Deferred tax liabilities                           45           481
        Short-term debt and current portion of
         capital leases                                 7,029         3,471

    Total current liabilities                          25,366        22,863
    Long-term debt and capital leases, less current
     portion                                           19,793         5,368
    Medical malpractice and self-insurance
     reserves, less current portion                     8,900        11,220
    Other long-term liabilities                           300           293

    Total liabilities                                  54,359        39,744
    Stockholders' equity:
        Convertible preferred stock, Series A, B, C,
         and D $0.001 par value, 64,905,826 shares
         authorized, 57,761,235 shares issued and
         outstanding in 2007; liquidation preference of
         $43,230,532 in 2007, none in 2008                 57             -
        Preferred stock, $0.001 par value, 294,174 and
         15,000,000 shares authorized in 2007 and 2008,
         respectively, none issued                          -             -
        Common stock, $0.001 par value, 87,300,000 and
         50,000,000 shares authorized in 2007 and 2008,
         respectively, 1,878,382 and 16,068,835 shares
         issued and outstanding in 2007 and 2008,
         respectively                                       2            16
        Additional paid-in capital                     55,605       122,024
        (Accumulated deficit) retained earnings       (12,647)          907

    Total stockholders' equity                         43,017       122,947

    Total liabilities and stockholders' equity        $97,376      $162,691


                          IPC The Hospitalist Company, Inc.
                        Consolidated Statements of Operations
                  (dollars in thousands, except for per share data)

                                       Quarters Ended          Years Ended
                                         December 31,          December 31,
                                       2007       2008       2007       2008

    Net revenue                     $52,577    $68,302   $190,002   $251,179
    Operating expenses:
      Cost of services-physician
       practice salaries, benefits
       and other                     36,870     48,854    136,960    181,850
      General and administrative     11,262     11,974     37,874     44,701
      Depreciation and amortization     393        611      1,396      2,146
    Total operating expenses         48,525     61,439    176,230    228,697
    Income from operations            4,052      6,863     13,772     22,482
    Investment income                    69        110        397        604
    Interest expense                   (451)      (145)    (1,691)      (868)
    Loss on fair value of
     preferred stock warrant
     liabilities                          -          -     (8,781)         -
    Income before income taxes        3,670      6,828      3,697     22,218
    Income tax provision                859      2,200      4,564      8,664
    Net income (loss)                 2,811      4,628       (867)    13,554
    Accretion of redeemable
     convertible preferred stock        (23)         -       (229)         -
    Income allocable to preferred
     stockholders                    (2,457)         -          -       (696)
    Net income (loss) attributable
     to common stockholders            $331     $4,628    $(1,096)   $12,858

    Per share data:
    Net income (loss) per share
     attributable to common
     stockholders - historical:
    Price per share:
        Basic                         $0.18      $0.29     $(0.64)     $0.88
        Diluted                       $0.12      $0.28     $(0.64)     $0.87
     Weighted average shares:
      Basic                       1,878,382 16,059,982  1,706,682 14,544,722
      Diluted                     2,746,196 16,239,765  1,706,682 14,791,967
    Net income (loss) per share
     attributable to common
     stockholders-pro forma: (1)
    Price per share:
        Basic                         $0.24      $0.29     $(0.08)     $0.89
        Diluted                       $0.24      $0.28     $(0.08)     $0.88
    Weighted average shares:
        Basic                    11,512,772 16,059,982 11,217,771 15,176,485
        Diluted                  11,771,389 16,239,765 11,217,771 15,383,783

    (1) Pro forma per share information assumes conversion of our convertible
     preferred stock and associated warrants at the beginning of each
    respective period based on the terms of the warrants and convertible
    preferred stock.
                          IPC The Hospitalist Company, Inc.
                        Consolidated Statements of Cash Flows
                               (dollars in thousands)

                                                     Years Ended December 31
                                                     2007               2008
    Operating activities
    Net income (loss)                               $(867)           $13,554
    Adjustments to reconcile net income (loss)
     to net cash provided by operating activities:
      Depreciation and amortization                 1,396              2,146
      Stock-based compensation expense                 91                881
      Tax liability reduction for uncertain tax
       positions                                        -                 (7)
      Deferred income taxes                         1,336               (103)
      Revaluation of preferred stock warrant
       liabilities                                  8,781                  -
      Changes in assets and liabilities:
        Accounts receivable                        (7,976)            (4,980)
        Prepaid expenses and other current assets  (3,382)             2,122
        Accounts payable                             (344)                (3)
        Accrued compensation                        4,159             (1,150)
        Medical malpractice and self-insurance
         reserves                                   1,846              1,908
        Accrued litigation loss and other claims   (3,598)                 -
    Net cash provided by operating activities       1,442             14,368

    Investing activities
    Acquisitions of physician practices           (15,303)           (29,921)
    Purchase of furniture and equipment              (926)            (1,539)
    Elimination of cash restriction by lender       2,500                  -
    Net cash used in investing activities         (13,729)           (31,460)

    Financing activities
    Proceeds from (repayments of) long-term debt
     and capital leases, net                       12,371            (17,986)
    Net proceeds from issuance of common and
     preferred stock                                  491             65,042
    Excess tax benefits from stock-based
     compensation                                     455                454
    Net cash provided by financing activities      13,317             47,510

    Net increase in cash and cash equivalents       1,030             30,418
    Cash and cash equivalents, beginning of year    5,946              6,976
    Cash and cash equivalents, end of year         $6,976            $37,394


                          IPC The Hospitalist Company, Inc.

                                    Operating Data

    Number of Patient Encounter Data:

    The following is a summary of the quarterly and annual number of patient
    encounters for the years ended December 31, 2008 and 2007:

                               Quarter Ended:
                                                                 Year Ended
                   Mar 31,    Jun 30,   Sep 30,   Dec 31,         December
                    2008       2008      2008      2008           31, 2008

    Patient
     encounters    684,000    660,000   692,000   754,000        2,790,000


                               Quarter Ended:

                                                                 Year Ended
                   Mar 31,     Jun 30,   Sep 30,   Dec 31,        December
                    2007        2007      2007      2007          31, 2007

    Patient
     encounters    504,000    511,000   544,000   594,000        2,153,000


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SOURCE IPC The Hospitalist Company, Inc.
Copyright©2009 PR Newswire.
All rights reserved


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