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MedQuist Reports Fourth Quarter and Year End 2008 Results
Date:3/11/2009

MOUNT LAUREL, N.J., March 11 /PRNewswire-FirstCall/ -- MedQuist Inc., (Nasdaq: MEDQ) the largest Medical Transcription Service Organization (MTSO) in the world, today announced its financial results for its full year and fourth quarter ended December 31, 2008.

Full Year Results

Net revenues for the year ended December 31, 2008 were $326.9 million compared to $340.3 million for the year ended December 31, 2007. The decrease includes $10.2 million of lower medical transcription revenue resulting primarily from lower medical transcription volume and lower pricing and $3.3 million of lower technology products revenue due primarily to reduced maintenance contracts.

The Company had an operating loss of $88.4 million for 2008 compared to a loss of $21.9 million for 2007. The 2008 operating loss includes a non cash pre-tax charge of $82.2 million for impairment of goodwill. The charge was determined as a result of the Company's annual impairment test conducted pursuant to Statement of Financial Accounting Standard No. 142. The charge resulted from a decline in the Company's share price during the fourth quarter. The 2008 operating loss also includes a $5.9 million charge related to the settlement of the Department of Justice (DOJ) investigation of the Company. The Company and the DOJ settled the investigation for a payment of $6.8 million of which $.9 million was previously recorded.

Adjusted EBITDA (Operating Loss excluding Depreciation, Amortization of intangible assets, Cost of investigation and legal proceedings, net, and the Goodwill impairment charge) was $27.7 million for the year ended 2008 compared to $.7 million for 2007, a $27.0 million increase.

Cost of revenues for the year ended December 31, 2008 was $230.4 million compared to $260.9 million for the year ended December 31, 2007. The $30.5 million decrease was due primarily to headcount reductions and lower medical transcription payroll costs.

Selling, general and administrative expenses declined $11.4 million or 18.4% to $50.9 million compared to $62.3 million in 2007. The decrease was due primarily to lower audit costs and workforce reductions.

Research and development costs increased $2.2 million to $15.9 million for the year ended December 31, 2008. This was due to higher staffing costs associated with additional investment in our Document Enterprise Platform (DEP) technology.

Fourth Quarter Results

Net revenues were $79.4 million for the three months ended December 31, 2008 compared to $80.1 million for the same period in 2007.

The Company had an operating loss of $79.6 million in the quarter ended December 31, 2008 compared to a loss of $12.4 million in the same period of 2007. The 2008 period included the non cash pre-tax charge for goodwill impairment of $82.2 million noted above. In addition, the cost of investigation and legal proceedings, net for the three months ended December 31, 2008 was $1.1 million compared to $6.5 million for the quarter ended December 31, 2007.

Adjusted EBITDA (Operating Loss excluding Depreciation, Amortization of intangible assets, Cost of investigation and legal proceedings, net, and the Goodwill impairment charge) was $8.2 million for the three months ended December 31, 2008 compared to a loss of $1.5 million for the same period in 2007. This improvement reflects lower cost of revenues of $8.1 million due to headcount reductions and lower medical transcription payroll costs and lower selling, general and administrative costs of $2.3 million.

As of December 31, 2008, the Company had $39.9 million of cash and cash equivalents and no debt.

In addition to the United States generally accepted accounting principles, or GAAP, results provided throughout this document, MedQuist has provided non-GAAP financial measurements. Management believes that the non-GAAP financial measures used to manage the business may provide users additional useful information. The tables attached to this press release include a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a description of why the non-GAAP financial measures are useful to investors.

Forward-Looking Statements

This report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, the industry in which we operate and other matters, as well as management's beliefs and assumptions and other statements regarding matters that are not historical facts. These statements include, in particular, statements about our plans, strategies and prospects. For example, when we use words such as "projects," "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "should," "would," "could," "will," "opportunity," "potential" or "may," variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are only predictions and, as such, are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. For a discussion of these risks, uncertainties and assumptions, any of which could cause our actual results to differ from those contained in the forward-looking statement, see the section of MedQuist's Annual Report on Form 10-K for the year ended December 31, 2008, entitled "Risk Factors" and discussions of potential risks and uncertainties in MedQuist's subsequent filings with the Securities and Exchange Commission.

                    MedQuist Inc. and Subsidiaries
                 Consolidated Statements of Operations
               (In thousands, except per share amounts)
                               Unaudited

                             Three months ended   For the year ended
                                December 31,         December 31,
                                ------------         ------------
                               2008      2007       2008      2007
                               ----      ----       ----      ----

    Net revenues              $79,387   $80,066   $326,853  $340,342
                              -------   -------   --------  --------
    Operating costs and
     expenses:
      Cost of revenues         53,867    61,961    230,375   260,879
      Selling, general
       and administrative      11,808    14,130     50,855    62,288
      Research and
       development              3,346     3,622     15,848    13,695
      Depreciation              3,049     2,948     11,950    10,988
      Amortization of
       intangible assets        1,409     1,446      5,554     5,511
      Cost of
       investigation and
       legal proceedings,
       net                      1,096     6,539     16,403     6,083
      Goodwill impairment
       charge                  82,233         -     82,233         -
      Restructuring
       charges                  2,137     1,821      2,055     2,756
                              -------    ------    -------   -------

        Total operating
         costs and
         expenses             158,945    92,467    415,273   362,200
                              -------    ------    -------   -------

        Operating loss        (79,558)  (12,401)   (88,420)  (21,858)

    Equity in income of
     affiliated company            36       178        236       625
    Other income                    -         -        438         -
    Interest income, net         (163)    1,889      2,438     8,366
                                 ----     -----      -----     -----

        Loss before
         income taxes         (79,685)  (10,334)   (85,308)  (12,867)

    Income tax provision
     (benefit)                (19,234)      (63)   (16,513)    2,339
                              -------       ---    -------     -----

        Net loss             $(60,451) $(10,271)  $(68,795) $(15,206)
                             ========  ========   ========  ========

    Net loss per share:
      Basic                    $(1.61)   $(0.27)    $(1.83)   $(0.41)
                               ------    ------     ------    ------
      Diluted                  $(1.61)   $(0.27)    $(1.83)   $(0.41)
                               ------    ------     ------    ------

    Weighted average shares
     outstanding:
      Basic                    37,556    37,500     37,549    37,488
                               ------    ------     ------    ------
      Diluted                  37,556    37,500     37,549    37,488
                               ------    ------     ------    ------



                    MedQuist Inc. and Subsidiaries
                     Consolidated Balance Sheets
                            (In thousands)
                              Unaudited

                                         December 31,   December 31,
                                             2008          2007
                                             ----          ----
    Assets
    Current assets:
      Cash and cash equivalents             $39,918      $161,582
      Accounts receivable, net               50,374        48,725
      Income tax receivable                     154           815
      Other current assets                    8,053         7,920
                                              -----         -----
          Total current assets               98,499       219,042

    Property and equipment, net              15,785        21,366
    Goodwill                                 40,545       125,505
    Other intangible assets, net             39,877        42,262
    Deferred income taxes                     1,204         2,712
    Other assets                              6,295         6,885
                                              -----         -----

          Total assets                     $202,205      $417,772
                                           ========      ========

    Liabilities and Shareholders' Equity
    Current liabilities:
      Accounts payable                       $7,487       $12,754
      Accrued expenses                       11,994        18,989
      Accrued compensation                   11,204        14,826
      Customer accommodation                 12,055        18,459
      Deferred income taxes                     651         4,783
      Deferred revenue                       15,630        16,023
                                             ------        ------
          Total current liabilities          59,021        85,834
    Deferred income taxes                       799        15,151
                                                ---        ------
    Other non-current liabilities             2,033         2,143
                                              -----         -----

    Commitments and contingencies
    Shareholders' equity:
      Common stock - no par value;
       authorized 60,000 shares; 37556
       and 37544 shares issued and
       outstanding, respectively            237,907       236,412

      Retained earnings (deficit)           (99,198)       72,876
      Accumulated other comprehensive
       income                                 1,643         5,356
                                              -----         -----

          Total shareholders' equity        140,352       314,644
                                            -------       -------

          Total liabilities and
           shareholders' equity            $202,205      $417,772
                                           ========      ========



                      MedQuist Inc. and Subsidiaries
                   Consolidated Statements of Cash Flows
                              (In thousands)
                                 Unaudited

                                                     For the year ended
                                                        December 31,
                                                        ------------
                                                       2008      2007
                                                       ----      ----
    Operating activities:
      Net loss                                      $(68,795)  $(15,206)
      Adjustments to reconcile net loss
       to cash (used in) provided by
       operating activities:
        Depreciation and amortization                 17,504     16,499
        Equity in income of affiliated company          (236)      (625)
        Goodwill impairment charge                    82,233          -
        Deferred income tax (benefit) provision      (17,091)     1,878
        Stock option expense                           1,427        565
        Stock based compensation - Board Members           -        150
        Provision for doubtful accounts                3,073      4,967
        Loss on disposal of property and equipment       571        168
        Changes in operating assets and liabilities:
          Accounts receivable                         (5,781)    (1,359)
          Income tax receivable                          661        957
          Insurance receivable                             -        707
          Other current assets                          (154)      (276)
          Other non-current assets                       134        646
          Accounts payable                            (5,557)     1,981
          Accrued expenses                            (7,050)    (9,378)
          Accrued compensation                        (3,559)      (727)
          Customer accommodation and
           quantification                             (5,651)    (3,723)
          Deferred revenue                              (272)       592
          Other non-current liabilities                 (211)     1,910
                                                        ----      -----
    Net cash used in operating activities            $(8,754)     $(274)
                                                     -------      -----

    Investing activities:
        Purchase of property and equipment            (6,574)   (11,639)
        Proceeds from sale of investments                692          -
        Capitalized software                          (3,411)    (2,035)
    Net cash used in investing activities             (9,293)   (13,674)
                                                      ------    -------

    Financing activities:
        Dividend paid                               (103,279)         -
        Proceeds from exercise of stock options           68         10
                                                          --         --
    Net cash (used in) provided by financing
     activities                                     (103,211)        10
                                                    --------         --

    Effect of exchange rate changes                     (406)       108
                                                        ----        ---

    Net decrease in cash and cash equivalents       (121,664)   (13,830)
                                                    --------    -------

    Cash and cash equivalents - beginning of year    161,582    175,412
                                                     -------    -------

    Cash and cash equivalents - end of year          $39,918   $161,582
                                                     =======   ========
    Supplemental cash flow information:

    Cash (recovered) paid for income taxes              $210      $(451)
                                                        ----      -----
    Accommodation payments paid with credits            $740     $2,595
                                                        ----     ------



                         MedQuist Inc. and Subsidiaries
    Reconciliation of GAAP financial measures to the non-GAAP measures
                                Adjusted EBITDA
                                (In thousands)
                                  Unaudited

                              Three months ended   For the year ended
                                 December 31,         December 31,
                                ------------         ------------
                                2008      2007      2008      2007
                                ----      ----      ----      ----

      GAAP operating
       (loss)                $(79,558) $(12,401)   $(88,420)  $(21,858)

      Add: Depreciation         3,049     2,948      11,950     10,988

      Add: Amortization
       of intangible
       assets                   1,409     1,446       5,554      5,511

      Add: Cost of
       investigation and
       legal proceedings,
       net                      1,096     6,539      16,403      6,083

      Add: Goodwill
       impairment charge       82,233         -      82,233          -

                               ------   -------     -------       ----
      Adjusted EBITDA          $8,229   $(1,468)    $27,720       $724
                               ======   =======     =======       ====



Adjusted EBITDA is a financial measure not computed in accordance with United States generally accepted accounting principles, or GAAP. The Company believes that this non-GAAP measure, when presented in conjunction with comparable GAAP measures, is useful to both management and investors in analyzing the Company's ongoing business and operating performance. The Company believes that providing the non-GAAP information to investors, in addition to the GAAP presentation, allows investors to view the Company's financial results in the way that management views financial results. Management believes Adjusted EBITDA is useful as supplemental measures of the Company's financial results because it removes costs not related to the Company's operating performance. Management believes that Adjusted EBITDA should be considered in addition to, but not as a substitute for items presented in accordance with GAAP that are presented in this press release. A reconciliation of Adjusted EBITDA to Operating income (loss) is provided above.


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SOURCE MedQuist Inc.
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