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MedQuist Reports Second Quarter 2008 Results
Date:8/8/2008

MOUNT LAUREL, N.J., Aug. 8 /PRNewswire-FirstCall/ -- MedQuist Inc.,(Nasdaq: MEDQ) the largest Medical Transcription Service Organization (MTSO) in the world, today announced its results for the quarter ended June 30, 2008. Revenue for the second quarter of 2008 was $82.5 million compared with $88.7 million in the second quarter of 2007. The decrease in revenue of $6.2 million or 7% from the prior year period was primarily due to customer losses experienced during the second half of 2007. Operating income for the quarter decreased to $1.8 million compared to operating income of $4.2 million in the second quarter of 2007. Operating income in the second quarter of 2007 was positively impacted by the recognition of $11.9 million of insurance recoveries which were exhausted by the end of 2007.

Non-GAAP Operating income (excluding the cost of the billing investigation and legal proceedings, net) increased by $6.1 million to $3.6 million in the second quarter of 2008 compared to a non-GAAP operating loss of $2.5 million in the second quarter of 2007. "This improvement reflects the significant progress we have made in streamlining both our fixed and variable cost structures. In addition, notable orders in the quarter included multimillion dollar outsourced transcription expansions at two leading academic medical center customers and the return of a large midwestern academic medical center customer who had left us in 2004," said Mark Ivie, the company's Interim President and Chief Executive Officer.

Cost of revenue was reduced by $8.3 million or 13% to $58.0 million in the second quarter of 2008 compared to $66.3 million in the second quarter of 2007. This resulted in a decrease in cost of revenue as a percentage of revenue to 70% compared to 75% in the second quarter of 2007.

Selling general and administrative expenses declined $5.1 million or 29% to $12.8 million in the second quarter of 2008 compared to $17.9 million in the second quarter of 2007. This decline reflects both the unusually high expenses incurred in the second quarter of 2007 as the company worked to complete the audits of 2003-2006, as well as the benefits of the restructuring actions taken by the company during 2007.

Cost of investigation and legal proceedings, net, increased to $1.7 million in the second quarter of 2008 compared to negative $6.6 million in the second quarter of 2007. The second quarter of 2007 included the benefit of $11.9 million of insurance recoveries which were exhausted by the end of 2007. Excluding the impact of the insurance recovery in the second quarter of 2007, the Costs of investigation and legal proceedings, net, declined from $5.2 million in the second quarter of 2007 to $1.7 million in the second quarter of 2008.

As of June 30, 2008, the company had $151.1 million of cash and cash equivalents on hand and no debt. Subsequently, on August 4, 2008 the company paid a cash dividend of $2.75 per share or $103.3 million.

Additionally, on August 6, 2008, Koninklijke Philips Electronics N.V. (Philips) completed the sale of its 69.5% majority stake in the company to CBAY Systems Holdings Limited. "We are very pleased to have CBAY Systems Holdings Limited as a new investor and we look forward to exploring mutual synergies with the CBAY Systems Holdings Limited group in the future," said Ivie.

In addition to the United States generally accepting 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 statement 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 (Securities Act) and Section 21E of the Exchange Act. 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, 2007, 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 Six months ended

June 30, June 30,

2008 2007 2008 2007

Net revenues $82,454 $88,692 $166,179 $177,758

Operating costs and expenses:

Cost of revenues 58,015 66,283 119,273 134,628

Selling, general and

administrative 12,804 17,917 25,899 32,610

Research and development 3,735 2,823 7,854 6,265

Depreciation 2,996 2,640 5,924 5,179

Amortization of intangible assets 1,373 1,358 2,734 2,704

Cost of investigation and legal

proceedings, net 1,728 (6,638) 8,126 (4,897)

Restructuring charges (45) 125 (45) 381

Total operating costs and

expenses 80,606 84,508 169,765 176,870

Operating income (loss) 1,848 4,184 (3,586) 888

Equity in income of affiliated

company 25 63 41 323

Other income - - 438 -

Interest income, net 895 2,073 2,183 4,175

Income (loss) before income

taxes 2,768 6,320 (924) 5,386

Income tax provision 933 434 1,658 1,386

Net income (loss) $1,835 $5,886 $(2,582) $4,000

Net income (loss) per share:

Basic $0.05 $0.16 $(0.07) $0.11

Diluted $0.05 $0.16 $(0.07) $0.11

Weighted average shares outstanding:

Basic 37,544 37,484 37,544 37,484

Diluted 37,553 37,497 37,544 37,499

MedQuist Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)

Unaudited

June 30, December 31,

2008 2007

Assets

Current assets:

Cash and cash equivalents $151,095 $161,582

Accounts receivable, net of allowance of

$4,417 and $4,359, respectively 48,215 48,725

Income tax receivable 716 815

Other current assets 8,757 7,920

Total current assets 208,783 219,042

Property and equipment, net of accumulated

depreciation of $38,825 and $38,772,

respectively 18,920 21,366

Goodwill 125,418 125,505

Other intangible assets, net of accumulated

amortization of $44,610 and $45,209,

respectively 41,363 42,262

Deferred income taxes 2,722 2,712

Other assets 6,117 6,885

Total assets $403,323 $417,772

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable $11,137 $12,754

Accrued expenses 13,501 18,989

Accrued compensation 14,495 14,826

Customer accommodation and quantification 12,242 18,459

Deferred income tax liability - current 4,783 4,783

Deferred revenue 16,280 16,023

Total current liabilities 72,438 85,834

Deferred income taxes 16,635 15,151

Other non-current liabilities 2,065 2,143

Commitments and contingencies

Shareholders' equity:

Common stock - no par value; authorized

60,000 shares; 37,544 and 37,544

shares issued and outstanding, respectively 236,574 236,412

Retained earnings 70,294 72,876

Accumulated other comprehensive income 5,317 5,356

Total shareholders' equity 312,185 314,644

Total liabilities and shareholders' equity $403,323 $417,772

MedQuist Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

Unaudited

Six months ended

June 30,

2008 2007

Operating activities:

Net income (loss) $(2,582) $4,000

Adjustments to reconcile net income (loss)

to cash provided by (used in)

operating activities:

Depreciation and amortization 8,658 7,883

Equity in income of affiliated company (41) (323)

Deferred income tax provision 1,491 974

Stock option expense 162 207

Provision for doubtful accounts 1,205 2,431

Loss on disposal of property and equipment 38 61

Changes in operating assets and liabilities

excluding effects of acquisitions:

Accounts receivable (1,334) (4,088)

Income tax receivable 99 (267)

Insurance receivable - (11,143)

Other current assets (837) (511)

Other non-current assets 116 (52)

Accounts payable (2,065) 1,613

Accrued expenses (5,405) (8,060)

Accrued compensation (309) 297

Customer accommodation and quantification (5,593) (2,976)

Deferred revenue 172 (1,210)

Other non-current liabilities 8 1,962

Net cash used in operating activities $(6,217) $(9,202)

Investing activities:

Purchase of property and equipment (3,078) (4,137)

Capitalized software (1,862) (824)

Proceeds from sale of investments 692 -

Net cash used in investing activities (4,248) (4,961)

Financing activities:

Net cash provided by financing activities - -

Effect of exchange rate changes (22) 32

Net decrease in cash and cash equivalents (10,487) (14,131)

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

Cash and cash equivalents - end of period $151,095 $161,281

Supplemental cash flow information:

Cash paid for income taxes $263 $276

Accommodation payments paid with credits $611 $1,288

MedQuist Inc. and Subsidiaries

Reconciliation of GAAP financial measures to the aforementioned non-GAAP

measures

Operating Income (Loss), excluding cost of investigation and legal

proceedings, net

(In thousands, except per share amounts)

Unaudited

Three months ended Six months ended

March 31, June 30,

2008 2007 2008 2007

GAAP operating income (loss) $1,848 $4,184 $(3,586) $888

Add: Cost of investigation and legal

proceedings, net 1,728 (6,638) 8,126 (4,897)

Non-GAAP operating income (loss),

excluding Cost of investigation

and legal proceedings, net $3,576 $(2,454) $4,540 $(4,009)

MedQuist Inc. and Subsidiaries Reconciliation of GAAP financial measures to the aforementioned non-GAAP

measures
Cost of investigation and legal proceedings, excluding insurance recoveries
(In thousands, except per share amounts)

Unaudited

Three months ended Six months ended

March 31, June 30,

2008 2007 2008 2007

GAAP Cost of investigation and legal

proceedings, net $1,728 $(6,638) $8,126 $(4,897)

Add: Insurance recoveries - 11,850 - 15,386

Non-GAAP Cost of investigation and

legal proceedings, excluding

insurance recoveries $1,728 $5,212 $8,126 $10,489

Operating income (loss), excluding Cost of investigation and legal proceedings, net, and Cost of investigation and legal proceedings, excluding insurance recoveries, are financial measures not computed in accordance with United States generally accepted accounting principles, or GAAP. The Company believes that these non-GAAP measures, when presented in conjunction with comparable GAAP measures, are 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 Operating income (loss), excluding Cost of investigation and legal proceedings, net, and Cost of investigation and legal proceedings, excluding insurance recoveries, are 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 Operating income (loss), excluding Cost of investigation and legal proceedings, net, and Cost of investigation and legal proceedings, excluding insurance recoveries 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 Operating income (loss), excluding Cost of investigation and legal proceedings, net, to Operating income (loss) is provided above. A reconciliation of Cost of investigation and legal proceedings, excluding insurance recoveries, to Cost of investigation and legal proceedings, net, is provided above.


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SOURCE MedQuist, Inc.
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