Prospect Medical — Investor Presentation (October 2005)
30 slides from Prospect Medical's investor presentation, Oct 21, 2005
Slide 1: Prospect Medical Holdings, Inc. Investor Presentation
PROSPECT MEDICAL Prospect Medical Holdings, Inc. Investor Presentation October 2005
Slide 2: Forward Looking Statements
PROSPECT MEDICAL Forward Looking Statements This presentation may contain forward-looking statements. Additional written or oral forward-looking statements may be made by the Company from time to time, in filings with the Securities and Exchange Commission or otherwise. Statements contained herein t
Slide 3: Company Overview
PROSPECT Shares Outstanding: Fiscal Year: Symbol: Managed Care Management Company serving affiliated Independent Physician Associations (‘IPAs") in Southern California MEDICAL OVemMiew Business: Founded: 1987 Headquarters: Culver City, CA 6.6 million September 30th Amex: PZZ
Slide 4: Understanding IPAs & HMOs
PROSPECT MEDICAL Understanding IPAs (8 HMOs) ° HMOs - Offer a comprehensive health care benefits package - for a fixed (capitated) monthly fee © Delegation of HMO patients to IPAs = predominant managed care model in the U.S. © Eele gation = = HMOs contract with IPAs - to provide enrollees’ medical s
Slide 5: Bridging HMOs and Physicians
PROSPECT MEDICAL op Braging HMOs and Physicians Prospect Medical Holdings (Management Company) CONTRACTS ‘ASSIGNABLE OPTION. ‘AGREEMENT, HMOs, ——s = Prospect Medical Group (Professional Corp); — INDEPENDENT INDEPENDENT PRIMARY CARE SPECIALITY PHYSICIANS PHYSICIANS
Slide 6: Scope of Our Services for the IPAs
PROSPECT = MEDICAL SCOPES) Of OUT Services - for the IPAs * Negotiate contracts Recruiting ® Medical Services with HMOs Credentialing * Quality Control * Handle Regulatory Contracting © Customer Service Compliance for Provider Relations HMOs - HMO Relations *Handle Patient -Claims/Cap Pmt. Claims -
Slide 7: Specialties covered by network
+ Abdominal Surgery + Acopinchire + Adolescent Medicine + Allergy & Immunology + Anbslance + Anatorsc Pathology + Anesthenology + Audiology + Broncho-Esorhagology + Cardiology + Cardiothoravic Surgery + Cardhovascular Diseases + Chemical Dependency + Chld Peychustry + Chzopractor + Clinical Patholog
Slide 8: Regional industry leader
PROSPECT MEDICAL Regional industry leader 10 affiliated IPAs Contracts with all major HMOs 178,000 HMO enrollees 4,000 + physicians
Slide 9: California Market
PROSPECT fre: MEDICAL = = Galitomia Market Dense and growing population — 36+ million 17 million HMO enrollees (@ 47%....leads nation) High concentration of physicians and hospitals Established physician practice and referral patterns, compatible with managed care Fragmented market ripe for consolid
Slide 10: Acquisition Strategy & Criteria
PROSPECT MEDICAL AGQUISIION Braicay & Criteria © IPAs that have a history of profitability © Opportunities to realize significant synergies by: v Economies of scale v Leveraging our built out IT and back office infrastructure » Applying our proven risk (cost) management procedures Proximity to curre
Slide 11: Link to searchable text of slide
Link to searchable text of slide shown above
Slide 12: Why Others Failed
PROSPECT fe MEDICAL a= y= Why Others Failed PREDECESSORS PROSPECT MEDICAL HOLDINGS Immediate move to national Exclusive focus on Southern consolidation created integration California market difficulties Rapid, undisciplined acquisitions Disciplined and deliberate acquisition strategy Acquired and at
Slide 13: Revenue Growth 1997-2005
PROSPECT MEDICAL Revenue Growih: 4997 — 2005 ( feailions) mmm (i ‘mitt 197; e 99 Wee v "02 iT al, 9 Mo. ‘05 rt)
Slide 14: Net Income
PROSPECT MEDICAL Net Income ($ in thousands) $0 — = — 2001 2002 2003 2004 3Q 05 4
Slide 15: Quarterly Results
PROSPECT —- MEDICAL SS Ovari|enly RESUItS Go00's, except ers) 09/30/04 12/31/04 3/31/05 6/30/05 Revenues $ 35,014 $ 33,281 $ 32,331 $ 32,393 Gross Margin 7,733 8,480 8,674 9,548 Pre-Tax Income 4,713 1,815 1,545 1,699 Net Income 908 1,087 922 1,014 Diluted EPS $ 0.11 $ 0.13 $ 0.11 $0.12 Diluted Share
Slide 16: Shareholders' Equity
PROSPECT MEDICAL Siianetiolders, Equity (FYE 9/30 ) $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 | | so |_| SS SP (Sin millions) 16
Slide 17: Management Team
PROSPECT MEDICAL Management eam * Dr. Jack Terner, M.D., Chairman and CEO (1996 - ) ~ Formerly Chairman and CEO of Century Medi-Corp from 1984 until 1992 merger with Foundation Health Corporation (NYSE: FH). During this period, Century Mect- Corp's revenues increased 700% to $150 rnin, net income fo
Slide 18: Key Initiative: Incentive Revenue
PROSPECT MEDICAL Key, initiative... Incentive Revenue $3,500,000 MM Risk Pool Revenue $3,000,000 a [1 Incentive/other Revenue $2,500,000 \ $2,000,000 \ $1,500,000 \ I7 $1,000,000 R $500,000 $0 ec Se scoooye GF OS eg (Sin millions) 18
Slide 19: Medicare Initiatives
PROSPECT MEDICAL Medicare Initiatives * CMS (Centers for Medicare and Medicaid Services) Risk Adjustment y Additional compensation for sicker seniors ° Brotman Medical Center y¥ Strategic positioning in key West Los Angeles market ® “Medi-Medi” Program in Orange County y Moving certain seniors into
Slide 20: CMS Risk Adjustment Initiative
PROSPECT MEDICAL = GIS Risk Adjustment Initiative © Risk Adjustment » monthly compensation adjusted (up or down) depending on health/sickness (“acuity”) of patient * Previously, compensation was based on age/sex ® Phasing in Risk Adjustment (acuity) weighting y 25% last year, 50% this year, then 75%
Slide 21: Brotman Medical Center
PROSPECT MEDICAL JCAHO accredited, 420-bed hospital in Culver City, CA Wide range of in-patient and out-patient services Our small ($1 million) investment, gives us.... A competitive + profitable advantage in a unique market 2
Slide 22: Brotman Strategic Rationale
PROSPECT fre: MEDICAL S = Brouman Strategic Salients Creates dominant position in large, undeveloped Medicare HMO market in West Los Angeles We can now offer most cost effective “full risk” product to HMOs in West L.A. Will stimulate internal growth (IPA and Hospital) in the profitable and expanding
Slide 23: Medi-Medi Program in Orange County
PROSPECT foe = MEDICAL == WEGEMed Program in Orange County © “Medi-Medi’s” also called “Dual Eligibles” are eligible for Medicare and Medicaid (Senior + Indigent) Being moved to HMO model in California 50,000 Medi-Medi’s in OC Prospect (AMVI/Prospect JV) is one of five approved IPAs 10/1/05 Voluntar
Slide 24: Medicare Initiatives: Quarterly Revenue Impact
PROSPECT MEDICAL $39,000 $38,000 $37,000 $36,000 $35,000 $34,000 $33,000 $32,000 $31,000 + oe Medicare Initiatives WWlUstiration of Quarterly Revenue Impact a EIT “- Haseline + CMS + Brotman Last Qtr Qrti Q+2 Q+3 Qr+4 a
Slide 25: Medicare Initiatives: Quarterly Gross Margin Impact
PROSPECT MEDICAL Medicare Initiatives [WlUstration of Quarterly Gross Margin Impact EE SSS eee) $11,200 $11,000 = $10,800 = ie ee —"— Baseline +CMS S100 se po ee eee $10,400 : $10,200 $10,000 $9,800 $9,600 $9,400 + : + 7 Last Qt1 Q+2 Q+3 QH4 Qtr 25
Slide 26: Medicare Initiatives: Quarterly EPS Impact
PROSPECT a MEDICAL = w= Medicare Initiatives WWlstration of Quarterly EPS Impact $0.22 $0.20 $0.18 $0.16 $0.14 $0.12 $0.10 + Last Q+1 Q+2 Q+3 Q+4 Qa 26
Slide 27: Investment Conclusions
PROSPECT =— MEDICAL = Investment Conclusions Strong Cash Flow Business: - Highly profitable - Money received up front each month Barriers to Entry: - New Solvency requirements - Size of Infrastructure Investment - Reluctance of HMOs to give new contracts Operating Leverage of Platform Superior Busin
Slide 28: Investment Conclusions, continued
PROSPECT MEDICAL Investment Conclusions, continued... © Risk Management/Reduction: - Demonstrated Ability to Manage Medical Costs * Geographic Concentration: - Better Medical Contracts - Effectiveness of Consolidation - Mature Market Attuned to Managed Care ® Proven History: - Management — Experienc
Slide 29: Investment Summary
PROSPECT = MEDICAL = Investment Summary © An increasingly efficient operator and consolidator © In a rationalized market ripe for consolidation ® With a good acquisition pipeline and available financing ® Leveraging key initiatives that significantly increase per member profitability 29
Slide 30: Searchable text section of graphics
Searchable text section of graphics shown above [LOGO] [GRAPHIC] Prospect Medical Holdings, Inc. Investor Presentation October 2005 Forward Looking Statements This presentation may contain forward-looking statements. Additional written or oral forward-looking statements may be made by the Company fr
Prospect Medical Holdings — Investor Presentation (October 2005) on 6ix