IPC The Hospitalist Company Reports Third Quarter 2009 Results

NORTH HOLLYWOOD, Calif., Nov. 2 /PRNewswire-FirstCall/ -- IPC The Hospitalist Company, Inc. (Nasdaq: IPCM), a leading national hospitalist physician group practice, today announced financial results for the third quarter ended September 30, 2009.

Third Quarter 2009 Highlights (comparisons are to third quarter 2008):

• Net revenue increased 23% to $77.5 million, with same-market area net revenue growth of 20%
• Patient encounters increased 19% to 823,000
• Income from operations rose 38% to $7.4 million
• Operating margin improved 110 basis points to 9.6%
• Net income increased 47% to $4.6 million, or $0.28 per diluted share
  

Nine Months Ended September 30, 2009 Highlights (comparisons are to the nine months ended September 30, 2008)

• Net revenue increased 25% to $228.4 million, with same-market area net revenue growth of 20%
• Patient encounters increased 19% to 2,429,000
• Income from operations rose 41% to $22.0 million
• Operating margin improved 110 basis points to 9.6%
• Net income increased 49% to $13.3 million, or $0.81 per diluted share
  

Adam D. Singer, M.D., Chief Executive Officer of IPC The Hospitalist Company, stated, "Our strong third quarter year over year revenue growth of 23%, driven by a 20% increase in same-market revenue, clearly demonstrates the continued expansion potential within our existing markets. Strong revenue growth from our new market acquisitions in New Jersey and Southeast Florida also contributed to our overall top-line growth."

Dr. Singer added, "In line with our growth strategy, we have completed six acquisitions to date in 2009. We believe there is a significant opportunity for consolidation in this highly fragmented industry. Our acquisition pipeline remains robust and we continue to evaluate opportunities across the hospitalist sector. We remain confident that we will continue to penetrate current and new markets through this combination of organic growth and acquisitions."

Third Quarter 2009
Patient encounters for the three months ended September 30, 2009 increased 18.9% to 823,000, compared to 692,000 for the same period last year. Net revenue for the three months ended September 30, 2009 was $77.5 million, an increase of $14.3 million, or 22.7%, from $63.2 million for the three months ended September 30, 2008. Of this $14.3 million increase, $11.9 million, or 83.2%, was attributable to same-market area growth and $2.4 million was attributable to revenue generated from new market acquisitions. IPC completed one new market acquisition in the third quarter of 2008 and entered a second new market with two practice acquisitions, one each in the second and third quarters of 2009. The change in same-market area net revenue was largely the result of a 16.1% increase in patient encounters and a 3.2% increase in patient revenue per encounter.

Physician practice salaries, benefits and other expenses for the three months ended September 30, 2009 were $56.8 million, or 73.2% of net revenue, compared to $45.8 million, or 72.5% of net revenue, for the three months ended September 30, 2008. The increase in physician costs as a percentage of revenue is the result of more practices under development.

General and administrative expenses increased $1.4 million, or 12.5%, to $12.8 million, or 16.5% of net revenue, for the three months ended September 30, 2009, as compared to $11.4 million, or 18.0% of net revenue, for the three months ended September 30, 2008.

Income from operations increased $2.0 million, or 37.9%, to $7.4 million, as compared to $5.4 million for the same period in the prior year. The operating margin increased to 9.6% for the three months ended September 30, 2009, compared to 8.5% for the three months ended September 30, 2008.

The effective tax rate for the three months ended September 30, 2009 was 37.8%, compared to 42.0% for the three months ended September 30, 2008. The decrease in the effective tax rate reflects a new enterprise zone tax credit recorded for the first time in the fourth quarter of 2008 and benefit from utilization of net operating losses previously subject to a valuation allowance.

Net income increased to $4.6 million for the three months ended September 30, 2009, as compared to $3.2 million for the three months ended September 30, 2008, and the net income margin increased to 6.0% from 5.0% for the same period in the prior year. The net income margin increase to 6.0% is primarily the result of leveraging general and administrative expenses over a larger revenue base as IPC grows its practices and acquires new practices.

Nine Months Ended September 30, 2009
Patient encounters for the nine months ended September 30, 2009 increased 19.3% to 2,429,000, compared to 2,036,000 for the same period last year. Net revenue for the nine months ended September 30, 2009 was $228.4 million, an increase of $45.5 million, or 24.9%, from $182.9 million for the nine months ended September 30, 2008. Of this $45.5 million increase, $35.5 million, or 78.0%, was attributable to same-market area growth and $10.0 million was attributable to revenue generated from new market acquisitions. IPC completed one new market acquisition in the third quarter of 2008 and entered a second new market with two practice acquisitions, one each in the second and third quarters of 2009. The change in same-market area net revenue was primarily the result of a 14.0% increase in patient encounters and a 4.2% increase in patient revenue per encounter.

Physician practice salaries, benefits and other expenses for the nine months ended September 30, 2009 were $166.7 million, or 73.0% of net revenue, compared to $133.0 million, or 72.7% of net revenue, for the nine months ended September 30, 2008.

General and administrative expenses increased $5.2 million, or 15.9%, to $37.9 million, or 16.6% of net revenue, for the nine months ended September 30, 2009, as compared to $32.7 million, or 17.9% of net revenue, for the nine months ended September 30, 2008.

Income from operations increased $6.4 million, or 41.0%, to $22.0 million, as compared to $15.6 million for the same period in the prior year. The operating margin increased to 9.6% for the nine months ended September 30, 2009, compared to 8.5% for the nine months ended September 30, 2008.

The effective tax rate for the nine months ended September 30, 2009 was 39.2%, compared to 42.0% for the nine months ended September 30, 2008.

Net income increased to $13.3 million for the nine months ended September 30, 2009, as compared to $8.9 million for the nine months ended September 30, 2008, and the net income margin increased to 5.8% from 4.9% for the same period in the prior year.

Net cash provided by operating activities for the nine months ended September 30, 2009 increased to $24.2 million, compared to $17.6 million for the same period of 2008. Days sales outstanding (DSO) decreased to 55 DSO at the end of the period, compared to 60 DSO as of December 31, 2008. During the first nine months of 2009, $14.4 million was used for physician practice acquisitions and earn-out payments attributable to prior acquisitions, compared to $16.3 million in the same period of the prior year. In addition, in late June 2009, the Company paid off all remaining debt of $7.3 million under its Term Loan and equipment financing loans.

2009 Guidance Update
The Company is updating its guidance for the full year 2009 and expects revenue to be in the range of $308 million to $310 million and earnings per diluted share to be in the range of $1.09 to $1.14. The Company has provided this outlook based on the following assumptions: (i) weighted average shares outstanding of 16.5 million for the year; (ii) a 39.4% effective tax rate. Not included in the assumptions are (i) practice acquisitions completed after today's date; (ii) gains or losses related to changes in estimates of earn-outs related to practice acquisitions that close subsequent to December 31, 2008.

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 888-668-1648 (USA) or 913-312-1510 (International). In addition, a dial-up replay of the conference call will be available beginning November 2, 2009 at 8:00 p.m. ET (5:00 p.m. PT) and ending on November 16, 2009. The replay telephone number is 888-203-1112 (USA) or 719-457-0820 (International) Replay Passcode: 9515054. 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 November 2, 2009 at approximately 8:00 p.m. ET (5:00 p.m. PT) and will remain available until November 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 IPC's insurance coverage and insurance reserves;
• IPC's ability to recruit and retain qualified physicians;
• IPC's ability to successfully complete and integrate new acquisitions;
• the effect of changes in rates or methods of third-party reimbursement; and
• the high level of competition in IPC's 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:                            Amy Glynn/Nick Laudico
    Devra Shapiro                        The Ruth Group
    IPC The Hospitalist Company, Inc.    (646) 536-7023/7030
    (818) 766-3502                       aglynn@theruthgroup.com
                                         nlaudico@theruthgroup.com

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

                                          September 30,   December 31,
                                              2009            2008
                                              ----            ----
                                          (unaudited)
      Assets
      Current assets:
         Cash and cash equivalents           $37,829          $37,394
         Accounts receivable, net             46,297           44,474
         Prepaid expenses and other
          current assets                       3,858            8,081
                                               -----            -----
      Total current assets                    87,984           89,949
      Furniture and equipment, net             2,780            2,452
      Goodwill                                83,471           63,893
      Other intangible assets, net             2,526            2,905
      Deferred tax assets, net                 3,492            3,492
                                               -----            -----
      Total assets                          $180,253         $162,691
                                            ========         ========

      Liabilities and Stockholders'
       Equity
      Current liabilities:
         Accounts payable and accrued
          liabilities                         $4,991           $4,664
         Accrued compensation                 16,161           11,232
         Payables for practice acquisitions    7,926            2,476
         Medical malpractice and
          self-insurance reserves,
          current portion                        372              539
         Deferred tax liabilities                481              481
         Short-term debt and current
          portion of capital leases                -            3,471
                                                 ---            -----
      Total current liabilities               29,931           22,863
      Long-term debt and capital
       leases, less current portion                -            5,368
      Medical malpractice and self-
       insurance reserves, less current
       portion                                11,510           11,220
      Other long-term liabilities                255              293
                                                 ---              ---
      Total liabilities                       41,696           39,744
      Stockholders' equity:
       Preferred stock, $0.001 par
        value, 15,000,000 shares
        authorized,  none issued                   -                -
       Common stock, $0.001 par
        value, 50,000,000 shares
        authorized, 16,135,924 and
        16,068,835 shares issued and
        outstanding at September 30,
        2009 and December 31, 2008,
        respectively                              16               16
       Additional paid-in capital            124,373          122,024
       Retained earnings                      14,168              907
                                              ------              ---
      Total stockholders' equity             138,557          122,947
                                            --------         --------
      Total liabilities and
       stockholders' equity                 $180,253         $162,691
                                            ========         ========



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


                                     Three Months Ended   Nine Months Ended
                                        September 30,        September 30,
                                        -------------       -------------
                                       2009       2008      2009       2008
                                       ----       ----      ----       ----

     Net revenue                     $77,521    $63,164   $228,361   $182,877
      Operating expenses:
       Cost of services-physician
        practice salaries,
        benefits and other            56,768     45,816    166,716    132,996
      General and administrative      12,784     11,368     37,927     32,727
      Depreciation and
       amortization                      536        591      1,699      1,535
                                         ---        ---      -----      -----
     Total operating expenses         70,088     57,775    206,342    167,258
                                      ------     ------    -------     ------
     Income from operations            7,433      5,389     22,019     15,619
     Investment income                    13        186         78        493
     Interest expense                    (23)      (144)      (271)      (724)
                                         ---       ----       ----       ----
     Income before income taxes        7,423      5,431     21,826     15,388
     Income tax provision              2,804      2,281      8,565      6,462
                                       -----      -----      -----      -----
     Net income                        4,619      3,150     13,261      8,926
     Income allocable to
       preferred stockholders              -          -          -       (696)
                                         ---        ---        ---       ----
     Net income attributable
      to common stockholders          $4,619     $3,150    $13,261     $8,230
                                      ======     ======    =======     ======

    Per share data:
    Net income per share attributable
     to common stockholders-historical:
      Basic                            $0.29      $0.20      $0.82      $0.59
                                       =====      =====      =====      =====
      Diluted                          $0.28      $0.20      $0.81      $0.58
                                       =====      =====      =====      =====

    Weighted average shares:
     Basic                        16,122,506 15,784,261 16,104,732 14,037,183
                                  ========== ========== ========== ==========

     Diluted                      16,455,740 15,987,343 16,308,935 14,308,025
                                  ========== ========== ========== ==========

    Net income per share
     attributable to
     common stockholders-pro
     forma:
      Basic                            N/A        N/A        N/A        $0.60
                                       ===        ===        ===        =====

      Diluted                          N/A        N/A        N/A        $0.59
                                       ===        ===        ===        =====

    Weighted average shares:
     Basic                             N/A        N/A        N/A   14,881,071
                                       ===        ===        ===   ==========

     Diluted                           N/A        N/A        N/A   15,098,553
                                       ===        ===        ===   ==========



                      IPC The Hospitalist Company, Inc.
                   Consolidated Statements of Cash Flows
                           (dollars in thousands)
                                (unaudited)


                                                            Nine Months
                                                         Ended September 30,
                                                        --------------------
                                                          2009        2008
                                                        --------    --------

      Operating activities
      Net income                                         $13,261      $8,926
      Adjustments to reconcile net income to
       net cash provided by operating
       activities:
              Depreciation and amortization                1,699       1,535
              Stock-based compensation expense             1,470         641
              Tax liability reduction for
               uncertain tax positions                       (38)          -
              Changes in assets and liabilities:
                    Accounts receivable                   (1,823)     (1,835)
                    Prepaid expenses and other current
                     assets                                4,223       6,355
                    Accounts payable                         327         (81)
                    Accrued compensation                   4,929        (120)
                    Medical malpractice and
                     self-insurance reserves                 123       2,169
                                                             ---       -----
      Net cash provided by operating
       activities                                         24,171      17,590
                                                          ------      ------

      Investing activities
      Acquisitions of physician practices                (14,407)    (16,252)
      Purchase of furniture and equipment                 (1,369)     (1,545)
                                                          ------      ------
      Net cash used in investing activities              (15,776)    (17,797)
                                                         -------     -------

      Financing activities
      Repayments of long-term debt
       and capital leases, net                            (8,839)    (17,014)
      Net proceeds from issuance of common stock             599      65,022
      Excess tax benefits from
       stock-based compensation                              280         315
                                                             ---         ---
      Net cash (used in) provided
       by financing activities                            (7,960)     48,323
                                                          ------      ------

      Net increase in cash and cash
       equivalents                                           435      48,116
      Cash and cash equivalents, beginning
       of period                                          37,394       6,976
                                                          ------       -----
      Cash and cash equivalents, end of
       period                                            $37,829     $55,092
                                                         =======     =======



                            IPC The Hospitalist Company, Inc.
                                     Operating Data
                           Patient Encounter Data (unaudited):

    The following is a summary of the quarterly patient encounters for the
    seven consecutive quarters ended September 30, 2009:

                                      For Quarter Ended
                   Mar 31  Jun 30  Sep 30  Dec 31  Mar 31  Jun 30 Sep 30
                    2008    2008    2008    2008    2009    2009   2009
                    ----    ----    ----    ----    ----    ----   ----
    Patient
     encounters   684,000 660,000 692,000 754,000 810,000 796,000 823,000
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