DURHAM, N.C. -- Aug. 8, 1996 -- Coastal Physician
Group, Inc. (NYSE: DR) today reported financial results for the
second quarter and six month period ended June 30, 1996.
Total net operating revenue for the second quarter was
$146,038,000, a 30.9 percent decrease from net operating revenue of
$211,342,000 for the same period in 1995. The decrease in operating
revenue was primarily due to the sale of the Company's south Florida
clinics on Nov. 30, 1995 (averaging approximately $53 million in
quarterly revenue during 1995.)
The Company reported a net loss for the second quarter of
$24,860,000, or $1.04 per share, compared with a net loss of
$10,491,000, or $0.44 per share, for the second quarter of 1995.
The net loss for the second quarter of 1996 was due primarily to
contract attrition and lower new business development during the
second half of 1995 in the hospital-based contract services
division, lower net collections per patient visit in the billing and
accounts receivable management services division, increased
investments associated with the growth in the company's health
plans, and increased expenses in information technology.
Approximately $4.5 million of the loss was due to certain
charges in the quarter, including accelerated recognition of
expenses related to telecommunications and information technology
contracts, provisions for lease terminations and severance costs
related to the closure of offices, and higher reserves related to
the company's hospital-based business.
For the six month period ended June 30, 1996, total net
operating revenue decreased 28.7% to $298,772,000 from $419,201,000
for the same period in the prior year. The decrease in operating
revenue was primarily due to the late-1995 south Florida divestiture
mentioned above. The company incurred a net loss for the first six
months of 1996 of $36,590,000, or $1.54 per share compared with a
net loss of $4,124,000, or $0.17 per share, for the first half of
1995.
Joseph G. Piemont, president and chief executive officer of
Coastal Physician Group Inc. said: "It is important to note that
our financial results for the first six months largely reflect the
company's performance prior to the implementation of our
Comprehensive Business Plan, which was designed to revitalize
Coastal's core operations, restore profitability and maximize
shareholder value. Moreover, we are encouraged by the meaningful,
measurable improvement in our core businesses since plan
implementation began. The fundamental elements of our action plan
are progressing ahead of schedule in terms of cash flow enhancement
and we are continuing to vigorously pursue the steps necessary to
achieve an operational and financial turnaround."
Coastal's core businesses are beginning to show clear signs that
the operational initiatives over the past few months are taking
hold. For example:
As of July 31, the company's hospital-based contract services
division, Coastal Physician Services Inc. (CPS) had terminated 34
unprofitable contracts (representing approximately $21 million in
revenue), which is expected to improve EBITDA (earnings before
interest, taxes, depreciation and amortization) by nearly $4 million
per year. Twelve contracts operating at a loss, and noticed for
termination in March, have instead been re-negotiated to provide
Coastal with a fair profit margin. New business development during
the first six months of 1996 has been successful as compared to the
same period in 1995. During the first half this year, CPS added
more than $14 million in revenue, with an aggregate EBITDA margin of
approximately 14% -- an improvement over the same period in 1995.
Healthplan Southeast, the company's northern Florida health
maintenance organization, reported that its medical loss ratio
improved in the second quarter to 84.8% from 92.5% in the first
quarter, reflecting more efficient contracting and utilization
review processes. Healthplan Southeast achieved a return to
profitability during the second quarter for the first time since
first quarter of 1995.
Separately, CPS announced that it will implement a regional
organizational structure over the next six months as part of the
business unit's continuing efforts to enhance its competitive
position while reducing administrative overhead and logistics costs.
Three hubs in Durham, N.C., Ft. Lauderdale, Fla. and Dallas will
handle all job functions, including contract management, operations,
finance, new business development and medical affairs; three
operating offices will include Washington, Atlanta, Ga. and Oakland,
Calif.; and four remote sites will be located in Orlando, Fla.,
Memphis, Tenn., Cleveland, Ohio and St. Louis, Mo. The company may
incur a charge in the third or fourth quarter of 1996 related to
this restructuring.
In addition, management continues to analyze corporate overhead
costs, and has developed a preliminary plan to decrease expenses as
asset sales progress.
"The turnaround process in which we are currently and actively
engaged is based on managerial and financial discipline and on the
skillful execution of business fundamentals. While our Company's
recent performance, the legacy of decisions made by the Company's
previous leadership, is unacceptable, we are making real progress.
We are increasingly confident that, by continuing to implement our
Comprehensive Business Plan, we will succeed in returning Coastal to
a position of operational excellence, profitability and industry
leadership," Mr. Piemont concluded.
Coastal is Committed To Maximizing Shareholder Value
Coastal's Comprehensive Business Plan is designed to maximize
shareholder value. Consistent with that objective, the company
announced today that Coastal's management team and committee of
independent directors have determined to actively pursue and
evaluate all strategic alternatives to maximize shareholder value,
including the possible sale or disposition of assets in addition to
those currently slated for sale, an investment from strategic or
financial partners or the sale of the entire company. In
conjunction with this effort, the company expects to hold
preliminary discussions with parties interested in such possible
transactions.
There can be no assurance that such evaluation or discussions
will lead to any proposed transaction, or that any proposed
transaction, which would be subject to approval of the board of
directors of Coastal, would be consummated.
Coastal Physician Group, Inc. is one of the largest publicly-
traded physician management companies in the U.S. and provides a
broad range of health care and administrative services to
physicians, hospitals, employers, managed care programs and other
health care providers.
Forward-looking Information or Statements: Except for statements
of historical fact, statements made herein are forward-looking in
nature and are inherently subject to uncertainties. The actual
results of the company may differ materially from those reflected in
the forward-looking statements based on a number of important risk
factors, including, but not limited to: receipt of sufficient
proceeds from divested assets and the timing of any divestitures;
the level and timing of improvements in the operational efforts; the
possibility of poor accounts receivable collection and/or
reimbursement experience; the possibility of increased medical
expenses due to increased utilization; the possibility that the
company may not be able to improve operations or execute its
divestiture strategy as planned; and other important factors
disclosed from time to time in the company's Form 10-K, Form 10-Q
and other Securities and Exchange Commission filings.
Certain Additional Information: Coastal Physician Group Inc.
will be soliciting proxies to elect directors at its 1996 Annual
Meeting of Stockholders. The following individuals may be deemed
participants in such solicitations of proxies: Jacque J. Sokolov,
M.D.; Robert V. Hatcher Jr.; Stephen D. Corman; John P. Mahoney,
M.D.; Norman H. Chenven, M.D.; Joseph G. Piemont; Robert B.
Borchert; Dennis I. Simon; and Bettina M. Whyte. As of May 31,1996,
Dr. Sokolov is the beneficial owner of 263,423 shares of the
company's common stock; Mr. Hatcher is the beneficial owner of
16,808 shares of the Company's common stock; Mr. Corman is the
beneficial owner of 10,138 shares of the company's common stock; Dr.
Mahoney is the beneficial owner of 4,090 shares of the company's
common stock; Mr. Piemont is the beneficial of 11,110 shares of the
company's common stock; and Mr. Borchert is the beneficial owner of
less than 100 shares of the company's common stock. Mr. Simon and
Ms. Whyte are employees of Price Waterhouse LLP and have been
appointed by agreement of Price Waterhouse and Coastal to be Plan
Managers of the Company's revitalization plan.
In connection with such agreement, the Company has agreed to pay
Price Waterhouse $70,000 per month for the services of the Plan
Managers, and $46,400 per month for any additional Price Waterhouse
personnel that may provide services under the agreement. The
Company also granted Price Waterhouse an option to purchase 50,000
shares of Coastal common stock at a price of $7 7/8, which has not
yet vested, and a separate option to purchase up to 50,000 shares of
Company common stock, which will vest at a rate of 10,000 shares
each month for five months commencing May 15, 1996, at a strike
price equal to the average closing price of the common stock on the
New York Stock Exchange for the first ten trading days of each month
prior to the vesting date.
Steven M. Scott, Bertram E. Walls, M.D., and John A. Hemingway
are also directors of Coastal, but are not expected to solicit
proxies on behalf of the Company.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended
June 30,
1996 1995
Operating revenue, net $146,038 $211,342
Costs and expenses:
Physician and other provider services 114,127 161,250
Medical support services 23,094 35,761
Selling, general and administrative 31,215 26,737
Total costs and expenses 168,436 223,748
Operating income (loss) (22,398) (12,406)
Other income (expense):
Interest expense (2,124) (1,886)
Interest income 77 274
Acquisition and related expenses -- (919)
Other, net (415) (1,383)
Total other expense (2,462) (3,914)
Income (loss) before income taxes (24,860) (16,320)
Provision for income taxes --- (5,829)
Net income (loss) ($24,860) ($10,491)
Net income (loss) per share ($1.04) $ (0.44)
Weighted average number of shares
outstanding 23,839 23,657
Six Months Ended
June 30,
1996 1995
Operating revenue, net $298,772 $419,201
Costs and expenses:
Physician and other provider services 227,692 305,414
Medical support services 47,271 66,740
Selling, general and administrative 56,116 48,073
Total costs and expenses 331,079 420,227
Operating income (loss) (32,307) (1,026)
Other income (expense):
Interest expense (4,227) (3,051)
Interest income 202 467
Acquisition and related expenses -- (919)
Other, net (258) (1,362)
Total other expense (4,283) (4,865)
Income (loss) before income taxes (36,590) (5,891)
Provision for income taxes --- (1,767)
Net income (loss) ($36,590) ($4,124)
Net income (loss) per share ($1.54) $ (0.17)
Weighted average number of shares
outstanding 23,815 23,598