MedQuist Reports Second Quarter 2008 Results

MOUNT LAUREL, N.J., Aug 08, 2008 /PRNewswire-FirstCall via COMTEX/ -- MedQuist Inc., (MEDQ:
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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.