ELMWOOD PARK, N.J., Aug. 8 /PRNewswire-FirstCall/ -- Emdeon Corporation today announced financial results for the quarter ended June 30, 2006.
Kevin Cameron, Chief Executive Officer of Emdeon, said: “I am very pleased with our results for the second quarter which were fueled primarily by organic growth. We achieved record revenue and Adjusted EBITDA across all of our business segments with the exception of Practice Services, which had record Adjusted EBITDA and near record revenue. Many of the strategic initiatives we have pursued are bearing fruit allowing us to increasingly focus our efforts on the creation and delivery of new and innovative products and services.”
Key Financial Highlights
Revenue for the second quarter was $354.9 million compared to $322.6 million in the prior year period, an increase of 10.0%. Earnings before interest, taxes, non-cash and other items (“Adjusted EBITDA”) for the second quarter was $66.7 million or $0.22 per share compared to $45.7 million or $0.13 per share a year ago, an increase of 46.0%. Net income for the second quarter was $23.2 million or $0.08 per share compared to net income of $16.2 million or $0.05 per share a year ago, an increase of 43.4%. Net income for the second quarter includes $13.1 million of non-cash stock compensation expense, compared to $0.7 million for the same expense a year ago, reflecting the January 1, 2006 adoption of SFAS 123R.
As of June 30, 2006, Emdeon had approximately $389 million in cash and short-term investments on a consolidated basis, including $104 million in cash and short-term investments held by WebMD Health Corp., its 85.8% owned subsidiary.
Segment Operating Results
Emdeon Business Services segment revenue was $206.9 million for the second quarter compared to $191.5 million in the prior year period, an increase of 8.1%. The increase in Emdeon Business Services revenue was attributable to strong performance in our remittance and payment, patient statement and ViPS businesses as well as the January 2006 postal rate increase. Segment Adjusted EBITDA was $49.6 million compared to $40.4 million in the prior year period, an increase of 22.7%. Operating margins increased to 24.0% compared to 21.1% a year ago primarily as a result of higher revenue and the continued achievement of operating efficiencies and cost savings.
Emdeon Practice Services segment revenue was $77.3 million for the second quarter compared to $78.6 million in the prior year period, a slight decline from last year’s record revenue. Segment Adjusted EBITDA was $12.1 million compared to $8.2 million in the prior year period, an increase of 48.1%. Operating margins increased from 10.4% in the prior year period to 15.7% as a result of changes in revenue mix and improvements in our delivery and service infrastructure.
As previously announced on August 3, 2006, WebMD segment revenue was $56.6 million for the second quarter compared to $40.5 million in the prior year period, an increase of 39.9%, driven by continued growth in online services. Segment Adjusted EBITDA was $9.6 million compared to $2.8 million in the prior year, an increase of 244%, primarily as a result of the increase in revenues.
Porex segment revenue was $22.7 million for the second quarter compared to $20.4 million in the prior year period. Segment Adjusted EBITDA for the second quarter was $7.0 million compared to $6.1 million in the prior year period.
Sage Software to Acquire Emdeon Practice Services for $565 Million
In a separate release, Emdeon announced today that it entered into a definitive agreement with Sage Software, Inc., a wholly-owned subsidiary of The Sage Group plc, to sell its Emdeon Practice Services segment for $565 million in cash. The closing is expected to occur in September 2006 and is subject to customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Act.
Update on Evaluation of Strategic Alternatives for Emdeon Business Services
Emdeon continues to explore strategic alternatives for its Emdeon Business Services segment and expects to announce the results of this evaluation process by late August or early September.
Financial Guidance
A schedule outlining the Company’s financial guidance is attached to this press release.
Analyst and Investor Conference Call
As previously announced, Emdeon will hold a conference call with investors and analysts to discuss these results at 4:45 pm (ET) on August 8, 2006. The call can be accessed at www.emdeon.com (in the About Emdeon section). A replay of the audio webcast will be available at the same web address.
ABOUT EMDEON
Emdeon is a leading provider of business, technology and information solutions that transform both the financial and clinical aspects of healthcare delivery. At the core of Emdeon’s vision is the commitment to connect providers, payers, employers, physicians and consumers in order to simplify business processes, to provide actionable knowledge at the right time and place and to improve healthcare quality.
Emdeon Business Services provides revenue cycle management and clinical communication solutions that enable payers, providers and patients to improve healthcare business processes. Emdeon Practice Services provides physician practice management and electronic health record software and services that increase practice efficiency and enhance patient care. WebMD provides health information services for consumers, physicians, healthcare professionals, employers and health plans through its public and private online portals and health-focused publications. Porex is a developer, manufacturer and distributor of proprietary porous plastic products and components used in healthcare, industrial and consumer applications.
All statements contained in this press release, other than statements of historical fact, are forward-looking statements, including those regarding: guidance on our future financial results and other projections or measures of our future performance; the amount and timing of the benefits expected from acquisitions, from new products or services and from other potential sources of additional revenue; expected timing of completion of the sale of Emdeon Practice Services; and explorations of possible transactions and other alternatives involving Emdeon Business Services. These statements speak only as of the date of this press release and are based on our current plans and expectations, and they involve risks and uncertainties that could cause actual future events or results to be different than those described in or implied by such forward-looking statements. These risks and uncertainties include those relating to: market acceptance of our products and services; relationships with customers and strategic partners; difficulties in integrating acquired businesses; and changes in economic, political or regulatory conditions or other trends affecting the healthcare, Internet and information technology industries. In addition, there can be no assurance that the exploration of strategic alternatives with respect to Emdeon Business Services will result in any definitive agreement or transaction. Further information about these matters can be found in our Securities and Exchange Commission filings. We expressly disclaim any intent or obligation to update these forward-looking statements.
This press release, and the accompanying tables, include both financial measures in accordance with accounting principles generally accepted in the United States of America, or GAAP, as well as non-GAAP financial measures. The tables attached to this press release include reconciliations of non-GAAP financial measures to GAAP financial measures. In addition, an “Explanation of Non-GAAP Financial Measures” is attached to this press release as Annex A.
WebMD(R), WebMD Health(R), Emdeon(TM), Emdeon Business Services(TM), Emdeon Practice Services(TM) and POREX(R) are trademarks of Emdeon Corporation or its subsidiaries.
-Tables Follow- EMDEON CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data, unaudited) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Revenue: Services $313,766 $282,729 $615,346 $549,307 Products 41,115 39,827 78,654 77,183 Total revenue 354,881 322,556 694,000 626,490 Cost of operations: Services 177,039 161,840 354,202 316,016 Products 20,107 20,110 38,211 38,097 Total cost of operations 197,146 181,950 392,413 354,113 Development and engineering 15,283 14,457 30,197 29,097 Sales, marketing, general and administrative 90,008 83,533 178,840 165,670 Depreciation and amortization 19,381 17,541 38,309 34,045 Legal expense 275 4,283 817 8,443 Advisory expense 4,104 - 4,104 - Loss (gain) on investments - (190) - 3,642 Loss on redemption of convertible debt - 1,902 - 1,902 Interest income 4,435 3,936 8,854 8,257 Interest expense 4,668 3,895 9,359 8,676 Income before income tax provision and minority interest 28,451 19,121 48,815 29,159 Income tax provision 5,434 2,955 9,996 3,144 Minority interest in WebMD Health Corp., net of tax (164) - (793) - Net income $23,181 $16,166 $39,612 $26,015 Net income per common share: Basic $0.08 $0.05 $0.14 $0.08 Diluted $0.08 $0.05 $0.13 $0.08 Weighted-average shares outstanding used in computing net income per common share: Basic 285,086 337,303 286,141 331,318 Diluted 296,722 349,624 296,107 342,656 EMDEON CORPORATION CONSOLIDATED SEGMENT INFORMATION (In thousands, except per share data, unaudited) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Revenue Emdeon Business Services $206,943 $191,514 $408,097 $377,247 Emdeon Practice Services 77,272 78,596 152,978 151,614 WebMD 56,612 40,465 106,663 74,040 Porex 22,659 20,397 43,246 40,253 Inter-segment eliminations (8,605) (8,416) (16,984) (16,664) $354,881 $322,556 $694,000 $626,490 Earnings before interest, taxes, non-cash and other items (“Adjusted EBITDA”) Emdeon Business Services $49,598 $40,420 $92,791 $78,673 Emdeon Practice Services 12,119 8,183 22,292 12,580 WebMD (a) 9,599 2,793 16,126 6,023 Porex 7,045 6,064 12,599 11,461 Corporate (a) (11,628) (11,742) (22,902) (23,747) $66,733 $45,718 $120,906 $84,990 Adjusted EBITDA per diluted common share (b) $0.22 $0.13 $0.41 $0.25 Interest, taxes, non-cash and other items (c ) Depreciation and amortization $(19,381) $(17,541) $(38,309) $(34,045) Non-cash stock-based compensation (d) (13,100) (716) (25,562) (2,367) Non-cash advertising (1,189) (2,386) (2,794) (5,013) Legal expense (275) (4,283) (817) (8,443) Advisory expense (4,104) - (4,104) - (Loss) gain on investments - 190 - (3,642) Loss on redemption of convertible debt - (1,902) - (1,902) Interest income 4,435 3,936 8,854 8,257 Interest expense (4,668) (3,895) (9,359) (8,676) Income tax provision (5,434) (2,955) (9,996) (3,144) Minority interest in WebMD Health Corp., net of tax 164 - 793 - Net income $23,181 $16,166 $39,612 $26,015 Net income per common share: Basic $0.08 $0.05 $0.14 $0.08 Diluted $0.08 $0.05 $0.13 $0.08 Weighted-average shares outstanding used in computing net income per common share: Basic 285,086 337,303 286,141 331,318 Diluted 296,722 349,624 296,107 342,656 (a) Adjusted EBITDA during prior periods, for the Corporate and WebMD segments, has been reclassified to conform to the current period presentation. (b) Adjusted EBITDA per diluted common share is based on the weighted- average shares outstanding used in computing diluted net income per common share. (c) Reconciliation of Adjusted EBITDA to net income (see Annex A - Explanation of Non-GAAP Financial Measures). (d) Reflects the adoption of SFAS 123R effective January 1, 2006. EMDEON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) June 30, December 31, 2006 2005 Assets (Unaudited) Cash and cash equivalents $92,210 $159,510 Short-term investments 296,750 267,387 Accounts receivable, net 239,024 233,070 Inventory 14,486 14,251 Prepaid expenses and other current assets 36,079 34,615 Total current assets 678,549 708,833 Marketable equity securities 2,944 4,481 Property and equipment, net 126,376 116,032 Goodwill 1,110,521 1,075,549 Intangible assets, net 238,213 240,510 Other assets 47,837 50,278 Total Assets $2,204,440 $2,195,683 Liabilities and Stockholders’ Equity Accounts payable $15,135 $11,611 Accrued expenses 158,249 186,381 Deferred revenue 125,811 115,840 Total current liabilities 299,195 313,832 Convertible notes 650,000 650,000 Other long-term liabilities 15,946 15,353 Minority interest in WebMD Health Corp. 53,811 43,229 Convertible redeemable exchangeable preferred stock 98,650 98,533 Stockholders’ equity 1,086,838 1,074,736 Total Liabilities and Stockholders’ Equity $2,204,440 $2,195,683 EMDEON CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, unaudited) Six Months Ended June 30, 2006 2005 Cash flows from operating activities: Net income $39,612 $26,015 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 38,309 34,045 Minority interest in WebMD Health Corp., net of tax (793) - Amortization of debt issuance costs 1,461 1,333 Non-cash advertising 2,794 5,013 Non-cash stock-based compensation 25,562 2,367 Bad debt expense 1,645 3,722 Loss on investments - 3,642 Loss on redemption of convertible debt - 1,902 Reversal of income tax valuation allowance applied to goodwill 5,215 2,146 Changes in operating assets and liabilities: Accounts receivable (4,719) (18,350) Inventory (179) 186 Prepaid expenses and other, net (3,659) 1,655 Accounts payable 3,479 (5,881) Accrued expenses and other long-term liabilities 222 (4,596) Deferred revenue 6,272 9,501 Net cash provided by operating activities 115,221 62,700 Cash flows from investing activities: Proceeds from maturities and sales of available-for-sale securities 398,870 190,673 Purchases of available-for-sale securities (426,470) (94,350) Purchases of property and equipment (28,971) (38,717) Proceeds received from sale of property and equipment - 400 Cash paid in business combinations, net of cash acquired (84,846) (74,110) Net cash used in investing activities (141,417) (16,104) Cash flows from financing activities: Proceeds from issuance of common stock 30,433 31,437 Purchases of treasury stock (71,843) - Redemption of convertible debt - (86,694) Payments of notes payable and other (173) (304) Net cash used in financing activities (41,583) (55,561) Effect of exchange rates on cash 479 (1,124) Net decrease in cash and cash equivalents (67,300) (10,089) Cash and cash equivalents at beginning of period 159,510 46,019 Cash and cash equivalents at end of period $92,210 $35,930 2006 Consolidated Financial Guidance Summary (in millions, except per share amounts) Quarterly Mix Range Q1 Q2 Q3 Q4 Revenue $1,430 $1,450 23% 25% 25% 27% Earnings before interest, taxes, non-cash and other items (“Adjusted EBITDA”)(a) $251 $264 21% 26% 25% 28% Interest income, net (0.4) (0.7) Depreciation and amortization 80.2 81.9 23% 24% 26% 27% Non-cash stock-based compensation 48.2 49.2 26% 27% 26% 21% Non-cash advertising 7.4 7.6 22% 16% 23% 39% Income tax provision 22.3 23.3 20% 24% 26% 30% Legal expense 0.8 0.8 Advisory expenses 4.1 4.1 Minority interest in WebMD Health Corp., net of tax (0.6) (0.2) Net income $89.0 $98.0 18% 25% 24% 33% Adjusted EBITDA per diluted share $0.84 $0.88 Net income per diluted share $0.30 $0.33 (a) See Annex A -- Explanation of Non-GAAP Financial Measures Operating Segments Revenue: * Emdeon Business Services - Approximately 57% of consolidated revenue in Q3 decreasing to 56% in Q4. * Emdeon Practice Services - Approximately 22% of consolidated revenue in Q3 decreasing to 21% in Q4. * WebMD - Approximately 18% of consolidated revenue in Q3 increasing to 19% in Q4. * Porex - Approximately 6% of consolidated revenue for the remainder of the year. * Inter-segment eliminations - Approximately 2.5% of consolidated revenue. Adjusted EBITDA: * Emdeon Business Services - Approximately 22% of segment revenue for the remainder of the year. * Emdeon Practice Services - Approximately 15% of segment revenue for the remainder of the year. * WebMD - Approximately 21% of segment revenue in Q3 increasing to 26% in Q4. * Porex - Approximately 27-28% of segment revenue for the remainder of the year. * Corporate - Approximately 3.2% of consolidated revenue. Other Assumptions * The 2006 Guidance includes expenses for the first six months of 2006, but does not reflect any projected expenses related to either the on-going Department of Justice Investigation or advisory expense associated with the evaluation of strategic alternatives for the Emdeon Business Services and Emdeon Practice Services segments. * Adjusted EBITDA per diluted share and net income per diluted share are both calculated on an assumed share count of approximately 299 million. * Non-cash stock-based compensation expense considers the January 1, 2006 adoption of SFAS 123R. * Additional details on WebMD’s guidance can be found in the press release issued by WebMD on August 3, 2006. ANNEX A Explanation of Non-GAAP Financial Measures
The accompanying press release includes both financial measures in accordance with U.S. generally accepted accounting principles, or GAAP, as well as non-GAAP financial measures. The non-GAAP financial measures represent earnings before interest, taxes, non-cash and other items (which we refer to as “Adjusted EBITDA”) and related per share amounts. Adjusted EBITDA should be viewed as supplemental to, and not as an alternative for, “net income” calculated in accordance with GAAP. The tables attached to the accompanying press release include a reconciliation of historical non-GAAP financial measures to historical GAAP financial measures. The guidance summary being furnished as an exhibit to a Current Report on Form 8-K that Emdeon is filing with the SEC today includes a reconciliation of forward-looking non-GAAP information to forward-looking GAAP financial information.
Adjusted EBITDA is used by Emdeon’s management as an additional measure of Emdeon’s overall performance and its reporting segments’ performance for purposes of business decision-making, including developing budgets, managing expenditures, and evaluating potential acquisitions or divestitures. Period- to-period comparisons of Adjusted EBITDA help Emdeon’s management identify additional trends in Emdeon’s and its reporting segments’ financial results that may not be shown solely by period-to-period comparisons of net income. In addition, Emdeon uses Adjusted EBITDA in the incentive compensation programs applicable to many of its employees in order to evaluate Emdeon’s performance. Emdeon management recognizes that Adjusted EBITDA has inherent limitations because of the excluded items, particularly those items that are recurring in nature. In order to compensate for those limitations, management also reviews the specific items that are excluded from Adjusted EBITDA, but included in net income, as well as trends in those items. The amounts of those items are set forth, for the applicable periods, in the reconciliations of Adjusted EBITDA to net income that Emdeon provides when it presents Adjusted EBITDA.
Emdeon believes that the presentation of Adjusted EBITDA is useful to investors in their analysis of Emdeon’s results for reasons similar to the reasons why Emdeon’s management finds it useful, and because it helps facilitate investor understanding of decisions made by Emdeon’s management in light of the performance metrics used in making those decisions. In addition, as more fully described below, Emdeon believes that providing Adjusted EBITDA, together with a reconciliation of Adjusted EBITDA to net income, helps investors make comparisons between Emdeon and other companies that may have different capital structures, different effective income tax rates and tax attributes, different capitalized asset values and/or different forms of employee compensation. However, Adjusted EBITDA is intended to provide a supplemental way of comparing Emdeon with other public companies and is not intended as a substitute for comparisons based on “net income” calculated in accordance with GAAP. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and net income provided by each company under applicable SEC rules.
The following is an explanation of the items excluded by Emdeon from Adjusted EBITDA but included in net income:
- Depreciation and Amortization. Depreciation and amortization expense is a non-cash expense relating to capital expenditures and intangible assets arising from acquisitions each of which are expensed on a straight-line basis over the estimated useful life of the related assets. Emdeon excludes depreciation and amortization expense from Adjusted EBITDA because it believes (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of Emdeon’s business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and intangible assets. Accordingly, Emdeon believes this exclusion assists management and investors in making period-to-period comparisons of operating performance. Investors should note that use of tangible and intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and should also note that such expenses will recur in future periods. - Stock-Based Compensation Expense. Prior to January 1, 2006, Emdeon accounted for stock-based compensation based upon Accounting Principles Board Opinion No.25 “Accounting for Stock Issued to Employees” (“APB 25"). In accordance with APB 25, stock-based compensation was determined using the intrinsic value method. As of January 1, 2006, Emdeon adopted Statement of Financial Accounting Standards No.123R, “Share-Based Payment” (“SFAS 123R”) and accounts for stock-based compensation under the fair value method. Emdeon utilized the modified prospective transition method under SFAS 123R and, accordingly, prior period results have not been restated. Emdeon believes that excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in its operating performance that are not impacted by the adoption of SFAS 123R. Additionally, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use when adopting SFAS 123R, Emdeon believes that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between Emdeon’s operating performance and the operating performance of other companies. Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods. Investors should also note that such expenses will recur in the future. - Non-Cash Advertising Expense. This expense relates to the usage of non- cash advertising obtained from News Corporation (“Newscorp”) in exchange for equity securities issued by Emdeon in 2000. The advertising is available only on various Newscorp properties, primarily its television network and cable channels without any cash cost to Emdeon. The amount of advertising that can be used in any year is subject to annual contractual limitation and expires in 2010. Emdeon does not incur any other cash expenses related to airing of television advertising. Emdeon excludes this expense from Adjusted EBITDA because (i) it is a non-cash expense, (ii) it is incremental to other non-television cash advertising expense that Emdeon otherwise incurs, (iii) Emdeon has not and believes it will not incur cash expenses relating to television advertising in the future and (iv) it assists management and investors in comparing its operating results over multiple periods. Investors should note that it is likely that Emdeon derives some benefit from such advertising and that such expenses will recur in the future. - Interest Income and Expense. Interest income is associated with the level of marketable debt securities and other interest bearing accounts in which Emdeon invests, as well as with interest expenses arising from the capital structure of Emdeon. Interest income and expense vary over time due to a variety of financing transactions that Emdeon has entered into or may enter into in the future. Emdeon has, in recent periods, issued convertible debentures and preferred stock, repurchased shares in a $549 million cash tender offer and through other repurchase transactions and conducted an initial public offering of equity in its WebMD subsidiary. Emdeon excludes interest income and interest expense
