Emageon Reports Record Third Quarter Financial Results

BIRMINGHAM, Ala., Oct. 27 /PRNewswire-FirstCall/ -- Emageon Inc. today reported financial results for the quarter ended September 30, 2005.

Revenue for the third quarter ended September 30, 2005 was $19.6 million compared with $10.3 million in the third quarter of 2004, representing a 90% increase. Gross margin percentage in the quarter ended September 30, 2005 was 46%, compared to 18% in the quarter ended September 30, 2004. For the quarter ended September 30, 2005, net income was $1.8 million, or $0.09 per share, an improvement over the net loss of $4.5 million in the quarter ended September 30, 2004.

Revenue for the nine months ended September 30, 2005 was $49.5 million, an increase of 68% over revenue of $29.6 million for the nine months ended September 30, 2004. Gross margin percentage in the nine months ended September 30, 2005, was 44%, compared to 30% in the nine months ended September 30, 2004. For the nine months ended September 30, 2005, net loss was $1.1 million, or $(0.06) per share, an improvement over the net loss of $8.3 million in the nine months ended September 30, 2004.

Cash flow used in operations for the three months and nine months ended September 30, 2005 was $0.6 million and $3.8 million, respectively. At September 30, 2005, Emageon had $59.9 million in unrestricted cash, cash equivalents and marketable securities.

"We are pleased to once again report quarterly financial results that demonstrate our ability to execute on our strategic plan," said Chuck Jett, Chairman and CEO of Emageon. "Our revenue in the third quarter was an all- time record for our company, and revenue for the first nine months of 2005 exceeded our revenue for the entire year of 2004. We reported another quarter of solid profitability while continuing to invest for future growth."

Emageon will host a conference call for investors on October 27, 2005 at 5:00 p.m. EDT to discuss these financial results. This call is being webcast by Thomson/CCBN and can be accessed at Emageon's Web site at http://investor.emageon.com. The dial-in number for the call is 866.800.8652 (international 617.614.2705) and the passcode is 18874815. Replay is available from 7:00 p.m. Central Time, 10/27/2005 until 11:59 p.m. Central Time, 11/07/2005 at 888-286-8010 (international 617-801-6888) and passcode 45806247.

This press release contains forward-looking statements about Emageon which represent the Company's current views with respect to, among other things, future events and financial performance. Any forward-looking statements contained in this press release are based on Emageon's historical performance and on current plans, beliefs and expectations. Actual results may differ materially from those expressed or implied by such forward-looking statements as a result of various risks, uncertainties and other factors beyond its control. These risks, uncertainties and other factors include, among others, the risk that it may not compete successfully against larger competitors, risks associated with its history of operating losses, the risk that it may not manage its growth effectively, risks associated with its reliance on continuing relationships with large customers, the risk of significant product errors or product failures, its reliance on reseller arrangements for important components of its solution, the risk that it may not respond effectively to changes in its industry, its customers' reliance on third party reimbursements, and the potential impact on its business of FDA regulations and other applicable health care regulations. Additional information concerning these and other factors that could affect Emageon's financial and operating results may be found under the heading "Risk Factors" and elsewhere in the Company's Form 10-K for the year ended December 31, 2004, which was filed with the Securities and Exchange Commission on March 31, 2005. Emageon undertakes no obligation to update these forward-looking statements or any other information provided in this press release except as may be required by law.

About Emageon

Emageon provides an enterprise-level advanced visualization and infrastructure solution for the clinical analysis and management of digital medical images within multi-hospital networks, community hospitals and diagnostic imaging centers. Emageon's web-enabled software provides physicians in multiple medical specialties with dynamic tools to manipulate and analyze images in two and three dimensions. With these tools physicians have the ability to better understand internal anatomic structure and pathology, which can improve clinical diagnoses, disease screening and therapy planning. Emageon's open standards-based solution is designed to help customers improve staff productivity, automate complex medical imaging workflow, lower total cost of ownership and provide better service to physicians and patients.

Unaudited Statements of Operations Dollars in Thousands Except Per Share Amounts For the Three Months For the Nine Months Ended September 30 Ended September 30 2005 2004 2005 2004 Revenue: System sales $13,490 $7,458 $34,611 $21,128 Support services 6,116 2,864 14,901 8,428 Total revenue 19,606 10,322 49,512 29,556 Cost of revenue: System sales 7,206 5,554 17,782 13,160 Support services 3,389 2,949 9,794 7,642 Total cost of revenue 10,595 8,503 27,576 20,802 Gross profit 9,011 1,819 21,936 8,754 Operating expenses: Research and development 2,364 1,581 7,282 4,154 Sales and marketing 2,344 2,359 7,554 6,504 General and administrative 2,838 2,080 8,269 5,653 Total operating expenses 7,546 6,020 23,105 16,311 Operating income (loss) 1,465 (4,201) (1,169) (7,557) Other income (expense): Interest income 497 14 1,207 17 Interest expense (131) (347) (1,125) (730) Total other income (expense) 366 (333) 82 (713) Net income (loss) $1,831 $(4,534) $(1,087) $(8,270) Net income (loss) per share- basic $0.09 $(1.69) $(0.06) $(3.26) Net income (loss) per share- diluted $0.09 $(1.69) $(0.06) $(3.26) Basic weighted average common stock outstanding 20,110,390 2,693,640 17,191,333 2,549,124 Diluted weighted average common stock outstanding 21,381,695 2,693,640 17,191,333 2,549,124 Summary Balance Sheets Dollars in Thousands September 30, December 31, 2005 2004 (Unaudited) ASSETS Current assets: Cash and cash equivalents $30,529 $5,994 Marketable securities 29,381 - Trade accounts receivable, net 18,073 14,255 Prepaid expenses and other current assets 5,122 4,849 83,105 25,098 Fixed assets 10,960 8,832 Restricted cash 534 903 Noncurrent deposits 116 62 Intangible assets 6,457 6,873 Total Assets $101,172 $41,768 LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable and other accrued expenses $9,512 $10,053 Deferred revenue 17,755 21,357 Current portion of long-term debt and capital lease obligations 2,637 3,092 29,904 34,502 Long-term deferred revenue 3,389 2,796 Deferred tax liability 95 95 Long term debt and capital lease obligations less current portion 1,638 6,397 Total liabilities 35,026 43,790 Redeemable preferred stock - 30,348 Stockholders' equity (deficit) 66,146 (32,370) Total liabilities, redeemable preferred stock and stockholders' equity (deficit) $101,172 $41,768

The following table presents Emageon's pro forma net loss per share, a non-GAAP financial measurement, calculated as if the initial public offering had been completed as of the beginning of each period presented. The table illustrates the adjustments made to the weighted average shares of common stock outstanding set forth above in order to determine the pro forma common shares outstanding for each period. The pro forma net loss per share presented for each period was calculated by dividing the net loss for such period set forth above by the pro forma common shares outstanding, determined as shown below.

For the Nine Months Ending September 30 2005 2004 Weighted average shares outstanding 17,191,333 2,549,124 Effect of conversion of preferred stock 1,787,375 10,827,403 Effect of required exercise of warrants 88,530 537,082 Effect of issuance of escrowed common stock released upon completion of IPO 28,195 382,557 Effect of issuance of common stock in IPO (including overallotment shares) 958,791 5,750,000 Total pro forma shares outstanding 20,054,224 20,046,166 Pro forma net loss per share $(0.05) $(0.41)

Emageon believes that the pro forma net loss per share non-GAAP financial measure provides an additional meaningful measure of operating performance. By reflecting the Company's current capital structure, Emageon believes the pro forma net loss per share calculation enhances an overall understanding of the Company's current and historical financial performance, in light of its current capital structure. The Company also believes the inclusion of this non-GAAP financial measure enhances the consistency and comparability of reported financial results and will enable investors to more thoroughly evaluate current and future performance compared to past performance. However, this information will necessarily differ from comparable information that may be provided by other companies and should not be considered in isolation or as an alternative to the Company's operating and other financial information as determined under U.S. generally accepted accounting principles.

Emageon Inc.

CONTACT: W. Randall Pittman of Emageon, +1-205-980-7551; or Susan Noonanof The SAN Group, LLC, +1-212-966-3650

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