ATLANTA, April 19 /PRNewswire-FirstCall/ -- NDCHealth Corporation today announced financial results for its fiscal third quarter ended February 27, 2004. Revenue increased to $116.1 million from $109.0 million in the third quarter of fiscal 2003.
Net income in the third quarter of fiscal 2004 was $9.3 million, or $0.26 per diluted share. During the third quarter, the company estimated that inventory levels of physician system units held by value-added resellers (VARs) increased. In addition, the aging of accounts receivable from VARs in the company's physician business unit also increased. As a result, the company delayed until future periods the recognition of $2.3 million of revenue from certain third quarter sales to these VARs, which impacted net income by $0.8 million. The company also increased accounts receivable reserves in its physician business unit by approximately $0.9 million. Together, these factors reduced third quarter EPS by $0.04 per diluted share. EPS also included the impact of $0.7 million in after-tax costs, or $0.02 per diluted share, associated with the ArcLight transaction, which closed in December 2003. The majority of these costs were non-cash or were fully reimbursed by ArcLight and consisted of transaction and other expenses associated with transition activities and amortization from the ArcLight transaction.
Third quarter fiscal 2004 net income and per share results compare to a net loss of $(3.7) million, or $(0.11) per diluted share, in the fiscal third quarter last year. The fiscal 2003 third quarter loss included total pre-tax charges of approximately $18.7 million, or $0.43 per diluted share after tax, related to early extinguishment of debt and charges, including investment losses related to the sale of MedUnite.
For the nine-month period ended February 27, 2004, net cash provided by operating activities was $70.4 million, a level similar to the $70.3 million reported in the same period of fiscal 2003. Improved management of working capital was offset by an additional $21.3 million in cash interest paid this fiscal year when compared to the same nine-month period in fiscal 2003. The company also reduced debt by approximately $14.5 million since its fiscal second quarter ended November 28, 2003.
Free cash flow, a non-GAAP measure defined as net cash provided by operating activities less capital expenditures and dividends paid, was $32.5 million for the first nine months of this fiscal year.
"We set out at the beginning of this fiscal year with an eight-quarter plan, and we are making solid progress against it," said Walter Hoff, NDCHealth's chairman and chief executive officer. "Our execution priorities are to grow revenue through business solution sales, control costs and leverage our infrastructure to realize margin improvement, and generate increasing cash flow to reduce debt.
"We are in the midst of our most active new product development and introduction cycle ever, and the initial market enthusiasm for our new solutions has generated strong early sales. We continue to invest in our businesses and are combining ArcLight prescription data with our Intelligent Health Repository to build next-generation products for pharmaceutical manufacturers," Hoff continued. "We intend to take advantage of our extensive market presence. We will be focusing our efforts on converting current customers to our new platforms in addition to selling into new prospects with the goal of increasing revenue per claim, expanding profit margins and improving cash flow."
On March 31, 2004, a special committee of NDCHealth's board comprised of the members of its Audit Committee, each of whom is an independent director, and independent legal and accounting advisors retained by the Special Committee, initiated a review of practices and procedures relating to the timing of revenue recognition of sales to the VAR channel in the company's physician business unit. The Special Committee has completed its review and analysis. After a discussion of the results of the review with the company's outside auditors, it was concluded based on the review that there was no impact on any reported prior period results. The company did, however, implement a change that had the impact of delaying revenue recognition of $2.3 million of third quarter sales to VARs, which impacted net income by $0.8 million.
Management is revising its financial guidance for fiscal 2004. Full-year revenue is expected to be in the range of $460 million to $466 million, which reflects the company's shift in sales strategy to a solution-based approach, the continued constraints due to pressure on discretionary spending from U.S. pharmaceutical manufacturers, and the possibility of a near-term reduction in sales in the physician business unit.
The company is not providing earnings and cash flow guidance at this time due to the undetermined professional fees and expenses, and possible sales impact in the physician unit related to the independent review noted above. In the fourth quarter ending May 28, 2004, the company expects to incur charges related to the conclusion of activities to eliminate losses in Europe. Additional actions taken in the U.S. to reduce headcount are expected to result in a decrease of approximately $6.0 million in annualized compensation- related costs. This expense reduction is expected to be used to fund the sales and marketing of recently introduced and new products to accelerate future growth.
Management continues to believe NDCHealth will achieve its eight-quarter plan objectives, and is focused on executing on key business strategies to accelerate the rollout and drive the sale of new pharmacy and hospital solutions, integrate the ArcLight assets and develop new information solutions for the pharmaceutical industry, and improve cash flow.
For additional information on NDCHealth's strategies and financial and business outlook, please refer to the company's Current Report on Form 8-K, Quarterly Report on Form 10-Q and its Annual Report on Form 10-K/A filed with the Securities and Exchange Commission, which can be accessed from the Investor Relations page, SEC Filings section of the NDCHealth web site, http://www.ndchealth.com/ .
Conference Call and Web Cast
Management will host a conference call to discuss these results today, April 19, 2004 beginning at 5:00 pm ET. The conference call can be accessed by dialing 877-421-3895 (706-679-0822 for international/local callers), or by web cast at http://www.ndchealth.com/ . A replay of the conference call will be available through 11:59 pm ET on April 29, 2004, and can be accessed either via archived web cast at our corporate web site, or by dialing 800-642-1687 (706-645-9291 for international/local callers) and entering conference ID 5846059.
About NDCHealth
NDCHealth is a leading provider of health information solutions that add value to pharmacy, hospital, physician, pharmaceutical and payer businesses.
Safe Harbor
This press release contains forward-looking statements related to the company's expected business outlook and guidance for fiscal year 2004. These statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in the forward-looking statements. Among other things, the company's business outlook and the projected revenue for the remainder of fiscal year 2004 are based on preliminary estimates, assumptions and projections that management believes to be reasonable at this time, but are beyond management's control. Some of management's assumptions that underlie the company's forward-looking statements include, among others, assumptions regarding demand for the company's products, the cost and timing of product upgrades and new product introductions, gains in market share, industry conditions affecting the company's customers, expected pricing levels, expected growth of revenue and net income, the timing and cost of planned capital expenditures, any regulatory action, outcomes of pending or threatened litigation, the aging of accounts receivable from the company's value-added resellers and levels of inventory purchased by these VARs, as well as recognition of VAR revenue and the adequacy of associated VAR accounts-receivable reserves, and expected synergies relating to acquisitions, joint ventures and alliances. Additional factors that could cause results to materially differ from current expectations include, but are not limited to, changes in demand for the company's services or products, changes in the U.S. healthcare industry, consolidation within the healthcare industry as well as other factors discussed in NDCHealth's Annual Report on Form 10-K/A for the fiscal year ended May 30, 2003, filed with the SEC. Forward-looking statements speak only as of the date they are made, and the company disclaims any obligation to update or amend these statements in light of new information, future events or otherwise. Forward-looking statements are only predictions and are not guarantees of performance.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS NDCHealth Corporation and Subsidiaries (In thousands, except per share data) Three Months Ended February 27, February 28, 2004 2003 Revenues: Network services and systems $74,241 $67,987 Information management 41,872 41,020 116,113 109,007 Operating expenses: Cost of service 58,914 53,130 Sales, general and administrative 25,863 22,341 Depreciation and amortization 9,761 7,842 Restructuring, impairment and other charges - 2,283 94,538 85,596 Operating income 21,575 23,411 Other income (expense): Interest and other income 126 343 Interest and other expense (6,980) (7,766) Minority interest in losses 776 185 Loss related to investments - (14,955) Early extinguishment of debt charges - (1,438) (6,078) (23,631) Income (loss) before income taxes and equity in losses of affiliated companies: Network services and systems 10,879 9,424 Information management 4,618 6,749 Other - (16,393) 15,497 (220) Provision for income taxes 5,811 3,121 Income (loss) before equity in losses of affiliated companies 9,686 (3,341) Equity in losses of affiliated companies (410) (359) Net income (loss) $9,276 $(3,700) Basic earnings (loss) per share: $0.26 $(0.11) Shares 35,232 34,623 Diluted earnings (loss) per share: $0.26 $(0.11) Shares 36,284 34,623 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS NDCHealth Corporation and Subsidiaries (In thousands, except per share data) Nine Months Ended February 27, February 28, 2004 2003 Revenues: Network services and systems $216,715 $199,681 Information management 123,523 114,694 340,238 314,375 Operating expenses: Cost of service 171,248 156,881 Sales, general and administrative 73,871 64,555 Depreciation and amortization 28,519 22,952 Restructuring, impairment and other charges 3,999 2,283 277,637 246,671 Operating income 62,601 67,704 Other income (expense): Interest and other income 450 1,088 Interest and other expense (22,296) (14,682) Minority interest in losses 1,399 1,216 Loss related to investments - (14,955) Early extinguishment of debt charges - (2,359) (20,447) (29,692) Income (loss) before income taxes and equity in losses of affiliated companies: Network services and systems 31,722 36,972 Information management 13,353 18,354 Other (2,921) (17,314) 42,154 38,012 Provision for income taxes 15,797 16,886 Income before equity in losses of affiliated companies 26,357 21,126 Equity in losses of affiliated companies (993) (984) Net income $25,364 $20,142 Basic earnings per share: $0.73 $0.58 Shares 34,934 34,561 Diluted earnings per share: $0.71 $0.58 Shares 35,672 34,923 CONDENSED CONSOLIDATED BALANCE SHEETS NDCHealth Corporation and Subsidiaries (In thousands, except share data) February 27, May 30, 2004 2003 ASSETS Current assets: Cash and cash equivalents $33,602 $16,103 Accounts receivable 82,720 78,988 Allowance for doubtful accounts (8,555) (6,785) Accounts receivable, net 74,165 72,203 Income tax receivable 2,050 1,199 Deferred income taxes 10,022 21,663 Prepaid expenses and other current assets 31,862 34,304 Total current assets 151,701 145,472 Property and equipment, net 128,494 116,678 Intangible assets, net 492,078 479,234 Deferred income taxes - 5,018 Debt issuance cost 13,476 12,756 Investments 17,979 15,662 Other 15,669 12,432 Total Assets $819,397 $787,252 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $6,037 $6,558 Current portion of obligations under capital leases 1,019 1,028 Accounts payable and accrued liabilities 67,993 61,211 Accrued interest 7,074 13,281 Deferred revenue 37,444 38,137 Total current liabilities 119,567 120,215 Long-term debt 305,666 321,262 Obligations under capital leases 124 558 Deferred revenue 8,794 9,461 Deferred income taxes 742 - Other long-term liabilities 30,557 30,225 Total liabilities 465,450 481,721 Commitments and contingencies - - Minority interest in equity of subsidiaries 7,620 9,019 Stockholders' equity: Preferred stock, par value $1.00 per share; 1,000,000 shares authorized, none issued - - Common stock, par value $.125 per share; 200,000,000 shares authorized; 35,961,257 and 34,888,753 shares issued, respectively. 4,495 4,361 Capital in excess of par value 242,423 216,156 Retained earnings 100,338 79,228 Deferred compensation and other (5,722) (4,301) Other comprehensive income 4,793 1,068 Total stockholders' equity 346,327 296,512 Total Liabilities and Stockholders' Equity $819,397 $787,252 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NDCHealth Corporation and Subsidiaries (In thousands) Nine Months Ended February 27, February 28, 2004 2003 Cash flows from operating activities: Net income $25,364 $20,142 Adjustments to reconcile net income to cash provided by operating activities: Equity in losses of affiliated companies 993 984 Non-cash portion of restructuring, impairment and other charges 1,049 2,283 Non-cash in-process research and development charges 350 - Non-cash early extinguishment of debt charges - 1,217 Loss related to investments - 14,955 Depreciation and amortization 28,519 22,952 Deferred income taxes 17,709 12,072 Provision for bad debts 3,246 2,115 Other, net 2,211 5,333 Changes in assets and liabilities which provided (used) cash, net of the effects of acquisitions: Accounts receivable, net (6,092) (5,307) Prepaid expenses and other assets (1,728) (8,612) Accounts payable and accrued liabilities 7,312 (1,304) Accrued interest on long term debt (6,207) 6,490 Deferred revenue (1,499) (3,896) Income taxes (862) 857 Net cash provided by operating activities 70,365 70,281 Cash flows from investing activities: Capital expenditures (33,633) (31,767) Proceeds from the sale of equipment 2,148 - Investing activities and other non-current assets (7,077) (13,831) Net cash used in investing activities (38,562) (45,598) Cash flows from financing activities: Net repayments under lines of credit - (91,000) Net principal payments under capital lease arrangements and other long-term debt (16,559) (1,888) Net cash from refinancing activities (395) 168,070 Net proceeds from stock activities 8,431 1,283 Dividends paid (4,254) (4,170) Net cash (used in) provided by financing activities (12,777) 72,295 Cash flows from discontinued operations: Cash provided by tax benefits of discontinued operations - 6,106 Cash used in discontinued operations (1,527) (4,393) Net cash (used in) provided by discontinued operations (1,527) 1,713 Increase in cash and cash equivalents 17,499 98,691 Cash and cash equivalents, beginning of period 16,103 13,447 Cash and cash equivalents, end of period $33,602 $112,138 FREE CASH FLOW RECONCILIATION NDCHealth Corporation and Subsidiaries In light of our goal of reducing our levels of senior debt and interest expense, we believe that free cash flow is a meaningful measure of our ability to generate cash for the payment of debt. We define free cash flow as net cash provided by operating activities less capital expenditures and dividends paid. Free cash flow is not a Generally Accepted Accounting Principles (GAAP) measurement and may not be comparable to free cash flow reported by other companies. The tables below reconcile free cash flow for the nine months ended February 27, 2004 and February 28, 2003 to our results determined under GAAP. (In thousands) Nine Months Ended February 27, February 28, 2004 2003 Net cash provided by operating activities $70,365 $70,281 Capital expenditures (33,633) (31,767) Dividends paid (4,254) (4,170) Free cash flow $32,478 $34,344
NDCHealth CorporationCONTACT: Robert Borchert, VP, Investor Relations of NDCHealth,+1-404-728-2906, or robert.borchert@ndchealth.com
Web site: http://www.ndchealth.com/