ELMWOOD PARK, N.J., Nov. 2 /PRNewswire-FirstCall/ -- Emdeon Corporation today announced financial results for the three months ended September 30, 2006.
Kevin Cameron, Chief Executive Officer of Emdeon, said: “During the third quarter we accomplished several important initiatives which began earlier in the year. I am very pleased with their outcome as well as with our financial and operating results for the quarter.”
Key Financial Highlights
Emdeon’s financial results reflect the reclassification of Emdeon Practice Services as a discontinued operation in the current and prior year period, as a result of the completion of the sale of Emdeon Practice Services to Sage Software in September 2006.
Revenue for the third quarter was $299.7 million compared to $261.0 million in the prior year period, an increase of 14.8%. Earnings before interest, taxes, non-cash and other items (“Adjusted EBITDA”) for the third quarter was $59.6 million or $0.20 per share compared to $39.2 million or $0.11 per share a year ago, an increase of 51.9%. Income from continuing operations for the third quarter was $23.7 million or $0.08 per share compared to $12.9 million or $0.03 per share a year ago, an increase of 84.1%. Net income for the third quarter was $381.7 million or $1.27 per share compared to net income of $14.1 million or $0.04 per share a year ago, reflecting a gain of $352.3 million, net of income taxes, on the sale of Emdeon Practice Services to Sage Software in September 2006.
As of September 30, 2006, Emdeon had approximately $947.4 million in cash and short-term investments on a consolidated basis, including $85.1 million in cash and short-term investments held by WebMD Health Corp., its 85.6% owned subsidiary.
Segment Operating Results
Emdeon’s financial results reflect the reclassification of ViPS as a separate business segment. Previously, ViPS had been reported as part of Emdeon Business Services. Prior period results have been reclassified to reflect the current presentation.
Emdeon Business Services segment revenue was $187.3 million for the third quarter compared to $171.4 million in the prior year period, an increase of 9.3%. The increase in Emdeon Business Services revenue was attributable to strength across the business, including remittance and payment solutions, patient billing and direct-to-provider solutions, as well as the impact of the January 8, 2006 postal rate increase. Segment Adjusted EBITDA was $44.5 million compared to $32.3 million in the prior year period, an increase of 37.9%. Operating margins increased to 23.8% compared to 18.8% a year ago, primarily as a result of higher revenue and the continued achievement of operating efficiencies and cost savings.
ViPS segment revenue was $24.8 million for the third quarter compared to $24.3 million in the prior year period. Segment Adjusted EBITDA was $5.3 million compared to $4.0 million in the prior year period, an increase of 32.9%. Operating margins increased to 21.3% compared to 16.4% a year ago primarily as a result of favorable revenue mix.
WebMD segment revenue was $66.6 million for the third quarter compared to $45.1 million in the prior year period, an increase of 47.8%, driven by continued growth in online services. Segment Adjusted EBITDA was $14.6 million compared to $9.1 million, an increase of 61.2% in the prior year, primarily as a result of the increase in revenues.
Porex segment revenue was $21.3 million for the third quarter compared to $20.4 million in the prior year period. Segment Adjusted EBITDA for the second quarter was $6.1 million compared to $6.4 million in the prior year period.
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 and WebMD Health Corp. will host a conference call at 4:45 pm (ET) on November 2, 2006 to discuss their third quarter results. Investors can access the call via webcast at www.emdeon.com (in the About Emdeon section) or at www.wbmd.com (in the Investor Relations section). A replay of the call will be available at the same web addresses.
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. 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. ViPS provides healthcare analytics, technology and reporting that help government agencies and commercial health plans improve patient outcomes, customer satisfaction and cost savings. 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 future financial results and other projections or measures of future performance. These statements speak only as of the date of this 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; difficulties in integrating acquired businesses; relationships with customers and strategic partners; changes in economic, political or regulatory conditions or other trends affecting the healthcare, Internet, information technology and plastics industries; our ability to attract and retain qualified personnel; and the pending sale transaction involving Emdeon Business Services and its effects on that segment and on Emdeon. Further information about these matters can be found in our Securities and Exchange Commission filings. Except as required by applicable law or regulation, we do not undertake any obligation to update our forward- looking statements to reflect future events or circumstances.
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), POREX(R) and ViPS(SM) are trademarks of Emdeon Corporation or its subsidiaries.
EMDEON CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data, unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Revenue : Services $274,158 $237,198 $792,509 $690,615 Products 25,574 23,824 76,048 72,096 Total revenue 299,732 261,022 868,557 762,711 Cost of operations : Services 158,967 142,484 472,951 414,533 Products 10,743 9,582 32,974 30,562 Total cost of operations 169,710 152,066 505,925 445,095 Development and engineering 9,243 8,912 27,164 26,595 Sales, marketing, general and administrative 74,050 63,865 216,263 189,292 Depreciation and amortization 18,189 15,801 51,964 44,826 Legal expense 1,023 5,904 1,840 14,347 Advisory expense 2,126 - 4,198 - Loss on investments - - - 3,642 Loss on redemption of convertible debt - - - 1,902 Interest income 6,599 5,124 15,450 13,380 Interest expense 4,723 2,996 14,082 11,670 Other expense - 1,863 - 1,863 Income from continuing operations before income tax provision and minority interest 27,267 14,739 62,571 36,859 Income tax provision 3,474 1,851 12,082 3,567 Minority interest in WebMD Health Corp., net of tax 140 38 (653) 38 Income from continuing operations 23,653 12,850 51,142 33,254 Income from discontinued operations, net of tax 358,048 1,257 370,171 6,868 Net income $381,701 $14,107 $421,313 $40,122 Basic income per common share: Income from continuing operations $0.08 $0.04 $0.18 $0.10 Income from discontinued operations 1.25 - 1.29 0.02 Net income $1.33 $0.04 $1.47 $0.12 Diluted income per common share: Income from continuing operations $0.08 $0.03 $0.17 $0.09 Income from discontinued operations 1.19 0.01 1.25 0.02 Net income $1.27 $0.04 $1.42 $0.11 Weighted-average shares outstanding used in computing income per common share: Basic 287,967 356,091 286,749 339,576 Diluted 300,012 370,313 297,409 351,875 EMDEON CORPORATION CONSOLIDATED SEGMENT INFORMATION (In thousands, except per share data, unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Revenue Emdeon Business Services $187,266 $171,396 $557,974 $516,941 WebMD 66,645 45,094 173,308 119,134 ViPS 24,843 24,278 73,525 66,310 Porex 21,298 20,410 64,544 60,663 Inter-segment eliminations (320) (156) (794) (337) $299,732 $261,022 $868,557 $762,711 Earnings before interest, taxes, non-cash and other items (“Adjusted EBITDA”) Emdeon Business Services $44,547 $32,297 $127,519 $103,315 WebMD 14,633 9,077 30,759 15,100 ViPS 5,302 3,988 15,517 11,992 Porex 6,133 6,385 18,732 17,846 Corporate (11,000) (12,509) (33,633) (35,894) $59,615 $39,238 $158,894 $112,359 Adjusted EBITDA per diluted common share (a) $0.20 $0.11 $0.53 $0.32 Interest, taxes, non-cash and other items (b) Depreciation and amortization $(18,189) $(15,801) $(51,964) $(44,826) Non-cash stock-based compensation (11,226) (1,073) (35,235) (3,631) Non-cash advertising (1,660) (1,986) (4,454) (6,999) Legal expense (1,023) (5,904) (1,840) (14,347) Advisory expense (2,126) - (4,198) - Interest income 6,599 5,124 15,450 13,380 Interest expense (4,723) (2,996) (14,082) (11,670) Income tax provision (3,474) (1,851) (12,082) (3,567) Minority interest in WebMD Health Corp., net of tax (140) (38) 653 (38) Loss on investments - - - (3,642) Loss on redemption of convertible debt - - - (1,902) Other expense - (1,863) - (1,863) Income from continuing operations 23,653 12,850 51,142 33,254 Income from discontinued operations, net of tax 358,048 1,257 370,171 6,868 Net income $381,701 $14,107 $421,313 $40,122 Basic income per common share: Income from continuing operations $0.08 $0.04 $0.18 $0.10 Income from discontinued operations 1.25 - 1.29 0.02 Net income $1.33 $0.04 $1.47 $0.12 Diluted income per common share: Income from continuing operations $0.08 $0.03 $0.17 $0.09 Income from discontinued operations 1.19 0.01 1.25 0.02 Net income $1.27 $0.04 $1.42 $0.11 Weighted-average shares outstanding used in computing income per common share: Basic 287,967 356,091 286,749 339,576 Diluted 300,012 370,313 297,409 351,875 (a) Adjusted EBITDA per diluted common share is based on the weighted- average shares outstanding used in computing diluted income per common share. (b) Reconciliation of Adjusted EBITDA to net income (see Annex A - Explanation of Non-GAAP Financial Measures). EMDEON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, unaudited) September 30, December 31, 2006 2005 Assets Cash and cash equivalents $875,460 $155,616 Short-term investments 71,943 267,387 Accounts receivable, net 101,217 195,317 Inventory 9,342 10,791 Prepaid expenses and other current assets 39,889 30,936 Assets held for sale 949,693 - Assets of discontinued operations - 254,247 Total current assets 2,047,544 914,294 Marketable equity securities 2,668 4,430 Property and equipment, net 66,907 95,686 Goodwill 288,109 895,975 Intangible assets, net 125,969 235,271 Other assets 68,667 50,027 Total Assets $2,599,864 $2,195,683 Liabilities and Stockholders’ Equity Accounts payable $7,014 $7,739 Accrued expenses 98,745 170,102 Deferred revenue 76,515 68,390 Liabilities held for sale 85,591 - Liabilities of discontinued operations - 68,436 Total current liabilities 267,865 314,667 Convertible notes 650,000 650,000 Other long-term liabilities 14,331 14,518 Minority interest in WebMD Health Corp. 60,413 43,229 Convertible redeemable exchangeable preferred stock 98,709 98,533 Stockholders’ equity 1,508,546 1,074,736 Total Liabilities and Stockholders’ Equity $2,599,864 $2,195,683 EMDEON CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, unaudited) Nine Months Ended September 30, 2006 2005 Cash flows from operating activities: Net income $421,313 $40,122 Adjustments to reconcile net income to net cash provided by operating activities: Income from discontinued operations, net of tax (370,171) (6,868) Depreciation and amortization 51,964 44,826 Minority interest in WebMD Health Corp., net of tax (653) 38 Amortization of debt issuance costs 2,190 1,856 Non-cash advertising 4,454 6,999 Non-cash stock-based compensation 35,235 3,631 Bad debt expense 1,170 1,532 Loss on investments - 3,642 Loss on redemption of convertible debt - 1,902 Reversal of income tax valuation allowance applied to goodwill 5,307 4,330 Changes in operating assets and liabilities: Accounts receivable (19,930) (30,441) Inventory 601 472 Prepaid expenses and other, net (9,701) (2,399) Accounts payable 825 (6,147) Accrued expenses and other long-term liabilities 3,284 10,710 Deferred revenue 9,926 9,430 Net cash provided by continuing operations 135,814 83,635 Net cash provided by discontinued operations 25,985 15,466 Net cash provided by operating activities 161,799 99,101 Cash flows from investing activities: Proceeds from maturities and sales of available-for-sale securities 831,145 336,014 Purchases of available-for-sale securities (632,955) (516,109) Purchases of property and equipment (38,231) (39,107) Proceeds received from sale of discontinued operations 524,245 - Cash paid in business combinations, net of cash acquired (119,635) (74,380) Other changes in equity of discontinued operations 28,279 9,116 Net cash provided by (used in) continuing operations 592,848 (284,466) Net cash used in discontinued operations (26,010) (18,964) Net cash provided by (used in) investing activities 566,838 (303,430) Cash flows from financing activities: Proceeds from issuance of common stock 62,768 43,384 Purchases of treasury stock (71,843) (4,596) Net proceeds from issuance of convertible debt - 289,875 Redemption of convertible debt - (86,694) Payments of notes payable and other (359) (495) Net cash (used in) provided by continuing operations (9,434) 241,474 Net cash (used in) provided by discontinued operations - - Net cash (used in) provided by financing activities (9,434) 241,474 Effect of exchange rates on cash 616 (1,117) Net increase in cash and cash equivalents 719,819 36,028 Change in cash attributable to discontinued operations 25 3,498 Cash and cash equivalents at beginning of period 155,616 39,980 Cash and cash equivalents at end of period $875,460 $79,506 2006 Consolidated Financial Guidance Summary (in millions, except per share data) Nine Months Three Months Year Ended Ended Ended September 30, December 31, December 31, 2006 2006 2006 Range Range Revenue $868.6 $305.0 $310.0 $1,173.6 $1,178.6 Earnings before interest, taxes, non-cash and other items (“Adjusted EBITDA”)(a) $158.9 $60.0 $63.0 $218.9 $221.9 Adjusted EBITDA per diluted common share $0.53 $0.20 $0.21 $0.73 $0.74 Interest income, net 1.4 7.9 8.1 9.3 9.5 Depreciation and amortization (52.0) (21.3) (20.4) (73.3) (72.4) Non-cash advertising (4.5) (2.7) (2.5) (7.2) (7.0) Non-cash stock-based compensation (35.2) (10.3) (10.0) (45.5) (45.2) Legal expense (1.8) - - (1.8) (1.8) Advisory expense (4.2) - - (4.2) (4.2) Income tax provision (12.1) (6.2) (5.7) (18.3) (17.8) Minority interest in WebMD Health Corp., net of tax 0.6 (0.6) (0.9) - (0.3) Income from continuing operations $51.1 $26.8 $31.6 $77.9 $82.7 Income from continuing operations per diluted common share $0.17 $0.09 $0.10 $0.26 $0.28 (a) See Annex A - Explanation of Non-GAAP Financial Measures Operating Segments Revenue * Emdeon Business Services - Approximately 61% of consolidated revenue in Q4. * WebMD - Approximately 24% to 25% of consolidated revenue in Q4. * ViPS - Approximately 8% of consolidated revenue in Q4. * Porex - Approximately 6% of consolidated revenue in Q4. Adjusted EBITDA * Emdeon Business Services - Approximately 22% of segment revenue in Q4. * WebMD - Approximately 26% to 27% of segment revenue in Q4. * ViPS - Approximately 20% to 21% of segment revenue in Q4. * Porex - Approximately 27% of segment revenue in Q4. * Corporate - Approximately 3.4% of consolidated revenue. Other Assumptions * The 2006 Guidance includes actual expenses for the first nine 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 sale of a 52% interest in the Emdeon Business Services segment. * Non-cash stock-based compensation expense considers the January 1, 2006 adoption of SFAS 123R. * 2006 Adjusted EBITDA per diluted share and income from continuing operations per diluted share are both calculated on an assumed share count of approximately 300 million. * Additional details on WebMD’s guidance can be found in the press release issued by WebMD on November 2, 2006. * Does not reflect any adjustments for the pending transaction to sell a 52% interest in Emdeon Business Services. * Does not reflect any adjustments for the previously announced Tender Offer. ANNEX A Explanation of Non-GAAP Financial Measures
The accompanying Emdeon Corporation 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, “income from continuing operations” calculated in accordance with GAAP. The tables and the financial guidance summary attached to the accompanying press release include reconciliations of non-GAAP financial measures to GAAP financial measures.
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 income from continuing operations. 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 income from continuing operations, 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 income from continuing operations included in the tables and the financial guidance summary attached to the accompanying press release.
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 income from continuing operations, 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 “income from continuing operations” or “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 income from continuing operations or 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 income from continuing operations:
-- Depreciation and Amortization. Depreciation and amortization expense is a non-cash expense relating to capital expenditures and intangible assets arising from acquisitions that 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 alternative 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.
