ECLP Eclipsys Corp. (MM)

Eclipsys Corporation (NASDAQ: ECLP), The Outcomes Company®, today announced results for the second quarter ended June 30, 2010.

Revenues for the quarter ended June 30, 2010 were $134.4 million, compared to revenues of $129.8 million for the quarter ended June 30, 2009.

On a GAAP basis, net income for the second quarter 2010 was $1.6 million, or $0.03 per diluted common share, compared to net loss of $4.1 million, or $0.07 per diluted common share in the second quarter 2009.

Non-GAAP net income for the second quarter 2010 was $9.2 million, or $0.16 per diluted common share, compared to non-GAAP net income for the second quarter 2009 of $8.9 million, or $0.16 per diluted common share.

A reconciliation of GAAP to non-GAAP results is included in the attached tables.

For the six months ended June 30, 2010, new business bookings were $259.4 million, which were positively impacted by new and existing customers making investment decisions to meet the meaningful use criteria of the American Reinvestment and Recovery Act. The company defines new business bookings as the total amount of all new contracts signed, excluding renewal contracts.

Eclipsys ended the quarter with $143.3 million of cash and $37.3 million in long-term investments.

“In the quarter, we executed successfully on our key growth drivers with continued strong bookings, significant new client wins and the release of our most user-intuitive clinical solution, Sunrise Enterprise 5.5,” said Philip M. Pead, Eclipsys president and chief executive officer. “Our results in the first half of the year and the momentum we are building in the market position us well to have a strong performance in 2010.”

Today’s Conference Call

Eclipsys executives will discuss the second-quarter results on a teleconference at 4:30 p.m. Eastern time on August 5. Persons interested in participating in the teleconference should call: (800) 230-1059 (in the U.S.) or (612) 234-9959 (international) approximately 15 minutes before the conference call is slated to begin. For listen-only mode, participants can go to www.eclipsys.com prior to the conference call to register and download the necessary audio software.

Replay

About two hours after its completion, an audio replay of the conference call will be available on www.eclipsys.com for approximately 48 hours.

About Eclipsys

Eclipsys is a leading provider of advanced integrated clinical, revenue cycle and performance management software, clinical content and professional services that help healthcare organizations improve clinical, financial and operational outcomes. For more information, see www.eclipsys.com or email info@eclipsys.com.

Non-GAAP Measures

The company has provided net income and earnings per share financial measures on a non-GAAP basis for the three months ended June 30, 2009 and June 30, 2010, which exclude non-cash stock-based compensation expense, amortization expense associated with acquisitions, and certain additional items that the company does not consider to be indicative of its underlying business performance, as listed on the attached GAAP to non-GAAP reconciliation tables. Because of the significance of the GAAP components excluded, these non-GAAP financial measures should not be considered a substitute for, or superior to, any measure derived in accordance with GAAP. These non-GAAP financial measures may also be inconsistent with the manner in which similar measures are derived or used by other companies. When considered in conjunction with comparable GAAP financial measures, management believes that the non-GAAP financial measures provide useful supplemental information to management and investors to facilitate the understanding and evaluation of the company’s underlying operating performance and future prospects, as well as comparisons of the company’s results with its prior period results that did not include these gains and/or charges, and with results of other companies on a more consistent basis. Internally, management also uses non-GAAP net income and earnings for forecasting and to help make management decisions, as an indicator of business performance, and to evaluate management’s effectiveness and help determine bonuses for management and others.

The company omits non-cash stock-based compensation because such expense can vary significantly between periods as a result of the timing (which determines various input assumptions that impact the compensation expense amount) and number of new equity-based incentive awards in any one period, including grants in connection with acquisitions. The company omits non-cash acquisition-related amortization expense arising from the acquisition of intangible assets in presenting non-GAAP earnings because such expense in any one period may not directly correlate to its underlying business performance and because such expense can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired intangible assets. This adjustment also provides management and investors with consistent measures of performance both before and after including such non-cash acquisition-related amortization charges. The economic substance of omitting the other items incurred that the company does not consider to be indicative of its underlying business performance derives from the fact that such episodic gains and/or charges make it more difficult to compare operating results of different periods, not all of which include such gains and/or charges. However, the omission of non-cash stock-based compensation expense may mask an economic cost incurred by the company in connection with stock-based compensation, and the omission of the charges related to the company’s other non-GAAP adjustments may mask actual and expected future costs associated with such matters. Management compensates for these limitations by using both the GAAP and non-GAAP measures. Although the company has provided 2010 guidance for non-GAAP diluted earnings per share and non-GAAP operating income margin, a quantitative reconciliation to the equivalent GAAP guidance financial measures is not available given the number of variables that affect the reconciliation.

The company has provided reconciling tables attached to this release.

Caution Regarding Forward-Looking Statements

Certain statements in this news release or the investor call referenced herein, including those concerning the company’s operational initiatives, future performance expectations, and effects of economic conditions are forward-looking statements and actual results may differ materially from those projected or implied by the forward-looking statements due to a variety of risks and uncertainties. Future performance expectations are predicated upon achievement of various sales and performance targets that may be difficult to meet. Economic conditions are unstable and may cause hospitals and other healthcare providers to curtail HIT system spending. Eclipsys’ cost reduction and other initiatives in response to the challenging economic environment, including initiatives designed to improve operational efficiencies, may not be effective, and it is difficult to predict what the company may be able to achieve. Eclipsys sales may fall below expectations due to market conditions, competition, and other factors, including client demands for pricing and financing concessions. Costs may be greater than anticipated due to the potential need to increase spending to ensure performance in accordance with commitments to clients, regulatory requirements, and other factors. Software development may take longer and cost more than expected, and incorporation of anticipated features and functionality (including as required to comply with ARRA and related regulations, as well as other certification standards) may be delayed, due to various factors including programming and integration challenges and resource constraints. The market is highly competitive. Implementation and customization of Eclipsys software is complex and time-consuming. Results depend upon a variety of factors and can vary by client. Each client’s circumstances are unique and may include unforeseen issues that make it more difficult than anticipated to implement or derive benefit from software, implementation or consulting services. The success and timeliness of the company’s services will depend at least in part upon client involvement, which can be difficult to control. Eclipsys is required to meet specified performance standards and regulatory requirements, and clients can terminate contracts, assess penalties or reduce contract scope under certain circumstances. More information about company risks is available in recent Form 10-K and other filings made by Eclipsys from time to time with the Securities and Exchange Commission. Special attention is directed to the portions of those documents entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Eclipsys, The Outcomes Company, and Sunrise Enterprise are either registered trademarks or trademarks of Eclipsys Corporation (or its subsidiaries) in the United States and certain other countries.

Eclipsys Corporation GAAP Income Statements (unaudited)

(in thousands, except per share amounts)

                                    GAAP GAAP Three Months Ended Year-to-date June 30, 2010 June 30, 2009

 

$ Change

% Change   June 30, 2010 June 30, 2009

 

$ Change

% Change   Revenues: Systems and services $ 131,480 $ 127,675 $ 3,805 3.0 % $ 257,037 $ 255,812 $ 1,225 0.5 % Hardware   2,962     2,173     789   36.3 %   5,765     4,202     1,563   37.2 % Total revenues   134,442     129,848     4,594   3.5 %   262,802     260,014     2,788   1.1 %   Cost and expenses: Costs of systems and services 71,208 68,315 2,893 4.2 % 136,407 135,189 1,218 0.9 % Costs of hardware 2,412 1,950 462 23.7 % 4,864 3,606 1,258 34.9 % Sales and marketing 17,293 27,394 (10,101 ) -36.9 % 37,041 50,144 (13,103 ) -26.1 % Research and development 17,229 13,872 3,357 24.2 % 30,690 27,364 3,326 12.2 % General and administrative 12,321 12,429 (108 ) -0.9 % 20,888 24,451 (3,563 ) -14.6 % Restructuring - - - - 5,434 (5,434 ) -100.0 % Depreciation and amortization   8,564     8,117     447   5.5 %   16,790     16,152     638   3.9 % Total costs and expenses   129,027     132,077     (3,050 ) -2.3 %   246,680     262,340     (15,660 ) -6.0 %   Income (loss) from operations 5,415 (2,229 ) 7,644 * 16,122 (2,326 ) 18,448 * Gain (loss) on sale of assets - 838 (838 ) -100.0 % - 1,237 (1,237 ) -100.0 % Gain (loss) on ARS (1,573 ) 691 (2,264 ) 327.6 % (1,799 ) 533 (2,332 ) -437.5 % Interest income 372 681 (309 ) -45.4 % 789 1,528 (739 ) -48.4 % Interest expense   (267 )   (961 )   694   -72.2 %   (611 )   (2,105 )   1,494   -71.0 % Income (loss) before income taxes 3,947 (980 ) 4,927 * 14,501 (1,133 ) 15,634 * Provision for income taxes   2,310     3,120     (810 ) -26.0 %   7,438     3,834     3,604   94.0 % Net income (loss) $ 1,637   $ (4,100 ) $ 5,737   * $ 7,063   $ (4,967 ) $ 12,030   *   Basic EPS: Net income (loss) $ 1,637 $ (4,100 ) $ 5,737 * $ 7,063 $ (4,967 ) $ 12,030 * Less: Income allocated to participating securities   7     -     7       35     -     35     Net income (loss) available to common shareholders $ 1,630   $ (4,100 ) $ 5,730   * $ 7,028   $ (4,967 ) $ 11,995   * Basic weighted average common shares outstanding   57,208     55,710     1,498   2.7 %   57,024     55,588     1,436   2.6 % Basic net income (loss) per common share $ 0.03   $ (0.07 ) $ 0.10   * $ 0.12   $ (0.09 ) $ 0.21   *   Diluted EPS: Net income (loss) $ 1,637 $ (4,100 ) $ 5,737 * $ 7,063 $ (4,967 ) $ 12,030 * Less: Income allocated to participating securities   7     -     7       35     -     35     Net income (loss) available to common shareholders $ 1,630   $ (4,100 ) $ 5,730   * $ 7,028   $ (4,967 ) $ 11,995   * Basic weighted average common shares outstanding 57,208 55,710 1,498 2.7 % 57,024 55,588 1,436 2.6 % Dilutive effect of potential common shares   862     -     862       879     -     879     Diluted weighted average shares common outstanding   58,070     55,710     2,361   4.2 %   57,903     55,588     2,315   4.2 % Diluted earnings (loss) per common share $ 0.03   $ (0.07 ) $ 0.10   * $ 0.12   $ (0.09 ) $ 0.21   *   * - not meaningful     ECLIPSYS CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except share and per share amounts)                   As of June 30, 2010 December 31, 2009 Unaudited Assets Current assets: Cash $ 143,284 $ 123,160 Restricted cash 2,495 - Accounts receivable, net of allowance for doubtful accounts of $3,436 and $2,994, respectively 120,421 111,712 Receivable from sale of investments 17,175 - Prepaid expenses 28,042 26,832 Other current assets   1,932     4,250   Total current assets 313,349 265,954   Long-term investments 37,345 85,988 Property and equipment, net 61,894 56,579 Capitalized software development costs, net 54,282 51,889 Acquired technology, net 24,602 29,557 Intangible assets, net 5,988 7,411 Goodwill 100,008 100,008 Deferred tax asset 79,145 86,639 Other assets   11,835     13,039   Total assets $ 688,448   $ 697,064         Liabilities and Stockholders’ Equity Current liabilities: Deferred revenue $ 141,415 $ 135,185 Accounts payable 22,300 14,752 Accrued compensation costs 21,624 34,034 Deferred tax liability 6,033 6,033 Other current liabilities   18,279     20,994   Total current liabilities 209,651 210,998   Deferred revenue 4,127 4,896 Long term debt and capital lease obligations 594 29,727 Other long-term liabilities   16,113     15,616   Total liabilities 230,485 261,237   Stockholders’ equity: Common stock, $0.01 par value, 200,000,000 shares authorized; issued and outstanding, 57,622,727 and 57,162,466, respectively 576 572 Additional paid-in capital 612,142 599,111 Accumulated deficit (154,941 ) (162,004 ) Accumulated other comprehensive income (loss)   186     (1,852 ) Total stockholders’ equity   457,963     435,827   Total liabilities and stockholders’ equity $ 688,448   $ 697,064       ECLIPSYS CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (in thousands)                       For the Six Months Ended June 30, For the Three Months Ended June 30,   2010     2009     2010     2009     Operating activities: Net income $ 7,063 $ (4,967 ) $ 1,637 $ (4,102 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 27,360 24,833 15,024 12,798 Provision for bad debt 900 1,996 450 950 (Gain)/loss on investments, net 1,799 (533 ) 1,573 (691 ) Stock compensation expense 7,395 11,169 3,714 6,761 Deferred income taxes 6,372 3,674 1,827 3,222 Gain on sale of assets - (1,237 ) - (837 ) Changes in operating assets and liabilities: - Accounts receivable (9,427 ) 1,948 (7,957 ) (1,747 ) Prepaid expenses and other current assets 892 1,580 233 3,034 Other assets 702 (497 ) (2 ) (260 ) Deferred revenue 5,933 (3,631 ) 3,402 (2,824 ) Accrued compensation (12,395 ) 8,633 (2,958 ) 1,168 Accounts payable and other current liabilities 483 (6,888 ) 4,292 (292 ) Long-term liabilities 485 1,565 458 814 Other   85     108     77     23   Total adjustments   30,584     42,720     20,133     22,119   Net cash provided by operating activities   37,647     37,753     21,770     18,017   Investing activities: Purchases of property and equipment (12,191 ) (12,555 ) (5,530 ) (5,282 ) Proceeds from sales of marketable securities 32,474 150 27,899 0 Capitalized software development costs (12,456 ) (14,651 ) (4,365 ) (7,435 ) Increase in restricted cash (2,495 ) - (2,495 ) - Earnout on disposition - 1,241 0 399 Cash paid for acquisitions, net of cash acquired   -     (2,819 )   0     (56 ) Net cash provided by (used in) investing activities 5,332 (28,634 ) 15,509 (12,374 ) Financing activities: Proceeds from stock options exercised 5,999 3,306 2,568 3,232 Proceeds from employee stock purchase plan 375 454 174 212 Repayment of secured financing (29,000 ) - (15,000 ) - Other   (147 )   (59 )   (99 )   (59 ) Net cash provided by (used in) financing activities (22,773 ) 3,701 (12,357 ) 3,385   Effect of exchange rates on cash and cash equivalents   (82 )   (199 )   (306 )   15   Net increase (decrease) in cash and cash equivalents 20,124 12,621 24,616 9,043 Cash and cash equivalents — beginning of period   123,160     108,304     118,668     111,882   Cash and cash equivalents — end of period $ 143,284   $ 120,925   $ 143,284   $ 120,925     Non-cash investing activities: Funds from sale of investments not collected $ 17,175   $ -   $ 17,175   $ -       Eclipsys Corporation Stock-Based Compensation Expense (unaudited) (in thousands)                                                 Three Months Three Months Three Months Three Months Three Months Three Months Three Months Three Months Ended Ended Ended Ended Ended Ended Ended Ended March 31, 2009 June 30, 2009 September 30, 2009 December 31, 2009   2009 March 31, 2010 June 30, 2010 September 30, 2010 December 31, 2010   2010   Cost and expenses: Costs of systems and services $ 493 $ 506 $ 501 $ 475 $ 1,975 $ 465 $ 581 $ 1,046 Costs of hardware - - Sales and marketing 2,494 4,237 1,774 1,373 9,878 1,931 1,521 3,452 Research and development 453 546 565 706 2,270 481 703 1,184 General and administrative   968   1,470   759   840   4,037   804   909       1,713 Total costs and expenses $ 4,408 $ 6,759 $ 3,599 $ 3,394 $ 18,160 $ 3,681 $ 3,714 $ - $ - $ 7,395     Eclipsys Corporation Reconciliation of GAAP (Unaudited) to Non-GAAP Items (in thousands, except per share amounts)                         Three Months Ended Three Months Ended Year-to-date Year-to-date June 30, 2010 June 30, 2009 June 30, 2010 June 30, 2009 Revenues: GAAP Revenues $ 134,442 $ 129,848 $ 262,802 $ 260,014 Premise acquisition accounting (1)   -     3,612     -     5,351   Non-GAAP revenues $ 134,442   $ 133,460   $ 262,802   $ 265,365     GAAP Recurring revenues $ 96,682 $ 89,909 $ 190,991 $ 178,010 Premise acquisition accounting (1)   -     441     -     728   Non-GAAP Recurring revenues $ 96,682   $ 90,350   $ 190,991   $ 178,738     GAAP Professional services revenues $ 25,022 $ 30,908 $ 47,769 $ 58,254 Premise acquisition accounting (1)   -     682     -     922   Non-GAAP Professional services revenues $ 25,022   $ 31,590   $ 47,769   $ 59,176     GAAP Periodic revenues $ 9,776 $ 6,858 $ 18,277 $ 19,548 Premise acquisition accounting (1)   -     2,387     -     3,586   Non-GAAP Periodic revenues $ 9,776   $ 9,245   $ 18,277   $ 23,134     GAAP Hardware revenues $ 2,962 $ 2,173 $ 5,765 $ 4,202 Premise acquisition accounting (1)   -     102     -     115   Non-GAAP Hardware revenues $ 2,962   $ 2,275   $ 5,765   $ 4,317     Gross Margin Revenues $ 134,442 $ 129,848 $ 262,802 $ 260,014 Costs of systems and services 71,208 68,315 136,407 135,189 Costs of hardware   2,412     1,950     4,864     3,606   GAAP Gross margin (A) 60,822 59,583 121,531 121,219 Adjustments Premise acquisition accounting (1) 3,058 - 4,552 Stock-based compensation expense (2) 581 506 1,046 999         -   Non-GAAP gross margin $ 61,403   $ 63,147   $ 122,577   $ 126,770     GAAP gross margin percentage 45.2 % 45.9 % 46.2 % 46.6 % Non-GAAP gross margin percentage 45.7 % 47.3 % 46.6 % 47.8 %   Operating Expenses GAAP operating expenses (B) $ 55,407 $ 61,812 $ 105,409 $ 123,545 Stock-based compensation expense (2) (3,133 ) (6,253 ) (6,349 ) (10,168 ) Restructuring (3) (3,192 ) (8,626 ) Amortization (4) (3,124 ) (3,124 ) (6,248 ) (6,248 ) Merger costs (5) (3,449 ) (3,449 )         -   Non-GAAP operating expenses $ 45,701   $ 49,243   $ 89,363   $ 98,503       Eclipsys Corporation Reconciliation of GAAP (Unaudited) to Non-GAAP Items (in thousands, except per share amounts)                 Three Months Ended   Three Months Ended   Year-to-date   Year-to-date June 30, 2010 June 30, 2009 June 30, 2010 June 30, 2009   Gross Research and Development Expenses GAAP research and development $ 17,229 $ 13,872 $ 30,690 $ 27,364 Adjustments Stock-based compensation expense (2) (703 ) (546 ) (1,184 ) (999 )         Non-GAAP research and development 16,526 13,326 29,506 26,365 Capitalized software and development costs   4,365     7,435     12,456     14,651   Non-GAAP gross research and development expenses $ 20,891   $ 20,761   $ 41,962   $ 41,016       Operating Income GAAP operating income $ 5,415 $ (2,229 ) $ 16,122 $ (2,326 ) Premise acquisition accounting (1) - 3,058 - 4,552 Stock-based compensation expense (2) 3,714 6,759 7,395 11,167 Restructuring (3) - 3,192 8,626 Amortization (4) 3,124 3,124 6,248 6,248 Merger costs (5) 3,449 3,449        

 

  Non-GAAP operating income $ 15,702   $ 13,904   $ 33,214   $ 28,267     GAAP Operating Margin 4.0 % -1.7 % 6.1 % -0.9 % Non-GAAP Operating Margin 11.7 % 10.4 % 12.6 % 10.7 %     Pre-tax income GAAP pre-tax income $ 3,947 $ (980 ) $ 14,501 $ (1,133 ) Premise acquisition accounting (1) - 3,058 - 4,552 Stock-based compensation expense (2) 3,714 6,759 7,395 11,167 Restructuring (3) - 3,192 - 8,626 Amortization (4) 3,124 3,124 6,248 6,248 Merger costs (5) 3,449 3,449 ARS redemption (6) 1,501 1,501         Non-GAAP pre-tax income $ 15,735   $ 15,153   $ 33,094   $ 29,460       Eclipsys Corporation Reconciliation of GAAP (Unaudited) to Non-GAAP Items (in thousands, except per share amounts)                   Three Months Ended     Three Months Ended     Year-to-date     Year-to-date June 30, 2010 June 30, 2009 June 30, 2010 June 30, 2009     Net Income GAAP net income $ 1,637 $ (4,100 ) $ 7,063 $ (4,967 ) Premise acquisition accounting (1) - 1,810 2,841 Stock-based compensation expense (2) 2,872 4,136 6,259 7,665 Restructuring (3) - 1,643 5,382 Amortization (4) 1,748 1,747 3,682 3,898 Merger costs (5) 2,032 2,032 ARS redemption (6) 885 885 Taxes 3,652 3,652         Non-GAAP net income $ 9,174 $ 8,888   $ 19,921 $ 18,471       Diluted earnings per share Diluted earnings per share $ 0.03 $ (0.07 ) $ 0.12 $ (0.09 ) Premise acquisition accounting (1) 0.03 0.05 Stock-based compensation expense (2) 0.05 0.07 0.11 0.14 Restructuring (3) 0.03 0.10 Amortization (4) 0.03 0.03 0.06 0.07 Merger costs (5) 0.03 0.03 ARS redemption (6) 0.02 0.02 Taxes 0.06 0.06         Non-GAAP diluted earnings per share $ 0.16 $ 0.16   $ 0.34 $ 0.33       Eclipsys Corporation Reconciliation NOTES of GAAP (Unaudited) to Non-GAAP Items           1

Deferred revenue adjustments net of deferred costs adjustments related to the Company's December 2008 acquisition of Premise Corporation. The amounts represent the reduction of deferred revenue and related deferred costs acquired from Premise as a result of purchase accounting adjustments.

  2 Stock based compensation expense.   3 Severance related activity primarily in the Company's professional services organization.   4 Amortization of intangible assets associated with 2008 acquisitions.   5 Legal, accounting and other consulting fees associated with our announced merger with Allscripts.  

6

Realized loss on the sale of certain of the Company's auction rate securities.

  Notes   A GAAP gross margin equals revenue less costs of systems and services and costs of hardware.   B

GAAP operating expenses include sales and marketing expense, research and development expense, general and administrative expense, depreciation and amortization expense, restructuring charge, and in process research and development charge.