NEOF Neoforma Inc. (MM)

Neoforma Reports Second Quarter 2005 Financial Results SAN JOSE, Calif., July 25 /PRNewswire-FirstCall/ -- In the quarter ended June 30, 2005, Neoforma, Inc. (NASDAQ:NEOF), a leading provider of supply chain management solutions for the healthcare industry, generated total revenue of $2.8 million on a generally accepted accounting principles (GAAP) basis, a decrease from the $3.3 million reported in the same quarter in the prior year. Excluding the impact of Emerging Issues Task Force Abstract No. 01-9 (EITF No. 01-9), Neoforma generated total adjusted revenue of $18.2 million in the second quarter of 2005, a decrease from the $18.8 million reported in the same quarter of the previous year. (Logo: http://www.newscom.com/cgi-bin/prnh/20030226/NEOFORMALOGO ) In the second quarter of 2005, in accordance with GAAP, Neoforma's net loss and net loss per share were $14.7 million and $0.74, respectively, an improvement from the $18.4 million net loss and $0.95 net loss per share recorded in the same quarter of 2004. On an adjusted basis, net income and net income per share were $4.3 million and $0.22, respectively, decreasing from the $5.5 million net income and $0.28 net income per share recorded in the second quarter of 2004. Neoforma's adjusted financial information, which is not in accordance with GAAP, excludes the application of EITF No. 01-9 and certain expenses, gains and losses. Adjusted financial information serves as a measure of the performance of Neoforma's ongoing core operations. A description of the adjusted financial information for the periods presented and a reconciliation of these results to GAAP financial information are included in the attached financial statements and are available in the investor relations section of Neoforma's Web site at http://www.neoforma.com/ . "Neoforma made steady progress during the second quarter, highlighted by the generation of $4.4 million in free cash flow," says Bob Zollars, chairman and chief executive officer of Neoforma. "We met our revenue guidance for the quarter, although our non-related party revenue results were lower than we had hoped, and we were pleased by our significant increase in connectivity, growing marketplace volume, new functionality releases and continued progress on the evaluation of our strategic alternatives." Second Quarter 2005 Highlights In the second quarter, Neoforma made progress in several key areas, including: * Developed a new on-demand spend intelligence solution for healthcare providers, which is currently in pilot in several hospitals; * Renewed Marketplace@Novation(R) contracts for seven hospitals, representing 100% of the hospitals up for renewal during the quarter; * Implemented approximately 1,250 connections, a significant increase over the number of connections completed in the prior quarter; * Supported $3.4 billion in volume, representing a 23% increase from the same quarter in the prior year and comprised of $1.2 billion in gross transaction volume and $2.2 billion in supply chain data; * Hosted a series of industry Webinars focusing on critical issues in materials management, attracting more than 450 participants; and * Ended the quarter with $35.0 million in cash, cash equivalents and short-term investments. Second Quarter 2005 Financial Results For the second quarter ended June 30, 2005, on a GAAP basis, Neoforma generated $2.8 million in total revenue, consisting entirely of non-related party revenue and decreasing from the $3.3 million in both total revenue and non-related party revenue recognized in the second quarter of 2004. This decline was primarily the result of an anticipated $282,000 decrease in revenue related to a technology license sale that occurred in 2001. The revenue from this license sale was recognized over the three-year life of the underlying agreement through August 2004. As a result, Neoforma recognized $282,000 in non-related party revenue related to this license sale in the second quarter of 2004 and none in the second quarter of 2005. Excluding the impact of EITF No. 01-9, on an adjusted basis, Neoforma generated total revenue of $18.2 million in the second quarter of 2005, comprised of $15.4 million in related party revenue and $2.8 million in non- related party revenue. The Company's adjusted revenue results in the second quarter decreased from the $18.8 million in total revenue, $15.5 million in related party revenue and $3.3 million in non-related party revenue reported in the same period in 2004. In accordance with EITF No. 01-9, Neoforma classifies non-cash amortization of partnership costs as an offset against related party revenue. As the reductions to operating expenses and revenue are equal, this accounting treatment has no impact on Neoforma's loss from operations, net loss, net loss per share or total cash flow. Neoforma's total operating expenses, on a GAAP basis, were $17.7 million in the second quarter of 2005, an improvement from the $21.8 million reported in the same quarter in the prior year. In the second quarter of 2004, Neoforma recorded a $4.1 million write-off of stockholder notes receivable; there was no such write-off in the second quarter of 2005, resulting in the decrease in GAAP operating expenses. In the most recent quarter, in comparison to the same quarter in the prior year, Neoforma also reported a $1.1 million decrease in amortization of partnership costs and a $656,000 decrease in software development costs capitalized. Adjusted operating expenses for the second quarter of 2005 totaled $14.1 million, increasing from the $13.4 million reported in the same period in the previous year. The increase in adjusted operating expenses was primarily due to the decrease in the amount of software development costs capitalized during the quarter. In the second quarter of 2005, on a GAAP basis, Neoforma's loss from operations equaled $14.9 million, an improvement from the $18.5 million loss reported in the second quarter of 2004. Neoforma generated $4.1 million in EBITDA in the second quarter of 2005, decreasing from the $5.4 million generated in the same quarter in the prior year. As of June 30, 2005, Neoforma's cash, cash equivalents and short-term investments totaled $35.0 million, a $4.5 million increase from the $30.5 million reported as of the end of the prior quarter and a $9.1 million increase from the $25.9 million reported as of year-end 2004. Neoforma remains debt-free. Neoforma's free cash flow in the second quarter of 2005 totaled $4.4 million. Free cash flow is calculated as net cash used in operating activities, plus amortization of partnership costs offset against related party revenue, minus purchases of property and equipment and capitalization of software development costs. "We met our revenue guidance, continued to manage our expenses and strengthened our balance sheet with strong cash flow in the second quarter," says Andrew Guggenhime, chief financial officer of Neoforma. "We're looking forward to concluding our evaluation of strategic alternatives, which we expect to do this quarter." Third Quarter 2005 Revenue Outlook Neoforma expects to generate approximately $12.5 million in GAAP revenue and $18.4 million in adjusted revenue in the third quarter of 2005. Neoforma's GAAP revenue projections represent a significant increase over prior period results due to a reduction in the amortization of partnership costs to be offset against related party revenue in the third quarter. Neoforma anticipates that the amortization of partnership costs resulting from the initial shares granted to VHA and UHC in July 2000 will be completed in the third quarter of 2005. As a result, the amortization of partnership costs offset against related party revenue will be significantly reduced, thereby increasing Neoforma's projected revenue on a GAAP basis. About Neoforma Neoforma is a leading supply chain management solutions provider for the healthcare industry. Through a unique combination of technology, information and services, Neoforma provides innovative solutions to over 1,600 hospitals and suppliers, supporting more than $13 billion in annualized marketplace volume. By bringing together contract information and order data, Neoforma's integrated solution set delivers a comprehensive view of an organization's supply chain, driving significant cost savings and better decision-making for both hospitals and suppliers. For more information, point your browser to http://www.neoforma.com/ . This news release contains forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, the statements under the caption "Third Quarter 2005 Revenue Outlook" and the anticipated conclusion of Neoforma's evaluation of strategic alternatives. There are a number of risks that could cause actual results to differ materially from those anticipated by these forward-looking statements. These risks include the ongoing process of exploring strategic alternatives and the risks associated with the previously announced desire of Novation, LLC to lower the fees it pays to Neoforma under its outsourcing agreement, and the willingness of customers to accept Neoforma's business model of providing supply chain management solutions for the healthcare industry. Some of these risks and other risks are described in Neoforma's periodic reports filed with the SEC, including its Form 10-Q for the quarter ended March 31, 2005. These statements are current as of the date of this release and Neoforma assumes no obligation to update the forward- looking information contained in this news release. NOTE: Neoforma is a trademark of Neoforma, Inc. Other Neoforma logos, product names and service names are also trademarks of Neoforma, Inc., which may be registered in other countries. Other product and brand names are trademarks of their respective owners. NEOFORMA, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited) Three Months Ended Six Months Ended June 30, June 30, 2004 2005 2004 2005 REVENUE: Related party, net of amortization of partnership costs of $15,459, $15,387, $30,937 and $30,808 for the three months ended June 30, 2004 and 2005 and the six months ended June 30, 2004 and 2005, respectively $-- $-- $-- $-- Non-related party 3,340 2,816 6,268 5,436 Total revenue 3,340 2,816 6,268 5,436 OPERATING EXPENSES: Cost of services 2,682 2,857 4,743 5,825 Operations 2,811 3,095 5,809 6,263 Product development 4,403 5,097 8,041 10,159 Selling and marketing 3,513 3,115 7,169 6,659 General and administrative 2,468 2,840 4,706 5,886 Amortization of intangibles 147 147 294 294 Amortization of partnership costs 1,669 588 3,141 1,630 Write-off of stockholder notes receivable 4,115 -- 4,115 -- Restructuring -- -- -- 767 Total operating expenses 21,808 17,739 38,018 37,483 Loss from operations (18,468) (14,923) (31,750) (32,047) OTHER INCOME (EXPENSE) 54 245 122 412 Net loss $(18,414) $(14,678) $(31,628) $(31,635) NET LOSS PER SHARE: Basic and diluted $(0.95) $(0.74) $(1.65) $(1.61) Weighted average shares -- basic and diluted 19,357 19,810 19,213 19,698 In addition to our consolidated financial statements presented in accordance with GAAP, Neoforma, Inc. uses non-GAAP, or adjusted, measures of operating results, net income and net income per share, which are adjusted from results based on GAAP to exclude the application of EITF No. 01-9 and certain expenses, gains and losses. Neoforma management believes that the non-GAAP adjusted results provide added insight into the Company's performance by focusing on results generated by the Company's ongoing core operations. Neoforma management uses the non-GAAP adjusted results when assessing the performance of its ongoing core operations, in making resource allocation decisions and for planning and forecasting. Additionally, incentive compensation for the Company, including management, is based on results on this basis. In addition, because we historically have reported adjusted results, we believe the inclusion of comparative numbers provides consistency in our financial reporting. The non-GAAP financial measures should be considered in addition to, not as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures. NEOFORMA, INC. ADJUSTED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1) (in thousands, except per share amounts) (unaudited) Three Months Ended Six Months Ended June 30, June 30, 2004 2005 2004 2005 REVENUE: Related party $15,459 $15,387 $30,937 $30,808 Non-related party 3,340 2,816 6,268 5,436 Total adjusted revenue 18,799 18,203 37,205 36,244 OPERATING EXPENSES: Cost of services 1,897 2,220 3,583 4,684 Operations 2,268 2,391 4,753 4,841 Product development 4,003 4,362 7,351 8,674 Selling and marketing 3,144 2,751 6,551 5,768 General and administrative 2,074 2,391 4,081 4,901 Adjusted operating expenses 13,386 14,115 26,319 28,868 EBITDA 5,413 4,088 10,886 7,376 OTHER INCOME (EXPENSE) 54 245 122 412 Adjusted net income $5,467 $4,333 $11,008 $7,788 ADJUSTED NET INCOME PER SHARE: Basic $0.28 $0.22 $0.57 $0.40 Weighted average shares -- basic 19,357 19,810 19,213 19,698 (1) These adjusted condensed consolidated statements of operations exclude the impact of EITF No. 01-9 and certain expenses, gains and losses. Under EITF No. 01-9, the Company offsets non-cash amortization of partnership costs against related party revenue in an amount equal to the lesser of the two in any period. Any amortization of partnership costs in excess of related party revenue in any period is classified as an operating expense. As a result of the adoption of EITF No. 01-9, the Company offset $15,459, $15,387, $30,937 and $30,808 of amortization of partnership costs against related party revenue in its GAAP condensed consolidated statements of operations for the three months ended June 30, 2004 and 2005 and the six months ended June 30, 2004 and 2005, respectively. As reclassifications, the application of EITF No. 01-9 had no impact on loss from operations, net loss or net loss per share. The excluded expenses, gains and losses consisted of depreciation and amortization of property and equipment, amortization of intangibles, amortization of deferred compensation, amortization of partnership costs and restructuring. NEOFORMA, INC. RECONCILIATION OF ADJUSTED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS TO GAAP (in thousands, except per share amounts) (unaudited) Three Months Ended June 30, 2005 Excluded Application Expenses, of Adjusted Gains EITF Results and Losses No. 01-9 REVENUE: Related party $15,387 $-- $(15,387) Non-related party 2,816 -- -- Total revenue 18,203 -- (15,387) OPERATING EXPENSES: Cost of services 2,220 -- -- Operations 2,391 -- -- Product development 4,362 -- -- Selling and marketing 2,751 -- -- General and administrative 2,391 -- -- Adjusted operating expenses 14,115 EBITDA 4,088 Depreciation and amortization of property and equipment -- 1,866 -- Amortization of intangibles -- 147 -- Amortization of deferred compensation -- 1,023 -- Amortization of partnership costs 15,975 (15,387) Total operating expenses 19,011 (15,387) Loss from operations (19,011) -- OTHER INCOME (EXPENSE) 245 -- -- Net income (loss) $4,333 $(19,011) $-- NET INCOME (LOSS) PER SHARE: Basic $0.22 Weighted average shares - basic 19,810 GAAP Allocations Depreciation and Amortization Amortization GAAP of of Results Property and Deferred As Equipment Compensation Reported REVENUE: Related party $-- $-- $-- Non-related party -- -- 2,816 Total revenue -- -- 2,816 OPERATING EXPENSES: Cost of services 428 209 2,857 Operations 550 154 3,095 Product development 458 277 5,097 Selling and marketing 217 147 3,115 General and administrative 213 236 2,840 Depreciation and amortization of property and equipment (1,866) -- -- Amortization of intangibles -- -- 147 Amortization of deferred compensation -- (1,023) -- Amortization of partnership costs -- -- 588 Total operating expenses -- -- 17,739 Loss from operations -- -- (14,923) OTHER INCOME (EXPENSE) -- -- 245 Net income (loss) $-- $-- $(14,678) NET INCOME (LOSS) PER SHARE: Basic $(0.74) Weighted average shares - basic 19,810 Three Months Ended June 30, 2004 Excluded Application Expenses, of Adjusted Gains EITF Results and Losses No. 01-9 REVENUE: Related party $15,459 $-- $(15,459) Non-related party 3,340 -- -- Total revenue 18,799 -- (15,459) OPERATING EXPENSES: Cost of services 1,897 -- -- Operations 2,268 -- -- Product development 4,003 -- -- Selling and marketing 3,144 -- -- General and administrative 2,074 -- -- Adjusted operating expenses 13,386 EBITDA 5,413 Depreciation and amortization of property and equipment -- 1,292 -- Amortization of intangibles -- 147 -- Amortization of deferred compensation -- 1,199 -- Amortization of partnership costs -- 17,128 (15,459) Write-off of stockholder notes receivable -- 4,115 -- Total operating expenses 23,881 (15,459) Loss from operations (23,881) -- OTHER INCOME (EXPENSE) 54 -- -- Net income (loss) $5,467 $(23,881) $-- NET INCOME (LOSS) PER SHARE: Basic $0.28 Weighted average shares - basic 19,357 GAAP Allocations Depreciation and Amortization Amortization GAAP of of Results Property and Deferred As Equipment Compensation Reported REVENUE: Related party $-- $-- $-- Non-related party -- -- 3,340 Total revenue -- -- 3,340 OPERATING EXPENSES: Cost of services 608 177 2,682 Operations 409 134 2,811 Product development 126 274 4,403 Selling and marketing 76 293 3,513 General and administrative 73 321 2,468 Depreciation and amortization of property and equipment (1,292) -- -- Amortization of intangibles -- -- 147 Amortization of deferred compensation -- (1,199) -- Amortization of partnership costs -- -- 1,669 Write-off of stockholder notes receivable -- -- 4,115 Total operating expenses -- -- 21,808 Loss from operations -- -- (18,468) OTHER INCOME (EXPENSE) -- -- 54 Net income (loss) $-- $-- $(18,414) NET INCOME (LOSS) PER SHARE: Basic $(0.95) Weighted average shares - basic 19,357 NEOFORMA, INC. RECONCILIATION OF ADJUSTED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS TO GAAP (in thousands, except per share amounts) (unaudited) Six Months Ended June 30, 2005 Excluded Application Expenses, of Adjusted Gains EITF Results and Losses No. 01-9 REVENUE: Related party $30,808 $-- $(30,808) Non-related party 5,436 -- -- Total revenue 36,244 -- (30,808) OPERATING EXPENSES: Cost of services 4,684 -- -- Operations 4,841 -- -- Product development 8,674 -- -- Selling and marketing 5,768 -- -- General and administrative 4,901 -- -- Adjusted operating expenses 28,868 EBITDA 7,376 Depreciation and amortization of property and equipment -- 3,729 -- Amortization of intangibles -- 294 -- Amortization of deferred compensation -- 2,195 -- Amortization of partnership costs -- 32,438 (30,808) Restructuring -- 767 -- Total operating expenses 39,423 (30,808) Loss from operations (39,423) -- OTHER INCOME (EXPENSE) 412 -- -- Net income (loss) $7,788 $(39,423) $-- NET INCOME (LOSS) PER SHARE: Basic $0.40 Weighted average shares - basic 19,698 GAAP Allocations Depreciation and Amortization Amortization GAAP of of Results Property and Deferred As Equipment Compensation Reported REVENUE: Related party $-- $-- $-- Non-related party -- -- 5,436 Total revenue -- -- 5,436 OPERATING EXPENSES: Cost of services 735 406 5,825 Operations 1,120 302 6,263 Product development 938 547 10,159 Selling and marketing 475 416 6,659 General and administrative 461 524 5,886 Depreciation and amortization of property and equipment (3,729) -- -- Amortization of intangibles -- -- 294 Amortization of deferred compensation -- (2,195) -- Amortization of partnership costs -- -- 1,630 Restructuring -- -- 767 Total operating expenses -- -- 37,483 Loss from operations -- -- (32,047) OTHER INCOME (EXPENSE) -- -- 412 Net income (loss) $-- $-- $(31,635) NET INCOME (LOSS) PER SHARE: Basic $(1.61) Weighted average shares - basic 19,698 Six Months Ended June 30, 2004 Excluded Application Expenses, of Adjusted Gains EITF Results and Losses No. 01-9 REVENUE: Related party $30,937 $-- $(30,937) Non-related party 6,268 -- -- Total revenue 37,205 -- (30,937) OPERATING EXPENSES: Cost of services 3,583 -- -- Operations 4,753 -- -- Product development 7,351 -- -- Selling and marketing 6,551 -- -- General and administrative 4,081 -- -- Adjusted operating expenses 26,319 EBITDA 10,886 Depreciation and amortization of property and equipment -- 2,483 -- Amortization of intangibles -- 294 -- Amortization of deferred compensation -- 1,666 -- Amortization of partnership costs -- 34,078 (30,937) Write-off of stockholder notes receivable -- 4,115 -- Total operating expenses 42,636 (30,937) Loss from operations (42,636) -- OTHER INCOME (EXPENSE) 122 -- -- Net income (loss) $11,008 $(42,636) $-- NET INCOME (LOSS) PER SHARE: Basic $0.57 Weighted average shares - basic 19,213 GAAP Allocations Depreciation Amortization Amortization GAAP of of Results Property and Deferred As Equipment Compensation Reported REVENUE: Related party $-- $-- $-- Non-related party -- -- 6,268 Total revenue -- -- 6,268 OPERATING EXPENSES: Cost of services 913 247 4,743 Operations 873 183 5,809 Product development 316 374 8,041 Selling and marketing 205 413 7,169 General and administrative 176 449 4,706 Depreciation and amortization of property and equipment (2,483) -- -- Amortization of intangibles -- -- 294 Amortization of deferred compensation -- (1,666) -- Amortization of partnership costs -- -- 3,141 Write-off of stockholder notes receivable -- -- 4,115 Total operating expenses -- -- 38,018 Loss from operations -- -- (31,750) OTHER INCOME (EXPENSE) -- -- 122 Net income (loss) $-- $-- $(31,628) NET INCOME (LOSS) PER SHARE: Basic $(1.65) Weighted average shares - basic 19,213 NEOFORMA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (unaudited) ASSETS December 31, June 30, 2004 2005 CURRENT ASSETS: Cash and cash equivalents $13,277 $21,211 Short-term investments 12,593 13,757 Accounts receivable, net of allowance for doubtful accounts 2,898 2,994 Related party accounts receivable 5,250 -- Prepaid expenses and other current assets 2,983 2,942 Total current assets 37,001 40,904 PROPERTY AND EQUIPMENT, net 11,501 10,106 INTANGIBLES, net 1,434 1,140 GOODWILL 1,652 1,652 CAPITALIZED PARTNERSHIP COSTS, net 40,996 8,557 RESTRICTED CASH 1,020 1,020 OTHER ASSETS 845 717 Total assets $94,449 $64,096 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $3,994 $1,525 Accrued payroll 3,974 3,936 Other accrued liabilities 2,839 3,581 Deferred revenue, current portion 1,564 1,835 Total current liabilities 12,371 10,877 DEFERRED RENT 387 245 DEFERRED REVENUE, less current portion 326 235 Total liabilities 13,084 11,357 STOCKHOLDERS' EQUITY: Common Stock $0.001 par value: Authorized -- 300,000 shares at June 30, 2005 Issued and outstanding: 20,244 and 20,606 shares at December 31, 2004 and June 30, 2005, respectively 20 21 Additional paid-in capital 839,307 842,352 Notes receivable from stockholders (225) (208) Deferred compensation (3,775) (3,798) Unrealized loss on available-for-sale securities (25) (56) Accumulated deficit (753,937) (785,572) Total stockholders' equity 81,365 52,739 Total liabilities and stockholders' equity $94,449 $64,096 NEOFORMA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (all items unaudited) Six Months Ended June 30, 2004 2005 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(31,628) $(31,635) Adjustments to reconcile net loss to net cash used in operating activities: Provision for doubtful accounts 110 -- Accrued interest receivable on stockholder notes receivable (11) (2) Depreciation and amortization of property and equipment 2,483 3,729 Amortization of intangibles 294 294 Amortization of partnership costs classified as an operating expense 3,141 1,630 Amortization of deferred compensation 1,666 2,195 Write-off of stockholder notes receivable 4,115 -- Restructuring -- 767 Change in assets and liabilities: Accounts receivable 589 5,154 Prepaid expenses and other current assets 192 41 Other assets 491 128 Accounts payable (1,194) (1,850) Accrued liabilities and accrued payroll (797) (114) Deferred revenue (815) 180 Deferred rent (36) (91) Net cash used in operating activities (21,400) (19,574) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable investments (9,589) (6,507) Proceeds from the sale or maturity of marketable investments 4,414 5,312 Purchases of property and equipment (1,652) (1,397) Capitalization of software development costs (3,236) (1,446) Net cash used in investing activities (10,063) (4,038) CASH FLOWS FROM FINANCING ACTIVITIES: Amortization of partnership costs offset against related party revenue 30,937 30,808 Cash received related to options exercised 622 245 Proceeds from the issuance of common stock under the employee stock purchase plan 526 474 Common stock repurchased, net of notes receivable issued to common stockholders (177) -- Collections of notes receivable from stockholders 274 19 Net cash provided by financing activities 32,182 31,546 Net increase in cash and cash equivalents 719 7,934 Cash and cash equivalents, beginning of period 9,981 13,277 Cash and cash equivalents, end of period $10,700 $21,211 http://www.newscom.com/cgi-bin/prnh/20030226/NEOFORMALOGO http://photoarchive.ap.org/ DATASOURCE: Neoforma, Inc. CONTACT: media, Rebecca Oles, +1-408-468-4363, or , or investors, Amanda Mogin, +1-408-468-4251, or , both of Neoforma, Inc. Web site: http://www.neoforma.com/

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