Emdeon Announces Fourth Quarter Results
24 February 2007
Emdeon Corporation (Nasdaq: HLTH) today announced financial results for the three months ended December 31, 2006.
Kevin Cameron, Chief Executive Officer of Emdeon, said: "2006 was a year of significant accomplishment for Emdeon. All of our business segments, as well as Emdeon Business Services, generated record results for both the fourth quarter and full year 2006. We substantially repositioned the company selling Emdeon Practice Services and 52% of Emdeon Business Services for $1.76 billion. We used the proceeds to dramatically reduce the number of shares outstanding. With these changes in Emdeon's corporate structure, Emdeon shareholders effectively have a greater participation in the performance of WebMD."
Key Financial Highlights
Revenue for the fourth quarter was $230.1 million. Earnings before interest, taxes, non-cash and other items ("Adjusted EBITDA") for the fourth quarter was $49.2 million or $0.16 per share. Income from continuing operations for the fourth quarter was $345.5 million or $1.14 per share and net income was $346.4 million or $1.14 per share. Revenue for 2006 was $1.1 billion. Adjusted EBITDA for 2006 was $208.1 million or $0.63 per share. Income from continuing operations for 2006 was $396.7 million or $1.25 per share and net income was $767.7 million or $2.37 per share.
Emdeon's income from continuing operations and net income for the quarter and year ended December 31, 2006 reflect a gain of $352.3 million related to the sale of a 52% interest in its Emdeon Business Services segment. Net income for the year ended December 31, 2006 also includes a gain of $353.2 million, net of income taxes, on the sale of Emdeon Practice Services which was completed in September 2006.
As of December 31, 2006, Emdeon had approximately $648.8 million in cash and short-term investments on a consolidated basis, including $54.2 million in cash and short-term investments held by WebMD Health Corp., its 84.6% owned subsidiary. On February 6, 2007, Emdeon transferred to WebMD $140 million as reimbursement for Emdeon's utilization of the portion of WebMD's net operating loss carry-forwards used in the sale transactions involving Emdeon Practice Services and Emdeon Business Services. This transfer was made in accordance with the tax sharing agreement between the two companies.
Effects of Recent Transactions
On November 16, 2006, Emdeon completed the sale of a 52% interest in its Emdeon Business Services segment (excluding the ViPS business) to an affiliate of General Atlantic LLC. The transaction was structured such that Emdeon Corporation and General Atlantic have an equal number of board members. Emdeon's income from continuing operations and net income for the quarter and year ended December 31, 2006 reflect a gain of $352.3 million for this transaction.
On December 4, 2006, Emdeon completed a tender offer, pursuant to which it purchased 129.2 million shares of Emdeon common stock, representing approximately 45% of the outstanding shares immediately prior to the tender offer, at $12.00 per share.
In comparing Emdeon's results for the quarter and year ended December 31, 2006 with prior year periods, as presented in the attached financial statements, the following considerations under Generally Accepted Accounting Principles apply:
* Emdeon Practice Services (which Emdeon sold to Sage Software in
September 2006) is treated as a discontinued operation in the attached
financial statements and its results are reported on the line "income
from discontinued operations, net of tax" for all periods presented.
That line includes, for the year ended December 31, 2006, a gain of
$353.2 million, net of income taxes, on the sale of Emdeon Practice
Services.
* Emdeon Business Services is not treated as a discontinued operation
because Emdeon retained a significant ownership interest. Accordingly,
Emdeon Business Services is included in Emdeon's consolidated financial
results for the first 47 days of the fourth quarter (until the date of
the sale transaction) and for the entire prior year period. For the
remaining 45 days of the fourth quarter (from the date of the sale
transaction through the end of the fourth quarter of 2006), Emdeon's 48%
portion of EBS's income is reflected in the line item "Equity in
earnings of EBS Master LLC".
* Emdeon's financial results reflect the reclassification of ViPS as a
separate business segment. Prior to the third quarter of 2006, ViPS had
been reported as part of the Emdeon Business Services segment. Prior
period results have been reclassified to reflect the current
presentation.
In addition, the following considerations apply to calculations of per share amounts in the attached financial statements:
* While the tender offer that was completed in December 2006 reduced the
share count by 129.2 million shares, this reduction in our outstanding
shares is not fully reflected in the earnings per share calculation for
the quarter and year ended December 31, 2006 as the share count is
calculated on a weighted average basis.
* For the quarter and year ended December 31, 2006, the Company's
convertible notes are dilutive to earnings per share, and therefore in
accordance with generally accepted accounting principles, the
calculation of diluted earnings per share assumes the conversion of the
notes into 42 million shares of common stock as of the beginning of the
applicable periods and income from continuing operations and net income
has been adjusted to exclude the interest expense associated with the
notes (approximately $4.6 million and $18.4 million for the quarter and
year ended December 31, 2006, respectively).
Segment Operating Results
WebMD segment revenue was $80.6 million for the fourth quarter compared to $49.1 million in the prior year period, an increase of 64.1%, driven by continued growth in online services. Segment Adjusted EBITDA was $22.3 million compared to $12.4 million, an increase of 79.3% over the prior year, primarily as a result of the increase in revenues.
ViPS segment revenue was $25.3 million for the fourth quarter compared to $24.0 million in the prior year period, an increase of 5.6%. The increase was attributable to an increase in consulting services and license revenue. Segment Adjusted EBITDA was $5.0 million compared to $4.9 million in the prior year period, an increase of 1.8%. Operating margins decreased slightly to 19.8% as a result of revenue mix.
Porex segment revenue was $21.2 million for the fourth quarter compared to $18.5 million in the prior year period, an increase of 14.6%. The increase was primarily attributable to strength in sales of industrial products in Europe and writing instrument components. Segment Adjusted EBITDA was $6.2 million compared to $4.7 million in the prior year period, an increase of 33.4%. Operating margins increased to 29.5% compared to 25.3% a year ago primarily as a result of the increase in revenues.
Emdeon Business Services segment revenue (from October 1 to November 16) was $103.1 million. Segment Adjusted EBITDA (from October 1 to November 16) was $25.4 million.
Financial Guidance
A schedule outlining Emdeon's financial guidance for 2007 is attached to this press release.
Analyst and Investor Conference Call
As previously announced, Emdeon will host a conference call at 4:45 pm (ET) on February 22, 2007 to discuss its fourth quarter results. Investors can access the call via webcast at http://www.emdeon.com (in the About Emdeon section). A replay of the call will be available at the same web address.
About Emdeon
Emdeon Corporation's (Nasdaq: HLTH) businesses are comprised of WebMD Health Corp, (Nasdaq: WBMD), ViPS and Porex. 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 data management, analytics, decision-support and process automation solutions and related information technology services to governmental, Blue Cross Blue Shield and commercial healthcare payers. ViPS' solutions and services help its clients improve patient outcomes, increase customer satisfaction and reduce costs. Porex is a developer, manufacturer and distributor of proprietary porous plastic products and components used in healthcare, industrial and consumer applications. In addition, Emdeon owns a 48% minority interest in EBS Master LLC, which provides solutions that automate key business and administrative functions for healthcare payers and providers.
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All statements contained in this press release, other than statements of historical fact, are forward-looking statements, including those regarding: guidance on our future financial results and other projections or measures of our future performance; our expectations concerning market opportunities and our ability to capitalize on them; and the amount and timing of the benefits expected from acquisitions, from new products or services and from other potential sources of additional revenue. These statements speak only as of the date of this press 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; difficulties in integrating acquired businesses; and changes in economic, political or regulatory conditions or other trends affecting the healthcare, Internet, information technology and plastics industries; and our ability to attract and retain qualified personnel. 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.
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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 certain non-GAAP financial measures. The tables attached to this press release include reconciliations of these 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.
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WebMD(R), WebMD Health(R), POREX(R) and ViPS(SM) are trademarks of Emdeon Corporation or its subsidiaries.
Emdeon(TM) and Emdeon Business Services(TM) are trademarks of Emdeon Business Services, LLC or its subsidiaries.
EMDEON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data, unaudited)
Three Months Ended Years Ended
December 31, December 31,
2006 2005 2006 2005
Revenue:
Services $205,743 $241,658 $998,252 $932,273
Products 24,308 22,106 100,356 94,202
Total revenue 230,051 263,764 1,098,608 1,026,475
Cost of operations:
Services 108,157 140,675 581,108 555,208
Products 9,676 9,884 42,650 40,446
Total cost of operations 117,833 150,559 623,758 595,654
Development and engineering 6,485 9,058 33,649 35,653
Sales, marketing, general and
administrative 71,412 65,595 288,015 254,887
Depreciation and amortization 10,012 16,079 61,976 60,905
Legal expense 738 3,488 2,578 17,835
Gain on sale of EBS 352,297 - 352,297 -
Loss on investments - 2,723 - 6,365
Interest income 16,889 8,147 32,339 21,527
Interest expense 4,697 4,652 18,779 16,322
Transition services income 2,184 - 2,524 -
Other expenses - - 4,198 3,765
Income from continuing
operations before income tax
provision (benefit) 390,244 19,757 452,815 56,616
Income tax provision (benefit) 44,111 (4,568) 56,193 (1,001)
Minority interest in WebMD
Health Corp. 1,359 870 706 908
Equity in earnings of EBS
Master LLC 763 - 763 -
Income from continuing
operations 345,537 23,455 396,679 56,709
Income from discontinued
operations, net of tax 889 9,397 371,060 16,265
Net income $346,426 $32,852 $767,739 $72,974
Basic income per common share:
Income from continuing
operations $1.35 $0.07 $1.42 $0.17
Income from discontinued
operations 0.00 0.02 1.33 0.04
Net income $1.35 $0.09 $2.75 $0.21
Diluted income per common
share: (a)
Income from continuing
operations $1.14 $0.07 $1.25 $0.16
Income from discontinued
operations 0.00 0.02 1.12 0.05
Net income $1.14 $0.09 $2.37 $0.21
Weighted-average shares
outstanding used in
computing income per common
share:
Basic 256,688 348,261 279,234 341,747
Diluted 308,295 355,782 331,642 352,852
(a) Diluted income per common share for the three months and the year
ended December 31, 2006 reflects the dilutive impact of the
convertible notes.
EMDEON CORPORATION
CONSOLIDATED SEGMENT INFORMATION
(In thousands, except per share data, unaudited)
Three Months Ended Years Ended
December 31, December 31,
2006 2005 2006 2005
Revenue
Emdeon Business Services $103,116 $172,364 $661,090 $689,305
WebMD 80,573 49,104 253,881 168,238
ViPS 25,349 24,003 98,874 90,313
Porex 21,158 18,461 85,702 79,124
Inter-segment eliminations (145) (168) (939) (505)
$230,051 $263,764 $1,098,608 $1,026,475
Earnings before interest,
taxes, non-cash and
other items
("Adjusted EBITDA")
Emdeon Business Services $25,392 $35,214 $152,911 $138,529
WebMD 22,320 12,446 53,079 27,546
ViPS 5,012 4,921 20,529 16,913
Porex 6,242 4,678 24,974 22,524
Corporate (9,781) (13,587) (43,414) (49,481)
$49,185 $43,672 $208,079 $156,031
Adjusted EBITDA per diluted
common share (a) $0.16 $0.12 $0.63 $0.44
Interest, taxes, non-cash and
other items (b)
Depreciation and
amortization $(10,012) $(16,079) $(61,976) $(60,905)
Non-cash stock-based
compensation (9,720) (1,249) (44,955) (4,880)
Non-cash advertising (2,960) (3,871) (7,414) (10,870)
Legal expense (738) (3,488) (2,578) (17,835)
Interest income 16,889 8,147 32,339 21,527
Interest expense (4,697) (4,652) (18,779) (16,322)
Income tax (provision)
benefit (44,111) 4,568 (56,193) 1,001
Minority interest in WebMD
Health Corp. (1,359) (870) (706) (908)
Equity in earnings of EBS
Master LLC 763 - 763 -
Gain on sale of EBS 352,297 - 352,297 -
Loss on investments - (2,723) - (6,365)
Other expenses - - (4,198) (3,765)
Income from continuing
operations 345,537 23,455 396,679 56,709
Income from discontinued
operations, net of tax 889 9,397 371,060 16,265
Net income $346,426 $32,852 $767,739 $72,974
Basic income per common share:
Income from continuing
operations $1.35 $0.07 $1.42 $0.17
Income from discontinued
operations 0.00 0.02 1.33 0.04
Net income $1.35 $0.09 $2.75 $0.21
Diluted income per common
share: (c)
Income from continuing
operations $1.14 $0.07 $1.25 $0.16
Income from discontinued
operations 0.00 0.02 1.12 0.05
Net income $1.14 $0.09 $2.37 $0.21
Weighted-average shares
outstanding used in
computing income per
common share:
Basic 256,688 348,261 279,234 341,747
Diluted 308,295 355,782 331,642 352,852
(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).
(c) Diluted income per common share for the three months and the year
ended December 31, 2006 reflects the dilutive impact of the
convertible notes.
EMDEON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
December 31,
2006 2005
Assets
Cash and cash equivalents $614,691 $155,616
Short-term investments 34,140 267,387
Accounts receivable, net 121,608 195,317
Inventory 9,922 10,791
Prepaid expenses and other current assets 31,871 30,936
Due from EBS Master LLC 30,716 -
Assets of discontinued operations - 254,247
Total current assets 842,948 914,294
Marketable equity securities 2,633 4,430
Property and equipment, net 72,040 95,686
Goodwill 337,669 895,975
Intangible assets, net 129,473 235,271
Investment in EBS Master LLC 1,521 -
Other assets 65,659 50,027
Total Assets $1,451,943 $2,195,683
Liabilities and Stockholders' Equity
Accounts payable $3,996 $7,739
Accrued expenses 113,175 170,102
Deferred revenue 87,438 68,390
Liabilities of discontinued operations - 68,436
Total current liabilities 204,609 314,667
Convertible notes 650,000 650,000
Other long-term liabilities 14,420 14,518
Minority interest in WebMD Health Corp. 102,294 43,229
Convertible redeemable exchangeable
preferred stock 98,768 98,533
Stockholders' equity 381,852 1,074,736
Total Liabilities and Stockholders' Equity $1,451,943 $2,195,683
EMDEON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Years Ended
December 31,
2006 2005
Cash flows from operating activities:
Net income $767,739 $72,974
Adjustments to reconcile net income
to net cash provided by operating
activities:
Income from discontinued
operations, net of tax (371,060) (16,265)
Depreciation and amortization 61,976 60,905
Minority interest in WebMD Health Corp. 706 908
Equity in earnings of EBS Master LLC (763) -
Amortization of debt issuance costs 2,906 2,541
Non-cash advertising 7,414 10,870
Non-cash stock-based compensation 44,955 4,880
Bad debt expense 1,627 2,527
Loss on investments - 6,365
Gain on sale of EBS (352,297) -
Loss on redemption of convertible debt - 1,902
Reversal of income tax valuation
allowance applied to goodwill 30,770 174
Changes in operating assets and liabilities:
Accounts receivable (45,434) (30,021)
Inventory 190 (755)
Prepaid expenses and other, net (12,131) 2,629
Accounts payable 162 (6,212)
Accrued expenses and other long-term
liabilities 20,621 7,480
Deferred revenue 15,654 7,954
Net cash provided by continuing
operations 173,035 128,856
Net cash provided by
discontinued operations 25,985 32,430
Net cash provided by operating
activities 199,020 161,286
Cash flows from investing activities:
Proceeds from maturities and sales
of available-for-sale securities 928,284 1,063,606
Purchases of available-for-sale
securities (686,815) (758,687)
Purchases of property and equipment (54,885) (51,276)
Proceeds received from sale of
property and equipment - 400
Cash paid in business combinations,
net of cash acquired (152,772) (93,712)
Proceeds received from sale of EBS 1,199,872 -
Advance to EBS Master LLC (20,016) -
Proceeds received from sale of
discontinued operations 522,604 -
Other changes in equity of
discontinued operations 28,279 23,176
Net cash provided by continuing
operations 1,764,551 183,507
Net cash used in discontinued
operations (26,010) (34,575)
Net cash provided by investing
activities 1,738,541 148,932
Cash flows from financing activities:
Proceeds from issuance of Emdeon
and WebMD Health common stock 156,078 48,571
Purchases of treasury stock under
repurchase program (83,167) (21,246)
Purchases of treasury stock in
tender offer (1,552,120) (549,268)
Payments of notes payable and other (437) (631)
Net proceeds from issuance of
convertible debt - 289,875
Issuance of WebMD Health Corp.
Class A common stock - 123,344
Redemption of convertible debt - (86,694)
Net cash used in continuing
operations (1,479,646) (196,049)
Net cash used in discontinued
operations - -
Net cash used in financing
activities (1,479,646) (196,049)
Effect of exchange rates on cash 1,135 (678)
Net increase in cash and cash equivalents 459,050 113,491
Change in cash attributable to discontinued
operations 25 2,145
Cash and cash equivalents at beginning of
period 155,616 39,980
Cash and cash equivalents at end of period $614,691 $155,616
2007 Consolidated Financial Guidance Summary
(in millions, except per share data)
Year Ended
December 31, 2007
Range
WebMD $336.0 $352.0
ViPS 105.5 109.0
Porex 89.5 93.0
Total revenue $531.0 $554.0
Earnings before interest, taxes, non-
cash and other items ("Adjusted EBITDA")(a) $97.0 $108.0
Reconciliation of Adjusted EBITDA to
income from continuing operations:
Interest income, net 17.5 18.5
Depreciation and amortization (51.5) (50.5)
Non-cash advertising (5.5) (5.0)
Non-cash stock-based compensation (41.0) (40.0)
Income tax provision (10.5) (12.5)
Equity in earnings of EBS Master LLC 29.5 32.0
Minority interest in WebMD Health
Corp. (3.0) (4.0)
Income from continuing operations $32.5 $46.5
Adjusted EBITDA per share $0.51 $0.57
Net income per share $0.17 $0.24
Weighted average shares - Diluted 190.0 190.0
(a) See Annex A - Explanation of Non-GAAP Financial Measures
Quarterly Revenue Range
Q1 Q2
Range Range
WebMD
ViPS
Porex
Total revenue $116.0 $120.0 $126.0 $130.0
Earnings before interest, taxes,
non-cash and other items
("Adjusted EBITDA")(a)
Quarterly Mix
Reconciliation of Adjusted EBITDA to
income from continuing operations: Q1 Q2
Interest income, net 29% 19%
Depreciation and amortization 23% 22%
Non-cash advertising 41% 0%
Non-cash stock-based compensation 26% 25%
Income tax provision 3% 18%
Equity in earnings of EBS Master LLC 17% 25%
Minority interest in WebMD Health Corp. -12% 13%
(a) See Annex A - Explanation of Non-GAAP Financial Measures
2007 Consolidated Financial Guidance Summary
(in millions, except per share data)
Q3 Q4
Range Range
WebMD
ViPS
Porex
Total revenue $138.0 $145.0 $151.0 $159.0
Earnings before interest, taxes,
non-cash and other items
("Adjusted EBITDA")(a)
Reconciliation of Adjusted EBITDA to
income from continuing operations: Q3 Q4
Interest income, net 23% 29%
Depreciation and amortization 25% 30%
Non-cash advertising 0% 59%
Non-cash stock-based compensation 27% 22%
Income tax provision 30% 49%
Equity in earnings of EBS Master LLC 27% 31%
Minority interest in WebMD Health Corp. 34% 65%
(a) See Annex A - Explanation of Non-GAAP Financial Measures
Operating Segments
Revenue
* WebMD - Refer to WebMD Health Corp. Financial Guidance Summary
included in its February 21, 2007 press release.
* ViPS - Approximately 24% of segment revenue in Q1 increasing to 26%
in Q4.
* Porex - Approximately 25% of segment revenue in Q1, 26% in Q2, 25%
in Q3, and 24% in Q4.
Adjusted EBITDA
* WebMD - Refer to WebMD Health Corp. Financial Guidance Summary
included in its February 21, 2007 press release.
* ViPS - Approximately 19% of segment revenue in Q1 increasing to 21%
thereafter.
* Porex - Approximately 27% of segment revenue in Q1, 31% in Q2, 30%
in Q3 and 29% in Q4.
* Corporate - Approximately 6.2% of consolidated revenue in Q1
decreasing to 4.1% in Q4.
Other Assumptions
* The 2007 Guidance does not reflect any projected expenses related to
the on-going Department of Justice investigation.
* Additional details on WebMD's guidance can be found in the press
release issued by WebMD Health Corp. on February 21, 2007.
ANNEX A
Explanation of Non-GAAP Financial Measures
The accompanying Emdeon Corporation press release, financial tables and financial guidance summary include 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 measures and the corresponding GAAP measures 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 the 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 expense 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. Investors should note that stock-based compensation is a key
incentive offered to employees whose efforts contributed to the
operating results in the periods presented and are expected to
contribute to operating results in future periods. Investors should
also note that such expenses will recur in the future.
* Non-Cash Advertising Expense. This expense relates to the usage of
non-cash advertising obtained from News Corporation ("Newscorp") in
exchange for equity securities issued by Emdeon in 2000. The advertising
is available only on various Newscorp properties, primarily its
television network and cable channels without any cash cost to Emdeon.
The amount of advertising that can be used in any year is subject to
annual contractual limitation and expires in 2010. Emdeon does not incur
any other cash expenses related to airing of television advertising.
Emdeon excludes this expense from Adjusted EBITDA (i) because it is a
non-cash expense, (ii) because it is incremental to other non-television
cash advertising expense that Emdeon otherwise incurs, (iii) because
Emdeon has not and believes it will not incur cash expenses relating to
television advertising in the future and (iv) to assist management and
investors in comparing its operating results over multiple periods.
Investors should note that it is likely that Emdeon derives some benefit
from such advertising and that such expenses will recur in the future.
* Interest Income and Expense. Interest income is associated with the
level of marketable debt securities and other interest bearing accounts
in which Emdeon invests, as well as with interest expenses arising from
the capital structure of Emdeon. Interest income and expense varies
over time due to a variety of financing transactions and due to
acquisitions and divestitures that Emdeon has entered into or may enter
into in the future. Emdeon has, in the past several years, issued
convertible debentures and preferred stock, repurchased shares in cash
tender offers and through other repurchase transactions, conducted an
initial public offering of equity in its WebMD subsidiary and completed
the sale of Emdeon Practice Services and the sale of a 52% interest in
Emdeon Business Services. Emdeon excludes interest income and interest
expense from Adjusted EBITDA (i) because these items are not directly
attributable to the performance of Emdeon's business operations and,
accordingly, their exclusion assists management and investors in making
period-to-period comparisons of operating performance and (ii) to assist
management and investors in making comparisons to companies with
different capital structures. Investors should note that interest income
and expense will recur in future periods.
* Income Tax Provision. Emdeon had a net operating loss (NOL)
carryforward of approximately $1.2 billion as of the year ended
December 31, 2006. Due to a limited history of generating taxable
income, Emdeon maintains a full valuation allowance on these NOL
carryforwards. As Emdeon uses these NOL carryforwards, the related
valuation allowances are either reversed through the income statement or
reversed to goodwill, to the extent those tax benefits were acquired
through business combinations. The timing of such reversals is not
consistent and as a result, Emdeon's income tax expense can fluctuate
significantly from period to period in a manner not directly related to
Emdeon's operating performance. Emdeon excludes the income tax
provision from Adjusted EBITDA (i) because it believes that the income
tax provision is not directly attributable to the underlying performance
of Emdeon's business operations and, accordingly, its exclusion assists
management and investors in making period-to-period comparisons of
operating performance and (ii) to assist management and investors in
making comparisons to companies with different tax attributes.
Investors should note that income tax provision will recur in future
periods.
* Minority Interest in WebMD Health Corp. This represents the minority
stockholders' proportionate share of net income or net loss of Emdeon's
majority-owned WebMD subsidiary. The size of this Minority Interest is
related to Emdeon's percentage ownership of WebMD. Changes in that
percentage ownership may result from changes in WebMD's capital
structure, including as a result of sales of WebMD equity securities by
WebMD or Emdeon or as a result of exercise of WebMD employee stock
options. Emdeon excludes Minority Interest from Adjusted EBITDA (i)
because it believes that the size of the Minority Interest can vary for
reasons not attributable to the underlying performance of Emdeon's
business operations and, accordingly, its exclusion assists management
and investors in making period-to-period comparisons of operating
performance and (ii) to assist management and investors in making
comparisons to companies with different capital structures. Investors
should note that Minority Interest in WebMD Health Corp. will recur in
future periods.
* Other Items. Emdeon engages in other activities and transactions that
can impact Emdeon's overall income from continuing operations. These
other items include, but are not limited to, (i) "Legal Expense," which
relates to the on-going Department of Justice investigation, (ii) "Loss
on Investments" and loss on redemption of convertible debt which relate
to Emdeon's investing and financing activities, (iii) advisory expense,
which relates to the evaluation by Emdeon's Board of Directors of
strategic alternatives for Emdeon's Business Services segment, (iv) gain
on sale of 52% of the EBS segment and (v) equity in earnings of
EBS Master LLC, which represents Emdeon's 48% portion of EBS's income.
Emdeon excludes these other items from Adjusted EBITDA because it
believes these activities or transactions are not directly attributable
to the performance of Emdeon's business operations and, accordingly,
their exclusion assists management and investors in making period-to-
period comparisons of operating performance. Investors should note that
these other items are expected to recur in future periods.
Source: prnewswire
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