Press Release Details
For More Information, Contact:
Brian P. Callahan, Chief Financial Officer
(615) 261-1500
bcallahan@spheris.com
Lisa DeMoss
Director, Marketing and Communications
(615) 261-1716
ldemoss@spheris.com
For Immediate Release
Spheris Reports Third Quarter 2006 Results
Franklink, Tenn — November 13, 2006 — Spheris, a leading global outsource provider of clinical documentation technology and services, today announced results for the three and nine months ended September 30, 2006. Financial Highlights - Third Quarter of 2006 Net revenues for the third quarter of 2006 were $51.5 million compared with $51.9 million in the third quarter of 2005. The $0.4 million decline in net revenues during the third quarter of 2006 from the prior-year period was primarily due to an $0.8 million impact from one less business day during the third quarter of 2006 compared to the same period in the prior year. The day impact was partially offset by revenue generated from the March 31, 2006 acquisition of Vianeta Communications. Operating income was $0.6 million during the third quarter of 2006 compared with $1.3 million during the prior-year period. The decline in operating income versus the prior year period was due primarily to the decline in net revenues and costs resulting from technology and platform investments related to the implementation of the new Spheris Clarity™ platform and related speech recognition initiatives. Earnings before interest, taxes and depreciation and amortization, or EBITDA, was $7.4 million in the third quarter compared with $8.1 million in the prior-year period. As the result of non-cash charges related to the write-off of acquired technology as part of the Vianeta acquisition, both operating income and EBITDA were $0.2 million lower than would have been otherwise reported if these non-cash charges had not been recognized during the third quarter of 2006. The Company's net loss during the third quarter of 2006 was $3.1 million compared with $2.3 million in the prior-year period. EBITDA is a non-GAAP financial measure. Please refer to the "Supplemental Financial Information" and related note contained in this press release for further discussion and reconciliation of GAAP financial measures to EBITDA. Financial Highlights �” First Nine Months of 2006 Net revenues for the first nine months of 2006 were $155.8 million compared with $158.3 million in the first nine months of 2005. The decline in net revenues during the first nine months of 2006 from the prior-year period was primarily due to $2.2 million of customer contracts the Company terminated in 2005 that did not have acceptable operating margins. Operating income was $2.8 million during the first nine months of 2006 compared with $3.6 million during the prior-year period. Operating income during the first nine months of 2006 was reduced from the prior-year period as the result of the decline in net revenues and costs associated with technology and platform investments related to the implementation of the new Spheris Clarity platform and related speech recognition initiatives. Additionally, the decline in operating income was caused by $0.5 million of severance and compensation costs incurred during the second quarter of 2006. EBITDA was $22.7 million in the first nine months of 2006 compared with $23.8 million in the prior-year period. As the result of non-cash charges during the first nine months of 2006 related to the write-off of acquired technology as part of the Vianeta acquisition, both operating income and EBITDA were $0.6 million lower than would have been otherwise reported if these non-cash charges had not been recognized during the first nine months of 2006. The Company's net loss during the first nine months of 2006 was $8.8 million compared with $6.9 million in the prior-year period. Commenting on the third quarter results, Steven E. Simpson, president and chief executive officer of Spheris, stated, "Building on the sales momentum established at the end of the second quarter, we had our largest quarter of new business signings in years. The new business signed during the third quarter of 2006 continues to validate our strategy of tightly integrating advanced technology with best-in-class service. We attribute a portion of the new business signings to our new technology platform, Spheris Clarity, which was officially launched in October at the AHIMA conference. As we have increasingly leveraged our global resources and the efficiencies inherent in our new Clarity platform, we are able to be more aggressive in the marketplace and are now beginning to see positive momentum. Although the third quarter results did not yet fully reflect these improvements and the implementation of new business, we believe Spheris is now well-positioned to show strong revenue and earnings growth in the future.' Simpson added, "Our investments during 2006 have made Spheris a technology-enabled healthcare services company better able to differentiate itself and keep us at the top of the clinical documentation technology and services industry. With our new productized technology, we believe we have a unique and winning strategy that combines superior technology with a best-in-class workforce, and the new business momentum to show for it. We will remain focused on executing our major technology, productivity and workforce initiatives to sustain momentum into 2007." Balance Sheet Highlights As of September 30, 2006, the outstanding indebtedness under the Company's senior secured credit facility was $73.7 million and the outstanding indebtedness under the Company's senior subordinated notes was $125.0 million. Liquidity Highlights As of September 30, 2006, Spheris held $8.4 million in unrestricted cash and cash equivalents. During the first nine months of 2006, the Company generated cash from operating activities of $7.5 million compared with $2.1 million of cash generated from operating activities during the same period in 2005. The $5.5 million improvement over the prior-year period reflects improvement in accounts receivable collections and the absence in the current year-to-date period of certain costs associated with the HealthScribe acquisition incurred during the first quarter of 2005. Also, as previously reported, the Company recently completed an amendment to the Company's $100.0 million senior secured credit facility, which consists of a $75.0 million term loan facility and a $25.0 million revolving credit facility. The amendment to the senior secured credit facility (i) reset the existing covenant levels for the interest coverage ratio and the leverage coverage ratio for the third quarter of 2006 through the maturity of the senior secured credit facility; (ii) increased the interest rate spread on the senior secured credit facility by 0.50% so long as the Company's leverage ratio remains greater than 6.00 to 1.00; (iii) reduced the Company's aggregate revolving credit available to $17.5 million so long as the Company's leverage ratio remains greater than 5.50 to 1.00; and (iv) placed certain additional restrictions on the Company's ability to incur further indebtedness. After giving effect to this amendment, the Company's availability under the $25.0 million revolver portion of the Company's senior secured credit facility increased to $15.1 million as of September 30, 2006; however, this availability continues to be limited by the Company's outstanding letters of credit and certain terms under the senior secured credit facility. Investor Conference Call and Webcast Spheris will host a conference call on November 14, 2006, at 8:00 a.m. CST. The number to call for this interactive teleconference is (507) 726-3518. The live broadcast of Spheris' quarterly conference call will be available online at www.spheris.com and http://www.videonewswire.com/event.asp?id=36164 on November 14, 2006, at 8:00 a.m. CST. The online replay will be available shortly after the call and continue for 30 days. Forward-Looking Statements This press release contains statements as to the Company's beliefs and expectations of the outcome of future events that are forward-looking statements as defined within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties as described in the filings made from time to time by the Company with the Securities and Exchange Commission, including, without limitation, the following: (i) the effect our substantial indebtedness has on our ability to raise additional capital to fund our business, to react to changes in the economy or our business and to fulfill our obligations under our indebtedness, including our senior secured credit facility and indenture relating to our senior subordinated notes; (ii) our history of losses and accumulated deficit; (iii) our ability to effectively manage our domestic and global production capacity, including our ability to recruit, train and retain qualified medical language specialists and other technical and managerial personnel and to maintain high standards of quality service in our operations; (iv) our ability to adapt and integrate new technology into our medical transcription platforms to improve our production capabilities and expand the breadth of our service offerings; (v) the reluctance of potential customers to outsource or change providers of their medical transcription services and its impact on our ability to attract new customers and increase revenues; (vi) the effect on our business if we incur additional debt, contingent liabilities and expenses in connection with future acquisitions or if we cannot effectively integrate newly acquired operations; and (vii) financial and operational risks inherent in our global operations, including foreign currency rate fluctuations between the United States and India. The Company takes no responsibility for updating the information contained in this press release following the date hereof to reflect events or circumstances occurring after the date hereof or the occurrence of unanticipated events or for any changes or modifications made to this press release.
Note to Supplemental Financial Information Earnings before interest expense, income taxes, depreciation and amortization, or EBITDA, is a financial measure not computed in accordance with United States generally accepted accounting principles, or GAAP. The Company believes that this non-GAAP measure, when presented in conjunction with the comparable GAAP measure, is useful to both management and investors in analyzing the Company's ongoing business and operating performance. The Company believes that providing the non-GAAP information to investors, in addition to the GAAP presentation, allows investors to view the Company's financial results in the way management and the Company's senior lenders view the Company's operating results. Management believes EBITDA is useful as a supplemental measure of the performance of the Company's operations because it isolates the Company's operating performance from the accounting impact of the Company's financing strategies, tax provisions and depreciation and amortization. Additionally, since EBITDA is a significant component of certain financial covenants under the Company's senior secured credit facility agreement, management believes EBITDA is useful for investors to better assess the Company's compliance with these financial covenants. Management believes EBITDA should be considered in addition to, but not as a substitute for, items prepared in accordance with GAAP that are presented in the release, as the items excluded in the presentation of EBITDA are significant components in understanding and assessing financial performance. A reconciliation of EBITDA to the nearest comparable GAAP financial measure is provided above. EBITDA, as presented, may not be comparable to similarly titled measures of other companies.
About Spheris Spheris is a leading provider of clinical documentation services and technology to health systems, hospitals and group practices throughout the U.S. Founded by physicians in 1993, Spheris employs a global network of medical language specialists for true 24-hour service, seven days a week, 365 days a year. The proprietary Spheris Clarity™ technology platform integrates the full range of clinical documentation software and hardware into one seamless, customizable system, including embedded speech recognition technologies. The Spheris solution is flexible and scalable to balance the needs of HIM directors, CFOs, IT directors and physicians with an emphasis on verifiable quality, turnaround time, security and pricing. Spheris' worldwide corporate headquarters is located in Franklin, Tenn. For more information, please visit www.spheris.com.