Per-Se Technologies, Inc., the leader in Connective Healthcare solutions that help physicians, pharmacies, hospitals and healthcare organizations realize their financial goals, today released its financial results for the first quarter ended March 31, 2006. The Company has included the financial results of the NDCHealth businesses acquired on January 6, 2006, in its consolidated financial statements for the first quarter of 2006. The Company reported the following highlights from its first quarter, which includes non-GAAP measures that are discussed in more detail later in the press release:
- On a GAAP basis, revenue was $146.2 million, operating income was $0.2 million, and a loss from continuing operations was $8.6 million or $0.22 per share.
- Revenue increased 59% in the first quarter to $146.2 million from $92.0 million a year ago.
- Adjusted cash flow from continuing operations increased 240% to $44.7 million, compared to cash flow from continuing operations of $13.2 million in the first quarter last year.
- Adjusted consolidated operating income increased 71% in the first quarter to $18.5 million from consolidated operating income $10.9 million a year ago. Adjusted consolidated operating margin expanded to 12.7% from a consolidated operating margin of 11.8% a year ago.
- First quarter performance exceeded the Company’s previous adjusted diluted earnings per share guidance of $0.17 to $0.20. On a comparable basis, first quarter adjusted diluted earnings per share was $0.24.
- The Company retired $40 million of its outstanding Term Loan B debt during the first quarter of 2006, and reduced debt by an additional $10 million in April.
- As a result of accounting for deferred taxes related to the NDCHealth transaction, the Company’s GAAP tax rate is approximately 40% beginning in the first quarter of 2006. The Company’s cash-tax paying rate is approximately 5% due to the utilization of net operating loss carryforwards.
- The Company reiterated 2006 adjusted EBITDA guidance of $142 million to $147 million and adjusted cash flow from continuing operations guidance of $100 million to $110 million. Full year adjusted diluted earnings per share guidance is $0.81 to $0.87 using the GAAP tax rate of 40%. The only change from previous guidance of $1.30 to $1.40 per share is the increase in the GAAP tax rate.
During the first quarter of 2006, the Company incurred non-cash stock-based compensation expense related to the adoption of SFAS 123® of approximately $0.9 million. The Company also recorded the following related to the NDCHealth acquisition: a non-cash expense of approximately $13.3 million related to the write-off of in-process research and development; a non-cash tax benefit of $1.5 million related to the partial release of its deferred tax asset valuation allowance; and transition and integration costs of $4.1 million.
Cash flow from continuing operations for the quarter ended March 31, 2006, was $23.1 million. During the first quarter, the Company used $21.6 million in operating cash related to the NDCHealth acquisition transition and integration. Excluding these transition and integration costs, adjusted cash flow from continuing operations was $44.7 million for the first quarter of 2006.
During the first quarter, the Company began recording its income tax provision at a rate of approximately 40%. Prior to the first quarter of 2006, the Company’s GAAP tax provision rate was consistent with its cash tax-paying rate, and was the basis for the Company’s 2006 diluted earnings per share guidance. This change in the Company’s GAAP tax provision rate was due to the accounting for deferred taxes related to the acquisition of NDCHealth. The change in the Company’s GAAP tax provision rate has no impact on the Company’s cash tax-paying rate or its cash flow. The Company continues to have federal net operating loss carryforwards of approximately $375 million as of December 31, 2005 that it expects to be able to use to offset cash taxes payable for the foreseeable future.
On a non-GAAP basis, excluding the impact of the higher tax provision rate and for purposes of comparison to previously issued guidance, the Company reported first quarter adjusted operating income of $18.5 million, or 12.7% of revenue, and adjusted income from continuing operations of $10.2 million, or $0.24 per diluted share. The non-cash impact of the higher tax provision rate on first quarter adjusted income from continuing operations was approximately $3.9 million, or $0.09 per diluted share. Including the impact of the higher tax provision rate, adjusted income from continuing operations was $6.3 million, or $0.15 per diluted share. These adjusted results exclude the NDCHealth acquisition-related costs, stock-based compensation expense, and the non-cash tax benefit related to the partial release of deferred tax valuation allowance.
For comparison purposes, in the first quarter of 2005 on a GAAP basis, the Company reported revenue of $92.0 million and operating income of $10.9 million, or 11.8% of revenue. Income from continuing operations was $9.4 million, or $0.29 per diluted share, in the first quarter of 2005.
“Our first quarter results exceeded our expectations for adjusted earnings and cash flow due to the strength of our operations,” said Philip M. Pead, chairman, president and chief executive officer of Per-Se Technologies. “The integration of our NDCHealth acquisition is proceeding very well and we are excited about the future as we begin to leverage our market-leading solutions and services. In addition, we continue to expect to achieve cost savings during 2006 towards the high end of our range of $15 million to $20 million related to the integration.”
Business Segment Performance
The following business segment review references adjusted operating income for the first quarter of 2006, which excludes acquisition-related costs and stock-based compensation expense.
Physician Solutions Division
The Physician Solutions division reported revenue of $77.3 million and adjusted operating income of $10.3 million, or 13.3% of revenue, for the first quarter of 2006, compared to revenue and operating income of $67.2 million and $8.6 million, respectively, or 12.8% of revenue, for the same quarter of 2005.
This division’s outsourced receivables management business had net new business sold in the first quarter of approximately $3 million, which compares to net new business sold of approximately $5 million in the same quarter a year ago. The Company defines net new business sold as the annualized revenue value of new contracts signed in a period, less the annualized revenue value of terminated business in that same period.
“Our physician outsourcing business exceeded our expectations during the first quarter with good revenue growth and margins,” commented Pead. “With a strong new business pipeline, we continue to expect this division to achieve our full year guidance for net new business sold of $25 million to $35 million.”
The Physician Solutions division had a net backlog of approximately $11 million as of March 31, 2006, versus a net backlog of $5 million a year ago. Net backlog represents the expected annualized revenue related to new contracts signed with the business still to be implemented, less the expected annualized revenue related to existing contracts where discontinuance notification has been received.
Hospital Solutions Division
The Hospital Solutions division reported revenue of $43.5 million and adjusted operating income of $10.6 million, or 24.3% of revenue, for the first quarter of 2006. This compares to revenue of $28.4 million and operating income of $6.4 million, or 22.7% of revenue, in the same quarter of 2005.
New business sold in the Hospital Solutions division was approximately $7 million in the first quarter, which compares to new business sold of approximately $6 million in the same quarter a year ago. The Company expects this division to achieve $20 million to $30 million of new business sold in 2006.
“Both our revenue cycle and resource management operations met our expectations during the first quarter,” stated Pead. “We are progressing well on our plans to leverage our market-leading revenue cycle management products across our expanded customer base since the NDCHealth acquisition.”
Pharmacy Solutions Division
The Pharmacy Solutions division reported revenue of $29.4 million and adjusted operating income of $4.2 million, or 14.3% of revenue, for the first quarter of 2006.
Pharmacy Solutions’ new business sold in the first quarter of 2006 was approximately $6 million. The Company expects this division to achieve new business sold of $25 million to $35 million in 2006.
“Our Pharmacy operations exceeded our expectations in the first quarter,” stated Pead. “We had strong network volume driven in part by the implementation of our Medicare Part D eligibility and TrOOP contracts at the beginning of the year. We also continue to gain traction in the pharmacy systems market, with a strong sales pipeline for our new products for chain pharmacies as well as independent and mail order pharmacy operators.”
Financial Guidance for 2006
The Company expects consolidated 2006 revenue to be in the range of $625 million to $635 million. Excluding acquisition related costs and stock compensation expenses, consolidated adjusted operating income for full year 2006 is expected to be in the range of $90 million to $96 million, or 14.5% to 15.0% of revenue. Consolidated adjusted EBITDA for full year 2006 is expected to be in the range of $142 million to $147 million.
The Company expects full year 2006 adjusted cash flow from continuing operations to be in the range of $100 million to $110 million, excluding expected NDCHealth transition and acquisition-related costs. The Company expects capital expenditures and capitalized software development costs to be between $40 million and $42 million.
Including the revised GAAP tax provision rate, the Company’s adjusted diluted earnings per share guidance for 2006 is now in a range of $0.81 to $0.87. Full year 2006 adjusted diluted earnings per share guidance was unchanged in a range of $1.30 to $1.40 prior to the increase in the Company’s tax rate for GAAP purposes as discussed above. Adjusted diluted earnings per share guidance for 2006 excludes expected transition and integration-related costs related to the NDCHealth merger, the in-process research and development write-off expense, the partial release of the Company’s deferred tax asset valuation allowance, and the impact of adopting SFAS 123®.
On a quarterly basis, the Company revised its expected adjusted diluted earnings per share from continuing operations for the second quarter to a range of $0.17 to $0.19. For the third quarter, adjusted diluted earnings per share from continuing operations are expected to be in the range of $0.23 to $0.25.
“Our first quarter results provide a strong start to 2006,” Pead stated. “Each of our business segments performed well and we expect to continue to deliver strong earnings and cash flow growth throughout 2006.”