QDHC Quadramed Corp (MM)

QuadraMed Corporation (NASDAQ:QDHC) announced today that it will report net income of $1.8 million before preferred stock accretion for the three months ended June 30, 2008, compared to $2.2 million for the same period in 2007. For the six months ended June 30, 2008, the Company had net income before preferred stock accretion of $2.1 million, compared to $4.8 million for the six months ended June 30, 2007. The Company began recording deferred income tax expense at its statutory effective tax rate during the fourth quarter of 2007; therefore, where there was deferred income tax expense included in these reported 2008 results, there was no comparable deferred income tax expense in the corresponding 2007 periods. Income before income taxes was $2.9 million for the three months ended June 30, 2008, compared to $2.4 million for the same period in 2007. For the six months ended June 30, 2008, the Company had income before income taxes of $3.4 million, compared to $5.1 million for the six months ended June 30, 2007. In addition, included in the three month and six month periods ended June 30, 2008 was a $1.1 million loss on the sale of the Company�s Australia-based lab and radiology assets, as well as severance costs of $0.2 million and $0.7 million in the periods, respectively. No amounts of this nature were recorded in the corresponding 2007 periods. The Company recorded revenue of $38.0 million for the quarter ended June 30, 2008, compared to $34.4 million for the same period last year, an increase of 10.5%. For the six months ended June 30, 2008, revenue increased 15.3% to $73.3 million, from $63.6 million for the comparable 2007 period. The majority of the increase in revenue between periods was attributable to the addition of the acquired QCPR product to the Company�s portfolio, resulting from the integration of the Computerized Patient Record (CPR) business assets during the fourth quarter of 2007. As previously announced at the UBS Global Healthcare Conference in February, and in its May 9, 2008 press release, QuadraMed expects 2008 revenue to be between $146 million and $152 million, which would represent a 6% to 10% increase over 2007 revenue of $137.4 million. Sales bookings for the first two quarters of 2008 reached $33.5 million, a 36% increase over the same period in 2007. Reflecting the strength of the Company's broad product portfolio and brand appeal, several large hospital systems selected QuadraMed's enterprise health solutions during the period to enhance their quality of care and improve financial performance, including an $8.8 million sales contract with Saudi Arabia National Guard Health Affairs, located in Riyadh, Saudi Arabia, for QCPR service expansion, migration to InterSystem�s Cache database and interface licenses. In addition, on August 1, 2008, Daughters of Charity Health System of Los Altos Hills, California signed a $15.8 million contract for the Phase II and Phase III options of a Master Agreement that was originally finalized on November 30, 2006, prior to QuadraMed�s acquisition of the QCPR business. Phase II and Phase III include the purchase of software and services for the QCPR platform including interactive care-grid, order management, access management, clinical decision support, nursing documentation, chart management and additional software for scheduling, electronic document management, medical records, computerized physician order entry and patient registration, all for their five facility network of hospitals. The Phase I option, that was ordered at the same time as the Master Agreement, included the purchase of software, services and hardware for an integrated medication management system, and was valued at $6.7 million. Income from operations was $2.8 million and $1.3 million for the three month periods ended June 30, 2008 and 2007, and $3.2 million and $3.5 million for the six month periods ended June 30, 2008 and 2007, respectively. Adjusted Non-GAAP EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization, adjusted for stock based compensation, severance and loss on the sale of assets) was $6.1 million for the three months ended June 30, 2008, compared to adjusted Non-GAAP EBITDA of $3.4 million for the same period in 2007. For the six months ended June 30, 2008, the Company had adjusted Non-GAAP EBITDA of $9.0 million, compared to $7.5 million for the six months ended June 30, 2007. The increases in income from operations and Non-GAAP adjusted EBITDA for the 2008 periods, when compared to the corresponding 2007 periods, were due to the stronger amounts of gross margin on revenues. The Company also reported net income to common shareholders of $0.4 million, or $0.05 income per basic share and $0.04 income per diluted share for the three months ended June 30, 2008, and net loss to common shareholders of $(0.7) million, or $(0.07) loss per basic and diluted share for the six months ended June 30, 2008. This is compared to a net income to common shareholders of $0.9 million, or income per share of $0.10 basic and $0.09 diluted, and net income to common shareholders of $2.2 million, or income per share of $0.25 basic and $0.23 diluted for the corresponding periods in 2007. The primary reasons for the decline in earnings per share for the 2008 periods were the aforementioned severance and loss on the sale of assets, as well as the recording of deferred income tax expense during 2008 at the Company�s effective rate, where there was no such expense in the 2007 periods. Cash provided by operating activities was $4.1 million for the quarter ended June 30, 2008, compared to $4.9 million for the same period last year, and for the six months ended June 30, 2008, cash provided by operating activities was $12.1 million, compared to cash from operations of $13.8 million for the comparable 2007 period. Overall, cash, cash equivalents and investments increased to $23.2 million at June 30, 2008, from $22.1 million at March 31, 2008 and from $17.5 million at December 31, 2007. This $5.7 million increase since year-end occurred despite the Company�s use of $3.7 million to repurchase its own common stock during the period. �Our results from the first half of 2008 demonstrate our ability to produce revenue growth and increased sales bookings while managing such operational challenges as the QCPR acquisition integration and our divestiture of the Australia-based lab and radiology assets. The QCPR acquisition, especially in terms of sales bookings, is meeting my expectations, and the cumulative total contract value of our signed QCPR contracts now exceeds the $33 million we paid for that business just 10 months ago. The recently announced SANG and Daughters of Charity contracts are the largest non-government contracts QuadraMed has signed since I became CEO in late 2005. I believe this recent sales success is market validation of our strategy and the QCPR acquisition decision, and further, that QCPR is viewed as a competitive clinical information system for the hospital market,� said Keith B. Hagen, QuadraMed�s President and Chief Executive Officer. On June 16, 2008, QuadraMed announced the effectiveness of a one-for-five reverse stock split that was approved by the Company�s stockholders at the Company�s 2008 Annual Meeting of Stockholders and the Company�s Board of Directors. The Company�s common stock began trading on a split-adjusted basis on the American Stock Exchange on June 16, 2008. On July 9, 2008, the Company�s common stock began trading on the NASDAQ Global Market under the symbol QDHC and was concurrently delisted from the American Stock Exchange. Today, the Company also announced that David L. Piazza, Chief Financial Officer, Executive Vice President, Corporate Secretary and Treasurer, has provided notice of his resignation, to be effective August 29, 2008. Mr. Piazza has served as Chief Financial Officer since August 2005. Mr. Piazza has accepted a position as chief operating officer of a private software company in Northern Virginia. During the Company�s search for Mr. Piazza�s permanent replacement, the Company has named Lora Zalewski, Vice President of Finance, to serve as interim Chief Financial Officer beginning on September 1, 2008. Ms. Zalewski joined the Company in May 2004 as Director of Finance and was promoted to Vice President of Finance in March 2006. Prior to joining the Company, Ms. Zalewski served as Area Controller for AT&T Government Solutions from October 2002 to May 2004. �Dave Piazza has been a valuable part of our executive team for the past three years. We are grateful for his contributions to the Company�s strategic plan, especially in helping to reduce expenses and drive revenue growth, and we wish him the best in his future endeavors,� said Mr. Hagen. �My decision to leave the Company was not an easy one. I have enjoyed serving as QuadraMed's CFO and working with Keith to drive the Company to profitability and to strengthen its internal controls and business processes. I have a tremendous amount of respect for Keith and my colleagues on his senior leadership team. The Company is well-positioned to continue its growth and execution of its strategic goals,� said Mr. Piazza. �I wish the Company continued success.� Management will review these results in an investment community conference call at 5:00 PM Eastern (2:00 PM Pacific) on Friday, August 8, 2008. To ensure fair dissemination of information, no inquiries of management should be made regarding QuadraMed�s results until after the conference call. A brief question and answer period will follow management�s presentation. The dial-in number for the conference call is 877-723-9521 domestic and 719-325-4814 international. Callers should dial in by 4:45 PM Eastern (1:45 PM Pacific) to register. The call will also be webcast live and is available to the public via the Investor Relations section of QuadraMed�s webpage at www.quadramed.com. Please note that the webcast is listen-only. Listeners should access the website at 4:45 PM Eastern (1:45 PM Pacific) to register and to download and install any necessary audio software. The webcast replay will be available shortly after the live call is completed and will be available until August 15, 2008. Replay telephone numbers are 719-457-0820 or 888-203-1112; the replay passcode is 3302468. Attachments � Exhibit 1 � Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2008 and December 31, 2007 Exhibit 2 Condensed Consolidated Statements of Operations (unaudited) for the Three Months Ended June 30, 2008 and 2007 and the Six Months Ended June 30, 2008 and 2007 Exhibit 3 Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended June 30, 2008 and 2007 and the Six Months Ended June 30, 2008 and 2007 Exhibit 4 Reconciliation of EBITDA and Non-GAAP Measurements (unaudited) for the Three Months Ended June 30, 2008, March 31, 2008, December 31, 2007, September 30, 2007, June 30, 2007, March 31, 2007, December 31, 2006, and September 30, 2006 Exhibit 5 Reconciliation of EBITDA and Non-GAAP Measurements (unaudited) for the Six Months Ended June 30, 2008 and June 30, 2007 About Adjusted Non-GAAP EBITDA and other Non-GAAP Measurements The Company�s use and presentation of the terms EBITDA, Adjusted Non-GAAP EBITDA and other Non-GAAP Measurements included in this press release and Exhibits 4 and 5 attached hereto, and the reconciliations of those items to the most directly comparable GAAP financial measure with equal or greater prominence as the Non-GAAP financial measures, have been prepared in direct response to questions from its investors and other interested parties. Although the Company has frequently discussed these reconciling items when they occur, both in its filings as well as in investment community conference calls that are open to the public at large, many inquiries are still made as to the nature of these items, and the impact of removing these items from the GAAP financial results. As a result, the Company believes it is important to provide these reconciliations, so that the requesting investors will not have to perform the arithmetic themselves and so that all interested parties will benefit from the disclosures and reconciliations, through a straightforward and unambiguous presentation. The Company believes that the use and presentation of the terms EBITDA, Adjusted Non-GAAP EBITDA and the other Non-GAAP financial measures is useful because it allows readers of its financial information to evaluate its performance for different periods on a more comparable basis by excluding items that are unique in nature such as non-cash compensation, or do not relate to the ongoing operation of its core business. The items presented in calculating Adjusted Non-GAAP EBITDA and other Non-GAAP reconciliations represent specific events or items as follows (please see Exhibits 4 and 5 to this press release): Cash Severance � costs associated with restructuring and downsizing of the Company�s employee base during the three-month periods ended March 31, 2008, and in connection with the sale of the Company�s Australian-based lab and radiology assets in April 2008 (see Loss on Sale of Assets); Loss on Sale of Assets � a one-time loss for accounting purposes recorded in connection with the Company�s April 2008 sale of its Australia-based lab and radiology business, with operations in Australia, New Zealand and the United Kingdom; Non-Cash Compensation � the costs of employee stock options and restricted stock; Tax Benefit, Net � the amount recorded during the three months ended December 31, 2007 resulting from the release of a portion of the reserve against the Company�s deferred tax assets, net of deferred income tax expense recorded in the period; Strategic Initiatives � the expenses recorded in connection with merger and acquisition activities during the three-month period ended June 30, 2007 and December 31, 2007; Employment Matters � the cost of the Company�s review of wage/hour classifications for certain employees during the three-month periods ended December 31, 2007 and September 30, 2007. About QuadraMed Corporation QuadraMed Corporation advances the success of healthcare organizations through IT solutions that leverage quality care into positive financial outcomes. QuadraMed provides real world solutions that help healthcare professionals deliver outstanding patient care efficiently and cost effectively. Behind the Company�s products and services is a staff of 600 professionals whose experience and dedication have earned QuadraMed the trust and loyalty of clients at over 2,000 healthcare provider facilities. For more information about QuadraMed, visit http://www.quadramed.com. Cautionary Statement on Risks Associated with QuadraMed Forward-Looking Statements This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 by QuadraMed that are subject to risks and uncertainties. The words "believe," "expect," "anticipate," "intend," "plan," "estimate," "may," "should," "could," and similar expressions are intended to identify such statements. Forward-looking statements are not guarantees of future performance and are to be interpreted only as of the date on which they are made. QuadraMed undertakes no obligation to update or revise any forward-looking statement except as required by law. QuadraMed advises investors that it discusses risk factors and uncertainties that could cause QuadraMed�s actual results to differ from forward-looking statements in its periodic reports filed with the Securities and Exchange Commission ("SEC"). QuadraMed�s SEC filings can be accessed through the Investor Relations section of our website, www.quadramed.com, or through the SEC�s EDGAR Database at www.sec.gov (QuadraMed has EDGAR CIK No. 0001018833). QuadraMed Affinity and Care-based Revenue Cycle are registered trademarks of QuadraMed Corporation. QuadraMed Corporation�s trademark: �Quality Care. Financial Health� is pending registration. All other trademarks are the property of their respective holders. � Exhibit 1 QUADRAMED CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (unaudited) � June 30, December 31, ASSETS 2008 2007 � Current assets Cash and cash equivalents $ 14,603 $ 7,119 Short-term investments 3,892 9,169 Accounts receivable, net of allowance for doubtful accounts of $1,393 and $1,449, respectively 23,985 26,088 Unbilled receivables 5,674 5,183 Deferred contract expenses 5,723 6,060 Prepaid expenses and other current assets, net of allowance of $919 and $1,229, respectively 8,029 5,367 Deferred tax asset, net of valuation allowance � 7,377 � � 7,376 � Total current assets 69,283 66,362 � Restricted cash 1,729 2,389 Long-term investments 4,659 1,197 Property and equipment, net of accumulated depreciation and amortization of $22,951, and $22,855, respectively 3,464 3,778 Goodwill 34,346 33,942 Other amortizable intangible assets, net of accumulated amortization of $28,522 and $31,119, respectively 10,355 11,768 Other long-term assets 3,212 3,182 Deferred tax asset, net of valuation allowance � 49,740 � � 49,758 � Total assets $ 176,788 � $ 172,376 � � LIABILITIES AND STOCKHOLDERS� EQUITY Current liabilities Accounts payable and accrued expenses $ 4,428 $ 4,910 Accrued payroll and related benefits 5,477 9,602 Accrued exit cost of facility closing 857 1,178 Other accrued liabilities 5,244 7,537 Dividends payable 1,375 1,375 Deferred revenue � 50,920 � � 36,111 � Total current liabilities 68,301 60,713 � Accrued exit cost of facility closing 451 888 Other long-term liabilities � 2,195 � � 2,722 � Total liabilities 70,947 64,323 � Commitments and Contingencies � Stockholders� equity Preferred stock, $0.01 par, 5,000 shares authorized, 4,000 shares issued and outstanding, respectively 96,144 96,144 Common stock, $0.01 par, 30,000 shares authorized; 9,406 and 9,178 shares issued and 8,909 and 9,057 outstanding, respectively 98 459 Shares held in treasury, 497 and 121, respectively (4,020 ) (292 ) Additional paid-in-capital 312,898 310,557 Accumulated other comprehensive gain (loss) 104 (80 ) Accumulated deficit � (299,383 ) � (298,735 ) Total stockholders� equity � 105,841 � � 108,053 � Total liabilities and stockholders� equity $ 176,788 � $ 172,376 � � � � � Exhibit 2 QUADRAMED CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited) � Three months ended, Six months ended, June 30, June 30, 2008 2007 2008 2007 Revenue Services $ 5,605 $ 5,011 $ 11,172 $ 8,539 Maintenance 16,673 14,234 33,529 28,159 Installation and other � 3,132 � � 2,684 � � 6,461 � � 5,242 � Services and other revenue 25,410 21,929 51,162 41,940 � Term licenses 7,785 7,211 15,552 13,608 Perpetual licenses � 4,502 � � 2,304 � � 6,133 � � 4,581 � Licenses 12,287 9,515 21,685 18,189 Hardware � 289 � � 2,918 � � 430 � � 3,439 � Total revenue � 37,986 � � 34,362 � � 73,277 � � 63,568 � � Cost of revenue Cost of services and other revenue 11,503 8,685 22,837 15,712 Royalties and other 3,877 4,057 7,694 7,036 Amortization of acquired technology and capitalized software � 252 � � 354 � � 511 � � 825 � Cost of license revenue 4,129 4,411 8,205 7,861 Cost of hardware revenue � 128 � � 2,895 � � 264 � � 3,387 � Total cost of revenue � 15,760 � � 15,991 � � 31,306 � � 26,960 � Gross margin � 22,226 � � 18,371 � � 41,971 � � 36,608 � � Operating expense General and administration 4,766 4,579 9,880 8,452 Software development 8,541 7,662 17,034 15,074 Sales and marketing 4,177 3,913 9,137 7,809 Loss on sale of assets 1,115 - 1,115 - Amortization of intangible assets and depreciation � 812 � � 875 � � 1,639 � � 1,798 � Total operating expenses � 19,411 � � 17,029 � � 38,805 � � 33,133 � Income from operations � 2,815 � � 1,342 � � 3,166 � � 3,475 � � Other income (expense) Interest expense, includes non-cash charges of $20, $33 and $36, $84 (42 ) (33 ) (73 ) (83 ) Interest income 158 644 324 1,217 Other income, net � 7 � � 409 � � 8 � � 486 � Other income, net � 123 � � 1,020 � � 259 � � 1,620 � � Income from operations before income taxes $ 2,938 $ 2,362 $ 3,425 $ 5,095 Provision for income taxes � (1,151 ) � (162 ) � (1,329 ) � (271 ) Net Income 1,787 2,200 2,096 4,824 Preferred stock accretion, dividend premium, and dividends declared � (1,375 ) � (1,325 ) � (2,750 ) � (2,633 ) � Net income (loss) attributable to common shareholders $ 412 � $ 875 � $ (654 ) $ 2,191 � � Income (loss) per share Basic $ 0.05 $ 0.10 $ (0.07 ) $ 0.25 Diluted $ 0.04 $ 0.09 $ (0.07 ) $ 0.23 � Weighted average shares outstanding Basic 8,790 8,733 8,928 8,747 Diluted 9,460 9,453 8,928 9,464 � Exhibit 3 QUADRAMED CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) � � Three months ended � Six months ended June 30, June 30, 2008 � 2007 2008 � 2007 Cash flows from operating activities Net income $ 1,787 $ 2,200 $ 2,096 $ 4,824 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,065 1,230 2,151 2,624 Deferred compensation amortization 94 96 188 192 Stock-based compensation 841 356 1,640 739 Provision for bad debts - 25 130 181 Loss on sale of assets 1,115 - 1,115 - Other (9 ) (10 ) (4 ) 5 � Changes in operating assets and liabilities: Accounts receivable 6,620 2,797 (177 ) 3,148 Prepaid expenses and other receivables 2,017 3,465 (2,364 ) 3,173 Accounts payable and accrued liabilities (57 ) 82 (8,054 ) (4,586 ) Deferred revenue � (9,376 ) � (5,350 ) � 15,387 � � 3,474 � Cash provided by operating activities 4,097 4,891 12,108 13,774 � Cash flows from investing activities Decrease in restricted cash 218 (148 ) 660 (94 ) Purchases of available-for-sale securities (3,209 ) (16,107 ) (4,031 ) (33,466 ) Proceeds from sale of available-for-sale securities 895 15,624 5,860 20,645 Payment of acquisition costs 22 - (46 ) - Purchases of property and equipment (753 ) (313 ) (844 ) (540 ) Proceeds from sale of assets � 106 � � - � � 106 � � - � Cash (used in) provided by investing activities (2,721 ) (944 ) 1,705 (13,455 ) � Cash flows from financing activities Payment of preferred stock dividends (1,375 ) (1,375 ) (2,750 ) (2,878 ) Proceeds from issuance of common stock and other 24 401 149 1,435 Repurchase of common stock � (1,218 ) � - � � (3,728 ) � - � Cash used in financing activities (2,569 ) (974 ) (6,329 ) (1,443 ) � Net (decrease) increase in cash and cash equivalents (1,193 ) 2,973 7,484 (1,124 ) � Cash and cash equivalents, beginning of period � 15,796 � � 28,499 � � 7,119 � � 32,596 � � Cash and cash equivalents, end of period $ 14,603 � $ 31,472 � $ 14,603 � $ 31,472 � � Exhibit 4 QUADRAMED CORPORATION RECONCILIATION OF EBITDA AND NON-GAAP MEASUREMENTS (in thousands) (unaudited) � � � � � � � � � � For the Three Month Periods Ended 6/30/08 3/31/08 12/31/07 9/30/07 6/30/07 3/31/07 12/31/06 9/30/06 � EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) � Net income, as reported $ 1,787 $ 309 $ 56,674 $ 1,502 $ 2,200 $ 2,624 $ 3,962 $ 5,979 � � Adjustments to Net Income for EBITDA Interest Expense 42 31 20 24 33 50 68 85 � Interest Income (158 ) (166 ) (364 ) (699 ) (644 ) (573 ) (480 ) (501 ) (Provision) benefit for Income Taxes 1,151 178 (52,821 ) 142 162 109 80 101 � Depreciation and Amortization � 1,159 � � 1,180 � � 1,323 � � 802 � � 1,326 � � 1,490 � � 1,757 � � 1,878 � Subtotal Non-GAAP Adjustments for EBITDA 2,194 1,223 (51,842 ) 269 877 1,076 1,425 1,563 � � � � � � � � � EBITDA $ 3,981 � $ 1,532 � $ 4,832 � $ 1,771 � $ 3,077 � $ 3,700 � $ 5,387 � $ 7,542 � EBITDA % to Revenue 10.5 % 4.3 % 11.8 % 5.4 % 9.0 % 12.7 % 17.3 % 22.8 % � Non-GAAP Adjustments to EBITDA Non-cash Compensation 842 799 928 807 356 383 182 229 � Cash Severance 161 561 - - - - - - � Loss on Sale of Assets � 1,115 � � - � � - � � - � � - � � - � � - � � - � Subtotal Non-GAAP Adjustments to EBITDA 2,118 1,360 928 807 356 383 182 229 � � � � � � � � � Adjusted Non-GAAP EBITDA $ 6,099 � $ 2,892 � $ 5,760 � $ 2,578 � $ 3,433 � $ 4,083 � $ 5,569 � $ 7,771 � Adjusted Non-GAAP EBITDA % to Revenue 16.1 % 8.2 % 14.1 % 7.8 % 10.0 % 14.0 % 17.8 % 23.5 % � � Non-GAAP Net Income before Preferred Stock Accretion � Net income, as reported $ 1,787 $ 309 $ 56,674 $ 1,502 $ 2,200 $ 2,624 $ 3,962 $ 5,979 � � Non-GAAP adjustments to Net income Non-cash Compensation 842 799 928 807 356 383 182 229 � Cash Severance 161 561 - - - - - - � Strategic Initiatives - - 57 - 412 - - - � Tax benefit, Net - - (52,898 ) - - - - - � Employment Matters - - (374 ) 1,544 - - - - � Loss on Sale of Assets � 1,115 � � - � � - � � - � � - � � - � � - � � - � Subtotal Non-GAAP adjustments 2,118 1,360 (52,287 ) 2,351 768 383 182 229 � � � � � � � � � Non-GAAP Net income $ 3,905 � $ 1,669 � $ 4,387 � $ 3,853 � $ 2,968 � $ 3,007 � $ 4,144 � $ 6,208 � � Other Information � Revenue $ 37,986 $ 35,291 $ 40,874 $ 32,908 $ 34,362 $ 29,206 $ 31,213 $ 33,032 � Costs of Revenue $ 15,760 � $ 15,546 � $ 16,167 � $ 14,105 � $ 15,991 � $ 10,969 � $ 11,401 � $ 10,436 � Gross Margin $ 22,226 � $ 19,745 � $ 24,707 � $ 18,803 � $ 18,371 � $ 18,237 � $ 19,812 � $ 22,596 � Gross Margin % 59 % 56 % 60 % 57 % 53 % 62 % 63 % 68 % About Adjusted Non-GAAP EBITDA and other Non-GAAP Measurements The Company�s use and presentation of the terms EBITDA, Adjusted Non-GAAP EBITDA and other Non-GAAP Measurements included in this press release and Exhibits 4 and 5 thereto, and the reconciliations of those items to the most directly comparable GAAP financial measure with equal or greater prominence as the Non-GAAP financial measures, have been prepared in direct response to questions from its investors and other interested parties. Although the Company has frequently discussed these reconciling items when they occur, both in its filings as well as in investment community conference calls that are open to the public at large, many inquiries are still made as to the nature of these items, and the impact of removing these items from the GAAP financial results. As a result, the Company believes it is important to provide these reconciliations, so that the requesting investors will not have to perform the arithmetic themselves and so that all interested parties will benefit from the disclosures and reconciliations, through a straightforward and unambiguous presentation. The Company believes that the use and presentation of the terms EBITDA, Adjusted Non-GAAP EBITDA and the other Non-GAAP financial measures is useful because it allows readers of its financial information to evaluate its performance for different periods on a more comparable basis by excluding items that are unique in nature such as non-cash compensation, or do not relate to the ongoing operation of its core business. The items presented in calculating Adjusted Non-GAAP EBITDA and other Non-GAAP reconciliations represent specific events or items as follows (please see Exhibits 4 and 5 to this press release): Cash Severance -- costs associated with restructuring and downsizing of the Company�s employee base during the three-month periods ended March 31, 2008, and in connection with the sale of the Company�s lab and radiology assets in April 2008 (see Loss on Sale of Assets); Loss on Sale of Assets � a one-time loss for accounting purposes recorded in connection with the Company�s April 2008 sale of its Australia-based lab and radiology business, with operations in Australia, New Zealand and the United Kingdom; Non-cash Compensation � the costs of employee stock options and restricted stock; Tax benefit, Net � the amount recorded during the three months ended December 31, 2007 resulting from the release of a portion of the reserve against the Company�s deferred tax assets, net of deferred income tax expense recorded in the period; Strategic Initiatives � the expenses recorded in connection with merger and acquisition activities during the three-month period ended June 30, 2007 and December 31, 2007; Employment Matters � the cost of the Company�s review of wage/hour classifications for certain employees during the three-month periods ended December 31, 2007 and September 30, 2007. � Exhibit 5 QUADRAMED CORPORATION Reconciliation of EBITDA and Non-GAAP Measurements (in thousands) (unaudited) � � For the Six Months Ended 6/30/2008 6/30/2007 � � EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) � Net income, as reported $ 2,096 $ 4,824 � Adjustments to Net Income for EBITDA Interest Expense 73 83 Interest Income (324 ) (1,217 ) Provision for Income Taxes 1,329 271 Depreciation and Amortization � 2,339 � � 2,816 � Subtotal Non-GAAP Adjustments for EBITDA 3,417 1,953 � � EBITDA $ 5,513 � $ 6,777 � EBITDA % to Revenue 7.5 % 10.7 % � Non-GAAP Adjustments to EBITDA Non-cash Compensation 1,641 739 Cash Severance 722 - Loss on Sale of Assets � 1,115 � � - � Subtotal Non-GAAP Adjustments to EBITDA 3,478 739 � � Adjusted Non-GAAP EBITDA $ 8,991 � $ 7,516 � Adjusted Non-GAAP EBITDA % to Revenue 12.3 % 11.8 % � � Non-GAAP Net Income before Preferred Stock Accretion � Net income, as reported $ 2,096 $ 4,824 � Non-GAAP adjustments to Net income Non-cash Compensation 1,641 739 Cash Severance 722 - Strategic Initiatives - 412 Loss on Sale of Assets � 1,115 � � - � Subtotal Non-GAAP adjustments 3,478 1,151 � � Non-GAAP net income $ 5,574 � $ 5,975 � � Other Information � Revenue $ 73,277 $ 63,568 Costs of Revenue $ 31,306 � $ 26,960 � Gross Margin $ 41,971 � $ 36,608 � Gross Margin % 57 % 58 % About Adjusted Non-GAAP EBITDA and other Non-GAAP Measurements The Company�s use and presentation of the terms EBITDA, Adjusted Non-GAAP EBITDA and other Non-GAAP Measurements included in this press release and on this Exhibits 4 and 5 thereto, and the reconciliations of those items to the most directly comparable GAAP financial measure with equal or greater prominence as the Non-GAAP financial measures, have been prepared in direct response to questions from its investors and other interested parties. Although the Company has frequently discussed these reconciling items when they occur, both in its filings as well as in investment community conference calls that are open to the public at large, many inquiries are still made as to the nature of these items, and the impact of removing these items from the GAAP financial results. As a result, the Company believes it is important to provide these reconciliations, so that the requesting investors will not have to perform the arithmetic themselves and so that all interested parties will benefit from the disclosures and reconciliations, through a straightforward and unambiguous presentation. The Company believes that the use and presentation of the terms EBITDA, Adjusted Non-GAAP EBITDA and the other Non-GAAP financial measures is useful because it allows readers of its financial information to evaluate its performance for different periods on a more comparable basis by excluding items that are unique in nature such as non-cash compensation, or do not relate to the ongoing operation of its core business. The items presented in calculating Adjusted Non-GAAP EBITDA and other Non-GAAP reconciliations represent specific events or items as follows: Cash Severance -- costs associated with restructuring and downsizing of the Company�s employee base during the three-month periods ended March 31, 2008, and in connection with the sale of the Company�s lab and radiology assets in April 2008 (see Loss on Sale of Assets); Loss on Sale of Assets � a one-time loss for accounting purposes recorded in connection with the Company�s April 2008 sale of its Australia-based lab and radiology business with operations in Australia, New Zealand and the United Kingdom; Non-cash Compensation � the costs of employee stock options and restricted stock; Tax benefit, Net � the amount recorded during the three months ended December 31, 2007 resulting from the release of a portion of the reserve against the Company�s deferred tax assets, net of deferred income tax expense recorded in the period; Strategic Initiatives � the expenses recorded in connection with merger and acquisition activities during the three-month period ended June 30, 2007 and December 31, 2007; Employment Matters � the cost of the Company�s review of wage/hour classifications for certain employees during the three-month periods ended December 31, 2007 and September 30, 2007.