QVDX Quovadx (MM)

Quovadx, Inc. (NASDAQ: QVDX), a global software and services company, today announced financial results for the second fiscal quarter ended June 30, 2006. Financial highlights for the second quarter of 2006 included: -- Revenue of $20.7 million, up from $20.5 million in the second quarter of 2005; -- Gross margin of 59 percent, up from 56 percent in the second quarter of 2005; -- Net loss of $1.3 million, or $0.03 per diluted share, compared to net loss of $90,000, or $0.00 per diluted share, in the second quarter of 2005. Net loss in the second quarter of 2006 included $0.5 million, or $0.01 per diluted share, of FAS 123(R) stock compensation expense. Net loss in the second quarter of 2005 included a reimbursement receivable from the Company's insurance carriers for legal fees incurred in 2004 and 2005 of $0.9 million, or $0.02 per share; -- Earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.5 million, down from $2.8 million in the second quarter of 2005; -- Cash used in operations of $2.8 million, compared to cash provided by operations of $0.9 million in the second quarter of 2005. Cash used in operations in the second quarter of 2006 included a $3.0 million cash payment related to a previously announced settlement agreement in a class action lawsuit under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 captioned Heller v. Quovadx, Inc., et al; -- Total cash, cash equivalents, investments and restricted cash at June 30, 2006, of $29.3 million, up from $27.7 million a year ago; and -- Days sales outstanding, or DSO, of 60 days, down from 61 days a year ago. "In the second quarter, we continued to execute on targeted growth initiatives," said Harvey A. Wagner, president and chief executive officer, Quovadx. "We added new customers, signed new partner agreements and invested selectively in product development in all three divisions. Despite longer-than-expected sales cycles, we continue to see growing demand for new products and a strong renewal rate on existing agreements across all of our businesses. " Business Division Highlights Integration Solutions Division (ISD) ISD provides clinical and financial interoperability solutions for hospitals, government entities, health plans and healthcare communities, designed to improve business process efficiency and leverage existing technology infrastructure. ISD highlights for the second quarter of 2006 included the following agreements: -- Sales to new customers Oktibbeha County Hospital in Starkville, MS, a new Cloverleaf(R) Integration Suite customer, and xwave, a leading Canadian provider of healthcare solutions such as the CMS ASP, a Clinical Management System (CMS) offered in an application service provider (ASP) format. xwave purchased the newly introduced QUOVADX MD Office Gateway Clinical Interoperability solution. -- Sales to existing customers and channel partners, both domestically and abroad, such as: -- Regional West Medical Center in Nebraska. Regional West purchased the QUOVADX Cash Accelerator product and services as part of a new QUOVADX Financial Interoperability solution that will be built on the organization's existing Cloverleaf(R) implementation; -- sales to 30 new hospital and healthcare organizations as a result of the ongoing distributor relationship with Per Se Technologies to resell the Cloverleaf(R) Integration Suite with its ORSOS Once-Call resource management system; -- additional sales to established partners QuadraMed and Stinger Medical in the U.S., and internationally to OCS and E.Novation Lifeline Networks for internal use and distribution to end customers, and; -- early in the third quarter, an agreement with ISD's largest client, the Medical University of South Carolina, to continue performance under the same terms and conditions of the current contract through December 31, 2006. -- The renewal of existing OEM agreements with two of the world's largest healthcare IT vendors. -- New international partnership agreements with Braeven Solutions, a South Africa-based strategic sourcing and business development organization, and the Capita Group, a leading business process outsourcing (BPO) and professional services company in the United Kingdom. -- Product enhancements, including a scheduled maintenance and update release of Cloverleaf(R) Integration Suite 5.4, adding additional support for complex XML processing and the NCPDP standard to enable e-Prescribing, and the general availability release of the Intelligent Health Broker 2.0, which extends support for Web-based standards. CareScience Division The CareScience division provides care management services and analytical solutions to hospitals and health systems. CareScience highlights for the second quarter of 2006 included the following agreements: -- Sales to new customers and new partner agreements such as: -- an agreement with HealthPartners, a large consumer-governed, non-profit care delivery and health plan organization to use CareScience(TM) technology and consultation services to create, guide, measure and adjust preventive guidelines that impact its wellness programs and disease management initiatives; -- an agreement with Centura Health, a 12-hospital system based in Colorado to leverage CareScience(TM) Professional Services to assess and recommend methods to automate the collection of publicly reported quality measurements, and; -- a new partnership agreement with Expert-24, a provider of knowledge automation, decision support and quality management solutions, to provide software and services to augment capabilities in the CareScience(TM) Standards of Care solution. -- Additional sales, multi-year renewals and contract expansions to existing customers Temple University Health System and Ascension Health. -- Ongoing product enhancements, including the addition of newly released reporting requirements from the Centers for Medicare and Medicaid (CMS) Surgical Care Improvement Project (SCIP) into its CareScience Standards of Care solution. Rogue Wave Software Division The Rogue Wave Software division specializes in high-performance development tools, frameworks and software libraries for the professional developer. Rogue Wave Software highlights for the second quarter of 2006 included the following: -- Increased sales and renewed agreements for Rogue Wave (R) SourcePro(R) C++ Suite to new and existing independent software vendors and enterprise customers in the telecommunications, financial services and healthcare markets in both the US and abroad. -- A term expansion and extension of a partner agreement with Trinity Systems, a software development firm focused in the telecommunications industry, to distribute Rogue Wave(R) Hydra in conjunction with the Rogue Wave(R) SourcePro(R) Suite - marking the first reseller agreement for the Rogue Wave Hydra product line. -- A new partner agreement with SafeMed, a developer of intelligent, multi-dimensional point-of-care decision support systems to use the Rogue Wave HydraAgent Runtime, the core component of the Rogue Wave(R) Hydra Suite for SOA, in the development of its nDPharma product suite. -- The general availability of Rogue Wave(R) HydraSDO(TM) for XML, the first HydraData component within the Rogue Wave Hydra Suite. Summary "We continue to make progress in positioning the Company for growth," Wagner concluded. "While it is taking time for our growth initiatives to take hold, we remain focused on executing on our long-term growth objectives and delivering sustainable growth in revenue, cash and profits. We will continue to invest selectively in targeted growth initiatives as we go forward." Conference Call Quovadx will host a conference call today, July 27, 2006, at 3:00 p.m. MT/5:00 p.m. ET, which will broadcast live over the Internet. Please visit the "Investors" section of the Company's Web site at http://www.investors.quovadx.com and click on the Investor Events page. For those who cannot access the live broadcast, a replay of the presentation will be archived on the Web cast and Presentation page of the Investor Relations section of the Company's Web site. In addition, an audio replay of the call will be available through August 4, 2006, by calling toll-free at 888-286-8010 and entering pass code 13436371. Non-GAAP Financial Measures This press release contains "non-GAAP financial measure(s)" as defined in Item 10 of Regulation S-K of the Securities Exchange Act of 1934, as amended, including EBITDA on a consolidated basis and for each division for the quarters ended June 30, 2006 and 2005, and DSO on June 30, 2006 and 2005. These "non-GAAP" measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with Generally Accepted Accounting Principles in the United States ("GAAP"). -- Reconciliations of EBITDA for the three and six months ended June 30, 2006 and 2005, as compared to the most directly similar GAAP financial measures, are presented in the EBITDA reconciliation table at the end of the press release. -- DSO is calculated as: net outstanding accounts and unbilled receivables at the end of the quarter divided by total revenue for the quarter, multiplied by 90. The Company believes these measures provide useful information to management and to investors. About Quovadx, Inc. Quovadx (Nasdaq: QVDX) offers software and services for system development, extension, integration and analysis to enterprise customers worldwide. Quovadx has three divisions, including the Integration Solutions division (ISD), which offers private and public healthcare organizations software infrastructure to facilitate system interoperability and leverage existing technology, the CareScience division, which provides care management and analytical solutions to hospitals and health systems, and the Rogue Wave Software division, which provides software and services for enterprise-class application development. Quovadx serves companies in the healthcare, financial services, telecommunication and public sectors. For more information, please visit http://www.quovadx.com. CARESCIENCE, HYDRASDO and QUOVADX are trademarks, and CLOVERLEAF, ROGUE WAVE and SOURCEPRO are registered trademarks, of Quovadx, Inc. All other company and product names mentioned may be trademarks of the companies with which they are associated. Cautionary Statement Certain forward-looking statements are included in this release, including statements relating to Company goals, growth strategy and future business opportunities. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements reflect Quovadx management's current expectations regarding future events and operating performance and speak only as of the date of this release. Investors are cautioned that all forward-looking statements in this release involve risks and uncertainties that could cause actual results to differ materially from those referred to in the forward-looking statements. Factors that may limit the Company's ability to fulfill its goals of accelerating revenue growth, investing in targeted growth initiatives and delivering sustainable growth in revenue, cash and profits within expected timeframes include: the ability of Quovadx's business divisions to execute growth strategies; increased market competition; market acceptance of and demand for existing products; market acceptance and demand for new solutions in the process of being introduced, including Rogue Wave(R) Hydra, CareScience(TM) Standards of Care and ISD's Intelligent Health Broker and related interoperability solutions; the Company's ability to replace revenue from an expected contract termination (MUSC); longer-than-expected sales cycles; technology adoption within the healthcare sector; the speed at which communities adopt and fund electronic health and medical records, computerized physician order entry systems, national provider ID initiatives and community-based health information exchange initiatives; the speed at which healthcare providers, payers and communities adopt and fund pay-for-performance initiatives; the rate at which software developers move away from C++ applications in favor of Java or other program-language applications; the Company's ability to successfully execute marketing plans and programs; the Company's success in maintaining and expanding current relationships, winning new customers and growing internationally; the Company's success with its partnership and channel-sales marketing strategy; the Company's ability to hit the market window for new technologies and solutions; the full impact of the ongoing SEC investigation and remaining class action litigation; the Company's ability to manage and mitigate the liability it faces under privacy and security laws, regulations and contract requirements; and other risks. A full discussion of known risks and uncertainties is included in the Company's annual and quarterly filings with the SEC, copies of which are available without charge from the Company. These filings are also available electronically through a link from the Quovadx Investor Relations Web page or from the SEC Web site at www.sec.gov under "Quovadx, Inc." If any of the events described in those filings were to occur, either alone or in combination, it is likely that the Company's ability to reach the results described in the forward-looking statements could be impaired and the Company's stock price could be adversely affected. Quovadx does not undertake any obligation to update or correct any forward-looking statements included in this release to reflect events or circumstances occurring after the date of this release. -0- *T Quovadx, Inc. Condensed Consolidated Balance Sheets (in thousands) June 30, 2006 December 31, 2005 ----------------------------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $13,923 $17,806 Short-term investments 15,225 14,850 Accounts receivable, net 12,726 14,122 Unbilled accounts receivable 1,083 720 Prepaid and other 2,012 1,771 ----------------------------------- Total current assets 44,969 49,269 Property and equipment, net 4,226 3,220 Software, net 6,899 7,409 Other intangible assets,net 11,943 13,862 Goodwill 46,724 46,724 Restricted cash 134 175 Other assets 362 484 ----------------------------------- Total assets $115,257 $121,143 =================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $2,772 $3,383 Accrued liabilities 12,812 11,175 Deferred revenue 17,799 17,601 ----------------------------------- Total current liabilities 33,383 32,159 Long-term liabilities 695 797 ----------------------------------- Total liabilities 34,078 32,956 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued and outstanding - - Common stock, $.01 par value; 100,000,000 authorized and 42,181,242 and 41,641,606 shares issued and outstanding, respectively 422 416 Accumulated other comprehensive income (loss) 610 (199) Additional paid-in capital 273,513 272,260 Accumulated deficit (193,366) (184,290) ----------------------------------- Total stockholders' equity 81,179 88,187 ----------------------------------- Total liabilities and stockholders' equity $115,257 $121,143 =================================== *T -0- *T Quovadx, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share amounts) (Unaudited) Three Months Six Months Ended Ended June 30, June 30, --------------- ---------------- 2006 2005 2006 2005 --------------- ---------------- Revenue: Software licenses $8,022 $7,089 $15,050 $14,074 Professional services 2,715 3,447 5,660 7,086 Recurring services 9,972 9,963 20,376 20,115 --------------- ---------------- Total revenue 20,709 20,499 41,086 41,275 Cost of revenue: Software licenses 2,049 2,229 3,936 4,420 Professional services 1,676 2,666 3,482 5,133 Recurring services 4,842 4,117 9,904 8,787 --------------- ---------------- Total cost of revenue 8,567 9,012 17,322 18,340 --------------- ---------------- Gross profit 12,142 11,487 23,764 22,935 --------------- ---------------- Operating expenses: Sales and marketing 5,433 4,038 10,250 8,420 General and administrative 4,416 3,504 15,957 8,229 Research and development 2,648 3,137 5,051 6,107 Amortization of acquired intangibles 956 963 1,919 1,925 --------------- ---------------- Total operating expenses 13,453 11,642 33,177 24,681 --------------- ---------------- Loss from operations (1,311) (155) (9,413) (1,746) Other income (expense), net (92) (54) (101) 96 Interest income, net 230 199 622 204 --------------- ---------------- Loss before income taxes and cumulative effect of accounting change (1,173) (10) (8,892) (1,446) Income tax expense 137 80 195 153 --------------- ---------------- Loss before cumulative effect of accounting change (1,310) (90) (9,087) (1,599) Cumulative effect of accounting change - - 11 - --------------- ---------------- Net loss $(1,310) $(90) $(9,076)$(1,599) =============== ================ Net loss before cumulative effect of accounting change per common share - basic and diluted $(0.03)$(0.00) $(0.22) $(0.04) Cumulative effect of accounting change - - 0.00 - --------------- ---------------- Net loss per common share - basic and diluted $(0.03)$(0.00) $(0.22) $(0.04) =============== ================ Weighted average common shares outstanding 41,550 40,834 41,498 40,691 =============== ================ *T -0- *T Quovadx, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited) Three Months Six Months Ended Ended June 30, June 30, ----------------- ----------------- 2006 2005 2006 2005 ----------------- ----------------- Cash flows from operating activities Net loss $(1,310) $(90) $(9,076) $(1,599) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 1,978 2,071 3,764 4,019 Amortization of acquired intangibles 956 962 1,919 1,925 Stock based compensation 535 97 1,022 179 Provision (recovery) for losses on accounts receivable (29) (212) 30 (310) Change in assets and liabilities: Accounts receivable (100) 530 1,550 1,394 Unbilled accounts receivable 162 222 (363) 239 Prepaid and other 131 29 13 (516) Accounts payable (1,867) (1,821) (620) (1,360) Accrued liabilities (3,030) (83) 1,476 180 Deferred revenue (238) (817) 22 (934) ----------------- -------- -------- Net cash provided by (used in) operating activities (2,812) 888 (263) 3,217 ----------------- -------- -------- Cash flows from investing activities Purchase of property and equipment (596) (79) (2,097) (506) Capitalized software (1,124) (183) (2,209) (299) Purchases of short-term investments (9,326) (75) (30,471) (100) Sales of short-term investments 11,263 - 30,095 - ----------------- -------- -------- Net cash provided by (used in) investing activities 217 (337) (4,682) (905) ----------------- -------- -------- Cash flows from financing activities Proceeds from issuance of common stock 229 556 258 655 ----------------- -------- -------- Net cash provided by financing activities 229 556 258 655 ----------------- -------- -------- Effect of foreign exchange rate changes on cash 648 (559) 804 (750) ----------------- -------- -------- Cash and cash equivalents Net (decrease) increase (1,718) 548 (3,883) 2,217 Beginning of period 15,641 20,491 17,806 18,822 ----------------- -------- -------- End of period $13,923 $21,039 $13,923 $21,039 ================= ======== ======== Short-term investments $15,225 $6,125 $15,225 $6,125 Restricted cash 134 578 134 578 ----------------- -------- -------- Total cash, cash equivalents short- term investments and restricted cash $29,282 $27,742 $29,282 $27,742 ================= ======== ======== Supplemental Disclosure of Non-Cash Investing Activity Retirement of fixed assets - cost $8,766 $- $10,728 $- Retirement of fixed assets - accumulated depreciation (8,716) - (10,659) - -------- -------- -------- -------- Net retirements of fixed assets $50 $- $69 $- ======== ======== ======== ======== *T -0- *T Quovadx, Inc. Selected Financial Information by Division (in thousands) (Unaudited) Integration Solutions Division (ISD) Three Months Ended ------------------------------------------ June March December September June 30, 31, 31, 30, 30, 2006 2006 2005 2005 2005 ------- ------- -------- --------- ------- Revenue: Software license $1,866 $1,985 $3,194 $2,148 $1,641 Professional services 1,003 1,163 1,301 1,384 1,511 Recurring services 6,171 6,649 6,316 5,943 6,029 ------------------------------------------ Total revenue 9,040 9,797 10,811 9,475 9,181 Gross profit 3,677 3,818 4,800 3,053 3,289 Gross margin % 41% 39% 44% 32% 36% ------------------------------------------ Income from operations (1) $424 $378 $2,210 $338 $344 ========================================== Depreciation and amortization 1,308 1,252 1,182 1,259 1,472 ------------------------------------------ EBITDA $1,732 $1,630 $3,392 $1,597 $1,816 ========================================== Capitalized Software Additions $440 $331 $617 $239 $183 ========================================== CareScience Division Revenue: Software license $1,625 $1,498 $1,426 $1,302 $1,317 Professional services 1,518 1,626 1,581 1,403 1,593 Recurring services 809 877 939 877 974 ------------------------------------------ Total revenue 3,952 4,001 3,946 3,582 3,884 Gross profit 1,722 2,099 1,618 1,402 1,601 Gross margin % 44% 52% 41% 39% 41% ------------------------------------------ Income (loss) from operations (1) $(131) $579 $(158) $(38) $218 ========================================== Depreciation and amortization 438 451 463 477 496 ------------------------------------------ EBITDA $307 $1,030 $305 $439 $714 ========================================== Capitalized Software Additions $224 $149 $- $- $- ========================================== Rogue Wave Software Division Revenue: Software license $4,531 $3,545 $3,704 $3,944 $4,131 Professional services 194 156 237 218 343 Recurring services 2,992 2,878 2,944 2,967 2,960 ------------------------------------------ Total revenue 7,717 6,579 6,885 7,129 7,434 Gross profit 6,743 5,705 6,116 6,310 6,597 Gross margin % 87% 87% 89% 89% 89% ------------------------------------------ Income from operations (1) $2,506 $2,239 $2,009 $2,631 $2,558 ========================================== Depreciation and amortization 1,003 924 916 928 933 ------------------------------------------ EBITDA $3,509 $3,163 $2,925 $3,559 $3,491 ========================================== Capitalized Software Additions $460 $605 $353 $- $- ========================================== (1) Does not include allocation of corporate overhead *T -0- *T Quovadx, Inc. EBITDA Reconciliation (in thousands) (Unaudited) Total Company Three Months Six Months Ended Ended June 30, June 30, ----------------- ----------------- 2006 2005 2006 2005 --------- ------- -------- -------- GAAP net loss $(1,310) $(90) $(9,076) $(1,599) Interest income (230) (199) (622) (204) Depreciation & amortization 2,934 3,033 5,683 5,944 Income taxes 137 80 195 153 --------- ------- -------- -------- EBITDA $1,531 $2,824 $(3,820) $4,294 ========= ======= ======== ======== Integration Solutions Division Three Months Six Months Ended (ISD) Ended June 30, June 30, ----------------- ----------------- 2006 2005 2006 2005 --------- ------- -------- -------- Net income from operations $424 $344 $804 $971 Depreciation & amortization 1,308 1,472 2,559 2,816 --------- ------- -------- -------- EBITDA $1,732 $1,816 $3,363 $3,787 ========= ======= ======== ======== CareScience Division Three Months Six Months Ended Ended June 30, June 30, ----------------- ----------------- 2006 2005 2006 2005 --------- ------- -------- -------- Net (loss)/income from operations $(131) $218 $448 $168 Depreciation & amortization 438 496 888 1,005 --------- ------- -------- -------- EBITDA $307 $714 $1,336 $1,173 ========= ======= ======== ======== Rogue Wave Software Division Three Months Six Months Ended Ended June 30, June 30, ----------------- ----------------- 2006 2005 2006 2005 --------- ------- -------- -------- Net income from operations $2,506 $2,558 $4,745 $4,763 Depreciation & amortization 1,003 933 1,926 1,891 --------- ------- -------- -------- EBITDA $3,509 $3,491 $6,671 $6,654 ========= ======= ======== ======== *T