A.D.A.M., Inc. Reports 64% Increase in Revenue and 33% in Adjusted EBITDA for the Third Quarter
ATLANTA - (BUSINESS WIRE) - A.D.A.M., Inc. (Nasdaq: ADAM) today reported revenue of $4,473,000 which generated Adjusted EBITDA of $1,238,000 for its third quarter ended September 30, 2006. Net Income for the third quarter ended September 30, 2006 was $486,000, or $0.05 per fully diluted share. The increase in revenues and Adjusted EBITDA are primarily a result of A.D.A.M.'s acquisition of Online Benefits, Inc. that was completed during the third quarter of 2006.
"The marketplace continues to advance towards increased self-empowerment regarding healthcare and benefits management," said Kevin Noland, A.D.A.M.'s President and Chief Executive Officer. "Across the spectrum of the consumer directed healthcare movement, from healthcare payers to employers, there is need for high-quality, trusted information and tools to enable consumers to manage and make informed decisions about their health and personal benefits. A.D.A.M.'s health information and decision support tools, now combined with Online Benefits' robust benefit management platform, couples two exceptional product solutions that can meet the needs of tomorrow's healthcare and benefits consumer."
"We believe that A.D.A.M.'s breadth of products and wide distribution will allow us to respond favorably to the needs of our customers. We are well positioned to take advantage of the trends in the small to mid-size employer market as well as those in the traditional areas of healthcare, such as healthcare payers and providers," Noland added.
Revenue
Revenue for the third quarter ended September 30, 2006 totaled $4,473,000 as compared to $2,720,000 in the third quarter of 2005. The increase in revenue during third quarter 2006 included $1,767,000 attributable to Online Benefits. A.D.A.M.'s healthcare licensing revenues for third quarter 2006 grew 15% over third quarter 2005 as a result of strong renewal rates and the addition of new licensing contracts. A.D.A.M.'s products related revenue, excluding Online Benefits, decreased 37% over third quarter 2005. The decrease in product revenues was due primarily to a large, one-time shipment to an educational distributor in the third quarter of 2005 and increased sales during 2005 related to a new educational product.
Profitability
Net income for the third quarter ended September 30, 2006 was $486,000, or $0.05 per fully diluted share, as compared to net income of $6,412,000, or $0.67 per share on a fully diluted basis, for the third quarter of 2005. Third quarter 2005 included a $5,600,000 income tax benefit related to A.D.A.M.'s realization of a portion of its deferred tax assets. Third quarter 2006 net income was negatively impacted by increased non-cash amortization expense and reduced interest income related to the acquisition of Online Benefits. Also included in third quarter 2006 net income is an increase of $253,000 over the prior year in non-cash stock compensation expense related to variably priced stock options and the adoption of Financial Accounting Standards No. 123R, which requires all companies to expense stock-based compensation.
Adjusted EBITDA (which we define as earnings before interest, taxes, depreciation, amortization and non-cash stock compensation expense) was $1,238,000 for the third quarter ended September 30, 2006. Adjusted EBITDA margins for third quarter 2006 were 28% of revenues. Adjusted EBITDA is a non-GAAP measure and is provided as additional information for investors to evaluate the financial performance of the company. See "Non-GAAP Measure" below for a discussion of our use of Adjusted EBITDA.
Gross margins (which we define as revenues less the cost of revenues, including amortization of capitalized software development costs, divided by revenues) were 81% and consistent with prior years' results.
Acquisition Summary
During the third quarter of 2006, A.D.A.M. completed its acquisition of Online Benefits, Inc. The total consideration paid was $33,901,000, which included $31,000,000 paid to the sellers, assumption of $1,500,000 of debt and transaction costs of $1,401,000. Online Benefits reported revenues of $13,116,000 in the calendar year ended December 31, 2005 and $6,670,000 for the six months ended June 30, 2006.
To finance the acquisition, A.D.A.M. issued $3,000,000 of restricted common stock and arranged for a credit facility of $27,000,000. A.D.A.M. paid the balance of the purchase price in cash. Cash and short-term investments as of September 30, 2006 were $7,028,000.
Non-GAAP Measure
Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization and non-cash stock compensation expense. Adjusted operating income represents operating income before non-cash stock compensation expense. These financial measures are not measures of financial performance in accordance with generally accepted accounting principles. We believe that these non-GAAP financial measures are useful because they are an appropriate measure for evaluating our operating performance. We present these non-GAAP financial measures to provide additional information regarding our performance and because they are a measure by which we gauge our profitability. You should not consider these non-GAAP financial measures as an alternative to net income. Our calculation of these financial measures may be different from the calculation used by other companies and, as a result, comparability may be limited. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth in the table below.
Conference Call Information
The Company will be conducting a conference to discuss third quarter results on November 9, 2006, at 10:00 A.M. ET. To participate in the call, please dial (877) 829-1394 approximately five minutes prior to the start time. International callers may dial (706) 679-8134. A digital replay will be available at 12 noon ET on November 9, 2006 by dialing (800) 633-8284 or (402) 977-9140 with reservation number 21308242.
About A.D.A.M., Inc.
A.D.A.M. (Nasdaq: ADAM - News) is a leading provider of high-quality health information and benefits management solutions to healthcare organizations, employers, brokers, consumers, and educational institutions. With an industry-leading employee and HR benefits management platform and one of the largest consumer health information libraries in the world, A.D.A.M. empowers consumers to get smart about their health and wellness, while reducing the costs of healthcare and benefits administration. For more information, visit www.adam.com or call 1-800-408-ADAM.
A.D.A.M., Inc.
Press Release - Earnings Grid
(In thousands, except per share amounts)
3 Months Ended 9 Months Ended
September 30 September 30
Statement of Operations 2006 2005 2006 2005
------------------------------------------------- -------------
Revenues
License $ 3,915 $ 1,961 $ 8,152 $ 5,597
Product 368 581 1,110 1,460
Professional services/other 190 178 408 490
-----------------------------------
Total revenues 4,473 2,720 9,670 7,547
Cost of revenues 844 452 1,842 1,424
-----------------------------------
Gross margin 3,629 2,268 7,828 6,123
-----------------------------------
Operating expenses
Product and content dev. 874 441 1,584 1,103
Sales and marketing 801 508 1,690 1,363
General and administrative 1,228 561 2,352 1,755
Depreciation and amortization 46 47 120 138
------------------- ---------------
Total operating expenses 2,949 1,557 5,746 4,359
------------------- ---------------
Operating income 680 711 2,082 1,764
Interest income (expense), net (194) 101 83 203
Income tax benefit - 5,600 - 5,600
------------------- ---------------
Net income $ 486 $ 6,412 $ 2,165 $ 7,567
=================== ===============
Basic earnings per share $ 0.06 $ 0.79 $ 0.26 $ 0.94
=================== ===============
Diluted earnings per share $ 0.05 $ 0.67 $ 0.21 $ 0.80
=================== ===============
Basic weighted average shares
outstanding 8,711 8,168 8,487 8,084
Diluted weighted average shares
outstanding 10,096 9,533 10,079 9,422
3 Months Ended 9 Months Ended
September 30 September 30
Reconcilation of Non-GAAP
Measure 2006 2005 2006 2005
----------------------------------------------- ---------------
EBITDA and Adjusted EBITDA
Net income $ 486 $ 6,412 $ 2,165 $ 7,567
Adjustments:
Interest, net 194 (101) (83) (203)
Income tax benefit - (5,600) - (5,600)
Amortization of capitalized
software development costs
(cost of revenues) 257 173 635 533
Depreciation and amortization 46 47 120 138
-----------------------------------
EBITDA 983 931 2,837 2,435
-----------------------------------
Stock-based compensation
(operating expenses) 255 2 120 158
------------------- ---------------
Adjusted EBITDA $ 1,238 $ 933 $ 2,957 $ 2,593
=================== ===============
Operating income and Adjusted
operating income
Operating income $ 680 $ 711 $ 2,082 $ 1,764
Stock-based compensation
(operating expenses) 255 2 120 158
-----------------------------------
Adjusted operating income $ 935 $ 713 $ 2,202 $ 1,922
===================================
Sept. 30 Dec. 31
Summary Balance Sheet 2006 2005
-------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 4,285 $ 2,816
Short term investments 2,743 7,861
Accounts receivable, net of
allowances of $255 and
$147, respectively 3,175 1,840
Restricted cash - 25
Inventories 76 68
Prepaids and other current
assets 3,104 463
Deferred financing costs,
current portion 342 -
Deferred tax assets,
current portion - 221
-------------------
Total current assets 13,725 13,294
Property and equipment, net 799 268
Intangible and other
assets, net 10,208 953
Goodwill 31,262 2,043
Other assets 202 43
Deferred financing costs,
net of current portion 933 -
Deferred tax asset, net of
current portion 2,031 5,279
-------------------
Total assets $ 59,160 $ 21,880
===================
Liabilities and stockholders
equity
Current liabilities
Accounts payables and
accrued expenses $ 3,073 $ 1,055
Deferred revenue 4,900 3,643
Note payable 1,500 -
Capital lease obligations,
current portion 157 20
Deferred tax 65 -
-------------------
Total current
liabilities 9,695 4,718
Capital lease obligations,
net of current portion 138 18
Deferred rent payable 1,313
Security deposit 83
Long-term debt 25,000
-------------------
Total liabilities 36,229 4,736
-------------------
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par
value; 20,000,000 shares
authorized; 9,250,304
shares issued and
8,980,545 shares
outstanding at 6/30/2006
and 8,482,772 shares
issued and 8,213,013
shares outstanding at
12/31/05 92 85
Treasury stock, at cost,
269,759 shares (1,088) (1,088)
Additional paid-in capital 53,965 50,350
Unrealized loss on
investments (11) (11)
Accumulated deficit (30,027) (32,192)
-------------------
Total stockholders'
equity 22,931 17,144
-------------------
Total liabilities and
stockholders' equity $ 59,160 $ 21,880
===================
Contact:
A.D.A.M., Inc., Atlanta
Victor Thompson
888-751-1306
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