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A.D.A.M. Announces Second Quarter 2010 Financial Results

Second Quarter Adjusted Operating Income Margin of 18%

ATLANTA - A.D.A.M., Inc. (Nasdaq: ADAM), a leading provider of consumer health information and benefits technology solutions, today announced its financial results for the second quarter ended June 30, 2010.

"We made solid progress during the second quarter in sharpening our operational execution in 2010," said Mark Adams, president and chief executive officer of A.D.A.M. "Sharper focus on customer service, marketing, sales and product development will further align our company with marketplace requirements and drive revenue growth in the future. In addition, our accelerated product development programs are creating a pipeline of new product offerings, several of which we expect to release in the second half of this year."

"Our second quarter financial results were consistent with our expectations and are highlighted by our adjusted operating income margin of 18% of revenues. A.D.A.M.'s revenues continue to shift more heavily towards our recurring revenue model and away from product sales. Our business model continued to generate EBITDA that was 27% of revenues, which gives us the internal funding necessary to continue to reinforce our foundation for future growth."

Financial Results:

Second Quarter Highlights:

License revenues were $6.5 million for the second quarter of 2010 and 2009. Total revenues were $6.7 million for the second quarter of 2010, compared to $7.1 million in the second quarter of 2009, reflecting lower product revenue as a result of the switch from selling CD-ROM products to online license solutions with recurring revenues over future periods.

Non-GAAP adjusted operating income was unchanged at $1.2 million, or 18% of revenues, for the second quarter of 2010, compared to 17% of revenues for the second quarter of 2009.

Cash flow, as measured by Adjusted EBITDA, was $1.8 million, or 27% of revenues, for the second quarter ended June 30, 2010, as compared to $1.8 million, or 26% of revenues, for the same period a year ago.

Net income for the second quarter ended June 30, 2010 increased by $1.5 million to $1.0 million, compared to a net loss of $463,000 for the second quarter of 2009. Net income for the second quarter 2009 included a restructuring charge of $1.4 million related to the 2008 facility consolidation program.

Non-GAAP adjusted net income was $1.2 million, compared to $1.3 million for the same period a year ago. Non-GAAP adjusted net income excludes charges for stock-based compensation, amortization of purchased intangibles, and the restructuring charge in the second quarter of 2009.

At June 30, 2010, the company had cash and cash equivalents of $4.0 million as compared to $5.4 million at December 31, 2009. Long-term debt was reduced by $3.0 million during the first half of 2010, which included $2.0 million in payments in advance of the required payment schedule. At June 30, 2010, the company had a debt balance of $5.0 million.

Conference Call

A.D.A.M. will conduct its second quarter earnings conference call today, at 10:00 AM ET. To access the call in the U.S., please dial 866-900-2647 and for international callers, dial 706-758-3362 approximately 10 minutes prior to the start of the conference call. The pass code is 83705372. The conference call will also be broadcast live over the Internet and available for replay for 90 days at www.adam.com. In addition, a replay of the call will be available via telephone for one week, beginning 2:00 PM ET on August 10, 2010 through 11:59 PM ET on August 17, 2010. To listen to the telephone replay in the U.S. please dial 800-642-1687 and for international callers, dial 706-645-9291. The pass code is the same as above.

About A.D.A.M., Inc.

A.D.A.M. (Nasdaq: ADAM) is a leading provider of consumer health information and benefits technology solutions to healthcare organizations, benefits brokers, employers, consumers, and educational institutions. A.D.A.M. health and benefits solutions engage consumers to better understand their health, wellness and benefits choices, and provide the tools to help them make personalized health and benefits decisions, while helping healthcare organizations and employers reduce the costs of healthcare and benefits administration. For more information, visit www.adam.com.

Use of Non-GAAP Measures

To supplement our consolidated financial statements presented in accordance with GAAP, we present investors with certain non-GAAP operational measures, including adjusted operating income, adjusted net income, adjusted earnings per share and adjusted EBITDA, all of which primarily exclude the effects of amortization of intangible assets, stock-based compensation, acquisition related expenses, debt refinancing costs, restructuring costs, and a goodwill impairment charge.

Our management considers the total return of an investment we have made in an acquisition (i.e., operating profit generated as compared to the purchase price paid) without taking into consideration any allocations made for accounting purposes. Thus, because the purchase price for an acquisition does not necessarily reflect the accounting value assigned to intangible assets, including customer lists and goodwill, when analyzing the return provided by the acquisition in subsequent periods, our management, for planning and evaluation purposes, excludes the GAAP impact of acquired intangible assets, goodwill impairment charges and other acquisition related expenses to our financial results. We believe that such an approach is useful in understanding the long-term return provided by an acquisition and that our investors benefit from a supplemental non-GAAP financial measure that adjusts for the accounting expense associated with acquired intangible assets.

Similarly, we believe that excluding stock-based compensation expense provides supplemental information and an alternative presentation useful to investors’ understanding of our operating results and trends, especially when comparing those results on a consistent basis to results for previous periods and anticipated results for future periods.

We also believe that, in excluding stock-based compensation, amortization of intangible assets and the other listed items in the GAAP to non-GAAP reconciliation schedules, our non-GAAP financial measures provide investors with transparency into the information and basis used by management and our board of directors to measure and forecast our results of operations, to compare on a consistent basis our results of operations for the current period to that of prior periods, to compare our results of operations on a more consistent basis against that of other companies in making financial and operating decisions, and to establish targets for management incentive compensation.

We believe that the presentation of non-GAAP operational measures of adjusted operating income, adjusted net income, adjusted earnings per share and adjusted EBITDA provide important supplemental information to management and investors regarding financial and business trends relating to the company’s financial condition and results of operations. These non-GAAP operational measures have historically been used as key performance metrics by our senior management as they evaluate the performance of the consolidated financial results. These non-GAAP operational measures are reviewed individually as well as in total in measuring our performance against internal and external expectations for the period. The expectations for such key non-GAAP operational measures are the basis for any financial guidance provided by management for future periods. Management believes that the use of each of these non-GAAP financial measures provides enhanced consistency and comparability with our past financial reports. We provide this information to investors to enable them to perform additional analyses of past, present and future operating performance.

We believe that each of these operational measures is useful to investors in their assessment of our operating performance and the valuation of our company. Adjusted operating income, adjusted net income, adjusted earnings per share and adjusted EBITDA are significant measures used by management for:

  • Reporting our financial results and forecasts to our board of directors;
  • Evaluating the operating performances of our company;
  • Managing and comparing performance internally and externally against our peers; and
  • Establishing internal operating targets.

These non-GAAP operational measures, including adjusted operating income, adjusted net income, adjusted earnings per share and adjusted EBITDA, are used by us as broad measures of financial performance that encompass our operating performance, cash, capital structure, investment management, and income tax planning effectiveness. These operational measures are not calculated in accordance with GAAP and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. These operational measures have limitations in that they do not reflect all of the costs or reductions to revenues associated with the operations of our business as determined in accordance with GAAP. In addition, these operational measures may not be comparable to non-GAAP financial measures reported by other companies. As a result, one should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP. We compensate for these limitations by analyzing current and future results on a GAAP basis as well as a non-GAAP basis, prominently disclosing GAAP results and providing reconciliations from GAAP results to operational measures. The limitations in relying on our non-GAAP financial measures include the fact that the adjusted operating income, adjusted net income, adjusted earnings per share and adjusted EBITDA operational measures do not include the impact of stock-based compensation expense or the effects of amortization of intangible assets, acquisition related expenses and other charges. We expect to continue to incur expenses similar to the non-GAAP adjustments described above, and the exclusion or inclusion of these items from our non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements are based on A.D.A.M.’s current intent, belief and expectations. These statements, especially revenue, net income, cash flow, are not guarantees of future performance and involve a number of risks and uncertainties that can be difficult to predict and that could cause actual results, performance or developments to differ materially. Factors that could affect the company's actual results, performance or developments include general economic conditions, development of the Internet as a source of health information, pricing actions taken by competitors, demand for the company's health information, regulatory changes in laws and regulations that impact how the company conducts its business and the other factors described in A.D.A.M.’s filings with the SEC. A.D.A.M. undertakes no obligation or duty to update or revise any of its forward-looking statements whether as a result of new information, future events, circumstances or otherwise.

A.D.A.M., Inc.
Statement of Operations (Unaudited)
Second Quarter, 2010 and 2009
(numbers in thousands, except per share data)
 
    Three Months Ended June 30,    
        % of       % of   % Increase
    2010   Revenues   2009   Revenues   (Decrease)
                     
Revenues, net                    
Licensing   $ 6,465   96 %   $ 6,528     92 %   -1 %
Product     78   1 %     340     5 %   -77 %
Professional services and other     185   3 %     204     3 %   -9 %
Total revenues, net     6,728   100 %     7,072     100 %   -5 %
                     
Cost of revenues                    
Cost of revenues     875   13 %     1,064     15 %   -18 %
Cost of revenues - amortization     450   7 %     512     7 %   -12 %
Total cost of revenues     1,325   20 %     1,576     22 %   -16 %
                     
Gross profit     5,403   80 %     5,496     78 %   -2 %
                     
Operating expenses                    
Product and content development     1,352   20 %     1,445     20 %   -6 %
Sales and marketing     2,008   30 %     1,831     26 %   10 %
General and administrative     935   14 %     1,161     16 %   -19 %
Restructuring costs     -   0 %     1,408     20 %   (a)
Total operating expenses     4,295   64 %     5,845     83 %   -27 %
                     
Operating income (loss)     1,108   16 %     (349 )   -5 %   (a)
                     
Interest expense, net     89   1 %     114     2 %   -22 %
                     
Income (loss) before income taxes     1,019   15 %     (463 )   -7 %   (a)

Income tax expense

     30   0 %     -     0 %   (a)
                     
Net income (loss)   $ 989   15 %   $ (463 )   -7 %   (a)
                     
                     
Net income (loss) per common share                    
Basic   $ 0.10       $ (0.05 )        
Diluted   $ 0.10       $ (0.05 )        
                     
Weighted average number of common shares outstanding                    
Basic     9,957         9,882          
Diluted     10,394         9,882          
                     
(a) not meaningful                    
                     
A.D.A.M., Inc.
Statement of Operations (Unaudited)
Year-to-Date, 2010 and 2009
(numbers in thousands, except per share data)
                     
    Six Months Ended June 30,    
        % of       % of   % Increase
    2010   Revenues   2009   Revenues   (Decrease)
                     
Revenues, net                    
Licensing   $ 12,932   96 %   $ 12,704     92 %   2 %
Product     157   1 %     555     4 %   -72 %
Professional services and other     361   3 %     482     4 %   -25 %

Total revenues, net

     13,450   100 %     13,741     100 %   -2 %
                     
Cost of revenues                    
Cost of revenues     1,742   13 %     2,179     16 %   -20 %
Cost of revenues - amortization     904   7 %     975     7 %   -7 %
Total cost of revenues     2,646   20 %     3,154     23 %   -16 %
                     
Gross profit     10,804   80 %     10,587     77 %   2 %
                     
Operating expenses                    
Product and content development     2,649   20 %     2,490     18 %   6 %
Sales and marketing     3,975   30 %     3,778     27 %   5 %
General and administrative     1,951   15 %     2,244     16 %   -13 %
Goodwill impairment     -   0 %     13,940     101 %   (a)
Restructuring costs     -   0 %     1,408     10 %   (a)
Total operating expenses     8,575   64 %     23,860     174 %   -64 %
                     
Operating income (loss)     2,229   17 %     (13,273 )   -97 %   (a)
                     
Interest expense, net     189   1 %     233     2 %   -19 %
                     
Income (loss) before income taxes     2,040   15 %     (13,506 )   -98 %   (a)
Income tax expense     60   0 %     -     0 %   (a)
                     
Net income (loss)   $ 1,980   15 %   $ (13,506 )   -98 %   (a)
                     
                     
Net income (loss) per common share                    
Basic   $ 0.20       $ (1.37 )        
Diluted   $ 0.19       $ (1.37 )        
                     
Weighted average number of common shares outstanding                    
Basic     9,938         9,882          
Diluted     10,420         9,882          
                     
(a) not meaningful                    
                     
A.D.A.M., Inc.
Reconciliation of Selected GAAP Measures to Non-GAAP Measures (1) (Unaudited)
Second Quarter, 2010 and 2009
(numbers in thousands, except per share data)
                     
    Three Months Ended June 30,    
    2010   2010   2009   2009   % Increase/
    GAAP   Non-GAAP   GAAP   Non-GAAP   (Decrease)
                     

Reconciliation of GAAP operating income, net income and EPS to non-GAAP measures:

        
                     
                     
GAAP operating income (loss)   $ 1,108   $ 1,108   $ (349 )   $ (349 )    
                     
Stock-based compensation expense (2)         109         158      
Restructuring costs (4)         -         1,408      
                     
Non-GAAP adjusted operating income       $ 1,217       $ 1,217     0 %
                     
GAAP net income (loss)   $ 989   $ 989   $ (463 )   $ (463 )    
                     
Stock-based compensation expense (2)         109         158      
Amortization of purchased intangibles (3)         147         189      
Restructuring costs (4)         -         1,408      
                     
Non-GAAP adjusted net income       $ 1,245       $ 1,292     -4 %
                     
Non-GAAP adjusted net income (loss) per diluted common share   $ 0.10   $ 0.12   $ (0.05 )   $ 0.13      
                     
Diluted common shares outstanding     10,394     10,394     9,882       10,242      
                     
                     

Reconciliation of GAAP net income to adjusted EBITDA is as follows:

            
                     
                     
GAAP net income (loss)   $ 989   $ 989   $ (463 )   $ (463 )    
                     
Depreciation         137         107      
Amortization of software development         303         323      
Interest expense, net         89         114      
Income tax expense         30         -      
Stock-based compensation expense (2)         109         158      
Amortization of purchased intangibles (3)         147         189      
Restructuring costs (4)         -         1,408      
                     
Adjusted EBITDA       $ 1,804       $ 1,836     -2 %
                     
(1) This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered as a substitute for comparable GAAP measures and should be read only in conjunction with our financial statements prepared in accordance with GAAP and our press release, which explains our use of non-GAAP measures.
(2) Stock-based compensation expense related to non-cash charges for stock options.
(3) Amortization of purchased intangibles, including customer lists and software acquired with Online Benefits.
(4) Restructuring costs related to the consolidation of facilities and support services into Atlanta.
     
A.D.A.M., Inc.
Reconciliation of Selected GAAP Measures to Non-GAAP Measures (1) (Unaudited)
Year-to-Date, 2010 and 2009
(numbers in thousands, except per share data)
 
    Six Months Ended June 30,    
    2010   2010   2009   2009   % Increase/
    GAAP   Non-GAAP   GAAP   Non-GAAP   (Decrease)
 

Reconciliation of GAAP operating income (loss), net income (loss) and EPS to non-GAAP measures:

        
                     
                     
GAAP operating income (loss)   $ 2,229   $ 2,229   $ (13,273 )   $ (13,273 )    
                     
Stock-based compensation expense (2)         177         306      
Goodwill impairment (4)         -         13,940      
Restructuring costs (5)         -         1,408      
                     
Non-GAAP adjusted operating income       $ 2,406       $ 2,381     1 %
                     
GAAP net income (loss)   $ 1,980   $ 1,980   $ (13,506 )   $ (13,506 )    
                     
Stock-based compensation expense (2)         177         306      
Amortization of purchased intangibles (3)         293         377      
Goodwill impairment (4)         -         13,940      
Restructuring costs (5)         -         1,408      
                     
Non-GAAP adjusted net income       $ 2,450       $ 2,525     -3 %
                     
Non-GAAP adjusted net income (loss) per diluted common share   $ 0.19   $ 0.24   $ (1.37 )   $ 0.25      
                     
Diluted common shares outstanding     10,420     10,420     9,882       10,251      
                     
                     

Reconciliation of GAAP net income (loss) to adjusted EBITDA is as follows:

        
                     
                     
GAAP net income (loss)   $ 1,980   $ 1,980   $ (13,506 )   $ (13,506 )    
                     
Depreciation         264         211      
Amortization of software development         611         598      
Interest expense, net         189         233      
Income tax expense         60         -      
Stock-based compensation expense (2)         177         306      
Amortization of purchase intangibles (3)         293         377      
Goodwill impairment (4)         -         13,940      
Restructuring costs (5)         -         1,408      
                     
Adjusted EBITDA       $ 3,574       $ 3,567     0 %
                     
(1) This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered as a substitute for comparable GAAP measures and should be read only in conjunction with our financial statements prepared in accordance with GAAP and our press release, which explains our use of non-GAAP measures.
(2) Stock-based compensation expense related to non-cash charges for stock options.
(3) Amortization of purchased intangibles, including customer lists and software acquired with Online Benefits.
(4) Goodwill impairment related to the acquisition of Online Benefits.
(5) Restructuring costs related to the consolidation of facilities and support services into Atlanta.
 

A.D.A.M., Inc.
Balance Sheet
June 30, 2010 and December 31, 2009
(numbers in thousands)
         
         
    June 30, 2010   December 31, 2009
    (unaudited)    
Assets        
Current assets        
Cash and cash equivalents   $ 3,952     $ 5,446  
Accounts receivable, net     2,465       2,516  
Inventories, net     15       30  
Prepaids and other current assets     332       208  
Deferred income tax asset     678       678  
Total current assets     7,442       8,878  
         
Non-current assets        
Property and equipment, net     1,627       1,543  
Intangible assets, net     9,011       9,375  
Goodwill     13,690       13,690  
Other assets     206       206  
Deferred financing costs, net     37       52  
Deferred income tax asset     5,712       5,712  
Total non-current assets     30,283       30,578  
Total assets   $ 37,725     $ 39,456  
         
         
Liabilities and shareholders' equity        
Current liabilities        
Accounts payable and accrued expenses   $ 5,186     $ 4,895  
Deferred revenue     5,349       5,796  
Current portion of long-term debt     2,000       2,000  
Current portion of capital lease obligations     25       22  
Total current liabilities     12,560       12,713  
         
Non-current liabilities        
Capital lease obligations, net of current portion     76       90  
Other liabilities     637       1,385  
Long-term debt, net of current portion     3,000       6,000  
Total non-current liabilities     3,713       7,475  
         
Shareholders' equity        
Common stock     102       102  
Treasury stock     (1,088 )     (1,088 )
Additional paid-in capital     59,460       59,256  
Accumulated deficit     (37,022 )     (39,002 )
Total shareholders' equity     21,452       19,268  
Total liabilities and shareholders' equity   $ 37,725     $ 39,456  
         
A.D.A.M., Inc.
Statement of Cash Flows (Unaudited)
Year-to-Date, 2010 and 2009
(numbers in thousands)
         
         
    Six Months Ended   Six Months Ended
    June 30, 2010   June 30, 2009
         
Cash flows from operating activities        
Net income (loss)   $ 1,980     $ (13,506 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Goodwill impairment     -       13,940  
Restructuring costs     -       1,408  
Depreciation and amortization     1,168       1,186  
Payments for restructuring costs     (754 )     (841 )
Stock-based compensation expense     177       306  
Provisions for bad debt expense     40       53  
Deferred financing cost amortization     15       20  
Loss on disposal of assets     5       -  
Changes in assets and liabilities:        
Accounts receivable     11       1,227  
Accounts payable and accrued expenses     95       (756 )
Deferred revenue     (447 )     (591 )
Other liabilities     72       319  
Prepaids and other assets     (124 )     60  
Inventories     15       10  
Net cash provided by operating activities     2,253       2,835  
         
Cash flows from investing activities        
Software product and content development costs     (540 )     (866 )
Purchases of property and equipment     (223 )     (114 )
Net change in restricted cash     -       29  
Goodwill, additional cost of previous acquisition from earn out payments     -       (13 )

Net cash used in investing activities

     (763 )     (964 )
         
Cash flows from financing activities        
Payment on long-term debt     (3,000 )     (1,000 )
Repayments on capital leases     (11 )     (33 )
Proceeds from exercise of common stock options     27       -  
Net cash used in financing activities     (2,984 )     (1,033 )
         
Increase (decrease) in cash and cash equivalents     (1,494 )     838  
Cash and cash equivalents, beginning of period     5,446       1,377  
Cash and cash equivalents, end of period   $ 3,952     $ 2,215  
         

 

Contacts

A.D.A.M., Inc.
Erica Ryan
Senior Marketing Communications Manager
404-604-2757
pr@adamcorp.com
or
Investors:
Lippert/Heilshorn & Associates
John Heilshorn
212-838-3777
investorrelations@adamcorp.com