10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                   

Commission file number: 001-35062

Epocrates, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization) 94-3326769 (I.R.S. Employer Identification No.)

1100 Park Place, Suite 300

San Mateo, California 94403

(Address of principal executive offices, including zip code)

(650) 227-1700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No ý

The number of shares of common stock outstanding as of August 13, 2012 was 24,783,151.

EPOCRATES, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 6.	Exhibits	24
SIGNATURES		25

2

PART I. FINANCIAL INFORMATION

Item1. Financial Statements

EPOCRATES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS – UNAUDITED

(in thousands, except for par value)

	June 30, 2012			December 31, 2011
Assets
Current assets
Cash and cash equivalents	$	72,237		$	75,326
Short-term investments	9,695			9,897
Accounts receivable, net of allowance for doubtful accounts of $71 and $85, respectively	22,371			22,748
Deferred tax asset	7,390			7,390
Prepaid expenses and other current assets	4,719			3,218
Total current assets	116,412			118,579
Property and equipment, net	8,240			7,283
Deferred tax asset	631			1,280
Goodwill	17,959			17,959
Other intangible assets, net	4,762			6,771
Other assets	333			352
Total assets	$	148,337		$	152,224
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	2,406		$	3,282
Deferred revenue	44,133			46,429
Other accrued liabilities	8,144			9,600
Total current liabilities	54,683			59,311
Deferred revenue, less current portion	7,399			8,088
Other liabilities	1,521			1,893
Total liabilities	63,603			69,292
Commitments and contingencies (Note 9)	—			—
Stockholders’ equity
Preferred stock: $0.001 par value; 10,000 shares authorized; no shares issued and outstanding at June 30, 2012 and December 31, 2011	—			—
Common stock: $0.001 par value; 100,000 shares authorized; 24,761 and 24,370 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively	25			24
Additional paid-in capital	132,879			129,238
Accumulated other comprehensive loss	(5		)	(2		)
Accumulated deficit	(48,165		)	(46,328		)
Total stockholders’ equity	84,734			82,932
Total liabilities and stockholders’ equity	$	148,337		$	152,224

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

EPOCRATES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME – UNAUDITED

(in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Subscription revenues	$	4,751		$	6,094		$	9,427		$	12,303
Interactive services revenues	22,073			21,766			44,928			44,734
Total revenues, net	26,824			27,860			54,355			57,037
Cost of subscription revenues	1,749			1,800			3,698			3,843
Cost of interactive services revenues	9,200			7,968			17,538			15,315
Total cost of revenues	10,949			9,768			21,236			19,158
Gross profit	15,875			18,092			33,119			37,879
Operating expenses:
Sales and marketing	6,711			6,482			12,793			13,602
Research and development	5,364			5,055			10,128			10,075
General and administrative	5,234			5,908			10,220			12,165
Facilities exit costs	—			58			—			618
Gain on settlement and change in fair value of contingent consideration	—			(6,439		)	—			(5,933		)
Total operating expenses	17,309			11,064			33,141			30,527
(Loss) income from operations	(1,434		)	7,028			(22		)	7,352
Interest income	5			23			11			51
Other (expense) income, net	(2		)	177			(1		)	179
(Loss) income before income taxes	(1,431		)	7,228			(12		)	7,582
Benefit from (provision for) income taxes	147			(2,998		)	288			(3,150		)
(Loss) income from continuing operations	(1,284		)	4,230			276			4,432
Gain (loss) from discontinued operations, net of tax (includes proceeds from sale of component technology of $1.3 million)	885			(837		)	(2,113		)	(2,165		)
Net (loss) income	$	(399	)	$	3,393		$	(1,837	)	$	2,267
Unrealized losses on available-for-sale securities, net	(2		)	—			(3		)	—
Comprehensive (loss) income	$	(401	)	$	3,393		$	(1,840	)	$	2,267
Net (loss) income attributable to common stockholders – basic and diluted	$	(399	)	$	3,393		$	(1,837	)	$	1,973
Net (loss) income per share – basic
Continuing operations	$	(0.05	)	$	0.18		$	—		$	0.20
Discontinued operations, net of tax	0.03			(0.04		)	(0.08		)	(0.10		)
Net (loss) income per share attributable to common stockholders	$	(0.02	)	$	0.14		$	(0.08	)	$	0.10
Net (loss) income per share – diluted
Continuing operations	$	(0.05	)	$	0.17		$	—		$	0.19
Discontinued operations, net of tax	0.03			(0.04		)	(0.08		)	(0.10		)
Net (loss) income per share attributable to common stockholders	$	(0.02	)	$	0.13		$	(0.08	)	$	0.09
Weighted average common shares outstanding – basic	24,895			23,411			25,151			20,641
Weighted average common shares outstanding – diluted	25,243			25,838			25,570			23,006

The accounts below include stock-based compensation of the following amounts:

Cost of revenues	$	50	$	44	$	99	$	151
Sales and marketing	189		370		391		1,117
Research and development	165		139		363		530
General and administrative	784		970		1,793		2,532
Discontinued operations	63		—		74		—

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

EPOCRATES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

(in thousands)

	Six Months Ended
	June 30,
	2012			2011
Cash flows from operating activities:
Net (loss) income	$	(1,837	)	$	2,267
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Stock-based compensation	2,720			4,330
Depreciation and amortization	1,954			2,024
Amortization of intangible assets	2,009			2,059
Loss on write-off of property and equipment	—			99
Allowance for doubtful accounts and sales returns reserve	(14		)	270
Facilities exit costs	—			618
Gain on settlement and change in fair value of contingent consideration	—			(6,074		)
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable	391			1,796
Deferred tax asset, current and non-current	238			—
Prepaid expenses and other assets	(1,482		)	695
Accounts payable	(1,074		)	(1,627		)
Deferred revenue	(2,985		)	716
Other accrued liabilities and other payables	(2,088		)	(2,606		)
Net cash (used in) provided by operating activities	(2,168		)	4,567
Cash flows from investing activities:
Purchase of property and equipment	(2,401		)	(6,028		)
Purchase of short-term investments	(5,149		)	(13,727		)
Sale of short-term investments	(2		)	500
Maturity of short-term investments	5,350			13,400
Net cash used in investing activities	(2,202		)	(5,855		)
Cash flows from financing activities:
Net cash proceeds from issuance of common stock	—			64,189
Payment and settlement of contingent consideration	—			(6,871		)
Payment of accrued dividends on Series B mandatorily redeemable convertible preferred stock	—			(29,586		)
Proceeds from exercise of common stock options	1,281			489
Net cash provided by financing activities	1,281			28,221
Net (decrease) increase in cash and cash equivalents	(3,089		)	26,933
Cash and cash equivalents at beginning of period	75,326			35,987
Cash and cash equivalents at end of period	$	72,237		$	62,920
Non-Cash Investing and Financing Activities:
Unrealized loss on available-for-sale securities, net of tax effect	(1		)	—
Accrued purchase of property and equipment and other assets	458			543
Conversion of mandatorily redeemable convertible preferred stock into common stock	—			44,011
Reclassification of costs of issuance of common stock from prepaid expenses and other current assets	—			2,025

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

EPOCRATES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Background

Epocrates, Inc. ("Epocrates" or the “Company”) was incorporated in California in August 1998 as nCircle Communications, Inc. In September 1999, the Company changed its name to ePocrates, Inc., and in May 2006, the Company reincorporated in Delaware and changed its name to Epocrates, Inc.

The Company is a leading physician platform for essential clinical content, practice tools and health industry engagement at the point of care. Most commonly used on mobile devices, the Company’s products help healthcare professionals make more informed prescribing decisions, enhance patient safety and improve practice productivity. Through the Company’s interactive services, it provides the healthcare industry, primarily pharmaceutical companies, opportunities to engage with its user network through delivery of targeted information and to conduct market research.

Initial Public Offering (“IPO”)

On February 1, 2011, the Company’s registration statement on Form S-1 (File No. 333-168176) was declared effective for its IPO, pursuant to which it registered the offering and sale of 5,360,000 shares of common stock at a public offering price of $16.00 per share and an aggregate offering price of $85.8 million, of which 3,574,285 shares were sold by the Company for an aggregate offering price of $57.2 million, and 1,785,715 shares were sold by the selling stockholders for an aggregate offering price of $28.6 million. On February 3, 2011, the over-allotment option of 804,000 shares was exercised at a price of $16.00 per share for an aggregate of $12.9 million, all of which were sold by the Company, and the offering was completed with all of the shares subject to the registration statement having been sold.

As a result of the Company’s IPO and the exercise of the over-allotment option on February 3, 2011, both of which closed on February 7, 2011, the Company received net proceeds of approximately $62.2 million, after underwriting discounts and commissions of $4.9 million. In addition, the Company incurred other expenses associated with its IPO of approximately $3.0 million. From these proceeds, aggregate cumulative dividends to the holders of Epocrates’ Series B preferred stock were paid in full, in the amount of approximately $29.6 million. Upon the consummation of the IPO, the outstanding shares of the Company’s preferred stock were converted into an aggregate of 11,089,201 shares of common stock.

After the completion of the IPO on February 7, 2011, the Company amended its certificate of incorporation and increased its authorized number of shares of common stock to 100,000,000 and reduced the authorized number of shares of preferred stock to 10,000,000. The Company also established the par value of each share of common and preferred stock to be $0.001 per share.

Common Stock Split

An Amended and Restated Certificate of Incorporation for a 1-for-0.786 reverse split approved by the Company’s Board of Directors on November 18, 2010, was filed with the Delaware Secretary of State on January 28, 2011 and was effected upon the closing of the IPO. All information related to common stock, stock options, restricted stock units (“RSUs”) and earnings per share, as well as all references to preferred stock or preferred stock warrants as converted into common stock, has been retroactively adjusted to give effect to the reverse split.

2. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying condensed consolidated financial statements and the notes to the condensed consolidated financial statements as of June 30, 2012 and for the three and six months ended June 30, 2012 and 2011 are unaudited. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2011, included in the Annual Report on Form 10-K filed with the SEC on March 19, 2012. The condensed consolidated balance sheet as of December 31, 2011 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.

6

The interim financial data as of June 30, 2012 and for the three and six months ended June 30, 2012 and 2011 is unaudited. In the opinion of management, the interim data includes all adjustments, consisting only of normal, recurring adjustments, necessary for the fair statement of the results for the interim periods. The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2012 or any other future period.

Use of Estimates

The preparation of financial statements in conformity with GAAP in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements and accompanying notes. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from those estimates, and such differences could be material.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable.

The Company limits its concentration of risk in cash equivalents and short-term investments by diversifying its investments among a variety of industries and issuers. The primary goals of the Company’s investment policy are, in order of priority, preservation of principal, liquidity and current income. The Company’s professional portfolio managers adhere to this investment policy as approved by the Company’s Board of Directors. Cash and cash equivalents and short-term investments are deposited at financial institutions or invested in securities that management believes are of high credit quality.

The Company’s investment policy is to invest only in fixed income instruments denominated and payable in U.S. dollars. Investments in obligations of the U.S. government and its agencies, money market instruments, commercial paper, certificates of deposit, bankers’ acceptances, corporate bonds of U.S. companies, municipal securities and asset-backed securities are allowed. The Company does not invest in auction rate securities, future contracts or hedging instruments. Securities of a single issuer valued at cost at the time of purchase should not exceed 5% of the market value of the portfolio, or $1 million, whichever is greater, although securities issued by the U.S. Treasury and U.S. government agencies are specifically exempted from these restrictions. Issue size is typically greater than $50 million for corporate bonds. No single position in any issue will equal more than 10% of that issue. The final maturity of each security within the portfolio shall not exceed 24 months.

The Company’s revenue and accounts receivable are derived primarily from clients in the healthcare industry (e.g., pharmaceutical companies, managed care companies and market research firms) within the U.S. For the three months and six months ended June 30, 2012, one client accounted for more than 10% of total revenues. For the three and six months ended June 30, 2011, no single client accounted for more than 10% of total revenues.

The Company performs a regular review of its clients’ payment histories and associated credit risks and does not require collateral from its clients. The Company has not historically experienced significant credit losses from its accounts receivable. There were two clients that accounted for more than 10% of accounts receivable, net, one of which accounted for 15% of accounts receivable, net as of June 30, 2012. One client accounted for 15% of accounts receivable, net as of December 31, 2011.

Software Development Costs

Software development costs incurred in conjunction with product development are charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, software development costs are capitalized and reported at the lower of unamortized cost or net realizable value of the related product. The Company does not consider a product in development to have passed the technological feasibility milestone until the Company has completed a model of the product that contains essentially all the functionality and features of the final product and has tested the model to ensure that it works as expected. The Company previously capitalized software development costs upon technical feasibility for the electronic health record (“EHR”) solution until it announced its decision to discontinue the EHR business. Capitalized costs incurred in the first quarter of 2012 up until the date of the announcement were reclassified to loss from discontinued operations in the Company’s condensed consolidated statements of comprehensive (loss) income.

Internal Use Software and Website Development Costs

With regard to software developed for internal use and website development costs, the Company expenses all costs incurred that relate to planning and post-implementation phases of development. Costs incurred in the development phase are capitalized and amortized over the product’s estimated useful life which is generally three years. For the three months ended June 30, 2012 and

7

2011, the Company capitalized $0.8 million and $0.9 million, respectively, of software development costs related to software for internal use and website development costs. For the six months ended June 30, 2012 and 2011, the Company capitalized $1.4 million and $1.7 million, respectively, of software development costs related to software for internal use and website development costs. Internal software development costs are generally amortized on a straight-line basis over three years beginning with the date the software is placed into service. Amortization of software developed for internal use was $0.4 million for the three months ended June 30, 2012 and $0.6 million for the three months ended June 30, 2011. Amortization of software developed for internal use was $0.8 million and $1.2 million for the six months ended June 30, 2012 and 2011, respectively. Amortization of internal use software is reflected in cost of revenues. Costs associated with minor enhancement and maintenance of the Company’s website are expensed as incurred.

Facilities Exit Costs

The Company vacated the East Windsor, New Jersey office in the first quarter of 2011 and relocated its New Jersey operations to Ewing, New Jersey. The Company had entered into a non-cancellable lease with the landlord which does not expire until the end of fiscal year 2012. The Company was, therefore, liable to make monthly lease payments under the contract until the termination of the lease. The liability recorded at fair value is based on the present value of the remaining lease rentals and is reduced for the estimated sublease rentals that could be reasonably obtained for the property. The Company recorded a charge of approximately $0.6 million in the six months ended June 30, 2011 relating to the East Windsor facility exit costs.

Segment Information

Previously, the Company had two reportable segments: Subscriptions and Interactive Services, and EHR. On February 24, 2012, the Audit Committee of the Board of Directors of the Company, as authorized by the Board of Directors, approved the discontinuation of Epocrates’ EHR business. Upon the approval, the Company qualified for discontinued operations presentation under GAAP, and at such time, the EHR results were reported in loss from discontinued operations on the Company’s condensed consolidated statements of comprehensive (loss) income. Prior period amounts have been revised in order to conform to the current period presentation. Substantially all of the Company’s revenues and all of the Company’s long-lived assets are located in the U.S.

3. Net (Loss) Income Per Share

In February 2011, all of the Company’s outstanding convertible preferred stock converted into common stock in connection with the IPO. Prior to the conversion, holders of Series A and Series C convertible preferred stock were entitled to receive 8% per annum non-cumulative dividends. Holders of Series B preferred stock were entitled to receive 8% per annum cumulative dividends.

In 2011, basic and diluted net loss per share attributable to common stockholders was presented in conformity with the “two-class method” required for participating securities. Under the two-class method, basic net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the sum of the weighted average number of common shares outstanding during the period, net of shares subject to repurchase. Net income (loss) attributable to common stockholders is calculated as net income (loss) less the preferred stock dividend for the period. Due to the Company’s presentation of the EHR results in discontinued operations, a similar calculation was performed for the 2011 per share income from continuing operations. Basic income from continuing operations per share is computed by subtracting the preferred stock dividend for the period from income from continuing operations and dividing that amount by the weighted average number of common shares outstanding.

Diluted net loss per share gives effect to the impact of potentially dilutive securities, which consist of convertible preferred stock, stock options, RSUs and warrants. The dilutive effect of outstanding stock options, warrants and RSUs is computed using the treasury stock method. The computation of diluted net loss per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings.

In accordance with U.S. GAAP, the Company does not include dilutive securities in its calculations of per share loss from continuing operations, discontinued operations, net of tax, and net loss attributable to common stockholders. Accordingly, the denominator used in these calculations is the weighted average number of common shares outstanding – basic.

The following table presents the calculations of basic and diluted net (loss) income per share (in thousands, except per share data):

8

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Numerator:
(Loss) income from continuing operations	$	(1,284	)	$	4,230		$	276		$	4,432
Gain (loss) from discontinued operations, net of tax	885			(837		)	(2,113		)	(2,165		)
Net (loss) income	$	(399	)	$	3,393		$	(1,837	)	$	2,267
Less: Accrued dividend on Series B mandatorily redeemable convertible preferred stock plus an 8% non-cumulative dividend on Series A and Series C mandatorily redeemable convertible preferred stock	—			—			—			294
Net (loss) income attributable to common stockholders	$	(399	)	$	3,393		$	(1,837	)	$	1,973
Denominator:
Weighted average number of common shares outstanding – basic	24,895			23,411			25,151			20,641
Weighted average number of common shares outstanding – diluted	25,243			25,838			25,570			23,006
Net (loss) income per share – basic
Continuing operations	$	(0.05	)	$	0.18		$	—		$	0.20
Discontinued operations	0.03			(0.04		)	(0.08		)	(0.10		)
Net (loss) income per share attributable to common stockholders	$	(0.02	)	$	0.14		$	(0.08	)	$	0.10
Net (loss) income per share – diluted
Continuing operations	$	(0.05	)	$	0.17		$	—		$	0.19
Discontinued operations	0.03			(0.04		)	(0.08		)	(0.10		)
Net (loss) income per share attributable to common stockholders	$	(0.02	)	$	0.13		$	(0.08	)	$	0.09

For the three and six months ended June 30, 2012 and 2011, the following securities were not included in the calculation of fully diluted shares outstanding, as the effect would have been anti-dilutive (in thousands):

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2012	2011	2012	2011
Weighted average common stock warrants	17	—	17	3
Weighted average outstanding unexercised options and RSUs	4,522	118	4,208	79
Weighted average mandatorily redeemable convertible preferred stock	—	—	—	1,961
Total weighted average anti-dilutive shares	4,539	118	4,225	2,043

4. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (the “exit price”) in an orderly transaction between market participants at the measurement date. A three-level hierarchy is applied to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy prioritizes the inputs into three broad levels:

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 – Inputs are unobservable inputs based on the Company’s assumptions.

The following table represents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011 and the basis of that measurement (in thousands):

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As of June 30, 2012	Total Fair Value		Level 1		Level 2		Level 3
ASSETS
Money market funds	$	11,039	$	11,039	$	—	$	—
Short-term investments (Note 5):
Obligations of U.S. government agencies	7,376		7,376		—		—
Obligations of U.S. corporations	1,995		—		1,995		—
Obligations of Non-U.S. corporations	324		—		324		—
Total short-term investments	9,695		7,376		2,319		—
TOTAL FINANCIAL ASSETS	$	20,734	$	18,415	$	2,319	$	—

As of December 31, 2011	Total Fair Value		Level 1		Level 2		Level 3
ASSETS
Money market funds	$	10,035	$	10,035	$	—	$	—
Agency bonds	275		—		275		—
Short-term investments (Note 5):
Obligations of U.S. government agencies	6,219		6,219		—		—
Obligations of U.S. corporations	2,630		—		2,630		—
Obligations of Non-U.S. corporations	1,048		—		1,048		—
Total short-term investments	9,897		6,219		3,678		—
TOTAL FINANCIAL ASSETS	$	20,207	$	16,254	$	3,953	$	—

The Company’s financial instruments, including cash equivalents, accounts receivable and accounts payable, are carried at cost, which approximates fair value due to the short-term nature of those instruments.

Money market funds are considered Level 1 investments under the GAAP fair value hierarchy because fair value inputs are unadjusted quoted prices in active markets for identical assets or liabilities. As of March 31, 2012, obligations of U.S. government agencies are also considered Level 1 investments. The remainder of the Company’s short-term investments are considered Level 2 investments under the GAAP fair value hierarchy because the fair value inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

During the quarters ended June 30, 2012 and December 31, 2011, there were no transfers between Level 1 and Level 2 fair value instruments.

5. Short-Term Investments

Marketable securities are classified as available-for-sale. These securities are reported at fair value with any changes in market value reported as a part of comprehensive income. Premiums (discounts) are amortized (accreted) to interest income over the life of the investment. Marketable securities are classified as short-term investments if the remaining maturity from the date of purchase is in excess of 90 days.

The Company determines the fair value amounts by using available market information. As of June 30, 2012 and December 31, 2011, the average contractual maturity was less than one year and the contractual maturity of any single investment did not exceed 12 months.

As of June 30, 2012 and December 31, 2011, unrealized gains and losses on available-for-sale securities are summarized as follows (in thousands):

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June 30, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash, Cash Equivalents and Available-for-Sale Securities
Obligations of U.S. government agencies	$	7,379	$	—	$	(3	)	$	7,376
Obligations of U.S. corporations	1,995		—		—			1,995
Obligations of Non-U.S. corporations	324		—		—			324
Money market funds	11,039		—		—			11,039
Cash	61,198		—		—			61,198
	$	81,935	$	—	$	(3	)	$	81,932
Amounts included in cash and cash equivalents	$	72,237	$	—	$	—		$	72,237
Amounts included in short-term investments	9,698		—		(3		)	9,695
	$	81,935	$	—	$	(3	)	$	81,932

December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash, Cash Equivalents and Available-for-Sale Securities
Obligations of U.S. government agencies	$	6,219	$	1	$	(1	)	$	6,219
Obligations of U.S. corporations	2,633		—		(3		)	2,630
Obligations of Non-U.S. corporations	1,048		—		—			1,048
Agency bonds	275		—		—			275
Money market funds	10,035		—		—			10,035
Cash	65,016		—		—			65,016
	$	85,226	$	1	$	(4	)	$	85,223
Amounts included in cash and cash equivalents	$	75,326	$	—	$	—		$	75,326
Amounts included in short-term investments	9,900		1		(4		)	9,897
	$	85,226	$	1	$	(4	)	$	85,223

As of June 30, 2012 and December 31, 2011, the Company’s cash equivalents were primarily in the form of money market funds, and the Company had no significant unrealized gains or losses on any of these investments. Cash equivalents were $11.0 million and $10.3 million as of June 30, 2012 and December 31, 2011, respectively.

6. Acquisitions and Dispositions

Caretools, Inc. In connection with the acquisition of Caretools, Inc. on June 23, 2009, the Company recorded contingent consideration of $1.3 million on the acquisition date. This contingent consideration was based on an estimate of revenues to be generated from sales of products developed incorporating Caretools’ technology.

As a result of the Company’s decision to pursue strategic alternatives for the EHR business, the Company recorded an impairment charge to write down the carrying value of the contingent consideration liability associated with the EHR business to an estimated fair value of zero during the fourth quarter of 2011. The change in the fair value of the contingent consideration was primarily due to revised estimates of revenues to be derived from the acquired technologies of Caretools, Inc. As of December 31, 2011, the fair value of the contingent consideration liability was zero due to forecasted revenues of zero for the EHR business.

In June 2012, we sold certain assets related to the EHR iPad application to a third party pursuant to a purchase agreement that was not material to our consolidated financial statements. The consideration received from the sale of the EHR iPad application together with all other miscellaneous wind-down costs resulted in a net gain of approximately $0.9 million for the three months ended June 30, 2012 and a net loss of approximately $2.1 million for the six months ended June 30, 2012. The results of operations for the EHR business are recorded in gain (loss) from discontinued operations, net of tax, in the condensed consolidated statements of comprehensive (loss) income for the three and six months ended June 30, 2012 and 2011. The results of the EHR business for the three months ended June 30, 2012 reflected $0.7 million of expenses primarily related to payroll and severance costs for EHR employees and a tax benefit of $0.1 million. Prior period amounts have been revised to conform to the current period presentation.

The Company's condensed consolidated statements of comprehensive (loss) income for the six months ended June 30, 2012 have

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been revised from its earnings release on Form 8-K as filed on August 7, 2012 to correct the inclusion of approximately $0.2 million of research and development expenses for EHR employees in continuing operations for the three months ended March 31, 2012. The Company has reclassified such expenses to gain (loss) from discontinued operations for the six months ended June 30, 2012.

MedCafe Inc. In connection with the acquisition of MedCafe on February 1, 2010, the Company recorded contingent consideration of $14.8 million on the acquisition date. This contingent consideration was based on an estimate of revenues to be generated from sales of products developed incorporating MedCafe technology. In 2011, the Company recorded a decrease in the contingent consideration liability resulting in a gain of approximately $5.9 million for the year ended December 31, 2011. The change in the fair value of the contingent consideration was primarily due to an agreement with the sellers in the second quarter of 2011 to settle the liability for $6.4 million.

7. Intangible Assets

Intangible assets excluding goodwill consisted of the following (in thousands):

	June 30, 2012						December 31, 2011
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Impairment		Net Carrying Amount
Technology	$	11,332	$	6,891	$	4,441	$	11,780	$	5,015	$	448	$	6,317
Client relationships	34		34		—		60		34		26		—
Trademarks and trade name	41		41		—		50		31		9		10
Non-compete agreement	867		546		321		870		423		3		444
	$	12,274	$	7,512	$	4,762	$	12,760	$	5,503	$	486	$	6,771

Amortization of intangible assets was $1.0 million for both the three months ended June 30, 2012 and 2011, respectively, and was $2.0 million and $2.1 million for the six months ended June 30, 2012 and 2011, respectively. Amortization of the acquired intangible assets is reflected in cost of revenues. Amortization for the years ending December 31, 2012 and 2013 is expected to be approximately $4.0 million and $2.8 million, respectively.

8. Income Taxes

For the three months ended June 30, 2012, the Company recorded an income tax benefit of approximately $0.3 million, of which $0.2 million was allocated to continuing operations, with the balance of $0.1 million allocated to discontinued operations. For the three months ended June 30, 2011, the Company recorded an income tax provision of $2.5 million, which was comprised of a tax provision of approximately $3.0 million allocated to continuing operations and a tax benefit of $0.5 million allocated to discontinued operations. The income tax benefit during the three months ended June 30, 2012 represented the federal and state statutory rates adjusted for non-deductible stock compensation expense. The income tax provision during the three months ended June 30, 2011 reflects the federal and state statutory tax rates adjusted for non-deductible stock compensation expense partially offset by research and development credits.

For the six months ended June 30, 2012, the Company recorded an income tax benefit of approximately $1.1 million, of which $0.3 million was allocated to continuing operations, with the balance of $0.8 million allocated to discontinued operations. For the six months ended June 30, 2011, the Company recorded an income tax provision of approximately $1.7 million, which was comprised of a tax provision of approximately $3.2 million allocated to continuing operations and a tax benefit of $1.5 million allocated to discontinued operations. The income tax benefit recorded during the six months ended June 30, 2012 represented the federal and state statutory rates adjusted for non-deductible stock compensation expense. The income tax provision recorded during the six months ended June 30, 2011 reflected the federal and state statutory tax rates adjusted for non-deductible stock compensation expense partially offset by research and development credits.

As of June 30, 2012, the amount of interest and penalties associated with the unrecognized tax benefits were insignificant.  The Company does not expect any significant increases or decreases to its unrecognized tax benefits in the next 12 months.

9. Commitments and Contingencies

Legal Matters

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From time to time, the Company may be involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employment and other matters, which arise in the ordinary course of business. In accordance with GAAP, the Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Litigation is inherently unpredictable. If any unfavorable ruling were to occur in any specific period or if a loss becomes probable and estimable, there exists the possibility of a material adverse impact on the Company’s results of operations, balance sheet or cash flows.

Indemnification

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to the agreements, each party may indemnify, defend and hold the other party harmless with respect to such claim, suit or proceeding brought against it by a third party alleging that the indemnifying party’s intellectual property infringes upon the intellectual property of the third party, or results from a breach of the indemnifying party’s representations and warranties or covenants, or that results from any acts of negligence or willful misconduct. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. Historically, the Company has not been obligated to make significant payments for these obligations and no liabilities have been recorded for these obligations on the condensed consolidated balance sheets as of June 30, 2012 or December 31, 2011.

The Company also indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer is or was serving at the Company’s request in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company has a Director and Officer Insurance Policy that limits its exposure and enables the Company to recover a portion of any future amounts paid. Historically, the Company has not been obligated to make any payments for these obligations and no liabilities have been recorded for these obligations on the condensed consolidated balance sheets as of June 30, 2012 or December 31, 2011.

Contractual Obligations

The Company's contractual cash obligations and commercial commitments as of June 30, 2012 and the effects such obligations and commitments are expected to have on the Company's liquidity and cash flows in future periods have not changed significantly since December 31, 2011.

10. Equity Award Plans and Stock-Based Compensation

In August 1999, the Company’s Board of Directors adopted and the stockholders approved, the 1999 Stock Option Plan (“1999 Plan”). In May 2009, the Board of Directors adopted and the stockholders approved, an amendment and restatement of the 1999 Plan, the 2008 Equity Incentive Plan (“2008 Plan”). In July 2010, the Company’s Board of Directors adopted the 2010 Equity Incentive Plan (“2010 Plan,” and together with the 1999 Plan and the 2008 Plan, the “Plans”). The 2010 Plan was most recently amended by the Board of Directors on December 22, 2010 and was approved by the Company’s stockholders on January 5, 2011. The 2010 Plan became effective upon the completion of the IPO. Awards granted after May 2009 but before the completion of the IPO continue to be governed by the 2008 Plan. All outstanding stock awards granted prior to May 2009 continue to be governed by the terms of the Company’s 1999 Plan.

The 2010 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, RSU awards, performance stock awards and other stock awards. In addition, the 2010 Plan provides for the grant of performance cash awards. The Company may issue incentive stock options (“ISOs”) only to its employees. Non-qualified stock options (“NQSOs”) and all other awards may be granted to employees, directors and consultants. ISOs and NQSOs are granted to employees with an exercise price equal to the market price of the Company’s common stock at the date of grant, as determined by the Company’s Board of Directors. Stock options granted to employees generally have a contractual term of 10 years and vest over five years of continuous service, with 25% of the stock options vesting on the one-year anniversary of the date of grant and the remaining 75% vesting in equal monthly installments over the 48-month period thereafter.

The number of shares of the Company’s common stock reserved for issuance under the 2010 Plan will automatically be increased annually on January 1^st of each year, starting on January 1, 2012 and continuing through January 1, 2014, by the lesser of (a) 4% of the total number of shares of common stock outstanding on the last day of the preceding calendar year, (b) 1,965,000 shares of common stock or (c) a number determined by the Company’s Board of Directors that is less than (a) or (b).

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	Options Outstanding
	Number of Options		Weighted Average Exercise Price		Weighted Average Contractual Term (Years)	Aggregate Intrinsic Value
Balances, January 1, 2012	4,684		$	10.85	5.32	$	4,318
Granted	1,657		—
Forfeited, cancelled or expired	(1,052	)	—
Exercised	(361	)	—
Balances, June 30, 2012	4,928		$	10.51	6.50	$	2,569
Options vested and expected to vest at June 30, 2012	4,417		$	10.62	6.15	$	2,557
Options exercisable at June 30, 2012	2,800		$	10.83	4.40	$	2,504

	Number of RSUs Outstanding		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Balances at January 1, 2012	137		1.74	$	1,072
Awarded	161
Released	(30	)
Forfeited or cancelled	(36	)
Balances at June 30, 2012	232		2.36	$	1,859
RSUs vested and expected to vest at June 30, 2012	161		2.27	$	1,293

The following table summarizes all stock-based compensation charges for the three and six months ended June 30, 2012 and 2011 (in thousands):

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2012		2011			2012		2011
Stock-based compensation expense	$	1,235	$	1,641		$	2,684	$	3,936
Stock-based compensation associated with outstanding repriced options	16		(118		)	36		394
Total stock-based compensation	$	1,251	$	1,523		$	2,720	$	4,330

Stock-based compensation expense for the six months ended June 30, 2011 includes a charge of approximately $0.5 million relating to modification of the terms of the stock options held by certain directors who resigned from the Board of Directors during the three months ended March 31, 2011.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options and RSUs. This model requires the input of highly subjective assumptions including the expected term of the stock option, expected stock price volatility and expected forfeitures. The Company used the following assumptions:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Dividend yield	—			—			—			—
Expected volatility	57		%	51		%	57		%	51		%
Risk-free interest rate	0.72%-0.86%			1.87		%	0.72%-1.09%			1.87%-2.14%
Expected life of options (in years)	4.5			5.0			4.5			4.75-5.0
Weighted-average grant date fair value	$	3.66		$	9.47		$	4.14		$	9.18

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11. Related Party Transactions

The Company recorded revenue from two advertising agencies (on behalf of their clients) whose parent company's Chief Executive Officer is a member of the Company's Board of Directors. The Company recorded revenue from these entities of approximately $0.4 million and $1.1 million for the three months ended June 30, 2012 and 2011, respectively, and $1.2 million and $2.2 million for the six months ended June 30, 2012 and 2011, respectively. There were accounts receivable from these entities of approximately $0.8 million and $1.0 million as of June 30, 2012 and December 31, 2011, respectively.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2011, or fiscal year 2011, included in our Annual Report on Form 10-K for fiscal year 2011, or 2011 Annual Report on Form 10-K. References to “Epocrates,” “we,” “our” and “us” are to Epocrates, Inc. unless otherwise specified or the context otherwise requires.

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are 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. Terminology such as “believe,” “may,” “might,” “objective,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “potential” or the negative of these terms or other similar expressions is intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified in “Part II — Item 1A. Risk Factors” below, and those discussed in the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as filed with the Securities and Exchange Commission, or SEC, on March 19, 2012. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Business Overview

Epocrates is a leading physician platform for essential clinical content, practice tools and health industry engagement at the point of care. The Epocrates network consists of more than one million healthcare professionals, including 50% of U.S. physicians, who routinely use its solutions and services. Epocrates’ portfolio includes top-ranked medical applications, such as the industry’s #1 medical application among U.S. physicians, which provides convenient, point-of-care access to information such as dosing, drug interactions, pricing and insurance coverage for thousands of brand, generic and over-the-counter drugs. The features available through our unique physician platform are often referenced multiple times per day and help healthcare professionals make more informed prescribing decisions, improve workflow and enhance patient safety. We offer our products on major U.S. mobile platforms including Apple, Android and BlackBerry.

We generate revenue by providing clients in the healthcare industry (e.g., pharmaceutical companies, managed care companies and market research firms) with interactive services to engage with our network of users and through the sale of subscriptions to our premium drug and clinical reference tools to healthcare professionals. Our client base is located almost entirely within the U.S. For the three months and six months ended June 30, 2012, one client accounted for more than 10% of total revenues. For the three and six months ended June 30, 2011, no single client accounted for more than 10% of total revenues. There were two clients that accounted for more than 10% of accounts receivable, net, one of which accounted for 15% of accounts receivable, net as of June 30, 2012. One client accounted for 15% of accounts receivable, net as of December 31, 2011.

Recent Developments

As previously reported, the Audit Committee of the Board of Directors of Epocrates, as authorized by the Board of Directors, approved the discontinuation of Epocrates’ Electronic Health Record, or EHR, business in early 2012. In connection with this

15

decision, Epocrates recorded an impairment charge of approximately $8.5 million in its fourth fiscal quarter of 2011, which represents the write-down of the carrying value of the goodwill, intangible and other long-lived assets related to the EHR product to their estimated fair value of zero. This charge was recorded in Impairment of Long-lived Assets and Goodwill in our consolidated statements of operations for the year ended December 31, 2011.

Upon the Audit Committee's approval, we met the requirements for reporting the EHR segment as discontinued operations for the three months ended March 31, 2012, and the results of this segment are now recorded in gain (loss) from discontinued operations, net of tax on our condensed consolidated statements of comprehensive (loss) income. Prior period results have been revised to conform to the current period presentation.

In June 2012, we sold certain assets related to the EHR iPad application to a third party pursuant to a purchase agreement that was not material to our consolidated financial statements. The consideration received from the sale of the EHR iPad application together with all other miscellaneous wind-down costs resulted in a net gain of approximately $0.9 million for the three months ended June 30, 2012 and a net loss of approximately $2.1 million for the six months ended June 30, 2012.

The Company's condensed consolidated statements of comprehensive (loss) income for the six months ended June 30, 2012 have been revised from its earnings release on Form 8-K as filed on August 7, 2012 to correct the inclusion of approximately $0.2 million of research and development expenses for EHR employees in continuing operations for the three months ended March 31, 2012. The Company has reclassified such expenses to gain (loss) from discontinued operations for the six months ended June 30, 2012.

Highlights

• For the three months ended June 30, 2012, we recorded total revenues of $26.8 million, a decrease of $1.0 million, or 4%, from the three months ended June 30, 2011. For the six months ended June 30, 2012, we recorded total revenues of $54.4 million, a decrease of $2.7 million, or 5%, from the six months ended June 30, 2011. For both periods, the decrease was primarily due to an unusually high number of unused license code expirations for which we recognized revenue in the six months ended June 30, 2012.

• Net loss was $0.4 million for the three months ended June 30, 2012 versus net income of $3.4 million for the three months ended June 30, 2011. Net loss was $1.8 million for the six months ended June 30, 2012 versus net income of $2.3 million for the six months ended June 30, 2011. The net losses for both the three and six months ended June 30, 2012 were impacted by the gain on settlement and change in fair value of contingent consideration in the six months ended June 30, 2011 combined with decreased revenue and increased cost of revenue in the six months ended June 30, 2012.

• Net loss per share was $0.02 for the three months ended June 30, 2012 compared to net income per diluted share of $0.13 for the three months ended June 30, 2011. Net loss per share was $0.08 for the six months ended June 30, 2012 compared to net income per diluted share of $0.09 for the six months ended June 30, 2011.

• Loss from continuing operations was $1.3 million for the three months ended June 30, 2012 versus income from continuing operations of $4.2 million for the three months ended June 30, 2011, with such decrease primarily attributable to a $6.4 million gain on settlement of contingent consideration recognized in the three months ended June 30, 2011. Income from continuing operations was $0.3 million for the six months ended June 30, 2012 versus income from continuing operations of $4.4 million for the six months ended June 30, 2011.

• Loss from continuing operations per share was $0.05 for the three months ended June 30, 2012 compared to income from continuing operations of $0.17 per diluted share for the three months ended June 30, 2011. Income from continuing operations per diluted share was less than $0.01 per share for the six months ended June 30, 2012 compared to income from continuing operations of $0.19 per diluted share for the six months ended June 30, 2011.

• Earnings before interest, taxes, non-cash and other items ("adjusted EBITDA"), as defined in the GAAP to non-GAAP reconciliation provided in "Non-GAAP Financial Measures," was $2.2 million for the three months ended June 30, 2012 compared to adjusted EBITDA of $5.3 million for the three months ended June 30, 2011. For the six months ended June 30, 2012, adjusted EBITDA was $7.1 million compared to $11.7 million for the six months ended June 30, 2011. The decrease in adjusted EBITDA for the three and six months ended June 30, 2012 was primarily attributable to decreased revenue coupled with an increase in cost of revenue compared to the three and six months ended June 30, 2011.

• Total cash, cash equivalents and short-term investments declined by 4% to $81.9 million at June 30, 2012 compared to $85.2 million at December 31, 2011.

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Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the U.S., or GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. Our critical accounting policies are those that affect our historical financial statements materially and involve difficult, subjective or complex judgments by management.

There have been no significant changes in our critical accounting policies during the quarter ended June 30, 2012 compared to those previously disclosed in “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2011 Annual Report on Form 10-K.

Results of Operations

The following table summarizes our results of operations for the three and six months ended June 30, 2012 compared to the three and six months ended June 30, 2011 (in thousands): 

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Total revenues, net	$	26,824		$	27,860		$	54,355		$	57,037
Total cost of revenues	10,949			9,768			21,236			19,158
Gross profit	15,875			18,092			33,119			37,879
Operating expenses:
Sales and marketing	6,711			6,482			12,793			13,602
Research and development	5,364			5,055			10,128			10,075
General and administrative	5,234			5,908			10,220			12,165
Facilities exit costs	—			58			—			618
Gain on settlement and change in fair value of contingent consideration	—			(6,439		)	—			(5,933		)
Total operating expenses	17,309			11,064			33,141			30,527
(Loss) income from operations	(1,434		)	7,028			(22		)	7,352
Interest income	5			23			11			51
Other (expense) income, net	(2		)	177			(1		)	179
(Loss) income before income taxes	(1,431		)	7,228			(12		)	7,582
Benefit from (provision for) income taxes	147			(2,998		)	288			(3,150		)
(Loss) income from continuing operations	(1,284		)	4,230			276			4,432
Gain (loss) from discontinued operations, net of tax	885			(837		)	(2,113		)	(2,165		)
Net (loss) income	$	(399	)	$	3,393		$	(1,837	)	$	2,267

In 2011, we had two reportable segments: Subscriptions and Interactive Services and EHR. On February 24, 2012, the Audit Committee of our Board of Directors, as authorized by the Board of Directors, approved the discontinuation of Epocrates’ EHR product. In the first quarter of 2012, we qualified for discontinued operations presentation under GAAP, and at such time, the EHR operating segment results were reported in loss from discontinued operations on our condensed consolidated statements of comprehensive (loss) income. Prior period amounts have been revised in order to conform to the current period presentation.

Revenues

We generate revenue by providing healthcare companies with interactive services to engage with our network of users and through the sale of subscriptions to our premium drug and clinical reference tools to healthcare professionals. Revenues from Subscriptions and Interactive Services were as follows (in thousands):

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	Three Months Ended June 30,				Six Months Ended  June 30,
	2012		2011		2012		2011
Subscriptions	$	4,751	$	6,094	$	9,427	$	12,303
Interactive Services	22,073		21,766		44,928		44,734
	$	26,824	$	27,860	$	54,355	$	57,037

Subscriptions. Subscriptions revenue decreased $1.3 million for the three months ended June 30, 2012 and $2.9 million for the six months ended June 30, 2012. The decrease in subscriptions revenue for both the three and six months ended June 30, 2012 is primarily attributable to the unusually high number of unused license code expirations for which we recognized revenue in the first half of 2011. The difference in unused license code expirations contributed to $1.0 million of the decrease in subscriptions revenue for the three months ended June 30, 2012 and $2.1 million of the decrease for the six months ended June 30, 2012. The decline in subscriptions revenue was additionally impacted by a decrease of approximately $0.2 million in the three months ended June 30, 2012 and approximately $0.4 million in the six months ended June 30, 2012 in iTunes App Store sales, as we decreased our offering of Modality applications from the prior year. We expect the percentage of users who pay for a subscription to remain unchanged or even decrease over time. As a result, we expect subscription revenue from our premium products to decrease in total and as a percentage of revenue in the future.

Interactive Services.  Interactive services revenue increased $0.3 million for the three months ended June 30, 2012 and $0.2 million for the six months ended June 30, 2012. The $0.3 million increase in interactive services revenue in the three months ended June 30, 2012 compared to the three months ended June 30, 2011 was due to a $0.7 million increase in market research services, which was partially offset by a $0.3 million decrease in pharmaceutical revenues. The $0.2 million increase in interactive services revenue for the six months ended June 30, 2012 is the result of a $1.1 million increase in market research services, which was partially offset by a $0.5 million decrease in pharmaceutical revenues and a $0.4 million decrease in formulary hosting revenues. The $0.5 million decrease in pharmaceutical revenues is largely attributable to a $0.6 million decline in EssentialPoints revenue as a result of a reduced number of running activities in the year-to-date.

Cost of revenues

Cost of revenues consists of the costs related to providing services to clients which include salaries and related personnel expenses, stock-based compensation, service support costs, payments to participants for market research surveys we conduct for our clients, third-party royalties and allocated overhead. Third-party royalties consist of fees paid to branded content owners for the use of their intellectual property in our premium drug and reference products. Allocated overhead represents expenses such as rent, occupancy charges and information technology costs that we allocate to all departments based on headcount. We also allocate depreciation and amortization expense to cost of revenues.

The following is a breakdown of cost of revenues related to subscriptions and interactive services for the three and six months ended June 30, 2012 and 2011 (in thousands):

	Three Months Ended June 30,				Six Months Ended  June 30,
	2012		2011		2012		2011
Subscriptions	$	1,749	$	1,800	$	3,698	$	3,843
Interactive Services	9,200		7,968		17,538		15,315
	$	10,949	$	9,768	$	21,236	$	19,158

Subscriptions. Cost of subscriptions revenue decreased by $0.1 million for both the three and six months ended June 30, 2012 versus the same periods in 2011. As a percentage of subscriptions revenue, cost of subscriptions revenue was 37% for the three months ended June 30, 2012 versus 30% for the three months ended June 30, 2011. Cost of subscriptions revenue was 39% for the six months ended June 30, 2012 versus 31% for the six months ended June 30, 2011. These increases in cost of subscriptions revenue as a percentage of subscriptions revenue is due to the decline in subscriptions revenue from the same period in the prior year as a result of the recognition of revenue on an unusually high number of expired license codes during the first half of 2011.

Interactive Services. Cost of interactive services revenue increased approximately $1.2 million for the three months ended June 30, 2012 compared to the same period in 2011, primarily due to increases of $0.5 million in honoraria expenses as a result of higher market research activity in the second quarter of 2012, $0.3 million in increased co-location employee-related expenses as a result of hiring new employees and $0.3 million in fulfillment and partner fees associated with our mSampling and DocAlert

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product offerings.

Cost of interactive services revenue increased approximately $2.2 million for the six months ended June 30, 2012 compared to the same period in 2011, primarily due to increases of $0.7 million in honoraria expenses as a result of higher market research activity in the first half of 2012, $0.7 million in fulfillment and partner fees associated with our mSampling and DocAlert product offerings and $0.7 million in increased co-location employee-related expenses as a result of hiring new employees.

Cost of interactive services revenue as a percentage of interactive services revenue was 42% for the three months ended June 30, 2012, 37% for the three months ended June 30, 2011, 39% for the six months ended June 30, 2012 and 34% for the six months ended June 30, 2011.

Sales and marketing expense

Sales and marketing expense primarily consists of salaries and related personnel expenses, sales commissions, stock-based compensation, trade show expenses, promotional expenses, public relations expenses and allocated overhead.

Sales and marketing expense increased approximately $0.2 million, or 4%, for the three months ended June 30, 2012 versus the same period in 2011. This increase was due to a $0.4 million increase in salaries expense as a result of several positions being filled in the three months ended June 30, 2012; this increase was partially offset by a $0.2 million decrease in sales commissions as a result of a revised commission plan for 2012. Sales and marketing expense decreased approximately $0.8 million, or 6%, for the six months ended June 30, 2012 versus the same period in 2011. This decrease was primarily due to a $0.9 million reduction in sales commissions as a result of a revised commission plan for 2012.

Sales and marketing expense as a percentage of total revenues increased from 23% for the three months ended June 30, 2011 to 25% for the three months ended June 30, 2012. Sales and marketing expense as a percentage of total revenues was 24% both the six months ended June 30, 2012 and 2011.

Research and development expense

Research and development expense primarily consists of salaries and related personnel expenses, stock-based compensation, allocated overhead, consultant fees and expenses related to the design, development, testing and enhancements of our services.

Research and development expense increased approximately $0.3 million, or 6%, for the three months ended June 30, 2012 compared to the three months ended June 30, 2011. This increase was primarily due to a $0.4 million increase in consulting fees. As a percentage of total revenues, research and development expense was 20% for the three months ended June 30, 2012 and 18% for the three months ended June 30, 2011.

Research and development expense increased approximately $0.1 million, or 1%, for the six months ended June 30, 2012 compared to the six months ended June 30, 2011. As a percentage of total revenues, research and development expense was 19% for the six months ended June 30, 2012 and was 18% for the six months ended June 30, 2011.

General and administrative expense

General and administrative expense primarily consists of salaries and related personnel expenses, stock-based compensation, consulting, audit fees, legal fees, allocated overhead and other general corporate expenses.

General and administrative expense decreased $0.7 million, or 11%, for the three months ended June 30, 2012 compared to the three months ended June 30, 2011. This decrease was primarily due to a $0.9 million decrease in legal fees, as the three months ended June 30, 2011 included legal fees associated with the SEC subpoena, which was partially offset by a $0.3 million increase in professional fees necessary to comply with the financial statement and internal controls audit requirements for public companies. General and administrative expense as a percentage of total revenues was 20% for the three months ended June 30, 2012 and was 21% for the three months ended June 30, 2011.

General and administrative expense decreased $1.9 million, or 16%, for the six months ended June 30, 2012 compared to the six months ended June 30, 2011. This decrease was primarily due to decreases of $0.9 million in legal fees, $0.7 million in stock-based compensation expense and $0.3 million in recruiting expenses. We incurred significant legal and other professional fees during the six months ended June 30, 2011 to support our compliance with the subpoena received in connection with an SEC investigation. The $0.7 million decrease in stock-based compensation was primarily due to additional stock-based compensation expense of $0.5 million in the six months ended June 30, 2011 that was recorded in connection with the modification of the terms

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of the stock options held by certain directors who resigned from the Board of Directors during the first quarter of 2011. General and administrative expense as a percentage of total revenues was 19% for the six months ended June 30, 2012 and was 21% for the six months ended June 30, 2011.

Facilities exit costs

We recorded a charge of approximately $0.6 million in the six months ended June 30, 2011 relating to facilities exit costs. We vacated our East Windsor, New Jersey office in the first quarter of 2011 and relocated our New Jersey operations to Ewing, New Jersey. We had signed a non-cancellable lease with the landlord which does not expire until the end of fiscal 2012 and therefore we will be liable to make monthly lease rentals under the contract. The liability recorded at fair value is based on the present value of the remaining lease rentals and is reduced for the estimated sub-lease rentals that could be reasonably obtained for the property.

Gain on settlement and change in fair value of contingent consideration

For the three months ended June 30, 2011, gain on settlement and change in fair value of contingent consideration reflects a gain of approximately $6.4 million as a result of an agreement we entered into with the sellers of MedCafe, Inc. to settle the earn-out consideration liability for a lump sum payment of $6.4 million.

For the six months ended June 30, 2011, gain on settlement and change in fair value of contingent consideration reflects a $6.4 million gain on settlement as a result of an agreement entered into with the sellers of MedCafe, Inc. during June 2011 offset by an increase in contingent consideration expense of $0.5 million related to revaluing the contingent consideration liability to its fair value as of March 31, 2011.

Benefit from (provision for) income taxes

For the three months ended June 30, 2012, we recorded an income tax benefit of approximately $0.3 million, of which $0.2 million was allocated to continuing operations, with the balance of $0.1 million allocated to discontinued operations. For the three months ended June 30, 2011, we recorded an income tax provision of $2.5 million, which was comprised of a tax provision of approximately $3.0 million allocated to continuing operations and a tax benefit of $0.5 million allocated to discontinued operations. The income tax benefit during the three months ended June 30, 2012 represented the federal and state statutory rates adjusted for non-deductible stock compensation expense. The income tax provision during the three months ended June 30, 2011 represented the federal and state statutory tax rates adjusted for non-deductible stock compensation expense partially offset by research and development credits.

For the six months ended June 30, 2012, we recorded an income tax benefit of approximately $1.1 million, of which $0.3 million was allocated to continuing operations, with the balance of $0.8 million allocated to discontinued operations. For the six months ended June 30, 2011, we recorded an income tax provision of $1.7 million, which was comprised of a tax provision of approximately $3.2 million allocated to continuing operations and a tax benefit of $1.5 million allocated to discontinued operations. The income tax benefit during the six months ended June 30, 2012 represented the federal and state statutory rates adjusted for non-deductible stock compensation expense. The income tax provision during the six months ended June 30, 2011 represented the federal and state statutory tax rates adjusted for non-deductible stock compensation expense partially offset by research and development credits.

At June 30, 2012, our estimated annual effective tax rate was approximately 27% versus an estimated annual effective tax rate of 42% at June 30, 2011. The difference in the effective tax rate year over year is primarily due to changes in management's projections of estimated annual income or loss. We determine our interim tax benefit from (provision for) income taxes using an estimated annual effective tax rate methodology. Our annual effective tax rate is affected by our forecasted net income, research tax credits, stock compensation expense related to incentive stock options, or ISOs, and the expected level of other tax benefits. Our annual effective tax rate is difficult to predict because it will be impacted by any disqualifying dispositions of ISOs by our employees. Disqualifying dispositions occur when an employee sells stock that was acquired through the exercise of an ISO within two years of the ISO grant date or one year of the ISO exercise date. Our estimated annual effective tax rate could materially change if there are a significant number of disqualifying dispositions of ISOs during the period.

Non-GAAP Financial Measures

Adjusted EBITDA is an unaudited number and represents net income before income and expenses unrelated to core business activities, such as: interest income, other income, net and (benefit from) provision for income taxes; non-recurring income and expenses, such as change in fair value of contingent consideration; and non-cash charges, such as depreciation and amortization expense (including intangible assets) related to the core business, stock-based compensation and other expenses.

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Adjusted EBITDA is not a measure of operating performance or liquidity calculated in accordance with GAAP and should be viewed as a supplement to, and not a substitute for, our results of operations presented on a GAAP basis. Adjusted EBITDA does not purport to represent cash flow provided by, or used in, operating activities as defined by GAAP. Our consolidated statements of cash flows present our cash flow activity in accordance with GAAP. Furthermore, adjusted EBITDA is not necessarily comparable to similarly-titled measures reported by other companies.

We believe adjusted EBITDA is used by and is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. We believe that:

• EBITDA is widely used by investors to measure a company’s operating performance without regard to such items as interest income or expense, taxes, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired; and

• investors commonly adjust EBITDA information to eliminate the effect of stock-based compensation expenses and other charges, which can vary widely from company to company and impair comparability.

Our management uses adjusted EBITDA:

• as a measure of operating performance to assist in comparing performance from period to period on a consistent basis;

• as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations;

• in communications with the Board of Directors, stockholders, analysts and investors concerning our financial performance; and

• as a significant performance measurement included in our bonus plan.

The table below sets forth a reconciliation of net (loss) income to adjusted EBITDA (in thousands): 

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Net (loss) income, as reported	$	(399	)	$	3,393		$	(1,837	)	$	2,267
Gain (loss) from discontinued operations, net of tax	885			(837		)	(2,113		)	(2,165		)
(Loss) income from continuing operations	$	(1,284	)	$	4,230		$	276		$	4,432
Add: (Income) expenses unrelated to core business activities
Interest income	(5		)	(23		)	(11		)	(51		)
(Benefit from) provision for income taxes	(147		)	2,998			(288		)	3,150
Add: Non-recurring and non-cash charges (income)
Depreciation and amortization expense (including intangible assets) related to core business	1,991			1,992			3,963			4,009
Stock-based compensation	1,188			1,523			2,646			4,330
Gain on settlement and change in fair value of contingent consideration (1)	—			(6,439		)	—			(5,933		)
Other (2)	476			1,042			476			1,714
Adjusted EBITDA	$	2,219		$	5,323		$	7,062		$	11,651

⁽¹⁾   Includes a $6.4 million gain recognized in the second quarter of 2011 related to the settlement of the contingent consideration liability with the sellers of MedCafe, Inc., a company we acquired in 2010.

⁽²⁾  Represents employee severance charges and retention bonuses for the three and six months ended June 30, 2012. For the three months ended June 30, 2011, includes approximately $1.0 million in secondary filing fees, $0.6 million in legal expenses associated with the SEC subpoena, $0.2 million from a refund of property tax and $0.2 million in employee severance charges. The six months ended June 30, 2011 includes the non-recurring items charges listed for the three months ended June 30, 2011, $0.6 million in facilities exit costs and an additional $0.1 million in legal expenses associated with the SEC subpoena.

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Note: prior period amounts have been revised to conform to the current period presentation.

The decrease in adjusted EBITDA for the three and six months ended June 30, 2012 was primarily attributable to decreased revenue coupled with an increase in cost of revenue compared to the same periods in 2011.

Liquidity and Capital Resources

Our principal sources of liquidity as of June 30, 2012 consisted of cash, cash equivalents and short-term investments of $81.9 million compared to $85.2 million at December 31, 2011. We believe that our available cash resources and anticipated future cash flow from operations will provide sufficient cash resources to meet our contractual obligations and our currently anticipated working capital and capital expenditure requirements for at least the next 12 months. Our future liquidity and capital requirements will depend upon numerous factors, including retention of clients at current volume and revenue levels, our existing and new application and service offerings, competing technological and market developments and potential future acquisitions. In addition, our ability to generate cash flow is subject to numerous factors beyond our control, including general economic, regulatory and other matters affecting our clients and us.

Operating activities

Cash used in operating activities of $2.2 million during the six months ended June 30, 2012 was primarily due to an increase of approximately $1.5 million in prepaid expenses and other assets, primarily consisting of $0.7 million in prepaid taxes, $0.3 million in prepaid software maintenance contracts and $0.3 million in prepaid insurance. Cash used in operating activities of $2.2 million for the six months ended June 30, 2012 compared with cash provided by operating activities of $4.6 million for the six months ended June 30, 2011. The $6.7 million decrease in operating cash flows for the six months ended June 30, 2012 was primarily driven by a decrease of $3.7 million in deferred revenue resulting from higher billings in the first quarter of 2011 which were a result of contracts that were signed in late 2010 and an increase of $2.2 million in prepaid expenses and other current assets.

Investing activities

Cash used in investing activities of $2.2 million during the six months ended June 30, 2012 was primarily due to $2.4 million in purchases of property and equipment. Cash used in investing activities of $2.2 million for the six months ended June 30, 2012 compared with net cash used in investing activities of $5.9 million for the comparable period in 2011. The $3.7 million decrease in cash used in investing activities is due to reduced purchases of property and equipment in the current period.

Financing activities

Cash provided by financing activities of $1.3 million during the six months ended June 30, 2012 is due to proceeds received from the exercise of common stock options. Cash provided by financing activities of $1.3 million in the six months ended June 30, 2012 compared with $28.2 million of cash provided by financing activities in the six months ended June 30, 2011. The $26.9 million decrease in cash provided by financing activities in the six months ended June 30, 2012 was primarily a result of a net cash inflow of $34.6 million in the six months ended June 30, 2011 due to $64.2 million of proceeds from the issuance of common stock under our IPO, partially offset by the payment of $29.6 million of aggregate cumulative dividends to the holders of our Series B preferred stock. The decline in cash provided by financing activities in the six months ended June 30, 2012 was additionally offset by a $6.4 million decline due to the gain on the settlement of a contingent consideration agreement with the sellers of MedCafe, Inc. during the six months ended June 30, 2011.

Contractual Obligations

Our contractual obligations at June 30, 2012 and the effects that such obligations are expected to have on future liquidity and cash flows have not changed significantly since December 31, 2011.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities. We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts.

Indemnification

See Note 9 – Commitments and Contingencies to the condensed consolidated financial statements of this quarterly report on

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Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There are no material changes in market risk from the information presented in Part II, Item 7A. “Quantitative and Qualitative Disclosures About Market Risk,” in our 2011 Annual Report on Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2012. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2012, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employment and other matters which arise in the ordinary course of business. We are not currently involved in any material legal proceedings.

Item 1A. Risk Factors

Our risk factors have not changed materially from those set forth in our 2011 Annual Report on Form 10-K filed with the SEC on March 19, 2012.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Use of Proceeds

On February 1, 2011, our registration statement on Form S-1 (File No. 333-168176) was declared effective for our IPO. As a result of our IPO and the exercise of the over-allotment option on February 3, 2011, both of which closed on February 7, 2011, we received net proceeds of approximately $62.2 million after underwriting discounts and commissions of $4.9 million. In addition, we incurred other expenses associated with our IPO of approximately $3.0 million. The net proceeds were used to pay aggregate cumulative dividends due to the holders of our Series B preferred stock totaling $29.6 million, with the balance being used for general corporate purposes.

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There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC pursuant to Rule 424(b).

Item 6. Exhibits

See the Exhibit Index which follows the signature page of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Epocrates, Inc.

By:	/s/ ANDREW HURD	By:	/s/ PATRICK D. SPANGLER
	ANDREW HURD,		PATRICK D. SPANGLER,
	President and Chief Executive Officer		Chief Financial Officer
	(Principal Executive Officer)		(Principal Financial and Accounting Officer)

Date: August 14, 2012

25

Exhibit Index

Exhibit Number	Description of Document
3.1 (1)	Amended and Restated Certificate of Incorporation dated February 7, 2011.
3.2 (2)	Amended and Restated Bylaws.
4.1 (3)	Specimen common stock certificate.
4.2 (3)	Form of Warrant to purchase Series B convertible preferred stock.
10.1 (4)	2012 Bonus Plan.
31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Taxonomy Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.

(1) Filed as Exhibit 3.1 to our Annual Report on Form 10-K (Reg. No. 001-35062) with the SEC on March 31, 2011, and incorporated herein by reference.

(2) Filed as Exhibit 3.4 to our Registration Statement on Form S-1, as amended (Reg. No. 333-168176), and incorporated herein by reference.

(3) Filed as the like-described exhibit to our Registration Statement on Form S-1, as amended (Reg. No. 333-168176), and incorporated herein by reference.

(4) As described in Item 5.02 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 27, 2012 (Reg. No. 001-35062), and incorporated herein by reference.

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Andrew Hurd, certify that:

1.             I have reviewed this Form 10-Q of Epocrates, Inc.;

2.             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.             The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)           Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.             The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 14, 2012

/s/ ANDREW HURD

Andrew Hurd

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Patrick D. Spangler, certify that:

1.             I have reviewed this Form 10-Q of Epocrates, Inc.;

2.             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.             The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)           Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.             The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 14, 2012

/s/ PATRICK D. SPANGLER

Patrick D. Spangler

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS

ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES OXLEY

ACT OF 2002

The certification set forth below is being submitted in connection with the quarterly report of Epocrates, Inc. (the "Company") on Form 10-Q for the quarter ended June 30, 2012, as filed with the Securities and Exchange Commission (the "Report") for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United States Code.

Andrew Hurd, the Chief Executive Officer of the Company, and Patrick D. Spangler, the Chief Financial Officer of the Company, each certifies that, to the best of his knowledge:

1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 14, 2012

/s/ ANDREW HURD

Name: Andrew Hurd

Chief Executive Officer

/s/ PATRICK D. SPANGLER

Name: Patrick D. Spangler

Chief Financial Officer

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	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Dividend yield	$ 0	$ 0	$ 0	$ 0
Expected Volatility	57.00%	51.00%	57.00%	51.00%
Risk-free interest rate, maximum	0.86%	1.87%	1.09%	2.14%
Risk free interest rate, minimum	0.72%		0.72%	1.87%
Expected life of options (in years)	4 years 6 months	5 years	4 years 6 months
Weighted-average grant date fair value (in dollars per share)	$ 3.66	$ 9.47	$ 4.14	$ 9.18
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life of options (in years)				4 years 9 months
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life of options (in years)				5 years

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Schedule of intangible assets excluding goodwill (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Jun. 30, 2012
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 12,760	$ 12,274
Accumulated Amortization	5,503	7,512
Impairment	486
Estimated future amortizable amounts of purchased intangibles	6,771	4,762
Technology [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	11,780	11,332
Accumulated Amortization	5,015	6,891
Impairment	448
Estimated future amortizable amounts of purchased intangibles	6,317	4,441
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	60	34
Accumulated Amortization	34	34
Impairment	26
Estimated future amortizable amounts of purchased intangibles	0	0
Trademarks and Tradenames [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	50	41
Accumulated Amortization	31	41
Impairment	9
Estimated future amortizable amounts of purchased intangibles	10	0
Noncompete Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	870	867
Accumulated Amortization	423	546
Impairment	3
Estimated future amortizable amounts of purchased intangibles	$ 444	$ 321

XML

Summary of Significant Accounting Policies (Details) (USD $)	2 Months Ended	3 Months Ended		6 Months Ended			3 Months Ended			6 Months Ended		12 Months Ended	6 Months Ended		3 Months Ended
	Feb. 24, 2012 ReportableSegments	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Jun. 30, 2012 Software and Software Development Costs [Member]	Jun. 30, 2011 10 Percent to 15 Percent [Member] Customer Concentration Risk [Member] Revenues [Member]	Jun. 30, 2012 10 Percent to 15 Percent [Member] Customer Concentration Risk [Member] Revenues [Member] NumberClients	Jun. 30, 2011 More Than 15 Percent [Member] Customer Concentration Risk [Member] Accounts Receivable [Member]	Dec. 31, 2011 More Than 15 Percent [Member] Customer Concentration Risk [Member] Accounts Receivable [Member] NumberClients	Dec. 31, 2011 15 Percent [Member] Customer Concentration Risk [Member] Accounts Receivable [Member] NumberClients	Jun. 30, 2011 More Than 10 Percent [Member] Customer Concentration Risk [Member] Accounts Receivable [Member]	Jun. 30, 2012 More Than 10 Percent [Member] Customer Concentration Risk [Member] Accounts Receivable [Member] NumberClients	Jun. 30, 2011 More Than 10 Percent [Member] Customer Concentration Risk [Member] Revenues [Member]	Jun. 30, 2012 Credit Risk [Member]	Jun. 30, 2012 Maximum [Member]
Overview and Summary of Significant Accounting Policies [Line Items]
Securities of a single issuer valued at cost maximum market value				5.00%
Securities Of Single Issuer Valued At Cost Maximum Market		$ 1,000,000		$ 1,000,000
Concentration Risk, Percentage								10.00%		15.00%		15.00%	10.00%		10.00%	10.00%
Maturity period of securities (in months)																	24 months
Debt Instrument, Face Amount		50,000,000		50,000,000
Common stock, shares authorized (in shares)		100,000,000		100,000,000		100,000,000
Concentration risk, number of customers at benchmark (in customers)									1		1	1		2
Finite-Lived Intangible Assets, Useful Life							3 years
Capitalized Computer Software, Additions		800,000	900,000	1,400,000	1,700,000
Capitalized Computer Software, Amortization		400,000	600,000	800,000	1,200,000
Facilities exit costs		$ 0	$ 58,000	$ 0	$ 618,000
Number of Previously Reportable Segments	2

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Equity Award Plans and Stock-Based Compensation Scedule of restricted stock activity (Details) (Restricted Stock Units (RSUs) [Member], USD $)	0 Months Ended	6 Months Ended
	Dec. 31, 2011	Jun. 30, 2012
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Balances at January 1, 2012, Number of RSUs Outstanding (in shares)		137
Balances at January 1, 2012, Aggregate Intrinsic Value	1 year 8 months 27 days	2 years 4 months 10 days
Balances at January 1, 2012, Weighted Average Remaing Contractual Term (in years)		$ 1,072
Awarded, Number of RSUs Outstanding (in shares)		161
Released, Number of RSUs Outstanding (in shares)		(30)
Forefeited or cancelled, Number of RSUs Outstanding (in shares)		(36)
Balances at June 30, 2012, Number of RSUs Outstanding (in shares)	137	232
Balances at June 30, 2012, Aggregate Intrinsic Value	1 year 8 months 27 days	2 years 4 months 10 days
Balances at June 30, 2012, Weighted Average Remaining Contractual Term (in years)	$ 1,072	$ 1,859
RSUs vested and expected to vest at June 30, 2012, Number of RSU's Outstanding (in shares)		161
RSUs vested and expected to vest at June 30, 2012, Weighted Average Remaining Contractual Life (in years)		2 years 3 months 7 days
RSUs vested and expected to vest at June 30, 2012, Aggregate Intrinsic Value		$ 1,293

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Net (Loss) Income Per Share

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Net Income (Loss) Per Share

Net (Loss) Income Per Share

In February 2011, all of the Company’s outstanding convertible preferred stock converted into common stock in connection with the IPO. Prior to the conversion, holders of Series A and Series C convertible preferred stock were entitled to receive 8% per annum non-cumulative dividends. Holders of Series B preferred stock were entitled to receive 8% per annum cumulative dividends.

In 2011, basic and diluted net loss per share attributable to common stockholders was presented in conformity with the “two-class method” required for participating securities. Under the two-class method, basic net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the sum of the weighted average number of common shares outstanding during the period, net of shares subject to repurchase. Net income (loss) attributable to common stockholders is calculated as net income (loss) less the preferred stock dividend for the period. Due to the Company’s presentation of the EHR results in discontinued operations, a similar calculation was performed for the 2011 per share income from continuing operations. Basic income from continuing operations per share is computed by subtracting the preferred stock dividend for the period from income from continuing operations and dividing that amount by the weighted average number of common shares outstanding.

Diluted net loss per share gives effect to the impact of potentially dilutive securities, which consist of convertible preferred stock, stock options, RSUs and warrants. The dilutive effect of outstanding stock options, warrants and RSUs is computed using the treasury stock method. The computation of diluted net loss per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings.

In accordance with U.S. GAAP, the Company does not include dilutive securities in its calculations of per share loss from continuing operations, discontinued operations, net of tax, and net loss attributable to common stockholders. Accordingly, the denominator used in these calculations is the weighted average number of common shares outstanding – basic.

The following table presents the calculations of basic and diluted net (loss) income per share (in thousands, except per share data):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Numerator:
(Loss) income from continuing operations	$	(1,284	)	$	4,230		$	276		$	4,432
Gain (loss) from discontinued operations, net of tax	885			(837		)	(2,113		)	(2,165		)
Net (loss) income	$	(399	)	$	3,393		$	(1,837	)	$	2,267
Less: Accrued dividend on Series B mandatorily redeemable convertible preferred stock plus an 8% non-cumulative dividend on Series A and Series C mandatorily redeemable convertible preferred stock	—			—			—			294
Net (loss) income attributable to common stockholders	$	(399	)	$	3,393		$	(1,837	)	$	1,973
Denominator:
Weighted average number of common shares outstanding – basic	24,895			23,411			25,151			20,641
Weighted average number of common shares outstanding – diluted	25,243			25,838			25,570			23,006
Net (loss) income per share – basic
Continuing operations	$	(0.05	)	$	0.18		$	—		$	0.20
Discontinued operations	0.03			(0.04		)	(0.08		)	(0.10		)
Net (loss) income per share attributable to common stockholders	$	(0.02	)	$	0.14		$	(0.08	)	$	0.10
Net (loss) income per share – diluted
Continuing operations	$	(0.05	)	$	0.17		$	—		$	0.19
Discontinued operations	0.03			(0.04		)	(0.08		)	(0.10		)
Net (loss) income per share attributable to common stockholders	$	(0.02	)	$	0.13		$	(0.08	)	$	0.09

For the three and six months ended June 30, 2012 and 2011, the following securities were not included in the calculation of fully diluted shares outstanding, as the effect would have been anti-dilutive (in thousands):

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2012	2011	2012	2011
Weighted average common stock warrants	17	—	17	3
Weighted average outstanding unexercised options and RSUs	4,522	118	4,208	79
Weighted average mandatorily redeemable convertible preferred stock	—	—	—	1,961
Total weighted average anti-dilutive shares	4,539	118	4,225	2,043

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Short-Term Investments (Details) (USD $)	6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011	Dec. 31, 2010
Schedule of Available-for-sale Securities [Line Items]
Remaing maturity date in days for marketable securites to be classified as short-term investments	90 days
Average remaining contractual maturity of marketable securities		1 year
Amortized Cost	$ 81,935,000	$ 85,226,000
Cash and Cash Equivalents, Amortized Cost	72,237,000	75,326,000	62,920,000	35,987,000
Cash and Cash equivalents, Amortized Cost	81,935,000	85,226,000
Gross Unrealized Gains	0	1,000
Gross Unrealized Losses	(3,000)	(4,000)
Fair Value	81,932,000	85,223,000
Cash equivalents	11,000,000	10,300,000
Obligations of U.S. government agencies [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	7,379,000	6,219,000
Gross Unrealized Gains	0	1,000
Gross Unrealized Losses	(3,000)	(1,000)
Fair Value	7,376,000	6,219,000
Obligations of U.S. corporations [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,995,000	2,633,000
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	(3,000)
Fair Value	1,995,000	2,630,000
Foreign Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	324,000	1,048,000
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	324,000	1,048,000
Agency Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost		275,000
Gross Unrealized Gains		0
Gross Unrealized Losses		0
Fair Value		275,000
Money Market Funds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	11,039,000	10,035,000
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	11,039,000	10,035,000
Cash and Cash Equivalents [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost		75,326,000
Cash and Cash Equivalents, Amortized Cost	61,198,000	65,016,000
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	61,198,000	65,016,000
Short-term Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	9,698,000	9,900,000
Gross Unrealized Gains	0
Gross Unrealized Losses	(3,000)
Amounts Included In Cash And Cash Equivalents [Member] | Cash and Cash Equivalents [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	72,237,000
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	72,237,000	75,326,000
Short-term Investments [Member] | Short-term Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Gains		1,000
Gross Unrealized Losses		(4,000)
Fair Value	$ 9,695,000	$ 9,897,000
Minimum [Member]
Schedule of Available-for-sale Securities [Line Items]
Average remaining contractual maturity of marketable securities	1 year
Maximum [Member]
Schedule of Available-for-sale Securities [Line Items]
Average remaining contractual maturity of marketable securities	12 months	12 months

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Fair Value Measurements Company’s financial assets and liabilities measured at fair value on a recurring basis (Details) (Recurring [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Assets
Money market funds	$ 11,039	$ 10,035
Agency bonds		275
Available-for-sale securities, debt securities	9,695	9,897
TOTAL FINANCIAL ASSETS	20,734	20,207
Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Assets
Money market funds	11,039	10,035
Agency bonds		0
Available-for-sale securities, debt securities	7,376	6,219
TOTAL FINANCIAL ASSETS	18,415	16,254
Significant Other Observable Inputs (Level 2) [Member]
Assets
Money market funds	0	0
Agency bonds		275
Available-for-sale securities, debt securities	2,319	3,678
TOTAL FINANCIAL ASSETS	2,319	3,953
Significant Unobservable Inputs (Level 3) [Member]
Assets
Money market funds	0	0
Agency bonds		0
Available-for-sale securities, debt securities	0	0
TOTAL FINANCIAL ASSETS	0	0
Obligations of U.S. government agencies [Member]
Assets
Available-for-sale securities, debt securities	7,376	6,219
Obligations of U.S. government agencies [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Assets
Available-for-sale securities, debt securities	7,376	6,219
Obligations of U.S. government agencies [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets
Available-for-sale securities, debt securities	0	0
Obligations of U.S. government agencies [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets
Available-for-sale securities, debt securities	0	0
Obligations of U.S. corporations [Member]
Assets
Available-for-sale securities, debt securities	1,995	2,630
Obligations of U.S. corporations [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Assets
Available-for-sale securities, debt securities	0	0
Obligations of U.S. corporations [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets
Available-for-sale securities, debt securities	1,995	2,630
Obligations of U.S. corporations [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets
Available-for-sale securities, debt securities	0	0
Foreign Corporate Debt Securities [Member]
Assets
Available-for-sale securities, debt securities	324	1,048
Foreign Corporate Debt Securities [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Assets
Available-for-sale securities, debt securities	0	0
Foreign Corporate Debt Securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets
Available-for-sale securities, debt securities	324	1,048
Foreign Corporate Debt Securities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets
Available-for-sale securities, debt securities	$ 0	$ 0

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Acquisitions and Dispositions Acquisitions (Details) (USD $)	6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011 MedCafe, Inc. [Member]	Feb. 01, 2010 MedCafe, Inc. [Member]	Dec. 31, 2011 Caretools Inc. [Member]	Jun. 23, 2009 Caretools Inc. [Member]
Business Acquisition [Line Items]
Contingent consideration				$ 14,800,000		$ 1,300,000
Contingent consideration recorded in connection with business acquisitions				6,400,000	0
Business Acquisition, Contingent Consideration, Forecasted Revenues					0
Gain due to decrease in contingent consideration liabilitiy	$ 0	$ 6,074,000	$ 5,900,000

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Acquisitions and Dispositions Dispositions (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Research and development	$ 5,364,000	$ 5,055,000	$ 10,128,000	$ 10,075,000
Caretools Inc. [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Gain (Loss) on Disposition of Assets	900,000		(2,100,000)
Discontinued Operation, Payroll and Severance Costs	700,000
Discontinued Operation, Tax Effect of Discontinued Operation	100,000
Caretools Inc. [Member] | Scenario, Adjustment [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Research and development			$ 0

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying condensed consolidated financial statements and the notes to the condensed consolidated financial statements as of June 30, 2012 and for the three and six months ended June 30, 2012 and 2011 are unaudited. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2011, included in the Annual Report on Form 10-K filed with the SEC on March 19, 2012. The condensed consolidated balance sheet as of December 31, 2011 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.

The interim financial data as of June 30, 2012 and for the three and six months ended June 30, 2012 and 2011 is unaudited. In the opinion of management, the interim data includes all adjustments, consisting only of normal, recurring adjustments, necessary for the fair statement of the results for the interim periods. The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2012 or any other future period.

Use of Estimates

The preparation of financial statements in conformity with GAAP in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements and accompanying notes. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from those estimates, and such differences could be material.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable.

The Company limits its concentration of risk in cash equivalents and short-term investments by diversifying its investments among a variety of industries and issuers. The primary goals of the Company’s investment policy are, in order of priority, preservation of principal, liquidity and current income. The Company’s professional portfolio managers adhere to this investment policy as approved by the Company’s Board of Directors. Cash and cash equivalents and short-term investments are deposited at financial institutions or invested in securities that management believes are of high credit quality.

The Company’s investment policy is to invest only in fixed income instruments denominated and payable in U.S. dollars. Investments in obligations of the U.S. government and its agencies, money market instruments, commercial paper, certificates of deposit, bankers’ acceptances, corporate bonds of U.S. companies, municipal securities and asset-backed securities are allowed. The Company does not invest in auction rate securities, future contracts or hedging instruments. Securities of a single issuer valued at cost at the time of purchase should not exceed 5% of the market value of the portfolio, or $1 million, whichever is greater, although securities issued by the U.S. Treasury and U.S. government agencies are specifically exempted from these restrictions. Issue size is typically greater than $50 million for corporate bonds. No single position in any issue will equal more than 10% of that issue. The final maturity of each security within the portfolio shall not exceed 24 months.

The Company’s revenue and accounts receivable are derived primarily from clients in the healthcare industry (e.g., pharmaceutical companies, managed care companies and market research firms) within the U.S. For the three months and six months ended June 30, 2012, one client accounted for more than 10% of total revenues. For the three and six months ended June 30, 2011, no single client accounted for more than 10% of total revenues.

The Company performs a regular review of its clients’ payment histories and associated credit risks and does not require collateral from its clients. The Company has not historically experienced significant credit losses from its accounts receivable. There were two clients that accounted for more than 10% of accounts receivable, net, one of which accounted for 15% of accounts receivable, net as of June 30, 2012. One client accounted for 15% of accounts receivable, net as of December 31, 2011.

Software Development Costs

Software development costs incurred in conjunction with product development are charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, software development costs are capitalized and reported at the lower of unamortized cost or net realizable value of the related product. The Company does not consider a product in development to have passed the technological feasibility milestone until the Company has completed a model of the product that contains essentially all the functionality and features of the final product and has tested the model to ensure that it works as expected. The Company previously capitalized software development costs upon technical feasibility for the electronic health record (“EHR”) solution until it announced its decision to discontinue the EHR business. Capitalized costs incurred in the first quarter of 2012 up until the date of the announcement were reclassified to loss from discontinued operations in the Company’s condensed consolidated statements of comprehensive (loss) income.

Internal Use Software and Website Development Costs

With regard to software developed for internal use and website development costs, the Company expenses all costs incurred that relate to planning and post-implementation phases of development. Costs incurred in the development phase are capitalized and amortized over the product’s estimated useful life which is generally three years. For the three months ended June 30, 2012 and 2011, the Company capitalized $0.8 million and $0.9 million, respectively, of software development costs related to software for internal use and website development costs. For the six months ended June 30, 2012 and 2011, the Company capitalized $1.4 million and $1.7 million, respectively, of software development costs related to software for internal use and website development costs. Internal software development costs are generally amortized on a straight-line basis over three years beginning with the date the software is placed into service. Amortization of software developed for internal use was $0.4 million for the three months ended June 30, 2012 and $0.6 million for the three months ended June 30, 2011. Amortization of software developed for internal use was $0.8 million and $1.2 million for the six months ended June 30, 2012 and 2011, respectively. Amortization of internal use software is reflected in cost of revenues. Costs associated with minor enhancement and maintenance of the Company’s website are expensed as incurred.

Facilities Exit Costs

The Company vacated the East Windsor, New Jersey office in the first quarter of 2011 and relocated its New Jersey operations to Ewing, New Jersey. The Company had entered into a non-cancellable lease with the landlord which does not expire until the end of fiscal year 2012. The Company was, therefore, liable to make monthly lease payments under the contract until the termination of the lease. The liability recorded at fair value is based on the present value of the remaining lease rentals and is reduced for the estimated sublease rentals that could be reasonably obtained for the property. The Company recorded a charge of approximately $0.6 million in the six months ended June 30, 2011 relating to the East Windsor facility exit costs.

Segment Information

Previously, the Company had two reportable segments: Subscriptions and Interactive Services, and EHR. On February 24, 2012, the Audit Committee of the Board of Directors of the Company, as authorized by the Board of Directors, approved the discontinuation of Epocrates’ EHR business. Upon the approval, the Company qualified for discontinued operations presentation under GAAP, and at such time, the EHR results were reported in loss from discontinued operations on the Company’s condensed consolidated statements of comprehensive (loss) income. Prior period amounts have been revised in order to conform to the current period presentation. Substantially all of the Company’s revenues and all of the Company’s long-lived assets are located in the U.S.

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Intangible Assets (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of intangible assets	$ 1,000,000	$ 1,000,000	$ 2,009,000	$ 2,059,000
Finite-Lived Intangible Assets, Amortization Expense, Year Two	4,000,000		4,000,000
Finite-Lived Intangible Assets, Amortization Expense, Year Three	$ 2,800,000		$ 2,800,000

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Related Party Transactions (Details) (Director [Member], USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012 Agencies	Jun. 30, 2011	Dec. 31, 2011
Director [Member]
Related Party Transaction [Line Items]
Number of Agencies Revenue recorded from (in agencies)			2
Revenue from related parties	$ 0.4	$ 1.1	$ 1.2	$ 2.2
Due from related parties	$ 0.8		$ 0.8		$ 1.0

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Current assets
Cash and cash equivalents	$ 72,237	$ 75,326
Short-term investments	9,695	9,897
Accounts receivable, net of allowance for doubtful accounts of $71 and $85, respectively	22,371	22,748
Deferred tax asset	7,390	7,390
Prepaid expenses and other current assets	4,719	3,218
Total current assets	116,412	118,579
Property and equipment, net	8,240	7,283
Deferred tax asset	631	1,280
Goodwill	17,959	17,959
Other intangible assets, net	4,762	6,771
Other assets	333	352
Total assets	148,337	152,224
Current liabilities
Accounts payable	2,406	3,282
Deferred revenue	44,133	46,429
Other accrued liabilities	8,144	9,600
Total current liabilities	54,683	59,311
Deferred revenue, less current portion	7,399	8,088
Other liabilities	1,521	1,893
Total liabilities	63,603	69,292
Commitments and contingencies (Note 9)	0	0
Stockholders' equity
Preferred stock: $0.001 par value; 10,000 shares authorized; no shares issued and outstanding atJune 30, 2012 and December 31, 2011	0	0
Common stock: $0.001 par value; 100,000 shares authorized; 24,761 and 24,370 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively	25	24
Additional paid-in capital	132,879	129,238
Accumulated other comprehensive loss	(5)	(2)
Accumulated deficit	(48,165)	(46,328)
Total stockholders' equity	84,734	82,932
Total liabilities and stockholders' equity	$ 148,337	$ 152,224

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash flows from operating activities:
Net (loss) income	$ (1,837)	$ 2,267
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Stock-based compensation	2,720	4,330
Depreciation and amortization	1,954	2,024
Amortization of intangible assets	2,009	2,059
Loss on write-off of property and equipment	0	99
Allowance for doubtful accounts and sales returns reserve	(14)	270
Facilities exit costs	0	618
Gain on settlement and change in fair value of contingent consideration	0	(6,074)
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable	391	1,796
Deferred tax asset, current and noncurrent	238	0
Prepaid expenses and other assets	(1,482)	695
Accounts payable	(1,074)	(1,627)
Deferred revenue	(2,985)	716
Other accrued liabilities and other payables	(2,088)	(2,606)
Net cash (used in) provided by operating activities	(2,168)	4,567
Cash flows from investing activities:
Purchase of property and equipment	(2,401)	(6,028)
Purchase of short-term investments	(5,149)	(13,727)
Sale of short-term investments	(2)	500
Maturity of short-term investments	5,350	13,400
Net cash used in investing activities	(2,202)	(5,855)
Cash flows from financing activities:
Net cash proceeds from issuance of common stock	0	64,189
Payment and settlement of contingent consideration	0	(6,871)
Payment of accrued dividends on Series B mandatorily redeemable convertible preferred stock	0	(29,586)
Proceeds from exercise of common stock options	1,281	489
Net cash provided by financing activities	1,281	28,221
Net (decrease) in cash and cash equivalents	(3,089)	26,933
Cash and cash equivalents at beginning of period	75,326	35,987
Cash and cash equivalents at end of period	72,237	62,920
Non-Cash Investing and Financing Activities:
Unrealized loss on available-for-sale securities, net of tax effect	(1)	0
Accrued purchases of property and equipment and other assets	458	543
Conversion of mandatorily redeemable convertible preferred stock into common stock	0	44,011
Reclassification of costs of issuance of common stock from prepaid expenses and other current assets	$ 0	$ 2,025

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Equity Award Plans and Stock-Based Compensation (Details) (USD $) In Millions, except Share data, unless otherwise specified	6 Months Ended	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2012 2010 Incentive Plan [Member]	Jun. 30, 2012 Stock Options [Member] 2010 Incentive Plan [Member]	Jun. 30, 2012 Maximum [Member] 2010 Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Contratual term of outstanding options		10 years
Share based compensation by share based payment award portion of options vesting in one year		25.00%
Share based compensation by share based payment award portion of options vesting in equal installments over forty eight monts		75.00%
allocated share based compensation expense, modification of stock options	$ 0.5
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized				1,965,000
Share-based Compensation Arrangement by Share-based Payment Award, Percent of Additional Shares Authorized				4.00%
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			5 years

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Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of intangible assets excluding goodwill

Intangible assets excluding goodwill consisted of the following (in thousands):

	June 30, 2012						December 31, 2011
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Impairment		Net Carrying Amount
Technology	$	11,332	$	6,891	$	4,441	$	11,780	$	5,015	$	448	$	6,317
Client relationships	34		34		—		60		34		26		—
Trademarks and trade name	41		41		—		50		31		9		10
Non-compete agreement	867		546		321		870		423		3		444
	$	12,274	$	7,512	$	4,762	$	12,760	$	5,503	$	486	$	6,771

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Equity Award Plans and Stock-Based Compensation Schedule of stock options acivity (Details) (Stock Options [Member], USD $) In Thousands, except Per Share data, unless otherwise specified	0 Months Ended	6 Months Ended
	Dec. 31, 2011	Jun. 30, 2012
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Balances, January 1, 2012, Number of Options (in shares)		4,684
Granted, Number of Options (in shares)		1,657
Forfeited, cancelled or expired, Number of Options (in shares)		(1,052)
Exercised, Number of Options (in shares)		(361)
Balances, June 30, 2012, Number of Options (in shares)	4,684	4,928
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price	$ 10.85	$ 10.51
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price		$ 0.00
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures and Expirations in Period, Weighted Average Exercise Price		$ 0.00
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price		$ 0.00
Balances, January 1, 2012, Weighted Average Exercise Price (in dollars per share)	5 years 3 months 26 days	6 years 6 months
Balances, June 30, 2012, Weighted Average Exercise Price (in dollars per share)	5 years 3 months 26 days	6 years 6 months
Balances, January 1, 2012, Aggregate Intrinsic Value		$ 4,318
Balances, June 30, 2012, Aggregate Intrinsic Value	4,318	2,569
Options vested and expected to vest at June 30, 2012, Number of Options (n shares)		4,417
Options vested and expected to vest at June 30, 2012, Weighted Average Exercise Price (in dollars per share)		$ 10.62
Options vested and expected to vest at June 30, 2012, Weighted Average Contractual Term (in years)		6 years 1 month 24 days
Options vested and expected to vest at June 30, 2012, Aggregate Intrinsic Value		2,557
Options exercisable at June 30, 2012, Number of Options (in shares)		2,800
Options exercisable at June 30, 2012, Weighted Average Exercise Price (in dollars per share)		$ 10.83
Options exercisable at June 30, 2012, Weighted Average Remaining Contractual Term (in years)		4 years 4 months 24 days
Options exercisable at June 30, 2012, Aggregate Intrinsic Value		$ 2,504

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Background (Details) (USD $)	0 Months Ended			0 Months Ended					0 Months Ended
	Feb. 07, 2011	Jun. 30, 2012	Dec. 31, 2011	Feb. 07, 2011 IPO [Member]	Feb. 01, 2011 IPO [Member]	Feb. 01, 2011 Corporate [Member] IPO [Member]	Feb. 01, 2011 Investor [Member] IPO [Member]	Feb. 03, 2011 Overallotment Option [Member] IPO [Member]	Feb. 07, 2011 Common Class B [Member] IPO [Member]
Organization, Consolidation and Presentation of Financial Statements [Line Items]
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)		100,000,000	100,000,000	100,000,000	5,360,000			804,000
Preferred stock, shares authorized		10,000,000	10,000,000	10,000,000
Common stock, par value (in dollars per share)		$ 0.001	$ 0.001	$ 0.001
Sale of stock, price per share (in dollars per share)					$ 16			$ 16
Common Stock, Value, Issued		$ 25,000	$ 24,000		$ 85,800,000	$ 57,200,000	$ 28,600,000	$ 12,900,000
Proceeds from Issuance Initial Public Offering				62,200,000
Common Stock Underwriting and Commissions Expense				4,900,000
Other Expenses				3,000,000
Dividends, Common Stock									$ 29,600,000
Stock Issued During Period, Shares, Conversion of Convertible Securities				11,089,201
Common stock, shares issued		24,761,000	24,370,000			3,574,285	1,785,715
Stock Issued During Period, Shares, Reverse Stock Splits	0.786

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Background

6 Months Ended

Jun. 30, 2012

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Background

Background

Epocrates, Inc. ("Epocrates" or the “Company”) was incorporated in California in August 1998 as nCircle Communications, Inc. In September 1999, the Company changed its name to ePocrates, Inc., and in May 2006, the Company reincorporated in Delaware and changed its name to Epocrates, Inc.

The Company is a leading physician platform for essential clinical content, practice tools and health industry engagement at the point of care. Most commonly used on mobile devices, the Company’s products help healthcare professionals make more informed prescribing decisions, enhance patient safety and improve practice productivity. Through the Company’s interactive services, it provides the healthcare industry, primarily pharmaceutical companies, opportunities to engage with its user network through delivery of targeted information and to conduct market research.

Initial Public Offering (“IPO”)

On February 1, 2011, the Company’s registration statement on Form S-1 (File No. 333-168176) was declared effective for its IPO, pursuant to which it registered the offering and sale of 5,360,000 shares of common stock at a public offering price of $16.00 per share and an aggregate offering price of $85.8 million, of which 3,574,285 shares were sold by the Company for an aggregate offering price of $57.2 million, and 1,785,715 shares were sold by the selling stockholders for an aggregate offering price of $28.6 million. On February 3, 2011, the over-allotment option of 804,000 shares was exercised at a price of $16.00 per share for an aggregate of $12.9 million, all of which were sold by the Company, and the offering was completed with all of the shares subject to the registration statement having been sold.

As a result of the Company’s IPO and the exercise of the over-allotment option on February 3, 2011, both of which closed on February 7, 2011, the Company received net proceeds of approximately $62.2 million, after underwriting discounts and commissions of $4.9 million. In addition, the Company incurred other expenses associated with its IPO of approximately $3.0 million. From these proceeds, aggregate cumulative dividends to the holders of Epocrates’ Series B preferred stock were paid in full, in the amount of approximately $29.6 million. Upon the consummation of the IPO, the outstanding shares of the Company’s preferred stock were converted into an aggregate of 11,089,201 shares of common stock.

After the completion of the IPO on February 7, 2011, the Company amended its certificate of incorporation and increased its authorized number of shares of common stock to 100,000,000 and reduced the authorized number of shares of preferred stock to 10,000,000. The Company also established the par value of each share of common and preferred stock to be $0.001 per share.

Common Stock Split

An Amended and Restated Certificate of Incorporation for a 1-for-0.786 reverse split approved by the Company’s Board of Directors on November 18, 2010, was filed with the Delaware Secretary of State on January 28, 2011 and was effected upon the closing of the IPO. All information related to common stock, stock options, restricted stock units (“RSUs”) and earnings per share, as well as all references to preferred stock or preferred stock warrants as converted into common stock, has been retroactively adjusted to give effect to the reverse split.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 71	$ 85
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, shares issued	24,761,000	24,370,000
Common stock, shares outstanding	24,761,000	24,370,000

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Related Party Transactions

6 Months Ended

Jun. 30, 2012

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

The Company recorded revenue from two advertising agencies (on behalf of their clients) whose parent company's Chief Executive Officer is a member of the Company's Board of Directors. The Company recorded revenue from these entities of approximately $0.4 million and $1.1 million for the three months ended June 30, 2012 and 2011, respectively, and $1.2 million and $2.2 million for the six months ended June 30, 2012 and 2011, respectively. There were accounts receivable from these entities of approximately $0.8 million and $1.0 million as of June 30, 2012 and December 31, 2011, respectively.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 13, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	EPOCRATES INC
Entity Central Index Key	0001096738
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding		24,783,151

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Use of estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements and accompanying notes. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from those estimates, and such differences could be material.

Concentration of risk

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable.

The Company limits its concentration of risk in cash equivalents and short-term investments by diversifying its investments among a variety of industries and issuers. The primary goals of the Company’s investment policy are, in order of priority, preservation of principal, liquidity and current income. The Company’s professional portfolio managers adhere to this investment policy as approved by the Company’s Board of Directors. Cash and cash equivalents and short-term investments are deposited at financial institutions or invested in securities that management believes are of high credit quality.

The Company’s investment policy is to invest only in fixed income instruments denominated and payable in U.S. dollars. Investments in obligations of the U.S. government and its agencies, money market instruments, commercial paper, certificates of deposit, bankers’ acceptances, corporate bonds of U.S. companies, municipal securities and asset-backed securities are allowed. The Company does not invest in auction rate securities, future contracts or hedging instruments. Securities of a single issuer valued at cost at the time of purchase should not exceed 5% of the market value of the portfolio, or $1 million, whichever is greater, although securities issued by the U.S. Treasury and U.S. government agencies are specifically exempted from these restrictions. Issue size is typically greater than $50 million for corporate bonds. No single position in any issue will equal more than 10% of that issue. The final maturity of each security within the portfolio shall not exceed 24 months.

Software development costs

Software Development Costs

Software development costs incurred in conjunction with product development are charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, software development costs are capitalized and reported at the lower of unamortized cost or net realizable value of the related product. The Company does not consider a product in development to have passed the technological feasibility milestone until the Company has completed a model of the product that contains essentially all the functionality and features of the final product and has tested the model to ensure that it works as expected. The Company previously capitalized software development costs upon technical feasibility for the electronic health record (“EHR”) solution until it announced its decision to discontinue the EHR business. Capitalized costs incurred in the first quarter of 2012 up until the date of the announcement were reclassified to loss from discontinued operations in the Company’s condensed consolidated statements of comprehensive (loss) income.

Internal use software and website development costs

Internal Use Software and Website Development Costs

With regard to software developed for internal use and website development costs, the Company expenses all costs incurred that relate to planning and post-implementation phases of development. Costs incurred in the development phase are capitalized and amortized over the product’s estimated useful life which is generally three years. For the three months ended June 30, 2012 and 2011, the Company capitalized $0.8 million and $0.9 million, respectively, of software development costs related to software for internal use and website development costs. For the six months ended June 30, 2012 and 2011, the Company capitalized $1.4 million and $1.7 million, respectively, of software development costs related to software for internal use and website development costs. Internal software development costs are generally amortized on a straight-line basis over three years beginning with the date the software is placed into service. Amortization of software developed for internal use was $0.4 million for the three months ended June 30, 2012 and $0.6 million for the three months ended June 30, 2011. Amortization of software developed for internal use was $0.8 million and $1.2 million for the six months ended June 30, 2012 and 2011, respectively. Amortization of internal use software is reflected in cost of revenues. Costs associated with minor enhancement and maintenance of the Company’s website are expensed as incurred.

Facilities exit costs

Facilities Exit Costs

The Company vacated the East Windsor, New Jersey office in the first quarter of 2011 and relocated its New Jersey operations to Ewing, New Jersey. The Company had entered into a non-cancellable lease with the landlord which does not expire until the end of fiscal year 2012. The Company was, therefore, liable to make monthly lease payments under the contract until the termination of the lease. The liability recorded at fair value is based on the present value of the remaining lease rentals and is reduced for the estimated sublease rentals that could be reasonably obtained for the property.

Segment Information

Segment Information

Previously, the Company had two reportable segments: Subscriptions and Interactive Services, and EHR. On February 24, 2012, the Audit Committee of the Board of Directors of the Company, as authorized by the Board of Directors, approved the discontinuation of Epocrates’ EHR business. Upon the approval, the Company qualified for discontinued operations presentation under GAAP, and at such time, the EHR results were reported in loss from discontinued operations on the Company’s condensed consolidated statements of comprehensive (loss) income. Prior period amounts have been revised in order to conform to the current period presentation. Substantially all of the Company’s revenues and all of the Company’s long-lived assets are located in the U.S.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Subscription revenues	$ 4,751	$ 6,094	$ 9,427	$ 12,303
Interactive services revenues	22,073	21,766	44,928	44,734
Total revenues, net	26,824	27,860	54,355	57,037
Cost of subscription revenues	1,749	1,800	3,698	3,843
Cost of interactive services revenues	9,200	7,968	17,538	15,315
Total cost of revenues	10,949	9,768	21,236	19,158
Gross profit	15,875	18,092	33,119	37,879
Operating expenses:
Sales and marketing	6,711	6,482	12,793	13,602
Research and development	5,364	5,055	10,128	10,075
General and administrative	5,234	5,908	10,220	12,165
Facilities exit costs	0	58	0	618
Gain on settlement and change in fair value of contingent consideration	0	(6,439)	0	(5,933)
Total operating expenses	17,309	11,064	33,141	30,527
(Loss) income from operations	(1,434)	7,028	(22)	7,352
Interest income	5	23	11	51
Other (expense) income, net	(2)	177	(1)	179
(Loss) income before income taxes	(1,431)	7,228	(12)	7,582
Benefit from (provision for) income taxes	(300)	(2,500)	(1,100)	(1,700)
(Loss) income from continuing operations	(1,284)	4,230	276	4,432
Gain (loss) from discontinued operations, net of tax (includes proceeds from sale of component technology of $1.3 million)	885	(837)	(2,113)	(2,165)
Net (loss) income	(399)	3,393	(1,837)	2,267
Unrealized losses on available-for-sale securities, net	(2)	0	(3)	0
Comprehensive (loss) income	(401)	3,393	(1,840)	2,267
Net (loss) income attributable to common stockholders- basic	(399)	3,393	(1,837)	1,973
Net (loss) income per share – basic
Continuing operations -basic (in dollars per share)	$ (0.05)	$ 0.18	$ 0.00	$ 0.20
Discontinued operations, net of tax, basic (in dollars per share)	$ 0.03	$ (0.04)	$ (0.08)	$ (0.10)
Net (loss) income per share attributable to common stockholders (in dollars per share)	$ (0.02)	$ 0.14	$ (0.08)	$ 0.10
Net (loss) income per share – diluted
Continuing operations, diluted (in dollars per share)	$ (0.05)	$ 0.17	$ 0.00	$ 0.19
Discontinued operations, net of tax, diluted (in dollars per share)	$ 0.03	$ (0.04)	$ (0.08)	$ (0.10)
Net (loss) income per share attributable to common stockholders (in dollars per share)	$ (0.02)	$ 0.13	$ (0.08)	$ 0.09
Weighted average common shares outstanding- basic (in shares)	24,895	23,411	25,151	20,641
Weighted average common shares outstanding- diluted (in shares)	25,243	25,838	25,570	23,006
Stock-Based Compensation
Stock-based compensation	1,251	1,523	2,720	4,330
Cost of revenues
Stock-Based Compensation
Stock-based compensation	50	44	99	151
Sales and marketing
Stock-Based Compensation
Stock-based compensation	189	370	391	1,117
Research and development
Stock-Based Compensation
Stock-based compensation	165	139	363	530
General and administrative
Stock-Based Compensation
Stock-based compensation	784	970	1,793	2,532
Continuing Operations
Operating expenses:
Benefit from (provision for) income taxes	147	(2,998)	288	(3,150)
Discontinued Operations
Stock-Based Compensation
Stock-based compensation	$ 63	$ 0	$ 74	$ 0

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Acquisitions and Dispositions

6 Months Ended

Jun. 30, 2012

Business Combinations [Abstract]

Acquisitions and Dispositions

Acquisitions and Dispositions

Caretools, Inc. In connection with the acquisition of Caretools, Inc. on June 23, 2009, the Company recorded contingent consideration of $1.3 million on the acquisition date. This contingent consideration was based on an estimate of revenues to be generated from sales of products developed incorporating Caretools’ technology.

As a result of the Company’s decision to pursue strategic alternatives for the EHR business, the Company recorded an impairment charge to write down the carrying value of the contingent consideration liability associated with the EHR business to an estimated fair value of zero during the fourth quarter of 2011. The change in the fair value of the contingent consideration was primarily due to revised estimates of revenues to be derived from the acquired technologies of Caretools, Inc. As of December 31, 2011, the fair value of the contingent consideration liability was zero due to forecasted revenues of zero for the EHR business.

In June 2012, we sold certain assets related to the EHR iPad application to a third party pursuant to a purchase agreement that was not material to our consolidated financial statements. The consideration received from the sale of the EHR iPad application together with all other miscellaneous wind-down costs resulted in a net gain of approximately $0.9 million for the three months ended June 30, 2012 and a net loss of approximately $2.1 million for the six months ended June 30, 2012. The results of operations for the EHR business are recorded in gain (loss) from discontinued operations, net of tax, in the condensed consolidated statements of comprehensive (loss) income for the three and six months ended June 30, 2012 and 2011. The results of the EHR business for the three months ended June 30, 2012 reflected $0.7 million of expenses primarily related to payroll and severance costs for EHR employees and a tax benefit of $0.1 million. Prior period amounts have been revised to conform to the current period presentation.

The Company's condensed consolidated statements of comprehensive (loss) income for the six months ended June 30, 2012 have been revised from its earnings release on Form 8-K as filed on August 7, 2012 to correct the inclusion of approximately $0.2 million of research and development expenses for EHR employees in continuing operations for the three months ended March 31, 2012. The Company has reclassified such expenses to gain (loss) from discontinued operations for the six months ended June 30, 2012.

MedCafe Inc. In connection with the acquisition of MedCafe on February 1, 2010, the Company recorded contingent consideration of $14.8 million on the acquisition date. This contingent consideration was based on an estimate of revenues to be generated from sales of products developed incorporating MedCafe technology. In 2011, the Company recorded a decrease in the contingent consideration liability resulting in a gain of approximately $5.9 million for the year ended December 31, 2011. The change in the fair value of the contingent consideration was primarily due to an agreement with the sellers in the second quarter of 2011 to settle the liability for $6.4 million.

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Short-Term Investments

6 Months Ended

Jun. 30, 2012

Investments, Debt and Equity Securities [Abstract]

Short-Term Investments

Short-Term Investments

Marketable securities are classified as available-for-sale. These securities are reported at fair value with any changes in market value reported as a part of comprehensive income. Premiums (discounts) are amortized (accreted) to interest income over the life of the investment. Marketable securities are classified as short-term investments if the remaining maturity from the date of purchase is in excess of 90 days.

The Company determines the fair value amounts by using available market information. As of June 30, 2012 and December 31, 2011, the average contractual maturity was less than one year and the contractual maturity of any single investment did not exceed 12 months.

As of June 30, 2012 and December 31, 2011, unrealized gains and losses on available-for-sale securities are summarized as follows (in thousands):

June 30, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash, Cash Equivalents and Available-for-Sale Securities
Obligations of U.S. government agencies	$	7,379	$	—	$	(3	)	$	7,376
Obligations of U.S. corporations	1,995		—		—			1,995
Obligations of Non-U.S. corporations	324		—		—			324
Money market funds	11,039		—		—			11,039
Cash	61,198		—		—			61,198
	$	81,935	$	—	$	(3	)	$	81,932
Amounts included in cash and cash equivalents	$	72,237	$	—	$	—		$	72,237
Amounts included in short-term investments	9,698		—		(3		)	9,695
	$	81,935	$	—	$	(3	)	$	81,932

December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash, Cash Equivalents and Available-for-Sale Securities
Obligations of U.S. government agencies	$	6,219	$	1	$	(1	)	$	6,219
Obligations of U.S. corporations	2,633		—		(3		)	2,630
Obligations of Non-U.S. corporations	1,048		—		—			1,048
Agency bonds	275		—		—			275
Money market funds	10,035		—		—			10,035
Cash	65,016		—		—			65,016
	$	85,226	$	1	$	(4	)	$	85,223
Amounts included in cash and cash equivalents	$	75,326	$	—	$	—		$	75,326
Amounts included in short-term investments	9,900		1		(4		)	9,897
	$	85,226	$	1	$	(4	)	$	85,223

As of June 30, 2012 and December 31, 2011, the Company’s cash equivalents were primarily in the form of money market funds, and the Company had no significant unrealized gains or losses on any of these investments. Cash equivalents were $11.0 million and $10.3 million as of June 30, 2012 and December 31, 2011, respectively.

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Equity Award Plans and Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of stock options activity

	Options Outstanding
	Number of Options		Weighted Average Exercise Price		Weighted Average Contractual Term (Years)	Aggregate Intrinsic Value
Balances, January 1, 2012	4,684		$	10.85	5.32	$	4,318
Granted	1,657		—
Forfeited, cancelled or expired	(1,052	)	—
Exercised	(361	)	—
Balances, June 30, 2012	4,928		$	10.51	6.50	$	2,569
Options vested and expected to vest at June 30, 2012	4,417		$	10.62	6.15	$	2,557
Options exercisable at June 30, 2012	2,800		$	10.83	4.40	$	2,504

Schedule of restricted stock activity

	Number of RSUs Outstanding		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Balances at January 1, 2012	137		1.74	$	1,072
Awarded	161
Released	(30	)
Forfeited or cancelled	(36	)
Balances at June 30, 2012	232		2.36	$	1,859
RSUs vested and expected to vest at June 30, 2012	161		2.27	$	1,293

Stock based compensation expense

The following table summarizes all stock-based compensation charges for the three and six months ended June 30, 2012 and 2011 (in thousands):

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2012		2011			2012		2011
Stock-based compensation expense	$	1,235	$	1,641		$	2,684	$	3,936
Stock-based compensation associated with outstanding repriced options	16		(118		)	36		394
Total stock-based compensation	$	1,251	$	1,523		$	2,720	$	4,330

Schedule of assumptions used to estimate the fair value of options and restricted stock units

The Company used the following assumptions:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Dividend yield	—			—			—			—
Expected volatility	57		%	51		%	57		%	51		%
Risk-free interest rate	0.72%-0.86%			1.87		%	0.72%-1.09%			1.87%-2.14%
Expected life of options (in years)	4.5			5.0			4.5			4.75-5.0
Weighted-average grant date fair value	$	3.66		$	9.47		$	4.14		$	9.18

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Net (Loss) Income Per Share (Tables)

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Calculation of basic and diluted net income (loss) per share attributable to common stockholders

The following table presents the calculations of basic and diluted net (loss) income per share (in thousands, except per share data):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Numerator:
(Loss) income from continuing operations	$	(1,284	)	$	4,230		$	276		$	4,432
Gain (loss) from discontinued operations, net of tax	885			(837		)	(2,113		)	(2,165		)
Net (loss) income	$	(399	)	$	3,393		$	(1,837	)	$	2,267
Less: Accrued dividend on Series B mandatorily redeemable convertible preferred stock plus an 8% non-cumulative dividend on Series A and Series C mandatorily redeemable convertible preferred stock	—			—			—			294
Net (loss) income attributable to common stockholders	$	(399	)	$	3,393		$	(1,837	)	$	1,973
Denominator:
Weighted average number of common shares outstanding – basic	24,895			23,411			25,151			20,641
Weighted average number of common shares outstanding – diluted	25,243			25,838			25,570			23,006
Net (loss) income per share – basic
Continuing operations	$	(0.05	)	$	0.18		$	—		$	0.20
Discontinued operations	0.03			(0.04		)	(0.08		)	(0.10		)
Net (loss) income per share attributable to common stockholders	$	(0.02	)	$	0.14		$	(0.08	)	$	0.10
Net (loss) income per share – diluted
Continuing operations	$	(0.05	)	$	0.17		$	—		$	0.19
Discontinued operations	0.03			(0.04		)	(0.08		)	(0.10		)
Net (loss) income per share attributable to common stockholders	$	(0.02	)	$	0.13		$	(0.08	)	$	0.09

Schedule of antidilutive securities excluded from computation of earnings per share

For the three and six months ended June 30, 2012 and 2011, the following securities were not included in the calculation of fully diluted shares outstanding, as the effect would have been anti-dilutive (in thousands):

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2012	2011	2012	2011
Weighted average common stock warrants	17	—	17	3
Weighted average outstanding unexercised options and RSUs	4,522	118	4,208	79
Weighted average mandatorily redeemable convertible preferred stock	—	—	—	1,961
Total weighted average anti-dilutive shares	4,539	118	4,225	2,043

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Legal Matters

From time to time, the Company may be involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employment and other matters, which arise in the ordinary course of business. In accordance with GAAP, the Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Litigation is inherently unpredictable. If any unfavorable ruling were to occur in any specific period or if a loss becomes probable and estimable, there exists the possibility of a material adverse impact on the Company’s results of operations, balance sheet or cash flows.

Indemnification

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to the agreements, each party may indemnify, defend and hold the other party harmless with respect to such claim, suit or proceeding brought against it by a third party alleging that the indemnifying party’s intellectual property infringes upon the intellectual property of the third party, or results from a breach of the indemnifying party’s representations and warranties or covenants, or that results from any acts of negligence or willful misconduct. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. Historically, the Company has not been obligated to make significant payments for these obligations and no liabilities have been recorded for these obligations on the condensed consolidated balance sheets as of June 30, 2012 or December 31, 2011.

The Company also indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer is or was serving at the Company’s request in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company has a Director and Officer Insurance Policy that limits its exposure and enables the Company to recover a portion of any future amounts paid. Historically, the Company has not been obligated to make any payments for these obligations and no liabilities have been recorded for these obligations on the condensed consolidated balance sheets as of June 30, 2012 or December 31, 2011.

Contractual Obligations

The Company's contractual cash obligations and commercial commitments as of June 30, 2012 and the effects such obligations and commitments are expected to have on the Company's liquidity and cash flows in future periods have not changed significantly since December 31, 2011.

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Intangible Assets

6 Months Ended

Jun. 30, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Intangible Assets

Intangible assets excluding goodwill consisted of the following (in thousands):

	June 30, 2012						December 31, 2011
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Impairment		Net Carrying Amount
Technology	$	11,332	$	6,891	$	4,441	$	11,780	$	5,015	$	448	$	6,317
Client relationships	34		34		—		60		34		26		—
Trademarks and trade name	41		41		—		50		31		9		10
Non-compete agreement	867		546		321		870		423		3		444
	$	12,274	$	7,512	$	4,762	$	12,760	$	5,503	$	486	$	6,771

Amortization of intangible assets was $1.0 million for both the three months ended June 30, 2012 and 2011, respectively, and was $2.0 million and $2.1 million for the six months ended June 30, 2012 and 2011, respectively. Amortization of the acquired intangible assets is reflected in cost of revenues. Amortization for the years ending December 31, 2012 and 2013 is expected to be approximately $4.0 million and $2.8 million, respectively.

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Income Taxes

6 Months Ended

Jun. 30, 2012

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

For the three months ended June 30, 2012, the Company recorded an income tax benefit of approximately $0.3 million, of which $0.2 million was allocated to continuing operations, with the balance of $0.1 million allocated to discontinued operations. For the three months ended June 30, 2011, the Company recorded an income tax provision of $2.5 million, which was comprised of a tax provision of approximately $3.0 million allocated to continuing operations and a tax benefit of $0.5 million allocated to discontinued operations. The income tax benefit during the three months ended June 30, 2012 represented the federal and state statutory rates adjusted for non-deductible stock compensation expense. The income tax provision during the three months ended June 30, 2011 reflects the federal and state statutory tax rates adjusted for non-deductible stock compensation expense partially offset by research and development credits.

For the six months ended June 30, 2012, the Company recorded an income tax benefit of approximately $1.1 million, of which $0.3 million was allocated to continuing operations, with the balance of $0.8 million allocated to discontinued operations. For the six months ended June 30, 2011, the Company recorded an income tax provision of approximately $1.7 million, which was comprised of a tax provision of approximately $3.2 million allocated to continuing operations and a tax benefit of $1.5 million allocated to discontinued operations. The income tax benefit recorded during the six months ended June 30, 2012 represented the federal and state statutory rates adjusted for non-deductible stock compensation expense. The income tax provision recorded during the six months ended June 30, 2011 reflected the federal and state statutory tax rates adjusted for non-deductible stock compensation expense partially offset by research and development credits.

As of June 30, 2012, the amount of interest and penalties associated with the unrecognized tax benefits were insignificant.  The Company does not expect any significant increases or decreases to its unrecognized tax benefits in the next 12 months.

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Equity Award Plans and Stock-Based Compensation

6 Months Ended

Jun. 30, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Equity Award Plans and Stock-Based Compensation

Equity Award Plans and Stock-Based Compensation

In August 1999, the Company’s Board of Directors adopted and the stockholders approved, the 1999 Stock Option Plan (“1999 Plan”). In May 2009, the Board of Directors adopted and the stockholders approved, an amendment and restatement of the 1999 Plan, the 2008 Equity Incentive Plan (“2008 Plan”). In July 2010, the Company’s Board of Directors adopted the 2010 Equity Incentive Plan (“2010 Plan,” and together with the 1999 Plan and the 2008 Plan, the “Plans”). The 2010 Plan was most recently amended by the Board of Directors on December 22, 2010 and was approved by the Company’s stockholders on January 5, 2011. The 2010 Plan became effective upon the completion of the IPO. Awards granted after May 2009 but before the completion of the IPO continue to be governed by the 2008 Plan. All outstanding stock awards granted prior to May 2009 continue to be governed by the terms of the Company’s 1999 Plan.

The 2010 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, RSU awards, performance stock awards and other stock awards. In addition, the 2010 Plan provides for the grant of performance cash awards. The Company may issue incentive stock options (“ISOs”) only to its employees. Non-qualified stock options (“NQSOs”) and all other awards may be granted to employees, directors and consultants. ISOs and NQSOs are granted to employees with an exercise price equal to the market price of the Company’s common stock at the date of grant, as determined by the Company’s Board of Directors. Stock options granted to employees generally have a contractual term of 10 years and vest over five years of continuous service, with 25% of the stock options vesting on the one-year anniversary of the date of grant and the remaining 75% vesting in equal monthly installments over the 48-month period thereafter.

The number of shares of the Company’s common stock reserved for issuance under the 2010 Plan will automatically be increased annually on January 1^st of each year, starting on January 1, 2012 and continuing through January 1, 2014, by the lesser of (a) 4% of the total number of shares of common stock outstanding on the last day of the preceding calendar year, (b) 1,965,000 shares of common stock or (c) a number determined by the Company’s Board of Directors that is less than (a) or (b).

	Options Outstanding
	Number of Options		Weighted Average Exercise Price		Weighted Average Contractual Term (Years)	Aggregate Intrinsic Value
Balances, January 1, 2012	4,684		$	10.85	5.32	$	4,318
Granted	1,657		—
Forfeited, cancelled or expired	(1,052	)	—
Exercised	(361	)	—
Balances, June 30, 2012	4,928		$	10.51	6.50	$	2,569
Options vested and expected to vest at June 30, 2012	4,417		$	10.62	6.15	$	2,557
Options exercisable at June 30, 2012	2,800		$	10.83	4.40	$	2,504

	Number of RSUs Outstanding		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Balances at January 1, 2012	137		1.74	$	1,072
Awarded	161
Released	(30	)
Forfeited or cancelled	(36	)
Balances at June 30, 2012	232		2.36	$	1,859
RSUs vested and expected to vest at June 30, 2012	161		2.27	$	1,293

The following table summarizes all stock-based compensation charges for the three and six months ended June 30, 2012 and 2011 (in thousands):

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2012		2011			2012		2011
Stock-based compensation expense	$	1,235	$	1,641		$	2,684	$	3,936
Stock-based compensation associated with outstanding repriced options	16		(118		)	36		394
Total stock-based compensation	$	1,251	$	1,523		$	2,720	$	4,330

Stock-based compensation expense for the six months ended June 30, 2011 includes a charge of approximately $0.5 million relating to modification of the terms of the stock options held by certain directors who resigned from the Board of Directors during the three months ended March 31, 2011.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options and RSUs. This model requires the input of highly subjective assumptions including the expected term of the stock option, expected stock price volatility and expected forfeitures. The Company used the following assumptions:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Dividend yield	—			—			—			—
Expected volatility	57		%	51		%	57		%	51		%
Risk-free interest rate	0.72%-0.86%			1.87		%	0.72%-1.09%			1.87%-2.14%
Expected life of options (in years)	4.5			5.0			4.5			4.75-5.0
Weighted-average grant date fair value	$	3.66		$	9.47		$	4.14		$	9.18

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Income Taxes (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Income Tax Contingency [Line Items]
Benefit from (Provision for) income taxes	$ 300,000	$ 2,500,000	$ 1,100,000	$ 1,700,000
Segment, Continuing Operations [Member]
Income Tax Contingency [Line Items]
Benefit from (Provision for) income taxes	(147,000)	2,998,000	(288,000)	3,150,000
Allocation of income tax expense (benefit)	200,000	3,000,000	300,000	3,200,000
Discontinued Operations
Income Tax Contingency [Line Items]
Allocation of income tax expense (benefit)	$ 100,000	$ 500,000	$ 800,000	$ 1,500,000

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Short-Term Investments (Tables)

6 Months Ended

Jun. 30, 2012

Investments, Debt and Equity Securities [Abstract]

Schedule of unrealized gains and losses on available for sale securities

As of June 30, 2012 and December 31, 2011, unrealized gains and losses on available-for-sale securities are summarized as follows (in thousands):

June 30, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash, Cash Equivalents and Available-for-Sale Securities
Obligations of U.S. government agencies	$	7,379	$	—	$	(3	)	$	7,376
Obligations of U.S. corporations	1,995		—		—			1,995
Obligations of Non-U.S. corporations	324		—		—			324
Money market funds	11,039		—		—			11,039
Cash	61,198		—		—			61,198
	$	81,935	$	—	$	(3	)	$	81,932
Amounts included in cash and cash equivalents	$	72,237	$	—	$	—		$	72,237
Amounts included in short-term investments	9,698		—		(3		)	9,695
	$	81,935	$	—	$	(3	)	$	81,932

December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash, Cash Equivalents and Available-for-Sale Securities
Obligations of U.S. government agencies	$	6,219	$	1	$	(1	)	$	6,219
Obligations of U.S. corporations	2,633		—		(3		)	2,630
Obligations of Non-U.S. corporations	1,048		—		—			1,048
Agency bonds	275		—		—			275
Money market funds	10,035		—		—			10,035
Cash	65,016		—		—			65,016
	$	85,226	$	1	$	(4	)	$	85,223
Amounts included in cash and cash equivalents	$	75,326	$	—	$	—		$	75,326
Amounts included in short-term investments	9,900		1		(4		)	9,897
	$	85,226	$	1	$	(4	)	$	85,223

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Net (Loss) Income Per Share Calculation of basic and diluted net income (loss) per share attributable to common stockholders (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Numerator:
(Loss) income from continuing operations	$ (1,284)	$ 4,230	$ 276	$ 4,432
Gain (loss) from discontinued operations, net of tax	885	(837)	(2,113)	(2,165)
Net (loss) income	(399)	3,393	(1,837)	2,267
Less: Accrued dividend on Series B mandatorily redeemable convertible preferred stock plus an 8% non-cumulative dividend on Series A and Series C mandatorily redeemable convertible preferred stock	0	0	0	294
Net (loss) income attributable to common stockholders	$ (399)	$ 3,393	$ (1,837)	$ 1,973
Denominator:
Weighted average common shares outstanding- basic (in shares)	24,895	23,411	25,151	20,641
Weighted average common shares outstanding- diluted (in shares)	25,243	25,838	25,570	23,006
Net (loss) income per share – basic
Continuing operations -basic (in dollars per share)	$ (0.05)	$ 0.18	$ 0.00	$ 0.20
Discontinued operations, basic (in dollars per share)	$ 0.03	$ (0.04)	$ (0.08)	$ (0.10)
Net (loss) income per share attributable to common stockholders (in dollars per share)	$ (0.02)	$ 0.14	$ (0.08)	$ 0.10
Net (loss) income per share – diluted
Continuing operations, diluted (in dollars per share)	$ (0.05)	$ 0.17	$ 0.00	$ 0.19
Discontinued operations, diluted (in dollars per share)	$ 0.03	$ (0.04)	$ (0.08)	$ (0.10)
Net (loss) income per share attributable to common stockholders (in dollars per share)	$ (0.02)	$ 0.13	$ (0.08)	$ 0.09

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME Parenthetical (Technology [Member], USD $) In Millions, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012
Technology [Member]
Proceeds from sale of productive assets	$ 1.3	$ 1.3

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Fair Value Measurements

6 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (the “exit price”) in an orderly transaction between market participants at the measurement date. A three-level hierarchy is applied to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy prioritizes the inputs into three broad levels:

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 – Inputs are unobservable inputs based on the Company’s assumptions.

The following table represents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011 and the basis of that measurement (in thousands):

As of June 30, 2012	Total Fair Value		Level 1		Level 2		Level 3
ASSETS
Money market funds	$	11,039	$	11,039	$	—	$	—
Short-term investments (Note 5):
Obligations of U.S. government agencies	7,376		7,376		—		—
Obligations of U.S. corporations	1,995		—		1,995		—
Obligations of Non-U.S. corporations	324		—		324		—
Total short-term investments	9,695		7,376		2,319		—
TOTAL FINANCIAL ASSETS	$	20,734	$	18,415	$	2,319	$	—

As of December 31, 2011	Total Fair Value		Level 1		Level 2		Level 3
ASSETS
Money market funds	$	10,035	$	10,035	$	—	$	—
Agency bonds	275		—		275		—
Short-term investments (Note 5):
Obligations of U.S. government agencies	6,219		6,219		—		—
Obligations of U.S. corporations	2,630		—		2,630		—
Obligations of Non-U.S. corporations	1,048		—		1,048		—
Total short-term investments	9,897		6,219		3,678		—
TOTAL FINANCIAL ASSETS	$	20,207	$	16,254	$	3,953	$	—

The Company’s financial instruments, including cash equivalents, accounts receivable and accounts payable, are carried at cost, which approximates fair value due to the short-term nature of those instruments.

Money market funds are considered Level 1 investments under the GAAP fair value hierarchy because fair value inputs are unadjusted quoted prices in active markets for identical assets or liabilities. As of March 31, 2012, obligations of U.S. government agencies are also considered Level 1 investments. The remainder of the Company’s short-term investments are considered Level 2 investments under the GAAP fair value hierarchy because the fair value inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

During the quarters ended June 30, 2012 and December 31, 2011, there were no transfers between Level 1 and Level 2 fair value instruments.

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Net (Loss) Income Per Share Schedule of antidilutive securities excluded from computation of earnings per share (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Earnings Per Share [Abstract]
Weighted average common stock warrants	$ 17	$ 0	$ 17	$ 3
Weighted average outstanding unexercised options and RSUs	4,522	118	4,208	79
Weighted average mandatorily redeemable convertible preferred stock	$ 0	$ 0	$ 0	$ 1,961
Weighted average mandatorily redeemable convertible preferred stock	4,539	118	4,225	2,043

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Equity Award Plans and Stock-Based Compensation Schedule of Stock-based Compensation Expense (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock-based compensation expense	$ 1,235	$ 1,641	$ 2,684	$ 3,936
Stock-based compensation associated with outstanding repriced options	16	(118)	36	394
Total stock-based compensation	$ 1,251	$ 1,523	$ 2,720	$ 4,330

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Abstract]

Company’s financial assets and liabilities measured at fair value on a recurring basis

The following table represents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011 and the basis of that measurement (in thousands):

As of June 30, 2012	Total Fair Value		Level 1		Level 2		Level 3
ASSETS
Money market funds	$	11,039	$	11,039	$	—	$	—
Short-term investments (Note 5):
Obligations of U.S. government agencies	7,376		7,376		—		—
Obligations of U.S. corporations	1,995		—		1,995		—
Obligations of Non-U.S. corporations	324		—		324		—
Total short-term investments	9,695		7,376		2,319		—
TOTAL FINANCIAL ASSETS	$	20,734	$	18,415	$	2,319	$	—

As of December 31, 2011	Total Fair Value		Level 1		Level 2		Level 3
ASSETS
Money market funds	$	10,035	$	10,035	$	—	$	—
Agency bonds	275		—		275		—
Short-term investments (Note 5):
Obligations of U.S. government agencies	6,219		6,219		—		—
Obligations of U.S. corporations	2,630		—		2,630		—
Obligations of Non-U.S. corporations	1,048		—		1,048		—
Total short-term investments	9,897		6,219		3,678		—
TOTAL FINANCIAL ASSETS	$	20,207	$	16,254	$	3,953	$	—