EX-99.1 2 g16596exv99w1.htm EX-99.1 Ex-99.1
Exhibit 99.1
(SPHERIS LOGO)
         
 
  Investor Relations:   Brian P. Callahan
 
      Chief Financial Officer
 
      bcallahan@spheris.com     (615) 261-1500
 
        
 
      Michele Peden
 
      Vice President, Marketing & Communication
 
      mpeden@spheris.com     (615) 261-1580
For Immediate Release
November 12, 2008
SPHERIS REPORTS THIRD QUARTER 2008 RESULTS
FRANKLIN, Tenn. (November 12, 2008) — Spheris, a leading global provider of clinical documentation technology and services, today announced results for the three and nine month periods ended September 30, 2008.
Financial Highlights—Third quarter of 2008
Net revenues for the third quarter of 2008 were $44.7 million compared with $48.9 million in the third quarter of 2007. The decrease in net revenues was due primarily to the impact of net lost business and lower average pricing.
Operating income for the third quarter of 2008 was $1.2 million, or 2.7% of net revenues, compared with operating income of $1.5 million, or 3.1% of net revenues, in the third quarter of 2007. The decrease in operating income was due to lower net revenues, accelerated technology investments to further develop and enhance our product and service offerings, as well as costs associated with the expansion of our global capacity. These costs were partially offset by operational cost savings from increased utilization of our global production workforce and speech recognition technologies, in addition to other cost savings initiatives.
The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, and other expense or income. Adjusted EBITDA for the third quarter of 2008 was $7.0 million, or 15.7% of net revenues, compared with $7.6 million, or 15.5% of net revenues, in the third quarter of 2007. The decrease in Adjusted EBITDA was due primarily to the impact of lower net revenues and the accelerated technology investments described above.

 

 

Spheris Reports Third Quarter 2008 Results
Page 2
November 12, 2008
Adjusted EBITDA is a financial measure not computed in accordance with United States generally accepted accounting principles, or GAAP. Please refer to the “Supplemental Financial Information” and related note contained in this press release for further discussion and reconciliation of Adjusted EBITDA to GAAP financial measures.
Financial Highlights—First Nine months of 2008
Net revenues for the nine month period ended September 30, 2008 were $141.1 million compared with $151.8 million in the prior-year period. The decrease in net revenues was due primarily to the impact of net lost business and lower average pricing.
Operating income for the nine month period ended September 30, 2008 was $1.0 million, or 0.7% of net revenues, compared with operating income of $6.1 million, or 4.0% of net revenues, in the prior-year period. During the first quarter of 2008, the Company recorded $1.3 million of expenses relating to a transaction that was not consummated. Excluding these transaction costs, operating income would have been $2.3 million, or 1.6% of net revenues, for the nine month period ended September 30, 2008. In addition to the impact of the transaction costs, the decrease in operating income was due primarily to lower net revenues as described above, accelerated technology investments to further develop and enhance our product and service offerings, as well as costs associated with the expansion of our global capacity. These costs were partially offset by operational cost savings from increased utilization of our global production workforce and speech recognition technologies, in addition to other cost savings initiatives.
Adjusted EBITDA for the nine month period ended September 30, 2008 was $18.7 million, or 13.3% of net revenues, compared with $24.3 million, or 16.0% of net revenues, in the prior-year period. Excluding the $1.3 million of transaction related expenses noted above, Adjusted EBITDA would have been $20.0 million, or 14.2% of net revenues, for the nine month period ended September 30, 2008. The decrease in Adjusted EBITDA was primarily due to the impact of lower net revenues, accelerated technology investments, and transaction costs described above.
Commenting on the third quarter 2008 results, Steven E. Simpson, President and Chief Executive Officer of Spheris, stated, “The third quarter and year-to-date results reflect the challenges in today’s marketplace, but we remain encouraged by opportunities we are seeing. As our technology developments progress, we continue to accelerate the efficiencies gained from both our speech recognition tools and global resources. We have received positive feedback as a result of successfully demonstrating the new features and functionality through an intensive pilot program that led to signing a significant new account.”
Simpson added, “Even though we are pleased with the products coming out of development, our goal remains to be the first to market with an end-to-end clinical documentation technology and service offering.”

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Spheris Reports Third Quarter 2008 Results
Page 3
November 12, 2008
Balance Sheet Highlights
As of September 30, 2008, the outstanding indebtedness under the Company’s senior secured credit facility was $77.3 million and the outstanding indebtedness under the Company’s senior subordinated notes was $125.0 million.
Liquidity Highlights
As of September 30, 2008, Spheris held $9.9 million in unrestricted cash and cash equivalents and had $17.7 million of borrowing capacity under the Company’s senior secured credit facility. During the first nine months of 2008, the Company generated $1.0 million of cash from operating activities compared with $9.8 million during the same period in 2007. The decrease in cash generated from operating activities was attributable to the year over year change in operating performance, timing of wages and benefit payments, and the current period payment of certain security deposits, as offset by the favorable impact of improved collections on accounts receivable.
Investor Conference Call and Webcast
Spheris will host a conference call on November 13, 2008, at 8 a.m. CT. The number to call for this interactive teleconference is (303) 262-2130. Following the conference call, the audio replay will be available for one week by dialing (303) 590-3000 and entering the confirmation number, 11111017#. The live broadcast of Spheris’ quarterly conference call will be available online at www.spheris.com and http://www.videonewswire.com/event.asp?id=33821 http://www.videonewswire.com/event.asp?id=52756 on November 13, 2008, at 8 a.m. CT. The online replay will be available shortly after the call and will continue to be available for 30 days.
About Spheris
Spheris is a leading global provider of clinical documentation technology and services to more than 500 health systems, hospitals and group practices throughout the U.S. Spheris offers a highly advanced, Web-based technology platform blended with Spheris’ outsource services. Spheris employs approximately 5,000 skilled medical language specialists supporting the Company’s clients through a secure network. Using a Follow the Sunsm service strategy, customer support is provided 24 hours a day, 365 days a year with an emphasis on verifiable quality, turnaround time and pricing. Spheris’ corporate headquarters is located in Franklin, Tenn. For more information, please visit www.spheris.com.

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Spheris Reports Third Quarter 2008 Results
Page 4
November 12, 2008
Forward-Looking Statements
This press release contains statements as to the Company’s beliefs and expectations of the outcome of future events that are forward-looking statements as defined within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties as described in the filings made from time to time by the Company with the Securities and Exchange Commission, including, without limitation, the following: (i) the effect our substantial indebtedness has on our ability to raise additional capital to fund our business, to react to changes in the economy or our business and to fulfill our obligations under our indebtedness, including our ability to meet financial covenants and other conditions of our senior secured credit facility and indenture governing our senior subordinated notes; (ii) our history of losses and accumulated deficit; (iii) our ability to effectively manage our global production capacity, including our ability to recruit, train and retain qualified medical language specialists and maintain high standards of quality service in our operations; (iv) our ability to adapt and integrate new technology into our clinical documentation platforms to improve our production capabilities and expand the breadth of our technology and service offerings; (v) our ability to maintain our competitive position against current and future competitors, including our ability to gain new business with acceptable operating margins and ongoing price pressures related to our technology and services and the healthcare markets in general; (vi) the reluctance of potential customers to outsource or change providers of their clinical documentation technology and services and its impact on our ability to attract new customers and increase revenues; (vii) financial and operational risks inherent in our global operations, including foreign currency exchange rate fluctuations and transfer pricing laws between the United States and India; (viii) our ability to attract, hire or retain technical and managerial personnel necessary to develop and implement technology and services to our customers; (ix) the effect on our business if we incur additional debt and assume contingent liabilities and expenses in connection with future acquisitions or if we cannot effectively integrate newly acquired operations; and (x) our ability to adequately protect our intellectual property rights, including our proprietary technology and the intellectual property we license from third parties.
The Company takes no responsibility for updating the information contained in this press release following the date hereof to reflect events or circumstances occurring after the date hereof or the occurrence of unanticipated events or for any changes or modifications made to this press release.

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Spheris Reports Third Quarter 2008 Results
Page 5
November 12, 2008
SPHERIS INC.
Condensed Consolidated Statements of Operations
(Unaudited and Amounts in Thousands)
                                 
    Three Months ended September 30,     Nine Months Ended September 30,  
    2008     2007     2008     2007  
Net revenues
   $ 44,749     $ 48,943     $ 141,074     $ 151,795  
 
                                
Operating expenses:
                                
Direct costs of revenues (exclusive of depreciation and amortization below)
     31,673       35,144       102,775       108,804  
Marketing and selling expenses
     400       1,186       2,276       3,755  
General and administrative expenses
     5,640       5,028       17,337       14,939  
Depreciation and amortization
     5,862       6,039       17,720       18,172  
 
                        
Total operating costs
     43,575       47,397       140,108       145,670  
 
                        
 
                                
Operating income
     1,174       1,546       966       6,125  
 
                                
Interest expense, net of income
     4,681       5,280       14,379       16,133  
Loss on debt refinancing
     —       1,828       —       1,828  
Other (income) expense
     820       (149 )     1,438       330  
 
                        
Net loss before income taxes
     (4,327 )     (5,413 )     (14,851 )     (12,166 )
 
                        
 
                                
Benefit from income taxes
     (1,736 )     (1,872 )     (5,569 )     (4,638 )
 
                        
 
                                
Net loss
   $ (2,591 )   $ (3,541 )   $ (9,282 )   $ (7,528 )
 
                        

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Spheris Reports Third Quarter 2008 Results
Page 6
November 12, 2008
SPHERIS INC.
Condensed Consolidated Balance Sheets
(Amounts in Thousands, Except Share Amounts)
                 
    (Unaudited)    
    September 30, 2008   December 31, 2007
     
Assets
                
Current assets
                
Unrestricted cash and cash equivalents
   $ 9,902     $ 7,195  
Restricted cash
     309       309  
Accounts receivable, net of allowance of $1,387 and $1,569, respectively
     30,514       33,595  
Deferred taxes
     4,635       3,386  
Prepaid expenses and other current assets
     5,365       4,460  
     
Total current assets
     50,725       48,945  
 
                
Property and equipment, net
     12,830       12,747  
Internal-use software, net
     1,712       1,932  
Customer contracts, net
     1,987       13,968  
Goodwill
     218,841       218,841  
Deferred taxes
     4,557       —  
Other noncurrent assets
     5,808       3,689  
     
Total assets
   $ 296,460     $ 300,122  
     
 
                
Liabilities and stockholders’ equity
                
Current liabilities
                
Accounts payable
   $ 2,911     $ 4,237  
Accrued wages and benefits
     12,540       18,130  
Current portion of long-term debt and lease obligations
     387       35  
Other current liabilities
     8,510       4,324  
     
Total current liabilities
     24,348       26,726  
 
                
Long-term debt and lease obligations, net of current portion
     199,907       191,761  
Deferred tax liabilities
     —       92  
Other long-term liabilities
     4,742       4,857  
     
Total liabilities
     228,997       223,436  
     
 
                
Commitments and contingencies
                
 
                
Common stock, $0.01 par value, 100 shares authorized, 10 shares issued and outstanding
     —       —  
Other comprehensive income
     181       564  
Contributed capital
     111,600       111,158  
Accumulated deficit
     (44,318 )     (35,036 )
     
Total stockholders’ equity
     67,463       76,686  
     
 
                
Total liabilities and stockholders’ equity
   $ 296,460     $ 300,122  
     

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Spheris Reports Third Quarter 2008 Results
Page 7
November 12, 2008
SPHERIS INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited and Amounts in Thousands)
                 
    Nine Months Ended September 30,
    2008   2007
     
Cash flows from operating activities:
                
Net loss
   $ (9,282 )   $ (7,528 )
Adjustments to reconcile net loss to net cash provided by operating activities:
                
Depreciation and amortization
     17,720       18,172  
Amortization of acquired technology
     162       486  
Deferred taxes
     (5,898 )     (5,198 )
Change in fair value of derivative financial instruments
     1,311       (10 )
Amortization of debt discounts and issuance costs
     630       602  
Loss on debt refinancing
     —       1,828  
Other non-cash items
     471       305  
Changes in operating assets and liabilities, net of acquisitions:
                
Accounts receivable
     3,081       (345 )
Prepaid expenses and other current assets
     (991 )     (1,031 )
Accounts payable
     (1,326 )     (872 )
Accrued wages and benefits
     (5,590 )     (993 )
Other current liabilities
     3,090       4,369  
Other noncurrent assets and liabilities
     (2,385 )     (4 )
     
Net cash provided by operating activities
     993       9,781  
     
 
                
Cash flows from investing activities:
                
Purchases of property and equipment
     (4,241 )     (3,086 )
Purchase and development of internal-use software
     (748 )     (558 )
Purchase of Vianeta, net of cash acquired
     —       (1,547 )
     
Net cash used in investing activities
     (4,989 )     (5,191 )
     
 
                
Cash flows from financing activities:
                
Proceeds from debt
     7,288       71,320  
Payments on debt and lease obligations
     (202 )     (76,051 )
Debt issuance costs
     —       (583 )
     
Net cash provided by (used in) financing activities
     7,086       (5,314 )
     
 
                
Effect of exchange rate change on cash and cash equivalents
     (383 )     836  
     
Net increase in unrestricted cash and cash equivalents
     2,707       112  
Unrestricted cash and cash equivalents, at beginning of period
     7,195       6,323  
     
Unrestricted cash and cash equivalents, at end of period
   $ 9,902     $ 6,435  
     
 
                
Supplemental Schedule of Non-cash Investing and Financing Activities:
                
     
Purchases of property and equipment and internal-use software through lease obligations
   $ 1,019     $ —  
     

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Spheris Reports Third Quarter 2008 Results
Page 8
November 12, 2008
SPHERIS INC.
Supplemental Financial Information
(Unaudited and Amounts in Thousands)
                                 
    Three Months Ended September 30,     Nine months Ended September 30,  
    2008     2007     2008     2007  
Net loss
   $ (2,591 )   $ (3,541 )   $ (9,282 )   $ (7,528 )
Depreciation and amortization
     5,862       6,039       17,720       18,172  
Interest expense, net of income
     4,681       5,280       14,379       16,133  
Loss on debt refinancing
     —       1,828       —       1,828  
Other (income) expense
     820       (149 )     1,438       330  
Benefit from income taxes
     (1,736 )     (1,872 )     (5,569 )     (4,638 )
 
                        
 
Adjusted EBITDA
   $ 7,036     $ 7,585     $ 18,686     $ 24,297  
 
                        
Note to Supplemental Financial Information
The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, and other expense or income (including mark-to-market adjustments related to the Company’s derivative financial instruments). Adjusted EBITDA is a financial measure not computed in accordance with United States generally accepted accounting principles, or GAAP. The Company believes that this non-GAAP measure, when presented in conjunction with the comparable GAAP measure, is useful to both management and investors in analyzing the Company’s ongoing business and operating performance. The Company believes that providing the non-GAAP information to investors, in addition to the GAAP presentation, allows investors to view the Company’s financial results in the way management and the Company’s senior lenders view the Company’s operating results. Management believes Adjusted EBITDA is useful as a supplemental measure of the performance of the Company’s operations because it isolates the Company’s operating performance from the accounting impact of the Company’s financing strategies, tax provisions, and depreciation and amortization. Additionally, since Adjusted EBITDA is a significant component of certain financial covenants under the Company’s senior secured credit facility agreement, management believes Adjusted EBITDA is useful for investors to better assess the Company’s compliance with these financial covenants. Management believes Adjusted EBITDA should be considered in addition to, but not as a substitute for, items prepared in accordance with GAAP that are presented in this press release, as the items excluded in the presentation of Adjusted EBITDA are significant components in understanding and assessing financial performance. A reconciliation of Adjusted EBITDA to the nearest comparable GAAP financial measure is provided above. Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies.

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