1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
COMMISSION FILE NUMBER: 000-24539
ECLIPSYS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 65-0632092
(State of Incorporation) (IRS Employer Identification
Number)
777 East Atlantic Avenue
Suite 200
Delray Beach, Florida
33483
(Address of principal executive offices)
(561)-243-1440
(Telephone number of registrant)
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 for the past 90 days. Yes X No
--- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Shares outstanding as of April 30,1999
----- --------------------------------------
Common Stock, $.01 par value 31,509,283
Non-voting Common Stock, $.01 par value 597,621
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ECLIPSYS CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
PART I. Financial Information
Item 1. Condensed Consolidated Balance Sheets (unaudited) - As of March 31, 1999 and December 31, 1998
Condensed Consolidated Statements of Operations (unaudited) - For the Three Months ended
March 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows (unaudited) - For the Three Months ended
March 31, 1999 and 1998
Notes to Condensed Consolidated Financial Statements (unaudited) - For the Three Months ended
March 31, 1999 and 1998
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
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PART I.
ITEM 1.
ECLISPSYS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS)
(UNAUDITED)
ASSETS MARCH 31, 1999 DECEMBER 31, 1998
---------------- ----------------
Current assets:
Cash and cash equivalents $ 50,310 $ 37,983
Investments - 17,003
Accounts receivable, net 63,073 57,924
Inventory 578 517
Other current assets 10,870 10,004
---------------- ----------------
TOTAL CURRENT ASSETS 124,831 123,431
Fixed assets, net 12,633 12,349
Capitalized software development costs, net 6,052 5,248
Acquired technology, net 56,814 43,318
Intangible assets, net 23,765 25,928
Other assets 5,676 6,060
---------------- ----------------
TOTAL ASSETS $ 229,771 $ 216,334
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Deferred revenue $ 53,810 $ 51,366
Current portion of long-term debt 20,000 -
Other current liabilities 44,518 47,700
---------------- ----------------
TOTAL CURRENT LIABILITIES 118,328 99,066
Deferred revenue 10,607 16,700
Other long-term liabilities 3,752 3,756
SHAREHOLDERS' EQUITY
Common stock 318 311
Common stock warrant 395 395
Unearned stock compensation (160) (178)
Additional paid-in capital 243,282 241,929
Accumulated other comprehensive income 203 44
Accumulated deficit (146,954) (145,689)
---------------- ----------------
TOTAL SHAREHOLDERS' EQUITY 97,084 96,812
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 229,771 $ 216,334
================ ================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
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ECLIPSYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
REVENUES 1999 1998
------ ------
Systems and services $ 48,435 $ 34,852
Hardware 5,498 2,290
--------------------------
TOTAL REVENUES 53,933 37,142
--------------------------
COSTS AND EXPENSES
Cost of systems and services revenues 27,302 21,006
Cost of hardware revenues 4,670 1,977
Marketing and sales 7,418 6,413
Research and development 9,097 7,753
General and administrative 2,720 2,619
Depreciation and amortization 3,814 2,963
Write off of MSA - 7,193
Pooling costs 614 -
--------------------------
TOTAL COSTS AND EXPENSES 55,635 49,924
--------------------------
--------------------------
LOSS FROM OPERATIONS (1,702) (12,782)
--------------------------
Interest income, net (437) (435)
LOSS BEFORE INCOME TAXES (1,265) (12,347)
PROVISION FOR INCOME TAXES - 1,921
--------------------------
NET LOSS (1,265) (14,268)
--------------------------
DIVIDENDS AND ACCRETION ON MANDATORILY
REDEEMABLE PREFERRED STOCK - (1,335)
--------------------------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (1,265) $ (15,603)
--------------------------
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.04) $ (1.03)
--------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 31,315,000 15,112,000
--------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
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ECLIPSYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN THOUSANDS)
(UNAUDITED)
Three Months ended March 31,
----------------------------
1999 1998
-------- --------
Operating Activities
Net Loss $ (1,265) $(14,268)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 9,828 7,466
Provision for bad debts 285 225
Tax benefit of stock option exercises - 15
Write off of MSA - 7,193
Stock compensation expense 18 18
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable 3,165 2,341
Inventory (61) 200
Other current assets (117) 1,958
Other assets 223 (308)
Deferred revenue (6,726) 8,137
Other current liabilities (4,039) 1,970
Other liabilities (4) (13)
-------- --------
Total adjustments to reconcile net loss to net
cash provided by operating activities 2,572 29,202
-------- --------
Net cash provided by operating activities 1,307 14,934
-------- --------
Investing Activities
Purchase of fixed assets, net (1,269) (1,888)
Capitalized software development costs (1,233) (1,071)
Acquisitions, net of cash acquired (25,000) -
Changes in other assets - (16,000)
-------- --------
Net cash used in investing activities (27,502) (18,959)
-------- --------
Financing Activities
Borrowings under line-of-credit 20,000 9,000
Payments on borrowings under line-of-credit - (9,000)
Exercise of stock options 811 959
Sale of preferred stock - 9,000
Employee stock purchase plan 549 -
-------- --------
Net cash provided by financing activities 21,360 9,959
-------- --------
Effect of exchange rate changes on cash and
cash equivalents 159 11
-------- --------
Net (decrease) increase in cash and cash equivalents (4,676) 5,945
Cash and cash equivalents, beginning of period 54,986 63,414
-------- --------
Cash and cash equivalents, end of period $ 50,310 $ 69,359
-------- --------
The accompanying notes are an integral part to these unaudited condensed
consolidated financial statements
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ECLIPSYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include all adjustments
that, in the opinion of management, are necessary for a fair
presentation of the results for the periods presented. All such
adjustments are considered of normal recurring nature. Quarterly results
of operations are not necessarily indicative of annual results.
Effective December 31, 1998, Eclipsys Corporation ("the Company")
completed a merger with Transition Systems, Inc. ("Transition"). The
merger was accounted for as a pooling of interests and, accordingly, the
condensed consolidated financial statements have been retroactively
restated as if the Transition merger had occurred as of the beginning of
the earliest period presented.
Effective February 17, 1999, the Company completed a merger with
PowerCenter Systems, Inc. ("PCS"). The merger was accounted for as a
pooling of interests and, accordingly, the condensed consolidated
financial statements have been retroactively restated as if the PCS
merger had occurred as of the beginning of the earliest period
presented.
Certain financial information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These unaudited
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K dated March
26, 1999.
Certain prior year amounts have been reclassified to conform to the
current year presentation in the accompanying condensed consolidated
financial statements.
2. ACQUISITIONS
As discussed in Note 1, effective February 17, 1999, the Company
completed a merger with PCS for total consideration of approximately $35
million. PCS provides enterprise resource planning software throughout
the healthcare industry.
As discussed in Note 1 the Transition and PCS acquisitions were
accounted for as pooling of interests, accordingly, all prior period
amounts have been restated. A reconciliation between revenue and net
loss as previously reported by the Company and as restated (unaudited)
is as follows:
For the three
months ended
Revenue: March 31, 1998
As previously reported $ 29,295
Transition 7,730
PCS 117
--------
As restated $ 37,142
Net Loss:
As previously reported $(11,610)
Transition (1,964)
PCS (694)
--------
As restated $(14,268)
--------
--------
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ECLIPSYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED)
Effective March 31, 1999, the Company acquired the common stock of
Intelus Corporation ("Intelus") and Med Data Systems, Inc. ("Med Data"),
both wholly owned subsidiaries of Sungard Data Systems, Inc. for total
consideration of $25 million in cash. The acquired entities both provide
document imaging technology and workflow solutions to entities
throughout the healthcare industry. The acquisition was accounted for as
a purchase and, accordingly, the purchase price was allocated based on
the fair value of the net assets acquired.
Unaudited pro forma results of operations as if the aforementioned
acquisitions had occurred on January 1, 1998 is as follows (in thousands
except per share data):
Three months ended
March 31,
1999 1998
----------------------------
Revenues $ 45,401 $ 57,424
Net loss (17,969) (1,704)
Basic and diluted loss per share $ (1.16) $ (0.05)
3. LONG-TERM DEBT
As discussed in Note 2, on March 31, 1999, the Company acquired the
common stock of Intelus and Med Data for total consideration of $25
million in cash. In connection with the transaction, the Company
borrowed $20 million under its $50 million credit facility.
4. POOLING COSTS
Included in operating activities on the accompanying condensed
consolidated statement of cash flows for the quarter ended March 31,
1999 are $722,000 of costs paid related to the poolings of Transition
and PCS.
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PART I.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact
may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects,"
"intends," and similar expressions are intended to identify
forward-looking statements. The important factors discussed under the
caption "Certain Factors that May Affect Future Operating Results/Risk
Factors," presented from time to time in the Company's filings with the
Securities and Exchange Commission, among others, could cause actual
results to differ materially from those indicated by forward-looking
statements made herein. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
OVERVIEW
Eclipsys Corporation ("Eclipsys" or "the Company") is a healthcare
information technology company delivering solutions that enable
healthcare providers to achieve improved clinical, financial and
administrative outcomes. The Company offers an integrated suite of core
products in five critical areas - clinical management, access
management, patient financial management, strategic decision support and
integration. These products can be purchased in combination to provide
an enterprise-wide solution or individually to address specific needs.
Eclipsys' products have been designed specifically to deliver a
measurable impact on outcomes, enabling Eclipsys' customers to quantify
clinical benefits and return on investment in a precise and timely
manner. Eclipsys' products can be integrated with a customer's existing
information systems, which Eclipsys believes reduces overall cost of
ownership and increases the attractiveness of its products. Eclipsys
also provides outsourcing, remote processing and networking services to
assist customers in meeting their healthcare information technology
requirements. Eclipsys markets its products primarily to large
hospitals, academic medical centers and integrated health networks. To
provide direct and sustained customer contact, Eclipsys maintains
decentralized sales, implementation and customer support teams in each
of its eight North American regions.
The Company was formed in December 1995 and has grown primarily through
a series of acquisitions, all completed since January 1997. The first
three acquisitions were accounted for utilizing the purchase method of
accounting and, accordingly, Eclipsys' financial statements reflect the
results of these businesses from the date acquired. These acquisitions
were (1) the acquisition of ALLTEL Healthcare Information Services, Inc.
("Alltel") in January 1997, (2) the acquisition of SDK Medical Computer
Services Corporation ("SDK") in June 1997 and (3) the acquisition of the
North American operations of Emtek Healthcare Systems, a division of
Motorola, Inc. ("Emtek"), in January 1998. The next two acquisitions
were accounted for utilizing the pooling of interests method of
accounting and, accordingly, Eclipsys' financial statements have been
retroactively restated as if the transactions had occurred as of the
earliest period presented. These acquisitions were (1) a merger with
Transition Systems, Inc. ("Transition"), effective December 31, 1998,
and (2) a merger with PowerCenter Systems, Inc. ("PCS"), effective
February 17, 1999. Additionally, Transition had acquired HealthVISION,
Inc. ("HealthVISION") in December 1998, shortly before the closing of
the Eclipsys' acquisition of Transition. The HealthVISION acquisition
was accounted for as a purchase and, accordingly, Eclipsys' financial
statements reflect the results of the business from the date acquired.
Finally, the purchase of Intelus Corporation and Med Data Systems, Inc.,
both wholly owned subsidiaries of Sungard Data Systems, Inc., was
completed on March 31, 1999 and was accounted for as a
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purchase and, accordingly, Eclipsys' financial statements will reflect
the results of these businesses from the date acquired.
RESULTS OF OPERATIONS
SUMMARY
Total revenues for the quarter ended March 31, 1999 increased 45% to
$53.9 million compared with $37.1 million for the first quarter 1998.
Total costs and expenses for the quarter ended March 31, 1999 increased
11% compared to the same period in 1998.
These changes in revenues and expenses combined to decrease net loss for
the quarter ended March 31, 1999 by 91% to ($1.3) million compared to
the same period in 1998.
Included in the reported quarterly net losses were acquisition related
amortization of intangible assets and certain non-recurring charges
recorded in connection with the acquisitions of $8.1 million in the
first quarter 1999 and $12.5 million in the first quarter 1998.
REVENUES
System and services revenues increased 39% to $48.4 million for the
first quarter of 1999 compared to the same period in 1998. Contributing
to this increase was the inclusion of the results of operations of Emtek
and HealthVISION during first quarter 1999, as well as new contracted
business during 1998 and 1997. The increase in new contracted business
was a result of increased marketing efforts related to the regional
re-alignment of the Company's operations completed in 1997 and the
successful integration of the acquisitions.
Hardware revenues increased 140% to $5.5 million for the first quarter
of 1999 compared to the same period in 1998. The increase was primarily
due to increased volume as a result of the acquisitions and new
contracted business.
EXPENSES
Total cost of revenues increased 39% for the first quarter of 1999
compared to the same period in 1998. Increased costs of system, services
and hardware associated with the growth in sales were offset by a
reduction of certain expenses and realization of cost savings as a
result of the integration of the acquisitions.
Marketing and sales expenses increased 16% for the first quarter of 1999
compared to the same period in 1998. The increase was primarily due to
the addition of marketing and direct sales personnel following the
acquisitions and the continued hiring of sales people.
Total expenditures for research and development, including both
capitalized and non-capitalized expenses increased 17% to $10.3 million
for the first quarter 1999 compared to the same period in 1998. The
increase was due primarily to the acquisitions and the continued
development of an enterprise-wide, client server platform solution.
Research and development expenses capitalized for the first quarter of
1999 increased $162,000 compared to the same period in 1998. Increased
capitalization was primarily the result of expenditures related to the
development of an enterprise-wide, client server platform solution.
General and administrative expenses increased 4% for the first quarter
of 1999 compared to the same period in 1998. The increase was primarily
due to the addition of administrative and finance personnel following
the acquisitions.
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Depreciation and amortization increased 29% for the first quarter of
1999 compared to the same period in 1998. The increase for the quarter
is primarily the result of an increase in goodwill amortization as a
result of the HealthVISION acquisition.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the Alltel, SDK and HealthVISION acquisitions, the
Company wrote off acquired in-process research and development totaling
$92.2 million and $7.0 million in 1997 and $2.4 million in 1998,
respectively. These amounts were expensed as non-recurring charges on
the respective acquisition dates. The Company continues to believe that
the acquired in-process research and development will be successfully
developed, but there can be no assurance that commercial viability of
these products will be achieved.
The value of the acquired in-process research and development was
determined by estimating the projected net cash flows related to such
products, including costs to complete the development of the technology
and the future revenues to be earned upon commercialization of the
products. These cash flows were discounted back to their net present
value. The resulting projected net cash flows from such projects were
based on management's estimates of revenues and operating profits
related to such projects.
Through March 31, 1999, revenues and operating profit attributable to
acquired in-process research and development have not materially
differed from the projections used in determining its value, except for,
as previously reported, the timing of one outsourcing contract.
Management continues to believe the projections used reasonably estimate
the future benefits attributable to the acquired in-process research and
development. However, no assurance can be given that deviations from
these projections will not occur.
YEAR 2000 ISSUES
Eclipsys has a Year 2000 Committee whose task is to evaluate the
Company's Year 2000 readiness for both internal and external management
information systems, recommend a plan of action to minimize disruption
and execute the Company's Year 2000 plan. The Committee has developed a
comprehensive Year 2000 Plan. The Year 2000 Plan covers all significant
internal and external management information systems.
Eclipsys believes that all of its internal management information
systems are currently Year 2000 compliant and, accordingly, does not
anticipate any significant expenditures to remediate or replace existing
internal-use systems.
With the exception of the Transition for Quality product (for which the
Company expects to release a fully Year 2000 compliant version in 1999),
all of the products currently offered by Eclipsys are Year 2000
compliant. Some of the products previously sold by Alltel and Emtek and
installed in Eclipsys' customer base are not Year 2000 compliant.
Eclipsys has developed and tested solutions for these non-compliant,
installed products.
In addition, because Eclipsys' products are often interfaced with a
customer's existing third-party applications and certain Eclipsys'
products include software licensed from third-party vendors, Eclipsys'
products may experience difficulties interfacing with third-party,
non-compliant applications. Based on currently available information,
Eclipsys does not expect the cost of compliance related to interactions
with non-compliant, third-party systems to be material.
Unexpected difficulties in implementing Year 2000 solutions for the
installed Alltel or Emtek products or difficulties in interfacing with
third-party products could adversely effect the Company.
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Apprehension in the marketplace over Year 2000 compliance issues may
lead businesses, including customers of the Company, to defer
significant capital investments in information technology programs and
software. They could elect to defer those investments either because
they decide to focus their capital budgets on the expenditures necessary
to bring their own existing systems into compliance or because they wish
to purchase only software with a proven ability to process data after
1999. If these deferrals are significant, the Company may not achieve
expected revenue or earnings levels.
BALANCE SHEET
INVESTMENTS
Investments decreased during the three months ended March 31, 1999 due
to the Company's reinvestment of maturities in highly liquid investments
with original maturities of three months or less.
ACQUIRED TECHNOLOGY
Acquired Technology increased during the three months ended March 31,
1999 due to the acquisitions of Intelus and Med Data.
LONG-TERM DEBT
Long-term debt increased during the three months ended March 31, 1999
due to the acquisitions of Intelus and Med Data.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1999, the Company generated $1.3
million in cash flow from operations. Included in operations is
approximately $722,000 of costs paid directly related to the poolings of
Transition and PCS. Additionally the Company paid approximately $5.0
million of annual employee compensation related liabilities during the
first quarter. The Company used $27.5 million for investing activities,
which was primarily the result of the acquisitions of Intelus and Med
Data. Financing activities provided an additional $21.3 million,
primarily due to borrowings on the line of credit for the acquisitions
of Intelus and Med Data.
As of March 31, 1999, the Company had $20.0 million outstanding under
its $50.0 million revolving credit facility.
As of March 31, 1999, the Company had $50.3 million in cash and cash
equivalents.
Management believes that its available cash and cash equivalents,
anticipated cash generated from its future operations and amounts
available under the existing revolving credit facility will be
sufficient to meet the Company's operating requirements for at least the
next twelve months.
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PART II.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Index to exhibits.
(b) Reports on Form 8-K: Filed with the Securities and Exchange
Commission on January 12, 1999 and March 3, 1999.
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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.
ECLIPSYS CORPORATION
Date: April 13, 1999 /s/ ROBERT J. VANARIA
----------------------
Robert J. Vanaria
Chief Financial Officer
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ECLIPSYS CORPORATION
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
2 Stock Purchase and Sale Agreement dated as of March 6. 1999 by
and among Sungard Data Systems Inc., Sungard Investment
Ventures, Inc., Med Data Systems, Inc., Intelus Corporation, and
Eclipsys Corporation and Eclipsys Solutions Corp.
10.1 Amended and Restated 1998 Employee Stock Purchase Plan, as
amended
10.2 1998 Stock Incentive Plan, as amended
10.3 1999 Stock Incentive Plan
27 Financial Data Schedule (for SEC use only).