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 September 30, 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 October 31,1999
----- ----------------------------------------
Common Stock, $.01 par value 34,947,979
Non-voting Common Stock, $.01 par value 597,621
2
ECLIPSYS CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
PART I. Financial Information
Item 1. Condensed Consolidated Balance Sheets (unaudited) - As
of September 30, 1999 and December 31, 1998
Condensed Consolidated Statements of Operations
(unaudited) - For the Three and Nine Months ended
September 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows
(unaudited) - For the Nine Months ended
September 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements
(unaudited) - For the Three and Nine Months ended
September 30, 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
3
PART I.
ITEM 1.
ECLISPSYS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS)
(UNAUDITED)
ASSETS SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ ------------------
Current assets:
Cash and cash equivalents $ 36,545 $ 37,983
Investments - 17,003
Accounts receivable, net 74,246 62,324
Inventory 426 517
Other current assets 11,944 10,013
--------- ---------
TOTAL CURRENT ASSETS 123,161 127,840
Fixed assets, net 13,342 12,620
Capitalized software development costs, net 6,287 5,248
Acquired technology, net 39,809 43,318
Intangible assets, net 19,236 25,928
Other assets 5,165 6,060
--------- ---------
TOTAL ASSETS $ 207,000 $ 221,014
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Deferred revenue $ 55,591 $ 51,366
Current portion of long term debt - 1,890
Other current liabilities 43,039 48,860
--------- ---------
TOTAL CURRENT LIABILITIES 98,630 102,116
Deferred revenue 5,948 16,700
Other long-term liabilities 3,751 3,756
STOCKHOLDERS' EQUITY
Preferred stock - 1
Common stock 355 330
Common stock warrant 395 395
Unearned stock compensation (353) (1,623)
Additional paid-in capital 252,923 241,975
Accumulated other comprehensive income 64 44
Accumulated deficit (154,713) (142,680)
--------- ---------
Total stockholders' equity 98,671 98,442
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 207,000 $ 221,014
========= =========
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 AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- -------------------------------------
REVENUES 1999 1998 1999 1998
---- ---- ---- ----
Systems and services $ 58,361 $ 43,223 $ 168,097 $ 119,396
Hardware 6,469 3,708 15,937 9,355
-------------------------------- -------------------------------------
TOTAL REVENUES 64,830 46,931 184,034 128,751
-------------------------------- -------------------------------------
COSTS AND EXPENSES
Cost of systems and services revenues 32,168 24,525 93,375 69,746
Cost of hardware revenues 5,408 3,130 13,421 7,880
Marketing and sales 9,587 7,080 26,150 20,440
Research and development 10,055 9,063 34,149 25,800
General and administrative 2,929 2,657 9,033 7,690
Depreciation and amortization 4,063 2,893 11,734 8,750
Write off of MSA - - - 7,193
Stock compensation charge 982 - 1,987 -
Restructure charge 1,774 - 5,133 -
Pooling costs - - 1,648 -
-------------------------------- -------------------------------------
TOTAL COSTS AND EXPENSES 66,966 49,348 196,630 147,499
-------------------------------- -------------------------------------
-------------------------------- -------------------------------------
LOSS FROM OPERATIONS (2,136) (2,417) (12,596) (18,748)
-------------------------------- -------------------------------------
Interest income, net (337) (797) (945) (1,835)
LOSS BEFORE INCOME TAXES (1,799) (1,620) (11,651) (16,913)
PROVISION FOR INCOME TAXES - 1,146 - 4,252
-------------------------------- -------------------------------------
NET LOSS (1,799) (2,766) (11,651) (21,165)
-------------------------------- -------------------------------------
DIVIDENDS AND ACCRETION ON MANDATORILY
REDEEMABLE PREFERRED STOCK - (8,415) - (10,928)
-------------------------------- -------------------------------------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (1,799) $ (11,181) $ (11,651) $ (32,093)
================================ =====================================
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.05) $ (0.40) $ (0.34) $ (1.52)
================================ =====================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 35,479,000 28,009,000 34,575,000 21,130,000
================================ =====================================
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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1999 1998
--------------- --------------
OPERATING ACTIVITIES
Net Loss $(11,651) $(21,165)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 31,747 21,692
Provision for bad debts 1,576 1,016
Loss on sale of fixed assets - 8
Tax benefit of stock option exercises - 1,145
Write off of MSA - 7,193
Write off of capitalized software development costs 2,790 -
Stock compensation expense 2,250 132
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (6,231) (4,838)
Inventory 91 327
Other current assets (1,447) 984
Other assets 289 (2,879)
Deferred revenue (8,406) 22,586
Other current liabilities (6,340) (1,101)
Other liabilities (5) 634
-------- --------
Total adjustments to reconcile net loss to net
cash provided by operating activities 16,314 46,899
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,663 25,734
======== ========
INVESTING ACTIVITIES
Purchase of investments - (33,591)
Maturities of investments 17,003 6,550
Sales of investments - 250
Purchase of fixed assets (5,698) (4,336)
Capitalized software development costs (4,847) (3,211)
Acquisitions, net of cash acquired (20,000) -
Changes in other assets - (21,565)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (13,542) (55,903)
======== ========
FINANCING ACTIVITIES
Borrowings 20,000 18,940
Payments on borrowings (20,000) (35,088)
Exercise of stock options 5,905 828
Sale of common stock -initial public offering - 66,044
Redemption of mandatorily redeemable preferred stock - (38,771)
Sale of preferred stock - 9,000
Employee stock purchase plan 1,893 59
Distributions (377) (305)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,421 20,707
======== ========
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 20 33
-------- --------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (1,438) (9,429)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 37,983 63,414
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 36,545 $ 53,985
======== ========
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 AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 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 a 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"). Effective
February 17, 1999, the Company completed a merger with PowerCenter
Systems, Inc. ("PCS"). Effective June 17, 1999, the Company completed a
merger with MSI Solutions, Inc. and MSI Integrated Services, Inc.
(collectively, "MSI"). Each of these mergers were accounted for as a
pooling of interests and, accordingly, the condensed consolidated
financial statements have been retroactively restated as if the mergers
had occurred as of the beginning of the earliest period presented.
The Company issued 1,104,000 and 2,375,000 of its common stock for all of
the common stock outstanding of PCS and MSI, respectively. No adjustments
were made to the net assets of either Company as a result of the
acquisitions.
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.
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ECLIPSYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
2. ACQUISITIONS
The Transition, PCS and MSI acquisitions discussed in Note 1 were
accounted for as poolings 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 For the nine
months ended months ended
Revenue: September 30, 1998 September 30, 1998
------------------ ------------------
As previously reported $ 36,160 $ 97,744
Transition 7,650 22,595
PCS 319 989
MSI 2,802 7,423
--------- ---------
As restated $ 46,931 $ 128,751
Net Loss:
As previously reported $ (2,006) $ (16,828)
Transition (635) (4,062)
PCS (669) (1,624)
MSI 544 1,349
--------- ---------
As restated $ (2,766) $ (21,165)
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 $25.0 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. As of March 31, 1999 the Company intended to
dispose of Med Data.
The purchase price is composed of and allocated of follows (in
thousands):
Cash $ 25,000
Liabilities assumed 4,306
--------
29,306
Current assets 9,830
Fixed assets 778
--------
10,608
Identifiable intangible assets
(acquired technology) $ 18,698
========
Effective July 1, 1999, the Company sold Med Data for total a sales price
of $5.0 million in cash. The Company reduced acquired technology
originally recorded in the purchase by $4.4 million, which represented the
difference between the sales price and the net assets sold. No gain or
loss was recorded.
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):
Nine months ended
September 30,
1999 1998
-------------------------------
Revenues $ 187,525 $ 148,376
Net loss $ (12,090) $ (29,181)
Basic and diluted loss per share $ (.35) $ (1.90)
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ECLIPSYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
3. UNBILLED ACCOUNTS RECEIVABLE
The current portion of unbilled accounts receivable were $17.9 million and
$10.8 million as of September 30, 1999 and 1998, respectively, which is
included in accounts receivable in the accompanying condensed consolidated
balance sheet. The non-current portion of unbilled accounts receivable
were $760,000 and $2.1 million as of September 30, 1999 and 1998,
respectively, which is included in other assets in the accompanying
condensed consolidated balance sheet.
4. POOLING COSTS
Included in operating activities on the accompanying condensed
consolidated statement of cash flows for the nine months ended September
30, 1999 are $1.3 million of costs paid related to the poolings of
Transition, PCS and MSI.
5. RESTRUCTURING
During the quarter ended September 30, 1999, the Company completed a
restructure of its organization that began in the second quarter of 1999.
In connection with the restructure, the Company incurred costs related to
the closing of duplicate facilities and the termination of certain
employees. Costs aggregating approximately $1.8 million and $3.4 million
were incurred during the quarter ended September 30, 1999 and June 30,
1999, respectively.
As of September 30, 1999, accrued restructuring costs of $3.0 million are
included in other current liabilities in the accompanying condensed
consolidated balance sheet. Included in operating activities in the
accompanying condensed consolidated statement of cash flows for the nine
months ended September 30, 1999 are approximately $2.2 million of costs
paid related to the restructuring.
6. INVESTMENT IN HEALTHVISION
During July 1999, the Company invested in Healthvision, Inc., a Dallas
based, privately held internet healthcare company, in conjunction with
VHA, Inc. and General Atlantic Partners, LLC. The Company purchased
3,400,000 shares of common stock for $34,000, which represents 34% of the
outstanding common stock on an if converted basis of Healthvision, Inc.
The Company accounts for the investment using the equity method of
accounting. This entity is a start-up enterprise that bears no
relationship to the acquisition by Transition in December 1998.
7. STOCK COMPENSATION CHARGE
From time to time, the Company has granted options below fair market value
and, accordingly, has recorded unearned stock compensation and recognizes
stock compensation expense over the vesting period of the related stock
options.
During the second quarter 1999, in connection with the pooling of MSI,
the Company recorded a stock compensation charge of $1.0 million
related to the required accelerated vesting of certain stock options
that were previously granted by MSI.
During the quarter ended September 30, 1999, the Company recorded a stock
compensation charge of $982,000 related to the accelerated vesting of
certain employees' stock options in connection with their transfer to the
newly formed Healthvision, Inc.
8. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
During the second quarter 1999 and in connection with the pooling of MSI,
the Company wrote off $2.8 million of capitalized software development
costs related to duplicate products. The write off is included in research
and development in the accompanying condensed consolidated financial
statements.
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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 seven
functional areas - clinical management, access management, patient
financial management, health information management, strategic decision
support, resource planning management and enterprise application
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.
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The Company was formed in December 1995 and has grown primarily through a
series of strategic acquisitions as follows:
METHOD OF
TRANSACTION DATE ACCOUNTING
----------- ---- ----------
ALLTEL Healthcare Information Services, Inc. 1/24/97 Purchase
("Alltel")
SDK Medical Computer Services Corporation 6/26/97 Purchase
("SDK")
Emtek Healthcare Systems 1/30/98 Purchase
("Emtek") a division of Motorola, Inc.
HealthVISION, Inc. (acquired by Transition) 12/1/98 Purchase
("HealthVISION")
Transition Systems, Inc. 12/31/98 Pooling
("Transition")
PowerCenter Systems, Inc. 2/17/99 Pooling
("PCS")
Intelus Corporation and Med Data Systems, Inc. 3/31/99 Purchase
("Intelus" and "Med Data") wholly owned
subsidiaries of Sungard Data Systems, Inc.
MSI Solutions, Inc. and MSI Integrated 6/17/99 Pooling
Services, Inc.
(collectively, "MSI")
The condensed consolidated financial statements of the Company reflect the
financial results of the purchased entities from the respective dates of
the purchase. For all transactions accounted for using the pooling of
interests method, the Company's condensed consolidated financial
statements have been retroactively restated as if the transactions had
occurred as of the beginning of the earliest period presented.
RESULTS OF OPERATIONS
SUMMARY
Total revenues for the quarter ended September 30, 1999 increased 38% to
$64.8 million compared with $46.9 million for the third quarter 1998. For
the nine months ended September 30, 1999, total revenues increased 43% to
$184.0 million compared to $128.8 million for the same period in 1998.
Total costs and expenses for the quarter ended September 30, 1999
increased 36% compared to the same period in 1998. For the nine months
ended September 30, 1999 total costs and expenses increased 33% compared
to the nine months ended September 30, 1998.
11
These changes in revenues and expenses combined to decrease net loss for
the quarter ended September 30, 1999 by 35% to ($1.8) 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
$11.1 million and $4.9 million for the quarter ended September 30, 1999
and 1998, respectively.
Year to date changes in revenues and expenses combined to decrease net
loss for the nine months ended September 30, 1999 by 45% to ($11.7)
million compared to the same period in 1998. Included in the reported nine
month net losses were acquisition related amortization of intangible
assets and certain non-recurring charges recorded in connection with the
acquisitions of $36.2 million and $22.3 million for the nine months ended
September 30, 1999 and 1998, respectively.
REVENUES
System and services revenues increased 35% to $58.4 million for the third
quarter of 1999 compared to the same period in 1998 and 41% to $168.1
million for the nine months ended September 30, 1999 compared to the same
period in 1998. Contributing to this increase was the inclusion of the
results of operations of HealthVISION and Intelus during the quarter and
nine months of 1999, as well as new contracted business during 1998. 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 integration of the acquisitions.
Hardware revenues increased 76% to $6.5 million for the third quarter of
1999 compared to the same period in 1998 and 69% to $15.9 million for the
nine months ended September 30, 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 36% for the third quarter of 1999 and 38%
for the year to date compared to the same periods in 1998. Increased costs
of system, services and hardware associated with the growth in sales were
partially 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 35% for the third quarter of 1999
compared to the same period in 1998 and 28% for the nine months ended
September 30, 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 18% to $11.9 million
for the third quarter 1999 compared to the same period in 1998 and 34% to
$39.0 million for the nine months ended September 30, 1999 compared to the
same period in 1998. The increase was due primarily to the acquisitions,
the write-off of $2.8 million of capitalized software development costs
related to duplicate products with no alternative future use due to the
acquisition of MSI and the continued development of an enterprise-wide,
web enabled, client server platform solution. Research and development
expenses capitalized for the third quarter of 1999 increased $749,000
compared to the same period in 1998 and $1,636,000 for the nine months
ended September 30, 1999 compared to the same period in 1998. Increased
capitalization was primarily the result of expenditures related to the
development of an enterprise-wide, web enabled, client server platform
solution.
12
General and administrative expenses increased 10% for the third quarter of
1999 compared to the same period in 1998 and 17% for the nine months ended
September 30, 1999 compared to the same period in 1998. The increase was
primarily due to the addition of administrative and finance personnel
following the acquisitions.
Depreciation and amortization increased 40% for the third quarter of 1999
compared to the same period in 1998 and 34% for the nine months ended
September 30, 1999 compared to the same period in 1998. The increase for
the quarter and year to date 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 September 30, 1999, revenues and operating profit attributable to
the acquired in-process technology have not materially differed from the
projections used in determining its value. Throughout 1999, the Company
has continued the development of the in-process technology that was
acquired in the transactions. To date, the Company is installing
modules derived from the acquired in-process technology in various field
trial sites that are expected to be activated by the end of 1999.
Additionally, the Company has begun to successfully market certain aspects
of the technology to new and existing customers. The Company expects to
continue releasing products derived from the technology through 2001.
Management continues to believe the projections used reasonably estimate
the future benefits attributable to the in-process technology. However, no
assurance can be given that deviations from these projections will not
occur.
If these projects to develop commercial products based on the acquired
in-process technology are not successfully completed, the sales and
profitability of the Company may be adversely affected in future periods.
Additionally, the value of other intangible assets may become impaired.
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 significant 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.
13
All of the products currently offered by Eclipsys are Year 2000 compliant.
Some of the products previously sold by Alltel, Emtek and Transition 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, Emtek or Transition products or difficulties in
interfacing with third-party products could adversely affect the
Company. Additionally, 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 nine months ended September 30, 1999 due
to the Company's reinvestment of maturities in highly liquid investments
with original maturities of three months or less.
ACCOUNTS RECEIVABLE
Accounts receivables increased during the nine months ended September 30,
1999 primarily due to the acquisitions of Intelus and activities related
to the integration of Transition.
ACQUIRED TECHNOLOGY
Acquired technology decreased during the nine months ended September 30,
1999 primarily due to amortization and a reduction in acquired
technology related to the sale of Med Data.
OTHER CURRENT LIABILITIES
Other current liabilities decreased during the nine months ended September
30, 1999 due to the timing of payments related to accounts payable and
accrued expenses acquired from the acquisitions including deal costs of
Transition and Intelus, and the payment of certain employee related
expenses.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1999, activities from
operations provided the Company with $4.7 million in cash flow. Included
in operations are approximately $1.3 million of costs paid directly
related to the poolings of Transition, PCS and MSI during the nine months
ended September 30, 1999. Additionally, included in operations is
approximately $2.2 million of severance related to the Company's
restructuring during the nine months ended September 30, 1999. The Company
used $13.5 million for investing activities, which was primarily the
result
14
of the acquisitions of Intelus and Med Data. Financing activities provided
$7.4 million, primarily due to the exercise of stock options and the
employee stock purchase plan.
As of September 30, 1999, the Company had no amounts outstanding under its
$50.0 million revolving credit facility.
As of September 30, 1999, the Company had $36.5 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.
15
PART II.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Index to exhibits.
(b) Reports on Form 8-K: None
16
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: November 15, 1999 /s/ Robert J. Vanaria
---------------------
Robert J. Vanaria
Chief Financial Officer
17
ECLIPSYS CORPORATION
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
--- -----------
2 Asset Purchase Agreement by and among Quadramed
Corporation, Eclipsys Corporation and Med Data
Systems, Inc dated July 1, 1999
27 Financial Data Schedule (for SEC use only)