TriZetto Reports Increases of 18% in Revenue and 35% in Adjusted EBITDA for Q3 2006.Increases Full-Year (Same-Store) TriZetto Guidance NEWPORT BEACH Newport Beach, residential and resort city (1990 pop. 66,643), Orange co., S Calif., on Newport Bay and the Pacific Ocean; inc. 1906. It is a popular seaside resort and yachting center. Manufactures include electrical and medical equipment, computers, boats, and adhesives. , Calif. -- The TriZetto Group, Inc. (Nasdaq: TZIX) today reported quarterly revenue of $86.4 million, which generated record Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become of $17.9 million for its third quarter ended September 30, 2006. For the third quarter, the company reported a net loss per share of ($0.13), which included a one-time patent litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. settlement charge of $15 million, or ($0.29) per share, and a ($0.03) per share negative effect of expensing stock-based compensation under SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System 123R, which was not included in last year's EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. . New contract bookings were a robust $75.9 million. "The healthcare payer marketplace is beginning to actively address the impact of increased consumer involvement in both economic and qualitative healthcare decisions," said Jeff Margolis, TriZetto's chairman and chief executive officer. "TriZetto's breadth of technology solutions enables our customers to successfully respond to this shifting landscape. Demand for our solutions has driven year-to-date increases of 19% in revenue and 38% in Adjusted EBITDA over last year, positioning TriZetto to meet or exceed its guidance and growth targets for the full year." "Third quarter results reflect solid operational performance with a good balance across our new and traditional products," added Kathleen Earley, TriZetto's president and chief operating officer Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. . "TriZetto is exceptionally well positioned with the key solutions customers need, such as advanced care management, and real-time point-of-service patient liability determination." [TABLE OMITTED] (a) Definition and reconciliation to GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). is included in the attached financial schedules Revenue Third quarter 2006 revenue totaled $86.4 million, versus $73.1 million for the third quarter of 2005. The $13.3 million improvement included increases of $8.9 million in software license, $2.4 million in software maintenance, $1.1 million in consulting and other non-recurring, and $0.9 million in outsourced services revenue. Non-recurring revenue represented 50.5% of total revenue in the third quarter of 2006, compared to 46.0% in the year-ago quarter, driven primarily by the larger increase in license revenue. New Business Bookings TriZetto signed new customer contracts in the third quarter of 2006 with a total value of $75.9 million, compared to $75.1 million in the year-ago quarter. Contract bookings comprise a mix of current and future period revenue and represent the expected minimum total revenue to be generated under each contract. New contract bookings will vary from one quarter to the next. New third-quarter contract bookings included $38.2 million for software license contracts; $21.1 million for outsourced services contracts (software hosting, business process outsourcing Business process outsourcing (BPO) is the contracting of a specific business task, such as payroll, to a third-party service provider. Usually, BPO is implemented as a cost-saving measure for tasks that a company requires but does not depend upon to maintain its position in and other services); and $16.6 million for consulting, implementation, software customization and other services. Backlog The company's total revenue backlog was approximately $748 million at September 30, 2006, compared to $663 million at September 30, 2005 and $718 million at June 30, 2006. Twelve-month revenue backlog was approximately $192 million at September 30, 2006, compared to $194 million at September 30, 2005 and $186 million at June 30, 2006. The timing of contract closings and other factors can cause the company's backlog to vary from one quarter to the next. Profitability Third quarter 2006 net loss was ($5.7) million, or ($0.13) per share, compared to net income of $6.5 million, or $0.14 per share, for the third quarter of 2005. Third quarter 2006 EPS included a ($0.29) charge for the settlement of patent litigation with McKesson Corporation and ($0.03) negative impact from both the equity and cash expense effects of adopting Statement of Financial Accounting Standards No. 123R, which requires all companies to expense stock-based compensation beginning in 2006. For the first three quarters of 2006, EPS was $0.17, which included the ($0.29) McKesson settlement charge and ($0.09) year-to-date negative impact of SFAS 123R. Third quarter income taxes reflect a benefit of $103,000, primarily representing the McKesson litigation settlement charge and the benefit of utilization of federal net operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. carry-forwards. At December 31, 2006, the company expects the full-year effective tax rate to be approximately 12% and to have approximately $50 million of remaining federal NOL NOL - Never Offline carry-forwards which will be available for use in 2007. Adjusted EBITDA was a record $17.9 million for the third quarter of 2006, up 35% compared to $13.3 million in the year ago quarter. TriZetto reports earnings in accordance with Generally Accepted Accounting Principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP), and additionally reports certain non-GAAP measures, such as Adjusted EBITDA, believing that these provide additional information for investors to evaluate the company's financial performance. A definition of Adjusted EBITDA and a reconciliation to GAAP measures are included in the attached financial schedules. Gross margin for the third quarter 2006 was 47.9%, compared to 45.6% a year ago. The 230 basis point improvement was driven primarily by a higher-margin mix of revenue in the quarter, improved pricing and operating efficiencies. Research and development expenses represented 12.2% of revenue in the third quarter of 2006, 160 basis points higher than 10.6% of revenue for the year-ago quarter. This increase reflected development for the cost and quality of care solutions acquired in December 2005, as well as continuing investments in core administration and component software to add new capabilities and functionality. Third quarter 2006 selling, general and administrative expense was $35.5 million, including the $15 million litigation settlement charge, compared to $18.6 million a year ago. Excluding the McKesson settlement, SG&A expense would have been $20.5 million, or 23.7% of revenue, a 170 basis point improvement over $18.6 million, or 25.4% of revenue, in the year-ago quarter. Cash Resources and Cash Flow Cash, restricted cash and short-term investments totaled $88.4 million at September 30, 2006, versus $57.8 million at September 30, 2005. Net cash provided by operating activities during the third quarter of 2006 was $14.5 million, compared to $3.6 million for the 2005 quarter. Capital expenditures in the third quarter of 2006 were $5.1 million, versus $4.7 million for the year-ago quarter. Significant cash outlays Outlays Payments on obligations in the form of cash, checks, the issuance of bonds or notes, or the maturing of interest coupons. in the quarter included payments on the revolving line of credit Revolving line of credit A bank line of credit on which the customer pays a commitment fee and can take and repay funds at will. Normally a revolving LOC involves a firm commitment from the bank for a period of several years. and consulting bonus payouts, which totaled $5.2 million. Days sales outstanding In accountancy, Days Sales Outstanding is a company's average collection period. A low figure indicates that the company collects its outstanding receivables quickly. Typically it is looked at either quarterly or yearly (90 or 365 days). for the third quarter of 2006 was 63 days, versus 58 in the year-ago quarter and 61 in the second quarter of 2006. Guidance for 2006 Includes SFAS 123R Last month, the company announced that it had signed a definitive agreement to acquire Quality Care Solutions Inc. (QCSI QCSI Quality Care Solutions, Inc. ). At that time, the company provided an estimate of the impact of this acquisition on TriZetto's 2006 revenue and Adjusted EBTIDA EBTIDA Earnings Before Taxes, Interest, Depreciation and Amortization , which was based on an anticipated closing early in the fourth quarter. This transaction remains subject to regulatory and other closing conditions and has not yet been consummated con·sum·mate tr.v. con·sum·mat·ed, con·sum·mat·ing, con·sum·mates 1. a. To bring to completion or fruition; conclude: consummate a business transaction. b. . Following the closing, the company will update its guidance. Excluding the pending acquisition, TriZetto is increasing its full-year guidance. Revenue is expected to be between $330 and $343 million, representing a 13% to 17% increase over 2005. Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. EPS is expected to be $0.28 to $0.33, which includes a ($0.29) per share charge for the previously announced settlement related to the McKesson patent litigation, and also includes an estimated ($0.10 to $0.14) per share negative impact, as compared to 2005, for the effect of adopting SFAS No. 123R. Adjusted EBITDA for 2006, which excludes stock-based compensation expense and the impact of the McKesson settlement, is expected to be between $64 and $68 million, an increase of 33% to 41% over 2005 Adjusted EBITDA. Capital expenditures in 2006 are expected to be between $18 and $22 million. Diluted share count for 2006 is expected to be approximately 46 million. TriZetto is focused on growing Adjusted EBITDA at a long-term targeted rate approaching 30% per year, while maintaining capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. at approximately the company's current rate. TriZetto projects that organic revenue growth of 8% to 12% will be required to achieve this target, depending on the mix of sales. Conference Call TriZetto will host a conference call at 5:00 p.m. Eastern Time / 2:00 p.m. Pacific Time today to discuss the quarter's results. Investors may access the webcast through TriZetto's web site at www.trizetto.com, first by clicking on the Investors button, and then on the Company Information drop-down menu See pull-down menu. drop-down menu - pull-down menu item. The conference call will be archived and available through TriZetto's web site for 30 days following the call. The webcast will also be distributed over CCBN's Investor Distribution Network to both institutional and individual investors. Individual investors can listen to the call through CCBN's individual investor center at www.fulldisclosure.com or by visiting any of the investor sites in CCBN's Individual Investor Network. Institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. can access the call via CCBN's password-protected event management site, StreetEvents (www.streetevents.com). About TriZetto Touching more than 35% of the U.S. insured population, TriZetto is distinctly focused on accelerating the ability of healthcare payers to lead the industry's transformation. The company provides premier information technology solutions that enhance its customers' revenue growth, drive their administrative efficiency, and improve the cost and quality of care for their members. Healthcare payers include national and regional health insurance plans, and benefits administrators that provide transaction services to self-insured employer groups employer group Association of employers Managed care An entity with a current group benefits agreement in effect with a health plan to provide covered health care services to its employee-subscribers and eligible dependents. . The company's broad array of payer-focused information technology offerings include enterprise and component software, hosting and business process outsourcing services, and consulting. Headquartered in Newport Beach, California Newport Harbor redirects here. For the MTV reality series, see . Newport Beach, incorporated in 1906, is a city in Orange County, California, 10 miles south of downtown Santa Ana. , TriZetto can be reached at 949-719-2200 or at www.trizetto.com. Important Notice Regarding Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This press release contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These forward-looking statements may include statements about future revenue, profits, cash flows and financial results, the market for TriZetto's services, future service offerings, industry trends, client and partner relationships, TriZetto's operational capabilities, future financial structure, uses of cash, the closing of and anticipated dilution or accretion The act of adding portions of soil to the soil already in possession of the owner by gradual deposition through the operation of natural causes. The growth of the value of a particular item given to a person as a specific bequest under the provisions of a will between the of the QCSI acquisition, and other acquisitions or proposed transactions. Actual results may differ materially from those stated in any forward-looking statements based on a number of factors, including the ability of TriZetto to successfully integrate the businesses of TriZetto and its acquisitions or partners; the contributions of acquisitions to TriZetto's operating results; the effectiveness of TriZetto's implementation of its business plan, the market's acceptance of TriZetto's new and existing products and services, the timing of new bookings, risks associated with management of growth, reliance on third parties to supply key components of TriZetto's services, attraction and retention of employees, variability of quarterly operating results, competitive factors, other risks associated with acquisitions, changes in demand for third party products or solutions which form the basis of TriZetto's service and product offerings, financial stability of TriZetto's customers, the ability of TriZetto to meet its contractual obligations to customers, including service level and disaster recovery commitments, changes in government laws and regulations; and risks associated with rapidly changing technology, as well as the other risks identified in TriZetto's SEC filings, including, but not limited to, its annual report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. and quarterly reports on Form 10-Q Form 10-Q See 10-Q. , copies of which may be obtained by contacting TriZetto's Investor Relations Investor relations The process by which the corporation communicates with its investors. department at 949-719-2225 or at TriZetto's web site at www.trizetto.com. All information in this release is as of October 24, 2006. TriZetto undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] The TriZetto Group, Inc. Notes to Unaudited Condensed con·dense v. con·densed, con·dens·ing, con·dens·es v.tr. 1. To reduce the volume or compass of. 2. To make more concise; abridge or shorten. 3. Physics a. Consolidated Financial Statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge Backlog Total backlog is defined as revenue we expect to generate in future periods from existing customer contracts. Our 12-month backlog is defined as the revenue we expect to generate from existing customer contracts over the next 12 months. Most of the revenue in our backlog is derived from multi-year recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. revenue contracts (including software hosting, business process outsourcing, IT outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. , and software maintenance). For purposes of calculating our backlog and based upon our previous experience, we assume software maintenance contracts will be renewed for a period of up to seven years. We classify clas·si·fy tr.v. clas·si·fied, clas·si·fy·ing, clas·si·fies 1. To arrange or organize according to class or category. 2. To designate (a document, for example) as confidential, secret, or top secret. revenue from software license and consulting contracts as non-recurring. Consulting revenue is included in the backlog when the revenue from such consulting contract will be recognized over a period exceeding 12 months. Non-GAAP Financial Measures In this press release and our other public statements in connection with this press release, we use the non-GAAP financial measure, "Adjusted EBITDA," as originally defined in our press release dated October 25, 2005. We define Adjusted EBITDA as net income, excluding the impact of interest, income taxes, depreciation and amortization, charges for legal settlements, charges for facility closures and asset impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. , stock-based compensation expense and charges for expected future loss on contracts. We use Adjusted EBITDA to provide meaningful supplemental information regarding our operating performance and profitability by excluding certain expenses and expenditures that may not be indicative of our core business operating results. Because our capital structure, effective income tax rates, capitalized asset values and equity-based compensation levels are different than those of other companies, we believe that Adjusted EBITDA facilitates comparisons of our results of operations with those of other companies. Further, we believe that Adjusted EBITDA, which excludes certain factors which are not indicative of ongoing operations such as charges for legal settlements, facility closures, asset impairment and future loss on contracts, can assist management and investors in assessing the financial operating performance and underlying strength of our core business. We use Adjusted EBITDA in our cash bonus program to evaluate management's performance for compensation purposes, and we have agreed with our lender to maintain levels of an adjusted form of EBITDA as specified in financial covenants to our secured debt facility. In the third quarter of 2006, we entered into a settlement agreement with McKesson Information Solutions LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control ("McKesson") to settle a lawsuit. As part of the settlement agreement, TriZetto agreed to pay McKesson a one-time royalty fee of $15 million for a license in a patent that covers past and future use of TriZetto products and services by all existing TriZetto customers. We excluded this one-time charge of $15 million, which was expensed in the third quarter 2006, from Adjusted EBITDA as it was not indicative of our ongoing operations. During the fourth quarter of 2003, we decided to wind-down our outsourcing services to physician group customers. In the second quarter of 2005, we executed termination agreements with our two remaining physician group customers. This resulted in the reversal of the remaining balance in our loss on contracts accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. of $2.9 million. This amount was excluded from Adjusted EBITDA as it is not indicative of ongoing operations. We also excluded from Adjusted EBITDA losses for facility closures and a gain from the sale of our credentialing Credentialing is the administrative process for validating the qualifications of licensed professionals, organizational members or organizations, and assessing their background and legitimacy. and verification business. The losses for facility closures were approximately $175,000 in the first nine months of 2006 and approximately $1.1 million in the same period of 2005. The charges reflected our remaining payment obligations under lease agreements for closed facilities. Because the facilities were non-performing, we excluded the charges from Adjusted EBITDA as they were not indicative of our ongoing operations. The gain from the sale of our credentialing and verification business was $75,000, partially offsetting the losses for facility closures in the first nine months of 2006. We excluded this gain from Adjusted EBITDA as it related to a business we had decided to exit and therefore is not indicative of our ongoing operations. Additionally, during the first nine months of 2006, we recognized a gain of $180,000 from the sale of a domain name, which was eliminated from Adjusted EBITDA. We excluded this gain from Adjusted EBITDA as it related to a one-time sale of an asset and therefore is not indicative of our ongoing operations. In December 2004, the Financial Accounting Standards Board Financial Accounting Standards Board (FASB) Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). ("FASB FASB See: Financial Accounting Standards Board FASB See Financial Accounting Standards Board (FASB). ") issued Statement of Financial Accounting Standards ("SFAS") 123R, "Share-Based Payment." This statement requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123R, using the modified prospective method. Under this method, the provisions of SFAS 123R apply to all awards granted or modified after the date of adoption. Consistent with our definition noted above to exclude stock-based compensation expense, Adjusted EBITDA excludes the impact of the equity expense of SFAS 123R and other stock-based compensation expenses. Adjusted EBITDA is not a recognized term under GAAP and should not be considered in isolation of, or as a substitute for, the information prepared and presented in accordance with GAAP. In addition, Adjusted EBITDA should not be considered as a measure of liquidity or free cash flow for management's discretionary use, as it excludes certain cash requirements such as interest expense, income taxes, costs to replace depreciated Depreciated may refer to:
Reconciliation of Non-GAAP Financial Measures The following schedule provides a reconciliation of GAAP Net income to Adjusted EBITDA for the periods indicated (in thousands): [TABLE OMITTED] The following schedules provide a reconciliation of non-GAAP financial guidance for the periods indicated (in thousands, except per share amounts): [TABLE OMITTED] |
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