M*Modal Reports First Quarter Results

FRANKLIN, Tenn.--(BUSINESS WIRE)-- MModal Inc. (NASDAQ/GS: MODL):

First Quarter Highlights

  • Posts record revenues of $117.4 million
  • Generated Adjusted EBITDA of $26.6 million reflecting planned investments in expanded go-to-market and product commercialization initiatives
  • Delivers Adjusted Net Income of $16.7 million or $0.30 per fully diluted share versus $16.0 million, or $0.30 per fully diluted share, in the prior year
  • Affirms and updates 2012 performance goals

The highlights above, as well as the discussion below, contain certain non-GAAP financial measures that, together with applicable GAAP financial measures, we utilize to evaluate the results of our performance. Refer to the section of this release entitled “Non-GAAP Financial Measures” for further discussion, as well as the tables attached to this release that reconcile these non-GAAP financial measures to applicable GAAP financial measures.

MModal Inc. (NASDAQ/GS: MODL), a leading provider of integrated clinical documentation solutions for the U.S. healthcare industry, announced its financial results for the three months ended March 31, 2012.

“We demonstrated the benefit of having our new leadership team assembled and management system in place this quarter with revenue growth and continued execution on leveraging an enhanced value proposition across our customer base,” noted Vern Davenport, Chairman and Chief Executive Officer of M*Modal. “The significant win we announced this quarter with Duke University Health System highlights the value of consolidating documentation services across multiple clinical environments and the ability to enable physician adoption of EHRs with our M*Modal Fluency Direct™ solution.”

Operating Results

Net revenues increased 5.5% to $117.4 million for the first quarter of 2012 compared with $111.2 million for the first quarter of 2011.

Adjusted EBITDA for the first quarter of 2012 was $26.6 million, or 22.6% of net revenues, compared with $26.7 million, or 24.0% of net revenues, for the first quarter of 2011. Adjusted EBITDA includes $0.9 million of realized losses from foreign currency hedge transactions for the three months ended March 31, 2012.

Net loss attributable to MModal Inc. for the first quarter of 2012 was $(2.9 million), or $(0.05) per fully diluted share, compared with net income attributable to MModal Inc. of $2.3 million, or $0.05 per fully diluted share, for the first quarter of 2011.

Adjusted net income for the first quarter of 2012 was $16.7 million, or $0.30 per fully diluted share, compared with $16.0 million, or $0.30 per fully diluted share, in the first quarter of 2011.

Acquisition and integration-related (“A&I”) costs and restructuring charges for the three months ended March 31, 2012, were $11.1 million and consisted primarily of accelerated amortization charges of $3.6 million related to the Nuance prepaid licensing fees, $2.8 million in severance costs (includes $1.5 million accelerated vesting of shares in share-based compensation), $2.3 million in legal and accounting fees, $0.7 million in rebranding costs, $0.6 million in A&I consulting fees and other miscellaneous A&I costs and restructuring charges.

Commenting on the financial results, Ron Scarboro, Chief Financial Officer of M*Modal, stated, “I’m pleased with the positive momentum we’ve established over the last three quarters. We’ve demonstrated both volume and revenue growth in our M*Modal Fluency for Transcription clinical documentation business and in our M*Modal Fluency™ and M*Modal Catalyst™ product families, with early key wins yielding record revenues in the quarter while maintaining our significant gross margins. We are on track with our commercialization and go-to-market initiatives and plan for continued growth from these initiatives in the second half of the year. Additionally, we remained focused on the core business, building offshore volumes and integrating automated speech recognition into our core platforms.”

Liquidity and Capital Structure

As of March 31, 2012, the Company had $37.3 million in cash and cash equivalents and $297.6 million in debt. Free cash flow for the first quarter of 2012 was $17.1 million compared with $13.2 million in the prior-year period. For the first quarter of 2012, capital expenditures were $4.3 million compared with $6.7 million in the prior-year period.

Accounts receivable were $78.6 million as of March 31, 2012, compared with $78.0 million as of March 31, 2011. Days Sales Outstanding were 61 days at the end of the first quarter 2012 compared with 64 days in the prior-year period.

           
First Quarter Operating Metrics

Q12012

Q42011

Q32011

Q22011

Q12011

Total billed equivalent line counts:

1.224B lines1

1.156B lines1

1.020M lines1

863M lines

875M lines

Transcription volumes processed offshore:

48%

46%

45%

42%

41%

Transcription volumes edited post speech recognition:

75%

75%

76%

74%

72%

 

1

Includes approximately 317 million, 270 million and 150 million total billed equivalent line counts associated with the acquisition of MultiModal Technologies, Inc., for the first quarter of 2012 and the fourth and third quarters of 2011, respectively.

 

Performance Goals for 2012

The Company affirmed and updated its previously issued performance goals and expectations for fiscal 2012 as follows:

   
Net revenues:
For the first half ending June 30, 2012 $230 million to $240 million
For the full year ending December 31, 2012 $490 million to $505 million
Adjusted EBITDA: $123 million to $130 million
Adjusted Net Income: $1.25 to $1.36 per fully diluted share
 

These fiscal 2012 estimates are based on the following updated full year assumptions:

   
Acquisition and Restructuring charges: $23 million to $27 million
Weighted average shares outstanding: 56.5 million for the full year
Effective cash income tax rate: 6% to 8%
Capital expenditures: $22 million to $26 million
 

“We are off to a strong start in 2012 and well underway with our most important objectives of significantly expanding the direct sales force for technology solutions and transcription outsource services, building out an indirect sales channel with an ecosystem of partners and commercializing our technologies,” Mr. Davenport added. “The promise of our technology is to solve some of the most pressing problems of our industry, and this is being validated by our successes in the marketplace. We will continue to focus on the execution required to translate this ‘promise’ into meaningful financial and operating momentum in the second half of the year.”

Investor Conference Call and Web Simulcast

M*Modal will host a conference call on May 9, 2012, at 9:00 a.m. CT (10:00 a.m. ET) to discuss its results of operations for the first quarter of 2012. The number to call for the interactive teleconference is (212) 271-4651. A replay of the conference call will be available through Thursday, May 16, 2012, by dialing (402) 977-9140 and entering the confirmation number 21588523.

A live broadcast of M*Modal quarterly conference call will be available online at the Company’s website, www.mmodal.com, under the Investors section and Events & Presentations on May 9, 2012, beginning at 9:00 a.m. CT (10:00 a.m. ET). The online replay will follow shortly after the call and continue for one year.

About M*Modal

M*Modal (NASDAQ/GS: MODL) is a leading provider of clinical narrative capture services, Speech Understanding™ technology and clinical documentation workflow. M*Modal’s enterprise solutions – including mobile voice capture devices, speech recognition, Natural Language Understanding, Web-based workflow platforms and global network of medical editors – help healthcare facilities facilitate adoption of electronic health records (EHR), transition to ICD-10, improve patient care, increase physician satisfaction and lower operational costs. For more information, please visit www.mmodal.com, Twitter, Facebook and YouTube.

Forward-Looking Statements

Information provided and statements contained in this press release that are not purely historical, such as statements regarding our 2012 second quarter and full year performance goals, our business strategy and proposed investments, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements only speak as of the date of this press release and the Company assumes no obligation to update the information included in this press release. Statements made in this press release that are forward-looking in nature may involve risks and uncertainties. Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict, including, without limitation, specific factors discussed herein and in other releases and public filings made by the Company (including filings by the Company with the Securities and Exchange Commission). Although the Company believes that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Unless otherwise required by law, the Company also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this press release.

Non-GAAP Financial Measures

In addition to the United States generally accepted accounting principles, or GAAP, results provided throughout this document, M*Modal has provided certain non-GAAP financial measures to help evaluate the results of our performance. The Company believes that these non-GAAP financial measures, when presented in conjunction with comparable GAAP financial measures, are 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 that management views financial results. The tables attached to this press release include a reconciliation of these historical non-GAAP financial measures to the most directly comparable GAAP financial measures.

We also present certain non-GAAP financial measures, such as Adjusted EBITDA and Adjusted Net Income, on a forward-looking basis as part of our performance goals for fiscal 2012 and a reconciliation of these forward looking non-GAAP financial measures to the most directly comparable GAAP financial measures. These measures are subject to change because management cannot predict, with sufficient reliability, potential changes in tax valuation allowances, potential restructuring impacts, contingencies related to past and future acquisitions, and changes in fair values of our derivative instruments, all of which are difficult to estimate primarily due to dependencies on future events.

Adjusted EBITDA

Adjusted EBITDA is a metric used by management to measure operating performance. Adjusted EBITDA is defined as net income (loss) attributable to MModal Inc., as applicable, plus net income attributable to noncontrolling interests, income taxes, net interest expense, depreciation and amortization, cost (benefit) of legal proceedings, settlements, and accommodations, acquisition and restructuring charges, share based compensation and other non-cash awards, and realized gain on settlement of foreign currency hedges, excluding other (income) expense. The realized (loss) gain on settlement of foreign currency hedges is a component of other (income) expense, as reported in the Consolidated Statements of Operations. Share-based compensation and other non-cash awards represents only the portion of such expense that is a component of selling, general and administrative expense, as reported in the Consolidated Statements of Operations, as it excludes such expense attributable to the Company’s restructuring actions.

We present Adjusted EBITDA as a supplemental performance measure because we believe it facilitates operating performance comparisons from period to period by excluding the following:

  • potential differences caused by variations in capital structures (affecting interest expense, net), tax positions (such as the impact on periods or companies for changes in effective tax rates), the age and book depreciation of fixed assets (affecting depreciation expense);
  • the impact of non-cash charges; and
  • the impact of acquisition and integration related charges and restructuring charges.

Because Adjusted EBITDA facilitates internal comparisons of operating performance on a more consistent basis, we also use Adjusted EBITDA in measuring our performance relative to that of our competitors. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as measures of our profitability or liquidity. We understand that although Adjusted EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

  • Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
  • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
  • Although depreciation is a non-cash charge, the assets being depreciated will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and
  • Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Free Cash Flow

Free Cash Flow, a non-GAAP financial measure, is defined by the Company as Adjusted EBITDA less consolidated interest expense (net of non-cash interest), less capital expenditures (including capitalized software development costs), and less tax provision (net of deferred tax provision). Management believes that utilization of Free Cash Flow is an important non-GAAP measure of the Company’s ability to convert operating results into cash.

Adjusted Net Income

Adjusted Net Income, a non-GAAP financial measure, is defined by the Company as Adjusted EBITDA less amortization expense for capitalized intangible assets (excluding acquired intangibles), less interest expense (net of non-cash interest), and less current tax provision. We measure Adjusted Net Income based on Proforma Shares Outstanding (see below). Management believes that utilization of Adjusted Net Income is an important non-GAAP financial measure of our normalized operating results.

Proforma Shares Outstanding

For purposes of evaluating our results on per-share metrics, many of our computations utilize proforma share computations. Our measure of proforma shares includes our Basic and Diluted share computations utilized for GAAP purposes, plus our estimate of the impacts of common stock equivalents which consists of stock options, restrictive stock issuable to certain key employees, shares issued to former principal stockholders and shares issued in our initial public offering, our private exchange offer, our public exchange offer and our short-form merger with MModal MQ Inc. (f/k/a MedQuist Inc.). The pro forma shares are calculated as if the shares that were issued to former principal stockholders and in our initial public offering, our private exchange offer, our public exchange offer and our short-form merger were issued and outstanding as of January 1, 2011.

Total Billed Equivalent Line Counts

Total billed equivalent line counts are defined as the number of lines and line equivalents billed for the period, as defined by a customer’s contract, and includes volume processed on the Company’s transcription platforms as well as technology volume (speech recognition).

 
MModal Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
Unaudited
       
 
Three Months Ended
March 31,
2012 2011
Net revenues $ 117,400 $ 111,236
Cost of revenues   66,430     66,021  
Gross Profit   50,970     45,215  
 
Operating costs and expenses:
Selling, general and administrative 22,195 16,674
Research and development 2,944 2,702
Depreciation and amortization 12,389 8,418
Cost (benefit) of legal proceedings, settlements and accommodations 540 (7,513 )
Acquisition and restructuring   11,086     6,878  
Total operating costs and expenses   49,154     27,159  
Operating income 1,816 18,056
 
Other income 1,864 943
Interest expense, net   (7,798 )   (7,037 )
(Loss) income before income taxes (4,118 ) 11,962
Income tax (benefit) provision   (1,249 )   1,144  
Net (loss) income (2,869 )

 

10,818
Less: Net income attributable to noncontrolling interests   -     (1,506 )
Net (loss) income attributable to MModal Inc. $ (2,869 ) $ 9,312  
 
Net (loss) income per common share
Basic $ (0.05 ) $ 0.06  
Diluted $ (0.05 ) $ 0.05  
 
Weighted average common shares outstanding:
Basic   54,988     40,933  
Diluted   54,988     41,980  
 
 

Calculation of net income available to common shareholders

 
Three Months Ended
March 31,
2012 2011
 
Net (loss) income attributable to MModal Inc. $ (2,869 ) $ 9,312
Less: amount attributable to principal shareholders   -     (7,025 )
Net (loss) income available to common shareholders $ (2,869 ) $ 2,287  
 
MModal Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except par value)
Unaudited
         
March 31, December 31,
2012 2011
Assets
Current Assets:
Cash and cash equivalents $ 37,323 $ 29,557
Accounts receivable, net of allowance of $1,608 and $1,493, respectively 78,566 74,413
Other current assets   33,752     35,611  
Total Current Assets 149,641 139,581
 
Property and equipment, net 23,119 24,367
Goodwill 164,544 161,866
Other intangible assets, net 166,819 173,294
Deferred income taxes 22,416 20,585
Other assets   11,378     12,102  
 
Total Assets $ 537,917   $ 531,795  
 
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of long-term debt $ 28,005 $ 22,712
Accounts payable 13,262 11,808
Accrued expenses 32,967 39,728
Accrued compensation 16,420 10,225
Deferred acquisition payments 19,439 22,323
Deferred revenue   10,953     7,186  
Total Current Liabilities 121,046 113,982
Long-term debt 269,545 273,822
Deferred acquisition payments, non-current 15,454 15,161
Other non-current liabilities   5,421     3,779  
Total Liabilities   411,466     406,744  
 
Stockholders' Equity:
Preferred stock - $0.10 par value; authorized 25,000 shares; none issued or outstanding - -
Common stock - $0.10 par value; authorized 300,000 shares; 56,937 and 56,319 shares issued, respectively 5,686 5,632
Additional paid-in-capital 171,322 167,440
Accumulated deficit (47,251 ) (44,382 )
Treasury stock, at cost (71 and - shares, respectively) (741 ) -
Accumulated other comprehensive loss   (2,565 )   (3,639 )
Total Stockholders' Equity 126,451 125,051
 
Total Liabilities and Stockholders' Equity $ 537,917   $ 531,795  
 
MModal Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Unaudited
       
 
Three Month ended March 31,
2012 2011
Operating activities:
Net (loss) income $ (2,869 ) $ 10,818
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 12,389 8,418
Customer Accommodation Program reversal - (9,658 )
Deferred income taxes (45 ) 1,091
Share-based compensation 3,127 978
Provision for doubtful accounts 153 170
Non-cash interest expense 1,390 858
Other (188 ) (796 )
Changes in operating assets and liabilities:
Accounts receivable (4,306 ) 3,458
Other current assets 1,859 (414 )
Other non-current assets (79 ) (135 )
Accounts payable 1,454 (1,188 )
Accrued expenses (6,761 ) 7,821
Accrued compensation 6,195 3,136
Deferred revenue 3,767 (1,177 )
Other non-current liabilities   1,642     59  
Net cash provided by operating activities   17,728     23,439  
 
Investing activities:
Purchase of property and equipment (1,746 ) (4,343 )
Proceeds from the sale of property and equipment 79 -
Capitalized software (2,540 ) (2,345 )
Payments for acquisitions and interests in affiliates, net of cash acquired   (1,908 )   -  
Net cash used in investing activities   (6,115 )   (6,688 )
 
Financing activities:
Proceeds from debt 26,391 -
Repayment of debt (25,568 ) (25,789 )
Deferred acquisition payments (3,800 ) -
Net proceeds from issuance of common stock - 22,320
Payments for offering costs - (4,504 )
Cash paid for employee withholding taxes for share-based awards (1,581 ) -
Other   48     -  
Net cash used by financing activities   (4,510 )   (7,973 )
 
Effect of exchange rate changes 663 78
Net increase in cash and cash equivalents 7,766 8,856
Cash and cash equivalents - beginning of period   29,557     66,779  
 
Cash and cash equivalents - end of period $ 37,323   $ 75,635  
 
MModal Inc. and Subsidiaries
Reconciliation of Net Income to Adjusted EBITDA
(In thousands)
Unaudited
       
Three Months Ended
March 31,
2012 2011
 
Net (loss) income attributable to MModal Inc. $ (2,869 ) $ 9,312
Net income attributable to noncontrolling interests - 1,506
Income tax (benefit) provision (1,249 ) 1,144
Interest expense, net 7,798 7,037
Depreciation and amortization 12,389 8,418
Cost (benefit) of legal proceedings, settlements and accommodations 540 (7,513 )
Acquisition and restructuring 11,086 6,878
Other income (1,864 ) (943 )
Realized (loss) gain on settlement of foreign currencies (877 ) 157
Share-based compensation and other non-cash awards   1,596     710  
Adjusted EBITDA $ 26,550   $ 26,706  
Adjusted EBITDA as a percentage of net revenues   22.6 %   24.0 %
       
MModal Inc. and Subsidiaries
Free Cash Flow and Adjusted Net Income
(In thousands)
Unaudited
 
Three Months Ended
March 31,
2012 2011
 
Free cash flow:
Adjusted EBITDA $ 26,550 $ 26,706
Consolidated interest expense (7,798 ) (7,037 )
Non-cash interest 1,390 858
Capital expenditures (4,286 ) (6,688 )
Tax benefit (provision) 1,249 (1,144 )
Deferred tax (provision) benefit   (45 )   546  
Free cash flow $ 17,060   $ 13,241  
 
Adjusted net income:
Adjusted EBITDA $ 26,550 $ 26,706
Less: Depreciation and amortization (excluding acquired intangibles) 4,692 3,903

 

Cash interest (total expenses less non-cash) 6,408 6,179

 

Current tax (benefit) provision   (1,204 )   598  
Adjusted net income $ 16,654   $ 16,026  
 
Adjusted net income per share:
Basic $ 0.30 $ 0.31
Diluted 0.30 0.30
 
MModal Inc. and Subsidiaries
Share Calculation
(In thousands)
Unaudited
     
Three Months Ended
March 31,
2012 2011
 
MModal Inc. shares
Basic outstanding 54,988 40,933
Effect of diluted shares 1,077 1,047
Diluted shares 56,065 41,980
 
Proforma impact of fully dilutive shares (1)
Basic - 10,683
Diluted - 10,913
 
Proforma Shares
Proforma basic 54,988 51,616
Proforma diluted 56,065 52,893
 
 

(1)

Fully dilutive shares includes common stock equivalents which consists of stock options, restricted stock issuable to certain key employees, shares issued to former principal stockholders, shares issued in our initial public offering, our private exchange offer and our public exchange offer and our short-form merger with MModal MQ Inc. (f/k/a MedQuist Inc.)

 
MModal Inc. and Subsidiaries
Reconciliation of Net Income to Adjusted EBITDA and Adjusted Net Income - Performance Goals for 2012
(In thousands)
Unaudited
         
Twelve Months Ended
December 31, 2012
Low     High
 
Net income attributable to MModal Inc. $ 15,400 $ 17,600
Income tax provision 6,000 5,000
Interest expense, net 29,000 28,500
Other income (4,500 ) (5,000 )
Realized loss on settlement of foreign currencies 1,700 1,700
Depreciation and amortization 46,600 49,100
Acquisition and restructuring charges 23,000 27,000
Share-based compensation and other non-cash awards   5,800         6,100  
Adjusted EBITDA $ 123,000       $ 130,000  
 
Adjusted net income:
Adjusted EBITDA $ 123,000 $ 130,000
Less: Amortization (excluding acquired intangibles) 20,600 23,100

 

Cash interest (total expenses less non-cash) 25,600 25,100

 

Current tax provision   6,100         4,900  
Adjusted net income $ 70,700       $ 76,900  
 
Adjusted net income per share
Basic $ 1.28 $ 1.40
Diluted $ 1.25 $ 1.36
 
 
MModal Inc. shares (1)
Basic outstanding 55,100 55,100
Effect of diluted options   1,400         1,400  
Diluted shares 56,500 56,500
 
 

(1) MModal Inc. weighted average shares outstanding



CONTACT:

M*Modal
Ron Scarboro, 615-798-4350
Chief Financial Officer
[email protected]
or
Corporate Communications, Inc
Tripp Sullivan, 615-324-7335
[email protected]

KEYWORDS:   United States  North America  Tennessee

INDUSTRY KEYWORDS:   Technology  Data Management  Software  Practice Management  Health  General Health

MEDIA:

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