| [August 11, 2004] |
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Phase Forward Reports Second Quarter Financial Results; Company Reports Revenue Growth of 21% Over Corresponding Prior-Year Quarter
WALTHAM, Mass. --(Business Wire)-- Aug. 11, 2004 -- Phase Forward (NASDAQ: PFWD), a leading provider of data management solutions for clinical trials and drug safety, today announced its financial results for the quarter ended June 30, 2004, its first such announcement since completion of its initial public offering in July 2004.
Total revenues for the 2004 second quarter were $17.7 million, a 21% increase compared to revenues of $14.7 million in the same quarter of the prior year. GAAP net income was $430,000 compared to a net loss of $922,000 for the second quarter of 2003. A charge of $6.6 million associated with the accretion of the company's preferred stock and a declared dividend resulted in a net loss applicable to common stockholders of $6.2 million, or $1.70 per share, compared to a net loss applicable to common stockholders of $2.8 million, or $0.85 per share, for the second quarter of last year. The company noted that future quarters ending after the third quarter of 2004 will not be affected by charges associated with the accretion of preferred stock or declared dividend, given the completion of the recent initial public offering. GAAP income from operations was $946,000 compared to a loss from operations of $1.1 million for the second quarter of 2003.
Non-GAAP net income from operations for the second quarter of 2004 was $1.4 million compared to a net loss from operations of $1.1 million for the second quarter of 2003. Non-GAAP net income from operations, as presented in the attached reconciliation table, excludes stock based expenses.
For the first six months of 2004, total revenues rose 17% to $34.7 million compared to $29.6 million for the same period last year. The company's net income rose to $813,000 compared to a net loss of $2.7 million for the first six months of 2003. The accretion of preferred stock and declared dividend totaled $8.5 million in the first half of 2004, resulting in a net loss applicable to common stockholders of $7.7 million, or $2.15 per share. This compares to accretion of preferred stock of $3.8 million in the first half of 2003, for a net loss applicable to common stockholders of $6.5 million, or $1.95 per share. GAAP income from operations was $1.8 million compared to a loss from operations of $2.6 million for the same period last year.
Non-GAAP net income from operations for the first six months of 2004 was $2.7 million compared to a net loss from operations of $2.5 million for the same period last year. See attached reconciliation of non-GAAP net income from operations.
According to Robert Weiler, chief executive officer and president, "We are pleased with our performance this quarter, as our strategy to increase license revenues has continued to generate significant improvements to our gross margins. Our increased investment in R&D continues to support the clinical trial initiatives of our global customer base. The recent signing by GlaxoSmithKline of a multi-year technology agreement for global standardization of its electronic data management collection with Phase Forward's InForm product reflects the increasing adoption of electronic data collection in the clinical trial process."
Financial Highlights
-- Quarterly revenues, operating income and net income grew on a sequential basis as well as a year-over-year basis.
-- License revenues, which represented 36% of total revenues, rose $1.2 million to $6.4 million in the second quarter of 2004 from $5.2 million in the same quarter of 2003.
-- The total gross margin for the quarter increased to $10.4 million from $7.2 million, a 45% increase.
-- The company generated net cash from operating activities of $6.8 million for the six months ended June 30, 2004 as compared to net cash generation of $1.1 million for the first half of 2003, and ended the quarter with $26.4 million of cash.
-- In addition, the initial public offering of common stock on July 15, 2004, resulted in net proceeds of $34.6 million after deducting underwriters' discounts and estimated offering-related expenses.
Financial Outlook
John Schickling, senior vice president and chief financial officer, commented, "We expect third quarter performance to reflect sequential growth in both revenue and earnings in the range of 4-5% and 8-10%, respectively." He added, "The company does not expect any material changes in the projected annual backlog growth of 20-25% for 2004."
The company plans to host its first investor conference call in October 2004, following its first full quarter as a public company.
About Phase Forward
Phase Forward is a provider of integrated enterprise-level software products, services, and hosted solutions for use in the clinical trial component of its customers' global research and development initiatives. Phase Forward's customer base of over 220 customers is comprised of the leading pharmaceutical, biotechnology, medical device and clinical research organizations, as well as academic institutions and other entities engaged in clinical trials. By automating essential elements of the clinical trial process, the Company believes its products allow its customers to accelerate the market introduction of new medical therapies and corresponding revenue, reduce overall research and development expenditures, enhance existing data quality control efforts, and reduce clinical and economic risk. Phase Forward believes its enterprise software and hosted solutions are the most widely adopted commercial data capture, data management, and adverse event reporting solutions in the clinical trial marketplace, having been utilized in over 10,000 clinical trials involving more than 1,000,000 clinical trial study participants and 300 therapeutic compounds and medical devices. Phase Forward is headquartered in Waltham, Massachusetts with offices in the United Kingdom, Australia, France, and Japan. Additional information about Phase Forward is available at www.phaseforward.com.
Certain statements made in this press release that are not based on historical information are forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This press release contains express or implied forward-looking statements relating to, among other things, Phase Forward's expectations concerning management's forecast of financial performance, and management's plans, objectives and strategies. These statements are neither promises nor guarantees, but are subject to a variety of risks and uncertainties, many of which are beyond Phase Forward's control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. In particular, the risks and uncertainties include, among other things, changes in the pharmaceutical, biotechnology and medical device industries; our ability to convince entities engaged in clinical trials to shift from traditional paper-based methods of collecting clinical trial data to electronic systems; competition; changing customer requirements or in regulations and regulatory guidance applicable to our customers or potential customers; our ability to achieve and maintain profitability; our ability to operate in an emerging market; market acceptance of our software products and hosted solutions; fluctuations in our operating results; the length of our sales and implementation cycles; our dependence on one or more customers; interruptions or delays in service from our third party providers; failure of our technology and products; the global nature of our business; our ability to maintain customer relationships and contracts; our ability to protect our intellectual property and other proprietary rights; claims that we or our technologies infringe upon the intellectual property or other proprietary rights of a third party; our dependence on a limited number of suppliers; product liability claims relating to our products or services or our customers' use of our products or services; governmental regulation; acquisitions; our ability to retain our personnel and hire additional skilled personnel; our ability to manage our rapid growth; our ability to obtain capital when desired on favorable terms; our ability to comply with operating and financial covenants in our loan agreement; our ability to properly protect personal medical information in connection with the conduct of clinical trials and the volatility of the market price of our common stock. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Phase Forward undertakes no obligation to update or revise the information contained in this press release, whether as a result of new information, future events or circumstances or otherwise. For additional disclosure regarding these and other risks faced by Phase Forward, see the disclosure contained in Phase Forward's public filings with the Securities and Exchange Commission including, without limitation, its most recent Registration Statement on Form S-1.
Non-GAAP Financial Information
Phase Forward provides non-GAAP operating net income (loss) data as additional information for its operating results. These measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. Phase Forward's management believes these non-GAAP measures are useful to investors because this supplemental information facilitates comparisons to prior periods. Management uses these non-GAAP measures to evaluate its financial results, develop budgets and manage expenditures. Investors are encouraged to review the reconciliation's of these non-GAAP financial measures to the comparable GAAP results, which are attached to this press release. -0- *T Phase Forward Incorporated and Subsidiaries Table of Reconciliation from GAAP to Non-GAAP (in thousands) (unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 2003 2004 2003 2004 --------- -------- -------- ------- GAAP income (loss) from operations $(1,133) $946 $(2,558) $1,821 Stock based expenses 62 473 68 919 --------- -------- -------- ------- Non-GAAP income (loss) from operations $(1,071) $1,419 $(2,490) $2,740 ========= ======== ======== ======= Phase Forward Incorporated and Subsidiaries Condensed Consolidated Balance Sheets (unaudited) (in thousands, except per share amounts) As of As of December 31, 2003 June 30, 2004 ----------------- ------------- Assets Current assets: Cash and cash equivalents $19,046 $26,370 Accounts receivable, net of allowance of $425 and $477 in 2003 and 2004, respectively 22,947 15,347 Deferred set up costs, current portion 1,115 1,109 Prepaid commissions and royalties, current portion 2,192 3,703 Prepaid expenses and other current assets 1,434 1,922 ----------------- ------------- Total current assets 46,734 48,451 ----------------- ------------- Property and equipment, net 5,299 5,053 Restricted cash, net of current portion 1,611 - Deferred set up costs, net of current portion 697 672 Prepaid commissions and royalties, net of current portion 2,527 2,359 Goodwill 23,780 22,758 Other assets 196 1,285 ----------------- ------------- Total assets $80,844 $80,578 ================= ============= Liabilities and Stockholders' (Deficit) Equity Current Liabilities: Lines of credit $2,500 $2,500 Current portion of notes payable 2,218 2,684 Accounts payable 947 1,184 Accrued expenses 10,973 10,577 Restructuring accrual 1,989 1,445 Deferred revenue, current portion 33,050 32,346 Accrued dividend payable - 4,700 ----------------- ------------- Total current liabilities 51,677 55,436 ----------------- ------------- Notes payable, net of current portion 1,970 2,170 Restructuring accrual, net of current portion 497 - Deferred revenue, net of current portion 4,738 2,812 Deferred rent 288 960 ----------------- ------------- Total liabilities 59,170 61,378 ----------------- ------------- Commitments and contingencies Redeemable convertible preferred stock at redemption value 123,951 127,787 Redeemable convertible preferred stock warrant 169 169 Stockholders' (deficit) equity: Common stock, $.01 par value: Authorized-----32,804 and 100,000 shares in 2003 and 2004, respectively Issued-----3,602 and 3,704 shares in 2003 and 2004, respectively 36 37 Additional paid-in capital - - Subscription receivable (627) (113) Deferred stock-based compensation (2,333) (2,922) Treasury stock, 37 shares at cost in 2003 and 2004 (111) (111) Accumulated other comprehensive loss (500) (609) Accumulated deficit (98,911) (105,038) ----------------- ------------- Total stockholders' (deficit) equity (102,446) (108,756) ----------------- ------------- Total liabilities and stockholders' (deficit) equity $80,844 $80,578 ================= ============= Phase Forward Incorporated and Subsidiaries Condensed Consolidated Statement of Operations (unaudited) (in thousands, except per share amounts) Three Months Six Months Ended Ended June 30, June 30, ----------------- ----------------- 2003 2004 2003 2004 -------- -------- -------- -------- Revenues: License $5,164 $6,357 $9,930 $12,523 Service 9,512 11,336 19,693 22,132 -------- -------- -------- -------- Total revenues 14,676 17,693 29,623 34,655 Costs of revenues: License 681 448 1,329 870 Service(1) 6,837 6,842 14,187 13,623 -------- -------- -------- -------- Total cost of revenues 7,518 7,290 15,516 14,493 Gross margin: License 4,483 5,909 8,601 11,653 Service 2,675 4,494 5,506 8,509 -------- -------- -------- -------- Total gross margin 7,158 10,403 14,107 20,162 -------- -------- -------- -------- Operating expenses: Sales and marketing(1) 3,258 3,536 6,431 6,841 Research and development(1) 2,609 3,018 5,192 5,954 General and administrative(1) 2,424 2,903 5,042 5,546 -------- -------- -------- -------- Total operating expenses 8,291 9,457 16,665 18,341 -------- -------- -------- -------- Income (loss) from operations (1,133) 946 (2,558) 1,821 Other income (expense): Interest income 31 67 59 172 Interest expense (93) (128) (185) (210) Other income (expense) 306 87 143 71 -------- -------- -------- -------- Total other income 244 26 17 33 -------- -------- -------- -------- Income (loss) before provision for income taxes (889) 972 (2,541) 1,854 Provision for income taxes 33 542 136 1,041 -------- -------- -------- -------- Net income (loss) (922) 430 (2,677) 813 Accretion of preferred stock and dividend declared 1,918 6,618 3,836 8,536 -------- -------- -------- -------- Net loss applicable to common stockholders $(2,840) $(6,188) $(6,513) $(7,723) ======== ======== ======== ======== Net loss per share applicable to common stockholders - basic and diluted $(0.85) $(1.70) $(1.95) $(2.15) Weighted average number of common shares used in net loss per share calculations - basic and diluted 3,348 3,646 3,332 3,598 (1) Amounts include stock based expenses, as follows: Costs of service revenues $2 $24 $2 $50 Sales and marketing 20 40 25 79 Research and development 40 83 41 179 General and administrative - 326 - 611 -------- -------- -------- -------- Total stock based expenses $62 $473 $68 $919 ======== ======== ======== ======== Phase Forward Incorporated and Subsidiaries Condensed Consolidated Statement of Cash Flows (unaudited) (in thousands) Six Months Ended June 30, ----------------------- 2003 2004 ----------- ----------- Operating activities Net income (loss) $(2,677) $813 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,820 1,492 Stock-based compensation 68 919 Foreign currency exchange gain (145) (38) Provision for allowance for doubtful accounts - 65 Non-cash income tax expense - 1,022 Deferred rent (30) 664 Changes in assets and liabilities: Accounts receivable 5,836 7,495 Deferred costs (345) (1,310) Prepaid expenses and other current assets 32 (474) Accounts payable (530) 229 Accrued expenses (790) (1,465) Deferred revenue (3,096) (2,647) ----------- ----------- Net cash provided by operating activities 1,143 6,765 ----------- ----------- Investing activities Purchase of property and equipment (1,795) (1,240) Decrease in restricted cash, net 310 1,611 Decrease (increase) in other assets 182 (13) ----------- ----------- Net cash provided by (used in) investing activities (1,303) 358 ----------- ----------- Financing activities Proceeds from issuance of notes payable and borrowings under lines of credit 681 1,932 Payments on lines of credit and notes payable (1,911) (1,266) Stock issuance costs - (1,075) Repurchase of restricted common stock (111) - Proceeds from issuance of common stock 80 90 Proceeds from repayment of subscriptions receivable - 514 ----------- ----------- Net cash provided by (used in) financing activities (1,261) 195 ----------- ----------- Effect of exchange rate changes on cash and cash equivalents 162 6 ----------- ----------- Net change in cash and cash equivalents (1,259) 7,324 Cash and cash equivalents at beginning of year 17,960 19,046 ----------- ----------- Cash and cash equivalents at end of period $16,701 $26,370 =========== =========== Non-cash financing activities Accretion of Series B, C, and D redeemable convertible preferred stock to redemption value $3,836 $3,836 =========== =========== Declaration of Special Dividend $- $4,700 =========== =========== *T
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