Exhibit 99.1
For More Information: |
|
|
Public Relations |
|
Investor Relations |
Gretchen Dock |
|
Karen Vahouny |
Phase Forward |
|
Qorvis Communications |
781-902-4413 |
|
703-744-7809 |
gretchendock@phaseforward.com |
|
kvahouny@qorvis.com |
PHASE FORWARD SETTLES PATENT LITIGATION
Updates Previously Reported Fourth Quarter and Fiscal 2005 Results
Waltham, MA – February 16, 2006 – Phase Forward (NASDAQ: PFWD), a leading provider of data management solutions for clinical trials and drug safety, today announced a settlement in the pending patent litigation with Datasci, LLC. The settlement agreement dismisses a lawsuit filed by Datasci in June 2004 against Phase Forward and one of its customers, Quintiles, Inc. As previously disclosed in Phase Forward’s filings with the Securities and Exchange Commission, the lawsuit asserted that Phase Forward’s InForm™, Clintrial™ and Clintrial Integration Solution products and related services infringed a United States patent owned by Datasci (Patent No. 6,496,827). The settlement followed the February 7, 2006, issuance of the company’s fiscal 2005 earnings press release.
Under the terms of the settlement agreement, Phase Forward will make a one-time payment of $8.5 million to settle the litigation without admitting any liability and to obtain a fully paid-up, non-exclusive, license to the patent on a going-forward basis.
Since the contingency existed as of December 31, 2005, and the settlement was concluded prior to the issuance of Phase Forward’s audited fiscal 2005 financial statements, in accordance with Financial Accounting Standard No. 5, “Accounting for Contingencies” (FAS 5), the company is required to record the impact of the settlement in fiscal 2005. As a result, Phase Forward will include the settlement amount of $8.5 million in its previously announced financial results for the fourth quarter and year ended December 31, 2005.
On a GAAP basis, previously announced income from operations of $8.2 million for the year ended December 31, 2005, has been adjusted to a loss of $263,000. On a non-GAAP basis, income from operations for 2005 remains unchanged at $9.1 million. The GAAP net income applicable to common stockholders for 2005 previously reported at $11.8 million, or $0.34 per diluted share, has been adjusted to net income of $3.3 million, or $0.10 per diluted share.
For the fourth quarter ended December 31, 2005, on a GAAP basis, previously announced income from operations of $2.1 million has been adjusted to a loss of $6.4 million. On a non-GAAP basis, income from operations for the fourth quarter of 2005 remains unchanged at $2.5 million. The GAAP net income applicable to common stockholders for the fourth quarter previously reported at $6.4 million, or $0.18 per diluted share, has been adjusted to a loss of $2.1 million, or a loss of $0.06 per diluted share. The attached table presents a reconciliation of GAAP to non-GAAP income from operations for the fourth quarter and year ended December 31, 2005.
Financial Outlook
The settlement is not expected to have a material impact on Phase Forward’s results for the current fiscal year ending December 31, 2006. The company reiterates the guidance for the first quarter and full year 2006 as presented in its press release of February 7, 2006.
About Phase Forward
Phase Forward is a leading provider of integrated data management
solutions for clinical trials and drug safety. The company offers proven
solutions in electronic data capture (EDC), clinical data management (CDM), and
adverse event reporting (AER) to help pharmaceutical, biotechnology, and
medical device companies bring needed drugs and therapies to market faster and
more safely. Lincoln Technologies, acquired by Phase Forward in August of
2005, delivers solutions for pharmacovigilance, data standardization, and
safety signal detection. The combined companies’ products and services have
been utilized in over 10,000 clinical trials involving more than 1,000,000
clinical trial study participants at over 220 organizations and regulatory
agencies worldwide including: AstraZeneca, Biogen Idec, Boston Scientific,
Dana-Farber Cancer Institute, Eli Lilly, FDA, GlaxoSmithKline, Guidant, MHRA,
NIH, Procter & Gamble, Quintiles, Sanofi-Aventis, Schering-Plough
Research Institute, and Serono. 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 and assumptions concerning management’s forecast of financial performance, the performance of Phase Forward’s products and services, 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 our customers’ industries; our ability to convince prospective customers to adopt our solutions; competition; changing customer requirements; governmental regulation; our ability to maintain profitability; fluctuations in our operating results; long sales and implementation cycles; our dependence on a limited number of customers or suppliers; product performance; third party service interruptions or delays; technology failures; our ability to maintain customer relationships and contracts; our ability to retain and hire skilled personnel; our ability to protect our intellectual property rights; product liability or intellectual property infringement claims brought against us; acquisitions; 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; 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 Quarterly Report on Form 10-Q.
Non-GAAP Financial Information
Phase Forward provides non-GAAP income from operations 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 reconciliations of these non-GAAP financial measures to the comparable GAAP results, which are attached to this press release.
Phase Forward Incorporated and Subsidiaries
Table of Reconciliation from GAAP to Non-GAAP
(unaudited)
(in thousands)
|
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
|
||||||||
|
|
2004 |
|
2005 |
|
2004 |
|
2005 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
GAAP income from operations |
|
$ |
1,372 |
|
$ |
2,067 |
|
$ |
4,169 |
|
$ |
8,237 |
|
|
|
|
|
|
|
|
|
|
|
||||
Stock-based expenses |
|
508 |
|
177 |
|
2,111 |
|
607 |
|
||||
Restructuring |
|
(168 |
) |
— |
|
(168 |
) |
(92 |
) |
||||
Amortization of intangible assets |
|
— |
|
217 |
|
— |
|
306 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Non-GAAP income from operations |
|
$ |
1,712 |
|
$ |
2,461 |
|
$ |
6,112 |
|
$ |
9,058 |
|
Phase Forward Incorporated and Subsidiaries
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share amounts)
|
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
|
||||||||
|
|
2004 |
|
2005 |
|
2004 |
|
2005 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
||||
License |
|
$ |
8,305 |
|
$ |
8,913 |
|
$ |
28,180 |
|
$ |
35,001 |
|
Service |
|
11,761 |
|
14,666 |
|
45,550 |
|
52,080 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
20,066 |
|
23,579 |
|
73,730 |
|
87,081 |
|
||||
Costs of revenues: |
|
|
|
|
|
|
|
|
|
||||
License |
|
504 |
|
754 |
|
1,875 |
|
2,513 |
|
||||
Service(1) |
|
7,269 |
|
8,749 |
|
27,782 |
|
31,224 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total cost of revenues |
|
7,773 |
|
9,503 |
|
29,657 |
|
33,737 |
|
||||
Gross margin: |
|
|
|
|
|
|
|
|
|
||||
License |
|
7,801 |
|
8,159 |
|
26,305 |
|
32,488 |
|
||||
Service |
|
4,492 |
|
5,917 |
|
17,768 |
|
20,856 |
|
||||
Total gross margin |
|
12,293 |
|
14,076 |
|
44,073 |
|
53,344 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
||||
Sales and marketing(1) |
|
4,053 |
|
4,225 |
|
14,403 |
|
16,033 |
|
||||
Research and development(1) |
|
3,299 |
|
3,907 |
|
12,423 |
|
14,330 |
|
||||
General and administrative(1) |
|
3,737 |
|
3,877 |
|
13,246 |
|
14,836 |
|
||||
Restructuring |
|
(168 |
) |
— |
|
(168 |
) |
(92 |
) |
||||
Total operating expenses |
|
10,921 |
|
12,009 |
|
39,904 |
|
45,107 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Income from operations |
|
1,372 |
|
2,067 |
|
4,169 |
|
8,237 |
|
||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
208 |
|
499 |
|
518 |
|
1,735 |
|
||||
Interest expense |
|
(139 |
) |
— |
|
(394 |
) |
(143 |
) |
||||
Other, net |
|
40 |
|
64 |
|
(32 |
) |
(157 |
) |
||||
Total other income (expense) |
|
109 |
|
563 |
|
92 |
|
1,435 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Income before provision for income taxes |
|
1,481 |
|
2,630 |
|
4,261 |
|
9,672 |
|
||||
Provision (benefit) for income taxes |
|
747 |
|
(3,735 |
) |
2,392 |
|
(2,169 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
734 |
|
6,365 |
|
1,869 |
|
11,841 |
|
||||
Accretion of preferred stock and dividend declared |
|
— |
|
— |
|
8,953 |
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) applicable to common stockholders |
|
$ |
734 |
|
$ |
6,365 |
|
$ |
(7,084 |
) |
$ |
11,841 |
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per share applicable to common stockholders: |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.02 |
|
$ |
0.19 |
|
$ |
(0.43 |
) |
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted |
|
$ |
0.02 |
|
$ |
0.18 |
|
$ |
(0.43 |
) |
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of common shares used in net income (loss) per share calculations: |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
32,348 |
|
33,539 |
|
16,447 |
|
33,026 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Diluted |
|
35,003 |
|
35,887 |
|
16,447 |
|
35,092 |
|
(1) Amounts include stock-based expenses, as follows: |
|
|
|
|
|
|
|
|
|
||||
Costs of service revenues |
|
$ |
29 |
|
$ |
12 |
|
$ |
105 |
|
$ |
60 |
|
Sales and marketing |
|
30 |
|
6 |
|
141 |
|
30 |
|
||||
Research and development |
|
64 |
|
35 |
|
312 |
|
166 |
|
||||
General and administrative |
|
385 |
|
124 |
|
1,553 |
|
351 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based expenses |
|
$ |
508 |
|
$ |
177 |
|
$ |
2,111 |
|
$ |
607 |
|
Phase Forward Incorporated and Subsidiaries
Consolidated Balance Sheets
(unaudited)
(in thousands, except per share amounts)
|
|
As of December 31, |
|
||||
|
|
2004 |
|
2005 |
|
||
|
|
|
|
|
|
||
Assets |
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
53,485 |
|
$ |
51,779 |
|
Short-term investments |
|
4,735 |
|
8,807 |
|
||
Accounts receivable, net of allowance of $391 and $318 in 2004 and 2005, respectively |
|
19,682 |
|
24,923 |
|
||
Deferred set up costs, current portion |
|
783 |
|
1,266 |
|
||
Prepaid commissions and royalties, current portion |
|
3,035 |
|
3,710 |
|
||
Prepaid expenses and other current assets |
|
2,335 |
|
2,248 |
|
||
Deferred income taxes |
|
— |
|
4,025 |
|
||
Total current assets |
|
84,055 |
|
96,758 |
|
||
|
|
|
|
|
|
||
Property and equipment, net |
|
5,717 |
|
7,543 |
|
||
Deferred set up costs, net of current portion |
|
665 |
|
782 |
|
||
Prepaid commissions and royalties, net of current portion |
|
2,756 |
|
2,386 |
|
||
Goodwill |
|
21,817 |
|
24,960 |
|
||
Deferred income taxes |
|
— |
|
3,747 |
|
||
Intangible assets, net |
|
— |
|
3,594 |
|
||
Other assets |
|
240 |
|
174 |
|
||
Total assets |
|
$ |
115,250 |
|
$ |
139,944 |
|
|
|
|
|
|
|
||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
||
Current portion of notes payable |
|
$ |
2,558 |
|
$ |
— |
|
Accounts payable |
|
1,619 |
|
2,110 |
|
||
Accrued expenses |
|
11,658 |
|
12,472 |
|
||
Accrued earn-out |
|
— |
|
2,000 |
|
||
Restructuring accrual |
|
344 |
|
— |
|
||
Deferred revenue, current portion |
|
35,350 |
|
43,751 |
|
||
Deferred rent, current portion |
|
142 |
|
394 |
|
||
Total current liabilities |
|
51,671 |
|
60,727 |
|
||
|
|
|
|
|
|
||
Notes payable, net of current portion |
|
1,849 |
|
— |
|
||
Deferred revenue, net of current portion |
|
1,002 |
|
2,743 |
|
||
Deferred rent, net of current portion |
|
1,481 |
|
1,140 |
|
||
Other long-term liabilities |
|
— |
|
117 |
|
||
Total liabilities |
|
56,003 |
|
64,727 |
|
||
|
|
|
|
|
|
||
Stockholders’ equity: |
|
|
|
|
|
||
Preferred stock, $.01 par value: |
|
|
|
|
|
||
Authorized—5,000
shares |
|
— |
|
— |
|
||
Common stock, $.01 par value: |
|
|
|
|
|
||
Authorized—100,000 |
|
324 |
|
337 |
|
||
Additional paid-in capital |
|
165,462 |
|
168,947 |
|
||
Subscription receivable |
|
(127 |
) |
— |
|
||
Deferred stock-based compensation |
|
(1,755 |
) |
(611 |
) |
||
Treasury stock, 37 shares at cost |
|
(111 |
) |
(111 |
) |
||
Accumulated other comprehensive loss |
|
(160 |
) |
(800 |
) |
||
Accumulated deficit |
|
(104,386 |
) |
(92,545 |
) |
||
Total stockholders’ equity |
|
59,247 |
|
75,217 |
|
||
|
|
|
|
|
|
||
Total liabilities and stockholders’ equity |
|
$ |
115,250 |
|
$ |
139,944 |
|
Phase Forward Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
|
|
Twelve Months Ended December 31, |
|
||||
|
|
2004 |
|
2005 |
|
||
|
|
|
|
|
|
||
Operating activities |
|
|
|
|
|
||
Net income |
|
$ |
1,869 |
|
$ |
11,841 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
3,050 |
|
3,705 |
|
||
Stock-based compensation |
|
2,111 |
|
607 |
|
||
(Gain) loss on disposal of fixed assets |
|
(34 |
) |
54 |
|
||
Foreign currency exchange loss |
|
63 |
|
169 |
|
||
Provision for allowance for doubtful accounts |
|
165 |
|
38 |
|
||
Tax benefit related to exercise of stock options |
|
— |
|
68 |
|
||
Deferred income taxes |
|
— |
|
(4,542 |
) |
||
Non-cash income tax expense |
|
1,964 |
|
2,056 |
|
||
Amortization of premiums or discounts on short-term investments |
|
— |
|
(67 |
) |
||
Other non-cash items |
|
16 |
|
— |
|
||
Changes in assets and liabilities: |
|
|
|
|
|
||
Accounts receivable |
|
3,455 |
|
(5,032 |
) |
||
Deferred costs |
|
(522 |
) |
(1,058 |
) |
||
Prepaid expenses and other current assets |
|
(886 |
) |
25 |
|
||
Accounts payable |
|
625 |
|
442 |
|
||
Accrued expenses |
|
(1,818 |
) |
457 |
|
||
Deferred revenue |
|
(1,550 |
) |
10,400 |
|
||
Deferred rent |
|
1,318 |
|
(76 |
) |
||
Net cash provided by operating activities |
|
9,826 |
|
19,087 |
|
||
|
|
|
|
|
|
||
Investing activities |
|
|
|
|
|
||
Proceeds from maturities of short-term investments |
|
— |
|
9,397 |
|
||
Purchase of short-term investments |
|
(4,765 |
) |
(13,371 |
) |
||
Purchase of property and equipment |
|
(3,382 |
) |
(5,132 |
) |
||
Decrease in restricted cash, net |
|
1,611 |
|
— |
|
||
(Increase) decrease in other assets |
|
(37 |
) |
9 |
|
||
Cash paid for acquisition of Lincoln Technologies, Inc., net of cash acquired(1) |
|
— |
|
(10,614 |
) |
||
Net cash used in investing activities |
|
(6,573 |
) |
(19,711 |
) |
||
|
|
|
|
|
|
||
Financing activities |
|
|
|
|
|
||
Proceeds from issuance of notes payable and borrowings under lines of credit |
|
2,928 |
|
— |
|
||
Payments on lines of credit and notes payable |
|
(5,209 |
) |
(4,407 |
) |
||
Payment of dividend payable |
|
(4,700 |
) |
— |
|
||
Stock issuance costs |
|
(5,231 |
) |
— |
|
||
Proceeds from issuance of common stock |
|
42,687 |
|
3,968 |
|
||
Proceeds from repayment of subscriptions receivable |
|
500 |
|
127 |
|
||
Net cash provided by (used in) financing activities |
|
30,975 |
|
(312 |
) |
||
|
|
|
|
|
|
||
Effect of exchange rate changes on cash and cash equivalents |
|
211 |
|
(770 |
) |
||
Net change in cash and cash equivalents |
|
34,439 |
|
(1,706 |
) |
||
Cash and cash equivalents at beginning of period |
|
19,046 |
|
53,485 |
|
||
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
53,485 |
|
51,779 |
|
||
Short-term investments at end of period |
|
4,735 |
|
8,807 |
|
||
|
|
|
|
|
|
||
Total cash, cash equivalents and short-term investments at end of period |
|
$ |
58,220 |
|
$ |
60,586 |
|
|
|
|
|
|
|
||
Supplemental disclosure of cash flow information |
|
|
|
|
|
||
Cash paid for interest |
|
$ |
313 |
|
$ |
98 |
|
|
|
|
|
|
|
||
Cash paid for income taxes |
|
$ |
186 |
|
$ |
291 |
|
|
|
|
|
|
|
||
Non-cash financing activities |
|
|
|
|
|
||
Accretion of Series B, C, and D redeemable convertible preferred stock to redemption value |
|
$ |
4,257 |
|
$ |
— |
|
Accrued earn-out in connection with acquisition of Lincoln Technologies, Inc. |
|
$ |
— |
|
$ |
2,000 |
|
(1) Cash paid for acquisition of Lincoln Technologies, Inc. |
|
|
|
|
|
||
|
|
|
|
|
|
||
Fair value of assets acquired |
|
$ |
— |
|
$ |
1,748 |
|
Liabilities assumed, including acquisition costs paid |
|
— |
|
(912 |
) |
||
Acquired intangible assets |
|
— |
|
3,900 |
|
||
Costs in excess of net assets acquired |
|
— |
|
6,430 |
|
||
Cash paid |
|
— |
|
11,166 |
|
||
Less cash acquired |
|
— |
|
552 |
|
||
Cash paid for acquisition |
|
$ |
— |
|
$ |
10,614 |
|