EX-99.1 2 a06-5311_1ex99d1.htm EXHIBIT 99

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
Issued—0 shares

 

 

 

Common stock, $.01 par value:

 

 

 

 

 

Authorized—100,000
Issued—32,399 and 33,720 shares in 2004 and 2005, respectively

 

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