Eclipsys Q4 2003 Conference Call- Highlights - The Oct 20, 2003 announcement of response time problems with Sunrise XA negatively impacted sales and short-term revenue for the fourth quarter. It caused a product delivery delay for some customers, and a consequent delay in the realization of revenue. Eclipsys has not finished working through product delay issues with all customers, but no customers have been lost, and no losses are expected. Booking delays of 45 to 60 days were encountered in 4Q, and bookings were negatively impacted. However, the sales quarter was still above average, compared to the rate of sales over the last 3 years. The CEO believes that those sales that did not close in 4Q were primarily delays, not losses.Eclipsys set a record for bookings in 2003, and in spite of the announcement of the response time problem, there were major wins in 4Q, including· Calgary Health Region, Alberta Canada. 4 Hospitals will migrate to Sunrise XA from an older product.· Memorial Sloan Kettering Cancer Center, New York City. The entire suite of Sunrise XA products are to be implemented; new Oncology applications to be jointly developed.· Maine General Health, Augusta, Maine. The 639-bed facility will migrate to Sunrise XA from an older version.· Alamance Regional M.C., Burlington, NC. Migrating to Sunrise XA.· State University of New York, Downstate, Brooklyn, NY. Net new customer· Allina Health, Buffalo, NY. This 1800 bed network is a new Financial System customer.· Bradley Hospital, Cleveland, TN. This 251 bed regional Medical Center is a new outsourcing customer.The Eclipsys Advanced Clinical Solution product achieved the highest ranking in the KLAS “Top 20 2003 Best in KLAS” evaluation for the third straight year, significantly outranking its competitors. Five Rights Consulting, the independent physician led organization has also rated the company the top CPOE vendor for the third straight year. It is rare that Eclipsys does not make the top two in any independent HIT, Clinical and Financial information systems evaluation. Eclipsys has the highest CPOE penetration in the U.S. hospital market.On December 18, the company announced a new multi-year strategic alliance with Microsoft, including not only software development, but marketing and sales assistance as well. Microsoft has a sales force that includes 120 salesmen devoted to the healthcare vertical, and they work closely with the Eclipsys sales and marketing teams. Strategic alliances also exist with Intel and HP.John Gomez, the new CTO, announced an initiative for better communication between the product development teams and customers. This will take the form of customer workshops, and will be devoid of any marketing or sales activity. He also spoke of an initiative to provide customer access to beta versions of Sunrise XA products over a secure web site for the purpose of collecting customer input before the final release of the products. Gomez described how company developers are currently involved with Abington Hospital in PA, working in the ancillary departments and accompanying doctors on their rounds, in order to get a better understanding of what really goes on inside a modern medical center.There is also a new bi-weekly one-hour CIO round table conference call open to customer and prospective customer CIO's and their guests.Financials:2003 Revenues of $66.3M represent an increase of 24 % over 2002. Systems & Service revenue is broken down as follows: Subscription revenues were $44.8M, representing a $1.1M sequential increase Q over Q, $8.3M increase Y over Y.Professional Services revenues of $11.8M represent a sequential decrease of $1.3M, and an increase of $3.3M YoYNon-recurring revenues of $3.7M represent a sequential decrease of $1M and a decrease of $1.1M YoY.Deferred revenue improved by 26% to $101.2M. Deferred revenue represents business that has already been contracted but not yet billed.There was a net loss for the year of $.56 per share, $.26 worse than 2002. The company says that software development costs and the product-related special charge were responsible for $.23 - $.27 of the shortfall.Gross margins (36.8%) were negatively impacted by 2.2% by the product charge. Short-term margins, although basically flat, are impacted somewhat by adoption in 2003 of the subscription pricing model.Days Sales Outstanding improved by 4 days to 75.The company used $31.8M of cash during the year, and has a remaining cash balance of $151.7M. Eclipsys has no debt. Guidance for 2004The company projects revenues of $305M – $320M, with subscription revenues growing at a faster rate than total revenues. Growth should show a gradual progression over the year as new contracts are signed.There was no guidance for new sales bookings, although historically bookings have been weak in the first half of the year and stronger toward the end.2004 EPS is expected to show a loss of $.60 - .70 share, but approaching break-even by year-end.Gross Margins are expected to gradually improve to just over 40%.Operating Cash Flow is expected to be positive by fourth quarter 2004. Q1 is expected to reflect the most use of cash. Overall, the company expects to use $30 - $35M of cash during 2004.The company expects to be profitable in 2005. The objective is to reach or exceed break-even in Q4 2004. Beyond 2004, 20% growth is the forecast, along with improving profit margins. Gross Margins should approach 50%. Cash flow will be positive, and the company should achieve sustained earnings.Fred
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