Epocrates Reports 2011 Third Quarter Financial Results and Updated 2011 Guidance

SAN MATEO, Calif., Nov. 8, 2011 (GLOBE NEWSWIRE) -- Epocrates, Inc. (Nasdaq:EPOC), a leading physician platform for clinical content, practice tools and health industry engagement, today reported financial results for its fiscal third quarter of 2011. Epocrates' revenue totaled $26.6 million in the third quarter of 2011 compared to $24.1 million in the same quarter of the prior year, an increase of 10.4%.

"Our physician network continues to thrive, now exceeding 340,000 U.S. physicians, and we remain focused on deepening our engagement with them by delivering high-value products," said Rose Crane, president and chief executive officer of Epocrates. "We took our industry-leading app to the next level by launching a powerful platform that provides physicians with improved, faster access to our trusted drug content. It also serves as a way to surface rich medical content tailored for the user, based on their specialty or areas of interest."

Crane added, "While our overall revenue growth was 10.4%, our pharma revenue grew 30% in the third quarter year over year. While pharma revenue growth met expectations, we experienced weakness in bookings in one of our newer product lines during the quarter. As a result of this we are now lowering our annual guidance. To position us for future growth, we have made changes to the management of our commercial organization and we believe these changes, combined with our recently launched platform, will enable us to reach our full potential."

Net income was $0.7 million for the third quarter of 2011 compared to $0.3 million for the third quarter of 2010. For the third quarter ended September 30, 2011, net income attributable to common stockholders was $0.7 million or $0.03 per diluted share as compared to net loss attributable to common stockholders of $0.5 million or $0.07 per diluted share in the third quarter ended September 30, 2010. Net loss attributable to common stockholders is calculated as net loss minus the preferred stock dividend that was due to Epocrates' preferred stockholders through February 1, 2011 (the date Epocrates completed its Initial Public Offering, or IPO).  Upon completion of the IPO, the preferred stock was converted to common stock.

Epocrates' adjusted EBITDA, as defined in the GAAP to non-GAAP reconciliation provided later in this release, was $2.2 million, or 8.1% of revenue for the third quarter of 2011, compared to $2.7 million, or 11.3% of revenue, in the same period last year. The decrease in adjusted EBITDA as a percentage of revenue in 2011was primarily attributable to higher operating expenses resulting from an increase in salary and other personnel costs to support the development and release of Epocrates' new products and increased headcount from the recent acquisition of Modality by Epocrates, partially offset by higher revenue generated in the third quarter of 2011 compared to the third quarter of 2010 and a decrease in research and development expenses related to Epocrates' EHR platform due to the capitalization of such costs in 2011.  

Cash, cash equivalents and short-term investments totaled $84.2 million as of the end of the third quarter of 2011. 

Crane concluded, "The strength of our network is our greatest asset and remains a key business driver. From launching the Epocrates EHR solution to advancing the user experience of our drug reference app, we are consistently delivering on our promise of intuitive, easy-to-use solutions for physicians at the point of care. These recent development milestones, along with our ability to help make connections within the healthcare industry, present many opportunities for future business growth."

Outlook for Full-Year 2011   

Epocrates now expects full-year 2011 revenue guidance to be in the range of $110 million to $113 million, representing growth of 6% to 9% over full-year 2010. Epocrates also expects 2011 adjusted EBITDA to be 9% to 11% of sales, or $10 million to $13 million. This would represent a decrease in adjusted EBITDA of 43% to 26% over the adjusted EBITDA reported in 2010. In addition, full-year 2011 net income is expected to be in the range of $0.1 million to $2.0 million, and net income per diluted share is expected to be between -$0.01 and $0.07 cents, based on approximately 24 million shares outstanding.

Earnings Call Information

Epocrates will host a conference call today beginning at 5:00 p.m. ET to review its third quarter 2011 results, followed by a question and answer session. 

To participate in Epocrates' live conference call and webcast, please dial 877-398-9481 (domestic) or 760-298-5095 (international) using conference code 98556390, or visit the Investor Relations section of Epocrates' website at http://investor.epocrates.com. A replay of the call will be available at the same address.

About Epocrates, Inc.

Epocrates, Inc. (Nasdaq:EPOC) is a leading physician platform for essential clinical content, practice tools and health industry engagement at the point of care. The Epocrates network consists of more than 1.4 million healthcare professionals, including 50 percent of U.S. physicians, who routinely use its solutions and services. Epocrates' portfolio includes top-ranked medical apps, such as the industry's #1 most used mobile drug reference, valuable manufacturer resources and a SaaS web-based electronic health record offering support. Through these intuitive and reliable resources, the company supports clinical decisions, helps improve physician workflow and impacts patient outcomes. For more information about Epocrates, please visit www.epocrates.com/company.

Epocrates is a trademark of Epocrates, Inc., in the U.S. and other countries. 

Forward-Looking Statements  

Statements contained in this press release under the heading "Outlook for Full-Year 2011" are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Uncertainties and risks may cause Epocrates' actual results to be materially different than those expressed in or implied by Epocrates' forward-looking statements. For Epocrates, particular uncertainties and risks include, among others: unexpected delays in Epocrates delivering new products may occur, which would cause revenues not to be as Epocrates expects; market acceptance of new products, such as its EHR, may not be as Epocrates expects, which would cause revenues not to be as Epocrates expects; and the impact of competitive products and pricing may decrease demand for Epocrates's products and/or force Epocrates to decrease the price of its products. More detailed information on these and additional factors that could affect Epocrates' actual results are described in Epocrates' filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2011. Except as required by law, Epocrates undertakes no obligation to publicly update its forward-looking statements.

Use of Non-GAAP Financial Measures  

To supplement Epocrates' condensed consolidated financial statements presented on a GAAP basis, Epocrates uses non-GAAP measures of adjusted EBITDA, gross profit, gross margin, operating income, operating income percentage, net income and net income per share, which are adjusted to exclude certain costs, expenses, gains and losses Epocrates believes appropriate to enhance an overall understanding of its past financial performance and also its prospects for the future. These adjustments to current period GAAP results are made with the intent of providing both management and investors a more complete understanding of Epocrates' underlying operational results and trends and its marketplace performance. In addition, these adjusted non-GAAP results are among the information management uses as a basis for planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles in the United States of America.

Adjusted EBITDA is not a measure of liquidity calculated in accordance with U.S. generally accepted accounting principles, or GAAP, and should be viewed as a supplement to—not a substitute for—results of operations presented on the basis of GAAP. Adjusted EBITDA does not purport to represent cash flow provided by, or used in, operating activities as defined by GAAP. Epocrates' statement of cash flows presents its cash flow activity in accordance with GAAP. Furthermore, adjusted EBITDA is not necessarily comparable to similarly‑titled measures reported by other companies.

Epocrates believes adjusted EBITDA is used by and is useful to investors and other users of its financial statements in evaluating its operating performance because it provides them with an additional tool to compare business performance across companies and across periods. Epocrates believes that:

• EBITDA is widely used by investors to measure a company's operating performance without regard to such items as interest expense, taxes, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired; and
• investors commonly adjust EBITDA information to eliminate the effect of stock‑based compensation expenses and other charges, which can vary widely from company to company and impair comparability.

Epocrates management uses adjusted EBITDA:

• as a measure of operating performance to assist in comparing performance from period to period on a consistent basis;
• as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations;
• in communications with the board of directors, stockholders, analysts and investors concerning our financial performance; and
• as a significant performance measurement included in its bonus plan.

The table below sets forth a reconciliation of net income (loss) to adjusted EBITDA (in thousands):

The following tables set forth a reconciliation of gross profit, gross margin, operating income (loss), operating income (loss) percentage, net income (loss) and net income per share on a GAAP basis to a non-GAAP basis (in thousands, except percentages and per share information):