NEOF Neoforma Inc. (MM)

Neoforma Reports Third Quarter 2004 Financial Results SAN JOSE, Calif., Oct. 25 /PRNewswire-FirstCall/ -- Neoforma, Inc. (NASDAQ:NEOF), a leading provider of supply chain management solutions to the healthcare industry, generated total revenue of $3.0 million on a generally accepted accounting principles (GAAP) basis in the quarter ended September 30, 2004. Excluding the impact of Emerging Issues Task Force Abstract No. 01-9 (EITF No. 01-9), Neoforma generated total adjusted revenue of $18.4 million in the third quarter of 2004. (Logo: http://www.newscom.com/cgi-bin/prnh/20030226/NEOFORMALOGO ) In accordance with GAAP, Neoforma's net loss and net loss per share were $14.5 million and $0.75, respectively, during the third quarter of 2004. These results represent an improvement over the $15.6 million and $0.85 net loss and net loss per share, respectively, reported in the third quarter of 2003. On an adjusted basis, net income and net income per share for the third quarter of 2004 were $5.1 million and $0.27, respectively, decreasing from the $5.6 million and $0.30, respectively, in the same quarter in the prior year. This decrease was primarily due to the scheduled reduction in the Company's quarterly maximum payment from Novation in 2004, as compared to 2003, and the resulting $2.1 million decrease in adjusted related party revenue. Neoforma's adjusted financial information, which is not in accordance with GAAP, excludes the application of EITF No. 01-9 and certain expenses, gains and losses. Adjusted financial information serves as a measure of the performance of Neoforma's ongoing core operations. A description of the adjusted financial information for the periods presented and a reconciliation of these results to GAAP financial information are included in the attached financial statements and are available in the investor relations section of Neoforma's Web site at http://investor.neoforma.com/ . "Neoforma made good operational progress during the third quarter, increasing our connectivity rate and documenting significant value for our customers," says Bob Zollars, chairman and chief executive officer of Neoforma. "We also continued to strengthen our balance sheet as a result of strong cash flow. We did not meet our revenue expectations in the quarter, which was disappointing. However, based on the increasing value we are delivering to our hospital customers, we believe we are on the right track." Third Quarter 2004 Highlights During the third quarter, Neoforma made progress in several key areas, including: -- Documented $26.7 million in customer value, which brings Neoforma's year-to-date documented customer value to $46.5 million as of September 30, 2004; -- Implemented 715 connections, more than double the average quarterly connection rate in 2003, and exited the quarter at a rate in excess of 800 connections per quarter; -- Delivered upgrades to Marketplace@Novation(R), including enhancements to order management and contract management capabilities; -- Generated market intelligence reports for pharmaceutical manufacturers; and -- Supported $2.8 billion in volume, an increase of 27% from the same period in the prior year, comprised of $1.0 billion in gross transaction volume and $1.8 billion in supply chain data. Third Quarter 2004 Financial Results On a GAAP basis, for the quarter ended September 30, 2004, Neoforma generated $3.0 million in total revenue, comprised entirely of non-related party revenue, and representing a slight increase from the $2.9 million in both total revenue and non-related party revenue recorded in the same period in the prior year. In both the third quarter of 2004 and the same period in the prior year, related party revenue was zero as a result of the application of EITF No. 01-9. On an adjusted basis, excluding the impact of EITF No. 01-9, Neoforma generated total revenue of $18.4 million in the third quarter, consisting of $15.4 million in related party revenue and $3.0 million in non-related party revenue. Neoforma's related party revenue for the quarter represents a decrease from the $17.5 million generated in the same quarter in 2003, due to a $2.1 million decline in the Company's revenue from Novation in the third quarter of 2004, as compared to the same quarter in the prior year. The decline in revenue was based on a scheduled reduction in the quarterly maximum payment from Novation under the terms of Neoforma's outsourcing agreement with Novation. Beginning in 2004, the quarterly maximum payment from Novation is fixed at $15.25 million. On both a GAAP basis and an adjusted basis, the $42,000 increase in non-related party revenue in the third quarter as compared to the same period in the prior year was primarily the result of increases in revenue from the Company's HPIS market intelligence and pharmaceutical market intelligence services for suppliers, which more than offset decreases related to data cleansing and categorization services for hospitals and the expiration during the third quarter of the ratable revenue being recognized related to a license sale made in 2001. Neoforma classifies non-cash amortization of partnership costs as an offset against related party revenue under EITF No. 01-9. This accounting treatment has no impact on Neoforma's loss from operations, net loss, net loss per share or total cash flow, as the reductions to operating expenses and revenue are equal. In the third quarter of 2004, Neoforma's total GAAP operating expenses were $17.6 million, lower than the $18.3 million recorded in the same period in the prior year. As compared to the third quarter of 2003, this variance was primarily the result of a $2.0 million increase in capitalized software development costs, a $1.9 million decrease in depreciation and amortization of property and equipment, most of which was allocated to the operations group, and reductions in selling and marketing expenses. These changes were partially offset by increases in amortization of partnership costs and expenses related to product development and cost of services. Adjusted operating expenses equaled $13.3 million in the third quarter of 2004, lower than the $14.7 million result in the same quarter of the prior year. The variance in total adjusted operating expenses was primarily due to the $2.0 million increase in capitalized software development costs and a $1.2 million reduction in selling and marketing expenses. These reductions were partially offset by increases in product development and cost of services expenses. In the third quarter, on a GAAP basis, Neoforma recorded a $14.7 million loss from operations, representing an improvement from the $15.4 million loss in the same period in 2003. The improvement in the Company's loss from operations was due to the decrease in total operating expenses. Neoforma generated $5.0 million in EBITDA during the third quarter, representing a decrease from the $5.8 million generated in the third quarter of 2003. This decrease was due to the decline in related party revenue as a result of the scheduled $2.1 million reduction in the quarterly maximum payment from Novation, and was partially offset by a decrease in Neoforma's adjusted operating expenses. As of September 30, 2004, Neoforma's cash, cash equivalents and short-term investments totaled $23.6 million, an increase from the $22.5 million balance as of the end of the prior quarter. In addition, the Company had $2.0 million in long-term marketable investments as of September 30, 2004, as a result of investments it made during the quarter. Neoforma remains debt-free. Neoforma's free cash flow equaled $2.5 million during the third quarter. Free cash flow is calculated as net cash used in operating activities, plus amortization of partnership costs offset against related party revenue, minus purchases of property and equipment and capitalization of software development costs. "Neoforma continues to generate strong cash flow, and our balance sheet remains very solid," says Andrew Guggenhime, chief financial officer of Neoforma. "We were not pleased with our revenue results for the quarter, however, and we are updating our guidance primarily to reflect our revised revenue outlook, as well as to update our current expectations in other areas for which we had previously issued guidance." Updated 2004 Financial Outlook Based on the Company's 2004 financial performance through the third quarter of 2004 and its expectations for the fourth quarter, Neoforma is updating its guidance for the year. Neoforma's 2004 Financial Outlook (in millions, except per share data): FY 2004 Previous Updated GAAP Basis Related Party Revenue -- -- Non-related Party Revenue $13.3 $11.8 - $13.3 Total Revenue $13.3 $11.8 - $13.3 Total Operating Expenses $76.2 $75.5 Loss from Operations ($62.9) ($63.7) - ($62.2) Net Loss per Share ($3.23) ($3.27) - ($3.19) Adjusted Basis Related Party Revenue(a) $61.7 $61.7 Non-related Party Revenue $13.3 $11.8 - $13.3 Total Revenue(a) $75.0 $73.5 - $75.0 Operating Expenses(b) $55.6 $54.3 EBITDA(c) $19.4 $19.2 - $20.7 Net Income per Share(d) $0.99 $1.01 - $1.08 Free Cash Flow(e) $9.0 $9.0 Purchases of Property and Equipment $6.0 $5.0 Capitalization of Software Development Costs $4.4 $6.2 Weighted Average Shares Outstanding 19.5 19.4 (a) Adjusted related party revenue and adjusted total revenue exclude the offset of amortization of partnership costs against related party revenue resulting from the application of EITF No. 01-9. (b) Adjusted operating expenses exclude depreciation and amortization, as well as certain expenses, gains and losses, which, in 2004, consist of a $4.1 million write-off of stockholder notes receivable in the second quarter. In 2004, the Company expects depreciation and total amortization expenses, including amortization offset against related party revenue, to equal approximately $78.7 million. (c) The Company defines EBITDA as earnings before interest, taxes, depreciation and amortization (including amortization offset against related party revenue) as well as certain expenses, gains and losses. (d) The Company defines adjusted net income per share as EBITDA plus the impact of interest expense, interest income and other income and expense divided by the weighted average shares outstanding. (e) The Company defines free cash flow as net cash used in operating activities, plus amortization of partnership costs offset against related party revenue, minus purchases of property and equipment and capitalization of software development costs. About Neoforma Neoforma is a leading supply chain management solutions provider for the healthcare industry. Through a unique combination of technology, information and services, Neoforma provides innovative solutions to over 1,500 hospitals and suppliers, supporting more than $10 billion in annualized transaction volume. By bringing together contract information and order data, Neoforma's integrated solution set delivers a comprehensive view of an organization's supply chain, driving significant cost savings and better decision-making for both hospitals and suppliers. For more information, point your browser to http://www.neoforma.com/ . This news release contains forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include but are not limited to all statements made under the caption "Updated 2004 Financial Outlook" and statements related to Neoforma's business and financial outlook for 2004, as well as statements related to the continued value realized by our customers. There are a number of risks that could cause actual results to differ materially from those anticipated by these forward-looking statements. These risks include the willingness of customers to accept Neoforma's business model of providing supply chain management solutions for the healthcare industry and the ability of Neoforma to manage its anticipated growth and related technological challenges. These risks and other risks are described in Neoforma's periodic reports filed with the SEC, including its Form 10-Q for the quarter ended June 30, 2004. These statements are current as of the date of this release and Neoforma assumes no obligation to update the forward-looking information contained in this news release. NOTE: Neoforma is a trademark of Neoforma, Inc. Other Neoforma logos, product names and service names are also trademarks of Neoforma, Inc., which may be registered in other countries. Other product and brand names are trademarks of their respective owners. NEOFORMA, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2003 2004 2003 2004 REVENUE: Related party, net of amortization of partnership costs of $17,539, $15,423, $52,070 and $46,360 for the three months ended Spetember 30, 2003 and 2004, and for the nine months ended September 30, 2003 and 2004, respectively $-- $-- $539 $-- Non-related party 2,912 2,954 7,494 9,222 Total revenue 2,912 2,954 8,033 9,222 OPERATING EXPENSES: Cost of services 1,895 2,758 4,754 7,501 Operations 4,947 2,834 14,888 8,643 Product development 4,451 4,261 13,377 12,302 Selling and marketing 4,648 3,488 14,258 10,657 General and administrative 2,242 2,465 8,339 7,171 Amortization of intangibles 147 147 441 441 Amortization of partnership costs 14 1,651 847 4,792 Write-off of stockholder notes receivable -- -- -- 4,115 Total operating expenses 18,344 17,604 56,904 55,622 Loss from operations (15,432) (14,650) (48,871) (46,400) OTHER INCOME (EXPENSE) (202) 112 (762) 234 Net loss $(15,634) $(14,538) $(49,633) $(46,166) NET LOSS PER SHARE: Basic and diluted $(0.85) $(0.75) $(2.76) $(2.40) Weighted average shares -- basic and diluted 18,445 19,361 17,990 19,263 In addition to our consolidated financial statements presented in accordance with GAAP, Neoforma, Inc. uses non-GAAP, or adjusted, measures of operating results, net income and net income per share, which are adjusted from results based on GAAP to exclude the application of EITF No. 01-9 and certain expenses, gains and losses. Neoforma management believes that the non-GAAP adjusted results provide added insight into the Company's performance by focusing on results generated by the Company's ongoing core operations. Neoforma management uses the non-GAAP adjusted results when assessing the performance of its ongoing core operations, in making resource allocation decisions and for planning and forecasting. Additionally, incentive compensation for the Company, including management, is based on results on this basis. In addition, because we historically have reported adjusted results, we believe the inclusion of comparative numbers provides consistency in our financial reporting. The non-GAAP financial measures should be considered in addition to, not as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures. NEOFORMA, INC. ADJUSTED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1) (in thousands, except per share amounts) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2003 2004 2003 2004 REVENUE: Related party $17,539 $15,423 $52,609 $46,360 Non-related party 2,912 2,954 7,494 9,222 Total adjusted revenue 20,451 18,377 60,103 55,582 OPERATING EXPENSES: Cost of services 1,744 2,372 4,301 5,955 Operations 2,638 2,250 7,199 7,003 Product development 4,068 3,703 12,066 11,054 Selling and marketing 4,244 3,038 12,930 9,589 General and administrative 1,999 1,980 6,852 6,061 Adjusted operating expenses 14,693 13,343 43,348 39,662 EBITDA 5,758 5,034 16,755 15,920 OTHER INCOME (EXPENSE) (202) 112 (762) 234 Adjusted net income $5,556 $5,146 $15,993 $16,154 ADJUSTED NET INCOME PER SHARE: Basic $0.30 $0.27 $0.89 $0.84 Weighted average shares -- basic 18,445 19,361 17,990 19,263 (1) These adjusted condensed consolidated statements of operations exclude the impact of EITF No. 01-9 and certain expenses, gains and losses. Under EITF No. 01-9, the Company offsets non-cash amortization of partnership costs against related party revenue in an amount equal to the lesser of the two in any period. Any amortization of partnership costs in excess of related party revenue in any period is classified as an operating expense. As a result of the adoption of EITF No. 01-9, the Company offset $17,539, $15,423, $52,070 and $46,360 of amortization of partnership costs against related party revenue in its GAAP condensed consolidated statements of operations for the three months ended September 30, 2003 and 2004, and for the nine months ended September 30, 2003 and 2004, respectively. As reclassifications, the application of EITF No. 01-9 had no impact on loss from operations, net loss or net loss per share. The excluded expenses, gains and losses consisted of depreciation and amortization of property and equipment, amortization of intangibles, amortization of deferred compensation, amortization of partnership costs and write-off of stockholder notes receivable. NEOFORMA, INC. RECONCILIATION OF ADJUSTED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS TO GAAP (in thousands, except per share amounts) (unaudited) Three Months Ended September 30, 2004 Excluded Application Expenses, of Adjusted Gains EITF Results and Losses No. 01-9 REVENUE: Related party $15,423 $-- $(15,423) Non-related party 2,954 -- -- Total revenue 18,377 -- (15,423) OPERATING EXPENSES: Cost of services 2,372 -- -- Operations 2,250 -- -- Product development 3,703 -- -- Selling and marketing 3,038 -- -- General and administrative 1,980 -- -- Adjusted operating expenses 13,343 EBITDA 5,034 Depreciation and amortization of property and equipment -- 1,328 -- Amortization of intangibles -- 147 -- Amortization of deferred compensation -- 1,135 -- Amortization of partnership costs -- 17,074 (15,423) Write-off of stockholder notes receivable -- -- -- Total operating expenses 19,684 (15,423) Loss from operations (19,684) -- OTHER INCOME (EXPENSE) 112 -- -- Net income (loss) $5,146 $(19,684) $-- NET INCOME (LOSS) PER SHARE: Basic $0.27 Weighted average shares - basic 19,361 Three Months Ended September 30, 2004 GAAP Allocations Depreciation Amortization and of GAAP Amortization of Deferred Results Property and Equipment Compensation As Reported REVENUE: Related party $-- $-- $-- Non-related party -- -- 2,954 Total revenue -- -- 2,954 OPERATING EXPENSES: Cost of services 200 186 2,758 Operations 498 86 2,834 Product development 291 267 4,261 Selling and marketing 175 275 3,488 General and administrative 164 321 2,465 Adjusted operating expenses EBITDA Depreciation and amortization of property and equipment (1,328) -- -- Amortization of intangibles -- -- 147 Amortization of deferred compensation -- (1,135) -- Amortization of partnership costs -- -- 1,651 Write-off of stockholder notes receivable -- -- -- Total operating expenses -- -- 17,604 Loss from operations -- -- (14,650) OTHER INCOME (EXPENSE) -- -- 112 -- -- Net income (loss) $-- $-- $(14,538) NET INCOME (LOSS) PER SHARE: Basic $(0.75) Weighted average shares - basic 19,361 Three Months Ended September 30, 2003 Excluded Application Expenses, of Adjusted Gains EITF Results and Losses No. 01-9 REVENUE: Related party $17,539 $-- $(17,539) Non-related party 2,912 -- -- Total revenue 20,451 -- (17,539) OPERATING EXPENSES: Cost of services 1,744 -- -- Operations 2,638 -- -- Product development 4,068 -- -- Selling and marketing 4,244 -- -- General and administrative 1,999 -- -- Adjusted operating expenses 14,693 EBITDA 5,758 Depreciation and amortization of property and equipment -- 3,246 -- Amortization of intangibles -- 147 -- Amortization of deferred compensation -- 244 -- Amortization of partnership costs -- 17,553 (17,539) Total operating expenses 21,190 (17,539) Loss from operations (21,190) -- OTHER INCOME (EXPENSE) (202) -- -- Net income (loss) $5,556 $(21,190) $-- NET INCOME (LOSS) PER SHARE: Basic $0.30 Weighted average shares - basic 18,445 Three Months Ended September 30, 2003 Depreciation Amortization and of GAAP Amortization of Deferred Results Property and Equipment Compensation As Reported REVENUE: Related party $-- $-- $-- Non-related party -- -- 2,912 Total revenue -- -- 2,912 OPERATING EXPENSES: Cost of services 126 25 1,895 Operations 2,299 10 4,947 Product development 324 59 4,451 Selling and marketing 312 92 4,648 General and administrative 185 58 2,242 Adjusted operating expenses EBITDA Depreciation and amortization of property and equipment (3,246) -- -- Amortization of intangibles -- -- 147 Amortization of deferred compensation -- (244) -- Amortization of partnership costs -- -- 14 Total operating expenses -- -- 18,344 Loss from operations -- -- (15,432) OTHER INCOME (EXPENSE) -- -- (202) Net income (loss) $-- $-- $(15,634) NET INCOME (LOSS) PER SHARE: Basic $(0.85) Weighted average shares - basic 18,445 NEOFORMA, INC. RECONCILIATION OF ADJUSTED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS TO GAAP (in thousands, except per share amounts) (unaudited) Nine Months Ended September 30, 2004 Excluded Application Expenses, of Adjusted Gains EITF Results and Losses No. 01-9 REVENUE: Related party $46,360 $-- $(46,360) Non-related party 9,222 -- -- Total revenue 55,582 -- (46,360) OPERATING EXPENSES: Cost of services 5,955 -- -- Operations 7,003 -- -- Product development 11,054 -- -- Selling and marketing 9,589 -- -- General and administrative 6,061 -- -- Adjusted operating expenses 39,662 EBITDA 15,920 Depreciation and amortization of property and equipment -- 3,811 -- Amortization of intangibles -- 441 -- Amortization of deferred compensation -- 2,801 -- Amortization of partnership costs -- 51,152 (46,360) Write-off of stockholder notes receivable -- 4,115 -- Total operating expenses 62,320 (46,360) Loss from operations (62,320) -- OTHER INCOME (EXPENSE) 234 -- -- -- Net income (loss) $16,154 $(62,320) $-- NET INCOME (LOSS) PER SHARE: Basic $0.84 Weighted average shares - basic 19,263 Nine Months Ended September 30, 2004 GAAP Allocations Depreciation Amortization and of Amortization of Deferred GAAP Results Property and Equipment Compensation As Reported REVENUE: Related party $-- $-- $-- Non-related party -- -- 9,222 Total revenue -- -- 9,222 OPERATING EXPENSES: Cost of services 1,113 433 7,501 Operations 1,371 269 8,643 Product development 607 641 12,302 Selling and marketing 380 688 10,657 General and administrative 340 770 7,171 Adjusted operating expenses EBITDA Depreciation and amortization of property and equipment (3,811) -- -- Amortization of intangibles -- -- 441 Amortization of deferred compensation -- (2,801) -- Amortization of partnership costs -- -- 4,792 Write-off of stockholder notes receivable -- -- 4,115 Total operating expenses -- -- 55,622 Loss from operations -- -- (46,400) OTHER INCOME (EXPENSE) -- -- 234 -- -- Net income (loss) $-- $-- $(46,166) NET INCOME (LOSS) PER SHARE: Basic $(2.40) Weighted average shares - basic 19,263 Nine Months Ended September 30, 2003 Excluded Application Adjusted Expenses, Gains of EITF Results and Losses No. 01-9 REVENUE: Related party $52,609 $-- $(52,070) Non-related party 7,494 -- -- Total revenue 60,103 -- (52,070) OPERATING EXPENSES: Cost of services 4,301 -- -- Operations 7,199 -- -- Product development 12,066 -- -- Selling and marketing 12,930 -- -- General and administrative 6,852 -- -- Adjusted operating expenses 43,348 EBITDA 16,755 Depreciation and amortization of property and equipment -- 10,307 -- Amortization of intangibles -- 441 -- Amortization of deferred compensation -- 1,961 -- Amortization of partnership costs -- 52,917 (52,070) Total operating expenses 65,626 (52,070) Loss from operations (65,626) -- OTHER INCOME (EXPENSE) (762) -- -- -- Net income (loss) $15,993 $(65,626) $-- NET INCOME (LOSS) PER SHARE: Basic $0.89 Weighted average shares - basic 17,990 Nine Months Ended September 30, 2003 GAAP Allocations Depreciation Amortization and of Amortization of Deferred GAAP Results Property and Equipment Compensation As Reported REVENUE: Related party $-- $-- $539 Non-related party -- -- 7,494 Total revenue -- -- 8,033 OPERATING EXPENSES: Cost of services 336 117 4,754 Operations 7,540 149 14,888 Product development 995 316 13,377 Selling and marketing 896 432 14,258 General and administrative 540 947 8,339 Adjusted operating expenses EBITDA Depreciation and amortization of property and equipment (10,307) -- -- Amortization of intangibles -- -- 441 Amortization of deferred compensation -- (1,961) -- Amortization of partnership costs -- -- 847 Total operating expenses -- -- 56,904 Loss from operations -- -- (48,871) OTHER INCOME (EXPENSE) -- -- (762) -- -- Net income (loss) $-- $-- $(49,633) NET INCOME (LOSS) PER SHARE: Basic $(2.76) Weighted average shares - basic 17,990 NEOFORMA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (unaudited) ASSETS December 31, September 30, 2003 2004 CURRENT ASSETS: Cash and cash equivalents $13,481 $23,578 Short-term investments 3,138 -- Accounts receivable, net of allowance for doubtful accounts 3,776 3,595 Related party accounts receivable 456 -- Prepaid expenses and other current assets 2,775 2,611 Total current assets 23,626 29,784 PROPERTY AND EQUIPMENT, net 7,432 11,067 INTANGIBLES, net 2,022 1,581 GOODWILL 1,652 1,652 CAPITALIZED PARTNERSHIP COSTS, net 106,003 57,996 NON-MARKETABLE INVESTMENTS 83 83 RESTRICTED CASH 1,020 1,020 LONG-TERM INVESTMENTS -- 2,048 OTHER ASSETS 1,376 996 Total assets $143,214 $106,227 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $2,727 $1,591 Accrued payroll 4,199 3,648 Other accrued liabilities 3,183 3,193 Deferred revenue, current portion 2,651 1,897 Total current liabilities 12,760 10,329 DEFERRED RENT 657 414 DEFERRED REVENUE, less current portion 554 386 Total liabilities 13,971 11,129 STOCKHOLDERS' EQUITY: Common Stock $0.001 par value: Authorized -- 300,000 shares at September 30, 2004 Issued and outstanding: 18,943 and 20,020 shares at December 31, 2003 and September 30, 2004, respectively 19 20 Additional paid-in capital 827,570 837,767 Notes receivable from stockholders (5,422) (213) Deferred compensation (218) (3,604) Unrealized gain on available-for-sale securities 1 1 Accumulated deficit (692,707) (738,873) Total stockholders' equity 129,243 95,098 Total liabilities and stockholders' equity $143,214 $106,227 NEOFORMA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (all items unaudited) Nine Months Ended September 30, 2003 2004 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(49,633) $(46,166) Adjustments to reconcile net loss to net cash used in operating activities: Restricted common stock issued to employees and officers 10 -- Provision for doubtful accounts 271 110 Accrued interest receivable on stockholder notes receivable (19) (13) Depreciation and amortization of property and equipment 10,307 3,811 Amortization of intangibles 441 441 Amortization of partnership costs classified as an operating expense 847 4,792 Amortization of deferred compensation 1,962 2,798 Write-off of stockholder notes receivable -- 4,115 Change in assets and liabilities: Accounts receivable (2,333) 527 Prepaid expenses and other current assets 256 164 Other assets 5 380 Accounts payable (1,596) (1,136) Accrued liabilities and accrued payroll (4,246) (538) Deferred revenue 1,319 (922) Deferred rent 27 (243) Accrued interest payable on related party notes payable (2,271) -- Net cash used in operating activities (44,653) (31,880) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable investments (2,789) (4,941) Proceeds from the sale or maturity of marketable investments 2,659 6,031 Capitalization of software development costs -- (5,221) Purchases of property and equipment (3,286) (2,155) Net cash used in investing activities (3,416) (6,286) CASH FLOWS FROM FINANCING ACTIVITIES: Amortization of partnership costs offset against related party revenue 52,070 46,360 Repayments of notes payable (3,713) -- Cash received related to options exercised 805 716 Proceeds from the issuance of common stock under the employee stock purchase plan 1,087 1,090 Common stock repurchased, net of notes receivable issued to common stockholders (2) (177) Collections of notes receivable from stockholders 1,064 274 Net cash provided by financing activities 51,311 48,263 Net increase in cash and cash equivalents 3,242 10,097 Cash and cash equivalents, beginning of period 23,277 13,481 Cash and cash equivalents, end of period $26,519 $23,578 NEOFORMA, INC. RECONCILIATION OF 2004 ADJUSTED GUIDANCE TO GAAP GUIDANCE UPDATED OCTOBER 25, 2004 (in thousands, except per share amounts) (unaudited) Twelve Months Ended December 31, 2004 Adjusted Excluded Guidance Expenses, Range Gains Low High and Losses REVENUE: Related party $61,700 $61,700 $-- Non-related party 11,800 13,300 -- Total revenue 73,500 75,000 -- OPERATING EXPENSES: Adjusted operating expenses 54,300 54,300 -- EBITDA 19,200 20,700 Depreciation and amortization of property and equipment -- -- 5,700 Amortization of intangibles -- -- 588 Amortization of deferred compensation -- -- 4,300 Amortization of partnership costs -- -- 68,152 Write-off of stockholder notes receivable -- -- 4,115 Total operating expenses 82,855 Loss from operations OTHER INCOME (EXPENSE) 300 300 Net income (loss) $19,500 $21,000 $(82,855) NET INCOME (LOSS) PER SHARE: Basic $1.01 $1.08 Weighted average shares - basic 19,400 19,400 Twelve Months Ended December 31, 2004 Application of GAAP Guidance EITF Range No. 01-9 Low High REVENUE: Related party $(61,700) $-- $-- Non-related party -- 11,800 13,300 Total revenue (61,700) 11,800 13,300 OPERATING EXPENSES: Adjusted operating expenses -- 54,300 54,300 EBITDA Depreciation and amortization of property and equipment -- 5,700 5,700 Amortization of intangibles -- 588 588 Amortization of deferred compensation -- 4,300 4,300 Amortization of partnership costs (61,700) 6,452 6,452 Write-off of stockholder notes receivable -- 4,115 4,115 Total operating expenses (61,700) 75,455 75,455 Loss from operations -- (63,655) (62,155) OTHER INCOME (EXPENSE) 300 300 Net income (loss) $-- $(63,355) $(61,855) NET INCOME (LOSS) PER SHARE: Basic $(3.27) $(3.19) Weighted average shares - basic 19,400 19,400 http://www.newscom.com/cgi-bin/prnh/20030226/NEOFORMALOGO http://photoarchive.ap.org/ DATASOURCE: Neoforma, Inc. CONTACT: media, Jen Reidy, +1-415-891-8300, or ; or investors, Amanda Mogin, +1-408-468-4251, or , both for Neoforma Web site: http://www.neoforma.com/

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