Quovadx Reports First Quarter Financial Results; Operating Cash Flow o

Quovadx Reports First Quarter Financial Results; Operating Cash Flow of $2.3 million; GAAP EPS Loss Narrows to $0.04

    Business Editors/Technology Editors

    ENGLEWOOD, Colo.--(BUSINESS WIRE)--May 4, 2005--Quovadx, Inc. (NASDAQ: QVDX), a global software and services company, today announced financial results for the first quarter ended March 31, 2005.

    First Quarter Highlights

--	Revenue of $20.8 million, compared with $20.5 million in the fourth quarter of 2004
--	GAAP net loss narrowed to $1.5 million or $0.04 per share, compared with a net loss of $1.9 million or $0.05 per share for the fourth quarter of 2004
--	Positive EBITDA of $1.3 million
--	Gross margin increased to 55%
--	Balance sheet strengthened with cash, short-term investments and restricted cash growing to $27.1 million and zero debt
--	Net DSOs of 63 days, in line with performance in the fourth quarter of 2004

    "I am pleased to report that Quovadx started 2005 with a first quarter of continuing improvements," said Harvey A. Wagner, president and chief executive officer of Quovadx. "We made progress against all of our key financial goals; delivering sequential revenue growth, improving gross margins and generating cash. We also brought new products to market, maintained high levels of customer retention, further built-out our partner-driven sales channels and saw growing momentum in our international sales efforts."

    Financial Results

    Total revenue increased slightly to $20.8 million in the first quarter of 2005, versus $20.5 million in the fourth quarter of 2004, and decreased 7% from $22.3 million in the first quarter of 2004.
    Gross margin increased to 55% in the first quarter of 2005 versus 51% in the fourth quarter of 2004 and 9% in the first quarter of 2004. Gross margin in the first quarter of 2004 included asset impairments totaling $6.8 million and $0.4 million in the fourth quarter of 2004. Without these charges for asset impairments, first quarter 2004 gross margin was 39% and fourth quarter 2004 gross margin was 53%.
    Net loss narrowed to $1.5 million or $0.04 per share for the first quarter of 2005. This compared with a net loss of $1.9 million or $0.05 per share for the quarter ended December 31, 2004, and a net loss of $12.8 million or $0.33 per share for the first quarter of 2004. The first quarter of 2004 results included several non-cash write-downs of capitalized software, prepaid assets and deferred costs totaling $7.1 million, as well as income from discontinued operations totaling $0.2 million. Net loss on a non-GAAP basis for the quarter ended March 31, 2004 was $5.8 million or a loss of $0.15 per share without these one-time charges and the income from discontinued operations.
    EBITDA for the first quarter of 2005 was $1.3 million, an increase of $3.0 million over the first quarter of 2004. Cash flow provided by operations for the first quarter of 2005 was $2.3 million, compared to cash flow used in operations of $9.2 million in the first quarter of 2004.
    The reconciliation for all non-GAAP measures are provided in the attached tables.

    Balance Sheet Highlights

    As a result of generating cash during the quarter, the Company's cash, short-term investments and restricted cash was $27.1 million on March 31, 2005. The Company's deferred revenue was $19.8 million on March 31, 2005, compared to $19.9 million on December 31, 2004, and $18.8 million at the end of the first quarter of 2004. In addition, days sales outstanding (DSO) was 63 days on March 31, 2005, the same level as the fourth quarter of 2004, and down from 72 days on March 31, 2004.
    "We are beginning to see the benefits of the growing synergies between our operating divisions and the investment we continue to make in divisional R&D activities. We have focused R&D resources on areas that will help Quovadx maintain its technology leadership position and remain responsive to the evolving needs of our customers. We are continuing to introduce new and enhanced products within our core markets across all three operating divisions," concluded Wagner.

    Business Division Highlights

    Integration Solutions Division

    The Integration Solutions division (ISD) provides application and data-integration solutions for healthcare, public health and public safety organizations. First quarter revenues for the division were $9.8 million with an operating income of $0.6 million, compared with revenues of $11.6 million and an operating loss of $10.3 million for the same period in 2004. The operating loss in 2004 included $7.1 million in asset impairments.
    ISD signed several contracts during the first quarter with both new and existing customers. Key agreements for ISD Cloverleaf(R) Integration Suite, Cloverleaf(R) modules, or its Cash Accelerator Suite, included St. Joseph's/Candler Health System, the largest healthcare system in Southeast Georgia, Central DuPage Health, an interdependent network of healthcare organizations and services, and expanded relationships with Banner Health and Bon Secours Health System. The Division also saw expanded distribution through leading healthcare IT vendors internationally, such as Health-Comm, which supports approximately 250 Cloverleaf(R) customers in Germany, E-novation Lifeline in the Netherlands and Oman Computer Services (OCS) in the EMEA region. Overall, the international revenue for ISD grew 86% year-over-year and 39% over the fourth quarter of 2004.
    In addition, ISD recently launched the latest release of its Cash Accelerator Suite, version 4.0, which provides healthcare providers with tools to improve revenue cycle management, including access to transaction sets for HIPAA compliance and management of underinsured and uninsured populations.

    CareScience Division

    The CareScience division provides care management services and analytical solutions to hospitals and health systems and pioneered Regional Healthcare Information Organizations (RHIOs) solutions for community-wide clinical data exchange. First quarter revenues for the division were $4.0 million, up 15% from the first quarter 2004, narrowing its operating loss to $0.1 million, compared with an operating loss of $0.6 million on revenues of $3.5 million in the first quarter of 2004.
    During the fourth quarter of 2004, CareScience announced the general availability of CMS Quality Manager, the next generation of the Care Management Suite and the flagship product for CareScience, which automates the process of clinical data gathering, analysis and reporting for healthcare providers. CareScience continued roll-out of the CMS Quality Manager with new and existing customers during the first quarter of 2005.
    Multi-year renewal agreements for the Care Management Suite were signed with St. Vincent's Hospital, CT, Exempla Health, CO, and St. Vincent Indianapolis Hospital. Renewed and expanded agreements were also signed with several other leading healthcare organizations.

    Rogue Wave Software Division

    The Rogue Wave Software division specializes in high-performance development tools, frameworks and software libraries for the professional developer. First quarter revenues for the division were $6.9 million with an operating income of $2.2 million, compared with revenues of $7.2 million and an operating income of $1.7 million in the first quarter of 2004. Overall, the international revenue for the division in the first quarter of 2005 grew 19% year-over-year following a solid performance in the EMEA region and increased revenue from the Asia Pacific region from one of its newest distributors, Grape City of Japan.
    The Division signed several first quarter agreements with leading companies for its SourcePro(R) product line, including several financial services companies in the U.S. and telecommunications, financial services and software companies in the EMEA region. Rogue Wave(R) LEIF, which allows customers to expose existing native code applications as Web services, also secured important wins with large financial services and IT organizations, both domestically and abroad.
    In the first quarter, Rogue Wave Software continued to expand its relationships with strategic partners. The Division certified its entire suite of high-performance development tools to the Solaris 10 x86 operating system for both SPARC(R) and AMD Opteron processor-based systems, and added support to its SourcePro C++ Suite for a number of additional systems, including IBM Power5 system, AMD Opteron and AMD 64 technology. Rogue Wave Software also expanded its joint marketing and technology alliance with Intel Corporation through several market development initiatives, including targeted joint campaigns, market research and educational forums in the first quarter of 2005.
    In addition, the Rogue Wave(R) division launched the latest release of its Stingray(R) Studio 2004, version 2.0, which provides the graphical components needed to mimic the look and feel of Microsoft applications, facilitating the creation of powerful, yet familiar custom user interfaces.
    "The first quarter of 2005 saw improvements across many of our key financial and operating metrics," stated Mel Keating, executive vice president and chief financial officer of Quovadx. "Building on the solid foundations laid in the second half of 2004, we have been effective in continuing to tightly manage our operating expenses, as evidenced by the generation of positive operating cash flow and EBITDA and the ongoing improvement in our operating margins across all three divisions. We are pleased with the progress that has been made in the last several quarters and remain focused on achieving our strategic goals for 2005."

    Other Matters

    During the course of 2004, the Company became the subject of a number of shareholder lawsuits that arose from its March 2004 restatement. These class action and derivative lawsuits are ongoing: the class has been certified and discovery is ongoing in the Section 10b case; the lead plaintiff has not yet been selected in the Section 11 case. In addition, the previously announced formal Securities and Exchange Commission investigation regarding certain transactions entered into during 2002 and 2003 is ongoing.

    Non-GAAP Financial Measures

    EBITDA and other operational measures are non-GAAP financial measures as defined by the rules under "Conditions for Use of Non-GAAP Financial Measures." Reconciliations of Non-GAAP items included in this press release, as compared to the most directly similar GAAP financial measures, are set forth in the EBITDA reconciliation table at the end of this release.

    Conference Call

    Quovadx will host a conference call today, May 4, 2005, at 3:00 PM MDT/5:00 PM EDT, which will broadcast live over the Internet. Please visit the "Investors" section of the Company's Website at http://www.quovadx.com. A replay will be available through May 10, 2005 at http://www.quovadx.com, or by calling 719-457-0820 and entering pass code 2461151.

    About Quovadx, Inc.

    Quovadx, Inc. (NASDAQ: QVDX), a global software and services firm based in Englewood, Colorado, has helped thousands of enterprise customers worldwide develop, extend and integrate applications based on open standards. Quovadx is comprised of three divisions, the Integration Solutions division, which offers vertically specific solutions to improve processes and leverage existing technology systems, the CareScience division, which provides care management services and analytical solutions to hospitals and health systems and is a pioneer in community-wide data sharing and regional healthcare information organization (RHIO) solutions and the Rogue Wave Software division, which provides reusable software components and services that facilitate application development. Quovadx serves companies in healthcare, financial services, telecommunications and the public sector. Quovadx operates internationally with more than 450 employees. For more information, please visit http://www.quovadx.com.

    Cautionary Statement

    Certain forward-looking statements are included in this release, including statements relating to goals and future business opportunities. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this release. Investors are cautioned that all forward-looking statements in this release involve risks and uncertainties and other factors that could cause actual results to differ materially from those referred to in the forward-looking statements. Factors that may affect future results and our ability to achieve profitability and maintain sustainable, profitable growth include market acceptance of and demand for our solutions; technology adoption increasing within the healthcare sector; our success in maintaining and expanding current relationships, winning new clients and growing internationally; our renewed partnership and channel-sales marketing strategy; our ability to hit the market window for new technologies we are developing; significant new competition in our markets; the impact of the pending SEC investigation and class action litigation; our ability to manage and mitigate the liability we face under privacy and security laws, regulations and contract requirements, the Company's ability to remedy the deficiencies that exist in its internal controls over financial reporting and other risks described in the Company's annual and quarterly filings with the SEC, copies of which are available without charge from the Company. The filings are available electronically through a link from the Quovadx investor relations Web page or from the SEC Web site at www.sec.gov under "Quovadx, Inc." If any of the events described in those filings were to occur, either alone or in combination, it is likely that our ability to reach the results described in the forward-looking statements could be impaired and our stock price could be adversely affected. We do not undertake any obligation to update or correct any forward-looking statements included in this release to reflect events or circumstances occurring after the date of this release.
    QUOVADX is a trademark of Quovadx, Inc. Rogue Wave, SourcePro, Stingray and CLOVERLEAF are registered trademarks of Quovadx, Inc. All other company and product names mentioned may be trademarks of the companies with which they are associated.

Quovadx, Inc. Condensed Consolidated Balance Sheets (in thousands)

March 31, December 31, 2005 2004 ------------------------------- (Unaudited) ASSETS Current assets: Cash, cash equivalents and short-term investments $26,541 $24,847 Accounts receivable, net 13,303 14,069 Unbilled accounts receivable 1,178 1,195 Other current assets 3,198 2,597 ------------------------------- Total current assets 44,220 42,708

Property and equipment, net 4,027 4,182 Software, net 10,083 11,333 Other intangible assets 16,750 17,713 Goodwill 46,724 46,724 Restricted cash 578 578 Other assets 652 707 ------------------------------- Total assets $123,034 $123,945 ===============================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities: Accounts payable $3,984 $3,523 Accrued liabilities 10,205 10,097 Unearned revenue 19,810 19,927 ------------------------------- Total current liabilities 33,999 33,547

Commitments and contingencies

Total stockholders' equity 89,035 90,398 ------------------------------- Total liabilities and stockholders' equity $123,034 $123,945 ===============================

End of the period common shares outstanding 40,802 40,619 ===============================

Quovadx, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share amounts) (Unaudited)

Three Months Ended March 31, ------------------------- 2005 2004 -------------------------

Revenue: Software license $6,986 $7,406 Professional services 3,638 4,561 Recurring services 10,152 10,327 ------------------------- Total revenue 20,776 22,294

Cost of revenue: Software license 2,190 4,139 Professional services 2,468 4,278 Recurring services 4,670 5,081 Asset Impairment - 6,765 ------------------------- Total cost of revenue 9,328 20,263 -------------------------

Gross Profit 11,448 2,031 -------------------------

Operating expenses: Sales and marketing 4,382 6,534 General and administrative 4,724 3,693 Research and development 2,971 3,683 Amortization of acquired intangibles 963 1,182 ------------------------- Total operating expenses 13,040 15,092 ------------------------- Loss from operations (1,592) (13,061)

Other income, net 156 118 ------------------------- Loss before income taxes (1,436) (12,943) Income taxes 73 - ------------------------- Loss from continuing operations (1,509) (12,943) Income from discontinued operations - 161 ------------------------- Net loss $(1,509) $(12,782) =========================

Weighted average common shares outstanding - basic and diluted 40,546 39,279 =========================

Net income loss per common share - basic and diluted $(0.04) $(0.33) =========================

Quovadx, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited)

Three Months Ended March 31, ----------------------- 2005 2004 ----------------------- Cash flows from operating activities Net loss $(1,509) $(12,782) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,948 3,287 Amortization of acquired intangibles 963 840 Stock compensation expense 82 253 Asset impairment - 7,116 Bad debt expense (98) (445) Change in assets and liabilities: Accounts receivable 864 2,609 Unbilled accounts receivable 17 339 Other assets (545) (1,417) Accounts payable 461 (5,628) Accrued liabilities 263 (2,752) Unearned and deferred revenue (117) (597) ----------------------- Net cash provided by (used in) operating activities 2,329 (9,177) -----------------------

Cash flows from investing activities Purchase of property and equipment (427) (313) Purchases of short term investments (25) - Capitalized software (116) (837) ----------------------- Net cash used in investing activities (568) (1,150) -----------------------

Cash flows from financing activities Proceeds from issuance of common stock 99 480 ----------------------- Net cash provided by financing activities 99 480 -----------------------

Effect of foreign exchange rate changes on cash (191) 141 -----------------------

Cash, cash equivalents and short-term investments Net increase (decrease) 1,669 (9,706) Beginning of period 18,822 23,688 ----------------------- End of period $20,491 $13,982 =======================

Quovadx, Inc. EBITDA Reconciliation (in thousands) (Unaudited) Three Months Ended March 31, 2005 March 31, 2004 ---------------- ---------------- GAAP net loss $(1,509) $(12,782) Interest income (156) (118) Depreciation & amortization 2,911 4,127 Income taxes 73 - Asset impairments - 7,116 ---------------- ----------------

EBITDA $1,319 $(1,657) ================ ================

Quovadx, Inc. Net Loss Reconciliation (in thousands) (Unaudited) Three Months Ended March 31, 2005 March 31, 2004 ---------------- ---------------- GAAP net loss $(1,509) $(12,782) Income from discontinued operations - (161) Asset impairments - 7,116 ---------------- ---------------- Adjusted net loss $(1,509) $(5,827) ================ ================ Weighted average common shares outstanding - diluted 40,546 39,279 ================ ================

Adjusted net loss per common share - basic and diluted $(0.04) $(0.15) ================ ================

--30--DJM/dx*

CONTACT: Quovadx Andrea Lashnits, 720-554-1246 andrea.lashnits@quovadx.com or Investors: Financial Dynamics Ian Bailey, 212-850-5600 ibailey@fd-us.com or Peter Schmidt, 212-850-5600

KEYWORD: COLORADO INDUSTRY KEYWORD: MEDICAL SOFTWARE EARNINGS CONFERENCE CALLS SOURCE: Quovadx

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