Sunquest Reports First Quarter 2000 Results - Company Financial Information

Edge: Work-Group Computing Report, May 1, 2000

Sunquest Information Systems Inc. (Nasdaq:SUNQ) Tuesday announced results for the first quarter ended March 31, 2000.

Net income was $2.6 million, or $0.17 per diluted share, an increase of 6.7 percent compared to net income for the first quarter in 1999, excluding a non-recurring item. The first quarter net income of $0.17 per diluted share is comprised of $0.20 related to the core business segment, offset by a charge of $0.03 related to the e-commerce segment.

The company posted first quarter revenues of $28.7 million compared to revenues of $32.7 million for the same period of the previous year. There was a decrease of $4.6 million in System Sales revenues primarily due to timing issues and client delays of installations and less hardware shipments.

There was an increase in Support and Services revenues of $573,000 from a 13 percent growth in support services to the installed base and a 34 percent growth in consulting and other services offset by decreased installation and service fees related to Y2K installations of the commercial laboratory products.

The company has been experiencing a more profitable mix of revenues. Hardware revenues have been decreasing as a percentage of total revenues. As a result, the company's gross profit percentage was 82.4 percent for the first quarter as compared to 80.2 percent in the first quarter of 1999.

At March 31, 2000, the company's backlog of future revenues from signed sales agreements was $121.2 million, a decrease of 2.7 percent over the previous quarter.

In 1999, Sunquest introduced Internet-based application service provider (ASP) offerings, which are now in general release. During the first quarter, the company signed two contracts for its e-Commercial Lab and e-Financial products. Another product, e-Hospital Lab, is ready for Beta release.

The company's strategic initiatives include future releases of ASP product offerings as well as introducing additional Internet ventures and products. The company believes it is positioned as a front-runner in this rapidly developing market.

Dr. Sidney A. Goldblatt, Sunquest's chief executive officer said, "We are pleased to announce that this was the ninth consecutive quarter that we had either met or exceeded analysts' estimates. Sales signings during the first quarter of 2000 were above Company projections, although they were below the fourth quarter of 1999 as anticipated.

"We believe this decrease was the result of post-Year 2000 effect and historical buying cycles. In addition, our sales pipeline continued to grow and was 37 percent higher than this time last year. Due to the pent-up demand being experienced in the marketplace, we are quite optimistic regarding our sales opportunities for the remainder of the year for our core products as well as our e-commerce offerings.

"We believe that our sales growth this year will be from sales to more and larger IDN's, our ASP offerings, and our consulting division. Q1 was the beginning of what we expect to be a great year for Sunquest."

Goldblatt continued, "We recognized operational improvements in several areas during the quarter including increases in both gross margin and operating income percentages; an impressive $9.3 million in cash flow from operations; and the best cash collections quarter in the Company's history."

Sunquest Information Systems Inc. designs, develops and supports a comprehensive suite of information products for hospitals and health care networks -- to include laboratory, radiology and pharmacy systems.

Characterized by service excellence, Sunquest also develops Clinical Event Manager, a cross-platform communication system that issues clinical alerts via e-mail or pager.

Sunquest's consulting division, Balanced View Consulting, provides a wide array of management and technical tools including lab redesign and optimization, outreach and lab network program development, and operational business and implementation plans. Founded in 1979, Sunquest is a market leader in clinical data management with over 1,200 sites worldwide.

               Sunquest Information Systems Inc.
          Condensed Consolidated Statements of Income
           (In thousands, except per share amounts)
                          (Unaudited)

                                            Three Months Ended
                                                 March 31,

                                            2000          1999 (1)
                                            ----          ----

Revenues:
  System sales                             $9,920        $14,542
  Support and service                      18,751         18,178

Total revenues                             28,671         32,720
Operating expenses:
  Cost of system sales                      5,038          6,463
  Client services                           8,259          9,428
  Research and development                  4,144          4,099
  Sales and marketing                       4,063          4,390
  General and administrative                3,562          4,310

Total operating expenses                   25,066         28,690

Operating income                            3,605          4,030
Other income (expense):
  Interest income                             580            321
  Interest expense                           (278)          (318)
  Other                                       308           (109)

Income before income taxes                  4,215          3,924
Income tax provision                        1,590          1,463

Net income                                 $2,625         $2,461

Net income per share:
  Basic                                      $.17           $.16
  Diluted                                    $.17           $.16

Weighted-average shares outstanding:
  Basic                                    15,547         15,394
  Diluted                                  15,637         15,512


(1) Excludes a gain on the sale of the company's Enterprise Master
Person Index product of approximately $681,000 ($429,000
after-tax). The tax effected impact on net income per share is
$.03 for the three months ended March 31, 1999.

               Sunquest Information Systems Inc.
             Condensed Consolidated Balance Sheets
                        (In thousands)

                                         March 31,      Dec. 31,
                                           2000           1999
                                         ---------      --------
                                        (Unaudited)
ASSETS

Cash and cash equivalents                $  9,024       $  9,660
Short-term investments                     44,705         37,218
Trade receivables, net                     39,709         43,079
Other current assets                        2,580          2,393
Deferred tax asset                          1,888          1,888

  Total current assets                     97,906         94,238

Property and equipment, net                10,470         10,100
Capital leases from related party, net      2,314          2,512
Software development costs, net             9,508          9,493
Other assets, net                             894            920

  Total assets                           $121,092       $117,263

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts  payable and accrued
 expenses                                $ 12,959       $ 13,599
Deferred revenue                           14,106         11,919
Obligations under capital leases,
 primarily from related party               1,114          1,064

  Total current liabilities                28,179         26,582

Obligations under capital leases
 from related party                         2,801          3,099
Deferred income taxes                       1,959          1,959

Shareholders' equity                       88,153         85,623

  Total liabilities and shareholders'
   equity                                $121,092       $117,263

              Sunquest Information Systems Inc.
        Condensed Consolidated Statements of Cash Flows
                        (In thousands)
                          (Unaudited)

                                            Three Months Ended
                                                  March 31,
                                            2000           1999
                                            ----           ----

Net cash provided by operating
 activities                              $  9,318       $  9,055

  Cash flows from investing
   activities:
  Purchase of property and
   equipment                               (1,210)          (283)
  Costs related to acquisitions                (3)        (1,097)
  Capitalized software
   development costs                         (911)        (1,910)
  Purchase of investments                  (9,687)       (11,354)
  Proceeds from sale of
   investments                              2,200          9,551
  Proceeds from sale of assets                 -             750

    Net cash used in investing
 activities                                (9,611)        (4,343)

Cash flows from financing
 activities:
  Principal payments on
   capitalized leases,
   primarily from related
   party                                     (248)          (222)
  Net proceeds from issuance
   of stock                                    33             25

    Net cash used in
 financing activities                        (215)          (197)

Foreign currency translation
 adjustment                                  (128)          (153)
Net (decrease) increase in
 cash and cash equivalents                   (636)         4,362
Cash and cash equivalents
 at beginning of period                     9,660          7,057
Cash and cash equivalents
 at end of period                        $  9,024       $ 11,419