EPOCRATES INC

CIK:0001096738|SEC Filings

Quarterly Results of Operations

12 Months Ended

Dec. 31, 2012

Quarterly Financial Information Disclosure [Abstract]

Quarterly Financial Information [Text Block]

Quarterly Results of Operations

The following table sets forth selected unaudited quarterly statements of operations data for the eight quarters ending March 31, 2011 through December 31, 2012. The information for each of these quarters has been prepared on the same basis as our audited financial statements and, in the opinion of management, includes all adjustments necessary for a fair statement of the results of operations for such periods. This data should be read in conjunction with the financial statements and related notes.



	Three Months Ended
	March 31,			June 30,			September 30,			December 31,
	2012			2012 ⁽¹⁾			2012 ⁽²⁾			2012 ⁽³⁾
	(in thousands, except per share information)

Total revenues, net	$	27,531		$	26,824		$	26,025		$	30,780
Gross profit	17,244			15,875			15,222			19,130
Net loss	(1,438		)	(399		)	(608		)	(973		)
Net loss per common share - basic ⁽⁴⁾	(0.06		)	(0.02		)	(0.02		)	(0.04		)
Net loss per common share - diluted ⁽⁴⁾	(0.06		)	(0.02		)	(0.02		)	(0.04		)

	Three Months Ended
	March 31,			June 30,			September 30,			December 31,
	2011 ⁽⁵⁾			2011			2011 ⁽⁶⁾			2011
	(in thousands, except per share information)

Total revenues, net	$	29,177		$	27,860		$	26,595		$	29,689
Gross profit	19,787			18,092			16,312			18,938
Gain on settlement and change in fair value of contingent consideration ⁽⁷⁾	506			(6,439		)	—			—
Net (loss) income	(1,125		)	3,393			686			(6,527		)
Net (loss) income per common share - basic ⁽⁴⁾	(0.08		)	0.14			0.03			(0.27		)
Net (loss) income per common share - diluted ⁽⁴⁾	(0.08		)	0.13			0.03			(0.27		)


⁽¹⁾	During the second quarter of 2012, the Company recorded correcting entries to increase operating expenses by $51 thousand for the correction of immaterial errors in accrued expenses in the three months ended June 30, 2012.


⁽²⁾	During the third quarter of 2012, the Company recorded a correcting entry to reduce stock-based compensation expense by $32 thousand for the correction of immaterial errors in additional paid-in capital for the three months ended September 30, 2012.

⁽³⁾

During the fourth quarter of 2012, the Company recorded correcting entries to reduce revenue by $87 thousand for the correction of immaterial errors in deferred revenue balances, to reduce stock-based compensation expense by $106 thousand for the correction of immaterial errors in additional paid-in capital, to increase royalty expenses by $39 thousand for the correction of immaterial errors in accrued royalties and to increase sales tax expense by $106 thousand for the correction of immaterial errors in other assets.


⁽⁴⁾	Net (loss) income per share for the four quarters of each fiscal year may not sum to the total for the fiscal year because of the different number of shares outstanding during each period.


⁽⁵⁾	During the first quarter of 2011, the Company recorded correcting entries to increase consulting expenses by $36 thousand for the correction of immaterial errors in accrued expenses and to increase revenue by $88 thousand for the correction of immaterial errors in deferred revenue.


⁽⁶⁾	During the third quarter of 2011, the Company recorded correcting entries to increase royalty and consulting expenses by $127 thousand for the correction of immaterial errors in capitalization of costs related to internal use software.

Management does not believe the misstatements or correcting adjustments described in footnotes one to three, five and six above are material to any previously issued interim or annual financial statements or to the results for the year ended December 31, 2012.


⁽⁷⁾	For the three months ended June 30, 2011, includes a $6.4 million gain relating to the settlement of the contingent consideration liability with the sellers of MedCafe, Inc., a company that Epocrates acquired in 2010.

The Company's revenue is generally highest in the fourth quarter of each calendar year, primarily as a result of the annual budget approval processes of many of its customers in the pharmaceutical industry, and this trend is expected to continue. The Company may also experience fluctuations in its quarterly results, due to factors including, but not limited to, the timing of revenue recognition, its ability to retain and attract new customers and the general economic and regulatory environment in the U.S. Due to these factors, management believes that quarter-to-quarter comparisons of operating results are not meaningful and should not be relied upon as an indication of future performance.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Cash flows from operating activities:
Net (loss) income	$ (3,419)	$ (3,573)	$ 3,803
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Stock-based compensation	4,334	7,342	6,356
Depreciation and amortization	3,965	4,557	3,083
Amortization of intangible assets	4,003	4,181	1,319
Loss on write-off of property and equipment	220	187	0
Change in carrying value of preferred stock liability	0	0	33
Allowance for doubtful accounts and sales returns reserve	57	(56)	119
Facilities exit costs	0	618	0
Impairment of long-lived assets and goodwill	0	8,501	0
Excess tax benefit from stock based awards	(422)	(328)	(319)
Gain on settlement and change in fair value of contingent consideration	0	(8,145)	(1,034)
Gain on sale-leaseback of building	0	0	(1,689)
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable	(3,877)	(1,591)	(3,911)
Deferred tax asset, current and non-current	1,812	(2,920)	4,495
Prepaid expenses and other assets	(40)	797	(1,165)
Accounts payable	130	27	1,210
Deferred revenue	(10,587)	(379)	(7,464)
Other accrued liabilities and other payables	(772)	(399)	4,276
Net cash (used in) provided by operating activities	(4,596)	8,819	9,112
Cash flows from investing activities:
Purchase of property and equipment	(4,516)	(10,064)	(4,657)
Business acquisitions	0	0	(14,600)
Purchase of short-term investments	(20,083)	(24,849)	(27,793)
Sale of short-term investments	0	8,590	1,797
Decrease in restricted cash	0	500	0
Maturity of short-term investments	10,680	24,800	11,725
Net cash used in investing activities	(13,919)	(1,023)	(33,528)
Cash flows from financing activities:
Net cash proceeds from issuance of common stock	0	64,188	0
Payment and settlement of contingent consideration	0	(6,871)	0
Acquisition of common stock	0	0	(3,491)
Payment of accrued dividends on Series B mandatorily redeemable convertible preferred stock	0	(29,586)	0
Excess tax benefit from stock-based compensation awards	422	328	319
Proceeds from exercise of common stock options	1,711	3,484	2,680
Net cash provided by (used in) financing activities	2,133	31,543	(492)
Net (decrease) increase in cash and cash equivalents	(16,382)	39,339	(24,908)
Cash and cash equivalents at beginning of period	75,326	35,987	60,895
Cash and cash equivalents at end of period	58,944	75,326	35,987
Supplemental Disclosures:
Cash paid for income taxes	11	691	0
Cash refunded for income taxes	(9)	(293)	(969)
Cash paid for interest	0	0	214
Non-Cash Investing and Financing Activities:
Stock-based compensation capitalized in capitalized software	85	130	0
Retirement of treasury stock	0	0	2,596
Unrealized gain (loss) on available-for-sale securities, net of tax effect	1	(1)	0
Dividend accrued on Series B mandatorily redeemable convertible preferred stock	0	255	2,840
Accrued purchase of property and equipment and other assets	24	62	(843)
Contingent consideration recorded in connection with business acquisitions	0	0	14,750
Conversion of mandatorily redeemable convertible preferred stock into common stock	0	44,011	0
Reclassification of costs of issuance of common stock from prepaid expenses and other current assets	$ 0	$ 2,025	$ 0

Balance Sheet Components

12 Months Ended

Dec. 31, 2012

Balance Sheet Components [Abstract]

Balance Sheet Components

The components of property and equipment, net as of December 31, 2012 and 2011 (in thousands) are as follows:



	December 31,
	2012			2011
Computer equipment and purchased software	$	9,100		$	9,955
Software developed for internal use	10,602			8,947
Furniture and fixtures	2,683			3,131
Leasehold improvements	2,185			2,112
	24,570			24,145
Less: Accumulated depreciation and amortization	(16,717		)	(16,862		)
	$	7,853		$	7,283

Depreciation and amortization expense for the years ended December 31, 2012, 2011 and 2010 was $4.0 million, $4.6 million million and $3.1 million, respectively.

The components of other accrued liabilities as of December 31, 2012 and 2011 (in thousands) are as follows:



	December 31,
	2012		2011
Accrued employee compensation	$	3,135	3,021
Accrued market research honoraria	1,783		1,476
Accrued royalties payable	425		1,273
Other accrued expenses	4,178		3,830
	$	9,521	$	9,600