Spheris, a leading global outsource provider of medical transcription technology and services, today announced results for the first quarter ended March 31, 2006.

Financial Highlights

Net revenue for the first quarter of 2006 was $52.0 million compared with $53.3 million in the first quarter of 2005. The $1.3 million decline in net revenues during the first quarter of 2006 from the prior-year period was primarily due to customer contracts the Company terminated in 2005 that did not have acceptable operating margins and the continued impact of lost business related to the industry-wide domestic medical transcriptionist, or MT, capacity shortage in 2005. However, operating income increased to $1.1 million during the first quarter of 2006 compared with $0.5 million during the prior-year period. The improvement in operating income was primarily due to integration savings from the Company's December 2004 HealthScribe acquisition, as well as improved turn-around-time credits and other operational efficiencies.

Earnings before interest, taxes and depreciation and amortization, or EBITDA, increased to $7.7 million in the first quarter compared with $7.3 million in the prior-year period. Both operating income and EBITDA were reduced by $0.3 million during the first quarter of 2006 by a non-cash charge resulting from the write-off of in-process research and development upon consummation of the Company's acquisition of Vianeta Communications on March 31, 2006. Excluding this non-cash charge, operating income and EBITDA would have been $1.4 million and $8.0 million, respectively, for the first quarter of 2006. EBITDA is a non-GAAP financial measure. Please refer to the "Supplemental Financial Information" and related note contained in this press release for further discussion and reconciliation of GAAP financial measures to EBITDA. The Company's net loss during the first quarter of 2006 was $2.9 million compared with $2.7 million in the prior-year period.

"Our 2006 first quarter results highlight the significant progress we have made in addressing the production capacity issues we faced during 2005 and leveraging the HealthScribe integration and our technology investments to generate cost efficiencies and competitive advantages," said Steven E. Simpson, president and chief executive officer of Spheris.

Simpson added, "Given the number of customer contracts we terminated in 2005 that did not have acceptable operating margins, the impact of the industry-wide domestic MT capacity shortage in 2005 and the resulting loss of business that continues to impact us in 2006, we anticipated a modest decline in net revenues in our year-over-year comparisons. However, new customer wins secured in the first quarter and thus far in the second quarter, as well as a strong pipeline of potential new business, have served to validate the differentiated technology and service offerings we can now supply to our customers. Together with ongoing cost-saving efforts, operational improvements and the anticipated future impact of the Vianeta acquisition, we expect this activity to help us build momentum in the second half of the year."

Balance Sheet Highlights

On March 31, 2006, Spheris completed the acquisition of Vianeta Communications. As a result of the Vianeta acquisition, the Company held an additional $8.5 million in restricted cash as of March 31, 2006, the majority of which was paid to Vianeta shareholders during April and May 2006.

Liquidity Highlights

As of March 31, 2006, Spheris held $6.2 million in unrestricted cash and cash equivalents. During the first quarter of 2006, the Company generated cash from operating activities of $0.2 million compared with a $1.8 million use of cash during the same period in 2005. The $2.0 million improvement over the prior-year period reflects operational efficiencies and certain costs associated with the HealthScribe acquisition incurred during the first quarter of 2005. The availability under the revolver portion of the Company's senior secured credit facility increased during the first quarter of 2006, improving to $7.8 million as of March 31, 2006 from $7.4 million as of December 31, 2005.

Investor Conference Call and Webcast

Spheris will host a conference call on June 6, 2006, at 8:00 a.m. CDT. The number to call for this interactive teleconference is 507-726-3546. The live broadcast of Spheris' quarterly conference call will be available online at http://www.spheris.com and http://www.videonewswire.com/event.asp?id=34143 on June 6, 2006, at 8:00 a.m. CDT. The online replay will be available shortly after the call and continue for 30 days.

About Spheris

Spheris is a leading global outsource provider of medical transcription technology and services to more than 500 health systems, hospitals and group practices throughout the U.S. More than 5,500 skilled Spheris medical transcriptionists support the company's clients through secure networks, using a Web-based system with integrated voice, text and data. Customer service is provided 24 hours a day, 365 days a year with an emphasis on verifiable quality, turnaround time and pricing. Spheris is headquartered in Franklin, Tenn., with major operations in St. Petersburg, Fla.; Sterling, Va.; Milpitas, Calif.; Bangalore, India; and Coimbatore, India. For more information, please visit http://www.spheris.com.

Forward-Looking Statements

This press release contains statements as to the Company's beliefs and expectations of the outcome of future events that are forward-looking statements as defined within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties as described in the filings made from time to time by the Company with the Securities and Exchange Commission, including, without limitation, the following: (i) the effect our substantial indebtedness has on our ability to raise additional capital to fund our business, to react to changes in the economy or our business and to fulfill our obligations under our indebtedness, including our ability to meet financial covenants and other conditions of our senior secured credit facilities and indenture relating to our senior subordinated notes; (ii) our history of losses and accumulated deficit; (iii) our ability to effectively manage our domestic and global production capacity, including our ability to recruit, train and retain qualified MTs and other technical and managerial personnel and to maintain high standards of quality service in our operations; (iv) our ability to adapt and integrate new technology into our medical transcription platforms to improve our production capabilities and expand the breadth of our service offerings; (v) the reluctance of potential customers to outsource or change providers of their medical transcription services and its impact on our ability to attract new customers and increase revenues; (vi) the effect on our business if we incur additional debt, contingent liabilities and expenses in connection with future acquisitions or if we cannot effectively integrate newly acquired operations; and (vii) financial and operational risks inherent in our global operations, including foreign currency rate fluctuations between the United States and India.

The Company takes no responsibility for updating the information contained in this press release following the date hereof to reflect events or circumstances occurring after the date hereof or the occurrence of unanticipated events or for any changes or modifications made to this press release.

SPHERIS INC.

Condensed Consolidated Statements of Operations

(Unaudited and Amounts in Thousands)

Three Months ended March 31,

2006 2005

Net revenues $51,973 $53,344

Operating expenses:

Direct costs of revenues (exclusive of

depreciation and amortization below) 38,801 39,273

Marketing and selling expenses 1,278 1,586

General and administrative expenses 4,191 5,224

Depreciation and amortization 6,557 6,768

Total operating costs 50,827 52,851

Operating income 1,146 493

Interest expense, net of income 5,140 4,880

Other (income) expense 67 (35)

Net loss before income taxes (4,061) (4,352)

Benefit from income taxes (1,147) (1,655)

Net loss $(2,914) $(2,697)

SPHERIS INC.

Condensed Consolidated Balance Sheets

(Amounts in Thousands)

(Unaudited)

March 31, 2006 December 31, 2005

Assets

Current assets

Unrestricted cash and cash equivalents $6,158 $7,339

Restricted cash 9,820 1,320

Accounts receivable, net of allowance of

$1,094 and $929, respectively 33,239 30,715

Deferred taxes 1,338 1,374

Other current assets 2,853 2,389

Total current assets 53,408 43,137

Property and equipment, net 9,594 9,152

Internally generated software, net 7,779 8,153

Customer contracts, net 41,924 45,799

Goodwill 219,495 211,116

Other noncurrent assets 3,318 2,929

Total assets $335,518 $320,286

Liabilities and stockholders' equity

Current liabilities

Accounts payable $2,587 $3,030

Accrued wages and benefits 13,180 14,094

Current portion of long-term debt 750 750

Current portion of capital lease obligations 170 221

Other current liabilities 19,149 4,798

Total current liabilities 35,836 22,893

Long-term debt, net of current portion 194,101 195,702

Capital lease obligations, net of

current portion 80 105

Deferred tax liabilities 8,893 10,375

Other long-term liabilities 491 524

Total liabilities 239,401 229,599

Common stock, $0.01 par value, 100 shares

authorized, 10 shares issued and outstanding - -

Other comprehensive income 27 (89)

Contributed capital 110,529 102,301

Accumulated deficit (14,439) (11,525)

Total stockholders' equity 96,117 90,687

Total liabilities and

stockholders' equity $335,518 $320,286

SPHERIS INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited and Amounts in Thousands)

Three Months Ended March 31,

2006 2005

Cash flows from operating activities:

Net loss $(2,914) $(2,697)

Adjustments to reconcile net loss to net cash

provided by (used in) operating activities:

Depreciation and amortization 6,557 6,768

Write-off of in-process research and

development 250 -

Deferred taxes (1,446) (1,967)

Amortization of debt discounts and issuance

costs 208 136

Other non-cash items 157 100

Changes in operating assets and liabilities,

net of acquisitions:

Accounts receivable (1,227) (2,689)

Other current assets (464) (227)

Accounts payable (592) (969)

Accrued wages and benefits (978) (630)

Other current liabilities 2,263 854

Other noncurrent assets and liabilities (1,597) (450)

Net cash provided by (used in)

operating activities 217 (1,771)

Cash flows from investing activities:

Purchases of property and equipment (1,222) (1,256)

Other 501 -

Net cash used in investing activities (721) (1,256)

Cash flows from financing activities:

Payments on debt and capital leases (264) (318)

Debt issuance costs (413) -

Capital contributions - 350

Net cash provided by (used in)

financing activities (677) 32

Net decrease in unrestricted cash and cash

equivalents (1,181) (2,995)

Cash and cash equivalents, at beginning of

period 7,339 6,051

Cash and cash equivalents, at end of period $6,158 $3,056

Supplemental Schedule of Non-Cash Investing

and Financing Activities:

Capital contributions to restricted cash

for the Vianeta acquisition $8,000 $-

Purchase of Vianeta, net of cash acquired $9,894 $-

SPHERIS INC.

Supplemental Financial Information

(Unaudited and Amounts in Thousands)

Three Months ended March 31,

2006 2005

Net loss $(2,914) $(2,697)

Depreciation and amortization 6,557 6,768

Interest expense, net of income 5,140 4,880

Other (income) expense 67 (35)

Benefit from income taxes (1,147) (1,655)

EBITDA $7,703 $7,261

Note to Supplemental Financial Information

Earnings before interest expense, income taxes, depreciation and amortization, or EBITDA, is a financial measure not computed in accordance with United States generally accepted accounting principles, or GAAP. The Company believes that this non-GAAP measure, when presented in conjunction with the comparable GAAP measure, is useful to both management and investors in analyzing the Company's ongoing business and operating performance. EBITDA should be considered in addition to, but not as a substitute for, items prepared in accordance with GAAP that are presented in the release, as the items excluded in the presentation of EBITDA are significant components in understanding and assessing financial performance. A reconciliation of EBITDA to the nearest comparable GAAP financial measure is provided above. EBITDA, as presented, may not be comparable to similarly titled measures of other companies.

Source: prnewswire