Spheris Reports Fourth Quarter and Year-End 2008 Results

FRANKLIN, Tenn., March 24 /PRNewswire/ -- Spheris, a leading global outsource
provider of clinical documentation technology and services, today announced
results for the three and twelve months ended December 31, 2008.

Financial Highlights--Fourth Quarter of 2008
Net revenues for the fourth quarter of 2008 were $41.8 million compared with
$48.6 million for the fourth quarter of 2007. The decrease in net revenues
was due to the impact of net lost business and lower average customer contract
pricing.

Operating income was $4.7 million, or 11.2% of net revenues, for the fourth
quarter of 2008 compared with $1.2 million, or 2.5% of net revenues, for the
fourth quarter of 2007. The improvement in operating income was driven by
increased utilization of the global production workforce and speech
recognition technologies, in addition to lower marketing, selling and general
and administrative expenses that resulted from the Company's cost-containment
efforts. These improvements more than offset the decrease in net revenues
noted above. Additionally, the improvement in operating income was aided by
lower amortization expense as certain capitalized customer lists were fully
amortized.

The Company defines Adjusted EBITDA as earnings before interest, taxes,
depreciation and amortization, other expense or income, and restructuring
charges. Adjusted EBITDA for the fourth quarter of 2008 was $9.1 million, or
21.8% of net revenues, compared with $7.3 million, or 15.0% of net revenues,
in the prior-year period. The improvement in Adjusted EBITDA was due
primarily to the operational cost savings described above.

Adjusted EBITDA is a financial measure not computed in accordance with United
States generally accepted accounting principles, or GAAP. Please refer to the
"Supplemental Financial Information" and related note contained in this press
release for further discussion and reconciliation of Adjusted EBITDA to GAAP
financial measures.

Financial Highlights--Year Ended December 31, 2008
Net revenues for the year ended December 31, 2008 were $182.8 million compared
with $200.4 million in 2007. The decrease in net revenues was due to the
impact of net lost business and lower average customer contract pricing.

Operating income was $5.6 million, or 3.1% of net revenues, in 2008 compared
with $7.4 million, or 3.7% of net revenues, during 2007. During the first
quarter of 2008, the Company recorded $1.3 million of expenses relating to a
transaction that was not consummated. Excluding these transaction costs,
operating income would have been $6.9 million, or 3.8% of net revenues, for
the year ended December 31, 2008. In addition to the impact of the
transaction costs, the decrease in operating income was due primarily to lower
net revenues as described above. These costs were partially offset by
operational cost savings from increased utilization of our global production
workforce and speech recognition technologies, in addition to other cost
savings initiatives.

Adjusted EBITDA was $27.7 million, or 15.2% of net revenues, in 2008 compared
with $31.6 million, or 15.8% of net revenues, in 2007. Excluding the $1.3
million of transaction related expenses noted above, Adjusted EBITDA would
have been $29.0 million, or 15.9% of net revenues, in 2008. In addition to
the impact of the transaction costs, the decrease in Adjusted EBITDA was
primarily due to the impact of lower net revenues.

Commenting on the fourth quarter and year-end 2008 results, Daniel J. Kohl,
president and chief executive officer of Spheris, stated, "We had our fair
share of success and disappointment in 2008. The positives included signing a
five-year agreement with Community Health Systems, migrating the medical
language specialists to the Cornerstone editor and increasing the volume of
global and speech recognition lines. The biggest negative was significant
lost business resulting in declining revenues. It is imperative we focus our
energy on delighting customers."

Kohl added, "Our goal for 2009 is to get Spheris back on track. In order to
do so, we must stabilize our current customer base, improve the performance of
current technology, reduce costs, do an excellent job at converting the
Community Health Systems business and sign new business. We have restructured
the Company to focus aggressively on these objectives."

Balance Sheet and Liquidity Commentary
As of December 31, 2008, the outstanding indebtedness under the Company's
senior secured credit facility was $73.2 million and the outstanding
indebtedness under the Company's senior subordinated notes was $125.0 million.

As of December 31, 2008, Spheris held $3.3 million in unrestricted cash and
cash equivalents. During 2008, the Company generated cash from operating
activities of $1.4 million compared with $13.6 million of cash generated from
operating activities during 2007. The majority of the decrease in cash
generated from operating activities was due to changes in working capital and
timing items, primarily the decrease in payroll liabilities that resulted from
the timing of payments pursuant to the Company's bi-weekly domestic payroll
cycle. Also, the Company utilized operating cash to fund certain insurance
deposit amounts that are reflected in noncurrent assets on the Company's
balance sheet. Cash flow was further negatively impacted by the decrease in
operating income but was positively impacted by an increase in receivables
collections.

Investor Conference Call and Webcast
Spheris will host a conference call on March 26, 2009, at 8 a.m. CT. The
number to call for this interactive teleconference is (303) 262-2139.
Following the conference call, the audio replay will be available for one week
by dialing (303) 590-3000 and entering the confirmation number 11127079#. The
live broadcast of Spheris' quarterly conference call will be available online
at www.spheris.com and http://www.videonewswire.com/event.asp?id=56401 on
March 26, 2009, at 8 a.m. CT. The online replay will be available on Spheris'
Web Site shortly after the call and will continue for 30 days.

About Spheris
Spheris is a leading global outsource provider of clinical documentation
technology and services to health systems, hospitals and group practices
throughout the U.S. Spheris offers a highly advanced, Web-based technology
platform blended with Spheris' outsource services. Spheris employs
approximately 4,500 skilled medical language specialists supporting the
Company's clients through a secure network. Using a Follow the Sun(SM) service
strategy, customer support is provided 24 hours a day, 365 days a year with an
emphasis on verifiable quality, turnaround time and pricing. Spheris'
corporate headquarters are located in Franklin, Tenn. For more information,
please visit 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 facility and indenture governing our
senior subordinated notes; (ii) the recent global economic and financial
market crisis has had and may continue to have a negative impact on our
business and results of operations, (iii) capital markets are currently
experiencing a period of dislocation and instability, which has had and could
continue to have a negative impact on the availability and cost of capital,
(iv) our history of losses and accumulated deficit; (v) our ability to
effectively manage our global production capacity, including our ability to
recruit, train and retain qualified medical language specialists and maintain
high standards of quality service in our operations; (vi) our ability to
support existing technologies as well as adapt and integrate new technology
into our clinical documentation platforms to improve our production
capabilities and expand the breadth of our technology and service offerings;
(vii) our ability to maintain our competitive position against current and
future competitors, including our ability to gain new business with acceptable
operating margins and ongoing price pressures related to our technology and
services and the healthcare markets in general; (viii) the reluctance of
potential customers to outsource or change providers of their clinical
documentation technology and services and its impact on our ability to attract
new customers and increase revenues; (ix) financial and operational risks
inherent in our global operations, including foreign currency exchange rate
fluctuations and transfer pricing laws between the United States and India;
(x) our ability to attract, hire or retain technical and managerial personnel
necessary to develop and implement technology and services to our customers;
(xi) the effect on our business if we incur additional debt and assume
contingent liabilities and expenses in connection with future acquisitions or
if we cannot effectively integrate newly acquired operations; and (xii) our
ability to adequately protect our intellectual property rights, including our
proprietary technology and the intellectual property we license from third
parties.
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
(Amounts in Thousands)

(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
2008 2007 2008 2007

Net revenues $41,769 $48,597 $182,843 $200,392

Operating expenses:
Direct costs of revenues
(exclusive of depreciation
and amortization below) 28,491 35,290 131,266 144,094
Marketing and selling
expenses 514 1,026 2,790 4,781
General and administrative
expenses 3,706 4,953 21,043 19,892
Depreciation and
amortization 3,893 6,101 21,613 24,273
Restructuring charges 484 - 484 -
Total operating costs 37,088 47,370 177,196 193,040

Operating income 4,681 1,227 5,647 7,352

Interest expense, net of
income 4,725 5,038 19,104 21,171
Loss on debt refinancing - - - 1,828
Other expense 414 1,240 1,852 1,570
Net loss before income taxes (458) (5,051) (15,309) (17,217)

Provision for (benefit from)
income taxes 9,439 (1,218) 3,870 (5,856)

Net loss $(9,897) $(3,833) $(19,179) $(11,361)

SPHERIS INC.
Condensed Consolidated Balance Sheets
(Amounts in Thousands, Except Share Amounts)

December 31,
2008 2007

Assets
Current assets
Unrestricted cash and cash equivalents $3,262 $7,195
Restricted cash 309 309
Accounts receivable, net of allowance of
$1,332 and $1,569, respectively 28,510 33,595
Deferred taxes 372 3,386
Prepaid expenses and other current assets 4,430 4,460
Total current assets 36,883 48,945

Property and equipment, net 12,309 12,747
Internal-use software, net 1,586 1,932
Customer contracts, net 9 13,968
Goodwill 218,841 218,841
Other noncurrent assets 5,450 3,689
Total assets $275,078 $300,122

Liabilities and stockholders' equity
Current liabilities
Accounts payable $2,893 $4,237
Accrued wages and benefits 8,545 18,130
Current portion of long-term debt and lease
obligations 683 35
Other current liabilities 5,327 4,324
Total current liabilities 17,448 26,726

Long-term debt and lease obligations, net of
current portion 195,499 191,761
Deferred tax liabilities 300 92
Other long-term liabilities 5,710 4,857
Total liabilities 218,957 223,436

Common stock, $0.01 par value, 100 shares
authorized, 10 shares issued and outstanding - -
Other comprehensive income (loss) (1,344) 564
Contributed capital 111,680 111,158
Accumulated deficit (54,215) (35,036)
Total stockholders' equity 56,121 76,686

Total liabilities and stockholders' equity $275,078 $300,122

SPHERIS INC.
Condensed Consolidated Statements of Cash Flows
(Amounts in Thousands)

Year Ended December 31,
2008 2007

Cash flows from operating activities:
Net loss $(19,179) $(11,361)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 21,613 24,273
Amortization of acquired technology 162 648
Deferred taxes 3,222 (6,435)
Change in fair value of derivative
financial instruments 2,593 1,112
Amortization of debt discounts and issuance
costs 851 833
Restructuring charges 484 -
Loss on debt refinancing - 1,828
Other non-cash items 590 408
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable 5,085 (19)
Prepaid expenses and other current assets (53) (476)
Accounts payable (1,450) 1,717
Accrued wages and benefits (10,069) 1,556
Other current liabilities (13) (57)
Other noncurrent assets and liabilities (2,402) (417)
Net cash provided by operating activities 1,434 13,610

Cash flows from investing activities:
Purchases of property and equipment (5,423) (5,699)
Purchase and development of internal-use
software (873) (1,201)
Purchase of Vianeta, net of cash acquired - (1,547)
Net cash used in investing activities (6,296) (8,447)

Cash flows from financing activities:
Proceeds from debt 7,288 71,320
Payments on debt and lease obligations (4,451) (76,066)
Debt issuance costs - (583)
Net cash provided by (used in) financing
activities 2,837 (5,329)

Effect of exchange rate change on cash and
cash equivalents (1,908) 1,038
Net (decrease) increase in unrestricted
cash and cash equivalents (3,933) 872
Unrestricted cash and cash equivalents, at
beginning of period 7,195 6,323
Unrestricted cash and cash equivalents, at
end of period $3,262 $7,195

Supplemental Schedule of Non-cash Investing
and Financing Activities:
Purchases of property and equipment and
internal-use software through lease obligations $1,019 $-

SPHERIS INC.
Supplemental Financial Information
(Amounts in Thousands)

(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
2008 2007 2008 2007
Net loss $(9,897) $(3,833) $(19,179) $(11,361)
Depreciation and amortization 3,893 6,101 21,613 24,273
Interest expense, net of income 4,725 5,038 19,104 21,171
Loss on debt refinancing - - - 1,828
Other expense 414 1,240 1,852 1,570
Restructuring charges 484 - 484 -
Provision for (benefit from)
income taxes 9,439 (1,218) 3,870 (5,856)

Adjusted EBITDA $9,058 $7,328 $27,744 $31,625

Note to Supplemental Financial Information
The Company defines Adjusted EBITDA as earnings before interest, taxes,
depreciation and amortization, other expense or income (including
mark-to-market adjustments related to the Company's derivative financial
instruments), and restructuring charges. Adjusted 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. The Company believes that providing the
non-GAAP information to investors, in addition to the GAAP presentation,
allows investors to view the Company's financial results in the way management
and the Company's senior lenders view the Company's operating results.
Management believes Adjusted EBITDA is useful as a supplemental measure of the
performance of the Company's operations because it isolates the Company's
operating performance from the accounting impact of the Company's financing
strategies, tax provisions, and depreciation and amortization. Additionally,
since Adjusted EBITDA is a significant component of certain financial
covenants under the Company's senior secured credit facility agreement,
management believes Adjusted EBITDA is useful for investors to better assess
the Company's compliance with these financial covenants. Management believes
Adjusted EBITDA should be considered in addition to, but not as a substitute
for, items prepared in accordance with GAAP that are presented in this press
release, as the items excluded in the presentation of Adjusted EBITDA are
significant components in understanding and assessing financial performance.
A reconciliation of Adjusted EBITDA to the nearest comparable GAAP financial
measure is provided above. Adjusted EBITDA, as presented, may not be
comparable to similarly titled measures of other companies.

SOURCE Spheris

Investor Relations: Brian P. Callahan, Chief Financial Officer,
+1-615-261-1500, bcallahan@spheris.com; Lisa DeMoss, Director of
Communications, +1-615-261-1716, ldemoss@spheris.com, both of Spheris