First Consulting Group Announces First Quarter 2005 Results

First Consulting Group Announces First Quarter 2005 Results

    Business Editors/Health/Medical Writers

    LONG BEACH, Calif.--(BUSINESS WIRE)--April 27, 2005--First Consulting Group, Inc. (Nasdaq:FCGI):

--	Net Revenues of $68.1 Million
--	Loss from Continuing Operations of $0.03 per share
--	Setback Due to Slow Start in Health Delivery Services Business
--	Expected Profitability in Second Quarter With Growth to Follow
--	Strong Pipeline of Outsourcing and Project Opportunities

    First Consulting Group, Inc. (Nasdaq:FCGI), a leading provider of outsourcing, consulting and systems implementation and integration to the health-related industries, today reported financial results for the first quarter ended April 1, 2005.

    First Quarter 2005 Performance

    Revenues before out-of-pocket reimbursements ("net revenues") for the first quarter of 2005 were $68.1 million, down 5.4% from $72.0 million in the prior quarter, and up 4.3% from $65.4 million in the first quarter of 2004. The decrease in revenues compared to the fourth quarter was primarily due to lower than expected revenues in Health Delivery Services.
    FCG reported a loss from continuing operations of $0.8 million, or $0.03 per share, for the first quarter of 2005 compared to a profit of $3.7 million, or $0.15 per share, in the fourth quarter of 2004, and a loss of $0.5 million, or $0.02 per share, in the first quarter of 2004. Included in the fourth quarter 2004 income was a non-cash tax valuation allowance reversal of $3.0 million, and included in the first quarter 2004 loss was a $1.6 million expense for the premium paid on the repurchase of FCG stock in a single transaction in February 2004.

    Cash Position

    Total cash and investments decreased to $34.4 million in the first quarter of 2005, as compared to $40.3 million in the prior quarter. The key elements of the $5.9 million reduction in cash from last quarter were:

    -- $2.5 million, as previously announced, of cash paid by FCG to
    repurchase 0.4 million outstanding shares of FCG stock that
    were originally issued in connection with the acquisition by
    FCG of Codigent Solutions Group, Inc.

    -- Increase in DSO to 41 from 37 in the fourth quarter of 2004

    -- Loss from continuing operations

    -- Loss on discontinued operations

    Luther Nussbaum, FCG's chairman and chief executive officer, said, "In the previous five quarters, we have met our operating objectives. We have established a strategy based on outsourcing, offsite services and blended shore services. The healthcare market has been a slow adopter of low cost global solutions. However, we have added a dozen new blended shore clients in the last few months. While these engagements are mostly small, we believe the adoption has started. The market is now clearly moving in our direction. As we reflected in our last call, our first quarter started much slower than expected and we were unable to drive enough business at the end of the quarter to recover. We are disappointed with this quarter's results. Our momentum has been interrupted and it will take us this quarter to rebuild it. We have a strong baseline of recurring revenue in outsourcing. We believe we are still in a solid market and we are pursuing several large engagements that we expect to measurably impact our performance in both implementation services and outsourcing. We believe that our pipeline of opportunities remains strong and that our outlook to improve second half earnings over last year's is achievable. We remain highly committed to top line growth and expect to realize improved results."

    Financial Summary

    -- Revenue decreased approximately $3.9 million, primarily in
    Health Delivery Services, compared to the fourth quarter of
    2004, resulting in lower gross profit of approximately $3.2
    million

    -- Under-absorbed infrastructure expenses were $840,000, down
    from $1.4 million in the prior quarter, but higher than
    expected due to delays in starts of help desk and data center
    engagements

    -- Increased sales costs of $140,000 compared to the fourth
    quarter of 2004 due to the addition of sales personnel

    -- Increased costs of $425,000 compared to the fourth quarter
    primarily attributable to product R&D in Life Sciences and
    Health Plans

    -- Investment in FirstGateways(TM) to pursue the rapidly
    developing market for Regional Healthcare Information
    Organizations (RHIOs).

    Business Unit Highlights

    FCG is providing the following performance summary for each business unit during the first quarter of 2005:

    Health Delivery Services:

    -- Increased from 3 to 16 clients utilizing FCG's blended shore
    model in the last 90 days with a strong pipeline of others

    -- Successfully implemented Cerner Computer Physician Order Entry
    (CPOE) at a large Midwest Academic Medical Center with over
    800 physicians now live on CPOE clinical documentation

    -- Successfully implemented the Cerner clinical database,
    radiology, pharmacy, order entry, results reporting, clinical
    documentation and registration systems at numerous hospitals
    within a large hospital group

    -- Successfully implemented the Epic CPOE and scheduling,
    registration, billing and EMR at numerous clinics

    -- Recently awarded a dozen new projects for implementation
    related services covering various vendor platforms, including
    Meditech, Cerner, Epic, Eclipsys and Lawson

    -- Renewed a contract with an multi-hospital chain in the
    Northwest to expand its portal strategy using the
    FirstGateways platform

    Health Plans:

    -- Signed Rocky Mountain Health Plan as the first full ITO
    contract in the Health Plans practice with employees
    transitioning to FCG April 1, 2005

    -- Established a Facets Service Center in our Bangalore office

    -- Signed with a large Health Plan for the implementation of
    FirstPAS(TM). Ready to begin operations for two Health Plans
    using FirstPAS in a hosted ASP environment continuing the
    shift from project to operate services

    -- Successfully completed SAS-70 audit of the Nashville data
    center, meeting a clients requirement for the FirstPAS
    offering

    -- Successfully completed a large blended shore development
    project for a large Health Plan

    Outsourcing:

    -- Announced the signing of a three year extension through
    mid-2010 at UHHS in Cleveland, including the assumption of
    services previously performed by a subcontractor beginning in
    the third quarter of 2005

    -- Initiated contract extension discussions for continued
    outsourcing services with two large clients

    -- Transitioned ITO and BPO responsibilities at Aspen Valley
    Hospital to FCG

    -- Health Delivery ITO pipeline is strong with several meaningful
    opportunities well along in due diligence and over a dozen
    smaller opportunities

    -- Health Plan ITO pipeline includes two new opportunities from
    the affiliated health plans of current Health Delivery clients
    and one stemming from an ITO assessment

    Life Sciences:

    -- Expanded service offerings that include BPO and ITO offerings
    of both FirstDoc(TM) and non-FirstDoc based applications and
    pipeline includes several opportunities in the areas of
    medical information, CRM support and application maintenance

    -- Signed a contract for an Enterprise Content Management
    application using FirstDoc for a large global pharmaceutical
    firm

    -- Signed a contract to develop a regulatory tracking solution
    using the FirstDoc platform for a large global pharmaceutical
    firm

    -- Signed the first FirstGateways transaction for a large global
    pharmaceutical firm

    -- Successfully migrated a large global pharmaceutical firm onto
    the FirstDoc Research and Development module

    Government and Technology Services:

    -- Extended Documentum development services by marketing to
    commercial and government clients that operate outside of the
    Life Sciences area

    -- Began rebranding of Paragon Solutions to FCG Software
    Solutions

    -- FCG Software Solutions continues to target and maintain a
    strong pipeline of build-operate-transfer projects for
    Independent Software Vendors (software vendors that have
    annual revenues of $50 million to $150 million)

    -- Expanded service offerings to include Staff Management
    Services to clients that prefer to work through a single
    consolidator for all supplementary staffing needs

    Outlook

    The Company expects second quarter performance to result in a return to profitability as it rebuilds momentum. The Company reiterated that its ability to grow revenue and to expand earnings is dependent on the adoption of blended shore delivery in the Health Delivery Services segment and its ability to obtain new outsourcing contracts. The pipeline remains strong in most areas of the Company's business. FCG continues to invest in several large and medium outsourcing and implementation opportunities, new or extended service offerings, and recruiting key resources. The Company is focused on its long-term success and continues to believe that quarterly revenues above $75 million and quarterly profitability to $0.08-$0.10 per share during the second half of 2005 are achievable.

    First Quarter 2005 Conference Call

    FCG will hold an investor conference call to discuss first quarter 2005 results on Wednesday, April 27, 2005, at 4:30 p.m. Eastern Daylight Time (1:30 p.m. Pacific Daylight Time). This call is being webcast by CCBN and can be accessed at FCG's Web site at www.fcg.com. The webcast will also be distributed over CCBN's Investor Distribution Network to both institutional and individual investors. Individual investors can listen to the call through CCBN's individual investor center at www.fulldisclosure.com or by visiting any of the investor sites in CCBN's Individual Investor Network such as America Online's Personal Finance Channel. Institutional investors can access the call via CCBN's password protected event management site, StreetEvents (www.streetevents.com).

    About FCG

    FCG is a leading provider of outsourcing, consulting, systems implementation and integration for healthcare, pharmaceutical, and other life sciences organizations throughout North America, Europe and Asia. Through combinations of onsite, off-site and offshore outsourced services, FCG provides low cost, high quality offerings to improve its clients' performance. The firm's consulting and integration services increase clients' operations effectiveness with and through information technology, resulting in reduced costs, improved customer service, enhanced quality of patient care, and more rapid introduction of new pharmaceutical compounds. For more information about FCG, visit www.fcg.com or call 800-345-0957.

    Note Regarding Segment Reporting

    Commencing with the first quarter of 2005 and due to some organizational changes that the Company made which took effect at the beginning of 2005, FCG will change its previous segment reporting in accordance with SFAS 131. The history shown in the financial tables included with this release is now consistent with all of these changes. The changes FCG has made in its reporting are:

    -- The Meditech Service Center segment has been split between
    Health Delivery Services and Health Delivery Outsourcing. A
    very small part of the Meditech Service Center has also been
    included in Healthcare Software Products.

    -- The Health Delivery Services (previously Health Delivery) and
    Health Delivery Outsourcing segments, while still reported
    separately, are now also combined with a common sales group
    into a total Health Delivery segment.

    -- The Government and Technology Services (GTS) segment has been
    created by combining the Paragon (Software Development) and
    Technology Staffing Services groups which used to be included
    within Other Business with the Government healthcare business
    unit which used to be part of Health Delivery.

    -- Software Products (SWP) has been created by adding the
    Cyberview product which used to be in the Meditech Service
    Center segment to the existing SWP business line which used to
    be included within Other Business, and primarily involves the
    FirstGateways product.

    -- The Life Sciences and Health Plan segments remain unchanged.

    Forward-Looking Statements

    This news release includes forward-looking statements based on FCG's current expectations, estimates and projections about its industry, management's beliefs and certain assumptions made by the Company. These forward-looking statements can typically be identified by use of words such as "believes," "anticipates" or "expects" and include statements regarding (i) the future prospects of FCG's business in healthcare, life sciences and outsourcing; (ii) expected trends in and predictability of the markets that FCG serves; (iii) FCG's ability to gain closure on key engagements, including new outsourcing engagements and large scale implementations, during 2005; (iv) the ability of FCG to deliver effective offsite and blended shore services and resources to its clients; (v) FCG's anticipated financial and operating performance for 2005, including its ability increase revenues, return to profitability, and leverage its current level of corporate general and administrative expenses. These forward-looking statements involve known and unknown risks which may cause the Company's actual results and performance to be materially different from the future results and performance stated or implied by the forward looking statements.
    Some of the risks investors should consider include the following: (a) the unpredictable nature of the Company's pipeline of potential business and of negotiations with clients on new outsourcing and other engagements, resulting in uncertainty as to whether and when FCG will enter into new agreements and whether those agreements will be on terms favorable to FCG; (b) the unpredictable nature of the business of FCG's clients and the markets that they serve, which could result in clients canceling, modifying or delaying current or prospective engagements with FCG; (c) the ability of FCG to deliver services on an offsite and/or blended shore basis utilizing a global operations base, including its operations in Nashville, Tennessee; India; Vietnam; and Europe; (d) the ability of FCG to increase its sales effectiveness; (e) the ability of FCG to leverage general and administrative expenses and its service centers; (f) the importance of FCG's personnel to its operations, including whether FCG can attract and retain qualified management and personnel and keep personnel utilized on client engagements in order to achieve growth, revenue and profitability; (g) foreign currency exchange rates and cost of labor and availability of resources in FCG's offshore development centers; (h) the ability of FCG to effectively manage client expectations and cost reductions on the outsourcing accounts; and (i) other risk factors referenced in the Company's most recent Forms 10-K, 10-Q and other periodic reports filed with the Securities and Exchange Commission.
    In light of the significant uncertainties inherent in the forward-looking information included in this release, the inclusion of such information should not be regarded as a representation by FCG or any other person that FCG's objectives or plans will be achieved. FCG undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

First Consulting Group, Inc. and Subsidiaries Consolidated Statements of Operations (in thousands except per share data) Quarter Ended ----------------- April 1, Mar. 26, 2005 2004 -------- --------

Revenues before reimbursements (net revenues) $68,144 $65,353 Reimbursements 3,662 3,980 -------- -------- Total revenues 71,806 69,333

Cost of services before reimbursable expenses 48,268 44,531 Reimbursable expenses 3,662 3,980 -------- -------- Total cost of services 51,930 48,511

-------- -------- Gross profit 19,876 20,822

Selling expenses 6,758 7,248 General and administrative expenses 14,739 11,865 -------- -------- Operating income (loss) (1,621) 1,709 Interest income, net 230 202 Other expense, net - (21) Expense for premium on repurchase of stock - (1,561) -------- -------- Income (loss) from continuing operations before income taxes (1,391) 329 Income tax provision (benefit) (639) 835 -------- -------- Loss from continuing operations (752) (506) Loss on discontinued operations, net of tax benefit (537) (127) -------- -------- Net loss $(1,289) $(633) ======== ========

Basic EPS: Loss from continuing operations, net of tax $(0.03) $(0.02) Loss on discontinued operations, net of tax (0.02) - -------- -------- Net loss $(0.05) $(0.02) ======== ========

Diluted EPS: Loss from continuing operations, net of tax $(0.03) $(0.02) Loss on discontinued operations, net of tax (0.02) - -------- -------- Net loss $(0.05) $(0.02) ======== ========

Basic weighted avg. shares 24,475 25,422 Diluted weighted avg. shares 24,475 25,422

First Consulting Group, Inc. and Subsidiaries Consolidated Balance Sheet Data (in thousands except per share data) Apr. 1, Dec. 31, 2005 2004 -------- --------

Cash, cash equivalents, and investments $34,417 $40,321 Accounts receivable, net 24,596 26,266 Unbilled receivables 14,020 11,005 Current assets 84,894 88,471 Total assets 137,757 140,399 Current liabilities 32,087 31,770 Long-term debt - - Total stockholders' equity 93,459 96,315

Selected Business Metrics Q1 Q4 Q3 Q2 Q1 2005 2004 2004 2004 2004 ----- ----- ----- ----- ----- Revenues before reimbursements (net revenues) ($ in millions) 68.1 72.0 65.3 67.2 65.3 Out-of-pocket reimbursements ($ in millions) 3.7 4.5 4.4 4.5 4.0 Total revenues ($ in millions) 71.8 76.5 69.7 71.7 69.3 Gross margin % 29.2 32.1 33.1 33.4 31.9 Selling expense % 9.9 9.2 10.0 10.6 11.1 General and admin expense % 21.6 19.9 19.5 19.5 18.2 Operating income (loss) % (2.4) 3.0 3.6 3.3 2.6 Utilization % 73.8 70.9 75.5 79.7 77.2 Total associates 2434 2435 2409 2287 2226 Billable associates 1282 1293 1279 1187 1150 Outsourcing associates 800 817 782 766 749 Days sales outstanding 41 37 40 38 40

Delivery Units Selected Financial Metrics

Health Delivery Services Q1 Q4 Q3 Q2 Q1 2005 2004 2004 2004 2004 Revenues before reimbursements (net revenues)($ in millions) 16.0 17.8 18.0 18.7 17.3 Out-of-pocket reimbursable expenses ($ in millions) 2.5 2.7 2.6 2.6 2.4 Total revenues ($ in millions) 18.5 20.5 20.6 21.3 19.7 Gross margin % 32.7 37.0 44.8 47.6 44.1 Utilization % 72.3 73.1 80.7 81.1 75.8 Billable associates 256 254 250 227 236 Total associates 294 286 283 260 267

Health Delivery Outsourcing Q1 Q4 Q3 Q2 Q1 2005 2004 2004 2004 2004 Revenues before reimbursements (net revenues)($ in millions) 30.8 31.6 27.0 27.6 27.1 Out-of-pocket reimbursable expenses ($ in millions) 0.1 0.1 0.2 0.1 0.1 Total revenues ($ in millions) 30.9 31.7 27.2 27.7 27.2 Gross margin % 16.9 20.2 16.7 18.2 16.6 Total associates 632 609 594 613 613

Health Plan Q1 Q4 Q3 Q2 Q1 2005 2004 2004 2004 2004 Revenues before reimbursements (net revenues)($ in millions) 4.0 3.9 3.8 3.6 4.2 Out-of-pocket reimbursable expenses ($ in millions) 0.6 0.7 0.5 0.7 0.6 Total revenues ($ in millions) 4.6 4.6 4.3 4.3 4.8 Gross margin % 18.7 27.6 30.8 27.0 42.6 Utilization % 73.1 81.0 77.1 90.3 77.8 Billable associates 63 51 44 48 45 Total associates 79 57 51 54 50

Life Sciences Q1 Q4 Q3 Q2 Q1 2005 2004 2004 2004 2004 Revenues before reimbursements (net revenues)($ in millions) 8.7 9.5 8.8 9.2 8.9 Out-of-pocket reimbursable expenses ($ in millions) 0.2 0.3 0.3 0.3 0.2 Total revenues ($ in millions) 8.9 9.8 9.1 9.5 9.1 Gross margin % 48.6 49.5 42.4 42.2 43.0 Utilization % 68.0 56.2 58.8 76.2 71.0 Billable associates 147 181 205 171 179 Total associates 218 228 257 204 215

Government and Technology Services Q1 Q4 Q3 Q2 Q1 2005 2004 2004 2004 2004 Revenues before reimbursements (net revenues)($ in millions) 8.1 8.7 7.3 7.8 7.4 Out-of-pocket reimbursable expenses ($ in millions) 0.2 0.2 0.2 0.2 0.1 Total revenues ($ in millions) 8.3 8.9 7.5 8.0 7.5 Gross margin % 40.2 40.4 40.0 41.6 35.5 Utilization % 77.1 77.5 83.3 90.4 91.6 Billable associates 395 386 349 297 284 Total associates 454 436 399 349 334

Shared Services Centers Q1 Q4 Q3 Q2 Q1 2005 2004 2004 2004 2004

Billable associates 407 406 415 429 394 Outsourcing associates 158 164 142 109 93 Total associates 598 613 617 601 536 Utilization % 74.3 69.0 74.7 72.2 70.6

--30--WAM/la*

CONTACT: First Consulting Group, Inc. Luther Nussbaum, Chairman and CEO, 562-624-5200 Thomas Reep, VP Investor Relations, 562-624-5250

KEYWORD: CALIFORNIA INDUSTRY KEYWORD: HARDWARE MEDICAL SOFTWARE NETWORKING EARNINGS CONFERENCE CALLS SOURCE: First Consulting Group, Inc.

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