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NightHawk Radiology Holdings, Inc. Releases Record Third Quarter 2007 Results
Date:10/30/2007

Revenue Tops $45 Million Reflecting 79% Growth Over Prior Year Quarter;

Company Revises 2007 Guidance and Reaffirms 2008 Guidance

COEUR D'ALENE, Idaho, Oct. 30 /PRNewswire-FirstCall/ -- NightHawk Radiology Holdings, Inc. (Nasdaq: NHWK), the leading provider of radiology solutions to radiology groups across the United States, today announced financial results for its third quarter ended September 30, 2007. Revenue grew 79% year-over-year to a record $45.2 million in the third quarter of 2007 from $25.2 million in the third quarter of 2006. Excluding the impact of acquisitions, the company experienced significant year-over-year organic revenue growth of 24%. The company also achieved strong adjusted EPS growth of 24% in the third quarter, while making significant investments in acquisitions, infrastructure, and management necessary to enhance its platform for future growth.

Third-Quarter Highlights

-- Third quarter 2007 revenues grew 79% to $45.2 million from $25.2

million in the third quarter 2006. Third quarter 2007 scan volumes

grew 70% to an all-time high of 787,673 scans compared with 463,028

scans in the third quarter 2006.

-- Organic revenue grew 24% year-over-year and organic scan volume grew

28% year-over-year.

-- For the nine months ended September 30, 2007, cash flow from

operations grew 20% to $17.5 million from $14.6 million for the same

period in 2006.

-- New service offerings, primarily daytime final reads and business

services, represented 18% of total revenue for the quarter and 12% of

total year-to-date revenue.

-- Adjusted net income grew to $8.0 million, or $0.26 p

Service revenue $108,955,957 $68,074,661

Operating costs and expenses:

Professional services (includes

non-cash compensation expense of

$3,567,030 and $3,333,430) 46,844,263 26,500,833

Sales, general, and administrative

(includes non-cash compensation

expense of $5,842,797 and $660,512) 36,860,609 19,224,442

Depreciation and amortization 5,250,807 1,580,439

Total operating costs and

expenses 88,955,679 47,305,714

Operating income 20,000,278 20,768,947

Other income (expense):

Interest expense (3,664,742) (560,270)

Interest income 2,468,150 2,026,675

Other, net (59,595) (64,136)

Change in fair value of redeemable

preferred stock conversion feature (44,183,770)

Total other income (expense) (1,256,187) (42,781,501)

Income (loss) before income

taxes 18,744,091 (22,012,554)

Income tax expense 7,110,594 8,595,532

Net income (loss) 11,633,497 (30,608,086)

Redeemable preferred stock accretion (117,534)

Income (loss) applicable to common

stockholders $11,633,497 $(30,725,620)

Earnings (loss) per common share:

Basic $0.39 $(1.09)

Diluted $0.38 $(1.09)

Weighted averages of common shares

outstanding:

Basic 30,023,122 28,061,658

Diluted 31,012,036 28,061,658

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

RECONCILIATION BETWEEN GAAP AND ADJUSTED NET INCOME

Three Months Ended

September 30, 2007

GAAP Adjustments As Adjusted

Service revenue $45,151,201 $45,151,201

Operating costs and expenses:

Professional services (includes

non-cash compensation expense

of $1,536,432 and $1,086,747) 19,069,295 (1,990,356) 17,078,939

Sales, general, and

administrative (includes

non-cash compensation expense

of $3,159,734 and $309,068) 15,753,703 (3,159,734) 12,593,969

Depreciation and amortization 2,608,472 (1,740,292) 868,180

Total operating costs

and expenses 37,431,470 (6,890,382) 30,541,088

Operating income 7,719,731 6,890,382 14,610,113

Other income (expense):

Interest expense (2,388,529) (2,388,529)

Interest income 745,719 745,719

Other, net (27,259) (27,259)

Change in fair value of

redeemable preferred stock

conversion feature

Total other income

(expense) (1,670,069) (1,670,069)

Income before income

taxes 6,049,662 6,890,382 12,940,044

Income tax expense 2,261,818 2,687,249 4,949,067

Net income 3,787,844 4,203,133 7,990,977

Redeemable preferred stock

accretion

Income applicable to common

stockholders $3,787,844 $4,203,133 $7,990,977

Earnings per share:

Basic $0.13 $0.27

Diluted $0.12 $0.26

Weighted average shares

outstanding:

Basic 30,111,156 30,111,156

Diluted 31,170,449 31,170,449

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

RECONCILIATION BETWEEN GAAP AND ADJUSTED NET INCOME

Three Months Ended

September 30, 2006

GAAP Adjustments As Adjusted

Service revenue $25,158,889 $25,158,889

Operating costs and expenses:

Professional services (includes

non-cash compensation

expense of $1,536,432 and

$1,086,747) $9,552,784 (1,086,747) 8,466,037

Sales, general, and

administrative (includes

non-cash compensation expense

of $3,159,734 and $309,068) 6,871,138 (309,068) 6,562,070

Depreciation and amortization 527,192 (120,167) 407,025

Total operating costs

and expenses 16,951,114 (1,515,982) 15,435,132

Operating income 8,207,775 1,515,982 9,723,757

Other income (expense):

Interest expense (599) (599)

Interest income 875,391 875,391

Other, net (19,801) (19,801)

Change in fair value of

redeemable preferred stock

conversion feature

Total other income

(expense) 854,991 854,991

Income before income

taxes 9,062,766 1,515,982 10,578,748

Income tax expense 3,480,615 591,233 4,071,848

Net income 5,582,151 924,749 6,506,900

Redeemable preferred stock

accretion

Income applicable to common

stockholders $5,582,151 $924,749 $6,506,900

Earnings per share:

Basic $0.19 $0.22

Diluted $0.18 $0.21

Weighted average shares

outstanding:

Basic 29,836,960 29,836,960

Diluted 30,760,414 30,760,414

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

RECONCILIATION BETWEEN GAAP AND ADJUSTED NET INCOME (LOSS)

Nine Months Ended

September 30, 2007

GAAP Adjustments As Adjusted

Service revenue $108,955,957 $108,955,957

Operating costs and expenses:

Professional services

(includes non-cash

compensation expense of

$3,567,030 and $3,333,430) 46,844,263 (5,015,954) 41,828,309

Sales, general, and

administrative (includes

non-cash compensation

expense of $5,842,797 and

$660,512) 36,860,609 (5,842,797) 31,017,812

Depreciation and amortization 5,250,807 (3,219,020) 2,031,787

Total operating

costs and expenses 88,955,679 (14,077,771) 74,877,908

Operating income 20,000,278 14,077,771 34,078,049

Other income (expense):

Interest expense (3,664,742) (3,664,742)

Interest income 2,468,150 2,468,150

Other, net (59,595) (59,595)

Change in fair value of

redeemable preferred stock

conversion feature

Total other income

(expense) (1,256,187) (1,256,187)

Income (loss) before

income taxes 18,744,091 14,077,771 32,821,862

Income tax expense 7,110,594 5,490,331 12,600,925

Net income (loss) 11,633,497 8,587,440 20,220,937

Redeemable preferred stock

accretion

Income (loss) applicable to

common stockholders $11,633,497 $8,587,440 $20,220,937

Earnings (loss) per share:

Basic $0.39 $0.67

Diluted $0.38 $0.65

Weighted average shares

outstanding:

Basic 30,023,122 30,023,122

Diluted 31,012,036 31,012,036

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

RECONCILIATION BETWEEN GAAP AND ADJUSTED NET INCOME (LOSS)

Nine Months Ended

September 30, 2006

GAAP Adjustments As Adjusted

Service revenue $68,074,661 $68,074,661

Operating costs and expenses:

Professional services

(includes non-cash

compensation expense of

$3,567,030 and $3,333,430) $26,500,833 (3,333,430) 23,167,403

Sales, general, and

administrative (includes

non-cash compensation expense

of $5,842,797 and $660,512) 19,224,442 (660,512) 18,563,930

Depreciation and amortization 1,580,439 (391,833) 1,188,606

Total operating

costs and expenses 47,305,714 (4,385,775) 42,919,939

Operating income 20,768,947 4,385,775 25,154,722

Other income (expense):

Interest expense (560,270) (560,270)

Interest income 2,026,675 2,026,675

Other, net (64,136) (64,136)

Change in fair value of

redeemable preferred stock

conversion feature (44,183,770) 44,183,770

Total other income

(expense) (42,781,501) 44,183,770 1,402,269

Income (loss) before

income taxes (22,012,554) 48,569,545 26,556,991

Income tax expense 8,595,532 1,710,452 10,305,984

Net income (loss) (30,608,086) 46,859,093 16,251,007

Redeemable preferred stock

accretion (117,534) 117,534

Income (loss) applicable to

common stockholders $(30,725,620) $46,976,627 $16,251,007

Earnings (loss) per share:

Basic $(1.09) $0.58

Diluted $(1.09) $0.55

Weighted average shares

outstanding:

Basic 28,061,658 28,061,658

Diluted 28,061,658 29,749,319

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

HISTORICAL VOLUMES

Growth Rates Acquisition Contribution -

Total Year First 12 months

Quarter Year Volumes Sequential over Year DayHawk ATN TDS Radlinx

Q1 2004 120,554 36% 210% - - - -

Q2 2004 152,640 27% 178% - - - -

Q3 2004 182,737 20% 133% - - - -

Q4 2004 193,883 6% 119% 8,316 - - -

FY 2004 649,814 149% 149%

Q1 2005 222,341 15% 84% 15,850 - - -

Q2 2005 266,023 20% 74% 17,355 - - -

Q3 2005 298,759 12% 63% 18,905 - - -

Q4 2005 328,815 10% 70% 8,480 29,640 - -

FY 2005 1,115,938 72% 72%

Q1 2006 364,155 11% 64% - 32,130 - -

Q2 2006 417,269 15% 57% - 32,622 - -

Q3 2006 463,028 11% 55% - 32,086 - -

Q4 2006 448,084 (3%) 36% - - - -

FY 2006 1,692,536 52% 52%

Q3 YTD 2006 1,244,452 n/a n/a

Q1 2007 484,477 8% 33% - - 27,089 -

Q2 2007 731,418 51% 75% - - 51,095 137,611

Q3 2007 787,673 8% 70% - - 52,708 143,339

Q3 YTD 2007 2,003,568 61% 61%

er diluted share

in the third quarter 2007, from $6.5 million, or $0.21 per diluted

share in the third quarter 2006. Adjusted net income was impacted by

the record scan volumes and revenues, higher expenses associated with

acquired companies where integration is not yet complete, interest

expense on acquisition-related debt financing, and additional

investments necessary to support future growth.

-- GAAP net income was $3.8 million, or $0.12 per diluted share,

compared to $5.6 million, or $0.18 per diluted share in the third

quarter 2006. GAAP net income was impacted by higher expenses

associated with acquired companies where integration is not yet

complete; interest expense on acquisition-related debt financing;

additional investments necessary to support future growth; and higher

non-cash charges for stock compensation, IBNR (incurred but not

reported medical liability reserves), and amortization of

intangibles.

-- On July 16, 2007, the company acquired Midwest Physician Services,

LLC, the business services division of St. Paul Radiology. With this

acquisition, NightHawk expanded its service offerings and now

provides the broadest suite of integrated radiology solutions

available - professional services, clinical workflow technology, and

business services. The acquisition further distinguishes NightHawk as

the leading provider of radiology solutions.

2007 and 2008 Guidance

-- The company revised its full year 2007 guidance for revenue and

adjusted earnings per diluted share. Full year 2007 revenue guidance

was lowered from $155-$162 million to $152-$155 million. Full year

2007 guidance for adjusted earnings per diluted share was narrowed

from $0.94-$0.98 to $0.94-$0.96. The company expects to finish 2007

strongly and reaffirmed its 2008 guidance of $215-$225 million in

revenue and $1.31-$1.36 in adjusted earnings per diluted share.

"Our third-quarter results reflect continued solid organic growth and significant progress on integrating recent acquisitions, and we continue to gain traction in our new service offerings," said Dr. Paul Berger, Chairman and Chief Executive Officer. "Our investments in acquisitions, infrastructure, and management in 2007 have positioned us to capitalize on significant future market opportunities and we're very pleased that we've been able to achieve both record revenues and record adjusted earnings per share during this period of investment."

Tim Mayleben, NightHawk's President and Chief Operating Officer, added "We continue to expect outstanding growth for the full year through both organic growth and through the acquisitions we've made." The company revised its guidance to reflect emerging clarity related to projected growth in new service offerings during the latter part of 2007. "The revisions to our guidance continue to reinforce our view of the opportunities that lie ahead for our new service offerings, our outlook for 2008, and our commitment to preserve investments in key initiatives while responding to changes in revenue," said Mayleben.

The company's adjusted net income for the third quarter of 2007 was $8.0 million or $0.26 per diluted share, compared to $6.5 million, or $0.21 per diluted share, during the third quarter of 2006. The company's adjusted net income excludes certain non-cash charges related to stock compensation, amortization of intangibles, and IBNR charges. As expected, the increase in adjusted net income was impacted by redundant SG&A expenses and temporary higher physician compensation levels on acquired entities, combined with acquisition-related interest expense on the company's $100 million debt facility. The company anticipates significant improvement to adjusted net income in 2008 as the company completes the integration of these acquisitions into the NightHawk platform. Adjusted net income was also impacted by investments in the business and in new services to position the company for future growth. The company projects increases in operating margins in the fourth quarter of 2007, with the full benefits of acquisition integration and related investments to be realized in 2008 and beyond.

GAAP net income for the third quarter of 2007 was $3.8 million compared to $5.6 million for the third quarter of 2006. The decrease in 2007 GAAP net income was largely due the same items described above with respect to adjusted net income. Additionally, GAAP net income was impacted by higher non-cash charges for stock compensation, IBNR, and amortization of intangibles.

A reconciliation of adjusted net income to GAAP net income is included in the tables attached to this press release.

"We're pleased with our progress in the first nine months of 2007 -- a time spent on further differentiating NightHawk and positioning the company to achieve growth in 2008 and beyond," said Mayleben. "We do not anticipate any significant change to our overall financial health or growth trajectory and look forward to further distinguishing NightHawk as the leading provider in the industry in the coming year."

Earnings Conference Call

The company will host a conference call on Wednesday, October 31, 2007 at 8:30 a.m. (ET). A live web cast of the conference call, as well as a replay, will be available online on the company's corporate web site at http://www.nighthawkrad.net. Participants can also access the call by dialing 800-257-1836 (within the United States and Canada), or 303-262-2142 (international callers). A replay of the call will be available approximately two hours after the call has ended and will be available until 11:59 p.m. (ET) on Wednesday, November 21, 2007. To access the replay, dial 800-405-2236 (within the United States and Canada), or 303-590-3000 (international callers) and enter the conference ID number: 11099637.

About NightHawk

NightHawk Radiology (Nasdaq: NHWK), headquartered in Coeur d'Alene, Idaho, is leading the transformation of the practice of radiology by providing high-quality, cost-effective services to radiology groups and hospitals throughout the United States. NightHawk provides the most complete suite of solutions, including professional services, business services, and its advanced, proprietary clinical workflow technology, all designed to increase efficiencies and improve the quality of patient care and the lives of physicians who provide it. NightHawk's team of U.S. board-certified, state-licensed, and hospital-privileged physicians located in the United States, Australia, and Switzerland, provides services 24 hours a day, seven days a week, for more than 750 radiology group customers and the 26% of all U.S. hospitals they serve. For more information, visit http://www.nighthawkrad.net.

Forward Looking Statements

This press release contains statements that are forward-looking statements as defined within the Private Securities Litigation Reform Act of 1995. These include statements regarding the company's growth strategy, the expansion and market acceptance of its current service offerings, the benefits and integration of acquisitions, and an outlook on the company's future financial results, including its revenue, operating margins, and adjusted earnings per diluted share for 2007 and 2008. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made, including the risks associated with general economic conditions, competitive conditions in the radiology industry, and regulatory risks. Other factors that could cause operating and financial results to differ are described in the company's prospectus and periodic reports filed with the Securities and Exchange Commission (SEC). Other risks may be detailed from time to time in reports to be filed with the SEC. NightHawk does not undertake any obligation to publicly update its forward- looking statements based on events or circumstances after the date hereof.

Presentation of Non-GAAP Financial Information

The presentation of adjusted net income and adjusted earnings per diluted share are not measures of financial performance under GAAP and should not be considered a substitute for or superior to GAAP. Management believes these non-GAAP financial measures provide useful information to both management and investors by excluding certain expenses that may not be indicative of our core results and providing for consistency in financial reporting. Specifically, the company's non-GAAP adjusted net income measure, and related adjusted earnings per diluted share, described in this release exclude (i) for 2006 only, the non-cash charges related to the conversion feature and accretion of our preferred stock, which charges ceased upon the closing of our initial public offering when our shares of preferred stock converted into shares of common stock, (ii) the non-cash charges related to our stock-based compensation, (iii) the non-cash expense associated with the amortization of intangibles and (iv) the non-cash expense associated with changes to our IBNR reserve (incurred but not reported medical liability reserves). We exclude the non-cash charges related to our stock-based compensation due to the varying valuation methodologies, subjective assumptions and the variety of types of awards that companies can use when applying FAS 123R along with the fact that a substantial portion of our outstanding options and restricted stock units are held by our independent contractor physicians and require accounting treatment that differs from the accounting treatment for options and restricted stock units held by employees.

The company provides non-GAAP adjusted net income and related adjusted earnings per diluted share as financial measures because management believes these measures provide greater transparency with respect to information used by management in its financial and operational decision making and to enhance investors' overall understanding of our current financial performance and our future prospects. For reconciliation of our non-GAAP financial measures to the most applicable GAAP financial measure, please refer to the information included in the attached tables of this press release and on our corporate website under the heading investor relations.

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS (unaudited)

September 30, December 31,

ASSETS 2007 2006

Current assets:

Cash and cash equivalents $29,712,634 $46,500,818

Marketable securities 28,459,865 37,810,963

Trade accounts receivable, net 25,049,566 12,706,146

Deferred income taxes 469,793 365,930

Prepaids and other current assets 2,630,770 2,076,037

Total current assets 86,322,628 99,459,894

Property and equipment, net 10,295,792 6,192,541

Goodwill 66,530,956 4,913,844

Intangible assets, net 88,943,523 2,922,543

Deferred income taxes 2,480,972

Other assets, net 5,095,297 96,572

Total $257,188,196 $116,066,366

LIABILITIES

Current liabilities:

Accounts payable and accrued expenses $19,407,803 $9,052,634

Accrued payroll and related benefits 4,495,448 2,383,998

Current portion of notes payable 1,000,000

Total current liabilities 24,903,251 11,436,632

Insurance reserve 3,448,924 2,000,000

Notes payable, less current portion 98,750,000

Deferred income taxes 576,409

Other liabilities 898,635

Total liabilities 128,577,219 13,436,632

STOCKHOLDERS' EQUITY:

Common stock-150,000,000 shares

authorized; $.001 par value;

30,187,902 and 29,944,069 shares

issued and outstanding at September

30, 2007 and December 31, 2006,

respectively 30,188 29,944

Additional paid-in capital 245,147,219 230,116,635

Retained earnings (deficit) (116,566,430) (127,516,845)

Total stockholders' equity 128,610,977 102,629,734

Total $257,188,196 $116,066,366

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Three Months Ended September 30,

2007 2006

Service revenue $45,151,201 $25,158,889

Operating costs and expenses:

Professional services (includes

non-cash compensation expense of

$1,536,432 and $1,086,747) 19,069,295 9,552,784

Sales, general, and administrative

(includes non-cash compensation

expense of $3,159,734 and $309,068) 15,753,703 6,871,138

Depreciation and amortization 2,608,472 527,192

Total operating costs and

expenses 37,431,470 16,951,114

Operating income 7,719,731 8,207,775

Other income (expense):

Interest expense (2,388,529) (599)

Interest income 745,719 875,391

Other, net (27,259) (19,801)

Change in fair value of redeemable

preferred stock conversion feature

Total other income (expense) (1,670,069) 854,991

Income before income taxes 6,049,662 9,062,766

Income tax expense 2,261,818 3,480,615

Net income 3,787,844 5,582,151

Redeemable preferred stock accretion

Income applicable to common stockholders $3,787,844 $5,582,151

Earnings per common share:

Basic $0.13 $0.19

Diluted $0.12 $0.18

Weighted averages of common shares

outstanding:

Basic 30,111,156 29,836,960

Diluted 31,170,449 30,760,414

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Nine Months Ended September 30,

2007 2006
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SOURCE NightHawk Radiology Holdings, Inc.
Copyright©2007 PR Newswire.
All rights reserved

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