The TriZetto Group, Inc. (NASDAQ: TZIX) today reported diluted earnings per share (EPS) for the first quarter 2007 of $0.12, on revenue of $113.5 million. EPS performance was at the high end of the company's guidance range and included the ($0.08) net negative effect of a full tax rate, which was not included in last year's EPS. Income before taxes increased 38% to $10.3 million over the year-ago quarter.

?I am very pleased with TriZetto's progress and positioning in the first quarter,? said Jeff Margolis, TriZetto's chairman and chief executive officer. ?Rising cost trends in managed care are increasing the need for our solutions. Our recent acquisitions progressed to our expectations. The company is well-positioned to execute in 2007 and drive further innovation for the payer industry.?

Added Kathleen Earley, TriZetto's president and chief operating officer, ?I am proud of how our operations team rose to the challenge of the new functional structure established in December. Also, the team delivered a quarter with a nice balance of products and services, including significant Facets®, NetworX?, CareAdvance?, hosting, BPO and consulting contracts. Plan Data Management, which we acquired in December, met expectations and we made good progress on building relationships with QNXT? customers following the acquisition in January.?

Financial Summary (in millions, except per share amounts)

Quarter Ended

Mar. 31, 2007

Quarter Ended

Mar. 31, 2006 		Change
Revenue $113.5  $85.3  33.1%
Bookings $99.9  $87.4  14.3%
Total Backlog $964.8  $704.6  36.9%
Income Before Taxes $10.3  $7.4  38.0%
Effective Tax Rate 42.5% 8.0% (3,450 bps)
Net Income $5.9  $6.8  (13.2%)
Basic EPS $0.13  $0.16  (18.8%)
Diluted EPS $0.12  $0.15  (20.0%)
Adjusted EBITDA* $23.8  $15.7  51.4%
Cash Resources $67.7  $89.7  (24.5%)
Cash Provided by Operating Activities $24.6  $5.1  382.4%
Capital Expenditures $6.5  $3.6  80.6%

* Definition and reconciliation to GAAP is included in the attached financial schedules

Revenue

First quarter 2007 revenue, which included the recent acquisitions of Plan Data Management and QCSI, totaled $113.5 million, an increase of $28.2 million versus $85.3 million for the first quarter of 2006. A $24.0 million improvement in services and other revenue included increases of $13.7 million in consulting and other services, $8.7 million in software maintenance and $1.6 million in outsourced services. Software products revenue increased by $4.2 million.

Non-recurring revenue represented 49.6% of total revenue in the first quarter 2007, compared to 48.8% in the year-ago quarter, driven by increases in license and consulting revenue.

New Business Bookings

First-quarter new contract bookings were $99.9 million, and included $49.6 million for software product contracts; $27.3 million for outsourced services contracts (software hosting, business process outsourcing and other services); and $23.0 million for consulting, implementation, software customization and other services. Contract bookings comprise a mix of current and future period revenue and represent the expected minimum total revenue to be generated under each contract. New contract bookings will vary from one quarter to the next based upon a number of factors including product mix.

Backlog

The company's total revenue backlog was approximately $965 million at March 31, 2007, compared to $705 million at March 31, 2006 and $858 million at December 31, 2006. Twelve-month revenue backlog was approximately $237 million at March 31, 2007, compared to $187 million at March 31, 2006 and $213 million at December 31, 2006. The timing of contract closings and other factors can cause the company's backlog to vary from one quarter to the next.

Profitability

First quarter 2007 net income was $5.9 million, or $0.12 per diluted share, compared to net income of $6.8 million, or $0.15 per diluted share, for the first quarter of 2006. The 2007 quarter's EPS included a ($0.09) negative impact from the company recording a tax rate of 42.5%. Adjusted EBITDA for the first quarter of 2007 was $23.8 million, up 51.4% from $15.7 million in the year-ago quarter.

Record gross margin, excluding amortization of acquired technology and intangibles, for the first quarter of 2007 was 51.3%, compared to 47.5% in the year-ago quarter. The improvement was driven primarily by a higher-margin mix of revenue, improved pricing and operating efficiencies.

Research and development expenses of $15.7 million represented 13.9% of first quarter revenue, 160 basis points higher than 12.3% of revenue for the year-ago quarter. The increase reflected primarily the addition of the Plan Data Management and QCSI acquisitions in December and January, respectively, higher utilization of outside services, increased staffing, merit increases and incentive compensation.

Selling, general and administrative expense for the first quarter of 2007 was $27.3 million, or 24.1% of revenue, compared to $21.3 million, or 25.0% in the 2006 quarter. The year-over-year dollar increase reflects primarily the addition of acquisitions and higher incentive compensation offset by the absence of now-settled McKesson litigation costs incurred in the year-ago quarter.

TriZetto reports earnings in accordance with Generally Accepted Accounting Principles (GAAP), and additionally reports certain non-GAAP measures, such as Adjusted EBITDA, recurring and non-recurring revenue and other measures, believing that these provide additional information for investors to evaluate the company's financial performance. Definitions of non-GAAP measures and reconciliation to GAAP measures are included in the attached financial schedules.

Cash Resources and Cash Flow

Cash, restricted cash and short-term investments totaled $67.7 million at March 31, 2007, versus $89.7 million at March 31, 2006. Net cash provided by operating activities during the first quarter was $24.6 million, compared to $5.1 million in the year-ago quarter. Capital expenditures in the first quarter of 2007 were $6.5 million, versus $3.6 million in the prior-year quarter. Days sales outstanding for the first quarter of 2007 was 74 days, versus 63 in the year-ago quarter. The increase was primarily driven by increased receivable balances for two customers, from whom we expect to receive full payment.

Reiterating Guidance for 2007

For the full year 2007, TriZetto expects between $425 and $445 million of revenue, representing a 22% to 28% increase over 2006. TriZetto expects diluted EPS to be $0.39 to $0.50 which includes an estimated ($0.25) per share negative impact, as compared to 2006, due to the effect of a full tax rate in 2007 caused by the application of the remaining NOL cash benefit to the balance sheet. Non-cash items having a negative impact on 2007 EPS include the expensing of equity based compensation, estimated at ($0.12), and depreciation and amortization, estimated at ($0.40).

Adjusted EBITDA for 2007 is expected to be between $88 and $98 million, an increase of 32% to 47% over 2006 Adjusted EBITDA. Capital expenditures in 2007 are expected to be between $25 and $28 million. The diluted share count for 2007, which is determined as if both of the company's convertible debt issues are fully converted to equity, is expected to be approximately 62 million.

For the second quarter of 2007, the company expects revenue of between $105 and $112 million, diluted EPS of between $0.09 and $0.13 on a diluted share count of approximately 62 million, basic EPS of $0.10 to $0.16 on basic share count of 45 million, and Adjusted EBITDA of between $21 and $25 million.

Conference Call

TriZetto will host a conference call at 5:00 p.m. Eastern Time / 2:00 p.m. Pacific Time today to discuss the quarter's results. Investors may access the webcast through TriZetto's web site at www.trizetto.com, first by clicking on the Investors button, and then on the Company Information drop-down menu item. The conference call will be archived and available through TriZetto's web site for 30 days following the call.

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. Institutional investors can access the call via CCBN's password-protected event management site, StreetEvents (www.streetevents.com).

About TriZetto

With its technology touching nearly half of the U.S. insured population, TriZetto is distinctly focused on accelerating the ability of healthcare payers to lead the industry's transformation to consumer-retail healthcare. The company provides premier information technology solutions that enhance its customers' revenue growth, increase their administrative efficiency and improve the cost and quality of care for their members. Healthcare payers include national and regional health insurance plans, and benefits administrators that provide transaction services to self-insured employer groups. The company's broad array of payer-focused information technology offerings include enterprise and component software, hosting and business process outsourcing services, and consulting. Headquartered in Newport Beach, Calif., TriZetto can be reached at 949-719-2200 or at www.trizetto.com.

Important Notice Regarding Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include statements about future revenue, profits, cash flows and financial results, the market for TriZetto's services, future service offerings, industry trends, client and partner relationships, TriZetto's operational capabilities, future financial structure, uses of cash, anticipated dilution or accretion of acquisitions or proposed transactions. Actual results may differ materially from those stated in any forward-looking statements based on a number of factors, including the ability of TriZetto to successfully integrate the businesses of TriZetto and its acquisitions or partners; the contributions of acquisitions to TriZetto's operating results; the effectiveness of TriZetto's implementation of its business plan, the market's acceptance of TriZetto's new and existing products and services, the timing of new bookings, risks associated with management of growth, reliance on third parties to supply key components of TriZetto's services, attraction and retention of employees, variability of quarterly operating results, competitive factors, other risks associated with acquisitions, changes in demand for third party products or solutions which form the basis of TriZetto's service and product offerings, financial stability of TriZetto's customers, the ability of TriZetto to meet its contractual obligations to customers, including service level and disaster recovery commitments, changes in government laws and regulations; and risks associated with rapidly changing technology, as well as the other risks identified in TriZetto's SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting TriZetto's Investor Relations department at 949-719-2225 or at TriZetto's web site at www.trizetto.com. All information in this release is as of April 30, 2007. TriZetto undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations.

 
The TriZetto Group, Inc.
Condensed Consolidated Statements of Operations
(unaudited and in thousands, except per share amounts)
 
 
Three Months Ended March 31,
2007  2006 
Revenue
Services and other $ 89,775  $ 65,772 
Products 23,728  19,546 
Total revenue 113,503  85,318 
 
Operating costs and expenses
Cost of revenue - services and other 50,101  40,347 
Cost of revenue - products (excludes amortization of acquired technology) 5,203  4,474 
Research and development 15,737  10,478 
Selling, general and administrative 27,304  21,316 
Amortization of acquired technology 1,710  1,215 
Amortization of acquired other intangible assets 1,301  293 
Total operating costs and expenses 101,356  78,123 
 
Income from operations 12,147  7,195 
 
Interest income 753  890 
Interest expense (2,641) (832)
Other income -  180 
 
Income before provision for income taxes 10,259  7,433 
 
Provision for income taxes (4,363) (595)
 
Net income $ 5,896  $ 6,838 
 
Net income per share:
Basic $ 0.13  $ 0.16 
Diluted (1) $ 0.12  $ 0.15 
 
Weighted average shares outstanding:
Basic 43,856  41,899 
Diluted (1) 47,825  45,666 
 
Other financial data (2):
Adjusted EBITDA $ 23,791  $ 15,719 
12-month backlog $ 236,700  $ 187,300 
Total backlog $ 964,800  $ 704,600 
 
 
(1) For the quarter ended March 31, 2007, both debt and equity treatment of the long-term convertible debt yielded the same diluted earnings per share results; therefore, the 5.3 million shares and after-tax effect of interest expense were not included in the diluted earnings per shares.
 
(2) See accompanying notes for a definition of 12-month and total backlog, and for a definition of Adjusted EBITDA and a reconciliation of Net income to Adjusted EBITDA
The TriZetto Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
 
 
March 31, December 31,
2007  2006 
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 66,814  $ 107,057 
Restricted cash 921  921 
Accounts receivable, net 80,063  64,386 
Prepaid expenses and other current assets 14,209  11,415 
Deferred tax assets (3) 15,968  14,100 
Total current assets 177,975  197,879 
Property and equipment, net 30,920  26,777 
Capitalized software development costs, net 27,200  27,913 
Goodwill (3) 172,144  90,337 
Other intangible assets, net 91,336  27,347 
Other assets 12,096  12,347 
Total assets $ 511,671  $ 382,600 
 
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of notes payable and term loan $ 17,502  $ 115 
Current portion of capital lease obligations 1,450  1,461 
Accounts payable 16,386  18,091 
Accrued liabilities (3) 41,999  61,595 
Deferred revenue 72,756  30,508 
Total current liabilities 150,093  111,770 
Long-term convertible debt 100,000  100,000 
Long-term revolving line of credit and term loan 72,600  12,000 
Other long-term liabilities 5,702  2,340 
Capital lease obligations 1,938  2,030 
Deferred tax liabilities (3) 15,321  14,100 
Deferred revenue 7,777  6,453 
Total liabilities 353,431  248,693 
 
Commitments and contingencies
Stockholders' equity:
Common stock 46  43 
Additional paid-in capital 395,067  376,633 
Accumulated deficit (3) (236,873) (242,769)
Total stockholders' equity 158,240  133,907 
Total liabilities and stockholders' equity $ 511,671  $ 382,600 
 
(3) The Company is still evaluating the impact of Interpretation No. 48 ?Accounting for Uncertainty in Income Taxes?an interpretation of FASB Statement No. 109? which will be finalized prior to the issuance of our 10Q for the quarter ended March 31, 2007.

The TriZetto Group, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Backlog

Total backlog is defined as the revenue we expect to generate in future periods from existing customer contracts. Our 12-month backlog is defined as the revenue we expect to generate from existing customer contracts over the next 12 months. Most of the revenue in our backlog is derived from multi-year service revenue contracts (including software hosting, business process outsourcing, IT outsourcing, and software maintenance with periods up to seven years) and consulting contracts. Consulting revenue is included in the backlog when the revenue from such consulting contract is expected to be recognized over a period exceeding 12 months.

Non-GAAP Financial Measures

Recurring and Non-recurring Revenue

In this press release and our other public statements in connection with this press release, we use the non-GAAP financial measures, ?Recurring? and ?Non-recurring? revenue. Recurring revenue includes the provision of outsourcing services, such as software hosting and other business services, and the sale of maintenance and support for our software products. Also included in recurring revenue are sales from the licensing of our software for which customers do not receive a perpetual right to use the software. Non-recurring revenue includes sales from the licensing of our software for which customers pay a one-time fee to receive a perpetual right to use the software. Non-recurring revenue also includes consulting fees and other revenue.

Adjusted EBITDA

In this press release and our other public statements in connection with this press release, we use the non-GAAP financial measure, ?Adjusted EBITDA.? We define Adjusted EBITDA as net income, excluding the impact of interest expense, income taxes, depreciation and amortization, charges for legal settlements, charges for facility closures and asset impairment, stock-based compensation expense and charges for expected future loss on contracts. We use Adjusted EBITDA to provide meaningful supplemental information regarding our operating performance and profitability by excluding certain expenses and expenditures that may not be indicative of our core business operating