Financial results for the third quarter announced by A.D.A.M.

A.D.A.M., Inc. (Nasdaq: ADAM), a leading provider of health information and benefit technology solutions, today announced its financial results for the third quarter ended September 30, 2009.

Highlights:

• License revenues for the third quarter of 2009 were $6.7 million, up 7% over third quarter of 2008
• Adjusted operating income margin for the third quarter of 2009 was 23% as compared to 18% in the third quarter of 2008
• Net income for the third quarter of 2009 was $1.3 million, or $0.13 per share on a fully diluted basis, up 88% from the third quarter of 2008
• Adjusted EBITDA was $2.4 million for the third quarter of 2009, up 24% from third quarter 2008

“We are pleased with the performance of our licensing business for the third quarter,” said Kevin Noland, A.D.A.M.’s president and chief executive officer. “Health content licensing performed extremely well and we experienced another good quarter of bookings related to Benergy and our online enrollment products. As many of our new enrollment clients will begin their implementations in the fourth quarter, this should give us a nice start to 2010. As a result of our continued investments in infrastructure to support our expected growth, we are now processing approximately 25% more employee enrollments than last year, with the fastest response times we have ever recorded during the first week of the November peak season.”

Financial Results:

Third Quarter Highlights

License revenues for the third quarter ended September 30, 2009 were $6.7 million, compared to $6.3 million in the third quarter of 2008, an increase of 7%. The increase from the prior year reflects an increase in health content license revenue of 20%, the result of new client contracts, strong retention rates and improved results from distribution partners.

Total revenues for the third quarter ended September 30, 2009 were $7.0 million, compared to $7.1 million in the third quarter of 2008. The change reflects the lower level of product sales related to the Company’s education business and professional services provided in 2009, which was partially offset by the increase in license revenues noted previously.

Adjusted operating income was $1.6 million, or 23% of revenues, compared to $1.3 million, or 18% of revenues for the third quarter of 2009 and 2008, respectively. Adjusted operating income improved due to the Company’s cost cutting measures that reduced cost of revenues by 25% and operating expenses by 10%.

Cash flow, as measured by Adjusted EBITDA was $2.4 million, or 34% of revenues, for the third quarter ended September 30, 2009, as compared to $1.9 million or 27% of revenues for the same period a year ago.

Net income for the third quarter ended September 30, 2009 was $1.3 million or $0.13 per share on a fully diluted basis as compared to net income of $688,000 or $0.06 per share on a fully diluted basis for the third quarter of 2008.

Non-GAAP net income, which excludes charges for stock-based compensation and amortization of purchased intangibles, was $1.6 million, an increase of 38% from the same period a year ago.

September Year-to-Date Highlights

License revenues for the nine-month period ended September 30, 2009, were $19.4 million, an increase of 2% from $19.0 million in the same period last year. The increase from prior year reflects an increase in health content license revenues of 10% from new clients and growth from existing accounts.

Adjusted operating income was $4.0 million, compared to $4.1 million, for the nine-months ended September 30, 2009 and 2008, respectively. Both amounts were 19% of revenues for the respective periods.

Cash flow, as measured by Adjusted EBITDA was $5.9 million, or 29% of revenues, for the nine months ended September 30, 2009, as compared to $5.8 million or 27% of revenues for the same period a year ago.

At September 30, 2009, the company had cash and cash equivalents of $3.5 million as compared to $1.4 million at December 31, 2008.

Conference Call

A.D.A.M. will conduct its third quarter earnings conference call today, at 10:00 AM ET. To access the call in the U.S., please dial 866-900-2647 and for international callers, dial 706-758-3362 approximately 10 minutes prior to the start of the conference call. The passcode is 38400536. The conference call will also be broadcast live over the Internet and available for replay for 90 days at http://www.adam.com. In addition, a replay of the call will be available via telephone for one week, beginning two hours after the call. To listen to the telephone replay in the U.S. please dial 800-642-1687 and for international callers, dial 706-645-9291. The passcode is the same as above.

Use of Non-GAAP Measures

To supplement our consolidated financial statements presented in accordance with GAAP, we present investors with certain non-GAAP operational measures, including adjusted operating income, adjusted net income, adjusted earnings per share and adjusted EBITDA, all of which primarily exclude the effects of amortization of intangible assets, stock-based compensation, acquisition related expenses, facility consolidation charges, debt refinancing costs, and a goodwill impairment charge.

Our management considers the total return of an investment we have made in an acquisition (i.e., operating profit generated as compared to the purchase price paid) without taking into consideration any allocations made for accounting purposes. Thus, because the purchase price for an acquisition does not necessarily reflect the accounting value assigned to intangible assets, including customer lists and goodwill, when analyzing the return provided by the acquisition in subsequent periods, our management, for planning and evaluation purposes, excludes the GAAP impact of acquired intangible assets, goodwill impairment charges and other acquisition related expenses to our financial results. We believe that such an approach is useful in understanding the long-term return provided by an acquisition and that our investors benefit from a supplemental non-GAAP financial measure that adjusts for the accounting expense associated with acquired intangible assets.

Similarly, we believe that excluding stock-based compensation expense provides supplemental information and an alternative presentation useful to investors’ understanding of our operating results and trends, especially when comparing those results on a consistent basis to results for previous periods and anticipated results for future periods.

We also believe that, in excluding stock-based compensation, amortization of intangible assets, facility consolidation and the other listed items in the GAAP to Non-GAAP reconciliation schedules, our non-GAAP financial measures provide investors with transparency into the information and basis used by management and our board of directors to measure and forecast our results of operations, to compare on a consistent basis our results of operations for the current period to that of prior periods, to compare our results of operations on a more consistent basis against that of other companies in making financial and operating decisions, and to establish targets for management incentive compensation.

We believe that the presentation of non-GAAP operational measures of adjusted operating income, adjusted net income, adjusted earnings per share and adjusted EBITDA provide important supplemental information to management and investors regarding financial and business trends relating to our financial condition and results of operations. These non-GAAP operational measures have historically been used as key performance metrics by our senior management as they evaluate the performance of the consolidated financial results. These non-GAAP operational measures are reviewed individually as well as in total in measuring our performance against internal and external expectations for the period. The expectations for such key non-GAAP operational measures are the basis for any financial guidance provided by management for future periods. Management believes that the use of each of these non-GAAP financial measures provides enhanced consistency and comparability with our past financial reports. We provide this information to investors to enable them to perform additional analyses of past, present and future operating performance.

We believe that each of these operational measures is useful to investors in their assessment of our operating performance and the valuation of our company. Adjusted operating income, adjusted net income, adjusted earnings per share and adjusted EBITDA are significant measures used by management for:

• Reporting our financial results and forecasts to our board of directors;
• Evaluating the operating performance of our company;
• Managing and comparing performance internally and externally against our peers; and
• Establishing internal operating targets.

These non-GAAP operational measures, including adjusted operating income, adjusted net income, adjusted earnings per share and adjusted EBITDA, are used by us as broad measures of financial performance that encompass our operating performance, cash, capital structure, investment management, and income tax planning effectiveness. These operational measures are not calculated in accordance with GAAP and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. These operational measures have limitations in that they do not reflect all of the costs or reductions to revenues associated with the operations of our business as determined in accordance with GAAP. In addition, these operational measures may not be comparable to non-GAAP financial measures reported by other companies. As a result, one should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP. We compensate for these limitations by analyzing current and future results on a GAAP basis as well as a non-GAAP basis, prominently disclosing GAAP results and providing reconciliations from GAAP results to operational measures. The limitations in relying on our non-GAAP financial measures include the fact that the adjusted operating income, adjusted net income, adjusted earnings per share and adjusted EBITDA operational measures do not include the impact of stock-based compensation expense or the effects of amortization of intangible assets, acquisition related expenses and other charges. We expect to continue to incur expenses similar to the non-GAAP adjustments described above, and the exclusion or inclusion of these items from our non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent.