NovaMed reports net loss of 4% in first quarter 2010

NovaMed, Inc. (Nasdaq: NOVA), a leading operator of ambulatory surgery centers in partnership with physicians, today announced results for the first quarter ended March 31, 2010. Total net revenue was $37,055,000, down 3% from $38,294,000 in the prior year first quarter. Same-facility net revenue declined 4% for the quarter. Net income from continuing operations attributable to NovaMed in the first quarter of 2010 was $1,336,000, down 23% from $1,729,000 in the prior year first quarter. Diluted earnings from continuing operations per common share attributable to NovaMed were $0.06 in the first quarter of 2010, down 25% from $0.08 in the first quarter of 2009.

“Clearly our goal for 2010 is to seek out and close attractive acquisition opportunities. However, in the meantime we will continue to use our expected annual free cash flow of over $20 million to delever our balance sheet.”

Net cash provided by operating activities in the first quarter of 2010 was $9,723,000 and distributions to noncontrolling interests, which are included in net cash used in financing activities, were $4,328,000. Net cash provided by operating activities less distributions to noncontrolling interests was $5,395,000, or $0.23 per diluted share. Interest expense in the first quarter of 2010 included non-cash, imputed interest of $1,101,000, or $0.03 per diluted share, compared to $1,008,000, or $0.03 per diluted share, in the first quarter of 2009. This interest expense is recorded in accordance with NovaMed's adoption of Accounting Standards Codification ("ASC") 470-20.

"Severe winter weather in some of our markets together with the continuing difficult economic conditions negatively impacted our performance in the first quarter," commented Thomas S. Hall, Chairman, President and Chief Executive Officer of NovaMed, Inc. "January and February were very soft months for surgical procedures performed in our surgery centers but we did experience nice improvement in March. The weather problems are obviously behind us but the economy continues to be a headwind toward realizing growth in surgical procedure volumes. However, our cash flow remains strong with net cash from operating activities less distributions to noncontrolling interests of $5.4 million or 4.0 times net income from continuing operations attributable to NovaMed. With capital expenditures of $234,000 in the quarter, our free cash flow of $5.2 million continued to allow us to deleverage our balance sheet in the first quarter."

Highlights of first quarter continuing operations include:

• Total net revenue of $37,055,000
• Earnings per diluted share from continuing operations of $0.06
• Net cash from operating activities less distributions to noncontrolling interests of $5,395,000, or $0.23 per diluted share

"As we have stated, our priority over the past year has been to deleverage. In the last five quarters we have reduced our senior debt outstanding by almost $24 million, or just over $1.00 per share. This has strengthened our balance sheet and increased our capacity for growth," added Mr. Hall. "Clearly our goal for 2010 is to seek out and close attractive acquisition opportunities. However, in the meantime we will continue to use our expected annual free cash flow of over $20 million to delever our balance sheet."

Mr. Hall concluded, "We believe the long term prospects for the ASC industry are very positive. While none of us are happy with the current softness we are experiencing, it is important to remember ASCs serve a critical need in the health care system. We represent the lowest cost setting with the highest quality outcomes and are preferred by patients, payors and physicians. ASCs and NovaMed are part of the solution."

Impact of Adoption of ASC 470-20

Effective January 1, 2009, NovaMed adopted ASC 470-20, Debt with Conversion and Other Options. ASC 470-20 impacts the accounting treatment of our 1.0% convertible senior subordinated notes due June 15, 2012. As noted above, the adoption of ASC 470-20 added non-cash, imputed interest expense of $1,101,000 and $1,008,000 to first quarters of 2010 and 2009, respectively. We estimate that the adoption of ASC 470-20 will add approximately $4.6 million of imputed interest expense to our 2010 results of operations. However, the adoption of ASC 470-20 will not have an impact on our cash flows.