Interview with: W. Randall Pittman, CfO - featuring: their enterprise-level advanced visualization and infrastructure solution for the clinical analysis and management of digital medical images within multi-hospital networks, community hospitals and diagnostic imaging centers.

Emageon Inc. (EMAG-NASDAQ)

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Randy Pittman joined Emageon Inc., a healthcare information systems company, as Chief Financial Officer in November, 2002. Randy’s career in corporate finance spans thirty years. He previously served as Chief Financial Officer of BioCryst Pharmaceuticals, Inc., a publicly held biotechnology company, and ScandiPharm, Inc. a privately held pharmaceutical sales company. He also served as Senior Vice President – Finance for CaremarkRx, a NYSE listed pharmacy benefits management company, and Executive Vice President and Controller for AmSouth Bancorporation, a NYSE listed bank holding company. Randy is a Certified Public Accountant, beginning his career at Ernst & Young in 1976.

Randy has a B. S. degree in Business Administration from Auburn University, and has successfully completed advanced business programs at the Stonier Graduate School of Banking at the University of Delaware and the Goizueta Graduate School of Business at Emory University.

Randy is a member of the Board of Directors of the Regions Morgan Keegan Select Funds and the Board of Trustees at Samford University.

Company Profile:
About Emageon Inc.
Emageon provides an enterprise-level advanced visualization and infrastructure solution for the clinical analysis and management of digital medical images within multi-hospital networks, community hospitals and diagnostic imaging centers. Emageon’s software, including its HeartSuite set of cardiology solutions from its Camtronics subsidiary, provides physicians in multiple medical specialties such as cardiology, radiology, and orthopedics, among others, with dynamic tools to manipulate and analyze images in two and three dimensions. With these tools physicians have the ability to better understand internal anatomic structure and pathology, which can improve clinical diagnoses, disease screening and therapy planning.  Emageon’s open standards-based solution is designed to help customers improve staff productivity, automate complex medical imaging workflow, lower total cost of ownership and provide better service to physicians and patients.

CEOCFO: Mr. Pittman, will you tell us about your background with the company?
Mr. Pittman: “I was an investor in Emageon in the earliest days as a private company, and then joined the company as CFO in 2002.”

CEOCFO: What attracted you as an investor enough to want to be on-board?
Mr. Pittman: “The opportunity in digital imaging in hospitals appeared to be an early-stage technology opportunity that could grow into something very substantial. The team that Chuck Jett, our CEO, was developing to manage the business and grow it was impressive.”

CEOCFO: Where is that vision today?
Mr. Pittman: “Since 2000, when the company had essentially no revenues and only one customer, the company has grown in 2005 in revenue and customer relationships. We have relationships with almost 600 hospitals and we had revenue in 2005 of $73.8 million and now our projection for 2006 is $ 122 million plus. The growth has been phenomenal.”

CEOCFO: Will you explain what it is that you actually provide?
Mr. Pittman: “Emageon provides content management and visualization software for hospitals. What that means is we take any kind of visual image, be it from a CT scan, MRI, ultrasound, x-ray; we digitize it and store it electronically through our content-management solution in one central repository in the hospital. We then distribute it back out via the web to work stations, not only in the department of radiology, for review and diagnosis, but also throughout the rest of the hospital enterprise for referring physicians to use in corroborating diagnosis as well as treatment planning and even using it in explaining treatment protocols to patients.”

CEOCFO: Is this done industry-wide, or is this unique to Emageon?
Mr. Pittman: “Many hospitals have what is known as a PACS (picture archive communications systems), but often times it is located only in the department of radiology, so that the radiologists can see images in electronic format and maybe even manipulate them in a 3-D rendering. What is unique about Emageon is our ability to bring that out to the entire healthcare enterprise and make it available to the referring physicians in emergency departments, operating rooms, ICU, and the normal patient floors, so that they can see the images as part of the overall visual medical record for the patient. In addition, they have a tool set that comes with the images that allows them to look at it in 3-D as well as 2-D format. In addition, we have acquired in the last year, some significant assets around cardiology imaging with our acquisition of Camtronics Medical Systems, Ltd., in November of 2005, which was a subsidiary of Analogic Corporation (NASDAQ: ALOG). We have imaging software for the cardiac Cath-Lab, for the Hemodynamics lab and for Echo Cardiography.”

CEOCFO: Are there other areas you would like to add through acquisition or development?
Mr. Pittman: “Ultimately, there will be additional areas where we would like to have solutions that we could offer our customers. They might be more in-depth software related to cardiology around a cardiovascular information system that ties the cardiologists and surgeons’ electronic medical records to those of the hospitals so that they would have information to serve the long-term nature of the cardiology patient relationship. We also have interest in seeing additional functionality that can make our visualization technology more effective in other specific areas like orthopedics, neurology and oncology.”

CEOCFO: Is there much training involved for the doctors?
Mr. Pittman: “The software is very intuitive. You pick an image off a work list that looks just like your email. The image pops up on the screen in a way that has been programmed to display according to your individual preference, if you are a credentialed physician looking at it. In other words, if you like to see prior studies on the left vs. the right, yours will always pop up on the left. You will see it the way you want to see it. There are icons that you can click on and it tells you exactly what you need to do to see an image in a certain way to look at the notes that have come from the radiologist, to look at notes from other corroborating physicians, to call up a separate prior study and those types of things. It is very intuitive and physicians can be trained in a very short timeframe.”

CEOCFO: Will you tell us about your revenue model?
Mr. Pittman: “The customer buys a perpetual license to use our system. In delivering that, we deliver a complete package to the customer, which includes our software, some third-party components that are the hardware platform that the software runs off of and stores images to. It also includes fees for implementation, integration with other healthcare systems in the hospital, and training. They will typically sign a longer-term support maintenance agreement for us to support the system and provide upgrades for a period of usually five years.”

CEOCFO: Is there a typical size hospital or geographic area that use your products?
Mr. Pittman: “Our customers are all over the United States. We have focused primarily on developing relationships with large hospital networks that own a group of hospitals. In doing that, you develop the relationships at the executive levels of the Integrated Delivery Networks, or IDNs as they are known. Typically we will sign a master contract with a large network of hospitals and then each individual hospital within that network would as their budget allowed, prioritize and acquire our system over time off of an order addendum to that master contract.”

CEOCFO: You had a record first quarter; what accounted for that and how do you continue?
Mr. Pittman: “Our penetration of the relationships that we had with those integrated delivery networks has gotten deeper. We for our enterprise visualization software have contractual relationships today with about 285 hospitals and as of the end of Q-1, 155 of those had implemented our software in their hospital. We have continued to grow by extending further into those networks, hospital-by-hospital. Secondly, with the acquisition of Camtronics Medical Systems, we have now been able to add to our products set, the cardiology solutions and broaden the number of customers that we’re able to serve, because Camtronics had a nice customer base as well. Thirdly, if you look at statistics around this industry, Frost & Sullivan, Inc., which is a market research firm that follows this industry, felt that the digital imaging sector is growing at about 15% per year and should continue to do that for several years. Digital imaging specific to cardiology is growing even faster than that. That is a healthy growth rate. If you take that and add what we feel is a better more complete set of products and services for the specific space that we are in, we have been able to grow at even a faster pace than the industry itself.”

CEOCFO: Are you concerned about competition?
Mr. Pittman: ‘We compete everyday with some of the largest companies in the world; GE (General Electric Company – NYSE: GE), and McKesson Corporation (NYSE:MCK) are probably our two largest competitors that we see most often. We also compete with Siemens AG (NYSE: SI), and Philips Medical Systems (Philips Electronics N.V. – NYSE: PHG). Those are large companies and they certainly could provide formidable competition, however we have been able to grow at a faster pace than they have in the last several years in this particular industry, so we feel confident that we can continue to compete effectively against them.”

CEOCFO: Why would a hospital chain choose you above your competitors?
Mr. Pittman: “We feel like we have been able to demonstrate an early understanding of the importance of imaging being used enterprise-wide in hospitals as opposed to companies that have sold PACS systems only to the department of radiology. We have, from the beginning, tried to design a robust content management solution that allows hospitals to store all images from all sources in one central place and then have access points throughout the enterprise to retrieve that data and use it not only in a flat panel image but in a 3-D rendering. It provides them the ability to do better surgical planning and those kinds of things. We feel like our service group has done a very nice job in the implementations that we have put in hospitals throughout the country. We get very high marks from customers on our implementation, integration with other systems, timeliness, hitting deadlines and most of all the training of the staff within the facility, which not only includes the physicians, but the radiology technologists, systems administrators and other users.”

CEOCFO: In closing, why should potential investors be interested and what should people realize about Emageon that does not jump off the page?
Mr. Pittman: “Our growth prospects are still quite substantial. Hospitals throughout the country have recognized the need to automate their digital imaging in a fashion that equates to what they are doing with the electronic medical record. The industry itself provides some wind at our back in terms of us being in a space that is growing rapidly. Our solutions have proven over time that they are very robust and scaleable to the largest hospital institutions in some of the finest names in medicine. For instance, our system is now being deployed across the entire hospital at Johns Hopkins, which has been named the top hospital in the United States for 15 out of the last 16 years. We have gotten the seal of approval, if you will, from some of the largest and most sophisticated healthcare delivery networks in the United States as to having a great product and a great solution. With a customer base like ours that is based around hospital networks, we have an opportunity to continue to grow within our own customer base, a depth and breadth of product offerings that integrate well with digital imaging.”

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“We feel like we have been able to demonstrate an early understanding of the importance of imaging being used enterprise-wide in hospitals as opposed to companies that have sold PACS systems only to the department of radiology. We have, from the beginning, tried to design a robust content management solution that allows hospitals to store all images from all sources in one central place and then have access points throughout the enterprise to retrieve that data and use it not only in a flat panel image but in a 3-D rendering. It provides them the ability to do better surgical planning and those kinds of things. We feel like our service group has done a very nice job in the implementations that we have put in hospitals throughout the country. We get very high marks from customers on our implementation, integration with other systems, timeliness, hitting deadlines and most of all the training of the staff within the facility, which not only includes the physicians, but the radiology technologists, systems administrators and other users.” - W. Randall Pittman