Quovadx Inc.

6400 South Fiddler's Green Circle
Englewood, Colorado 80111

Telephone: (303) 488-2019
Toll Free: (800) 723-3033
Fax: (303) 488-9738
Web site: http://www.quovadx.com

Public Company
1997 as XCare.net, Inc.
Sales: $71.6 million (2003)
Stock Exchange: NASDAQ
Ticker Symbol: QVDX
NAIC: 511210 Software Publishers

Quovadx Inc., a global software and services firm based in Englewood, Colorado, serves thousands of companies in the fields of healthcare, financial services, telecommunications, manufacturing, and life sciences. The company assists customers worldwide to develop, extend, and integrate applications based on open standards. Quovadx is made up of three principal components. The first is its Integration Solutions division, which offers vertically specific solutions to improve processes and leverage existing technology systems. The other two components are its subsidiaries CareScience, Inc. and Rogue Wave Software, Inc. CareScience offers care management services and analytical solutions to hospitals and health systems and is a pioneer in community-wide data sharing and regional healthcare information organization solutions. Rogue Wave Software provides reusable software components and services that facilitate application development.


The story of Quovadx began in 1997 in Albuquerque, New Mexico. That year, a group of venture capital investors tried to save Mpower Solutions, Inc., a near-bankrupt healthcare software company. After a nationwide search for a new chief executive officer, the investors hired Lorine Sweeney, an expert in healthcare technology. Sweeney agreed to take the position provided she could relocate the company to Colorado. At 39, Sweeney's background included time at Microsoft, five years at Great West Life, and experience in the oil and gas industry, including briefly running a small oil and gas software company. In order to save the company, Sweeney hired a new team, formulated a new strategy, and started over in Colorado, recruiting ten executives with whom she worked at Thompson Healthcare, a Denver health care software firm. She renamed the company XCare.net, Inc. and began to search for badly needed venture capital. In 1999, when the company needed to raise $17 million to keep it afloat, Colorado's lack of experienced managers and engineers proved to be an obstacle. Sweeney's pitch to more than 100 venture capital firms was well received, but potential investors expressed little confidence that a Colorado company could attract top talent that would enable it to grow quickly.

Sweeney then switched strategies, spreading out the company's operations and adding a research and development facility in Silicon Valley to mollify investors. As a result, the company raised the $17 million and made an initial public offering in February 2000, which brought in $104 million. The company was already making considerable strides in the integrated software and services business, reporting 1999 revenues of $51.4 million, up from $10 million the year before. Unlike the plunging fortunes of other information technology companies after the stock market crash starting in the spring of 2000, XCare.net continued on the upswing. It signed a major a deal with MedUnite, a consortium of the nation's seven largest health insurers, to provide an Internet-based system for faster processing of medical claims, authorizations and referrals. In addition, since going public the company expanded its number of employees from 60 to 600 professionals in Atlanta, Georgia; Dallas, Texas; Charleston, South Carolina; Columbus, Ohio; Albuquerque, New Mexico; Islandia, New York; Los Angeles and San Carlos, California; and Honolulu, Hawaii. Moreover, sales had grown twelve-fold to $63 million, and the company's share price had doubled to more than $12.

Growth through Acquisitions

With cash from its public offering, XCare.net began to acquire companies as a primary part of its fast-growth strategy. At the same time, it began to move beyond healthcare and into the entertainment industry to help companies automate digital distribution of films and music. In order to enter this new market, in 2000 XCare.net bought Integrated Media, a small New York company that created online movie promotions for film studios, including Paramount and Miramax. Xcare.net also opened a 15-person Los Angeles office and recruited Afshin Cangarlu, the former chief technologist for DreamWorks, the film studio founded by Steven Spielberg.

To reflect its new business direction, the company changed its name to Quovadx Inc. in September 2001. The change in name followed the acquisitions in June 2001 of Confer Software, Inc., a developer of e-business process management and workflow applications, and, in August, of Healthcare.com Corporation, a leading provider of enterprise application integration tools. Quovadx bought Confer for $6.6 million, including primarily an exchange of 592,453 shares of Quovadx common stock for the outstanding shares of Confer capital stock. The Healthcare.com acquisition totaled $93.1 million, which comprised 10,702,043 shares of Quovadx common stock issued in exchange for all outstanding shares of Healtchcare.com capital stock and $4.5 million in merger-related fees. Industry and financial analysts agreed with Quovadx's direction, especially since integration software was anticipated to fulfill a vital and profitable need in the marketplace that was expected to grow to $27.1 billion by 2004. Nowhere was this need greater than in the healthcare market, in which the company had built a substantial customer base that included such leading healthcare organizations as MedUnite, Healthnet, HCA, AMR/Kaiser, and the Medical University of South Carolina.

In December 2001, Quovadx concluded the acquisition of Pixel Group, a provider of integration and connectivity software with offices in the United Kingdom and Atlanta, for $7.3 million in cash and common stock. Pixel specialized in providing a wide range of integration products and had sold over 1.3 million integration and connectivity software licenses to hundreds of organizations in more than 50 countries, including to such customers as Dow Jones, Federated Department Stores, John Deere, IBM, Brooks Brothers, and British Telecom. A former distributor of Pixel's products for over a year, Quovadx accounted for about one-third of its $3 million in 2001 revenue. At the same time, editors of InfoWorld selected Quovadx as one of its top 100 innovators of 2001, exemplifying the creativity necessary to confront issues of fewer employees with larger workloads and declining budgets amidst the technology downturn.

In January 2002, the company announced both the expansion of its management team and the retirement of its chief operating officer, Robert Murrie. Afshin Cangarlu, formerly executive vice-president of services, replaced Murrie, while the company added several positions, including executive vice-president and general counsel, vice-president of human resources, and chief medical officer and senior vice-president of clinical trials, to its executive team at Quovadx's Denver-area headquarters.

Quovadx's expansion of its management team reflected its rising profitability. Revenue of 2001, for example, totaled $52.3 million, an increase of 307 percent over revenue of $12.9 million for 2000. The company's had significantly expanded its presence in the fourth quarter of 2001 alone, signing a record 120 contracts worth $102 million. These contracts included such name brand clients as Gambro Healthcare, Baylor Healthcare, Methodist Health Care System, Medical University of South Carolina, McGraw-Hill Companies, Cable and Wireless, and Standard and Poor's. During 2001, Quovadx also took steps to broaden its distribution network, entering into strategic partnerships with Per-Se Technologies, Quadramed, Sun Microsystems, Microsoft, and MedUnited Service Paks.

In March 2002, the company sold its Advica Health Resources subsidiary to Royal Health Care of Long Island for $475,000 in cash and 4.6 percent of the outstanding equity in Royal. The terms of the asset sale agreement stipulated that Royal assume the operation of Advica's medical management services business, including personnel and property, and selected assets comprising key contracts, personnel, and equipment. Quovadx would retain Advica's core systems and information technology, which it would provide to Royal under a separate seven-year, $5 million services agreement.

On March 27, 2002, Quovadx purchased all of the outstanding capital stock of Outlaw Technologies, Inc., a leading provider of Healthcare Relationship Management (HRM) solutions to healthcare payer organizations. The purchase price, totaling $2.7 million, included 138,575 shares of Quovadx common stock and $1.8 million in cash and professional fees associated with the acquisition. With the acquisition, Quovadx could provide HRM to its customers and offer its own integrated software products to Outlaw's clients. Founded in 1999 in Boulder, Colorado, Outlaw Technologies was a privately held company that provided products which enabled clients to manage, control, and measure the direct and indirect relationships they had with their members, providers, groups, and agents. The acquisition marked yet another diversification of its operations into new niches in the healthcare market.

Company Perspectives:

Quovadx is a global software company that helps organizations develop, extend and integrate customizable applications with the flexibility of open standards. The company's products and services have been proven to optimize business processes and deliver lasting customer value to over 20,000 organizations around the world.

In September 2003, Quovadx announced it completed the purchase of CareScience, Inc., one of the nation's leading healthcare management companies. The deal was structured as an exchange offer, comprising $1.40 in cash and 0.1818 shares of Quovadx common stock for each share of CareScience common stock. The cost, totaling $30.1 million, included 2,415,900 shares of Quovadx common stock and $4.7 million in cash in exchange for all outstanding shares of CareScience and $2.3 million in merger related fees. Quovadx believed that Care-Science's expertise in care management and clinical knowledge would complement its own medical management product offerings in the healthcare provider and payer segments.

The company's rapid revenue growth of 2,704 percent from 1998 to 2002 won it the ranking of 133 on the 2003 Deloitte Technology Fast 500, a ranking of the fastest-growing technology companies in North America. However, Quovadx lost $104 million on sales of $63.7 million in 2002, as the company could not entirely escape the telecom downturn. Within the first two quarters of 2003, nevertheless, the company increased its revenue and cut its loss by more than 70 percent to $858,000 during the quarter that ended in June.

In December 2003, Quovadx bought Rogue Wave Software, Inc. of Boulder, Colorado, a leader in C++ programming, for $79.1 million. The acquisition included an exchange offer in which Rogue Wave stockholders received a fixed exchange rate of $4.09 in cash and 0.5292 shares of Quovadx common stock for each share of Rogue Wave common stock. With the acquisition, Quovadx gained about 18,000 customers and over 300,000 software licenses. The deal brought the company an established product line and better positioned Quovadx to compete in both the Web services and application-development markets.

Troubled Times

On March 15, 2004, Quovadx said it was restating its 2003 financial results because it failed to collect payment from Infotech Network Group, a consortium of 15 information technology companies in India. The restatement caused Quovadx's stock to plunge 29 percent and forced the company to cut its revenue to $71.6 million from $82.9 million. In addition, its net loss widened to $14.7 million from $5 million. The restatement prompted several class action lawsuits alleging the company had violated security laws by issuing false and misleading financial results. Just days later, on March 19, the company also disclosed that securities regulators were conducting an informal investigation into its Infotech contract and other business deals from the third quarter in 2002.

However, when federal securities regulators gave notification that they were transforming their informal probe into a full-fledged investigation of the software maker's accounting practices, Quovadx's chief executive and chief financial officer resigned. The resignations marked the end of Lorine Sweeney's seven-year tenure as chief executive officer. With a weakening stock price and under pressure from the securities probe, in May 2004 a new management team cut 8 percent of the company's work force in a move to reduce costs. At the same time, NASDAQ notified Quovadx that it was in danger of being de-listed because of the delay in filing its 10-Q financial report.

Quovadx Positions Itself for the Future

To forestall the possibility of being de-listed by NASDAQ, the troubled software maker erased from its books $2.1 million in inflated revenue for 2002 and 2003 and issued delayed financial results for 2004 that showed red ink for the first six months. As a result of the restated financials, the Securities and Exchange Commission (SEC) ended its investigation and allowed Quovadx to regain compliance with NASDAQ.

In October 2004, Quovadx formalized the appointment of Henry A. Wagner as chief executive officer and president of the company. Wagner, then 63, had been serving as acting president and CEO since May 2004 after the company's two top executives abruptly resigned following the accounting irregularities that triggered the formal SEC probe. Before joining Quovadx, Wagner was executive vice-president and chief financial officer of Miran Corporation. After guiding the Quovadx through difficult times, Wagner had succeeded in repositioning the company to grow its software revenues by focusing on improving sales and expanding into new markets.

Principal Subsidiaries

CareScience, Inc.; Rogue Wave Software, Inc.

Principal Divisions

Integration Solutions.

Principal Competitors

SeeBeyond; Tibco Software; Vitria Technology.

Key Dates:

XCare.net, Inc. is founded.
The company's initial public offering raises $104 million.
Integrated Media is purchased
The company changes its name to Quovadx, Inc.
Quovadx buys Confer Software, Inc.; Healthcare.com Corporation; and Pixel Group.
Quovadx sells its Advica Health Resources subsidiary.
Outlaw Technologies, Inc. is acquired.
Quovadx acquires CareScience, Inc. and Rogue Wave Software, Inc.
The company undergoes a Securities and Exchange Commission probe for accounting irregularities.

Further Reading

"Denver Maker of Health-Care Software Changes Name, Direction," Knight Ridder/Tribune Business News , October 5, 2001.

"Englewood, Colo-based Software Maker Restates Earnings," Knight Ridder/Tribune Business News , August 18, 2004.

"Mounting Problems for Colorado Software Maker Quovadx," America's Intelligence Wire , May 14, 2004.

"Quovadx Acquires Rogue Wave Software for $71 Million," eWeek , November 4, 2003.

"Quovadx Announces Acquisition of Outlaw Technologies," PR Newswire , March 28, 2002.

"Quovadx Announces Changes to Management Team," Business Wire , April 12, 2004.

"Quovadx Announces Informal SEC Inquiry," Business Wire , March 29, 2004.

"Quovadx Announces Management Team Expansion," PR Newswire , January 10, 2002.

"Quovadx Announces Sale of Assets of Advica Health Resources to Royal Health Care, LLC," PR Newswire , March 11, 2002.

"Quovadx Completes CareScience Acquisition," Business Wire , September 19, 2003.

"Quovadx Completes Rogue Wave Acquisition," Business Wire , December 19, 2003.

"Quovadx, Inc. Announces Acquisition of the Pixel Group and Confirms Fourth Quarter 2001 EPS Guidance," PR Newswire, January 10, 2002.

"Quovadx Is the 133rd Fastest-Growing Technology Company in North America," Business Wire , October 14, 2003.

"Quovadx Ranked Among 2001's Top 100 Tech Innovators," PR Newswire , December 3, 2001.

"Quovadx Ranked Second in Deloitte & Touche Technology Fast 50 for Colorado," Business Wire , October 3, 2003.

"Quovadx Regains Compliance with Nasdaq Listing Requirements," Business Wire , August 23, 2004.

"Quovadx to Acquire CareScience in Stock and Cash Exchange Offer Valued at $2.09 Per Share," Business Wire , August 14, 2003.

"Quovadx to Buy CareScience," Rocky Mountain News , August 15, 2003, 3B.

"Quovadx Says SEC Probing Accounts of Failed India Deal," Rocky Mountain News , March 19, 2004, 4B.

"Software Maker Quovadx Delays Report," The America's Intelligence Wire , May 14, 2004.

"Troubled Quovadx Cuts 44 Jobs," Rocky Mountain News , May 5, 2004, 3 B.

"Two Top Quovadx Execs Quit CEO and CFO Resign as SEC Opens Formal Accounting Inquiry," Rocky Mountain News , April 13, 2004, 2B.

"XCare.net Has Changed Name to Quovadx, Inc.," PR Newswire , September 25, 2001.

—Bruce Montgomery

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