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Emageon Incorporated (EMAG)

Q4 2007 Earnings Call

February 21, 2008 8:30 am ET

Executives

Charles A. Jett - Chairman, President, Chief Executive Officer

W. Randall Pittman - Chief Financial Officer, Treasurer

Chris E. Perkins - Chief Operating Officer

Analysts

Bret Jones - Leerink Swann

Sean Wieland - Piper Jaffray

Newton Juhng - BB&T Capital Markets

Presentation

Operator

Good day ladies and gentlemen and welcome to the Quarter Four 2007 Emageon Incorporated Earnings Conference Call. (Operator Instructions)I would now like to turn the presentation over to your host for today’s call Mr. Chuck Jett, Chairman and CEO.

Charles A. Jett

Welcome everyone to Emageon’s investor call. Today, we will discuss the financial results for the fourth quarter and for the full year 2007, the state of our business today, and our financial guidance for 2008. Joining me at company today is Chris Perkins, our Chief Operating Officer; and Randy Pittman, our Chief Financial Officer. Before we talk any further about our financial results, Randy has some comments to make about the call.

W. Randall Pittman

Some of the comments we will make today are forward-looking statements. These statements represent Emageon’s current views with respect to among other things future events and financial performance. Any forward-looking statements we make are based on our historical performance and on current plans, estimates and expectations. The inclusion of forward-looking information should not be regarded as a representation by the company that the future plans, estimates or expectations will be achieved.

These forward-looking statements are subject to risks and uncertainties, and a discussion of these risks and uncertainties is included in the Form 10-K we filed with the SEC on March 16, 2007, and our latest Form 10-Q filed with the SEC on November 8, 2007. You should carefully read these documents and the risk factors discussed therein.

If one or more of the risks or uncertainties referred to above materialized or if our underlying assumptions prove to be incorrect, actual results may vary materially from projections. Except as may be required by law, Emageon undertakes no obligation to update forward-looking statements, to reflect changes and assumptions, future operating results, financial condition, business strategies or the occurrence of unanticipated events.

Charles A. Jett

We reported our financial results for the quarter and year ended December 31, 2007 late yesterday afternoon. As we disclosed in the press release, our revenue in the fourth quarter of 2007 was $28.6 million, which was a decline of 14.7% compared to the fourth quarter of 2006. Our revenue for the full year 2007 was $104.2 million, a 15.6% decline compared to 2006.

Our total revenue for the year fell in the range of our most recent guidance, which we provided in our Q3 press release, last November. We ended 2007 with positive cash earnings with a solid balance sheet including $18 million of cash and no debt.

Randy, will make more specific comments about the financial results later in the call. For the next few minutes, I would like to make some comments about our business in 2007, the market we operate in today, and where we believe we are headed as a business in 2008 and beyond.

Since late 2006, we have been in a mature PACS market for large hospitals and hospital networks. Industry analysts have published data suggesting that close to 90% of the hospitals with greater than 200 beds have implemented a PACS System. As a result of the 90% penetration rate of PACS in a large hospital market, our sales effort almost always involve a replacement of the legacy departmental PACS System.

In this environment, sales cycles are longer and more difficult to forecast accurately. Historically, we’ve built our business around these large hospitals. Our bookings slowdown in 2007 and corresponding downturn in revenue was almost exclusively attributed to these market dynamics.

We anticipate that these conditions in a large hospital markets are not going to change much in 2008. We believe that a major replacement cycle will likely begin in early 2009 with resulting revenue recognition impact in the last half of 2009.

While 2007 was difficult, operationally, there are a number of bright spots. Our bookings in 2007 were largely from our own base of almost 600 hospital customers. Millennium Research, an independent research organization, recently published a study that showed Emageon with approximately 8.6% share of the U.S. PACS market.

Also interesting is that all the companies with a larger market share than Emageon are very large multinational Fortune 100 companies. This gives you an idea of our competitive environment. In spite of our smaller size, we were able to claim the number one spot in the PACS Perception Report last April, published by the KLAS organization.

In the cardiology area, we were very proud. And in the fourth quarter, we received the highest overall KLAS ranking of all cardiology PACS vendors, and we were ranked as the best cardiology vendor by 63% of all respondents to the KLAS survey.

During Q3 of 2007, we introduced RadSuite Express, our standardized offering of content management, advanced visualization and workflow tools aimed at the less penetrated market of hospitals with fewer than 200 beds. Initially, we’ve conceived RadSuite Express as a small hospital product.

As we have matured the architecture and the configuration of RadSuite Express, our internal testing has confirmed that we can sell and implement RadSuite Express in facilities with as many as 250,000 imaging procedures annually. While there is not a direct correlation between bed size and procedure volume, we believe RadSuite Express is appropriate for a larger portion of the market than we had originally projected.

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