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Merge Announces Record Pro Forma Sales of $57M in Second Quarter 2011 Merge Healthcare (NASDAQ: MRGE), a leading provider of enterprise imaging and interoperability solutions, today announced its financial results for the second quarter of 2011.

Merge Announces Record Pro Forma Sales of $57M in Second Quarter

GAAP revenue up 92% and adjusted EBITDA up 155% over Q2 2010

Merge Healthcare (NASDAQ: MRGE), a leading provider of enterprise imaging and interoperability solutions, today announced its financial results for the second quarter of 2011.

  • Revenue grew to $55.6 million ($57.0 million on a pro forma basis) in the quarter, compared to $29 million ($41.5 million on a pro forma basis) in the second quarter of 2010 - an increase of 92%.
  • Adjusted EBITDA was $17.1 million, representing 30% of revenue in the quarter compared to $6.7 million and 23% in the second quarter of 2010 - an increase of 155%.
  • Executed 12 new iConnect agreements extending Merge Healthcare’s leadership position in image interoperability market.
  • Announced over 30 signed contracts for the Merge Meaningful Use platform within its Orthopaedics and Radiology client base.
Quarter Results:
Results compared to the same quarter in the prior year on a GAAP basis are as follows (in millions, except per share data):

  Q2 2011 Q2 2010
Net sales $55.6 $29.0
Operating income (loss) 8.1 (10.6)
Net loss available to common shareholders (3.3) (30.9)
Net loss per diluted share ($0.04) ($0.39)
     
Cash balance at period end $45.2 $37.9
Cash from core business operations* 6.6 9.4
* See table at the back of this earnings release.

Pro forma results and other, non-GAAP measures compared to the same quarter in the prior year are as follows (in millions, except percentages and per share data):
  Q2 2011 Q2 2010
Pro forma results    
Net sales $57.0 $41.5
Adjusted net income 5.0 (4.1)
Adjusted EBITDA 17.1 7.8
     
Adjusted net income per diluted share $0.06 ($0.05)
Adjusted EBITDA per diluted share $0.20 $0.09
     
Non-GAAP and other measures    
Recurring revenue as % of net sales ~62.5% ~65.0%
Non-recurring backlog at period end $40.1 $46.0
Days sales outstanding 93 94

Reconciliation of GAAP net income to adjusted net income and adjusted EBITDA is included after the financial information, below.

Explanation of Non-GAAP Financial Measures
Merge Healthcare reports its financial results in accordance with generally accepted accounting principles, or GAAP. This press release includes certain non-GAAP financial measures to supplement its GAAP information. Non-GAAP measures are not an alternative to GAAP and may be different from non-GAAP measures used by other companies. A quantitative reconciliation of GAAP net income available to common shareholders to adjusted net income and adjusted EBITDA is included after the financial information included in this press release.

Management believes that the presentation of non-GAAP results, when shown in conjunction with corresponding GAAP measures, provides useful information to it and investors regarding financial and business trends related to results of operations, because certain charges, costs and expenses reflect events that are not essential to recurring business operations. In addition, management believes these non-GAAP measures provide investors useful information regarding the underlying performance of the post-acquisition business operations when compared to the pre-acquisition results of Merge and any significant acquired company. Purchase accounting adjustments made in accordance with GAAP can make it difficult to make meaningful comparisons of the underlying operations of the business without considering the non-GAAP adjustments that are provided and discussed herein. Further, management believes that these non-GAAP measures improve its and investors’ ability to compare Merge’s financial performance with other companies in the technology industry. Management also uses financial statements that exclude these charges, costs and expenses for its internal budgets. While GAAP results are more complete, these supplemental metrics are offered since, with reconciliations to GAAP, they may provide greater insight into our financial results. Management does not intend the presentation of these non-GAAP financial measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Additional information regarding the non-GAAP financial measures presented is as follows:
  • Pro forma revenue consists of GAAP revenue as reported, adjusted to reflect the acquisition of AMICAS as if it had occurred at the beginning of the respective periods presented and to add back the acquisition related sales adjustment (for all significant acquisitions) booked for GAAP purposes.
  • Recurring revenue is generated from agreements that generally contain a stated annual amount and which we have a high likelihood of renewing each year. More specifically, this includes revenue generated from our DICOM toolkit and eFilm Workstation® product lines, long-term contracts associated with our Sales as a Service (SaaS) related offerings, and EDI and maintenance contracts across the entire business.
  • Non-recurring revenue backlog represents revenue that we anticipate recognizing in future periods from signed customer contracts as of the end of the period presented. Non-recurring revenue is comprised of all other sources of revenue not included as recurring revenue, primarily from perpetual software licenses, hardware and professional services (including installation, training and consultative engineering services).
  • Adjusted net income consists of GAAP net income available to common stockholders, adjusted to reflect the acquisition of AMICAS as if it had occurred at the beginning of the respective period presented and, to the extent such items occurred in the periods presented, excludes (a) one-time preferred stock deemed dividend at issuance date, (b) acquisition-related costs, (c) restructuring and other costs, (d) stock-based compensation expense, (e) acquisition-related amortization, and (f) acquisition-related cost of sales adjustments and adds back (g) the acquisition-related sales adjustments.
  • Adjusted EBITDA adjusts GAAP net income available to common stockholders for the items considered in adjusted net income as well as (a) remaining depreciation and amortization, (b) net interest expense, (c) non-cash preferred stock dividends and (d) income tax expense (benefit).
  • Cash from core business operations reconciles the cash generated from such operations to the change in GAAP cash balance for the period by reflecting payments of liabilities associated with our acquisitions, payments of acquisition related fees, interest payments and other payments and receipts of cash not generated by the business operations.
Management has excluded certain items from non-GAAP adjusted net income because it believes (i) the amount of certain expenses in any specific period may not directly correlate to the underlying performance of business operations and (ii) the adjustment facilitates comparisons of pre-acquisition results to post-acquisition results. In addition, the following adjustments are described in more detail below:
  • Acquisition-related amortization expense is a non-cash expense arising from the acquisition of intangible assets in connection with significant acquisitions. Management excludes acquisition-related amortization expense from non-GAAP net income because it believes such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired intangible assets.
  • Stock-based compensation expense is a non-cash expense arising from the grant of stock awards to employees and is excluded from non-GAAP net income because management believes such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants to new employees resulting from acquisitions.
  • Acquisition related sales and costs of sales adjustments reflect the fair value adjustment to deferred revenues acquired in connection with significant acquisitions. The fair value of deferred revenue represents an amount equivalent to the estimated cost plus an appropriate profit margin to perform services-related software and product support, which assumes a legal obligation to do so, based on the deferred revenue balances as of the date the acquisition of a significant company was completed. Management adds back this deferred revenue adjustment, net of related costs, for non-GAAP revenue and non-GAAP net income because it believes the inclusion of this amount directly correlates to the underlying performance of operations and facilitates comparisons of pre-acquisition to post-acquisition results.
Full Financial Tables >>
Notice of Conference Call:
Merge will host a conference call on Wednesday, August 3, 2011, at 8:30 am EDT to discuss its financial results for the second quarter 2011. Jeff Surges, CEO, and Justin Dearborn, CFO, will co-chair the call. Investors can listen to the conference call live via telephone by dialing 800.221.2015 (US and Canada) or 706.634.2159 (International), and referencing Conference ID Number 85680351. Alternatively, the call can be accessed over the Internet at Merge Healthcare Web Cast. The conference call will be recorded and the recording may be found via the internet shortly after the call at http://www.merge.com/Company/Investors/Conference-Call-Info.aspx.

Merge Healthcare develops and integrates information technology to create a better electronic healthcare experience. Merge products, ranging from standards-based development toolkits to sophisticated clinical applications, have been used by healthcare providers, vendors and researchers worldwide for over 20 years. Additional information can be found at www.merge.com.

Cautionary Notice Regarding Forward-Looking Statements
This news release contains "forward-looking statements," including statements which are related to future, not past, events. Forward-looking statements usually describe expected future business and financial outlook or performance, and often contain words such as “will,” “believes,” “intends,” “anticipates,” “expects,” "plans," "seeks," “see” and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain and subject to various known and unknown risks. For Merge, particular uncertainties and risks that could cause actual results to differ materially from post-merger forward-looking statements include, among other issues: the successful integration of companies we acquire; achieving certain post-acquisition synergies; the market acceptance of implemented product solutions; market acceptance and performance of Merge’s products and services; the impact of competitive products and pricing; possible delays in the implementation of its managed services offering; the risks and effects of its recent changes in its executive and Board leadership, including the costs and expenses related to severance payments made to departing officers; the risks and effects of its recent securities issues, including the issuance of certain senior secured notes; the past restatement of its financial statements and other actions that may be taken or required as a result of such restatement; its ability to generate sufficient cash from operations to meet future operating, financing and capital requirements, including repayment obligations with respect to its outstanding indebtedness; risks associated with its prior delays in filings with the SEC or its ability to continue to meet the listing requirements of The NASDAQ Global Select Market; the costs, risks and effects of various pending legal proceedings; and other risk factors detailed in its filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. Merge does not undertake any obligation to update forward-looking statements or any of risks, uncertainties and other factors.


Press Contact:
Brenda Stewart
Director of Marketing Communications
312-540-6622
brenda.stewart@merge.com

 

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