Merge Reports Subscription Backlog Up 82% merge healthcare, investor relations, merge subscription backlog Delivers fourth quarter sales of $65.1 million and reiterates 2013 guidance of sales range of $265 - $275 million

Merge Reports Subscription Backlog Up 82%

Delivers fourth quarter sales of $65.1 million and reiterates 2013 guidance of sales range of $265 - $275 million

Chicago, IL (Feb. 19, 2013) Merge Healthcare Incorporated (NASDAQ: MRGE), a leading provider of clinical systems and innovations that seek to transform healthcare, today announced its financial and business results for the fourth quarter of 2012.  Merge also confirmed the conclusion of its previously announced evaluation of strategic alternatives.
"After careful evaluation, we have determined that the alternatives evaluated did not offer more value than our own strategic plan,” said Jeff Surges, CEO of Merge Healthcare. “We will continue to build upon the proven success over the last few years and further leverage our portfolio of solutions into a more present and ready marketplace than ever before. In addition, we are reiterating annual guidance for 2013 on revenue, adjusted EBITDA and subscription backlog growth.”

Financial Highlights:

  • Sales increased to $64.7 million ($65.1 million on a pro forma basis) in the quarter, from $64.1 million ($65.1 million on a pro forma basis) in the fourth quarter of 2011;
  • Adjusted EBITDA, before consideration of one-time non-cash charges, was $13.9 million, representing 21% of pro forma revenue in the quarter, compared to $15.1 million and 23% in the fourth quarter of 2011 (see table at end of this press release for reconciliation);
  • Subscription-based pricing arrangements generated 13.5% of total sales in the quarter and subscription backlog grew 13% in the quarter and 82% for the year; and
  • Reiterating 2013 guidance of revenue in the range of $265 - $275 million with an adjusted EBITDA range of 22-24% and expected subscription backlog growth by the end of 2013 of at least $25 million.

Business Highlights for the Fourth Quarter of 2012:
  • Added 12 iConnect® contracts with leading healthcare systems including Northeast Georgia, Health Ventures, St. John Providence Health System, Edward Hospital and Altru Health System;
  • Executed 17 contracts for Merge Cardiology solutions with clients including Borgess Medical Center, DuPage Medical Center, Boca Raton Regional Hospital, St. Thomas and Palos Hospital among others;
  • Bookings growth in sales to end-user customers in the Healthcare segment grew by 38% in 2012;
  • Merge clients will be eligible to receive an estimated total of $14 million in Meaningful Use incentive payments by utilizing Merge’s Meaningful Use solutions for Radiology and Orthopedics; and
  • eClinical signed over 190 contracts in the quarter driving year-over-year bookings growth of 79%.

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):
  Q4 2012 Q4 2011
Net sales $64.7 $64.1
Operating income (8.4) 8.3
Net loss attributable to common shareholders (17.3) (1.3)
Net income (loss) per diluted share ($0.19) ($0.01)
Cash balance at period end $35.9 $39.3
Cash from business operations* 9.4 11.9
*See table here >>  

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):
  Q4 2012 Q4 2011
Pro forma results
Net sales $65.1 $65.1
Adjusted net income (11.6) 4.2
Adjusted EBITDA 0.9 15.1
Adjusted net income per diluted share ($0.13) $0.04
Adjusted EBITDA per diluted share $0.01 $0.16
Non-GAAP and other measures**
Subscription, maintenance & EDI revenue as % of net sales 58.3% N/A
Subscription and non-recurring backlog at period end $76.9 $56.2
Days sales outstanding 102 100
**Comparable information for periods prior to 2012 is not available.

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

Pro Forma Operating Group Results:
Results (in millions) for our operating groups, which we commenced reporting in the second quarter of 2012, are as follows:

Explanation of Non-GAAP Financial Measures
We report our 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 add back the acquisition related sales adjustments (for all significant acquisitions) recorded for GAAP purposes.
  • Subscription revenue and the related backlog is comprised of software, hardware and professional services (including installation, training, etc.) contracted with and payable by the customer over a number of years.  Generally, these contracts will include a minimum volume / dollar commitment.  As such, the revenue from these transactions is recognized ratably over an extended period of time.  These types of contracts will include monthly payments (including leases), long-term clinical trials, renewable annual software arrangements (with very high renew rate), to specify a few methods.
  • Non-recurring revenue and related 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 perpetual software license sales and includes 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 exclude (a) acquisition-related costs, (b) restructuring and other costs, (c) stock-based compensation expense, (d) acquisition-related amortization (e) acquisition-related cost of sales adjustments and add backs, and (f) 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 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.

Notice of Conference Call
Merge will host a conference call on Tuesday, February 19 at 8:30 am EDT to discuss its financial results for the fourth quarter of 2012.  Jeff Surges, Justin Dearborn, and Steve Oreskovich will lead the call.  Participants may preregister for this teleconference at Once the participant registers, a confirmation page will display dial-in numbers and a unique PIN, and the participant will also receive an email confirmation of this information. A replay via the Internet or phone will be available after the call at

About Merge
Merge is a leading provider of clinical systems and innovations that seek to transform healthcare.  Merge’s enterprise and cloud-based solutions for image intensive specialties provide access to any image, anywhere, any time. Merge also provides health stations, clinical trials software and other health data and analytics solutions that engage consumers in their personal health. With solutions that are used by providers and consumers and include more than 25 years of innovation, Merge is helping to reduce costs and improve the quality of healthcare worldwide. For more information, visit

Cautionary Notice Regarding Forward-Looking Statements
The matters discussed in this news release may include forward-looking statements, which could involve a number of risks and uncertainties. When used in this press release, the words “will,” “believes,” “intends,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those expressed in, or implied by, such forward-looking statements. Except as expressly required by the federal securities laws, the Company undertakes no obligation to update such factors or to publicly announce the results of any of the forward-looking statements.

Lesley Weisenbacher
Vice President, Marketing

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