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MILWAUKEE--(BUSINESS WIRE)-- Merge Healthcare Incorporated (NASDAQ: MRGE), a health IT solutions provider, today announced financial results for the third quarter of 2009.
"Our focus on the integration of our two acquisitions in the third quarter has driven a financial performance that exceeded our expectations," said Justin Dearborn CEO. "We are excited about the improvement we continue to see in sales pipeline activity and customer bookings since these acquisitions closed. We expect that a continuation of this should lead to GAAP net income for the acquired entities beginning in the fourth quarter of 2009."
"We have managed the business through a down cycle in the economy and depressed spending in our customer base. We are encouraged at the improvement starting to be felt in both."
Mr. Dearborn further noted that the acquisitions of etrials Worldwide, Inc. ("etrials", formerly NASDAQ: ETWC) and Confirma, Inc. ("Confirma"):
-- Increase Merge's addressable market;
-- Create organic growth opportunities through improved cross-selling
activity; and
-- Are expected to be accretive in 2010.
Quarter Results:
Results compared to the same quarter in the prior year, as well as the prior quarter are as follows (in millions):
Q3 2009 Q3 2008 Q2 2009
Net sales $ 16.9 $ 14.6 $ 15.4
Operating income (loss) (0.2 ) 1.3 4.1
Net income (loss) (0.9 ) 0.4 0.4
EBITDA* 1.9 3.1 2.8
Adjusted EBITDA* 4.8 2.9 6.3
Earnings (loss) per diluted share $ (0.02 ) $ 0.01 $ 0.01
Adjusted EBITDA per share* $ 0.08 $ 0.05 $ 0.11
The third quarter of 2009 includes the results of etrials since July 20, 2009, and the results of Confirma since September 1, 2009, which are the respective dates we completed these two acquisitions. These results do not include $0.6 million in revenue that could not be recognized under GAAP due to the purchase accounting treatment related to the acquired entities. The impact on revenue due to purchase accounting treatment is anticipated to be $1.0 million in the fourth quarter of 2009 and $1.3 million for the full year 2010.
In the third quarter of 2009, the cash balance decreased by $3.1 million to $16.9 million at September 30, 2009. Cash generated from operating activities was $1.1 million, which was offset by $5.1 million of net cash paid for the two strategic acquisitions.
Year-to-Date Results:
Merge's financial results for the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008 are as follows (in millions):
2009 2008
Net sales $ 47.6 $ 41.7
Operating income (loss) 7.5 (25.4 )
Net income (loss) 2.4 (25.6 )
EBITDA* 10.0 (17.9 )
Adjusted EBITDA* 16.3 (6.1 )
Earnings (loss) per diluted share $ 0.04 $ (0.59 )
Adjusted EBITDA per share* $ 0.27 $ (0.14 )
Conference Call Information:
Merge will hold a public web cast today at 9:00 AM EDT to review these financial results and to provide an update on business operations and strategy. Immediately following, there will be a question and answer session.
Investors will have the opportunity to listen to the conference call via telephone or over the Internet at Merge Healthcare Web Cast. To access the call, dial 1.800.221.2015 or 706.634.2159. The Conference ID Number to reference is 35849235. A replay via the Internet or telephone will be available shortly after the call at http://www.merge.com/investor/conferencecall.asp.
Merge Healthcare develops software solutions that automate healthcare data and diagnostic workflow to create a more comprehensive electronic record of the patient experience. Merge products, ranging from standards-based development toolkits to fully integrated clinical applications, have been used by healthcare providers worldwide for over 20 years. Additional information can be found at www.merge.com.
* Non-GAAP Measures
The non-GAAP measures EBITDA and adjusted EBITDA shown in this release exclude impairment of investments, sale of non-core patents, acquisition related costs, acquisition related severance (not qualifying for restructuring cost) and restructuring, tradename impairment and other costs and expenses. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included after the financial information included in this press release. These measures are not in accordance with, or an alternative for, GAAP and may be different from non-GAAP measures used by other companies. Management believes that the presentation of non-GAAP results, when shown in conjunction with corresponding GAAP measures, provides useful information to management and investors regarding financial and business trends related to our results of operations. Further, management believes that these non-GAAP measures improve management's and investors' ability to compare Merge's financial performance with other companies in the technology industry. Because certain charges, costs and expenses reflect events that are not essential to our recurring business operations, it is useful to compare results excluding these amounts. Management also uses financial statements that exclude these charges costs and expenses for its internal budgets and EBITDA is a measure used in a debt covenant in our credit facility. While GAAP results are more complete, we offer investors these supplemental metrics 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. These non-GAAP financial measures should be read only in conjunction with the consolidated financial statements prepared in accordance with GAAP.
Forward Looking Statements:
Information included in this news release may contain forward-looking statements, concerning, among other things, Merge's outlook, financial projections and business strategies, all of which are subject to risks, uncertainties and assumptions. These forward-looking statements are identified by their use of terms such as "intend," "plan," "may," "should," "will," "anticipate," "believe," "could," "estimate," "expect," "continue," "potential," "opportunity," "project" and similar terms. These statements are based on certain assumptions and analyses that Merge believes are appropriate under the circumstances. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may differ materially from those expected, estimated or projected. Merge can not guarantee that it will achieve these plans, intentions or expectations. Forward-looking statements speak only as of the date they are made, and Merge undertakes no obligation to publicly update or revise any of them in light of new information, future events or otherwise, except as required by law. Factors that could have a material adverse effect on operations and future prospects of Merge include, but are not limited to: market acceptance and performance of Merge's products and services; the impact of competitive products and pricing; the risks and effects of its recent securities issues; the past restatement of our financial statements; the amount of the costs, fees, expenses and charges related to the acquisition of etrials Worldwide, Inc. ("etrials"), Confirma, Inc. ("Confirma") and other non-material acquisitions; the ability of Merge Healthcare to integrate its acquisitions, such as etrials and Confirma, successfully; whether the acquisitions will result in the enhancement of value and benefits to customers and to Merge Healthcare's, etrials' and Confirma's stockholders; general economic and business conditions; global economic growth and activity; industry conditions; and changes in laws or regulations, including but not limited to U.S. health care reform; our ability to generate sufficient cash from operations to meet future operating, financing and capital requirements, including repayment obligations with respect to our outstanding indebtedness; risks associated with our prior delays in filings with the SEC or our ability to continue to meet the listing requirements of The NASDAQ Stock Market; the costs, risks and effects of various pending legal proceedings and investigations, including the formal investigation being conducted by the Securities and Exchange Commission; and other risk factors detailed in our filings with the Securities and Exchange Commission. These uncertainties and risks may cause our actual future results to be materially different than those expressed in our forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. We undertake no obligation to update such forward-looking statements or any of such risks, uncertainties and other factors, except as required by law.
MERGE HEALTHCARE INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
September 30, December 31,
2009 2008
Current assets:
Cash (including restricted cash) $ 16,883 $ 17,848
Accounts receivable, net 15,714 12,779
Inventory 377 550
Prepaid expenses 1,965 1,509
Deferred income taxes 217 217
Other current assets 3,002 721
Total current assets 38,158 33,624
Property and equipment, net 3,405 1,974
Purchased and developed software, net 13,978 5,653
Customer relationships and trade names, net 7,738 2,291
Goodwill 25,145 -
Deferred tax assets 4,585 4,585
Investments 528 5,690
Other 326 920
Total assets $ 93,863 $ 54,737
Current liabilities:
Accounts payable $ 5,957 $ 4,036
Accrued wages 1,933 1,590
Restructuring accrual 1,582 1,173
Deferred revenue 14,895 16,150
Note payable 14,623 -
Current portion of capital lease obligations 188 -
Other accrued liabilities 2,669 2,421
Total current liabilities 41,847 25,370
Note payable - 14,230
Capital lease obligations, net of current portion 94 -
Deferred income taxes 39 39
Deferred revenue 1,622 644
Income taxes payable 5,461 5,418
Other 227 195
Total liabilities 49,290 45,896
Total shareholders' equity 44,573 8,841
Total liabilities and shareholders' equity $ 93,863 $ 54,737
MERGE HEALTHCARE INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Net sales
Software and other $ 7,755 $ 7,398 $ 25,459 $ 19,733
Services and 9,152 7,218 22,110 21,941
maintenance
Total net sales 16,907 14,616 47,569 41,674
Cost of sales
Software and other 600 1,314 2,710 3,842
Services and 3,402 2,528 7,925 9,471
maintenance
Depreciation and 899 742 2,172 2,174
amortization
Total cost of sales 4,901 4,584 12,807 15,487
Gross margin 12,006 10,032 34,762 26,187
Operating costs and
expenses:
Sales and marketing 2,470 1,824 5,968 7,497
Product research 2,689 2,931 7,503 11,151
and development
General and 3,616 3,483 8,972 18,093
administrative
Acquisition-related 658 - 997 -
expenses
Trade name
impairment, 1,974 (205 ) 1,974 11,862
restructuring and
other expenses
Depreciation,
amortization and 755 654 1,849 2,954
impairment
Total operating 12,162 8,687 27,263 51,557
costs and expenses
Operating income (156 ) 1,345 7,499 (25,370 )
(loss)
Other income (751 ) (648 ) (5,075 ) (346 )
(expense)
Income (loss) (907 ) 697 2,424 (25,716 )
before income taxes
Income tax expense 29 269 72 (115 )
(benefit)
Net income (loss) $ (936 ) $ 428 $ 2,352 $ (25,601 )
Net income (loss) $ (0.02 ) $ 0.01 $ 0.04 $ (0.59 )
per share - basic
Weighted average
number of common 61,077,637 56,171,905 57,904,467 43,496,189
shares outstanding
- basic
Net income (loss) $ (0.02 ) $ 0.01 $ 0.04 $ (0.59 )
per share - diluted
Weighted average
number of common 61,077,637 56,859,379 59,552,430 43,496,189
shares outstanding
- diluted
MERGE HEALTHCARE INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
2009 2008
Cash flows from operating activities:
Net income (loss) $ 2,352 $ (25,601 )
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation, amortization and impairment 4,021 5,128
Share-based compensation 1,256 3,836
Loss on disposal of subsidiary - 1,665
Amortization of note payable issuance costs & discount 837 336
Realized loss on investment 3,624 -
Trade name impairment - 1,060
Provision for doubtful accounts receivable and sales 151 267
returns, net of recoveries
Deferred income taxes - (384 )
Net change in assets and liabilities (net of effects of (7,774 ) (3,344 )
acquisitions and dispositions)
Net cash provided by (used in) operating activities 4,467 (17,037 )
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired (1,752 ) -
Proceeds from sale of subsidiary - 413
Purchases of property, equipment and leasehold (165 ) (503 )
improvements
Change in restricted cash 338 -
Proceeds from sale of equity investment 886 -
Net cash used in investing activities (693 ) (90 )
Cash flows from financing activities:
Proceeds from issuance of term note, net of non-cash - 14,490
discount of $510
Proceeds from issuance of Common Stock - 5,479
Note and stock issuance costs paid - (2,386 )
Proceeds from exercise of stock options and employee 78 63
stock purchase plan
Principal payments on notes (4,570 ) -
Principal payments on capital leases (35 ) -
Repurchase of Common Stock - (47 )
Dividends paid - (57 )
Net cash provided by (used in) financing activities (4,527 ) 17,542
Effect of exchange rate changes on cash - 9
Net increase (decrease) in cash (753 ) 424
Cash and cash equivalents, beginning of period (net of 17,227 13,637
restricted cash) (1)
Cash and cash equivalents, end of period (net of $ 16,474 $ 14,061
restricted cash) (2)
(1) Restricted cash of $621 and $363 at December 31, 2008 and 2007,
respectively.
(2) Restricted cash of $409 and $363 at September 30, 2009 and 2008,
respectively.
MERGE HEALTHCARE INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
September 30, June 30, September 30,
2009 2008 2009 2009 2008
GAAP net income (loss) $ (936 ) $ 428 $ 446 $ 2,352 $ (25,601 )
Net interest expense 769 683 752 2,274 776
Income tax expense 29 269 21 72 (115 )
(benefit)
Depreciation and 1,654 1,396 1,169 4,021 5,128
amortization
Stock-based 371 302 366 1,256 1,866
compensation expense
EBITDA 1,887 3,078 2,754 9,975 (17,946 )
Impairment of 71 - 3,553 3,624 -
investments
Sale of non-core - - (382 ) (510 ) -
patents
Acquisition related 658 - 339 997 -
costs
Acquisition related
severance (not 225 - - 225 -
qualifying for
restructuring cost)
Restructuring,
tradename impairment 1,974 (205 ) - 1,974 11,862
and other
Adjusted EBITDA $ 4,815 $ 2,873 $ 6,264 $ 16,285 $ (6,084 )
GAAP diluted net
income (loss) per $ (0.02 ) $ 0.01 $ 0.01 $ 0.04 $ (0.59 )
share
Share impact of
non-GAAP adjustments 0.10 0.04 0.10 0.23 0.45
identified above
Adjusted EBITDA per $ 0.08 $ 0.05 $ 0.11 $ 0.27 $ (0.14 )
share
Source: Merge Healthcare Incorporated
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