Merge Healthcare Incorporated
) reported third quarter adjusted net income per
share of 1 cents, a slight improvement from the loss earned
in the year ago quarter. However, the reported net loss of 4
cents per share in the third quarter of 2013, coincided with the
same figure incurred a year ago.
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Quarter in Detail
Total revenues declined 5.2% year over year to $57.2 million. On
a pro forma basis, sales were $57.7 million, down 5.4% year over
year. Of the total revenues, 66% was generated through
subscription and other predictable sources. The Merge Honeycomb
Archive, a cloud-based archiving solution with a subscription
pricing model, gained momentum in the quarter. Subscription
backlog grew 73% over the prior year quarter, with improvements
in both Merge Healthcare and DNA segments. A 15% upsurge was also
witnessed in the healthcare subscription.
Segments in Detail
Merge primarily derives revenues from three segments - software
and others (33.8 % of total sales in the quarter), Professional
services (18.2%), and Maintenance and EDI (47.9%). While
maintenance and EDI registered revenues of $27.4 million, the
software and other segment experienced a decline of 8.8% to $19.3
million from $21.2 million in the year ago quarter. Revenues in
the Professional services segment dropped 7% year over year to
$10.4 million in the reported quarter.
Total costs (excluding depreciation and amortization) increased
8.7% year over year to $24.8 million. Third-quarter adjusted
gross margin contracted a massive 560 basis points (bps) from the
year-ago quarter to 56.6%.
Sales and marketing expenses were down 21.1% year over year (to
$8.5 million) while product research and development expenses
remained flat (at $8.1 million) on a year-over-year basis.
General and administrative expenses increased 24.03% from the
year ago quarter (to $9.65 million).
Adjusted operating income decreased 41.2% year over year to $6.4
million. The adjustments exclude restructuring and
acquisition-related costs, depreciation and amortization. The
adjusted operating margin stood at 11.1% of net sales as compared
to 18% in the year-ago quarter.
Merge exited the quarter with cash (including restricted cash) of
$20.2 million, compared with $35.9 million at the end of 2012.
Cash generated from business operations improved 66% to $15.3
million as compared to $9.2 million in the year ago quarter.
Merge reported discouraging results in the third quarter. The
declining sales of the company is a cause of alarm. However,
despite a challenging quarter it achieved significant
improvements in cash collections and also repaid more than $6
million as a part of its debt. Increase in the subscription-based
backlog and implementation of a company-wide strategy for ICD-10
were the highlights of the quarter. On the other hand, Merge's
growth prospects are highly subject to capital investments by
hospitals for advanced imaging solutions, which are in turn
dependent upon general economic conditions.
Currently the stock carries a Zacks Rank # 3 (Hold). A
better-performing stock in the MedInfo systems industry is
Medidata Solutions, Inc.
) which sports a Zacks Rank #2 (Buy).Other medical instruments
stocks that are worth a look include
) carrying a Zacks Rank #1 (Strong Buy) and
Echo Therapeutics, Inc.
) carrying a Zacks Rank #2 (Buy).