Merge Healthcare
(
MRGE
) reported net loss of $5.9 million or 6 cents per share in the
second quarter of fiscal 2012, a disappointment from the year-ago
net loss of $3.3 million or 4 cents per share.
After adjusting for certain one-time items, the company reported
net income of $1.7 million or 2 cents per share, considerably down
from the year-ago adjusted net income of $5 million or 6 cents per
share. Nevertheless, the quarter's adjusted EPS is ahead of the
Zacks Consensus Estimate of break-even.
Total revenue during the quarter stood at $62.9 million, up 16%
year over year and up 3.1% sequentially. Total revenue also
surpassed the Zacks Consensus Estimate of $60 million. The company
noted that its latest subscription-based pricing model, which was
launched in the earlier quarter, generated 15% of total revenue in
the reported quarter.
Merge primarily derives revenues from three segments - software
and others (40.2% of total sales in the quarter), professional
services (15.7%), and maintenance and EDI (44.2%). Barring
professional services, which recorded a year-over-year decline of
6.3% to $9.9 million, the software and others, and maintenance and
EDI registered annualized growth of 43.2% to $25.3 million and 1.2%
to $27.8 million, respectively, during the quarter.
Total cost during the reported quarter (excluding depreciation
and amortization) increased 54.9% year over year to $25.4 million
primarily due to significant jump in costs associated with software
and others group. As a result gross margin was 59.6%, substantially
down from 70.5% in the year-ago quarter.
Sales and marketing expenses during the quarter were up 36.8%
(to $10.7 million) with a 20.4% jump in product research and
development expenses (to $8.4 million). However, general and
administrative expenses were down 10.3% year over year ($7.4
million) during the quarter. The adjusted operating margin declined
to 14.3% from 24.7% in the year-ago quarter.
Merge exited the quarter with cash (including restricted cash)
of $33.7 million compared with $39.3 million at the end of fiscal
2011. Year-to-date, net cash used in operating activities was $3.1
million as against operating cash flow of $1.4 million in the same
period last year.
Our Take
We are disappointed with the second quarter performance of Merge
and remain uncertain about the impact of operational changes the
company made in the earlier quarter. Moreover, Merge's growth
prospect is highly dependent on capital investments by hospitals
for advanced imaging solutions, which in turn are linked to the
general economic conditions.
The presence of big players like
General Electric Co.
(
GE
) and
McKesson Corporation
(
MCK
) has made the diagnostic imaging market highly competitive.
However, we still believe that Merge has the potential to expand in
the huge and growing market for diagnostic imaging, especially with
government's emphasis on HIT and an aging population.
Presently, Merge retains a short-term Zacks #4 (Sell) Rank. Over
the long term, we are Neutral on Merge.
GENL ELECTRIC (GE): Free Stock Analysis Report
MCKESSON CORP (MCK): Free Stock Analysis Report
MERGE HEALTHCAR (MRGE): Free Stock Analysis
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