Merge Healthcare Incorporated (MRGE): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
Merge's reported fourth-quarter 2013 adjusted earnings per share of $0.03, rebounding from the $0.04 per share loss incurred in the year-ago quarter. Revenues declined 17.2% to $53.9 million lagging the Zacks Consensus Estimate of $58 million. A dismal performance over the past few quarters and falsification of the company's subscription backlog figures by a former sales employee in its eClinical business raised negative sentiments among investors. Notably, the growth prospects of the company are highly dependent on the capital investment environment at hospitals and reimbursement rates. Further, in both ambulatory and the acute hospital settings, several external pressures forced the customers to defer spending. With the dearth of any near-term catalyst to boost the stock price up, we downgrade the stock to Underperform.

Overview:

Merge Healthcare (MRGE), based in Milwaukee, WI. develops healthcare information software solutions to create improved comprehensive electronic record of the patients and deliver related services. The company has expanded through several acquisitions, the most notable one being that of image and information management solutions provider, AMICAS, in Apr 2010.

Merge provides enterprise imaging solutions for radiology, cardiology, orthopedics and eye care, a range of products for clinical trials, financial and pre-surgical management software and applications. For more than 25 years, healthcare providers, vendors and researchers across the world have used Merge products to improve patient care.

In 2012, Merge formed two new operating groups Merge Healthcare and Merge DNA (Data & Analytics). Merge Healthcare (holding 85% of the company's traditional businesses) includes clinical solutions that serve the needs of hospitals, health systems, ambulatory settings and payers. Merge DNA on the other hand (consisting of the rest) includes consumer health stations, clinical trial software and other consumer-focused solutions. These two new operating groups focus on two primary end users - providers and consumers.

Subscription Based Model: Merge primarily generates revenue from the sale of software (including upgrades), hardware, professional services and maintenance and Electronic Data Interchange (EDI) services. Traditionally, majority of the company's revenues were earlier generated through perpetual license agreements under which the software, hardware and professional services were also the source of non-recurring revenue and related backlog. However, of late, the company perceived a change in customers' buying habits with increased demand for subscription-based arrangements for huge multi-location groups, as well as single doctor practices. As a result, Merge, in the second quarter of 2012, announced a shift in its operations to subscription-based plans.

Product portfolio

Since inception in 1987, Merge has been a leader in transforming film-based radiology images into digital ones in order to facilitate distribution and diagnostic interpretation. The company provides a wide range of products and services to its customers.

The company's products range from standards-based development toolkits to fully integrated clinical applications. Its solutions optimize processes for healthcare organizations, ranging in size from single-doctor practices to health systems, sponsors of clinical trials, medical device industry, healthcare commerce system and for the consumers of healthcare products and services. These solutions are used by more than 1,500 hospitals, 6,000 clinics and labs, 250 healthcare equipment manufacturers and 80% of the top pharmaceutical companies. The product portfolio consists of Picture Archiving and Communication Systems (PACS), Clinical Information Systems (CIS), Revenue Cycle Management, Software Development Toolkits, Technologies and Platforms, Hosted Software Solutions for Clinical Trial Data Management and most importantly the Image Interoperability Platform iConnect.

iConnect is an interoperability and connectivity platform. It offers hospitals, imaging centers, integrated delivery networks and health information exchanges, the ability to create information exchanges within their environments and with other entities. It also provides access to imaging and diagnostic data across disparate sites, geographies, specialties and providers. iConnect solution is available in various packages iConnect Share (for the sharing of images), iConnect Kiosk (for front office automation) and iConnect Exchange (as a full interoperability solution).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: CIS , EDI , MRGE

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