Merge Healthcare Incorporated
) reported net loss of 30 cents per share in the second quarter
of 2013, wider than the year-ago net loss of 6 cents per share.
Considering stock-based compensation as regular expense for the
company, adjusted loss per share in second quarter was a penny,
worse than the year-ago adjusted break-even level per share.
Quarter in Detail
Total revenue declined 9.1% year over year to $57.2 million. On a
pro forma basis, sales were $57.6 million, well below the Zacks
Consensus Estimate of $66 million. The company noted that its
subscription-based pricing model, which was launched in the first
quarter of 2012, generated 17% of total revenue in the reported
quarter with 82% rise in subscription backlog in the quarter.
In the reported quarter, Merge inked 12 fresh iConnect contracts
with well-regarded healthcare systems in the U.S. On the other
hand, the company's Merge Cardiology solutions gained traction
with 17 new contracts.
Merge primarily derives revenues from three segments - software
and others (26% of total sales in the quarter), professional
services (21.3%), and maintenance and EDI (48.5%). While
maintenance and EDI remained flat at $27.8 million, the software
and other businesses registered decline of 29.2% to $23.6 million
and professional services rose 17.2% to $11.6 million in the
Total costs (excluding depreciation and amortization) increased
7.8% year over year to $23.4 million. Second-quarter adjusted
gross margin declined 50 basis points (bps) from the year-ago
quarter to 59.1%.
Sales and marketing expenses in the quarter were down 6.1% (to
$10.1 million) while product research and development expenses
remained flat (at $8.4 million) on a year-over-year basis.
General and administrative expenses increased 19.2% year over
year (to $8.8 million). As a result, adjusted operating expenses
rose 2.9% year over year to $27.4 million. However, the company's
adjusted operating margin expanded 220 bps to 11.2% in the
Merge exited the quarter with cash (including restricted cash) of
$16.8 million, compared with $35.9 million at the end of 2012.
Cash from business operations improved 3.9% year over year to
$10.6 million in the second quarter.
Merge reported disappointing results in the second quarter. The
widening loss over the past few quarters is another cause of
concern. Moreover, the company's growth prospects are highly
dependent on capital investments by hospitals for advanced
imaging solutions, which are in turn tied to the general economic
Although fresh contracts are expected to improve results going
forward, we are wary about consistently weak quarterly
performances over the past several quarters. The stock currently
carries a Zacks Rank #4 (Sell).
While we prefer to avoid Merge, we are positive about other
stocks such as
). These stocks carry Zacks Rank #1 (Strong Buy).
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