Merge's EPS Beats, Revs Miss - Analyst Blog

By Zacks Equity Research,

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Merge Healthcare ( MRGE ) reported adjusted EPS of 4 cents in the fourth quarter of fiscal 2011, which remained flat year over year but surpassed the Zacks Consensus Estimate of one cent. For fiscal 2011, adjusted EPS was 19 cents compared with 10 cents in 2010 and the Zacks Consensus Estimate of 13 cents.

Solid growth across all the company's segments triggered a 39% year-over-year increase in total revenue to $64.1 million during the quarter. However, revenues missed the Zacks Consensus Estimate of $66 million. Higher adoption of Meaningful Use solutions coupled with growing demand for enterprise imaging solutions were primarily responsible for the year-over-year growth. Total revenue in fiscal 2011 surged 65.6% annually to $232.4 million, but lagged the Zacks Consensus Estimate of $288 million.  

Merge primarily derives revenues from three segments - software and others, professional services, and maintenance and EDI. The three segments registered annualized growth of 81.6% to $24.6 million, 57.9% to $10.9 million and 11.3% to $28.5 million, respectively, during the quarter. Recurring revenues in the quarter were nearly 55% of net sales versus 65% in the year-ago quarter.

Gross margin in the quarter was 62.7% versus 53.4% in the year-ago quarter. The adjusted operating margin (excluding the impact of certain one-time expenses) was 17.7% during the quarter compared with 6.7% in the fourth quarter of 2010.

Merge exited the fiscal with cash (including restricted cash) of $39.3 million compared with $41 million at the end of fiscal 2010. Cash from core business operations in the fourth quarter was $11.9 million as against $12.2 million in the year-ago quarter.


Earlier, while reporting the third quarter result, Merge provided revenue guidance for fiscal 2012. The company had projected revenues in the range of $288- $300 million for fiscal 2012. However, the company has not provided any update on its outlook in the reported quarter.

Merge's growth prospect is highly dependent on capital investments by hospitals for advanced imaging solutions, which are in turn tied to the general economic condition. The presence of big players like General Electric Co ( GE ) and McKesson Corporation ( MCK ) has made the diagnostic imaging market highly competitive. However, there is immense potential in the diagnostic imaging market, especially with government's emphasis on HIT and an ageing population.

Presently, Merge retains a short-term Zacks #3 Rank (Hold), which also corresponds to our long-term 'Neutral' recommendation on the stock.

GENL ELECTRIC ( GE ): Free Stock Analysis Report
MCKESSON CORP ( MCK ): Free Stock Analysis Report
MERGE HEALTHCAR ( MRGE ): Free Stock Analysis Report
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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 Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: GE , MCK , MRGE

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