Merge Healthcare Incorporated
) announced revised figures for the subscription backlogs for its
Data and Analytics (DNA) segment. The total was brought down by
nearly 27% to $41.22 million. Following the announcement, MRGE's
share price fell 8.33%.
Merge Healthcare issued the revised numbers following an
investigation that revealed the falsification of contracts by an
ex-employee in the eClinical business of the DNA segment. The
employee of Merge Healthcare had fabricated the contracts for six
quarters since Jun 30, 2012.
The accused employee, who resigned on Sep 30, 2013, agreed to
having fabricated the contracts. The fraud was most likely
committed to meet sales targets and helped the employee earn
commissions amounting to a significant $250,000.
On a positive note, the investigation confirmed that no other
employee of Merge Healthcare was involved in this illegal
Management announced that the changes in subscription backlog
totals will not affect the financial statements, retrospectively.
This is mainly because no invoices were raised in connection with
the falsified contracts.
Merge Healthcare has been taking steps to change its
compensation plan for the eClinical sales employees. The company
changed its compensation and internal monitoring and control
policy, prior to finding out about the falsification. Per the new
policy, sales employee compensation will be subject to actual
realization of revenues and not on the number of contracts being
Merge encompasses two major segments, viz. MRGE Healthcare and
DNA. Year-to-date DNA contributed 17.82% to total revenue of
Merge Healthcare. eClinical is an important business under this
segment. Management remained optimistic about its growth
potential and expects the business, which grew 30% in 2013, to
grow another 20% at least in 2014.
Although the falsification of records will not have an impact
on Merge Healthcare's financials, we view this as another hit on
investor sentiment as the company has been reporting lackluster
results over the past few quarters.
Currently, Merge Healthcarehas a Zacks Rank #3 (Hold). Other
better-ranked stocks in the broader healthcare sector include
Medidata Solutions, Inc.
). Cepheid and CryoLife sport a Zacks Rank #1 (Strong Buy) and
Medidata Solutions carries a Zacks Rank #2 (Buy).
CEPHEID INC (CPHD): Free Stock Analysis
CRYOLIFE INC (CRY): Free Stock Analysis
MEDIDATA SOLUTN (MDSO): Free Stock Analysis
MERGE HEALTHCAR (MRGE): Free Stock Analysis
To read this article on Zacks.com click here.