Imaging and interoperability solutions provider
Merge Healthcare Incorporated
) reported net loss of 19 cents per share in the fourth quarter
of 2012, worse than the year-ago net loss of a penny per share.
Considering stock-based compensation and interest expense as
regular expense for the company, adjusted loss per share in
fourth quarter was 9 cents, a huge disappointment when compared
to the year-ago adjusted earnings of 7 cents.
Merge Healthcare recorded annual adjusted earnings per share
of 2 cents in 2012, in line with the corresponding Zacks
Consensus Estimate. However, the annual result was a downfall
from the 2011 adjusted earnings per share of 30 cents.
Although total revenue edged up 0.9% year over year to $64.7
million, quarterly revenues missed the Zacks Consensus Estimate
of $65 million. Annual revenues rose 7.1% to $248.9 million in
2012, trailing the corresponding Zacks Consensus Estimate of $250
million. The company noted that its latest subscription-based
pricing model, which was launched in the first quarter of 2012,
generated 13.5% of total revenue in the fourth quarter with 13%
and 82% rise in subscription backlog in the quarter and full
Quarter in Detail
Merge Healthcare primarily derives revenues from three
segments - software and others (39% of total sales in the
quarter), professional services (16%), and maintenance and EDI
(45%). Barring professional services, which recorded a
year-over-year decline of 5.5% to $10.4 million, the software and
other business, and maintenance and EDI registered annualized
improvement of 2.4% to $25.2 million and 1.8% to $29 million,
respectively, in the quarter.
Total cost (excluding depreciation and amortization) surged
27.8% year over year to $27.6 million. Fourth-quarter gross
margin declined a whopping 896 basis points (bps) from the
year-ago quarter to 57.3%.
Sales and marketing expenses in the quarter were down 5% (to
$11.4 million) while product research and development expenses
jumped 22.7% (to $8.1 million) on a year-over-year basis. General
and administrative expenses shot up 81.4% year over year ($18.5
As a result, operating expenses surged 31.9% year over year to
$38 million. With a massive decline in gross margin and a
significant increase in operating expenditure, the company
incurred an operating loss of $0.9 million in the quarter
compared with operating income of $13.7 million in the year-ago
Merge Healthcare exited 2012 with cash (including restricted
cash) of $35.9 million, down 8.7% from 2011.
Merge Healthcare reaffirmed its outlook for 2013. The company
continues to expect revenues in the band of $265 million and $275
million. The current Zacks Consensus Estimate of $265 million
tallies with the lower end of the guidance. Adjusted EBITDA is
envisaged in the range of 22% to 24%. Subscription backlog is
expected to grow by more than $25 million through 2013.
Merge Healthcare posted another weak quarter to end a
challenging 2012. However, the company's subscription-based model
is gaining traction. Moreover, the company's recent contract wins
and bookings growth cannot be overlooked. It is commendable that
Merge Healthcare inked several contracts amid a tough
reimbursement environment for advanced medical imaging. We are
encouraged by the bookings growth despite the general slowdown in
hospital spending and low demand for imaging equipment and
Going forward, Merge Healthcare is better positioned for
execution in 2013. The stock carries a Zacks Rank #2 (Buy).
Besides Merge Healthcare, medical stocks such as
), each carrying a Zacks Rank #1 (Strong Buy) are expected to do
well in the near term.
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