MRGE

Merge Healthcare Incorporated. (MRGE)

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Merge Healthcare Incorporated (MRGE)

Q2 2010 Earnings Call

August 10, 2010 08:30 am ET

Executives

Julie Pekarek - Head of IR

Michael Ferro - Chairman

Justin Dearborn - CEO

Steve Oreskovich - CFO

Paul Merrild - SVP of Marketing and Business Development

Analysts

Eric Martinuzzi - Craig-Hallum

Corey Tobin - William Blair & Company

Chad Bennett - Northland Capital

Doug Dieter - Imperial Capital

Bill Dezellem - Titan Capital Management

Jake Kemeny - Morgan Stanley

Presentation

Operator

Good morning and welcome to Merge Healthcare's second quarter 2010 earnings call. I am Julie Pekarek, Merge's Head of Investor Relations. We have a lot to review today, given that Merge had milestones during the second quarter of 2010. Joining me on the phone today are Michael Ferro, our Chairman; Justin Dearborn, our Chief Executive Officer; Steve Oreskovich, our Chief Financial Officer; and Paul Merrild, our Senior Vice President of Marketing and Business Development.

This call will begin with Justin's review of the business and what we have achieved since the closing of the AMICAS transaction. Given that the AMICAS transaction has transformed our company, we have asked Michael to share the vision and go-forward strategy for Merge Healthcare. Before wrapping up with Q&A, Steve will review the quantitative aspects of the quarter.

Before we get started, please consider that our comments today may contain forward-looking statements under the Private Securities Litigation Reform Act of 1995 and not historical facts. Our actual results may differ. Various critical factors that could affect our future results are set forth in our recent SEC filings and press releases. The company undertakes no obligation to update or revise any forward-looking statements.

In addition, we may refer today to non-GAAP financial measures. These measures are supplemental to our GAAP financial measures and should not be viewed as an alternative to them. For greater information regarding these metrics, please see the related discussion in our earnings release.

With that, I will turn the call over to Justin.

Justin Dearborn

Thanks, Julie. We ended the second quarter with a single overarching mission to take the steps required to create the leading independent provider of healthcare IT and imaging solutions with the acquisition of AMICAS.

We had two clear areas of focus in the second quarter: to capture the synergies from the transaction, and to fortify our go-forward strategy to create the foundation for the future of our business. I would like to share with you what we've accomplished since the closing of this transformative transaction.

Since raising a required $242 million of capital to close the transaction, we shut down four major offices, eliminated over 100 physicians and reduced our spend in the areas of IT, marketing and public company expenses. We also moved from a decentralized organizational structure into a centralized organizational structure to create a more streamlined set of processes.

For example, we moved from having business units with separate R&D organizations to a single R&D organization for the entire business, centralized functions with a long-term positive effect on our ability to efficiently develop products.

In addition, our focused efforts and work performed in the 75 days since closing the transaction will ensure we meet the $15 million of aggregate annual expense synergies we previously committed to. We exceeded our targets in Q2 and we are significantly ahead of schedule to capture our overall targeted synergies goal by the end of 2010.

I look forward to comment on the top-line. Prior to the closing of the transaction, there existed a period of uncertainty for customers regarding our go-forward corporate and product strategy. Immediately following the closing of the acquisition, we began a proactive communication effort with customers in order to share and validate our corporate strategy and product roadmap.

We did experience some expected weakness in the top-line, but they were the changes we needed to create the right platform for the future of the company, including office closures, personnel changes and product roadmap decisions.

The activity we saw over the last two weeks of the quarter and during the month of July support our belief that our customers are behind our go-forward strategy, and we saw a healthy pickup of selling activity in this timeframe. We are confident we will achieve a top-line run rate of $200 million for the year.

With that, I'll turn it over to Michael for some additional market and company updates.

Michael Ferro

Thanks, Justin. Good morning, everyone. I'm excited and honored to join the call today to talk about the future of Merge Healthcare.

As you all know, healthcare delivery is a complicated and costly endeavor. Today, we spend over $2 trillion per year in the United States on healthcare; yet, we spend the smallest percent of any other sector of the economy on IT. This is all changing, thanks to the intervention of the United States government with the American Reinvestment and Recovery Act. The government is spending $30 billion to stimulate hospitals and physicians to invest in healthcare IT solutions and transform the entire healthcare industry.

Diagnostic images, known to many of you as X-rays, are the cornerstone of an effective healthcare delivery system. Imaging is used in virtually every medical specialty as a critical component of any patient visit. The ability to review current and historical diagnostic images provides the doctor with data that is not available in any other form, and a quantitative data at that.

At the same time, the volume of data and the size of data make imaging one of the most complicated elements of the electronic health sector. Imaging represents over 90% of the data generated by healthcare providers today. This creates unprecedented challenges in moving, storing and managing data. An electronic medical record cannot be considered meaningful if 90% of your healthcare data is missing.

Today, we have created a company that will tackle these challenges. We have amassed nearly 70 patents in healthcare IT; critical products such as zero client viewing, a vendor neutral archiving solution, a customer base of 2,200 imaging centers which represents one out of every three imaging centers in the U.S. 1,500 hospitals, 800 orthopedic clinics which represents one out of every two orthopedic clinics. And 250 OEM partners, these assets uniquely position Merge to transcend the challenges in healthcare to improve quality and reduce cost.

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