MRGE Mirage Energy Corporation (PK)

Merge Healthcare (MRGE) reported an adjusted EPS of 6 cents in the second quarter of fiscal 2011, significantly higher than the prior-year quarter’s loss of 5 cents per share. According to the Zacks Consensus Estimate, the company was expected to break even during the quarter.

Solid growth across all segments of Merge, triggered 92% year over year increase in total revenues to $55.6 million in the quarter. Reported revenues were in line with the Zacks Consensus Estimate.

Merge derives revenues from three sources namely software and others, professional services, and maintenance and EDI. In the reported quarter, the company recorded huge annualized growth in all the three segments, with software and others being the highest (up 167.6% to $17.6 million). Professional services surged 86.7% to $10.5 million while maintenance and EDI grew 63.5% to $27.4 million.  Recurring revenues were 62.5% of net sales during the quarter, compared with 65% in the year-ago quarter.

During the quarter, gross margin stood at 66.3% versus 44.7% in the year-ago quarter.  Adjusted operating margin (excluding the impact of certain one-time expenses) was 24.7% compared with -8.8% in the second quarter of 2010.

Merge exited the quarter with cash (including restricted cash) of $45.2 million compared with $41.0 million at the end of December 2010. Cash from core business operations was $6.6 million versus $9.4 million in the year-ago 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 conditions. Major players like General Electric Co (GE) and McKesson Corporation (MCK) have 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.

 
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