MRGE???s 4Q Loss Widens Y/Y, Revs Miss - Analyst Blog
February 19 2013 - 6:10AM
Zacks
Imaging and interoperability
solutions provider Merge Healthcare Incorporated
(MRGE) 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 year, respectively.
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 million).
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 quarter.
Merge Healthcare exited 2012 with
cash (including restricted cash) of $35.9 million, down 8.7% from
2011.
Outlook
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.
Our Take
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 related technology.
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
NuVasive (NUVA) Given Imaging
(GIVN) and Medical Action (MDCI), each carrying a
Zacks Rank #1 (Strong Buy) are expected to do well in the near
term.
GIVEN IMAGING (GIVN): Free Stock Analysis Report
MEDICAL ACTION (MDCI): Free Stock Analysis Report
MERGE HEALTHCAR (MRGE): Free Stock Analysis Report
NUVASIVE INC (NUVA): Free Stock Analysis Report
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