Merge Revises Previously Announced Subscription Backlog Totals
January 08 2014 - 7:00AM
No Impact on Historical Financial Results
eClinical Business Unit Continues Strong Growth
Merge Healthcare Incorporated (Nasdaq:MRGE), a leading provider of
clinical systems and innovations that seek to transform healthcare,
recently learned through an internal review that a former sales
employee in its eClinical business had falsified the existence or
amount of certain customer contracts. Because the company did not,
and will not, invoice the customers with respect to the falsified
contracts or recognize any revenue with respect to those contracts,
this issue will not adversely affect any of the company's
previously reported GAAP revenue results for any period.
Accordingly, no restatement of any of the company's prior financial
statements is necessary or will be made.
The company is, however, reducing its previously-announced
non-GAAP subscription backlog totals for the Merge DNA segment for
the quarterly periods ended June 30, 2012 through September 30,
2013, as follows:
(amounts in thousands) |
|
|
|
|
|
|
|
June 30, 2012 |
September 30,
2012 |
December 31,
2012 |
March 31, 2013 |
June 30, 2013 |
September 30,
2013 |
Previously Announced DNA Subscription
Backlog |
$ 22,213 |
$ 29,453 |
$ 34,917 |
$ 40,943 |
$ 50,409 |
$ 56,370 |
|
|
|
|
|
|
|
Falsified Bookings in Quarter |
$ 277 |
$ 172 |
$ 5,360 |
$ 2,864 |
$ 4,304 |
$ 2,174 |
Cumulative Falsified Bookings |
$ 277 |
$ 449 |
$ 5,809 |
$ 8,673 |
$ 12,977 |
$ 15,151 |
|
|
|
|
|
|
|
Revised DNA Subscription Backlog at Quarter
End |
$ 21,936 |
$ 29,004 |
$ 29,108 |
$ 32,270 |
$ 37,432 |
$ 41,219 |
After initially identifying the issue, the company's senior
management conducted a preliminary internal investigation and
reported its findings to the Audit Committee of the company's Board
of Directors. The Audit Committee then authorized an independent
investigation by outside counsel, Jenner & Block LLP, and
Alvarez & Marsal Global Forensic and Dispute Services, LLC, a
forensic accounting firm. The independent investigation concluded
that the former employee had falsified contracts with an apparent
value of approximately $5.8 million and $9.4 million in 2012 and
2013, respectively. These amounts were included in the company's
previously-announced subscription backlog total during those years,
but none of the falsified contracts had resulted in the company's
recognition of revenue. The independent investigation did not find
any evidence that other company employees had participated in, or
were aware of, this improper conduct.
The former employee has acknowledged that contracts in question
were not valid and has made an offer of restitution. The company
believes that the individual, who resigned in September 2013,
falsified these contracts in order to achieve sales quotas and
receive additional commissions totaling approximately $250,000. The
company has referred the matter to the U.S. Attorney's Office for
the Northern District of Illinois and is considering other
appropriate legal action. The Audit Committee's independent
investigation has ended.
For calendar year 2013, and prior to the discovery of this
issue, the company had modified its compensation plans for its
eClinical sales personnel from a plan that was primarily based on
contract signings to one that is driven by customer invoicing and
cash collections. The company's senior management has identified,
and its Board of Directors has adopted, other modifications to the
company's internal controls to strengthen its processes for logging
customer contracts and calculating commissions for its sales
personnel. While the company believes its corrective measures will
significantly reduce the likelihood of similar occurrences, there
can be no assurances in this regard.
Notwithstanding this issue, eClinical's annual revenue grew by
about 30% in 2013 and is expected to grow by at least another 20%
in 2014. No eClinical client projects were impacted by this issue.
Clients should not expect any adverse effect on eClinical's
performance under their existing contracts.
About Merge
Merge is a leading provider of clinical systems and innovations
that seek to transform healthcare. Merge's enterprise and
cloud-based solutions for image intensive specialties provide
access to any image, anywhere, any time. Merge also provides
clinical trials software and other health data and analytics
solutions that engage consumers in their personal health. With
solutions that are used by providers and consumers and include more
than 25 years of innovation, Merge is helping to reduce costs and
improve the quality of healthcare worldwide. For more information,
visit merge.com.
Cautionary Notice Regarding Forward-Looking
Statements
The matters discussed in this press release may include
forward-looking statements, which could involve a number of risks
and uncertainties including the outcome of the internal
investigation and the remedial actions involving the former
employee. When used in this press release, the words "will,"
"believes," "intends," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements.
Actual results could differ materially from those expressed in, or
implied by, such forward-looking statements. Except as expressly
required by the federal securities laws, the Company undertakes no
obligation to update such factors or to publicly announce the
results of any of the forward-looking statements.
CONTACT: Media Contact:
Jennifer Jawor
Director, Corporate Marketing
312.565.6825
jennifer.jawor@merge.com
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