Merge Posts Q4 Earnings, Revs Fall - Analyst Blog
February 24 2014 - 9:00AM
Zacks
Merge Healthcare
Incorporated (MRGE) reported fourth-quarter 2013
adjusted net income per share of 3 cents, bouncing back from a
loss of 4 cents incurred in the year-ago quarter. However, reported
net loss of $0.3 million or break-even results in the fourth
quarter of 2013 compared favorably with the year-ago net loss of
$17.3 million or loss of 19 cents per share. Full year adjusted EPS
was a penny, a huge improvement from the year-ago loss of 23
cents.
Quarter in
Detail
Total revenue in the reported
quarter declined 17.1% year over year to $53.6 million. On a pro
forma basis, sales declined 17.2% year over year to $53.9 million,
lagging the Zacks Consensus Estimate of $58 million. Of the total
revenue, 64% was generated from subscription and other predictable
sources. Subscription backlog grew 39% over the prior-year quarter,
with improvements in both the Merge Healthcare and DNA
segments.
Segments in
Detail
Merge Healthcare primarily derives
revenues from three segments – Software and others (33.4% of total
sales in the quarter), Professional services (18.2%), and
Maintenance and EDI (48.4%). While maintenance and EDI registered
revenues of $26.1 million, down 10.1%, the Software and others
segment experienced a decline of 29.5% to $17.8 million. Revenues
in the Professional services segment dropped 6.7% year over year to
$9.7 million in the quarter.
Operational
Update
Total costs (excluding depreciation
and amortization) fell 23.1% year over year to $32.3 million.
Fourth-quarter adjusted gross margin expanded a massive 309 basis
points (bps) from the year-ago quarter to 60.2%.
Sales and marketing expenses were
down 33.5% year over year (to $7.6 million) while product research
and development expenses declined 9.4% (to $7.4 million) on a
year-over-year basis. General and administrative expenses slashed
50.8% from the year-ago quarter (to $9.1 million).
Consequently, adjusted operating profit stood at $8.1 million
against operating loss of $1.2 million in the year-ago quarter. The
adjustments excluded restructuring and acquisition-related costs,
depreciation and amortization.
Financial
Update
Merge Healthcare exited the quarter
with cash (including restricted cash) of $19.7 million, compared
with $35.8 million at the end of 2012. Cash generated from business
operations was $21.3 million versus cash outflow of $0.880 million
in the year-ago quarter.
2014 Outlook
The company provided a basic
guidance for 2014. Merge expects net sales in 2014 to remain in the
range of $212-$225 (essentially flat with 2013 sales) leading to
adjusted net income per share in the range of 16 cents to 21 cents.
The Zacks Consensus Estimate for revenues of $217 million remains
within the guided range.
Our Take
Disappointing fourth-quarter
results combined with declining sales at Merge Healthcare raise an
alarm. On a positive note, increase in subscription-based
backlog was the highlight of the quarter. On the other hand, Merge
Healthcare’s growth prospects are highly subject to capital
investments by hospitals for advanced imaging solutions, which are
in turn, dependent upon generic economic conditions.
Currently, the stock carries a
Zacks Rank #5 (Strong Sell). Some of the better-ranked stocks in
the medical information systems industry are Computer
Programs & Systems Inc. (CPSI) with a Zacks Rank #1
(Strong Buy), and Omnicell, Inc. (OMCL) and
athenahealth, Inc. (ATHN), both carrying a Zacks
Rank #2 (Buy).
ATHENAHEALTH IN (ATHN): Free Stock Analysis Report
COMPUTER PRGRMS (CPSI): Free Stock Analysis Report
MERGE HEALTHCAR (MRGE): Free Stock Analysis Report
OMNICELL INC (OMCL): Free Stock Analysis Report
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