Delivers GAAP net income and increased adjusted EBITDA by 35% YOY
Annual adjusted EBITDA guidance exceeded
CHICAGO, Feb. 25, 2015 (GLOBE NEWSWIRE) -- Merge Healthcare Incorporated (Nasdaq:MRGE), a leading provider of health information systems for medical imaging, interoperability, and communication, today announced its financial and business results for the fourth quarter of 2014.
"In the fourth quarter of 2014, Merge extended its positive financial momentum experienced throughout the year. Revenue was in line with previously announced guidance and we exceeded our adjusted EBITDA guidance for 2014. Just as important, we generated GAAP net income of $1.5 million and earnings per share of $0.02 in the fourth quarter," said Justin Dearborn, chief executive officer of Merge Healthcare. "We made great strides in re-focusing the business following a challenging 2013, and we are confident that with a renewed commitment to Merge's core strengths we can achieve topline growth in 2015," Mr. Dearborn continued.
Merge Healthcare also recently acquired DR Systems, a privately held San Diego-based company with a strong reputation for customer satisfaction in medical imaging information systems. The combined entities provide an unprecedented array of highly rated healthcare information technology products. According to the KLAS Research ratings released on January 29, 2015, the go forward business will rank #1 in cardiovascular information systems, #1 in hemodynamics monitoring and #1 in radiology information systems. "I'm thrilled to add the talents, technologies, and intellectual property that have made the DR Systems brand synonymous with customer satisfaction. Merge and DR Systems share a common heritage of creating and maintaining long-term partnerships with our healthcare customers. This acquisition reflects Merge's commitment to delivering solutions that enable our healthcare partners to elevate their clinical success, financial results, and the health of their communities. This acquisition also greatly expands our market share, which we believe is extremely important given the provider consolidation that is underway. Further, the acquisition will allow us to deploy our iConnect Network services, including pre-authorization services, to a broader client footprint immediately," stated Mr. Dearborn.
Murray Reicher, M.D., F.A.C.R., founder, chairman, and chief executive officer of DR Systems, will assume the role of chief medical officer of Merge Healthcare. Dr. Reicher is a board-certified diagnostic radiologist and Fellow of the American College of Radiology, and is recognized for his numerous scientific publications, inventions, and presentations in the fields of neuroradiology, musculoskeletal MRI, and health information technologies.
Dr. Reicher commented, "We are joining Merge based on our joint vision of providing a rapidly advancing, unified system for all medical imaging arenas, including radiology, cardiology and pathology. Together, we will enable our customers to connect to consumers and healthcare providers in ways that promote service, patient compliance and improved population health."
"We're committed to supporting DR Systems' clients, and we want them to have confidence that we have the vision, scale, and resources to help them achieve their plans for their organizations' futures. We are also excited to have Dr. Reicher join Merge and know that he will be a remarkable asset to the company," added Mr. Dearborn.
Following the acquisition, support for DR Systems' core platform will remain in place. Current implementations will continue, and Merge plans to support and advance all product lines going forward. Merge will work with all clients to support their short-term and long-term business needs.
The transaction is expected to be accretive to Merge's non-GAAP adjusted EPS in 2015 and future years. Non-GAAP adjusted net income and EPS are defined later in this press release and exclude share-based compensation expense, transaction costs, acquisition-related amortization and deferred revenue and related cost of sale adjustments.
Merge Healthcare financed the acquisition through a combination of approximately $20 million of cash on hand and $50 million of cash raised from the sale of shares of newly issued convertible preferred stock, at a $4.14 per share common equivalent calculated based on Merge's 30-day volume weighted average common stock price, to a group of investors arranged by Guggenheim Corporate Funding, LLC ("Guggenheim"), the agent under Merge's existing credit facility. "We believe this investment is a testament to Guggenheim's confidence in the future of Merge Healthcare and the opportunities that will arise from the acquisition of DR Systems," noted Mr. Dearborn.
Financial Summary:
Business Highlights:
Quarter Results:
Results compared to the same quarter in the prior year on a GAAP basis are as follows (in millions, except per share data):
Q4 2014 | Q4 2013 | |
Net sales | $53.6 | $53.6 |
Operating income | 6.2 | 3.7 |
Net income (loss) attributable to common shareholders | 1.5 | (0.3) |
Net income (loss) per diluted share | $0.02 | $0.00 |
Cash balance at period end | $42.5 | $19.7 |
Non-GAAP results and other measures compared to the same quarter in the prior year are as follows (in millions, except percentages and per share data):
Q4 2014 | Q4 2013 | |
Non-GAAP results | ||
Adjusted net income | $5.4 | $3.4 |
Adjusted EBITDA | 12.1 | 9.0 |
Adjusted net income per diluted share | $0.05 | $0.04 |
Other measures | ||
Subscription, maintenance & EDI revenue as % of net sales | 63.6% | 64.2% |
Days sales outstanding | 88 | 106 |
A reconciliation of GAAP net income (loss) to adjusted net income and adjusted EBITDA is included after the financial information below. See "Explanation of Non-GAAP Financial Measures" for definitions of each of these non-GAAP measures and the reason the Company's management believes that the adjustments made to arrive at the non-GAAP financial measures provide useful information to investors regarding the Company.
Operating Group Results:
Results (in millions) for our operating groups are as follows:
Three Months Ended December 31, 2014 | ||||
Healthcare | DNA |
Corporate/ Other |
Total | |
Net sales: | ||||
Software and other | $ 15.0 | $ 4.4 | $ 19.4 | |
Service | 6.3 | 2.0 | 8.3 | |
Maintenance | 25.8 | 0.1 | 25.9 | |
Total net sales | 47.1 | 6.5 | 53.6 | |
Gross Margin | 26.6 | 4.2 | 30.8 | |
Gross Margin % | 56.5% | 64.6% | 57.5% | |
Expenses | 18.3 | 3.6 | 21.9 | |
Segment income | $ 8.3 | $ 0.6 | $ 8.9 | |
Operating Margin % | 18% | 9% | 17% | |
Net corporate/other expenses (1) | 6.7 | 6.7 | ||
Income before income taxes | 2.2 | |||
Adj. EBITDA reconciling adjustments | 4.0 | 0.8 | 5.1 | 9.9 |
Adjusted EBITDA | $ 12.3 | $ 1.4 | $ (1.6) | $ 12.1 |
Adjusted EBITDA % | 26.1% | 21.5% | 22.6% | |
(1) Net corporate/other expenses include public company costs, corporate administration costs, acquisition-related expenses and net interest expense. |
Net Sales in the Three Months Ended December 31, 2014 |
||||||
Healthcare | DNA | Total | ||||
Revenue Source | $ | % | $ | % | $ | Total |
Maintenance & EDI | $ 25.8 | 54.8% | $ 0.1 | 1.5% | $ 25.9 | 48.3% |
Subscription | 1.9 | 4.0% | 6.3 | 97.0% | 8.2 | 15.3% |
Non-recurring | 19.4 | 41.2% | 0.1 | 1.5% | 19.5 | 36.4% |
Total | $ 47.1 | 100.0% | $ 6.5 | 100.0% | $ 53.6 | 100.0% |
87.9% | 12.1% |
Explanation of Non-GAAP Financial Measures
We report our financial results in accordance with generally accepted accounting principles or GAAP. This press release includes certain non-GAAP financial measures to supplement this GAAP information. Non-GAAP measures are not an alternative to GAAP and may be different from and directly comparable with non-GAAP measures used by other companies. A quantitative reconciliation of GAAP net income available to common shareholders to adjusted net income and adjusted EBITDA is included after the financial information included in this press release.
Management believes that the presentation of non-GAAP results, when shown in conjunction with corresponding GAAP measures, provides useful information to it and investors regarding financial and business trends related to results of operations, because certain charges, costs and expenses reflect events that are not essential to recurring business operations. In addition, management believes these non-GAAP measures provide investors useful information regarding the underlying performance of the post-acquisition business operations when compared to the pre-acquisition results of Merge and any significant acquired company. Purchase accounting adjustments made in accordance with GAAP can make it difficult to make meaningful comparisons of the underlying operations of the business without considering the non-GAAP adjustments that are provided and discussed herein. Further, management believes that these non-GAAP measures improve its and investors' ability to compare Merge's financial performance with other companies in the technology industry. Management also uses financial statements that exclude these charges, costs and expenses for its internal budgets. While GAAP results are more complete, these supplemental metrics are offered since, with reconciliations to GAAP, they may provide greater insight into our financial results. Management does not intend for the presentation of these non-GAAP financial measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP.
Additional information regarding the non-GAAP financial measures presented herein is as follows:
Management has excluded certain items from non-GAAP adjusted net income because it believes (i) the amount of certain expenses in any specific period may not directly correlate to the underlying performance of business operations and (ii) the adjustment facilitates comparisons of pre-acquisition results to post-acquisition results. In addition, certain adjustments are described in more detail below:
Notice of Conference Call
Merge will host a conference call at 8:30 AM ET on Thursday, February 26, 2015. The call will address fourth quarter results and will provide a business update on the company's market outlook and strategies for 2015.
Participants may preregister for this teleconference at http://emsp.intellor.com?p=418948&do=register&t=8.
Upon registration, a confirmation page will display dial-in numbers and a unique PIN, and the participant will also receive an email confirmation with this information.
A replay via the Internet or phone will be available after the call at http://www.merge.com/Company/Investors/Conference-Call-Info.aspx.
About Merge
Merge is a leading provider of innovative enterprise imaging, interoperability and clinical systems that seek to advance healthcare. Merge's enterprise and cloud-based technologies for image intensive specialties provide access to any image, anywhere, any time. Merge also provides clinical trials software with end-to-end study support in a single platform and other intelligent health data and analytics solutions. With solutions that have been used by providers for more than 25 years, Merge is helping to reduce costs, improve efficiencies and enhance the quality of healthcare worldwide. For more information, visit merge.com and follow us @MergeHealthcare.
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. 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. The potential risks and uncertainties include those risks and uncertainties included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2013, and our most recent Quarterly Report on for 10-Q for the quarter ended September 30, 2014, which are on file with the SEC and are available on our investor relations website at merge.com and on the SEC website at www.sec.gov. Except as expressly required by the federal securities laws, Merge undertakes no obligation to update such factors or to publicly announce the results of any of the forward-looking statements.
MERGE HEALTHCARE INCORPORATED AND SUBSIDIARIES | |||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||
(in thousands) | |||
(unaudited) | |||
December 31, | December 31, | ||
2014 | 2013 | ||
Current assets: | |||
Cash (including restricted cash) | $ 42,531 | $ 19,729 | |
Accounts receivable, net | 51,300 | 61,895 | |
Inventory | 5,686 | 5,851 | |
Prepaid expenses | 3,690 | 4,803 | |
Deferred income taxes | 1,131 | 1,915 | |
Other current assets | 11,110 | 12,506 | |
Total current assets | 115,448 | 106,699 | |
Property and equipment, net | 4,079 | 4,739 | |
Purchased and developed software, net | 14,585 | 15,906 | |
Other intangible assets, net | 17,956 | 26,200 | |
Goodwill | 214,374 | 214,374 | |
Deferred income taxes | 5,396 | 6,979 | |
Other assets | 2,499 | 7,184 | |
Total assets | $ 374,337 | $ 382,081 | |
Current liabilities: | |||
Accounts payable | $ 21,072 | $ 22,072 | |
Current maturities of long-term debt | 11,750 | 2,490 | |
Accrued wages | 11,169 | 5,559 | |
Restructuring accrual | -- | 1,301 | |
Other current liabilities | 4,996 | 8,205 | |
Deferred revenue | 53,184 | 55,183 | |
Total current liabilities | 102,171 | 94,810 | |
Long-term debt, less current maturities, net of unamortized discount | 213,676 | 233,942 | |
Deferred income taxes | 4,025 | 4,065 | |
Deferred revenue | 1,091 | 378 | |
Income taxes payable | 1,109 | 1,399 | |
Other liabilities | 1,664 | 2,227 | |
Total liabilities | 323,736 | 336,821 | |
Total Merge shareholders' equity | 50,115 | 44,813 | |
Noncontrolling interest | 486 | 447 | |
Total shareholders' equity | 50,601 | 45,260 | |
Total liabilities and shareholders' equity | $ 374,337 | $ 382,081 |
MERGE HEALTHCARE INCORPORATED AND SUBSIDIARIES | ||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
(in thousands, except for share and per share data) | ||||
(unaudited) | ||||
Three Months Ended | Year Ended | |||
December 31, | December 31, | |||
2014 | 2013 | 2014 | 2013 | |
Net sales | ||||
Software and other | $ 19,441 | $ 17,768 | $ 71,084 | $ 78,575 |
Professional services | 8,299 | 9,708 | 38,033 | 43,830 |
Maintenance and EDI | 25,865 | 26,119 | 103,187 | 109,262 |
Total net sales | 53,605 | 53,595 | 212,304 | 231,667 |
Cost of sales | ||||
Software and other | 8,183 | 8,706 | 30,433 | 41,813 |
Professional services | 6,189 | 5,939 | 25,092 | 25,114 |
Maintenance and EDI | 6,776 | 6,661 | 27,744 | 28,989 |
Depreciation and amortization | 1,708 | 1,555 | 7,475 | 6,980 |
Total cost of sales | 22,856 | 22,861 | 90,744 | 102,896 |
Gross margin | 30,749 | 30,734 | 121,560 | 128,771 |
Operating costs and expenses: | ||||
Sales and marketing | 8,135 | 7,603 | 31,991 | 36,585 |
Product research and development | 6,971 | 7,400 | 28,434 | 32,388 |
General and administrative | 7,098 | 9,122 | 27,144 | 34,689 |
Acquisition-related expenses | 205 | 306 | 232 | 906 |
Restructuring and other expenses | -- | -- | -- | 3,856 |
Depreciation and amortization | 2,142 | 2,641 | 10,131 | 10,540 |
Total operating costs and expenses | 24,551 | 27,072 | 97,932 | 118,964 |
Operating income | 6,198 | 3,662 | 23,628 | 9,807 |
Loss on debt extinguishment | -- | -- | (4,821) | (23,822) |
Other expense, net | (3,963) | (4,287) | (16,918) | (22,079) |
Income (loss) before income taxes | 2,235 | (625) | 1,889 | (36,094) |
Income tax expense (benefit) | 755 | (360) | 2,297 | 2,889 |
Net income (loss) | 1,480 | (265) | (408) | (38,983) |
Less: noncontrolling interest's share | 5 | 25 | 39 | (3) |
Net income (loss) available to common shareholders | $ 1,475 | $ (290) | $ (447) | $ (38,980) |
Net income (loss) per share - basic | $ 0.02 | $ (0.00) | $ (0.00) | $ (0.42) |
Weighted average number of common | ||||
shares outstanding - basic | 96,058,569 | 94,394,867 | 95,439,676 | 93,727,394 |
Net income (loss) per share - diluted | $ 0.02 | $ (0.00) | $ (0.00) | $ (0.42) |
Weighted average number of common | ||||
shares outstanding - diluted | 97,866,141 | 94,394,867 | 95,439,676 | 93,727,394 |
MERGE HEALTHCARE INCORPORATED AND SUBSIDIARIES | |||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||
(in thousands) | |||
(unaudited) | |||
Year Ended | |||
December 31, | |||
2014 | 2013 | ||
Cash flows from operating activities: | |||
Net loss | $ (408) | $ (38,983) | |
Adjustments to reconcile net loss to net cash provided by | |||
operating activities: | |||
Depreciation and amortization | 17,606 | 17,520 | |
Share-based compensation | 5,169 | 4,839 | |
Amortization of term loan and note payable issuance costs & discount | 1,129 | 1,649 | |
Loss on extinguishment of debt | 4,821 | 23,822 | |
Provision for doubtful accounts receivable and allowances, net of recoveries | 200 | 693 | |
Deferred income taxes | 2,113 | 2,301 | |
Realized and unrealized loss on equity security | -- | 745 | |
Loss on acquisition settlement | -- | 1,345 | |
Stock issued for lawsuit settlement | -- | 885 | |
Gain on lawsuit settlement | -- | (2,500) | |
Net change in assets and liabilities (net of effects of acquisitions) | 11,957 | 8,965 | |
Net cash provided by operating activities | 42,587 | 21,281 | |
Cash flows from investing activities: | |||
Purchases of property, equipment and leasehold improvements | (1,844) | (2,239) | |
Purchased technology and capitalized software development | (4,242) | (535) | |
Proceeds from sale of equity investment | -- | 1,785 | |
Change in restricted cash | 183 | 422 | |
Net cash used in investing activities | (5,903) | (567) | |
Cash flows from financing activities: | |||
Proceeds from debt issuance | 231,251 | 252,450 | |
Retirement of debt | (230,133) | (252,000) | |
Penalty for early extinguishment of debt | -- | (16,863) | |
Note issuance costs paid | (250) | (4,588) | |
Principal payments on notes | (14,467) | (16,286) | |
Principal payments on capital leases | (680) | (535) | |
Proceeds from exercise of stock options and employee stock purchase plan | 1,217 | 1,489 | |
Repurchase and retirement of common stock | (541) | -- | |
Net cash used in financing activities | (13,603) | (36,333) | |
Effect of exchange rate changes on cash | (96) | (106) | |
Net increase (decrease) in cash and cash equivalents | 22,985 | (15,725) | |
Cash and cash equivalents, beginning of period (net of restricted cash) | (1) | 19,337 | 35,062 |
Cash and cash equivalents, end of period (net of restricted cash) | (2) | $ 42,322 | $ 19,337 |
(1) Restricted cash of $392 and $813 as of December 31, 2013 and 2012, respectively. | |||
(2) Restricted cash of $209 and $392 as of December 31, 2014 and 2013, respectively. |
MERGE HEALTHCARE INCORPORATED AND SUBSIDIARIES | ||||
RECONCILIATION OF NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS TO NON-GAAP ADJUSTED EBITDA | ||||
(in thousands, except for share and per share data) | ||||
(unaudited) | ||||
Three Months Ended | Year Ended | |||
December 31, | December 31, | |||
2014 | 2013 | 2014 | 2013 | |
Net income (loss) available to common shareholders of Merge | $ 1,475 | $ (290) | $ (447) | $ (38,980) |
Acquisition-related costs | 205 | 306 | 232 | 906 |
Debt extinguishment costs | -- | -- | 4,821 | 23,822 |
Restructuring and other | -- | -- | -- | 3,856 |
Share-based compensation expense | 1,348 | 647 | 5,169 | 4,645 |
Amortization of significant acquisition intangibles | 2,247 | 2,506 | 8,989 | 10,026 |
Acquisition-related sales adjustments | 110 | 277 | 719 | 1,432 |
Acquisition-related cost of sales adjustments | (14) | (61) | (133) | (215) |
Adjusted net income | 5,371 | 3,385 | 19,350 | 5,492 |
Depreciation and amortization | 1,603 | 1,690 | 8,617 | 7,494 |
Net interest expense | 4,391 | 4,291 | 17,181 | 21,248 |
Income tax expense (benefit) | 755 | (360) | 2,297 | 2,889 |
Adjusted EBITDA | $ 12,120 | $ 9,006 | $ 47,445 | $ 37,123 |
Adjusted net income per share - diluted | $ 0.05 | $ 0.04 | $ 0.20 | $ 0.06 |
Adjusted EBITDA per share - diluted | $ 0.12 | $ 0.09 | $ 0.49 | $ 0.39 |
Fully diluted shares (if net income) | 97,866,141 | 95,643,567 | 96,840,546 | 95,463,373 |