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